Annual Report

Transcription

1 Annual Report

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3 Contents Report for Profit and Loss Account... 6 Balance Sheet at December Cash Flow... 9 Notes to the Accounts Auditor s Report

4 Report for 2015 THE COMPANY Fondsfinans was established in 1950, and is the oldest independent investment firm in Norway. The Must family became a part owner in Fondsfinans in Today, Fondsfinans AS is wholly owned by Erik Must AS. Fondsfinans headquarters are based in Oslo, from which it offers the following services: Brokerage services for equities, derivatives, and interest-bearing securities Securities research Capital raises and financial advisory services The wholly-owned subsidiary in New York acts principally as a sales office for investment research and other products generated at the Oslo office. BUSINESS OBJECTIVE Fondsfinans is a knowledge-based investment firm with the long-term objective of creating value for its clients. The vision of Fondsfinans is to be an independent and leading investment firm rooted in Norway and the Norwegian securities market. ENVIRONMENTAL CONCERNS Besides the consumption of paper and energy as well as the production of waste, the company s normal operations do not have a significant impact on the environment. WORKING ENVIRONMENT, EQUALITY AND DISCRIMINATION The company has a good work environment and there have been no reported accidents or injuries in the workplace. Fondsfinans promotes team-work and places particular importance on quality, job satisfaction and job security. Absence due to sickness is negligible. The company s management group consists of five men and one woman. The Board of Directors is comprised of six board members, all of whom are men. Of the company s 60 employees, 10 are women. The company has set forth guidelines to prevent discrimination on the basis of gender, ethnicity, religion, disabilities or other factors. FINANCIAL DEVELOPMENT Fondsfinans most important success factors are its skilled and knowledgeable employees, positive mindsets, long-term client relationships and a strong corporate culture. Investment banking activities are firmly rooted in knowledge and expertise and market demand is ever-increasing. Fondsfinans is therefore committed to recruiting and retaining the best employees, where training and staff development play an essential role. A sensible approach to conducting business, and a strong corporate culture, are vital to ensure the highest possible quality in the services the company offers. The market in which Fondsfinans operates is characterized by increasing competition, which makes hard work and dedication all the more important factors in ensuring customer satisfaction as well as the highest possible quality in the services offered. Maintaining a long-term perspective is a founding principle in Fondsfinans. Moreover, it is essential for long-term client relationships that the firm maintains the highest possible ethical standards. The market in which Fondsfinans operates is regulated by the Norwegian authorities. In addition, the EU is a strong proponent for increased regulation, financial reporting and overall transparency, which will likely lead to an increase in operational costs related to IT-systems and compliance going forward. This development will have a stronger impact on smaller incumbents such as Fondsfinans than it will on larger competitors including, but not limited to, commercial banks. In early 2016, Fondsfinans went through a comprehensive process related to a change in company strategy. This process included a decision to focus on four strategic areas: Financials; Technology, Media and Telecom (TMT); Aquaculture and Industrial SMB. Going forward, Fondsfinans will utilize more of its resources toward corporate finance-related services. FINANCIAL RISK Fondsfinans has put in system a range of routines in order to identify, handle, assess and control risk. All routines are signed by the Chairman of the Board and/or the Managing Director and approved by the Board. Fondsfinans has its own Compliance department, which reports directly to the Board of Directors. An annual review of internal control directives is performed in order to analyze sources of risk arising from business operations and implement necessary measures to limit these risks. In addition, as required by the financial supervisory authority of Norway, Finanstilsynet, an ICCAP report is elaborated on a yearly basis. In the ICAAP report the company s core capital needs are analyzed on the basis of the different types of risk the company is exposed to. In the course of preparing the ICCAP report, stress tests are performed in order to evaluate the company s sensitivity to risk volatility and policy changes. RESULTS AND CAPITAL ADEQUACY Fondsfinans ended 2015 with operating revenues of 73.3m (77.6m in 2014). Operating profit ended at -13.2m, down from -9.3m in Throughout 2015 Fondsfinans has made relatively large changes to its staff, which has had a negative impact on profitability. The company s pension fund was overfunded by 20.4m. Fondsfinans ended the year with a balance of 206.2m ( 221.1m in 2014), while total core capital amounted to 77.1m. The capital ratio calculated in accordance with the Norwegian regulations on capital adequacy for investment firms was 40.6%, well above the statutory minimum of 8%. The accounts have been prepared on the basis of the going concern assumption. PROFIT ALLOCATION The company made a net loss of for The Board of Directors proposes that the result for the year be allocated as follows: Group contribution to parent company To the pension fund To other equity Annual result Fondsfinans AS received a group contribution of before tax. The contribution is reported as other paid-in capital (see note 14). EVENTS AFTER YEAR-END Subsequent to the change in strategy in early 2016, Fondsfinans underwent some organizational changes, which have led to a significant reduction in fixed costs and an improved corporate pipeline. Corporate finance activity in the first months of the year has improved considerably compared to previous years, with strong deal execution within both ECM and M&A. 4

