Business plan 2015

3 Preface 4 Framework of Aarhus Vand A/S 7 Mission, vision and values 8 Extended collaboration with the City of Aarhus 9 Annual wheel, 2015 10 Management by objectives 11 Company objectives and performance indicators 12 Strategy 2020 – focus on growth, productivity and ingenuity 17 Internationalisation - focus on the USA, South-east Asia and Zambia 19 Climate adaptation – operator of the entire water cycle21 Joint purchasing saves millions 22 We enhance our customer dialogue 24 Budget for 2015 26 Tariffs for 2015 28 Organisation 29 Description of the departments' tasks

Contents

WELCOME to Aarhus Vand's business plan 2015. The business plan describes in words and pictures the company's ex-hilarating, current developments and its expected results for 2015.

We have established a sound and excellent base for the further development of Aarhus Vand. This is essential as the setting of the company is constantly changing. Factors such as adaptation to climate change, legislative changes, strict financial regulation and a current reform of the Danish water sector require reaction and adaptation. Collaboration with our key stakeholders – customers, owners and authorities – is rewarding and in 2015 we will together balance expectations for our roles and responsibilities. In our ef-forts to realise Aarhus Vand's Strategy 2020 we will be focusing on growth, productivity and ingenuity in 2015 which will enable us even more to shape the future water company in Aarhus.

With its plan for growth in water, biological and environmental so-lutions, the Danish government has facilitated enhancing the dia-logue between water companies, knowledge institutions, industry and technology suppliers in order to further innovation and exports in the existing setting of the water sector. The overall water market is expected to increase annually by some 6 per cent the next five years while various new areas of technology are expected to in-crease by up to 20 per cent a year. In 2011, the international water technology market was estimated at DKK 2,500 billion which is nearly triple the size of the wind turbine industry (Grontmij 2011).

One-third of Denmark's water industry is located in Business Region Aarhus, which is the domicile of several market leaders in water. Increasing global demand for water technology holds a vast potential for additional growth in Business Region Aarhus. How-ever, more coordinated and strategic efforts are needed across the municipalities to ensure that the business potential in water is utilised optimally. Many locally oriented companies in Business Region Aarhus can be part of more globally oriented value chains and if supported, this may affect both local and regional business development and growth positively.

As one of the largest water companies in Denmark, we commit to supporting the water industry. We have extensive knowledge in the operation of various facilities, establishing organisations, analysing, tendering, planning, project management, training and commis-sioning facilities. Looking beyond our borders, we can provide input with knowledge and support for Danish exports. At the same time, we and the industry can gain new knowledge to optimise and develop processes and procedures, thus improving the entire industry.

Aarhus Vand will become a more attractive workplace to em- ployees if company activities take on an international dimension where water companies and the industry can boost their know-how to optimise and develop processes and procedures, thus improving the individual companies. Aarhus Vand would like to deliver and share the responsibility of increasing Danish exports in water applications.

Our business plan also describes Aarhus Vand's mission, vision and objectives under the setting laid out for our activities by our owner and Danish legislation. It also describes how we organise work and sets out our values and our strategy for the years ahead.

It also considers the prerequisites to fulfil our vision, such as a competent staff, excellent partnerships and sound finances.

Basic components of our business plan:

• Framework of Aarhus Vand A/S• Aarhus Vand's mission and vision• Management by objectives• Strategihuset 2015• Financial framework for 2015• Organisation and resources

Enjoy your reading.

Best regards

Lars Schrøder Director

Preface

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AARHUS VAND IS A DANISH PUBLIC LIMITED COMPANY owned 100% by the City of Aarhus. The company's activities comprise rainwater disposal (including climate adapta-tion projects), the production and distribution of drinking water, the transport and purification of wastewater, the emptying of private holding tanks as well as safeguarding a balanced and healthy water cycle.

We are recovering, treating and distributing more than 15 mil-lion m3 of drinking water and purifying more than 30 million m3 of wastewater a year in nine waterworks and nine wastewater treatment plants. The company has a staff of 197 competent, dedicated employees.

Aarhus Vand's income is based on user payments in the form of connection fees, fixed charges, road charges, variable water and sewage disposal charges and a charge for emptying private holding tanks.

Under the Danish Consolidated Act on Water Supply and the Danish Act on Payment Rules regarding wastewater, the income must finance the company's annual production and administration costs, financial expenses and investments.

The supply secretariat (Forsyningssekretariat) is charged with regulating the company's finances according to a price cap based on the company's historical prices, developments in its costs and efficiency improvement requirements.

Danish Water Sector ReformThe Danish Water Sector Act is under reform and Deloitte's as-sessment of the current Water Sector Act concludes:

Regarding financial regulations: The current regulatory model's key challenge is that all regulations are generally based on almost inconsistent elements given the price cap regulation and tax liability imposed at the same time combined with the existing self-financing principle. Each of these regulatory mechanisms

Framework of Aarhus Vand A/S

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represents its own considerations in terms of limiting the water companies' ability to utilise monopoly rights and limiting the ef-fects of earnings, if any. However, together they form the basis of restrictive, administration-intensive regulations which unneces- sarily restrict the water companies' latitude, incentives to stream-line activities, innovative capacity and collaboration options with the water sector.

Regarding “self-financing”: Reduces the water companies' incentives to streamline activities. Deloitte finds that it will not be beneficial to prevent private commercial stakeholders from invest-ing in Danish water companies. On the contrary, the involvement of private commercial stakeholders is expected to help boost increased consolidation in the water sector with a major financial potential and increased out-sourcing of operating tasks.

Regarding consolidation: The Danish Water Sector Act and its related regulation result in various barriers to consolidating the Danish water sector. The barriers are: Ban on differentiated waste-water tariffs. The costs for mergers must be kept below the water companies' price caps which puts the water companies' financial latitude under pressure. Small water companies do not want to come within the Water Sector Act as a result of mergers. The risk of taxation of transfers of values as a result of water company mergers. Limitation of the municipalities' influence over municipally owned water companies. Official responsibility is shared between several municipalities in mergers between water companies owned by municipalities. Uncertainty regarding financial regulation in connection with mergers between water companies covered by the Act and water companies not covered by the Act. Municipali-ties risk setting off in their block grants after mergers of municipally owned water companies as a result of provisions in the Stop Act.

