Accounting policies

LM Wind Power Holding A/S is a limited company based in Denmark.

The Annual Report for 1 January-31 December 2009 includes the consolidated financial statements for LM Wind Power Holding A/S and its subsidiaries (the Group) plus a separate financial statement for the parent company.

The consolidated financial statements for LM Wind Power Holding A/S for 2009 are prepared in accordance with the International Financial Reporting Standard (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports and the statutory order on IFRS, published in accordance with the Danish Financial Statements Act. The consolidated financial reports also fulfill the International Financial Reporting

Standards published by IASB. The parent company's financial statement is disclosed in accordance with the provisions of the Danish Financial Statements Act for reporting class C companies. The Annual Report is presented in EUR rounded up to the nearest 1,000 EUR.

There has been some few changes in the comparable figures inprofit and loss, balance sheet, cash flow and notes. It have had no impact on the figures for the year. New accounting standards and interpretations. With effect from 1 January 2009, LM Wind Power Holding A/S implemented the following standards, approved by the EU and relevant to the Group: Standards with an effect on recognition and measurement

The accounting policies applied have been changed in the following areas in relation to last year:

IAS 23 (updated 2007) - recognition of cost of borrowing from specific and general borrowing, which directly concerns the installation of fixed assets produced by the company with a long production time (qualified assets) as part of the cost price of assets. The change applies to qualifying assets if installation began on 1 January 2009 or later. Changes in the accounting policies applied have no effect on the Annual Report for 2009, but are expected to have a limited effect on the Annual Report for 2010.

Standards with no effect on recognition and measurement

IAS 1 (updated 2007) presentation of annual reports: concerns changed requirements for presentation of a statement of all recognised income and costs plus change of terminology used in the Annual Report. Changes to IFRS 7 financial instruments - details: extension of requirement to inform related to fair value of financial instruments and liquidity risk.

The following standards and interpretations relevant to the Group were issued by IASB and approved by the EU, but will not be implemented by the Group with effect from 1 January 2010:

IFRS 3 (updated 2008) business combinations and IAS 27 (updated 2008) consolidated accounts: possibility of recognizing the share of minority interests in businesses acquired at fair value in the event of partial business transfers. All transaction costs must be charged to the income statement. The new standards and interpretations the Group has not yet implemented will come into effect as from the 2010 fiscal year or later. They are not expected to have major effect on the Annual Report for 2010.

Accounting policies applied

Consolidated financial statements

The consolidated financial statements concern LM Wind Power Holding A/S (the parent company) and companies in which LM Wind Power Holding A/S directly or indirectly holds more than 50% of the voting rights or in any other way exercises a controlling interest (subsidiaries). LM Wind Power Holding A/S and its subsidiaries are jointly referred to as the Group. The consolidated financial statements are prepared on the basis of the financial statements of the parent company and subsidiaries by consolidating items of a similar nature and elimination intro-group transactions, intra-group shareholdings and accounts, and unrealised intra-group gains and losses. The consolidated financial statements are prepared in accordance with the accounting practices applied for the LM Wind Power Group.

Business combinations

Newly acquired or newly established companies are recognized in the consolidated financial statements from the date of acquisition. The date of acquisition is when LM Wind Power Holding A/S (or the parent company) actually achieved control over the company acquired. Sold or wound-up companies are recognised in the consolidated income statement up to the date they were sold or closed. Comparative data is not adjusted for companies newly acquired, sold or wound up. However, discontinued operations are presented as a separate item.

When acquiring companies in which the parent company achieves controlling interest, the acquisition method is used.

The identifiable assets, liabilities and possible liabilities of acquired companies are measured at their fair value at the time of acquisition.

Identifiable intangible assets are recognised where they can be separated or arise from a contractual right, and the fair value can be accurately calculated. Deferred tax on re-evaluations performed is recognised.

The cost price of a company consists of the fair price of the agreed fee plus the costs which can be directly attributed to the acquisition.

