Ársskýrsla Advania 2012 by Markaðsdeild Advania

Starfsemi A Guðríðarstígur

Verslun Advania Opnaði í janúar 2013

Stærsta UT-fyrirtæki á Íslandi

ÍMARK verðlaun fyrir bestu umhverfisgrafík

Lúður ÍMARK verðlaun fyrir ásýnd fyrirtækis 2012

1.090 starfsmenn

Mó ökusvæði samtvinnað sýningarsal og verslun

19 starfsstöðvar

Einstakur samkomustaður starfsfólks og viðskiptavina Þekktustu vörumerki veraldar á sviði upplýsingatækni er að finna í verslun Advania

Samfélagsstefna

Samfélagsmiðlar

Advania styður e©irtalin málefni

Mikil þá taka starfsmanna

Áhrif Advania á netinu

HR Efling menntunar í upplýsingatækni HSÍ Aukum hróður þessarar þjóðaríþró ar SKB Styðjum við bakið á krabbameinssjúkum börnum og ölskyldum þeirra

Starfsmannastefna

650.800 heimsóknir á heimasíðu Advania

Hjólað í vinnuna

265% aukning á Facebook síðu Advania

Lífshlaupið

500% aukning á Twi er fylgjendum

Samgöngustefna

46% Íslendinga nefna Advania sem það UT-fyrirtæki sem þeim de ur fyrst í hug Haustráðstefna Morgunverðarfundur

JAN

400 gestir

1000 gestir

400 gestir

Advania 2012 Ármúli

Grensásvegur

Lyngháls

Upplýsingatæknilausnir Advania

Nýjar höfuðstöðvar Hugbúnaður

Ráðgjöf

Vélbúnaður

Tvöföldun tekna og í ölda viðskiptavina

Svíþjóð 44%

2011

Noregur 15% Ísland 41%

2012

600 starfsmenn

Aðsókn á viðburði Advania 11.475 Gestir

Rekstrarþjónusta

Velta 2012

520 starfsmenn

2011

Hýsing

22% aukning

160 starfsmenn 330 starfsmenn

2012 14.135 Gestir

DES TOPP 10

TOPP 100 UT-fyrirtæki á Norðurlöndum

Contents 8

Endorsement and Statement by the Board of Directors and the CEO

Independent Auditorsâ&#x20AC;&#x2122; Report

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Corporate Governance Statement (unaudited)

All information in the Annual report are possibly subject to typographical and/or printing errors.

Endorsement and Statement by the Board of Directors and the CEO Operations in the Year 2012 The consolidated financial statements of Advania hf. are prepared in accordance with IFRS as adopted by the EU. The financial statements comprise the consolidated finanical statements of Advania hf. (the “Company”) and its subsidiaries together referred to as the “Group”. The Group operates in the IT sector. On 27 February 2012 shareholders’ meetings of HugurAx ehf. and Advania hf. confirmed the merger of Advania hf. and HugurAx hf. as at 1 January 2012, under the name of Advania hf. As a result of the merger with HugurAx ehf., Sterna ApS in Denmark became a direct subsidiary of Advania hf. These financial statements show the collective operation of the merged companies for the year 2012. At the end of 2012 Advania SIA in Latvia became a direct subsidiary of Advania hf. The objective is to sell the company during the year 2013 and as of 1 January 2013 it will be classified as an asset held for sale. The operations of Advania AS, Norway in the year 2012 proved to be more challenging than expected. Negative EBITDA during the year related to the operations in Norway amounted to ISK 718 million. The company underwent significant and costly restructuring during the year where almost all of the key management was replaced and the overall headcount reduced. The future strategy of the company has been re-aligned in order to create focus and increased future profitability. As described in note 12 changes were made to the company’s pension scheme which resulted in a reversal of accrued pension amounting to ISK 183 million. Impairment loss on intangible assets related to Advania AS resulting from an impairment test amounting to ISK 696 million was realised at year-end 2012. Reference is made to note 30 regarding information about future lease obligation and note 37 regarding an allowance for a possible revaluation of the Company’s tax asset. The Company has received enquiries from the Icelandic Tax Authorities regarding the financial expenses related to loans taken by two of the Companys predecessors. The allowance is based on the Company’s estimate of the most extreme claims but does not constitute an acceptance of such a claim in any way. According to the consolidated statement of comprehensive income, loss for the year 2012 amounted to ISK 2,072 million. When taking into account translation difference of foreign subsidiaries total comprehensive loss for the year amounted to ISK 1,692 million. EBITDA for the year amounted to ISK 341 million whereas the EBITDA in Iceland amounted to ISK 639 million, EBITDA in Sweden amounted to ISK 418 million and the beforementioned negative EBITDA in Norway amounted to ISK 718 million. According to the consolidated statement of financial position, equity at the end of the year amounted to ISK 1,819 million, including share capital in the amount of 564 million ISK. Reference is made to the notes to the consolidated financial statements regarding information on changes in equity. The Board of Directors proposes that no dividends will be paid to shareholders in the year 2013. Share Capital and Articles of Association The Company’s total issued capital amounted to ISK 564 million at year-end 2012. The share capital is divided into shares of ISK 1, each with equal rights. The Company’s Board of Directors comprises five members and two alternate members elected on the annual general meeting for a term of one year. Those persons willing to stand for election must give formal notice thereof to the Board of Directors at least five days before the annual general meeting. The Company’s Articles of Association may only be amended at a legitimate shareholders’ meeting, provided that amendments and their main aspects are clearly stated in the invitation to the meeting. A resolution will only be valid if it is approved by at least 2/3 of votes cast and is approved by shareholders controlling at least 2/3 of share capital represented at the shareholders’ meeting.

Share capital at the end of 2012 is divided among 51 shareholders, compared with 46 at year end 2011. At the end of the year 2012 one shareholder held over 10% of outstanding shares, Framtakssjóður Íslands slhf. (The Iceland Enterprice Investment Fund slhf.) with 73.95% share. Information on matters related to share capital is disclosed in note 26.

Corporate Governance The Group’s management is of the opinion that practicing good Corporate Governance is vital for the existence of the Group and is in the best interest of the shareholders, Group companies, employees and other stakeholders and will in the long run produce satisfactory profits on shareholders’ investment. The framework for Corporate Governance practices within the Group consists of the provision of law, the parent company’s Articles of Association, general securities regulations and the Icelandic Corporate Governance guidelines issued in 2009 and revised in 2012 by the Icelandic Chamber of Commerce, NASDAQ OMX Iceland and the Confederation of Icelandic Employers. Corporate Governance practices are designed to ensure open and transparent relationship between the Company’s management, companies within the Group, its Board of Directors, its shareholders and other stakeholders. The Corporate Governance exercised in Advania hf. is also designed to ensure sound and effective control of the Company’s affairs and a high level of business ethics. The Board of Directors has prepared a Corporate Governance statement in compliance with the Icelandic, Swedish and Norwegian Corporate Governance guidelines which are described in full in the Corporate Governance Statement in the Financial Statements. It is the opinion of the Board of Directors that Advania hf. complies, in all material respects, with the Icelandic guidelines for Corporate Governance. Statement by the Board of Directors and the CEO The annual consolidated financial statements of Advania hf. for the year ending 31 December 2012 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. According to our best knowledge it is our opinion that the annual consolidated financial statements give a true and fair view of the consolidated financial performance of the Company for the financial year 2012, its assets, liabilities and consolidated financial position as at 31 December 2012 and its consolidated cash flows for the financial year 2012. Further, in our opinion the consolidated financial statements and the endorsement of the Board of Directors and the CEO give a fair view of the development and performance of the Group’s operations and its position and describes the principal risks and uncertainties faced by the Group. The Board of Directors and the CEO have today discussed the annual consolidated financial statements of Advania hf. for the year 2012 and confirm them by means of their signatures. The Board of Directors and the CEO recommend that the consolidated financial statements will be approved at the annual general meeting of Advania hf. Reykjavík, 29 April 2013 The Board of Directors Finnbogi Jónsson Anna Rún Ingvarsdóttir Einar Páll Tamimi Erna Eiríksdóttir Þór Hauksson CEO Gestur G. Gestsson

Independent Auditors’ Report To the Board of Directors and Shareholders of Advania hf. We have audited the accompanying consolidated financial statements of Advania hf., which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2012, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Report on the Board of Directors report Pursuant to the legal requirement under Article 106, Paragraph 1, Item 5 of the Icelandic Financial Statement Act No. 3/2006, we confirm that, to the best of our knowledge, the report of the Board of Directors accompanying the financial statements includes the information required by the Financial Statement Act if not disclosed elsewhere in the Financial Statements. Reykjavík, 29 April 2013 KPMG ehf. 10

Margret G. Flóvenz Hlynur Sigurðsson

Consolidated Statement of Comprehensive Income forofthe year 2012 Income Consolidated Statement Comprehensive for the year 2012

Note

Sales .................................................................................................................................................... Cost of sales ....................................................................................................................................

2012

(

Gross profit ......................................................................................................................................

25,783 19,959 ) ( 5,824

2011

24,499 19,327 ) 5,172

Other income ................................................................................................................................. Sales expenses ............................................................................................................................... Administrative expenses ......................................................................................................... Curtailment of defined benefit scheme ........................................................................... 12 Impairment losses on intangible assets .......................................................................... 19,20 Results from operating activities .......................................................................................

( ( ( ( (

46 2,378 ) ( 3,789 ) ( 183 ) 696 ) ( 1,176 )

20 1,819 ) 2,920 ) 0 20 ) 433

Finance income ............................................................................................................................. Finance expenses ......................................................................................................................... Net finance costs ..........................................................................................................................