5 Oslo, June 2, 2016 The Board of Fondsfinans AS Erik Must Christian Must Chairman of the Board Kaare Andreas Shetelig Henrik Vedeld Åge Korsvold Arne Egil Rønning Managing Director 5

6 Profit and Loss Account Operating revenues and expenses Note Operating revenues from investment and other related services Other operating revenues Total operating revenues Salaries and other personnel expenses 1, 5, 6, Depreciation of tangible fixed assets Losses on accounts receivable Other operating expenses Total operating expenses Operating profit Financial income and expense Other interest income Other financial income Other interest expense Other financial expense Net financial items Ordinary profit before tax Tax on ordinary profit Profit for the year Allocations Group contribution To pension fund To other equity

7 Balance Sheet at December 31 Note ASSETS Fixed assets Tangible fixed assets 7 Fixtures, fittings, office equipment etc Other fixed assets Total tangible fixed assets Financial fixed assets Over-funding of pension commitments Investment in subsidiary Other investments in securities Total financial fixed assets Total fixed assets Current assets Receivables 10 Accounts receivable Due from other investment firms Other receivables Total receivables Investments Market-based securities Hedging transactions Total investments Bank deposits, cash, and other liquid assets 17, Total current assets Total assets

8 Note EQUITY AND LIABILITIES Equity 14, 15, 16 Paid-in equity Share capital Other paid-in equity Total paid-in equity Accrued equity Other equity Pension fund Total equity Other primary capital Subordinated loan 14 Total equity and primary loans Liabilities Provisions for commitments Deferred tax Current liabilities 11 Accounts payable Liabilities to credit institutions Liabilities to other investment firms Liabilities to customers Tax payable 13 Public fees Other current liabilities Total current liabilities Total liabilities Total liabilities and equity Oslo, June 2, 2016 The Board of Fondsfinans AS Christian Must Chairman of the Board Erik Must Kaare Andreas Shetelig Henrik Vedeld Åge Korsvold 8 Arne Egil Rønning Managing Director

9 Cash Flow Statement Cash flow from operations Profit before tax Tax paid in the period Ordinary depreciation Change in current receivables Change in current payables Change in short-term debt to credit institutions Change in current liabilities excl. group contributions and tax Change in short-term investments Change in over-funding of the pension scheme Net cash flow from operations Cash flow from investment Receipts from sales of fixed assets Payments for purchases of fixed assets Net receipts from sales of shares Net payments on purchases of shares Net cash flow from investment Cash flow from financing Down-payment of subordinated loan Change in hedging transactions Payment of group contribution Net cash flow from financing Net change in cash and cash equivalents Holding of cash and cash equivalents (at start of the period) 1) Holding of cash and cash equivalents (at end of the period) 2) ) Holdings of cash and cash equivalents per January 1 st 2015 contained assets related to collateral of approx. 37m, which was reversed in ) Restricted cash per amounted to

