Ársskýrsla advania 2013

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

600 employees

Sales 2013

Advania’s operations 2013

TOP 10

120 employees

280 employees

Iceland45%

Sweden41%

Norway14%

2012

2013

Double increase in sales and customers

A Z

So�ware Consulting Hardware Hosting Operating Service

1.000 employees

20 offices in 3 countries

IT solutions

TOP 100 IT companies in the Nordics

1 of 10 largest IT companies in the Nordics

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

35 Corporate Governance Statement (unaudited)

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

8

Endorsement and Statement by the Board of Directors and the CEO

_____________________________________________________________________________________________________________

Operations in the year 2013

Share capital and Articles of Association

Shares in ISK SharesName million in %

417.2 71.3%26.8 4.6%15.3 2.6%13.4 2.3%13.3 2.3%11.8 2.0%11.7 2.0%

10.5 1.8%8.4 1.4%7.6 1.3%

536.0 91.5%49.5 8.5%

585.5 100.0%

Endorsement and Statement by

Advania hf. operates in the IT sector and offers services to private companies and the public sector as well asindividuals.

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 itssubsidiaries together referred to as the "Group".

The subsidiary Advania SIA in Latvia was sold during the during the year 2013.

the Board of Directors and the CEO

The Company's Board of Directors comprises five members and two alternate members elected at the annualgeneral 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 ofAssociation may only be amended at a legitimate shareholders' meeting, provided that amendments and theirmain aspects are clearly stated in the invitation to the meeting. A resolution will only be valid if it is approved byat least 2/3 of votes cast and is approved by shareholders controlling at least 2/3 of share capital represented atthe shareholders' meeting.

Share capital at the end of 2013 is divided among 50 shareholders, compared with 51 at year end 2012. At year endthe 10 largest shareholders were:

Information on matters related to share capital is disclosed in note 23.

The Board of Directors proposes that no dividends will be paid to shareholders in the year 2014.

The Company's total issued capital amounted to ISK 586 million at year-end 2013. The share capital is divided intoshares of ISK 1, each with equal rights.

According to the consolidated statement of comprehensive income, loss for the year 2013 amounted to ISK 134million. When taking into account translation difference of foreign subsidiaries total comprehensive loss for theyear amounted to ISK 360 million. EBITDA for the year amounted to ISK 1,315 million. According to theconsolidated statement of financial position, equity at the end of the year amounted to ISK 1,535 million, including share capital in the amount of 586 million ISK. Reference is made to the notes to the consolidated financialstatements regarding information on changes in equity.

Framtakssjóður Íslands slhf..................................................................................................................Arocea ehf.......................................................................................................................................................Títan Fjárfestingarfélag ehf..................................................................................................................Íslandssjóðir hf., Sjóður 1.........................................................................................................................S9 ehf.................................................................................................................................................................Lífeyrissjóður starfsmanna ríkisins B-deild..................................................................................Íslandsbanki hf.............................................................................................................................................Stoðir hf............................................................................................................................................................Stafir lífeyrissjóður....................................................................................................................................Lífeyrissjóður Verkfræðinga.................................................................................................................

Other shareholders....................................................................................................................................Total issued shares.....................................................................................................................................

Consolidated Financial Statements of Advania hf. 2013 3Consolidated Financial Statements of Advania hf. 2013

9

_____________________________________________________________________________________________________________

Corporate Governance

Statement by the Board of Directors and the CEO

Reykjavík, 3 March 2014

Finnbogi JónssonAnna Rún IngvarsdóttirKatarina BurtonKristinn PálmasonÞór Hauksson

Gestur G. Gestsson

Endorsement and Statement by

The Board of Directors and the CEO have today discussed the annual consolidated financial statements ofAdvania hf. for the year 2013 and confirm them by means of their signatures. The Board of Directors and the CEOrecommend that the consolidated financial statements will be approved at the Annual General Meeting ofAdvania hf.

Board of Directors

The Corporate Governance exercised in Advania hf. ensures sound and effective control of the Company's affairsand a high level of business ethics.

The Board of Directors has prepared a Corporate Governance statement in compliance with the IcelandicCorporate Governance guidelines which are described in full in an appendix to the Financial Statements.

It is the opinion of the Board of Directors that Advania hf. complies with the Icelandic guidelines for CorporateGovernance.

The annual consolidated financial statements of Advania hf. for the year ending 31 December 2013 have beenprepared 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 trueand fair view of the consolidated financial performance of the Company for the financial year 2013, its assets,liabilities and consolidated financial position as at 31 December 2013 and its consolidated cash flows for thefinancial year 2013.

Further, in our opinion the consolidated financial statements and the endorsement of the Board of Directors andthe CEO give a fair view of the development and performance of the Group's operations and its position anddescribes the principal risks and uncertainties faced by the Group.

the Board of Directors and the CEO, continued:

The Group's management is of the opinion that practicing good Corporate Governance is vital for the existence ofthe 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 parentcompany's Articles of Association, general securities regulations and the Icelandic Corporate Governanceguidelines issued by the Iceland Chamber of Commerce, NASDAQ OMX Iceland and the Confederation ofIcelandic Employers. Corporate Governance practices ensure open and transparent relationship between theCompany's management, companies within the Group, its Board of Directors, its shareholders and otherstakeholders.

CEO


10

Independent Auditors’ Report

_____________________________________________________________________________________________________________

Management's Responsibility for the Financial Statements

Auditor's Responsibility

Opinion

Report on the Board of Directors report

Reykjavík, 3 March 2014

KPMG ehf.

Margret G. FlóvenzHlynur Sigurðsson

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 theconsolidated statement of financial position as at 31 December 2013, and the consolidated statements ofcomprehensive income, changes in equity and cash flows for the year then ended, and a summary of significantaccounting policies and other explanatory information.