( (

134 567 ) ( 433 ) (

42 512 ) 470 )

(

1,609 ) (

37 )

(

463 ) (

51 )

Loss for the year ...........................................................................................................................

(

2,072 ) (

88 )

Other comprehensive income Currency translation difference of foreign operations ........................................... Total comprehensive (loss) income for the year ........................................................

(

380 1,692 )

Loss before income tax .............................................................................................................. Income tax .....................................................................................................................................

Earnings per share Basic and diluted earnings per share of ISK 1 ..............................................................

(

3.73 ) (

108 20

0.17 )

The notes on pages 15 to 40 are an integral part of these consolidated financial statements.

Amounts are in ISK million

The notes on pages 10 to 31 are an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position Consolidated Statement Position as at of 31 Financial December 2012 as at 31 December 2012

Notes

Assets: Operating assets ..................................................................................................................... Intangible assets ..................................................................................................................... Long term receivables .......................................................................................................... Deferred tax asset .................................................................................................................. Total non-current assets

31.12.2012

31.12.2011

15 19 21 22

1,348 7,134 160 744 9,386

1,047 7,226 185 974 9,432

7 23 24 25

290 384 6,573 443 7,690

301 492 5,359 811 6,963

Total assets

17,076

16,395

Equity: Share capital ............................................................................................................................. Share premium ........................................................................................................................ Reserves ....................................................................................................................................... Retained earnings ................................................................................................................. Total equity

564 596 659 0 1,819

554 1,189 274 1,489 3,506

28 30 22

6,561 179 107 6,847

5,995 185 0 6,180

28 31 29 30 7

787 5,917 1,228 220 258 8,410

345 5,135 885 99 245 6,709

Total liabilities

15,257

12,889

Total equity and liabilities

17,076

16,395

Assets classified as held for sale .................................................................................... Inventories ................................................................................................................................. Trade and other receivables ............................................................................................. Cash and cash equivalents ................................................................................................ Total current assets

Liabilities: Loans and borrowings ......................................................................................................... Provisions ................................................................................................................................... Deferred tax liability ............................................................................................................ Total non-current liabilities Loans and borrowings ......................................................................................................... Trade and other payables .................................................................................................. Deferred income ...................................................................................................................... Provisions ................................................................................................................................... Liabilities classified as held for sale ............................................................................ Total current liabilities

The notes on pages 15 to 40 are an integral part of these consolidated financial statements.

12 Amounts are in ISK million

Consolidated Statement of Changes in Equity Consolidated Statement Changes in Equity forofthe year 2012 for the year 2012

Note

Share capital

Share premium

Retained earnings

Reserves*

Total

2011

Balance at 1 January 2011 ..................................................... Total comprehensive income: Loss for the year ...................................................................... Other comprehensive income ........................................... Total comprehensive income ............................................ Transactions with owners of the Company, recognised directly in equity: Issues of shares ........................................................................ Total transactions with owners of the Company .. Balance at 31 December 2011 ...............................................

525

1,075

166

1,577

108 108

29 29 554

114 114 1,189

0 274

0 1,489

143 143 3,506

554

1,189

274

1,489

3,506

(

2,072 ) (

380 380

(

2,072 ) (

2,072 ) 380 1,692 )

(

217 ) 800

(

88 ) (

(

88 )

3,343 88 ) 108 20

2012

Balance at 1 January 2012 .................................................... Total comprehensive income: Loss for the year ...................................................................... Other comprehensive income ........................................... Total comprehensive loss ................................................... Transactions with owners of the Company, recognised directly in equity: Issues of shares ........................................................................ Settlement of losses ............................................................... Change in reserves .................................................................. Total transactions with owners of the Company .. Balance at 31 December 2012 ..............................................

10 ( 10 564

(

207 800 ) 593 ) 596

5 5 659

583 0

0 0 5 5 1,819

*See note 26

* See note 26

The notes on pages 15 to 40 are an integral part of these consolidated financial statements.

13 Amounts are in ISK million

Consolidated Statement of Cash Flows forofthe year 2012 Consolidated Statement Cash Flows for the Year 2012

Notes

Cash flows from operating activities: Cash generated from operations before interest and taxes ..............................

( (

15 19

Cash flows from financing activities: Proceeds from issue of share capital ............................................................................. Proceeds from non-current borrowing ........................................................................ Repayment of loans and borrowings ............................................................................ Short term borrowings ......................................................................................................... Net cash from financing activities Net change in cash and cash equivalents ......................................................................

( ( ( (

40 450 ) 27 ) 160 7 0 0 647 ) 655 ) 115 ) 1,410 )

759 (

( ( ( ( (

41 432 ) 0 368 9 1 355 ) 379 ) 236 ) 67 ) 1,027 )

(

0 5,985 5,329 ) 208 864

(

143 80 176 ) 386 433

(

386 )

(

226 )

Cash and cash equivalents at 1 January ........................................................................

811

1,031

Effects of exchange rate fluctuations on cash held ................................................

Cash and cash equivalents at 31 December ...................................................................

443

811

The notes on pages 15 to 40 are an integral part of these consolidated financial statements.

2011

597

Interest income received ...................................................................................................... Interest expenses paid .......................................................................................................... Income tax paid ....................................................................................................................... Net cash from operating activities Cash flows used in investing activities: Proceeds from sale of operating assets ........................................................................ Proceeds from sale of shares in other companies ................................................... Acquisiton of subsidiaries, net of cash acquired ..................................................... Acquisition of operating assets ........................................................................................ Acquisition of intangible assets ...................................................................................... Change in long term receivables ..................................................................................... Net cash used in investing activities

2012

Amounts are in ISK million

NotesNotes to the to Consolidated the Consolidated Financial Statements Financial Statement 1.

Reporting entity Advania hf. (the "Company") is a limited liability company incorporated and domiciled in Iceland. The address of the Company’s registered office is at Guðrúnartún 10, Reykjavík. The consolidated financial statements of the Company as at and for the year ended 31 December 2012 comprise the Company and its subsidiaries, together referred to as the “Group” and individually as Group entities. The Group operates in the IT sector. A total of 73.95% of the Company's share capital is owned by Framtakssjóður Íslands slhf. (The Iceland Enterprice Investment Fund slhf.).

2. a.

Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements were approved by the Board of Directors on 29 April 2013.

Basis of measurement The consolidated financial statements have been prepared on the historical cost basis. The methods used to measure fair value are discussed further in note 5.

Functional and presentation currency These consolidated financial statements are presented in ISK, which is the Company’s functional currency. All financial information presented in ISK has been rounded to the nearest million.

Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: • note 20 - measurement of the recoverable amounts of cash-generating units • note 22 - utilisation of tax losses • note 30 - provisions • note 37 - uncertainty

Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by the Group's entities.

a. (i)

Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Information about assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: • note 20 - measurement of the recoverable amounts of cash-generating units • note 22 - utilisation of tax losses • note 30 - provisions • note 37 - uncertainty

Notes, continued: 3.

a. (i)

(ii) Transactions eliminated on consolidation

Notes, continued: Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 3. Significant accounting policies, continued: b. Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at Amounts are in ISK million exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill, are translated to ISK at exchange rates at the reporting date. The income and expenses of foreign operations, are translated to ISK at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. c. (i)

Financial instruments Non-derivative financial assets The Group classifies non-derivative financial assets into loans and receivables, other receivables and cash and cash equivalents. The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net

c. (i)

Financial instruments Non-derivative financial assets The Group classifies non-derivative financial assets into loans and receivables, other receivables and cash and cash equivalents.

Notes, continued: Notes, continued:

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the 3. Significant accounting policies, continued: contractual provisions of the instrument. c. Financial instruments, continued: (ii) Non-derivative financialaliabilities The Group derecognises financial asset when the contractual rights to the cash flows from the asset expire, or it Group transfers the rights to receive contractual flows in that a transaction in which substantially all the The initially recognises debt the securities issuedcash on the date they are originated. All other financial risks and are rewards of ownership of the the trade financial are the transferred. Any interest transferred liabilities recognised initially on date asset at which Group becomes a partyintosuch the contractual financial assets is created or retained by the Group is recognised as a separate asset or liability. provisions of thethat instrument. Financial assets and liabilities are offset and when the netitsamount presented in the statement of financial position The Group derecognises a financial liability contractual obligations are discharged or cancelled or when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net expired. basis or to realise the asset and settle the liability simultaneously. Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Loans and receivables Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an interest method. active market. Such assets are recognised initially at fair value plus any directly attributable transaction Financial assets andtoliabilities are offset and theand net amount presented in the statement of financial position costs. Subsequent initial recognition loans receivables are measured at amortised cost using the Notes, continued: when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net effective interest method, less any impairment losses. basis or to realise the asset and settle the liability simultaneously. CashGroup and cash equivalents has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and 3. The Significant accounting policies, continued: Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months. trade and other payables. c. Financial instruments, continued: (ii) Non-derivative financial liabilities (iii) Share capital The Group initially recognises debt securities issued on the date that they are originated. All other financial Ordinary shares liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary provisions of the instrument. shares are recognised as a deduction from equity, net of any tax effects. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or Repurchase and reissue of share capital expired. When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly costs, is recognised as aatdeduction Repurchased sharestransaction are classified as Financialattributable liabilities are recognised initially fair valuefrom plus equity. any directly attributable costs. treasury shares and are presented as a deduction from total equity. When treasury shares are sold or Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or interest method. deficit on the transaction is transferred to/from share premium or retained earnings. Financial assets and liabilities are offset and the net amount presented in the statement of financial position d. Operating when, and assets only when, the Group has a legal right to offset the amounts and intends either to settle on a net Amounts are in ISK million (i) Recognition and measurement basis or to realise the asset and settle the liability simultaneously. Items of operating assets are measured at cost less accumulated depreciation and impairment losses. The Group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and tradeincludes and other payables. that is directly attributable to the acquisition of the asset. Purchased software Cost expenditure that is integral to the functionality of the related equipment is capitalised as part of that equipment. (iii) Share capital When parts of an item of property, plant and equipment have different useful lives, they are accounted for as Ordinary shares Ordinaryitems shares are classified equity. Incremental costs directly attributable to the issue of ordinary separate of property, plantasand equipment. shares are recognised as a deduction from equity, net of any tax effects. Any gain or loss on disposal of an item of operating assets calculated as the difference between the net proceeds from disposal the carrying Repurchase and reissueand of share capitalamount of the item is recognised in profit or loss. When share capital recognised as equity is repurchased, the amount of the consideration paid, including (ii) Subsequent costs directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount treasury shares and are presented as a deduction from total equity. When treasury shares are sold or of the item if it is probable that the future economic benefits embodied within the part will flow to the Group reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of deficit on the transaction is transferred to/from share premium or retained earnings. the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables.