10 Notes to the Accounts NOTE 1 ACCOUNTING PRINCIPLES The annual accounts have been prepared in accordance with generally accepted accounting principles and the Accounting Act of as most recently amended by legislation dated , and satisfy the requirements set out by the Ministry of Finance s regulations dated , as amended , for the annual accounts etc. of investment firms. Any changes in the required presentation of the accounts have been applied to previous years accounts so that figures presented are comparable. General principles for the valuation and classification of assets and liabilities Assets that are intended for permanent ownership or use are classified as fixed assets. Other assets are classified as current assets. Receivables that fall due for payment within 12 months are classified as current assets in all circumstances. Equivalent criteria are applied for the classification of current liabilities and long-term liabilities. Fixed assets are valued at acquisition cost, but are written down to actual value if they suffer a fall in value that is not expected to be temporary. Fixed assets that have a limited commercial life are depreciated in accordance with a predetermined depreciation period. Long-term liabilities are recognized in the balance sheet at their nominal value at the time they are incurred. Long-term liabilities are not written up to fair value as a result of interest incurred. Subsidiary Subsidiaries are valued at cost: the investment is valued at acquisition cost unless an accounting impairment has been necessary. Subsidiaries are written down to actual value if they suffer a fall in value that is not expected to be temporary and the impairment is in accordance with regular accounting standards. Operating revenue The recognition of income on sales of services takes place at the time the service is delivered. Operating revenue consists of brokerage and fees for corporate finance services. Realized returns of own investments are classified as part of the operating profit. Pension costs Fondsfinans operates a defined benefit pension scheme for its employees known as the Fondsfinans Pension Scheme. Members of the scheme are entitled to future pension benefits based on the number of years of service, salary at retirement age, and the benefits received from the state pension scheme. See Note 6. With effect from January 1, 2011, the pension arrangements for new employees of Fondsfinans ASA (now called Fondsfinans AS) are on a defined contribution basis rather than the previous defined benefit basis. With effect from December 1, 2011, all existing employees were transferred to the new defined contribution scheme with the exception of employees born in 1953 or earlier, who remain members of the defined benefit pension scheme. Securities Short-term investments in securities Market-based financial current assets comprise financial instruments that are listed on regulated markets or on the OTC list. Such financial instruments are valued at market price on December 31. Other financial instruments comprise securities that are not listed on a regulated market or on the OTC list. Such financial instruments are valued on the lowest value principle for current assets. Long-term investments in securities Long-term investments in securities are valued at acquisition cost, but are written down to market value in the event of a fall in value that is not expected to be temporary. Trading portfolio The firm s holdings for own account of financial instruments as part of the firm s investment service activities are defined as the trading portfolio. Net gains or losses are recognized to the profit and loss account as operating revenues. Financial derivatives The firm has internal limits that allow the use of financial derivatives for own account to a limited extent and principally for risk management purposes. Listed derivatives are valued at market value, while other derivatives are valued at their theoretical value calculated in accordance with the Black & Scholes model. Where a hedging transaction is linked to securities in the trading portfolio, the value of the derivative contract(s) is included when determining the market value of the securities. Gains and losses on financial derivatives are recognized as part of operating revenues. Foreign currencies Assets and liabilities denominated in foreign currency are converted to Norwegian kroner at the rates applicable on December 31. The net currency gain or loss arising is recognized as other financial income or expense. Profit and loss items arising in foreign currency are recognized at the exchange rate on the transaction day. Tangible fixed assets Tangible fixed assets are depreciated on the declining balance method since this is considered to be the appropriate commercial treatment. Taxes The tax cost in the accounting statement comprises the change in deferred taxes during the period. Deferred taxes are computed with 27% based on the temporary differences that exist between accounting and tax values by the end of the fiscal year. Taxincreasing and tax-reducing temporary differences are equal in size. Cash flow The presentation of cash flow is prepared in accordance with the indirect method. Cash and cash equivalents includes cash, bank deposits, and other short-term liquid placements that can be converted to a certain cash amount immediately and with immaterial price risk and that have a maturity date shorter than three months from the date of acquisition. Transactions with related parties For the financial year 2015, Fondsfinans AS has invoiced Erik Must AS the amount of 9,126,086. Fondsfinans Kapitalforvaltning AS is invoiced 2,264,529. The amounts invoiced are related to various services provided. Erik Must AS has invoiced Fondsfinans AS 1,700,000 for accounting services. Fondsfinans Kapitalforvaltning AS is a sister company of Fondsfinans AS, while Erik Must AS is the parent company. NOTE 2 FINANCIAL MARKET RISK The firm s exposure to financial market risk principally arises in two ways: 1) The firm s trading for own account and own account positions in various financial instruments. 2) Transactions with clients and investment firms awaiting settlement in connection with transactions in financial instruments carried out for clients. The firm s exposure to financial market risk in respect of trading for own account and transactions awaiting settlement is considered to be at a low level. The limits set for exposure to financial instruments are very restrictive, and the limits include requirements for the spread of holdings and the maximum proportion that may be held in un-listed financial instruments. Fondsfinans holds a net long-term investment denominated in USD equivalent to 14.1 million. Other than this, the firm s foreign currency positions are minimal. NOTE 3 SIGNIFICANT TRANSACTIONS There has not been significant transactions in

