Annual Report 2014
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EG A/S EG www.eg.dk CVR 84 66 78 11 Annual Report 2014 Table of contents Management’s review 3 Key figures of the EG group 5 Looking back at 2014 6 Profit for the year 8 About EG Business areas 13 EG Business Ready Solutions 14 EG Industry Solutions 15 EG Citizen Solutions 16 EG Business Application Services Organisation and corporate governance 17 Corporate governance 18 Corporate social responsibility Risk management 19 Risk management Board of directors and executive board 21 Executive functions of the board of directors and the executive board Endorsements 24 Management’s statement 25 Auditor’s report Accounting policies 26 Accounting policies 33 Definitions Consolidated financial statements 34 Income statement 35 Balance sheet 37 Equity 38 Cash flow statement 40 Notes Group information 60 Group structure EG A/S ÅRSRAPPORT 2014 2 Key figures of the EG group Revenue and growth EBITA and margin (normalised) 1.800 35,0 % 1.600 30,0 % 1.400 25,0 % 20,0 % 1.200 15,0 % 1.000 10,0 % 800 5,0 % 600 14,0 % 12,0 % 200 10,0 % 150 8,0 % 100 6,0 % 0,0 % 400 -5,0 % 200 -10,0 % 0 250 2010 2011 2012 Revenue in DKK million Revenue change 2013 2014 -15,0 % 4,0 % 50 0 2,0 % 2010 2011 2012 2013 2014 0,0 % Normalised EBITA, operating profit in DKK million EBITA as a percentage of revenue, normalised EG A/S ANNUAL REPORT 2014 Management’s review Key figures of the EG group 3 Key figures of the EG group Cash flow from operating activities Post-tax profit and return on equity (normalised) 450,0 400,0 350,0 300,0 250,0 300,0% 140,0 35,0 % 250,0% 120,0 30,0 % 200,0% 100,0 25,0 % 150,0% 80,0 20,0 % 100,0% 60,0 15,0 % 50,0% 40,0 10,0 % 0,0% 20,0 5,0 % 200,0 150,0 100,0 50,0 0,0 -50,0 2010 2011 2012 2013 2014 -50,0% Cash flow from operating activities Cash flow from operating activities as a percentage of EBITDA 0,0 2010 2011 2012 2013 2014 0,0 % Normalised post-tax profit in DKK million Return on equity (ROE), normalised EG A/S ANNUAL REPORT 2014 Management’s review Key figures of the EG group 4 Looking back at 2014 Best result ever 2014 was another record year for EG with the best result to date. Revenue came to DKK 1,636.2 million, equalling an increase of 2.1 % from the previous year, obtained through a combination of organic and acquisitive growth. The profit also developed favourably with normalised earnings (EBITDA) of DKK 229.4 million – an increase of 17.5 % from 2013. The normalised EBITDA margin increased from 12.2 % in 2013 to 14.0 % in 2014. Our revenue mix has been continuously adapted since 2010 to increase the share of the revenue coming from cloud solutions, fixed service agreements and software. This trend continued in 2014 and resulted in an increase in gross profit and predictable revenue streams. EG’s ability to generate free cash flow gives us freedom of action in a number of areas, including acquisitions. In 2014, we acquired EG Tactitus, EMAR A/S, EM-Soft ApS, IT Minds ApS and Team Online A/S, which all had a positive impact on revenue. EG has the structure to be among those who consolidate the market, and we have extensive experience in ensuring successful integrations. Acquisitions will remain part of our growth strategy. In 2014, we allocated considerable resources to a major reorganisation with the aim of increasing EG’s capacity for action. Among other things, we reduced the number of divisions from seven to four and increased our focus on selected business models and industries. These changes are based on our best practice experience and are expected to improve our sales performance, project implementation and service business. The organisational changes were implemented in Q4 2014 and are expected to take effect in 2015. Cross-selling The simplified organisational structure further paves the way for increased cross-selling to our more than 12,000 existing customers, which will enable us to realise a large, unexploited potential for organic growth. Organic growth was negatively affected by the loss of a few major customer accounts in 2014. Cross-selling gives our customers access to a complete IT product portfolio from one supplier who offers everything from initial analyses to implementation of a new solution and subsequent operation. Due to our extensive customer and solution portfolio and our relatively low share of wallet, targeted cross-selling involves a considerable growth potential. Optimised product portfolio In the continuous optimisation of our product portfolio, we prioritise cloud solutions and fixed service agreements in order to increase the number of predictable revenue streams with a high gross profit, which account for an increasing share of both revenue and EBITDA. The portfolio also includes EG’s extensive development and sale of our own software, which also had a positive impact on the results. This comprises our proprietary ASPECT4 platform, which includes solutions for the transport, textile, DIY, logistics and production industries, as well as industry solutions and add-on solutions with separate IPs based on standard platforms from e.g. Microsoft. In 2014, we invested heavily in the development of new industry solutions, including solutions for process-based production and project-based production. Overall, the relative part of the mix consisting of cloud solutions, service agreements, software and consultancy has increased compared to hardware. The result is a continuing increase in the gross margin, which has risen from 72.5 % to 78.4 % over the last five years (2010-2014). Strong partnerships EG is supplier-independent, and we can therefore advise our customers based on their needs without being tied to a particular technology. We have strong partnerships with a number of suppliers such as Microsoft, IBM, M3, HP and SAP. EG is one of the largest Microsoft Dynamics AX partners in Europe and has received a number of awards and acknowledgements in this context during the past year, including the title of Dynamics partner of the year in Norway and the title of vertical partner of the year in Denmark. EG A/S ANNUAL REPORT 2014 Management’s review Looking back at 2014 5 Profit for the year Financial position • 2.1 % increase in revenue • 12.0 % increase in EBITDA and 17.5 % increase in normalised EBITDA • 17.0 % increase in EBITA and 15.0 % increase in normalised EBITA. In 2014, the group generated total revenue of DKK 1,636.2 million, which is an increase of 2.1 %. The in-crease in revenue was boosted by acquisitions. Revenue in 2014 was affected by the loss of a major cus-tomer account, but the second half of the year saw an increase in organic growth. Furthermore, adverse currency movements of NOK and SEK had a negative impact on revenue of 1.7 %. EG’ 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 72.5 % to 78.4 % in 2014. With earnings (EBITDA) of DKK 178.7 million, EG achieved the best result in the company’s more than 30-year history and earnings growth of 12.0 % compared to 2013. 