Regarding distribution of tasks: The provisions regarding the contents of wastewater and water supply plans do not fully sup-port the separation of the official and operating responsibility which was the plan of hiving off the municipally owned supply activities. The distribution of tasks and responsibilities in the adaptation of climate changes is not considered appropriate. In relation to the municipalities' implementation of their roles as owner, various inexpediencies appear as far as the composition of boards of directors is concerned in particular which may result in conflicts of interests between the municipalities' role of authority and the boards of directors' obligation to safeguard the interests of the water companies. Such inexpediencies might be handled through increased focus on board members having the proper competen-cies and a deliberate decision made in the municipalities to handle the composition of the members on the water companies' boards of directors to be able to minimise the risk of conflicts of

interests and at the same time deal with them professionally should they occur. The supply secretariat supersedes the mu-nicipalities' role as approver of the tariffs set by the municipally owned water companies. The municipalities' approval of the terms regarding the consumers' payment of tariffs and construction contributions also involves an inexpedient opportunity to influence the liquidity of the water companies.

Regarding innovation: The current price cap regulation reduces the financial capacity of the water companies to seek new tech-nology. The price cap regulation does not involve any incentives to deliver on environmental, climate and service objectives in addition to the requirements following from the regulation. Danish and international experience show that mainly major water companies are committed to the development of technologies and business promotion and that these companies in particular are interesting partners to the suppliers and consulting firms in water tech- nology. In this connection, it is estimated that the Water Sector Act has more indirect barriers to growth and business promotion as this regulation limits consolidation of the Danish water sector. The water companies' ability to commit to related activities which are a natural progression of their supply activities is seen as an expe-dient initiative to encourage water companies to commit them-selves to development projects and business promotion. However, existing revenue limits are seen to severely limit the companies' commitment. In this connection, it must be realised that the existing opportunities of increasing revenue from related activities through 60/40 companies where a private stakeholder owns 60% of the shares fell short of the intended purpose. This corporate form is neither attractive to the water companies nor to the water technology companies.

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Hans E. Pedersen

Chairman Director of Customer Innovation, AarhusKarlshamn.

Camilla Fabricius

Deputy chairmanMember of the Aarhus City Council for the Social Democrats.

Ellen M. Basse

Professor, doctor of laws & jur.dr. (h.c.)Professor, environ-mental law at Aarhus University.

Ango Winther

Member of the Aarhus City Council for the Social Democrats.

Lars B. Mathiesen

Member of the Aarhus City Council for the Liberal Alliance.

Henrik Frier

Employee representative, Aarhus Vand.

Bjørn Rohde

Employee representative, Aarhus Vand.

Henning Møller

Consumer representative.

Mads Thomsen

Employee representative, Aarhus Vand.

Board of directors

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MissionThe company's objective is to offer and develop resource-efficient services throughout the water cycle creating a climate-adapted healthy environment as well as growth and export to the benefit of customers and stakeholders.

VisionAarhus Vand wants to be Denmark’s leading water company.

Aarhus Vand will focus on developing a value-adding water company with characteristics such as: Environmentally sound, resource-efficient, energy-neutral, well-run, innovative and partnership-promoting. Aarhus Vand has an excellent basis for creating overall solutions and committing to sustainability in relation to the overall water cycle. The water and wastewater sections each has its own considerable strengths and potential. We can achieve a unique position by coordinating the competencies.

At the same time, excellent opportunities have been created to streamline operations by utilising synergies optimally in a wide range of areas.

Continued development of production plant combined with extensive participation in research projects and highly competent and well-educated employees will help ensure that we and our surroundings see Aarhus Vand as the leading water company in Denmark.

The key conditions to the company's success are that all employ-ees at Aarhus Vand work individually and together to implement our goals and to keep our customers in focus in our daily work.

ValuesAt Aarhus Vand, we not only manage by goals but also by values. Our four “WATER values” – “we” feeling, responsibility, innovation and dialogue – are part of our DNA. The values are related to the following statements which must guide how we fulfil these values.

Mission, vision and values

WE FEELING

• We have each other's best interests at heart

• We make room for diversity• We are good colleagues and

reinforce our sense of community• Together we build the best

workplace

RESPONSIBILITY

• We keep our promises and stand by what we do

• We take responsibility for our surroundings

• We improve our competencies

• We show initiative

INNOVATION

• We make room for creativity• We dare lead the way• We realise ideas quickly• We challenge the way things are

done

DIALOGUE

• We are honest and show respect• We are open and trustful• We give and receive praise and

complaints• We share knowledge and

experience

Extended collaboration with the City of Aarhus

THE CITY OF AARHUS' OWNER STRATEGY SETS OUT what the municipality wants from the company in the short and long term. The municipality's role as an owner and author-ity rest with The Mayor's Department and Technical Services and Environment. At a general meeting each spring, the City Council elects the board of directors who will safeguard the interests of the owner and of the company.

In accordance with the City of Aarhus' owner strategy, Aarhus Vand keeps its focus on operating the company with a high degree of continuity of supply and on a financially and environ-mentally sustainable basis. The City of Aarhus' plans regarding for example the water supply plan, the wastewater plan, the environ-mental action plan and climate adaptation plan set the framework of Aarhus Vand's tasks in the years to come.

In order to support the municipality's climate plan and environ-mental action plan we are preparing ongoing initiatives to reduce our energy consumption and CO2 emissions. For many years, we have been increasing sewerage capacity and adapted sewerage infrastructure to climate changes. In the coming years, we will also begin to adapt our facilities to the increased precipitation which we expect. Our focus is, among other things, to establish separa-tion systems and local handling of precipitation through various measures such as percolation, retardation and evaporation. In ex-isting areas with combined sewerage as well as in new areas of serviced plots we are implementing sustain- able solutions to the benefit of the entire water cycle in accordance

with the plans of the City of Aarhus.

Under the municipality's environmental action plan we are converting land into forest and we support the municipality's wishes for more water in the city by establishing various rainwater basins in the form of small lakes. We are integrating these lakes into the surroundings and establish them in connection with new serviced plots and also in built-up areas.