If there are any uncertainty as to measurement of acquired identifiable assets, liabilities or possible liabilities on the date of acquisition, recognition will first occur based on provisional fair values. Should it subsequently transpire that identifiable assets, liabilities and possible liabilities had a different fair value on the date of acquisition to that envisaged, it can be adjusted up to 12 months after acquisition. The effects of adjustments are recognised in the primary equity capital and comparative data adjusted. Goodwill is subsequently adjusted only as a result of revised estimates for conditional purchase price, unless there are major errors involved.

For business combinations completed on 1 January 2004 or later, the positive difference (goodwill) between cost price for the company and fair price of the identifiable assets, liabilities and possible liabilities is recognised as goodwill under intangible assets. Goodwill is not amortised, but is tested annually for capital loss. The first test is performed at the end of the year of acquisition. At the time of acquisition, goodwill is attributed to the cash flow generating units, which subsequently form the basis for capital loss testing. Goodwill and fair value adjustment related to acquisition of a foreign unit with another functional currency than LM Wind Power's presentation currency are treated as assets and liabilities belonging to that unit and converted to the currency it uses at the exchange rate applicable on the day of the transaction. A negative difference (negative goodwill) is recognised in the income statement on the date of acquisition.

For business combinations completed prior to 1 January 2004, account classification is retained in accordance with former accounting policy. The accounting treatment of business combinations before 1 January 2004 has not been adjusted in connection with the opening balance as at 1 January 2004. Goodwill at 1 January 2004 is therefore recognised based on the cost price at which it was recognised in accordance with the previous accountancy practice (the Danish Financial Statements Act and Danish Accounting Standards) less amortisation and impairment up until 31 December 2003. Goodwill is not amortised after 1 January 2004.

Gain or loss made at the time of sale or winding up of subsidiaries is stated as the difference between sale or winding-up value and that of net assets including goodwill at the time of sale, plus costs for sale or winding-up.

Conversion of foreign currencies

A functional currency is determined for each of the reporting companies in the Group. The functional currency is that used in the primary economic environment in which the reporting company operates. Transactions in other currencies are transactions in foreign currencies. The parent company's functional currency is Danish kroner (DKK), but due to the Group's international relations the consolidated accounts are presented in euro (EUR).

Transactions in foreign currencies are converted when first recognized to the functional currency at the exchange rate on the day of transaction. Exchange rate differences arising between the rate on the day of transaction and payment are recognized into the income statement under financial income or expenses.

Receivables, payables and other monetary items in foreign currencies are converted to the exchange rate effective on the balance sheet date. The difference between balance sheet date rate and that at the time when the receivables or payables arose or the rate in the most recent annual report are recognized in the income sheet under financial income and expenses.

Consolidation of foreign companies with a functional currency different to that of the LM Wind Power Group's presentation currency means that the income statements are converted to the rate in effect on the transaction date and balance sheet items are converted to currency rates in effect on balance sheet date. The exchange rate used for transaction day is the average rate for each month providing this does not give too much distortion. Exchange rate differences arising from conversion of foreign equity at the start of the year to balance sheet date rates, and conversion of income states from transaction date rate to balance sheet date rates, are recognised directly in equity under a special reserve for exchange rate adjustments.

Derivative financial instruments

Derivative financial instruments are recognised from the date of transaction and measured in the balance sheet at fair value. Positive and negative fair values of derivative financial instruments are recognised in other receivables or other payables respectively.

Fair values for derived financial instruments are calculated on the basis of current market data and approved capital valuation methods.

Cash flow hedging

Changes to that part of the fair value of derivative financial instruments classified as and fulfilling the conditions for hedging future payment flow, and which effectively hedge changes in the value of the item hedged, are recognised in the equity capital under a special reserve for hedging transactions, until the hedged cash flow affects the income statement. At that point, the gain or loss made is transferred from the equity capital and recognised in the same accounting item as the hedged transaction.

