Content EG A/S ANNUAL REPORT

Transcription

1 EG A/S Annual report 2015 EG CVR

2 Content Management s review 3 Financial highlights of the EG group 5 Annual review 7 Profit for the year Organisation and corporate governance 9 Corporate governance 10 CSR Risk management 11 Risk management Board of directors and executive board 13 Managerial posts held by members of the board of directors and the executive board Endorsements 16 Management s statement 17 The independent auditor s report Consolidated financial statements 18 Statement of comprehensive income 19 Balance sheet 21 Statement of changes in equity 22 Cash flow statement 24 Notes Accounting policies 44 Accounting policies 51 Definitions Group information 52 Group structure EG A/S ANNUAL REPORT

3 Financial highlights of the EG group DKK million Income statement Revenue 1, , , , ,839.8 Gross profit , , , ,443.4 EBITDA, operating profit before depreciation and amortisation Operating depreciation and amortisation EBITA, operating profit Depreciation, amortisation Income from divested activities EBIT, operating profit Net financials Tax on profit for the year ATP, net profit for the year Normalisations Acquisition and sale of activities/companies Restructuring expenses etc. *1) Integration expenses, acquired companies *1) Foreign currency translation adjustments Amortisation in connection with acquisitions Purchase price adjustments related to the sale of EG Tax on normalisations Normalised post-tax profit Normalised EBITDA Normalised EBITA *1) Based on internal reporting Revenue and growth EBITA and margin (normalised) 2,000 1, % 30.0 % % 1,600 1,400 1,200 1, % 20.0 % 15.0 % 10.0 % % 10.0 % 8.0 % % 0.0 % -5.0 % % % 4.0 % 2.0 % % % Revenue in DKK million Revenue change Normalised EBITA, operating profit in DKK million EBITA as a percentage of revenue, normalised EG A/S ANNUAL REPORT 3 Management s review Financial highlights of the EG group

4 Financial highlights of the EG group DKK million Balance sheet Total assets 1, , , , ,245.1 Share capital Equity Net working capital Net interest-bearing debt Cash flow Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the year Investments Property, plant and equipment Group financial ratios Revenue change 30.8% 12.9% 6.8% 2.1% 12.4% EBITDA as a percentage of revenue 9.6% 9.5% 10.0% 10.9% 11.3% EBITDA as a percentage of revenue, normalised 11.3% 10.8% 12.2% 14.0% 15.7% EBITA as a percentage of revenue 8.2% 8.0% 8.0% 9.2% 8.4% EBITA as a percentage of revenue, normalised 9.8% 9.3% 10.9% 12.3% 12.9% Return on equity (ROE) 14.5% 8.4% 16.4% 10.3% 8.9% Return on equity (ROE), normalised 32.0% 26.8% 32.4% 25.8% 29.9% Equity interest 30.7% 33.5% 37.5% 32.0% 33.2% Number of employees 1,116 1,270 1,310 1,391 1,599 Cash flow from operating activities Post-tax profit and return on equity (normalised) % % % % % 25.0 % % % 15.0 % % 50.0 % % 5.0 % % % Cash flow from operating activities Cash flow from operating activities as a percentage of EBITDA Normalised post-tax profit in DKK million Return on equity (ROE), normalised EG A/S ANNUAL REPORT 4 Management s review Financial highlights of the EG group

5 Annual review Continued record growth, but further potential EG, originally a Danish ERP consultancy, is now an IT group. As a strategic player in Scandinavia, we use our extensive industry and domain knowledge to help customers in large and small private companies, municipalities and regions achieve success, increase efficiency and create value for employees, customers and citizens. We provide complete business-critical solutions across technologies. EG s progress continues with record growth once again in Total revenue came to DKK 1,839.8 million, equalling an increase of 12.4 % compared to Organic growth, driven primarily by the group s focus on meeting customer needs in a broader and wider perspective through cross-selling, was 3.8 percentage points and thus very satisfactory. However, there is significant further potential that we intend to pursue in the future. In Sweden, EG is now one of the three largest partners within the Dynamics platform. A tight market in Norway and losses on some large projects had a negative impact on earnings, and the full potential of a number of initiatives launched has not yet been realised. Despite earnings for the year (EBITDA) of DKK million, we therefore believe that there is significant further potential to increase future earnings. Focus on customer value Our size, skills and expertise enable us to meet our customers cross-disciplinary needs for process support, development and operations from analysis and implementation to maintenance and basic digital innovation, transformation and strategic use of information. With this ability comes responsibility. We will continue our efforts to increase EG s capacity for action and to provide a consistent customer experience across markets in In 2016 and onwards, we will invest significantly in products, services and people to ensure that our customers receive excellent value for money when they invest with us at the same time making it easier to do business with EG. We will increase our focus on value and benefits realisation by prioritising consistency in the quality of methods, the division of responsibilities and change management in our project implementation, and we will increasingly challenge our customers if we believe that better decisions can be made. Across EG, we will make it easier for our customers to get in touch with us, to get an overview of their accounts and to get help exactly when they need it. A valuable project should also be a positive experience. Investments in our product portfolio In 2015, we have invested in our product portfolio in three areas in particular: Industry solutions for businesses, which are regularly transferred to the latest Microsoft platforms with new modules being added based on best practice among leading companies in the relevant industries Cloud and hosting solutions on well-described terms and conditions and with broad availability Development and marketing of standard products for municipalities. In 2016, we will invest heavily in EG Digital with the aim of generating sales, customer loyalty, growth and value based on analysis and activation of customer data across digital channels. Both services and platforms will be customised and developed to make it easier for EG s industry customers to start using them and to enable them to reap the benefits sooner. The area has been booming in 2015, and we expect further acceleration in EG A/S ANNUAL REPORT 5 Management s review Annual review

6 Annual review Our subsidiary IT Minds continues to deliver impressive results, both in terms of digital innovation for our customers and in business terms. Our partnership is evolving in an increasingly positive direction, and we look forward to continued growth in Continued acquisitions EG has the structure and expertise to be among the companies that consolidate the market, and we have extensive experience in ensuring successful integrations. Acquisitions will remain part of our growth strategy. In January 2015, we acquired Medius Dynamics in Sweden, in February Strato (property management), in May NORRIQ s LS NAV business and in November Silkeborg Data. The acquisition of Silkeborg Data was completed on 30 November 2015, and profit and earnings will thus primarily be affected in The acquisition of Silkeborg Data contributes to enhancing EG s position as a strong and strategic player in the market for digital solutions for municipalities and regions a position that we will continue to invest in enhancing. Innovation and strong partnerships EG provides solutions on multiple platforms. This allows us to provide the most appropriate solutions to our customers needs without being tied to a particular technology. We have strong partnerships with a number of suppliers such as Microsoft, IBM, Infor, HP and SAP. EG is one of the largest Microsoft Dynamics AX partners in Europe and strongest in Scandinavia. For the third year in a row, EG has won a best in class award from Microsoft this time the prestigious innovation award for our cloud-based, proactive problem solver for Dynamics AX, EG Business Care. EG A/S ANNUAL REPORT 6 Management s review Annual review

7 Profit for the year Financial position 12.4 % increase in reported revenue 3.8 % increase in revenue adjusted for currency effects and acquisitions 15.9 % increase in reported EBITDA and 26.2 % increase in normalised EBITDA 3.5 % increase in reported EBITA and 18.4 % increase in normalised EBITA. In 2015, the group generated total revenue of DKK 1,839.8 million, which is an increase of 12.4 %. The increase in revenue was boosted by acquisitions. Organic growth adjusted for changes in exchange rates and acquisitions was 3.8 %. EG s increased focus on the sale of cloud solutions, service agreements, software and consultancy rather than hardware sales in recent years has contributed to a continuing increase in the gross margin. Since 2010, the company s gross margin has risen from 72.9 % to 78.5 % in With earnings (EBITDA) of DKK million, EG achieved the best result in the company s more than 30-year history and earnings growth of 15.9 % compared to Normalised EBITDA adjusted for acquisition-related costs, restructuring costs and normalisation of acquired companies to which a 12-month period of ownership does not apply totalled DKK million (DKK million) in 2015, equalling an increase of 26.2 %. Revenue Group revenue came to DKK 1,839.8 million (DKK 1,636.2 million), equalling an increase of 12.4 %. The increase in revenue from 2014 to 2015 was boosted by the acquisitions of Tacticus AB, EMAR A/S, IT Minds A/S and Team Online A/S in the middle of 2014 and the acquisition of Medius AB in January Silkeborg Data A/S was acquired on 30 November 2015 and is only included in reported revenue and profit for one month. Excluding hardware sales, EG had an increase in revenue of 13.5 %. The EG Industry Solutions division, which provides industry solutions based on AX, NAV, ASPECT4, M3 and SAP to production and logistics customers, recorded revenue of DKK million in 2015 compared to DKK million in This is partly a result of the acquisitions of Tacticus AB and Medius AB and of organic growth. The EG Business Ready Solutions division, which provides proprietary industry solutions to selected customer groups and SaaS solutions, recorded revenue of DKK million in 2015 compared to DKK million in This is a result of acquisitions and organic growth. The EG Citizen Solutions division, which provides IT and efficiency solutions to the Danish government and municipalities and IT solutions and services to utility companies in the Nordic countries, recorded revenue of DKK million in 2015 compared to DKK million in This is a result of organic growth and acquisitions. The EG Business Application Services division, which provides operational services, infrastructure solutions, business intelligence, etc. to the customers of the EG group, recorded revenue of DKK million in 2015 compared to DKK million in This is a result of positive organic growth driven by cross-selling to the EG group s existing customers. Gross profit The group s gross profit has increased from DKK 1,282.4 million in 2014 to DKK 1,443.4 million in 2015, equalling an increase of 12.6 %. The positive trend in gross margin as a percentage of revenue has continued from previous years, and the gross margin amounted to 78.5 % in 2015 compared to 78.4 % in The group s increased focus on the sale of cloud solutions, service agreements, software and consultancy rather than hardware sales has contributed to a continuing increase in the gross margin in recent years. Back in 2010, EG s gross margin was 72.9 %. Earnings performance, EBITDA The EG group s reported EBITDA for 2015 amounts to DKK million compared to DKK million for the same period in 2014, equalling an increase of 15.9 %. The increase in EBITDA is a result of improved profitability of the existing business, but acquisitions have also contributed positively. Normalised EBITDA amounted to DKK million (DKK million) in 2015, equalling an increase of 26.2 %. Earnings performance, EBITA The EG group s EBITA for 2015 amounts to DKK million compared to DKK million for the same period in 2014, equalling an increase of 3.5 %. The increase in EBITA is a result of improved profitability of the existing business, but acquisitions have also contributed positively. Normalised EBITA amounted to DKK million (DKK million) in 2015, equalling an increase of 18.4 %. EG A/S ANNUAL REPORT 7 Management s review Profit for the year

