Ársskýrsla Advania 2012

A Ö

Hugbúnaður

ÍMARK verðlaun fyrir bestu umhverfisgra�k

Efling menntunar í upplýsingatækniHR

HSÍ

SKB

Haustráðstefna

Morgunverðarfundur

Aukum hróður þessarar þjóðaríþró ar

Styðjum við bakið á krabbameinssjúkum börnum og �ölskyldum þeirra

Mó ökusvæði samtvinnaðsýningarsal og verslun

Hjólað í vinnuna

Lífshlaupið

Samgöngustefna

650.800 heimsóknir á heimasíðu Advania

265% aukning á Facebook síðu Advania

500% aukning á Twi er fylgjendum

Einstakur samkomustaðurstarfsfólks og viðskiptavina

Þekktustu vörumerkiveraldar á sviði upplýsingatæknier að finna í verslun Advania

Ráðgjöf Vélbúnaður Hýsing Rekstrarþjónusta

1.090 starfsmenn

600 starfsmenn

400 gestir

1000 gestir

19 starfsstöðvar

Stærsta UT-fyrirtæki á ÍslandiLúður

Verslun Advania

Aðsókn á viðburði Advania

Samfélagsstefna Starfsmannastefna

Velta 2012

46%

Upplýsingatæknilausnir Advania

Starfsemi Advania 2012

TOPP 100 UT-fyrirtæki á Norðurlöndum

TOPP 10

JAN DES

160 starfsmenn

330 starfsmenn

Guðríðarstígur Ármúli Grensásvegur Lyngháls

Opnaði í janúar 2013

Íslendinga nefna Advania sem það UT-fyrirtæki semþeim de ur fyrst í hug

ÍMARK verðlaun fyrirásýnd fyrirtækis 2012

Ísland41%

Svíþjóð44%

Noregur15%

2011

2012

2011

2012

22%aukning

11.475 Gestir

14.135 Gestir

Advania styður e©irtalin málefni Mikil þá taka starfsmanna

Tvöföldun tekna og í �ölda viðskiptavina

Samfélagsmiðlar

Áhrif Advania á netinu

400 gestir

400 gestir

520 starfsmenn

Nýjar höfuðstöðvar

222.218 notendur á advania.is - þeir heimsó u síðuna 650.800 sinnum.265% aukning á Facebook síðu Advania og 500% aukning á Twi er fylgendum

A Ö

Hugbúnaður

ÍMARK verðlaun fyrir bestu umhverfisgra�k

Efling menntunar í upplýsingatækniHR

HSÍ

SKB

Haustráðstefna

Morgunverðarfundur

Aukum hróður þessarar þjóðaríþró ar

Styðjum við bakið á krabbameinssjúkum börnum og �ölskyldum þeirra

Mó ökusvæði samtvinnaðsýningarsal og verslun

Hjólað í vinnuna

Lífshlaupið

Samgöngustefna

650.800 heimsóknir á heimasíðu Advania

265% aukning á Facebook síðu Advania

500% aukning á Twi er fylgjendum

Einstakur samkomustaðurstarfsfólks og viðskiptavina

Þekktustu vörumerkiveraldar á sviði upplýsingatæknier að finna í verslun Advania

Ráðgjöf Vélbúnaður Hýsing Rekstrarþjónusta

1.090 starfsmenn

600 starfsmenn

400 gestir

1000 gestir

19 starfsstöðvar

Stærsta UT-fyrirtæki á ÍslandiLúður

Verslun Advania

Aðsókn á viðburði Advania

Samfélagsstefna Starfsmannastefna

Velta 2012

46%

Upplýsingatæknilausnir Advania

Starfsemi Advania 2012

TOPP 100 UT-fyrirtæki á Norðurlöndum

TOPP 10

JAN DES

160 starfsmenn

330 starfsmenn

Guðríðarstígur Ármúli Grensásvegur Lyngháls

Opnaði í janúar 2013

Íslendinga nefna Advania sem það UT-fyrirtæki semþeim de ur fyrst í hug

ÍMARK verðlaun fyrirásýnd fyrirtækis 2012

Ísland41%

Svíþjóð44%

Noregur15%

2011

2012

2011

2012

22%aukning

11.475 Gestir

14.135 Gestir

Advania styður e©irtalin málefni Mikil þá taka starfsmanna

Tvöföldun tekna og í �ölda viðskiptavina

Samfélagsmiðlar

Áhrif Advania á netinu

400 gestir

400 gestir

520 starfsmenn

Nýjar höfuðstöðvar

222.218 notendur á advania.is - þeir heimsó u síðuna 650.800 sinnum.265% aukning á Facebook síðu Advania og 500% aukning á Twi er fylgendum

Contents8 Endorsement and Statement by the Board of Directors and the CEO

10 Independent Auditors’ Report

11 Consolidated Statement of Comprehensive Income

12 Consolidated Statement of Financial Position

13 Consolidated Statement of Changes in Equity

14 Consolidated Statement of Cash Flows

15 Notes to the Consolidated Financial Statements

41 Corporate Governance Statement (unaudited)

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

6

7

8

Endorsement and Statement by the Board of Directors and the CEOOperations 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 subsidi-ary 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 pos-sible 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 mil-lion. 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. Refer-ence 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 Enter-price Investment Fund slhf.) with 73.95% share.

Information on matters related to share capital is disclosed in note 26.

9

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 Confedera-tion of Icelandic Employers. Corporate Governance practices are designed to ensure open and transparent relation-ship 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 guide-lines 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 pre-pared 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

10

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 consoli-dated 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 manage-ment determines is necessary to enable the preparation of financial statements that are free from material misstate-ment, 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 con-ducted 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 finan-cial 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 state-ments 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 ap-propriateness 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 finan-cial statements includes the information required by the Financial Statement Act if not disclosed elsewhere in the Financial Statements.

Reykjavík, 29 April 2013

KPMG ehf.

Margret G. FlóvenzHlynur Sigurðsson

11

Consolidated Statement of Comprehensive Income for the year 2012

Amounts are in ISK million

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

Note 2012 2011

9 25,783 24,499 19,959 )( 19,327 )(

5,824 5,172

46 20 2,378 )( 1,819 )( 3,789 )( 2,920 )(

12 183 )( 0 19,20 696 )( 20 )(

1,176 )( 433

134 42 567 )( 512 )(

13 433 )( 470 )(

1,609 )( 37 )(

14 463 )( 51 )(

2,072 )( 88 )(

Other comprehensive income380 108

1,692 )( 20

Earnings per share 27 3.73 )( 0.17 )(


Curtailment of defined benefit scheme ...........................................................................Administrative expenses .........................................................................................................

Consolidated Statement of Comprehensive Incomefor the year 2012

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

Total comprehensive (loss) income for the year ........................................................

Results from operating activities .......................................................................................

Finance expenses .........................................................................................................................

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

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

Other income .................................................................................................................................Sales expenses ...............................................................................................................................

Impairment losses on intangible assets ..........................................................................

Sales ....................................................................................................................................................

Income tax .....................................................................................................................................

Currency translation difference of foreign operations ...........................................

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

Finance income .............................................................................................................................

Net finance costs ..........................................................................................................................

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


12

Consolidated Statement of Financial Position as at 31 December 2012




Notes 31.12.2012 31.12.2011

Assets:15 1,348 1,047 19 7,134 7,226 21 160 185 22 744 974

Total non-current assets 9,386 9,432

7 290 301 23 384 492 24 6,573 5,359 25 443 811

Total current assets 7,690 6,963

Total assets 17,076 16,395

Equity:564 554 596 1,189

26 659 274 0 1,489

1,819 3,506

Liabilities:28 6,561 5,995 30 179 185 22 107 0

Total non-current liabilities 6,847 6,180

28 787 345 31 5,917 5,135 29 1,228 885 30 220 99 7 258 245

Total current liabilities 8,410 6,709

Total liabilities 15,257 12,889

Total equity and liabilities 17,076 16,395


Liabilities classified as held for sale ............................................................................

Deferred tax asset ..................................................................................................................

Inventories .................................................................................................................................Assets classified as held for sale ....................................................................................

Trade and other payables ..................................................................................................

Trade and other receivables .............................................................................................

Loans and borrowings .........................................................................................................

Deferred tax liability ............................................................................................................

Retained earnings .................................................................................................................Total equity

Reserves .......................................................................................................................................

Provisions ...................................................................................................................................

as at 31 December 2012

Deferred income ......................................................................................................................

Consolidated Statement of Financial Position

Operating assets .....................................................................................................................

Cash and cash equivalents ................................................................................................

Share capital .............................................................................................................................Share premium ........................................................................................................................

Intangible assets .....................................................................................................................Long term receivables ..........................................................................................................

Loans and borrowings .........................................................................................................Provisions ...................................................................................................................................

Amounts are in ISK millionAmounts are in ISK million

Share Share RetainedNote capital premium Reserves* earnings Total

2011525 1,075 166 1,577 3,343

Total comprehensive income:88 )( 88 )(

108 108 0 0 108 88 )( 20

Transactions with owners of the Company, recognised directly in equity:

29 114 143 29 114 0 0 143

554 1,189 274 1,489 3,506

2012554 1,189 274 1,489 3,506

Total comprehensive income: 2,072 )( 2,072 )(

380 380 0 0 380 2,072 )( 1,692 )(


10 207 217 )( 0 800 )( 800 0

5 5 10 593 )( 5 583 5

564 596 659 0 1,819

* See note 26


Issues of shares ........................................................................

Other comprehensive income ...........................................Loss for the year ......................................................................

Consolidated Statement of Changes in Equityfor the year 2012

Balance at 1 January 2011 .....................................................

Total comprehensive income ............................................

Total transactions with owners of the Company ..Balance at 31 December 2011 ...............................................

Balance at 31 December 2012 ..............................................

Balance at 1 January 2012 ....................................................

Change in reserves ..................................................................

Loss for the year ......................................................................Other comprehensive income ...........................................Total comprehensive loss ...................................................

Total transactions with owners of the Company ..

Issues of shares ........................................................................Settlement of losses ...............................................................


