General information

Norske tog AS was founded on 16 June 2016.

The White Paper 27 (2014-2015) established that passenger train rolling stock previously owned by Norwegian State Railways (NSB AS) would be brought together under a state-controlled owner to ensure low barriers to entry and competition on equal terms.

Purpose and scope of the company
The company shall procure, manage and lease out passenger train rolling stock. The aim is to have sufficient high-quality, up-to-date rolling stock at appropriate cost. The company shall have a high level of expertise within the areas of procurement and management of passenger train rolling stock.

The headquarters for Norske tog AS are located in Oslo.

All the shares in Norske tog AS are owned by the Norwegian Ministry of Transport and Communications.

The annual report for 2018 was approved by the Board of Directors on 14 February 2018.

All figures in the report are stated in MNOK unless stated otherwise in the text.

Framework for presentation of financial statements
The corporate financial statements of Norske tog AS have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations by the IFRS Interpretations Committee (IFRIC) approved by the EU.

The key accounting policies used in preparing the corporate financial statements are described below.

The corporate financial statements have been prepared under the historical cost convention, with the exception of financial derivatives and certain financial assets and liabilities.

The corporate financial statements have been presented on the assumption of a going concern.

Key assumptions and accounting estimates
Application of the company’s accounting policies entails use of estimates and assumptions. Estimates and assumptions are continually evaluated and are based on historical experience combined with expectations of future events that are considered likely at the time of evaluation.

Areas where use of estimates and assumptions is key to the corporate financial statements:

Financial assets and liabilities at fair value
The company has long-term liabilities, financial derivatives and certain financial assets recognised at fair value. Calculation of fair value uses estimates based mainly on observable prices that may change over time. Changes in the assumptions will entail changes in carrying amounts (fair value through profit or loss).

Fixed assets
The company considers the expected useful life and residual value of non-current assets on an ongoing basis. This is significant for depreciation and amortisation for the year. In addition, the company considers the value of the non-current assets and whether there are indications of a decrease in value. If there are indications that the recoverable amount is lower than the book value, the asset is tested for impairment. These tests involve a high degree of judgement.

Estimated provisions for losses on contracts
The company carries out annual tests to assess provisions for losses on contracts where there are negative operating results and hence indications of a need for provisions. In the case of operating assets used in the contracts, an impairment test is first carried out, cf. discussion above. Subsequently, the present value of future cash flows is measured for the individual contract. These evaluations involve a high degree of judgement. Please refer to the note on provisions for a more detailed description.

Pension obligations
The company has obligations relating to the employees’ accrued pension entitlements linked to defined benefit pension schemes. The calculations require the company to make economic and demographic assumptions. Changes in these assumptions may cause significant fluctuations in the calculated obligations, with consequences for future pension costs. Please refer to the note on pensions for a more detailed description of the underlying assumptions.

The note incorporates a sensitivity analyses showing how susceptible the calculations are to changes in the key assumptions. Estimate deviations arising in connection with changes in assumptions are recognised on an ongoing basis via other comprehensive income with a direct impact on equity after deduction of deferred tax.

Segment information
Norske tog has only one segment for leasing of trains.

Currency
Functional currency and presentation currency
The financial statements are presented in Norwegian kroner (NOK), which is both the functional and presentation currency for the company.

The company operates solely in Norway.

Revenue recognition
The company’s revenue comes from leasing out rolling stock. The lease agreements are classified as operating leases in accordance with IAS 17, and the revenue is accrued on a linear basis over the lease period, as the lease agreements are wholly based on fixed prices. The lease agreements are invoiced in advance each month.

Fixed assets
Operating income and costs, purchases and financing costs are principally in NOK, CHF and EUR. Transactions in foreign currencies are translated to the functional currency on the transaction date. Foreign exchange gains and losses arising on translation of items in foreign currencies are recognised in the income statement.

Fixed assets are recognised on the balance sheet at acquisition cost less depreciation/amortisation. Acquisition cost includes costs directly linked to the procurement of the operating asset such that it is ready for use.

Subsequent expenses are capitalised when it is likely that future economic benefits linked to the expenses will flow to the company and the expenses can be measured reliably. Other repair and maintenance costs are recognised in the income statement in the period in which the expenses are incurred.

