Annual report Lock AS

Transcription

1 Annual report 2015 Lock AS

2 Contents Key figures 4 Board of Director's report 5 Going concern 15 Confirmation from the Board of Directors and CEO 16 Consolidated Income statement 17 Consolidated Statement of financial position 18 Consolidated Statement of changes in Shareholders' equity 20 Consolidated Statement of cash flow 21 Notes to the consolidated financial statements 22 1 General information 22 2 Summary of significant accounting policies 22 3 Critical accounting estimates 32 4 Financial risk management 33 5 Segment information 37 6 Employees, salaries and other remuneration 39 7 Audit fees 40 8 Financial income and costs 41 9 Income tax Fixtures and furniture Intangible assets Goodwill (a) Financial instruments by category (b) Credit quality of financial assets Purchased loans and receivables Other long-term assets Trade receivables Other short-term receivables Cash and cash equivalents Share capital and premium Group companies Trade payables Other short-term liabilities Borrowings Other long-term liabilities Derivative financial instruments Post-employment benefits Provisions for other liabilities and charges Pledged assets, contingent assets and liabilities Commitments Business combinations 61 Page 2

3 31 Related party disclosures Events after the reporting period 62 Parent Company Income statement 63 Parent Company Statement of financial position 64 Parent Company Statement of changes in Shareholders equity 66 Parent Company Cash flow statement 67 1 Parent Company Accounting principles 68 2 Parent Company Audit fees 68 3 Parent Company Financial Items 68 4 Parent Company Income tax 69 5 Parent Company Subsidiaries 70 6 Parent Company Cash and Short-term deposits 70 7 Parent Company Related Party 70 8 Parent Company Equity 70 9 Parent Company Borrowings 71 Audit Report 72 Page 3

4 Key figures Key figures, EURm unless otherw ise stated* 1 Jan - 31 Dec May - 31 Dec 2014 Net revenue EBITDA EBITDA margin (%) 35 % 20 % EBITDA excl. NRI's Adjusted EBITDA Adjusted EBITDA excl NRI's NIBD, end of period** 2,064 1,659 NIBD/ adj. EBITDA** ERC, end of period 2,442 1,971 Investments in Debt Purchasing Return in Debt Purchasing 15 % 14 % Gross collection in Debt Purchasing Average number of FTEs 3,380 2,988 * Lock AS was established 22 May 2014 and acquired Lindorff 6 October 2014 **NIBD is based on actual bond structure in the reported period. See note 4.2 Page 4

5 Board of Director's report The Board of Directors of Lock AS, Corporate Identity Number , hereby presents the Annual Report and Consolidated Financial Statements for the period 1 January 31 December The Lindorff Group Lock AS was established 22 May 2014 in Oslo, Norway and had no operating activities until 6 October 2014 when the company acquired 48.3% of Lindorff AB, 100% of Indif AB (owner of 51.7% of Lindorff AB), 72.9% of Lindorff Coinvest AB and 50% of Lindorff Institutional Management AB. During 2015 Lindorff Institutional Management AB and Lindorff Coinvest AB were dissolved through merger with Indif AB and Lindorff AB and Lindorff Second Holding AB were dissolved through merger with Lindorff AB (former name Lindorff Group AB). Lock AS and its subsidiaries (hereafter named Lindorff or Lindorff Group) hold 100% ownership of all companies within Lindorff Group. The parent company Lock AS is domiciled in Oslo, Norway, with office address at Hoffsveien 70B, 0377 Oslo. Lock AS is 100% subsidiary of Lock Lower Holding AS, Corporate Identity Number Lindorff, from a small Norwegian office founded in 1898, has grown into one of the largest and fastest growing debt-collection companies in Europe, with clear international ambitions. The company has unique industrial knowledge and has a balanced and flexible business model with a full service offering. Lindorff is one of the leading Credit Management Services providers to financial institutions in Europe. Lindorff is present in Denmark, Finland, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Poland, the Baltic States (Estonia, Latvia, and Lithuania) and Russia. Lindorff s services enable our clients to concentrate on core activities Our range of services comprises the entire value chain from customer selection to the purchase of receivables. Lindorff s products and services help improve our clients cash flow and profitability, and allow clients to focus on their core activities. Our current service offering includes: reminders and debt collection purchase of debt receivables selection and scoring of potential customers customer and credit information invoicing solutions payments services Lindorff is continually striving to develop its products and services and to find new ways of solving customer needs. Our clients growing focus on cost efficiency, as well as demand for more efficient processes and faster product development, has contributed to the growth of business process outsourcing. Our services enable clients to focus on their core activities and also provide more flexibility. Lindorff focuses mainly on the sectors such as financial institutions, telecommunications, retail, energy and the public sector. Significant events during 2015 On 1 March 2015 Klaus-Anders Nysteen was appointed as new CEO of Lindorff Group. In August, Lindorff acquired Casus Finanse and added Poland to the Group geographic footprint. Casus is one of the leading Credit Management Services operators in Poland and represents a strong fit with Lindorff s balanced business model. The company has a strong market position in Debt Collection and a growing presence in Polish Debt Purchasing market. Casus is based in Wroclaw with approximately 500 FTEs at the time of the acquisition. The company s key financials for 2014 was revenue of PLN 57m and EBITDA of PLN 18m. In 2015 Lindorff acquired two large portfolios in the Nordic region. Both acquisitions were from the existing clients and the majority of the debt was already serviced in the Debt Collection business. In December 2015 Lindorff signed a new collection contract with a leading financial institution in Spain. This is a 10-year servicing contract, an extension to the successful relationship with the client. Page 5