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 229.4 million (DKK 195.2 million) in 2014, equalling an increase of 17.5 %. Earnings for 2014 were negatively affected by investments resulting from the initiatives undertaken to realise the company’s strategy plan for 2014-2017. The adjustment of the strategy and the reduction in the number of divisions resulted in significant restructuring costs that had a negative impact on reported EBITDA in 2014. Mergers As part of the group’s strategy to reduce the number of companies, the parent companies EDB Gruppen Holding A/S and EG Holding A/S and the subsidiaries EG Utility A/S and DataPro A/S have been merged into EG A/S as of 1 January 2014. The uniting-of-interests method was applied, and comparative figures have been restated as a result of the merger. Revenue Group revenue came to DKK 1,636.2 million (DKK 1,603.3 million), equalling an increase of 2.1 %. The in-crease in revenue from 2013 to 2014 was boosted by the acquisitions of Tacticus AB, EMAR A/S, IT Minds A/S and Team Online A/S. Revenue was negatively affected by the loss of a few major customer accounts. Within hardware sales, 2014 saw a revenue decline of 11 % compared to 2013. This is a result of EG’s choice to focus on customers to whom we sell industry solutions. Excluding hardware sales, EG had an in-crease in revenue of 3.2 %. The Logistics & Production division, which provides industry solutions based on AX, NAV, ASPECT4, M3 and SAP to production and logistics customers, recorded revenue of DKK 448.5 million in 2014 compared to DKK 403.5 million in 2013, partly as a result of the acquisition of Tacticus AB. The Building & Construction division, in particular DIY and Building & Installation, recorded revenue of DKK 278.0 million (DKK 280.6 million) in 2014. Revenue was negatively affected by adverse currency movements of NOK. The Retail & Media division, which provides value-adding IT solutions for the retail industry and specialised IT solutions for the media industry, experienced a decline in 2014 due to the loss of a major customer ac-count and adverse currency movements of NOK and SEK. Revenue for 2014 was DKK 197.1 million (DKK 232.3 million). The Utility division, which provides IT solutions and services to utility companies in the Nordic countries, recorded revenue of DKK 127.4 million (DKK 157.0 million) in 2014. The Professional Services division, which provides fully packaged proprietary industry solutions to small businesses in selected industries, recorded revenue of DKK 135.3 million (DKK 109.8 million), partly as a result of organic growth and the acquisition of EMAR. The Technology & Delivery division, which provides operational services, infrastructure solutions and busi-ness intelligence solutions to the customers of the EG group, recorded revenue of DKK 348.7 million (DKK 343.2 million) in 2014 and an increase in revenue from operational services, whereas traditional hardware sales have seen a decline in revenue. The acquisition of IT Minds also had a positive impact on revenue. The Public division, which provides IT and efficiency solutions to the Danish government and municipalities, recorded revenue of DKK 131.3 million (DKK 111.8 million) in 2014. The acquisition of Team Online had a positive impact on revenue. Going forward, we will have four divisions: EG Business Ready Solutions, EG Industry Solutions, EG Citizen Solutions and EG Business Application Services. Gross profit The group’s gross profit has increased from DKK 1,238.8 million in 2013 to DKK 1,282.4 million in 2014, equalling an increase of 3.5 %. The positive trend in gross margin as a percentage of revenue has continued from previous years, and the gross margin amounted to 78.4 % in 2014 compared to 77.3 % in 2013. 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 72.5 %. EG A/S ANNUAL REPORT 2014 Management’s review Profit for the year 6 Profit for the year Earnings performance, EBITDA The EG group’s EBITDA for 2014 amounts to DKK 178.7 million compared to DKK 159.6 million for the same period in 2013, equalling an increase of 12.0 %. The increase in EBITDA is a result of improved profitability of the existing business, but acquisitions have also contributed positively. In the assessment of the increase in EBITDA, considerable resources, both quantifiable and non-quantifiable, have been allocated to acquisi-tions and subsequent integration of the acquired companies and to cover investments resulting from the initiatives undertaken to realise the company’s strategy plan for 2014-2017. Normalised EBITDA amounted to DKK 229.4 million (DKK 195.2 million) in 2014, equalling an increase of 17.5 %. Earnings performance, EBITA The EG group’s EBITA for 2014 amounts to DKK 149.9 million compared to DKK 128.1 million for the same period in 2013, equalling an increase of 17.0 %. The increase in EBITA is a result of improved profitability of the existing business, but acquisitions have also contributed positively. EBITA is also affected by significant non-recurring costs as mentioned under EBITDA. Normalised EBITA amounted to DKK 200.6 million (DKK 174.6 million) in 2014, equalling an increase of 15.0 %. Earnings performance, EBIT The EG group realised an EBIT of DKK 101.2 million in 2014 compared to DKK 89.9 million in 2013. Normalised post-tax profit 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 re-lated to the integration of acquired companies and amortisation related to acquisitions. Normalised post-tax profit amounted to DKK 121.6 million in 2014 compared to DKK 132.1 million in 2013. Tax on profit for the year Tax on profit for the year comprises current tax of DKK 19.3 million, adjustment of tax for previous years of DKK -0.1 million and changes in deferred tax of DKK 8.4 million. Tax on profit for the year thus amounts to DKK 27.5 million (DKK 8.4 million). The tax rate is 36.2 % % (11.1 %). Cash flows The combination of the company’s growth, increased funds tied up in working capital due to acquisitions and a change in short-term debt has resulted in cash flows from operating activities of DKK 317.6 million (DKK 384.1 million). The change in short-term debt (DKK 229.0 million) is primarily due to balances with the parent company in connection with acquisitions. The working capital amounts to 11.3 % (10.5 %) of the revenue. The increase is due to periodic changes. 