8 Profit for the year Earnings performance, EBIT The EG group realised an EBIT of DKK 98.3 million in 2015 compared to DKK million in Tax on profit for the year Tax on profit for the year comprises current tax of DKK 17.0 million, adjustment of tax for previous years of DKK -2.1 million and changes in deferred tax of DKK -6.2 million. Tax on profit for the year thus amounts to DKK 12.2 million (DKK 27.5 million). The tax rate is 20.9 % (36.2 %). Post-tax profit The EG group s post-tax profit amounted to DKK 46.4 million in 2015 compared to DKK 48.4 million in The decline compared to 2014 is due to increased amortisation in connection with acquisitions and higher financial costs relating to acquisitions of companies whose earnings have not yet been included for a 12-month period. Normalised post-tax profit is the post-tax profit for the year adjusted for extraordinary items that cannot be attributed to continuing operating activities, including disposal of activities, restructuring costs, costs related to the integration of acquired companies and amortisation related to acquisitions. Normalised post-tax profit amounted to DKK million in 2015 compared to DKK million in The management considers the results for the year to be satisfactory. Cash flows Cash flows from operating activities amount to DKK million (DKK million), which comprises cash flows from operating activities before financial items of DKK million less interest paid of DKK 49.7 million and corporation tax paid of DKK 11.8 million. The working capital amounts to 14.1 % (11.3 %) of the revenue. The increase is due to a major project and acquisitions. Through a continuous tightening of the business model, EG has ensured that an increasing share of the operating profit is converted into free cash flow which can be used for the acquisition of relevant companies or for debt reduction. Acquisitions made in 2015 were primarily financed from the company s free cash flow except for the acquisition of Silkeborg Data, which was financed by a bank loan. Cash flows from investing activities amounted to DKK million. Investments in intangible assets amounted to DKK 62.4 million, and investments in property, plant and equipment amounted to DKK 25.0 million. The company s investments in intangible assets mainly include software and solutions that will contribute to increasing the company s future recurring revenue and earnings. Cash flows from financing activities amounted to DKK 52.4 million compared to DKK -5.6 million in Net change in cash and cash equivalents amounted to DKK 78.9 million compared to DKK -8.8 million in Net working capital The working capital amounts to DKK million (DKK million). At the end of 2015, the working capital to revenue ratio was 14.1 %, which is an increase compared to 2014 when the working capital to revenue ratio was 11.3 %, but an improvement compared to 2008 when the working capital to revenue ratio was 17.6 %. The increase in working capital from 2014 to 2015 is due to a major customer project and acquisitions. Balance sheet At the end of 2015, the total consolidated balance sheet of EG A/S amounted to DKK 2,245.1 million (DKK 1,616.7 million). The improvement in the balance sheet is primarily due to an increase in goodwill and other intangible assets as a result of additions relating to the acquisition of companies. At the end of 2015, equity amounted to DKK million (DKK million). Events after the end of the financial year No significant events have occurred after the end of the financial year. Expectations EG expects continued progress in revenue and earnings in EG A/S ANNUAL REPORT 8 Management s review Profit for the year

9 Corporate governance By virtue of its ownership, the group is subject to Guidelines for responsible ownership and good corporate governance as defined by the Danish Venture Capital and Private Equity Association. The guidelines are available at DVCA s website, EG A/S intends to fully comply with the guidelines where it is relevant to EG A/S. The organisation of management tasks is, among other things, based on the Danish Companies Act, the Danish Financial Statements Act, the company s articles of association and good practice from comparable companies. Also, the management of EG A/S is continuously monitoring the development in the field of corporate governance. In this way, the management ensures that the company, internally as well as externally, is managed in a way that is in keeping with the times and in accordance with applicable law in order to protect the interests of all stakeholders. The board of directors has adopted an updated set of rules of procedure for the board of directors. In addition, the board of directors uses committees for special tasks. Thus, a chairman committee, an audit and risk committee and a remuneration committee have been set up. The following board members are represented on the individual committees: Chairman committee: Klaus Holse and Christian Bamberger Bro Audit and risk committee: Christian Bamberger Bro Remuneration committee: Klaus Holse and Christian Bamberger Bro. Board of directors The board of directors consists of a total of eight members. Two of the representatives have been appointed by the principal shareholder, three of the representatives are independent and three of the representatives have been elected by EG A/S employees. Axcel Fond IV is represented on the board by partner Christian Bamberger Bro and partner Jørgen Lindholm Lau. Board meetings are held four to five times a year. The board of directors determines the company strategy and acts as an active sparring partner to the management of the company. Chairman committee The chairman committee meets with the management of the company on a monthly basis. Audit and risk committee Audit and risk committee meetings are held four to five times a year. The work of the audit committee is described in an annual calendar which is approved by the board of directors. According to the annual calendar, the committee is responsible for monitoring the company s financial reporting and the internal control environment as well as for determining the relations and framework of the external audit. Standard procedures have been established, focusing on e.g. the updating of financial reporting standards and reviews of any items containing material accounting estimates and items of a one-time nature. The company has established a function to continuously monitor whether the company s accounting guidelines and policies are adhered to. This function reports to the audit and risk committee on an ongoing basis. Diversity EG A/S aims to promote diversity, e.g. with a fair representation of women on the board of directors as well as in the executive management group, based on a desire to strengthen the company s versatility, broaden its competences and improve its decision-making processes. All board members elected at the annual general meeting are currently men, whereas the board members elected by the employees include one woman and two men. The board of directors aims to ensure that its members complement each other in the best possible way as regards age, background, nationality, gender, etc. for the purpose of ensuring a competent and versatile contribution to the work of the board at EG A/S. These factors are taken into account when new candidates for the board of directors are identified, and the nomination of candidates will always be based on an assessment of their competences, how they match EG A/S requirements and how they will contribute to the overall efficiency of the board of directors. EG A/S objective for the coming years is to increase the share of women to approximately 20 % in the management group and to approximately 20 % on the board of directors. The share of women on EG s board of directors is 12.5 % (2014: 12.5 %) and in the management group 18 %. The share of women is 30 % of the EG group s total number of employees. To increase diversity, EG has launched the following initiatives: In 2015, we established a network group for female executives in Sweden. In EG s graduate programme, we focus on achieving a good mix of women and men. In the election of managers of the year, we focus on ensuring that both genders are represented. Ownership EG A/S is fully owned by AX IV EG Holding III ApS. AX IV EG Holding III ApS is financed by a combination of equity and loan capital. The company s equity consists of one class of shares, which is owned by AX IV EG Holding III ApS. The loan capital consists of bonded debt. The debt is deemed to be appropriate in relation to the need for financial flexibility at EG A/S. EG A/S ANNUAL REPORT 9 Organisation and corporate governance Corporate governance

10 CSR EG strives to run its business in a responsible way and wants to comply with the legislation in the countries and local communities in which the company operates. Therefore, EG has adopted a set of ethical guidelines that describe EG s responsibility towards the environment and the people who take part in the development and delivery of EG s solutions. EG has also signed the UN Global Compact on human rights, labour, environment and anti-corruption in areas that are relevant to EG as a Scandinavian company. The ability to attract talented and productive employees is paramount to EG s success. EG therefore has a strong focus on employee job satisfaction and development. We recognise that a healthy work-life balance is essential. At EG, we comply with all national legislation on occupational health and safety in areas where EG is represented, we monitor negative trends in sickness absence, we conduct employee satisfaction surveys each year, and we train our managers in ethical conduct and sustainable employee development. Also, EG does not accept child labour on a full-time basis. As a natural part of our commitment to the UN Global Compact, we have developed detailed policies for our ethical conduct in a number of areas: EG respects cultural differences and only uses suppliers who do not discriminate on the basis of race, religion, gender, age, nationality or sexual orientation. EG operates in the Scandinavian countries which have all adopted international conventions of e.g. human rights and labour rights, and in which these considerations are included in the national legislation. EG wants to focus on health and job satisfaction across the company, and both EG and our suppliers must provide a healthy and safe working environment in accordance with current legislation. Environmental considerations are an integral part of EG s business practices, and we expect the same from our suppliers. All activities are carried out with due care for the environment, and we comply with all statutory requirements in the countries in which we are represented. In addition to the statutory requirements, we seek to minimise the environmental implications of transportation between our offices by using telephone and video conference equipment to the extent possible. EG considers corruption and bribery to be barriers to sustainable development and free trade, and we do not accept this practice in any shape or form in our business. We expect the same from our suppliers. In 2011, EG introduced a central whistleblower programme that enables all employees of the group to anonymously report situations, incidents or circumstances that seem inappropriate or contrary to the group s guidelines. EG s CSR activities are described in detail on our website: EG A/S ANNUAL REPORT 10 Organisation and corporate governance CSR

11 Risk management At the EG group, risk management is considered to be an essential and natural part of the realisation of the group s objectives and strategy. The daily activities, the implementation of the established strategy and the continuous use of business opportunities involve inherent risks, and the company s handling of these risks is therefore seen as a natural and integrated part of the daily work and a way to ensure stable and reliable growth. The following sections include a non-exhaustive description of risks related to the group s activities. The risk factors are divided into commercial risks and financial risks and are listed in random order. EG s SOX controls EG s risk management and internal control procedures in connection with the company s financial reporting have been established to ensure that the financial reporting gives a fair presentation that is free from material misstatement and in accordance with current legislation, standards, other regulation and EG s standard processes. Furthermore, the process has been established to ensure that appropriate accounting policies are followed and that the accounting estimates are reasonable in the circumstances. EG has a process in which the strength of key controls is evaluated and reported to the audit committee. This results in increased transparency and consistency in the internal control environment. In some entities, not all key controls have been implemented as the entities have not yet adopted EG s standard processes. Compensatory controls have been established or are in the process of being established to the extent possible. Commercial risks EG provides IT consultancy services and programming, software, operational and service agreements and, to a lesser extent, hardware. EG is dependent on the ability to retain and attract employees with special skills and experience in order to achieve its business goals. As regards consultancy services and programming, EG is very dependent on the invoicing rate of its employees defined as the proportion of the employees time spent on services that can be invoiced. The invoicing rate of all employees depends on the composition of employees and on how each employee spends his/her time. Consequently, EG has a major focus on this area. A change in the invoicing rate of 1 percentage point across the EG group will result in an increase in the gross profit and thus in EBITDA of DKK 18 million. EG seeks to improve how each employee spends his/her time by reducing absence due to sickness and employee turnover. EG s long-standing efforts to reduce the sickness rate as much as possible include a health care programme. The group s sickness rate is currently 2.1 %. EG maintains a continuous focus on employee well-being and satisfaction. In order to further support the professionalisation in this area, EG adopted Ennova s European Employee Index in In EG A/S ANNUAL REPORT 11 Risk management Risk management