13

Consolidated Statement of Changes in Equity for the year 2012




Share Share RetainedNote capital premium Reserves* earnings Total

2011525 1,075 166 1,577 3,343

Total comprehensive income:88 )( 88 )(

108 108 0 0 108 88 )( 20


29 114 143 29 114 0 0 143

554 1,189 274 1,489 3,506

2012554 1,189 274 1,489 3,506

Total comprehensive income: 2,072 )( 2,072 )(

380 380 0 0 380 2,072 )( 1,692 )(


10 207 217 )( 0 800 )( 800 0

5 5 10 593 )( 5 583 5

564 596 659 0 1,819

* See note 26


Issues of shares ........................................................................

Other comprehensive income ...........................................Loss for the year ......................................................................

Consolidated Statement of Changes in Equityfor the year 2012


Total comprehensive income ............................................

Total transactions with owners of the Company ..Balance at 31 December 2011 ...............................................



Change in reserves ..................................................................

Loss for the year ......................................................................Other comprehensive income ...........................................Total comprehensive loss ...................................................

Total transactions with owners of the Company ..

Issues of shares ........................................................................Settlement of losses ...............................................................


*See note 26

37

14

Consolidated Statement of Cash Flows for the Year 2012



Notes 2012 2011

Cash flows from operating activities:34 597 759

40 41 450 )( 432 )(

27 )( 0 Net cash from operating activities 160 368

Cash flows used in investing activities:7 9 0 1 0 355 )(

15 647 )( 379 )( 19 655 )( 236 )(

115 )( 67 )( Net cash used in investing activities 1,410 )( 1,027 )(

Cash flows from financing activities:0 143

5,985 80 5,329 )( 176 )(

208 386 Net cash from financing activities 864 433

386 )( 226 )(

Cash and cash equivalents at 1 January ........................................................................ 811 1,031

Effects of exchange rate fluctuations on cash held ................................................ 18 6

Cash and cash equivalents at 31 December ................................................................... 443 811


Net change in cash and cash equivalents ......................................................................

Proceeds from issue of share capital .............................................................................

Short term borrowings .........................................................................................................

Consolidated Statement of Cash Flows for the year 2012

Cash generated from operations before interest and taxes ..............................

Interest expenses paid ..........................................................................................................Interest income received ......................................................................................................

Income tax paid .......................................................................................................................

Acquisiton of subsidiaries, net of cash acquired .....................................................Acquisition of operating assets ........................................................................................

Proceeds from sale of shares in other companies ...................................................Proceeds from sale of operating assets ........................................................................

Proceeds from non-current borrowing ........................................................................Repayment of loans and borrowings ............................................................................

Change in long term receivables .....................................................................................Acquisition of intangible assets ......................................................................................



15

Notes to the ConsolidatedFinancial Statement1. Reporting entity

2. Basis of preparationa. Statement of compliance

b. Basis of measurement

c. Functional and presentation currency

d. Use of estimates and judgements

3. Significant accounting policies

a. Basis of consolidation(i) Subsidiaries

(ii) Transactions eliminated on consolidation

The preparation of the consolidated financial statements in conformity with IFRS requires management tomake judgements, estimates and assumptions that affect the application of accounting policies and thereported 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 estimatesare 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 amaterial 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 to the Consolidated Financial Statements

Advania hf. (the "Company") is a limited liability company incorporated and domiciled in Iceland. The addressof the Company’s registered office is at Guðrúnartún 10, Reykjavík. The consolidated financial statements ofthe 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. Atotal of 73.95% of the Company's share capital is owned by Framtakssjóður Íslands slhf. (The IcelandEnterprice Investment Fund slhf.).

The consolidated financial statements have been prepared in accordance with International FinancialReporting Standards (IFRS) as adopted by the EU.

The financial statements were approved by the Board of Directors on 29 April 2013.

The consolidated financial statements have been prepared on the historical cost basis. The methods used tomeasure fair value are discussed further in note 5.

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.

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

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern thefinancial 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 ofsubsidiaries are included in the consolidated financial statements from the date that control commencesuntil the date that control ceases.

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, areeliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the sameway as unrealised gains, but only to the extent that there is no evidence of impairment.


16

Notes, continued:

1. Reporting entity

2. Basis of preparationa. Statement of compliance

b. Basis of measurement

c. Functional and presentation currency

d. Use of estimates and judgements

3. Significant accounting policies

a. Basis of consolidation(i) Subsidiaries

(ii) Transactions eliminated on consolidation

The preparation of the consolidated financial statements in conformity with IFRS requires management tomake judgements, estimates and assumptions that affect the application of accounting policies and thereported 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 estimatesare 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 amaterial 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 to the Consolidated Financial Statements

Advania hf. (the "Company") is a limited liability company incorporated and domiciled in Iceland. The addressof the Company’s registered office is at Guðrúnartún 10, Reykjavík. The consolidated financial statements ofthe 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. Atotal of 73.95% of the Company's share capital is owned by Framtakssjóður Íslands slhf. (The IcelandEnterprice Investment Fund slhf.).

The consolidated financial statements have been prepared in accordance with International FinancialReporting Standards (IFRS) as adopted by the EU.

The financial statements were approved by the Board of Directors on 29 April 2013.

The consolidated financial statements have been prepared on the historical cost basis. The methods used tomeasure fair value are discussed further in note 5.

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.

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

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern thefinancial 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 ofsubsidiaries are included in the consolidated financial statements from the date that control commencesuntil the date that control ceases.

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, areeliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the sameway 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

(ii) Foreign operations

c. Financial instruments(i) Non-derivative financial assets

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months.

Transactions in foreign currencies are translated to the respective functional currencies of Group entities atexchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreigncurrencies 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 thefunctional currency at the beginning of the year, adjusted for effective interest and payments during theyear, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Notes, continued:

Loans and receivables

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

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 therisks and rewards of ownership of the financial asset are transferred. Any interest in such transferredfinancial 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 positionwhen, and only when, the Group has a legal right to offset the amounts and intends either to settle on a netbasis or to realise the asset and settle the liability simultaneously.

The Group initially recognises loans and receivables and deposits on the date that they are originated. Allother financial assets are recognised initially on the trade date at which the Group becomes a party to thecontractual provisions of the instrument.

The assets and liabilities of foreign operations, including goodwill, are translated to ISK at exchange rates atthe reporting date. The income and expenses of foreign operations, are translated to ISK at exchange rates atthe dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreigncurrency translation reserve in equity.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in anactive market. Such assets are recognised initially at fair value plus any directly attributable transactioncosts. Subsequent to initial recognition loans and receivables are measured at amortised cost using theeffective interest method, less any impairment losses.

Cash and cash equivalents


3. Significant accounting policies, continued:c. Financial instruments, continued:(ii) Non-derivative financial liabilities

(iii) Share capital

d. Operating assets(i) Recognition and measurement

(ii) Subsequent costs

(iii) Depreciation

When share capital recognised as equity is repurchased, the amount of the consideration paid, includingdirectly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified astreasury shares and are presented as a deduction from total equity. When treasury shares are sold orreissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus ordeficit on the transaction is transferred to/from share premium or retained earnings.

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amountof the item if it is probable that the future economic benefits embodied within the part will flow to the Groupand its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs ofthe day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

Items of property, plant and equipment are depreciated from the date they are available for use. Depreciationis recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item ofproperty, plant and equipment, since this most closely reflects the expected pattern of consumption of thefuture economic benefits embodied on the asset.

Ordinary shares

The Group initially recognises debt securities issued on the date that they are originated. All other financialliabilities are recognised initially on the trade date at which the Group becomes a party to the contractualprovisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled orexpired.


The Group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, andtrade and other payables.

Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs.Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effectiveinterest method.

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinaryshares are recognised as a deduction from equity, net of any tax effects.

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 softwarethat 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 asseparate items of property, plant and equipment.

Repurchase and reissue of share capital

Any gain or loss on disposal of an item of operating assets calculated as the difference between the netproceeds from disposal and the carrying amount of the item is recognised in profit or loss.

Notes, continued:



(iii) Share capital



(iii) Depreciation




Ordinary shares












Notes, continued:


17

Notes, continued:


(iii) Share capital



(iii) Depreciation




Ordinary shares












Notes, continued:



(iii) Share capital



(iii) Depreciation




Ordinary shares












Notes, continued:


3. Significant accounting policies, continued:b. Foreign currency(i) Foreign currency transactions

(ii) Foreign operations

c. Financial instruments(i) Non-derivative financial assets

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months.

Transactions in foreign currencies are translated to the respective functional currencies of Group entities atexchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreigncurrencies 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 thefunctional currency at the beginning of the year, adjusted for effective interest and payments during theyear, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Notes, continued:

Loans and receivables

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

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 therisks and rewards of ownership of the financial asset are transferred. Any interest in such transferredfinancial assets that is created or retained by the Group is recognised as a separate asset or liability.


The Group initially recognises loans and receivables and deposits on the date that they are originated. Allother financial assets are recognised initially on the trade date at which the Group becomes a party to thecontractual provisions of the instrument.

The assets and liabilities of foreign operations, including goodwill, are translated to ISK at exchange rates atthe reporting date. The income and expenses of foreign operations, are translated to ISK at exchange rates atthe dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreigncurrency translation reserve in equity.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in anactive market. Such assets are recognised initially at fair value plus any directly attributable transactioncosts. Subsequent to initial recognition loans and receivables are measured at amortised cost using theeffective interest method, less any impairment losses.

Cash and cash equivalents


18

c. Financial instruments, continued:(iii) Share capital, continued:

Notes, continued:


(iii) Share capital



(iii) Depreciation




Ordinary shares












Notes, continued:


3. Significant accounting policies, continued:d. Operating assets, continued:

33 years3-15 years

e. Intangible assets and goodwill(i) Goodwill

(ii) Other intangible assets

(iii) Subsequent expenditure

(iv) Amortisation

10-20 years2-8 years

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

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost lessaccumulated amortisation and accumulated impairment losses.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in thespecific asset to which it relates. All other expenditure, including expenditure on internally generatedgoodwill and brands, is recognised in profit or loss when incurred.

Notes, continued:

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives ofintangible assets, other than goodwill, from the date that they are available for use.

Customer relationships ............................................................................................................................................................

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

Other intangible assets ............................................................................................................................................................

The estimated useful lives for the current period are as follows:

Machinery and other assets ..................................................................................................................................................

Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets.

The estimated useful lives for the current and comparative periods are as follows:

Goodwill is stated at cost less accumulated impairment losses.

