Annual Report 2012 Main Figures

Home , Kristiansand

Annual report 2012 MAin Figures

RESULTS

Mill. NOK %

2 800 35

2 400 30

2 000 25

1 600 20

1 200 15

800 10

400 5

0 0 2012 2011 2010 2012 2011 2010

ebitDA operating revenues profi t for the year operating margin return on equity return on capital employees

Def. 2012 2011 2010

INCOME STATEMENT Operating revenues NOK millions 8 946 10 684 9 345 EBITDA 1 NOK millions 2 317 2 908 2 047 Adjusted EBITDA 2 NOK millions 1 991 1 924 2 401 Operating profi t NOK millions 1 852 2 470 1 634 Profi t before tax NOK millions 1 615 2 163 1 380 Profi t for the year NOK millions 1 069 1 161 751

CASH FLOW Net cash provided by operating activities 3 NOK millions 970 2 097 226 Purchase of property, plant, equipment and intangible assets NOK millions 956 728 758 Deprecation and impairment losses NOK millions 476 449 536 Dividends paid NOK millions 653 902 900

STATEMENT OF FINANCIAL POSITION Total assets NOK millions 15 654 15 058 16 725 Equity NOK millions 4 090 3 296 3 379 Capital employed 4 NOK millions 11 312 10 324 11 000 Unrestricted liquidity 5 NOK millions 1 257 1 460 1 339 Interest-bearing liabilities NOK millions 7 222 7 028 7 621 Net interest-bearing liabilities 6 NOK millions 7 155 6 976 7 578

KEY FIGURES EBITDA margin 7 % 25,9 27,2 21,9 Operating margin 8 % 20,7 23,1 17,5 Return on equity 9 % 28,9 34,2 20,8 Return on capital employed 10 % 17,8 23,3 16,1 Return on total assets 11 % 12,5 15,7 10,6 Equity ratio 12 % 26,1 21,9 20,9 Net interest-bearing liabilities/EBITDA 3,1 2,4 3,7 Net interest-bearing liabilities/adjusted EBITDA 13 3,6 3,6 3,2 Number of permanent and temporary staff at 31 Dec. 1 529 1 579 1 692 Number of permanent and temporary full-time equivalents at 31 Dec. 1 495 1 536 1 647

AgDer energi ANNUAL REPORT 2012 2 BALANCE 2012 2011 2010

Equity 4 090 3 296 3 379

Interest-bearing liabilities 7 222 7 028 7 624

Capital employed 11 312 10 324 11 000

Total assets 15 654 15 058 16 725

Def. 2012 2011 2010

KEY FIGURES, HSE Sickness absence % 3,9 4,7 4,5 Lost time injury frequency (H1) 6,8 7,9 5,1 Total injury frequency (H2) 13,9 16,2 16,2

KEY FIGURES, UPSTREAM ACTIVITIES Hydropower generation, actual 14 TWh 8,1 6,6 6,6 Hydropower generation, annual mean 14 TWh 7,7 7,7 7,7 Reservoir reserves at 31 Dec. TWh 4,5 4,5 2,0 Average spot price øre/kWh 21,8 36,0 40,7 District heating production GWh 124 111 120

KEY FIGURES, DOWNSTREAM ACTIVITIES Number of retail customers 15 1 000 149 152 153 Number of transmission and distribution customers 1 000 183 178 176 Power grid capital (NVE-capital) 16 NOK millions 3 297 3 139 2 986

DEFINITIONS 1. operating profi t/loss before deprecation and 10. (profi t before tax + interest expenses)/ impairment losses average capital employed 2. Adjusted ebitDA is corrected for unrealised gains and losses 11. (profi t before tax + interest expenses)/ on energy contracts average total assets 3. net cash fl ow from operating activities 12. equity/total assets 4. equity + interest-bearing liabilities 13. ebitDA is adjusted for unrealised gains and losses 5. investment portfolio, excess liquidity and unused credit on electricity contracts facilities. excludes restricted bank accounts 14. All power generation fi gures are quoted prior 6. interest-bearing liabilities - unrestricted liquidity to pump-back and losses 7. ebitDA/operating revenues 15. retail customers 8. operating profi t/operating revenues 16. basis for calculating the income cap. set by the 9. profi t for the year/Average equity norwegian Water resources and energy Directorate (nVe)

AgDer energi ANNUAL REPORT 2012 3 group structure

CEO Tom Nysted

HR AND FINANCE AND RISK MANAGEMENT SHARED SERVICES Pernille K. Gulowsen Frank Håland

CSR AND CORPORATE DEVELOPMENT Unni Farestveit

HYDROELECTRIC POWER ENERGY MANAGEMENT MARKET NETWORK Jan T. Tønnessen Edvard Lauen Hans Jakob Epland Svein Are Folgerø

OTERA AS AE VANNKRAFT AS AE KRAFTFORVALTNING AS AE NETT AS Jan T. Tønnessen Edvard Lauen Svein Are Folgerø LOS AS

Administrative and shared services AE VARME AS Business areas

Subsidiaries

GROUP MANAGEMENT

Tom Nysted Unni Farestveit Pernille Kring Gulowsen Frank Håland

Jan Tønnessen Edvard Lauen Svein Are Folgerø Hans Jakob Epland

agder energi ANNUAL REPORT 2012 4 WHERE WE OPERATE

Power station

Premises/ofﬁces

District heating/cooling

Bergen Wind farm

Oslo

Stockholm

Gøteborg

Malmø

Holen

Brussel Valle

Finndøla Brokke Rysstad Zürich

Hekni Nisserdam Tjønnefoss Hovatn Dynjanfoss Høgefoss Berlifoss Jørundland

Logna Kuli Longerak

Tonstad RISØR Osen Smeland Finså Holt

Evje Skjerka Uleberg Hanefoss Evenstad Håverstad

Stoa ARENDAL Rygene Kvinesdal Iveland Fjære Nomeland Trøngsla GRIMSTAD Steinsfoss FLEKKEFJORD Høylandsfoss Hunsfoss Færåsen Laudal LILLESAND Tryland

LYNGDAL Kvavik KRISTIANSAND FARSUND Fjeldskår MANDAL Lindesnes

agder energi ANNUAL REPORT 2012 5 Our business

Agder Energi has four business areas, It operates through the company Agder the district heating supplier Agder Energi which reflect the Group’s core activities Energi Vannkraft AS. Varme AS. and how it generates added value: Hydro- electric Power, Energy Management, Energy Management • Otera AS is one of Norway’s largest Network and Market. This business area is responsible for electrical infrastructure contractors. maximising profit from the sale of elec- The parent company provides all admin- tricity. • LOS AS is Norway’s biggest supplier of istrative and shared services, which are electricity to businesses, and the split into three departments: finance and It operates through the company Agder country’s third biggest electricity risk management; HR and shared servi- Energi Kraftforvaltning AS. supplier overall. ces; and society and corporate development. Network • Agder Energi Varme AS supplies district This business area is responsible for de- heating and cooling in the Agder region. The business areas and administrative veloping, operating and maintaining the departments at the parent company are transmission and distribution grid in Goals and results led by directors. They and the CEO con- Aust-Agder and Vest-Agder. The goals and results of the business stitute the senior management team. areas are discussed in the Directors’ It operates through the company Agder Report and in Note 1 (Segment Informa- Hydroelectric Power Energi Nett AS. tion) to the consolidated financial state- The Hydroelectric Power business area is ments for the Agder Energi Group. responsible for developing, operating Market and maintaining the Group’s wholly- This business area comprises three sub- owned and part-owned hydroelectric sidiaries: the electrical contractor Otera power stations. AS, the electricity supplier LOS AS, and

agder energi ANNUAL REPORT 2012 6 Brief introduction to Agder Energi

Agder Energi manages natural, renewa- Agder Energi is a major centre of exper- Agder Energi Nett owns and operates the ble energy sources and converts them tise and an important employer. The transmission and distribution networks in into electricity. The Group’s activities Group has 1 580 employees, mainly Vest-Agder and Aust-Agder, which com- comprise the generation, distribution and based in the counties of Aust-Agder and prise 19 600 km of power lines. The com- sale of renewable energy, as well as pro- Vest-Agder in southern Norway, but also pany has 183 000 transmission and dis- viding energy-related services. in eastern and western Norway, as well tribution customers. as in Sweden. The Group’s head office is Water and wind are perpetual natural in Kristiansand. The company LOS is Norway’s biggest resources, and it is by harnessing them supplier of electricity to businesses, and that Agder Energi can add value for its Measured in hydroelectric power gene- the country’s third biggest electricity shareholders, employees and wider ration, Agder Energi is Norway’s fourth- supplier overall. society. Agder Energi has a significant largest energy supplier. Each year, the With its 750 employees, Otera is one of impact on the wider economy of south- Group’s 47 wholly-owned and part- Norway’s largest electrical infrastructure ern Norway, both by purchasing local owned power stations produce around contractors. The company also operates goods and services and through the divi- 7.8 TWh of renewable energy. The Group in Sweden. dends and taxes that we pay to the also has significant ownership interests shareholder municipalities. Agder Energi in the wind industry, through the compa- Agder Energi Varme operates district is owned by the 30 municipalities in the nies Statkraft Agder Energi Vind, Dalane heating plants in places such as Kristian- region (54.5%) and Statkraft Industrial Vind and Bjerkreim Vind. These compa- sand, Arendal and Grimstad. Holding AS (45.5%). nies are planning to build wind farms in various locations in Norway.

Vision and values

Agder Energi’s vision is to be one of the leading companies in the Norwegian renewable energy sector. This involves taking a long- term view and thinking on an industrial scale. Moreover, it means that while the Group has regional and national roots, it also has an international perspective.

The Group has defined its values as closeness, credibility, dynamism and innovation.

• Agder Energi shall be close to its customers and the region. • Agder Energi shall gain credibility by keeping its promises, both to third parties and within the company. • Agder Energi shall be dynamic, with a conscious corporate strategy that helps it to implement projects and achieve its goals. • Agder Energi shall promote innovation and creativity, so that its employees become more skilled and efficient, enabling them to help to grow and develop the Group.

agder energi ANNUAL REPORT 2012 7 Highlights in 2012

Major new hydroelectric project This is a big project, which involves check- years. It involves supplying 270 gigawatt in Setesdal ing the turbine and generator, replacing the hours (GWh) annually to 4 800 locations, In March, Otra Kraft DA, in which Agder control system and installing a new runner. which is equivalent to the electricity con- Energi holds a 68.6% ownership interest The upgrade will lead to an increase in re- sumption of around 13 500 homes. and Skagerak Energi holds a 31.4% newable energy generation, greater reliabi- interest, decided to go ahead with the Brok- lity and lower maintenance costs. Training facility for electricians ke Nord/Sør hydroelectric project in Setes- opened dal. In April work started on the project, Adjustments to staffing levels In October Otera opened a training facility which will increase annual power generation In August, Agder Energi streamlined its ad- at Stoa in Arendal for apprentices who are from the Otra river system by 175 gigawatt ministrative and support services. This training to become qualified electricians. hours (GWh). The cost is around NOK 900 process resulted in 55 full-time equivalent This is the first facility of its kind to be million, and the project is due for completion jobs being cut. Of these, 19 were permanent established in southern Norway. in spring/summer 2014. employees who were offered either a redundancy package or early retirement. The At the facility, trainees can practise doing Debt collection company sold remaining adjustments were achieved by everything from laying cables to driving In March, Agder Energi signed an agreement redeploying staff else-where in the Group ATVs. It was established in response to a to sell the debt collection company Sopran and by cutting the number of contractors. need identified by both Otera and the to Kredinor. The transaction was completed vocational training centres in Vest-Agder in June. The company’s 20 employees in Strengthening the grid and Aust-Agder. Kristiansand and Sandefjord were offered In September, Agder Energi Nett applied for the option of staying at the company under permission to upgrade the connection bet- Using sea water to cool a commercial its new owners. ween the regional power grid and the building national grid in Kvinesdal. In November the In autumn 2012, Agder Energi Varme Wind farm licences company also sought permission to build connected the local hospital and the new In April, Statkraft Agder Energi Vind was Honna substation in Åseral, in order to raise aquatic centre Aquarama to its free awarded a licence for the Kvinesheia wind the transmission capacity between the cooling plant in Kristiansand. The free cool- farm in Kvinesdal Municipality. The wind regional and national grids. These projects ing plant will serve customers in the farm should generate up to 190 GWh per would enable us to connect more re- Tangen and Kjøita districts of the city, as year, which is enough electricity to supply newable energy to the electricity grid. well as the Kilden cultural centre. The around 9 000 homes. Agder Energi has a plant takes sea water from a depth of 38% ownership interest in Statkraft Agder The new Grimstad Vest substation started 150 metres right outside the port of Energi Vind. operating in September, and is an impor- Kristiansand. tant part of the programme to up-grade the Bjerkreim wind farm in Rogaland, which is grid in Grimstad, Lillesand and Birkenes. Fibreoptic companies sold owned by Bjerkreim Vind, received a The sale of LOS Bynett and Bynett Privat licence in July. The wind farm should Long-term agreements with industrial to Telenor was completed in October, generate around 450 GWh annually, which is customers while in January 2013 LOS Bynett enough electricity to supply roughly 20 000 In October, Agder Energi Vannkraft Vestfold was also sold. As a result, homes. Agder Energi has a 50% ownership signed an agreement to supply up to 1 TWh Agder Energi no longer has any invest- interest in Bjerkreim Vind. of electricity annually to Sør-Norge Alumi- ments in fibreoptic cable networks. nium AS at Husnes in Hordaland. The LOS launches an iPhone app agreement covers the period 2015-2020. Promoting interest in the sciences In May LOS launched an iPhone app, to make With the help of sponsors including Agder it easy and convenient for customers to ma- Major contract for LOS Energi, the science centre Vitensenteret nage their relationship with the company. In October, LOS captured one of Norway’s Sørlandet at Tollbodkaia in Arendal Customers can also use the application to largest electricity supply contracts. The opened its brand new premises to the read their meters and to get an invoice esti- contract covers the supply of electricity to public. The centre aims to teach children mate. LOS is one of the first electricity sup- 23 municipalities in the Agder region, as and young people about science and pliers in Norway to launch an iPhone app. well as to the Aust-Agder and Vest-Agder technology. Agder Energi supports the county authorities. centre in order to promote interest in the Upgrade of Hunsfoss Vest power sciences and thereby make more young station The agreement with the public procure- people interested in studying engineering. In June, Agder Energi Vannkraft decided to ment agency Offentlig Fellesinnkjøp upgrade Hunsfoss Vest power station in Agder (OFA) is worth more than NOK 100 Vennesla. million each year over the coming six

agder energi ANNUAL REPORT 2012 8 A strong performance in a challenging market

falling electricity prices and a need for and one of the key responsibilities of the greater investment in both the trans- industry is to keep politicians informed, mission grid and in power generation. so that they can make the decisions that All industries occasionally face these will give Norway a good electric power kinds of shifts, and it is up to the indu- system with adequate capacity. stry to successfully overcome the associated challenges. I believe that in order Meanwhile, all of the companies in to make the necessary investments, the the industry must take a hard look at Norwegian electric power industry will themselves, in order to see how they need to become far more efficient. can improve. At Agder Energi we implemented a programme to make our This is where the current structure of operations simpler and more effici- the industry is a problem – we will only ent, which has made us more competi- In 2012, the average spot price for elec- become more efficient if we reduce the tive. Amongst other things, we stream- tricity was forty percent lower than the number of companies. In 2012, Agder lined our administrative and support ser- previous year, and judging by financial Energi helped to move this issue up the vices. We are continuing to narrow our reports from the industry over the co- agenda by commissioning the report focus on our core activities, and in 2012 urse of the year, many Norwegian elec- For store oppgaver, for lite penger? we therefore disposed of LOS Bynett tricity companies will see their profits (“Too many tasks, too little money?”), and Bynett Privat. fall significantly. In spite of this, Agder which was produced by THEMA Consul- Energi managed to generate over one ting. The need for restructuring was one The aim behind this strategy, and every- billion Norwegian kroner in profit, for the of the most important topics of discus- thing we do, is to turn Agder Energi into second year in a row. That achievement sion within the industry in 2012, and I am a trailblazer amongst the regional elec- is one that both staff at Agder Energi confident that we will see major changes tricity companies, so that we are in the and our shareholders can be proud of. as soon as this year. best possible position to face a new operating environment of falling elec- Meanwhile, there is strong evidence However, restructuring is not enough by tricity prices and high investment levels. that 2012 will mark a turning point in itself. The industry needs greater access That will allow us to continue adding the Norwegian electric power industry. to capital, and we need better access to value for our shareholders, employees After two decades of relatively high elec- markets through international intercon- and the people of the Agder region. tricity prices and low investment levels, nections. Political decisions about the the industry is facing a combination of power industry are long in the making,

Tom Nysted CEO

agder energi ANNUAL REPORT 2012 9 agder energi ANNUAL REPORT 2012 10 content

Corporate governance 12 Directors’ report 18 Declaration 27

The Agder Energi Group Statement of comprehensive income 30 Statement of fi nancial position 31 Statement of cash fl ows 32 Statement of changes in equity 34 Accounting principles 36 Notes 44

Agder Energi AS Profi t and loss account 88 Balance Sheet 89 Cash fl ow statement 90 Accounting principles 91 Notes 93

Auditor’s report 104

AgDer energi ANNUAL REPORT 2012 11 CORPORATE GOVERNANCE

Corporate governance principles regulate the relationship between the shareholders, Board of Directors and executive management of a company, as well as describing the relevant roles and reporting structures.

For many years, Agder Energi has documents – from the articles of associa- The governance documents in worked hard to establish and improve tion through manuals to descriptions of SLIK comprise: its internal controls. The company’s inter- work processes – are easily accessible on • Descriptions of corporate governance nal control system is documented in the Group’s intranet “Energisk”. SLIK pro- principles approved by the Board governance documents that are available vides an important foundation for the • Instructions for the Management Group, to all employees. The system is called Group’s work on integrated risk manage- company Secretary and CEO “THIS is how we do things at Agder ment, internal controls and continuous • Instructions for the internal audit service Energi”, generally abbreviated to the improvement. • The Group’s vision, values and ethical first word of the Norwegian name – SLIK. guidelines SLIK has been established in accordance SLIK helps to: • Instructions for the Board of Directors and with the recommendations contained in • simplify and standardise internal frame- general managers at subsidiaries the respected COSO framework and works within the Agder Energi Group, • Strategies for the Group, HR/HSE, the Code of Practice drawn up by the while also making them more easily insurance and ICT Norwegian Corporate Governance Com- accessible to employees • Strategies and tools for integrated risk mittee (NUES). Systems have been estab- • improve results by promoting efficient management lished to ensure that suggestions and management and continuous improve- • Group guidelines, setting out principles proposed changes are recorded and dis- ment throughout the Group that apply to key areas of the Group’s cussed. This provides a basis for continu- • ensure compliance with internal and business ously developing and improving the external requirements • Descriptions, procedures and work company’s established practices. processes to ensure compliance with By having its governance documents group guidelines SLIK describes how the Group governs organised like this, the Group is laying the and manages its activities, and what in- foundations for a business culture that pro- SLIK is continuously being amended and ternal frameworks and guidelines em- motes high-quality and efficient day-to-day improved to reflect changes in the orga- ployees must adhere to in their day-to- operations and reporting to the executive nisation. day work. Through SLIK, all governance management and Board.

NORWEGIAN CODE OF PRACTICE

STATEMENT OF COMPLIANCE Below we have set out to what extent, and lines provide the foundation and frame- The Norwegian Code of Practice is pub- how, Agder Energi has chosen to follow work for the Group’s activities. The tar- lished by the Norwegian Corporate Go- the recommendations. Each heading re- get groups are all employees, members of vernance Committee (NUES); 23 October presents one topic covered by the recom- the boards of Agder Energi and its subsi- 2012 edition. mendations. diaries and other people who act on behalf of Agder Energi. The Code of Practice is based on Norwe- Corporate Governance Statement gian legislation relating to limited com- Agder Energi is not a publicly traded High ethical standards are a prerequi- panies, accounting, stock exchanges and company, so it is not obliged to follow site for the ability to add value, and the securities trading. It contains rules and the recommendations. Nevertheless, Ag- Group focuses hard on ensuring that this guidelines that partly build on existing der Energi implements them in so far as is reflected in the company’s reputation. legislation, and partly cover areas not co- they are considered appropriate to Agder Ethics constitutes an integrated part of vered by the legislation. Energi’s business and ownership structure. the Group’s operations and of its overall risk management process. Agder Energi The Code of Practice looks at 15 main Ethical guidelines requires all people who act on behalf of topics, with one chapter for each topic. Along with its values, the ethical guide- the Group to comply with high ethical

agder energi ANNUAL REPORT 2012 12 standards, and it discusses ethical issues the whole Group, for each business area resentative of the shareholder municipali- openly both within the company and with and for subsidiaries. ties and one representative of Statkraft third parties. Industrial Holding. The Chair of the Board, Equity and dividends CEO and external auditor shall also attend. Our business partners are also expected At 31 December 2012, the Group had NOK The election committee and Board mem- to have high ethical standards consistent 4 199 million of equity, i.e. 26.8% of the bers are also entitled to attend. with those of the Group. The Group has Group’s total assets. The Board of Direc- special whistleblowing procedures that tors considers it important for the Group Election committee can be used by employees or other people to have sufficient equity to provide finan- The articles of association specify that who wish to express their concern or ask cial stability, bearing in mind its stated the company shall have an election com- for advice on ethical conduct. goals, strategy and risk profile. mittee. It consists of five members, who are appointed for a two-year term. Under Corporate social responsibility The Group’s dividend policy reflects the the current shareholders’ agreement, the Agder Energi considers its business to stated aim of giving shareholders a re- municipal shareholders can appoint three be of critical importance to society, and turn on their investment through cash members, while Statkraft can appoint two. it has a responsibility to take social and dividends. Historically, the Group has paid The election committee nominates candi- environmental considerations into acc- high dividends. The Group’s future divi- dates for the corporate assembly and for ount. . The Group’s guidelines in this area dends policy will depend on parameters the Board of Directors. focus on human rights, employment con- such as expected cash flow, investment ditions, the environment and measures to plans, financing needs and the need for The shareholders’ agreement contains avoid discrimination. There are also rules adequate financial flexibility. certain rules on the work of the election relating to social responsibilities in the committee, designed to ensure compliance ethical guidelines, as well as in the Equity raising with the stipulations of the agreement. Group’s guidelines on HR, Purchasing, Equity increases shall be proposed by the HSE, Environment and Risk. Board and discussed by the AGM. The Corporate assembly and Board Board is not currently authorised to carry of Directors: Composition and Exemption from the Group’s guidelines out equity increases. independence The operations of some the subsidiaries in There are 15 members of Agder Energi’s the Group are very remote from, and have Equal treatment of shareholders and corporate assembly. Five representatives little in common with, the core activities of transactions with related parties are elected by and from the employees, Agder Energi, and there are few synergies Agder Energi has two classes of shares: five from the municipal shareholders and to be realised by integrating them more A and B. Each share has one vote at the five from Statkraft. The corporate assem- closely with the Group’s other activities. AGM, and has an equal entitlement to divi- bly is elected for a two-year term, and dends. Class A shares can only be owned elects its own Chair and Deputy Chair. These companies are exempt from some by hydropower licensors. The articles of The corporate assembly is invested with of the Group’s guidelines, which they are association do not restrict voting rights the authority and entrusted with the tasks entitled to replace with their own internal in any way. specified in current legislation governing rules. Any such company guidelines must limited liability companies. be approved by the senior management For significant transactions between the team. company and shareholders, Board mem- Under the shareholder agreement, twelve bers, key employees or any of their related people sit on the Group’s Board of Direc- Business activities parties, the Board shall obtain a valuation tors. Four members, including the Chair Agder Energi’s purpose is defined in the from an independent third party. and Deputy Chair, are elected at the pro- company’s articles of association: “The posal of the municipal shareholders, four company’s purpose is to: exploit, produce Free negotiability members are elected at the proposal of and sell energy; contribute to the safe and The shareholders’ agreement between the Statkraft and four at the proposal of the efficient supply of energy; and exploit re- owners of Agder Energi means that the employees. The executive management lated, profitable business opportunities shares are not freely negotiable. is not represented on the Board. Board within the energy and infrastructure sec- members are elected for a two-year term. tors.” Annual General Meeting Under the agreements between sharehold- Agder Energi has goals and strategies for ers, the AGM is only attended by one rep-

agder energi ANNUAL REPORT 2012 13 Entitlement of Board members to own The Board guidelines require an annual re- solidated financial statements. shares view of internal controls and risk manage- Under the company’s articles of associa- ment to be carried out in collaboration with Information and communication tion and the shareholders’ agreement, nei- the external auditor. Agder Energi satisfies all statutory require- ther Board members nor other individuals ments relating to financial reporting and are entitled to own shares in Agder Energi. Non-executive Directors’ fees disclosure. The Group considers maintain- Members of the Board are paid based on ing good lines of communication with ex- The work of the Board their roles. Their fees are not profit-related. ternal stakeholders to be a priority. The The Board’s tasks are regulated by the No Board members are entitled to a pen- Director of Corporate Social Responsibility Limited Liability Companies Act and other sion, options or termination compensation and Corporate Development is responsible relevant legislation, the company’s articles from the company, apart from the entitle- for this. of association and the Board guidelines. ments of the employee representatives in The Board guidelines are publicly available. their capacity as employees of the com- The Group’s internal controls include rules The Board appoints the CEO. The Board has pany. on contact with shareholders outside the drawn up instructions for, and delegated framework of the AGM. authority to, the CEO. Details of the fees paid to individual Board members are presented in Note 34 to the Acquisitions Audit committee consolidated financial statements. Agder Energi primarily acquires and dis- In accordance with the amendments to the poses of companies through its wholly- Stock Exchange Regulations of 30 June Management compensation owned subsidiary Agder Energi Venture. 2010, Agder Energi has established an au- Management compensation reflects the Disposals and acquisitions can also be dit committee within the Board. Group’s guidelines on compensation. implemented through other subsidiaries Members of the senior management team as part of their company strategies. Risk management and internal controls are not entitled to any options, bonuses or Agder Energi’s internal control and risk performance-related pay. Auditor management systems are described in a Ernst & Young was the Group’s external separate section below, and satisfy NUES’ Details of the compensation of each indi- auditor 2012. The Group’s internal controls recommendations. vidual member of the senior management satisfy all of NUES’ recommendations relat- team are presented in Note 34 to the con- ing to auditors.

