|
NOTE 5
|
FINANCIAL INSTRUMENTS AND THE USE OF FAIR VALUE
|
|||||||
|
Ferd's principles in the measurement of fair value, generally
|
||||||||
|
Ferd applies the valuation method that is considered to be the most representative estimate of an assumed sales value. Such a sale shall 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 to 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 overall within the business area, 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 by applying the market method. The quoted price for the most recent carried-out transaction on the market place is the basis.
|
||||||||
|
Investments in unlisted shares managed in-house are normally valued on the basis of an earnings multiple. In calculating the value (Enterprise Value - EV), ratios like EV/EBITDA, EV/EBITA , EV/EBIT and EV / EBITDA-CAPEX are applied.. Ferd obtains relevant mutiples for comparable companies. The multiples for the portfolio companies are adjusted if the assumptions are not the same as for peer groups. Such assumptions can include a control premium, a liquidity discount, growth assumptions, margins or similar. The company's result applied in the valuation is normalised for one-off ffects. 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 normally used as a basis for our valuation
|
||||||||
|
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 a basis.
|
||||||||
|
Rental properties are valued by discounting future expected cash flows. The value of properties being 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. Our calculated values are regularly compared to independent valuations.
|
||||||||
|
The table below is an overview of carrying and fair value of the Group's assets and liabilities 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.
|
||||||||
|
Investments at fair value over profit and loss
|
Investments at fair value over other comprehensive income
|
Financial instruments measured at amortised cost
|
||||||
|
NOK 1 000
|
Loans and receivables
|
Financial liability
|
Other valuation methods
|
TOTAL
|
||||
|
Non-current assets
|
||||||||
|
Intangible assets
|
3 153 719
|
3 153 719
|
||||||
|
Deferred tax assets
|
257 916
|
257 916
|
||||||
|
Tangible assets
|
2 175 360
|
2 175 360
|
||||||
|
Investments accoundted for by the equity method
|
494 635
|
494 635
|
||||||
|
Investment property
|
2 235 900
|
2 235 900
|
||||||
|
Pension funds
|
25 370
|
25 370
|
||||||
|
Other financial non-current assets
|
137 883
|
85 742
|
223 625
|
|||||
|
Total 2015
|
2 235 900
|
|
137 883
|
|
6 192 742
|
8 566 524
|
||
|
Total 2014
|
2 386 449
|
|
190 409
|
|
7 291 683
|
9 868 541
|
||
|
Current assets
|
||||||||
|
Inventories
|
2 635 545
|
2 635 545
|
||||||
|
Short-term receivables
|
61 075
|
2 375 563
|
2 436 638
|
|||||
|
Listed shares and bonds
|
7 283 017
|
7 283 017
|
||||||
|
Unlisted shares and bonds
|
3 071 613
|
3 071 613
|
||||||
|
Hedge funds
|
5 202 980
|
5 202 980
|
||||||
|
Investments in interest-bearing debt
|
94 484
|
94 484
|
||||||
|
Bank deposits
|
1 852 737
|
1 852 737
|
||||||
|
Total 2015
|
15 652 095
|
61 075
|
4 228 300
|
|
2 635 545
|
22 577 015
|
||
|
Total 2014
|
14 361 391
|
11 565
|
4 087 298
|
|
2 556 300
|
21 016 554
|
||
|
Non-current liabilities
|
||||||||
|
Pension obligation
|
|
193 138
|
193 138
|
|||||
|
Deferred tax
|
847 312
|
847 312
|
||||||
|
Long-term interest-bearing debt
|
4 035 847
|
- 20 798
|
4 015 050
|
|||||
|
Other long-term debt
|
147 187
|
147 187
|
||||||
|
Total 2015
|
|
|
|
4 183 034
|
1 019 652
|
5 202 686
|
||
|
Total 2014
|
|
52 281
|
|
3 939 461
|
963 402
|
4 955 144
|
||
|
Current liabilities
|
||||||||
|
Short-term interest-bearing debt
|
|
661 163
|
661 163
|
|||||
|
Tax payable
|
143 752
|
143 752
|
||||||
|
Other short-term debt
|
196 537
|
2 833 214
|
3 029 751
|
|||||
|
Total 2015
|
196 537
|
|
|
3 494 377
|
143 752
|
3 834 665
|
||
|
Total 2014
|
15 503
|
58 167
|
|
4 166 278
|
359 718
|
4 599 666
|
||
|
Fair value herarchy - financial assets and liabilities
|
||||||||
|
Ferd classifies assets and liabilities measured at fair value in the balance sheet by a hierarchy based on the underlying object for the valuation. The hierarchy has the following levels:
|
||||||||
|
Level 1: Valuation based on quoted prices in active markets for identical assets without adjustments. An active market is characterised by the fact that the security is traded with adequate frequency and volume in the market. The price information shall be continuously updated and represent expected sales proceeds. Only listed shares are considered to be level 1 investments.
|
||||||||
|
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. Ferd's hedge fund portfolio is considered to meet the requirements of level 2. These funds comprise composite portfolios of shares, interest securities, raw materials 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.
|
||||||||
|
Level 3: All Ferd's other securities are valued on level 3. This concerns investments where all or parts of the information about value cannot be observed in the market. Ferd is also applying valuation models for investments where the share has little or no trading. Securities valued on the basis of quoted prices or reported value (NAV), but where significant adjustments are required, are assessed on level 3. For Ferd this concerns all private equity investments and funds investments made in the second-hand market, where reported NAV has to be adjusted for discounts. A reconciliation of the movements of assets on level 3 is shown in a separate table.
