Consolidated financial statements

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Consolidated Statement of financial position pr 31.desember

(Figures in 1000 NOK)

Oslo 29.04 2021

The Board of Directiors of 4Service Holding AS

Consolidated Statement of cash flows

Statement of changes in equity

Notes

Note 1 Basis for preparation of the annual accounts

Note 2 General accounting policies

Note 3 Segmentation

Note 4 Revenue

Note 5 Group companies

Note 6 Acquisitions

Note 7 Associates and joint ventures

Note 8 Property, plant and equipment

Note 9 Intangible assets

Note 10 Impairment of goodwill

Note 11 Leases

Note 12 Other operating expenses

Note 13 Cost of goods sold and inventories

Note 14 Financial items

Note 15 Financial risk and management

**Note 16 **Non-current interest-bearing liabilities

Note 17 Change in liabilities

Note 18 Financial instruments

Note 19 Other current liabilities

Note 20 Trade receivable and other non-interest-bearing receivables

Note 21 Cash and cash equivalents

Note 22 Pensions

Note 23 Related party transactions

Note 24 Taxes

Note 25 Share captial, shareholder information and dividends

Note 26 Salary and personnel expenses

Note 27 Estimation uncertainty

Note 28 Government grant

Note 29 Contingent liabilities

Note 1 - Basis for preparation of the annual accounts

4Service Holding AS was established 09.11.2015, while the 4Service Gruppen AS with its subsidiaries was acquired as a group establishment at 01.01.2016.

The group activities include the provision of catering services, canteen operations and related activities on vessels and offshore installments, camps, restaurants and cleaning and facility services for offices and sites.

The parent company and its subsidiaries are located in Oslo and Bergen.

The consolidated financial statements of 4Service Holding AS have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and further disclosure requirements followed by the Norwegian Accounting Act (regnskapsloven).

Significant accounting principles are presented in the respective notes. The consolidated financial statements have been prepared in accordance with uniform accounting policies for like transactions and other events in similar circumstances.

The consolidated financial statements have been prepared on a historical cost basis, except for the following accounting items:

• Financial instruments valued at fair value through profit and loss
• Financial instruments valued at fair value through other comprehensive income (OCI)
• Contingent consideration in business combinations

The preparation of the consolidated financial statements in accordance with IFRS require the use of estimates. Furthermore, the application of the groups accounting principles requires management to exercise discretion. Areas that requires significant judgements and complexity or where the assumptions and estimates are significant for the accounts, are further described in note 27 Estimation uncertainty

Note 2 - General accounting policies

Basis of consolidation

Subsidiaries
The consolidated financial statements comprise the financial statements of 4Serivice Holding AS (parent company) and its subsidiaries. The subsidiaries are consolidated when control is achieved. The Group controls an investee if and only if the Group are exposed, or rights, to variable returns from its involvement with the investee, has the power over the investee and the ability to use its power over the investee to affect its returns. Control is normally achieved when the groups owns more than 50 % of the shares in an entity. The subsidiaries are consolidated from the date control is obtained and until control ceases.

If necessary, assets, liabilities, income, and expenses of a subsidiary are restated to be compliant with the group’s accounting principles.

Business combinations
The Group account for each business combination by applying the acquisition method. The purchase price is measured at fair value of the acquired assets, liabilities, and equity instruments. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of comprehensive income.

Acquisition-related costs are expensed as incurred and included in other operating expenses.

The Group determines whether a transaction or other event is a business combination or an asset acquisition. For an asset acquisition, the purchase price, including transferred liabilities associated with the acquired asset, is allocated pro rata in accordance with its fair value. Deferred tax liabilities on such acquisitions are not accounted for in the financial statements.

In a business combination, the assets acquired, and liabilities assumed are valued at fair value at the time of acquisition. Goodwill arises in a business combination when the fair value of consideration transferred exceeds the fair value of identifiable assets acquired less the fair value of identifiable liabilities assumed. Goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that are expected to benefit from the combination. Goodwill is tested annually for impairment and is not subject to amortisation. Fair value of goodwill is normally assessed more than once a year if there are events or circumstances that indicates a possible impairment.

If the fair value of identified assets and liabilities exceeds the purchase price (negative goodwill) the excess amount is recognised as gain in profit or loss. Provision of deferred tax is made for the difference between the fair value of identified assets and liabilities, and the carrying amount of assets and liabilities, except for goodwill.

Associates and joint ventures
Associated companies are entities where the group has no control but has the ability to exercise significant influence over the financial and operating policy decisions of the investee. Normally, significant influence is obtained when the group have between 20% and 50% ownership or voting rights. Associated companies follow the equity method in the consolidated financial statements. Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost.

The carrying amount of the investee’s identifiable assets and liabilities includes goodwill identified at the acquisition date, adjusted to account for depreciation, amortisation and any impairment. The Group’s share of the investee’s profit or loss is recognised in the Group’s profit or loss and reduce or increase the carrying amount of the investment. The investment is recognised when the Group obtain significant influence until the significant influence ceases. Any losses from the investee that exceeds the carrying amount of the investment reduces the carrying amount to zero with the share of investment. Additional losses are not recognised unless the group has an obligation to cover this loss.

