NOTE 1

GENERAL INFORMATION AND ACCOUNTING PRINCIPLES

General information

Ferd AS is a privately owned Norwegian investment company located in Strandveien 50, Lysaker. The Company is involved in long-term and active ownerships of companies with international potential, and financial activities through investments in a wide range of financial assets.

Ferd is owned by Johan H. Andresen and his family. Andresen is the Chair of the Board.

The Company's financial statements for 2013 were approved by the Board of Directors on 8 April 2014.

Basis for the preparation of the financial statements

Ferd AS’ financial statements are prepared in accordance with the Norwegian Accounting Act section 3-9 and regulation on simplified application of international accounting standards.

Summary of the most significant accounting principles

The most significant accounting principles applied in the preparation of the financial statements are described below. The accounting principles are consistent for similar transactions in the reporting periods presented, if not otherwise stated.

Investments in subsidiaries

Subsidiaries are companies where the parent company Ferd AS has a controlling influence. Such influence normally exists when Ferd AS has a stake exceeding 50 % of the voting capital.

Subsidiaries are classified as tangible assets in the balance sheet and measured at fair value. Value changes on subsidiaries, current returns like dividend and gain or loss on the realisation of subsidiaries are recognised as net operating income in the income statement.

Investments in associated companies and joint ventures

Associates are entities over which Ferd has significant, but not controlling,influence. Significant influence implies that Ferd is involved in strategic decisions concerning the company’s finances and operations without controlling these decisions. Significant influence normally exists for investments where Ferd holds between 20 % and 50 % of the voting capital.

A joint venture is a contractual arrangement requiring unanimous agreement between the owners about strategic, financial and operational decisions.

Investments in associates and joint ventures are classified as non-current assets in the balance sheet and recognised at fair value. Value changes on the investments, current returns like dividend and gain or loss on the realisation of investments are recognised as net operating income in the income statement.

Revenue recognition

Revenue is recognised when earned. The Company's revenue mainly includes rendering services to other group companies and other related parties. Income from the sale of services is recognised according to the service's level of completion, provided the progress of the service and its income and costs can be reliably measured. Revenue is presented as Other income in the income statement.

Foreign currency translation

The financial statements are presented in Norwegian kroner (NOK), which is the functional currency of Ferd AS. Transactions in foreign currency are recognised and measured in NOK at the date of the transaction. Monetary items in foreign currency are translated to NOK on the basis of the exchange rate at the date of the balance sheet. Gain and loss due to currency changes is recognised in the income statement.

Classification of financial instruments

Financial instruments constitute a substantial part of Ferd’s balance sheet and are of considerable significance for the Company's financial position and result. Financial assets and liabilities are recognised when the Company becomes a party to the contractual obligations and rights of the instrument. All financial instruments are classified in the following categories, pursuant to IAS 39, at their initial recognition:

1. Financial instruments at fair value and with changes in value recognised through profit and loss

2. Loans and receivables

3. Financial liabilities

Financial instruments are classified as held for trading and included in category 1 if acquired primarily for benefiting from short-term price fluctuations. Derivatives are classified as held for trading and as current assets. The carrying value of interest derivatives is recognised as interest investments in the balance sheet.

Financial instruments at fair value with value changes in the income statement pursuant to IAS 39 can also be classified in accordance with the "fair value option" in IAS 38 and IAS 31.The instrument must initially be recognised at fair value with value changes through profit and loss and also meet certain criteria. The key assumption for applying the “fair value option” is that a group of financial assets and liabilities are managed on a fair value basis, and that management evaluates the earnings following the same principle.

Loans and receivables are non-derivative financial assets with fixed or determinable payments not quoted in an active market. They are classified as current assets, unless they are expected to be realised more than 12 months after the balance sheet date. Loans and receivables are presented as trade receivables, other receivables and bank deposits in the balance sheet.

Financial liabilities that are not included in the category held for trading and not measured at “fair value through profit and loss”, are classified as other liabilities.

Recognition, measurement and presentation of financial instruments in the income statement and balance sheet

 

Purchases and sales of financial instruments are recognised on the date of the agreement, which is when the Company has made a commitment to buy or dispose of the financial instrument. Financial instruments are derecognised when the contractual rights to the cash flows from the asset expire or are transferred to another party. Correspondingly, the financial instruments are derecognised when the Company on the whole has transferred the risks and rewards connected with the ownership.

Financial instruments at “fair value through profit and loss” are initially measured at quoted prices at the balance sheet date or estimated on the basis of measurable market information available at the balance sheet date. Transaction costs are recognised in profit or loss. In subsequent periods, the financial instruments are presented at fair value based on market values or generally accepted calculation methods.

Borrowings, receivables and financial liabilities are initially measured at fair value with the addition of direct transaction costs. In subsequent periods, the assets and liabilities are measured at amortised cost by using the effective interest method. Losses on loans and receivables are recognised in profit and loss.

Gain and loss from the realisation of financial instruments, changes in fair values and interest income are recognised in the income statement in the period they arise. Dividend received is recognised as income when the Company has established the right to receive payment. Net income related to financial instruments is presented as operating income in the income statement.

Financial derivatives and hedge accounting

The Company applies financial derivatives to reduce any potential loss from exposures to unfavourable changes in exchange rates or interest rates. The derivatives are recognised as financial instruments at fair value, and the the value changes are recognised in the income statement. Ferd AS does not apply hedge accounting in the financial statements.