Notes, continued:

(iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary c. shares Financial areinstruments, recognised ascontinued: a deduction from equity, net of any tax effects. (iii) Share capital, continued: Repurchase and reissue of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is transferred to/from share premium or retained earnings. d. (i)

Operating assets Recognition and measurement Items of operating assets are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Any gain or loss on disposal of an item of operating assets calculated as the difference between the net proceeds from disposal and the carrying amount of the item is recognised in profit or loss.

(ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Items of property, plant and equipment are depreciated from the date they are available for use. Depreciation Notes, continued: is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the economic benefits embodied on the asset. 3. future Significant accounting policies, continued: d.

Operating assets, continued: The estimated useful lives for the current and comparative periods are as follows: Amounts are in ISK million 33 years Buildings .......................................................................................................................................................................................... 3-15 years Machinery and other assets ..................................................................................................................................................

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

e. (i)

Intangible assets and goodwill Goodwill Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. Goodwill represents the excess of the cost of the acquisition over interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, it is recognised immediately in profit or loss.

3. d.

Significant accounting policies, continued: Operating assets, continued: The estimated useful lives for the current and comparative periods are as follows: Buildings .......................................................................................................................................................................................... Machinery and other assets ..................................................................................................................................................

Notes, continued:

33 years 3-15 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 3. Significant accounting policies, continued: e. Intangible assets and goodwill (i) Goodwill Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. Goodwill represents the excess of the cost of the acquisition over interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, it is recognised immediately in profit or loss. Goodwill is stated at cost less accumulated impairment losses. (ii) Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. (iii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss when incurred. (iv) Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current period are as follows: Customer relationships ............................................................................................................................................................ Other intangible assets ............................................................................................................................................................

10-20 years 2-8 years

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. f.

Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale.

Amounts are in ISK million

Notes, continued: Notes, continued: 3. g. (i)

Significant accounting policies, continued: Impairment Non derivative-financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset, and that loss events had an impact on the estimated future cash flows of that asset can be estimated reliably. An impairment loss in respect of financial asset measured at amortised cost is calculated at the difference between its carrying amount and the present value of the estimated future cash flows dicounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed throught profit or loss.

(ii) Non-financial assets The carrying amounts of the Groupâ&#x20AC;&#x2122;s non-financial assets other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the assetâ&#x20AC;&#x2122;s recoverable amount is estimated. Goodwill and intangible assets that have indefinite lives are tested annually for impairment. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit"). The goodwill acquired in a business combination is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets impairment losses are reversed only to the extent that the assetâ&#x20AC;&#x2122;s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. h. (i) 20

Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due.

Notes, continued: Notes, continued: 3. Significant accounting policies, continued: h. Employee benefits, continued: (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. (iii) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (iv) Termination benefits Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. i.

Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

(i)

j. (i)

Revenue Sale of goods Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.

required to settle the obligation. (i)

Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. 3. Significant accounting policies, continued: j. Revenue (i) Sale of goods Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.

Notes, continued:

Notes, continued: (ii) Rendering of services Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work 3. Significant accounting policies, continued: performed. j. Revenue, continued: (iii) Commissions When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Group. k. (i)

Amounts are in ISK million

Leases Leased assets All leases are operating leases and the leased assets are not recognised on the Groupâ&#x20AC;&#x2122;s statement of financial position.

(ii) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. l.

Finance income and expenses Finance income comprises interest income on funds invested and dividend income. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Groupâ&#x20AC;&#x2122;s right to receive payment is established. Finance expenses comprise interest expense on borrowings and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

m. Income tax Income tax in profit or loss comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. 22

(i)

Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

(ii) Deferred tax Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation

Finance expenses comprise interest expense on borrowings and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

Notes, m. Incomecontinued: tax Income tax in profit or loss comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. 3. Significant accounting policies, continued: m. Income tax, continued: (i) Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. (ii) Deferred tax Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which tax losses and temporary difference can be utilised. Deferred tax assets are reviewed at each Notes, continued: reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. n.

Earnings per share The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period adjusted for own shares held. Amounts are in ISK million

Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. Operating segments' operating results are reviewed regularly by the Group's CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group.

Determination of fair values A number of the Groupâ&#x20AC;&#x2122;s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Notes, continued: 4.

The fair value of customer relationships acquired in a business combination is determinded using the multiperiod excess earnings method, whereby the subject asset is valued after deducting a fair return on all other Notes, continued: assets that are part of creating the related cash flows. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. 6.

Segment reporting Segment information is presented in respect of the Group's business segments. The segment format is organised by the nature of the operations and is based on the Group's management and internal reporting structure. The only segment in the Group's operation is information technology. Geographical information Segment sales and assets are based on the geographical location of the assets. Iceland

Sweden

2012

Sales ............................................................. EBITDA ....................................................... Assets ..........................................................

Other

Consolidated

10,397 639 9,689

11,431 418 ( 4,958

3,938 718) 2,150

17 2 279

25,783 341 17,076

9,866 945 7,715

10,277 339 ( 5,203

4,356 217) 3,176

0 1 301

24,499 1,068 16,395

2011

Sales ............................................................. EBITDA ....................................................... Assets ..........................................................

Norway

Included in the EBITDA for Iceland is an increase in the lease obligation amounting to ISK 211 million, see note 30. In Norway the EBTIDA includes expenses amounting to ISK 183 million due to a curtailment in the pension agreement as mentioned in note 12. 7.

Non-current assets held for sale The subsidiary Kogun USA Inc. is presented as an asset held for sale following the commitment of the Group's management to sell the subsidiary. Efforts to sell the disposal company will continue in the year 2013. At 31 December 2012 the disposal company comprised assets of ISK 290 million (2011: ISK 301 million) less liabilities of 258 million (2011: ISK 245 million).

8. Acquisitions of subsidiaries Amounts are in ISK million Purchase price allocation due to the acquisition of Thor Data Center ehf. at year-end 2011 was finalised during Amounts are in ISK million the year 2012. The allocation resulted in customers relationships amounting to ISK 41 million and deferred tax asset amounting to ISK 61 million.

note 30. In Norway the EBTIDA includes expenses amounting to ISK 183 million due to a curtailment in the pension agreement as mentioned in note 12. 7.

Notes, continued: 8.

Acquisitions of subsidiaries Purchase price allocation due to the acquisition of Thor Data Center ehf. at year-end 2011 was finalised during the year 2012. The allocation resulted in customers relationships amounting to ISK 41 million and deferred tax asset amounting to ISK 61 million.

Sale of goods and services Sale of goods and services are specified as follows:

2012

2011

16,231 9,552 25,783

16,016 8,483 24,499

Salaries .......................................................................................................................................................... Contributions to defined contribution plans ........................................................................... Other salary related expenses ........................................................................................................... Total ...............................................................................................................................................................

9,754 841 1,755 12,350

8,832 844 2,072 11,748

Average number of employees during the year ......................................................................

1,018

1,014

2012

2011

9,215 1,860 1,275 12,350

9,171 1,474 1,103 11,748

Sale of services ........................................................................................................................................... Sale of goods ............................................................................................................................................... Total sale of goods and services ....................................................................................................... 10. Personnel expenses Personnel expenses are specified as follows:

Notes, continued:

11. Personnel expenses are allocated as follows on operating items: 11. Personnel expenses are allowed as follows on operating items: Cost of services sold ................................................................................................................................ Sales expenses ............................................................................................................................................ Administrative expenses ...................................................................................................................... Total ................................................................................................................................................................

12. Employee benefits As a result of a curtailment in the pension arrangement for the employees of Advania AS, Norway, ISK 183 Amounts are in ISK million million is expensed in the consolidated statement of comprehensive income. 13. Finance income and expense Finance income and expenses are specified as follows: Interest income from loans and receivables .............................................................................. Net foreign exchange gain ................................................................................................................... Finance income .........................................................................................................................................

39 95 134

Interest expense on long-term interest bearing financial liabilities ............................ ( Interest expense on short-term interest bearing financial liabilities .......................... ( Net foreign exchange loss ................................................................................................................... Impairment of other investments .................................................................................................. ( Finance expenses ..................................................................................................................................... (

492) ( 49) ( 0 ( 26) ( 567) (

446) 19) 45) 2) 512)

Net finance income and expense ....................................................................................................