RISK MANAGEMENT

Identifying and managing risks is one of Group level, and is included in reports to cial risk and other areas of risk. We expect the keys to adding value, and it forms an the senior management team and Board to complete this process during 2013. integrated part of Agder Energi’s corporate of Directors. governance model. The Group is exposed Agder Energi has set up a risk manage- to risks in a variety of areas throughout Risk management systems ment committee to help ensure that in- the value chain. The most important risks The Group’s risk management systems investment decisions and strategic ven- are related to the market, financial man- clude tools for managing risks at all of the tures decided at senior management or agement, operations and the regulatory Group’s companies and businesses, and Board level are based on detailed, quali- environment. cover every area that could prevent the ty-assured background information. The Group and its companies from achieving all investment committee acts as a consult- Agder Energi’s risk management activities of their aims. Each year the companies map ative body for the CEO. form an integrated part of its business their exposure to risk, which is reviewed operations, and they are implemented quarterly, as well as being monitored in the Market risk at the individual companies in the Group day-to-day management of the business. Agder Energi is exposed to significant mar- through procedures for identifying, ket risk through the generation and sale assessing, managing, reporting and re- In 2012 work started on unifying and inte- of electricity, as its revenues from power sponding to risks. The Group’s overall grating the Group’s concepts and systems generation can vary due to fluctu-ations in exposure to risk is also monitored at the relating to operational risk, market/finan- volumes and prices.

agder energi ANNUAL REPORT 2012 14 Hedging strategies are based on esti- with all of the processes in the value well as to uncover causes and implement mated volumes and aim to guarantee the chain. The most important ones are the corrective measures. minimum profit required to maintain the risk of damage to power plants, distribu- company’s ability to service its debts. The tion networks and other assets, injuries Other risks amount of electricity sold through futures to the Group’s employees, damage to ad- The most important other risks relate to contracts is continuously adjusted within ministrative and management processes, the regulatory environment. that framework, based on the company’s negative impacts on the environment price expectations and generation capac- and climate, and negative impacts on the Changes in the regulatory framework and ity. Group’s reputation. Operational risk is political decisions affect the company’s managed through procedures governing room for manoeuvre and constitute a Downstream activities are exposed to fluc- activities at operating units, and through significant element of the Group’s risk tuations in the price at which electricity is contingency plans. exposure. The Group constantly evalu- sold to domestic and business customers, ates changes in the political climate, and as well as purchase prices in the wholesale The Group has established the “RUH” believes in maintaining an open dialogue market. system for reporting and recording with decision-makers in all relevant are- potential dangers, unwanted incidents nas. Agder Energi always aims to have Operational risk and injuries. The reports are analysed with good relationships with all stakeholders. There are operational risks associated a view to limiting any consequences, as

EARLY WARNING

In order to pick up on changes in the used to carefully monitor developments in tion thus obtained is used in strategic and world that are relevant to the company’s the regulatory environment and markets commercial decision-making procedures. business, Agder Energi has introduced in which the Group operates, as well as an Early Warning system. This system is technological developments. The informa-

AUDITING

Agder Energi has an internal audit service, which also reviews the internal audit ser- agreement that its chosen external auditor which assists the Board, senior manage- vice’s annual report and its audit plans. Ernst & Young must be used by all subsi- ment team and business areas by provid- diaries for the statutory audit. Companies ing an independent, unbiased assessment The external auditor is chosen by the AGM, in the Group’s seed and venture capital of the Group’s risk management proce- and is responsible for the financial audit portfolios can have a different auditor. dures. The internal audit service’s mandate of the parent company, Group and subsi- and guidelines are approved by the Board, diaries. Agder Energi has a Group-wide

WHISTLEBLOWING PROCEDURES

The head of the internal audit service is illegal conduct. Such incidents are treated unwanted incidents will never result in any also the person who is notified under the in strict confidentiality unless criminal con- sanctions against the whistleblower. Group’s system for reporting unethical or duct is involved. At Agder Energi, reporting

agder energi ANNUAL REPORT 2012 15 agder energi ANNUAL REPORT 2012 16 agder energi ANNUAL REPORT 2012 17 DIRECTORS’ REPORT

Agder Energi’s vision is to be one of the leading companies in the Norwegian renewable energy sector. The Group’s activities comprise the generation, distribution and sale of energy, as well as energy-related services. Most of Agder Energi’s business is done in southern Norway, and the company has its head office in Kristiansand.

Bearing in mind that the average spot in a row that profit exceeded one billion GWh in 2011. For 2012 as a whole, precipi- price for electricity in 2012 was 39% Norwegian kroner. This included an un- tation levels were roughly normal. As we lower than the previous year, we consider realised gain of NOK 216 (629) million on started the year with significantly the underlying performance of the Group electricity price, exchange rate and greater hydrological resources than nor- to be satisfactory. interest rate hedges. mal, they remained above average at the end of the year. The Group made a profit of NOK 1 069 In 2012, the Group generated 8 134 GWh (1 161) million, making it the second year of hydroelectric power, against 6 564

KEY EVENTS OF 2012

On 28 March, Otra Kraft DA, in which will generate around 450 GWh per year, in while in January 2013 LOS Bynett Vestfold Agder Energi holds a 68.6% ownership 2016. Agder Energi has a 50% ownership was also sold. As a result, Agder Energi no interest and Skagerak Energi holds a interest in Bjerkreim Vind AS. longer has any investments in fibreoptic 31.4% interest, decided to go ahead with cable networks. the Brokke Nord/Sør hydroelectric project During the third quarter, Agder Energi in Setesdal. In April work started on the streamlined its administrative and support In the fourth quarter, Agder Energi Vann- project, which will increase annual power services. 55 full-time equivalent positions kraft signed an agreement to supply generation from the Otra river system by were affected, including 19 permanent electricity to Sør-Norge Aluminium AS at 175 GWh. The cost is around NOK 900 employees who were offered either a re- Husnes in Hordaland. The agreement million, and the project is due for com- dundancy package or early retirement. involves supplying 1 TWh annually over pletion in summer 2014. The remaining adjustments were achie- the period 2015-2020, and 0.1 TWh ved by redeploying staff elsewhere in the annually over the period 2013-2014. In July, the Ministry of Petroleum and Group and by cutting the number of long- Energy granted a licence to Bjerkreim term contractors. wind farm in Rogaland, which is owned by the company Bjerkreim Vind AS. The The sale of LOS Bynett and Bynett aim is to complete the wind farm, which Privat was completed in the fourth quarter,

FINANCIAL PERFORMANCE

Unrealised gains on financial instruments fore also stated our results after adjusting prices. Falling futures prices have also re- had a significant impact on the 2012 finan- for unrealised gains and losses on financial sulted in a fall in the value of the future cial statements, although less so than in instruments, in order to show the underly- power generation that the contracts are 2011. Once again it was electricity contracts ing performance of the business. supposed to hedge. However, this fall will that made the biggest positive contribution. only be reflected in the financial statements This is because electricity, currency and The gain on electricity contracts was when the power is actually generated. interest rate contracts are measured at fair mainly due to the Group having sold some value under IFRS (International Financial of the power that it expects to generate The Group’s operating revenues amounted Reporting Standards), and changes in their over the coming years in the futures mar- to NOK 8 946 million in 2012, compared fair values are recognised in profit or loss. ket. The value of these contracts has with NOK 10 684 in 2011. The main reason In the following discussion we have there- increased as a result of falling futures for the decline was lower revenues from

agder energi ANNUAL REPORT 2012 18 our retail business, as a result of lower tage points over the course of the year to 700 (450) million share of NGAAP profit electricity prices. 26%. This increase is attributable to the reflects the true underlying performance profit for the year and actuarial gains and of the Group better than the IFRS figure, Operating profit in 2012 fell 25% to NOK losses. In 2012, actuarial gains increased as it is less affected by unrealised gains 1 852 (2 470). Adjusted for unrealised gains the Group’s equity by NOK 358 million, and losses. Moreover, the NGAAP profit and losses, operating profit was NOK 1 526 whereas in 2011 actuarial losses decrea- more closely matches changes in the (1 487) million. sed it by NOK 346 million. The Group’s Group’s distributable reserves. interest-bearing debt totalled NOK 7 223 The Group achieved a pre-tax profit of NOK (7 028) million at the close of the year. The The Board of Director proposes that NOK 1 615 (2 163) million. Profit after tax came average interest rate on the debt portfolio 620 million be paid out in dividends, which to NOK 1 069 (1 161) million. Adjusted for was 4.3% (4.5%), calculated in NOK. At represents 89% of the Group’s NGAAP unrealised gains and losses, the Group’s the end of the year, the Group had NOK profit. The profit for the year of the parent pre-tax profit was NOK 1 315 (1 291) mil- 1 310 (1 460) million of unrestricted liquid company Agder Energi AS was NOK 858 lion, while its profit after tax was NOK 708 assets and undrawn credit facilities. (891) million under NGAAP. (526) million. Net investment totalled NOK 509 (774) The Board proposes that Agder Energi The Group’s tax expense fell to NOK 691 million in 2012. NOK 956 (728) million was AS’s profit for the year be appropriated million in 2012, down from NOK 1 008 mil- invested in property, plant, equipment and as follows: lion the previous year. This was due to a intangible assets, of which almost 90% combination of lower pre-tax profit and related to the Network and Hydroelectric (Amounts in NOK millions) a reduction in both payable and deferred Power business areas. Allocated for dividends 620 resource rent tax. The Group’s effective tax Transferred to other reserves 238 rate was 42.8% (46.6%). Cash flow from operating activities was Total allocations 858 NOK 970 (2 097) million in 2012. This is Gains on the disposal of LOS Bynett, Bynett 54% less than in 2011, when cash flow The parent company had NOK 569 (187) Privat and Sopran have been recognised was boosted significantly by a reduction million in distributable reserves after the under “Profit/loss (discontinued opera- in trade receivables at the retail business. appropriations as of 31 December 2012. tions)”. The sale of these companies resul- In addition, the amount of tax paid was ted in a NOK 127 million accounting gain higher in 2012 than in 2011. Going concern assumption after tax. In accordance with the Norwegian Ac- Proposed dividends counting Act, the Board of Directors con- Financial results and capital structure The dividend for the year has been set firms that the going concern assumption Agder Energi’s assets had a book value based on the Group’s profit under NGAAP is justified, and that the annual financial of NOK 15.7 (15.1) billion at the close of (Norwegian generally accepted accounting statements have been prepared on that 2012. The equity ratio rose four percen- principles). The controlling interest’s NOK basis.

2012 PERFORMANCE BY BUSINESS AREA

The accounts for the business areas have generation was 8 134 GWh (6 564 GWh), 122 million. In addition to higher generation, been prepared under NGAAP. which was an increase of 24% over 2011. the increase was due to good scheduling, Meanwhile, electricity prices fell signifi- and the fact that in 2012 there was a strong The Hydroelectric Power and Energy cantly. In the NO2 region, which is where positive contribution from electricity price Management business areas Agder Energi generates all of its hydro- hedges, as opposed to a negative contri- In 2012, the Hydroelectric Power and Ener- electric power, the average price over the bution in 2011. Thanks to good scheduling gy Management business areas consisted course of the year fell 39% to 21.8 øre/ and hedging, prices achieved only fell by of the companies Agder Energi Vannkraft kWh (36.0 øre/kWh). 12% to 26.3 øre/kWh (30.0 øre/kWh) in and Agder Energi Kraftforvaltning. After 2012. The business areas’ revenues amoun- two years of low hydroelectric power ge- In spite of the fall in prices, the two business ted to NOK 2 399 (2 368) million. neration, production in 2012 was slightly areas managed to increase their operating above the Group’s average of 7.7 TWh. Total profit to NOK 1 367 (1 245) million, up NOK There was a stronger contribution from

agder energi ANNUAL REPORT 2012 19 exchange rate hedging in 2012 than in 2011, affected by lower interest rates. Operating vious year. The reduction was mainly due and combined with the above-mentioned profit came to NOK 128 million, compared to a significant fall in the spot price for factors this led to pre-tax profit rising to with NOK 144 million the previous year. electricity. The company made an opera- NOK 1 420 (1 252) million. The tax expense ting profit of NOK 55 (75) million. Over the was NOK 639 million in 2012, compared The income cap imposed on grid operators course of the year, LOS supplied a total with NOK 762 million the previous year. The is lowered if there are power cuts. In 2012, volume of 9.8 TWh (10.4 TWh), which means main explanation for the reduction was a power cuts cost Agder Energi Nett NOK that the company maintained a high share decline in resource rent tax payable, as 27 million, compared with NOK 52 million of the domestic electricity market in Agder. well as a reduction in estimated deferred in 2011. The cost in 2012 was the lowest resource rent tax. The resource rent tax since 2007. In 2012, LOS once again achieved very high payable fell due to the decline in spot elec- scores for its reputation and customer sa- tricity prices. NOK 419 (348) million was invested in 2012, tisfaction. of which NOK 179 (179) million related to Profit after tax amounted to NOK 781 mil- investments in new projects. Otera made an operating loss of NOK 49 lion (NOK 490 million). million in 2012, after making a profit of NOK In 2013, the transmission tariff for the local 23 million in 2011. This was the result of los- NOK 415 (222) million was invested in 2012. distribution network has been increased by ses on certain specific contracts. Turnover The increase was mainly due to Agder 8-10%. rose by NOK 108 million to NOK 1 549 Energi’s share of the cost of the new Skarg (1 441) million. At the end of the year, the power station (Brokke Nord/Sør), which is The Market business area order book was satisfactory, and around being developed through Otra Kraft. The In 2012 the Market business area com- the same level as the previous year. project is planned for completion in 2014. prised the companies LOS, Agder Energi Varme and Otera. The business area’s In 2012, Agder Energi Varme made an The Network business area turnover was NOK 5 059 (6 189) million, operating profit of NOK 15 (12) million. This business area, which in 2012 consi- while its operating profit was NOK 21 (109) The company experienced strong under- sted of the company Agder Energi Nett, million. NOK 62 (65) million was invested in lying growth in its customer base, and the had NOK 1 048 (1 143) million of operating the business area in 2012. amount of energy it supplied rose by 13 revenues in 2012, The income cap, which is GWh to 124 GWh in 2012. NOK 62 (65) mil- set by the Norwegian Water Resources and LOS’s turnover was NOK 3 423 in 2012, lion was invested over the course of the Energy Directorate (NVE), was negatively compared with NOK 4 669 million the pre- year.

EMPLOYEES

Staff and organisational structure were offered either a redundancy pac- policy and providing good training, as well For us, it is important to have a good kage or early retirement. The remaining as by promoting a results-oriented culture, relationship with our employees. At the adjustments were achieved by redeploying HSE and good management. close of the year, the Group had 1 529 (1 staff elsewhere in the Group and by cut- 579) permanent and temporary employ- ting the number of long-term contractors. The Board of Directors would like to ees, representing 1 495 (1 536) full-time The process was carried out in close coo- thank staff for all their hard work over the equivalents, while the parent company peration with employee representatives. course of the year. had 164 (55) permanent employees. The increase at the parent company was due In 2012, our annual employee satisfaction Health and safety to administrative and shared services be- survey once again showed that staff enjoy In 2012, the Group’s sickness absence ing centralised. their work and like the working environ- rate was 3.9%, compared with 4.7% in ment at the Group. 2011. Of that, 1.8% (1.6%) was short-term In the third quarter, we implemented a absence and 2.1% (3.1%) was long-term streamlining process. This involved a We work hard to keep and develop our absence (more than 16 days). We aim to reduction in administrative and support best employees. This is done by offering have a sickness absence rate below 3.5%, staff, affecting 55 full-time equivalents. Of competitive compensation packages, and after working hard to improve the way these, 19 were permanent employees who implementing a life phase-conscious HR in which we deal with absences, the rate

agder energi ANNUAL REPORT 2012 20 was 3.4% in the second half of 2012. The placed a strong emphasis on HSE work, conduct themselves. The guidelines also companies in the Group have signed up including monitoring. The Board wants incorporate principles relating to equality to the Norwegian government’s inclusive to underline the importance of continu- and diversity. We support the principles working life scheme for the period 2010- ing this work, so that we learn from near set out in the UN’s Universal Declaration 2013. misses and thus minimise the number of Human Rights and the ILO Convention, of accidents and injuries. Moreover, our and we do not accept any form of discri- During the year, 37 (45) occupational acci- goal is for all unwanted incidents to be mination. This means that people shall not dents resulting in injury were recorded. reported, so that we can discover faults be treated differently, excluded or shown Of these, 18 (22) resulted in lost time. and prevent serious incidents from hap- preference based on their race, gender, Together with incidents that occurred in pening in the future. We have therefore age, any disability, sexual orientation, 2011, they caused a total of 204 (148) days taken steps to increase reporting. religion, political opinions or national or to be lost in 2012. The total injury frequ- However, although a significant increase in ethnic origin, and that no other form of ency, defined as the number of injuries reporting was achieved in comparison with discrimination shall be tolerated. Women (including both non-lost-time and lost-time 2011, we did not manage to reach our goal. make up 14% (15%) of the Group’s em- injuries) per million working hours (the ployees, and there are six men and two so-called “H2 value”), was 13.9 (16.2). The Diversity and equal opportunity women in the senior management team. number of person days lost to accidents Our ethical guidelines set out how the Women occupy 33% (33%) of the seats per million working hours (the so-called “F Group shall be governed and managed, on the Board. value”) was 77 (51). In 2012 we once again and how our employees are expected to

THE ENVIRONMENT

The Group’s businesses in the hydropower, relation to the rules governing the opera- years. Agder Energi Vannkraft is working wind power, geothermal energy and grid tion of the company’s dams. The breach to establish the cause of this, by partici- operation sectors are run through wholly- occurred at Kvinesdal power station, and pating in a joint project involving both the owned and part-owned subsidiaries. Those was reported to NVE. The breach was not private and public sectors. companies operate in accordance with considered important, and the two non- government licences and rules based on conformances were judged to be so minor In July and August 2012, bulbous rush was current legislation and court decisions. that they were only mentioned in NVE’s cut, harrowed and tilled at four different annual summary. locations along the River Mandalselva. Dams and power stations change the natu- This was a success, and it was appre- ral environment, but the Group’s activities Damming river systems can result in fish ciated by the local community. The County do not have a bigger impact on nature or losing spawning grounds and can have Governor of Vest-Agder provided funding society than is usual for this kind of busi- a detrimental effect on their long-term for the project, which was implemented ness. Furthermore, we make a significant access to food. In order to mitigate this, by Agder Energi Vannkraft in collabo- positive contribution to the environment we carry out statutory and voluntary ration with users of the river system. by generating on average 7.7 TWh of re- activities to reduce the environmental The plan is to again remove bulbous rush newable energy each year. impact of our business. We therefore from the Mandal river system in summer carry out test fishing and release fish into 2013. The Water Resources Act, Watercourse a number of reservoirs, in order to secure Regulation Act, Energy Act, Industrial the viability of the trout population in the As a result of the EU Water Framework Licensing Act and Pollution Control Act Finså, Mandal and Uldal river systems. In Directive, Norway has been split into are the most important pieces of legisla- the Mandal river system and in the River 16 water regions. Agder is one of these tion governing our business. The Group’s Nidelva, projects have also been initiated regions, and Vest-Agder County Council subsidiaries are required to report any in collaboration with the environmental has been appointed the regional water non-conformances with the terms of their authorities to re-establish salmon popu- authority. Work on establishing manage- licences. lations. ment plans for all of the rivers in the Agder region started in 2012. This In 2012, Agder Energi Vannkraft had one In many rivers in the Agder region there work will be stepped up in 2013, breach and two non-conformances in has been a lot of bulbous rush in recent and is being monitored closely by

agder energi ANNUAL REPORT 2012 21 Agder Energi Vannkraft in its roles as a In 2012 there were no incidents that resul- Norwegian Radiation Protection Autho- regulated party and hydroelectric power ted in environmental pollution. rity and NVE. producer. Agder Energi Nett also carefully monitors The Group reports on matters relating to In principle our operation of the power grid the latest research and developments in the environment in a separate sustainabi- is non-polluting. However, for operational relation to the potential impacts of elec- lity report, which forms part of the Group’s reasons, components are used that may tromagnetic fields on human health. The corporate social responsibility reporting. cause pollution in the event of an accident. company follows the guidelines of the

RISK MANAGEMENT AND INTERNAL CONTROLS

We use a balanced scorecard to manage is an internal control system, which descri- optimise the Group’s revenues from one the implementation of our strategy and to bes how the Group governs and manages year to another. Limits on futures trading measure the results achieved. This system its activities. SLIK also sets out which ru- are based on the desired hedge ratio in re- involves specifying key goals, strategies les and guidelines employees need to fol- lation to the potential generation. Currency and parameters on scorecards, which are low in their day-to-day work, including the risk is hedged by gradually hedging cash specified for the Group as a whole, for the company’s values and its guidelines on flows from expected electricity sales over business areas and for each individual sub- ethics and corporate social responsibility. the next four years. Downstream activities sidiary. are exposed to fluctuations in the price at In 2012 work started on unifying and inte- which electricity is sold to domestic and The Board has adopted a general risk ma- grating the Group’s concepts and systems business customers, as well as purchase nagement policy, which provides the fram- relating to operational risk, market/finan- prices in the wholesale market. ework and guidelines for integrated risk cial risk and other areas of risk. We expect management. Based on that policy, indivi- to complete this process during 2013. We are exposed to interest rate risk dual risk management strategies have been through changes in the interest rates on drawn up for the following areas: power ge- Risks the Group’s interest-bearing liabilities, as neration, retail market, electricity trading The Group is exposed to risks in a variety well as through the impact of interest rates and finance (interest and exchange rate of areas throughout the value chain. The on the Network business area’s income cap risk). The Group’s risk management sys- most important areas are related to the and the deductible interest rate used to tems cover all areas that could affect its market, financial management, operations, calculate the resource rent tax payable by ability to meet its goals. This includes set- the regulatory framework and the opera- the power generation business. The Group’s ting and monitoring limits on the Group’s ting environment. shared finance department coordinates and venture capital investments, as well as ana- manages financial risk. This is done using lysing potential impacts on financial results. We are exposed to several types of market fixed-interest loans and with the help of risk. Generating and selling electricity is financial instruments. Our risk management activities form an associated with the risk of fluctuations in integrated part of the business operations volumes and prices, which are directly af- We are exposed to liquidity risk arising from at individual companies within the Group, fected by variations in precipitation levels the fact that liabilities do not mature at the and they are responsible for mapping and and temperatures, and indirectly influenced same time as when cash flows are genera- managing their own risks. Overall exposure by fluctuations in the prices of gas, coal, oil ted. Variations in margin requirements on to risk is also monitored at the Group le- and CO2 quotas. Electricity trading, which futures also add to the liquidity risk. Capital vel, and is included in reports to the senior is done in euros, also introduces a currency markets consider Agder Energi to be a low- management team and Board of Directors. risk. Market risks are managed with the risk borrower. The Group mainly finances Each quarter the Board receives a detailed help of various physical and cash-settled its operations through the Norwegian com- report on the position of the Group. instruments, which are used to secure sta- mercial paper and bond markets, but it also ble revenues from energy sales in NOK. The uses the banking market to some extent. Our corporate governance document SLIK use of futures is designed to stabilise and The Group has credit facilities with banks to

agder energi ANNUAL REPORT 2012 22 backstop its commercial paper programme. res for chasing up unpaid receivables, and the risk of causing environmental pollution. Exposure to liquidity risk is managed by the the limits on exposure to individual parties Contingency plans and the procedures of finance and risk management department. are monitored and reported regularly. The individual operating units are designed to most important operational risks are the manage these risks. Changes to the ope- We take on credit risk by trading and sel- risk of injuries to the Group’s employees, rating environment and political decisions ling electricity and through trading financial the risk of damage to power plants, dis- are also potential risks, and we constantly instruments. The Group has good procedu- tribution networks and other assets, and monitor the political situation.

SHAREHOLDER INFORMATION

The company’s share capital consists of being allocated indefinite waterfall licen- shareholders in the event of shares in the 2 700 000 shares with a face value of ces under the relevant current legislation. company being sold. In addition, the mu- NOK 670. Of these, 1 800 000 are class Class B shares are freely negotiable. nicipal shareholders have agreed to coor- A shares and 900 000 are class B sha- dinate their votes at the AGM. res. Class A shares can only be owned by A shareholders’ agreement regulates mat- shareholders who meet the conditions for ters such as pre-emptive rights for existing

CORPORATE GOVERNANCE

Matters relating to corporate governance annual report. are described in a separate section of this

RESEARCH AND DEVELOPMENT

The Group’s investment in R&D helps it to Design of Renewable Energy), which stu- advances and improvements. In addition, build up relevant expertise, which in turn dies the interaction between technology, we contribute to regional innovation and lays the foundations for long-term, profi- the environment and society, as well as growth through our proactive involvement table growth and development. In 2012, the role of dispatchable hydropower in Teknova, for instance. we concentrated our R&D and innovation in future electric power systems. The activities even more closely on our core challenges associated with distributed The Group’s venture capital investments operations. generation are another area of focus for are managed through the company Agder our R&D activities. Energi Venture. In 2012, the Group did not We participate in a number of R&D pro- sell any of its investments, but it did put jects, both at a regional and national Innovation at Agder Energi helps to additional resources into past investments level. The biggest investment in 2012 was enhance and develop current oper- and invest in new projects. in CEDREN (Centre for Environmental ations, by acting as a tool for stimulating

EVENTS AFTER THE BALANCE SHEET DATE

We are not aware of any incidents in the Group’s financial position and results. 2013 that have a significant impact on

agder energi ANNUAL REPORT 2012 23 OUTLOOK

Agder Energi is working on a number of other countries, this may put pressure on At the close of 2012, the Group’s hydro- projects that in the long term will help it future electricity prices. logical resources (water and snow) were to benefit from the common green power higher than normal, but the start of 2013 market in Sweden and Norway, which was We have a continuous programme to make has been dry. Assuming normal precipita- established in 2012. Skarg power station operations throughout the Group simpler tion levels, we expect to generate roughly (Brokke Nord/Sør) is already under con- and more efficient, as well as to reduce the same amount of hydroelectric power struction, and a decision will very soon costs. The results of this programme will in 2013 as in 2012. Futures prices for elec- be taken on whether to go ahead with the help to enable us to continue adding value tricity indicate that prices in 2013 will be investment in Iveland power station. in the future. higher than average spot prices in 2012. We expect revenues from power genera- On the other hand, the introduction of We expect our grid operating company to tion in 2013 to be similar to 2012. At the green power certificates is expected to achieve a higher profit in 2013. The reason end of 2012, the Group had sold relatively increase investment in renewable energy for this is NVE’s new model for return on large volumes of electricity in advance. over the coming years. If greater invest- capital invested. In addition, in 2013 grid ment in new capacity is not accompanied operators will receive a one-off compen- by an increase in grid integration with sation for expenses incurred in 2011.

Kristiansand, 20 March 2013 Board of Directors of Agder Energi AS

Sigmund Kroslid Chair

Lars Erik Torjussen Bente Rist Katja Lehland Steinar Bysveen Jon Vatnaland

Steinar Asbjørnsen elisabeth Morthen Johan Ekeland Øyvind Østensen oddvar E. Berli

Gro Granås-Brattland Tom Nysted CEO

agder energi ANNUAL REPORT 2012 24 agder energi ANNUAL REPORT 2012 25 Board of directors

Sigmund Kroslid Lars Erik Torjussen Katja Lehland Bente Zeline Rist

Steinar Bysveen Elisabeth Morthen Steinar Asbjørnsen Jon Vatnaland

Johan Ekeland Øyvind Østensen Oddvar Emil Berli Gro Granås-Brattland

agder energi ANNUAL REPORT 2012 26 Declaration pursuant to Section 5-5 of the Securities Trading Act

We confirm that, to the best of our knowledge, the annual financial statements have been prepared in accordance with current accounting standards, and that the information contained therein provides a true and fair view of the assets, liabilities, financial position and overall results of the parent company and of the Group. We also confirm that the annual report gives a true and fair view of the performance, results and financial position of the parent company and the Group, as well as describing the most important areas of risk and uncertainty facing the Group’s businesses.