Income taxes

The income tax expense includes tax payable and changes in deferred tax. Income tax on balances recognised in other income and expenses in total comprehensive income (OCI) is also set off against other income and expenses in total comprehensive income, and tax on balances related to equity transactions are set off against equity.

The tax payable for the period is calculated according to the tax rates and regulations ruling at the end of the reporting period. Deferred tax is calculated on temporary differences between book and tax values of assets and liabilities in the financial statements and any tax effects of losses carried forward at the reporting date.

Deferred tax assets are only recognised in the balance sheet to the extent that it is probable that there will be sufficient taxable profits to utilise the benefits of the tax reducing temporary differences. Deferred tax liabilities and assets are calculated according to the tax rates and regulations ruling at the end of the reporting period and at nominal amounts. Deferred tax liabilities and assets are recognised net when the Company has a legal right to net assets and liabilities, and is able to and intend to settle the tax obligation net.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. The cost includes expenses directly attributable to the acquisition of the asset. Expenses incurred after the acquisition are recognised as assets when future economic benefits are expected to arise from the asset and can be reliably measured, whereas current maintenance is expensed.

Property, plant and equipment are depreciated over their expected useful lives, normally on a straight-line basis. If indications of impairment exist, the asset is tested for impairment.

Impairment

Property, plant and equipment are considered for impairment when there are indications to the effect that future earnings cannot support the carrying amount.

The difference between the carrying value and recoverable amount is charged to the income statement as a write-down. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Fair value less costs to less is the amount that can be recovered at a sale of an asset in a transaction performed at arm’s length between well informed and voluntary parties, less costs to sell. The value in use is the present value of future cash flows expected to be generated by an asset or a cash-generating unit. Impairment losses are subsequently reversed when the impairment indicator no longer exists.

Leasing

Leases are classified either as operating or finance leases based on the actual content of the agreements. Leases under which the lessee assumes a substantial part of risk and return are classified as finance leases. All of the Company's present leases are classified as operating leases.

Leasing costs in operating leases are charged to the income statement when incurred and are classified as other operating expenses.

Trade and other receivables

Current receivables are initially recognised at fair value. In subsequent periods,provisions for actual and possible losses are considered. The Company reviews the receivables on a regular basis and prepares estimates for losses as a basis for the provisions in the balance sheet.

Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits and other short-term and easily realisable investments that will fall due within 3 months, also including restricted funds. Bank overdraft is presented as short-term debt to finance institutions in the balance sheet. In the statement of cash flows, the overdraft facility is included in cash and cash equivalents.

Pension costs and pension funds/obligations

A defined benefit plan is a pension scheme defining the pension payment an employee will receive at the time of retirement. The pension is normally determined as a part of the employee's salary. The Company's net obligation from defined benefit pension plans is calculated separately for each scheme. The obligation represents an estimate of future retirement benefits that the employees have earned at the balance sheet date as a consequence of their service in the present and former period. The benefits are discounted to present value reduced by the fair value of the pension funds.

The portion of the period's net cost that comprises the current year's pension earnings, curtailment and settlement of pension schemes, plan changes and accrued social security tax is included in payroll costs, whereas the interest expense on the pension obligation less expected return on the pension funds is charged to the income statement as finance costs. Positive and negative estimate deviations are recognised as other income and costs in total comprehensive income.

Changes in defined benefit obligations due to changes in pension schemes are recognised over the estimated average remaining service period when the changes are not immediately recognised. Gain or loss on a curtailment or settlement of a plan is recognised in the income statement when the curtailment or settlement occurs. A curtailment occurs when the Company decides to reduce significantly the number of employees covered by a plan or amends the terms of a defined benefit plan to the effect that a significant part of the current employees’ future earnings no longer qualify for benefits or will qualify for reduced benefits only.

Obligations to make contributions to contribution based pension plans are recognised as costs in the income statement when the employees have rendered services entitling them to the contribution.

Provisions

A provision is recognised when the Company has an obligation as a result of a previous event,it is probable that a financial settlement will take place and the amount can be reliably measured. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, discounted at present value if the discount effect is significant.

Current liabilities

Accounts payable and other current liabilities are initially recognised at fair value and subsequently measured at amortised cost. Accounts payable and liabilities are classified as current when they fall due within 12 months after the balance sheet date or are integrated in the Company’s ordinary operating activities.

Dividend

Dividend and group contribution proposed by the Board is recognised as current liabilities pursuant to the exemption in the regulation to the Norwegian Accounting Act section 3-9.

Business areas

Ferd reports business areas in line with how the Company's management makes,monitors and evaluates decisions. The operative areas are identified on the basis of the internal steering information that is periodically reviewed by management and utilised to the allocation of capital and resources as well as goal achievement.

Statements of cash flows

The cash flow statement has been prepared using the indirect method, implying that the basis used is the Company’s profit before tax to present cash flows generated by operating activities, investing activities and financing activities respectively.

Related parties

Parties are considered to be related when one of the parties has the control, joint control or significant influence over another party. Parties are also related if they are subject to a third party’s control, or one party can be subject to significant influence and the other joint control. A person or member of a person’s family is related when he or she has control, joint control or significant influence over the business. Companies controlled by or being under joint control by key executives are also considered to be related parties. All related party transactions are completed in accordance with written agreements and established principles.

