Consolidated Statement of profit or loss

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 Group's 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.

Basis of consolidation

Subsidiaries

The consolidated financial statements comprise the financial statements of 4Service 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 to, and have 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 group 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 when 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.

For management purposes, the Group is organised in business units based on the industries in which the group operates. In 2022, the reported operating segments was changed to Accommodation, Cleaning & Maintenance, and Food & Facility. The reason for this change is because Cleaning & Maintenance has seen major growth and should be highlighted in its own segment.

As a consequence of new reporting opearting segments, prior year figures have been re-stated for presentation purposes.

The Group has three operating segments:

Food and Facilities
Food and Facilities provide services within canteen, commercial restaurants, catering, and full management for all services provided within a commercial building.

Cleaning and Maintenance
Cleaning and Maintenance provide services within cleaning and maintenance.

Accommodation
Accommodation provide accommodation services on accommodation rigs and facility hotels, as well as offshore services such as catering and accommodation services within operations on production platforms, flotels, and drilling rigs.

Backoffice
The remaining group activities is presented as «Backoffice». These activities are mainly related to 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, see note 28)

Operating segments

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”.

Performance obligations

Information related to the Group's performance obligations and recognition of the associated revenue is provided below:

Food and Facilities - 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 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 is recognised in the period the transaction price is adjusted.

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

Also, for risk canteens there are 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: Typically coffee shops and restaurants 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 ordinary sale of goods, and revenue is recognised at the time of sale.

Food and Facilities - Facility Services and Coworking

Facility Services (FS) provides full operation of a commercial building such as cleaning services, reception and mail management, goods receipt, canteen services, coworking and meeting room management.

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 4Service rent out office space on short and medium term. The customer will have access to include canteen, catering, meeting rooms and front desk services etc in the contract. The customer can be individuals, start-ups, small businesses, project-based businesses etc.

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 access to one or multiple office spaces to the customer. In extension to renting office space it is natural to sell canteen services, meeting rooms and front desk services.

Cleaning and Maintenance - Cleaning and maintenance services

Cleaning and maintenance services consist of all types of daily and periodic cleaning and maintenance in office buildings, public institutions such as schools 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

Accommodation - Camp

Camps deliver services to companies within the construction and production industry. These industries need camps close to the constructions sites (eg. Road and boat Construction, railway 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 pay 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 holds a larger 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 itself 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 is 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.

Accommodation - Offshore

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

The contracts are typically framework agreements establishing prices and 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 short-term which implies that the revenue is accounted for in accordance with invoicing for the period.

Disclosure of disaggregated revenue

The following table shows the breakdown of the Group's revenues:

As of December 31, 2022

As of December 31, 2021

Significant contracts with customers

There are no contracts that constitute a significant share of the Group revenue.

The following subsidiaries are included in the consolidated financial statements as of 31.12.2022:

Acquired in 2022

The Group acquired the companies Apex Renhold AS, Viken Sanering AS, Skien Renhold AS, Royal Pluss AS and Servicepartner 1 in 2022. The income statement is recognised from the acquisition date, while assets and liabilities are recognised as at 31.12.2022.

The four abovementioned acquisitions have merged into 4Service Eir Renhold AS during the second half of 2022.

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.

Acquisition of businesses:

The Group has acquired 100% of the companies Apex Renhold AS, Viken Sanering AS, Skien Renhold AS, Royal Pluss AS and Servicepartner 1 AS in 2022.

The acquisitions in 2022 have been financed through a new loan of MNOK 200 from DNB Bank, as well as cash obtained through retained earnings.

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

* Share issuance 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.

** Acquired companies were merged into 4Service Eir Renhold AS in 2022.     

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 Segment information 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"

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.

All of the Group's associated companies are under the Accomodation segment, and follow the equity method. 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.

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 are depreciated by the factor that 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 depreciated 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.

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

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 recognised 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.

Concepts

Concepts are expenses relating to the development of concepts/TV distribution, and are accounted for as an intangible asset in the balance sheet. Concepts are normally amortized over the course of three years.

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.

*Software and other intangible assets include concepts.