Where capitalisation of major projects is concerned, these are recognised at the following points:
1. Payment of advance on entering into contract is classified as a prepayment for contractually agreed partial delivery of train

2. On achievement of milestones, Norske tog AS (PTO) is invoiced and the cost is classified as a prepayment for contractually agreed partial delivery of trains

3. On delivery of complete trains to Norske tog AS and on to the customer, the contractually agreed partial delivery and the estimated remaining cost as a means of transport are capitalised for depreciation purposes

4. On receipt of final invoice (FTO), the estimated capitalisation for depreciation is settled.

Borrowing costs that accrue on construction of operating assets are capitalisedas part of assets under construction and included in the basis for depreciation.

Operating assets are depreciated using the straight-line method, such that the assets’ acquisition cost is written down to the residual value over the expected useful life, which is within the following ranges:

Vehicles 10 – 30 years

The depreciation method and the operating assets’ useful lives and residual values are assessed on each balance sheet date and adjusted if necessary.

Profit and loss on disposal of operating assets is recognised in the income statement and represents the difference between selling price and carrying amount.

Impairment
Operating assets that are depreciated are tested for a decrease in value only if there are indications that future earnings cannot support the carrying amount.

Impairment is carried out if the carrying amount is higher than the recoverable amount. The recoverable amount is the higher of sales value less costs to sell and value in use.

To assess decrease in value, the fixed assets are grouped at the lowest level where it is possible to distinguish independent cash flows (cash-generating units). The opportunities for reversing previous impairments are assessed at each reporting date.

Derivatives and hedging
The company enters into derivatives to hedge interest rate and currency risks on long-term liabilities so as to achieve both the lowest possible price and predictability in the prices.

The company does not practise hedge accounting. Derivatives are recognised on the balance sheet at fair value when the derivative contract is entered into and adjusted to fair value through profit or loss on an ongoing basis. Changes in fair value on derivative contracts entered into linked to financial liabilities are recognised as financial items.

Financial assets held for trading
A financial asset is classified as held for trading if it has primarily been procured with a view to generating returns linked to short-term changes in value.

Receivables
Receivables include trade receivables and are measured initially at acquisition cost, which is assessed to be fair value.

Trade receivables are subsequently measured at amortised cost established using the effective interest method, less provision for expected bad debts. Provision for bad debts is recognised when there are objective indications that the company will not receive settlement in accordance with the original terms.

Cash in hand and at bank
Cash in hand and at bank includes restricted withholding tax and is specified in note 8.

If an overdraft facility is used, this is included in borrowings under current liabilities.

Borrowings
Borrowings are recognised initially at fair value adjusted for directly attributable transaction costs.

In subsequent periods, the loans are measured as a general rule at amortised cost using the effective interest method, such that the effective interest is equal over the term of the loan.

The company has several bonds for which associated interest rate and currency swaps have been entered into. Where measurement and reporting using the option of measuring at fair value provide more relevant information by eliminating or materially reducing inconsistent measurement of loans and associated interest rate swaps, reporting is based on this principle. The choice of accounting principle is made when each individual loan is taken up and is binding for the term of the loan.

In connection with the business transfer from NSB AS, Norske tog AS took over the loans on 8 December 2016. The company assumed the following liabilities with the values shown:

Bond at nominal value of TNOK 5,886,250

Bond at fair value of TNOK 7,561,273

Tax
Tax for the period comprises taxes payable for the period and change in deferred tax.

Deferred tax has been calculated on all temporary differences between tax base and carrying amount and tax effects of loss carryforwards. Deferred tax is determined using the prevailing tax rates and tax rules on the balance sheet date. Deferred tax assets are capitalised to the extent they are likely to be able to be utilised.

Deferred tax assets and deferred tax are offset if there is a legal right to offset, and this relates to income tax levied by the same tax authority for (i) the same taxable company or (ii) for different taxable companies where the intention is to settle the tax positions on a net basis.

Pension obligations
The company has a pension scheme in the form of a defined benefit plan.

Defined benefit plans oblige the company to pay periodic pension benefits to the employee when he/she retires. The pension payment will largely be dependent on the number of years of contributions, salary level at retirement age and any national insurance benefits.

The obligation recognised in the balance sheet is the present value on the balance sheet date of the defined benefits minus fair value of the pension assets at the balance sheet date. The pension obligation is calculated annually by an independent actuary using a linear accrual method. The cost of pension accruals and net interest on the defined benefit pension obligation is recognised in the income statement.

Changes in the benefits provided by the pension plan (plan changes) are recognised in the income statement on an ongoing basis.