Eliminations and intra-group transactions
All intra-group assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated for consolidation purposes including internal gains.

Note 3 - Segmentation

Figures in 1000 NOK

For management purposes, the group is organised in business units based on the industries in which the group operates. The group has three operating segments:

Facility Services (FS)
FS provide services within canteen, catering, cleaning, and full management for all services provided within a commercial building.

Camps/catering
The camp segment provides cleaning and catering services at camp hotels and barracks.

Offshore
Offshore provides services within operations on production platforms, flotels and drilling rigs mainly relating to catering and accommodation services.

Admin
The remaining group activities are shown as «admin» in the column. These activities are mainly related to the group management.

The management continuously monitor the operating segments profits and uses that information to conduct analysis of the operating segments performance as well as for decision making purposes related to allocation of resources. The performance of an operating segment is assessed based on operating profits and is measured in accordance with the measurement of the group operating profit in the consolidated financial statements.

A specification of the groups reportable operating segments is presented below.

(Other income is government grants related to the corona-pandemic, see note 28)

Operating segments

CM = Contribution margin

Other information - Balance sheet

The group measure and report operating segments based on revenue, profit margin and EBITDA. Depreciation and financial items are not allocated to the individual segments. Furthermore, the group does not monitor balance sheet items at a segment level on a regularly basis.

Revenue in between segments are eliminated for consolidation purposes and included in “other/elim”.

Revenue outside the Norwegian boarders relates to activities on UK Soil with mNOK 10,7 and international waters with mNOK 21,3. 4Service Offshore AS is for that purpose registered as a simplified company in the UK and are therefore taxable for activities on UK soil.

Note 4 - Revenue

Figures in 1000 NOK

Performance obligations

Information related to the groups performance obligations and recognition of the associated revenue is provided below:

FS - Canteen operation

Canteen operation is structured in three different business models: Management canteens, risk canteens and commercial canteens.

- Management canteens: 4Service charge the customer a fixed management fee for operating the canteen, while the customer pays for the food/inventory. The management fee is subject to an index adjustment during the contract period.

There are relatively specific details of the performance obligation in the contracts. The contracts are based on a given quality level and regulates opening hours, inventories, service level, quality of goods sold, menus, cleaning/maintenance etc. The performance obligation in the contract is the daily management of the canteen during the contract period. The performance obligation is considered the same throughout the contract period as it follows the same pattern of transfer to the customer. The contract is therefore considered as a series of distinct performance obligations and is accounted for as a single performance obligation. Index-regulation of the inventories is recognised during the period the regulation was conducted.

- Risk canteens: 4Service charge the customer with a fixed management fee for operating the canteen. In addition, the customer is also charged for the number of meals for a fixed amount. 4Serivce takes all the risk relating to the inventory.

There are relatively specific details of the performance obligation in the contracts. The contracts are based on a given quality level and regulates opening hours, inventories, service level, quality of goods sold, menus, prices of meals, cleaning/maintenance etc. Operations of the canteen, production/sale of food to the customers employees, are considered as a combined service. The contract is therefore considered as a series of distinct performance obligations and is accounted for as a single performance obligation. The variable element, the number of meals, are allocated to a specific day (the day of purchasing a meal). This means that the management fee is recognised as revenue over time (throughout the contract period), while number of meals are recognised upon delivery.

- Commercial canteens: This is typically coffee shops (and Edda restaurant) in office buildings where 4Service already operates canteens. Revenue is a result of goods sold and services delivered during the contract period.

The performance obligation is to deliver goods (foods/beverages) when the customer order. This is considered as an ordinary sale of goods, and revenue is recognised at the time of sale

FS - Cleaning services

Cleaning services consist of all types of daily and periodic cleaning in office buildings, public institutions such as school and culture centres, public hubs, and camps.

In all cases, there are two or maximum three different performance obligations in the contracts; daily/weekly cleaning, periodic cleaning such as façade and window cleaning, floor treatment and maintenance etc. or other services charged at an hourly rate.

The following performance obligations are identified:
(1) Daily/weekly cleaning services (in accordance with the exception in IFRS 15)
(2) Temporary/additional services
(3) Periodic cleaning

FS - Facifity Services og Coworking

Facility Services (FS) are often called facility management and is a fully-fledged facility service that provides full operation of a commercial building such as cleaning services, post management, goods receipt, canteen services, front desk management, caretaker services and more.

Coworking is a service where 4Service provide office space and includes several services available for the customer. The concept is to give an integrated service with stable cost and a flexible choice of services in order for the customer to avoid handling several different service providers.

The concept is relatively new and can be compared to a traditional hotel operation. However, instead of renting out hotel rooms we are renting out office space for the short and medium term. The customer will have access to include canteen, catering, meeting rooms and front desk services in the contract. The customer can be individuals, start-ups, small businesses, project-based businesses ect.

The FS contracts have multiple performance obligations: Daily/weekly cleaning services of the office space, periodic cleaning, canteen services within opening hours, catering services, front desk services (e.g number of hours of staffed reception).

For the coworking contracts the performance obligation is to provide one or multiple office spaces to the customer. In the extension of renting office space it is natural to sell canteen services, meeting rooms and front desk services.