Kristiansand, 20 March 2013 Board of Directors of Agder Energi AS

Sigmund Kroslid Chair

Lars Erik Torjussen Bente Rist Katja Lehland Steinar Bysveen Jon Vatnaland Deputy Chair

Steinar Asbjørnsen elisabeth Morthen Johan Ekeland Øyvind Østensen oddvar E. Berli

Gro Granås-Brattland Tom Nysted CEO

agder energi ANNUAL REPORT 2012 27 THE AGDER ENERGI GROUP financial statements

agder energi ANNUAL REPORT 2012 28 content

Statement of comprehensive income 30 Statement of fi nancial position 31 Statement of cash fl ows 32 Statement of changes in equity 34 Accounting principles 36

NOTES Note 1 Segment information 44 Note 2 Acquisitions, disposals and buy-out of non-controlling interests 47 Note 3 Energy sales 48 Note 4 Transmission revenues 49 Note 5 Other operating revenues/other raw materials and consumables used 50 Note 6 Long-term manufacturing contracts 50 Note 7 Unrealised gains and losses on energy contracts 51 Note 8 Employee benefi ts 51 Note 9 Property taxes and licence fees 51 Note 10 Other operating expenses 52 Note 11 Auditor’s fee 52 Note 12 Financial income/expenses 53 Note 13 Tax 54 Note 14 Depreciation 56 Note 15 Intangible assets 56 Note 16 Property, plant and equipment 58 Note 17 Associates and joint ventures 60 Note 18 Non-current fi nancial assets 63 Note 19 Inventories 63 Note 20 Receivables 64 Note 21 Cash and cash equivalents 64 Note 22 Share capital and shareholder information 64 Note 23 Provisions 66 Note 24 Pensions 66 Note 25 Interest-bearing liabilities 70 Note 26 Other non-interest-bearing current liabilities 70 Note 27 Financial instruments 71 Note 28 Derivatives 72 Note 29 Fair value of fi nancial instruments 73 Note 30 Quantitative information about risk exposures arising from fi nancial instruments 75 Note 31 Mortgaged assets, liabilities and guarantees issued 81 Note 32 Contingent liabilities and events after the reporting period 81 Note 33 Management compensation, etc. 82 Note 34 Related parties 84 Note 35 Government grants 84 Note 36 Discontinued operations 84 Note 37 Correction of prior years’ errors 85

AgDer energi ANNUAL REPORT 2012 29 statement of comprehensive income

(Amounts in NOK millions) Note 2012 2011

Energy sales 3 5 625 6 807 Transmission revenues 4 1 079 1 152 Other operating revenues 5 1 916 1 741 Unrealised gains and losses on energy contracts 7 326 984 Total operating revenues 8 946 10 684

Energy purchases 3 -3 367 -4 758 Transmission expenses -192 -212 Other raw materials and consumables used 5 -1 114 -930 Employee benefits 8 -981 -970 Depreciation and impairment losses 14 -465 -438 Property taxes and licence fees 9 -194 -181 Other operating expenses 10, 11 -781 -725 Total operating expenses -7 094 -8 214

Operating profit 1 852 2 470

Share of profit/loss of associates and jointly controlled entities 12 -31 10 Financial income 12 145 141 Unrealised gains and losses on currency and interest rate contracts 12 -25 -111 Financial expenses 12 -326 -347 Net financial income/expenses -237 -307

Profit before tax 1 615 2 163

Income tax 13 -461 -599 Resource rent tax 13 -230 -409 Tax expense -691 -1 008

Profit after tax from continuing operations 924 1 155 Profit after tax from discontinued operations 36 145 6 Profit after tax 1 069 1 161

Of which attributable to non-controlling interests 8 8 Of which attributable to controlling interest 1 061 1 153

Earnings per share/Earnings per share, diluted (NOK) 393 427

other comprehensive income

Profit after tax 1 069 1 161 Actuarial gains and losses on pensions 24 497 -480 Cash flow hedges 30 -1 -8 Tax impact of actuarial gains/losses and cash flow hedges 13 -139 137 Comprehensive income 1 426 810

Of which attributable to non-controlling interests 8 8 Of which attributable to controlling interest 1 418 802

agder energi ANNUAL REPORT 2012 30 Statement of financial position

(Amounts in NOK millions) Note 31.12.12 31.12.11 01.01.11

Deferred tax assets 13 411 434 543 Intangible assets 15 232 229 221 Property, plant and equipment 16 11 655 11 141 11 134 Investments in associates and jointly controlled entities 17 197 219 175 Other non-current financial assets 18 456 310 575 Total non-current assets 12 951 12 333 12 648

Inventories 19 35 33 28 Receivables 20 1 934 1 602 2 591 Derivatives 28 645 449 1 209 Cash and cash equivalents 21 89 102 249 Total current assets 2 703 2 186 4 077

Assets of discontinued operations 36 - 539 -

TOTAL ASSETS 15 654 15 058 16 725

Paid-in capital 22 1 907 1 907 1 972 Other reserves 2 123 1 347 1 382 Non-controlling interests 60 42 25 Total equity 4 090 3 296 3 379

Deferred tax 13 705 569 483 Provisions 23 1 366 1 925 1 645 Interest-bearing non-current liabilities 25 4 796 5 259 5 894 Total non-current liabilities 6 867 7 753 8 022

Interest-bearing current liabilities 25 2 426 1 769 1 727 Tax payable 13 663 655 451 Derivatives 28 240 227 1 803 Other non-interest-bearing current liabilities 26 1 368 1 297 1 343 Total current liabilities 4 697 3 948 5 324

Liabilities of discontinued operations 36 - 61 -

TOTAL EQUITY AND LIABILITIES 15 654 15 058 16 725

Kristiansand, 20 March 2013 Board of Directors of Agder Energi AS

Sigmund Kroslid lars Erik Torjussen Bente Rist Katja Lehland Steinar Bysveen Chair

Jon Vatnaland steinar Asbjørnsen elisabeth Morthen Johan Ekeland Øyvind Østensen

Oddvar E. Berli gro Granås-Brattland Tom Nysted CEO

agder energi ANNUAL REPORT 2012 31 statement of cash flows

(Amounts in NOK millions) Note 2012 2011

Cash flow from operating activities Profit before tax from continuing operations 1 615 2 163 Profit before tax from discontinued operations 36 160 9 Depreciation and impairment losses 14 476 449 Unrealised gains and losses on energy, currency and interest rate contracts 7, 12 -300 -873 Share of profit/loss of associates and jointly controlled entities 12 31 -10 Gain on disposal of discontinued operations -120 -37 Tax paid -653 -439 Change in trade receivables 20 -191 810 Change in trade payables 26 -1 21 Change in net working capital, etc. -47 4 Net cash provided by operating activities 970 2 097

Investing activities Purchase of property, plant, equipment and intangible assets 15, 16 -956 -728 Purchase of businesses/financial assets -60 -78 Net change in loans -44 1 Sale of property, plant, equipment and intangible assets 47 14 Sale of businesses/financial assets 504 17 Net cash used in investing activities -509 -774

Financing activities New long-term borrowings 1 347 625 Repayment of long-term borrowings -1 380 -556 Net change in current liabilities 212 -637 Dividends paid -653 -902 Net cash used in financing activities -474 -1 470

Net change in cash and cash equivalents -13 -147

Cash and cash equivalents at start of period 102 249 Cash and cash equivalents at end of period 21 89 102

agder energi ANNUAL REPORT 2012 32 agder energi ANNUAL REPORT 2012 33 statement of changes in equity

(Amounts in NOK millions) Share Share Other paid-in Cash flow Retained Total for Non-controlling Total Note capital premium capital hedges earnings controlling interests equity account interest

Equity reported in financial statements at 31/12/2010 1 809 47 116 33 1 458 3 463 25 3 488 Correction of prior years’ errors 37 - - - - -109 -109 - -109 Corrected equity at 01/01/2011 1 809 47 116 33 1 349 3 354 25 3 379 Profit after tax - - - - 1 153 1 153 8 1 161 Actuarial gains and losses on pensions - - - - -346 -346 - -346 Cash flow hedges - - - -5 - -5 - -5 Dividends paid - - -65 - -835 -900 -2 -902 Changes due to acquisitions, disposals, etc. - - - - -2 -2 11 9 Equity at 31/12/2011 1 809 47 51 28 1 319 3 254 42 3 296

Equity reported in financial statements at 31/12/2011 1 809 47 51 28 1 428 3 363 42 3 405 Correction of prior years’ errors 37 - - - - -109 -109 - -109 Corrected equity at 01/01/2012 1 809 47 51 28 1 319 3 254 42 3 296 Profit after tax - - - - 1 061 1 061 8 1 069 Actuarial gains and losses on pensions - - - - 358 358 - 358 Cash flow hedges - - - -1 - -1 - -1 Dividends paid - - - - -650 -650 -3 -653 Changes due to acquisitions, disposals, etc. - - - - 8 8 13 21 Equity at 31/12/2012 1 809 47 51 27 2 096 4 030 60 4 090

agder energi ANNUAL REPORT 2012 34 (Amounts in NOK millions) Share Share Other paid-in Cash flow Retained Total for Non-controlling Total Note capital premium capital hedges earnings controlling interests equity account interest

agder energi ANNUAL REPORT 2012 35 Accounting principles

Agder Energi’s activities comprise the company’s head office is Kjøita 18, 4630 EU. The consolidated financial state- generation, distribution and sale of en- Kristiansand. ments apply the historical cost principle, ergy, as well as providing energy-related except in the cases of certain financial services. Most of the Group’s operations Basis of preparation assets and liabilities (including cash-sett- are in southern Norway. The parent com- Agder Energi’s consolidated financial sta- led derivatives) that are measured at fair pany Agder Energi AS is a Norwegian tements have been prepared in accor- value through profit or loss and available- limited liability company, founded and dance with International Financial Repor- for-sale financial assets. domiciled in Norway. The address of the ting Standards (IFRS) as approved by the

SUMMARY OF THE MOST IMPORTANT ACCOUNTING PRINCIPLES

Consistency of accounting principles purchase price, and are instead expensed control, the change is accounted for as an The accounting principles applied in 2012 as incurred. The cost of shares in subsi- equity transaction. are the same as those applied in 2011. diaries is eliminated against equity on the acquisition date. The acquiree’s identifiable Jointly-controlled assets and jointly- Consolidation principles assets and liabilities that meet the condi- controlled entities The consolidated financial statements tions for recognition are recognised at their Ownership interests in part-owned power present the overall financial performance fair values at the acquisition date. Goodwill stations and water management associa- and position of the parent company and arising on acquisition is recognised as an tions are classified as jointly-owned assets its subsidiaries when considered as a sin- asset measured at the excess of the sum and are accounted for by including the gle entity. Companies in which the Group of the consideration transferred, the fair Group’s share of assets, liabilities, revenues holds a controlling interest are consoli- value of any previously held equity interests and expenses on the relevant lines in the dated. A controlling interest normally and the amount of any non-controlling in- consolidated financial statements (propor- exists if Agder Energi holds more than 50% terests in the aquiree over the net amounts tionate consolidation). This applies even if of voting rights, either through an ownership of the identifiable assets acquired and the the power station is operated as an inde- interest or through agreements. Subsidiaries liabilities assumed. No provision is made pendent enterprise. acquired or established during the year are for deferred tax on goodwill. If the value consolidated from the date of acquisition or of the assets and liabilities transferred in Interests in jointly-controlled entities are ac- establishment. The non-controlling interests’ conjunction with an acquisition exceeds the counted for using the equity method. The share of profit or loss after tax is specified purchase price, the difference is recognised Group’s proportionate share of the profit on a separate line. through profit and loss under other operat- or loss for the year of jointly-controlled ing revenues. entities is recognised under financial in- All of the financial statements of individual come/expenses. On the balance sheet, companies included in the consolidated fi- Non-controlling interests in the acquiree are these investments are classified as non- nancial statements have been restated to measured either at fair value, or as the non- current financial assets, and are carried at ensure that equivalent balance sheet items controlling interest’s share of the acquiree’s cost adjusted for the Group’s share of re- and transactions are treated consistently net identifiable assets. The measurement tained earnings since acquisition, dividends throughout the Group. All intra-group trans- method should be chosen individually for received, impairment losses and equity actions, receivables, liabilities and unrealised each business combination. transactions at the company. gains and losses have been eliminated in the consolidated financial statements. For step acquisitions, previously held as- Associates sets are measured at fair value at the date Associates over which the Group wields Acquisitions control is obtained. Any gains or losses are significant influence (normally where it Purchase price allocation is performed on recognised through profit or loss. has a 20-50% ownership interest) are ac- the date when control was obtained. This counted for using the equity method. The is when the risks and rewards of owner- Changes in ownership interests in Group’s proportionate share of the profit ship have been transferred, and norm- subsidiaries or loss for the year of associates is rec- ally coincides with the acquisition date. If a change in the parent’s ownership inter- ognised under financial income/expenses. Transaction costs are not included in the est in a subsidiary does not result in loss of On the balance sheet, these investments

agder energi ANNUAL REPORT 2012 36 are classified as non-current financial accordance with the percentage of comple- vidual companies, transactions in curren- assets, and are carried at cost adjusted for tion method. Under this method, revenues cies other than the functional currency of the Group’s share of retained earnings since and profit are recognised gradually as the the company are translated into the func- acquisition, dividends received, impairment work related to the contract is completed. tional currency using the exchange rate on losses and equity transactions at the com- The percentage of completion is normally the date of transaction. Foreign currency- pany. estimated by looking at incurred expenses denominated balance sheet items are as a percentage of total expected project measured using the exchange rate on the Revenues expenses. Accrued revenues are included balance sheet date. Translation differences Recognition of revenues – general on the balance sheet under current receiv- are recognised under financial income/ex- Proceeds from the sale of goods and ser- ables, while advance payments received are penses. vices are recognised as revenues when the included under other non-interest-bearing goods or service are delivered. current liabilities. Financial instruments The Group designates financial instruments Energy sales Disposal of property, plant and equipment in the following categories: a) Financial Revenues from the sale of electricity are When disposing of property, plant and assets and liabilities at fair value through recognised when the electricity is supplied. equipment, any gain or loss is calculated profit or loss; b) Loans and receivables; c) Realised gains or losses on physical and by comparing the sales price with the re- Available-for-sale financial assets; d) Finan- cash-settled energy contracts are presented maining carrying amount of the asset sold. cial liabilities at amortised cost. Designation as energy sales under operating revenues. In Any gain or loss is presented under other is based on the purpose of the instrument, the case of physical and cash-settled deriva- operating revenues or other operating ex- and instruments are designated when they tives, changes in fair value are presented as penses respectively. are acquired. operating revenues under unrealised gains and losses on energy contracts. Realised Government grants a) Financial assets and liabilities at fair value gains or losses on trading portfolios are pre- Government grants are recognised net in through profit or loss sented net as energy sales. When a contract the profit and loss account and balance Financial assets and liabilities at fair value is closed out, the associated unrealised gain sheet. Where a grant is linked to activities through profit or loss are financial instru- or loss is reversed, and the realised gain or that are recognised directly in the profit ments held for trading purposes. Financial loss is presented under energy sales. and loss account, the grant is treated as a instruments are designated in this category reduction in the expenses that the grant is if they have primarily been acquired in or- Transmission revenues supposed to cover. Where the grant relates der to obtain a profit from short-term price Grid operation is subject to the regula- to a project that is included on the balance fluctuations. Derivatives are designated as tions of the Norwegian Water Resources sheet, the grant reduces the amount in- held for trading, unless they are part of an and Energy Directorate (NVE) on income cluded on the balance sheet. accounting hedge. For derivatives other caps. Each year, NVE specifies an income than cash flow hedges, unrealised gains and cap for each individual grid operator, which Foreign currency losses are recognised through profit or loss. is adjusted in the event of changes in the The consolidated financial statements are quality of supply, in order to compensate presented in Norwegian kroner (NOK), Physical contracts for the purchase and customers for energy not supplied. This which is also the functional currency of sale of energy and CO2 quotas that form gives the so-called KILE income cap. The the parent company. The Group includes part of the trading portfolio are defined as revenues recognised in the profit and loss a few small subsidiaries with a different financial instruments. Like their cash-settled account represent the volumes delivered functional currency. These are translated equivalents, they are measured at fair value. during the financial period multiplied by into NOK using the current-rate method. the applicable tariff. The difference be- That involves the balance sheet being Physical contracts for the purchase and tween the income cap and the actual translated at the exchange rate on 31 sale of energy and CO2 quotas that have tariff revenues creates a surplus or short- December and the profit and loss account been entered into for the purpose of obtain- fall. This surplus or shortfall is recognised being translated at the average exchange ing electricity needed by the Group, or as through profit or loss as it arises. Details of rate. Translation differences are included a means of selling the electricity it gener- the surplus or shortfall are given in Note 4. under other comprehensive income and ates, and which do not contain embedded expenses in the statement of comprehen- derivatives such as flexibility in terms of vol- Long-term contracts sive income. umes delivered, are normally recognised on Revenues associated with long-term man- delivery. Contracts entered into for different ufacturing contracts are recognised in When preparing the accounts of the indi- purposes are recorded in separate books.

agder energi ANNUAL REPORT 2012 37 For physical energy sale contracts that will not receive payment in accordance with Euro-denominated loans and certain inter- are settled in euros, the currency portion the original conditions. est rate swaps, including combined curren- of the contract is not considered an em- cy and interest rate swaps, do meet the bedded derivative that must be separated c) Available-for-sale financial assets conditions for hedge accounting under IAS from the host contract and be accounted Shares and ownership interests are classi- 39, and they are accounted for accordingly. for separately as an independent derivative. fied as available for sale. Financial invest- These hedging relationships are presented Contracts of this kind are accounted for in ments classified as available for sale are in the consolidated financial statements as their entirety on delivery. measured at fair value. Fair value gains and follows: losses are recognised as other comprehen- Presentation of derivatives in the profit and sive income and expenses in the statement Cash flow hedges loss account and balance sheet. of comprehensive income. Accumulated In so far as possible, Agder Energi uses Derivatives are presented on separate lines gains and losses on financial investments cash flow hedges to eliminate its exposure in the balance sheet under assets and liabil- previously included under other compre- to fluctuations in cash flows. This includes ities respectively. Derivatives with a positive hensive income or expenses are recog- hedging the currency risk associated with value are presented as assets and deriva- nised in the profit and loss account if the highly probable future revenues from elec- tives with a negative value are presented investments are impaired or disposed of. tricity sales, and regular interest payments as liabilities. Derivatives that are assets and For shares and ownership interests whose in NOK on USD-denominated loans. derivatives that are liabilities are presented fair value is lower than cost, a provision is gross on the balance sheet, unless there recognised in the profit and loss account if The effective part of gains or losses on exists a legal right to offset, and that right the impairment is significant or other-than- hedging instruments is recognised under will actually be used when the contracts temporary. other comprehensive income and expenses are settled. In the latter case, the relevant in the statement of comprehensive income, contracts are presented net in the balance d) Financial liabilities at amortised cost whereas the ineffective part is recognised sheet. In the profit and loss account, gains On initial recognition, financial liabilities are under financial income/expenses. in the and losses on the fair value of derivatives measured at fair value plus directly attribut- profit and loss account. Any effective gain are shown on separate lines. Gains and able transaction costs. Subsequently finan- or loss on a hedging instrument is recycled losses on the value of energy derivatives cial liabilities are carried at amortised cost to profit or loss if the hedged item is rec- are presented under operating revenues, using the effective interest rate method. ognised in the profit and loss account, for while gains and losses on the value of inter- example when the revenues from hedged est rate and currency derivatives are pre- Hedging electricity sales are recognised. sented under financial income/expenses. In order to manage its risk exposures aris- When they are realised, the proceeds from ing from fluctuations in electricity prices, Fair value hedges the sale of electricity derivatives are includ- exchange rates and interest rates, the Agder Energi uses fair value hedges to ed under energy sales, while the proceeds Group uses euro-denominated loans and hedge the currency risk associated with its from currency derivatives are presented net derivatives, such as futures contracts for interest-bearing liabilities and the interest- under financial income/expenses. Regular electricity, currency and CO2 quotas, as rate risk on fixed-rate loans. payments relating to interest rate swaps are well as interest rate swaps. The purpose of presented as an interest expense. these instruments is to secure cash flows The Group’s fair value hedges are deriva- from future electricity generation, as well tives, which are measured at fair value b) Loans and receivables as to avoid large variations in the interest through profit or loss. The hedged items are On initial recognition, loans and receivables expense payable on the Group’s debt port- loans whose carrying amounts fluctuate in are measured at fair value plus directly at- folio. parallel with the hedged risks. These chang- tributable transaction costs. Subsequently es in value are also recognised in the profit loans and receivables are carried at amor- Most of the Group’s hedging instruments do and loss account. Changes in the value of tised cost using the effective interest rate not meet the documentation requirements hedged items and hedges are recognised method. established by the accounting standards under financial income/expenses. for hedge accounting. These contracts are Trade and other receivables with an insig- therefore not accounted for as hedges, even Compensation nificant interest component are recognised if they have been entered into as hedges. The Group pays compensation to landown- at their nominal value less any impairment These kinds of hedges are treated as finan- ers for the right to use waterfalls and land. losses. An impairment loss is recognised if cial assets or financial liabilities measured Compensation is also paid for any damage there is objective evidence that the Group at fair value through profit or loss. to forests, land, etc. The compensation is

agder energi ANNUAL REPORT 2012 38 a combination of one-off payments and tax assets, with the exception of deferred power station’s property, plant and equip- perpetual charges or obligations to supply tax/tax assets relating to items included ment by a standard interest rate set by the electricity free of charge. The present value in the statement of comprehensive income Ministry of Finance. In 2012 the standard of annual charges and the cost of supplying and deferred tax/tax assets arising from interest rate was 1.5%. Resource rent tax is free electricity are presented under provi- business combinations. Tax payable is cal- covered by the so-called “verksamordning”, sions. On initial recognition, the cross entry culated on the taxable profit for the year. which under certain conditions allows you of the provision is a hydropower licence, Deferred tax/tax assets are calculated on to offset positive and negative resource which is presented under property, plant the basis of the temporary differences that rent at different power stations owned and equipment. In subsequent periods, exist between accounting and tax values, as by the same taxpayer or different power annual compensation payments, as well well as the tax effect of any loss carryfor- stations owned by a group of companies as changes to provisions, are considered wards. Deferred income tax and deferred consolidated for tax purposes. Any negative other operating expenses, whereas one-off income tax assets that are expected to resource rent can be carried forward with payments are deducted from the provision. be reversed in the same period are offset interest to be offset against future positive against each other. An assessment is made resource rent. The interest rate applied to Concession power and licence fees as to whether it will be possible to make carryforwards was 2.5% for 2012. Each year, the Group supplies electricity use of the deferred tax assets, and if it is to local municipalities at a price set by the highly probable that this is the case, they Deferred resource rent tax assets and de- Norwegian parliament. Revenues from this are included on the balance sheet. ferred resource rent tax “concession power” are recognised as they When calculating the deferred tax and are earned, based on the regulated price. Natural resource tax deferred tax assets to be included on the Some agreements on concession power are The natural resource tax payable is not af- balance sheet, temporary differences relat- cash-settled, which means that Agder En- fected by profit, and is calculated on the ing to property, plant and equipment and ergi is invoiced for the difference between basis of the individual power station’s aver- part of the accumulated negative resource the spot price and the regulated price. The age generation over the past seven years. rent are taken into account. Only that part present value of the future loss of revenue The tax is charged at 1.3 øre/kWh. Natural of the negative resource rent that is likely due to the difference between the regu- resource tax paid can be deducted from to be used within a 10-year time frame is lated price and spot price is not included income tax. If the natural resource tax ex- included on the balance sheet. Provisions on the balance sheet, but it is presented ceeds income tax, the excess portion can for deferred resource rent tax are based in Note 3. be carried forward with interest to subse- on the nominal tax rate of 30%. Tax-free quent years, in which case it is included allowances are treated as a permanent Each year, the Group pays licence fees to on the balance sheet as an advance tax difference in the year for which they are the central government and municipalities asset, provided that it is likely that it will calculated, and do therefore not affect the for the increase in generating capacity be possible to make use of the asset in calculation of deferred resource rent tax. achieved by damming and piping water. future years. Licence fees are expensed as they are in- Deferred resource rent tax positions can curred. The capitalised value of future fees Resource rent tax under certain conditions by presented is not included on the balance sheet, but is Resource rent tax is profit-related, and is net for several power stations. Deferred calculated and presented in Note 9. payable at a rate of 30% of the net re- resource rent tax assets and deferred resource rent estimated for each individual source rent tax are presented gross. Tax power station. The resource rent is estimat- Companies in the Group involved in hydro- ed from the hourly output of the individual Classification of current and electric power generation are subject to the power station, multiplied by the spot price non-current assets and liabilities special tax rules that apply to power com- for the corresponding hour. In the case of An asset is classified as a current asset if it panies. The Group therefore pays income concession power and power supplied un- fulfils one of the following criteria: tax, natural resource tax and resource rent der long-term contracts with a duration of tax. more than seven years, the actual contract a) it is expected to be realised in, or is price is applied. Actual operating expenses, held for sale or consumption in, the Income tax depreciation and a tax-free allowance are ordinary business cycle; Income tax is calculated in accordance deducted from the estimated gross rent b) it is primarily held for trading; with standard tax rules. The tax expense in order to reach the taxable net resource c) it is expected to be realised within in the profit and loss account consists of rent. The tax-free allowance is determined twelve months of the balance sheet tax payable and changes in deferred tax/ each year by multiplying the tax value of the date, or:

agder energi ANNUAL REPORT 2012 39 d) it is a form of cash or cash equivalent, quisition cost of property, plant and equip- ed using the straight-line method over the unless it is subject to restrictions which ment includes the expenses involved in ac- expected useful life. Lease payments are mean that it cannot be realised or used quiring and preparing the asset for use. apportioned between finance costs and a to settle a liability within twelve months Interest on major investments is calculated reduction of the outstanding liability so as of the balance sheet date. and capitalised. Costs incurred after the to produce a fixed rate of interest on the item entered service, such as regular remaining balance of the liability. A liability is classified as a current liability maintenance, are expensed. if it fulfils one of the following criteria: Lease contracts where most of the risks Costs accrued in relation to internal in- and benefits of ownership remain with the a) it is expected to be settled as part of vestments within the Group are capital- lessor are classified as operating leases. the ordinary business cycle; ised. The acquisition cost only includes Lease payments are expensed in a straight b) it is primarily held for trading; directly attributable costs. Indirect costs line over the lease term. c) it is due for payment within twelve are not capitalised. months of the balance sheet date; or: Impairment losses d) the company has no unconditional right Depreciation is calculated using the Property, plant, equipment and intangible to delay settlement of the liability straight-line method over the expected assets that are depreciated are also tested beyond twelve months after the useful life. The residual value is taken into for impairment if there is any indication to balance sheet date. account when calculating annual depre- suggest that future cash flows cannot jus- ciation. Sites are not depreciated. Hydro- tify the carrying amount. Any difference All other assets are classified as non- power licences are not depreciated either, between the carrying amount and the re- current assets and all other liabilities are as they do not revert to public ownership, coverable amount is expensed in the profit classified as non-current liabilities. but they are instead tested annually for and loss account. The recoverable amount impairment. Periodic maintenance is capi- is the higher of fair value less costs to sell For non-current liabilities, any principal talised and depreciated over the mainte- and the utility value. repayments due over the first year are nance interval. The estimated useful life, presented as current liabilities. depreciation method and residual value When testing for impairment, non-current are reassessed each year. assets are grouped at the lowest possible Intangible assets level at which it is possible to identify inde- Intangible assets, including goodwill, are When assets are sold or disposed of, their pendent cash flows (cash flow generating carried at cost less accumulated deprecia- carrying amount is deducted, and any loss units). In conjunction with each financial tion and impairment losses, provided that or gain is recognised in the profit and loss report, the Group assesses whether any they meet the criteria for capitalisation. account under other operating expenses past impairment of non-financial assets, Intangible assets with an uncertain useful and revenues. Repairs and regular main- except goodwill, should be reversed. life, including goodwill, are not depreci- tenance are expensed as incurred. If new ated, and are instead tested annually for parts are capitalised on the balance sheet, Inventories impairment. the carrying amount of the parts that were Inventories are carried at the lower of cost replaced is deducted, and any gain or loss and fair value less costs to sell. The ac- Research costs are expensed as they are is recognised in profit or loss. quisition cost is calculated using the FIFO incurred. Development costs are capital- principle. ised on the balance sheet if it is probable Lease contracts that future economic benefits attributable Lease contracts are classified as finance Reservoir reserves to the development of an identifiable in- leases if the majority of the risks and ben- The Group’s most valuable raw material is tangible asset will flow to the entity. efits associated with ownership are trans- the water stored in its reservoirs. In accor- ferred to Agder Energi. Assets acquired dance with standard practice in the power Property, plant and equipment through finance leases are carried at the sector, the value of reservoir reserves is Investments in production facilities and lower of fair value and the present value not included on the balance sheet. other property, plant and equipment are of the minimum lease payments calculated carried at cost, less accumulated depreci- at the start of the lease term, less ac- Cash pooling arrangement ation and impairment losses. Hydropower cumulated depreciation and impairment Agder Energi AS has a cash pooling ar- licences are classified as property, plant losses. The associated liability to the les- rangement with its subsidiaries, and the and equipment. Depreciation starts when sor is capitalised on the balance sheet as a Group has a joint bank account for short- the assets are available for use. The ac- financial liability. Depreciation is calculat- term deposits and short-term loans. Exter-

agder energi ANNUAL REPORT 2012 40 nal interest income and interest expenses Actuarial gains and losses are recognised sell. Assets held for sale are presented arising from the cash pooling arrangement in the statement of comprehensive income together on a separate line of the balance are presented as interest income and in- under other comprehensive income or ex- sheet. The same applies to liabilities. In terest expenses on the consolidated profit penses. the profit and loss account, discontinued and loss account. On the consolidated bal- operations are presented on a separate ance sheet, net deposits and overdrafts Changes to defined benefit pension obliga- line as “Profit/loss after tax (discontinued are presented as cash and cash equiva- tions arising from plan amendments that operations)”. Comparative figures are only lents and current liabilities respectively. are applied retrospectively, i.e. where the restated in the profit and loss account. change in entitlement also applies to past Liquid assets years of service, are recognised directly Cash flow statement Cash and cash equivalents includes cash, in the profit and loss account. Changes The cash flow statement has been pre- bank deposits and other short-term, liq- that are not applied retrospectively are pared using the indirect method. uid investments that can be converted recognised through profit or loss over the into known cash values immediately and remaining years of service. New accounting standards and at insignificant risk, and that mature less interpretations than three months after their dates of The net pension liabilities associated with Agder Energi did not start using any new acquisition. underfunded pension plans, and unfunded or revised accounting standards during pension plans that are treated as operat- 2012. Dividends ing expenses, are classified as provisions Proposed dividends are classified as eq- for non-current liabilities. The following amendments to relevant uity. Dividends are reclassified as current accounting standards and interpretations liabilities when they are adopted. The net pension expense for the period have been published, but had not entered is included under employee benefits, and into force when the financial statements Provisions, contingent assets and con- consists of the sum of the current service were presented: tingent liabilities cost, the interest cost, the estimated re- A provision is recognised if the Group has turn on pension plan assets and employ- IAS 1 – Presentation of financial state- a present obligation arising from a past ers’ NICs. ments: The amendment to the standard event, and if it is probable that it will have requires other revenues and expenses to settle the obligation. Provisions are Defined contribution pension plans presented in the statement of comprehen- measured using the management’s best In the case of a defined contribution plan, sive income to be grouped on the basis of estimate of the cost of settling the obliga- the Group makes regular contributions whether or not they are potentially reclas- tions on the balance sheet date, and are into a separate legal entity, but has no sifiable to profit and loss in subsequent discounted to their present value if this further liabilities once the contributions periods. Agder Energi will implement the makes a significant difference. have been made. amendment as of 1 January 2013.