Estimate deviations as a result of new information and changes in the actuarial assumptions are recognised in other comprehensive income on an ongoing basis.

Other current liabilities
Other current liabilities include trade payables and are measured initially at face value, which is assessed to be fair value. Trade payables are subsequently measured at amortised cost, established using the effective interest method.

Assessment of fair value
The company measures several financial assets and liabilities at fair value. When classifying fair value, the company uses a system that reflects the significance of the input used to prepare the measurements as follows:

Level 1
Fair value is measured using quoted prices from active markets for identical assets or liabilities.

Level 2
Fair value is determined using input based on other observable factors, either direct (price) or indirect (derived from price), other than listed price (used in level 1) for the asset or liability.

Level 3
Fair value is measured using input not based on observable market data.

Financial assets and liabilities classified in level 1, 2 or 3.

Changes in accounting policies, new standards and interpretations
New and amended standards and interpretations that have been adopted

Several standards came into effect for the company from 1 January 2018, but none of these have a material impact on the financial statements for 2018. The most relevant new standards adopted by the company from 1 January 2018 are:

• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial Instruments
Norske tog AS has implemented IFRS 9 with retroactive effect but has utilised the exemption allowing it not to restate comparative information relating to classification, measurement and impairment of financial instruments.

Classification and measurement of financial assets
Norske tog AS holds trade receivables and other receivables in a business model with the purpose of holding the assets to receive contractual cash flows. The cash flows are exclusively payment of principal and interest. The assets are subsequently classified at amortised cost in IFRS 9. This has not entailed any changes compared with IAS 39.

Classification and measurement of financial liabilities
Trade payables and other payables are classified and measured at amortised cost. Parts of Norske tog’s borrowings are earmarked as measured at fair value through profit or loss because this eliminates or materially reduces an accounting disparity. This has not entailed any changes compared with IAS 39.

Impairment of financial assets
The new loss model in IFRS 9 applies to Norske tog’s financial assets that are measured at amortised cost and requires moving from an incurred loss model in IAS 39 to an expected loss model in IFRS 9. This means that losses on receivables are recognised at an earlier stage in IFRS 9. Norske tog AS has only one main customer (Norwegian State Railways), and it has not been found necessary to increase provisions for bad debts as at 1 January 2018.

Financial derivatives
Norske tog AS has financial derivatives (assets and/or liabilities) that are measured at fair value through profit or loss. This has not entailed any changes compared with IAS 39.

Hedge accounting
Norske tog AS does not use hedge accounting, and the changes in IFRS 9 thus have not entailed changes for the company.

Since the first-time adoption of IFRS 9 has not entailed material changes for Norske tog AS, the present financial statements do not contain any reconciliations pursuant to IFRS 7.42I–.42S.

IFRS 15 Revenue from Contracts with Customers
Norske tog’s main activity is the procurement, management and leasing of vehicles. Revenue from leasing is not covered by the scope of IFRS 15, but is covered by IAS 17 Leases in 2018 and by IFRS 16 Leases from 1 January 2019. IFRS 15 has therefore not entailed changes for the company’s main activity.

Norske tog AS also has other operating revenue, which largely comprises services. Norske tog AS recognises this operating revenue over time as the customer receives the services. Implementation of IFRS 15 has not entailed any changes compared with IAS 18.

IFRS 15 has thus not entailed material implementation effects or changes for Norske tog AS as at 1 January 2018, and the present financial statements do not contain any reconciliations pursuant to IFRS 15.C8.

New standards and interpretations that have not entered into force and have not been adopted
The company has chosen not to early-adopt any of the standards or interpretations entering into force after the balance sheet date. The following information provides an overview of the key regulations adopted by the IASB.

IFRS 16 Leases
IFRS 16 comes into force for accounting periods beginning on or after 1 January 2019.

Leasing out
Norske tog’s revenue from leasing out trains will be covered by IFRS 16. IFRS 16 entails only minor changes in disclosure requirements for Norske tog’s lease contracts. Norske tog owns the trains that are leased out and, pursuant to IFRS 16.C14, will not make any modifications to its accounting on transition.

Hiring in
At the balance sheet date, Norske tog AS has no material lease agreements with a duration of more than one year, and the financial statements are therefore not expected to be materially affected by the standard. The lease agreements that have historically been classified as operating leases will be recognised with retroactive application without restatement of comparative figures, i.e. the effect on implementation will be recognised in equity on 1 January 2019.

