1. General information and summary of key accounting policies
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).
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.
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.
Norske tog has only one segment for leasing of trains.
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.
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.
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.
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 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 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 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.
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:
Fair value is measured using quoted prices from active markets for identical assets or liabilities.
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.
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.
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.
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.
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.
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.
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.