Buildings ..........................................................................................................................................................................................

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

Goodwill represents the excess of the cost of the acquisition over interest in the net fair value of theidentifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, it isrecognised immediately in profit or loss.


19

Notes, continued:

3. Significant accounting policies, continued:d. Operating assets, continued:

33 years3-15 years

e. Intangible assets and goodwill(i) Goodwill

(ii) Other intangible assets

(iii) Subsequent expenditure

(iv) Amortisation

10-20 years2-8 years

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

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost lessaccumulated amortisation and accumulated impairment losses.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in thespecific asset to which it relates. All other expenditure, including expenditure on internally generatedgoodwill and brands, is recognised in profit or loss when incurred.

Notes, continued:

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives ofintangible assets, other than goodwill, from the date that they are available for use.

Customer relationships ............................................................................................................................................................

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

Other intangible assets ............................................................................................................................................................

The estimated useful lives for the current period are as follows:

Machinery and other assets ..................................................................................................................................................

Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets.

The estimated useful lives for the current and comparative periods are as follows:

Goodwill is stated at cost less accumulated impairment losses.

Buildings ..........................................................................................................................................................................................

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

Goodwill represents the excess of the cost of the acquisition over interest in the net fair value of theidentifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, it isrecognised immediately in profit or loss.


3. Significant accounting policies, continued:

20

Notes, continued:

3. Significant accounting policies, continued:g. Impairment(i) Non derivative-financial assets

(ii) Non-financial assets

h. Employee benefits(i) Defined contribution plans

An impairment loss in respect of financial asset measured at amortised cost is calculated at the differencebetween its carrying amount and the present value of the estimated future cash flows dicounted at theasset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowanceaccount against receivables. Interest on the impaired asset continues to be recognised. When an eventoccurring after the impairment recognised causes the amount of impairment loss to decrease, the decrease inimpairment loss is reversed throught profit or loss.

A financial asset not carried at fair value through profit or loss is assessed at each reporting date todetermine whether there is any objective evidence that it is impaired. A financial asset is impaired if there isobjective evidence of impairment as a result of one or more events that has occurred after the initialrecognition of the asset, and that loss events had an impact on the estimated future cash flows of that assetcan be estimated reliably.

A defined contribution plan is a post-employment benefit plan under which an entity pays fixedcontributions 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 benefitexpense in profit or loss when they are due.

The carrying amounts of the Group’s non-financial assets other than inventories and deferred tax assets, arereviewed at each reporting date to determine whether there is any indication of impairment. If any suchindication exists then the asset’s recoverable amount is estimated. Goodwill and intangible assets that haveindefinite 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 valueless costs to sell. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value of money andthe risks specific to the asset. For impairment testing, assets are grouped together into the smallest group ofassets that generates cash inflows from continuing use that are largely independent of the cash inflows ofother assets or groups of assets (the "cash-generating unit"). The goodwill acquired in a business combinationis 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 itsestimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment lossesrecognised in respect of cash-generating units are allocated first to reduce the carrying amount of anygoodwill 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 reversedonly to the extent that the asset’s carrying amount does not exceed the carrying amount that would havebeen determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Notes, continued:


21

Notes, continued:

3. Significant accounting policies, continued:h. Employee benefits, continued:(ii) Defined benefit plans

(iii) Short-term benefits

(iv) Termination benefits

i. Provisions

(i) Onerous contracts

j. Revenue(i) Sale of goods

(ii) Rendering of services

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group'snet obligation in respect of defined benefit plans is calculated separately for each plan by estimating theamount of future benefit that employees have earned in return for their service in the current and priorperiods; that benefit is discounted to determine its present value. Any unrecognised past service costs andthe fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on bondsthat have maturity dates approximating the terms of the Group's obligations and that are denominated inthe currency in which the benefits are expected to be paid. The calculation is performed annually by aqualified actuary using the projected unit credit method.

Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion ofthe transaction at the reporting date. The stage of completion is assessed by reference to surveys of workperformed.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from acontract are lower than the unavoidable cost of meeting its obligations under the contract. The provision ismeasured at the present value of the lower of the expected cost of terminating the contract and the expectednet cost of continuing with the contract. Before a provision is established, the Group recognises anyimpairment loss on the assets associated with that contract.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharingplans if the Group has a present legal or constructive obligation to pay this amount as a result of past serviceprovided by the employee, and the obligation can be estimated reliably.

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

Termination benefits are recognised as an expense when the Group is committed demonstrably, withoutrealistic possibility of withdrawal, to a formal detailed plan to either terminate employment before thenormal retirement date, or to provide termination benefits as a result of an offer made to encouragevoluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if theGroup has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and thenumber of acceptances can be estimated reliably. If benefits are payable more than 12 months after thereporting period, then they are discounted to their present value.

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, netof returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significantrisks 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 continuingmanagement involvement with the goods and the amount of revenue can be measured reliably.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as therelated service is provided.

Notes, continued:


22

3. Significant accounting policies, continued:

Notes, continued:

3. Significant accounting policies, continued:h. Employee benefits, continued:(ii) Defined benefit plans

(iii) Short-term benefits

(iv) Termination benefits

i. Provisions

(i) Onerous contracts

j. Revenue(i) Sale of goods

(ii) Rendering of services

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group'snet obligation in respect of defined benefit plans is calculated separately for each plan by estimating theamount of future benefit that employees have earned in return for their service in the current and priorperiods; that benefit is discounted to determine its present value. Any unrecognised past service costs andthe fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on bondsthat have maturity dates approximating the terms of the Group's obligations and that are denominated inthe currency in which the benefits are expected to be paid. The calculation is performed annually by aqualified actuary using the projected unit credit method.

Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion ofthe transaction at the reporting date. The stage of completion is assessed by reference to surveys of workperformed.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from acontract are lower than the unavoidable cost of meeting its obligations under the contract. The provision ismeasured at the present value of the lower of the expected cost of terminating the contract and the expectednet cost of continuing with the contract. Before a provision is established, the Group recognises anyimpairment loss on the assets associated with that contract.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharingplans if the Group has a present legal or constructive obligation to pay this amount as a result of past serviceprovided by the employee, and the obligation can be estimated reliably.

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

Termination benefits are recognised as an expense when the Group is committed demonstrably, withoutrealistic possibility of withdrawal, to a formal detailed plan to either terminate employment before thenormal retirement date, or to provide termination benefits as a result of an offer made to encouragevoluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if theGroup has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and thenumber of acceptances can be estimated reliably. If benefits are payable more than 12 months after thereporting period, then they are discounted to their present value.

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, netof returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significantrisks 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 continuingmanagement involvement with the goods and the amount of revenue can be measured reliably.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as therelated service is provided.

Notes, continued:


3. Significant accounting policies, continued:j. Revenue, continued:(iii) Commissions

k. Leases(i) Leased assets

(ii) Lease payments

l. Finance income and expenses

m. Income tax

(i) Current tax

(ii) Deferred tax

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

Deferred tax is recognised using the balance sheet method, providing for temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxationpurposes. Deferred tax is not recognised for the following temporary differences: the initial recognition ofassets 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 thatthey will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxabletemporary 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 whenthey 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 taxliabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxableentity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis ortheir 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 availableagainst which tax losses and temporary difference can be utilised. Deferred tax assets are reviewed at eachreporting date and are reduced to the extent that it is no longer probable that the related tax benefit will berealised.

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

Notes, continued:

Foreign currency gains and losses are reported on a net basis as either finance income or finance costdepending on whether foreign currency movements are in a net gain or net loss position.

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenuerecognised is the net amount of commission made by the Group.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the termof the lease.

Finance income comprises interest income on funds invested and dividend income. Interest income isrecognised as it accrues, using the effective interest method. Dividend income is recognised in profit or losson the date that the Group’s right to receive payment is established.

Finance expenses comprise interest expense on borrowings and impairment losses recognised on financialassets. All borrowing costs are recognised in profit or loss using the effective interest method.

All leases are operating leases and the leased assets are not recognised on the Group’s statement of financialposition.


23

3. Significant accounting policies, continued:m. Income tax, continued:

Notes, continued:

3. Significant accounting policies, continued:j. Revenue, continued:(iii) Commissions

k. Leases(i) Leased assets

(ii) Lease payments

l. Finance income and expenses

m. Income tax

(i) Current tax

(ii) Deferred tax

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

Deferred tax is recognised using the balance sheet method, providing for temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxationpurposes. Deferred tax is not recognised for the following temporary differences: the initial recognition ofassets 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 thatthey will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxabletemporary 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 whenthey 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 taxliabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxableentity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis ortheir 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 availableagainst which tax losses and temporary difference can be utilised. Deferred tax assets are reviewed at eachreporting date and are reduced to the extent that it is no longer probable that the related tax benefit will berealised.

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

Notes, continued:

Foreign currency gains and losses are reported on a net basis as either finance income or finance costdepending on whether foreign currency movements are in a net gain or net loss position.

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenuerecognised is the net amount of commission made by the Group.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the termof the lease.

Finance income comprises interest income on funds invested and dividend income. Interest income isrecognised as it accrues, using the effective interest method. Dividend income is recognised in profit or losson the date that the Group’s right to receive payment is established.

Finance expenses comprise interest expense on borrowings and impairment losses recognised on financialassets. All borrowing costs are recognised in profit or loss using the effective interest method.

All leases are operating leases and the leased assets are not recognised on the Group’s statement of financialposition.


n. Earnings per share

o. Segment reporting

4. New standards and interpretations not yet adopted

5. Determination of fair values

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated bydividing the profit or loss attributable to ordinary shareholders of the Company by the weighted averagenumber of ordinary shares outstanding during the period adjusted for own shares held.

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

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

The fair value of customer relationships acquired in a business combination is determinded using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all otherassets 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.

A number of the Group’s accounting policies and disclosures require the determination of fair value, for bothfinancial and non-financial assets and liabilities. Fair values have been determined for measurement and/ordisclosure purposes based on the following methods. Where applicable, further information about theassumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Notes, continued:


24


Notes, continued:

n. Earnings per share

o. Segment reporting

4. New standards and interpretations not yet adopted

5. Determination of fair values

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated bydividing the profit or loss attributable to ordinary shareholders of the Company by the weighted averagenumber of ordinary shares outstanding during the period adjusted for own shares held.