Pensions The contributions are expensed as em- IAS 19 – Employee benefits: Several Defined benefit plans ployee benefits when they are made. amendments have been made to the stan- A defined benefit plan is a pension plan dard. From Agder Energi’s point of view which defines the pension benefit an em- Non-current assets held for sale and the important change is that the return on ployee will receive on retirement. The pen- discontinued operations pension plan assets should no longer be sion liability recognised for defined benefit Non-current assets and groups of non- based on the expected return, but should plans is the present value of the pension current assets and liabilities are classi- instead be equal to the discount rate used benefits earned as of the balance sheet fied as held for sale if they their carrying to calculate the pension liabilities. Any dif- date, less the fair value of the pension plan amount will primarily be recovered through ference between the actual return and the assets. The present value of pension bene- sale rather than through future usage. This recognised return shall still be entered as fits earned as of the balance sheet date is applies to cases where the management an actuarial gain/loss in the statement of calculated by discounting estimated future has committed itself to selling them, and comprehensive income. If applied to the benefits payable. The pension obligation where negotiations with another party 2012 financial statements, this amend- is calculated annually by an independent have been initiated prior to the end of ment would have increased the pension actuary using the projected credit unit the financial period. Assets held for sale expense by NOK 35 million, and would method. are measured at the lower of their carry- have reduced profit after tax by NOK 25 ing amount and fair value less costs to million. The actuarial gain in 2012 would

agder energi ANNUAL REPORT 2012 41 have been NOK 35 million higher. Com- the principles of IAS 27. The purpose is to IFRS 12 – Disclosure of interests in other prehensive income would have remained clarify the requirements that were either entities: This standard contains all of the unchanged. Agder Energi will implement implicit or stated in less detail in IAS 27. note disclosure requirements relating to the amendments as of 1 January 2013. Agder Energi expects to start using the consolidated financial statements previ- IAS 32 – Financial instruments – presenta- standard as of 1 January 2014. ously found in IAS 27, as well as the re- tion: This standard has been amended in quirements previously found in IAS 28 order to clarify the criteria for offsetting. IFRS 11 – Joint arrangements: This stan- and IAS 31. There are also various new Agder Energi expects to start using the dard will replace IAS 31 – Interests in joint requirements relating to additional infor- standard as of 1 January 2014. ventures. IFRS 11 contains new guide- mation. The Group expects to start using lines on when to use proportionate the standard as of 1 January 2014. IFRS 7 – Financial instruments – disclo- consolidation and when to use the eq- sures: The amendments to the standard uity method; amongst other things, the IFRS 13 – Fair value measurement: This relate to the information required in the proportionate consolidation method can standard brings together and clarifies the notes when offsetting financial assets and no longer be used for jointly controlled guidelines on how to measure fair value. liabilities. Agder Energi will implement the entities. Agder Energi has significant Agder Energi expects to start using the standard as of 1 January 2013. investments in jointly controlled entities, standard as of 1 January 2014. but it has concluded that the amendments IFRS 10 – Consolidated financial state- will not affect its financial statements. The ments: This standard contains a new Group expects to start using the standard definition of control, although it builds on as of 1 January 2014.

ACCOUNTING JUDGEMENTS

Below we have set out the areas where the judgements made by management in applying the Group’s accounting principles potentially have a material impact on the consolidated financial statements.

Non-financial energy contracts The senior management team has, based and municipalities are supposed to com- Non-financial energy contracts, which in on the criteria in IAS 39, used its best pensate for the damage or inconvenience accordance with IAS 39 are considered judgement to assess which contracts caused by hydropower projects. Liabilities to be contracts that can be “settled net should be defined as financial instruments arising from the fact that future conces- in cash”, are treated as though they were and which contracts should not, mainly sion power may be supplied at a discount financial instruments. This applies unless due to the “own use” exemption. Con- to the market price, as well as the cost of the contracts have been entered into and tracts classified as financial instruments future licence fees, are regulatory require- continue to be held for the purpose of are carried at fair value, with gains and ments and are therefore non-contractual the receipt or delivery of the energy in losses recognised in profit or loss, while liabilities. Consequently they are not in- accordance with the Group’s expected other contracts are generally recognised cluded in the financial statements, but purchase, sale or usage requirements on delivery. their present value has been calculated, (the “own use” exemption). However, IAS and is presented in Note 3 and Note 9. 39 sets out clearly defined limits on when Concession power and licence fees such contracts shall be considered to have The concession power provided and the li- been settled in cash. cence fees paid to the central government

agder energi ANNUAL REPORT 2012 42 UNCERTAINTIES – CRITICAL ACCOUNTING ESTIMATES

In conjunction with the preparation of the is based on market practice and confirmed cash flows, with required rates of return, financial statements, the management has by external market players. prices, operating margins and sales vol- to make certain estimates and assump- umes being the most important factors. tions. These affect the reported assets Property, plant and equipment and liabilities, including contingent assets Property, plant and equipment is depreci- Deferred tax assets and liabilities on the balance sheet date, ated over its expected useful life, giving The Group has capitalised deferred tax and the reported revenues and expenses rise to depreciation in the profit and loss assets arising from negative resource for the period. Actual results may deviate account. The expected useful life is esti- rent that has been carried forward. De- from these estimates. mated on the basis of experience, past ferred tax assets are capitalised when performance and best judgement, and it is expected that it will be possible to The most important assumptions concern- is adjusted if there are any changes to make use of the negative resource rent ing the future and other key sources of those estimates. The residual value, which within a ten-year time frame. The timing estimation uncertainty are set out below. is taken into account when calculating de- of when it may be possible to make use preciation, is also estimated. of negative resource rent is particularly Fair value of financial instruments dependent on assumptions regarding fu- The fair value of energy contracts is partly Impairment losses ture electricity prices. The management calculated on the basis of assumptions The Group has significant investments has used its best judgement when mak- that are not entirely observable in the in intangible assets, property, plant and ing assumptions about future electricity market. This is particularly true of long- equipment, joint ventures, associates and prices and other assumptions that affect term electricity contracts. Where that is shares. These non-current assets are test- future resource rent. the case, the management has based its ed for impairment if there is an indication estimates on the information available in that they have fallen in value. This might Pensions the market in combination with its best be indicated by changes in market prices Calculating pension liabilities involves judgement. There is a more detailed de- or contract structures, negative events or using best judgement and estimates for a scription of the assumptions used to value other operating conditions. When calculat- number of parameters. See Note 24 for a those contracts in Note 29. The fair value ing the recoverable amount, a number of more detailed descriptions of the assump- of interest rate and currency derivatives estimates must be made regarding future tions that have been applied.

agder energi ANNUAL REPORT 2012 43 Notes

Note 1 SEGMENT INFORMATION

(Amounts in NOK millions) The Hydroelectric Power Network LOS Otera Parent/other Eliminations Total (NGAAP) IFRS adjustments Total (IFRS) and Energy Management business area business area 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

PROFIT/LOSS Operating revenues 2 399 2 368 1 048 1 143 3 424 4 669 1 549 1 441 884 898 -593 -783 8 711 9 736 235 948 8 946 10 684 - of which external operating revenues 2 229 2 175 999 1 090 3 402 4 652 1 313 1 221 632 584 136 14 8 711 9 736 235 948 8 946 10 684 - of which internal operating revenues 170 193 49 53 22 17 236 220 252 314 -729 -797 ------Energy and transmission expenses -216 -349 -289 -363 -3 255 -4 479 - - -33 -37 234 258 -3 559 -4 970 - - -3 559 -4 970 Other raw materials and consumables used - - - - -1 -1 -845 -717 -303 -267 22 31 -1 127 -954 13 24 -1 114 -930 Employee benefits -179 -181 -106 -98 -51 -56 -531 -499 -335 -329 198 160 -1 004 -1 003 23 33 -981 -970 Other operating expenses -434 -397 -329 -353 -56 -53 -204 -184 -290 -318 324 384 -989 -921 14 15 -975 -906 Operating profit/loss before depreciation and impairment losses 1 570 1 441 324 329 61 80 -31 41 -77 -53 185 50 2 032 1 888 285 1 020 2 317 2 908 Depreciation and impairment losses -204 -195 -196 -185 -6 -6 -17 -17 -78 -76 -6 -7 -507 -486 42 48 -465 -438 Operating profit/loss 1 366 1 246 128 144 55 74 -48 24 -155 -129 179 43 1 525 1 402 327 1 068 1 852 2 470 Share of profit/loss of associates and jointly controlled entities ------1 2 -32 8 -31 10 - - -31 10 Financial income 438 299 1 5 4 7 1 2 1 838 1 737 -2 169 -1 908 113 142 7 -112 120 30 Financial expenses -385 -292 -84 -88 -7 -21 -9 -8 -599 -485 761 550 -323 -344 -3 -3 -326 -347 Net financial income/expenses 53 7 -83 -83 -3 -14 -8 -6 1 240 1 254 -1 440 -1 350 -241 -192 4 -115 -237 -307 Profit/loss before tax 1 419 1 253 45 61 52 60 -56 18 1 085 1 125 -1 261 -1 307 1 284 1 210 331 953 1 615 2 163 Tax expense -639 -762 -13 -17 -15 -17 13 -7 -246 -239 323 293 -577 -749 -114 -259 -691 -1 008 Profit/loss after tax from continuing operations 780 491 32 44 37 43 -43 11 839 886 -938 -1 014 707 461 217 694 924 1 155 Profit/loss after tax from discontinued operations ------145 6 145 6

BALANCE SHEET Total assets 7 561 7 463 3 910 3 688 681 665 664 655 11 059 11 115 -9 584 -9 763 14 291 13 823 1 363 1 235 15 654 15 058 Equity 2 352 2 262 657 602 326 308 148 186 3 320 2 994 -3 504 -3 492 3 299 2 860 791 436 4 090 3 296 Total segment liabilities 5 209 5 201 3 253 3 086 355 357 516 469 7 739 8 121 -6 080 -6 271 10 992 10 963 572 799 11 564 11 762 Capital employed * 5 021 4 865 3 033 2 671 515 308 316 295 10 339 10 181 -8 462 -8 183 10 762 10 137 550 187 11 312 10 324 Interest-bearing liabilities 2 669 2 603 2 376 2 069 189 - 168 109 7 019 7 187 -4 958 -4 691 7 463 7 277 -241 -249 7 222 7 028 Investments in associates and jointly controlled entities 131 132 ------168 177 -116 -104 183 205 14 14 197 219 Investments in intangible assets ** - - 4 11 - - 4 7 -13 18 - -8 -5 28 27 - 22 28 Investments in property, plant and equipment ** 415 221 415 337 - - 5 7 167 172 4 -12 1 006 725 - - 1 006 725 Full-time equivalents (continuing operations) 198 242 154 156 66 71 742 744 335 304 1 495 1 516 1 495 1 516

* equity + interest-bearing liabilities ** includes intangible assets and property, plant and equipment acquired through business combinations

Segment information is reported using the same segments as used in financial reports to the senior management team. Segment reporting is used by Agder Energi’s management to assess the performance of the various business areas, and to allocate resources to them. In 2012 the Group introduced a new and simpler organisational structure. The new structure is based around business areas that reflect how the company generates value added.

Operating segments are presented in accordance with the organisational structure, and are based on the internal business areas. The Network business area is presented as a separate segment. The Hydroelectric Power and Energy Management business areas are presented jointly as a single segment. Within the Market business area, LOS and Otera are presented as separate segments, due to their size and the differences between their areas of activity, while Agder Energi Varme is presented under parent company/ other. The financial statements follow Norwegian generally accepted accounting principles (NGAAP), as they are also used for internal corporate governance purposes.

agder energi ANNUAL REPORT 2012 44 Note 1 SEGMENT INFORMATION

* equity + interest-bearing liabilities ** includes intangible assets and property, plant and equipment acquired through business combinations

The Eliminations segment relates to the elimination of intra-group transactions and balances. Transactions between segments are on an arm’s-length basis.

The IFRS adjustments segment covers items arising from the fact that the accounts of business areas are presented in accordance with NGAAP, while the consolidated financial statements are presented in accordance with IFRS.

The vast majority of Agder Energi’s turnover comes from customers in Norway or from Nord Pool (the marketplace for trading physical power contracts). The turnover of the subsidiary group Otera AB (67% ownership interest) comes from the Swedish market.

agder energi ANNUAL REPORT 2012 45 Segmentation at end of year Company Ownership interest Main activity

HYDROELECTRIC POWER AND ENERGY MANAGEMENT Produksjon og salg av vannkraft Agder Energi Vannkraft AS 100 % (Previously Agder Energi Produksjon AS) Agder Energi Kraftforvaltning AS 100 % Founded 28 March 2012

NETWORK Distribution of electric power in Agder Agder Energi Nett AS 100 %

LOS Sale of energy to the retail market LOS AS 100 %

OTERA Electrical contracting services Otera Group otera AS 100 % otera Infra AS 100 % otera Elektro AS 100 % otera XP AS 100 % From 30 April 2012 (previously 75%) Otera AB Group 100 %

PARENT/OTHER Generation and sale of thermal energy, innovation and venture activities, property and parent company Agder Energi AS P parent company Solvea AS 100 % Agder Energi Varme AS 100 % Agder Energi Næringsbygg AS 100 % Lundevågveien 11 AS 100 % Baltic Hydroenergy Group 65,9 % Agder Energi Innovasjon Group Innovasjon og Fou AS 100 % Norsk Varme- og Energiproduksjon AS 100 % Agder Energi Venture Group Agder Energi Venture AS 100 % NorgesFilm AS 93,8 % Smart Grid Norway AS 35,7 % exercised option to increase interest to 51% in 2013 Xynergo AS 96,8 % Verdisikring Safety AS 51 % From 31 March 2012 Agder Energi Vind AS 100 % Founded 30 March 2012 ReSiTec AS 100 % From 4 October 2012 Netsecurity Group 100 % Norsk Energigjenvinning Group 67,1 % NetNordic Group 53,7 % Bio Energy Group 70 % Meventus Group 100 % From 30 June 2012 LOS Bynett Vestfold AS 90,1 % S sold in 2013 LOS Bynett AS S sold with effect from 1 October 2012 Bynett Privat AS S sold with effect from 1 October 2012 Sopran AS S sold with effect from 1 July 2012

agder energi ANNUAL REPORT 2012 46 Note 2 ACQUISITIONS, DISPOSALS AND BUY-OUT OF NON-CONTROLLING INTERESTS

The Group made the following acquisitions and disposals in 2012 and 2011. All acquisitions are accounted for using the acquisition method. The list below does not include capital increases or other financing from Agder Energi.

Acquisitions in 2012 Company Country Interest ownership interest business activities price in bought in 2012 at 31/12/2012 N noK millions Baltic Hydroenergy AS Norway 23,2 65,9 Hydroelectric Power 7,8 Meventus Aps Denmark 100,0 100,0 Wind readings 3,1 ReSiTec AS 1) Norway 100,0 100,0 recycling 1,5 Verdisikring Safety Norway 51,0 51,0 Alarm systems 1,5 Otera XP 2) Norway 25,0 100,0 contracting 7,8

The price refers to the interest acquired in 2012.

1) previously Metallkraft AS 2) refers to the buy-out of non-controlling interests. The NOK 2 million difference between the purchase price and book value of non-controlling interests was recognised in equity.

Calculation of net assets at the acquisition date for acquisitions in 2012

(Amounts in NOK millions) Carrying amounts (IFRS) Asset Acquisition at acquisition date writeup balance sheet Deferred tax assets - 9 9 Intangible assets 2 2 Property, plant and equipment 28 37 65 Non-current financial assets - - Inventories 5 5 Trade debtors and other current receivables 16 16 Cash and cash equivalents 12 12 Deferred tax - -5 -5 Non-current liabilities -4 -4 Trade payables and other current liabilities -26 -26 Net assets 32 41 73 Non-controlling interests 17 Net assets acquired 56 Goodwill 8 Total net assets acquired plus goodwill 64

Cash consideration for shares 14 Value of shares in acquirees held prior to acquisition 1) 18 Total consideration 32

1) Applies to step acquisitions, and represents the value of Agder Energi’s previously held investments in acquirees, which were reclassified from associates to subsidiaries when control was gained. A NOK 5 million gain was recognised as a result of this reclassification; see Note 17.

The above table covers acquisitions of new businesses in 2012. For all acquisitions completed in 2012, non-controlling interests have been measured at fair value. Transactions relating to the buy-out of non-controlling interests are not included in the table.

In 2012 Agder Energi recognised a gain of NOK 32 million as a result of the fair value of assets and liabilities transferred excee- ding the consideration paid for them. This arose from the acquisition of ReSiTec, due to the value of its non-current assets being higher than the purchase price. The business plans for the company support this valuation. In addition, the company has tax loss carryforwards that were not used in 2012.

agder energi ANNUAL REPORT 2012 47 Disposals in 2012 In 2012, Agder Energi sold its shares in LOS Bynett, Bynett Privat and Sopran. For further details, see Note 36.

Acquisitions in 2011 Company Country Interest ownership interest business activities price in bought in 2011 at 31/12/2011 N noK millions Bio Energy AS Norway 70,0 70,0 biofuels 5,1 Smart Grid Norway AS 1) norway 35,7 35,7 ict 5,0 Xynergo AS Norway 96,8 96,8 biofuels 2,9 Otera Avotech AS 2) Norway 20,0 100,0 contracting 8,4

1) Agder Energi has an option to raise its ownership interest in the company to over 50%. Smart Grid Norway AS is therefore considered a subsidiary, even though Agder Energi’s ownership interest was only 35.7% at the close of 2011.

2) refers to the buy-out of non-controlling interests. The NOK 7 million difference between the purchase price and book value of non-controlling interests was recognised in equity.

Disposals in 2011 In 2011, Agder Energi sold 49% of the shares in Nettkonsult (now renamed Rejlers Consulting). The parties to the transaction signed a shareholders’ agreement, under which Agder Energi no longer controls the business, in spite of it still owning 51% of the shares. Nettkonsult was included in Agder Energi’s consolidated financial statements until August 2011. Since September 2011, the remaining ownership interest has been classified as an associate. This reclassification resulted in an accounting gain of NOK 26 million, NOK 13 million of which was due to the remaining 51% ownership interest being remeasured at fair value. For the period January-August 2011, Nettkonsult made an operating loss of NOK 4 million.

Note 3 ENERGY SALES Agder Energi optimises its generation of hydroelectric power based on an assessment of the value of available water in relation to current and expected future spot prices. This assessment does not take into account any contractual obligations that it may have. If Agder Energi’s contractual obligations to supply electricity to customers deviate from actual generation, the difference is bought or sold in the spot market. Physical and cash-settled sales and purchase contracts are used to secure cash flows from underlying power generation.

Energy sales (Amounts in NOK millions) 2012 2011 Spot and balancing markets 1 701 1 972 Concession power at regulated prices 62 65 Long-term commercial contracts 151 171 Financial hedges * 238 -210 Trading of cash-settled contracts * 31 30 Trading-related physical energy sales 3 118 Other 87 86 Total for power generation 2 273 2 232 Retail market 3 392 4 641 Network 31 35 District heating 86 77 Eliminations -157 -178 Total 5 625 6 807

agder energi ANNUAL REPORT 2012 48 Energy purchases (Amounts in NOK millions) 2012 2011 Spot and balancing markets 103 139 Trading-related physical energy purchases 5 116 Other 49 47 Total for power generation 157 302 Retail market 3 248 4 468 Network 109 149 District heating 33 37 Eliminations -180 -199 Total 3 367 4 758

* Figures refer to realised gains and losses on electricity contracts; unrealised gains and losses are specified in Note 7.

Agder Energi has a perpetual obligation to supply local municipalities, who are entitled to buy electricity at a price set by the government, which is lower than the market price. Over the ten-year period 2012-2021, the annual volume of concession power is 0.53 TWh. Revenues from concession power are recognised in the profit and loss account when the electricity is supplied.

The future loss of revenue arising from the obligation to supply concession power at below market prices is estimated at NOK 3.3 billion. No provisions have been made for this in the financial statements, as it is estimated that the agreed price covers electricity generation costs. The calculation of the loss of revenue is based on a nominal pre-tax interest rate of 5.0%, a price differential of 15 øre/kWh and an expected inflation rate of 2.5%.

2012 2011 Volume of concession power (GWh) 530 530 Regulated price (øre/kWh) 10,8 10,7 Long-term physical delivery contracts (øre/kWh) 17,2 17,0

Agder Energi also has long-term physical delivery contracts with industrial customers. These involve the supply of 8.4 TWh over the period 2013-2020. Several of the contracts were signed in the 1960s, at prices that are significantly below current market prices. The total volume of these older contracts is approximately 2.2 TWh.

The right to produce hydroelectric power derives from various types of licences. The Group controls – either directly through Agder Energi Vannkraft, or indirectly through water management associations and joint ventures – licences to regulate watercourses and to acquire ownership rights to waterfalls. These licences do not revert to public ownership, with the exception of a few minor regulations of the Arendal river system, which constitute less than 1% of the total river regulation capacity.

Note 4 TRANSMISSION REVENUES The Norwegian Water Resources and Energy Directorate regulates the revenues of power grid operators by setting an annual income cap. Based on the income caps they have been allocated and the volumes of electricity they expect to distribute, power grid operators set the transmission tariffs payable by customers. In the event of any difference between actual and expected volumes, revenues from transmission tariffs will show a surplus or shortfall relative to the permitted revenues (income cap). In the accounts of Agder Energi Nett AS, this difference is treated as either a liability or an asset. However, in the consolidated financial statements, which are presented in accordance with IFRS, this surplus or shortfall does not qualify for inclusion on the balance sheet, and only the actual transmission tariff revenues are recognised in the profit and loss account.

(Amounts in NOK millions) 2012 2011 Revenues under next year’s income cap recognised in the consolidated profit and loss account 126 110 Accumulated surplus transmission revenues not included on the balance sheet 251 125

agder energi ANNUAL REPORT 2012 49 Note 5 OTHER OPERATING REVENUES/OTHER RAW MATERIALS AND CONSUMABLES USED

Other operating revenues (Amounts in NOK millions) Note 2012 2011 Contracting 6 1 313 1 228 Services 22 34 Communication 165 161 Other revenues 416 318 Total 1 916 1 741

Electrical contracting services are provided through Otera, and cover areas such as electrical power systems, transportation, telecommunications and electrical engineering (including building and construction services, servicing, the offshore industry and marine and land-based industrial projects).

Other raw materials and consumables used (Amounts in NOK millions) Note 2012 2011 Contracting 6 845 717 Services 1 1 Communication 81 78 Other revenues 187 134 Total 1 114 930

Note 6 LONG-TERM MANUFACTURING CONTRACTS

The projects included under this item relate to the electrical contracting business. They are carried out for customers and are accounted for using the percentage of completion method. Profit is recognised in proportion to the percentage of completion of the project. The percentage of completion is estimated to be the ratio between project costs incurred to date and total estimated project costs. Estimated losses on projects are also recognised in the profit and loss account.

(Amounts in NOK millions) 2012 2011 Revenues, work in progress 540 497 Costs incurred to date, work in progress 446 419 Accrued revenues included under other receivables 25 37 Deferred revenues included under other liabilities 23 10 Remaining turnover from loss-making projects 21 14

agder energi ANNUAL REPORT 2012 50 Note 7 UNREALISED GAINS AND LOSSES ON ENERGY CONTRACTS

Breakdown of profit and loss effects of financial instruments by class of instrument:

(Amounts in NOK millions) Note 2012 2011 Portfolio of production hedges, excluding power for industrial users 28 241 1 119 Cash-settled contracts, compensation power 23 48 -18 Cash-settled contracts, power for industrial users 23 38 121 Retail customer portfolio 28 -2 -237 Total 326 984

(Amounts in NOK millions) 2012 2011 Reversal of unrealised gains and losses at 1 January on contracts closed out during the year. 1) -59 332 Gains and losses on contracts that had not been closed out as of 31 December. 385 652 Total 326 984

The above table refers to electricity contracts that must be measured at fair value through profit or loss under IAS 39.

1) the value of contracts that had already been signed at the start of 2012 (2011) and that were closed out during 2012 (2011).

Note 8 EMPLOYEE BENEFITS

(Amounts in NOK millions) Note 2012 2011 Wages and salaries 931 930 Employers’ National Insurance Contributions 139 128 Pension expense (incl. employers’ NICs) 24 93 79 Other benefits and reimbursements 47 33 Capitalised wage costs arising from own investments -229 -200 Total 981 970

Number of full-time equivalents in continuing operations at 31 Dec. 1 495 1 516 Number of full-time equivalents in discontinued operations at 31 Dec. - 43

For details of senior management compensation, etc., please see Note 33.