11 NOTE 4 SALES REVENUES ,000 1,000 Broking Trading for own account Market making Corporate finance and other related services Other operating income Fondsfinans has global clients, although the majority of the firm's clients are located in Norway. NOTE 5 SALARIES At the end of 2015, the firm had 60 employees ,000 1,000 Salaries and other remuneration Remuneration Pension expenses Other benefits NOTE 6 PENSION ARRANGEMENTS Fondsfinans AS has pension arrangements through Fondsfinans Pensjonskasse. The pension scheme provides future pension benefits based on years of service, salary at retirement and benefits from the National Insurance Scheme ( Folketrygden ). With effect from and including 2011, the pension scheme for new employees is a defined contribution scheme. The defined contribution scheme satisfies the requirements of the Norwegian Act on mandatory occupational pensions. The following assumptions have been applied: Yield on pension assets 3.3% Discount rate 2.7% Annual earnings growth rate 0% Annual increase in state pension 2.25% Annual increase in current pensions 0% Number of active members of the scheme 0 Number of members in retirement 15 When determining the financial assumptions, particular weight has been attached to the fact that the Fondsfinans Pensjonskasse has a high proportion of its capital invested in shares (74.2%), and that the pension scheme has achieved an average investment yield of 5.4% over the last three years. Over-funding (see also Note 1): Net pension expense is calculated as follows: Pension rights accrued for the year Interest expense on pension liabilities ,000 1, Amortized gains/ (losses) Expected return on pension assets Payroll tax Early determination Net pension expense Reconciliation of pension liabilities and pension assets: Gross pension liabilities (NPV) Market value of pension assets Net over-funding capitalized to the balance sheet NOTE 7 TANGIBLE FIXED ASSETS Fixtures, Other Total fittings, office equipment Declining balance 20-30% Acquisition cost at January 1 Additions during - the year Disposals during - the year Acquisition cost at December Accumulated depreciation at January 1 Depreciation for the year Disposals during - the year Book value at December NOTE 8 INVESTMENT IN SUBSIDIARY AND OTHER INVESTMENTS IN SECURITIES 2015 Investment in subsidiary Fondsfinans INC Book value The registered office of Fondsfinans Inc. is in New York. The book equity at : USD 1,203,770 (equivalent to 10,604,006). Profit at : USD (equivalent to -860,039). The firm does not prepare consolidated accounts under the provisions of Section 3-7 (1) of the Accounting Act. Erik Must AS produces consolidated accounts. Other investments in securities Finansnett 15 B-shares