Miscellaneous
IASB has also adopted a number of minor changes and clarifications in several different standards. It has been assessed that none of these changes will have material effects for the company.

Capital management
The company’s goal for capital management is to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost in capital.

The company invests its excess liquidity in interest bearing products as for example, certificates and bonds with short-term remaining life.

The company has not had any short term placements in 2017 or 2018.

Financial risk factors
The company’s activities results in various types of financial risk: market risk (foreign exchange-, interest rate-, and price risk), credit risk and liquidity risk.

The company’s risk management policy focuses on capital markets unpredictability and strives to minimize the potential negative effects on the company’s financial result. The company uses financial derivatives to hedge certain risks.

The treasury department identifies, evaluates, and hedges financial risk in co-operation with the operating units.

Market risk
Currency risk
Foreign exchange risk due to fluctuations of the foreign currency rates will result in changes to the company’s income statement, balance sheet or cash flows.

The company operates in Norway, makes purchases from foreign suppliers, and is therefore exposed to foreign currency exchange risk. The goal is to be predictable regarding future payments measured in NOK.

All debt in foreign currency is secured through foreign exchange swaps and changes in value are offset by fair value change to the derivatives. The company is therefore not exposed to foreign currency exchange risk on debt instruments.

Interest rate risk
Interest rate risk is risk for the fair value of the financial instrument or future cash flows to fluctuate due to change in the market rate.

The company is exposed to changes in interest rates, and uses interest rate swaps to reduce interest rate risk and
to achieve preferred duration on its debt portfolio. The goal is to reduce risk related to possible future interest rate increases, and create more predictability regarding future interest payments. Guidelines have been established to regulate the share of loans that should be interest rate regulated within a twelve-month period, and for the duration of the portfolio.

Swaps entered into create risk for change to booked fair value when measuring against long term interest level.

Sensitivity evaluation as at 31.12.2018
Interest rate risk is calculated using the company’s long term loans with corresponding interest rate swaps. By changing the rate by 50 basis points, interest rate risk results in a calculated risk of fair value change of 141 MNOK.

Since the company doesn’t have any considerable interest bearing assets, the company’s net income and cash flow from operations is not affected by changes to the market rate.

Liquidity risk
Liquidity risk is the potential lack of ability to timely pay ones daily economic obligations.

Norske tog’s management monitors the company’s liquidity reserve which consists of borrowing facilities and cash equivalent through rolling prognosis based on the company’s expected cash flow.

Norske tog reduces liquidity risk related to maturity of financial obligations through spreading the maturity structure, access to several financing sources in Norway and internationally, as well as sufficient liquidity to cover planned operating-, investing-, and refinancing needs without borrowing new debt within a time frame of 12 months. Liquidity consists of bank deposits, certificates and committed lines of credit and Norske togs’ revolving credit facility of 2 000 MNOK which expires in October 2022.

Norske tog has high credit rating. Standard & Poor’s has given Norske tog an indicative credit rating on long term debt of A+ (stable). The high credit gives Norske tog ample supply of capital.

The table shows future maturity for the companys contractual obligations as at 31.12.2018:

Credit risk
Credit risk is the potential loss that an external part cannot meet its financial obligations to Norske tog. The company’s exposure to credit risk is mainly related to each separate customer.

The company has one large customer, NSB AS, and is therefore not materially exposed to credit risk. The credit risk is considered to be low because the company’s only customer also is 100 % owned by the Ministry of Transport.

Norske tog has risk against its counterparties in the interest- and currency derivatives and focuses on counterparty risk in its financial transactions.

The credit risk is reduced by diversifying exposure on several counterparties. Counterparty exposure is closely monitored. The demand is that the counterparty should have at least an A-rating from S&P or equivalent rating from an international rating agency. The respondent risk is constantly monitored. Norske tog has agreements that regulate judicial set-off calculations in a bankruptcy situation (ISDA agreements) with 4 banks.

Excess liquidity is placed in Norwegian bonds and certificates with short term maturity.

Fair value on bonds measured at amortized cost is 4,482,518 TNOK (2017: 3,608,672 TNOK) as at 31st of December 2018.

All existing bond issues have been issued under the Euro Medium Term Note loan programme (EMTN-Programme). The EMTN-programme does not contain any fnancial covenants, except for an optional clause that requires that the State of Norway shall own 100 % of Norske tog.