New accounting standards according to IFRS

The financial statements have been prepared in accordance with standards approved by the International Accounting Standards Board (IASB) and International Financial Reporting Standards - Interpretations Committee (IFRIC) effective for accounting years starting on 1 January 2013 or earlier.

New and amended standards applied by Ferd effective from the accounting year 2013:

In the changed IAS 19, the ”corridor method” is not allowed for the recognition of estimate deviations. Estimate deviations shalI in their entirety be recognised in comprehensive income in the period they arise. Ferd has not applied the corridor method, and, accordingly, this change has had no impact for Ferd. The amended IAS 19 also has a new approach to presenting pensions. The pension earnings shall be presented in the income statement as salary expenses, whereas net interest can be included in the finance items. Ferd presents net interest as an interest expense from 2013. Comparable figures for 2012 have been restated. The effect, only a reclassification in the income statement, is shown in the note on pensions (note 15).

In addition, in benefit schemes net interest shall be calculated by applying the discount interest rate on the net obligation, i.e., the pension obligation less earned funds. This implies that the return on the pension funds no longer is relevant, as the return now is part of net interest cost.

The amendment implies that enterprises must provide extensive quantitative information related to setting-off financial assets against financial liabilities. Ferd has implemented the amended standard from 1 January 2013. As no set-offs have been carried out this year, the changes so far have not had any consequences for Ferd.

The standard specifies principles and guidance for measuring fair value on assets and liabilities. The objective of the standard has been to establish a single source of guidance for measurements and information of fair value, with a view to ensuring a common definition of fair value across all other standards and provide a uniform guidance to measuring fair value. The clarifications in the standards have not implied changed models, assumptions for calculations or principles for Ferd's calculation of fair value.

The standard also lists a number of new disclosure requirements related to the use of fair value in the financial statements. The disclosure requirements have been incorporated in this year' notes to the accounts.

New and amended standards not yet implemented by Ferd:

IFRS 9 will replace the current IAS 39. The project is divided in several phases. The first phase concerns classification and measurement and has been finalised by IASB. The classification and measurement requirements for financial liabilities in IAS 39 are on the whole continued, with the exception of financial liabilities recognised at fair value with changes in value through profit and loss (the fair value option), where changes in value connected with the company’s own credit risk is separated and recognised in other income and expenses in total comprehensive income. Phase 2 concerns impairment of financial instruments and phase 3 hedge accounting, but neither has so far been completed by IASB. It is still not clear when IFRS 9 becomes mandatory, but the rules will come into for the accounting year stating 1 January 2017 at the earliest. The standard has not yet been approved by the EU. Ferd will implement IFRS 9 when it becomes mandatory. Those parts of IFRS 9 that so far are completed have relatively limited consequences for Ferd.

IFRS 12 applies for enterprises with interests in companies that are consolidated,and companies not consolidated,but in which the enterprise nevertheless is engaged. IFRS 12 combines the disclosure requirements for subsidiaries, joint arrangements, associates and non-consolidated entities into one standard. IFRS 12 becomes effective for annual periods beginning on or after 1 January 2014 (earlier adoption is allowed), and the standard has been approved by the EU. Ferd expects to implement IFRS 12 starting on 1 January 2014, and the implementation will have an impact on Ferd's notes to the financial statements as a consequence of increased information requirements.

As a consequence of the introduction of IFRS 10 and IFRS 12, amendments were made to IAS 27 coordinating this standard with the new accounting standards. IFRS 10 replaced those parts of IAS 27 that concerned consolidated financial statements. IAS 27 is now limited to accounting for the financial statements of the parent company. The changes become effective for annual periods beginning on or after 1 January 2014, and the standard has been approved by the EU. Ferd expects to implement the amended standard starting on 1 January 2014.

NOTE 2

ACCOUNTING ESTIMATES AND JUDGEMENTAL CONSIDERATIONS

Management has used estimates and assumptions in the preparation of the financial statements. This applies for assets, liabilities, expenses and disclosures. The underlying estimates and assumptions for valuations are based on historical experience and other factors considered to be relevant for the estimate on the balance sheet date. Estimates can differ from actual results. Changes in accounting estimates are recognised in the period they arise. The main balances where estimates have a significant impact on disclosed values are mentioned below. The methods for estimating fair value on financial assets are also described below.

In Ferd's opinion, the estimates of fair value reflect reasonable estimates and assumptions for all significant factors expected to be emphasised by the parties in an independent transactions, including those factors that have an impact on the expected cash flows, and by the degree of risk associated with them.

Determination of the fair value of financial assets

A large part of Ferd's balance sheet comprises financial assets at fair value. The fair value assessment of financial assets will at varying degrees be influenced by estimates and assumptions related to factors like future cash flows, the required rate of return and interest rate level. The most significant uncertainty concerns the determination of fair value of the unlisted financial assets.

Listed shares and bonds

The fair value of financial assets traded in active and liquid markets is determined at noted market prices on the balance sheet date (the official closing price of the market). Accordingly, the determination of the value implies limited estimation uncertainty.

Unlisted shares and bonds

The class “Unlisted shares and bonds” comprises private shares and investments in private equity funds. The fair value is determined by applying well-known valuation models. The use of these models requires input of data that partly constitutes listed market prices (like interest) and partly estimates on the future development, as well as assessments of a number of factors existing on the balance sheet date.