12 NOTE 9 SHARES AND PARTICIPATION IN OTHER COMPANIES, OTHER FINANCIAL INSTRUMENTS, AND FINANCIAL DERIVATIVES Acquisition cost Market value Book value Number Ownership Trading portfolio Marked-based securities Stock-exchange listed GOD % GSF % MORG % SADG % SSHIP % Total Other financial instruments MENTOR MEDIER VIEI REDCORD OSLO EISP IPNETT EQNX MOE 20 1 Total Bonds YTM Bank1 Oslo AS 14/PERP FRN C HYBR Bonheur ASA 14/21 FRN PA Resources AB 12,25 % 11/16 C NA PA RESOURCES AB 13,5 % 03/ NA Siem Offshore Inc. 14/19 FRN Songa Offshore SE 12/18 ADJ C TIZ01 Ltd. 9% 12/17 USD C Total Total trading portfolio Hedging transactions (equity hedged with forward transactions, zero position) Value of equity Value of forward transactions Value of hedging transactions reported in the balance sheet Calculation of Yield To Maturity: Yield To Maturity (YTM) is the rate of return on a bond if held until maturity. The rate is determined based on the assumed market value of the bond at December 31, Yield To Maturity equals the annual discount rate that is implied by discounting all future coupons and the face value of the bond at maturity so that the discounted value reflects the market value at December 31, We have used recognized tools in Bloomberg for these calculations. 12

13 NOTE 10 RECEIVABLES Due from customers Accounts receivable before specific provisions for bad debts Specific provisions for bad debts at Losses realized in the period (for which specific provisions had already been made) + Increase in existing specific provisions for bad debts in the period + New specific provisions for bad debts - Write-backs of specific provisions for bad debts = Specific provisions for bad debts at General provisions for bad debts at Total of specific and general provisions for bad debts Accounts receivable net of provisions for bad debts Losses realized in the period (for which no specific provisions had been made) Increase in existing specific provisions for bad debts in the period New specific provisions for bad debts Write-backs of specific provisions for bad debts Net change in general provisions for bad debts Losses on receivables recognized in Other current receivables Due from group companies Other current receivables Total other current receivables NOTE 11 CURRENT LIABILITIES The firm s current liabilities to clients arise in connection with settlement of client transactions in financial instruments. None of the amounts involved has been outstanding for more than 30 days. Liabilities to credit institutions include a revolving credit facility provided by a bank in connection with the financing of forward sales to clients. NOTE 12 OTHER CURRENT LIABILITIES Intra-group liabilities and receivables Liabilities to group companies Total Other current liabilities Total NOTE 13 TAX Calculation of tax charge Accounting profit before tax Permanent differences Unrealized loss stocks Received dividends % write-backs of tax exempt income Net accounting profit stocks Net accounting sale stocks Net tax profit sale stocks Net tax sale stocks Change temporary differences Paid group contributions Received group contributions Taxable income % tax on taxable income - 32 Change in deferred tax Tax effect of paid/ received group contribution Taxes payable Under-provision prior year Tax charge for the year Calculation of Changes deferred tax Tangible fixed assets Accounts receivable Losses carried forward Shares and other securities not part of exemption method Pension overfunding Base for change in deferred tax Deferred tax % 25% - NOTE 14 PRIMARY CAPITAL Changes Share capital Other paid-in capital ) Pension overfunding Other equity ) Total equity Subordinated loan - Total equity and subordinated loans 1) Received group contribution 2) Annual result + given group contribution + allocation pension fund Total other current liabilities