Note 9 PROPERTY TAXES AND LICENCE FEES

(Amounts in NOK millions) 2012 2011 Licence fees 49 45 Property taxes 145 136 Total 194 181

Licence fees are perpetual payments designed to compensate for the damage or inconvenience caused by hydropower projects. The fees are paid annually, and are adjusted in line with the consumer price index, initially five years after the licence was granted and subsequently every five years. No provision is made for future licence fees in the accounts. The present value of the liability arising from these fees is estimated to be NOK 1 963 million. That calculation is based on a nominal pre-tax interest rate of 5.0% and an expected inflation rate of 2.5%.

agder energi ANNUAL REPORT 2012 51 Note 10 OTHER OPERATING EXPENSES

(Amounts in NOK millions) 2012 2011 Property-related expenses 55 50 Lease of machinery and office equipment 15 18 Purchase of plant and equipment 51 50 Repairs and maintenance to equipment 10 10 Contractors 113 123 Operation/maintenance of IT systems 45 42 Technical consultants 51 37 Administrative consultants 59 55 Other external services 45 38 Office supplies, telecommunications, postage, etc. 46 41 Cost of vehicles 35 41 Leasing 35 26 Travel expenses, subsistence allowances, mileage expenses, etc. 53 50 Sales, advertising, representation, membership fees and gifts 39 36 Insurance premiums 17 12 Share of other operating expenses at joint ventures 71 69 Other operating expenses 41 27 Total 781 725

Note 11 AUDITOR’S FEE

The Group’s auditor is Ernst & Young, who audits the parent company and its subsidiaries with the exception of the part-owned subsidiary Otera AB and a few other small subsidiaries.

(Amounts in NOK 000s excl. VAT) 2012 2011 Statutory audit 2 869 2 655 Other auditing services 53 124 Tax advice 167 384 Other services not related to auditing 415 767 Total 3 504 3 930

agder energi ANNUAL REPORT 2012 52 Note 12 FINANCIAL INCOME/EXPENSES

(Amounts in NOK millions) Note 2012 2011 Share of profit/loss of associates and jointly controlled entities 17 -31 10

Net realised exchange rate gains 1) 125 117 Interest income on loans 2) 13 10 Other interest income 9 18 Realised gains on shares and dividend payments received -2 -4 Financial income 145 141

Unrealised gains and losses on foreign currency contracts 3) 28 22 -33 Unrealised gains and losses on interest rate contracts 28 -47 -78 Unrealised gains and losses on currency and interest rate contracts -25 -111

Interest expense on loans 4) 275 302 Interest expense on interest rate swaps 36 37 Interest on capitalised construction loans -5 -14 Impairment of non-current financial assets 5) 11 10 Other financial expenses 9 12 Financial expenses 326 347

Net financial income/expenses -237 -307

1) this item is mainly made up of net realised gains on currency futures and realised gains on the redemption of foreign currency loans in 2012. 2) relates to interest income on financial assets carried at amortised cost.

3) the breakdown is as follows:

(Amounts in NOK millions) 2012 2011 Reversal of unrealised gains and losses at 1 January on contracts closed out during the year *) -73 -59 Gains and losses on contracts that had not been closed out as of 31 December. 95 26 Total 22 -33

*) the value of contracts that had already been signed at the start of 2012 (2011) and that were closed out during 2012 (2011).

4) relates to interest expenses on loans carried at amortised cost. 5) impairment of available-for-sale financial assets.

agder energi ANNUAL REPORT 2012 53 Note 13 TAX

(Amounts in NOK millions) 2012 2011

The tax expense consists of Income tax payable 414 365 Change in deferred income tax 38 250 Corrections to previous years’ tax assessments/demerger, etc. 8 -17 Resource rent tax payable 250 302 Change in deferred resource rent tax -20 108 Tax expense recognised in the profit and loss account 691 1 008

Tax payable on the balance sheet Profit before tax * 1 615 2 173 Permanent differences 12 - Change in temporary differences -143 -852 Change in loss carryforwards -1 -17 Profit for income tax purposes 1 483 1 304

Income tax payable 414 365 Prepaid tax in Sweden - -4 Natural resource tax payable 98 95 Natural resource tax payable offset against income tax payable -98 -95 Natural resource tax carried forward - -8 Resource rent tax payable 250 302 Tax payable on the balance sheet 663 655 *Figures for 2011 also include discontinued operations

Reconciliation of nominal tax rate with effective tax rate Profit/loss before tax 1 615 2 163 Expected tax based on nominal rate 452 605 Tax effect of: Non-deductible expenses/non-taxable income 3 3 Resource rent tax payable 250 302 Changes in deferred resource rent tax/tax assets -20 108 Corrections to previous years’ tax assessments 5 -9 Tax expense recognised in the profit and loss account 691 1 008 Effective tax rate 43 % 47 %

Breakdown of deferred tax assets Non-current assets 2 244 2 101 Current assets/liabilities 4 29 Pension liabilities -488 -977 Other non-current provisions -508 -736 Gains and losses - 40 Tax loss carryforwards -49 -13 Other 412 535 Total taxable (+)/deductible (-) temporary difference 1 615 979

agder energi ANNUAL REPORT 2012 54 (Amounts in NOK millions) 2012 2011

Net deferred income tax liabilities (+)/assets (-) 452 274 Of which deferred tax 453 277 Of which deferred tax assets -1 -3

Deferred tax assets (income tax) -1 -3 Deferred resource rent tax assets -410 -431 Total recognised deferred tax assets (-) -411 -434

Breakdown of deferred tax Deferred tax (income tax) 453 277 Deferred resource rent tax 252 292 Total recognised deferred tax 705 569

To calculate deferred resource rent tax assets, it is necessary to assess whether it is likely that the Group will be able to make use of future loss carryforwards. The assessment has been based on a conservative estimate of future electricity prices and on the assumption that future yields on short-term government debt will be between 1.3% and 3.0%. Deferred resource rent tax assets arising from NOK 1 336 (1 436) million of negative resource rent carryforwards were included on the balance sheet. Deferred resource rent tax arising from NOK 839 (974) million of temporary differences was included on the balance sheet. Deferred resource rent tax assets arising from a further NOK 1 203 (1 265) million of negative resource rent carryforwards were not included on the balance sheet. Deferred tax assets not included on the balance sheet thus total NOK 361 (380) million. NOK 80 million of loss carryforwards relating to income tax are not included on the balance sheet.

(Amounts in NOK millions) Note 2012 2011

Changes in net deferred income tax over the year Net deferred tax liabilities (+)/assets (-) at 31 Dec. prior year 274 78 Correction of prior years’ errors 37 - 109 Net deferred tax liabilities (+)/assets (-) at 1 Jan. 274 187 Deferred tax liabilities (-)/assets (+) at businesses disposed of during the year 5 -14 Deferred tax liabilities (+)/assets (-) at businesses acquired during the year -4 -11 Change in net deferred tax liabilities (+)/assets (-) on items included in comprehensive income 139 -137 Change in deferred tax liabilities (+)/assets (-) recognised through profit or loss 38 250 Net deferred income tax liabilities (+)/assets (-) at 31 Dec. 452 274

Changes in net deferred resource rent tax over the year Net deferred resource rent tax at 1 Jan. -139 -246 Change in deferred resource rent tax recognised through profit or loss -20 108 Net deferred resource rent tax liabilities (+)/assets (-) at 31 Dec. -158 -139

Changes in deferred tax on items in the statement of comprehensive income Actuarial gains and losses on pensions 139 -134 Cash flow hedges - -2 Net change in deferred tax on items in the statement of comprehensive income 139 -137

The following tax rates have been applied: 28 % - income tax rate 30 % - resource rent tax rate

agder energi ANNUAL REPORT 2012 55 Note 14 depreciation

(Amounts in NOK millions) Note 2012 2011 Amortisation of intangible assets 15 16 18 Impairment of intangible assets 15 1 2 Depreciation of property, plant and equipment 16 444 424 Impairment of property, plant and equipment 16 5 -6 Total depreciation, amortisation and impairment losses recognised in operating profit 465 438 Impairment of financial assets 12 11 10 Total depreciation, amortisation and impairment losses recognised in cash flow statement 476 449

Note 15 INTANGIBLE ASSETS

(Amounts in NOK millions) Goodwill Software other Total intangible intangible assets assets Acquisition cost 178 84 39 301 Accumulated depreciation and impairment losses 1 49 22 72 Carrying amount at 31/12/2011 177 35 17 229

Carrying amount at 01/01/2012 177 35 17 229 Acquisitions 2 5 5 12 Acquisitions arising from business combinations 8 - 2 10 Disposals at book value 2 - - 2 Depreciation - 8 8 16 Impairment losses - 1 - 1 Carrying amount at 31/12/2012 185 31 16 232

Acquisition cost 185 84 51 320 Accumulated depreciation and impairment losses - 53 35 88 Carrying amount at 31/12/2012 185 31 16 232

Useful life/depreciation period Tested annually 3-5 years 3-8 years for impairment

agder energi ANNUAL REPORT 2012 56 Goodwill impairment The Group tests goodwill annually for impairment, or more frequently if there is evidence to suggest a fall in value. Testing for impairment is done in the fourth quarter. Agder Energi has not identified any other intangible assets with indefinite useful lives. Goodwill that has arisen in conjunction with acquisitions is allocated to the following individual cash flow-generating units:

Breakdown of goodwill on the balance sheet (Amounts in NOK millions) 2012 2011 Otera Avotech AS 22 22 Otera XP AS 15 15 Otera Delta AS 18 18 Otera AB 21 21 Otera, group 66 66 Total Otera 142 142 LOS AS 12 12 Norsk Energigjennvinning, group 9 9 Others 22 14 Carrying amount of goodwill 185 177

Agder Energi tests goodwill on the balance sheet for impairment by discounting expected future cash flows attributable to the cash flow-generating unit to which the goodwill is allocated.

Future cash flows have been estimated based on forecasts for the coming year. The forecasts are based on the company’s business plans as approved by the senior management team. The key assumptions used in the calculation of the utility value are EBIT margins (2% to 8%), discount rates and growth in subsequent periods. For periods beyond the scope of the forecasts, a residual value has been calculated. The residual value has been adjusted by an annual growth rate of 2.5%, equivalent to expected inflation.

The calculations are based on expected cash flows after tax and a nominal discount rate after tax. The discount rates have been estimated using the capital asset pricing model. When converted into discount rates before tax, the required rates of return are in the range 12.6-13.5%.

Most of the Group’s goodwill relates to Otera. In the case of Otera, an impairment test is first carried out for each cash-generating unit. Then an impairment test is carried out for the Otera group as a whole, since some of the goodwill is attributed at group level. The tests are based on EBIT margins of 2% to 8% (4% for the Otera group as a whole) and a discount rate before tax equivalent to 13.2%.

The impairment tests found that the recoverable amounts were higher than the carrying amounts, and so no goodwill impairments were recognised in 2012.

Sensitivity analyses have been carried out for the discount rate and EBIT. A 2% increase in the discount rate would lead to an impairment of NOK 9 million. An 20% reduction in EBIT would lead to an impairment of NOK 9 million.

agder energi ANNUAL REPORT 2012 57 Note 16 PROPERTY, PLANT AND EQUIPMENT

(Amounts in NOK millions) Hydropower property Dams own power Alternative regional local Fibreoptics/ Vehicles, Work in Total own Property, Total licences stations energy power distribution telematics fixtures, progress property, plant and property, plants grid network machinery, plant and equipment plant and fittingsetc. equipment at JCEs equipment

Carrying amount at 01/01/2011 1 084 99 314 3 066 8 1 002 2 111 288 119 334 8 425 2 709 11 134 Acquisitions - 88 8 281 4 78 204 17 77 -94 663 49 713 Disposals - - - - - 13 - - 12 6 30 - 30 Available-for-sale assets - 2 - - - - - 262 4 - 268 - 268 Acquisitions through business combinations ------12 - 12 - 12 Impairment losses - - - -6 ------6 - -6 Depreciation - 4 12 117 2 49 118 3 46 - 351 74 425 Carrying amount at 31/12/2011 1 084 181 309 3 237 10 1 018 2 197 40 147 234 8 456 2 685 11 141

Acquisition cost 1 099 224 505 5 093 42 1 646 3 730 127 386 234 13 086 4 157 17 243 Accumulated depreciation and impairment losses 15 43 195 1 857 33 628 1 533 87 239 - 4 630 1 472 6 102 Carrying amount at 31/12/2011 1 084 181 309 3 237 10 1 018 2 197 40 147 234 8 456 2 685 11 141

Carrying amount at 01/01/2012 1 084 181 309 3 237 10 1 018 2 197 40 147 234 8 456 2 685 11 141 Acquisitions 2 3 4 134 6 41 169 3 72 245 680 266 946 Disposals - - - - 3 - - - - - 3 40 44 Acquisitions through business combinations - 2 - 39 - - - - 20 - 60 - 60 Impairment losses - - - - 5 - - - - - 5 - 5 Depreciation - 8 13 121 1 52 122 4 51 - 371 73 444 Carrying amount at 31/12/2012 1 086 179 300 3 289 7 1 007 2 244 40 187 479 8 818 2 838 11 655

Acquisition cost 1 101 230 508 5 266 45 1 687 3 899 130 452 479 13 797 4 376 18 173 Accumulated depreciation and impairment losses 15 51 208 1 977 38 680 1 655 91 265 - 4 979 1 538 6 517 Carrying amount at 31/12/2012 1 086 179 300 3 289 7 1 007 2 244 40 187 479 8 818 2 838 11 655

Depreciation period (years) indefinite 25-99/ 50-99 25-99 15-67 15-40 15-35 5-20 3-8 indefinite

For work in progress, the net change is shown. Periodic maintenance is included within the relevant category. Capitalised loan arrangement fees amounted to NOK 5 (14) million in 2012.

agder energi ANNUAL REPORT 2012 58 Note 16 PROPERTY, PLANT AND EQUIPMENT

Depreciation period (years) indefinite 25-99/ 50-99 25-99 15-67 15-40 15-35 5-20 3-8 indefinite

For work in progress, the net change is shown. Periodic maintenance is included within the relevant category. Capitalised loan arrangement fees amounted to NOK 5 (14) million in 2012.

agder energi ANNUAL REPORT 2012 59 Below the useful lives of the most important assets on the balance sheet are set out:

Depreciation period (years) Depreciation period (years) Hydroelectric power stations: Power distribution networks: Waterfall rights Indefinite Regional power transmission grid: Dams: - Power and ground cables 40 - Embankment dams, concrete dams 99 - Transmission substations 35 - Other dams 67 - High-voltage power lines 25 Tunnel systems 99 - Grid control systems 15 Mechanical installations: Local power distribution network: - Pipelines 67 - High-voltage lines and cables 40 - Penstock operating equipment 40 - Low-voltage lines and cables 30 - Turbines 50 - Distribution substations 25 - Other machinery 15 Other assets: Caverns 99 Office buildings 50 Roads, bridges and quays 99 Sites Indefinite Electrical installations: Office and IT equipment 3 - Transformers/generators 50 Fixtures and fittings 5 - High-voltage switchgear 45 Vehicles 8 - Grid control systems 25 - Control centres 15 - Communications 10

Note 17 ASSOCIATES AND JOINT VENTURES

Agder Energi has various investments in associates and joint ventures. Joint ventures include jointly controlled entities and jointly controlled assets. Associates and jointly controlled entities are accounted for using the equity method, whereas proportionate consolidation is used for investments in jointly controlled assets.

Associates and jointly controlled entities (accounted for using the equity method) (Amounts in NOK millions) 2012 2011 Associates 137 155 Jointly controlled entities 60 65 Carrying amount at 31 Dec. 197 219

Profit/loss from associates -5 -9 Profit/loss from jointly controlled entities -30 -13 Gain/loss on disposal/reclassification * 3 32 Share of profit/loss of associates and jointly controlled entities -31 10

* See footnotes 2) and 4) below under investments in associates

agder energi ANNUAL REPORT 2012 60 Breakdown of investments in associates: (Amounts in NOK millions) Ownership carrying Acqui- Disposals/ consolidated carrying interest amount at sitions dividends/ share of amount at 31/12/2011 reclassification profit/loss 31/12/2012 Småkraft AS 1) 20,0 % 85 10 - -1 94 Baltic Hydroenergy AS 2) 9 - -10 1 - Skagerak Venture Capital I KS/GP KS 19,6 % 16 4 -14 - 6 Teknova Invest AS 38,9 % 3 - - -1 2 Verdisikring Safety AS 3) 4 - -4 - - NorthConnect KS/NorthConnect AS 16,7 % 5 3 - -3 5 Rejlers Consulting AS 51,0 % 29 - - 2 31 Others 4) 5 1 -3 -2 - Total for associates 155 18 -31 -5 137

1) the Group has also lent NOK 180 million to Småkraft AS. In 2012, Småkraft AS had NOK 54 million in operating revenues and made a NOK 10 million loss after tax. The company had NOK 1 408 million of capital, made up of NOK 932 million of debt and noK 476 million in equity. 2) in 2012, Agder Energi bought a further 23% of the shares in Baltic Hydroenergy AS, giving it a 65.9% ownership interest in the company at the close of the year. As a result of this purchase, the company was reclassified as a subsidiary of Agder Energi, which led to a NOK 5 million gain being recognised. 3) in 2012, Agder Energi increased its ownership interest to 51%, from which point the company has been classified as a subsidiary. 4) Agder Energi sold its ownership interests in various small associates during 2012. Those disposals led to the recognition of a net loss of NOK 2 million.

Breakdown of investments in jointly controlled entities (Amounts in NOK millions) Ownership carrying Acqui- Disposals consolidated carrying interest amount at sitions share of amount at 31/12/2011 profit/loss 31/12/2012 Bjerkreim Vind AS 50,0 % 2 10 - -2 10 Dalane Vind AS 50,0 % - - - - Statkraft Agder Energi Vind DA 1) 38,0 % 58 15 - -27 46 Viking Varme AS 50,0 % 4 - -1 3 Total for jointly controlled entities 65 25 - -30 60

1) For SAE Vind DA, the preliminary loss for the year of NOK 70 million has been used when consolidating Agder Energi’s share of profit/loss for 2012. The company had NOK 210 million of total capital, made up of NOK 196 million of equity and noK 14 million of debt.

Jointly controlled assets (proportionate consolidation) In the case of jointly controlled assets, the collaboration is based on an agreement that regulates key areas of cooperation. The Group uses the proportional consolidation method to account for jointly controlled assets, and the Group’s share of revenues, expenses, assets and liabilities are consolidated on a pro-rata basis. Through Agder Energi Vannkraft, the Group participates in the following jointly controlled power stations and water management associations:

Otra Kraft DA owns the Holen and Brokke power stations on the River Otra. Otra Kraft is owned by Agder Energi Vannkraft, which has a 68.6% interest, and Skagerak Kraft, which has a 31.4% interest, and is managed through the general meeting. The company has its head office at Rysstad in Valle.

agder energi ANNUAL REPORT 2012 61 Otraverkene was a co-ownership/community of interest that safeguarded the owners’ rights/ownership interest in the Ulla Førre hydropower complex. The owners of Otraverkene control approximately 7% of Ulla Førre’s power generation. Otraverkene was not represented on any of Ulla Førre’s executive bodies. The general meeting of Otra Kraft was Otraverkene’s executive body. Agder Energi Vannkraft had a 79.6% ownership interest. In 2012, a decision was taken to wind down Otraverkene. This decision was implemented around the turn of the year 2012/13. In conjunction with the winding down, a proportional share of the ownership interest in Ulla Førre was transferred to Agder Energi Vannkraft AS.

Finndøla kraftverk DA is 50:50 owned by Agder Energi Vannkraft and Skagerak Kraft. Voting rights are proportionate to the ownership interests.

The power station Hekni kraftverk is a statutory co-ownership between Agder Energi Vannkraft, with a 66.67% interest, and Skagerak Kraft, with 33.33%. The co-ownership is managed through a steering committee, and voting rights are proportionate to the ownership interests. Agder Energi Vannkraft represents the co-ownership in dealings with third parties.

The water management association Otteraaens Brugseierforening comprises Agder Energi Vannkraft, Skagerak Kraft and Vigelands Brug. The association is managed through a Board, and voting rights are proportionate to the ownership interests. Ag- der Energi Vannkraft’s ownership interest, including its indirect interest through Otra Kraft, is approximately 73.8%. Otteraaens Brugseierforening has its business address in Valle.

The water management association Arendals Vasdrags Brugseierforening comprises Agder Energi Vannkraft, Skafså Kraftverk, Skagerak Kraft and Arendals Fossekompani. The association is managed through a Board, and has its business address in Arendal. Agder Energi Vannkraft’s ownership interest is approximately 52.2%. No single member can have more than 50% of the votes.

Sira-Kvina DA is owned by Agder Energi Vannkraft (12.2%), Lyse Produksjon (41.1%), Statkraft Energi (32.1%) and Skagerak Kraft (14.6%). The company is managed through the Board, and the voting rights of the shareholders are proportionate to their ownership interests. The company has its business address at Tonstad.

Below there follows a summary of the Group’s share of assets, liabilities, revenues and expenses at jointly controlled assets. The energy sales in the table do not represent actual revenues, and have instead been calculated by multiplying Agder Energi Vannkraft’s actual power generation by the average electricity price, and adding Agder Energi Vannkraft’s share of revenues from concession power.

(Amounts in NOK millions) 2012 2011 Energy sales 804 833 Other operating revenues 16 4 Total operating revenues 820 837

Transmission expenses 19 16 Property taxes and licence fees 23 22 Depreciation 73 74 Other operating expenses 70 68 Total operating expenses 185 180

Operating profit/loss 635 657

Non-current assets 2 838 2 685 Current assets 165 81 Total assets 3 003 2 766

Non-current liabilities - - Other provisions 10 12 Current liabilities 146 46 Net assets 2 847 2 708

agder energi ANNUAL REPORT 2012 62 Note 18 NON-CURRENT FINANCIAL ASSETS

(Amounts in NOK millions) Note 2012 2011 Investments in shares and ownership interests 27 35 Loans to associates and joint ventures 1) 181 151 Other receivables 2) 189 124 Other non-current financial assets 25 - Pension assets 24 34 - Total 456 310

1) Detailed information about loans to associates and joint ventures can be found in notes 16 and 27. 2) Detailed information about other receivables can be found in Note 28. They include a NOK 40 million subordinated loan to Agder Energi Pensjonskasse. They also include NOK 108 million made up of a subordinated loan to Ventelo and a vendor credit in conjunction with the sale of the shares in Ventelo. The remaining NOK 41 million consist of various small amounts that are all under NOK 15 million.

The fair value of non-current financial assets is described in greater detail in notes 27 and 29.

Breakdown of investments in shares and ownership interests: (Amounts in NOK millions) Ownership interest* 2012 2011 24 Seven Technology Group ASA 11,2 % (12,2 %) 8 11 Glo AB 2,8 % (2,9 %) 9 10 Stjärnafyrkant AB 14,6 % (14,6 %) 6 8 Skagerak Seed Capital II KS/GP KS 10,5 % (10,5 %) 2 2 Teknova AS 17,0 % (17,0 %) 2 2 Others - 3 Total 27 35 *Ownership interest in 2011 in brackets

The investments in 24 Seven Technology Group ASA and Stjärnafyrkant AB have been measured at their listed share prices. Other investments have been measured at cost, less any impairments.

A NOK 10 million impairment provision was made in 2012 for losses on shares and ownership interests, with most of the impairments being based on changes in share prices.

Note 19 INVENTORIES

(Amounts in NOK millions) 2012 2011 Raw materials 13 7 Work in progress 1 - Finished goods 21 26 Total 35 33

Inventories are carried at the lower of cost and fair value less costs to sell.

agder energi ANNUAL REPORT 2012 63 Note 20 RECEIVABLES

(Amounts in NOK millions) 2012 2011 Trade receivables 1 368 1 174 Bad debt provision 20 17 Total trade receivables 1 348 1 157 Accrued revenues 177 202 Prepaid expenses 49 29 Receivables from joint ventures 89 26 Other receivables 106 107 Share of current assets at joint ventures 165 81 Total receivables 1 934 1 602

Ageing analysis of trade receivables: (Amounts in NOK millions) Not 0-30 days 31-60 days 61-90 days over 90 days total overdue overdue overdue overdue overdue 2012 1 207 85 14 10 52 1 368 2011 1 009 101 27 5 32 1 174

Note 21 CASH AND CASH EQUIVALENTS

(Amounts in NOK millions) 2012 2011 Cash and cash equivalents 67 52 Restricted assets (e.g. term deposits, tax withholding account and client assets) 22 50 Total 89 102

A NOK 66 million bank guarantee covering the parent company and subsidiaries has been used as security for tax deductions at source. The parent company has also set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. All subsidiaries in the Group in which the parent company holds an ownership interest of at least 90% (with the exception of Nor- gesFilm AS), take part in the cash pooling arrangement and are jointly and severally liable to the bank for the overdraft facility.

Note 22 SHARE CAPITAL AND SHAREHOLDER INFORMATION

The share capital is made up of: Number Face value share capital of shares (in NOK 1 000s) Share capital 2 700 000 670 1 809 000 Total 2 700 000 1 809 000

agder energi ANNUAL REPORT 2012 64 List of shareholders in Agder Energi AS

Number of % of class number of % of class total % of tot. share class A A shares class b b shares number number capital shares shares of shares of shares Statkraft Industrial Holding AS 743 197 41,289 % 485 990 53,999 % 1 229 187 45,525 % 823 555 Arendal Municipality 115 017 6,390 % 57 507 6,390 % 172 524 6,390 % 115 591 Kristiansand Municipality 95 400 5,300 % 47 700 5,300 % 143 100 5,300 % 95 877 Grimstad Municipality 53 327 2,963 % 26 663 2,963 % 79 990 2,963 % 53 593 Flekkefjord Municipality 53 269 2,959 % 14 650 1,628 % 67 919 2,516 % 45 506 Lyngdal Municipality 49 745 2,764 % 13 680 1,520 % 63 425 2,349 % 42 495 Kvinesdal Municipality 49 254 2,736 % 13 545 1,505 % 62 799 2,326 % 42 075 Lillesand Municipality 40 901 2,272 % 20 450 2,272 % 61 351 2,272 % 41 105 Marnardal Municipality 44 500 2,472 % 12 238 1,360 % 56 738 2,101 % 38 014 Sirdal Municipality 43 845 2,436 % 12 057 1,340 % 55 902 2,070 % 37 454 Mandal Municipality 42 343 2,352 % 11 644 1,294 % 53 987 2,000 % 36 171 Vennesla Municipality 42 343 2,352 % 11 644 1,294 % 53 987 2,000 % 36 171 Froland Municipality 31 847 1,769 % 15 924 1,769 % 47 771 1,769 % 32 007 Søgne Municipality 33 601 1,867 % 9 240 1,027 % 42 841 1,587 % 28 703 Evje og Hornnes Municipality 27 511 1,528 % 13 756 1,528 % 41 267 1,528 % 27 649 Songdalen Municipality 31 689 1,761 % 8 714 0,968 % 40 403 1,496 % 27 070 Lindesnes Municipality 31 470 1,748 % 8 654 0,962 % 40 124 1,486 % 26 883 Hægebostad Municipality 28 776 1,599 % 7 913 0,879 % 36 689 1,359 % 24 582 Farsund Municipality 27 502 1,528 % 7 563 0,840 % 35 065 1,299 % 23 494 Birkenes Municipality 22 679 1,260 % 11 340 1,260 % 34 019 1,260 % 22 793 Åmli Municipality 21 921 1,218 % 10 960 1,218 % 32 881 1,218 % 22 030 Risør Municipality 21 052 1,170 % 10 525 1,169 % 31 577 1,170 % 21 157 Valle Municipality 20 327 1,129 % 10 164 1,129 % 30 491 1,129 % 20 429 Bygland Municipality 19 995 1,111 % 9 998 1,111 % 29 993 1,111 % 20 095 Iveland Municipality 19 155 1,064 % 9 578 1,064 % 28 733 1,064 % 19 251 Tvedestrand Municipality 19 066 1,059 % 9 533 1,059 % 28 599 1,059 % 19 161 Åseral Municipality 21 776 1,210 % 5 988 0,665 % 27 764 1,028 % 18 602 Vegårshei Municipality 14 553 0,809 % 7 277 0,809 % 21 830 0,809 % 14 626 Bykle Municipality 13 232 0,735 % 6 616 0,735 % 19 848 0,735 % 13 298 Gjerstad Municipality 12 423 0,690 % 6 211 0,690 % 18 634 0,690 % 12 485 Audnedal Municipality 8 284 0,460 % 2 278 0,253 % 10 562 0,391 % 7 077 Total 1 800 000 100 % 900 000 100 % 2 700 000 100 % 1 809 000

The NOK 1 809 million of share capital is made up of class A and class B shares.