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 com-panies or for debt reduction. Acquisitions made in 2014 were financed through loans from the parent com-pany, AX IV EG III Holding ApS. Cash flows from investing activities amounted to DKK -320.8 million (DKK -95.9 million). The increase from 2013 is a result of an increase in the acquisition of activities. Total investments for the year amounted to DKK 320.8 million of which DKK 242.0 million can be attributed to the acquisition of companies, while in-vestments in intangible assets amounted to DKK 62.4 million and investments in property, plant and equipment amounted to DKK 16.8 million. Cash flows from financing activities amounted to DKK -5.6 million compared to DKK -266.6 million in 2013. Net change in cash and cash equivalents amounted to DKK -8.8 million compared to DKK 21.6 million in 2013. Net working capital The working capital amounts to DKK 185.2 million (DKK 168.4 million). At the end of 2014, the working capital to revenue ratio was 11.3 %, which is an increase compared to 2013 when the working capital to revenue ratio was 10.5 %, but an improvement compared to 2008 when the working capital to revenue ratio was 17.6 %. The increase in working capital from 2013 to 2014 is partly due to periodic changes. Balance sheet At the end of 2014, the total consolidated balance sheet of EG A/S amounted to DKK 1,619.9 million (DKK 1,259.9 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 2014, equity amounted to DKK 518.7 million (DKK 472.2 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 2015. EG A/S ANNUAL REPORT 2014 Management’s review Profit for the year 7 Time to make a difference Efficient workflows are a prerequisite for being competitive, and the bar is constantly raised. Last year’s goals will most likely be set a little higher this year. This is the environment we help our customers navigate in. Continuous optimisation is just the start. Sustained competition requires more than that. The difference between what it costs to produce customer value and what the customer is willing to pay for it must be constantly increased. Successful companies master the balance between internal optimisation and external value creation. Strict prioritisation is necessary as time is a scarce resource. Make time for what is important We run out of time before we run out of ideas. Successful companies know that, which is why they focus on realisable value when they optimise. How much time do we free up? By how much do we reduce our lead time? How does it increase customer satisfaction? Each initiative must result in greater latitude that the organisation can use to continue to minimise costs and increase value creation. It is a virtuous circle that leads to stronger operational management and time to focus on the important topic of innovation. Time for thoughts. Time for implementation. Time to make a difference. EG A/S ANNUAL REPORT 2014 Management’s review About EG 8 Industry knowledge is the key to optimisation Why reinvent the wheel when it already exists? At EG, we have extensive industry knowledge, and we know the challenges of the industries we serve. We also know which solutions have worked for other companies within the same industry – and we most likely have the components already. This enables us to minimise complexity, reduce risk and let our customers decide where to benefit from best practice and where to invest in being unique. Our approach optimises daily work processes, frees up time and creates room for outstanding performance. Business before technology EG’s hallmark is carefully customised industry solutions in which technology, processes and organisation all come together. We have strong skills in market-leading IT platforms, and we effortlessly combine the components to create the technological solution that best supports the customer’s business. To us, business is always more important than technology. This is how we ensure that our IT solutions provide companies with the best possible foundation. ORGANISATION TEKNOLOGI PROCESSER The best foundation for any business is created through the interaction between technology, organisation and processes. This is where business value can be found. The three dimensions are integrated into all industry solutions from EG. EG A/S ANNUAL REPORT 2014 Management’s review About EG 9 IT that suits the customer Both small and large businesses need an IT solution that supports their workflows. Based on best practice processes in the industry, we can provide just the right solution. The need for individual customisations often makes the difference between small and large businesses. The decision may be based on a trade-off between simple, predictable IT and a high degree of flexibility. Solutions from A to Z EG offers everything from business development and implementation of the IT solution to operation and support. We are the partner that will help you find the best solution for your situation and subsequently provide the best support for your daily operations, allowing you to reap the full benefits. We tailor our services to the customer’s needs and put business before IT. We are able to do so because we offer a complete portfolio of solutions. EG uses standard platforms and technologies from e.g. Microsoft, IBM, HP and SAP. The majority of our industry solutions are customised solutions based on Microsoft Dynamics AX and NAV, Microsoft C5 and XAL, M3, SAP and our proprietary