Camps

Camps deliver services to companies within the construction and production industry. These industries need camps close to the constructions sites (eg. Road Construction, oil/gas sites etc.). The service provided consist of front desk services, food services, cleaning- and caretaker services.

Some camps operate as a construction hotel, where the customer order rooms and pays a fixed amount per day for food services and accommodation. Revenue is recognised when the customer stays at the hotel.
Another type of contract is tailored such that the customer bears a large share of the risk. The customer pays a fixed amount for a given capacity (e.g. for a given numbers of rooms or barracks) to a lower price pr day. The number of days is not specified in the contract and may vary.

Normally, the customer owns or rents the facility (riggs/barracks), while 4Service only provide the services. In some cases, 4Service establish or rent the riggs/barracks. In such cases the contract may include a lease element. Therefore, it must be assessed whether the lease element is considered operational or financial. In most cases, the customer has access to a certain capacity with no specification of rooms or areas. The contract is then considered to not include a lease element.

The performance obligation in these contracts are to provide camp services to the customer when needed and not based on an individual stay. The performance obligation is considered the same throughout the contract period as it follows the same pattern of transfer to the customer. The contract is therefore considered as a series of distinct performance obligations and is accounted for as a single performance obligation. The transaction price consist of a fixed amount (management fee) that is recognised over time (during the contract period), while the price pr day represent a variable element that is recognised when the customer stays at the hotel.

Catering services - Offshore

Catering services (food and cleaning) within the offshore segment are provided on off-shore oil and gas rigs or floatels in associated with such rigs.

The contracts are typically framework agreements establishing prices and the terms of conditions for the services provided. The contracts are long-term with ongoing adjustments based on capacity and the customer’s needs (typically 1-2 weeks notification). The number of rigs the customer order catering services for depends on the duration of the contract. The transaction price in most contracts is based on agreed staffing in accordance with the number of people that stays at the rigs during the period. Staffing follows a “stair-step” model and increases with the number of people that stays at the rigs over the period. Some contracts set out a minimum staffing level independent of the persons on the rigs.

The performance obligation is considered the same throughout the contract period as it follows the same pattern of transfer to the customer. The contract is therefore considered as a series of distinct performance obligations and is accounted for as a single performance obligation. The contracts are normally sort-term which implies that the revenue is accounted for in accordance with invoicing for the period.

Note 4 - Revenue cont.
Figures in 1000 NOK

Disclosure of disaggregated revenue
The following table show the breakdown of the group's revenues:

As of 31 December 2020

As of 31 December 2019

Significant contracts with customers
In the business segment “Offshore” one customer stands for approximately 197 mNOK of total group revenue.

With this exception there are no other contracts that constitute a significant share of the group revenue.

Note 5 - Group company

The following subsidiaries are included in the consolidated financial statements as of 31.12.2020:

In 2020, 4Service Holding AS conducted a legal restructuring to simplify the group structure:

• The companies Søtt+Salt Kantine AS and Brest AS merged with 4Service Facility AS (previously 4Service Kantine AS)
• The companies Gastro Kitchen AS and Søtt+Salt AS merged with 4Service Catering AS (previously Gastro Catering AS)
• The company Kraft Drift AS merged with 4Service Eir Renhold AS
• The company Søtt+Salt Gruppen AS merged with 4Service Gruppen ASS

Acquired in 2019
The group acquired the companies Søtt+Salt Gruppen AS (with subsidiaries), Gastro Catering (with subsidiaries) and Brest AS in May, May and June 2019 respectively. The income statement is recognised from the acquisition date while assets and liabilities are recognised as at 31.12.2019.

After the restructuring in 2020 only Gastro Catering AS – now 4Service Catering AS – remain as a legal entity.

Non-controlling interest
The income statement, assets, liabilities and equity of Lahaugmoen Innkvartering AS is consolidated in the consolidated financial statement and 30% of the profit and equity are recognised as non-controlling interests.

Note 6 - Acquisitions

Figures in 1000 NOK

Acquisition of businesses:
In 2020, the group did not conduct in any strategic acquisitions in order to coordinate processes and benefit from synergies from acquired businesses previous years. The list below shows the acquisitions that the group made in 2019.

The acquisitions are financed through cash and private placements. The cash obtained is a result of ongoing refinancing of long-term loans from DNB.

The companies are all resident in Norway. As a rule, the acquisitions are partly financed with private placements to retain the competence and customer relations of the acquired entities within the group.

The table below illustrates the fair values of idenfiable assets at acquisition date:

*Share issue means that the seller has acquired shares in the parent company through seller credit conversion.

For the effect in the consolidated financial statement, see the table below.

Deferred tax liability mainly consists of differences between accounting and tax treatment relating to depreciation on tangible assets and intangible assets.

The value attributable to Goodwill include customer relations, employees with special competence and expected future synergies within the groups existing business. These intangible values do not meet the criteria of IAS 38 and is not recognised separately.

Goodwill is allocated to the cash generating units (“CGU’s”), represented by the segments (see note 3 Segmentation and note 10 impairment of goodwill). Goodwill include only goodwill relating to the group and is not subject to tax deprecation.

See note 27 "Estimation uncertainty"

Note 7 - Associates and joint ventures

Figures in 1000 NOK

Associated companies are companies where the group have between 20% and 50% ownership or voting rights.