In order to improve the aquatic environment we are completing various initiatives to help improve the water quality of our streams, lakes and in Aarhus Bay. As one of the first municipalities in Den-mark, the City of Aarhus can say the efforts of improving waste-water treatment in the open countryside has been completed and that Aarhus Vand has reduced rainwater related emissions of diluted wastewater so that we have met the municipality's goals from the environmental action plan. As a result, Aarhus is one of the most advanced municipalities in this area.

With the changed climate conditions, including monster rain, etc., our cities are facing new challenges which call for controlling and directing water and wastewater to reduce damming and flooding. Rain storms produce water from many sources and water from the roads runs to the sewers through the road drains. Water from the properties in the affected areas follows the same route. When lakes and watercourses flood, water will often run into the sewers and when green areas, lawns, etc. are saturated, water will go to the lowest areas. Water knows no boundaries and cannot see whether it should be in a sewer, a watercourse or in basements and viaducts. The water runs downhill which presents us as a water company with major and very expensive challenges.

The solution to these challenges is to increase sewerage capacity and the capacities of watercourses running into the sea. We do that in various ways. We establish major sewers and expand watercourses in some places whereas we establish canals and tunnels in other places for the large amounts of water during rain storms. And we also lead the water for storage in parks, green areas and other places where it does no harm.

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ANNUAL WHEEL for the collaboration with the City of Aarhus Month Involved party(ies)

The Mayor is informed about the company's activities January Chairman of the Board, Director, Mayor and City Manager

The Financing Committee is informed of and discusses the company's annual report

May Chairman of the Board, Director and the Financing Committee

City Council deliberations:

• Presentation of annual report• Approval of revised owner strategy, if any

May

The entire City Council

General meeting May The Mayor and the Mayor's Department

Company strategy March Board of directors, Executive board, owner and authority

Annual wheel, 2015

ANNUAL WHEEL for the board of directors Month Comment

New Year's reception January

1st board meeting 2015 February

Strategy workshop with the City of Aarhus March With the participation of owner and authority

2nd board meeting 2015 April Financial statements 2014

Board of directors' seminar May

3rd board meeting 2015 August

4th board meeting 2015 November Budget 2016

DANVA annual meeting May

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Management by objectives

AT AARHUS VAND, WE WISH to measure and document our performance mainly through our accredited management sys-tem which focuses on documentation, assessment and improve-ment. The many objectives set are part of our model for manage-ment by objectives which creates a general view of the work as well as connection with the company's objectives. This model has simplified our management by objectives by replacing various other measuring tools and provides a clear focus on the key tasks we should work on during the year.

At the same time, the model integrates the requirements for man-agement by objectives, reporting, etc. which are the results of the requirements and provisions included in the Danish Companies Act.

The process in the work on our objective goes from mission across vision to dimensions and on to company objectives to per-formance indicators in each department. This is in part supported by actually formulated objectives and performance indicators, in part by action plans and analyses of key factors of success.

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Company objectives and performance indicators

AARHUS VAND'S BUSINESS STRATEGY towards 2020 has three focus areas: Growth, productivity and ingenuity. These focus areas point out the three most important overall areas in which the company must develop over the coming years. Business objec-tives have been set for 2015 in the three areas (see the figure below).

These focus areas and the related business objectives are based on our nine sub-strategies: The overall water cycle, market and customers, efficiency and quality, energy and CO2, financing, IT, competency, internationalisation as well as partnerships and consolidation.

Moreover, the objectives must be met through various other tasks and projects supporting the company's mission, vision and Strategy 2020. The connection appears from the illustration which is a framework of the direction in which Aarhus Vand wants to move.

Based on the framework below, we have prepared various perfor-mance indicators for departments and functions which together form the contents and management parameters of Aarhus Vand's model for management by objectives.

Aarhus Vand wants to be Denmark’s leading water company

2020 strategy: Focuses on developing a value-adding water company with characteristics such as: Environ-mentally sound, resource-efficient, energy-neutral, well-run, innovative and partnership-promoting.

GROWTH Goal: Increased by 20% towards

2020

PRODUCTIVITY Goal: Increased by 20% towards

2020

INGENUITY Goal: Measured on the effect of

productivity and growth

Increase gross revenue by DKK 15 million

Increase productivity by 2% Five new products / services marketed

Values: We feeling, responsibility, innovation and dialogue. Mission: To offer and develop resource-efficient services throughout the water cycle creating a climate-adapted healthy environment as well as growth and export to the benefit of customers and stakeholders.

Sub-strategies: The overall water cycle, market and customers, efficiency and quality, energy and CO2, finan-cing, IT, competency, internationalisation as well as partnerships and consolidation.

Vision

2020

2020

2015

Basis

Figure Aarhus Vand's business strategy towards 2020.

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Strategy 2020 – focus on growth, productivity and ingenuity

WITH OUR THREE FOCUS AREA, growth, productivity and in-genuity, we want to strengthen focus in our strategy work towards 2020 and make it easier to see the connection between the nine sub-strategies which form the basis of our overall strategy. This fo-cus also shows our wish to create development for ourselves and the community by supporting the current trends to create growth, export, productivity and creativity in Denmark. So we want to hook Aarhus Vand to this social development.

The supply secretariat – and we – require ongoing improvements and streamlining. However, at Aarhus Vand we would like also to ensure that reducing expenses and resource consumption in production is matched by growth. It is healthy for a company to streamline and grow at the same time. However, increased production at lower costs and increased efficiency also translate into fewer employees. We do not want that. Our goal is at least to maintain the current size of Aarhus Vand. That's why we set ourselves the goal of creating growth to offset the reduction of the company which increased productivity will involve. This means that our growth volume should match the reduction in our productivity volume.

Our third focus area is ingenuity which is an old word for innova-

tion but which is more about creativity, getting ideas and creating the framework of being innovative. Ingenuity must form the basis of productivity and must point out our areas of growth.