12 Risk management addition to an impressive score of more than 5 % above the IT industry benchmark, the method has provided EG with comprehensive and detailed data for analysis that will enable us to prioritise our efforts. EG s single largest expense is salaries. Almost all of EG s employees are salaried employees. Consequently, reducing the majority of EG s expenses is not possible in the short term. EG employs two measures to reduce this uncertainty. Firstly, a large part of EG s income should come from fixed agreements with a notice period equal to the notice period applicable to salaried employees. At present, approximately 35 % of the group s gross profit derives from this type of agreement. Secondly, EG uses its pipeline and order book systems to assess its future staffing requirements and seeks to match these requirements through reorganisation, continuing education and adjustments whenever possible. Another risk parameter is uncertainty in connection with large contracts. EG uses project reviews and preliminary analyses to ensure that the correct pricing is applied when fixedprice contracts are entered into. EG has established a PMO (project management office). Its primary purpose is to improve project execution at EG, to provide a consistent governance structure for EG s projects and to standardise project management policies, processes and methods across EG. The PMO provides guidance, documentation and measurements in relation to best practice for portfolio and project management at EG, and its project management principles, practices and processes are based on standard methods from IPMA (International Project Management Association). The project risk factors and how they can be mitigated in the best possible way for EG and for our customers is a priority area for the PMO. The risk factors are evaluated during the sales phase when the project is signed off for delivery and in relation to milestones for monitoring project progress in a number of areas such as strategic and financial parameters and quality and delivery parameters (inspired by the internationally recognised COSO risk management model). EG s future success and continuing growth depend on our ability to continuously improve existing solutions and to develop new solutions and products based on the latest technologies and our customers needs. Our assessment is that EG s current development efforts and acquisition strategy will enable the company to maintain its leading position in the market. The company s financial results depend on the level of activity, the economic development and the developments in pay levels in the Scandinavian market. IT risks EG uses IT to a significant extent and is vulnerable to interruptions of operation and breaches of the established security. EG constantly seeks to improve its IT security in order to ensure that a high level of security is maintained at all times. Financial risks Being owned by AX IV EG Holding III ApS, EG A/S is exposed to the same risks as AX IV EG Holding III ApS. For a detailed description, please refer to the financial statements of AX IV EG Holding III ApS. Interest rate risks EG s liquidity is placed in bank deposits with a maturity of less than three months. EG A/S interest expenses are variable and settled in DKK. Currency risks EG s revenue is primarily denominated in DKK, but as a result of acquisitions in Norway and Sweden, the exposure to NOK and SEK is increasing. EG is exposed to currency risks at three levels. Firstly, exchange rate fluctuations related to the translation of the results of foreign subsidiaries at the balance sheet date constitute a risk. The company does not hedge this type of risk. Consequently, the group may be affected in the short term by exchange rate fluctuations related to the translation of the results of subsidiaries into DKK. Secondly, the current cash flow involves a risk. The company does not hedge currency risks associated with the cash flow. Finally, currency risks are associated with the translation of intercompany balances in foreign currency at the balance sheet date. Value adjustments related to this type of translation are not hedged. Intangible assets Goodwill is allocated to the group s cash-generating units (CGUs). The parameter for impairment tests is the development in earnings. At least once a year, an impairment test of the carrying amount of intangible assets is performed based on the expected earnings of the cash-generating unit in question for the coming year. Insurance risks EG takes out statutory insurance and any other insurance considered to be relevant. EG regularly reviews its insurance cover with an insurance expert. Investments and acquisitions EG s strategy includes regular assessments of potential company acquisitions and new software investments. Major acquisitions and investments in software development involve a number of risks related to the investment process and the subsequent integration into EG s organisation. These risks are assessed and hedged in the best possible way. EG A/S ANNUAL REPORT 12 Risk management Risk management

13 Managerial posts held by members of the board of directors and the executive board BOARD OF DIRECTORS CEO of SimCorp A/S Chairman of the board of AX IV EG Holding III ApS Member of the board of The Scandinavian A/S Chairman of the board of Delegate A/S Member of the board of the Copenhagen Industries Employers Federation Klaus Holse chairman Partner at Axcel Management A/S Vice chairman of the board of AX IV EG Holding III ApS Vice chairman of the board of Conscia Holding A/S Christian Bamberger Bro vice chairman EG A/S ANNUAL REPORT 13 Board of directors and executive board Managerial posts held by members of the board of directors and the executive board

14 Managerial posts held by members of the board of directors and the executive board BOARD OF DIRECTORS Partner at Axcel Management A/S Vice chairman of the board of Ball ApS Member of the board of Esko-Graphics A/S Member of the board of AX IV EG Holding III ApS Jørgen Lindholm Lau CEO of Broadnet AS Member of the board of AX IV EG Holding III ApS Member of the board of Halberg Holding A/S Martin Lippert Jørgen Bardenfleth Chairman of the board of DHI Group Chairman of the board of Symbion A/S Chairman of the board of Adactit Aps Chairman of the board of Arkitema A/S Chairman of the board of Dubex A/S Member of the board of AX IV EG Holding III ApS Member of the board of Athena IT Group A/S Member of the board of Minerva A/S Member of the board of Vallø Stift Vice chairman of the board of the Symbion Foundation Chairman of the board of Accelerace Fonden Chairman of the board of Accelerace Management A/S Member of the board of Nordic Power Converter EG A/S ANNUAL REPORT 14 Board of directors and executive board Managerial posts held by members of the board of directors and the executive board

15 Managerial posts held by members of the board of directors and the executive board BOARD MEMBERS ELECTED BY THE EMPLOYEES THE EXECUTIVE BOARD Charlotte Kronborg Bennetsen Financial manager at EG A/S Leif Vestergaard CEO Chairman of the board of DI Digital Chairman of the business panel for DI s digitisation initiative Kristian Buur No directorships or managerial posts outside of EG. Peter Andres Høiland No directorships or managerial posts outside of EG. Managerial posts in subsidiaries that are fully owned by EG A/S are not included in this list. EG A/S ANNUAL REPORT 15 Board of directors and executive board Managerial posts held by members of the board of directors and the executive board

16 Management s statement Today, the board of directors and the executive board have discussed and approved the annual report of EG A/S for the financial year 1 January 31 December The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. In addition, the annual report has been prepared in accordance with additional Danish disclosure requirements. In our opinion, the consolidated financial statements and the financial statements give a true and fair view of the assets, liabilities and financial position of the group and the company as at 31 December 2015 as well as of the results of the operations and the cash flows of the group and the company for In our opinion, the management s review includes a true and fair account of the development in the operations and financial circumstances of the group and the company, of the results for the year and of the financial position of the group and the company as well as a description of the most significant risks and elements of uncertainty faced by the group and the company. Herning, 18 March 2016 Executive board Leif Vestergaard CEO Board of directors Klaus Holse Chairman Jørgen Lindholm Lau Christian Bamberger Bro Vice chairman Martin Lippert We recommend that the annual report be approved by the annual general meeting. Jørgen Bardenfleth Peter Andres Høiland Charlotte Kronborg Bennetsen Kristian Buur EG A/S ANNUAL REPORT 16 Endorsements Management s statement

17 The independent auditor s report To the shareholders of EG A/S Report on the consolidated financial statements and the financial statements We have audited the consolidated financial statements and the financial statements of EG A/S for the financial year 1 January 31 December 2015 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity, the cash flow statement and notes comprising a statement of accounting policies for the group and the company. The consolidated financial statements and the financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and additional disclosure requirements under the Danish Financial Statements Act. Management s responsibility for the consolidated financial statements and the financial statements Management is responsible for the preparation of consolidated financial statements and financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and additional disclosure requirements under the Danish Financial Statements Act. Management is also responsible for such internal control as it determines is necessary to enable the preparation of consolidated financial statements and financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the consolidated financial statements and the financial statements based on our audit. We conducted our audit in accordance with international auditing standards and additional requirements under Danish audit regulations. This requires that we comply with ethical requirements and plan and perform our audit in order to obtain reasonable assurance about whether the consolidated financial statements and the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements and the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the consolidated financial statements and the financial statements 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 company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit did not give rise to qualifications. Opinion In our opinion, the consolidated financial statements and the financial statements give a true and fair view of the assets, liabilities and financial position of the group and the company as at 31 December 2015 as well as of the results of the operations and the cash flows of the group and the company for the financial year 1 January 31 December 2015 in accordance with International Financial Reporting Standards as adopted by the European Union and additional disclosure requirements under the Danish Financial Statements Act. Statement on the management s review Pursuant to the Danish Financial Statements Act, we have read the management s review. We have not performed any other procedures in addition to the audit of the consolidated financial statements and the financial statements. On this basis, it is our opinion that the information provided in the management s review is consistent with the consolidated financial statements and the financial statements. Herning, 18 March 2016 PricewaterhouseCoopers State-authorised limited partnership company of accountants Claus Lindholm Jacobsen State-authorised public accountant Henrik Berring Rasmussen State-authorised public accountant EG A/S ANNUAL REPORT 17 Endorsements The independent auditor s report

18 Statement of comprehensive income Group Parent company Note DKK million Revenue 1, , , Cost of sales Gross profit 1, , Staff costs 1, Other external costs Other operating income EBITDA, operating profit before depreciation and amortisation Operating depreciation and amortisation EBITA, operating profit Depreciation, amortisation EBIT, operating profit Dividends Net reversal of impairment losses on equity investments Other financial income Other financial expenses PTP, pre-tax profit Tax on profit for the year ATP, net profit for the year Other comprehensive income Recirculation upon realisation Foreign currency translation adjustment, foreign subsidiaries Interest rate swap adjustments Total comprehensive income for the year Proposal for distribution: Transferred from/(to) retained earnings Allocated total comprehensive income EG A/S ANNUAL REPORT 18 Consolidated financial statements Statement of comprehensive income

19 Balance sheet assets Group Parent company Note DKK million ASSETS 7 Goodwill Other intangible assets Licensing rights Completed development projects Development projects in progress Intangible assets 1, , Land, buildings, etc Leasehold improvements Technical equipment, computers, etc Tools and equipment etc Vehicles Property, plant and equipment Shares in subsidiaries Equity investments in associates Financial assets Non-current assets 1, , , , Goods for resale Trade receivables Contract work in progress Receivables from parent/group companies Other receivables Prepayments and accrued income Receivables Securities Cash Current assets Assets 2, , , ,442.1 EG A/S ANNUAL REPORT 19 Consolidated financial statements Balance sheet