ASPECT4 software. EG A/S ANNUAL REPORT 2014 Management’s review About EG 10 EG in your everyday life Every day of the year, our customers help to keep the wheels in motion. They create jobs and provide products and services for the benefit of us all. Through efficient workflows supported by IT, we help them to increase their productivity and thus to continue to create value for their customers and for Denmark. We are proud of our customers. When you read your morning paper, your subscription and the printing and distribution of the paper are likely to be managed through an EG solution. There is a high probability that the lorries you overtake on your way to work are controlled by means of EG’s transport solution. When you do your shopping on your way home from work, the efficient shop assistant serving you is using EG’s retail solution with all functions readily available. When you shop online and have a quick overview of available products, the solution providing you with updated data is likely to be an EG solution. Do you have a grand home? An EG solution was used to provide an overview of the project economy during the renovation of a castle. If you live more modestly, your rented or leasehold property is probably managed through an EG solution. The size of your electricity bill may well be the result of a consumption calculation performed with the use of an EG solution. Energy renovation? The windows, fittings and roofing felt will often be manufactured using an EG solution – as is the case with many other products. The tradesman doing the work on your house probably uses an EG solution to manage the building project from start to finish. If you are a DIY person, the staff at your DIY centre probably use a system provided by EG. If you fall out with your neighbour, there is a good chance that your lawyer uses an EG solution to manage the case. When you fall ill, you can confidently contact your GP or the doctor on call – a solution from EG ensures that all necessary information is available. Good job that the medication worked! This way, you do not need to know that EG provides solutions to almost all churches and cemeteries in Denmark. EG A/S ANNUAL REPORT 2014 Management’s review About EG 11 EG as a workplace EG’s most valuable asset is its employees, and providing good working conditions for them is a priority to us. In practice, this means: • A meaningful job in which each employee can make a difference • Space for personal development and to make your own decisions • Good work colleagues who lend a helping hand when it is needed, and who are interested in you as a person • Good working conditions with proper handling of everything you would expect from a large company. Local and global The EG group is large and small at the same time. All employees are part of a small and close-knit unit, but also part of a group with nearly 1,400 employees who work together across multiple countries and more than 25 locations. Industry focus and specialist skills Many of our employees work with industry focus, and others work with specialist skills in areas such as management consulting, IT development and standard platforms. Collaboration across EG is supported by internal processes that are designed to facilitate flexible and productive collaboration. EG A/S ANNUAL REPORT 2014 Management’s review About EG 12 EG Business Ready Solutions EG Business Ready Solutions provides turnkey industry solutions for small businesses that customers can start using immediately. Small businesses often need an IT solution that accurately supports the industry-specific workflows, enabling them to plan and work flexibly and without undue delay. Integrated industry requirements Extensive industry knowledge and deep insight into optimal workflows form the basis of our turnkey industry solutions. In other words, our solutions also support the workflows of our customers’ businesses. They include functionality such as integrated calculation of quotations and mobile time capture directly in the workplace for tradesmen and integration to ECG scanners and simple prescription for practitioners. EG offers turnkey industry solutions for a variety of industries, including tradesmen, electricians, plumbers and technicians, housing administrators, lawyers, practitioners, undertakers, plant nurseries, churches and cemeteries. »One supplier who takes responsibility for your entire IT solution, leaving you time for what is important. « Jesper Andersen, director EG Business Ready Solutions EG Business Ready Solutions focuses on the following key areas: • Practitioners • Tradesmen, electricians, plumbers and technicians • Contractors • Housing and property administrators • Lawyers • Cemeteries • Plant nurseries • Undertakers. EG A/S ANNUAL REPORT 2014 Business areas EG Business Ready Solutions 13 EG Industry Solutions EG Industry Solutions offers IT solutions based on industry insight to companies in the logistics, production and retail industries. Streamlined processes and willingness to change are essential for companies looking to optimise their workflows. We work with our customers to identify their current workflows and analyse how they can become more efficient. We have unique knowledge of best practice processes and a solid methodology for process optimisation and implementation. We provide advice tailored to the customer’s business goals. Our industry solutions are based on Microsoft Dynamics AX, Microsoft Dynamics NAV, SAP, M3 and ASPECT4. The standard version often comes close to matching the company’s needs – and we customise the solution with the customer as required. Our total pool of skills and industry knowledge is the customer’s guarantee that we will find realisable profit potential together. The result is value-adding solutions. »Together with our customers, we increase productivity in Denmark. « Bjarne Aarup, director EG Industry Solutions EG Industry Solutions focuses on the following key areas: • Process-based production, project-based production and production to order • Retail chains and wholesale companies • Logistics • Transport • Textile • Media companies and graphic design companies. EG A/S ANNUAL REPORT 2014 Business areas EG Industry Solutions 14 EG Citizen Solutions EG Citizen Solutions