We are working on ingenuity in an ideas forum on our intranet, we prepare action plans regarding ingenuity, hold workshops and in-vite external parties to challenge us in areas of special importance. In addition to this, ingenuity is a key element in our customer and market strategy where we focus on developing new products and new product opportunities. In 2015, we will hire a business developer whose task, among others, will be to identify new prod-ucts and services, to make them marketable and market them. Together, this will help us select, year after year, the right products to the benefit of Aarhus Vand and thereby our customers.

We have set specific objective for 2015 in each area: We must increase gross revenue by DKK 15 million through new initiatives, we must increase productivity by 2 per cent and we must market 5 new products or services. However, these focus areas point towards 2020 where the objectives are to increase productivity by 20 per cent, to increase growth by 20 per cent and to measure the effect on our productivity and growth. By increasing productiv-ity by 20 per cent towards 2020 we are creating the latitude for

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- The three focus areas of growth, productivity and ingenuity cut to the bone and clearly indicate how we should streamline the com-pany. The focus areas already ex-ist in our nine sub-strategies but crystallise the work we have done with Strategy 2020 over the last four years.

Claus Homann, Strategic Manager

growth and ingenuity which will help increase productivity. By also increasing growth by 20 per cent towards 2020 we are, among other things, increasing revenue by DKK 120 million and creat-ing the basis of up to 50 jobs. Ingenuity is measured on the effect of productivity and growth. Indicators may be the extent – and participants – of development projects.

The focus areas of 2015 chosen for Aarhus Vand's nine sub-strategies each governed by a program manager are shown on the following two pages. These focus areas will be updated on an ongoing basis at program manager meetings throughout the year. This will open the door to new projects whereas others will cease as the framework changes, among other things due to the reform of the Water Sector Act.

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EFFICIENCY AND QUALITY

Objective: To help meet Aarhus Vand's objective of 20 per cent streamlining in 2020

Focus areas:Further development of Aarhus Vand's strategy wall which shows the results of our strategy work using a simple visual model.To find new methods and tools that can improve our efficiency in relation to our level of quality and costs, e.g. Asset Management, and to develop the use of benchmarking results in Danva and the supply secretariat.

ENERGY & CO2

Objective: That Aarhus Vand is energy and CO2 neutral by 2030, at the latest.

Focus areas:To specify the overall objective of the energy and CO2 strategy.To ensure further reduction of energy and CO2 in operating and construction work.To increase the energy production from biogas and to ensure improved utilisation of surplus heating.To investigate new opportunities of substituting CO2 by purchasing and reuse.To look into the potential of binding CO2 through converting land into forest, etc.

THE OVERALL WATER CYCLE

Objective: To ensure a water cycle affected by humans but sustainable and based on a holistic approach.

Focus areas:In the project regarding separation of rainwater and wastewater in Risvangen/Vorrevangen to develop new products and services, such as service packages for the residents, LAR solutions on own sites as a service from Aarhus Vand as well as free advice and instructions.To develop new operating activities such as take-over of the operation and ownership of the lock at the harbour by the City of Aarhus.To clarify whether measurements/monitoring of the overall water cycle should form part of Aarhus Vand's services.To uncover the opportunities of Aarhus Vand to operate and have the responsibility of the overall water cycle and thus also the re-sponsibility of ensuring implementation of the best solutions in terms of economics and environment above and below the ground.

FINANCING

Objective: To utilise the financing options ensuring that we will still have the financial latitude to implement strategic developments through the other sub-strategies.

Focus areas:To define the framework and contents of the financing strategy.To develop a business case model, including clarification of regulatory uncertainties. To examine the need to adjust how we register our financial data.To strengthen collaboration with other companies, including Shared, regarding accounting, regulation and finances.To assess the need to upgrade our financial management system to create opportunities of collaboration with other companies and to assess the need to acquire a business intelligence solution.

MARKETS AND CUSTOMERS

Objective: To set a framework of opting in and out of all future opportunities.

Focus areas:To increase customer involvement, e.g. by developing customer meetings, uncovering needs for counselling and services, developing our customer panel, establishing a customer forum and entering into a dialogue with housing associations and companies.Product development, e.g. by updating our product catalogue and employing a business developer.To increase market understanding and segmentation.

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COMPETENCIES

Objective: To create an overall strategy for Aarhus Vand's creation of competencies ensuring that the required competencies are present, recruited and developed.

Focus areas:Competency workshops will be held as a main activity in 2015 for all functions of Aarhus Vand. The required and key competen-cies to fulfil our strategy must be determined as well as various ways to develop these competencies. Focus will be on development through a dialogue between the manager and employee.Continued development of material for the performance appraisal process focusing on development of competencies and Aarhus Vand's model for roles and career paths.To develop a recruiting strategy towards efficient recruiting processes and ensuring that employments are made strategically.

INTERNATIONALISATION

Objective: To further development and export of Danish water technology and at the same time gain new knowledge through a strate-gic collaboration in 3VAND – HOFOR, Vandcenter Syd and Aarhus Vand.

Focus areas:To enter into agreements with contractors and advisors regarding collaboration on tasks abroad.To establish collaboration with embassies in order to further and support the development of exports and penetration of Danish water technology, e.g. through postings.To collaborate with twin towns, such as Harbin in China.To exchange experience with international utilities.

PARTNERSHIPS AND CONSOLIDATION

Objective: To develop our competencies and knowledge to ensure that we are focusing on the best possible solutions. To prepare Aarhus Vand for growth to ensure that we are one the companies existing in 2020.

Focus areas:The sub-strategy have already produced various initiatives and results that help consolidate the company, create new partnerships and growth which have been commissioned, such as the establishment of Shared, the joint service company. As a result, the strategy is resting for now but it will be reactivated when new initiatives are required.

IT

Objective: To control the direction of IT work at Aarhus Vand towards becoming a digital water company.

Focus areas:To prepare an IT organisation analysis in order to adapt the transverse IT organisation to a joint IT culture at Aarhus Vand.To prepare for the future – we call it IT consolidation – which means that we will work to improve the quality of IT service's internal activities at Aarhus Vand. The actual IT activities: Supplier overview, system owner roles, SLA agreements, IT emergency plans, safety policy and monitoring of key systems.To develop the IT architecture based on Aarhus Vand's DDV rack (Det Digitale Vandselskab (The Digital Water Company)).To complete projects according to the “Strategy for digital communication”, including development of a new website.