If the hedged instrument no longer fulfills the criteria for accountancy hedging, the hedging will cease to apply. The accumulated change in value recognised in the equity is transferred to the income statement when the hedged cash flow affects the income statement. If the hedged cash flow is no longer expected to be realised, the accumulated change in value is transferred to the income statement immediately.

Other derivative financial instruments

Financial instruments which do not fulfill the conditions for being treated as hedging instruments are recognised periodically in the income statement under financial items.

The income statement

Revenue

Revenue is measured as the fair value of the agreed price excluding VAT and fees collected on behalf of a third party less discounts and allowances. Income is recognised in the income statement when realised or are realisable and earned. Income is considered earned when the LM Wind Power has substantially accomplished what it must do to be entitled to the income. Income from the sale of goods is recognised when all the following specific conditions have been met:

• the LM Wind Power Group has transferred all significant risk and rewards of ownership of the goods before the end of the year;

• the amount of income can be measured reliably;

• it is probable that the financial benefits associated with the transaction will accrue to the LM Wind Power Group and;

• costs incurred or which will be incurred related to the transaction can be measured reliably.

These conditions are usually met when the products are produced by the delivery date agreed with the customer and the products are physically delivered or stored at the LM Wind Power group's storage facilities.

Other external costs

Other external costs include those incurred for distribution, sales, advertising, administration, premises, loss on debtors, operational leasing agreements etc.

Personnel costs

Wages, social insurance contributions, paid leave and sick leave, bonuses and non-monetary payments are recognised in the fiscal year in which the Group's employees have performed the associated work.

Special items

Special items include items of a special size or character relative to the Group's earnings-generating operations, such as restructuring of processes and basic structural changes, gains and losses in connection with the sale of activities. These items are presented separately to facilitate comparison in the income statement, including the provision of a better picture of the operating profit or loss.

Financial income and costs

Financial income and costs contain interest, exchange rate gains and losses plus impairment on payables and transactions in foreign currencies, amortisation of financial assets and liabilities, including financial leasing liabilities, plus supplements and receivables under the prepaid tax scheme etc. Realised and unrealised gains and losses are also included, concerning derived financial instruments which cannot be classified as hedging agreements.

Tax on profit for the year

The Group's Danish subsidiaries are taxed jointly with LM Wind Power Holding A/S. The current Danish corporation tax is distributed between the jointly taxed companies in relation to their taxable incomes. The companies either pay or receive joint taxation contribution from the administration company, equivalent to the tax value of the deficit used (full distribution). Jointly taxed companies are subject to the prepaid tax scheme. Tax for the year, consisting of tax payable for that year plus any changes in deferred tax, are recognised in the income statement by that part that can be attributed to the year's result, and directly in the equity capital by the element that can be attributed to items direct in the equity capital.

The balance sheet

Intangible assets

Goodwill

Goodwill is recognised initially in the balance sheet at cost as described under "basis of consolidation". Goodwill is subsequently measured at cost less accumulated impairment. Goodwill is not amortised.

Goodwill is tested annually for impairment and is recognized at historic cost less accumulated impairment losses. Gains and losses from the divestment of a unit include the carrying amount of goodwill related to the divested unit. The value of goodwill is allocated to the Group's cash flow generating units with regard to testing impairment.

Development projects

Recognised development costs are measured at cost and include wages and other costs which directly and indirectly can be attributed to group development activities and borrowing costs from specific and general borrowing which directly concerns the development of development projects. Development projects which are clearly definable and identifiable, where the technical utilisation ratio, sufficient resources and a potential market or potential use in the business can be established, and when there is an intention to produce, market or use the project, are recognised as intangible assets if the cost can be reliably established, and if there is sufficient certainty that the capital value of future earnings can cover current costs and development costs.

Recognised development costs are amortised on a straight-line basis after completion of the development work over the expected economic life from the time the asset is ready for use. The amortisation period is four years. The basis for amortization is reduced by any impairment made.