433) (

470)

14. Income tax Income tax recognised in the income statement is specified as follows: Deferred tax:

(

42 0 42

Amounts are in ISK million

492) ( 49) ( 0 ( 26) ( 567) (

446) 19) 45) 2) 512)

Net finance income and expense ....................................................................................................

433) (

470)

Notes, continued:

(

14. Income tax Income tax recognised in the income statement is specified as follows: 2012

Deferred tax: Origination and reversal of temporary differences ............................................................... Impairment of tax asset (reversal of impairment) ................................................................. Total income tax ...................................................................................................................................... Reconciliation of effective tax rate:

2012

Loss before income tax ........................................................ Income tax using the Company's domestic tax rate ..................................................................................... Effect of tax rates in foreign jurisdictions ................. Adjustment for prior period .............................................. Non-deductible expenses .................................................... Tax exempt income ............................................................... Current year losses for which no deferred tax asset recognised ........................................................... Notes, continued: Change in estimates related to prior years ............... Other items .................................................................................

2012

( 20.0% 0.2% 0.0% 9.5% 0.0% 11.7% 25.7% 2.1% 69.2%

49 414 463

( (

(

2011

1,609)

76 25) 51 2011

(

37)

322) 4) 0 ( 153 0 (

20.0% ( 0.0% 2.7%) ( 97.3% 70.3%) (

7) 0 1) 36 26)

189 414 33 463

173.0% 59.5%) ( 18.9% 176.7%

64 22) 7 51

(

15. Operating assets Operating assets and their depreciation is specified as follows: Cost Balance at 1 January 2011 ..................................................................................... Additions ...................................................................................................................... Disposals ...................................................................................................................... Acquired through business combination .................................................. Currency adjustments .......................................................................................... Balance at 31 December 2011 ...............................................................................

2011

Machinery and other assets

Buildings

0 0 0 0 0 0

Balance at 1 January 2012 .................................................................................... Reclassification ........................................................................................................ Additions ...................................................................................................................... Disposals ...................................................................................................................... Currency adjustments .......................................................................................... Balance at 31 December 2012 ..............................................................................

0 0 210 0 0 210

Depreciation and impairment losses Balance at 1 January 2011 ..................................................................................... Depreciation for the year .................................................................................... Disposals due to de-merger ................................................................................ Currency adjustments .......................................................................................... Balance at 31 December 2011 ...............................................................................

0 0 0 0 0

Balance at in 1 January Amounts are ISK million2012 .................................................................................... Reclassification ........................................................................................................ Depreciation for the year .................................................................................... Disposals ......................................................................................................................

0 0 6 0

(

Total

1,902 379 58) ( 283 6 2,512

1,902 379 58) 283 6 2,512

2,512 433 437 231) ( 102 3,253

2,512 433 647 231) 102 3,463

1,205 316 55) ( 1) ( 1,465

1,205 316 55) 1) 1,465

1,465 433 373 229) (

1,465 433 379 229)

Amounts are in ISK million

(

( (

(

Currency adjustments .......................................................................................... Currency adjustments .......................................................................................... Balance at 31 December 2011 ............................................................................... Balance at 31 December 2011 ............................................................................... Balance at 1 January 2012 .................................................................................... Balance at 1 January 2012 .................................................................................... Reclassification ........................................................................................................ Reclassification ........................................................................................................ Depreciation for the year .................................................................................... Depreciation for the year .................................................................................... Disposals ...................................................................................................................... Disposals ...................................................................................................................... Currency adjustments .......................................................................................... Currency adjustments .......................................................................................... Balance at 31 December 2012 .............................................................................. Balance at 31 December 2012 .............................................................................. 15. Operating assets, continued: Carrying amounts Carrying amounts At 1 January 2011 ...................................................................................................... At 1 January 2011 ...................................................................................................... At 31 December 2011 ................................................................................................ At 31 December 2011 ................................................................................................ At 31 December 2012 ................................................................................................ At 31 December 2012 ................................................................................................ Depreciation ratios ................................................................................................. Depreciation ratios .................................................................................................

Notes, continued:

0 0 0 0 0 0 0 0 6 6 0 0 0 0 6 6

( (

1) 1) 1,465 1,465 1,465 1,465 433 433 373 373 229) 229) 67 67 Machinery 2,109 and 2,109 other

( (

1) 1) 1,465 1,465 1,465 1,465 433 433 379 379 229) 229) 67 67 2,115 2,115

Buildings

assets

Total

0 0 0 0 204 204 3% 3%

697 697 1,047 1,047 1,144 1,144 7-33% 7-33%

697 697 1,047 1,047 1,348 1,348

16. Insurance value 16. Insurance Insurance value value of machine and other assets amounted to ISK 3,618 million at year-end 2012 (2011: ISK 3,760 Insurance value of machine and other assets amounted to ISK 3,618 million at year-end 2012 (2011: ISK 3,760 million) and official value for the building amounts to ISK 237 million at year-end 2012. million) and official value for the building amounts to ISK 237 million at year-end 2012. 17. The Group's depreciation and amortisation charge in the income statement is specified as follows: 17. The Group's depreciation and amortisation charge in the income statement is specified as follows:

Notes, continued: Depreciation of operating assets, see note 15 ............................................................................

Depreciation of operating assets, see note 15 ............................................................................ Amortisation of intangible assets, see note 19 .......................................................................... Amortisation of intangible assets, see note 19 .......................................................................... Depreciation and amortisation recognised in the income statement .......................... Depreciation and amortisation recognised in the income statement .......................... 18. Depreciation is allocated as follows on operating items: 18. Depreciation is allocated as follows on operating items:

19. Intangible assets The Groupâ&#x20AC;&#x2122;s intangible assets are specified as follows:

379 379 440 440 819 819

316 316 298 298 614 614

402 64 353 819

338 18 258 614

2011

Other intangible

Customer relationships

Amountsare areininISK ISKTotal million assets Amounts million Amounts are in ISK million

Cost Balance at 1 January 2011 ..................................................... Purchase price allocation .................................................... ( Acquisitions during the year ............................................. Acquired through business combination .................. Sales and disposals due to de-merger ........................... Currency adjustments .......................................................... Balance at 31 December 2011 ..............................................

12,536 466) 102 0 0 74 12,246

1,800 855 0 0 0 0 2,655

Balance at 1 January 2012 .................................................... Reclassification ........................................................................ Purchase price allocation .................................................... ( Acquisitions during the year ............................................. Sales and disposals during the year .............................. Currency adjustments .......................................................... Balance at 31 December 2012 ..............................................

12,246 0 102) 0 0 258 12,402

2,655 0 40 0 0 126 2,821

Amortisation and impairment losses Balance at 1 January 2011 ..................................................... Amortisation for the year ................................................... Impairment losses on intangible assets ......................

2011 2011

2012

Cost of services sold ................................................................................................................................ Sales expenses ............................................................................................................................................ Administrative expenses ...................................................................................................................... Total ...............................................................................................................................................................

Goodwill

2012 2012

(

1,039 218) 236 63 12) ( 3 1,111

15,375 171 338 63 12) 77 16,012

1,111 190 0 ( 655 106) ( 106 1,956

16,012 190 62) 655 106) 490 17,179

Amounts are in ISK million

7,580 0 20

396 190 0

504 108 0

8,480 298 20

Acquisitions during the year ............................................. 102 0 Acquired through business combination .................. 0 0 Sales and disposals due to de-merger ........................... 0 0 18. Depreciation is allocated as follows on operating items: Currency adjustments .......................................................... 74 0 Balance at 31 December 2011 .............................................. 12,246 2,655 Cost of services sold ................................................................................................................................

(

Sales expenses ............................................................................................................................................ Notes, continued: Balance at 1 January 2012 .................................................... 12,246 2,655

Administrative expenses ...................................................................................................................... Reclassification ........................................................................ 0 0 Total ............................................................................................................................................................... Purchase price allocation .................................................... ( 102) 40 19. Intangible assets, continued: Acquisitions during the year ............................................. 0 0 19. Intangible assets Sales and disposals during the year .............................. 0 0 The Groupâ&#x20AC;&#x2122;s intangible assets are specified as follows: Currency adjustments .......................................................... 258 126 Customer Balance at 31 December 2012 .............................................. 12,402 2,821 Goodwill relationships

(

236 63 12) ( 2012 3 1,111 402 64 1,111 353 190 819 0 ( 655 106) ( Other 106 intangible 1,956 assets

338 63 12) 2011 77 16,012 338 18 16,012 258 190 614 62) 655 106) 490 17,179 Total

Cost Amortisation and impairment losses Balance at 1 January 2011 ..................................................... 12,536 1,800 1,039 Balance at 1 January 2011 ..................................................... 7,580 396 504 Purchase price allocation .................................................... ( 466) 855 ( 218) Amortisation for the year ................................................... 0 190 108 Acquisitions during the year ............................................. 102 0 236 Impairment losses on intangible assets ...................... 20 0 0 Acquired combination .................. 00 00 ( 63 Sales andthrough disposalsbusiness due to de-merger ........................... 12) ( Sales andatdisposals due to de-merger ........................... 0 0 ( 12) ( Balance 31 December 2011 .............................................. 7,600 586 600 Currency adjustments .......................................................... 74 0 3 1 January 2012 .................................................... 7,600 586 600 Balance at 31 December 2011 .............................................. 12,246 2,655 1,111 Reclassification ........................................................................ 0 0 190 Amortisation for the 2012 year.................................................... ................................................... 215 225 Balance at 1 January 12,2460 2,655 1,111 Impairment losses on intangible assets ...................... 697 0 Reclassification ........................................................................ 0 00 190 Sales and disposals during the year .............................. 0 0 ( 106) Purchase price allocation .................................................... ( 102) 40 0 (( Currency adjustments .......................................................... 0 0 38 Acquisitions during the year ............................................. 0 0 655 Balance at 31 December 2012 .............................................. 8,297 801 947 Sales and disposals during the year .............................. 0 0 ( 106) ( Currency adjustments .......................................................... 258 126 106 Carrying amounts Balance at 31 December 2012 .............................................. 12,402 2,821 1,956 At 1 January 2011 ...................................................................... 4,956 1,404 535 At 31 December 2011 ................................................................ Notes, continued: 4,646 2,069 511 Amortisation and impairment losses At 31 December 2012 ............................................................... 4,105 2,020 1,009 Balance at 1 January 2011 ..................................................... 7,580 396 504 Amortisation for the year ................................................... 0 190 108 20. Impairment Impairment losses tests on intangible assets ...................... 20 0 0 Goodwill and otherdue intangible assets that have indefinite live for impairment. Sales and disposals to de-merger ........................... 0 are tested annualy 0 ( 12) ( Balance at 31recognised Decemberat 2011 .............................................. 7,600 586 600 assets were fair value on aquisition date.