Management is responsible for the preparation and fair presentation of these financial statements in accordancewith International Financial Reporting Standards as adopted by the EU, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

Pursuant to the legal requirement under Article 104, Paragraph 2 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 thefinancial statements includes the information required by the Financial Statement Act if not disclosed elsewherein the Financial Statements.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether thefinancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgement, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentationof the financial statements in order to design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit alsoincludes evaluating the appropriateness of accounting principles used and the reasonableness of accountingestimates 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 auditopinion.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financialposition of the Group as at 31 December 2013, and of its consolidated financial performance and its consolidatedcash flows for the year then ended in accordance with International Financial Reporting Standards as adoptedby the EU.


11

Consolidated Statement of Comprehensive Income for the year 2013

Amounts are in ISK million

_____________________________________________________________________________________________________________

Note 2013 2012

Sales ................................................................................................................................................... 5 25,932 25,783 19,963 )( 19,959 )(

5,969 5,824

6 546 46 2,438 )( 2,378 )( 3,702 )( 3,789 )(

9 0 183 )( Impairment losses on intangible assets .......................................................................... 16.17 0 696 )(

375 1,176 )(

35 134 576 )( 567 )(

10 541 )( 433 )(

166 )( 1,609 )(

11 32 463 )(

134 )( 2,072 )(

226 )( 380 360 )( 1,692 )(

24 0.24 )( 3.73 )(

The notes on pages 10 to 29 are an integral part of these consolidated financial statements.

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

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

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

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

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

Other comprehensive income

Currency translation difference of foreign operations ..........................................Items that are or may be reclassified to profit or loss

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

Earnings per share

Consolidated Statement of Comprehensive Incomefor the year 2013

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

Total comprehensive loss for the year ............................................................................

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

Finance expense ..........................................................................................................................

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

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

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

Consolidated Financial Statements of Advania hf. 2013 6 Amounts are in ISK millionConsolidated Financial Statements of Advania hf. 2013


12

Consolidated Statement of Financial Position as at 31 December 2013


_____________________________________________________________________________________________________________

Note 31.12.2013 31.12.2012

12 1,630 1,348 16 6,625 7,134 19 265 160 18 706 744

Total non-current assets 9,226 9,386

4 0 290 20 420 384 21 5,854 6,573 22 242 443

Total current assets 6,516 7,690

Total assets 15,742 17,076

586 564 516 596 433 659

23 1,535 1,819

25 6,620 6,561 26 45 179 18 19 107

Total non-current liabilities 6,684 6,847

25 843 787 27 5,241 5,917 28 1,308 1,228 26 131 220 4 0 258

Total current liabilities 7,523 8,410

Total liabilities 14,207 15,257

Total equity and liabilities 15,742 17,076


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 ............................................................................................................

Total equity Reserves .......................................................................................................................................

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

as at 31 December 2013

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

Consolidated Statement of Financial Position

Assets:

Equity:

Liabilities:

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

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

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

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

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

Consolidated Financial Statements of Advania hf. 2013 7 Amounts are in ISK million


Consolidated Financial Statements of Advania hf. 2013

13

Consolidated Statement of Changes in Equity for the year 2013




_____________________________________________________________________________________________________________

Share Share Retained

capital premium Reserves* earnings Total

554 1,189 274 1,489 3,506

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

564 596 659 0 1,819

134 )( 134 )(

226 )( 226 )(

0 0 226 )( 134 )( 360 )(

22 54 76

134 )( 134 0

22 80 )( 0 134 76

586 516 433 0 1,535

* See note 23


Total transactions with owners of the Company ..

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

Balance at 31 December 2013 ..............................................

Balance at 1 January 2013 ....................................................

Total comprehensive income:

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

Other comprehensive loss ..................................................

Total comprehensive loss ...................................................

Transactions with owners of the Company,

recognised directly in equity:

Total transactions with owners of the Company ..

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

Settlement of losses ...............................................................

Consolidated Statement of Changes in Equity

for the year 2013


Total comprehensive income:

Total comprehensive loss ...................................................

Settlement of losses ...............................................................

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

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

Other comprehensive income ...........................................

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

Transactions with owners of the Company,

recognised directly in equity:


14

Consolidated Statement of Cash Flows for the Year 2013



_____________________________________________________________________________________________________________

Note 2013 2012

134 )( 2,073 )( Adjustments for:

12 429 379 14 512 440

0 696 1 0

540 435 0 177 4 )( 5 )(

11 32 )( 463 46 )( 111 152 719 )( 153 )( 693

1,265 597

35 40 573 )( 450 )(

54 )( 27 )( Net cash from operating activities 673 160

7 7 14 0 16 )( 0

12 748 )( 647 )( 16 335 )( 655 )(

19 0 127 )( 115 )(

Net cash used in investing activities 1,186 )( 1,410 )(

17 0 708 5,985 328 )( 5,329 )( 59 )( 208

Net cash from financing activities 338 864

Net change in cash and cash equivalents ...................................................................... 175 )( 386 )(

Cash and cash equivalents at 1 January ........................................................................ 443 811

Effects of exchange rate fluctuations on cash held ................................................ 26)( 18

Cash and cash equivalents at 31 December ................................................................... 242 443


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

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

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

Consolidated Statement of Cash Flows for the year 2013

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

Cash flows from operating activities:

Trade and other payables, change ...............................................................................

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

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

Interest expenses paid ...........................................................................................................

Depreciation ............................................................................................................................. Amortisation of intangible assets ................................................................................. Impairment losses on goodwill ....................................................................................... Gain on sale of investments .............................................................................................

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

Interest income received ......................................................................................................

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

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

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

Acquisition of operating assets ........................................................................................Cash disposed of due to discontinued operation ...................................................Proceeds from sale of shares in other companies ...................................................Proceeds from sale of operating assets ........................................................................Cash flows used in investing activities:

Cash flows from financing activities:

Dividend from discontinued operation .......................................................................Change in long term receivables .....................................................................................

Acquisition of intangible assets ......................................................................................