Class A shares can only be owned by shareholders who meet the conditions for being allocated indefinite waterfall licences under the relevant current legislation. Class B shares are freely negotiable. In all other respects, class A and class B shares have equal rights.

The company has entered into an industrial collaboration agreement with its biggest shareholder, Statkraft Industrial Holding AS. There is also a shareholders’ agreement between the shareholders in the company.

The company has a corporate assembly with 15 members, who are elected for a two-year term.

Proposed dividends for 2012 come to NOK 620 million in total, equivalent to NOK 230 per share.

agder energi ANNUAL REPORT 2012 65 Note 23 PROVISIONS

(Amounts in NOK millions) Note 2012 2011 Pension liabilities 24 476 977 Other non-current provisions 890 948 Total 1 366 1 925

Breakdown of other non-current provisions: (Amounts in NOK millions) Supply of free supply of free cash-settled other total electricity and electricity and contracts 3) provisions compensation 1) compensation 2) Carrying amount at 01/01/2011 586 128 274 50 1 038 Unrealised gains and losses 18 - -121 - -103 New provisions - 9 - 13 22 Provisions used - - - 9 9 Carrying amount at 31/12/2011 604 137 153 54 948

Carrying amount at 01/01/2012 604 137 153 54 948 Unrealised gains and losses -48 - -38 - -86 New provisions - 1 - 39 40 Provisions used - - - 12 12 Carrying amount at 31/12/2012 556 138 115 81 890

1) perpetual obligation to supply free electricity and pay compensation accounted for in accordance with IAS 39. Also see notes 7 and 30. 2) Perpetual obligation to supply free electricity and pay compensation accounted for in accordance with IAS 37. 3) Non-current cash-settled contracts measured in accordance with IAS 39. Also see notes 7 and 30.

Note 24 PENSIONS

The Group’s pension plans For employees taken on before 1 April 2007, the Group has a defined benefit pension plan run by Agder Energi Pensjonskasse, which meets the legal requirements for public sector occupational pension plans. Employees taken on after 1 April 2007 are part of a defined contribution pension plan.

Defined benefit pension plans The Group has a funded public pension plan for its employees, which entitles them to defined future pension benefits, based on number of years of service and salary on reaching retirement age. Provisions for pension liabilities in the pension plan are calculated using a linear accumulation model based on methods and assumptions that comply with the relevant current accounting standard. The Group’s pension liabilities are funded through a pension plan run by Agder Energi Pensjonskasse.

All actuarial gains and losses that occur over the course of the financial year are presented under other comprehensive income and expenses in the statement of comprehensive income. Changes in defined benefit pension plan liabilities arising from changes to plan arrangements (past service cost), are recognised directly in the profit and loss account.

Pension liabilities were calculated by an independent actuary in December, and represent an estimate of the situation at 31 De- cember 2012. The senior management team considers that any changes in the assumptions and underlying data between the date of calculation and the balance sheet date would not have a significant impact on the figures.

Actuarial gains and losses in 2012 were mainly due to the impact of a higher discount rate and high returns on pension plan assets; see the separate table. Calculations are based on the National Insurance Scheme’s rules for 2012.

agder energi ANNUAL REPORT 2012 66 Defined contribution pension plan Employees taken on after 1 April 2007 are entitled to membership of a defined contribution pension plan. For defined contribution plans, the pension expense is equivalent to the premiums/contributions paid over the course of the year.

Early retirement schemes (AFP schemes) Employees covered by a public pension plan have an early retirement scheme, known as an AFP scheme. This is a so-called public sector AFP scheme, which like all such schemes set up from 2011 onwards does not receive a government subsidy. The Group is therefore fully liable for all of its obligations under the scheme. A few former employees who took early retirement prior to 2011 have so-called private AFP schemes, for which the obligation is calculated by assuming that the employer will cover 25% of the expected cost of the AFP pension. The scheme is considered an unfunded pension plan.

When calculating the pension liability, it has been assumed that there will be a 100% take-up of the early-retirement scheme by the age of 64. For accounting purposes, employees start accruing early-retirement pension rights on reaching the age of 50 or on joining the Group, whichever is later.

Employees covered by the defined contribution plan are entitled to a private AFP scheme, which from 2011 onwards means a lifelong supplement to their retirement pensions from the National Insurance Scheme. This AFP scheme is funded by contributions made by the employer. It is considered a defined benefit plan, but for the moment it is being accounted for as a defined contribution plan. This is because the administrator has not yet calculated the total obligations under the scheme.

The annual contribution in 2012 was 1.75% of qualifying pay between 1 and 7.1 times the National Insurance Scheme’s basic amount (“G”) per employee covered by the scheme, which increases to 2% in 2013.

Actuarial assumptions When calculating the pension expense and net pension liabilities, a number of assumptions have been made (see table below). The discount rate is based on the yield on covered bonds, adjusted for the weighted average duration of the pension liabilities, which is estimated to be approximately 25 years. In previous years the discount rate was based on the yield on Norwegian 10-year government bonds. Wage growth assumptions are based on guidelines from the Norwegian Accounting Standards Board, taking into account historical data and the average age of the company’s employees in the pension plans. The assumptions used to calculate pension liabilities at 31 December 2012 do not significantly deviate from the Norwegian Accounting Standards Board’s guidelines on actuarial assumptions of January 2013. The Group uses the latest version of the GAP 07 actuarial tables for its estimates of life expectancy, probability of disability, etc.

Extracts from the actuarial tables are reproduced below. This table shows life expectancy and the probability that an employee in a given age bracket will suffer disability or die within a year.

Age Disability risk in % Mortality risk in % Life expectancy Man Woman Man Woman Man Woman 20 0,07 0,07 0,01 0,01 85 89 40 0,22 0,22 0,06 0,05 84 88 60 2,16 2,59 0,52 0,37 84 87 80 - - 6,04 3,35 87 90

agder energi ANNUAL REPORT 2012 67 (Amounts in NOK millions) 2012 2011

The pension expense for the year has been calculated as follows: Current service cost 80 74 Interest cost 70 67 Expected return on pension plan assets -76 -81 Past service cost (excl. employers’ NICs) - 2 Employee contributions -7 -7 Pension expense for the year, defined benefit plans 68 55 Cost of AFP scheme including employers’ NICs 6 7 Defined contribution pension plans (incl. emp. NICs) 19 18 Total pension expense recognised in the profit and loss account 93 80

Pension liabilities and pension plan assets:

Change in gross pension liabilities: Gross pension liabilities at 1 Jan. incl. emp. NICs 2 332 2 053 Disposals of businesses -23 -156 Current service cost incl. emp. NICs 80 74 Interest cost 71 67 Past service cost - 2 Benefits paid/paid-up policies incl. emp. NICs -69 -67 Actuarial gains and losses -399 359 Gross pension liabilities at 31 Dec. incl. emp. NICs 1 993 2 332

Breakdown of defined benefit pension liabilities Funded pension liabilities 1 756 1 998 Unfunded pension liabilities 237 234 Gross pension liabilities at 31 Dec. 1 993 2 332

Change in gross pension plan assets Fair value of pension plan assets at 1 Jan. 1 355 1 453 Disposals of businesses -13 -98 Expected return on pension plan assets 76 81 Actuarial gains and losses 99 -115 Pension contributions 84 79 Benefits paid/paid-up policies -48 -45 Fair value of pension plan assets at 31 Dec. 1 552 1 355

Net pension liabilities 441 977 Net pension liabilities at 31 Dec. 441 977

Estimates: Actual return on pension plan assets 126 13 Expected pension contributions next year excl. emp. NICs 56 86

Change in net defined benefit pension liabilities: Net defined benefit pension liabilities at 1 Jan. 977 601 Pension expense recognised in the profit and loss statement 68 55 Disposals of businesses -10 -58 Company contributions (incl. emp. NICs) -77 -84 Benefits paid -10 -10 Actuarial gains and losses * -497 474 Net pension liabilities at 31 Dec. 441 977

*In addition there were NOK 6 million of actuarial losses from discontinued operations in 2011.

agder energi ANNUAL REPORT 2012 68 2012 2011

Carrying amount of pension assets 34 - Carrying amount of pension liabilities 476 977 Carrying amount of net pension liabilities 441 977

Actuarial gains and losses are made up of: Gains and losses due to changes in participant data (not assumptions) -20 Gains due to changes in assumptions 417 Excess return on assets 99 Total actuarial gains and losses included on the balance sheet 497

2012 2011 Assumptions used to determine pension liabilities at 31 Dec. Discount rate 3,80 % 3,00 % Annual wage growth 3,50 % 3,50 % Increase in the National Insurance Scheme’s basic amount (”G”) 3,50 % 3,75 % Annual indexing of pensions 2,75 % 3,00 % Expected return on pension plan assets 5,00 % 5,50 % Expected average remaining years of service 11 years 11 years

Assumptions used to calculate the pension expense for the year: Discount rate 3,00 % 3,70 % Return on pension plan assets 5,50 % 5,70 % Annual wage growth 3,50 % 3,75 % Increase in the National Insurance Scheme’s basic amount (”G”) 3,75 % 3,75 % Annual indexing of pensions 3,00 % 3,00 %

Assumptions used to calculate the pension expense in 2013: Discount rate 3,8 % Expected return on pension plan assets 3,8 %

2012 2011 Distribution of the pension scheme assets by investment category at 31 Dec. Property funds 9 % 8 % Interest-bearing financial instruments 62 % 67 % Shares 27 % 23 % Other 2 % 2 % Total 100 % 100 %

2012 2011 Number of people covered by the pension plans: Defined benefit plan: current employees 568 595 Defined benefit plan: current employees, accrued entitlements and retired employees 1 767 1 783 Defined contribution plan: current employees 719 804 Current employees entitled to public sector AFP, and early retirees 419 635

agder energi ANNUAL REPORT 2012 69 Note 25 INTEREST-BEARING LIABILITIES

(Amounts in NOK millions) 2012 2011

Interest-bearing non-current liabilities Bonds 2 405 2 921 Liabilities to financial institutions 2 378 2 326 Other interest-bearing non-current liabilities 14 12 Total 4 796 5 259

Interest-bearing current liabilities Commercial paper 400 300 Overdraft with cash pooling arrangement 244 132 Current portion of non-current liabilities (principal repayments due within one year) 1 779 1 335 Other interest-bearing current liabilities 3 2 Total 2 426 1 769

The fair value of the Group’s interest-bearing liabilities is described in Note 27. All of the above balance sheet items are carried at amortised cost in accordance with IAS 39. Note 30 sets out further details of interest rates, durations, liquidity risk, credit facilities, etc. Some loans form part of hedging relationships in accordance with IAS 39. See Note 30 for a more detailed description.

Note 26 OTHER NON-INTEREST-BEARING CURRENT LIABILITIES

(Amounts in NOK millions) 2012 2011 Trade payables 400 401 Unpaid government taxes and duties, tax deducted at source, etc. 371 346 Share of non-current liabilities at joint ventures 146 46 Other current liabilities 451 504 Total 1 368 1 297

agder energi ANNUAL REPORT 2012 70 Note 27 FINANCIAL INSTRUMENTS

Financial instruments constitute a significant proportion of Agder Energi’s total assets, and they have a big impact on the Group’s financial position and results. The majority of the financial instruments are used in energy trading or as financial hedges.

Within energy trading, financial instruments are used as part of a hedging strategy. When managing the Group’s exposure to risks associated with future electricity prices and exchange rates, these instruments are viewed together with future physical trading; see Note 30. Physical energy trading is only recognised in the financial statements when the energy is supplied/bought, whereas energy and currency derivatives are measured at fair value through profit or loss. Due to the significant volumes of these derivatives, gains and losses on them can potentially cause great volatility in the Group’s balance sheet and profit or loss, without this reflecting its overall financial results.

Financial hedges mainly consist of loans and interest rate swaps. When managing the Group’s interest rate risk, these two types of financial instruments are assessed together, and they are also viewed in the context of the Group’s other interest rate risks; see Note 30. In the financial statements, loans are measured at amortised cost, whereas interest rate swaps are measured at fair value through profit or loss. This can cause large fluctuations in the Group’s reported profit or loss, without it reflecting its overall financial performance. There are some minor exceptions to this symmetrical treatment; see Note 30 on accounting hedges.

In order to highlight the unrealised impact of these electricity, currency and interest rate contracts, their values and changes in value are presented on separate lines in the profit and loss account and balance sheet.

The table below shows the carrying amount and fair value of the Group’s financial instruments.

(Amounts in NOK millions) Note carrying Fair carrying Fair amount value amount value 2012 2012 2011 2011 Financial assets at fair value through profit or loss Derivatives 28 645 645 449 449 Other non-current financial assets 18 25 25 0 0 Total financial assets at fair value through profit or loss 670 670 449 449

Available-for-sale assets Shares 18 27 27 35 35

Loans and receivables at amortised cost Loans to associates 18 181 181 151 151 Other non-current receivables 18 189 189 124 124 Cash and cash equivalents 21 89 89 102 102 Total loans and receivables at amortised cost 459 459 377 377

Financial liabilities at fair value through profit or loss Non-current liabilities, obligation to provide free electricity and pay compensation 23 556 556 604 604 Non-current liabilities, cash-settled contracts 23 115 115 153 153 Derivatives 28 240 240 227 227 Total financial liabilities at fair value through profit or loss 911 911 984 984

Financial liabilities at amortised cost Bonds 25 4 184 4 231 4 257 4 262 Loans from financial institutions 25 2 387 2 387 2 326 2 329 Commercial paper 25 400 400 300 300 Overdraft and other interest-bearing current liabilities 25 253 253 145 145 Total financial liabilities at amortised cost 7 223 7 271 7 028 7 036

agder energi ANNUAL REPORT 2012 71 Note 28 DERIVATIVES

Agder Energi has both stand-alone derivatives and embedded derivatives.

The embedded derivatives are components of perpetual obligations to supply free electricity and pay compensation, as well as certain non-current cash-settled contracts. These contracts are judged to fall entirely within the scope of IAS 39, and are therefore measured at fair value. The contracts are classified as non-current liabilities; see Note 23.

In the table below, stand-alone derivatives with positive and negative fair values are shown separately by portfolio. The portfolios are described in greater detail in Note 30. The figures for energy derivatives are the accounting values of contracts which, under the criteria set out in IAS 39, fall within the definition of financial instruments. There can be significant discrepancies between accounting values and underlying financial values, as the portfolios contain both contracts that are covered by IAS 39 and ones that are not.

A small proportion of the Group’s interest rate derivatives are designated as accounting hedges; see Note 30 on accounting hedges.

Agder Energi offers several managed electricity trading products to the retail market. With these products, Agder Energi supplies physical electricity to a portfolio of customers, on whose behalf it actively trades electricity through Nasdaq (the marketplace for cash-settled electricity futures). These Nasdaq positions are measured symmetrically. In other words, Agder Energi recognises equivalent contracts with respect to the retail customers covered by the electricity trading products, but with the opposite exposure of the Nasdaq positions. This symmetrical treatment means that these financial positions do not have any impact on Agder Energi’s profit and loss account, but it does result in an increase in total assets, as the gross value of derivatives on the balance sheet rises.

At the end of 2012, the Group had derivatives worth NOK 22 (52) million that were assets in relation to Nasdaq and liabilities in relation to customers. Similarly, it had derivatives worth NOK 155 (138) million that were assets in relation to customers and liabilities in relation to Nasdaq. In total the value of these positions is higher than the NOK 33 (70) million in electricity derivatives shown as liabilities in the table below. That is because Agder Energi has other positions at Nasdaq that are offset against the abovementioned positions when they are settled. These Nasdaq positions are therefore presented net on the balance sheet.

(Amounts in NOK millions) Note change 2012 2011

Derivative assets: Portfolio of cash-settled electricity contracts * 494 292 Currency derivatives, electricity sales 128 124 Interest rate swaps 23 33 Total derivatives 645 449

Derivative liabilities: Portfolio of cash-settled electricity contracts * 32 70 Currency derivatives, electricity sales 1 20 Interest rate swaps 207 137 Total derivatives 240 227

Net value of derivatives: Portfolio of cash-settled electricity contracts * 7 240 462 222 Currency derivatives, electricity sales 12 23 127 104 Interest rate swaps ** -80 -184 -104 Total derivatives 405 222 * includes both the portfolio of financial production hedges and the retail customer portfolio. ** For breakdown of net gain/loss on interest rate swaps, see table below.

(Amounts in NOK millions) Note change Unrealised gains and losses through profit or loss 12 -48 Gains and losses on cash flow hedges 30 -13 Gains and losses on fair value hedges 30 -19 Net gain/loss on interest rate swaps -80

agder energi ANNUAL REPORT 2012 72 Realised gains and losses on derivatives affect several lines in the profit and loss account: Realised gains and losses on the portfolio of cash-settled electricity contracts are included under “Net energy sales”; see Note 3. Realised gains and losses on currency instruments are included as financial items under exchange rate gains and losses; see Note 12. Payments on interest rate swaps are shown as an interest expense under finance costs; see Note 12.

The way in which the fair value of the derivatives is measured is described in Note 29.

Note 29 FAIR VALUE OF FINANCIAL INSTRUMENTS

The below table sets out to what extent observable market data are used to value financial instruments measured at fair value. The financial instruments have been broken down into the various categories used by the Group for classification purposes.

(Amounts in NOK millions) Note totAl level 1* level 2** level 3***

2012 Derivatives 28 645 - 645 - Shares and ownership interests 18 27 14 - 13 Total assets 672 14 645 13

Supply of free electricity and compensation 23 556 - - 556 Cash-settled contracts 23 115 - - 115 Derivatives 28 240 - 240 - Total liabilities 911 - 240 671

2011 Derivatives 28 449 - 449 - Shares and ownership interests 18 35 18 - 17 Total assets 484 18 449 17

Supply of free electricity and compensation 23 604 - - 604 Cash-settled contracts 23 153 - - 153 Derivatives 28 227 - 227 - Total liabilities 984 - 227 757

* level 1 assets are financial instruments the fair values of which can be determined from market prices in an active market. ** level 2 assets are financial instruments the fair values of which are estimated using a valuation model that only uses market data as its inputs. *** level 3 assets are financial instruments the fair values of which are estimated using a valuation model that does not only use market data as its inputs. In 2012 the Group recognised a net gain of NOK 81 million on level 3 financial instruments.

Level 3 assets and liabilities at fair value* (Amounts in NOK millions) Shares and Supply of free Cash-settled ownership electricity and contracts interests compensation Opening balance at 01/01/2012 17 -604 -153 Gains and losses recognised in profit or loss -5 48 38 Acquisitions 3 - - Disposals -2 - - Closing balance at 31/12/2012 13 -556 -115

* Liabilities are shown with a minus sign.

agder energi ANNUAL REPORT 2012 73 FAIR VALUE OF ENERGY DERIVATIVES In measuring the fair value of energy derivatives, the following parameters and assumptions have been applied:

Electricity prices Nasdaq and other bilateral contracts are measured using a smooth forward curve based on the final price on the balance sheet date. For contracts with a term to maturity of more than five years, the price is inflation-adjusted after five years. The prices used are discounted.

Agder Energi has a number of perpetual supply contracts (compensation power), which are accounted for in accordance with IAS 39. The market value of these contracts has been calculated based on a 200 year term. Nasdaq’s market prices have been used for the first five years. For the period where market prices are not available, the Group’s long-term price expectations have been used.

Foreign currency For currency derivatives and contracts quoted in foreign currency, the calculation is based on the exchange rate on the balance sheet date and the associated forward exchange rates.

Commodities For certain electricity contracts, the contract price is linked to the prices of various commodities. Valuations are based on the forward prices on the relevant commodity exchanges. If there are no quoted prices for the relevant time period, the commodity prices are inflation-adjusted from the last quoted market price.

CO2 CO2 contracts are valued using the forward price of emission quotas (EUAs) on Nasdaq and ICE.

Interest rates Energy derivatives are discounted by the market interest rate curve (swap curve). Where credit risk is significant, a risk premium is added to the interest rate curve. When discounting perpetual contracts to supply free compensation power, a risk-adjusted nominal interest rate is used, based on Norges Bank’s long-term forecasts for inflation and real interest rates.

FAIR VALUE OF CURRENCY AND INTEREST RATE DERIVATIVES

Interest rate swaps, currency swaps and currency futures Interest rate and currency swaps, as well as currency futures, are valued by discounting future cash flows to their present value. Expected cash flows are calculated and discounted by looking at the observed market interest rates on the various currencies (swap curves) and the observed exchange rates, which are used to derive forward exchange rates. The estimated present values are checked against the equivalent calculations carried out by the counterparties to the contracts.

FAIR VALUE OF FINANCIAL INVESTMENTS

Shares Some of the Group’s equity investments classified as available for sale are listed on a stock exchange, while for others there are no quoted prices. The former are valued at the most recent available share price (bid price). The latter are valued using valuation techniques, including discounting expected future cash flows.

agder energi ANNUAL REPORT 2012 74 Note 30 QUANTITATIVE INFORMATION ABOUT RISK EXPOSURES ARISING FROM FINANCIAL INSTRUMENTS

GENERAL INFORMATION ABOUT RISK EXPOSURES ARISING FROM FINANCIAL INSTRUMENTS Agder Energi’s financial instruments are exposed to market risk, credit risk and liquidity risk. There follows a more detailed description of these risks, and of how they are managed.

MARKET RISK Market risk is the risk that a financial instrument’s fair value or future cash flows will fluctuate due to changes in market prices. Market risk primarily consists of electricity price risk, currency risk and interest rate risk. Risk management at Agder Energi focuses on entire portfolios of contracts, and not specifically on contracts that fall within the scope of IAS 39.

There are internal guidelines on exposure to market risk, for both the hedging and trading portfolios. Agder Energi’s corporate governance department has been given responsibility for continuously monitoring compliance with limits on risk exposure. The limits on trading both cash-settled and physical contracts are systematically monitored and the current status is regularly reported.

MARKET RISK ARISING FROM ELECTRICITY PRICES

Power generation portfolio Agder Energi’s hydroelectric power generation business is exposed to risks arising from fluctuations in prices and volumes, as both future prices and precipitation levels are unknown. The power generation portfolio aims to manage the market risks associated with power generation.

The net exposure of the portfolio at any given time consists of the latest power generation forecasts, purchase and sale commit- ments under long-term physical contracts, as well as contracts on Nasdaq and bilateral cash-settled contracts. Since the aim is to hedge the value of future revenues, the portfolio normally maintains a net short position in cash-settled contracts.

Agder Energi enters into contracts for physical delivery and trades various cash-settled instruments in order to secure its revenues from electricity sales. This helps to stabilise revenues from one year to another, which is considered desirable on account of the great uncertainty surrounding electricity prices. Hedging activities, which take into account Agder Energi’s current and future power generation capacity, are designed to optimise contracts in relation to the Group’s risk profile. Optimisation is done in relation to profit after tax.

Limits on futures trading are based on the desired hedge ratio and expected generation. In addition, trading strategies have been established at an operating level designed to manage risk using a profit at risk method with a range of potential outcomes. For risk management purposes, cash-settled and physical contracts are considered together.

The physical contracts in the portfolio comprise commercial sales contracts, contracts to supply concession power and various contracts to supply free power and compensation power. The durations of the commercial contracts vary, with most of them expiring by the end of 2020. The Group has perpetual agreements to supply compensation power, and the contracts to supply concession power are also perpetual. These perpetual contracts cover less than ten percent of the Group’s mean electricity generation.

The cash-settled contracts mainly constitute contracts traded on Nasdaq, but bilateral contracts are also used. The vast majority of them run for less than five years, but a few bilateral cash-settled contracts run for longer.

The sale of electricity in the futures market and the price sensitivity of electricity derivatives are shown in a separate section on the next page.

Retail customer portfolio The retail market covers sales to private customers, state-owned entities and private companies. It includes both physical and cash-settled contracts. Physical contracts are mainly based on spot prices, variable rates, fixed prices or capped variable rates. Electricity for immediate use is purchased at the spot price. A number of the physical contracts are flexible in terms of the volumes

agder energi ANNUAL REPORT 2012 75 delivered. Some of the cash-settled contracts with retail customers are based on back-to-back contracts on Nasdaq. Various managed electricity supply products are also offered to customers, which involve cash-settled trades on Nasdaq based on expected physical deliveries to the relevant portfolio of customers.

The net exposure of the retail portfolio at any given time consists of sale contracts with prices that are fixed for varying lengths of time, as well as contracts on Nasdaq and bilateral cash-settled contracts. The vast majority of the contracts expire in less than three years. The portfolio shall hedge the value of future revenues from this area. The retail portfolio normally maintains a net long position in cash-settled contracts.

This business area exposes itself to variations in electricity prices by agreeing fixed prices with retail customers or by agreeing to give retail customers notice of changes in variable rates. Where this kind of price risk exists, prices are hedged through cash- settled contracts on Nasdaq. Limits have been set on the maximum volume of exposure. Daily Value at Risk (VaR) calculations are also used to monitor exposure. VaR gives a prediction with a certain level of confidence of potential portfolio losses. Management is kept informed of the exposure level relative to the specified limits. The retail customer portfolios are also exposed to volume risks, as many of the physical fixed-price contracts are flexible in terms of the volumes delivered. Based on experience, knowledge of normal seasonal variation and knowledge of other specific issues that affect end users’ electricity consumption, Agder Energi calculates the volumes likely to be needed, and which consequently need to be hedged.

The sale of electricity in the futures market and the price sensitivity of electricity derivatives are shown in a separate section below.

Trading portfolios Agder Energi has various trading portfolios which are managed independently of its expected power generation. The portfolio managers trade in the market with the aim of profiting from short-term and long-term changes in the market values of energy products. All trading contracts are measured at fair value. The portfolios consist of short-term cash-settled futures and options contracts for electricity, coal, oil and CO2, which are traded on Nasdaq, on other exchanges and bilaterally.

VaR is the most important tool used to manage the risk exposures arising from these portfolios. Trading volumes are significant, but the financial exposure at any given time is limited by hedging activities. Electricity trading authorisations are expressed in terms of limits on potential losses. At an operating level, risk management focuses on minimising any losses.

Price sensitivity and sale/purchase of electricity in the futures market

Electricity derivatives: (Amounts in NOK millions) Change in electricity prices change in exchange rate

-10 % 10 % -5 % 5 % Electricity derivatives 318 -318 -22 22

The table shows a partial risk analysis of how the fair values of electricity derivatives would change in the event of a parallel 10% decrease/increase in electricity futures prices and of a parallel 5% decrease/increase in foreign currency exchange rates. A decrease is taken to mean NOK strengthening in relation to EUR.

The table below shows how much electricity the Group had sold in the futures market at the end of 2012.

Sales (-) and purchases (+) through the futures market (Figures stated in TWh) Hydroelectric power generation -12,8 Retail market 2,1 Net sales through the futures market -10,7

agder energi ANNUAL REPORT 2012 76 MARKET RISK – CURRENCY Agder Energi is exposed to currency risk through its electricity generation business and retail business.

The biggest exposure to currency risk arises from physical electricity sales by the electricity generation business: NordPool contracts are settled in euros, and Agder Energi has also entered into long-term contracts to sell electricity that are payable in euros. In addition, currency risk arises as a result of financial trading on Nasdaq OMX being settled in euros.