Norske tog has a multicurrency revolving credit facility of 2,000 MNOK with a covenant that demands a minimum equity share of 18 % until 31.12.2018, and 20 % equity share in the years thereafter.

For value on borrowings acquired from NSB AS in 2016 - see note 1.

Fair value of the credit margin on bonds is based on market observations from banks and the price/exchange bonds in the second-hand market.

The exposure of the company`s borrowings to interest changes and the contractual dates at the balance
sheet dates are as follows:

Deferred income tax asset and liabilities are ofset when there is a legally enforced right to ofset current tax assets against current tax liabilities, and when the deferred income taxes relate to the same tax authority. The ofset amounts are as follows:

General
The company has pension arrangements related to age-disability- and bereaved benefits for spouses and children. Below is a further description of type of arrangements and how these are organized.

Defined benefit pension plan
The company has several collective pension agreements that are handled by the Norwegian Public Service Pension Fund (SPK) or insurance companies that for the Norwegian companies satisfies the demands according to the law on public pension. The arrangement covers benefits from the pension basis up to 12G and results in a age- and disability pension up to 66% of the pension basis when fully vested. The obligations connected to these agreements covers 32 active members as well as one retired person. The retirement benefit plans entitle defined future services that mainly are dependent on the number of contribution years and wage level at the time of retirement. The pension benefits received are coordinated with the National Insurance scheme and will also be dependent on its benefits paid out.

The companies have, through tariff agreements, retirement benefit obligations in affiliation with Early Retirement Pension Regulated by Contract (AFP). Obligations through this agreement cover 32 active members.

The additional defined benefit pension plan agreement for top leadership is not funded and will be paid through operations.

During the year it was decided to close the current pension benefit plan for Norske tog AS at the end of 2018. All employees will be granted an earned right in the Norwegian Public Service Fund (SPK), as well as being included in the newly established defined contribution plan. The pension cost for 2018 and the obligations as at 31.12.18 are calculated according to IAS 19. The carrying value of the pension liability amounts to 32 296 TNOK, and is considered to give a fair, and as of the balance sheet date, best view of the company’s liability taking into account the estimated effect from the pension plan settlement. Agreed compensation to employees for whom the defined benefit pension plan settlement will have a negative effect, will be paid and expensed on a monthly basis.

In the tables below, employment taxes (notional numbers) are included in both gross obligations and this year’s expense.

Sensitivity analysis with change in central assumptions
The table below shows estimates for potential effects with change in assumptions that significantly affects the defined benefit pension plans in Norway. Actual results may substantially differ from these estimates.

The population is affected by a high pensioner population and high average age on participants that affects the sensitivity analysis.

Explanation to selected assumptions 31st of December 2018
The discount rate has been set at 2.6% and is determined with basis in preferential bonds (OMF). The OMF-market has been assessed to represent a deep and liquid marked with relevance to maturities that qualifies to be used as a reference for interest rate according to IAS 19.

Salary adjustment for Norwegian arrangements are mainly calculated as the sum of expected nominal salary growth of 1% (incl career salary increase) and inflation of 1.75% with some individual adjustments. Regulation of pensions during disbursements mainly follows average salary growth (equivalent to G-regulation) less a fixed factor of 0,75.

For the demographic factors, the tariffs K2013 and IR 73 has been used for determination of mortality rate and disability risk. Average remaining life expectancy for a person retiring when he/she turns 65 years old will according to K2013 be:

Male 20.5 years
Female 23 years

In the fall of 2017, SPK announced that starting on 1.1.2018, changes to who is responsible for the earned rights for public vacated entities will be adopted. The actuarial deviation for 2017 is influenced by this change, and has increased the company’s retirement benefit obligation as at 31.12.2017.

Risk evaluation of defined benefit contribution plans
The company is affected through its defined benefit contribution plans by several factors due to uncertainties in assumptions and future development. The most central factors are described as follows:

Expected longevity:
The company has assumed an obligation to pay pension to the employees for as long as they live. An increase in life expectancy among members results in an increased obligation for the company.

Yield risk:
The company is affected by a reduction in actual yield on the pension assets, which will cause an increase to obligations for the company.

Inflation- and salary growth risk:
The company’s pension obligation has risks related to both inflation and salary development, even though the salary development is close related to inflation. Higher inflation and salary development than what is used in the pension calculations, result in increased obligation for the company.

Work related injuries
No provisions have been accrued as at the end of fiscal year 2018.