15,375 8,480 171 298 338 20 63 12) 12) 8,786 77 8,786 16,012 190 440 16,012 697 190 106) 62) 38 655 10,045 106) 490 17,179 6,895 7,226 7,134 8,480 298 20 These 12) 8,786

For the purpose of impairment testing, goodwill is allocated to the subsidiaries which represent the lowest Balance at 1 January 2012 .................................................... 7,600 586 600 8,786 level within the Group at which the goodwill is monitored for internal management purposes. Reclassification ........................................................................ 0 0 190 190 Amortisation for the year ................................................... 0 on their 215 The recoverable amount of cash generating units was based value in use. 225 Value in use 440 was Impairment losses on intangible assetscash ...................... 0 use of the units. 0 697 determined by discounting the future flows generated 697 from the continuing Cash flows Sales and disposals during the year .............................. 0 business plan. 0 Cash ( flows106) 106) were projected based on actual operating results and a five year were (extrapolated Currency adjustments .......................................................... 0 0 38 38 for determining the residual value using a constant nominal growth rate which was consistent with the longAmounts million Balance at 31 December 2012 .............................................. 8,297 801 947 are in ISK 10,045 term average growth rate for the industry. Management believes that this forcast period was justified due to long-term nature of the business. Carrying amounts At 1 January 2011 ...................................................................... 4,956 1,404 6,895 The values assigned to key assumptions represent management's assessment of future535 trends in the IT At 31 December 2011 ................................................................ 4,646 2,069 511 7,226 sector and are based on both external and internal sources (historical data). Value in use was based on the At 31 December 2012 ............................................................... 4,105 2,020 1,009 7,134 following key assumptions: 28

Long term growth rate .......................................................................................................................... Revenue growth: Amounts Weighted are in ISK million average 2012 / 2011 ........................................................................................................ 2013-2017 / 2012-2016 ........................................................................................................................... WACC ............................................................................................................................................................. Debt leverage .............................................................................................................................................. Interest rate ................................................................................................................................................

2012

2011

1.5-4.9%

2.0-3.5%

5.4% 4.3% 11.9-16.4% 40.0-47.0% 6.5-8.8%

8.6% 2.3% 12.1-14.3% 22.0-43.5% 6.1-7.7%

determined by discounting the future cash flows generated from the continuing use of the units. Cash flows were projected based on actual operating results and a five year business plan. Cash flows were extrapolated for determining the residual value using a constant nominal growth rate which was consistent with the longterm average growth rate for the industry. Management believes that this forcast period was justified due to long-term nature of the business.

Notes, continued: The values assigned to key assumptions represent management's assessment of future trends in the IT

sector and are based on both external and internal sources (historical data). Value in use was based on the following key assumptions: 20. Impairment tests, continued: Long term growth rate .......................................................................................................................... Revenue growth: Weighted average 2012 / 2011 ........................................................................................................ 2013-2017 / 2012-2016 ........................................................................................................................... WACC ............................................................................................................................................................. Debt leverage .............................................................................................................................................. Interest rate ................................................................................................................................................

2012

2011

1.5-4.9%

2.0-3.5%

5.4% 4.3% 11.9-16.4% 40.0-47.0% 6.5-8.8%

8.6% 2.3% 12.1-14.3% 22.0-43.5% 6.1-7.7%

Changes in key assumptions would have the following impact on the carrying amount of goodwill due to operations in Norway: WACC +1% .................................................................................................................................................... EBITDA ratio -1% ......................................................................................................................................

( (

83 ) ( 247 ) (

392 ) 150 )

Impairment loss amounting to ISK 696 million is recognised related to the operations in Norway (2011: ISK 20 million). 21. Long term receivables Long term receivables are related to long term service agreements in Sweden. (2011: Long term receivables are defined benefit plans related to the operations in Norway). 22. Deferred tax asset and liability Deferred tax asset and liability are attributable to the following: 2012 Assets

Operating assets ...................................................................... ( Intangible assets ...................................................................... ( Trade and other receivables .............................................. Provisions .................................................................................... Trade and other payables ................................................... Tax loss carry-forwards ....................................................... Other items ................................................................................. ( Total ..............................................................................................

99 ) ( 7) ( 29 0 64 759 2) ( 744

2011 Assets

42 ) 232 ) ( 20 57 59 1,155 43 ) ( 974 (

2012 Liabilities

9 264 ) 15 80 0 64 11 ) 107 )

2011 Liabilities

0 0 0 0 0 0 0 0

Tax loss carry-forwards amounting to ISK 1,462 million related to the operations in Norway is not included in the deferred tax asset even though that loss does not have an expiring date.

Amounts are in ISK million

Notes, continued: Notes, continued: 23. Inventories Inventories consist of computer equipment for sale. 24. Trade and other receivables Trade and other receivables are specified as follows: Trade receivables ..................................................................................................................................... Other receivables ..................................................................................................................................... Impairment losses on trade receivables ...................................................................................... Trade and other receivables ..............................................................................................................

2012

(

5,347 1,396 170) ( 6,573

2011

4,225 1,217 83) 5,359

25. Cash and cash equivalents Cash and cash equivalents are specified as follows: Bank balances .......................................................................................................................................... Marketable securities ............................................................................................................................ Cash and cash equivalents .................................................................................................................

284 159 443

576 235 811

26. Equity Issued capital and share premium The Company's share capital, according to its Articles of Association, amounts to ISK 564 million at year end 2012. Shareholders are entitled to one vote per share at meetings of the Company. Translation reserve Foreign exchange differences arising on translation of financial statements of foreign subsidiary are recognised directly in a separate component of equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. Reserves are specified as follows: Translation reserve.................................................................................................................................. Legal reserve................................................................................................................................................ Restricted equity due to composition agreement.................................................................... Other reserves total................................................................................................................................. 27. Earnings per share Basic earnings per share: Loss for the year attributable to equity holders of the parent ........................................ ( Share capital at the beginning of the period ............................................................................. Effect of issue of shares ....................................................................................................................... Calculated average share capital ..................................................................................................... Earnings per share of ISK 1 .................................................................................................................. 30 Amounts are in ISK million

(

487 131 41 659

107 132 35 274

2,072 ) (

88 )

554 1 555

525 2 527

3.73) (

0.17)

Notes, continued: Notes, continued: 28. Non-current interest-bearing liabilities:

2012

2011

Secured bank loans ................................................................................................................................ Other long-term liabilities .................................................................................................................. Total ..............................................................................................................................................................

6,556 5 6,561

5,960 35 5,995

Current interest-bearing liabilities: Current portion of secured bank loans ...................................................................................... Current portion of other long-term liabilities ......................................................................... Secured bank loan ................................................................................................................................... Finance lease liabilities ........................................................................................................................ Bank overdraft ......................................................................................................................................... Total ..............................................................................................................................................................

240 6 236 46 259 787

114 14 0 0 217 345

Total interest-bearing liabilities ......................................................................................................

7,348

6,340

Terms and conditions of outstanding loans were as follows: Currency

2012 Average interest rate

Secured bank loan .............................. Secured bank loan .............................. Secured bank loan .............................. Other long term liabilities ............... Other long term liabilities ...............

ISK SEK EUR NOK DKK

7.4% 3.6% -

Secured bank loan ............................... Finance lease liabilities ..................... Bank overdraft ...................................... Bank overdraft ...................................... Total ...........................................................

NOK ISK NOK ISK

6.4% 7.5% 6.3% 12.1%

Carrying amount

5,735 1,030 0 32 11 6,808 236 46 234 24 7,348

Repaymens of borrowings are specified as follows: Repayments in 2012 ................................................................................................................................ Repayments in 2013 ................................................................................................................................ Repayments in 2014 ................................................................................................................................ Repayments in 2015 ................................................................................................................................ Repayments in 2016 ................................................................................................................................ Subsequent repayments ..................................................................................................................... Total ..............................................................................................................................................................