20 Balance sheet equity and liabilities Group Parent company Note DKK million EQUITY AND LIABILITIES 22 Share capital Hedge accounting Retained earnings Equity Deferred tax Debt to banks Non-current liabilities Debt to banks Employee bonds Interest-bearing current liabilities Prepayments from customers Trade payables Amounts owed to parent/group companies Income tax Other payables Accruals and deferred income Non-interest-bearing current liabilities 1, Current liabilities 1, Liabilities 1, , , Equity and liabilities 2, , , , Contingent liabilities and other financial liabilities 28 Related parties 29 Fee to auditors appointed by the general meeting 30 Financial instruments 31 Incentive programmes 32 Acquisitions EG A/S ANNUAL REPORT 20 Consolidated financial statements Balance sheet

21 Statement of changes in equity Group Share Hedge Retained Proposed DKK million capital accounting earnings dividend Total Equity as at 1 January Total comprehensive income for the year Warrant adjustments Equity as at 31 December Total comprehensive income for the year Warrant adjustments Non-cash contribution of shares Equity as at 31 December A non-cash contribution of 100 % of the shares in AX IV SD Holding ApS was made during the financial year. Parent company Share Hedge Retained Proposed DKK million capital accounting earnings dividend Total Equity as at 1 January Total comprehensive income for the year Warrant adjustments Equity as at 31 December Total comprehensive income for the year Warrant adjustments Non-cash contribution of shares Equity as at 31 December In the retained profit, the following items are included which are not available as dividend: 1 Jan. Change 31 Dec. Change 31 Dec. DKK million Market value adjustment A non-cash contribution of 100 % of the shares in AX IV SD Holding ApS was made during the financial year. EG A/S ANNUAL REPORT 21 Consolidated financial statements Statement of changes in equity

22 Cash flow statement Group Parent company Spec. DKK million Cash flows from operating activities EBIT, operating profit Depreciation and amortisation Profit/loss on sale of assets Market value adjustments etc Changes in inventories Changes in receivables Changes in short-term debt Cash flows from operating activities before financial items Interest received etc Interest paid etc Cash flows from ordinary activities Income tax paid Cash flows from operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Sale of property, plant and equipment Sale of securities Acquisition of activities and equity investments Dividends Cash flows from investing activities Cash flows from financing activities Repayment of long-term debt Raising of long-term bank loans Cash flows from financing activities Change in liquidity for the year Cash as at 1 January Cash as at 31 December, net EG A/S ANNUAL REPORT 22 Consolidated financial statements Cash flow statement

23 Cash flow statement Group Parent company Spec. DKK million Acquisition of activities and equity investments Intangible assets Property, plant and equipment Inventories Receivables Deferred tax Income tax Long-term debt Short-term debt Total acquisition cost Shares in subsidiaries Non-cash contribution of shares Acquisition of activities and equity investments Cash Cash acquisition cost The operational effect is stated in note 7. 2 Cash as at 31 December, reconciliation to balance sheet Cash cf. balance sheet Debt to banks cf. balance sheet (short-term) Cash as at 31 December, net EG A/S ANNUAL REPORT 23 Consolidated financial statements Cash flow statement

24 Notes Group Parent company Note DKK million Revenue Sale of goods Service 1, , Revenue 1, , , Of the revenue, construction contracts amount to Staff costs Number of employees (average) 1,599 1, Total staff costs Salaries and wages Pensions Other social security costs Staff costs 1, Remuneration to the board of directors and the executive board Board of directors, salaries and wages Executive board, salaries and wages Executive board, pensions Executive board, share-based compensation Board of directors and executive board The executive board has an extended term of notice of six months, including severance pay for two to six months. The group only uses defined-contribution pension plans. The board of directors and the executive board constitute key management personnel. 3 Depreciation, amortisation and impairment losses Development projects Land, buildings, etc Leasehold improvements Technical equipment, computers, etc Tools and equipment etc Vehicles Other Operating depreciation and amortisation Impairment of goodwill Depreciation, amortisation Depreciation, amortisation and impairment losses EG A/S ANNUAL REPORT 24 Consolidated financial statements Notes

25 Notes Group Parent company Note DKK million Other financial income Interest income from group enterprises Interest income from banks Market value adjustments Other interest income Other financial income Other financial expenses Interest expenses for group enterprises Interest expenses for banks Market value adjustments Other interest expenses Other financial expenses Tax on profit for the year Tax on profit for the year Tax adjustment, previous years Adjustment of deferred tax Tax on profit for the year Effective tax rate Danish corporation tax rate Permanent items Change in deferred tax due to changes in tax rates Difference in tax rates in Denmark and abroad Difference in tax rates, eliminations Tax adjustment, previous years Effective tax rate EG A/S ANNUAL REPORT 25 Consolidated financial statements Notes

26 Notes Group Parent company Note DKK million Goodwill Cost as at 1 January Additions relating to business combinations Additions at cost Adjustments Market value adjustments Cost as at 31 December Impairment losses as at 1 January Additions relating to business combinations Impairment losses for the year Adjustments Market value adjustments Impairment losses as at 31 December Carrying amount as at 31 December Goodwill is the only intangible asset with indeterminable lifetime. At least once annually, goodwill is tested for impairment losses of the carrying amount. The impairment test is carried out on the segment that represents the lowest level of cash-generating units (CGUs) to which goodwill can be attributed with reasonable accuracy. In case of acquired activities and companies that are integrated into one or more EG divisions, impairment testing of each acquisition is not possible. The impairment test of goodwill has not resulted in any impairment losses. Cash flows have been estimated based on a 12-month budget period and a forecast for the next 48 months. The terminal value growth rate used was 0 %. An impairment charge of DKK 5 million was recognised in 2014 as a CGU failed the impairment test. The value of intangible assets is evaluated each year based on the expected performance of the relevant CGU in future years. If the value of the CGU exceeds the carrying amount of the assets significantly, these are maintained. Alternatively, detailed budgets and business plans are reviewed for the following years, and the value of the CGU is calculated based on the present value of future cash flows. For the calculation, the group's discount rate is applied, which is based on the applicable borrowing rate and its expected development, as well as the return on equity requirement, which is determined based on the risk profile. At present, the applied borrowing rate after tax is 11.5 %. Impairment tests included the CGUs EG Industry Solutions, EG Business Ready Solutions, EG Citizen Solutions and EG Business Application Services. EG's total goodwill is derived from the CGUs as follows: EG Industry Solutions EG Business Ready Solutions EG Citizen Solutions EG Business Application Services Total revenue and EBITA from the acquisitions of the year have contributed revenue of DKK 77.0 million and EBITDA of DKK 7.1 million. Over a 12-month period of ownership, the companies acquired in 2015 would have contributed revenue of DKK million and EBITDA of DKK 44.1 million. EG A/S ANNUAL REPORT 26 Consolidated financial statements Notes

27 Notes Group Parent company Note DKK million Other intangible assets Order backlog Cost as at 1 January Additions relating to business combinations Cost as at 31 December Amortisation and impairment losses as at 1 January Amortisation for the year Amortisation and impairment losses as at 31 December Carrying amount as at 31 December Customer relationships Cost as at 1 January Additions relating to business combinations Additions at cost Market value adjustments Cost as at 31 December Amortisation and impairment losses as at 1 January Amortisation for the year Market value adjustments Amortisation and impairment losses as at 31 December Carrying amount as at 31 December The additions of order backlogs and customer relationships in 2015 are primarily attributable to the acquisition of AX IV SD Holding ApS (Silkeborg Data). EG A/S ANNUAL REPORT 27 Consolidated financial statements Notes

28 Notes Group Parent company Note DKK million Other intangible assets continued Trademarks Cost as at 1 January Additions relating to business combinations Cost as at 31 December Amortisation and impairment losses as at 1 January Amortisation for the year Amortisation and impairment losses as at 31 December Carrying amount as at 31 December Other intangible assets Cost as at 1 January Cost as at 31 December Amortisation and impairment losses as at 1 January Amortisation and impairment losses as at 31 December Carrying amount as at 31 December Total carrying amount as at 31 December At least once annually, intangible assets are tested for impairment of the carrying amount. The impairment test is carried out on the segment that represents the lowest level of cash-generating units (CGUs) to which goodwill can be attributed with reasonable accuracy. In case of acquired activities and companies that are integrated into one or more EG divisions, impairment testing of each acquisition is not possible. The impairment test of intangible assets has not resulted in any impairment losses. Cash flows have been estimated based on a 12-month budget period and a forecast for the next 48 months. The terminal value growth rate used was 0 %. An impairment charge of DKK 5 million was recognised in 2014 as a CGU failed the impairment test. The value of intangible assets is evaluated each year based on the expected performance of the relevant CGU in future years. If the value of the CGU exceeds the carrying amount of the assets significantly, these are maintained. Alternatively, detailed budgets and business plans are reviewed for the following years, and the value of the CGU is calculated based on the present value of future cash flows. For the calculation, the group's discount rate is applied, which is based on the applicable borrowing rate and its expected development, as well as the return on equity requirement, which is determined based on the risk profile. At present, the applied interest rate after tax is 11.5 %. Impairment tests included the CGUs EG Industry Solutions, EG Business Ready Solutions, EG Citizen Solutions and EG Business Application Services. EG A/S ANNUAL REPORT 28 Consolidated financial statements Notes

29 Notes Group Parent company Note DKK million Licensing rights Cost as at 1 January Additions relating to business combinations Additions at cost Disposals at cost Cost as at 31 December Amortisation and impairment losses as at 1 January Additions relating to business combinations Amortisation for the year Amortisation and impairment losses, assets sold Amortisation and impairment losses as at 31 December Carrying amount as at 31 December Licensing rights consist of rights for various industry and standard solutions which have been acquired in connection with company acquisitions. 10 Completed development projects Cost as at 1 January Additions relating to business combinations Additions at cost Transferred from development projects in progress Disposals at cost Translation adjustments Cost as at 31 December Depreciation and impairment losses as at 1 January Additions relating to business combinations Depreciation for the year Depreciation and impairment losses, assets sold Translation adjustments Depreciation and impairment losses as at 31 December Carrying amount as at 31 December EG A/S ANNUAL REPORT 29 Consolidated financial statements Notes