provides IT solutions that lead to simple and efficient workflows. This makes it easier for employees to focus on what is important. We take responsibility for implementing the solution, whether it involves the development of subsystems, a new online portal, comprehensive rethinking of workflows associated with legislative changes or the delivery of solutions that make it easier for utility companies to deliver new products and thus compete in the market. Backed by the EG group’s broad range of skills, we are an active and flexible partner with the knowledge and expertise to find solutions that meet the requirements of users, citizens and authorities. Solutions for public administration, citizen service and case management Our portfolio of IT solutions supports the daily workflows of Danish public institutions and the public and private social and health care sectors. The solutions follow the legal requirements to the letter and fully support the wave plans. The financial system ØS Indsigt, case management solutions, legislative information systems and citizen self-service systems are examples of solutions that are fully customised to reflect the daily work processes of public administration. We also use our deep professional knowledge when we provide central solutions for the Danish municipalities. »Serving citizens and consumers should not be complicated. We make it easy. « Bo Haaber, director EG Citizen Solutions EG Citizen Solutions focuses on the following key areas: • Self-service and case management solutions • Legislative information • Group finances (ØS Indsigt) • Enterprise solutions for administering and settling the consumption of energy • Project deliveries for central solutions for the Danish municipalities. Solutions for the utility industry We provide IT solutions that support the need for transparency and efficiency in the administrative workflows of modern utility companies. We also handle recurring tasks such as invoicing. The focal point of our work is the demands faced by utility companies in a competitive environment: adaptability, efficient energy trading, good customer service and the ability to handle large amounts of data. EG A/S ANNUAL REPORT 2014 Business areas EG Citizen Solutions 15 EG Business Application Services Efficient operations and continuous optimisation are essential for companies that want to reap the full benefits of their IT investment. We secure your daily operations where the real benefits are. Creating value by implementing ERP The completion of a major ERP implementation also marks the beginning of day-to-day value creation. Structure, stability and security are essential for operations to run smoothly. At the same time, adjacent solutions must be continuously adapted to meet new business needs. We help large companies to create a secure and stable foundation for their IT solution, giving them time to focus on their business goals. Managed services When it comes to performance improvements, tailored service, operations and support and ongoing advice, we are in our element. We manage all the components that support the customer’s IT solution once it is up and running, regardless of whether the customer prefers to handle the task internally or to let us take full or partial responsibility for it. The solution thus becomes a long-term asset for the company. »We take responsibility for our customers’ IT portfolios so they can focus on their business. « Henrik R. Møller, director EG Business Application Services EG Business Application Services focuses on the following key areas: • Infrastructure and operations • Cloud and hosting • Service and support • Application management services • Business analytics • CRM and SharePoint. Cross-business applications CRM, business analytics and knowledge sharing complement the ERP platform and lead to synergies and effective use of data. We offer everything from advice on which IT solutions best support the business development to implementation and subsequent support. EG A/S ANNUAL REPORT 2014 Business areas EG Business Application Services 16 Corporate governance By virtue of its ownership, the group is subject to ”Guidelines for responsible ownership and good corpo-rate governance” as defined by the Danish Venture Capital and Private Equity Association. The guidelines are available at DVCA’s website, www.dvca.dk. 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 interested parties. The board of directors has adopted an updated set of rules of procedure for the board of directors. In addi-tion, 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 and Jørgen Lindholm Lau • 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 ap-pointed by the principal shareholder, three of the representatives are independent and three of the repre-sentatives 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 cal-endar, the committee is responsible for monitoring the company’s financial reporting and the internal con-trol 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 re-views 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 guide-lines 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 two women and one man. 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 as-sessment 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 approx. 20 % in the manage-ment group and to approx. 20 % on the board of directors. 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 2014 Organisation and corporate governance Corporate governance 17 Corporate social responsibility 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. EG works with specific objectives in a number of relevant areas, but a policy on corporate social responsibility in the group’s strategy and activities has not been adopted. EG wants to show action and direction through its support for the corporate social responsibility activities being undertaken and wants to commit to the United Nations Global Compact principles for human rights, labour, environment and anti-corruption where it is relevant to EG as a Scandinavian company. 