Other intangible assets

Other intangible assets, including those acquired due to business combinations, are measured at cost price less accumulated amortisations and impairments. Other intangible assets are amortised on a straight line basis over their expected economic life as follows:

Customer relationship 1-2 years
Know-How 7 years

Property, plant and equipment.

Property, plant and equipment are measured at cost less accumulated depreciation and impairment costs.

Cost includes the cost of purchase and expenses directly attributable to the purchase until the asset is ready for use. In the case of assets produced in-house, cost comprises direct and indirect costs for materials, components, suppliers, labour and cost of borrowing from specific and general borrowing which directly concerns establishment of an individual asset. Subsequent costs, e.g. for replacement of components of a material asset, are recognised at the book value of the asset concerned when it is likely that defrayment will incur future financial benefits for the Group. The parts replaced cease to be recognised in the balance sheet and the book value is transferred to the income statement. All other costs for general repair and maintenance are recognised in the income statement upon defrayment. The cost price of a composite asset is broken down into the separate components which are depreciated individually, providing their service lives are deemed to vary significantly. Property, plant and equipment are depreciated on a straight-line basis over the expected useful life based on individual assessment determined as follows:

Buildings: 25 years
Leasehold improvements: Over the lease period, not exceeding 5 years
Moulds: over the expected useful life, 2-4 years
Other assets: 0-5 years
Land is not depreciated.

The basis for depreciation is made up with regard to the asset's scrap value and reduced by depreciation if relevant. Scrap value is determined at the time of acquisition and reviewed annually. Should the scrap value exceed the book value of the asset, depreciation will cease. The effect of amortisation is recognised forward-looking for changes in the depreciation period or scrap value as a change in the book valuation.

Depreciation is recognised in the income statement under amortization and impairment, to the extent depreciation is not included in the cost of assets produced in-house. Gains and losses related to divestment of assets are recognized in the income statement under amortisation and impairment.

Leasing

Leasing contracts in which the Group bears all significant risks and rewards of ownership (financial leasing) are initially recognized in the balance sheet at the lower of their fair value or present value of future minimum lease payments. When calculating present value, the internal interest rate for the leasing agreement is used as discount factor or an approximate value for the same. Financially leased assets are subsequently treated the same as the group's other property, plant and equipment Gains from the sale and leaseback are recognised as a liability and taken into income over the term of the lease. All other leases are considered as operating leases. Payments in connection with operating leases are recognised using the straight-line method in the income statement over the term of the lease.

Impairment of fixed assets

Goodwill and intangible assets with indefinable service life are tested annually for impairment, initially at the end of the acquisition year. Development projects in progress are similarly tested annually for impairment.

The book value of goodwill is tested for impairment along with the other long term assets in cash flow generating units; goodwill is allocated and impaired to recovery value in the income statement, providing the book value is higher. The recovery value is usually made up as the present value of the expected future net cash flow from the company or activity (cash flow generating unit) the goodwill is related to. Impairment of goodwill is recognised on a separate line in the income statement. Deferred tax assets are evaluated annually and recognised only if it is likely they will not be used. The book value of other long term assets is evaluated annually to determine if there is any indication of impairment. If there is, the asset's recovery value is calculated. This will be the highest of the asset's fair value less expected disposal costs or the capital value. Capital value is calculated as present value of expected future cash flow from the asset or the cash flow generating unit which the asset is a part of.

A loss of capital value will be recognised when the book value of an asset or cash flow generating unit exceeds the recovery value of the asset or cash flow generating unit respectively.

Loss in the event of impairment is recognised in the income statement under amortisation and impairment. Impairment of goodwill is not reversed. Impairment of other assets is reversed if changes have been made to the conditions and estimates which led to the impairment. Impairments are reversed only if the new book value of the asset does not exceed that it would have had after amortisation, if it had not be impaired.