Associated companies follow the equity method in the consolidated financial statements. The Group’s share of the investee’s profit or loss is recognised in the Group’s profit or loss with deductions for internal gains, dividends, and for depreciation of the depreciable assets based on their fair values at the acquisition date. If the carrying amount of the investment is negative it is recognised as a liability in the consolidated financial statement as the group considers it to be highly probable that it will meet its obligations.

Most of the groups associated companies follow the equity method. Most of these companies are under the camp segment.

The groups associated companies are as follow:

Statement of profit and equity share for associated companies: (Also see note 23 "Related parties")

Based on the size and complexity of the associated companies the group do not consider any of the companies to be significant for the group. Therefore, no separate statements have been made showing the balance sheet and result for each associated company.

Note 8 - Property, plant and equipment

Figures in 1000 NOK

Property, plant and equipment ("PP&E") is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset. Cost includes all costs necessary to bring the asset to working condition for its intended use. For self-produced assets borrowing costs are also included.

Items of property, plant, and equipment should be recognised as assets when it is probable that the future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably. The carrying amount of an item of property, plant, and equipment will include the cost of replacing or restore the part of such an item when that cost is incurred if the recognition criteria are met. The remaining carrying amount related to replaced parts are recognised over profit and loss. Cost of service, repairs and maintenance are recognised as expense.

All material components are depreciated over the asset’s estimated useful life. All assets are depreciated using the straight-line method.

Leased assets that cannot be expected to last until the end of the lease period, depreciation of the assets is the lowest of the lease period and the expected useful life. Leased assets that are expected to last until the end of the lease period is deprecated over the expected useful life.

The residual value, method and the useful life of an asset are reviewed at each financial year-end. If expectations differ from previous estimates, any change is accounted for as a change in estimate.

*Financial Leasing is included in equipment with the carrying amount of 20 542 tNOK as of 31.12.20

*Financial Leasing is included in equipment with the carrying amount of 17 658 tNOK as of 31.12.20

See note 16 for "Non-current interest-bearing liabilities"

Note 9 - Intangible assets

Figures in 1000 NOK

Goodwill
Goodwill is recognised at cost less accumulated impairment losses. Goodwill is subject to an annual impairment test. An impairment loss recognised for goodwill is not reversed even if the premise of the impairment no longer is present.

Goodwill acquired in a business combination is allocated to each cash-generating units (CGU) or group of units that have been acquired or that are expected to benefit from synergies.

Contracts with customers
Contracts with customers are contractual customer relations/relationships. Separately acquired contracts with customers are recognised at fair value (cost) at the time of purchase. Contracts with customers acquired in a business combination is recognised at its fair value at acquisition date. The contracts are recognised at acquisition cost less accumulated amortisation and have a limited useful life. Amortisation is calculated based on the estimated useful life of the customer contracts using the straight-line method.

Trademark
Trademark acquired in a business combination are recongnised at fair value at the acquisition date deducted for any impairment losses. Trademark is subject to an annual impairment test.

Software
Cost relating to acquiring software are recognised as an intangible asset unless these costs are a part of the acquisition cost relating to hardware. In general, amortisation of software is three years. Costs related to maintain the future economic benefits of the software are accounted for as an expense over profit or loss unless the changes in software increases the future economic benefit of the software.

Research and development
Expenditures on development of internal projects are recognised as intangible assets when it can be demonstrated that:

• It is probable that the assets are completed so that it will be available for its intended use or sale
• It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be reliably measured

Costs recognised in the statement of financial position includes cost of materials, cost of employee benefits and other directly attributable cost of developing the asset. Internal developments are amortised over a useful lifetime using the straight-line method. Amortisation begins when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. When an asset is not in use, the asset is subject to an annual impairment test.

Additions of goodwill, contracts with customers and trademark in 2019 are related to the acquired companies, see note 6 for further information.

Additions of software and other intangible assets are related to a new CRM system, new payroll system and the development of an App for the canteen and FS operations.

"IZY" App is an inhouse solution that has become a market leading app that connects canteen users more closely to resturants and other facilities in office buildings.

See note 27 "Estimation uncertainty" for more information.

Note 10 - Impairment of goodwill

Figures in 1000 NOK

The carrying amount of goodwill at 31.12.2020 is 823 MNOK. The majority of goodwill relates to the acquiring of the companies within the FS segment. The group monitors and test goodwill for each Cash Generating Units (or group of CGUs) equal to the CGUs defined in note 3 segmentation.

The group assess impairment of goodwill annually or when there is an indication that the carrying amount exceeds the recoverable amount. The impairment assessment has been carried out by the company within a quality-assured framework. The assessment was made as of 31.12.2020.

The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

The impairment test assumes a cautious annual growth rate during the forecast period until the terminal year in which a steady state rate of 2% has been applied.

Key assumptions in assessing value in use as of 31.12.2020:

Facility Services (FS)
The estimated cashflow for calculating value in use for the cash-generated unit of FS is based on management assessment of approved budgets for future periods. The market within the segment of Facility Services is growing as the customers appreciate increased flexibility, more interaction, and services. This also enables the customers to focus on their core business. Based on the management assessments and projections, the management consider the market to be growing and expects to increase its market shares within the segment of FS.