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Organisation of our strategy efforts in 2015Based on our three strategic focus areas – growth, productivity and ingenuity – we will be working with a wide range of projects in 2015 which are partly in one of the three focus areas and partly across the areas. We will be working with an organisation where one programme manager of each of the three focus areas is the 'ambassador' to the company objectives and in charge of keeping focus on achieving these objectives. These programme managers must also ensure that growth, productivity and ingenuity are part of the departments' action plans for 2015 and they must support coherence between the nine sub-strategies.

The nine sub-strategies are the backbone of Aarhus Vand's Strat-egy 2020. A programme head is in charge of each sub-strategy and runs them and the projects involved together with various key employees. The program heads must coordinate activities with each other and with the programme managers.

Aarhus Vand's three department managers support the pro-gramme managers in defining objectives and creating results. The strategic manager sets the direction, coordinates and creates commitment and is the sparring partner for the CEO and the rest of the management group in relation to the development of strate-gies and implementation. The strategic manager also ensures that the strategy work is supported by organisational development at Aarhus Vand.

In relation to each manager and employee, we want to ensure focus on strategic efforts in 2015 by integrating the sub-strategies more clearly or more substantially into the organisation to make it a more natural part of our daily work. The spreading of responsibil-ity for implementing strategies must continue to ensure that as an employee, you are able to identify yourself with the contents.

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Internationalisation – focus on the USA, Southeast Asia and

Zambia

OUR STRATEGIC COLLABORATION in 3Vand with Hofor and Vandcenter Syd focuses on four specific areas: Climate adapta-tion, protection of groundwater, research and development and internationalisation. Aarhus Vand is part of this collaboration in order to develop the company, to support a development of the Danish water sector and to support the export potential of Danish water technology. This work involves close collaboration with Dan-ish companies who want to promote exports. Our role is to sell know-how and make demonstration plant available.

At 3Vand, we want to strengthen our international focus in 2015. We gain new knowledge through our international efforts which help up optimise and develop our processes and procedures and thus improve the companies. To employees, our companies will become more attractive places of work when we acquire an international dimension. At 3Vand, we will direct our international efforts particularly at the USA (Chicago), Southeast Asia (Singa-pore and Harbin) and Zambia in 2015.

ChicagoAs part of our collaboration on internationalisation in 3Vand, Aarhus Vand has lent its project manager, Flemming B. Møller, in 2014 and 2015 to work in Chicago with the Danish Trade Coun-cil, which is under the Ministry of Foreign Affairs of Denmark. The Danish companies DHI, Nissen, Landia, Danfoss and AVK are members of the “Water Technology Alliance” and contribute to the financing of the posting while the Trade Council and the Danish Nature Agency support the alliance with approx. DKK 1 million.

Flemming Møller is to help spread knowledge about what we can in Denmark in terms of efficient water supplies and wastewater treatment. In the USA, they have not previously focused on reduc-ing energy consumption at wastewater treatment plants where we have competencies and experience which may be of use to them. Danish companies and advisors should then take over and negoti-ate agreements. We also need new knowledge – also from abroad – to improve Aarhus Vand.

Our presence in Chicago will allow us to build networks to exchange knowledge. We will see technologies which are more advanced in some areas than in Denmark. We will be signing an agreement in 2015 with Chicago Water which will, among other things, involve a mutual commitment to exchange knowledge in specific areas and to exchange employees which means that they will also be posting employees in Denmark. The plan is also to sign similar agreements with one or more additional water and wastewater companies in the USA. The objective is to launch 2 - 3 projects involving Danish companies in the USA in 2015.

- I am to help promote the busi-ness of the Danish companies. I am to help spread the knowledge about what we can in Denmark after which the companies and advisors take over and negotiate various agreements.

Flemming Møller, Project Manager and on loan as Senior Technical Advisor to the Danish Trade Council

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Singapore Like the Consulate General of Denmark in Chicago, the Danish Embassy in Singapore wants to contribute to the export of Danish know-how and water technology. The Embassy sees 3Vand as an equal organisation that represents “public Denmark” since the col-laboration is not linked directly to companies. The Embassy would therefore like 3Vand to post a technical advisor profile in the region to support the Embassy and other initiatives. The model used may be similar to the one in Chicago where Aarhus Vand has posted an employee. The Embassy also sees an opportunity for an employee supporting the other embassies in Southeast Asia in the water technology area.

In 2014, Aarhus Vand has therefore participated in several Singapore delegations with DHI, Grundfos and AVK within the framework of 3Vand. The utility company Singapore Water which operates at a very high professional level has also visited 3Vand and is very receptive to collaboration. In Singapore, wastewater is purified intensively and part of it is used as drinking water. Based on our dialogue, the following topics, among others, proved to be relevant: Wastewater energy production, optimisation of waste-water purification, utilisation of groundwater resources, tools for improving water production efficiency as well as sustainability.

At Aarhus Vand, we see an opportunity to play a part as a water utility ambassador in the region. An independent role where we represent what we do in Denmark, communicating knowledge to the Danish companies with the know-how and the products required. Additionally, we can serve as a networker facilitating Danish turnkey solutions which can be tested and used for refer-ence purposes in the region.

ZambiaIn 2014, 3Vand entered into a training contract in Zambia to be executed in 2015. Krüger and Veolia were awarded the task of renovating and extending a number of water and wastewater treatment plants financed by Danish funds in the so-called “Kafubu Sustainable Water and Sanitation Improvement Project”.

Aarhus Vand employees will work in Zambia for several short periods of time training local employees in handling the opera-tion and maintenance of drainage and distribution systems, water treatment and associated plant activities. The training comprises a “school period” of 69 days and 353 days in the form of on-the-job-training. This is supported by extensive training of instructors who will pass on the tasks to new, future staff.

Harbin The city of Harbin is the City of Aarhus' twin city in China where we support the Danish municipality's initiatives and, against pay-ment, offer Danish companies such as Grundfos and AVK support for their projects in the region. We inform them, among other things, about the Danish model where municipally owned water companies collaborate with private suppliers on energy optimisa-tion, groundwater protection, etc.