30 Notes Group Parent company Note DKK million Development projects in progress Cost as at 1 January Additions at cost Transferred to completed development projects Translation adjustments Carrying amount as at 31 December Recognised development projects completed or in progress include the development and testing of industry solutions and the introduction of a new ERP system in the EG group. Management has performed an impairment test of the carrying amount of recognised development costs. It is estimated that the recoverable amount exceeds the carrying amount as at 31 December. Cash flows have been estimated based on a 12-month budget period and a forecast for the next 48 months. The terminal value growth rate used was 0 %. For the calculation, the group's discount rate is applied, which is based on the applicable borrowing rate and its expected development, as well as the return on equity requirement, which is determined based on the risk profile. At present, the applied interest rate after tax is 11.5 %. 12 Land, buildings, etc. Cost as at 1 January Disposals at cost Cost as at 31 December Depreciation and impairment losses as at 1 January Depreciation for the year Depreciation and impairment losses, assets sold Depreciation and impairment losses as at 31 December Carrying amount as at 31 December Leasehold improvements Cost as at 1 January Additions relating to business combinations Additions at cost Disposals at cost Market value adjustments Cost as at 31 December Depreciation and impairment losses as at 1 January Additions relating to business combinations Depreciation for the year Depreciation and impairment losses, assets sold Market value adjustments Depreciation and impairment losses as at 31 December Carrying amount as at 31 December EG A/S ANNUAL REPORT 30 Consolidated financial statements Notes

31 Notes Group Parent company Note DKK million Technical equipment, computers, etc. Cost as at 1 January Additions relating to business combinations Additions at cost Disposals at cost Translation adjustments Cost as at 31 December Depreciation and impairment losses as at 1 January Additions relating to business combinations Depreciation for the year Depreciation and impairment losses, assets sold Translation adjustments Depreciation and impairment losses as at 31 December Carrying amount as at 31 December Tools and equipment etc. Cost as at 1 January Additions relating to business combinations Additions at cost Disposals at cost Translation adjustments Cost as at 31 December Depreciation and impairment losses as at 1 January Additions relating to business combinations Depreciation for the year Depreciation and impairment losses, assets sold Translation adjustments Depreciation and impairment losses as at 31 December Carrying amount as at 31 December EG A/S ANNUAL REPORT 31 Consolidated financial statements Notes

32 Notes Group Parent company Note DKK million Vehicles Cost as at 1 January Additions relating to business combinations Additions at cost Disposals at cost Cost as at 31 December Depreciation and impairment losses as at 1 January Additions relating to business combinations Depreciation for the year Depreciation and impairment losses, assets sold Depreciation and impairment losses as at 31 December Carrying amount as at 31 December Shares in subsidiaries Cost as at 1 January Additions during the year Disposals during the year Cost as at 31 December Impairment losses as at 1 January Reversal of impairment losses recognised in previous years Impairment losses as at 31 December Carrying amount as at 31 December EG A/S ANNUAL REPORT 32 Consolidated financial statements Notes

33 Notes Group Parent company Note DKK million Equity investments in associates Cost as at 1 January Cost as at 31 December Revaluations and impairment losses as at 1 January Revaluations and impairment losses as at 31 December Carrying amount as at 31 December Equity investments are held in Florainfo ApS in Odense, Denmark. Voting share and ownership interest amount to %. 19 Goods for resale Goods for resale Impairment losses relating to goods for resale Contract work in progress Work in progress at selling price Invoicing on account for customers Contract work in progress Group: The selling price for contract work in progress includes expenses of DKK 21.9 million (2014: DKK 68.4 million). Parent company: The selling price for contract work in progress includes expenses of DKK 21.5 million (2014: DKK 59.8 million). 21 Additional receivables Deposits Other receivables Additional receivables EG A/S ANNUAL REPORT 33 Consolidated financial statements Notes

34 Notes Note DKK million Number of shares DKK Share capital 22 Share capital The share capital consists of 1 71,000, Group Parent company DKK million Deferred tax relating to the following items Intangible assets Property, plant and equipment Current assets Accruals and deferred income, equity and liabilities Retaxation balance Provisions for deferred tax Debt to banks Short-term debt Long-term debt Capitalised borrowing costs The group's debt to banks is shown net due to a cash pooling arrangement. EG A/S ANNUAL REPORT 34 Consolidated financial statements Notes

35 Notes Group Parent company Note DKK million Other payables Payable holiday pay VAT payable A tax payable Other expenses payable Other payables Accruals and deferred income Accrued customer payments Other accruals and deferred income Accruals and deferred income Contingent liabilities and other financial liabilities EG's rental obligations in the non-cancellable period expire: Within 1 year In 1-5 years After 5 years Rental obligations EG's expenses for leases and lease agreements amounted to DKK 48.7 million (2014: DKK 54.2 million) in The expenses concern rent and operating leases of company cars. The statement includes minimum payments in connection with normal use. In addition, EG is bound by the normal obligations stated in the company's terms of sale and delivery. The parent company's expenses for leases and lease agreements amounted to DKK 31.1 million (2014: DKK 40.9 million) in The company is the guarantor of loans for the group company AX IV EG Holding III ApS in accordance with the applicable regulatory rules. Bills of sale for operating equipment Amounts owed on charged assets The group's Danish companies are jointly and severally liable for tax on consolidated taxable income etc. The total amount of corporation tax payable is disclosed in the annual report of AX IV EG Holding ApS, which is the administration company for joint taxation. Furthermore, the group's Danish companies are jointly and severally liable for Danish withholding taxes on dividends, royalties and interest. Any subsequent changes to corporation taxes and withholding taxes may render the company liable for a greater amount. The company is the guarantor of loans for the group company AX IV EG Holding III ApS in accordance with the applicable regulatory rules. The company is a party to a pending case which is not expected to have a material impact on the group. EG A/S ANNUAL REPORT 35 Consolidated financial statements Notes

36 Notes Noter Group Parent company Note DKK million Related parties EG A/S has the following related parties with controlling influence AX IV EG Holding III ApS, Copenhagen, Denmark. Other related parties EG's related parties include group enterprises and associates as well as their boards of directors, executive boards and executives and the family members of these related parties. Related parties also include companies in which said persons have significant interests. The ultimate parent is AX IV EG Holding ApS, Copenhagen, Denmark. Transactions with related parties Subsidiaries hardware Subsidiaries services etc Sales to related parties Subsidiaries hardware Subsidiaries services etc Purchases from related parties Receivables from related parties amount to DKK 0.0 million (2014: 0.0 million) at the balance sheet date, while payables amount to DKK million (2014: million). Transactions are carried out on an arm's length basis. No other transactions have been carried out during the year with the boards of directors, executive boards, executives, significant shareholders or other related parties with the exception of intercompany transactions which have been eliminated in the consolidated financial statements as well as normal management's remuneration. Receivables from related parties, subsidiaries Receivables from related parties Payables from related parties, parent companies Payables from related parties, subsidiaries Payables from related parties Transactions have been carried out on an arm's length basis. Shareholders exceeding 5 % of the total share capital AX IV EG Holding III ApS, Copenhagen, Denmark % % % % 29 Fee to auditors appointed by the general meeting Total fees to auditors appointed by the general meeting: PwC Statutory audit Other assurance engagements Tax consultancy Non-auditing services Total EG A/S ANNUAL REPORT 36 Consolidated financial statements Notes

37 Notes Note DKK million 30 Financial instruments Credit risk The group is exposed to credit risk in connection with receivables and bank deposits. Cash and cash equivalents are not considered to be associated with significant credit risks as the group only works with banks with high credit ratings. The maximum credit risk corresponds to the carrying amount. The company's receivables are from public customers and private companies that pose no greater risk than that of normal credit granting. For new customers and for customers who have failed to meet their payment obligations, credit assessments are carried out. We continuously follow up on all receivables. The group has no significant risks relating to a single customer or business partner. As was the case on 31 December 2014, the group's impairment losses as at 31 December 2015 are only related to financial assets classified as trade receivables. The trade receivables balance is grouped as follows: Group Not > December 2015 payable days days days Total Trade receivables Written down Written-down value Group Not > December 2014 payable days days days Total Trade receivables Written down -6.4 Written-down value Parent company Not > December 2015 payable days days days Total Trade receivables Written down -7.7 Written-down value Parent company Not > December 2014 payable days days days Total Trade receivables Written down -4.6 Written-down value Group Group Parent company DKK million Provision for bad debts as at 1 January Adjustments at the beginning of the year/acquired on merger Depreciation Reversed provisions Additional provisions Provision for bad debts as at 31 December EG A/S ANNUAL REPORT 37 Consolidated financial statements Notes

38 Notes Note DKK million 30 Financial instruments continued An impairment test is carried out of all receivables in accordance with the company's policy on debtors. In case of uncertainty as regards a debtor's ability or intention to pay an outstanding amount, the claim is considered as being subject to risk, and an impairment is made to cover this risk. Provisions for completion of projects are not included here, but are provided for separately and deducted from work in progress. Liquidity risk EG's financial resources consist of cash and credit facilities. The terms of cash and credit facilities are continuously evaluated once a year as a minimum. Maturity overview group 31 December years 1-2 years 2-5 years > 5 years Total Debt to banks excl. borrowing costs and incl. interest Amounts owed to group enterprises Trade payables Other payables Financial liabilities ,225.5 Cash Trade receivables before provisions Contract work in progress Other receivables Financial receivables Net Maturity overview group 31 December years 1-2 years 2-5 years > 5 years Total Employee bonds Debt to banks excl. borrowing costs and incl. interest Amounts owed to group enterprises Trade payables Prepayments from customers Other payables Financial liabilities Cash Trade receivables before provisions Other receivables Financial receivables Net EG A/S ANNUAL REPORT 38 Consolidated financial statements Notes

39 Notes Note DKK million 30 Financial instruments continued Maturity overview parent company 31 December years 1-2 years 2-5 years > 5 years Total Debt to banks excl. borrowing costs and incl. interest Amounts owed to group enterprises Trade payables Other payables Financial liabilities ,199.5 Cash Trade receivables before provisions Contract work in progress Additional receivables from group enterprises Other receivables Financial receivables Net Maturity overview parent company 31 December years 1-2 years 2-5 years > 5 years Total Employee bonds Debt to banks excl. borrowing costs and incl. interest Amounts owed to group enterprises Trade payables Prepayments from customers Other payables Financial liabilities Cash Trade receivables before provisions Other receivables Financial receivables Net All cash flows are non-discounted and include liabilities under agreements entered into. EG A/S ANNUAL REPORT 39 Consolidated financial statements Notes