Hedge funds

The hedge funds are managed by external parties providing Ferd with monthly, quarterly or half-yearly estimates of the fair value. The estimates are verified by independent administrators. In addition, the total return from the funds is assessed for reasonableness against benchmark indices. In addition, the reported value of the hedge funds managed in the SI (Special Investments) portfolio must normally be adjusted for an estimate on liquidity discount.

Interest investments

The fair value of interest investments is determined on the basis of quoted prices. If such prices are not available, the investment is valued in accordance with price models based on the current yield curve and external credit ratings.

Derivatives

The fair value of derivatives is based on quoted market prices. If such prices are not available, the investment is valued in accordance with price models based on the current yield curve and other relevant factors.

Determination of the fair value of subsidiaries with properties

Ferd has subsidiaries with significant properties recognised at fair value. The fair value is based on the discounted value of future cash flows, and the estimate will be impacted by estimated future cash flows and the required rate of return. The main principles for deciding the cash flows and required rates of return are described below.

Future cash flows are based on the following factors:

Existing contracts

Expected future rentals

Expected vacancies

The required rate of return is based on a risk-free interest with the addition of a risk premium for the property.

The risk premium is based on:

Location

Standard

Expected market development

Rent level compared to the rest of the market

The tenant’s financial strength

Property specific knowledge

In the event that transactions concerning comparable properties close to the balance sheet date have taken place, these values are applied as a cross-reference for the valuation.

Determination of the fair value of subsidiaries with financial and industrial investments

Ferd AS owns financial and industrial investments indirectly through subsidiaries acting as holding companies for these investments. The fair value of these subsidiaries is set to the carrying value of equity, adjusted for non-recognised changes in value of the underlying investments. The underlying investments are valued according to the same principles and methods as Ferd AS' direct investments.

Pension funds and obligations

The calculation of pension obligations implies the use of judgements and estimates on a number of financial and demographical assumptions. Note 15 has details on the assumptions used. Changes in assumptions can result in significant changes in pension obligations and funds in the balance sheet.

NOTE 3

BUSINESS AREAS

Ferd's segment reporting complies with IFRS 8. Ferd is an investment company, and the Company's management makes decisions and monitors and evaluates these decisions based on the fair value of the Company's investments and their changes in value. The operating segments are identified on the basis of capital and resource allocation. Ferd is operating the following five business areas:

- Elopak (100 percent stake) is one of the world's leading manufacturers of packing systems for fluid food articles. With an organisation and cooperating partners in more than 40 countries, the company's products are sold and marketed in more than 100 countries on all continents.

- Aibel (49 percent stake) is a leading supplier to the international upstream and gas industry concentrating on the Norwegian shelf. The company is engaged in operating, maintaining and modifying offshore and land based plants, and is also supplying complete production and processing installations.

- TeleComputing (96 percent stake) is a leading supplier of IT services to small and medium-sized enterprises in Norway and Sweden. The company supplies a broad range of netbased applications and customised operating and outsourcing services in addition to system development, customer assistance and other consultancy services.

- Interwell (34 percent stakel) is a preeminent Norwegian supplier of high-tech well tools to the international oil and gas industry. The company's most important market is the Norwegian shelf, but it has in recent years also gained access to several significant markets internationally, both in Europe, the USA and the Middle-East.

- Swix Sport (100 percent stake) is developing, manufacturing and marketing ski wax, ski sticks, accessories and textiles for sporting and active leasure time use under the brands Swix, Ulvang, Original and Lundhags. The company has extensive operations in Norway as well as abroad through subsidiaries in, i.a., Sweden, USA, Japan and Germany.

- Mestergruppen (92 percent stake) is a prominent actor in the Norwegian building materials market concentrating on the professional part of the market. The company's operations include the sale of building materials and developing land and projects, housing and cottage chains.

- Servi (100 percent stake). Servi develops and manufactures customer specific hydraulics systems, cylinders and vents to the offshore, maritime and land based industries. The company offers a broad range of components within hydraulics, pneumatics and slide bearings in addition to service and maintenance of hydraulics systems.

NOK 1 000

Ferd AS

Ferd

Capital

Ferd

Invest

Ferd

Special Investments

Ferd

Hedgefond

Ferd

Eiendom

Other areas

Result 2013

Operating income

Operating expenses

Operating profit

Balance sheet at 31 December 2013

Investments in subsidiaries

Investments classified as current assets

Bank deposits/drawings on group account

Other assets

Total assets

NOK 1 000

Ferd AS

Ferd

Capital

Ferd

Invest

Ferd

Special Investments

Ferd

Hedgefond

Ferd

Eiendom

Other areas

Result 2012

Operating income

Operating expenses

Operating profit

Balance sheet at 31 December 2012

Investments in subsidiaries

Investments classified as current assets

Bank deposits/drawings on group account

Other assets

Total assets

NOTE 4

INCOME FROM FINANCIAL INVESTMENTS

NOK 1 000

Dividend and group

contributions from

financial investments *)

Unrealised value

change on financial

investments

Net gain on sales

of financial

investments

Total

Investments in subsidiaries

Listed shares and stakes

Unlisted shares and bonds

Hedge funds

Interest investments

Total 2013

NOK 1 000

Dividend and group

contributions from

financial investments *)

Unrealised value

change on

financial investments

Net gain on sales

of financial

investments

Total

Investments in subsidiaries

Listed shares and stakes

Unlisted shares and bonds

Hedge funds

Interest investments

Total 2012

*)Distributions from funds investments are mainly recorded against cost on the investments and not recognised in the income statement.