Inventories

Inventories are measured according to the FIFO method at cost or net realisation price, if lower. The cost of goods for resale, raw materials and consumables comprises all direct costs related to the purchase, including delivery costs.

The cost of finished goods and goods under manufacture includes the cost of raw materials, consumables, direct wages, indirect production costs and borrowing costs from specific and general borrowing which directly related to manufacturing of the individual inventory. Indirect production costs include indirect materials and wages plus maintenance of and impairment on the machines, factory buildings and equipment used in the production process, plus the cost of production administration and management. The net realisation value for inventories is made up of the sales amount less completion costs and costs incurred for executing the sale, and is determined with regard to marketability, obsolescence and development in expected sales price.

Receivables

Receivables are measured at amortised cost price. Amortisation is performed to account for loss when deemed to have occurred and an objective indication that a receivable or portfolio of receivables are impaired. If there is an objective indication that an individual receivable is impaired, depreciation is made to an individual level.

Receivables for which there is no objective indication of impairment at individual level are evaluated at portfolio level for objective indication of impairment. The objective indicators used for portfolios are determined based on historic loss experience. Impairments are entered as the difference between the book value and present value of the expected cash flow, including the realisation value of any security provided. The discount rate used is the effective rate used at the time of initial recognition for each receivable or portfolio.

Prepaid expenses

Prepaid expenses entered as assets included costs incurred concerning the subsequent fiscal year. These typically comprise prepaid expenses concerning rent, insurance premiums and subscriptions. Prepaid expenses are measured at amortised cost price.

Equity

Dividends

Proposed dividend is recognised as a liability at the time of adoption at the annual general meeting (the time of declaration). Dividends expected to be paid for the year are shown as a separate item under equity. Interim dividend is recognised as a liability at the time of decision.

Treasury shares

Treasury reserves include purchase and sales prices for the company's own shares, which are recognised directly in equity. A capital reduction through cancellation of treasury shares reduces the share capital by an amount equivalent to the nominal value of the sharesand increases retained earnings. Dividends for treasury shares are recognised directly in equity under retained earnings.

Reserve for exchange rate adjustment

The reserve for exchange rate adjustment covers exchange rate differences arising from conversion of accounts for units with a functional currency other than euro (EUR), exchange rate adjustments concerning assets and liabilities which comprise part of the Group's net investment in such units, and exchange rate adjustments concerning hedging transactions which hedge the Group's net investment in such units. For full or part realisation of net investments, exchange rate adjustments are recognised in the income statement.

Hedge transaction reserve

The hedge transaction reserve includes the accumulated net change in fair value of hedge transactions which fulfil the criteria for hedging future payment flows, and for which the hedged transaction is not yet realised.

Provisions

Deferred liabilities are recognised when the Group has a legal or factual liability arising from an event before or on the balance sheet date, and it is likely that some financial benefit will have to be given as payment for the liability. Deferred liabilities are measured at the management's best estimate of the amount required to pay off the liability. Back discounting has to be performed of the costs necessary to pay off deferred liabilities when measuring, if it will have a significant effect on measurement. A pre-tax discounting factor is used which reflects the general level of interest and the specific risks associated with the liability. Provisions for the fiscal year at present value are recognised under financial items. Warranty commitments comprise obligations to repair blades delivered within their warranty period. A general provision is made based on previous experience and expected future costs. In addition, individual provisions are made to cover the cost of any retrofits. Costs for restructuring are recognised as liabilities when a detailed, formal plan for the restructuring is published no later than the balance sheet date for the notification of the people affected by the plan. Pension commitments not covered by insurance are measured at the present value of expected future payments. Liabilities concerning contribution-based pension schemes, for which the Group regularly pays fixed pension contributions to independent insurance companies, are recognised in the income statement in the period they are earned and payments due are recognized in the balance sheet under other debt.