Catering services - camps
The estimated cashflow for calculating value in use for the cash-generated unit of Camp is also based on management assessment of approved budgets for future periods. The market situation in the Camp segment depend heavily on future construction projects (e.g. revised National transportation plan – NTP and construction activities). Based on the management understanding of future constructions projects initiated by the public and the size of these projects, there is reason to expect growth throughout 2021 and the following years.

Offshore
The estimated cashflow for calculating value in use for the cash-generated unit of Offshore is based on management assessment of approved budgets for future periods. The market situation in the Offshore segment depend heavily on the activities on the rigs. Significant changes in e.g. oil prices will in the medium-term affect the activity in the offshore industry. Based on the management assessment of the offshore industry there is reason to expect a stable growth for the foreseeable future.

Key assumptions applied to determine the recoverable amount
The value in use calculations for the cash-generated units is most sensitive to the following assumptions:

Discount rate
The discount rate for the Group is estimated based on the weighted average cost of capital (WACC). The discount rate reflects the market return of the industry in each cash-generating unit at the time the test was conducted. The cost of equity is calculated based on the CAPM-model. The applied discount rate is 10,5% for all CGU’s.

EBITDA margin
The EBITDA margin in the forecast period is determined from an average historical margin the last three years. All CGU’s have a constant EBITDA margin throughout the forecast perioddetermined by management expectations of the market situation and competitive market.

Growth rate
The growth rate is estimated based on the management assessment of future market conditions.

Based on the information available and the management knowledge of the market, the management expects a moderate growth the following years. The management prospects are based on an assessment of historical figures and industry analysis available for the public. Due to the uncertainty in the assumptions made, mainly due to corona, the estimate might be adjusted in future periods. However, experience from the pandemic has demonstrated that the Group are able to maintain its profitability and turnover while at the same time maintained a stable customer base and supply in most of the Group’s operating segments.

Sensitivity analysis of key assumptions:
As all acquisitions are acquired in relatively recent times and as the impairment test has not revealed any indication of impairments, no further analysis of the assets underlying values has been conducted.

The segments are only subject to impairment if there are significant changes in the assumptions made. The management is of the opinion that no changes within a reasonable scope will result in a carrying amount that exceeds the recoverable amount.

Note 11 - Leases

_Figures in 1000 NOK
_

Implementation
IFRS 16 is implemented as of 1 January 2018.

The Group as a lessee recognises its leases in the financial position as a lease liability with a corresponding right-of use asset,except for leases with a lease term of twelve months or less or leases where the underlying asset is considered to have a “low value” (less than 50 tNOK). Leases with low value and in which was recognised as a financial leasing after NGAAP is not omitted.

Presentation
The lease liability is recognised as the present value of the lease payments while the right to use the underlying asset during the lease term is recognised as a non-current asset. Installments and interest are recognised as financial expenses, while depreciation related to the right-of-use assets is recognised as depreciation. Installments and interest of the lease liability are classified under financing activities in the statement of cash flows.

Lease contracts

The group leases several assets:

• Office buildings
• Rent of canteen operations and restaurants
• Rent of rigs and land related to camps
• Cars and machinery
• Production equipment for canteen operation

Lease liability

The lease liability is initially measured at the present value of the lease payments for the right to use the underlying asset during the lease term. The lease payments are discounted using the contractual interest rate unless it cannot be readily determined an incremental borrowing rate is applied. Variable lease payments are only included if the lease liability depend on an index or a rate. In such cases, initial measurement of the cost assumes that the variable lease payments are constant during the lease period. When the CPI is known, the lease liability is reevaluated while the discount rate is held stable. Variable lease payments that are not included in the measurement of the lease liability are recognised in profit or loss.

Right-to-use assets
The right-of-use asset is initially measured as the amount of the lease liability. The cost of the right-of-use asset shall compromise:

• The amount of the initial measurement of the lease liability;
• Any lease payments made at or before the commencement date, less any lease incentives received
• Any initial direct cost; and
• An estimate of costs to be incurred by the lessee in dismantling and removing the underlying assets

Subsequent measurement can increase the lease liability as a result av changes in interest rates and decrease as a result of reduced lease payments.

The right-of-use assets are depreciated from the commencement date to the end of the useful life of the underlying assets or until the end of the lease term. The group depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

After the commencement date, the lease liability is remeasured to reflect changes to the lease payments (e.g. if there is a high probability that the option of extending the lease contract is not used). The revised discount rate is the implicit interest rate for the remainder of the lease term if that rate can be readily determined. If the implicit interest rate is not readily determined an incremental borrowing rate is applied at the date of reassessment. The carrying amount of the right-of-use assets is also revised. The revised right-of-use asset is depreciation over the remaining lease term.

Discount rate
The interest rate implicit in the lease is generally not known such that the lease payments are discounted using the Group’s incremental borrowing rate. The discount rate for the discounted lease liability is calculated for contracts with a duration of 1-3 years and 4-10 years. The discount rate is 4,6% and 5,34% respectively.

Right-of-use assets
The Group’s right-of-use assets are presented in the table below:

Lease liabilities

The leases do not contain restrictions on the group's dividend policy or financing activities. The group does not have any material residual value gurantees accoicaed with the leases.