2011 Average interest rate

7.3% 3.8% 6.2% 5.0% 10.8%

Carrying amount

4,156 764 1,155 33 15 6,123 0 0 202 15 6,340

2012

2011

246 2,460 240 240 3,622 6,808

128 776 119 1,253 0 3,847 6,123

Loans amounting to 5,172 million ISK were paid in full with two new loans during the year. With this refinancing the Company enjoyed more favorable terms and conditions than in previous loan agreements. The Company has an extension warranty until 1 September 2018 for a loan amounting to ISK 2,000 million Amounts are in ISK million with Landsbankinn hf., that is due on 1 February 2014. Landsbankinn hf. has granted Advania hf. a temporary exemption from the covenants in the loan agreements as it was not fulfilled at year end 2012. The exemption is valid until year-end 2013.

Repaymens of borrowings are specified as follows:

2012

2011

128 Repayments in 2012 ................................................................................................................................ 246 776 Repayments in 2013 ................................................................................................................................ Repayments in 2014 ................................................................................................................................ 2,460 119 240 1,253 Repayments in 2015 ................................................................................................................................ 240 0 Repayments in 2016 ................................................................................................................................ 3,622 Subsequent repayments ..................................................................................................................... 3,847 Total .............................................................................................................................................................. 6,808 6,123 28. Non-current interest-bearing liabilities, continued: Loans amounting to 5,172 million ISK were paid in full with two new loans during the year. With this refinancing the Company enjoyed more favorable terms and conditions than in previous loan agreements. The Company has an extension warranty until 1 September 2018 for a loan amounting to ISK 2,000 million with Landsbankinn hf., that is due on 1 February 2014.

Notes, continued:

Landsbankinn hf. has granted Advania hf. a temporary exemption from the covenants in the loan agreements as it was not fulfilled at year end 2012. The exemption is valid until year-end 2013. 29. Deferred income

Notes, continued: Deferred income is related to billing in advance of work in uncompleted, service agreements and other customer advances. 30. Provision for onerous contracts The Group has entered into non-cancellable leases for office buildings which the Group had to some extent ceased to use by 31 December 2012. Market conditions have meant that the rental income for these buildings is lower than the rental expense. The obligation for the discounted future payments, net of expected rental income, has been provided for, amounting to ISK 399 million (2011: ISK 284 million), of which ISKare 220 million Amounts in ISK million (2011: ISK 99 million) is classified as a current liability. 31. Trade and other payables Trade and other payables are specified as follows: Trade payables ......................................................................................................................................... Other payables ......................................................................................................................................... Total trade and other payables ........................................................................................................

2012

2011

2,806 3,111 5,917

2,114 3,021 5,135

32. Financial instruments Overview The Group has exposure to the following financial risks: - Credit risk - Liquidity risk - Market risk This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies, and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Amounts are in ISK million Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and investment securities.

Overview The Group has exposure to the following financial risks: - Credit risk - Liquidity risk - Market risk

Notes, continued: This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies, and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. 32. Financial instruments, continued: The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and investment securities. (i)

Exposure to credit risk The carrying amount of financial assets represents the maximum credit risk exposure. The maximum exposure to credit risk at the reporting date was: Carrying amount 2012

Note

Trade and receivables .......................................................................................... Cash and cash equivalents ................................................................................

6,573 443 7,016

24 25

2011

5,359 811 6,170

The maximum exposure to credit risk for loans and receivables at the reporting date by geographic region was: Iceland ...........................................................................................................................................................

Notes, continued: Sweden .........................................................................................................................................................

1,659 4,029 848 37 6,573

1,463 3,100 779 17 5,359

Norway ........................................................................................................................................................ Other European countries ................................................................................................................. 32. Financial instruments, continued: (ii) Trade and other receivables The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss Amounts are in ISK million component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. (iii) Guarantees The Group's policy is to provide financial guarantees only to wholly-owned subsidiaries. (iv) Impairment losses The aging of trade receivables at the reporting date was:

Gross 2012

4,512 362 94 179

Impairment 2012

( ( (

0 12) 12) 87)

Gross Impairment 2011 are in ISK million 2011 Amounts

3,746 218 62 88

( ( ( (

9) 1) 2) 35)

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

Notes, continued:

(iii) Guarantees The Group's policy is to provide financial guarantees only to wholly-owned subsidiaries. 32. Financial instruments, continued: (iv) Impairment losses The aging of trade receivables at the reporting date was: Gross 2012

Not past due ............................................................................. Past due 0-60 days ................................................................. Past due 61-90 days ............................................................... Past due 91-180 days .............................................................. Past due 181-360 days ............................................................ Past due more than one year ...........................................

4,512 362 94 179 114 86 5,347

Impairment 2012

( ( ( ( ( (

0 12) 12) 87) 24) 35) 170)

Gross 2011

3,746 218 62 88 61 50 4,225

Impairment 2011

( ( ( ( ( ( (

9) 1) 2) 35) 17) 19) 83)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows: 2012

Balance at 1 January .............................................................................................................................. Effect of merger ...................................................................................................................................... Losses during the period ..................................................................................................................... Net change in allowance ..................................................................................................................... Balance at 31 December ........................................................................................................................

(

83 0 20) ( 107 170

2011

86 20 23) 0 83

Based on historical default rates, the Group believes that, apart from the above, no impairment allowance is necessary in respect of trade receivables. A significant part of the balance relates to customers that have a good payment record with the Group. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group monitors cash flow requirements and optimises its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days.

34 Amounts are in ISK million Amounts are in ISK million

Notes, continued: Notes, continued: 32. Financial instruments, continued: Liquidity risk, continued The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 2012

Carrying amount

Contractual cash flows

Within 12 months

1-2 years

More than 5 years

2-5 years

Non-derivative financial liabilities Secured bankloans .............................. Finance lease ............... liabilities ...................... Other long-term loans .............................. Bank overdraft ........... Trade and other payables .......................

7,001

7,990

476

2,730

3,754

1,030

43 258

11 258

32 0

0 0

5,917 13,265

5,917 14,254

5,917 6,708

0 2,762

0 3,754

0 1,030

6,075

8,058

507

1,583

2,062

3,906

48 217

49 217

44 217

5 0

0 0

5,135 11,475

5,135 13,459

5,135 5,903

0 1,588

0 2,062

0 3,906

2011

Non-derivative financial liabilities

Secured bankloans .............................. Other long-term loans .............................. Bank overdraft ........... Trade and other payables .......................

Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The Group's exposure to foreign currency risk was as follows based on notional amounts at 31 December 2012: Amounts are in ISK million Trade and other receivables ............................................ Cash .............................................................................................. Loans and other financial liabilities ...........................

(

SEK

NOK

USD

Other

3,999 13 1,030) (

1,006 127 502)

50 15 0

104 24 11)

(

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. 32. Financial instruments, continued: (i) Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities.

Notes, continued:

The Group's exposure to foreign currency risk was as follows based on notional amounts at 31 December 2012: SEK

NOK

USD

Other

3,999 1,006 50 104 Trade and other receivables ............................................ Notes, continued: 13 127 15 24 Cash .............................................................................................. 502) 0 ( 11) 1,030) ( Loans and other financial liabilities ........................... ( 1,007) ( 648) ( 269) 2,614) ( Trade payables, other payables ...................................... ( 32. Financial instruments, continued: 368 ( 376) ( 583) ( 152) Net exposure ........................................................................... (i) Currency risk, continued The Group's exposure to foreign currency risk was as follows based on notional amounts at 31 December 2011: SEK

Trade and other receivables ............................................ Cash .............................................................................................. Loans and other financial liabilities ........................... Trade payables, other payables ...................................... Net exposure ...........................................................................

( (

3,100 106 764) ( 2,273) ( 169 (

NOK

801 165 234) 989) ( 257) (

The following significant exchange rates applied during the year 2012: SEK .................................................................................................................................................................. NOK ................................................................................................................................................................ DKK ................................................................................................................................................................ USD ................................................................................................................................................................. EUR ................................................................................................................................................................. JPY ................................................................................................................................................................... CHF .................................................................................................................................................................

USD

Other

100 78 0 158 0 ( 1,173) Amounts are in ISK million 265) ( 180) 165) ( 1,117)

Average rate

Reporting date spot rate

18.5 21.5 21.6 125.0 160.7 1.6 133.4

19.7 23.0 22.7 128.4 169.3 1.5 140.3

Sensitivity analysis 10% strengthening of the ISK against the foreign currencies would have increased equity and profit or loss by ISK 60 million (2011: ISK 110 million). The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases. 10% weakening of the ISK against the foreign currencies would have had the same effect, but in the opposite direction. Currency risk due to borrowings is deemed not significant.

(ii) Interest rate risk The Group's loans and borrowings are almost solely with 3-6 months variable interest rate. A change of 100 basis points in interest rates would increase or decrease equity and profit or loss by ISK 73 million. Fair values versus carrying amounts The difference between fair values and carrying amounts of financial assets and liabilites is not material.

Amounts are in ISK million

33. Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows:

2012

2011

CHF .................................................................................................................................................................

133.4

140.3

Notes, continued:

Currency risk due to borrowings is deemed not significant. 32. Financial instruments, continued: (ii) Interest rate risk The Group's loans and borrowings are almost solely with 3-6 months variable interest rate. A change of 100 basis points in interest rates would increase or decrease equity and profit or loss by ISK 73 million. Fair values versus carrying amounts The difference between fair values and carrying amounts of financial assets and liabilites is not material. 33. Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows: Less than one year ................................................................................................................................... Between one and five years ................................................................................................................ More than five years ............................................................................................................................... Total ................................................................................................................................................................