NOTE 5

SALARIES AND REMUNERATIONS

NOK 1 000

Salaries

Social security tax

Pension costs (note 15)

Other benefits

Total

Average number of man-labour years

Salary and remuneration to Group CEO

NOK 1 000

Salary

Bonus

Benefits in kind

Pension

John Giverholt

The Group CEO's bonus agreement is limited to an annual salary. Bonus is based on achieved results in the Group.

The Group CEO participates in Ferd's collective pension schemes for salaries below 12 G and is thereby entitled to a defined benefit pension. From 2014, this scheme is replaced by a contribution scheme (cf. note 15). The Group CEO also has a benefit scheme for a pension basis higher than 12 G, but with an upper limit of appr. MNOK 2,2, together with an early retirement pension scheme giving him the opportunity to retire at 65 years.

The Group CEO is entitled to 9 months pay after termination of employment is he has to resign from his position.

Ferd AS has a receivable on the CEO of NOK 600 000, which is subject to interest on market based terms. Ferd AS has adequate security for this loan. The loan has no defined instalment plan.

Fees to the Board

No specific fees have been paid for board positions in Ferd AS.

NOTE 6

OTHER OPERATING EXPENSES

NOK 1 000

Lease of buildings etc.

Fees to lawyers, consultants and auditors

Travel expenses

Loss and change in write-downs of receivables

Other expenses

Total

NOTE 7

AUDIT FEES CHARGED TO THE INCOME STATEMENT

 

Specification of fees to the Company's auditors, Ernst & Young AS:

NOK 1 000

Audit fees

Other attestation services

Tax assistance

Other non-audit services

Total

Other non-audit services mainly comprise due diligence servicies and assistance in translating the financial statements. All amounts are exclusive of VAT.

NOTE 8

 

NOK 1 000

The tax expense comprises:

Income tax payable

Change in deferred tax

Tax concerning prior periods

Tax effect of net rendered group contribution

Tax expense

Tax payable in balance sheet

NOK 1 000

Tax payable of the year

Tax paid in advance

Tax payable from prior years

Tax payable in balance sheet

Reconciliation of nominal to effective tax rate

NOK 1 000

Profit before tax

Expected tax expense according to nominal tax rate (28%)

Non-taxable gain/loss and return on securities

Unrealised changes in value of securities

Adjustment of tax from prior periods

Efffect of change in tax rate

Tax effect of other permanent differences

Tax expense

Effective tax rate

Deferred tax asset and deferred tax

NOK 1 000

Receivables

Shares and bonds

Tangible assets

Provisions

Net pensions

Tax loss to carry forward

Balance sheet value at 31 Dec, deferred tax benefit (-)/liability

Change in net deferred tax recognised in balance sheet

NOK 1 000

Balance sheet value at 1 January

Charged in period

Merged (cf. note 19)

Tax set-off against total comprehensive income (estimate deviation, pensions)

Balance sheet value at 31 December

NOTE 9

TANGIBLE ASSETS

NOK 1 000

Buildings and land

Fixtures and equipment

Total

Cost at 1 January

Additions

Disposals

Cost at 31 December

Accumulated depreciation and impairment at 1 January

Depreciation of the year

Disposal of depreciation

Accumulated depreciation and impairment at 31 December

Carrying amount at 31 December

Estimated economic life of depreciable assets

-

4-10 years

Depreciation method

Straight-line

NOK 1 000

Buildings and land

Fixtures and equipment

Total

Cost at 1 January

Additions

Disposals

Cost at 31 December

Accumulated depreciation and impairment at 1 January

Depreciation of the year

Disposal of depreciation

Accumulated depreciation and impairment at 31 December

Carrying amount at 31 December

Estimated economic life of depreciable assets

-

4-10 years

Depreciation method

Straight-line

NOTE 10

SHARES AND STAKES EXCEEDING 10 % OWNERSHIP IN OTHER COMPANIES

Business office

Stake

Subsidiary

Elopak AS

Røyken

FC Well Invest AS

Bærum

FC-Invest AS

Bærum

Ferd Aibel Holding AS

Bærum

1912 Top Holding AS

Bærum

Ferd Eiendom AS

Bærum

Ferd Malta Holdings Ltd

Malta

Ferd MG Holding AS

Bærum

Ferd Sosiale Entreprenører AS

Bærum

Norse Crown Company Ltd. AS

Bærum

Swix Sport AS

Oslo

Non-current shares with ownership > 10 %

Herkules Capital I AS

Current shares with ownership > 10 %

ARKeX Ltd

CF Engine AS

Energy Ventures AS

Energy Ventures IS

Energy Ventures II AS

Energy Ventures II KS

Energy Ventures III AS

Energy Ventures III GP LP

Energy Ventures III LP

Eniram Ltd

Herkules Private Equity Fund I (LP-I) Limited

Herkules Private Equity Fund II (LP-I) Limited

Herkules Private Equity Fund III (LP-I) Limited

Intera Fund I

Marical Inc

Napatech AS

NMI AS

NMI Fund III

NMI Global

NMI Frontier

NRP Fleetfinance IV D.I.S

SPV Herkules II LP

Streaming Media AS

Vensafe ASA

NOTE 11

FINANCIAL INSTRUMENTS AND THE USE OF FAIR VALUE

Ferd applies the following principles in the measurement of fair value in the financial statements:

Ferd applies the valuation method that is considered to be the most representative estimate of an assumed sales value. Such a sale is assumed to be carried out in an orderly transaction at the balance sheet date. As a consequence, all assets for which there is observable market information, or where a transaction recently has been carried out, these prices are applied (the market method). When a price for an identical asset is not observable, the fair value is calculated by another valuation method. In the valuatons, Ferd applies relevant and observable data at the largest possible extent.