40 Notes Group Parent company Note DKK million Financial instruments continued Market risk Invoicing to Denmark and abroad from Danish group companies is primarily prepared in DKK. Invoicing from Swedish and Norwegian group companies is primarily prepared in SEK and NOK, respectively. The currency risk concerning receivables is considered to be immaterial. Purchase of services abroad is performed in foreign currencies, primarily EUR. The currency risk associated with the purchase of goods and services is considered immaterial. Group: In addition, EG's currency risks are comprised of receivables/(debt), cash and cash equivalents and net investments in foreign subsidiaries; NOK 67 million and SEK -15 million, respectively. EG does not employ financial agreements for hedging currency risks. Parent company: In addition, EG's currency risks are comprised of receivables/(debt), cash and cash equivalents and investments in foreign subsidiaries; NOK 10 million and SEK -24 million, respectively. EG does not employ financial agreements for hedging currency risks. Interest rate risks Portfolio of securities Bonds etc The group's interest rate risk is connected to the items below, stated with latest time of payment: Nominal Group 0-1 years 1-5 years > 5 years interest rate, % Cash Debt to banks excl. borrowing costs and incl. interest Total interest-bearing assets and payables, net Nominal Parent company 0-1 years 1-5 years > 5 years interest rate, % Cash Debt to banks excl. borrowing costs and incl. interest Total interest-bearing assets and payables, net The interest rate risk is primarily attributable to interest-bearing debt and to cash. To minimise both interest rates and risks, the group has entered into cash pooling and interest rate netting agreements with its bank. EG only has floating-rate loans that are hedged using interest rate swaps. Capital management Dividend is determined based on the requirement to always have sufficient liquidity in EG to meet potential demands and in consideration of an optimisation of the return in EG and its parent company. The fair value equals the carrying amount, with the exception of debtors where the fair value is the gross value less provisions for bad debts. EG A/S ANNUAL REPORT 40 Consolidated financial statements Notes

41 Notes Note DKK million 31 Incentive programmes To attract and retain executive board members and other executives, this group has been offered pay based on their competences, job functions and value creation as is the case in comparable companies. A group of executives has been offered a share investment programme in AX IV EG Holding ApS for the purpose of ensuring that the executive board and the shareholders share the same short-term as well as long-term interests. Furthermore, a group of executives has joined a warrant programme. The warrant programme is an equity-based scheme established in The vesting period is 1 January 2014 to 31 December Warrants granted as at 31 December 2015 comprise: 3,492,793 class A warrants and 3,800,374 class B warrants. Warrants vested as at 31 December 2015 comprise: 5,609,884 class A warrants and 6,122,809 class B warrants. The value of warrants has been calculated using the Black & Scholes formula. The value of warrants vested in 2015 amounts to DKK 0.9 million. This amount has been recognised as a cost under staff costs. The value of warrants granted as at 31 December 2015 amounts to DKK 2.9 million. The value of warrants is calculated on the following assumptions: Expected volatility: 25.6 % (based on an analysis of peer companies). Risk-free interest rate: 1.0 %. Market value at the date of issue: DKK Time to maturity at the date of issue: 5 years. Each class A warrant entitles the holder to purchase 1 share in AX IV EG Holding ApS at a nominal value of DKK 0.01 at the price of % per year. Each class B warrant entitles the holder to purchase 1 share in AX IV EG Holding ApS at a nominal value of DKK 0.01 at the price of % per year. Holders may exercise their warrants from 1 March 2019 to 1 April 2019 and from 1 March 2021 to 1 April Number of warrants outstanding/granted: 1 January 2015 Granted in 2015 Redeemed in December 2015 Class A warrants Class B warrants 1,494,056 1,976,970 2,080,127 1,864,098-81,390-40,694 3,492,793 3,800,374 EG A/S ANNUAL REPORT 41 Consolidated financial statements Notes

42 Notes Note DKK million 32 Acquisitions During the current year, the EG group obtained control of Medius Dynamics AB (Sweden) and AX IV SD Holding ApS (Denmark) and completed two acquisitions of activities. Date Type Ownership interest of of previous acquired acquisition acquisition Area Medius Dynamics AB (Sweden) 0% 100% 1 February 2015 Shares EG Industry Solutions AX IV SD Holding ApS (Denmark) 0% 100% 1 December 2015 Shares EG Citizen Solutions NORRIQ 0% 100% 1 January 2015 Activity EG Industry Solutions Strato 0% 100% 1 February 2015 Activity EG Business Ready Solutions Fair value at the date of acquisition DKK million Total additions Order backlog Customer relationships Trademarks 3.0 Licensing rights 27.5 Total intangible assets Property, plant and equipment 1.7 Trade receivables 56.6 Other current assets 33.8 Cash and securities 27.1 Liabilities other than provisions Tax payable 0.4 Deferred tax Identifiable net assets 63.3 Goodwill Non-cash contribution of shares Total purchase price 25.2 The purchase price is allocated as follows: Cash and cash equivalents Transaction costs 3.2 Over a 12-month period of ownership, the companies acquired in 2015 would have contributed revenue of DKK million and EBITDA of DKK 44.1 million. EG A/S ANNUAL REPORT 42 Consolidated financial statements Notes

43 Notes Note DKK million 32 Acquisitions continued Medius Dynamics AB Medius Dynamics AB is a separate company under the Medius group, which was founded in The company has offices in Stockholm, Eskilstuna and Linköping, Sweden, and provides IT solutions for the retail, production and professional service industries. The purpose of the acquisition is to strengthen EG's position within retail, production and professional services in Sweden. The acquired assets are customer relationships and employees with knowledge of Microsoft Dynamics AX. Customer relationships are amortised over 15 years. Employees are capitalised as goodwill. Goodwill is recognised at the amount by which the determined purchase price exceeds the identifiable net assets. The goodwill recognised is not deductible for tax purposes. AX IV SD Holding ApS AX IV SD Holding ApS is the holding company of Silkeborg Data. Silkeborg Data is based in Silkeborg, Denmark, and provides payroll and personnel administration services to 4 regions, 28 municipalities and numerous public companies and institutions in Denmark. The purpose of the acquisition is to strengthen EG's position with municipalities and regions. The acquired assets are order backlogs, customer relationships, trademarks, licensing rights and employees with knowledge of medical practitioner solutions. Customer relationships are amortised over 15 years. Licensing rights and trademarks are amortised over 5 years. Order backlogs are amortised over 3 years. Employees are capitalised as goodwill. Goodwill is recognised at the amount by which the determined purchase price exceeds the identifiable net assets. The goodwill recognised is not deductible for tax purposes. Transfer of activities NORRIQ EG A/S has acquired NORRIQ's business within ERP solutions for the retail industry. EG has taken over NORRIQ's employees and solutions and will continue to serve its customers. The purpose of the acquisition is to strengthen EG's position in the retail industry. The entire purchase price has been recognised as goodwill as the acquired assets are employees with knowledge of the retail industry. The goodwill recognised is not deductible for tax purposes. Transfer of activities Strato Strato specialises in housing administration for organisations and companies that manage a small number of residential and commercial properties, leasehold properties and freehold properties. The purpose of the acquisition is to strengthen EG's position within housing administration. The acquired assets are licensing rights, which are amortised over 5 years. No employees have been taken over. Goodwill is recognised at the amount by which the determined purchase price exceeds the identifiable net assets. The goodwill recognised is not deductible for tax purposes. EG A/S ANNUAL REPORT 43 Consolidated financial statements Notes

44 Accounting policies General information The annual report of EG A/S, which includes the financial statements of the parent company and the consolidated financial statements, has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the Danish Executive Order on Adoption of IFRSs issued pursuant to the Danish Financial Statements Act. The annual report is presented in Danish kroner (DKK), which is considered to be the primary currency of the group s activities and the functional currency of the parent company. Implementation of new and revised standards and interpretations EG A/S has assessed the effect of the new IFRS standards and interpretations. EG A/S has concluded that all applicable standards and interpretations that have come into effect for the financial year starting 1 January 2015 are either not relevant to EG A/S or do not have a material impact on the financial statements of EG A/S. The timing of income recognition Recognition of variable consideration Allocation of income in combined contracts (contracts with multiple performance obligations) Recognition of income from licensing rights Contract acquisition costs Additional disclosure requirements. The effect of this standard on the annual report of EG A/S is currently being assessed. IFRS 10/IAS 28: Contribution of assets to jointly controlled entities and associates. EG A/S anticipates that these standards and interpretations will be implemented when they come into effect. The option of recognising investments in subsidiaries in the parent s financial statements under the equity method means that value adjustments of investments at equity value will be recorded in the income statement on a continuing basis, and the parent company s equity will become equal to the equity of the consolidated financial statements. The consequences of implementing IFRS 15 are currently being assessed. The implementation of the other amendments is not expected to have a material impact on the parent s financial statements or the consolidated financial statements. Accounting standards and interpretations that have been adopted, but have not yet come into effect The following revised accounting standards and interpretations that may be relevant to EG A/S have been adopted by IASB. The standards have not yet come into effect and will not be implemented in the annual report until they come into effect. IAS 1: Amendments to IAS 1 to improve the IFRS disclosure requirements. The amendment addresses materiality, presentation of items and subtotals in the income statement and balance sheet and the order of the notes. IAS 27: The amendment permits the use of the equity method in the parent s financial statements. IFRS 11: The acquisition of equity investments in a joint operation must be treated as an acquisition of individual assets or as a company acquisition. IASB has issued the following amendments to standards and new interpretations that might be relevant to EG A/S, but have not yet been adopted by the European Union: IFRS 15: Revenue from Contracts with Customers. A new standard on income recognition. Depending on the industry in which the company operates, the standard may affect the recognition of income in a number of areas, including: Consolidated financial statements The consolidated financial statements include the parent company EG A/S and subsidiaries in which EG A/S directly or indirectly holds more than 50 % of the voting rights or is otherwise able to exercise or actually exercises control. In the assessment of whether EG A/S exercises control or significant influence, potential voting rights are considered. The consolidated financial statements are prepared by combining the financial statements of the parent company and the subsidiaries by adding together uniform items. The financial statements of the subsidiaries have been incorporated in accordance with the group s accounting policies. On consolidation, intercompany income and expenses, shareholdings, balances and dividends as well as realised and unrealised gains and losses resulting from transactions between the consolidated enterprises are eliminated. Enterprises that are not group enterprises, but where the group holds at least 20 % of the voting rights or otherwise exercises significant influence, are considered to be associates. The financial statements of the associates have been prepared in accordance with the same accounting policies as the financial statements of EG. Unrealised gains and losses resulting from transactions between EG and its associates are eliminated according to the size of the share of the associate. EG A/S ANNUAL REPORT 44 Accounting policies Accounting policies