15

Notes to the ConsolidatedFinancial Statement

_____________________________________________________________________________________________________________

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

e. Measurement of fair values

Notes to the Consolidated Financial Statements

Advania hf. (the "Company") is a limited liability company incorporated and domiciled in Iceland. Theaddress of the Company’s registered office is at Guðrúnartún 10, Reykjavík. The consolidated financialstatements of the Company as at and for the year ended 31 December 2013 comprise the Company and itssubsidiaries, together referred to as the “Group” and individually as Group entities. The Group operates in theIT sector. A total of 71.3% of the Company's share capital is owned by Framtakssjóður Íslands slhf. (TheIceland Enterprise 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 3 March 2014.

The consolidated financial statements have been prepared on the historical cost basis. The methods used tomeasure fair value are discussed further in note 2e.

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.

In preparing these consolidated financial statements, management has made judgements, estimates andassumptions that affect the application of the Group's accounting policies and the reported amounts ofassets, 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 prospectively.

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 17 - measurement of the recoverable amounts of cash-generating units• note 18 - utilisation of tax losses• note 26 - provisions• note 33 - uncertainty

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 thediscounted 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.

Consolidated Financial Statements of Advania hf. 2013 10 Amounts are in ISK millionAmounts are in ISK millionConsolidated Financial Statements of Advania hf. 2013

16

Notes, continued:

_____________________________________________________________________________________________________________

3. Segment reporting

Information on reportable segments

Iceland Sweden Norway Other Eliminations Consolidated2013Sales .................................. 11,946 11,116 3,069 16 215)( 25,932 EBITDA ........................... 656 434 398 0 173)( 1,315 Assets ............................... 10,038 7,045 1,631 8 2,980)( 15,742

2012Sales .................................. 10,663 11,431 3,938 16 265)( 25,783 EBITDA ........................... 639 418 718)( 2 0 341 Assets ............................... 10,299 7,582 2,158 349 3,312)( 17,076

4. Non-current assets held for sale

5. Sale of goods and servicesSale of goods and services are specified as follows: 2013 2012

16,255 16,231 9,677 9,552

25,932 25,783

6. Other income

7. Personnel expensesPersonnel expenses are specified as follows:

9,456 9,754 864 841

1,760 1,755 12,080 12,350

982 1,018 Average number of employees during the year .....................................................................

Included in the EBITDA for Iceland is an increase in the lease obligation amounting to ISK 133 million, seenote 26. In Norway the EBTIDA includes profit from the sale of an IP code, see note 6.

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

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

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

The subsidiary Kogun USA Inc., has been written down in full after the sale of its subsidiary. The subsidiaryAdvania SIA, which was presented as an asset held for sale at 30 June 2013, was sold during the year.

Advania AS, Norway sold an IP code (intellectual property code) during the period resulting in otherrevenues amounting to ISK 506 million.

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.

Notes, continued:

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

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

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


17

Notes, continued:

_____________________________________________________________________________________________________________

8. Personnel expenses are allocated as follows on operating items: 2013 2012

8,943 9,215 1,857 1,860 1,280 1,275

12,080 12,350

9. Employee benefits

10. Finance income and expenseFinance income and expense are specified as follows:

35 39 0 95

35 134

479)( 492)( 76)( 49)( 21)( 0 0 26)(

576)( 567)(

541)( 433)(

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

33 0 123)( 49

18)( 0 0 0

76 414 32)( 463

Reconciliation of effective tax rate: 2013 2013 2012 2012

166)( 1,609)(

Income tax using the Company's domestic20.0% 33)( 20.0% 322)(

4.8%)( 8 0.2% 4)( 44.0% 73 9.5% 153

6.6%)( 11)( 0.0% 0 Current year losses for which no deferred

35.5%)( 59)( 11.7% 189 6.0%)( 10)( 0.0% 0 0.0% 0 25.7% 414 0.0% 0 2.1% 33 11.1% 32)( 69.2% 463

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

Impairment of tax asset .......................................................................................................................

Finance expense ......................................................................................................................................

Notes, continued:

Cost of services sold ...............................................................................................................................Sales expenses ...........................................................................................................................................

Expected tax payable ............................................................................................................................

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 ...................................................................................................

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

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

Finance income ........................................................................................................................................Net foreign exchange gain ..................................................................................................................

Deferred tax:

As a result of a curtailment in the pension arrangement for the employees of Advania AS, Norway, ISK 183million were expensed in the consolidated statement of comprehensive income during the year 2012.

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

Effect of change in tax rate ................................................................................................................

Effect of tax rates in foreign jurisdictions ................

Change in estimates related to prior years ...............

Benefits of tax losses recognised ....................................................................................................

Untaxable revenues ..............................................................

Impairment of tax asset ......................................................

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

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

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

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

tax asset recognised ...........................................................


18

Notes, continued:

Amounts are in ISK millionConsolidated Financial Statements of Advania hf. 2013

_____________________________________________________________________________________________________________

12. Operating assetsMachinery

and other

Buildings assets Total

Cost

0 2,512 2,512

0 433 433

210 437 647

0 231)( 231)(

0 102 102

210 3,253 3,463

210 3,253 3,463

0 748 748

0 973)( 973)(

0 217 217

210 3,245 3,455

Depreciation and impairment losses

0 1,465 1,465

0 433 433

6 373 379

0 229)( 229)(

0 67 67

6 2,109 2,115

6 2,109 2,115

7 422 429

0 968)( 968)(

0 249 249

13 1,812 1,825

Carrying amounts

0 1,047 1,047

204 1,144 1,348

197 1,433 1,630

3% 7-33%

13. Insurance value

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

2013 2012

429 379

512 440

941 819

Additions .....................................................................................................................

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

At 31 December 2013 ...............................................................................................

Disposals .....................................................................................................................

Currency adjustments .........................................................................................

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


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


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

Insurance value of machine and other assets amounted to ISK 4,127 million at year-end 2013 (2012: ISK 3,618

million) and official value for the building amounts to ISK 251 million at year-end 2013 (2012: ISK 237 million).