For all investments where the value is determined by another method than the market method, analyses of changes in value from period to period are carried out. Thorough analyses on several levels are made, both by business area management, by Ferd's group management and finally by Ferd's Board. Sensitivity analyses for the most central and critical input data in the valuation model are prepared, and in some instances recalculations of the valuation are made by using alternative valuation methods in order to confirm the calculated value.

Ferd is consistent in the application of valuation method and normally does not change the valuation principles. A change of principles will deteriorate the reliability of the reporting and weaken the comparability between periods. The principle for the valuation and use of method is determined for the investment before it is carried out, and is changed only exceptionally and if the change results in a measurement that under the circumstances is more representative for the fair value.

Valuation methods

Investments in listed shares are valued through the application of the market method. The quoted price of the last transaction carried out at the stock exchange, is used.

Investments in unlisted shares managed in-house are normally valued on the basis of an earnings multiple. In calculating the value (Enterprise Value - EV), EV/EBITDA, EV/EBITA and EV/EBIT can be applied, adjusted by a liquidity discount reduction and the addition of a control premium. In companies where Ferd has significant influence on the decisions made, the liquidity discount and control premium normally counterbalance. The corrections are made directly on the multiple. The company's income figure applied in the valuation is normalised for non-recurring effects. Finally, the equity value is calculated by deducting net interest-bearing debt. In the event that an independent transaction has taken place in the security, this is often used as a basis for our valuation.

Several of the venture investments constitute companies with no positive cash flows. This implies a greater degree of uncertainty in the valuations of the companies. The assessments are based on international valuation principles (EVCA guidelines). The investment is measured at cost, but the pricing is adjusted for progress in accordance with a business plan or if a transaction has taken place.

The valuation of investments in externally managed private equity and hedge funds is based on value reports received from the funds (NAV). Ferd makes a critical assessment of whether the reported NAV can be used as fair value, based on the characteristics of the fund. In many instances, the reported NAV must be adjusted, at a liquidity discount, as an example. Special Investments purchase hedge funds in the secondary market, often with a considerable discount compared to the reported value from the funds (NAV). In measuring these hedge funds, estimates from external brokers are obtained in order to assess the discount used at the trading of these hedge funds, compared to the most recently reported NAV.

Rental properties are valued by discounting future expected cash flows. The value of properties that are part of building projects is valued at an assumed sales value on a continuous basis. There is often a shift in value at achieved milestones. In the calculation, it is assumed that the property is utilised in the best possible way. Other properties are valued on the basis of independent appraisals.

The table below is an overview of carrying and fair value of the Company's financial instruments and how they are valued in the financial statements. It is the starting point for additional information on the Company's financial risk and refers to notes to follow.

Financial instruments measured at amortised cost

 

NOK 1 000

Financial instruments measured at fair value over profit and loss

Lending and receivables

Financial obligation

TOTAL

Fair value

Non-current assets

Investments in subsidiaries

Loans to group companies

Other non-current receivables

Total 2013

Total 2012

Current assets

Short-term receivables on group companies

Other short-term receivables

Listed shares and bonds

Unlisted shares and bonds

Hedge funds

Interest-bearing investments

Bank deposits

Total 2013

Total 2012

Long-term debt

Long-term interest-bearing debt

Total 2013

Total 2012

Short-term debt

Trade accounts payable

Public duties etc.

Debt to group companies

Other short-term debt

Total 2013

Total 2012

Fair value herarchy - financial assets and liabilities

Ferd classifies assets and liabilities measured at fair value by a hierarchy based on the underlying basis for the valuation. The hierarchy has the following levels:

Level 2: Level 2 comprises investments where there are quoted prices , but the markets do not meet the requirements for being characterised as active. Also included are investments where the valuation can be fully derived from the value of other quoted prices, including the value of underlying securities, interest rate level, exchange rate etc. In addition, financial derivatives like interest rate swaps and currency futures are considered to be level 2 investments. Some funds in Ferd's hedge fund portfolio are considered to meet the requirements of level 2. These funds comprise composite portfolios of shares, unit trust funds, interest securities, commodities and other negotiable derivatives. For such funds the value (NAV) is reported on a continuous basis, and the reported NAV is applied on transactions in the fund.

Ferd allocates each investment to its respective hiearchy at the acquisition. Transfers from one level to another are made only exceptionally and only if there have been changes of significance for the level classification concerning the financial asset. This can be the case when an unlisted share has been listed or correspondingly. A transfer between levels will then take place when Ferd has become aware of the change.