6 The current Board of Directors was elected on 22 April 2015 and consists of Chairman Carl Per Eric Sletten Larsson, and board members Sten Kristoffer Melinder, Erik Andreas Näsvik, Nils Peter Sjunnesson, Marcial Angel Portela Alvarez and Hans Torsten Georg Larsson. Events after the end of the reporting period Trond Brandsrud was appointed as a new CFO from 1 February Lindorff has signed an agreement to acquire 100% of the shares in Cross Factor S.p.A. Cross Factor is an Italian company providing both Debt Purchasing and Debt Collection services. Closing is expected in Q Page 6

7 Financial review The reporting period is 1 January 31 December 2015 for the parent company. Consolidated financial statements include Lock AS and its subsidiaries from 1 January 31 December Lock AS group had no operating activities until 6 of October 2014, hence all comparative figures to the group for the previous year reported in financial statements and notes include the period 6 October 31 December Management analyses of operations are based on Lindorff AB consolidated statements Net revenue Consolidated net revenue in 2015 amounted to EUR 534m (2014:130m). Revenues and earnings are generated from activities in the Debt Collection, Debt Purchasing and Other segment. The result from operating activities (EBIT) amounted to EUR 150m (2014: 21m). Revenues and operating earnings by operating segments Debt Collection Revenues in Debt Collection in 2015 amounted to EUR 358m (2014: 95m), whereof EUR 248m (2014: 68m) was revenue for services to external parties and EUR 110m (2014: 27m) was commission from collection on portfolios on behalf of the segment Debt Purchasing. The Segment Earnings were EUR 151m (2014: 41m), margin of 42%. Debt Collection accounted for 46% excluding intersegment revenue and 51% of Segment Earnings. Debt Purchasing Cash collection amounted to EUR 408m (2014: 95m). Net revenue was EUR 267m (2014: 58m). Direct operating expenses were EUR 127m (2014: 30m) whereof EUR 110m (2014:27m) was commission to Debt Collection. The Segment Earnings were EUR 140m (2014: 28m) margin of 52%. Debt Purchasing accounted for 50% of net revenue and 47% of Segment Earnings. The Group invested EUR 395m in loans in the period 1 January 31 December 2015 (2014:75m). The return in Debt Purchasing was 15%. Expenses Operating expenses amounted to EUR 348m (2014: 109m) including non-recurring items of EUR 19m (2014: 26m). Non-recurring expenses were related to M&A and bond tap in September, severance payment, site consolidation in Denmark and start-up costs for Lindorff Business Services. Employee benefit expense was 54% total operating costs. Operating margin was 35%. Several measures were taken in 2015 in order to consolidate locations, increase efficiency and reduce staff costs going forward. Depreciation/amortisation/impairment The result for the period was charged with amortisation and depreciation EUR 37m (2014: 5m), whereof EUR 3m on tangible assets and EUR 34m was amortised on intangible assets, mainly consisting of client contracts and software related assets. The carrying amount of fixed assets was EUR 341m (2014: 331m), whereof EUR 327m (2014: 319m) were intangible assets. Net financial items Net financial items amounted to a net expense of EUR 172m (2014: 66m) whereof EUR 90m (2014: 27m) was interest expense on bonds. Foreign exchange differences have had a negative impact on net financial items of EUR 19m (2014:17m). Taxes Income tax expense for the reporting period was EUR +6m (income) (2014:+15m). Lindorff Group has certain tax issues related to deductibility of interest of group internal loans in Finland and Norway. Tax exposure of these cases is estimated at EUR 42m including EUR 6m of potential penalties, whereof EUR 27m has been paid on request to respective tax authorities in Norway and Finland in 2015 and additional EUR 5m as advance current tax in Finland. Lindorff contests the claims and has or will file complaints to the Tax Authorities in both countries. No provisions have been recorded as Lindorff believes that our arguments are strong and hence our standing in the disputes is solid. For further information regarding tax, see note 9. Page 7