*Disposed Software & other intangible assets is mainly due to the separation of the Izy app from the Group into a separate company that was distributed as dividend to the shareholders of 4Service and established in an independent group

**Write-offs in 2021 relate to the trademark Brest AS, as the trademark is no longer in use

The carrying amount of goodwill at 31.12.2022 is shown in the table below. The majority of goodwill relates to the acquiring of the companies within the Food & Facilities and Cleaning & Maintenance segments (former 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.

Re-allocation of goodwill as a consequence of the change in the operating segments structure

The Group has restructured the segments structure in line with a calibration of the Group's organizational structure and strategy.

The former "FS segment" is divided into "Food & Facilities" and "Cleaning & Maintenance". The CGU "Food & Facilities" represent the Group's facility services and canteens, while "Cleaning & Maintenance" represent the business activities in the cleaning industry. What was previously known as the "Camp" and "Offshore" segments have been merged into the new "Accommodation" segment because these CGUs are coinciding.

The restructuring of the segments affects the allocation of revenue and cash flows to each CGU and, accordingly, its value.

The re-allocation og excess values is based on the CGU values from historical acquisitions to new the operating segment. This way the allocated excess values are portrayed correctly, as historical acquisitions are in all material aspects within one of the operating segments and may be allocated directly to either Accommodation, Food & Facility, or Cleaning & Maintenance.

Last year's figures have been reworked in line with the new segments for presentation purposes. The re-allocation from former segments to new segments are shown in the table below.

Reallocation of added values 2021 (reworking of last year's figures):

Carrying amount of value added:

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 31.12.2022.

The recoverable amount is based on a consideration of the activity's value in use. 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 31.12.2022:

Expectations regarding future development

The calculation of value in use for all the cash flow generation units was done through projections of cash flows from budgets that have been approved by the management.


Food & Facilities (F&F)
The F&F market shows a positive development, and the demand for these services is increasing. There is a growing demand for flexibility, as well as a focus on making the workers return to the office through the offering of food and service experiences. Furthermore, macro trends show that our positioning is favorable when considering new services such as coworking, and health & wellness, as well as expanding our customer focus past only the work place services.

Based on the management's understanding and forecast, strong growth and increased market share is expected in future years.


Cleaning & Maintenance (C&M)
The C&M market shows a positive development, and the demands for these services are increasing. There is a growing demand for cleaning expertise, and the demand has grown stronger in the aftermath of the pandemic. Several facility service customers - who have signed long-term contracts - also request cleaning services, which in turn impacts the future growth of these services positively.

Based on the management's understanding and future forecasts, strong growth and increased market share is expected in future years.

Accommodation
The market situation for land based camps is affected by, among other things, road and railway projects through the revised National Transport Plan, as well as larger public construction activities and industry activity.

Based on the management's understanding, and expected extent of larger projects in future years, continued growth is expected.

The Offshore market depends mainly on the extent of activity on the continental shelf. Significant movements in e.g. oil prices will affect activity in the offshore industry short to medium term, but the industry have been active through 2022 and we expect this stability to continue onwards.

Based on the management's understanding and forecast, as well as stable activity levels in the offshore industry future growth is expected.

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 similar for all CGU's, as shown in the table above.

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 period determined 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. This is based on an assessment of historical figures and industry analysis available to 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 is able to maintain its profitability and turnover while at the same time maintain 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.

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 which was recognised as a financial lease according to norwegian GAAP 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 operations

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 this cannot be readily determined The Groups incremental borrowing rate is applied. Variable lease payments are only included if it depends on an index or a rate. In such cases, initial measurement assumes that the variable lease payments are constant during the lease period. When the CPI is known, the lease liability is re evaluated 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:
- Any lease payments made at or before the commencement date,
- 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 of 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 5,50% and 6,12% respectively.

Right-of-use assets

The Group’s right-of-use assets are categorised and 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 expedients 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 not recognised as lease liabilities with corresponding right-of-use assets. These lease payments are expensed and recognised in profit and loss. The group also 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 on buildings, and the length of these contracts 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.

The amounts above are excluding VAT.

Inventories mainly consists of 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's long-term interest bearing loans, see note 16.

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.

Interest rate hedging
4Service has in total three interest rate swap contracts for parts of the loans. The interest rate swap contracts are due in January 2023. Normally, the interest rate on a loan is hedged when between 20% and 50% of long-term debt to credit institutions. One of the interest rate swap contracts was 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.

ii) Foreign currency risk

4Service has no operations in countries other than Norway, and there are few transactions with settlement in foreign currency. The Group's receivables and liabilities in foreign currency is of immaterial value on the balance sheet date. No sensitivity calculations have been made to foreign currency risk.