Expected future cash flows from power generation over the next four years are gradually hedged. The hedge ratio is highest for the cash flows that are closest in time. Cash-settled derivatives and foreign currency loans are used to hedge the risk. Exchange rate hedging can be done separately from electricity price hedging.

The retail business pays for the electricity that it buys on NordPool in euros. This gives rise to a currency risk when NOK-denominated fixed-price contracts are signed with customers. The currency risk associated with these fixed-price contracts is transferred to the parent company and is managed at Group level.

Agder Energi’s group finance department is responsible for all trading of foreign currency instruments and for taking out foreign currency loans. An independent risk management section is responsible for checking that trading adheres to the adopted strategies and limits on risk exposure.

At the close of 2012, the Group had entered into forward contracts to sell EUR 287 million.

The exchange rate sensitivity of currency derivatives is shown in the table below:

Currency derivatives: (Amounts in NOK millions) Change in exchange rate

-5 % 5 % Currency derivatives: 107 -107

The table shows how the fair values of the foreign currency derivatives would change in the event of a parallel 5% decrease/increase in foreign currency exchange rates. A decrease is taken to mean NOK strengthening in relation to EUR.

Euro-denominated loans: (Amounts in NOK millions) Change in exchange rate

-5 % 5 % Euro-denominated loans 40 -40

The above table shows how the fair values of the foreign currency contracts would change in the event of a parallel 5% decrease/ increase in foreign currency exchange rates. A decrease is taken to mean NOK strengthening in relation to EUR. The loans have been designated as cash flow hedges, and gains and losses are recognised in the statement of comprehensive income.

agder energi ANNUAL REPORT 2012 77 MARKET RISK – INTEREST RATES The vast majority of the Group’s exposure to interest rate risk arises from its debt portfolio, but consideration is also given to the Group’s exposure to interest rates arising from resource rent tax and the income cap on its power distribution business. Interest rate swaps are used to achieve the desired exposure to interest rates within the Group’s debt portfolio. This is done using fixed- interest loans and with the help of financial instruments.

Sensitivity to interest rates is measured by modified duration within a defined period of 1 to 5 years. The chosen strategy aims to minimise net finance costs over the long term, while reducing risk to an acceptable level. It is based around making use of the Group’s natural interest rate hedges, such as the income cap on its power distribution business and the deductible interest rate used to calculate the resource rent tax payable by the power generation business. The group finance department is responsible for taking positions. Exposure to interest rate risk is measured. Each month, current exposure to interest rate risk in relation to the limit specified in the finance strategy is reported to the CFO. Interest rate exposure is also reported to the Group’s Board of Directors in the risk report.

Interest rate swaps: (Amounts in NOK millions) Change in interest rates

-1 % 1 % Interest rate swaps -100 110

This table shows how the fair values of interest rate swaps would change in the event of a parallel 1% decrease/increase in the yield curve.

Breakdown of interest by currency: 2012 2011 Nominal average interest rate, NOK 4,3 % 4,2 % Nominal average interest rate, Euros 4,7 % 5,2 %

Fixed-interest periods within loan portfolio: (Amounts in NOK millions) 1-3 years 3-5 years over 5 years total

NOK-denominated loans 1 327 1 095 3 993 6 415 Euro-denominated loans 176 338 294 808 Total 1 503 1 433 4 287 7 223

Agder Energi uses a duration target of between 1 and 5 years to help it manage the risk exposures arising from its loan portfolio. Average duration at the close of the year was 3.0 years.

CREDIT RISK Credit risk is the risk that a party to a cash-settled or physical trade will cause his counterparty to incur a loss by failing to fulfil his obligations. Agder Energi takes on counterparty risk by selling and distributing electricity, and by selling other goods and services. The investment of surplus liquid assets and trading of financial instruments also give rise to counterparty risk. The majority of cash-settled electricity contracts are cleared through Nasdaq. For these contracts, there is assumed to be little counterparty risk. For all other electricity contracts, the maximum exposure to any individual counterparty is determined based on an internal credit rating. The credit rating is based on information such as key financial figures. Counterparties are then grouped in various risk classes, each of which is allocated a maximum exposure level. Bilateral contracts are subject to limits on exposure to individual counterparties, both in terms of value and duration.

In order to limit credit risk, bank guarantees are sometimes demanded when a contract is signed. The guarantee must have been issued by an acceptable bank. Parent company guarantees are also used. In those cases, the parent company is assessed and

agder energi ANNUAL REPORT 2012 78 classified in the normal way. Agder Energi has good procedures for ensuring that outstanding receivables are paid on time. An aged analysis of customers is continuously monitored. If a counterparty encounters financial difficulties, special procedures are followed. Historically Agder Energi’s losses on its receivables have been low.

Limits on exposure to individual counterparties are regularly monitored and reported. Total counterparty risk is calculated and reported for all relevant business units, as well as being consolidated at Group level.

The maximum credit risk arising from energy derivatives is virtually identical to the carrying amount on the balance sheet. For energy derivatives, the credit risk associated with all contracts traded through Nasdaq is limited by the fact that counterparties provide cash collateral or bank guarantees. For bilateral contracts there is not normally any such security.

LIQUIDITY RISK Agder Energi is exposed to liquidity risk arising from the fact that its liabilities do not mature at the same time as when cash flows are generated, as well as from variations in margin requirements on futures traded through Nasdaq. The capital markets consider Agder Energi to be a low-risk borrower, and it has been given a so-called shadow rating of A- by agencies in the bond market. Agder Energi mainly funds its operations through the Norwegian commercial paper and bond markets, but it also uses the banking market to some extent. The Group also has credit facilities with banks to backstop its commercial paper programme. The credit facilities would provide sufficient time to make alternative financing arrangements in the event of the commercial paper market no longer being an attractive source of financing. A bank guarantee has been set up to cover significant fluctuations in Nasdaq’s margin requirements on futures.

Exposure to liquidity risk is reviewed regularly. The Group Finance department is responsible for ensuring that the Group has sufficient liquidity in relation to its finance strategy. Key figures relating to liquidity risk are included in the Group’s risk report to the Board of Directors.

Liquidity risk, maturity structure of liabilities: (Amounts in NOK millions) Carrying Due in Due in Due in Due inl Due in Due in unspec amount after ified 2012 2013 2014 2015 2016 2017 2017 Bonds and liabilities to financial institutions 6 587 1 797 950 1 100 850 590 1 300 - Commercial paper and overdraft facility 636 636 ------Total interest-bearing liabilities 7 223 2 433 950 1 100 850 590 1 300 -

Financial liabilities at fair value through profit or loss 911 30 3 - - - - 878 Tax payable and deferred tax 1 368 663 - - - - - 705 Other non-interest-bearing current liabilities 1 368 1 368 ------Other non-interest-bearing non-current liabilities 695 ------695 Total non-interest-bearing liabilities 4 342 2 061 3 - - - - 2 278

Total 11 565 4 494 953 1 100 850 590 1 300 2 278

Breakdown of loans by currency: (Amounts in NOK millions) 2012 2011 NOK-denominated loans * 6 415 6 251 Euro-denominated loans 808 777 Total 7 223 7 028

* the Group has issued a bond with a face value of USD 100 million. In the table, the bond is presented under NOK-denominated loans, as the Group has used currency swaps to ensure that it has no exposure to USD exchange rates arising from the loan.

agder energi ANNUAL REPORT 2012 79 Credit facilities with banks The parent company has a long-term NOK 1000 million committed facility with a bank to back-stop its short-term borrowing programme in the event of problems in financial markets. The parent company has also set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. At the close of the year, the Group had NOK 1257 million in total in unused credit facilities.

HEDGE ACCOUNTING Agder Energi has three interest swaps linked to specific loans that are designated as accounting hedges: Two contracts, each with a face value of NOK 100 million, have been designated as fair value hedges, i.e. they are fixed-to-variable interest rate swaps. Another contract, with a face value of NOK 26 million, has been designated as a cash flow hedge, i.e. it is a variable-to-fixed interest rate swap.

In addition, the Group has two combined interest rate and currency swaps, which qualify as accounting hedges. The Group has issued a 7-year, USD-denominated fixed-interest bond, which matures in 2017. In relation to this, it has entered into swap agreements which see it receive fixedUS D interest payments, and make a combination of fixed and variable NOK interest payments. From an accounting point of view, these swaps are considered to be fair value hedges, which swap a fixed interest rate with payments in USD to a variable interest rate with payments in NOK. For one of these swaps, the Group receives fixed interest payments in USD and pays fixed interest payments in NOK. For accounting purposes, this swap is considered to be a swap from a fixed interest rate with payments in USD to a variable rate with payments in NOK, with this part of the swap being designated a fair value hedge. In addition, it is considered to be a swap from a variable rate with payments in NOK to a fixed rate with payments in NOK, and this part of the swap is designated a cash flow hedge.

In addition to the above, Agder Energi has designated euro 110 million worth of loans as cash flow hedges of highly probable future revenues from electricity sales.

For its other financial hedging relationships, the Group does not satisfy the extensive documentation requirements specified in the IFRS rules on hedge accounting.

Amounts in NOK millions 2012 2011

Fair value of derivatives designated as hedging instruments Derivatives designated as fair value hedges 3 22 Derivatives designated as cash flow hedges -22 -9 Total fair value of derivatives designated as hedging instruments -19 13

Fair value hedges Gains/losses on derivatives used as fair value hedges -19 61 Gains/losses on hedged items in fair value hedges, hedged risk 19 -61 Hedge ineffectiveness recognised in profit or loss - -

Cash flow hedges Gains and losses on foreign curr. loans rec. in statement of comp. inc., gross 42 6 Gains (-) reclassified from equity to profit on disposal of the instrument -30 - Gains and losses on foreign currency loans rec. in statement of comp. income 12 6 Gains and losses on derivatives rec. in statement of comp. income -13 -14 Total gains and losses on hedging instruments rec. in statement of comp. inc. -1 -8

Cash flow hedge ineffectiveness recognised in profit or loss - -

agder energi ANNUAL REPORT 2012 80 Note 31 Mortgaged assets, liabilities and guarantees issued

Mortgages Agder Energi has mortgaged some assets as collateral for loans. NOK 74 million of the parent company’s interest-bearing liabilities were mortgage loans, and the book value of the collateral (owned by Agder Energi Vannkraft) was NOK 319 million. Subsidiaries held NOK 24 million in mortgage debt, and the book value of the mortgaged assets was NOK 90 million.

Liabilities and guarantees issued Agder Energi has no covenants relating to financial key figures in its loan agreements.

Of the parent company’s interest-bearing liabilities, NOK 1,000 million is guaranteed by banks and NOK 129 million is guaranteed by the shareholder municipalities. Agder Energi’s loan agreements contain negative pledge clauses, which also cover its subsidiaries. This means that any new security interests require the consent of the lenders.

Agder Energi has NOK 673 million in off-balance sheet bank guarantees. NOK 349 million of this relates to a cash-settled power exchange agreement, NOK 68 million to electricity trading, NOK 66 to tax deducted at source and NOK 190 million to other guarantees.

At the close of the year, the parent company had issued guarantees worth NOK 15 million in relation to subsidiaries’ external liabilities.

Contractual obligations At any given time the Group has several ongoing investment projects that involve obligations to fulfil contracts with subcontractors. The Group also has obligations arising from its ownership interests in joint ventures and water management associations; cf. Note 16.

Through its subsidiary Agder Energi Varme, Agder Energi has entered into a long-term contract to buy heating energy from the municipally-owned enterprise Returkraft. The contract, which runs for 20 years with an optional extension, commits Agder Energi Varme to buying an agreed volume from Returkraft’s waste-to-energy plant in Kristiansand from 2010 onwards.

Since 2010, Agder Energi has had its head office in leased premises at Kjøita in Kristiansand. It has signed a 15+5-year lease on the building with the lessor KN Kjøita AS. The companies in the Otera Group mainly occupy leased premises. Otera also leases its fleet of vehicles. NOK 66 million was expensed in relation to these lease contracts in 2012.

Note 32 Contingent liabilities and events after the reporting period

Agder Energi’s operations are extensive, and it can therefore get involved in major and minor disputes from time to time. At the time of the financial statements being presented, there were no ongoing disputes with the potential to significantly impact Agder Energi’s profitability or liquidity.

There have not been any incidents in 2013 that have a significant impact on Agder Energi’s financial position and results.

agder energi ANNUAL REPORT 2012 81 Note 33 MANAGEMENT COMPENSATION, ETC.

Board of Directors The compensation of the Board of Directors and Corporate Assembly for 2012 was NOK 1 056 417 and NOK 19 600 respectively. The equivalent figures in 2011 were NOK 827 333 and NOK 20 800 respectively. The Board members are not entitled to any special termination benefits such as bonuses, profit-sharing or options.

All of the stated figures exclude employers’ NICs.

Board of Directors (Amounts in NOK) Directors’ Attendance fees at Board meetings Sigmund Kroslid, Chair 181 250 10 of 10 Mette Gundersen, Deputy Chair (until 15 May 2012) 37 500 3 of 5 Lars Erik Torjussen, Deputy Chair (from 15 May 2012) 93 750 5 of 5 Bente Z. Rist, Board member 98 750 10 of 10 Tønnes Seland, Board member (until 15 May 2012) 30 000 5 of 5 Katja Lehland, Board member (from 15 May 2012) 68 750 4 of 5 Steinar Bysveen, Board member* - 9 of 10 Elisabeth Morthen, Board member 98 750 10 of 10 Eli Skrøvseth, Board member (until 20 December 2012)* - 9 of 10 Steinar Asbjørnsen, Board member (from 20 December 2012)* - - Bjørn Blaker, Board member (until 15 May 2012)* - 4 of 5 Jon Vatnaland, Board member (from 15 May 2012)* - 5 of 5 Johan Ekeland, employee representative 98 750 9 of 10 Øyvind Østensen, employee representative 98 750 8 of 10 Oddvar E. Berli, employee representative 98 750 8 of 10 Gro Granås-Bratland, employee representative (from 15 May 2012) 68 750 4 of 5

* Employees of Statkraft are not paid Directors’ fees

In 2012, no separate fees were paid to the audit committee appointed by the Board.

In 2012, Board members’ deputies received NOK 83 000 in fees.

None of the Board members received compensation from any other companies in the Group, with the exception of the employee representatives, who receive salaries for their ordinary jobs. Their compensation as Agder Energi employees is not included in the above figures. No Board members have any loans from the company.

Senior management team In 2012, the members of the senior management team were Tom Nysted (CEO), Pernille K. Gulowsen, Unni Farestveit, Hans Jakob Epland, Frank Håland (from 1 March), Jan Tønnessen (from 1 March), Edvard Lauen (from 1 March), Svein Are Folgerø (from 1 March), Finn R. Johansen (until 1 March), Ole Th. Dønnestad (until 1 March), Realf Ottesen (until 1 March) and Erik Boysen (until 1 March).

The total compensation of the senior management team was NOK 17.9 million in 2012 and NOK 17.8 million in 2011. Of this, pension expenses represented NOK 2.9 million in 2012 and NOK 4.0 million in 2011. The members of the senior management team are all employed by the parent company, with the exception of Jan Tønnessen (employed by AE Vannkraft AS), Edvard Lauen (AE Kraftforvaltning AS) and Svein Are Folgerø (AE Nett AS).

All of the figures given for compensation exclude employers’ NICs, and relate to the period during which the employees in question were members of the senior management team.

agder energi ANNUAL REPORT 2012 82 Senior management team (Amounts in NOK 000s) Basic other total pension salary benefits taxable expense (1) income Tom Nysted – CEO 2 622 139 2 761 1 009 Pernille K. Gulowsen – CFO 1 590 119 1 709 470 Unni Farestveit - Director of Corporate Social Responsibility and Corporate Development 1 592 112 1 704 658 Hans Jakob Epland – Business Area Director, Market 1 819 192 2 011 68 Finn R. Johansen – HR Director (until 1 March) 259 16 275 61 Ole Th. Dønnestad – Business Area Director, Energy (until 1 March) 262 19 281 59 Erik Boysen – Business Area Director, Network (until 1 March) 258 19 277 25 Realf Ottesen – Director of Communications (until 1 March) 238 18 256 48 Frank Håland – Director of HR and Shared Services (from 1 March) 1 214 92 1 306 59 Jan Tønnessen – Business Area Director, Hydroelectric Power (from 1 March) 1 231 78 1 309 48 Svein Are Folgerø – Business Area Director, Network (from 1 March) 1 189 89 1 278 56 Edvard Lauen – Business Area Director, Energy Management (from 1 March) 1 742 109 1 851 267

(1) other benefits include mileage allowance, mobile phone and other minor benefits. A flat in ¬-Kristiansand has been made available to the CEO.

Loans/guarantees issued and share option schemes No members of the senior management team have been granted loans or had guarantees issued on their behalf by Agder Energi. Agder Energi does not have any share option schemes for management or other employees.

Bonuses and pension plans The senior management team has no bonus arrangement for 2012.

The CEO has a pension plan that allows him to retire at the age of 67 with a pension equivalent to 66% of his qualifying salary. The qualifying salary is based on his regular salary, and the cost of his pension includes retirement pension benefits in excess of 12G, which are not covered by the National Insurance Scheme or the public sector occupational pension plan. In order to receive this pension, he must have 30 years of qualifying service. On reaching the age of 62, he has a right and duty to vacate his position as CEO. An agreement has been reached whereby the CEO will then move to a new position, which will involve working up to 75% of full-time for 75% of his full salary, taking into account any remuneration received from other sources than Agder Energi if relevant. If the CEO is asked to leave the company, he remains entitled, during the notice period and for up to a further 12 months, to receive his salary and other benefits, less the value of any other benefits that he may receive during that period. The notice period is six months.

For other members of the senior management team, the notice period is also six months. There are no special agreements on termination compensation. The executive directors Pernille K. Gulowsen, Unni Farestveit and Edvard Lauen are entitled to a pension equivalent to 66% of their qualifying salaries on retirement at the age of 67. This is dependent on having 30 years of qualifying service. These three employees have pension agreements which state that their qualifying salaries are based on their regular salaries, and the cost of their pensions includes retirement pension benefits in excess of 12G, which are not covered by the National Insurance Scheme or the public sector occupational pension plan. Hans Jakob Epland, Jan Tønnessen, Svein Are Folgerø and Frank Håland have defined contribution pension plans in line with the Group’s standard pension plan.

agder energi ANNUAL REPORT 2012 83 Note 34 Related parties

All subsidiaries and joint ventures specified in Note 16 are classified as related parties of Agder Energi. The people specified in Note 33, who are members of the Group’s senior management team or Board of Directors, are also related parties of Agder Energi. Agder Energi’s largest shareholder is Statkraft Industrial Holding, which owns 45.525% of the shares in the company. Sales to companies in the Statkraft Group amounted to NOK 93 million in 2012 and NOK 15 million in 2011. Purchases from companies in the group amounted to NOK 23 million in 2012 and NOK 47 million in 2011. Statkraft Industrial Holding AS is also a joint owner of several of the joint ventures in which Agder Energi holds an ownership interest.

Agreements have also been signed with several cultural institutions in shareholder municipalities in Agder. Note 32 lists loans guaranteed by municipalities.

All transactions with related parties are carried out on an arm’s length basis.

Note 35 Government grants

Agder Energi recognised NOK 5 million of government grants as revenue in 2012.

Note 36 DISCONTINUED OPERATIONS

Agder Energi’s fibreoptic cable business has comprised the companies LOS Bynett, Bynett Privat and LOS Bynett Vestfold. In 2011, Agder Energi signed an agreement with Telenor on the sale of LOS Bynett and Bynett Privat. The completion of the transaction was subject to the approval of the Norwegian Competition Authority (NCA). In the second half of 2012, the NCA approved the transaction, and the businesses were transferred in the fourth quarter of 2012.

In 2011, Agder Energi agreed to sell its 16.7% ownership interest in the telecommunications company Ventelo to the investment fund EQT. The completion of the transaction was subject to the approval of the Norwegian Competition Authority (NCA). The transaction was accepted by the NCA in the first quarter of 2012, and the shares were transferred to the buyer that quarter. In 2012, Agder Energi sold its shares in the debt collection company Sopran to Kredinor. The transaction was completed in the second quarter.

The table below shows how the figure for “Profit after tax from discontinued operations” is calculated, broken down into the operating performance until disposal and the gain on disposal:

(Amounts in NOK millions) 2012 2011 Operating revenues 80 122 Operating expenses -50 -106 Operating profit/loss 30 16 Net financial income/expenses -5 -7 Profit/loss before tax 25 9 Tax expense -7 -3 Profit/loss after tax 18 6 Gain on disposal of discontinued operations 127 - Tax on gain on disposal of discontinued operations - - Profit after tax from discontinued operations 145 6

Net cash provided by operating activities 23 24 Net cash provided by/used in investing activities 490 -18 Net cash provided by financing activities - 7 Net cash flow (discontinued operations) 513 13

The cash flow from investing activities in 2012 includes receipts from the sale of Ventelo.

agder energi ANNUAL REPORT 2012 84 Breakdown of assets and liabilities at discontinued operations: (Amounts in NOK millions) 2012 2011

Assets Property, plant and equipment - 246 Other non-current financial assets - 240 Stock - 2 Receivables - 8 Bank deposits - 43 Assets (discontinued operations) - 539

Liabilities Deferred tax - 20 Provisions - 28 Tax payable - 1 Other non-interest-bearing current liabilities - 12 Liabilities (discontinued operations) - 61

Note 37 Correction of prior years’ errors

In conjunction with preparing the financial statements, Agder Energi has uncovered an error with respect to deferred tax. This relates to the calculation of deferred tax on a cash-settled electricity contract, and resulted in recognised deferred tax being NOK 109 million too low for the period since 2007. Meanwhile, the recognised equity has been too high by the same amount. The issue did not affect net income over that period, and hence had no impact on earnings per share. In the balance sheet the error has been corrected by increasing deferred tax by NOK 109 million, and reducing equity by the same amount, for all of the relevant periods.

agder energi ANNUAL REPORT 2012 85 Agder Energi AS financial statements

agder energi ANNUAL REPORT 2012 86 CONTENT

Profi t and loss account 88 Balance Sheet 89 Cash fl ow statement 90 Accounting principles 91

NOTES Note 1 Intra-group transactions and balances 93 Note 2 Employee benefi ts, management compensation, etc. 93 Note 3 Pensions 94 Note 4 Auditor’s fee 97 Note 5 Other operating expenses 97 Note 6 Financial income/expenses 97 Note 7 Tax 98 Note 8 Intangible assets 99 Note 9 Property, plant and equipment 99 Note 10 Other non-current fi nancial assets 99 Note 11 Shares in subsidiaries and associates 100 Note 12 Cash and cash equivalents 101 Note 13 Equity 101 Note 14 Interest-bearing liabilities 101 Note 15 Other non-interest-bearing current liabilities 102 Note 16 Market and fi nancial risk 102 Note 17 Contingent liabilities 103 Note 18 Mortgaged assets, liabilities and guarantees issued 103

AgDer energi ANNUAL REPORT 2012 87 Profit and loss account

(Amounts in NOK millions) Note 2012 2011

Energy sales 1 - -1 Other operating revenues 1 119 73 Total operating revenues 119 71

Employee benefits 1, 2, 3 163 86 Depreciation and impairment losses 8, 9 13 16 Other operating expenses 1, 4, 5 134 135 Total operating expenses 310 237

Operating loss -191 -166

Financial income 1, 6 1 839 1 729 Financial expenses 1, 6 545 436 Net financial income/expenses 1 293 1 292

Profit before tax 1 102 1 127

Tax expense 7 244 235

Profit after tax 858 891

Allocation of profit: Proposed dividends 13 620 650 Transferred to other reserves 13 238 241 Total appropriations 858 891

Earnings per share/earnings per share, diluted (NOK) 318 330

agder energi ANNUAL REPORT 2012 88 Balance Sheet

(Amounts in NOK millions) Note 2012 2011

Deferred tax assets 7 24 37 Intangible assets 8 13 17 Property, plant and equipment 9 41 39 Investments in subsidiaries 11 3 264 3 174 Investments in associates 11 157 145 Other non-current financial assets 10 5 521 5 501 Total non-current assets 9 019 8 913

Receivables 1 1 206 1 451 Cash and cash equivalents 12 328 21 Total current assets 1 534 1 472

TOTAL ASSETS 10 552 10 385

Paid-in capital 13 1 907 1 907 Retained earnings 13 542 173 Total equity 2 449 2 080

Provisions 3 117 143 Interest-bearing non-current liabilities 14 6 488 6 510 Total non-current liabilities 6 605 6 653

Interest-bearing current liabilities 14, 16 400 590 Tax payable 7 171 242 Other non-interest-bearing current liabilities 1, 15 927 821 Total current liabilities 1 498 1 652

TOTAL EQUITY AND LIABILITIES 10 552 10 385

Kristiansand, 20 March 2013 Board of Directors of Agder Energi AS

Sigmund Kroslid lars Erik Torjussen Bente Rist Katja Lehland Steinar Bysveen Chair

Jon Vatnaland steinar Asbjørnsen elisabeth Morthen Johan Ekeland Øyvind Østensen

Oddvar E. Berli gro Granås-Brattland Tom Nysted CEO

agder energi ANNUAL REPORT 2012 89 Cash flow statement

(Amounts in NOK millions) 2012 2011

Cash flow from operating activities Profit/loss before tax 1 102 1 127 Depreciation and impairment losses 13 16 Cash flows from investments in subsidiaries -1 399 -1 376 Tax paid -242 - Changes in net working capital, etc. 253 673 Net cash provided by operating activities -273 440

Investing activities Purchase of property, plant, equipment and intangible assets -10 -18 Acquisitions/financial investments and equity investments in subsidiaries -31 -226 Net change in loans -230 -109 Sale of property, plant, equipment and intangible assets - 6 Sale of businesses/financial assets 563 206 Net cash used in investing activities 292 -141

Financing activities New long-term borrowings 1 347 - Repayment of long-term borrowings -1 368 -8 Net change in current liabilities -190 -310 Intra-group distributions received 1 149 324 Dividends paid -650 -900 Net cash used in financing activities 288 -894