Legal disputes
Norske tog could be involved in legal disputes, where some of them will be tried in court. Provisions are made for disputes where it appears to be a probable and qualifed risk of losing.

It has been considered that it is not necessary to accrue for future losses on contracts in business.

Norske tog has the following related parties:

Owner
Norske tog AS is owned 100 % by the Ministry of Transport and Communication and it’s a related party. In addition, other businesses owned by the Ministry of Transport and Communication will also be a related party to Norske tog, which is the case for the NSB-Group and Bane Nor.

Bonds and related basis swaps were in accordance with the agreement on the settlement of claims on the acquisition of loans and derivative financial transferred from NSB to Norske tog on the 9th December 2016. The consideration for the transfer of the bonds to Norske tog AS was determined on market terms. The consideration was determined on the basis of nominal residual debt and associated swaps valued at fair value on the transaction date for calculating the diference between

• Expected net present value between loans and associated swaps transmitted and
• Alternative financing for Norske tog AS at the date of acquisition

The board issued a statement under the Securities Act § 3-8, in conjunction with the company signed agreements with the company’s shareholders to acquire the business and the acquisition of loans and derivative commitments.

Companies within the same Group
For accounting purposes, Norske tog was only a part of the NSB-Group in 2016. For the years after 2016, these companies will still remain related parties due to all being indirectly owned by the Ministry of Transport. For 2017 these companies will still remain related parties due to all being indirectly owned by the Ministry of Transport.

Board of Directors and key management
Persons that are key management or on the Board of Directors are also related party to Norske tog.

Below is an overview of transactions, balances and guarantees to related parties:

Loans to related parties
There are no borrowings from related parties.

The employees are members of group pension schemes. Pension premiums are not included for the board members. The General Assembly for Norske tog has decided the fee for the Chairman of the Board to be 340 TNOK and the fee for the other Board.

members to be 160 TNOK. There are no further pension agreement for CEO beyond the collective pension scheme. For 2017 the shareholder elected board members received board fees through Togmateriell AS, which was liquidated in December 2017.

The CEO increased the salary with 226 TNOK from 1 684 TNOK to 1 895 TNOK, from 2017 to 2018. Except for an annual adjustment of the salary, the reason for the increase is because the bonus for 2017, 213 TNOK, was paid out and included in the 2018 numbers. The CEO was also compensated in 2018 for no longer having a bonus as an incentive.

The company began operations 15.10.2016 and no contingent liabilities have occurred related to legal claims in the ordinary course of operations.

There are no material events which have occurred after the balance sheet date that will afect the company’s proft and position.

This declaration is based on “Guidelines for salaries and other remuneration for senior employees in enterprises and companies that are partly state-owned” (issued by the Norwegian Ministry of Trade, Industries and Fisheries with effective date 13 February 2015) and has been drawn up by the Board of Directors pursuant to Article 5 of the Parent Company’s articles of association, cf. Section 6-16 a of the Norwegian Public Limited Liability Companies Act.

The declaration is considered at Norske tog’s annual general meeting, and is valid until the Board of Directors repeals it or adopts a new declaration.

The declaration has three main parts. Part I discusses the principles of Norske tog’s executive pay policy. Part II describes how these principles have been applied in the previous financial year, cf. Section 6-16 a, first, third and fourth paragraphs, of the Public Limited Liability Companies Act, and Part III describes the setting of executive pay for the coming financial year, cf. Section 6-16 a, second paragraph, of the same act. The guidelines in Part I apply in full if new contracts are concluded in the coming financial year, and shall otherwise be followed as closely as possible within the frameworks of the contracts concluded previously.

PART I: Principles
1.1 Senior employees
The declaration applies to senior employees as this term is defined in the Public Limited Liability Companies Act and the Norwegian Accounting Act. This means that the declaration is applicable to the management of Norske tog AS.

1.2 Main principles for the executive pay policy of Norske tog AS:
The principles governing salaries for senior employees of Norske tog AS are set by the Board of Directors. The Board of Directors conducts an annual evaluation of the CEO’s salary and conditions and the company’s executive pay principles.
The CEO sets the remuneration for the other members of the management group in accordance with the principles adopted for executive pay.