14 NOTE 15 CAPITAL ADEQUACY ,000 1,000 Base for calculation Assets not in the trading portfolio Operational risk Settlement risk Items in the trading portfolio Currency Total base for calculation Credit risk using the standard method Operational risk Settlement risk Market risk Total base for calculation Deductions from base for calculation Core capital Supplementary capital Total primary capital million as the market value of the subsidiary Gyldendal (85% ownership). Other than Gyldendal, the group has no interestbearing liabilities. NOTE 17 CLIENT FUNDS Client funds are held on bank accounts separate from those of the firm and are not included in the balance sheet, in accordance with the Ministry of Finance s regulations for the annual accounts of investment firms, dated August 23, ,000 Bank deposits in clients account at Due to clients by Fondsfinans at Over-provision/ (shortfall) The over-provision is due to four clients having transferred funds after the client funds were settled at December 30, NOTE 18 OTHER COMMITMENTS (OFF BALANCE SHEET) The firm is jointly liable for such liabilities as the Norwegian Central Securities Depository (Verdipapirsentralen or VPS ) may incur in connection with its activities. This joint liability is a legal requirement and applies to all entities operating VPS accounts. The firm is responsible for its clients margin payments/security provision in respect of derivative trading through SIX X-clear. Three customers had not settled their margin payments as of December 31, 2015, but these payments were settled shortly after. Capital adequacy ratio in accordance with the capital adequacy regulation Core capital adequacy ratio in accordance with the capital adequacy regulation 40.64% 43,61% 40.64% 43,61% NOTE 19 BANK GUARANTEES AND COLLATERALS Fondsfinans has arranged the following bank guarantees: Liquidity guarantee in favor of OSLO VPS 25.0m As of December 31, 2015, Fondsfinans had transferred the following funds to SIX X-clear as guarantees for equity and derivative investments: Capital requirement equivalent to 8% of base for calculation Surplus primary capital Reconciliation of primary capital Share capital Other paid-in equity Other equity Over-funding of pension liabilities Total equity Subordinated loan Total primary capital Deductions for core capital Over-funding of pension liabilities Core capital in accordance with the capital adequacy regulation NOTE 16 EQUITY The share capital of Fondsfinans AS is made up of 21,000 shares each with a nominal value 1,000, and totals 21,000,000. All shares have similar voting rights. Fondsfinans AS is 100% owned by Erik Must AS, a company owned by Erik Must and his family. Christian Must is the Chairman of the Board and Erik Must is member of the Board. The book equity of Erik Must AS amounted to 1,663 million at December 31, In addition to its investments in Fondsfinans AS and Fondsfinans Kapitalforvaltning AS, Erik Must AS together with its subsidiaries Fondsavanse AS (100% ownership) and Must Invest AS (100% ownership) held listed securities at December 31, 2015, with a market value of 3,073 million. This total includes Guarantee (derivatives settlement) 8.3m Additional guarantee 6.3m NOTE 20 REMUNERATION OF OFFICERS, SENIOR EMPLOYEES, AND THE AUDITOR Salary/ fees Chairman of the Board - Other Board members Managing Director Auditor, audit fees (including VAT) Auditor, other services (including VAT) As of December 31, 2015, Fondsfinans had not entered into any commitment with the Managing Director or Chairman in respect of consideration upon termination or change of employment or office. Similarly, the firm has not entered into any agreements with its employees or officers in respect of subscription rights, share options, or any similar rights. The Managing Director s share of receipts from the pension plan is at 20,212 in Among other benefits, the Managing Director has had free telephone and newspapers. The Chairman of the Board has not received remuneration in 2015 due to an unsatisfactory performance of the company. NOTE 21 SECURITY ARRANGEMENTS FOR CLIENTS Fondsfinans is a member of the Investment Firms Guarantee Fund, which was set up by Ministry of Finance Regulation No of December 22, 2005, pursuant to Section 8 13 of the Securities Trading Act. The Fund is intended to provide security for clients of investment firms in the event that a member firm is unable to meet its commitments. The fund guarantees up to a maximum of 200,000 per client. 14

15 NOTE 22 CORPORATION Fondsfinans AS is part of the consolidated financial statements of Erik Must AS. The consolidated financial statements can be attained from the company s office in Oslo. NOTE 23 ACCOUNTS RECEIVABLE AND DEBT The company has no accounts receivable that mature in more than a year, or debt that has payment due in more than 5 years. NOTE 24 LOCKED BANK DEPOSITS 2,478,774 of the company s bank deposits is deposited in a tax withdrawal account. 15

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18 FONDSFINANS AS, HAAKON VII S GATE 2, POSTBOKS 1782 VIKA, N-0122 OSLO T.: , FAX: , ORG. NR , mail@fondsfinans.no 18