Amortisation of intangible assets, see note 16 .........................................................................

Disposals .....................................................................................................................

Operating assets and their depreciation is specified as follows:

Additions .....................................................................................................................

Disposals .....................................................................................................................

Notes, continued:




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



At 1 January 2012 .....................................................................................................

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



Depreciation for the year ...................................................................................

Depreciation of operating assets, see note 12 ...........................................................................

Depreciation for the year ...................................................................................

Disposals .....................................................................................................................

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


19

Notes, continued:

_____________________________________________________________________________________________________________

15. 2013 2012

449 402 149 64 343 353 941 819

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

Customer intangible Goodwill relationships assets Total

Cost 4,646 2,655 1,111 8,412

0 0 190 190 102)( 40 0 62)(

0 0 655 655 0 0 106)( 106)(

258 126 106 490 697)( 0 0 697)(

4,105 2,821 1,956 8,882

4,105 2,821 1,956 8,882 0 40 295 335 0 0 271)( 271)(

153)( 121)( 163)( 437)( 3,952 2,740 1,817 8,509

Amortisation and impairment losses0 586 600 1,186 0 0 190 190 0 215 225 440

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

697)( 0 0 697)( 0 801 947 1,748

0 801 947 1,748 0 212 300 512 0 0 271)( 271)( 0 30)( 75)( 105)( 0 983 901 1,884

Carrying amounts4,646 2,069 511 7,226 4,105 2,020 1,009 7,134 3,952 1,757 916 6,625

Impairmenttest 5-20% 12-50%

Acquisitions during the year ............................................

Depreciation is allocated as follows on operating items:

Amortisation for the year ..................................................

Currency adjustments .........................................................

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

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

Acquisitions during the year ............................................

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

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

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




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

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

Balance at 31 December 2013 .............................................



Notes, continued:


Amortisation for the year ..................................................

Impairment loss during the year ....................................

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



Impairment loss during the year ....................................


Amortisation ratios ...............................................................

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

At 31 December 2013 ...............................................................

At 1 January 2012 .....................................................................


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




20

Notes, continued:

_____________________________________________________________________________________________________________

17. Impairment tests

2013 2012

3.0-3.9% 1.5-4.9%Revenue growth:

3.0% 5.4%3.4% 4.3%

10.0% 35.7%13.9-15.6% 11.9-16.4%

6,757 6,879

57 )( 60 )( 78 )( 83 )(

203 )( 247 )(

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

2013 2012 2013 2012Assets Assets Liabilities Liabilities

17 )( 99 )( 0 9 318 )( 7 )( 31 )( 264 )(

1 )( 0 0 0 42 29 11 15

5 0 0 0 30 0 0 80

0 64 0 0 915 759 1 64 50 2 )( 0 11 )(

706 744 19 )( 107 )(

Notes, continued:

Budgeted EBITDA growth ..................................................................................................................

Recoverable amounts ............................................................................................................................

Long term growth rate - 1% ................................................................................................................

No impairment loss is recognised in the Financial Statements (2012: ISK 696 million due to Norway).

Total ..............................................................................................Other items ................................................................................

Tax loss carry-forwards amounting to ISK 4,361 million (2012: ISK 5,194 million) related to the operations inNorway is not included in the deferred tax asset due to uncertainty in its utilisation even though that lossdoes not have an expiring date.

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

Inventories .................................................................................Provisions ...................................................................................

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

2014-2018 / 2013-2017 ..........................................................................................................................

Trade and other payables ...................................................Tax loss carry-forwards ......................................................

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

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

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

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

WACC .............................................................................................................................................................

Weighted average 2013 / 2012 .......................................................................................................

Operating assets ......................................................................Intangible assets .....................................................................

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 forecast period was justified dueto long-term nature of the business.

Deferred exchange gain .......................................................Trade and other receivables ..............................................


21

Notes, continued:

_____________________________________________________________________________________________________________

19. Long term receivables

20. InventoriesInventories consist of computer equipment for sale.

21. Trade and other receivables2013 2012

4,297 5,347 1,643 1,396

86)( 170)( 5,854 6,573

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

242 284 0 159

242 443

23. Equity(i) Share capital

(ii) Share premium

(iii) Other reserves

Reserves are specified as follows: 2013 2012

261 487 131 131 41 41

433 659

24. Earnings per share

Basic earnings per share:134 )( 2,072 )( 566 555

0.24)( 3.73)( 0.24)( 3.73)(

Long term receivables are related to long term service agreements in Sweden.

Impairment losses on trade receivables .....................................................................................

Notes, continued:

Dilluted earnings per share of ISK 1 ..............................................................................................

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

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

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Parentby the weighted average outstanding number of shares during the period and shows the earnings per share.The calculation of diluted earnings per share is identical to basic earnings per share as no convertible notesor stock options have been issued.

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

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.

Share premium represents excess of payment above nominal value (ISK 1 per share) that shareholders havepaid for shares sold by the Company. According to Icelandic Companies Act, 25% of the nominal value ofshare capital must be held in reserve which can not be paid out as dividend to shareholders.

Weighted average number of shares for the year ..................................................................

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

Restricted equity due to composition agreement...................................................................Other reserves total................................................................................................................................

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

Trade and other receivables are specified as follows:

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

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

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

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

The Company's share capital, according to its Articles of Association, amounts to ISK 586 million at year end2013. Share capital was increased by 22 million during the year. Shareholders are entitled to one vote pershare at shareholders' meetings.