8 Research and development Lindorff has ongoing several development projects of unique software related to cost optimization and streamlining our operations, and to improve our services offered to our customers. During the reporting period this comprises the following projects: Debt Purchasing management system implemented in new countries Global Data Warehouse improved and rolled out to several new countries New collection system for several countries Improved BI/DW tools to increase collection through advanced analytics of Lindorff s extensive data Pre-study on use of robotics to automate processes Improved self-service customer portals with chat functionality, also available on mobile devices Re-platforming has improved performance and stability of services, and has reduced costs of IT-operation Cash flow and investments Cash flow from operating activities was EUR 91m (2014: 44m). Excluding cash effect of interest paid at EUR 152m, the cash from operating activities was EUR 243m. The increase in operating cash flow is mainly due to double digit revenue growth in Negative cash effect of increased working capital related to the increased operations in Spain and the ramp up of payment services in Finland. Net cash used in investing activities at EUR 472m relates mainly to acquisition of purchased loans and receivables of EUR 396m, acquisition of Casus Finanse in Poland and closure of the carve-out in December in Spain. Funding The Group is funded through a Super Senior RCF(SSRCF) of EUR 324m, Senior Secured Notes of EUR 1,457m equivalent (issued in EUR and NOK) and Senior Notes of EUR 451m equivalent (issued in EUR and SEK by Lock Lower Holding AS and pushed down to Lock AS). The average interest on the notes is approximately 7% with an average duration of 5.6 years. The SSRCF is priced at a current margin of 3.50%. At year-end 2015 the RCF draw amounted to EUR 207m (excluding a draw for unfunded guarantees of EUR 20.4m). Companies of the Lindorff Group representing more than 80% of EBITDA as of 31 December 2015 have provided security for the RCF and the Bond package through pledge of shares, bank accounts, receivables and a guarantee for the commitments under the RCF and the Bond package. Goodwill Goodwill is allocated to the two operating segments: Debt Purchasing and Debt Collection, which coincides with the level Goodwill is monitored by management on group level. When acquiring a company a purchase price analysis is prepared and the fair value of assets and liabilities are allocated to the different assets. Loans and receivables are recognised at fair value at the acquisition date. It has therefore been concluded that the goodwill of EUR 1,384m is mainly allocated to the Debt Collection segment. Consolidated goodwill amounted to EUR 1,384m at the end of the year (2014: EUR 1,378m) and the change from last year is mainly due to acquisition of Casus Finanse and currency translation. Page 8

9 Management analysis of operations Lock AS Group had no operating activities until 6 October Therefore, for the purpose of management analysis, all comparable figures are based on consolidated numbers of Lindorff AB Group for the full year Results of operations The table below sets forth the results of operations and the percentage of change for the periods indicated. The analysis is prepared to EBIT level as financial items are not comparable. Consolidated Income Statement Lock AS Group Lindorff AB Group EURm 1 Jan - 31 Dec Jan - 31 Dec 2014 Change in % Net revenue % Employee benefit expense % Legal fee cost % Phone, postage and packaging % Other operating costs % Depreciation and amortisation % Results from operating activities (EBIT) % Revenue Revenue was EUR 534m in 2015 compared to EUR 475m in This represents an increase of 12%. In constant currency net revenue increased by EUR 70m, or 15%, compared to year The increase was primarily driven by increased investment in Debt Purchasing in 2015 (EUR 395m) compared to 2014 (EUR 275m), which contributed to an increase in revenue generated in the Debt Purchasing business. The biggest contribution to the increased investment in Debt Purchasing was the two large acquisitions in the Nordic region. Revenue growth was also driven by the acquired Spanish collection unit in Q and the acquisition of Casus Finanse in Poland in Q The table below sets forth, for each of the periods indicated, operating revenue by segment and the percentage change from period to period. Lock AS Group Lindorff AB Group Revenue on a segment basis 1 Jan - 31 Dec Jan - 31 Dec 2014 EURm EURm in % of revenue EURm in % of revenue Change in % Debt Collection % % 7 % Debt Purchasing % % 21 % Other Services 19 4 % 17 4 % 11 % Eliminations* % % 12 % Total % % 12 % *Eliminations include the inter segment revenue generated by our debt collectio n department from commission charged on debt collection services carried out on portfolios we purchase Debt Collection Revenue in 2015, including intersegment revenue of EUR 110m from collection on Lindorff owned portfolios, amounted to EUR 358m, compared to EUR 336m in This represents an increase of 7% mainly driven by the acquisition of a collection unit in Spain. Debt Purchasing Segment revenue for 2015 amounted to EUR 267m compared to EUR 220m in 2014, showing an increase of 21% as a result of investments and improved collection performance from 103% to 107% of forecasts. Page 9