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. We as-sess that the risk of violating these rights is minimal within our own business, and EG does not consider it necessary to have a policy on human rights. EG wants to focus on health and job satisfaction across the company. In addition to the statutory requirements, we seek to minimise the environmental implications of transpor-tation between our offices by using telephone and video conference equipment to the extent possible. EG operates almost exclusively in the Scandinavian market where corruption is virtually non-existent. In 2011, EG introduced a central whistleblower programme that enables all employees of the group to an-onymously report situations, incidents or circumstances that seem inappropriate or contrary to the group’s guidelines. In October 2014, EG joined the UN Global Compact. This is a natural consequence of EG’s support for the corporate social responsibility activities being undertaken. EG affects the environment through the heating of the company’s locations, transportation of the com-pany’s employees, the use of printers, etc. In this connection, the company is subject to a number of statu-tory requirements in the countries in which we are represented, and these requirements are complied with. EG A/S ANNUAL REPORT 2014 Organisation and corporate governance Corporate social responsibility 18 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. Commercial risks EG provides IT consultancy services and programming, software, operational and service agreements and, to a lesser extent, hardware. 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 ma-terial misstatement and in accordance with current legislation, standards, other regulation and EG’s stan-dard processes. Furthermore, the process has been established to ensure that appropriate accounting poli-cies are followed and that the accounting estimates are reasonable in the circumstances. EG is dependent on the ability to retain and attract employees with special skills and experience in order to achieve its business goals. 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 pos-sible. As regards consultancy services and programming, EG is very dependent on the invoicing rate of its em-ployees – defined as the proportion of the employees’ time spent on services that can be invoiced. The in-voicing 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 15 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 2.5 %. EG maintains a continuous focus on employee well-being and satisfaction. In order to further EG A/S ANNUAL REPORT 2014 Risk management Risk management 19 Risk management support the professionalisation in this area, EG adopted Ennova’s European Employee Index in 2014. In 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 re-duce 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 38 % of the group’s gross profit derives from this type of agreement. Secondly, EG uses its pipeline and order book sys-tems to assess its future staffing requirements and seeks to match these requirements through reorganisa-tion, continuing education and adjustments whenever possible. Another risk parameter is uncertainty in connection with large contracts. EG uses project reviews and pre-liminary analyses to ensure that the correct pricing is applied when fixed-price contracts are entered into. EG has established a PMO (project management office). Its primary purpose is to improve project execu-tion 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 pos-sible 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 pro-ject 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 ac-tivity, 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 estab-lished 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 ex-penses 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 bal-ance 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 invest-ments. 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 2014 Risk management Risk management 20 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 Klaus Holse – chairman Partner at Axcel Management A/S Vice chairman of the board of AX IV EG Holding III ApS Christian Bamberger Bro – vice chairman EG A/S ANNUAL REPORT 2014 Board of directors and executive board Executive functions of the board of directors and the executive board 21 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 Vice chairman of the board of Silkeborg Data A/S 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 A/S Chairman of the board of Symbion A/S Chairman of the board of Lyngsoe Systems A/S Chairman of the board of Dubex Chairman of the board of Adactit ApS Vice chairman of the board of Symbionfonden Member of the board of Athena IT Group A/S Member of the board of Minerva A/S Member of the board of The Eye Tribe Member of the board of Bridge IT Member of the board of Vallø Stift Member of the board of Accelerace Fonden EG A/S ANNUAL REPORT 2014 Board of directors and executive board Executive functions of the board of directors and the executive board 22 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 Member of the executive committee of ITEK and ITB Chairman of the business digitalisation committee (Udvalget for Erhvervsdigitalisering) of ITB 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 2014 Board of directors and executive board Executive functions of the board of directors and the executive board 23 Management’s statement The board of directors and the executive board have considered and approved the annual report of EG A/S for 2014 The financial statements and the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. In addition, the financial statements and the consolidated financial statements have been prepared in accordance with additional Danish disclosure requirements. The management’s review has also been prepared in accordance with Danish disclosure requirements. Herning, 10 March 2015 In our opinion, the financial statements and the consolidated financial statements give a true and fair view of the assets, liabilities and financial position of the company and the group as at 31 December 2014 as well as of the results of the operations and the cash flows of the company and the group for the financial year 1 January – 31 December 2014. Board of directors In our opinion, the management’s review includes a true and fair account of the development in the oper-ations and financial circumstances of the company and the group, of the results for the year and of the fi-nancial position of the company and the group as well as a description of the most significant risks and elements of uncertainty faced by the company and the group. Executive board Leif Vestergaard CEO Klaus Holse Chairman Christian Bamberger Bro Vice chairman Jørgen Lindholm Lau Martin Lippert Jørgen Bardenfleth Peter Andres Høiland Charlotte Kronborg Bennetsen Kristian Buur We recommend that the annual report be approved by the annual general meeting. EG A/S ANNUAL REPORT 2014 Endorsements Management’s statement 24 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 2014 which comprise the income statement, 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. 