The table shows at what level in the valuation hierarchy the different measurement methods for the Group's financial instruments at fair value is considered to be:

NOK 1 000

Level 1

Level 2

Level 3

Total 2013

Investments in subsidiaries

Listed shares and bonds

Unlisted shares and bonds

Hedge funds

Interest-bearing investments

Total 2013

NOK 1 000

Level 1

Level 2

Level 3

Total 2012

Investments in subsidiaries

Listed shares and bonds

Unlisted shares and bonds

Hedge funds

Interest-bearing investments

Total 2012

Reconciliation of movements in assets on level 3

NOK 1 000

Op.bal.1 Jan. 2013

Purchases/share issues

Sales and proceeds from investments

Transfers to and from level 3

Unrealised gain and loss, recognised in the result

Gain and loss recognised in the result

Closing bal. on 31 Dec. 2013

Investments in subsidiaries

Unlisted shares and bonds

Hedge funds

Total

NOK 1 000

Op.bal.1 Jan. 2012

Purchases/share issues

Sales and proceeds from investments

Transfers to and from level 3

Unrealised gain and loss, recognised in the result

Gain and loss recognised in the result

Closing bal. on 31 Dec. 2012

Investments in subsidiaries

Unlisted shares and bonds

Hedge funds

Total

Specification of applied indata and sensitivity analysis

The table below gives an overview over the most central assumptions used when measuring the fair value of Ferd's investments, allocated to level 3 in the hierarchy. We also show how sensitive the value of the investments is for changes in the assumptions.

NOK 1 000

Balance sheet value at 31 Dec 2013

Applied and

implicit EBITDA multiples

Value, if the

multiple is

reduced by 10 %

Applied discount

rate

Value, if the interest is increased by 1 percentage point

Estimated discounts according to broker (interval)

Value if the discount is increased by 10 percentage points

Investment in Ferd Eiendom AS 1)

7,5% - 9,0%

Other investments in subsidiaries

7,3 - 10

Unlisted shares and bonds 2)

7,6 - 9,5

Hedge funds 3)

12 % - 76 %

1) Appr. 35% of Ferd Eiendom AS' portfolio constitutes rental property sensitive for changes in the discount interest rate.

2) Appr. 63 % of the investments are sensitive for a change in multiple. The other investments are valued by other methods.

3) Appr. 92 % of the hedge funds are sensitive for a change in discount. The other investments are valued by other methods.

NOTE 12

 

IMPAIRMENT RISK AND CAPITAL ALLOCATION

Ferd's allocation of capital shall be in line with the owner's risk tolerance. One measure of this risk tolerance is the size of the decline in value in kroner or percent that the owner accepts if any of the markets Ferd is exposed to should experience very heavy and quick downfalls. Ferd's total portfolio shall have maximum 35 per cent impairment risk, given certain assumptions. The impairment risk regulates how large part of equity that can be invested in assets with high risk for impairment. This is measured and followed up by stress tests. The loss risk is assessed as a possible total impairment expressed in kroner og as a percentage of equity. Due to Ferd's long-term approach, the owner can accept significant fluctuations in value-adjusted equity.

CATEGORIES OF FINANCIAL RISK

Liquidity risk

Ferd strongly emphasises liquidity and assumes that the return from financial investments shall contribute to cover current interest costs. Hence, it is important that Ferd's balance sheet is liquid, and that the possibility to realise assets corresponds well with the term of the debt. Ferd has determined that under normal market conditions, at least 4 billion kroner of the financial investments shall comprise assets that can be realised within a quarter of a year. This is primarily managed by investments in listed shares and hedge funds. Note 16 has more information about Ferd's loan facilities, including an overview of due dates of the debt.

Foreign currency risk

Ferd has defined intervals for exposure in Norwegian kroner, euro, USD and Swedish kroner. As long as the exposure is within these intervals, Ferd is not making any currency adjustments. If Ferd's exposure exceeds these intervals, steps are taken to adjust the exposure to the established currency curve.

SENSITIVITY ANALYSE, IMPAIRMENT RISK IN INVESTMENT ACTIVITIES

The stress test is based on a classification of Ferd's equity in different asset classes, exposed for impairment as follows:

- The Norwegian stock market declines by 30 percent

- International stock markets decline by 20 percent

- Property declines by 10 percent

- The Norwegian krone appreciates by 10 percent

In order to refine the calculations, it is considered whether Ferd's investments will decline more or less than the market. As an example, it is assumed that private investments in a stress test scenario have an impairment loss of 1.5 - 2 times the market (30-60 per cent in Norway and 20-40 percent abroad).

NOK 1 000

2013

2012

Price risk: Norwegian shares decline by 30 percent

Price risk: International shares decline by 20 percent

Price risk: Property declines by 10 percent

Currency risk: The Norwegian krone appreciates 10 percent

Total impairment in value-adjusted equity

Impairment as a percentage of value-adjusted equity

Included in the basis for the value impairment risk for 2013 is Ferd Capital's acquisition of 24 percent of Interwell in January 2014.

NOTE 13

BANK DEPOSITS

The following restricted funds are included in the bank deposits in the balance sheet:

NOK 1 000

Employees' withheld tax

NOTE 14

SHARE CAPITAL AND SHAREHOLDER INFORMATION

The share capital of the Company consists of 183.267.630 shares at a nominal value of NOK 1.-.

Owner structure

The shareholder as at 31 December 2013 was:

Number of shares

Stake

Ferd Holding AS

Ferd AS is a subsidiary of Ferd Holding AS, being a subsidiary of Ferd JHA AS. Ferd shares offices with its parent companies in Lysaker, Bærum. Please contact Ferd for the consolidated financial statements of Ferd JHA AS.