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

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

The fair value of customer relationships acquired in a business combination is determinded using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all otherassets 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.

A number of the Group’s accounting policies and disclosures require the determination of fair value, for bothfinancial and non-financial assets and liabilities. Fair values have been determined for measurement and/ordisclosure purposes based on the following methods. Where applicable, further information about theassumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Notes, continued:


6. Segment reporting

Geographical information

Iceland Sweden Norway Other Consolidated2012

10,397 11,431 3,938 17 25,783 639 418 718)( 2 341

9,689 4,958 2,150 279 17,076

20119,866 10,277 4,356 0 24,499

945 339 217)( 1 1,068 7,715 5,203 3,176 301 16,395

7. Non-current assets held for sale

8. Acquisitions of subsidiaries

9. Sale of goods and servicesSale of goods and services are specified as follows: 2012 2011

16,231 16,016 9,552 8,483

25,783 24,499

10. Personnel expensesPersonnel expenses are specified as follows:

9,754 8,832 841 844

1,755 2,072 12,350 11,748

1,018 1,014

Sales .............................................................

Assets ..........................................................

Sales .............................................................

Assets ..........................................................

Sale of goods ...............................................................................................................................................Sale of services ...........................................................................................................................................

Total sale of goods and services .......................................................................................................

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 taxasset amounting to ISK 61 million.

Total ...............................................................................................................................................................

Salaries ..........................................................................................................................................................

Notes, continued:

Segment information is presented in respect of the Group's business segments. The segment format isorganised by the nature of the operations and is based on the Group's management and internal reportingstructure. The only segment in the Group's operation is information technology.

EBITDA .......................................................

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

Segment sales and assets are based on the geographical location of the assets.

The subsidiary Kogun USA Inc. is presented as an asset held for sale following the commitment of theGroup's management to sell the subsidiary. Efforts to sell the disposal company will continue in the year2013. At 31 December 2012 the disposal company comprised assets of ISK 290 million (2011: ISK 301 million) lessliabilities of 258 million (2011: ISK 245 million).

EBITDA .......................................................

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

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


25


11. Personnel expenses are allowed as follows on operating items:

Notes, continued:

6. Segment reporting

Geographical information

Iceland Sweden Norway Other Consolidated2012

10,397 11,431 3,938 17 25,783 639 418 718)( 2 341

9,689 4,958 2,150 279 17,076

20119,866 10,277 4,356 0 24,499

945 339 217)( 1 1,068 7,715 5,203 3,176 301 16,395

7. Non-current assets held for sale

8. Acquisitions of subsidiaries

9. Sale of goods and servicesSale of goods and services are specified as follows: 2012 2011

16,231 16,016 9,552 8,483

25,783 24,499

10. Personnel expensesPersonnel expenses are specified as follows:

9,754 8,832 841 844

1,755 2,072 12,350 11,748

1,018 1,014

Sales .............................................................

Assets ..........................................................

Sales .............................................................

Assets ..........................................................

Sale of goods ...............................................................................................................................................Sale of services ...........................................................................................................................................

Total sale of goods and services .......................................................................................................

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 taxasset amounting to ISK 61 million.

Total ...............................................................................................................................................................

Salaries ..........................................................................................................................................................

Notes, continued:

Segment information is presented in respect of the Group's business segments. The segment format isorganised by the nature of the operations and is based on the Group's management and internal reportingstructure. The only segment in the Group's operation is information technology.

EBITDA .......................................................

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

Segment sales and assets are based on the geographical location of the assets.

The subsidiary Kogun USA Inc. is presented as an asset held for sale following the commitment of theGroup's management to sell the subsidiary. Efforts to sell the disposal company will continue in the year2013. At 31 December 2012 the disposal company comprised assets of ISK 290 million (2011: ISK 301 million) lessliabilities of 258 million (2011: ISK 245 million).

EBITDA .......................................................

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

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


11. Personnel expenses are allocated as follows on operating items: 2012 2011

9,215 9,171 1,860 1,474 1,275 1,103

12,350 11,748

12. Employee benefits

13. Finance income and expenseFinance income and expenses are specified as follows:

39 42 95 0

134 42

492)( 446)( 49)( 19)(

0 45)( 26)( 2)(

567)( 512)(

433)( 470)(

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

49 76 414 25)( 463 51

Reconciliation of effective tax rate: 2012 2012 2011 2011

1,609)( 37)(

Income tax using the Company's domestic20.0% 322)( 20.0% 7)(

0.2% 4)( 0.0% 0 0.0% 0 2.7%)( 1)( 9.5% 153 97.3% 36 0.0% 0 70.3%)( 26)(

Current year losses for which no deferred 11.7% 189 173.0% 64

25.7% 414 59.5%)( 22)( 2.1% 33 18.9% 7

69.2% 463 176.7% 51

Deferred tax:

Sales expenses ............................................................................................................................................

Other items .................................................................................

Non-deductible expenses ....................................................

Interest expense on short-term interest bearing financial liabilities ..........................

Total income tax ......................................................................................................................................

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

Origination and reversal of temporary differences ...............................................................

Adjustment for prior period ..............................................Effect of tax rates in foreign jurisdictions .................

Finance income .........................................................................................................................................

tax asset recognised ...........................................................Change in estimates related to prior years ...............

Tax exempt income ...............................................................

tax rate .....................................................................................

Interest expense on long-term interest bearing financial liabilities ............................

Interest income from loans and receivables ..............................................................................

Impairment of other investments ..................................................................................................

Total ................................................................................................................................................................

Net foreign exchange loss ...................................................................................................................

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

Administrative expenses ......................................................................................................................

Impairment of tax asset (reversal of impairment) .................................................................

Finance expenses .....................................................................................................................................

As a result of a curtailment in the pension arrangement for the employees of Advania AS, Norway, ISK 183million is expensed in the consolidated statement of comprehensive income.

Net foreign exchange gain ...................................................................................................................

Notes, continued:

Cost of services sold ................................................................................................................................


26


Notes, continued:

2012 2011

11. Personnel expenses are allocated as follows on operating items: 2012 2011

9,215 9,171 1,860 1,474 1,275 1,103

12,350 11,748

12. Employee benefits

13. Finance income and expenseFinance income and expenses are specified as follows:

39 42 95 0

134 42

492)( 446)( 49)( 19)(

0 45)( 26)( 2)(

567)( 512)(

433)( 470)(

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

49 76 414 25)( 463 51

Reconciliation of effective tax rate: 2012 2012 2011 2011

1,609)( 37)(

Income tax using the Company's domestic20.0% 322)( 20.0% 7)(

0.2% 4)( 0.0% 0 0.0% 0 2.7%)( 1)( 9.5% 153 97.3% 36 0.0% 0 70.3%)( 26)(

Current year losses for which no deferred 11.7% 189 173.0% 64

25.7% 414 59.5%)( 22)( 2.1% 33 18.9% 7

69.2% 463 176.7% 51

Deferred tax:

Sales expenses ............................................................................................................................................

Other items .................................................................................

Non-deductible expenses ....................................................

Interest expense on short-term interest bearing financial liabilities ..........................

Total income tax ......................................................................................................................................

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

Origination and reversal of temporary differences ...............................................................

Adjustment for prior period ..............................................Effect of tax rates in foreign jurisdictions .................

Finance income .........................................................................................................................................

tax asset recognised ...........................................................Change in estimates related to prior years ...............

Tax exempt income ...............................................................

tax rate .....................................................................................

Interest expense on long-term interest bearing financial liabilities ............................

Interest income from loans and receivables ..............................................................................

Impairment of other investments ..................................................................................................

Total ................................................................................................................................................................

Net foreign exchange loss ...................................................................................................................

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

Administrative expenses ......................................................................................................................

Impairment of tax asset (reversal of impairment) .................................................................

Finance expenses .....................................................................................................................................

As a result of a curtailment in the pension arrangement for the employees of Advania AS, Norway, ISK 183million is expensed in the consolidated statement of comprehensive income.

Net foreign exchange gain ...................................................................................................................

Notes, continued:



18. 2012 2011

402 338 64 18

353 258 819 614

19. Intangible assetsThe Group’s intangible assets are specified as follows: Other

Customer intangible Goodwill relationships assets Total

Cost 12,536 1,800 1,039 15,375

466)( 855 218)( 171 102 0 236 338

0 0 63 63 0 0 12)( 12)(

74 0 3 77 12,246 2,655 1,111 16,012

12,246 2,655 1,111 16,012 0 0 190 190

102)( 40 0 62)( 0 0 655 655 0 0 106)( 106)(

258 126 106 490 12,402 2,821 1,956 17,179

Amortisation and impairment losses7,580 396 504 8,480

0 190 108 298 20 0 0 20

0 0 12)( 12)( 7,600 586 600 8,786

7,600 586 600 8,786 0 0 190 190 0 215 225 440

697 0 0 697 0 0 106)( 106)( 0 0 38 38

8,297 801 947 10,045

Carrying amounts4,956 1,404 535 6,895 4,646 2,069 511 7,226 4,105 2,020 1,009 7,134


Impairment losses on intangible assets ......................

At 31 December 2012 ...............................................................


Balance at 31 December 2012 ..............................................Currency adjustments ..........................................................

Total ...............................................................................................................................................................


Notes, continued:

Sales and disposals due to de-merger ...........................

At 31 December 2011 ................................................................

Purchase price allocation ....................................................

Currency adjustments ..........................................................Balance at 31 December 2012 ..............................................


Acquisitions during the year .............................................Purchase price allocation ....................................................

Sales and disposals during the year ..............................


Reclassification ........................................................................

Acquisitions during the year .............................................Acquired through business combination ..................

At 1 January 2011 ......................................................................



Depreciation is allocated as follows on operating items:

Amortisation for the year ...................................................Impairment losses on intangible assets ......................



Sales expenses ............................................................................................................................................Administrative expenses ......................................................................................................................

Balance at 1 January 2011 .....................................................Amortisation for the year ...................................................