45 Accounting policies Business combinations Newly acquired or newly established enterprises are recognised in the consolidated financial statements from the date of acquisition or the date of formation. The date of acquisition is the date when control of the enterprise is actually obtained. Enterprises disposed of and enterprises that have been wound up are recognised in the consolidated income statement up to the date of disposal or the settlement date. The date of disposal is the date when control of the enterprise passes to a third party. Comparative figures are not restated for newly acquired enterprises. Discontinued operations are presented separately, cf. below. On acquisition of new enterprises, the purchase method is applied, meaning that the identifiable assets, liabilities and contingent liabilities of the acquired enterprise are measured at fair value on the date of acquisition. Identifiable intangible assets are recognised if they can be separated or arise from a contractual right and the fair value can be reliably determined. In connection with business combinations, positive differences between the cost of the enterprise and the fair value of the acquired identifiable assets, liabilities and contingent liabilities are recognised as goodwill under intangible assets. Goodwill is not amortised, but tested for impairment on an annual basis. On acquisition, goodwill is allocated to the cash-generating units that will subsequently form the basis for impairment testing. Negative balances are recognised in the income statement on the date of acquisition. Translation of foreign currencies A functional currency is determined for each of the group s reporting enterprises. The functional currency is the currency applied in the primary economic environment of the reporting enterprise s operations. Transactions in currencies other than the functional currency are transactions in foreign currencies. At initial recognition, transactions in foreign currencies are translated to the functional currency at the exchange rate prevailing at the date of the transaction. Exchange differences arising between the exchange rate prevailing at the date of the transaction and the exchange rate at the payment date are recognised in the income statement under net financials. Foreign currency receivables, payables and other monetary items are translated to the functional currency at the exchange rate at the balance sheet date. The difference between the exchange rate at the balance sheet date and the exchange rate at the time when the receivable or payable arose is recognised in the income statement under net financials. On recognition of foreign enterprises with a functional currency other than EG A/S presentation currency in the consolidated financial statements, the income statements are translated at the exchange rates prevailing at the date of the transaction, and the balance sheet items are translated at the exchange rates at the balance sheet date. The exchange rate prevailing at the date of the transaction is determined as an average exchange rate for the months in question unless the average exchange rate differs significantly from the actual exchange rates. In the latter case, the actual exchange rates are used. Goodwill is considered to belong to the acquired enterprise in question and is translated at the rate at the balance sheet date. Foreign exchange differences arising on the translation of equity at the beginning of the year of enterprises with a functional currency other than the functional currency of EG A/S at the rate at the balance sheet date as well as on the translation of income statements from the exchange rate prevailing at the date of the transaction to the exchange rate at the balance sheet date are recognised directly in equity under a separate reserve for foreign currency translation adjustments. Translation adjustments relating to non-current receivables from subsidiaries that are considered to be an addition to the net assets of the subsidiaries are recognised directly in equity under a separate reserve for foreign currency translation adjustments. Income statement Revenue Revenue includes invoiced sale of goods and services insofar as delivery and the passing of risk to the buyer have taken place before the end of the year and insofar as the income can be reliably determined and is expected to be received. Discounts are offset against revenue, which is determined exclusive of VAT and taxes. Contract work in progress is recognised as the production of each project is undertaken, and revenue thus corresponds to the selling price of the work performed during the year. Revenue is recognised when the total income and expenses concerning the projects in question and the stage of completion at the balance sheet date can be reliably determined and when it is likely that the financial advantages, including payments, will flow to the group. As for the sale of licences for standard software, licensing income is recognised immediately after the delivery of software has taken place insofar as the delivery of standard software does not require acceptance of the delivered functionality. If the customer s acceptance of the delivered functionality is required, licensing income is recognised once acceptance has occurred. EG A/S ANNUAL REPORT 45 Accounting policies Accounting policies

46 Accounting policies As for software leasing, the income is accrued over the lease term, and any associated services such as support and operations are also accrued over the contract period. Contracts involving multiple deliveries are recognised as separate units of accounting, and a sale of software, consultancy and hardware will thus be recognised separately in accordance with the above policies. Other external costs Other external costs comprise rental expenses under operating leases, distribution costs, selling costs, advertising costs, administrative expenses, etc. Net financials Financial income and expenses comprise interest income and expenses, realised and unrealised capital gains and losses on securities, debt and transactions in foreign currencies, amortisation of financial assets and liabilities and surcharges and allowances under the tax prepayment scheme. Financial income and expenses are recognised at the amounts concerning the financial year. Dividends from equity investments in subsidiaries are recognised as income in the parent company s income statement in the financial year in which the dividends are declared. If the dividends exceed the accumulated earnings after the date of acquisition, the dividends are recognised as a write-down of the cost of the equity investment. Tax on profit for the year Tax for the year, which comprises current tax for the year and changes in deferred tax, is recognised in the income statement with the share attributable to the results for the year and directly in equity with the share attributable to entries directly to equity. EG A/S is taxed jointly with all Danish subsidiaries. The current Danish corporation tax is allocated to the jointly taxed companies in proportion to their taxable income. Companies that use tax losses from other companies pay a joint taxation contribution to the parent company equal to the tax base of the tax losses used. Companies with tax losses that are used by other companies receive a joint taxation contribution from the parent company equal to the tax base of the tax losses used (full allocation). The jointly taxed companies are included in the tax prepayment scheme. Balance sheet Goodwill Goodwill is recognised and measured at initial recognition as the difference between the cost of the acquired enterprise and the fair value of the acquired assets, liabilities and contingent liabilities, cf. the description under business combinations. Goodwill is not amortised, but tested for impairment at least annually. Development projects Small development projects and development projects that are clearly defined and identifiable and for which the technical rate of utilisation, sufficiency of resources and a potential future market or applicability can be demonstrated, are capitalised, provided that the group intends to manufacture, market or use the project. Furthermore, it is a prerequisite that the cost can be reliably determined and that there is adequate security of future positive earnings after depreciation and amortisation. Only the share of the development costs that relates to new products, new tools and new technology is capitalised. Costs of maintaining and updating existing products and programmes are recognised in the income statement when incurred. Small development projects and parts of development projects that are funded directly or indirectly by customers are not capitalised. At initial recognition, development costs are measured at cost, which mainly includes salaries and wages that are directly and indirectly attributable to the company s development activities. Completed development projects are amortised on a straightline basis over the estimated useful life, which is normally 2-5 years. Development projects are written down to a lower recoverable amount, cf. below. Customer relationships In connection with business combinations, acquired customer relationships are assessed. The measurement is based on future cash flows from the customer relationships where the most important preconditions are the development in operating profit before amortisation and tax, customer loyalty and theoretically calculated tax and contributions to other assets. Customer relationships are measured at cost less accumulated amortisation and impairment losses. Customer relationships are amortised on a straight-line basis over the expected useful life, which is 7-15 years. Customer relationships are written down to a lower recoverable amount, cf. below. Other intangible assets Other intangible assets are measured at cost less accumulated amortisation and impairment losses. Other intangible assets acquired in connection with business combinations comprise volumes of orders, trademarks and rights, including software and licensing rights, and are recognised at fair value. Amortisation is provided over the expected useful life, which is EG A/S ANNUAL REPORT 46 Accounting policies Accounting policies

47 Accounting policies 2-5 years. If considered necessary, the assets may be written down to a lower recoverable amount, cf. below. Property, plant and equipment Land and buildings, technical plant and machinery and other plant, operating equipment and tools and equipment are measured at cost less accumulated depreciation and impairment losses. Land is not depreciated. The cost includes the purchase price and costs directly attributable to the acquisition until the time when the asset is ready for use. The total cost of an asset is divided into components that are depreciated separately if the useful lives of the individual components are significantly different. Subsequent costs, e.g. costs associated with the replacement of parts of property, plant and equipment, are recognised in the carrying amount of the asset in question if the investment is likely to result in future economic benefits. All other costs associated with ordinary repairs and maintenance are recognised in the income statement when incurred. The basis of depreciation is the cost less the residual value after the end of the useful life. The residual value is determined as the amount for which the asset can be sold at the balance sheet date if the age and condition of the asset are as expected at the end of its useful life less costs of disposal. Depreciation is provided on a straight-line basis based on the following assessment of the estimated useful lives of the assets and the subsequent residual value: Useful life Buildings 40 years Leasehold improvements 5 years/ the vesting period Technical equipment, computers, etc. 3-5 years Tools and equipment etc. 5 years Vehicles 5 years Land and art are not depreciated. Under leasehold improvements, costs invested in leaseholds to make them suitable for EG A/S purposes are capitalised. Property, plant and equipment are written down to the recoverable amount if this amount is lower than the carrying amount, cf. below. Leases Rental payments made under operating leases and other leases are recognised in the income statement over the term of the contract. The company s total liabilities relating to operating leases are disclosed under contingent liabilities etc. Equity investments in associates Equity investments in associates are measured at cost on initial recognition and subsequently under the equity method, i.e. the proportionate share of the equity value of such enterprises with the addition of goodwill. EG A/S share of the results of associates after tax is recognised in the income statement. Equity investments in subsidiaries in the financial statements of the parent company Equity investments in subsidiaries are measured at cost. Where the cost exceeds the recoverable amount, investments are written down to the lower value. The cost is reduced by dividends received that exceed the accumulated earnings after the date of acquisition. Impairment of non-current assets Goodwill and other non-current assets are tested for impairment on an annual basis. Non-current assets that are not subject to amortisation or depreciation are also tested for impairment if there is any indication of impairment. The carrying amount of goodwill is tested for impairment together with the other non-current assets of the cashgenerating unit to which goodwill is allocated. The carrying amount is written down to the recoverable amount in the income statement if the carrying amount of the expected future net cash flows from the cash-generating unit to which goodwill is attributable equals or exceeds the carrying amount. Deferred tax assets are assessed annually and are recognised only if it is highly probable that they will be used. The carrying amount of other non-current assets is assessed annually to determine whether there is any indication of impairment. When such an indication is present, the recoverable amount of the activity is calculated. The recoverable amount is the higher of the fair value of the activity less the expected costs of disposal and the value in use. Impairment losses are recognised when the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount of the asset or the cash-generating unit. Impairment losses are recognised in the income statement under depreciation, amortisation and impairment losses. However, impairment of goodwill is recognised on a separate line in the income statement. Goods for resale The inventory primarily consists of purchased goods for resale and spare parts and is measured according to the FIFO principle. The cost of goods for resale is determined as the purchase price plus delivery costs. EG A/S ANNUAL REPORT 47 Accounting policies Accounting policies