Net change in cash and cash equivalents 307 -595

Cash and cash equivalents at start of year 21 616 Cash and cash equivalents at end of year 328 21

agder energi ANNUAL REPORT 2012 90 Accounting principles

The financial statements have been pre- ance sheet if they meet the criteria for means that all profit and loss effects are sented in compliance with the Norwegian capitalisation, with the exception of re- recognised over the contract period and Accounting Act and generally accepted search and development costs, which are the value of the portfolio is kept off the accounting principles. expensed as they are incurred. This means balance sheet. that expenses associated with intangible Accrual, classification and measure- assets are included on the balance sheet Foreign currency and currency ment principles if it is considered probable that future eco- instruments In accordance with generally accepted nomic benefits attributable to the assets The finance department manages the accounting principles, the financial state- will flow to the company and it has been Group’s overall exposure to currency risk. ments are based on the historical cost, possible to reliably measure the acquisi- To some extent Agder Energi AS acts as revenue recognition, matching, conserva- tion cost of the asset. a counterparty within the Group when it tism, hedging and congruence principles. does not make sense to hedge subsidiar- In the event of uncertainty, best judge- Property, plant and equipment ies’ exposure to currency risk directly in ment is applied. Financial statements are Property, plant and equipment is depreci- the market. Where the parent company prepared using uniform principles that ated in a straight line over its anticipated has acted as a counterparty in conjunc- are applied consistently over time. The useful life. Maintenance on property, plant tion with the need of subsidiaries to hedge financial statements have been prepared and equipment is considered an operat- their currency risk exposure arising from on the assumption of the business being ing expense, while upgrades and replace- electricity sales, the contracts are ac- a going concern. ments are added to the acquisition cost counted for as part of the Group’s cur- of the asset and are depreciated together rency hedging activities. These contracts Recognition of revenues and expenses with the asset. The distinction between are presented on the balance sheet at fair Revenues and expenses are recognised maintenance and upgrades/improvements value, with changes in fair value recog- in the profit and loss account when they is judged on the basis of the condition of nised through profit or loss. are earned/incurred. Revenues from the the asset when it was acquired. sale of goods and services are recognised Receivables on delivery. Revenues from services are Non-current financial investments Trade debtors and other receivables are recognised in the profit and loss account The historical cost method is used for presented on the balance sheet at their as they are supplied. shares, bonds and other financial instru- nominal value less anticipated bad debts. ments. This means that shares/owner- Provisions for bad debts are made on the General principles for measurement ship interests are carried at cost, and basis of individual assessments of the in- and classification any cash received is treated as dividends dividual receivables. Current assets and short-term liabilities (other finance income). Intra-group discover items that are due for payment tributions received are recognised in the Cash pooling arrangement within one year of the balance sheet date, year that they are allocated by subsidiar- Agder Energi AS is part of a cash pooling as well as items relating to the business ies. Dividends from subsidiaries are also arrangement with its subsidiaries. This cycle. Other items are classified as non- recognised in the year that they are ap- means that the Group has a joint bank current assets or non-current liabilities. propriated by the subsidiary. Investments account for short-term deposits and short- Current assets are carried at the lower are written down to fair value if there is term loans. Interest income and interest of cost and fair value. Current liabilities evidence of other-than-temporary impair- expenses arising from the cash pooling are included on the balance sheet at their ment. Dividends from associates are rec- arrangement are classified as interest in- nominal value on the initial date. ognised when they are approved. come and interest expenses in the company’s profit and loss account. Non-current assets are carried at cost, Interest rate swaps but are written down to the recoverable Interest rate swaps are used to match Pensions amount if there is evidence of impair- the duration and interest rate sensitiv- Pension costs and pension liabilities are ment, in compliance with the Norwegian ity of the company’s debt portfolio to the calculated using a linear accumulation accounting standard on the impairment of Group’s policy and strategy. Interest rate model based¬ on assumptions relating to non-current assets. swaps are managed within the context of discount rates, projected salaries, the level the Group’s overall debt portfolio. Instru- of benefits from the National Insurance Intangible assets ments in the hedging portfolio thus meet Scheme and future returns on pension Intangible assets are included on the bal- the criteria for hedge accounting, which scheme assets, as well as actuarial cal-

agder energi ANNUAL REPORT 2012 91 culations of mortality, voluntary turnover, on equity transactions is recognised di- settled, a provision is made based on a etc. Pension plan assets are measured at rectly in equity. best estimate of what the settlement will their fair value, and have been deducted be. If there is a smaller than 50% prob- in the net pension liabilities on the balance Liabilities ability that an uncertain liability will need sheet. Actuarial gains and losses over the Agder Energi AS uses the amortised cost to be settled, information is provided in course of the year are recognised in the principle, and consequently the effective the notes. Contingent assets are not rec- balance sheet at the end of the year, so interest rate method, for interest and li- ognised, but if there is a greater than 50% that the carrying amount always reflects abilities. Under the effective interest rate probability that the company will receive the full extent of the liabilities. In the event method, the carrying amount of a loan is payment, information is provided in the of changes in pension obligations arising the sum of future cash flows attributable notes. The amount is not estimated if it from plan amendments, the portion of the to the loan discounted by the original ef- would be inappropriate to do so under change that has already been accrued at fective interest rate calculated for the generally accepted accounting principles. the time of the amendment is recognised cash flows. This means that loan arrange- Furthermore, under generally accepted directly in the profit and loss account. Pen- ment fees are deducted on initial recog- accounting principles entities shall only sion expenses and net pension liabilities nition, and that over the duration of the recognise liabilities/provide information include a 14.1% charge for employers’ na- loan, the difference between the nominal based on best judgement to the extent tional insurance contributions. interest rate (the rate charged) and the ef- that this will not prejudice the outcome fective interest rate (the rate expensed) is of any court case. Taxes recognised in the balance sheet under am- Income tax is calculated in accordance ortisation. In practice loans are therefore Cash flow statement with standard tax rules. The tax expense initially recognised at their face value less The cash flow statement has been pre- in the profit and loss account consists of arrangement fees, which means that the pared using the indirect method. Cash and tax payable and changes in deferred tax/ debt is not carried on the balance sheet cash¬ equivalents includes cash, bank de- tax assets. Tax payable is calculated on at its nominal value. posits and other short-term, liquid invest- the taxable profit for the year. Deferred ments that can be converted into known tax/tax assets are calculated on the ba- A provision is made for Agder Energi AS’s cash values immediately and at insignifi- sis of the temporary differences that ex- proposed dividends at 31 December. cant risk, and that mature less than three ist between accounting and tax values, as months after their acquisition dates. well as the tax effect of any loss carryfor- Contingent liabilities and contingent wards. Deferred tax assets are only rec- assets ognised on the balance sheet if it is likely If there is a greater than 50% probability that they will be realised in the future. Tax that an uncertain liability will need to be

agder energi ANNUAL REPORT 2012 92 Notes

Note 1 INTRA-GROUP TRANSACTIONS AND BALANCEs

(Amounts in NOK millions) Note 2012 2011

Intra-group balances Other non-current financial assets 10 5 123 5 020 Trade receivables 19 35 Other current receivables 1 140 1 383 Total receivables 6 282 6 437

Trade payables 15 12 8 Other current liabilities 15 129 - Total liabilities 141 8

Revenues and expenses relating to transactions with Group companies Other operating revenues 98 73 Total operating revenues 98 73

Employee benefits 1 3 Other operating expenses 40 54 Total operating expenses 42 57

Cash flows from investments in subsidiaries 6 1 399 1 376 Other interest and financial income 231 278 Other interest and financial expenses 83 34 Net financial income/expenses 1 548 1 620

Note 2 EMPLOYEE BENEFITS, MANAGEMENT COMPENSATION, ETC.

(Amounts in NOK millions) Note 2012 2011

Employee benefits Wages and salaries 1) 104 58 Employers’ National Insurance Contributions 15 10 Pension expense including employers’ NICs 3 16 11 Other benefits and reimbursements 2) 28 7 Total 163 86

Number of permanent full-time equivalents at 31 Dec. 156 55

For details of management compensation and non-executive Directors’ fees at Agder Energi AS, please see Note 34 to the consolidated financial statements.

1) As part of the restructuring of the Agder Energi Group, all administrative and support functions were centralised at Agder Energi AS. This was done in the form of a business transfer. Employees at Agder Energi Vannkraft AS and Solvea AS were transferred to Agder Energi AS as of 1 June 2012. Meanwhile, employees at Agder Energi Nett AS and Agder Energi Varme AS were transferred in autumn 2012. In total, approximately 130 employees were transferred to Agder Energi AS. In autumn 2012, a streamlining process identified surplus positions. 15 employees accepted a redundancy package and 2 employees took early retirement.

2) For 2012, the item “Other benefits and reimbursements” includes NOK 14 million for the redundancy packages that have been paid out or agreed as part of this process.

agder energi ANNUAL REPORT 2012 93 Note 3 Pensions

The company’s pension plans For employees taken on before 1 April 2007, the company has a defined benefit pension plan run by Agder Energi Pensjonskasse, which meets the legal requirements for public sector occupational pension ¬plans. Employees taken on after 1 April 2007 are part of a defined contribution pension plan.

Defined benefit pension plans The company has a funded public pension plan for its employees, which entitles them to defined future pension benefits, based on number of years of service and salary on reaching retirement age. Provisions for pension liabilities in the pension plan are calculated using a linear accumulation model based on methods and assumptions that comply with the relevant current accounting standard. The company’s pension liabilities are funded through a pension plan run by Agder Energi Pensjonskasse.

Pension liabilities were calculated by an independent actuary in December, and represent an estimate of the situation at 31 De- cember. The senior management team considers that any changes in the assumptions and underlying data between the date of calculation and the balance sheet date would not have a significant impact on the figures. Actuarial gains and losses in 2012 were mainly due to the impact of a higher discount rate and high returns on pension ¬plan assets. Calculations are based on the National Insurance Scheme’s rules for 2012.

Defined contribution pension plan: Employees taken on after 1 April 2007 are entitled to membership of a defined contribution pension plan. For defined contribution plans, the pension expense is equivalent to the premiums/contributions paid over the course of the year.

Early retirement schemes (AFP schemes): Employees covered by a public pension plan have an early retirement scheme, known as an AFP scheme. This is a public sector AFP scheme, which like all such schemes set up from 2011 onwards does not receive a government subsidy. The company is therefore liable for all of its obligations under the scheme. A few former employees who took early retirement prior to 2011 have so-called private AFP schemes, for which the obligation is calculated by assuming that the employer will cover 25% of the remaining cost of the AFP pension. The scheme is considered an unfunded pension plan.

The annual contribution was 1.75% in 2012, rising to 2% in 2013.

agder energi ANNUAL REPORT 2012 94 Actuarial assumptions: When calculating the pension cost and net pension liabilities, a number of assumptions have been made (see table below). The discount rate is based on the yield on covered bonds, adjusted for the weighted average duration of the pension liabilities, which is estimated to be approximately 25 years. In previous years the discount rate was based on the yield on Norwegian 10-year government bonds. Wage growth assumptions are based on guidelines from the Norwegian¬ Accounting Standards Board, taking into account historical data and the average age of the company’s employees in the pension plans. The assumptions used to calculate pension liabilities at 31 December 2012 do not significantly deviate from the Norwegian Accounting Standards Board’s guidelines on actuarial assumptions of January 2013. The Group uses the latest version of the GAP 07 actuarial tables for its estimates of life expectancy, probability of disability, etc.

Extracts from the actuarial tables are reproduced below. This table shows life expectancy and the probability that an employee in a given age bracket will suffer disability or die within a year.

Disability risk in % Mortality risk in % Life expectancy Age Man Woman Man Woman Man Woman 20 0,07 0,07 0,01 0,01 85 89 40 0,22 0,22 0,06 0,05 84 88 60 2,16 2,59 0,52 0,37 84 87 80 - - 6,04 3,35 87 90

(Amounts in NOK millions) 2012 2011

The pension expense for the year has been calculated as follows Current service cost 14 11 Interest cost 8 7 Expected return on pension plan assets -8 -10 Employers’ National Insurance Contributions 0 2 Employee contributions -1 -1 Pension expense for the year, defined benefit plans 13 10 Defined contribution pension plans (incl. emp. NICs) 3 1 Total pension expense recognised in the profit and loss account 16 11

Pension liabilities and pension plan assets:

Change in gross pension liabilities Gross pension liabilities at 1 Jan. 285 202 Acquisitions/disposals of businesses 214 - Current service cost 14 12 Interest cost 8 7 Benefits paid/paid-up policies -11 -6 Actuarial gains and losses included on the balance sheet -54 69 Gross pension liabilities at 31 Dec. 457 285

agder energi ANNUAL REPORT 2012 95 (Amounts in NOK 000s) 2012 2011

Breakdown of defined benefit pension liabilities Funded pension liabilities 356 198 Unfunded pension liabilities 101 88 Gross pension liabilities at 31 Dec. 457 285

Change in gross pension plan assets Fair value of pension plan assets at 1 Jan. 150 160 Acquisitions/disposals of businesses/actuarial gains and losses 100 - Expected return on pension plan assets 8 10 Actuarial gains and losses included on the balance sheet 125 -26 Pension contributions 9 11 Benefits paid/paid-up policies -7 -5 Fair value of pension plan assets at 31 Dec. 385 150

Net pension liabilities 71 135 Net pension liabilities at 31 Dec. 71 135

Carrying amount of pension plan assets 29 - Carrying amount of pension liabilities 101 135 Carrying amount of net pension liabilities 71 135

Change in net defined benefit pension liabilities: Net defined benefit pension liabilities at 1 Jan. 135 42 Pension expense recognised in the profit and loss statement 13 10 Acquisitions of businesses 114 - Company contributions (incl. emp. NICs) -13 -9 Benefits paid - -2 Actuarial gains and losses -179 95 Net pension liabilities at 31 Dec. 71 135

Assumptions used to determine pension liabilities at 31 Dec. 2012 2011 Discount rate 3,8 % 3,0 % Annual wage growth 3,5 % 3,8 % Increase in the National Insurance Scheme’s basic amount (”G”) 3,5 % 3,8 % Annual indexing of pensions 2,8 % 3,0 % Expected return on pension plan assets 5,0 % 5,5 % Expected average remaining years of service 11 years 11 years

Assumptions used to calculate the pension expense in 2013 Discount rate 3,8 % Expected return on pension plan assets 3,8 %

Number of people covered by the pension plans: 2012 2011 Defined benefit plan: current employees 100 36 Defined benefit plan: accrued entitlements and retired employees 278 166 Defined contribution plan: current employees 73 20 Current employees entitled to public sector AFP, and early retirees 70 40

agder energi ANNUAL REPORT 2012 96 Note 4 AUDITOR’S FEE

(Amounts in NOK 000s excl. VAT) 2012 2011 Statutory audit 630 531 Other auditing services 17 - Tax advice 24 110 Other services not related to auditing 44 206 Total 715 848

Note 5 OTHER OPERATING EXPENSES

(Amounts in NOK millions) 2012 2011 Property-related expenses, lease of machinery and office equipment 27 21 Purchase of plant and equipment 2 1 External services 89 98 Office supplies, telecommunications, postage, etc. 3 2 Travel expenses, subsistence allowances, mileage expenses, etc. 5 4 Sales, advertising, representation, membership fees and gifts 9 8 Other operating expenses -1 - Total 134 135

Note 6 FINANCial INCOME/expenses

(Amounts in NOK millions) 2012 2011 Income from investments in subsidiaries * 1 399 1 376 Profit/ loss on investments in associates 3 8 Exchange rate gain 167 87 Other interest and financial income 269 258 Total financial income 1 839 1 729

Impairment charge against non-current financial assets 44 6 Exchange rate losses 153 76 Other interest and financial expenses 348 354 Total financial expenses 545 436

Net financial income/expenses 1 293 1 292

* profit/loss from investments in subsidiaries comprises allocated dividends, intra-group distributions from subsidiaries and gains on the disposal of subsidiaries. These amounts are recognised in the profit and loss account as they are considered to reflect the return on the investment.

agder energi ANNUAL REPORT 2012 97 Note 7 TAX

(Amounts in NOK millions) 2012 2011

The tax expense consists of: Income tax payable 282 242 Change in deferred income tax -37 5 Corrections to previous years’ tax assessments -1 -11 Tax expense recognised in the profit and loss account 244 235

Tax payable on the balance sheet Profit before tax 1 102 1 127 Permanent differences -141 -16 Change in temporary differences 133 -18 Non-taxable intra-group distributions -87 -227 Change in loss carryforwards - -3 Profit for income tax purposes 1 007 863

Income tax payable 282 242 Taxable intra-group distributions -111 - Tax payable on the balance sheet 171 242

Reconciliation of nominal tax rate with effective tax rate Profit before tax 1 102 1 127 Expected tax based on nominal rate 309 315 Tax effect of: Non-deductible expenses 13 -2 Non-taxable income -76 -66 Corrections to previous years’ tax assessments -1 -11 Tax expense recognised in the profit and loss account 244 235 Effective tax rate 22 % 21 %

Breakdown of deferred tax assets Non-current assets -3 -4 Current assets/liabilities -18 -8 Pension liabilities -71 -135 Gains and losses - 1 Other 8 13 Total taxable (+)/deductible (-) temporary difference -84 -133 Total capitalised deferred tax assets (-) -24 -37

Changes in net deferred income tax over the year: Net deferred tax liabilities (+)/assets (-) at 1 Jan. -37 -16 Change in net deferred tax liabilities (+)/assets (-) on items recognised in equity 51 -27 Change in deferred tax liabilities (+)/assets (-) recognised through profit or loss -37 5 Net deferred income tax liabilities (+)/assets (-) at 31 Dec. -24 -37

Changes in deferred tax on items recognised in equity Actuarial gains/losses and changes to accounting principles 51 -27 Total change 51 -27

agder energi ANNUAL REPORT 2012 98 Note 8 INTANGIBLE ASSETS

(Amounts in NOK millions) Software Total intangible assets Cost at 1 Jan. 2012 39 39 Acquisitions 1 1 Disposals 5 5 Cost at 31 Dec. 2012 36 36 Accumulated deprecation at 31 Dec. 2012 21 21 Accumulated impairment losses at 31 Dec. 2012 2 2 Carrying amount at 31 Dec. 2012 13 13

Depreciation for the year 5 5 Impairment losses for the year 1 1 Useful life/depreciation period 3-8 years

Note 9 Property, plant and equipment

(Amounts in NOK millions) Properties Vehicles, Work in total fixtures, progress property, machinery, plant and fittings, etc. equipment Cost at 1 Jan. 2012 9 47 1 57 Acquisitions - 3 6 9 Disposals - 5 - 5 Cost at 31 Dec. 2012 9 45 7 61 Accumulated deprecation at 31 Dec. 2012 1 19 - 20 Carrying amount at 31 Dec. 2012 8 26 7 41

Depreciation for the year - 7 - 7 Impairment losses for the year - - - -

Useful life/depreciation period 25 years - not depreciated 3-8 years

Note 10 OTHER NON-CURRENT FINANCIAL ASSETS

(Amounts in NOK millions) Note 2012 2011 Loans to Group companies 1 5 123 5 020 Loans to associates 180 150 Investments in shares and ownership interests - 238 Other non-current receivables 1) 188 92 Pension assets 29 - Total non-current financial assets 5 521 5 501

1) other non-current financial assets include a NOK 40 million subordinated loan to Agder Energi Pensjonskasse. They also include noK 108 million made up of a subordinated loan to Ventelo AS and a vendor credit in conjunction with the sale of the shares in Ventelo. There is also a NOK 25 million bonus/earn out agreement associated with the Ventelo disposal.

agder energi ANNUAL REPORT 2012 99 Note 11 SHARES IN SUBSIDIARIES AND ASSOCIATES

(Amounts in NOK millions) Business The The ownership carrying office company’s company’s interest and amount * equity profit/loss voting rights Subsidiaries Agder Energi Vannkraft AS Kristiansand 2 326 780 100 % 1 937 Agder Energi Kraftforvaltning AS Kristiansand 26 1 100 % 20 Agder Energi Nett AS Arendal 657 32 100 % 602 LOS AS Kristiansand 326 38 100 % 324 Otera AS Kristiansand 148 -43 100 % 137 Agder Energi Varme AS Kristiansand 123 -1 100 % 118 Solvea AS Kristiansand 18 - 100 % 18 Agder Energi Venture AS Kristiansand 56 -14 100 % 67 Innovasjon og FoU AS Kristiansand 3 -12 100 % 3 Agder Energi Næringsbygg AS Kristiansand 16 2 100 % 8 Lundevågveien 11 AS Kristiansand 1 -1 100 % 2 LOS Bynett Vestfold AS Tønsberg 11 1 90 % 7 Baltic Hydroenergy AS Kristiansand 21 1 66 % 21 Total shares in subsidiaries 3 264

(Amounts in NOK millions) Business The The ownership carrying office company’s company’s interest and amount * equity profit/loss voting rights Associates 1) Småkraft AS 2) Bergen 434 -10 20 % 108 Rejlers Consulting AS 3) Kristiansand 40 1 51 % 19 North Connect KS Kristiansand 21 -20 17 % 7 North Connect AS Kristiansand 2 -2 17 % 1 Total for associates 135

Jointly controlled entities Dalane Vind AS Egersund - -1 50 % 1 Bjerkreim Vind AS Egersund 20 -4 50 % 21 Total for associates and jointly-controlled entities 157

* Carried at the lower of cost and fair value.

In 2012, Agder Energi AS increased its ownership interest in Baltic Hydroenergy AS. It bought a further 23.2% of the shares, giving it a 65.9% interest at 31 December. The cost of these shares was NOK 7.8 million. As a result of this purchase, the company was reclassified as a subsidiary of Agder Energi AS, which led to a NOK 5 million gain being recognised.

In 2012 Agder Energi AS sold its subsidiaries Sopran AS, LOS Bynett AS and Bynett Privat AS. Sopran AS was sold to Kredinor. The transaction was completed in the second quarter, and gave a NOK 69 million accounting gain in the parent company’s financial statements.

The sale of LOS Bynett AS and Bynett Privat AS was approved by the Norwegian Competition Authority in 2012, and the transaction was completed in the fourth quarter of the year. The sale of these companies gave a NOK 114 million accounting gain. Telenor AS had an option to buy LOS Bynett Vestfold AS. This transaction was completed in January 2013.

1) the equity and profit of associates and jointly controlled entities has been estimated for 2012. 2) Agder Energi AS has lent NOK 180 million to Småkraft AS. In August 2012 the Board of Directors of the Agder Energi Group decided to make an additional NOK 80 million capital infusion into Småkraft AS. This was to be made up of a NOK 32 million equity investment and NOK 48 million in new loans. To date, NOK 10 million of new loans have been provided as a result. 3) In 2011, Agder Energi AS sold 49% of the shares in Rejlers Consulting. The parties to the transaction have signed a shareholder agreement, under which Agder Energi AS no longer controls the business, in spite of it still owning 51% of the shares. the company is therefore classified as an associate.

agder energi ANNUAL REPORT 2012 100 Note 12 CASH AND CASH EQUIVALENTS

(Amounts in NOK millions) 2012 2011 Cash and cash equivalents 5 21 Deposits in cash pooling arrangement 323 - Total 328 21

Agder Energi AS has established a NOK 66 million bank guarantee to secure tax deductions at source. The guarantee covers the parent company and subsidiaries. The company has also set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. All subsidiaries in which the company holds an ownership interest of at least 90% (with the exception of NorgesFilm AS), take part in the cash pooling arrangement and are jointly and severally liable to the bank for the overdraft facility.

Note 13 EQUITY

(Amounts in NOK millions) Share share Other other total capital premium paid-in reserves equity account capital Equity at 31 Dec. 2011 1 809 47 51 173 2 080 Actuarial gains and losses on pensions - - - 130 130 Profit/loss for the year - - - 858 858 Allocated for dividends - - - -620 -620 Equity at 31 Dec. 2012 1 809 47 51 542 2 449

For details of share capital and shareholder information, please refer to Note 22 to the consolidated financial statements.

Note 14 INTEREST-BEARING LIABILITIES

(Amounts in NOK millions) 2012 2011 Non-current liabilities with a term to maturity of more than 5 years Liabilities to financial institutions 661 310 Bonds 615 985 Total 1 276 1 295

Non-current liabilities with a term to maturity of less than 5 years Liabilities to financial institutions 1 647 1 965 Bonds 3 566 3 250 Total 5 212 5 215

Total interest-bearing non-current liabilities 6 488 6 510

Interest-bearing current liabilities Commercial paper 400 300 Overdraft with cash pooling arrangement - 290 Total interest-bearing current liabilities 400 590

Guarantees and obligations relating to interest-bearing non-current liabilities are described in greater detail in Note 18.

agder energi ANNUAL REPORT 2012 101 Note 15 OTHER NON-INTEREST-BEARING CURRENT LIABILITIES

(Amounts in NOK millions) 2012 2011 Trade payables 14 28 Intra-group trade payables 12 8 Unpaid government taxes and duties, tax deducted at source, etc. 16 5 Allocated dividends 620 650 Other current liabilities 135 129 Other current liabilities to Group companies 129 - Total other non-interest-bearing current liabilities 927 821

Note 16 Market and financial risk

Risk policy and risk strategy The Group’s Board of Directors has formulated an overall risk policy containing frameworks and guidelines to ensure a uniform ap- proach to risk management throughout the Group. In order to manage the Agder Energi Group’s exposure to market and financial risk, and based on the risk policy, separate risk strategies have been drawn up for the following areas: • Generation • Electricity trading • Retail market • Finance (interest rates and foreign currency)

One of the main purposes of the risk policy and risk strategies is to hedge against fluctuations in future cash flows.

Electricity derivatives with subsidiaries and Nasdaq as counterparties Several of Agder Energi AS’s subsidiaries trade cash-settled electricity derivatives on Nasdaq. Formally, this involves Agder Energi AS acting as Nasdaq’s counterparty, and Agder Energi entering into identical contracts with the relevant subsidiaries in parallel.

The company uses hedge accounting for these contracts, and so they are not capitalised. The net value of contracts with Nasdaq was NOK 312 million at 31 December 2012. The value of the company’s contracts with its subsidiaries was NOK -312 million.

Loan portfolio The Agder Energi Group’s whole loan portfolio is held by Agder Energi AS. This exposes the company to a significant interest rate risk. The Group has a central finance department within Agder Energi, which has overall responsibility for bank services, financing, currency operations, ¬corporate finance and other financial services. Subsidiaries shall go through Agder Energi AS when they need financial products and services.

The aim in relation to interest rate risk is to limit fluctuations in interest costs. Interest rates risk is measured by modified duration, which is kept within a target period of 1 to 5 years. Rules on durations and other rules relating to interest rate portfolios, liquidity risk, etc. are given in the risk policy and finance strategy. The chosen strategy aims to minimise net finance costs over the long term, while reducing risk to an acceptable level. Exposure to interest rate risk is measured and monitored by the Risk Management and Internal Control department. The group finance department is responsible for taking positions. The value of interest rate derivatives designated as accounting hedges – and hence not included on the balance sheet – was NOK -184 million at 31 December.

The parent company’s debt portfolio includes foreign currency loans. 110 million euros in loans are used as a hedge against fluctuations in the Group’s revenues in that currency. Agder Energi AS has lent a similar amount in euros to Agder Energi Vannkraft AS.

Put/call conditions in the debt portfolio entail a certain liquidity risk. The clauses are related to loans guaranteed by municipalities. Also see Note 31 to the consolidated financial statements for a description of credit risk and liquidity risk.

agder energi ANNUAL REPORT 2012 102 Note 17 Contingent liabilities

Agder Energi AS had no significant contingent liabilities at 31 December 2012.

Note 18 Mortgaged assets, liabilities and guarantees issued

Mortgages Agder Energi AS has mortgaged some assets as collateral for loans. NOK 74 million of the company’s interest-bearing liabilities were mortgage loans, and the book value of the collateral (owned by Agder Energi Vannkraft AS) was NOK 319 million.

Agder Energi AS has no other mortgaged assets, except restricted cash provided as collateral for cash-settled electricity trading.

Liabilities and guarantees issued Agder Energi AS has no covenants relating to financial key figures in its loan agreements.

Of the company’s interest-bearing liabilities, NOK 1 000 million is guaranteed by banks and NOK 129 million is guaranteed by the shareholder municipalities. Agder Energi AS’s loan agreements contain negative pledge clauses, which also cover its subsidiaries. This means that any new security interests require the consent of the lenders.

Agder Energi AS has NOK 700 million in off-balance sheet bank guarantees. NOK 376 million of this relates to a cash-settled power exchange agreement, NOK 68 million to electricity trading, NOK 66 to tax deducted at source and NOK 190 million to other guarantees.

At the close of the year, the parent company had issued guarantees worth NOK 15 million in relation to subsidiaries’ external liabilities.

Contractual obligations Since 2010, the Agder Energi Group has had its head office in leased premises at Kjøita in Kristiansand. It has signed a 15+5-year lease contract with the lessor KN Kjøita AS. In February 2011, the lease contract between KN Kjøita AS and Agder Energi AS was transferred to Agder Energi Næringsbygg AS.

agder energi ANNUAL REPORT 2012 103 agder energi ANNUAL REPORT 2012 104 agder energi ANNUAL REPORT 2012 105 Design/prosjektledelse: Gevir - Foto: Arild Danielsen/Kjell Inge Søreidew

Agder Energi P.O.Box 603 Lundsiden, 4606 Kristiansand Visiting adress (head office): Kjøita 18, 4630 Kristiansand Tel. no.: +47 38 60 70 00 Organisation number: NO 981 952 324

Design: Saatchi & Saatchi Photo: Anders Martinsen