15. Operating assetsMachinery

and other Buildings assets Total

Cost0 1,902 1,902 0 379 379 0 58)( 58)( 0 283 283 0 6 6 0 2,512 2,512

0 2,512 2,512 0 433 433

210 437 647 0 231)( 231)( 0 102 102

210 3,253 3,463

Depreciation and impairment losses0 1,205 1,205 0 316 316 0 55)( 55)( 0 1)( 1)( 0 1,465 1,465

0 1,465 1,465 0 433 433 6 373 379 0 229)( 229)( 0 67 67 6 2,109 2,115

Carrying amounts0 697 697 0 1,047 1,047

204 1,144 1,348

3% 7-33%

16. Insurance value

17. The Group's depreciation and amortisation charge in the income statement is specified as follows:

2012 2011

379 316 440 298 819 614

Reclassification ........................................................................................................

Currency adjustments ..........................................................................................Balance at 31 December 2012 ..............................................................................

Balance at 1 January 2011 .....................................................................................Depreciation for the year ....................................................................................

Operating assets and their depreciation is specified as follows:

Disposals due to de-merger ................................................................................Currency adjustments ..........................................................................................

Depreciation of operating assets, see note 15 ............................................................................

Depreciation for the year ....................................................................................Disposals ......................................................................................................................Currency adjustments ..........................................................................................

Disposals ......................................................................................................................Acquired through business combination ..................................................Currency adjustments ..........................................................................................Balance at 31 December 2011 ...............................................................................

Balance at 1 January 2012 ....................................................................................

Balance at 1 January 2011 .....................................................................................Additions ......................................................................................................................

Reclassification ........................................................................................................Additions ......................................................................................................................Disposals ......................................................................................................................

Balance at 31 December 2011 ...............................................................................


Notes, continued:

Depreciation ratios .................................................................................................

Depreciation and amortisation recognised in the income statement ..........................

Balance at 31 December 2012 ..............................................................................

At 1 January 2011 ......................................................................................................

At 31 December 2012 ................................................................................................At 31 December 2011 ................................................................................................

Insurance value of machine and other assets amounted to ISK 3,618 million at year-end 2012 (2011: ISK 3,760million) and official value for the building amounts to ISK 237 million at year-end 2012.

Amortisation of intangible assets, see note 19 ..........................................................................





Cost0 1,902 1,902 0 379 379 0 58)( 58)( 0 283 283 0 6 6 0 2,512 2,512

0 2,512 2,512 0 433 433

210 437 647 0 231)( 231)( 0 102 102

210 3,253 3,463


0 1,465 1,465 0 433 433 6 373 379 0 229)( 229)( 0 67 67 6 2,109 2,115


204 1,144 1,348

3% 7-33%

16. Insurance value


2012 2011

379 316 440 298 819 614














Notes, continued:




At 1 January 2011 ......................................................................................................





27


18. Depreciation is allocated as follows on operating items:

Notes, continued:

18. 2012 2011

402 338 64 18

353 258 819 614



Cost 12,536 1,800 1,039 15,375

466)( 855 218)( 171 102 0 236 338

0 0 63 63 0 0 12)( 12)(

74 0 3 77 12,246 2,655 1,111 16,012

12,246 2,655 1,111 16,012 0 0 190 190

102)( 40 0 62)( 0 0 655 655 0 0 106)( 106)(

258 126 106 490 12,402 2,821 1,956 17,179


0 190 108 298 20 0 0 20

0 0 12)( 12)( 7,600 586 600 8,786

7,600 586 600 8,786 0 0 190 190 0 215 225 440

697 0 0 697 0 0 106)( 106)( 0 0 38 38

8,297 801 947 10,045




At 31 December 2012 ...............................................................



Total ...............................................................................................................................................................


Notes, continued:


At 31 December 2011 ................................................................









At 1 January 2011 ......................................................................












Cost0 1,902 1,902 0 379 379 0 58)( 58)( 0 283 283 0 6 6 0 2,512 2,512

0 2,512 2,512 0 433 433

210 437 647 0 231)( 231)( 0 102 102

210 3,253 3,463


0 1,465 1,465 0 433 433 6 373 379 0 229)( 229)( 0 67 67 6 2,109 2,115


204 1,144 1,348

3% 7-33%

16. Insurance value


2012 2011

379 316 440 298 819 614














Notes, continued:




At 1 January 2011 ......................................................................................................





15. Operating assets, continued:




Cost0 1,902 1,902 0 379 379 0 58)( 58)( 0 283 283 0 6 6 0 2,512 2,512

0 2,512 2,512 0 433 433

210 437 647 0 231)( 231)( 0 102 102

210 3,253 3,463


0 1,465 1,465 0 433 433 6 373 379 0 229)( 229)( 0 67 67 6 2,109 2,115


204 1,144 1,348

3% 7-33%

16. Insurance value


2012 2011

379 316 440 298 819 614














Notes, continued:




At 1 January 2011 ......................................................................................................





Machineryand other

Buildings assets Total

28


19. Intangible assets, continued:

Notes, continued:

20. Impairment tests

2012 2011

1.5-4.9% 2.0-3.5%Revenue growth:

5.4% 8.6%4.3% 2.3%

11.9-16.4% 12.1-14.3%40.0-47.0% 22.0-43.5%

6.5-8.8% 6.1-7.7%

83 )( 392 )( 247 )( 150 )(

21. Long term receivables

22. Deferred tax asset and liabilityDeferred tax asset and liability are attributable to the following:

2012 2011 2012 2011Assets Assets Liabilities Liabilities

99 )( 42 )( 9 0 7 )( 232 )( 264 )( 0

29 20 15 0 0 57 80 0

64 59 0 0 759 1,155 64 0

2 )( 43 )( 11 )( 0 744 974 107 )( 0

For the purpose of impairment testing, goodwill is allocated to the subsidiaries which represent the lowestlevel within the Group at which the goodwill is monitored for internal management purposes.

The recoverable amount of cash generating units was based on their value in use. Value in use wasdetermined by discounting the future cash flows generated from the continuing use of the units. Cash flowswere projected based on actual operating results and a five year business plan. Cash flows were extrapolatedfor determining the residual value using a constant nominal growth rate which was consistent with the long-term average growth rate for the industry. Management believes that this forcast period was justified dueto long-term nature of the business.

Goodwill and other intangible assets that have indefinite live are tested annualy for impairment. Theseassets were recognised at fair value on aquisition date.

Long term growth rate ..........................................................................................................................

Debt leverage ..............................................................................................................................................WACC .............................................................................................................................................................

Weighted average 2012 / 2011 ........................................................................................................

Operating assets ......................................................................Intangible assets ......................................................................Trade and other receivables ..............................................Provisions ....................................................................................

Tax loss carry-forwards .......................................................Other items .................................................................................

EBITDA ratio -1% ......................................................................................................................................

Changes in key assumptions would have the following impact on the carrying amount of goodwill due tooperations in Norway:

Interest rate ................................................................................................................................................

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

The values assigned to key assumptions represent management's assessment of future trends in the ITsector and are based on both external and internal sources (historical data). Value in use was based on thefollowing key assumptions:

Notes, continued:

Long term receivables are related to long term service agreements in Sweden. (2011: Long term receivables aredefined benefit plans related to the operations in Norway).

Impairment loss amounting to ISK 696 million is recognised related to the operations in Norway (2011: ISK 20million).

WACC +1% ....................................................................................................................................................

2013-2017 / 2012-2016 ...........................................................................................................................

Total ..............................................................................................

Trade and other payables ...................................................


18. 2012 2011

402 338 64 18

353 258 819 614



Cost 12,536 1,800 1,039 15,375

466)( 855 218)( 171 102 0 236 338

0 0 63 63 0 0 12)( 12)(

74 0 3 77 12,246 2,655 1,111 16,012

12,246 2,655 1,111 16,012 0 0 190 190

102)( 40 0 62)( 0 0 655 655 0 0 106)( 106)(

258 126 106 490 12,402 2,821 1,956 17,179


0 190 108 298 20 0 0 20

0 0 12)( 12)( 7,600 586 600 8,786

7,600 586 600 8,786 0 0 190 190 0 215 225 440

697 0 0 697 0 0 106)( 106)( 0 0 38 38

8,297 801 947 10,045




At 31 December 2012 ...............................................................



Total ...............................................................................................................................................................


Notes, continued:


At 31 December 2011 ................................................................









At 1 January 2011 ......................................................................










18. 2012 2011

402 338 64 18

353 258 819 614



Cost 12,536 1,800 1,039 15,375

466)( 855 218)( 171 102 0 236 338

0 0 63 63 0 0 12)( 12)(

74 0 3 77 12,246 2,655 1,111 16,012

12,246 2,655 1,111 16,012 0 0 190 190

102)( 40 0 62)( 0 0 655 655 0 0 106)( 106)(

258 126 106 490 12,402 2,821 1,956 17,179


0 190 108 298 20 0 0 20

0 0 12)( 12)( 7,600 586 600 8,786

7,600 586 600 8,786 0 0 190 190 0 215 225 440

697 0 0 697 0 0 106)( 106)( 0 0 38 38

8,297 801 947 10,045




At 31 December 2012 ...............................................................



Total ...............................................................................................................................................................


Notes, continued:


At 31 December 2011 ................................................................









At 1 January 2011 ......................................................................










29


20. Impairment tests, continued:

Notes, continued:

20. Impairment tests

2012 2011

1.5-4.9% 2.0-3.5%Revenue growth:

5.4% 8.6%4.3% 2.3%

11.9-16.4% 12.1-14.3%40.0-47.0% 22.0-43.5%

6.5-8.8% 6.1-7.7%

83 )( 392 )( 247 )( 150 )(

21. Long term receivables

22. Deferred tax asset and liabilityDeferred tax asset and liability are attributable to the following:

2012 2011 2012 2011Assets Assets Liabilities Liabilities

99 )( 42 )( 9 0 7 )( 232 )( 264 )( 0

29 20 15 0 0 57 80 0

64 59 0 0 759 1,155 64 0

2 )( 43 )( 11 )( 0 744 974 107 )( 0

For the purpose of impairment testing, goodwill is allocated to the subsidiaries which represent the lowestlevel within the Group at which the goodwill is monitored for internal management purposes.

The recoverable amount of cash generating units was based on their value in use. Value in use wasdetermined by discounting the future cash flows generated from the continuing use of the units. Cash flowswere projected based on actual operating results and a five year business plan. Cash flows were extrapolatedfor determining the residual value using a constant nominal growth rate which was consistent with the long-term average growth rate for the industry. Management believes that this forcast period was justified dueto long-term nature of the business.