22

Notes, continued:

_____________________________________________________________________________________________________________

25. Non-current interest-bearing liabilities: 2013 2012

6,355 6,556 265 5

6,620 6,561

Current interest-bearing liabilities:357 240

83 6 193 236

0 46 210 259 843 787

7,463 7,348

Average Carrying Average CarryingCurrency interest rate amount interest rate amount

ISK 7.4% 5,705 7.4% 5,735 SEK 3.6% 1,007 3.6% 1,030 ISK 7.6% 291 - 0

NOK 6.4% 0 - 32 DKK - 57 - 11

7,060 6,808 NOK 6.4% 193 6.4% 236

ISK - 0 7.5% 46 ISK 10.6% 55 12.1% 24

NOK 6.3% 129 6.3% 234 SEK 3.6% 26 - 0

7,463 7,348

2013 2012

- 246 441 2,460

2,433 240 310 240 291 0

2,354 0 1,231 3,622

7,060 6,808

Notes, continued:

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

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

Landsbankinn hf. has granted Advania hf. a temporary exemption from the covenants in the loanagreements as it was not fulfilled at year end 2013. The exemption is valid until year end 2014.

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

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

Terms and conditions of outstanding loans were as follows:

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

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

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

20122013

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

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

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

Finance lease liabilities ........................................................................................................................

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

Repaymens of borrowings are specified as follows:

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

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

Repayments in 2017 ...............................................................................................................................Repayments in 2018 ...............................................................................................................................

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

Repayments in 2013 ...............................................................................................................................

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

Repayments in 2014 ...............................................................................................................................

Finance lease liabilities .....................

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

Total .......................................................... Bank overdraft ...................................... Bank overdraft ......................................

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

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


23

Notes, continued:

_____________________________________________________________________________________________________________

26. Provision for onerous contracts

27. Trade and other payables2013 2012

2,356 2,806 2,885 3,111 5,241 5,917

28. Deferred income

29. Financial risk management and fair valuesOverview

- Credit risk - Liquidity risk - Market risk

Credit risk

(i) Exposure to credit risk

Note 2013 2012

19 265 160 21 5,854 6,573 22 242 443

6,361 7,176

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

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.

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

Notes, continued:

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

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

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

Trade and other payables are specified as follows:

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.

Carrying amount

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

The Group has exposure to the following financial risks:

The Group has entered into non-cancellable leases for office buildings which the Group had to some extentceased to use by 31 December 2013. 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 150 million (2012: ISK 399 million), of which ISK 131 million(2012: ISK 220 million) is classified as a current liability. During the year the Group concluded an agreementwith the lessor of all of the leased buildings. The agreement entails that there will be limited operationaleffects in the year 2014.

Long term receivables .........................................................................................


24

Notes, continued:

_____________________________________________________________________________________________________________

29. Financial risk management and fair values, continued:(i) Exposure to credit risk, continued:

2013 2012

1,549 1,659 3,699 4,029

600 848 6 37

5,854 6,573 (ii) Trade and other receivables

(iii) Guarantees

(iv) Impairment losses

Gross Impairment Gross Impairment2013 2013 2012 2012

3,302 1)( 4,512 0 547 3)( 362 12)(

38 1)( 94 12)( 297 29)( 179 87)(

61 20)( 114 24)( 52 32)( 86 35)(

4,297 86)( 5,347 170)(

2013 2012

170 83 40)( 20)( 13)( 107 31)( 0 86 170

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.

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

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

Past due 181-360 days ...........................................................

The aging of trade receivables at the reporting date was:

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

Notes, continued:

Past due 91-180 days .............................................................

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

Currency adjustments .........................................................................................................................

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.

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.

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

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 .....................................................................................................................

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

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

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

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

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


25

Notes, continued:

_____________________________________________________________________________________________________________

29. Financial risk management and fair values, continued:Liquidity risk, continued:

Carrying Contractual Within More than2013 amount cash flows 12 months 1-2 years 2-5 years 5 yearsNon-derivative financial liabilities

Secured bank- loans .............................. 6,905 8,320 1,025 2,632 3,480 1,183 Other long-term loans .............................. 348 411 104 100 153 54 Bank overdraft ........... 210 210 210 0 0 0 Trade and other payables ....................... 5,241 5,241 5,241 0 0 0

12,704 14,182 6,580 2,732 3,633 1,237

2012Non-derivative financial liabilities

Secured bank- loans .............................. 7,001 8,806 1,126 2,740 1,428 3,512 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 15,070 7,358 2,772 1,428 3,512

Market risk

(i) Currency risk

EUR NOK USD Other47 198 84 112 29 0 25 0

0 0 0 55)( 304)( 0 672)( 75)( 228)( 198 563)( 18)(

The Group's exposure to foreign currency risk was as follows, based on notional amounts at 31 December2013:

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

Notes, continued:

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.

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.

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

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

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


26

Notes, continued:

_____________________________________________________________________________________________________________

29. Financial risk management and fair values, continued:(i) Currency risk, continued:

EUR NOK USD Other37 458 50 34

2 0 15 5 0 0 0 11)(

236)( 1)( 668)( 20)( 197)( 457 603)( 8

Reportingdate spot

Average rate rate

18.8 17.9 20.8 18.9 21.8 21.2

122.2 114.8 162.4 158.1

Sensitivity analysis

(ii) Interest rate risk

Fair values versus carrying amounts

30. Operating leasesLeases as lessee

2013 2012

1,233 1,048 2,455 2,868 2,587 3,267 6,275 7,183

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

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

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

The following significant exchange rates of ISK applied during the year 2013:

Notes, continued:

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

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 .................................................................................................................................................................

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

The Group's exposure to foreign currency risk was as follows, based on notional amounts at 31 December2012:

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

Currency risk due to borrowings is deemed not significant.

During the year ended 31 December 2013 ISK 1,587 million was recognised as an expense in the incomestatement in respect of operating leases (2012: ISK 962 million).

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

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 decreased lossby ISK 59 million (2012: ISK 27 million). The analysis assumes that all other variables, in particular interestrates, 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 to 6 months variable interest rate. A change of 100basis points in interest rates would increase or decrease equity and profit or loss by ISK 74 million (2012: ISK73 million).