10 Employee benefit expense Employee benefit expense increased by 5%, from EUR 178m in 2014 to EUR 186m in As a percentage of revenue, it has decreased from 37% in 2014 to 35% in In constant currency terms the increase was EUR 13m, or 7%. The main reasons for this trend are the increased number of FTEs resulting from the acquisition in Spain (Q4 2014), the acquisition in Poland (Q3 2015), and severance pay that will lead to future cost savings. Legal fee cost Legal fee cost increased by EUR 8m, or 24%, from EUR 35m in 2014 to EUR 43m in As a percentage of revenue, it increased from 7% in 2014 to 8% in Excluding the effect of foreign currency translation, legal fee cost increased by EUR 9m, or 27%.The increase is mainly due to reclassification of legal fees from net to gross in Netherlands and increase in legal fees in Spain. Phone, postage and packaging Phone, postage and packaging expenses decreased by EUR 1m, or 5%, from EUR 19m in 2014 to EUR 18m in As a percentage of revenue the decrease was from 4% in 2014 to 3% in This trend was strongly affected by higher use of electronic communication, including the use of a self-service portal and text messages, in communicating with debtors which have lower costs than other means of communication. Other operating costs Other operating costs increased by EUR 8m, or 9%, from EUR 93 m in 2014 to EUR 101m in As a percentage of revenue, other operating costs decreased from 20% in 2014 to 19% in Excluding the effect of foreign currency translation, other operating costs increased by EUR 12 m, or 13%. The increase was driven by restructuring costs in Denmark, consulting fees in relation to bond tap in Q and the introduction of Lindorff Business Services as a support network for the Group. Depreciation and amortisation Depreciation and amortisation increased by EUR 21m, or 134%, from EUR 16 m in 2014 to EUR 37 m in As a percentage of revenue, depreciation and amortisation increased from 3% in 2014 to 7% in The increase was mainly a result of amortisation of the collection contract acquired in Spain in December 2014 as part of the Spanish Acquisition. EBIT for the Period Earnings before interest and tax (EBIT) amounted to EUR 150m in 2015 compared to EUR 136m in 2014 showing an increase of 10% (11% in constant currency). Collection costs and operational efficiency Costs representing 17% of the revenue for the year ended December 31, 2015 were variable, i.e., attributable to phone, print and postage, temporary staff, legal fees, travel costs and consulting fees (compared to 18% for the year ended December 31, 2014). The decrease in variable costs as a percentage of revenue is due to continuous focus on cost control. The fixed costs are mainly limited to office accommodation, permanent staff, data platform, compliance and IT infrastructure expenses, providing scalability with a low level of incremental overhead costs. The fixed costs as a percentage of revenue decreased from 50% in 2014 to 48% in 2015 reflecting increased scalability and operational efficiency. Page 10

11 Collection costs and collection cost ratio Lock AS Group Lindorff AB Group EURm 1 Jan - 31 Dec Jan - 31 Dec 2014 Debt Purchasing Gross collections Cost to collect Gross collections less costs to collect Collection cost ratio (%) * 31 % 31 % Debt collection services Fees and commissions received for services provided ** Cost to collect Fees and commissions received for services provided less costs to collect Collection cost ratio (%) 58 % 59 % * Cost to collect relative to gross colletions ** Includes intergroup commissions Key performance indicators for Debt Purchasing During 2015 Lindorff experienced significant growth in its Debt Purchasing business which is the result of maintained high collection performance of 107%, price discipline, high investments of EUR 395m and consequently all-time high estimated remaining collections (ERC) of EUR 2.44bn. The key performance indicators for the Debt Purchasing business are set forth in the below: Key Performance Indicators for Debt Purchasing Lock AS Group Lindorff AB Group EURm As at 31 Dec 2015 As at 31 Dec 2014 Estimated Remaining Collections (ERC) 2,442 1,971 Investment in Debt Purchasing Return in Debt Purchasing 15 % 14 % Collection Performance* 107 % 103 % * Collection performance on purchased loans and receivables compared to forecast Page 11