Goodwill and other intangible assets that have indefinite live are tested annualy for impairment. Theseassets were recognised at fair value on aquisition date.

Long term growth rate ..........................................................................................................................

Debt leverage ..............................................................................................................................................WACC .............................................................................................................................................................

Weighted average 2012 / 2011 ........................................................................................................

Operating assets ......................................................................Intangible assets ......................................................................Trade and other receivables ..............................................Provisions ....................................................................................

Tax loss carry-forwards .......................................................Other items .................................................................................

EBITDA ratio -1% ......................................................................................................................................

Changes in key assumptions would have the following impact on the carrying amount of goodwill due tooperations in Norway:

Interest rate ................................................................................................................................................

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

The values assigned to key assumptions represent management's assessment of future trends in the ITsector and are based on both external and internal sources (historical data). Value in use was based on thefollowing key assumptions:

Notes, continued:

Long term receivables are related to long term service agreements in Sweden. (2011: Long term receivables aredefined benefit plans related to the operations in Norway).

Impairment loss amounting to ISK 696 million is recognised related to the operations in Norway (2011: ISK 20million).

WACC +1% ....................................................................................................................................................

2013-2017 / 2012-2016 ...........................................................................................................................

Total ..............................................................................................

Trade and other payables ...................................................


30


Notes, continued:

23. InventoriesInventories consist of computer equipment for sale.

24. Trade and other receivables2012 2011

5,347 4,225 1,396 1,217

170)( 83)( 6,573 5,359

25. Cash and cash equivalentsCash and cash equivalents are specified as follows:

284 576 159 235 443 811

26. EquityIssued capital and share premium

Translation reserve

Reserves are specified as follows:

487 107 131 132 41 35

659 274

27. Earnings per shareBasic earnings per share:

2,072 )( 88 )(

554 525 1 2

555 527

3.73)( 0.17)(

Translation reserve..................................................................................................................................

Trade and other receivables are specified as follows:

Trade receivables .....................................................................................................................................

Legal reserve................................................................................................................................................

Share capital at the beginning of the period .............................................................................

Calculated average share capital .....................................................................................................

Loss for the year attributable to equity holders of the parent ........................................

Earnings per share of ISK 1 ..................................................................................................................

Restricted equity due to composition agreement....................................................................

Effect of issue of shares .......................................................................................................................

Other reserves total.................................................................................................................................

Marketable securities ............................................................................................................................Cash and cash equivalents .................................................................................................................

Foreign exchange differences arising on translation of financial statements of foreign subsidiary arerecognised directly in a separate component of equity. When a foreign operation is disposed of, in part or infull, the relevant amount in the translation reserve is transferred to profit or loss.

Notes, continued:

Impairment losses on trade receivables ......................................................................................Trade and other receivables ..............................................................................................................

Other receivables .....................................................................................................................................

Bank balances ..........................................................................................................................................

The Company's share capital, according to its Articles of Association, amounts to ISK 564 million at year end2012. Shareholders are entitled to one vote per share at meetings of the Company.


28. Non-current interest-bearing liabilities: 2012 2011

6,556 5,960 5 35

6,561 5,995

Current interest-bearing liabilities:240 114

6 14 236 0

46 0 259 217 787 345

7,348 6,340

Average Carrying Average CarryingCurrency interest rate amount interest rate amount

ISK 7.4% 5,735 7.3% 4,156 SEK 3.6% 1,030 3.8% 764 EUR - 0 6.2% 1,155

NOK - 32 - 33 DKK - 11 - 15

6,808 6,123 NOK 6.4% 236 - 0

ISK 7.5% 46 - 0 NOK 6.3% 234 5.0% 202

ISK 12.1% 24 10.8% 15 7,348 6,340

2012 2011

- 128 246 776

2,460 119 240 1,253 240 0

3,622 3,847 6,808 6,123

29. Deferred income

Secured bank loan ...................................................................................................................................Finance lease liabilities ........................................................................................................................

Secured bank loan ............................... Finance lease liabilities .....................

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

Secured bank loan ..............................

Other long term liabilities ...............

Total ..............................................................................................................................................................

Notes, continued:

Current portion of other long-term liabilities .........................................................................

Other long-term liabilities ..................................................................................................................

Total ...........................................................

Repayments in 2016 ................................................................................................................................

Repaymens of borrowings are specified as follows:

Repayments in 2015 ................................................................................................................................

Deferred income is related to billing in advance of work in uncompleted, service agreements and othercustomer advances.

Subsequent repayments .....................................................................................................................Total ..............................................................................................................................................................

Terms and conditions of outstanding loans were as follows:

Bank overdraft ......................................

Secured bank loans ................................................................................................................................



Repayments in 2012 ................................................................................................................................Repayments in 2013 ................................................................................................................................Repayments in 2014 ................................................................................................................................

Loans amounting to 5,172 million ISK were paid in full with two new loans during the year. With thisrefinancing 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 millionwith Landsbankinn hf., that is due on 1 February 2014.

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

Bank overdraft ......................................

Total ..............................................................................................................................................................

Current portion of secured bank loans ......................................................................................


Bank overdraft .........................................................................................................................................

20112012


31


Notes, continued:


6,556 5,960 5 35

6,561 5,995


6 14 236 0

46 0 259 217 787 345

7,348 6,340


ISK 7.4% 5,735 7.3% 4,156 SEK 3.6% 1,030 3.8% 764 EUR - 0 6.2% 1,155

NOK - 32 - 33 DKK - 11 - 15

6,808 6,123 NOK 6.4% 236 - 0

ISK 7.5% 46 - 0 NOK 6.3% 234 5.0% 202

ISK 12.1% 24 10.8% 15 7,348 6,340

2012 2011

- 128 246 776

2,460 119 240 1,253 240 0

3,622 3,847 6,808 6,123

29. Deferred income






Total ..............................................................................................................................................................

Notes, continued:



Total ...........................................................

Repayments in 2016 ................................................................................................................................


Repayments in 2015 ................................................................................................................................




Bank overdraft ......................................







Bank overdraft ......................................

Total ..............................................................................................................................................................



Bank overdraft .........................................................................................................................................

20112012


32


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

Notes, continued:


6,556 5,960 5 35

6,561 5,995


6 14 236 0

46 0 259 217 787 345

7,348 6,340


ISK 7.4% 5,735 7.3% 4,156 SEK 3.6% 1,030 3.8% 764 EUR - 0 6.2% 1,155

NOK - 32 - 33 DKK - 11 - 15

6,808 6,123 NOK 6.4% 236 - 0

ISK 7.5% 46 - 0 NOK 6.3% 234 5.0% 202

ISK 12.1% 24 10.8% 15 7,348 6,340

2012 2011

- 128 246 776

2,460 119 240 1,253 240 0

3,622 3,847 6,808 6,123

29. Deferred income






Total ..............................................................................................................................................................

Notes, continued:



Total ...........................................................

Repayments in 2016 ................................................................................................................................


Repayments in 2015 ................................................................................................................................




Bank overdraft ......................................







Bank overdraft ......................................

Total ..............................................................................................................................................................



Bank overdraft .........................................................................................................................................

20112012


30. Provision for onerous contracts

31. Trade and other payables2012 2011

2,806 2,114 3,111 3,021

5,917 5,135

32. Financial instruments Overview

- Credit risk - Liquidity risk - Market risk

(i) Exposure to credit risk

Note 2012 2011

24 6,573 5,359 25 443 811

7,016 6,170

1,659 1,463 4,029 3,100

848 779 37 17

6,573 5,359

The Group has exposure to the following financial risks:

Trade payables .........................................................................................................................................

Notes, continued:

Trade and receivables ..........................................................................................

The Board of Directors has overall responsibility for the establishment and oversight of the Group's riskmanagement framework. The Group's risk management policies are established to identify and analyse therisks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence tolimits. Risk management policies and systems are reviewed regularly to reflect changes in market conditionsand the Group's activities. The Group, through its training and management standards and procedures, aimsto develop a disciplined and constructive control environment in which all employees understand their rolesand obligations.

The maximum exposure to credit risk for loans and receivables at the reporting date by geographic regionwas:

Iceland ...........................................................................................................................................................

The Group has entered into non-cancellable leases for office buildings which the Group had to some extentceased to use by 31 December 2012. Market conditions have meant that the rental income for these buildingsis lower than the rental expense. The obligation for the discounted future payments, net of expected rentalincome, has been provided for, amounting to ISK 399 million (2011: ISK 284 million), of which ISK 220 million(2011: ISK 99 million) is classified as a current liability.

Norway ........................................................................................................................................................ Other European countries .................................................................................................................

Carrying amount

Sweden .........................................................................................................................................................

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

Cash and cash equivalents ................................................................................

Total trade and other payables ........................................................................................................

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. Furtherquantitative disclosures are included throughout these consolidated financial statements.

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrumentfails to meet its contractual obligations and arises principally from the Group's receivables from customersand investment securities.

Other payables .........................................................................................................................................

Trade and other payables are specified as follows:


33


32. Financial instruments, continued:

Notes, continued:

30. Provision for onerous contracts

31. Trade and other payables2012 2011

2,806 2,114 3,111 3,021

5,917 5,135

32. Financial instruments Overview

- Credit risk - Liquidity risk - Market risk

(i) Exposure to credit risk

Note 2012 2011

24 6,573 5,359 25 443 811

7,016 6,170

1,659 1,463 4,029 3,100

848 779 37 17

6,573 5,359

The Group has exposure to the following financial risks:

Trade payables .........................................................................................................................................

Notes, continued:

Trade and receivables ..........................................................................................

The Board of Directors has overall responsibility for the establishment and oversight of the Group's riskmanagement framework. The Group's risk management policies are established to identify and analyse therisks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence tolimits. Risk management policies and systems are reviewed regularly to reflect changes in market conditionsand the Group's activities. The Group, through its training and management standards and procedures, aimsto develop a disciplined and constructive control environment in which all employees understand their rolesand obligations.

The maximum exposure to credit risk for loans and receivables at the reporting date by geographic regionwas:

Iceland ...........................................................................................................................................................