Practical solutions applied
The group also rents personal computers, IT-equipment, and machines with contract terms from 1 to 3 years. The underlying value of these assets are low in value and is therefore notrecognised as lease liabilities with corresponding right-of-use assets. These lease payments are expensed and recognised in profit and loss. The group does not recognise short term leases as presented in the table above.

Variable lease payments
For contracts with variable lease payments, the variable lease payments are expensed and recognised in profit and loss.

Options to extend lease contracts
The group has lease contracts that varies from 5 to 15 years. Several of these lease contracts include an option of extension and can be exercised at the end of the lease term. The Group evaluates the probability to exercise the option when entering a contract.

Purchase options
The group rents personal computers, IT-equipment, and machines with contract terms from 1 to 3 years. Several of these contracts include a purchase option. The Group evaluates the probability to exercise the option when entering a contract.

Note 12 - Other operating expenses

Figures in 1000 NOK

The amounts above are excluding VAT.

Note 13 - Cost og goods sold and inventories

Figures in 1000 NOK

Inventories mainly include food, beverages, and other props for canteen operations (e.g. sheets and cleaning equipment).

Inventories are measured at the lower of cost and net realisable value (NRV). NRV is the estimated selling price less costs associated with eventual sale or disposal of the asset. Cost include the cost of purchase including all other cost incurred in bringing the inventories to their present location and condition (e.g. freight costs).For cost of goods sold the FIFO principle is applied.

Stock obsolescence has historically been minimal. Any obsolete food is thrown away on an ongoing basis.

Inventories are pledged as security for the group long-term interst-bearing loans, see note 16

Note 14 - Financial items

Figures in 1000 NOK

Note 15 - Financial risk and management

Figures in 1000 NOK

4Service Group is exposed to various types of financial risks:

• Market risk
• Liquidity risk
• Credit risk

The Group's financial assets basically consist of trade receivables, cash and cash equivalents derived directly from the Group's operations. The Group also has a small portion of derivatives (interest rate swaps).

The Group's financial obligations, excluding derivatives, consist of ordinary loans, accounts payable and other obligations. The primary purpose of these financial obligations is to finance the Group's operational activities.

The Board of Directors has overall responsibility for establishing and supervising the Group's risk management framework. The Group identifies and analyses the risk to which the Group is exposed, sets limits for acceptable risk levels and associated controls.

Market risk

i) Interest rate risk
4Service's financing is based on floating interest rates and the Group is therefore exposed to interest rate risk. The Group has interest rate swap contracts for a portion of the loan where the overall risk aspect is more exposed. However, as a general rule, interest rate swaps are not used to ensure effective interest rate exposure. The Group's stated objective is not to minimise interest costs itself and volatility associated with future interest payments, but nevertheless wish to keep these at an acceptable level.

Interest rate sensitivity
The table below shows the effect on pre-tax profit in the event of a change in the interest rate by +/- 50 basis points. The analysis assumes that other variables are kept constant.

Cash credit

Interest rate hedging
4Service has in total four interest rate swap contracts for parts of the loans. The interest rate swap contracts are due in April 2020, January 2022, November 2022 and January 2023. Normally, the interest rate on a loan is hedged when between 20% and 50% of long-term debt to credit institutions. Two of the interest rate swap contracts were signed in 2017 and two were signed in 2019. The table below shows the effect on the value of interest rate swap contracts when changing the interest rate by +/- 50 basis points. The analysis assumes that other variables are kept constant.

Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group's approach to dealing with this is to ensure that the Group always have sufficient liquidity to be able to serve its obligations, both under normal and demanding circumstances, and without incurring unacceptable losses or risks damaging the Group's reputation. Unused credit reserves are covered in Note 16.

The table at the bottom of Note 16 shows maturity analysis for the Group's financial obligations.

Credit risk
Credit risk arises because a counterparty may fail to perform its contractual obligations. The Group is exposed to credit risk from operational activities (mainly trade receivables) and from financing activities, including deposits in banks and financial institutions.

i) Trade receivables and other receivables
Credit risk related to customers is handled by each business area in compliance with the Group's guidelines, procedures and controls related to credit risk management. A customer's creditworthiness is assessed based on a credit rating scorecard and the customer's credit limits are defined in accordance with this rating.

Trade receivables and other receivables on the balance sheet are presented net after provisions for expected losses.

Refer to Note 20 for the Group's exposure to credit risk on trade receivables (maturity matrix).

ii) Cash and cash equivalents
Cash and cash equivalents include bound and non-bound bank deposits. Credit risk associated with bank deposits is limited as the counterparty is banks with a high credit rating. The strict creditworthiness requirements mean that counterparties are expected to fulfil their obligations. The Group has not made investments in money market funds or listed securities.

Asset management
For asset management, the primary focus is to ensure that the Group maintains a healthy capital structure that supports the business and maximises shareholder value. In light of changes in general economic assumptions, the Group assesses its capital structure and makes changes to it. In order to maintain or adjust the capital structure, the Group may adjust dividend payments to shareholders, return capital to shareholders or issue new shares. The Group monitors capital to ensure compliance with the covenant requirements of the Group.

Leverage ratio in covenants requirements above is quarterly declining.