12 Financial position, risk and risk management The Group and the Parent company is exposed to various types of risks, including strategic risks related to economic development and acquisitions, regulatory changes, possible errors and financial risk such as market risk, interest risk, liquidity risk and credit risk inherent in purchased loans and receivables and counter party risk for third-party business. The group s liquidity is solid and the financial position of the parent company and group is considered strong. The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to NOK (Norwegian krone), SEK (Swedish krone) and PLN (Polish zloty) compared to the group s reporting currency EUR. The largest relative economic value deriving from non-eur currencies are protected by means of external financing denominated in the corresponding currencies at the same relative currency mix. The group has through its interest rate hedging policy limited the risk that the value and/or cash flow related to financial interest, interest bearing assets and liabilities varies due to fluctuations in market interest rates. The Board considers the group s financial risk management as satisfactory. Financial risk factors Group financial risk is limited, with strong cash flow from the Debt Purchasing business combined with limited investments needed in the Third Party Collection business. Lindorff`s funding and financial risk are managed in accordance with the Group Treasury policy. The Group Treasury policy contains rules for managing financial activities, measuring and identifying financial risk and limiting these risks. Internal and external financial operations are concentrated in Group Treasury, which ensures economies of scale when pricing financial transactions. Market risk The services and products offered in the respective local geographical markets are subject to strict local laws and regulations including requirements for debt collection licenses. The main market risk is related to general macroeconomic conditions and local rules and statutory regulations in each of the geographical markets the Group is present in and which affect the debtors ability to pay and the vendors ability and willingness to sell portfolios of loans and receivables and potential commission from third party collection. Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to NOK (Norwegian krone), SEK (Swedish krona) and PLN (Polish zloty) compared to the Group s internal and external reporting currency EUR. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. For further description of foreign exchange risk, see note 4. Interest rate risk Interest rate risk relate primarily to the Group s interest-bearing net debt. As at 31 December 2015, the external interest bearing debt amounted to EUR 1,665m, consisting of drawings on the Super Senior Revolving Credit Facility (SS RCF), senior secured fixed rate notes and senior secured floating rate notes. Including the senior fixed rate notes and senior floating rate notes issued by Lock Lower Holding AS (pushed down to Lock AS) the external interest bearing debt totalled EUR 2,116m Hedging is arranged partly by raising fixed rate debt and by fixing interest rates with interest rate swaps. As of 31 December 2015 the share of fixed rate bonds was 51%, and the share of fixed rate bonds including swaps was 58% (including notes issued by Lock Lower Holding AS). The floating rate bonds are tied to the market rate with quarterly interest fixing. A one-percent increase in market interest rates would have adversely affected net financial items by approximately EUR 8m. A five-percent increase would have adversely affected net financial items by approximately EUR 40m. Credit risk Credit risk is the risk that Lindorff`s counterparties are unable to fulfil their obligations to the Group. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from assets such as cash and cash equivalents, guarantees and derivative financial instruments and deposits with banks and financial institutions, as well as outstanding receivables; Purchased loans and receivables and outlays on behalf of clients. For financial assets owned by Lindorff, no collateral (very limited) or other credit reinforcements have been received. The maximum credit exposure for each class of financial assets therefore corresponds to the carrying amount. There is also a limited risk of loss linked to the Group s Third Party Debt Collection and the risk is primarily carried by the client. Page 12