The Group has entered into non-cancellable leases for office buildings which the Group had to some extentceased to use by 31 December 2012. Market conditions have meant that the rental income for these buildingsis lower than the rental expense. The obligation for the discounted future payments, net of expected rentalincome, has been provided for, amounting to ISK 399 million (2011: ISK 284 million), of which ISK 220 million(2011: ISK 99 million) is classified as a current liability.

Norway ........................................................................................................................................................ Other European countries .................................................................................................................

Carrying amount

Sweden .........................................................................................................................................................

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

Cash and cash equivalents ................................................................................

Total trade and other payables ........................................................................................................

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. Furtherquantitative disclosures are included throughout these consolidated financial statements.

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrumentfails to meet its contractual obligations and arises principally from the Group's receivables from customersand investment securities.

Other payables .........................................................................................................................................

Trade and other payables are specified as follows:


32. Financial instruments, continued:(ii) Trade and other receivables

(iii) Guarantees

(iv) Impairment losses

Gross Impairment Gross Impairment2012 2012 2011 2011

4,512 0 3,746 9)( 362 12)( 218 1)( 94 12)( 62 2)(

179 87)( 88 35)( 114 24)( 61 17)( 86 35)( 50 19)(

5,347 170)( 4,225 83)(

2012 2011

83 86 0 20

20)( 23)( 107 0 170 83

Liquidity risk

The Group's policy is to provide financial guarantees only to wholly-owned subsidiaries.

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

Effect of merger ......................................................................................................................................

Past due more than one year ...........................................

Not past due .............................................................................

Past due 61-90 days ...............................................................

Losses during the period .....................................................................................................................

Based on historical default rates, the Group believes that, apart from the above, no impairment allowance isnecessary in respect of trade receivables. A significant part of the balance relates to customers that have agood payment record with the Group.

Balance at 31 December ........................................................................................................................ Net change in allowance .....................................................................................................................

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. TheGroup's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities when due, under both normal and stressed conditions, without incurringunacceptable losses or risking damage to the Group's reputation.

The Group monitors cash flow requirements and optimises its cash return on investments. Typically theGroup ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60days.

Balance at 1 January ..............................................................................................................................

The movement in the allowance for impairment in respect of trade receivables during the year was asfollows:

Past due 181-360 days ............................................................ Past due 91-180 days ..............................................................

Notes, continued:

Past due 0-60 days .................................................................

The aging of trade receivables at the reporting date was:

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


34



Notes, continued:

32. Financial instruments, continued:(ii) Trade and other receivables

(iii) Guarantees

(iv) Impairment losses

Gross Impairment Gross Impairment2012 2012 2011 2011

4,512 0 3,746 9)( 362 12)( 218 1)( 94 12)( 62 2)(

179 87)( 88 35)( 114 24)( 61 17)( 86 35)( 50 19)(

5,347 170)( 4,225 83)(

2012 2011

83 86 0 20

20)( 23)( 107 0 170 83

Liquidity risk

The Group's policy is to provide financial guarantees only to wholly-owned subsidiaries.

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

Effect of merger ......................................................................................................................................

Past due more than one year ...........................................

Not past due .............................................................................

Past due 61-90 days ...............................................................

Losses during the period .....................................................................................................................

Based on historical default rates, the Group believes that, apart from the above, no impairment allowance isnecessary in respect of trade receivables. A significant part of the balance relates to customers that have agood payment record with the Group.

Balance at 31 December ........................................................................................................................ Net change in allowance .....................................................................................................................

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. TheGroup's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities when due, under both normal and stressed conditions, without incurringunacceptable losses or risking damage to the Group's reputation.

The Group monitors cash flow requirements and optimises its cash return on investments. Typically theGroup ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60days.

Balance at 1 January ..............................................................................................................................

The movement in the allowance for impairment in respect of trade receivables during the year was asfollows:

Past due 181-360 days ............................................................ Past due 91-180 days ..............................................................

Notes, continued:

Past due 0-60 days .................................................................

The aging of trade receivables at the reporting date was:

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


35


Notes, continued:

32. Financial instruments, continued:Liquidity risk, continued

Carrying Contractual Within 12 More than2012 amount cash flows months 1-2 years 2-5 years 5 years

Non-derivative financial liabilities

Secured bank- loans .............................. 7,001 7,990 476 2,730 3,754 1,030 Finance lease ............... liabilities ...................... 46 46 46 0 0 0 Other long-term loans .............................. 43 43 11 32 0 0 Bank overdraft ........... 258 258 258 0 0 0 Trade and other payables ....................... 5,917 5,917 5,917 0 0 0

13,265 14,254 6,708 2,762 3,754 1,030

2011Non-derivative financial liabilities

Secured bank- loans .............................. 6,075 8,058 507 1,583 2,062 3,906 Other long-term loans .............................. 48 49 44 5 0 0 Bank overdraft ........... 217 217 217 0 0 0 Trade and other payables ....................... 5,135 5,135 5,135 0 0 0

11,475 13,459 5,903 1,588 2,062 3,906

Market risk

(i) Currency risk

SEK NOK USD Other3,999 1,006 50 104

13 127 15 24 1,030)( 502)( 0 11)( 2,614)( 1,007)( 648)( 269)(

368 376)( 583)( 152)(

Notes, continued:

The following are the contractual maturities of financial liabilities, including estimated interest paymentsand excluding the impact of netting agreements:

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

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or atsignificantly different amounts.

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in acurrency other than the respective functional currencies of Group entities.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equityprices will affect the Group's income or the value of its holdings of financial instruments. The objective ofmarket risk management is to manage and control market risk exposures within acceptable parameters,while optimising the return.

Loans and other financial liabilities ...........................

Trade and other receivables ............................................ Cash ..............................................................................................

Net exposure ........................................................................... Trade payables, other payables ......................................


36



Notes, continued:

32. Financial instruments, continued:Liquidity risk, continued

Carrying Contractual Within 12 More than2012 amount cash flows months 1-2 years 2-5 years 5 years

Non-derivative financial liabilities

Secured bank- loans .............................. 7,001 7,990 476 2,730 3,754 1,030 Finance lease ............... liabilities ...................... 46 46 46 0 0 0 Other long-term loans .............................. 43 43 11 32 0 0 Bank overdraft ........... 258 258 258 0 0 0 Trade and other payables ....................... 5,917 5,917 5,917 0 0 0

13,265 14,254 6,708 2,762 3,754 1,030

2011Non-derivative financial liabilities

Secured bank- loans .............................. 6,075 8,058 507 1,583 2,062 3,906 Other long-term loans .............................. 48 49 44 5 0 0 Bank overdraft ........... 217 217 217 0 0 0 Trade and other payables ....................... 5,135 5,135 5,135 0 0 0

11,475 13,459 5,903 1,588 2,062 3,906

Market risk

(i) Currency risk

SEK NOK USD Other3,999 1,006 50 104

13 127 15 24 1,030)( 502)( 0 11)( 2,614)( 1,007)( 648)( 269)(

368 376)( 583)( 152)(

Notes, continued:

The following are the contractual maturities of financial liabilities, including estimated interest paymentsand excluding the impact of netting agreements:


It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or atsignificantly different amounts.

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in acurrency other than the respective functional currencies of Group entities.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equityprices will affect the Group's income or the value of its holdings of financial instruments. The objective ofmarket risk management is to manage and control market risk exposures within acceptable parameters,while optimising the return.

Loans and other financial liabilities ...........................

Trade and other receivables ............................................ Cash ..............................................................................................



32. Financial instruments, continued:(i) Currency risk, continued

SEK NOK USD Other3,100 801 100 78

106 165 0 158 764)( 234)( 0 1,173)(

2,273)( 989)( 265)( 180)( 169 257)( 165)( 1,117)(

Reportingdate spot

Average rate rate

18.5 19.7 21.5 23.0 21.6 22.7

125.0 128.4 160.7 169.3

1.6 1.5 133.4 140.3

Sensitivity analysis

(ii) Interest rate risk

Fair values versus carrying amounts

33. Operating leasesLeases as lessee

2012 2011

1,048 616 2,868 2,351 3,267 3,315 7,183 6,282 Total ................................................................................................................................................................


The difference between fair values and carrying amounts of financial assets and liabilites is not material.

10% strengthening of the ISK against the foreign currencies would have increased equity and profit or loss byISK 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 ISKagainst the foreign currencies would have had the same effect, but in the opposite direction.

DKK ................................................................................................................................................................

Non-cancellable operating lease rentals are payable as follows:

Less than one year ...................................................................................................................................Between one and five years ................................................................................................................More than five years ...............................................................................................................................

The Group's loans and borrowings are almost solely with 3-6 months variable interest rate. A change of 100basis points in interest rates would increase or decrease equity and profit or loss by ISK 73 million.

Currency risk due to borrowings is deemed not significant.

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

The Group leases a number of properties under operating leases. The leases vary between properties but runfor a period of seven to fifteen years, with an option to renew the lease after that date. Leases provide foradditional rent payments that are based on changes in a local price index. Each lease contract is non-cancellable.

SEK ..................................................................................................................................................................

JPY ...................................................................................................................................................................

USD .................................................................................................................................................................EUR .................................................................................................................................................................

NOK ................................................................................................................................................................

During the year ended 31 December 2012 ISK 962 million was recognised as an expense in the incomestatement in respect of operating leases (2011: ISK 650 million).

The Group leases a number of cars under operating leases. The leases typically run for a period of threeyears, with an option to renew the lease after that date. Each lease contract is cancellable due to penalty.

The following significant exchange rates applied during the year 2012:

Notes, continued:

Trade and other receivables ............................................


Cash .............................................................................................. Loans and other financial liabilities ...........................




106 165 0 158 764)( 234)( 0 1,173)(

2,273)( 989)( 265)( 180)( 169 257)( 165)( 1,117)(

Reportingdate spot

Average rate rate

18.5 19.7 21.5 23.0 21.6 22.7

125.0 128.4 160.7 169.3

1.6 1.5 133.4 140.3





2012 2011

1,048 616 2,868 2,351 3,267 3,315 7,183 6,282 Total ................................................................................................................................................................




DKK ................................................................................................................................................................





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


SEK ..................................................................................................................................................................

JPY ...................................................................................................................................................................

USD .................................................................................................................................................................EUR .................................................................................................................................................................

NOK ................................................................................................................................................................