With the current restrictions imposed on society by the public sector related to Covid-19, there are some challenges in the industry. The measures are expected to ease later in the year and the Group expects to meet Covenant's requirements in 2021, based on these assumptions.

Note 16 - Non-current interest-bearing liabilities

Figures in 1000 NOK

Interest-bearing loans and credits are recognised in the proceeds received, net of transaction expenses. The loans are then recognised at amortised cost. Fair value is essentially equal to book value because the terms of the loans are considered to reflect current market conditions on the balance sheet date.

In 2019, the company entered into a new loan agreement totaling NOKm 885.
Facility A is repaid with NOKm 15 every quarter, with instalments for the first time at the end of Q1 2020.
Facility B will be repaid in full at maturity on 31.12.2023.

The credit is continuing with renewal every 12 months. As of 31.12.20, no credit has been deducted.

As collateral for the loan, pledge has been taken in the Group's trade receivables, inventory and operating accessories. The book value of pledged assets is:

Interest rate swap contracts

The floating interest rate of the loan has been partially converted to fixed interest when purchasing interest rate derivatives (interest swap). As of 31.12.20, a total of 17% has been converted into fixed interest. See Note 15 for a description of interest rate risk and Note 18 for categorisation of financial instruments.

Covenants

Refering to note 15 Financial risk and management

Ageing profile

The table below shows maturity analysis for the Group's financial obligations based on the contractual, non-discounted payments. When a counterparty has the choice of when to pay, the liability is included with the earliest date on which the business can be expected to have to pay. Financial obligations where one is required to pay back on request are included in the "between 3-12 months" column.

Leases

Leasing is described in more detail in Note 11 Leases

Note 17 - Changes in liabilities

Figures in 1000 NOK

Change in liabilities arising from financial activities:

Change in liabilities arising from financial activities:

Note 18 - Financial instruments

Figures in 1000 NOK

Tables below presents 4Service Group's classes of financial instruments and associated book value according to IFRS 9.

Financial assets:

Financial liabilities:

Note 19 - Other current liabilities

Figures in 1000 NOK

Note 20 - Trade receivable and other non-interest-bearing receivables

Figures in 1000 NOK

All trade receivables are due within one year. The Group has so far not suffered any significant losses on trade receivables. The Group's provision for losses on trade receivables is based on specific assessments of each individual receivable. The provisions at 31.12 therefore reflect the total loss risk seen as at 31.12. The Group's customer base is divided into different segments (see Note 3), but historically there are small differences between the segments in terms of realised losses on trade receivables. The Group has not made any offset agreements or other derivatives agreements to reduce credit risk. The carrying amount of trade receivables is approximately equal to the fair value as the conditions are based on “normal” terms. Hence, fair value is not assumed to differ materially from book value.

Aging profile and bad debt provision of trade receivables
The table below shows the maximum exposure to credit risk associated with trade receivables on the balance sheet date by age.

The aging buckets show cumulative aging accounts receivable for consolidated companies. The expected loss is based on a concrete assessment of the trade receivables as at 31.12.20 and the age of the receivables.

Note 21 - Cash and cash equivalents

Figures in 1000 NOK

The Group has unused credit facilities of total 105 MNOK in bank overdraft. There are no restrictions its use.

Note 22 - Pensions

Figures in 1000 NOK

Defined contribution pension
It is compulsory by law for the companies within the Group to have a pension plan for its employees in Norway. The companies' pension plan satisfy the obligations in the Norwegian law.

All companies within the Group have slightly different contribution schemes as a result of the acquisitions in recent years. Pledged.

Lease liability
Leasing debt

Defined benefit pension
The defined benefit pension in the Offshore business has been discontinued as of 01.01.2020 and has been replaced by a defined contribution scheme. Liabilities from previous years have been recognised in profit and loss in 2020.

The defined benefit pension in the Offshore business has been discontinued as of 01.01.2020 and has been replaced by a defined contribution scheme. Liabilities from previous years have been recognised in profit and loss in 2020.

In relation to the collective bargaining agreement for mobile facilities in 2016, the parties agreed to a restructuring of the pension scheme from defined benefit to defined contribution scheme. The restructuring has expired in anticipation of a new Pension Insurance scheme for sailors.

This year's pension cost is calculated as follows:

Pension liabilities and pension funds:

Changes to the liabilities:

Note 23 - Related party transactions

Figures in 1000 NOK

Transactions with related parties
The Group 4Service has made several different transactions with realted parties. It is mainly purchase/sale of cleaning services and administration. All transactions are made as part of the ordinary business and complient with the arm's length termes.

Pledged

Accounts receivables from related parties
4Service group companies have transactions with related companies. The figures below show the Group's portion of long-term loans made to related companies, from the owners (in accordance with ownership interest).

The balance sheet includes the following figures as a result of transactions with related parties:

Referance to note 26 for information on loans and remuneration to management and board of directors.

Note 24 - Income tax

Figures in 1000 NOK

Deferred tax assets and liabilities:

The distribution of dividends to the parent company's shareholders does not affect the company's income tax or deferred tax liability.

Note 25 - Share captial, shareholder information and dividends

Share capital

All shares have equal voting and dividend rights.

Overview of the 20 largest shareholders as of 31.12.20:

Capital distribution

*Dividend paid in December 2019 was a distribution of paid in capital.