2012

2011

1,048 2,868 3,267 7,183

616 2,351 3,315 6,282

The Group leases a number of properties under operating leases. The leases vary between properties but run for a period of seven to fifteen years, with an option to renew the lease after that date. Leases provide for additional rent payments that are based on changes in a local price index. Each lease contract is noncancellable. The Group leases a number of cars under operating leases. The leases typically run for a period of three years, with an option to renew the lease after that date. Each lease contract is cancellable due to penalty. During the year ended 31 December 2012 ISK 962 million was recognised as an expense in the income statement in respect of operating leases (2011: ISK 650 million).

Amounts are in ISK million

37 Amounts are in ISK million

Notes, continued: Notes, continued: 34. Statement of Cash Flows Cash generated from operations before interest and income tax in the statement of cash flows is specified as follows: Operating loss for the year ................................................................................................................ Adjustments for: Depreciation ............................................................................................................................................. Amortisation of intangible assets ................................................................................................. Impairment losses on goodwill ....................................................................................................... Net finance costs .................................................................................................................................... Long term receivables, change ........................................................................................................ Gain on sale of property, plant and equipment ..................................................................... Income tax (see note 14) ..................................................................................................................... Inventories, change .............................................................................................................................. Trade and other receivables, change .......................................................................................... Trade and other payables, change ............................................................................................... Cash generated from operations before interests and income tax ...............................

2012

2011

(

2,073) (

88)

(

379 440 696 435 177 5) 463 111 719) 693 597

316 298 20 470 23) 5) 51 46) 523) 289 759

(

( ( ( (

35. Related parties Identity of related parties Parties are considered to be related if one party has the ability to directly or indirectly control the other party or exercise significant influence over the other party in making financial or operational decisions. The Group’s related parties include: Key management personnel, close family members of key management personnel and entities which are controlled, significantly influenced by or for which significant voting power is held by the key management personnel or their close family members, subsidiaries and assosiates. A total of 73.95% of the Company is owned by Framtakssjóður Íslands slhf., which is in majority owned by Icelandic pension funds and Landsbankinn hf. Transactions with related parties The Group has several business relationships with related parties. Transaction with such parties are made in the ordinary course of business and on substantially the same terms as comparable transactions with other parties. Transactions with management and key personnel Salaries and benefits of management paid for their work for the Group amounted to ISK 640 million. Included are settlement agreements due to restructuring both in Norway and Sweden. (2011: ISK 450 million). Transactions with other related parties During the year the Group bought goods and services from associates amounting to ISK 314 million (2011: 108 million). The Group's revenues from associates amounted to ISK 774 million (2011: 559 million). The Group has not granted any loans to its associates. Trade receivables from associates at year end amounted to ISK 68 million (2011: 55 million) and trade payables amounted to ISK 24 million (2011: 10 million). 38 Amounts are in ISK million

Notes, continued: Notes, continued: 36. Group entities The Company holds seven (2011: six) subsidiaries which all are included in the consolidated financial statements. The subsidiaries own two (2011: four) subsidiaries which are also included. HugurAx ehf. was merged with Advania hf. on 1. January 2012 and as follows Advania hf. holds the shares in Sterna ApS. At yearend 2012 Advania hf. acquired all the shares in Advania SIA from Advania AS. Ownership interest 2012 2011

Advania AS, Norway .............................................................................................................................. Advania Holding AB, Sweden .......................................................................................................... Advania AB, Sweden .......................................................................................................................... Virtus AB, Sweden .............................................................................................................................. Advania SIA, Latvia ................................................................................................................................. Exa ehf., Reykjavík .................................................................................................................................. Miðavefur ehf., Reykjavík ................................................................................................................... Sterna ApS, Denmark ............................................................................................................................. Thor Data Center ehf., Hafnarfjörður ...........................................................................................

100% 100% 100% 100% 100% 100% 100% 50% 100%

37. Other matters Uncertainty Advance ehf. instigated court proceedings against Advania hf. in relation to the possible similarity of the logos of the two companies. The District Court of Reykjavík ruled in favour of Advania hf. in February 2013 but the case has been petitioned to the Supreme Court where ruling is expected before the end of 2013. Advania hf. has received enquiries from the Icelandic Tax Authorities regarding financial expenses related to loans taken in the year 2006 by Skoðun ehf. when acquiring all the shares in Kögun hf. After the acquisition the companies Skoðun and Kögun were merged under the name of Kögun but the merged company became a part of Advania hf. in a merger in the year 2011. The Company has not received a confirmation on any changes in the assessment of the Company’s taxes but the Icelandic Tax Authorities seem to believe that the position of the Company could in some way be similar to the one that the Supreme Court of Iceland ruled on in the matter 555/2012, Toyota vs. the Icelandic State. The Company believes however that its history and other facts are not fully comparable to the case of Toyota in Iceland and believes that its defences are quite strong. The Company has however made its estimate on the extent of the most extreme claims from the Tax Authorities and in relation to that made an allowance on the Company’s deferred tax asset. This allowance does however not constitute an acceptance of such a claim in any way. Matters resolved The subsidiary OKG ehf. was dissolved in 2011 with all claims submitted paid. The provision made in year-end 2011 was reversed at year end 2012 since no further claims were made in relation to the guarantee. The Supreme Court of Iceland confirmed the District Court of Reykjavík´s ruling in Stoðir’s claim against Teymi hf. (which was merged with Advania hf. as of 1 January 2011) during the year for the repayment of a subordinated loan in the amount of ISK 656 million (plus interest and cost). Advania has issued new shares amounting to 34.2% of the amount less 0.25 million in cash at the exchange rate of 5.0, in accordance with the Amounts are in ISK million formal composition confirmed by the District Court in Reykjavík on 23 June 2009. The issuance of 10,540,763 new shares took place on 22 November 2012.

part of Advania hf. in a merger in the year 2011. The Company has not received a confirmation on any changes in the assessment of the Company’s taxes but the Icelandic Tax Authorities seem to believe that the position of the Company could in some way be similar to the one that the Supreme Court of Iceland ruled on in the matter 555/2012, Toyota vs. the Icelandic State. The Company believes however that its history and other facts are not fully comparable to the case of Toyota in Iceland and believes that its defences are quite strong. The Company has however made its estimate on the extent of the most extreme claims from the Tax Authorities and in relation to that made an allowance on the Company’s deferred tax asset. This allowance does however not constitute an acceptance of such a claim in any way.

Notes, continued:

37. Other matters, continued: Matters resolved The subsidiary OKG ehf. was dissolved in 2011 with all claims submitted paid. The provision made in year-end 2011 was reversed at year end 2012 since no further claims were made in relation to the guarantee. The Supreme Court of Iceland confirmed the District Court of Reykjavík´s ruling in Stoðir’s claim against Teymi hf. (which was merged with Advania hf. as of 1 January 2011) during the year for the repayment of a subordinated loan in the amount of ISK 656 million (plus interest and cost). Advania has issued new shares amounting to 34.2% of the amount less 0.25 million in cash at the exchange rate of 5.0, in accordance with the Notes, formalcontinued: composition confirmed by the District Court in Reykjavík on 23 June 2009. The issuance of 10,540,763 new shares took place on 22 November 2012. 38. Security Advania hf. has issued the following security documents to secure its debts under Facility agreement between Advania hf. and Landsbankinn hf.: The Company has issued a several indemnity letters and pledged its receivables and inventories to secure the debts under the same Facility agreement. The Company's subsidiary, Advania AB, has a credit facility with the Scandinavian bank Nordea. The limit is SEK 10 million in credit facility and SEK 50 million in credit facility through factoring. Advania hf. is a guarantor for Advania AS credit facility in the amount of NOK 10 million to Landsbankinn hf.

Amounts are in ISK million

The Company has provided share pledge over the assets and operations of the subsidiaries Advania Holding AB (100% of total shares) and Advania AS (100% of the total shares). The Company has pledged its building to secure its debts undir Facility agreement between Thor Data Center ehf. and MP Bank hf.

Corporate Governance Statement (unaudited) The Framework The guidelines on Corporate Governance issued by the Icelandic Chamber of Commerce, NASDAQ OMX Iceland and the Confederation of Icelandic Employers, along with the Company’s Articles of Association, and rules for Issuers of Securities listed on the NASDAQ OMX Iceland make up the framework for Advania’s Corporate Governance practices. The Company’s Articles of Association, Remuneration policy, Equal Opportunities policy, Rules of Procedure for the Board of Directors and the Corporate Governance statement can be found on the Company’s website and the guidelines while the rules for Issuers are on the website of NASDAQ OMX Iceland. The Company complies in all main respect to the rules mentioned above. No government organization has found the Company to be in breach with any rule or regulation. Values and Code of Ethics and Corporate Responsibility The core values of the Advania are passion, agility and competence. The values were chosen by the employees themselves. PASSION refers to the fact that the Company’s employees are proud, love their field of profession and work arduously with their hearts and souls. Advania strives to create an entertaining workplace with good moral, frequent recreational events and good working conditions. AGILITY refers to the service attitude of the employees, whom aim to exceed the expectations of the customer with pro-active initiatives and react promptly and speedily to all wishes for service. The employees of Advania always try to find swift solutions to any tasks given to them by co-workers or customers. COMPETENCE refers both to the vast expertise of the employees, many of whom possess decades of experience in the field of information technology, but also the extensive education covering every field from technology, engineering and computing to social sciences, design and business administration and finance. Advania’s slogan is WELCOME TO IT and was also chosen by the members of staff as to reflect the attitudes of the Company towards guests and customers. The Board of Directors has not issued a specific written code of ethics and corporate responsibility for the Company but plans to do so in the near future.