13 Portfolios of purchased loans and receivables To minimize the risks related to purchase of non-performing claims, a stringent investment process with tight price discipline is exercised in purchase decisions. Purchases are usually made from clients with whom the Group has maintained long-term relationships and therefore has a thorough understanding of the receivables in question. Purchased loans and receivables are usually purchased at prices significantly below the nominal value of the receivables, and are usually not collateralised. Lindorff retains the entire amount collected, including interest and fees. For further description of risk, see note 4. In order to continue minimising the credit risk exposure, Lindorff continues to invest in staff with a broad experience in credit management, and focus on increased analytical approach to portfolio assessments. Monitoring processes are implemented to follow up actual collection compared to forecasts. In addition, the Group s investment in effective IT systems and a more uniform crossborder business model will result in better control of the Group s business, which in turn will also help reduce the risk of credit loss. Liquidity risk Liquidity risk is the risk that the Group does not have the ability to fulfil its short and long-term payment obligations to outside parties. The Group s long-term financing risk is minimized through long term financing in the form of committed lines of credit. As of 31 December the Group held unused facilities totalling EUR 93m (net of EUR 25m allocated to guarantees). Cash forecasting is performed by the operating entities of the Group and aggregated by Group Treasury. Group Treasury monitors rolling forecasts to ensure that the Group has sufficient cash to meet operational and financial expenditures, while also monitoring that borrowing limits and covenants in the Super Senior Revolving Credit Facility Agreement and Bond documentation are adhered to. Capital management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide return for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group has been assigned a credit rating of B+ by Standard & Poor s Rating Services and B2 by Moody s Investor Services. Corporate Governance Strong corporate governance is about having systematic decision-making processes, clear responsibility hierarchy, avoiding conflict of interest and satisfactory internal controls, risk management and transparency. Internal control and risk management regarding financial reporting Internal control and risk management regarding financial reporting are designed to provide reasonable assurance about the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, applicable laws and regulations, and other requirements for bond listed companies. The Board of Directors and the Chief Executive Officer are ultimately responsible for ensuring that internal controls are developed, communicated to and understood by the employees of the Group who undertake the individual control activities, and that the control activities are monitored, enforced, updated and maintained. The Group has implemented EIT (Enterprise Information Tool), to control, report and monitor that internal controls are performed in compliance with internal control guidelines. Articles of association Appointment and replacement of Board members follows from the Norwegian Companies Act. The Board is not given mandate to acquire and convey own shares, issue new shares or convertible instruments. Environmental concerns and corporate social responsibility Lindorff has a strong global commitment, anchored in the core values and the way the business is run. Lindorff employees are citizens of the world and are genuinely concerned with creating a better future - for those in need of support and for the generations to come. Lindorff has since 2006 partnered with the non-profit NGO FAIR (Fair Allocation of Internet Resources). FAIR aids developing countries by supplying resources within ICT. The equipment from the Lindorff offices in Norway, Sweden and Denmark has Page 13

14 supported projects to improve the ICT development in developing countries. When the equipment has reached the end of its service-life, it is returned to Europe for proper disposal and recycling. Additionally, there are a number of locally initiated CSR-projects on country-level, including providing work-experience for youth with disabilities in Spain, offering training in personal finance and debt to inmates as part of their repatriation to society in Norway and educating youth about personal finance in Swedish schools. Our business does not lead to contamination of the environment covered by specific regulations, but we have several green initiatives, including carbon, waste and water, to increase our environmental responsibility. Lindorff avoids unnecessary travel and promotes the use of video and telephone conferences. When purchasing products or services, we emphasize high environmental quality. The Environmental Policy addresses how we shall manage and control environmental issues in our operations and services. Anti-corruption and anti-money laundering The credit management business is affected by a number of laws and regulations in the jurisdictions in which Lindorff operate. The group has detailed policies and country specific procedures in place that are designed to ensure that operations are in compliance with applicable anti-corruption and anti-money laundering regulations, and compliance issues, if any, are identified and appropriately elevated within the organization. The policy regarding regulatory compliance defines, among other things, governing principles regarding identification of governing laws and regulations, delegation of compliance responsibilities, guidelines on education and competence, testing, documentation and monitoring of regulatory compliance control measures. Personnel organisation and management Year end 2015, Lindorff had a worldwide staff of 3,380 (2014: 3,040) FTEs in its thirteen countries of operations. Average number of FTEs in proportion of males and females Total Male Female Male% Female% Average 3,380 1,279 2, % 62 % Sickness absence Absence due to sickness was 5% of total work hours during the reporting period. Social responsibility and the environment The Group is actively involved in programs concerning employee engagement, competence and leadership development. The Group also has a strong focus on health, safety and environment. Managing staff absence and taking the relevant measures is an important area of concern for the Group. There were no cases of serious work accidents during Lindorff has a strong commitment to fair treatment and equal opportunity in the workforce. As of year-end 2015 the proportion of women and men in the Group was 62% and 38% respectively. Remuneration Board of Directors Chairman of the Board has received remuneration of EUR 103k in The other BoD members have not received remuneration in CEO On 1 March 2015 Klaus-Anders Nysteen was appointed in Lock Lower Holding AS as CEO of Lindorff Group. Lock Group is charged management fee including CEO services. For further information, see note 6. Senior Executives All senior executives receive a fixed annual salary and variable compensation. The variable compensation is, with a few exceptions, up to 50% of the annual base salary and is based on the results achieved by Group operating earnings, results in their area of responsibility and individual performance objectives. Lindorff has agreements with certain members of the management on severance payment equal to six to twelve months of base salary. Compensation committee The CEO has appointed a Committee to handle compensation issues. The committee is comprised of the CEO, CFO and EVP HR. Regarding remuneration in reporting period, see note 6. Page 14