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. 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. 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 2014 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 2014 in accordance with International Financial Reporting Standards as adopted by the European Union and additional disclosure requirements under the Danish Financial Statements Act. 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 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. 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, 10 March 2015 PricewaterhouseCoopers State-authorised limited partnership company of accountants Claus Lindholm Jacobsen Henrik Berring Rasmussen State-authorisedState-authorised public accountant public accountant EG A/S ANNUAL REPORT 2014 Endorsements Auditor’s report 25 Accounting policies General information 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. • IFRS 15 – Revenue from Contracts with Customers. A new standard on income recognition that may affect the recognition of income in a number of areas, including: – The timing of income recognition – Recognition of variable consideration – Allocation of income from combined contracts – 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. Implementation of new and revised standards and interpretations • Amendment to IAS 1, including requirements for subtotals to be presented in the income statement and additional requirements regarding management’s assessment of materiality and the order of the notes in the financial statements. 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. No new standards or interpretations of importance to profit and equity were implemented in 2014. 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 and the European Union. The standards have not yet come into effect and will not be implemented in the annual report until 2015 and 2016, respectively. • Amendment to IAS 19 – Employee Benefits. The amendment means that employee contributions can be treated as a reduction of the service costs for the period if employees pay a fixed percentage of their salary regardless of length of service and salary level. • Annual improvements 2010-2012. Clarifications and minor amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 1, IAS 7, IAS 12, IAS 16, IAS 24 and IAS 36. • Annual improvements 2011-2013. Clarifications and minor amendments to IAS 1, IFRS 1, IFRS 13 and IAS 40. 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 not expected to have a material impact on the financial statements of EG A/S. 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: • IAS 27 – Consolidated and Separate Financial Statements. Parent companies may apply the equity method when recognising equity investments in subsidiaries, associates and joint ventures. • Clarifications and minor amendments to IFRS 10, IFRS 12 and IAS 28. Among other things, it is clarified that intermediate parent companies are not required to prepare consolidated financial statements if they are subsidiaries of an investment company that prepares consolidated financial statements. • Annual improvements 2012-2014. Clarifications and minor amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34. EG A/S anticipates that these standards and interpretations will be implemented when they come into effect. 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. EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 26 Accounting policies 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. 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. In connection with business combinations, the accounting classification is maintained in accordance with the accounting policies applied so far. Recognition is at cost less depreciation, amortisation and impairment losses up to 31 December 1999. Goodwill is not amortised after 1 January 2000. 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. EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 27 Accounting policies 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. 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 EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 28 Accounting policies 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. 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: Buildings Leasehold improvements Technical equipment, computers, etc. Tools and equipment etc. Vehicles Land and art are not depreciated. Useful life 40 years 5 years/ the vesting period 3-5 years 5 years 5 years Under leasehold improvements, costs invested in leaseholds to make them suitable for EG A/S’ purposes are capitalised. 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 2-5 years. If considered necessary, the assets may be written down to a lower recoverable amount, cf. below. Property, plant and equipment are written down to the recoverable amount if this amount is lower than the carrying 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. 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. 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. 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 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 cash-generating unit to which goodwill is allocated. The carrying amount is written down to the recoverable amount in the income EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 29 Accounting policies 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. If the total costs of work in progress are likely to exceed the total income, the expected loss is immediately recognised as a cost. Deferred tax assets are assessed annually and are recognised only if it is highly probable that they will be used. 