Corporate Governance Statement The Board of Directors and Executive Committee Finnbogi Jónsson, chairman of the board Finnbogi Jónsson works as a consulting engineer and economist. He holds a MSc degree in Physical Engineering and a BSc degree in Business Administration from the Technical University of Lund, Sweden, from 1978. Finnbogi was the CEO of the Enterprise Investment Fund from 2010 to 2012, CEO of New Business Fund in Iceland from 2006 to 2010, Executive Chairman of Samherji Plc from 2000 to 2005, CEO of Iceland Seafood Plc from 1999 to 2000, CEO of Síldarvinnslan Plc from 1986 to 1999, CEO of Industrial Development Company of Akureyri from 1982 to 1986 and Head of Divison in the Ministry for Industry from 1979 to 1982. Finnbogi has been a board member in more than 30 companies in Iceland and abroad. Anna Rún Ingvarsdóttir Anna Rún Ingvarsdóttir is a graduate in business administration and works as chief financial officer of Apple VAD in Iceland. Previously she held the same post at Almenna verkfræðistofan hf. from 2008 to 2011 and from 2005 to 2008 at Humac, the operator of the Apple-stores in Scandinavia. She was operational manager of Median from 2004 to 2005. Anna was an employee of Strengur hf. from 1996 to 2004, where she was in charge of the service- and advisory department. From 1992 to 1996 she was chief financial officer at Tölvusamskipti hf. Einar Páll Tamimi Einar Páll Tamimi is a partner and attorney at the law firm Nordik Legal Services. A Cand.Jur. from the Law Department of the University of Iceland, he has finished LL.M. degrees from three universities: University of Helsinki (1996), Law School of Harvard University (1997) and Kyushu University in Japan (1998). Einar Páll worked as a lawyer at the EFTA (European Free Trade Association) in Brussels from 1999 to 2003, the two latter years as the Head Lawyer of the Association. Einar Páll was briefly an assistant professor at the Reykjavik University School of Law before becoming director of the Legal Department of Glitnir Bank from 2004 to 2008. Attorney at Málflutningur and ráðgjöf Law Firm from 2008 til 2010 and partner at Nordik Legal from 2010. Skúli Mogensen Skúli Mogensen is the founder and CEO of WOW air. He has over 20 years of broad business experience in the technology, telecoms and venture capital industries as investor, CEO and Entrepreneur. Skúli is an active speaker on both sides of the Atlantic. He has been recognised as one of Europe’s top entrepreneurs based on his work at OZ Communications which he co-founded and was CEO and Chairman. OZ was acquired by Nokia in November 2008. Currently Skúli is the CEO and board member of WOW air, Vice chairman of the board of MP Bank in Iceland and a board member of Cargo Express, Securitas, Carbon Recycling International and Redline Communications, publicly traded on Toronto Stock Exchange (RDL). Skúli is an active Triathlete, co-founder of WOW cyclothon, which is a charity event for Save the Children Iceland, and an active sponsor of other charities and artists. Þór Hauksson

Þór Hauksson works for Framtakssjóður Íslands (The Iceland Enterprise Investment Fund). He graduated as B.A. in political science from the University of Iceland in 1995, M.A. in political science and economy from the University of Hull in 1998 and MBA from Reykjavik University in 2007. Þór worked for Skipti, the parent company of Síminn in the field of business development, company investment and merger. From 2001 to 2006 he was an employee of Straumur Investment Bank, specializing in investment and financing. Þór worked at the department of asset management at Kaupþing from 1998 to 2001 and from 1995 to 1997 as an expert at the Ministry of Finance.

Corporate Governance Statement, continued: Alternate Board Members Egill Tryggvason, Investment Manager Framtakssjóður Íslands Erna Eiríksdóttir, Senior Manager of Investor Relations at Eimskip

Executive Committee Gestur G. Gestsson CEO Gestur G. Gestsson is the CEO of Advania, a position he has held since 2009. Previously, Gestur served as CEO of Teymi in Iceland. He held the posts of Chief Technology Officer at Vodafone in Iceland for three years and was Director of Sales and Marketing prior to that. Before his time at Vodafone Gestur served as the CEO of Icelandic pioneering ISP Margmiðlun and was marketing manager of interactive gaming company Betware. He has served as Chairman of the Board of top-level domain registry Internet in Iceland and had the same position at Vodafone in the Faroe Islands. Gestur has a degree in political science and economics from the University of Iceland. Mikael Noakson, CEO Advania AB, Sweden Ole Morten Settevik, CEO Advania AS, Norway Board of Directors The Company’s Board of Directors exercise the supreme authority in the Company’s affairs between shareholders’ meetings, and it is entrusted with the task of ensuring that the organization and activities of the Company’s operation are at all times in correct and proper order. The Board of Directors is instructed in the Company’s Articles of Association to appoint a CEO for the Company and decide the terms of his or her employment. The Board of Directors and CEO are responsible for the management of the Company. The Company’s Board of Directors must at all times ensure that there is adequate supervision of the Company’s accounts and the disposal of its assets and shall adopt working procedures in compliance with the Companies Act. Only the Board of Directors may assign power of procuration on behalf of the Company. The signatures of the majority of the members of the Board are required to bind the Company. The CEO has charge of the day-to-day operation of the Company and is required in his work to observe the policy and instructions set out by the Company’s Board of Directors. Day-to-day operation does not include measures which are unusual or extraordinary. Such measures can only be taken by the CEO with the specific authorization of the Board of Directors, unless it is impossible to await the decision of the Board without seriously disadvantaging the operation of the Company. In such instances, the CEO is required to consult with the Chairman of the Board, if possible, after which the Board of Directors must immediately be notified of the measures. The CEO shall ensure that the accounts and finances of the Company are in conformity with the law and accepted practices and that all assets belonging to the Company are securely safeguarded. The CEO is required to provide members of the Board of Directors and Company auditors with any information pertaining to the operation of the Company which they may request, as required by law. 43

Corporate Governance Statement, continued: The Company’s Board of Directors consists of five members and two alternate members, elected at the annual general meeting for a term of one year. Those who intend to stand for election to the Board of Directors must inform the Board in writing of their intention at least five days before the annual general meeting, or extraordinary shareholders’ meeting at which elections is scheduled. Only those who have informed the Board of their candidacy are eligible. The Board of Directors elects a Chairman from among its members, and otherwise allocates its obligations among its members as needed. The Chairman calls Board meetings. A meeting must also be held if requested by a member of the Board of Directors or the CEO. Meetings of the Board are valid if attended by a majority of its members. However, important decisions shall not be taken unless all members of the Board have had an opportunity to discuss the matter, if possible. The outcome of issues is decided by force of vote, and in the event of an equality of votes, the issue is regarded as rejected. The CEO attends meetings of the Board of Directors, even if he or she is not a member of the Board, and has the right to participate in discussions and submit proposals unless otherwise decided by the Board in individual cases. A book of minutes is kept proceedings at meetings must be signed by participants in the meeting. A Board member who disagrees with a decision made by the Board of Directors is entitled to have his or her dissenting opinion entered in the book of minutes. The same applies to the CEO. The Chairman is responsible for the Board’s relations with the shareholders and he shall inform the Board on the views of the shareholders. In 2011 the Board of Directors approved the Rules Procedures for the Board of Directors and since then all new board members have confirmed these Rules in writing. The Rules Procedures are accessible to the Board of Directors through the Company’s website. In accordance with article 12 of the Rules on Working Procedures the Board of Directors must annually evaluate its work, size, composition and practices, and must also evaluate the performance of the CEO and others responsible for the day-to-day management of the Company and its development. The annual performance assessment is intended to improve working methods and increase the efficiency of the Board. The assessment entails e.g. evaluation of the strengths and weaknesses of the Board’s work and practices and takes into consideration the work components which the Board believes may be improved.

Corporate Governance Statement, continued: After the confirmation of the Rules of Procedures for the Board of Directors of Advania hf. it was further decided to have all similar procedures within the Group co-ordinated and aligned. Rules of Procedures for the Board of Directors of Advania hf. were used as a model for Rules of Procedures for the subsidiaries’ Boards of Directors. The Rules of Procedures for the subsidiaries’ Boards of Directors reflect the law and corporate governance guidelines in each country. In order to ensure efficiency as well as the involvement of the Company’s Board in decision making in subsidiaries, certain steps have been defined and formalized. The Rules of Procedures for the Board of Directors within the Group are set forth in order to ensure that decisions defined as extraordinary or major are brought before the Company’s Board of Directors for approval. Authority limits of the Company’s CEO are clearly defined, i.e. which decisions need the approval of the Board of Directors of the Company. Authority limits of the Boards of Directors of subsidiaries for decision making are defined so they cannot exceed the authority limits of the Company’s CEO, i.e. the Boards of Directors of the subsidiaries must always seek the approval of the Board of Directors of the Company for extraordinary or major decisions in the same way as the Company’s CEO should. The definition of authority limits of the Boards of Directors of subsidiaries also stipulates that the Board of Directors of the Company shall approve decisions, which are considered by the Company’s CEO, who is also a board member of the subsidiaries, as extraordinary and major and should therefore be brought before the Board of Directors of the Company. The authority limits of the subsidiaries’ CEOs have been defined, i.e. which decisions need approval of the Boards of Directors of the subsidiaries. The Board of Directors convenes on average twelve times a year. The Board of Directors of Advania however convened 17 times during the year and all Board Members or their alternates attended almost all meetings. All members of the Board of Directors are independent from the Company. All Board members except Þór Hauksson and Egill Tryggvason were independent from the Company’s major shareholders in 2012.

Guðrúnartún 10 | 105 Reykjavík | Sími 440 9000 | advania@advania.is | www.advania.is