- The project in Zambia is of great importance to the development of collaboration in the water indus-try in Denmark. For 3Vand, this means that our goal for interna-tionalisation and presence in Af-rica, Southeast Asia and the USA is close to being achieved.

Claus Homann, Department Manager

19

Climate adaptation – operator of the entire water cycle

THE WATER SECTOR REFORM IN 2010 has, on the one hand, resulted in water companies having had to increase the fo-cus on their core tasks due to the Danish government's efficiency improvement requirements. On the other hand, the reform has enabled the water companies to play a freer role where new tasks can be included in the companies' portfolio – to the extent permit-ted by legislation and financial regulation.

At Aarhus Vand, we want to seize this opportunity to assume responsibility for the operating tasks in connection with the water cycle. As a water company, we are basically an operating organi-sation and we already carry out several operating tasks in the wa-ter area. By assuming new operating tasks, we can create overall solutions and synergies in the water cycle, thus providing custom-ers with an unambiguous entry into the handling of water.

The authorities of the water area should still be the government and municipalities. However, the water cycle is a coherent system. So there should only be one operator to take care of the operative handling of the overall water cycle and to ensure implementa-tion of the best solutions in terms of economics and environment above and below ground. This is important, not least because in Denmark, we are facing major challenges in the water area. Two of the most important challenges are to safeguard our drinking water and to handle extreme rainfall events.

Our role as an operator of the overall water cycle is to cover the tasks: planning, plant and operation. The water cycle comprises recovery of groundwater, water supply, including alternative types of supply such as secondary water (roof water, surface water, purified wastewater, etc.) as well as the discharge and purification

of wastewater and rainwater to the recipient. The discharge of rainwater may more or less affect how areas are used in cities and is, therefore, closely connected to the physical planning handled by municipalities.

Together with Hofor, Biofos and Vandcenter Syd (Water Center South) we will, therefore, in 2015 intensify our strategic work to ensure that we, as water companies, become operators of the overall water cycle; because from a socio-economic point of view, it is cheaper to solve tasks in the rainwater area (hydraulic tasks within surface water) by assigning the obligation and the financial means to the water companies. Today, the responsibility is shared between the water companies (via tariffs), municipalities (via taxes) and consumers (via self-financing).

Examples of how Aarhus Vand can fill the role as an operator of the water cycle:

• Brabrand Lake – Aarhus Å stream – lock at the Port of Aarhus: Aarhus Vand uses Aarhus Å stream as a retarding basin in connection with major rainfall events to protect the citizens against flooding. The lock works as a regulator for holding back the water and the associated pumping system ensures that water can be pumped out into the bay at any time when the tide is up.

• New water canal in Lystrup: Aarhus Vand is establishing a new water canal next to the existing watercourse to be able to handle rainfall events that exceed the service level target. The existing watercourse is given high priority and must be protected during heavy rain.

- We believe that by placing the entire obligation in the hands of the water companies, it will be possible to create the best solu-tions in terms of economics and environment. And that we can make sure that tasks will be car-ried out to the necessary extent to ensure future handling of the climate challenges.

Claus Møller Pedersen, Department Manager

20

• Measurement/monitoring in water areas: This may e.g. take place by controlling purified water being pumped back into the Giber Å stream system and carrying out measurements to document the effect of what we do.

In 2015, Aarhus Vand expects to enter into a contract with the City of Aarhus on the operation of the lock at the harbour. The an-nual operating costs will be approx. DKK 700,000. Efforts are also being made to assign the ownership of the lock to Aarhus Vand.

Aarhus Vand's ongoing and planned climate adaptation projects:

Operation of the lock (approx. DKK 0,7 million/year).

Seven climate adaptation projects in Lystrup (total expenditure approx. DKK 18 million, distributed by DKK 6 million in each of the years 2014, 2015 and 2016).

Separation of rainwater and wastewater in Risvangen and Vorrevangen.

Creative use of water at Frederiksgade (expenditure approx. DKK 10 million, prob-ably in 2017).

Layout of the Marselisborg Park as a rec-reational area with LAR (local discharge of rainwater).

A climate adaptation project in Skejby to be further specified in 2015.

In addition to this, several climate adapta-tion projects will be implemented in the coming years in connection with the sepa-ration of rainwater and wastewater. These projects will be identified continually but are not yet mentioned specifically in the climate adaptation plan.

21

Joint purchasing saves millions

IN 2014, AARHUS VAND INVITED all interested water and wastewater companies to enter into closer collaboration across municipal borders. This resulted in the establishment of Shared, a new joint service company between Odder Spildevand, Syddjurs Spildevand, Favrskov Forsyning and Aarhus Vand. Based on pur-chasing, the company is to handle a number of tasks and services for the four utilities but in the long run also for other interested companies in the region.

By gathering the resources in a joint service company, we can af-ford employing highly specialised staff with the proper experience. In 2014, Shared therefore employed a purchasing manager, and in early 2015, the company will employ two purchasing consult-ants. Together they are to professionalise purchasing for the four companies behind Shared, and not least save millions. This is to take place, among other things, by negotiating and entering into new contracts utilising the advantages of being several companies purchasing together.

An external analysis ordered by the parties behind Shared shows that a joint service company provides several advantages in the form of savings and improved control of purchasing processes. The analysis identifies a number of purchasing types that are

suited for joint purchasing such as standard products and services that are estimated to have an annual profit potential of DKK 6-8 million. The analysis also shows annual efficiency improvement po-tential of some DKK 1 million through standardisation of purchas-ing processes, contracts and tender templates, in-house tender competencies, law and tendering routines as well as internal moni-toring and supplier management, and thus reduced administrative costs.

- Shared will challenge us in the way we purchase today which is a highly decentralised process. When we professionalise and centralise the tender process, resources will be released which we can use for our core activities. This is common sense and adds value for our customers.