48 Accounting policies If the net realisable value is lower than the cost, the net realisable value is written down to the lower value. The net realisable value of inventories is determined as the selling price less costs incurred to execute the sale and with due consideration of marketability, obsolescence and developments in the expected selling price. Trade receivables At initial recognition, receivables are measured at fair value and subsequently at amortised cost, which usually corresponds to the nominal value less write-downs to cover expected losses. Contract work in progress Contract work in progress is measured at the selling price of the work performed less invoicing on account and expected losses. The selling price is measured based on the stage of completion at the balance sheet date and the total expected income from work in progress. The stage of completion of a project is determined based on resources used and expected total resources compared with an assessment of the stage of the work performed. If the total costs of work in progress are likely to exceed the total income, the expected loss is immediately recognised as a cost. Work in progress is recognised in the balance sheet under receivables or liabilities according to the net value of the selling price less invoicing on account. Costs associated with sales work and contract wins are recognised in the income statement when incurred. Prepayments and accrued income Prepayments and accrued income recognised under assets comprise expenses incurred for subsequent financial years. Prepayments and accrued income are measured at cost. Securities Shares and bonds are measured at fair value based on quoted market prices on the trade date for listed securities and at an estimated fair value based on market data and generally accepted valuation methods for unlisted securities. If sufficient market data for determining the fair value of unlisted securities is not available, the securities are measured at cost. At initial recognition, shares and bonds are classified as either held for trading or available for sale. Adjustments for changes in the market value of trading portfolios are recognised in the income statement under net financials on a continuing basis. Unrealised market value adjustments of shares and bonds classified as available for sale are recognised directly in equity. On realisation, the accumulated value adjustment recognised in equity is transferred to net financials in the income statement. Cash Cash consists of deposits with reputable banks. Equity Treasury shares Acquisition costs and considerations as well as dividends related to treasury shares are recognised directly in retained earnings under equity. Proceeds from the sale of treasury shares and the issue of treasury shares in EG A/S arising from the exercise of share options are taken directly to equity. Dividends Dividends expected to be distributed for the year are recognised as a separate item under equity. At the time of adoption by the annual general meeting (the time of declaration), dividends are recognised as a liability. Reserve for foreign currency translation adjustments Exchange rate adjustments relating to subsidiaries with a functional currency other than EG A/S presentation currency are recognised directly in equity under a reserve for foreign currency translation adjustments. On full or partial realisation of the net investment, exchange rate adjustments are recognised in the income statement. The reserve for foreign currency translation adjustments was reset as at 1 January Provisions Provisions are recognised when the group has a legal or constructive obligation resulting from an event prior to the balance sheet date and it is likely that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at management s estimate of the expenditure required to settle the obligation. On measurement, provisions are discounted to their net present value if this has a material impact on the measurement of the obligation. Warranty commitments are recognised as goods are sold based on warranty expenses incurred in previous financial years. Restructuring costs are recognised as a liability when a detailed, formal plan has been presented to those concerned no later than at the balance sheet date. In connection with acquisitions, provisions for the restructuring of the acquired EG A/S ANNUAL REPORT 48 Accounting policies Accounting policies

49 Accounting policies enterprise are only included in the calculation of goodwill if the acquired enterprise has an obligation on the date of acquisition. Pension obligations The majority of the group s employees are covered by defined contribution plans. Obligations relating to defined contribution plans are recognised in the income statement over the period in which they are accumulated, and accrued payments are recognised in the balance sheet under other payables. Tax payable and deferred tax Current tax liabilities and tax receivables are recognised in the balance sheet as calculated tax on the taxable income for the year adjusted for tax paid on account. Tax for the year is calculated using the tax rates and rules applicable as at the balance sheet date. Deferred tax is recognised under the balance-sheet liability method on the basis of temporary differences between the carrying amount of assets and liabilities and their tax base. Deferred tax assets, including the tax base of tax loss allowed for carryforward, are measured at the expected realisation value of the asset, whether by elimination in tax on future earnings or by offsetting of deferred tax liabilities within the same legal tax entity. Deferred tax is measured on the basis of the tax rules and tax rates in the respective countries that will be effective under the legislation at the balance sheet date when the deferred tax is expected to be realised as current tax. Changes in deferred tax as a result of changes in tax rates are recognised in the income statement. Financial liabilities Debt to credit institutions etc. is initially recognised at the value of the proceeds received less related transaction costs. The financial liabilities are subsequently recognised at amortised cost, i.e. the capitalised value, using the effective interest rate. The difference between the proceeds and the nominal value is thus recognised in the income statement over the term of the loan. Discontinued operations and assets held for sale Discontinued operations are major business segments or geographical segments that have been disposed of or are held for sale according to an overall plan. Results of discontinued operations are presented as a separate item in the income statement and comprise profit from operating activities after tax for the operation in question and any gains or losses resulting from fair value adjustments of the sale of assets related to the operation. Non-current assets and groups of assets held for sale, including assets related to discontinued operations, are presented separately in the balance sheet as current assets. Liabilities that are directly related to the assets and discontinued operations in question are presented as current liabilities in the balance sheet. Non-current assets held for sale are not depreciated or amortised, but written down to fair value less estimated costs to sell if this value is lower than the carrying amount. Accruals and deferred income Accruals and deferred income recognised under liabilities comprise payments received in respect of income for subsequent years. Accruals and deferred income are measured at cost. Cash flow statement The cash flow statement for the group is presented using the indirect method and includes cash flows for the financial year provided by operating activities, investing activities and financing activities, changes in cash and cash equivalents for the financial year and cash and cash equivalents as at the beginning and end of the financial year. The effect on cash flow from acquisition and disposal of enterprises is shown separately under cash flows from investing activities. In the cash flow statement, cash flows from acquired enterprises are recognised from the date of acquisition, and cash flows from enterprises disposed of are recognised up to the time of sale. Cash flows in a currency other than the functional currency are recognised in the cash flow statement using average exchange rates for the months unless the average exchange rates differ significantly from the actual exchange rates on the dates of transaction. In the latter case, the actual daily exchange rates are used. The cash flow statement cannot be derived solely from the published accounting records. Cash flows from operating activities Cash flows from operating activities are determined as net profit or loss for the year adjusted for non-cash operating items, changes in working capital and corporation tax paid. Cash flows from investing activities Cash flows from investing activities include payments for the purchase and sale of non-current intangible assets, property, plant and equipment and financial assets. Cash flows from financing activities Cash flows from financing activities include changes in the EG A/S ANNUAL REPORT 49 Accounting policies Accounting policies

50 Accounting policies size or composition of the share capital, purchase and sale of treasury shares, incurrence of and principal payments on longterm debt and dividends distributed to shareholders. Cash and cash equivalents Cash and cash equivalents include cash and securities with a maturity period of less than three months at the date of purchase which are readily convertible into cash and present only an insignificant risk of changes in value. Segment information The company s income and expenses are specified by place of generation as the primary segment and by main customer groups as the secondary segment. The segments follow the group s risks and management control. Segment income and expenses and segment assets and liabilities include items that can be directly attributed to individual segments and items that can be reliably allocated to individual segments. Unallocated items primarily include assets and liabilities and income and expenses related to the group s administrative functions, investing activities, income taxes, etc. Non-current segment assets include assets that are used directly in the operation of the segment, including intangible assets and property, plant and equipment. Current segment assets include assets that are directly related to the operation of the segment, including inventories, trade receivables and contract work in progress. Segment liabilities include liabilities that are derived from the operation of the segment, including trade payables, provisions and other payables. The determination of the stage of completion of construction contracts is based on estimates and assumptions regarding future costs primarily time remaining for the completion of projects. Such estimates are uncertain. Management s estimates and assumptions are based on individual assessments of specific projects and continuous follow-up on these projects with a view to identifying differences from known estimates and assumptions. The results of the individual assessments and the continuous follow-up are also used to make provisions for losses on projects. Intangible assets The value of intangible assets depends on the future business development in a number of areas, especially within retail and MBS. In addition to circumstances that EG A/S can influence, the future business structure, the economic development and the technological development are important. EG A/S has taken publicly known evaluations of future developments into account in its valuations which are, however, subject to a number of uncertainties. Deferred tax Management s assessment is required to determine the recognition of deferred tax assets. EG A/S recognises deferred tax assets to the extent that it is probable that sufficient future taxable income will be available to utilise the temporary differences. Based on factors such as historical realised profits and approved budgets, management has taken future taxable income into account in assessing whether deferred tax assets should be recognised. Use of estimates and assumptions The preparation of EG A/S financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported values of assets and liabilities and income and expenses at the balance sheet date. Although these estimates are based on management s best knowledge of current events and actions, the actual results may differ from those estimates. Management considers estimates and assumptions under the following items to be of material importance to the annual report: Recognition of income Deferred tax Provisions. Recognition of income For the recognition of income from long-term projects, IAS 11 concerning construction contracts is applied. The recognition of income is highly dependent on the determination of the stage of completion. EG A/S ANNUAL REPORT 50 Accounting policies Accounting policies

51 Definitions EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) Operating profit or loss before depreciation and amortisation. Normalised EBITDA EBITDA for the year adjusted for restructuring expenses and costs related to the integration of acquired companies. EBITA (Earnings Before Interest, Tax and Amortisation) Operating profit or loss before amortisation (amortisation of intangible assets acquired through acquisitions or business takeovers). Normalised EBITA EBITA for the year adjusted for restructuring expenses and costs related to the integration of acquired companies. Net working capital Is calculated as: Goods for resale + trade receivables + contract work in progress trade payables. Net interest-bearing debt Is calculated as: Debt to banks + employee bonds cash. Revenue change Percentage change in revenue compared to last year. Return on equity (ROE) Net profit for the year as a percentage of the equity as at 31 December of the previous year. Return on equity (ROE), normalised Normalised post-tax profit as a percentage of the equity as at 31 December of the previous year. Equity interest Equity interest as a percentage of total assets. Number of employees Average number of full-time employees during the accounting period. Earnings per share (EPS) Net profit for the year divided by the total number of shares in issue less shares held in treasury. Earnings per share (EPS), normalised Normalised post-tax profit divided by the total number of shares in issue less shares held in treasury. EG A/S ANNUAL REPORT 51 Accounting policies Definitions

52 Group structure AX IV EG Holding III ApS CVR Denmark 100 % Dynaway A/S CVR Denmark EG Data Inform Hjørring A/S CVR Denmark EG Kommuneinformation A/S CVR Denmark EG A/S CVR Denmark 100 % EG Norge AS CVR Norway EG Sverige AB CVR Sweden EG Team Online A/S CVR Denmark IT Minds ApS CVR Denmark EG Greenland ApS Reg. no. ApS Greenland AX IV SD Holding ApS CVR Denmark 100 % AX IV SD Holding II ApS CVR Denmark 100 % Silkeborg Data A/S CVR Denmark EG A/S ANNUAL REPORT 52 Group information Group structure

53 EG has offices throughout Scandinavia EG A/S Industrivej Syd 13 C DK-7400 Herning Tel.: Fax: DENMARK Ballerup, Copenhagen, Herning (head office), Hjørring, Holbæk, Kolding, Odense, Silkeborg, Thisted, Aalborg and Aarhus. NORWAY Bergen, Gjøvik, Haugesund, Molde, Oslo, Sandefjord, Stavanger, Trondheim. SWEDEN Eskilstuna, Gothenburg, Linköping, Malmö, Stockholm, Örebro and Östersund. GREENLAND Nuuk. EG CVR