27

Notes, continued:

_____________________________________________________________________________________________________________

31. Related partiesIdentity of related parties

Transactions with related parties

Transactions with management and key personnel

Transactions with other related parties

32. Group entities

2013 2012

100% 100%100% 100%100% 100%100% 100%

- 100%- 100%- 100%

50% 50%- 100%

Notes, continued:

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

During the year the Group bought goods and services from associates amounting to ISK 202 million (2012: 314million). The Group's revenues from associates amounted to ISK 650 million (2012: 774 million). The Group hasnot granted any loans to its associates. Trade receivables from associates at year end amounted to ISK 70million (2012: 68 million) and trade payables amounted to ISK 24 million (2012: 24 million).

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

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

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

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

The Company holds three (2012: seven) subsidiaries which all are included in the consolidated financialstatements. The subsidiaries own two (2012: two) subsidiaries which are also included.

Salaries and benefits paid to management for their work for the Group amounted to ISK 582 million (2012:ISK 604 million).

Parties are considered to be related if one party has the ability to directly or indirectly control the otherparty 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 associates. A totalof 71.3% of the Company is owned by Framtakssjóður Íslands slhf., which is in majority owned by Icelandicpension funds and Landsbankinn hf.

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

Ownership interest

The 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.

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

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


28


Notes, continued:

_____________________________________________________________________________________________________________

33. Other mattersUncertainty

Matters resolved

34. Security

35. Significant accounting policies

Advania hf. has instigated court proceedings against Stólpar ehf. in relation to an agreement between thecompanies which has not been fulfilled by Stólpar. The agreement relates to the confirmed intent of the twocompanies to work together with the objective of minimizing the cost due to the termination of previousoffice lease obligations when moving to the current location which was developed and owned by Stólpar. The proceeding is scheduled to be held during the year 2014 in the District Court of Reykjavík.

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.

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 Facility agreement with Landsbankinn hf.

Advania hf. has issued the following security documents to secure its debts.

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 as well as the Supreme Court ruled in favor ofAdvania hf.

The Company's subsidiary, Advania AB, has a credit facility with Skandinaviska Enskilda Banken (SEB). SEK50 million in credit facility is secured by pledged accounts receivables.

Notes, continued:

In December 2013 the Icelandic Tax Authorities ruled that interest expenses on loans that had beentransferred to the Company as a result of a reverse acquisition in 2006 did not qualify as tax deductibleexpenses and re-assessed the tax calculations for the years 2007 and 2008. A ruling for the years 2009 and2010 was postponed. Although the Company did not agree with the Tax Authorities reasoning an allowancewas made on the deferred tax asset at year end 2012 without constituting an acceptance of such a claim inany way. The effects of the ruling in December 2013 are in most aspects in accordance with the estimatedallowance at year end 2012 and an allowance is estimated for the years 2009 and 2010. The ruling will beappealed to the State Internal Revenue Board.

The Company has provided Landsbankinn hf. with a share pledge over the assets and operations of thesubsidiaries Advania Holding AB (100% of total shares) and Advania AS (100% of the total shares).

The Company has pledged its building to secure its debts under a Facility agreement between Advania hf.and MP Bank hf.


29

Notes, continued:

_____________________________________________________________________________________________________________

a. Basis of consolidation(i) Subsidiaries

(ii) Transactions eliminated on consolidation

b. Foreign currency(i) Foreign currency transactions

(ii) Foreign operations

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

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 lossare generally recognised in profit or loss.

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.

Notes, continued:

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.

Loans and receivables

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

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 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.


30

Notes, continued:

_____________________________________________________________________________________________________________

35. Significant accounting policies, continued:c. Financial instruments(i) Non-derivative financial assets, continued:

(ii) Non-derivative financial liabilities

(iii) Share capital

d. Operating assets(i) Recognition and measurement

(ii) Subsequent costs

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 or reissuedsubsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficiton the transaction is transferred to/from share premium or retained earnings.

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 sharesOrdinary 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.

Repurchase and reissue of share capital

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.

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.

Cash and cash equivalents

Items of operating assets are measured at cost less accumulated depreciation and impairment losses.

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

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.

Notes, continued:

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.


31

Notes, continued:

_____________________________________________________________________________________________________________

35. Significant accounting policies, continued:d. Operating assets, continued:(iii) Depreciation

33 years2-15 years

e. Intangible assets and goodwill(i) Goodwill

(ii) Other intangible assets

(iii) Subsequent expenditure

(iv) Amortisation

5-20 years2-8 years

f. Inventories

Notes, continued:

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

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.

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.

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.

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

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

Inventories 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.

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

Goodwill is stated at cost less accumulated impairment losses.

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

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

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

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.

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

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


32

Notes, continued:

_____________________________________________________________________________________________________________

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

(ii) Non-financial assets

h. Employee benefits(i) Defined contribution plans

(ii) Short-term benefits

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.

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.

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.

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

Notes, continued:

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.


33

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35. Significant accounting policies, continued:h. Employee benefits, continued:(iii) Termination benefits

i. Provisions

(i) Onerous contracts

j. Revenue(i) Sale of goods

(ii) Rendering of services

(iii) Commissions

k. Leases(i) Leased assets

(ii) Lease payments

l. Finance income and expensesFinance 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.

Notes, continued:

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.

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

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 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.


Notes, continued:


34

Notes, continued:

_____________________________________________________________________________________________________________

35. Significant accounting policies, continued:l. Finance income and expenses, continued:

m. Income tax

(i) Current tax

(ii) Deferred tax

n. Earnings per share

o. Segment reporting

37. New standards and interpretations not yet adopted

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.

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.

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 accountingnor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probablethat they 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.

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.

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.

A number of new standards, amendments to standards and interpretations are effective for annual periodsbeginning after 1 January 2014, 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.

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.

Notes, continued:



35

Corporate Governance Statement (unaudited)

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Corporate Governance StatementThe framework

Values and code of ethics and corporate responsibility

The Board of Directors and Executive CommitteeBoard of DirectorsFinnbogi Jónsson, Chairman of the Board

The Company complies to the rules mentioned above. No government organization has found the Companyto be in breach with any rule or regulation.

The core values of the Advania are passion, agility and competence. The values were chosen by the employeesthemselves.