Jakob Juhl, Chairman of the Board of Shared and Director of Favrskov Forsyning

22

We enhance our customer dialogue

IN 2014, THE SETUP OF A DIGITAL CUSTOMER PANEL was the most important new initiative to enhance our customer dialogue. It got off to a good start with a response rate of more than 90 for the first survey and the panel now has 330 partici-pants. In 2015, we will carry out 4-5 new surveys to shed light on urgent, important matters such as, for example, our customers' experience of the water quality we deliver, opinions about our initiatives to preserve clean water, the possibility of decalcification of water and other measures that contribute to making Aarhus an attractive place to live.

The results of the surveys in the customer panel are used as a source of inspiration for our product development, efficiency im-provement measures, determination of new strategies and expan-sion of our services. We present the results of the surveys openly to our staff and customers alike, for example at our website.

- Through our customer panel, new ideas and measures are tested and we receive concrete suggestions for how to improve our services.

Mads Bayer, Department Manager

One of the results of our surveys through the customer panel is the wide support for Aarhus Vand's and the City Council's deci-sion to produce drinking water exclusively from the aquifers. And that we, if needed, can increase the price of water by up to 5 per cent as long as the money is earmarked for groundwater protec-tion.

Like other water companies in Denmark, Aarhus Vand also has a customer representative on its board of directors. In 2015, we will supplement the customer representation by setting up a so-called advisory board which is to consist of 14-17 members with a strong professional background and serve as a sounding board and a network for the management of Aarhus Vand. The advisory board will make it possible for management to carry out in-depth,

challenging and holistic discussions of, among other things, stra-tegic measures capable of developing Aarhus Vand as a company and support business development. In this connection, it will also be possible to set up focus groups.

In 2015, we will continue to focus on improving our customer communication, e.g. by improving our letters to customers. We will enhance the dialogue with our business customers and es-tablish focus groups in selected areas. Our web solutions will also receive a major facelift in 2015. We will measure continually how satisfied people are with our telephone service and develop our communication in connection with our construction projects.

24

Budget for 2015

OPERATING AND CASH BUDGETS, DKK 1,000 2015 2014

Operating budget Cash budget Operating budget Cash budget

Water and wastewater chargesService feesConnection fees and other incomeTotal income Operating costs Depreciation Profit/Loss before financial income and expenses Interest Operating profit/loss for the year Investments Repayment of loanPositive/negative cash flow for the year (borrowing requirement for the year)

516,05963,50057,066

636,625-220,119-290,000

126,506-16,770

109,736*

516,05963,50057,066

636,625-220,119

0

416,506-16,770399,736

-485,950-15,356

-101,570

518,40133,84859,067

611,316-238,042-272,400

100,874-10,43990,435

518,40133,84859,067

611,316-238,042

0

373,274-10,439362,835

-481,600-11,581

-130,346

*As is evident from the above our operating profit is 109,736 TDKK. Since this cannot cover our expected investments for 2015, our borrowing requirement is 101,570 TDKK.

INVESTMENT BUDGET, DKK 1,000 2015

Reinvestment/New investment in operating activitiesReconstruction of seweragesLand development and other new seweragesClimate adaptations and other environmental projectsNew investments in connection with wastewater treatment plantsCentralisation of wastewater treatment plant in southOther investments, wastewaterinvestment in continuity of supplyEstablishment of pipes, pressure boosters, etc.Renovation of pipes, etc.Reinvestment, waterworks, source sites and drillingsReplacement of water metersOther investments, water

30,000 147,900 38,000 17,500 75,000 37,000 26,300

1,500 19,500 56,600 15,450

6,000 15,200

Total investments in Aarhus Vand in 2015 485,950

WHAT IS THE MONEY USED FOR?

Operating costs 31%

Financial costs 2%

Capital investments

67%

25

26

ELEMENTS OF THE VARIABLE WATER PRICE, DKK/M3 2013 2014 2015Estimated

2016

Water price Government water taxSewage disposal chargesVAT

10.81 6.13

23.09 10.01

10.42 6.13

24.32 10.22

10.71 6.53

24.87 10.53

9.61 6.53

23.63 9.94

Total water price per m3, incl. VAT 50.04 51.09 52.64 49.71

Tariffs for 2015

45,00

46,00

47,00

48,00

49,00

50,00

51,00

52,00

53,00

54,00

55,00

2013 Estimated2016

2014 2015 Estimated2017

Estimated2018

Estimated2019

Estimated2020

Variable price per mincl. VAT

Variable price pluscorporation tax

DKK/m3 3

VARIABLE PRICE PER M3, INCL. VAT, CHARGES AND TAXES

Each year, the Danish Competition Authority sets limits for our income. That is why we see tariffs fluctuate from one year to another. In 2015, the price will increase to 52.64 DKK/m3, while a price reduction is expected for 2016.

Connection fees and other income

8%

Water and waste-water charges

69%

Raising of loan and other financing

14%

Service fees 9%

WHERE DOES THE MONEY COME FROM?

32/33

28

Organisation

AARHUS VAND IS ONE overall public limited company with a simple, logical organisation divided into three departments. How-ever, like all other Danish utilities in water and wastewater, we are now facing a number of different challenges: constant stringent customer requirements and wishes, high administrative demands and the streamlining expected as a result of the Water Sector Act. And as a consequence of the water plans and climate changes, there are new environmental requirements in relation to groundwa-ter, watercourses, lakes, inlets, bays and the sea.

The future challenges will cut across municipal borders. Therefore, it is obvious to think in larger units and new types of collabora-tion because utilities acting in concert will be better equipped to handle the challenges ahead.

Together, Aarhus Vand, Odder Spildevand, Syddjurs Spildevand and Favrskov Forsyning have established a service company, Shared. Based on joint purchasing, the company is to handle a

number of tasks and services that will benefit the customers of each utility.

At Aarhus Vand, we are constantly working to develop the types of collaboration in the water sector. We want to collaborate on tasks and services to improve our professionalism and achieve high quality. Establishing a service company in accordance with section 19 of the Danish Water Sector Act enables us to collaborate on tasks, services, etc. The buyers of the services are to pay only the cost price of the services provided. This makes really good sense to many companies – we call it industry sourcing. We expect that many utilities will become aware of this possibility in the com-ing years and that we will see the number of service companies increase significantly. The service companies contribute to improv-ing financial efficiency and creating added value for the owners through rational joint operation and by solving tasks and providing services at a high level of quality.