15 Outlook Lindorff is a leading European provider of credit management services with a flexible business model and full service offering. The volume of Purchased loans and receivables was at a high level in Lindorff will continue to utilise its unique position in the Nordic region for further expansion in Continental and Eastern Europe. The Group s ambition is to continue its growth outside the Nordic region through a combination of organic growth and acquisitions. The Group aims to grow both through its debt collection activities and through portfolio purchases. Payment services is a fast growing product for Lindorff that is expected to increase in the coming years. The economic situation in Europe builds demand for Lindorff s services. The deals entered into in 2015 represent a big step to reach the strategic goals and proves that Lindorff is a preferred company to large European banks looking for a professional partner with impeccable track records and high ethical standards. It is the Board s view that Lindorff is well positioned for future profitable growth and to continue to develop as a leading credit management service providers. The Group s staffs has a solid track record in both acquiring and integrating companies in recent years and the Group has longstanding relationships with our existing customer base. The Board emphasises that outlook considerations always is connected with uncertainty. Parent company The parent company is a holding company with 1 employee and activities only relating to investment in subsidiaries and financing as of 31 December Net result for the year was a loss carried forward EUR 33.40m. Shareholders Lock AS is 100% owned by Lock Lower Holding AS, Corporate Identity Number , Ultimate parent company is Cidron 2013 Ltd, 26 Esplanade, St Helier Jersey JE2 3QA. Proposed distribution of earnings Parent company: To the Annual general meeting are the following funds available (EURk): Share premium reserve 714,906 Retained earnings/loss -22,121 Total non-restricted equity 692,784 The Board of Directors proposes that the total non restricted equity of EUR 692,784 is carried forward. Unrestricted equity for the Group is EUR 780m. The Group and parent company s profit and loss and financial position are presented in the subsequent Income statements, Statements of financial position and notes. Going concern In accordance with the Norwegian Accounting Act 3-3a, we confirm the going concern assumption forming the basis for the preparation of the financial statements. This assumption is based on profit forecasts for the year 2016 and the Group s long-term strategic forecasts. The Group s economic and financial position is sound. Page 15

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17 Consolidated Income statement EURm 1 Jan - 31 Dec May - 31 Dec 2014 Revenue Other income 0 0 Net revenue Employee benefit expense Legal fee cost Phone, postage and packaging Other operating costs Depreciation and amortisation 10, Impairment goodw ill Results from operating activities (EBIT) Finance income Finance costs Net finance costs Profit and loss before tax Income tax expense Profit and loss for the year Profit (loss) attributable to: Ow ners of the Company Non-controlling interests 0 Profit and loss for the year Consolidated statement of comprehensive income 1 Jan - 31 Dec 22 May - 31 Dec EURm Profit (loss) for the year Other comprehensive income: Items that w ill not be reclassified to the income statement Remeasurements of post employment benefit obligations gain(+)/loss (-) Tax on remeasurement of post employment benefit obligations Items that may be subsequently reclassified to the income statement Currency translation differences Other comprehensive income for the year, net of tax 1 66 Total comprehensive income for the year Attributable to: Ow ners of the Company Total comprehensive income for the year The accompanying notes are an integral part of these financial statements Page 17

18 Consolidated Statement of financial position EURm Notes As at 31 December 2015 As at 31 December 2014 ASSETS Fixtures and furnitures Intangible assets Goodw ill 12 1,384 1,378 Purchased loans and receivables 14 1, Deferred income tax assets Other long-term assets Non-current assets 2,880 2,551 Trade receivables Current tax receivable 5 3 Other short-term receivables Client funds Cash and cash equivalents Current assets Total assets 13 3,070 2,726 EQUITY Share Capital Share Premium Retained earnings Equity attributable to ow ners of the Company Total equity Liabilities Bonds 23,28 1,409 1,184 Other long-term liabilities 24, Pension liabilities Deferred income tax liabilities Financial derivatives long-term 25-3 Non-current liabilities 1,915 1,686 Trade payables Short-term loan Financial derivatives short-term Client liabilities Current tax liabilities 5 6 Other short-term liabilities Current liabilities Total liabilities 13 2,280 1,922 Total equity and liabilities 3,070 2,726 The accompanying notes are an integral part of these financial statements Page 18

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20 Consolidated Statement of changes in Shareholders' equity EURm Notes Share capital Share premium Retained earnings Total equity Balance as at 1 Jan Profit/loss for the year Other comprehensive income for the year: Remeasurements of post employment benefit obligations Translation differences Total comprehensive income for the year Balance as at 31 December Balance as at 22 May Profit/loss for the year Other comprehensive income for the year: Remeasurements of post employment benefit obligations Translation differences Total comprehensive income for the year Capital increase/(reduction) Balance as at 31 December The accompanying notes are an integral part of these financial statements Page 20