Finnbogi Jónsson works as a consulting engineer and economist. He holds an MSc degree in PhysicalEngineering and a BSc degree in Business Administration from the Technical University of Lund, Sweden,from 1978. Finnbogi was the CEO of Framtakssjóður Íslands (the Enterprise Investment Fund) from 2010 to2012, CEO of New Business Fund in Iceland from 2006 to 2010, Executive Chairman of Samherji Plc from 2000to 2005, CEO of Iceland Seafood Plc from 1999 to 2000, CEO of Síldarvinnslan Plc from 1986 to 1999, CEO ofIndustrial Development Company of Akureyri from 1982 to 1986 and Head of Divison in the Ministry forIndustry from 1979 to 1982. Finnbogi has been a board member in more than 30 companies in Iceland andabroad.

PASSION refers to the fact that the Company’s employees are proud, love their field of profession and workarduously with their hearts and souls. Advania strives to create an entertaining workplace with good morale,frequent recreational events and good working facilities.

Advania’s slogan is WELCOME TO IT and was also chosen by the members of staff as to reflect the attitudesof the Company towards guests and customers.

AGILITY refers to the service attitude of the employees, who aim to exceed the expectations of the customerwith pro-active initiatives and react promptly and speedily to all wishes for service. The employees ofAdvania 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 ofexperience in the field of information technology, but also the extensive education covering every field fromtechnology, engineering and computing to social sciences, design and business administration and finance.

Corporate Governance Statement (unaudited)

The guidelines on Corporate Governance issued by the Iceland Chamber of Commerce, NASDAQ OMXIceland and the Confederation of Icelandic Employers, along with the Company's Articles of Association, andrules for Issuers of Securities listed on the NASDAQ OMX Iceland make up the framework for Advania'sCorporate Governance practices. The Company's Articles of Association, Remuneration policy, EqualOpportunities policy, Rules of Procedure for the Board of Directors and the Corporate Governance statementcan be found on the Company's website and the guidelines, while the rules for Issuers are on the website ofNASDAQ OMX Iceland.

In February 2014 the Iceland Chamber of Commerce, the Confederation for Icelandic Employers andNASDAQ OMX Iceland granted the Company a recognition for “Exemplary in Corporate Governance”. Theaim of the recognition is to increase credibility and transparency of Icelandic companies’ corporategovernance with respect to shareholders and interested parties.

Consolidated Financial Statements of Advania hf. 2013 30

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 morale, frequent recreational events and good work-ing facilities.

AGILITY refers to the service attitude of the employ-ees, who 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.

36

Corporate Governance Statement

The Board of Directors and Executive Committee

Finnbogi Jónsson, chairman of the board

Finnbogi Jónsson works as a consulting engineer and economist. He holds an 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 Framtakssjóður Íslands (the Enterprise Investment Fund) from 2010 to 2012, CEO of New Business Fund in Iceland from 2006 to 2010, Executive Chairman of Samherji Plc from 2000 to 2005, CEO of Iceland Seafood Plc from 1999 to 2000, CEO of Síldarvinnslan Plc from 1986 to 1999, CEO of Industrial Development Company of Akureyri from 1982 to 1986 and Head of Divison in the Ministry for Industry from 1979 to 1982. Finnbogi has been a board member in more than 30 companies in Iceland and abroad.

Anna Rún Ingvarsdóttir

Anna Rún Ingvarsdóttir is a graduate in Business Administration and works as Chief Financial Officer of Apple VAD in Iceland. Previously she held the same post at Almenna verkfræðistofan hf. from 2008 to 2011 and from 2005 to 2008 at Humac, the operator of the Apple-stores in Scandinavia. She was 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 the Chief Financial Officer at Tölvusamskipti hf.

Katarina Burton

Katarina Burton runs her own consulting company, Burton Consulting in Stockholm, Sweden and has done so since 2008. She has been a member of the board of Advania Sweden since 2012. She has over 25 years of experience in IT and telecom companies. From 1995 to 2007 she worked at the Swedish telecommunications company Ericsson, and since 1999 she worked in the market area Nordics & Bal-tics as the VP of marketing and communications and before that as a Key Account Manager. Between 1982 and 1994 she was a manager at Bull, the French IT company. Katarina has a Bachelor’s degree in science and Business Administration from the University of Lund as well as an Ericsson Executive from Columbia Business School in New York.

Kristinn Pálmason

Kristinn Pálmason works for the Framtakssjóður Íslands (the Enterprise Investment Fund). Kristinn completed an M.Sc. degree in Corporate Finance in 2010 and a B.Sc. in Business Administration in 2003 at the University of Reykjavik. Prior to working for the Enterprise Investment Fund he worked as a project manager at the Vestia ehf. holding company and Landsbanki from 2002 to 2008. At Landsbanki he was a mergers & acquisitions expert and a corporate restructuring consultant at the head office and London office. He has served on the boards of directors of various companies in Iceland.

Þór Hauksson

Þór Hauksson is the CEO of Burðarás hf. He graduated as B.A. in Political Science from the Univer-sity of Iceland in 1995, M.A. in Political Science and Economy from the University of Hull in 1998 and MBA from Reykjavik University in 2007. Prior to joining Burðarás hf. Þór worked for Framtakssjóður Íslands (The Iceland Enterprise Investment Fund), 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, specialising in investment and financing. Þór worked at the department of asset management at Kaupþing from 1998 to 2001 and from 1995 to 1997 as an expert at the Ministry of Finance.

37

Corporate Governance Statement, continued:


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 the 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 interac-tive gaming company Betware. He has served as Chairman of the Board of top-level domain registry Internet in Iceland and had the same position at Vodafone in the Faroe Islands. Gestur has a degree in Political Science and Economics from the University of Iceland.