|
||||||||
|
Ferd allocates each investment to its respective level in the 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 the change has been known to Ferd.
|
||||||||
|
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 2015
|
||||
|
Assets
|
||||||||
|
Investment property
|
2 235 900
|
2 235 900
|
||||||
|
Short-term receivables
|
61 075
|
61 075
|
||||||
|
Listed shares and bonds
|
7 283 017
|
7 283 017
|
||||||
|
Unlisted shares and bonds
|
3 071 613
|
3 071 613
|
||||||
|
Hedge funds
|
3 887 561
|
1 315 420
|
5 202 980
|
|||||
|
Investments in interest-bearing debt
|
94 484
|
94 484
|
||||||
|
Liabilities
|
|
|||||||
|
Other short-term debt
|
- 92 407
|
- 104 129
|
- 196 537
|
|||||
|
Total 2015
|
7 283 017
|
3 950 712
|
6 518 803
|
17 752 533
|
||||
|
NOK 1 000
|
Level 1
|
Level 2
|
Level 3
|
Total 2014
|
||||
|
Assets
|
||||||||
|
Investment property
|
2 386 449
|
2 386 449
|
||||||
|
Short-term receivables
|
11 565
|
11 565
|
||||||
|
Listed shares and bonds
|
6 622 553
|
6 622 553
|
||||||
|
Unlisted shares and bonds
|
3 086 854
|
3 086 854
|
||||||
|
Hedge funds
|
2 869 671
|
1 782 313
|
4 651 984
|
|||||
|
Liabilities
|
||||||||
|
Other long-term debt
|
- 52 281
|
- 52 281
|
||||||
|
Other short-term debt
|
- 73 670
|
- 73 670
|
||||||
|
Total 2014
|
6 622 553
|
2 755 285
|
7 255 616
|
16 633 454
|
||||
|
Reconciliation of movements in assets on level 3
|
||||||||
|
NOK 1 000
|
Op.bal.1 Jan. 2015
|
Purchases/share issues
|
Sales and proceeds from investments*
|
Unrealised gain and loss, recognised in comprehensive income
|
Unrealised gain and loss, recognised in the result
|
Gain and loss recognised in the result
|
Closing bal. on 31 Dec. 2015
|
|
|
Investment property
|
2 386 449
|
215 561
|
- 556 228
|
190 117
|
2 235 900
|
|||
|
Unlisted shares and bonds
|
3 086 854
|
634 328
|
- 529 564
|
- 164 691
|
44 687
|
3 071 613
|
||
|
Hedge funds
|
1 782 313
|
199 069
|
- 730 396
|
- 442 772
|
507 206
|
1 315 420
|
||
|
Total
|
7 255 616
|
1 048 958
|
-1 816 188
|
|
- 417 346
|
551 893
|
6 622 933
|
|
|
NOK 1 000
|
Op.bal.1 Jan. 2014
|
Purchases/share issues
|
Sales and proceeds from investments*
|
Unrealised gain and loss, recognised in comprehensive income
|
Unrealised gain and loss, recognised in the result
|
Gain and loss recognised in the result
|
Closing bal. on 31 Dec. 2014
|
|
|
Investment property
|
1 828 917
|
390 609
|
- 2 435
|
169 358
|
2 386 449
|
|||
|
Unlisted shares and bonds
|
5 446 096
|
553 599
|
-1 425 596
|
-1 383 158
|
- 104 087
|
3 086 854
|
||
|
Hedge funds
|
2 017 082
|
92 895
|
- 901 293
|
573 629
|
1 782 313
|
|||
|
Total
|
9 292 095
|
1 037 103
|
-2 329 324
|
|
- 640 171
|
- 104 087
|
7 255 616
|
|
|
*Included in sales and disposals are MNOK 686 for Interwell AS, that in 2014 was reclassififed from unlisted shares measured at fair value to subsidiary.
|
||||||||
|
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. 2015
|
Applied and implicit EBITDA multiples
|
Value, if multiple reduced by 10%
|
Value, if multiple increased by 10%
|
Applied discount rate
|
Value, if interest rate increased by 1 percentage point
|
Value, if interest rate reduced by 1 percentage point
|
|
|
Investment property 1)
|
2 235 900
|
7.0 % - 11.7 %
|
1 907 000
|
2 724 000
|
||||
|
Unlisted shares and bonds sensitive for multiple 2)
|
868 777
|
9,2 - 15,7
|
610 777
|
1 126 777
|
||||
|
Other unlisted shares and bonds sensitive for multiple 2)
|
2 202 836
|
|||||||
|
NOK 1 000
|
Balance sheet value at 31 Dec 2015
|
Estimated discounts acc. to broker (interval)
|
Value if discount increased by 10 %
|
Value if discount reduced by 10 %
|
||||
|
Hedge fund 3)
|
1 315 420
|
1 % - 83 %
|
1 215 775
|
1 415 064
|
||||
|
1) Appr. 68% of Ferd Eiendom AS' portfolio constitutes rental property and development projects sensitive for changes in the discount interest rate.
|
||||||||
|
2) Appr. 28 % of the value of unlisted shares and bonds are sensitive for a change in multiple. The other investments are valued on the basis of reported NAV whereby Ferd cannot calculate the sensitivity, even though multiples probably have been applied in determining NAV.
|
||||||||
|
2) Appr. 80 % of the investments are sensitive for a change in discount.
|
||||||||