21 Consolidated Statement of cash flow EURm Notes 1 Jan - 31 Dec May - 31 Dec 2014 Cash flows from operating activities: Results from operating activities (EBIT) Non-cash items: Amortisation, depreciation and impairment 10, Amortisation and revaluation of purchased loans and receivables Cash items: Interest received Interest paid Corporate income tax paid Cash flow s from operating activities before changes in w orking capital Cash flows from changes in working capital: Decrease/increase in accounts receivable Decrease/increase in other receivables Decrease/increase in payment product receivables Decrease/increase in accounts payable Decrease/increase in other current liabilities Net cash generated from operating activities Cash flows from investing activities: Acquisition/disposal of subsidiaries Acquisition of receivables Acquisition of tangible fixed assets Acquisition of intangible fixed assets Acquisition of loans and receivables Proceeds from sale of shares 1 0 Net cash used in investing activities ,422 Cash flows from financing activities: Proceeds from issue of share capital Proceeds from new debt ,740 Retirement of debt Loans to group companies Other financial expenses Net cash used in financing activities 332 1,481 Net (decrease)/increase in cash and cash equivalents Currency effect 2-3 Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of year The accompanying notes are an integral part of these financial statements Page 21

22 Notes to the consolidated financial statements 1 General information The parent company Lock AS is a registered company domiciled in Oslo, Norway with office address at Hoffsveien 70B, 0377 Oslo, Norway. The company is 100% owned by Lock Lower Holding AS, Hoffsveien 70B, 0377 Oslo. The ultimate parent is Cidron 2013 Ltd, 26 Esplanade, St Helier Jersey JE2 3QA. Lock AS (the company) and its subsidiaries (together the Group) have two core business segments; Debt Purchasing and Debt Collection. The Debt Purchasing segment consists of the acquisition, management and collection of unsecured non-performing loans. The Third Party Debt Collection segment consists of contingency collection for various clients. Other services include invoice and payment services. The Group has offices in 13 countries Denmark, Finland, Germany, Italy, the Netherlands, Norway, Poland, Spain, Sweden, Russia and the Baltic States (Estonia, Latvia, Lithuania). The consolidated financial statements of the Group for the period ended 31 December 2015 were authorised for issue in accordance with a resolution of the Board of Directors on 28 April 2016 and presented to the Annual General Meeting on the same date. 2 Summary of significant accounting policies 2.1 Basis of preparation The consolidated financial statements of Lock AS and all its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) as approved by the EU and interpretations set by the International Accounting Standards Board (IASB) and the annual accounts act. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. The consolidated financial statements have been prepared on a historical cost basis except for financial derivatives that have been measured at fair value through profit or loss. The parent company s functional currency is in Norwegian Krone (NOK) and the presentation currency for the parent company and for the Group is Euro (EUR). The consolidated financial statements are presented in EUR and all values are rounded to the nearest m (EURm) except when otherwise indicated. The consolidated and parent company accounts pertain to 1 January to 31 December for income statements and 31 December for items on the statements of financial position Changes in accounting policy and disclosures Financial statements for the period ended 31 December 2015 are the second financial statement for Lock AS Group. For information regarding Lindorff previous years see Lindorff First Holding AB Annual report The Group has adopted all new and revised standards and interpretations issued by IASB and IFRIC and approved by EU if relevant to the business and come into force for the accounting year starting 1 January New standards and interpretations not yet adopted Certain new standards and amendments to standards and interpretations that are effective for annual periods beginning after 1 January 2015 have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the group. Below is a short description of the new standards and interpretations: IFRS 9, Financial instruments, addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. The new standard replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit Page 22

23 risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The new impairment model is an expected credit loss (ECL) model. The group is yet to assess IFRS 9 s full impact. IFRS 15, Revenue from Contracts with Customers, will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. At this stage, the group is not able to estimate the full impact of the new rules on the group s financial statements. The group will make more detailed assessments of the impact over the next twelve months. 2.2 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance. Subsidiaries The consolidated financial statements comprise the financial statements of Lock AS and entities where the Group has controlling interest (subsidiaries). Controlling interest is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Company obtains and exercises control through direct or indirect voting rights. Controlling interest will normally exist when the Company has voting rights of more than 50% through ownership or agreements. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. These financial statements are for consolidation purposes restated to IFRS. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of control is obtained and until the control ceases. Intercompany transactions, balances, revenues and expenses are eliminated in consolidation. This also applies for unrealized internal gains and losses. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. There is a reassessment of the allocation of the acquisition price within 12 months after the acquisition date when the initial accounting for a business combination can be determined only provisionally. Page 23