Notes, continued:





37


Notes, continued:



106 165 0 158 764)( 234)( 0 1,173)(

2,273)( 989)( 265)( 180)( 169 257)( 165)( 1,117)(

Reportingdate spot

Average rate rate

18.5 19.7 21.5 23.0 21.6 22.7

125.0 128.4 160.7 169.3

1.6 1.5 133.4 140.3





2012 2011

1,048 616 2,868 2,351 3,267 3,315 7,183 6,282 Total ................................................................................................................................................................




DKK ................................................................................................................................................................





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


SEK ..................................................................................................................................................................

JPY ...................................................................................................................................................................

USD .................................................................................................................................................................EUR .................................................................................................................................................................

NOK ................................................................................................................................................................




Notes, continued:





(ii) Interest rate risk32. Financial instruments, continued:

38


Notes, continued:

34. Statement of Cash Flows

2012 2011

2,073)( 88)( Adjustments for:

379 316 440 298 696 20 435 470 177 23)(

5)( 5)( 463 51

111 46)( 719)( 523)( 693 289 597 759

35. Related parties

Transactions with management and key personnel

Transactions with other related parties

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).

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. TheGroup’s related parties include: Key management personnel, close family members of key managementpersonnel and entities which are controlled, significantly influenced by or for which significant voting poweris held by the key management personnel or their close family members, subsidiaries and assosiates. A totalof 73.95% of the Company is owned by Framtakssjóður Íslands slhf., which is in majority owned by Icelandicpension funds and Landsbankinn hf.

Identity of related parties

Trade and other receivables, change ..........................................................................................

Transactions with related partiesThe Group has several business relationships with related parties. Transaction with such parties are made inthe ordinary course of business and on substantially the same terms as comparable transactions with otherparties.

Cash generated from operations before interest and income tax in the statement of cash flows is specified asfollows:

Income tax (see note 14) .....................................................................................................................

During the year the Group bought goods and services from associates amounting to ISK 314 million (2011: 108million). The Group's revenues from associates amounted to ISK 774 million (2011: 559 million). The Group hasnot granted any loans to its associates. Trade receivables from associates at year end amounted to ISK 68million (2011: 55 million) and trade payables amounted to ISK 24 million (2011: 10 million).

Cash generated from operations before interests and income tax ............................... Trade and other payables, change ...............................................................................................

Inventories, change ..............................................................................................................................

Gain on sale of property, plant and equipment .....................................................................

Impairment losses on goodwill .......................................................................................................

Depreciation ............................................................................................................................................. Amortisation of intangible assets .................................................................................................

Long term receivables, change ........................................................................................................ Net finance costs ....................................................................................................................................

Notes, continued:

Operating loss for the year ................................................................................................................


39


Notes, continued:

36. Group entities

2012 2011

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

100% 100%

37. Other mattersUncertainty

Matters resolved

Thor Data Center ehf., Hafnarfjörður ...........................................................................................

Miðavefur ehf., Reykjavík ...................................................................................................................

Notes, continued:

The Company holds seven (2011: six) subsidiaries which all are included in the consolidated financialstatements. The subsidiaries own two (2011: four) subsidiaries which are also included. HugurAx ehf. wasmerged with Advania hf. on 1. January 2012 and as follows Advania hf. holds the shares in Sterna ApS. At year-end 2012 Advania hf. acquired all the shares in Advania SIA from Advania AS.

Virtus AB, Sweden ..............................................................................................................................

Advania AS, Norway ..............................................................................................................................

Advania hf. has received enquiries from the Icelandic Tax Authorities regarding financial expenses related toloans taken in the year 2006 by Skoðun ehf. when acquiring all the shares in Kögun hf. After the acquisitionthe companies Skoðun and Kögun were merged under the name of Kögun but the merged company became apart of Advania hf. in a merger in the year 2011. The Company has not received a confirmation on anychanges in the assessment of the Company’s taxes but the Icelandic Tax Authorities seem to believe that theposition of the Company could in some way be similar to the one that the Supreme Court of Iceland ruled onin the matter 555/2012, Toyota vs. the Icelandic State. The Company believes however that its history andother facts are not fully comparable to the case of Toyota in Iceland and believes that its defences are quitestrong. The Company has however made its estimate on the extent of the most extreme claims from the TaxAuthorities and in relation to that made an allowance on the Company’s deferred tax asset. This allowancedoes however not constitute an acceptance of such a claim in any way.

Exa ehf., Reykjavík ..................................................................................................................................

Sterna ApS, Denmark .............................................................................................................................

Advance ehf. instigated court proceedings against Advania hf. in relation to the possible similarity of thelogos of the two companies. The District Court of Reykjavík ruled in favour of Advania hf. in February 2013but the case has been petitioned to the Supreme Court where ruling is expected before the end of 2013.

Advania SIA, Latvia .................................................................................................................................

Ownership interest

Advania Holding AB, Sweden .......................................................................................................... Advania AB, Sweden ..........................................................................................................................

The Supreme Court of Iceland confirmed the District Court of Reykjavík´s ruling in Stoðir’s claim againstTeymi hf. (which was merged with Advania hf. as of 1 January 2011) during the year for the repayment of asubordinated loan in the amount of ISK 656 million (plus interest and cost). Advania has issued new sharesamounting to 34.2% of the amount less 0.25 million in cash at the exchange rate of 5.0, in accordance with theformal composition confirmed by the District Court in Reykjavík on 23 June 2009. The issuance of 10,540,763new shares took place on 22 November 2012.

The subsidiary OKG ehf. was dissolved in 2011 with all claims submitted paid. The provision made in year-end2011 was reversed at year end 2012 since no further claims were made in relation to the guarantee.


40

37. Other matters, continued:

Notes, continued:

36. Group entities

2012 2011

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

100% 100%

37. Other mattersUncertainty

Matters resolved

Thor Data Center ehf., Hafnarfjörður ...........................................................................................

Miðavefur ehf., Reykjavík ...................................................................................................................

Notes, continued:

The Company holds seven (2011: six) subsidiaries which all are included in the consolidated financialstatements. The subsidiaries own two (2011: four) subsidiaries which are also included. HugurAx ehf. wasmerged with Advania hf. on 1. January 2012 and as follows Advania hf. holds the shares in Sterna ApS. At year-end 2012 Advania hf. acquired all the shares in Advania SIA from Advania AS.

Virtus AB, Sweden ..............................................................................................................................

Advania AS, Norway ..............................................................................................................................

Advania hf. has received enquiries from the Icelandic Tax Authorities regarding financial expenses related toloans taken in the year 2006 by Skoðun ehf. when acquiring all the shares in Kögun hf. After the acquisitionthe companies Skoðun and Kögun were merged under the name of Kögun but the merged company became apart of Advania hf. in a merger in the year 2011. The Company has not received a confirmation on anychanges in the assessment of the Company’s taxes but the Icelandic Tax Authorities seem to believe that theposition of the Company could in some way be similar to the one that the Supreme Court of Iceland ruled onin the matter 555/2012, Toyota vs. the Icelandic State. The Company believes however that its history andother facts are not fully comparable to the case of Toyota in Iceland and believes that its defences are quitestrong. The Company has however made its estimate on the extent of the most extreme claims from the TaxAuthorities and in relation to that made an allowance on the Company’s deferred tax asset. This allowancedoes however not constitute an acceptance of such a claim in any way.

Exa ehf., Reykjavík ..................................................................................................................................

Sterna ApS, Denmark .............................................................................................................................

Advance ehf. instigated court proceedings against Advania hf. in relation to the possible similarity of thelogos of the two companies. The District Court of Reykjavík ruled in favour of Advania hf. in February 2013but the case has been petitioned to the Supreme Court where ruling is expected before the end of 2013.

Advania SIA, Latvia .................................................................................................................................

Ownership interest

Advania Holding AB, Sweden .......................................................................................................... Advania AB, Sweden ..........................................................................................................................

The Supreme Court of Iceland confirmed the District Court of Reykjavík´s ruling in Stoðir’s claim againstTeymi hf. (which was merged with Advania hf. as of 1 January 2011) during the year for the repayment of asubordinated loan in the amount of ISK 656 million (plus interest and cost). Advania has issued new sharesamounting to 34.2% of the amount less 0.25 million in cash at the exchange rate of 5.0, in accordance with theformal composition confirmed by the District Court in Reykjavík on 23 June 2009. The issuance of 10,540,763new shares took place on 22 November 2012.

The subsidiary OKG ehf. was dissolved in 2011 with all claims submitted paid. The provision made in year-end2011 was reversed at year end 2012 since no further claims were made in relation to the guarantee.


38. Security

The Company has pledged its building to secure its debts undir Facility agreement between Thor Data Centerehf. and MP Bank hf.

The Company has provided share pledge over the assets and operations of the subsidiaries Advania HoldingAB (100% of total shares) and Advania AS (100% of the total shares).

The Company's subsidiary, Advania AB, has a credit facility with the Scandinavian bank Nordea. The limit isSEK 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.

The Company has issued a several indemnity letters and pledged its receivables and inventories to secure thedebts under the same Facility agreement.

Advania hf. has issued the following security documents to secure its debts under Facility agreementbetween Advania hf. and Landsbankinn hf.:

Notes, continued:


41

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 prac-tices. 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 em-ployees 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 employ-ees, whom aim to exceed the expectations of the cus-tomer 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 experi-ence in the field of information technology, but also the extensive education covering every field from tech-nology, 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.

42

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 Physi-cal 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 Minis-try 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 op-erational 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 assis-tant professor at the Reykjavik University School of Law before becoming director of the Legal Depart-ment 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 entrepre-neurs 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, Car-bon 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 gradu-ated as B.A. in political science from the University of Iceland in 1995, M.A. in political science and econ-omy 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 invest-ment 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

43

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 Ice-land 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 opera-tion 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 major-ity 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.

Alternate Board Members

Egill Tryggvason, Investment Manager Framtakssjóður Íslands

Erna Eiríksdóttir, Senior Manager of Investor Relations at Eimskip

Corporate Governance Statement, continued:

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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 sharehold-ers’ 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 mat-ter, 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 Di-rectors 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 as-sessment 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.


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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 Pro-cedures 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 Di-rectors 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 subsidiar-ies’ 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 con-vened 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.


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Guðrúnartún 10 | 105 Reykjavík | Sími 440 9000 | [email protected] | www.advania.is

Documents

Ársskýrsla Advania 2012