BusinessSupport

Mads BayerCFO

Aarhus Vand A/S

Lars SchrøderDirector

Plan and Project

Claus Møller PedersenDepartment Manager

Production

Claus HomannDepartment Manager

Shared A/S

Therese BonneyDirector

29

Description of the departments' tasks

Plan and Project Plan and Project is responsible for planning tasks, implementing construction works, pipe registration and GIS systems as well as for coordinating development activities. A very large part of the tasks for the 36 employees are handled through projects with both internal and external partners. A significant share of the depart-ment's construction projects are completed through partnering with external advisors and contractors.

The planning tasks contain Aarhus Vand's contribution to the preparation and revision of overall plans and sector plans, includ-ing water framework directive, water plans and The City of Aarhus' water supply and wastewater plans. When planning, the overall water cycle is in focus. The planning tasks are implemented in close collaboration with e.g. the City of Aarhus' authority in the area, the Danish Centre for Environment and Energy.

The construction works comprise planning, design and execution of construction works in connection with land development, new constructions, renewal of existing constructions and implementa-tion of improved wastewater treatment in the open countryside. The tasks comprise construction works for the piping systems, wastewater treatment plants and waterworks across the water and wastewater areas.

The pipe calculation models which are used, for example for the implementation of the projects, are maintained by Plan and Project. Plan and Project is also responsible for surveying activities and for registration of pipes in connection with the completion of the projects. In addition to this, Plan and Project coordinates and supports the use of GIS in Aarhus Vand.

30

The development activities consist of technological development projects. The technology projects are often supported by external financing and comprise, for example testing or development of new equipment, new facilities or new methods.

ProductionProduction delivers drinking water, purifies wastewater and utilises resources such as energy and phosphorus from wastewater to the benefit of the citizens and the environment in Aarhus. 110 dedicated employees ensure high quality, efficiency and continuity of supply through operation, service and development activities.

Production is involved all “the water's way” from groundwater resource to drilling, waterworks, distribution to consumer and discharge, resource utilisation and wastewater treatment.

We produce more than 15 million m³ of drinking water annually,

based on clean groundwater. The water quality is ensured by focusing intensely on preventing the drinking water from being affected by our materials and activities. Therefore, Arhus Vand is also certified in drinking water safety according to the same stan- dard as the one used for food safety in the food industry. To us, this is a method to ensure optimum control of drinking water safety.

We handle and dispose of approx. 30 million m³ of wastewater annually. Our plants build on state-of-the-art biological-chemical cleaning processes which we control and monitor through online measurements as well as a completely unique, advanced type of control that provides stable, efficient operation and a cleaning effect that ensures bathing water in Aarhus Bay. Wastewater treat-ment requires a lot of energy. From the residual product from the treatment – the wastewater sludge – we produce significant quan-tities of biogas which is converted into electricity and heat. Today,

STAFF IN FIGURES 2013 2014

Number of employeesConverted into full-time employeesPercentage distribution, womenPercentage distribution, menNumber of civil servantsAverage age, all employeesStaff turnover

218212

29%71% 33

48.3 years12%

197 191.4 29% 71%

28 48.5

15.5%

31

we cover 130 per cent of the energy production from biogas and surplus heat at our largest wastewater treatment plants. At the largest struvite recovery facility, we extract up to 45 per cent as pure phosphorus in the form of PhosphorCare. It will be available from Danish shops from 2015.

Our efforts to automate production, operations and service as well as work and reporting systems are progressing continually and will thus gather our activities in the overall water cycle.

The department has a duty roster to ensure that operations are maintained 24/7, all year round. Both during and outside opening hours, we are geared to handle emergency situations caused by heavy rain, flooding, leaking water pipes etc. with a minimum of inconvenience to our customers.

Production is supported by IT systems, analyses, trial projects, key indicators, benchmarking and financial control aimed at evaluat-ing, documenting and communicating the work as well as inspiring development and innovation.

Efficiency improvement, working environment, quality improve-ment, energy optimisation and a sustainable environment are the key focus areas of the department's three functional areas: opera-tions, service and development, and for the renewal of Aarhus Vand's production facilities.

Externally, we collaborate in various research and development-oriented partnerships. We are active in DANVA forums, supplier partnerships and other innovation communities where we can help develop efficient production of e.g. drinking water, fishing water, bathing water, water for water parks, energy and fertilisers.

Business SupportBusiness Support is a new department established to gather the functions that support our business, comprising both Aarhus Vand's internal customers and all the customers in and outside the City of Aarhus. Business Support's 41 employees work in four functions: HR, Communication, Customer Service and Finance.

We measure, settle and charge our customers for their use of wa-ter and discharge of wastewater. Moreover, we ensure that Aarhus Vand is accessible via telephone, web and physically so that our customers can get the information, products and assistance they need.

We offer various self-service options that make it fast and easy to be an Aarhus Vand customer. We ensure that our 63,000 water meters work correctly and that they are replaced on time, with a minimum of inconvenience to the customer.

The finances at Aarhus Vand are complex and at Business Sup-port, we provide an overview of how the money comes in and how we spend and have spent our money in accordance with our investment plans and budgets. Through accounts and reports we make sure that we inform the authorities as required by law and assist our management and board of directors in providing the best possible basis for decision-making.

We make sure that our customers and other stakeholders are fa-miliar with Aarhus Vand and know what we stand for, what we can offer and where we are heading. Our staff and staff policy are key elements in Aarhus Vand to ensure a well-functioning company, and at Business Support we help attract and employ new staff. We make sure to employ our staff according to the working terms and conditions that we, at Aarhus Vand, have agreed to follow in terms of pay, working hours, etc.

Published by:

Aarhus Vand A/S

Bautavej 1

DK-8210 Aarhus V

Tel. +45 8947 1000

aarhusvand@aarhusvand.dk

www.aarhusvand.dk

Designed by:

Aarhus Vand

Photos by:

Hartmann Schmidt Fotografi

and Shutterstock.com

Printed by:

LaserTryk A/S

January 2015