Treasury shares

Note 26 - Salary and personnel expenses

Figures in NOK 1000

The Group has a defined contribution pension that fulfill the requirements by the Norwegian law.

Up to and including 2019, the Group has also had a defined benefit pension scheme in the subsidiary 4Service Offshore AS that included 139 employees at 31 December 2019. The scheme has been discontinued in 2020 and replaced by a defined contribution pension scheme.

Reversed pension liability is recognised in profit and loss in 2020.

No loans or collateral have been provided for members of the management team, board employees or other elected corporate bodies.

Remunerations for executives

Cash credit

Note 27 - Estimation uncertainty

In preparing the financial statements, the company's management has used estimates based on best judgment and assumptions considered to be realistic. Circumstances or changes in market conditions may arise and consequently lead to changed estimates that subsequently affect the company's assets, liabilities, equity and profit.

The Group's most significant accounting estimates are related to the following items:

• Impairment / reversal of goodwill and other intangible assets as well as property, plant and equipment and reversal of impairment losses on property, plant and equipment
• Fair value of assets and liabilities on acquisition
• Lease agreements - determination of the lease period for contracts with renewal options

Intangible assets

The Group's capitalised goodwill, customer contracts and brand are assessed annually for write-downs and for any reversal of previous write-downs. The business is to a certain extent affected by economic conditions that can lead to fluctuations in the fair value of the business. The valuations of the various established segments will naturally vary within a range of +/- 20%. The Group has invested in the development of a separate app for communication and interaction with canteen users and tenants in “FS property”. The app is currently the industry leader and contributes to a clear competitive advantage in achieving new contracts. The investments are capitalised as an intangible asset and are depreciated over their expected useful lifetime.

Cost price allocation

4Service Holding (4Service) must allocate the cost price for acquired businesses to acquired assets and liabilities based on estimated fair value. 4Service has engaged independent valuation experts to assist in determining the fair value of acquired assets and liabilities. The valuation assessments require the management to make significant assessments when choosing the method, estimates and assumptions. 4Service has recognized significant acquired intangible assets that consist of customer base and brand. Basic assumptions of the assessment of intangible assets include, but are not limited to, the estimated average life of the customer relationship based on customer departure, remaining contract period and replacement cost adjusted for a technology factor for software and expected technological and market development. Assumptions on which the valuation of assets is based upon include, but are not limited to, the replacement cost of property, plant and equipment. Management's calculations of fair value are based on assumptions that are assumed to be reasonable, but which have an inherent uncertainty, and as a result, the actual outcomes may deviate from the calculations.

Leases

Significant discretionary assessments when determining the lease period for contracts with extension options. The Group has several leases related to office buildings and other real estate that contain extension options. An extension option is included in the calculation of a lease obligation if there is a reasonable certainty that a contract will be extended. Management has exercised discretion in assessing which relevant factors may create an incentive to extend a lease. As part of this assessment, management has taken into account the original lease term and the materiality of the underlying asset (office buildings and other real estate).

Note 28 - Government grant

Figures in NOK 1000

The ongoing pandemic in Norway (and the rest of the world) has affected our business operations. The financial year 2020 with pandemic and general lock downs in society has put pressure on both turnover and margins in the FS segment in particular. More specifically, catering and canteens have been significantly affected. Revenues in Camp have also decreased, while the Offshore segment has been less affected.

Several of the affected companies within the Group qualify for cash support from the authorities and have had parts of their fixed expenses covered during the period through the compensation scheme.

The Group has also received support through two different wage grant schemes, reduced social security tax in the third term and a lump sum per employee to take back furloughed employees in paid work.

Pledged

On 19 December 2020, the Norwegian Parliament approved an allocation of NOK 250 million to the hardest hit municipalities so that they are given economic leeway to provide compensation to local businesses affected by the pandemic and local infection control measures. The City of Oslo received NOK 78.52 million for distribution.

The City Council decided that the expected support should be given to restaurants with a liquor license in Oslo municipality. It was decided that the funds would be distributed based on what the companies have reported as expected sales of alcohol in 2020. A minimum payout of NOK 30 000 was decided and an upper limit of NOK 250 000.

Reduced social security tax
The social security tax was reduced by four percentage points for 3rd term (May and June) 2020. Furthermore, enterprises with employees in Zone V received the equivalent of four percentage points in one-time support.

Grant compensation scheme:
Businesses with a significant fall in turnover as a direct result of the pandemic may receive compensation from the government to cover parts of their inevitable fixed expenses, reference to the Act of 17. April 2020 nr. 17.

Wage grant
From 2 October 2020, a scheme was introduced where employers could apply for wage grants for the months of July and August 2020, in order to bring back furloughed employees for paid work. The scheme has been extended to apply for October, November and December 2020. The grant scheme applies to sole proprietorships, companies, as well as foundations, organisations and NGOs that do not have profit for the purpose and that are covered by the Norwegian Tax Law Section 2-32.

Received grant

In 2020, the Group has received a total of NOK 21.8 million in grants. The grants are recognised according to the cash principle and are classified as follows:

Note 29 - Contingent liabilities

The Group has no known liabilities that are not included in the balance sheet as at 31 December 2020.