Shares owned indirectly by the CEO and board members of Ferd AS:

Position

Stake

Johan H. Andresen

Chair of the Board

The children of Johan H. Andresen own appr. 85 % of Ferd AS indirectly by ownership of shares in Ferd Holding AS.

NOTE 15

PENSION COSTS AND LIABILITIES

 

FERD'S PENSION PLANS

Ferd has established pension schemes in accordance with Norwegian legislation. The employees participate in defined benefit and defined contribution plans.

Until and including 2013, all employees have been members of a defined benefit plan for salaries up to 12 times the basic amount for the national insurance (G). Defined benefit pension plans give the employees the right to determined future pension benefits. The obligation is an estimate of future benefits earned by the employees, based on the number of service years and the salary level at the age of retirement. The benefits are disounted to present value, and the recognised obligation is reduced by the fair value of the pension funds for funds based pension schemes. Changes in assumptions, the total number of members and deviations between estimated and actual salary increases and return on funds result in actuarial gains and losses. Such gains and losses are recognised in total comprehensive income. The defined benefit scheme was terminated at year-end, and paid-up policies have been issued in 2014. The effect of the change in plan was recognised in the income statement in 2013. From January 2014, all employees will be members of a contribution scheme for salaries below 12 G.

For salaries exceeding 12 G, Ferd has established a pension scheme implying that the employees earn a pension right each year. The scheme was closed for new hires when established. The right comprises a share of the salary in excess of 12 G together with a return component depending on the employee's chosen risk profile. The pension plan has many similarities with a contribution scheme, but as Ferd is not making current payments to a fund, but has elected to take the risk of return itself, the scheme shall be classified as a benefit scheme for accounting purposes. Ferd has recognised the obligation as a pension liabiity and is expensing the current deposits and the current return as incurred. The liability has not been discounted.

In addition, Group management has an early retirement pension scheme giving them the opportunity to retire at 65 years. This is also a benefit scheme.

Financial assumptions at 31 December

Discount rate

Expected return from pension assets

Expected wage growth

Future expected pension regulation

Expected regulation of base amount (G)

DEFINED BENEFIT PLANS

Specification of the recognised liability

NOK 1 000

Present value of unfunded pension liabilities

Present value of wholly or partly funded pension obligations

Total present value of defined benefit obligations

Fair value of pension assets

Total defined benefit obligation recognised in the balance sheet

Movement in the liability for defined benefit pension plans

NOK 1 000

Liability for defined benefit pension plans at 1 January

Present value of the pension earnings of the year

Interest expense on the pension liability

Estimate deviation on the pension liability

Plan changes

Benefits paid

Liability for defined benefit pension plans at 31 December

Movement in fair value of pension assets for defined benefit pension plans

NOK 1 000

Fair value of pension assets at 1 January

Expected return from pension assets

Estimate deviations on pension funds

Contribution from employer

Administration expenses

Benefits paid

Fair value of pension assets at 31 December

Pension asssets include the following:

NOK 1 000

Equity instruments

Government stock

Corporate stock

Other debt instruments, including structured debt

Property investments

Bank deposits

Total pension assets

Estimate deviation recognised in total comprehensive income

NOK 1 000

Estimate deviation on the pension obligation (benefit schemes) of the year

Estimate deviation of the pension funds (contribution schemes) of the year

Net estimate deviation for benefit schemes recognised in income statement

Pension costs recognised in the income statement

NOK 1 000

Present value of this year's pension earnings

Plan changes

Administration expenses

Total pension costs recognised in the income statement as salary expenses

Interest expense on the pension liability

Expected return on pension assets

Total pension costs recognised in the income statement as interest expenses

NOTE 16

LONG-TERM DEBT

Long-term interest-bearing debt

by currency

NOK 1 000

Loan amount in NOK 2013

Loan amount in NOK 2012

NOK

USD

EUR

Balance sheet value at 31 December

Ferd has a total lending facility of NOK 6 billion, but has not utilised any of it as at 31 December 2013.

NOTE 17

TRANSACTIONS AND BALANCES WITH GROUP COMPANIES

Ferd AS has the following loans and balances with group companies:

NOK 1 000

Receivables

Long-term loans to group companies

Short-term receivables on group companies

Total receivables

Debt

Short-term debt to group companies

Total debt

All group balances bear an interest of 6 months NIBOR + 2 percentage points.

Long-term loans have interest rates on assumed market terms.

NOK 1 000

Services billed to group companeis

Staff services

Property management

Total income

Interest income on intercompany loans

Interest income

Total interest income

NOTE 18

CONTINGENT LIABILITIES AND OBLIGATIONS NOT RECOGNISED IN BALANCE SHEET

Guarantees and obligations not recognised in the balance sheet

NOK 1 000

Not paid, but committed capital to funds investments

Total

Contingent obligations and litigation

Ferd AS is presently not involved in any legal proceedings.

NOTE 19

MERGER

Effective from 29 August 2013, Ferd AS has merged the wholly-owned subsidiaries Ferd Capital Partners AS, Det Oversøiske Compagnie and Kople II AS. The merger was carried out pursuant to the rules on simplified merger of group companies in the Companies Act, and no compensation was paid. As the company taken over was fully owned by the acquiring party, the merger has been accounted for by the continuity method.