1.3 Executive pay at Norske tog is set on the basis of the following principles for executive pay:
• The executive pay shall be competitive, but Norske tog shall not be a wage leader relative to equivalent companies. To this end, the salaries for key management positions are benchmarked against other companies each year.
• Norske tog shall attract and retain capable managers. The total remuneration package for senior employees
in Norske tog shall reflect the individual’s responsibility for management, results and development, and take into account the company’s size and complexity. The remuneration must not be of such a kind or such a size that it can damage the reputation of Norske tog.
• The executive pay shall comprise a fixed basic salary and additional benefits, including benefits in kind, pay after termination of employment and pension schemes. The fixed salary shall always constitute the main part of the remuneration.
• Norske tog AS does not use bonuses.
• The executive pay scheme shall be transparent and in line with the Norwegian government’s corporate governance principles and guidelines for executive pay.
• The remuneration system shall be perceived as understandable and acceptable both within and outside Norske tog.
• The remuneration system shall be sufficiently flexible to enable adjustments to be made if necessary.

1.4 Elements of the executive remuneration package
The starting point for setting salaries is the combined level of fixed salary and variable payments. The different elements that may form part of the executive remuneration package are discussed below.

a) Fixed basic salary
The fixed basic salary is the main element of the remuneration package for senior employees at Norske tog. The basic salary shall be competitive without making Norske tog a wage leader. The basic salary is normally reviewed once a year. The “grandfather principle” is used when appointing new managers, such that the manager setting the salary shall consult his/her own manager before the salary is determined. In the case of new appointments of and setting of salaries for members of the management group, the CEO shall consult the chair of the Board of Directors.

b) Benefits in kind
Managers are given benefits in kind that are standard for comparable positions, for example free phone, free broadband and car scheme.

c) Pension
When appointing new managers, the government’s guidelines of 13.02.2015 on executive pay shall apply, such that the pension conditions for senior employees are in line with those for other employees. No former senior employees earn occupational pension rights after having left Norske tog.

All employees are members of a collective pension scheme. On 23.08.2018, the Board of Directors decided to move to a new pension scheme for Norske tog from the start of 2019. This involves closing down the current scheme with the Norwegian Public Service Pension Fund. The new scheme entails a company contribution rate of 5.5% up to 7.1 basic amounts and 15% between 7.1 and 12 basic amounts. The pension scheme will include a private contractual early retirement pension and group life insurance of 20 basic amounts plus 2 x salary.

The CEO has a retirement age of 67 with a collective defined contribution scheme. The scheme provides an entitlement to
a pension of up to 12 basic amounts. When appointing new managers, the government’s guidelines on executive pay shall apply, such that the pension conditions for senior employees are in line with those for other employees.

d) Severance pay
In the case of termination by the company, the CEO has a contractual right to six months’ pay after termination of employment, in addition to salary and payments during the six-month notice period. Any other salary received in the period during which pay after termination of employment is paid will reduce such pay in proportion to the other income received. The entitlement to pay after termination of employment does not apply if the CEO’s conduct meets the material conditions for dismissal in accordance with the provisions of the Norwegian Working Environment Act. No other key management employee has an agreement of severance pay.

PART II
Implementation of executive pay principles in the previous financial year

The setting of executive pay for 2018 was carried out in accordance with the above guidelines and is accounted for in Norske tog’s Declaration on executive pay.

No pay after termination of employment or severance pay exceeding 12 months’ fixed salary was paid to managers in 2018.

Bonus for the CEO was discontinued in 2018, while the annual salary was adjusted from 1 684 TNOK to 1 894 TNOK as compensation for the loss of the bonus effective 1.1.2018.

PART III
Executive pay policy for the coming financial year
On 07.09.2017, the Board of Directors decided to use the Hay method as a basis for evaluating all positions in Norske tog AS.

The executive pay policy shall conform to the general guidelines adopted by the Board of Directors in the coming financial year.

Pursuant to Section 6-16 a cf. Section 5-6, third paragraph, of the Public Limited Liability Companies Act, the Declaration on executive pay is considered at the annual general meeting.

The Board of Directors

Declaration by the Board of Directors and CEO for the annual report 2018

The Board of Directors and CEO confirm that, to the best of their knowledge, the annual report provides a description of significant transactions conducted with related parties during the current period and the main risk factors facing the business in the coming period.

The Board of Directors and the CEO confirm that, to the best of their knowledge, the financial statements for 2018 have been prepared in accordance with prevailing accounting standards, and the disclosures in the financial statements provide a true and fair view of the company’s assets, liabilities and financial position and profit or loss as a whole at the end of the period, as well as a true and fair view of key events during the financial period and their impact on the financial statements.

Oslo, 14. February 2019