Mikael Noakson, CEO Advania AB, Sweden

Ole Morten Settevik, CEO Advania AS, Norway

Board of Directors

The Company’s Board of Directors exercises the supreme authority in the Company’s affairs between shareholders’ meetings, and it is entrusted with the task of ensuring that the organisation 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 the 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 ac-counts and the disposal of its assets and shall adopt working procedures in compliance with the Companies Act. Only the Board of Directors may assign power of procuration on behalf of the Company. The signatures of the majority of the members of the Board are required to bind the Company. The CEO is responsible for the daily 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. Daily 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

Erna Eiríksdóttir, Eimskipafélag Íslands hf.

Hafliði Helgason, Framtakssjóður Íslands ( The Iceland Enterprise Investment Fund)

38


_____________________________________________________________________________________________________________

Board of DirectorsThe Company's Board of Directors exercises the supreme authority in the Company's affairs betweenshareholders' meetings, and it is entrusted with the task of ensuring that the organisation and activities ofthe Company's operation are at all times in correct and proper order.

The Board of Directors is instructed in the Company's Articles of Association to appoint a CEO for theCompany and decide the terms of his or her employment. The Board of Directors and the CEO are responsiblefor the management of the Company.


In 2011 the Board of Directors approved the Rules of Procedures for the Board of Directors that was amendedin 2013. All new board members have confirmed these Rules in writing. The Rules of Procedures are accessibleto the Board of Directors through the Company's website. In accordance with article 12 of the Rules onProcedures the Board of Directors must annually evaluate its work, size, composition and practices, and mustalso evaluate the performance of the CEO and others responsible for the daily management of the Companyand its daily development. The annual performance assessment is intended to improve working methods andincrease the efficiency of the Board. The assessment entails e.g. evaluation of the strengths and weaknessesof the Board's work and practices and takes into consideration the work components which the Boardbelieves may be improved.

The Company's Board of Directors consists of five members and two alternate members, elected at theAnnual General Meeting for a term of one year. Those who intend to stand for election to the Board ofDirectors must inform the Board in writing of their intention at least five days before the annual generalmeeting, or extraordinary shareholders' meeting at which elections is scheduled. Only those who haveinformed the Board of their candidacy are eligible.

The Board of Directors elects a Chairman among its members, and otherwise allocates its obligations amongits members as needed. The Chairman calls Board meetings. A meeting must also be held if requested by amember of the Board of Directors or the CEO. Meetings of the Board are valid if attended by a majority of itsmembers. However, important decisions shall not be taken unless all members of the Board have had anopportunity to discuss the matter, if possible. The outcome of issues is decided by force of vote, and in theevent of an equality of votes, the issue is regarded as rejected. The CEO attends meetings of the Board ofDirectors, even if he or she is not a member of the Board, and has the right to participate in discussions andsubmit proposals unless otherwise decided by the Board in individual cases. A book of minutes is kept ofproceedings at meetings must be signed by participants in the meeting. A Board member who disagrees witha decision made by the Board of Directors is entitled to have his or her dissenting opinion entered in the bookof minutes. The same applies to the CEO. The Chairman is responsible for the Board's relations with theshareholders and he shall inform the Board on the views of the shareholders.

The Company's Board of Directors must at all times ensure that there is adequate supervision of theCompany's accounts and the disposal of its assets and shall adopt working procedures in compliance withthe Companies Act. Only the Board of Directors may assign power of procuration on behalf of the Company.The signatures of the majority of the members of the Board are required to bind the Company. The CEO isresponsible for the daily operation of the Company and is required in his work to observe the policy andinstructions set out by the Company's Board of Directors. Daily operation does not include measures whichare unusual or extraordinary. Such measures can only be taken by the CEO with the specific authorization ofthe Board of Directors, unless it is impossible to await the decision of the Board without seriouslydisadvantaging the operation of the Company. In such instances, the CEO is required to consult with theChairman of the Board, if possible, after which the Board of Directors must immediately be notified of themeasures. The CEO shall ensure that the accounts and finances of the Company are in conformity with thelaw and accepted practices and that all assets belonging to the Company are securely safeguarded. The CEOis required to provide members of the Board of Directors and Company auditors with any informationpertaining to the operation of the Company which they may request, as required by law.


39

_____________________________________________________________________________________________________________


The Board of Directors convenes on average twelve times a year. The Board of Directors of Advania convened12 times during the year 2013 and all Board Members or their alternates attended almost all meetings. Allmembers of the Board of Directors are independent from the Company. All Board members except KristinnPálmason and Hafliði Helgason were independent from the Company's major shareholders in 2013.

After the confirmation of the Rules of Procedures for the Board of Directors of Advania hf. it was furtherdecided to have similar procedures within the Group co-ordinated and aligned. The Rules of Procedures forthe Board of Directors of Advania hf. were used as a model for the Rules of Procedures for the subsidiaries’Boards of Directors. The Rules of Procedures for the subsidiaries’ Boards of Directors reflect the law andcorporate governance guidelines in each country.

In order to ensure efficiency as well as the involvement of the Company’s Board in decision making insubsidiaries, certain steps have been defined and formalised. The Rules of Procedures for the Board ofDirectors within the Group are set forth in order to ensure that decisions defined as extraordinary or majorare brought before the Company’s Board of Directors for approval. Authority limits of the Company’s CEOare 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 cannotexceed the authority limits of the Company’s CEO, i.e. the Boards of Directors of the subsidiaries must alwaysseek the approval of the Board of Directors of the Company for extraordinary or major decisions in the sameway as the Company’s CEO should. The definition of authority limits of the Boards of Directors ofsubsidiaries also stipulates that the Board of Directors of the Company shall approve decisions, which areconsidered by the Company’s CEO, who is also a board member of the subsidiaries, as extraordinary andmajor and should therefore be brought before the Board of Directors of the Company. The authority limits ofthe subsidiaries’ CEOs have been defined, i.e. which decisions need approval of the Boards of Directors of thesubsidiaries.



Ársskýrsla advania 2013

Documents

statement byadvania

share capital

largest shareholders

atthe shareholders meeting

private companies

annualgeneral meeting

year endthe

annual general meeting