The Group does not hedge foreign exchange risk due to few transactions in currencies other than NOK.

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 pay 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. The maturity analysis for the Group's financial leasing is covered in Note 11.

Credit risk

Credit risk arises because a counterparty may fail to perform its contractual obligations, thus incurring a financial loss. 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 restricted and non-restricted 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.

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 in all material aspects equal to book value because the terms of the loans are considered to reflect current market conditions on the balance sheet date.

Carrying amount

Bank loan and collateral

The Group has the following loan facilities available:

Facility A and A2 is repaid with MNOK 20 every quarter, with installments for the first time at the end of Q1 2021 for A, and at the end of Q2 2022 for A2.
Facility B and A2 will be repaid in full at maturity on 31.12.2023.
A bank loan is going through renegotiations.

The credit is continuing with renewal every 12 months. As of 31.12.2022, 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 31.12.22, a total of 16% 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

Maturity 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.

Remaining time

Leases

Maturity analysis of leases are described in Note 11 Leases

Change in liabilities arising from financial activities:

Change in liabilities arising from financial activities:

Leasing liabilities is described in Note 11 - Leases

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

Financial assets:

Financial liabilities:

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 profile above show cumulative aging accounts receivable for consolidated companies. The expected loss is based on a spesific assessment of the trade receivables as at 31.12.22 and the age of the receivables.

The Group has unused credit facilities of total 120 MNOK in bank overdraft. There are no restrictions on its use.

Contribution pension (ITP)

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.

The companies within the Group have slightly different contribution schemes due to acquisitions in recent years. The schemes range from pure OTP plans of 2%, to deposit agreements of 5%/8% for salaries of respectively 1-7,1G and 7,1G - 12G.

Contractual retirement pension scheme (AFP)

Some of the companies in the Group have AFP schemes.

Defined benefit pension

The defined benefit pension (YTP) in the Offshore business has been discontinued as of 01/01/2020, and was 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.

The NRT-scheme (60-67 years) is replaced by the new Pension insurance for seamen and AFP. In addition, deposit agreements (3/15%) have already been introduced, replacing the previous defined benefit pension scheme.

This year's pension cost is calculated as follows:    

Changes in liabilities:

Transactions with related parties

The Group has transactions with related parties. Its subsidiaries 4Service Landanlegg AS and 4Service AS have entered into an agreement regarding the acquisition of the catering business 4400 Lahaugmoen Kantine, pursuant to the Limited Liability Companies Act § 3-8. Apart from this, it is mainly purchase/sale of cleaning services and administration. All transactions are made as part of the ordinary business and compliant with arm's length principle.

The most significant transactions are:

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:

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

Income tax expence reported in income statement

Effective tax rate reconciliation

Deferred tax assets and liabilities

The Group only net their deferred tax assets and liabilities if it has a legal right. Given this, they only net deferred tax assets and liabilities within the same tax regime.

Reconciliation of net deferred tax liability

The group's loss to be carried forward as of 31 December is due as follows:

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

Share capital

All shares have equal voting and dividend rights.

Overview of the 20 largest shareholders as of 31.12.22:

Capital distribution

* Dividend paid in September 2021 was a distribution of paid in capital.

Treasury shares

All employees work in Norway.

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

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

Remunerations for executives

Corporate management consists of CEO and CFO.

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 tested annually for impairment 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%.

Purchase 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).

The Group received government grants through the compensation scheme and wage grant scheme relating to the Covid-19 pandemic in 2022.

The Business Compensation Scheme

Businesses with a significant fall in revenue 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 April 17, 2020 no. 17.

Compensation received in relation to the Act of April 17, 2020 nr.17 regarding temporary compensation for businesses with a large decline in revenue due to the corona virus outbreak is taxable business income. The compensation is determined on basis of the business' decline in revenue as well as unavoidable fixed costs in the month the business applies for compensation for, pursuant the Act's § 5 first paragraph.

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 2022, the Group has received a total of MNOK 15,1 in different grants. The grants are recognised according to the cash principle, and are classified as follows:

The Group does not have any known liabilities that have not been recognised in the balance sheet per 31.12.22.