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. The carrying amount of other non-current assets is assessed annually to determine whether there is any indication of impairment. When such an indication exists, 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. 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. 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 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. EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 30 Accounting policies The reserve for foreign currency translation adjustments was reset as at 1 January 2004. 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. 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. Warranty commitments are recognised as goods are sold based on warranty expenses incurred in previous financial years. 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. 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 enterprise are only included in the calculation of goodwill if the acquired enterprise has an obligation on the date of acquisition. 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. 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. 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 esti-mated 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. 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. 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. 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 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 EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 31 Accounting policies 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 ac-tual 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 size or composition of the share capital, pur-chase 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 chan-ges in value. 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 bal-ance 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. 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. The determination of the stage of completion of construction contracts is based on estimates and assump-tions 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 esti-mates and assumptions. The results of the individual assessments and the continuous follow-up are also used to make provisions for losses on projects. Revenue for 2014 was DKK 1,636.2 million. Intangible assets The value of intangible assets depends on the future business development in a number of areas, espe-cially 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, sub-ject to a number of uncertainties. The value of intangible assets as at 31 December 2014 was DKK 1,151.5 million. Deferred tax Management’s assessment is required to determine the recognition of deferred tax assets. EG A/S recog-nises deferred tax assets to the extent that it is probable that sufficient future taxable income will be avail-able 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 as-sets should be recognised. Deferred tax amounted to DKK 126.6 million. Management considers estimates and assumptions under the following items to be of material importance to the annual report: • Recognition of income • Intangible assets • Deferred tax. EG A/S ANNUAL REPORT 2014 Accounting policies Accounting policies 32 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. EG A/S ANNUAL REPORT 2014 Accounting policies Definitions 33 Income statement Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Income statement 34 Balance sheet Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Balance sheet 35 Balance sheet Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Balance sheet 36 Equity EG A/S ANNUAL REPORT 2014 Consolidated financial statements Equity 37 Cash flow statement Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Cash flow statement 38 Cash flow statement Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Cash flow statement 39 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 40 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 41 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 42 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 43 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 44 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 45 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 46 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 47 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 48 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 49 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 50 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 51 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 52 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 53 Notes EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 54 Notes EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 55 Notes Group Parent company EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 56 Notes EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 57 Notes EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 58 Notes EG A/S ANNUAL REPORT 2014 Consolidated financial statements Notes 59 Group structure AX IV EG Holding III ApS Dynaway A/S CVR 35 38 11 39 Denmark CVR 25 30 91 03 Denmark 100 % EMAR A/S CVR 18 38 16 72 Denmark EM SOFT ApS CVR 20 81 04 75 Denmark EG Data Inform Hjørring A/S CVR 12 51 41 74 Denmark EG Kommuneinformation A/S CVR 24 25 69 01 Denmark EG A/S CVR 84 66 78 11 Denmark 100 % EG Team Online A/S CVR 21 10 90 02 Denmark IT Minds ApS CVR 32 93 96 35 Denmark EG Sverige AB CVR 556164-5648 Sweden EG Tacticus AB CVR 556682-7647 Sweden EG Norge AS CVR 959 642 834 Norway EG NaviCom AS CVR 983 781 233 Norway EG A/S ANNUAL REPORT 2014 Group information Group structure 60 EG has offices throughout Scandinavia EG A/S DENMARK Industrivej Syd 13 C 7400 Herning Phone+45 7013 2211 Fax +45 7013 2299 Ballerup, Herning (head office), Hjørring, Holbæk, Kolding, København, Odense, Skanderborg, Thisted, Vejle, Aalborg and Aarhus NORWAY Bergen, Gjøvik, Molde, Oslo, Sandefjord, Sandnes, Trondheim and Ålesund SWEDEN Göteborg, Malmø, Mölndal, Stockholm, Örebro and Östersund. EG www.eg.dk CVR 84 66 78 11