Financial liabilities

Amounts owed to banks are recognised when the loan is raised as the proceeds received less transaction costs. In subsequent periods, the financial liabilities are measured at amortised cost, corresponding to the capitalised value using "the effective interest rate method". Accordingly, the difference between the proceeds and the nominal value is recognised in the income statement under financial costs over the term of the loan. In addition, the capitalised residual lease liability on financial leasing contracts is recognised, and measured at amortised cost. Other financial liabilities are measured at amortised cost which largely corresponds to nominal value.

Leasing

Leasing liabilities are broken down into financial and operational leasing liabilities. A leasing agreement is classified as financial when it largely transfers risk and benefits by owning the leased asset. Other leasing agreements are classified as operational. The accounting treatment of financial leased assets and associated liability are described in the sections on property, plant and machinery or financial liabilities. Payments concerning operating leases are recognised using the straight-line method in the income statement over the term of the lease.

Tax payable and deferred tax

Current tax liabilities and receivable current tax are recognized in the balance sheet as projected tax on the year's taxable income adjusted for tax on previous taxable income and for prepaid taxes. Deferred tax is measured using the balance sheet liability method on all temporary differences between accounting and tax values of assets and liabilities. However, deferred tax on temporary differences concerning goodwill is recognised, which cannot be deducted from taxable income. Deferred tax assets, including the tax value of presentable tax losses and negative deferred tax, are recognised under other long term assets at a value they are expected to be used at, either in settlement of tax on future earnings or counterbalancing deferred tax liabilities within the same legal tax unit. Adjustment of deferred tax for eliminated non-realised internal group gains and losses is performed. Deferred tax is measured on the basis of the tax rules and rates applicable on balance sheet date for the respective countries, when deferred tax is expected to become tax payable. Changes to deferred tax as a result of changed tax rates are recognized in the income statement.

Deferred income

Deferred income recognised under liabilities covers payments received concerning income in subsequent years.

Assets intended for sale

Assets intended for sale include long term assets intended for sale. Assets are classified as "intended for sale" when their book value will be primarily realised through sale within 12 months in accordance with a formal plan, as opposed to continued use. Assets intended for sale are measured at the lowest value of their book value at the time of classification as "intended for sale" or fair value less sales costs. No depreciation and amortization is performed on assets from the time at which they are classified as "intended for sale". Loss of capital value arising from initial classification as "intended for sale" and gains or losses from subsequent measurement to the lowest value of the book value less sales costs, is recognised in the income statement under the relevant items. Gains and losses are stated in the notes. Assets and associated liabilities are separated onto separate lines in the balance sheet and main items specified in the notes. Comparative figures in the balance sheet are not adjusted.

Cash flow statement

The cash flow statement shows cash flows for the year broken down by operating, investment and financing activities, cash and cash equivalent provisions for the year and opening and closing balances for cash and cash equivalents. The cash flow effect of acquisitions and disposals of companies is shown separately in cash flows from investing activities. Cash flows from companies acquired are shown in the cash flow statement from the date of acquisition and cash flows from companies sold is recognised up to the date of sale. Cash flows from operating activities are stated according to the indirect method as profit/loss for the year before tax adjusted for non-cash operating items such as amortisation and impairment and provisions, plus changes in working capital, interest received and paid, dividends received and corporation tax paid.

Cash flow from investment activities comprises payments from the purchase and sale of companies and activities, intangible assets, property, plant and machinery and other long-term assets. Cash flow from financing activities comprises changes to the size of composition of share capital and costs related to the same, plus borrowing, payments of interest-bearing debt and payment of dividends to shareholders. Cash flows concerning financial leased assets are recognised as payment of interest and repayment of debt. Cash and cash equivalents include cash at the bank. Cash flows in other currencies than the functional currency are converted at average currency exchange rates, unless they differ significantly from the rate on the transaction day.

Key figures

Key figures have been produced in accordance with the Danish Society of Financial Analysts "Financial Ratios and Key Figures 2005".