Notes to the annual accounts

General remarks
The annual accounts are prepared in compliance with the provisions of the Norwegian Accounting Act and good accounting practice, with the modifications necessitated by the unique nature of Norsk Tipping as set out in the Norwegian Gaming Act of 28 August 1992. Norsk Tipping AS’s activities are subject to the provisions of the Gaming Act, which states that a publicly owned limited company shall act as a gaming company. The Ministry of Culture determines the company’s articles of association, appoints the Board and issues instructions to the Board. The Board is charged with ensuring that the company is operated in line with its objectives and guidelines. The Board is responsible for adequate organisation and management of the company, which includes ensuring that matters including registration and asset management are subject to satisfactory control. The articles of association set out the Ministry of Culture’s right to issue instructions outside the ambit of ordinary governance through the general meeting.

Consolidation
Norsk Tipping’s subsidiaries are of no relevance when assessing the Group’s financial position or performance. For this reason, and pursuant to section 3-8 of the Accounting Act, consolidated accounts are not prepared.

Use of estimates
The senior management team has used estimates and assumptions that have influenced the income statement and the valuation of assets and liabilities. Service life assumptions first and foremost affect valuations of fixed assets and intangible assets and the associated depreciation. Valuations have also been made of any unsecured assets and liabilities on the balance sheet date in connection with closure of the annual accounts in line with good accounting practice. The senior management team is unaware of any material uncertainty associated with the accounts and capitalised assets.

Currency
Transactions in foreign currencies are translated based on the exchange rate on the date of the transaction. Monetary items in foreign currencies are translated to Norwegian kroner using the exchange rate on the balance sheet date. Changes in exchange rates are recognised in the income statement on a continuous basis under other financial items.

Operating revenue, prizes, and commissions
The term ‘gaming revenue’ refers to the gross stakes risked by players. In the case of gaming terminals (Belago and Multix) and online gaming, players will normally play multiple times during a single gaming session and reuse any prizes as stakes. For accounting purposes, each individual game, involving a stake followed by a draw with possible payment of a prize, is regarded as a separate transaction regardless of the number of gaming sessions.

The recognition of gaming revenue and related prizes and commissions in the accounts does not fully correspond with the calendar year rather it is adjusted to conform to the subdivision of the year into numbered weeks. In 2019, gaming-related revenue and expenses were from 52 gaming periods/weeks. Gaming stakes and the associated anticipated prizes for multi-week games are accrued for each of the relevant gaming periods/weeks. Commissions are distributed on the same basis.

Revenue from other sales is recognised once delivery has taken place and most of the risk and return has been transferred.

Tax
The company is exempt from tax.

Classification and valuation of balance sheet items
Current assets and current liabilities include items that fall due for payment within one year of the date of acquisition, as well as items linked to goods circulation. Other items are classified as non-current assets/non-current liabilities. Current assets are valued at the lower of acquisition cost and fair value. Current liabilities are capitalised at their nominal value on the date they are incurred. Non-current assets are valued at acquisition cost, less depreciation, and write-downs. Non-current liabilities are capitalised at their nominal value on the date they are incurred.

Research and development
The company complies with the exemption rule set out in the provisions of section 5-6 of the Accounting Act when recognising expenses related to basic research and development. The company’s activities in this area are very limited. Intangible assets developed in-house are treated as fixed assets.

Fixed assets and intangible assets
Fixed assets are capitalised and depreciated on a straight-line basis over their expected service life. Direct maintenance of fixed assets is expensed on an ongoing basis as operating expenses, while upgrades or improvements are capitalised and depreciated over the expected service life. If the fair value of an asset is less than its book value, the asset is written down to its fair value. The fair value is the higher of net sales value and utility value. The term ‘utility value’ is understood to mean the net present value of future cash flows that the asset is expected to generate, either directly or as a prerequisite for the company’s other cash flow items.

The company’s development activities involving its own development of software, gaming concepts, distribution channels and systems are valued in line with Norwegian Accounting Standard 19 – Intangible assets. Development activities that meet the criteria are capitalised and depreciated over their expected service life.

Subsidiaries/associated companies
Subsidiaries and associated companies are valued using the cost method in the company’s accounts. Investments are valued at the shares’ acquisition cost unless a write-down has been deemed necessary. Investments are written down to fair value when the reasons behind a fall in value cannot be assumed to be temporary in nature and good accounting practice necessitates it. Write-downs are reversed when the basis for the write-down no longer exists. Dividends, group contributions and other disbursements from subsidiaries and affiliated companies are recognised as income in the same year they are approved by the companies’ general meetings.

Stocks
The company’s stocks are limited. Stocks are valued at the lower of acquisition cost and fair value. Acquisition cost is calculated using the FIFO method and includes expenses incurred from the procurement of the goods, and expenses linked to bringing goods to their present location and up to their current condition.

Receivables
Sales agent receivables, trade receivables and other receivables are recognised on the balance sheet at their nominal value less provisions for expected losses. Provisions for losses are made on the basis of individual valuations of the individual receivables. An unspecified provision is also made to cover expected losses on other trade receivables.

Pensions
The company has defined benefit pension plans that are valued at the present value of their future pension benefits which, for accounting purposes, are regarded as earned on the balance sheet date. Pension assets are valued at fair value. Changes to defined benefit pension liabilities resulting from changes to pension plans are distributed over the estimated average remaining accrual period. The company uses the corridor method to recognise the effects of pension assumptions. The cumulative effect of changes in estimates and financial and actuarial assumptions (actuarial gains and losses) equal to less than 10 per cent of the greater of pension liabilities and pension assets at the start of the year are not included. If, at the start of the year, the cumulative effect exceeds 10 per cent, the excess amount is recognised over the estimated average remaining accrual period. Net pension expenses for the period are classified as payroll and personnel expenses.

Statement of cash flow
The cash flow statement is prepared using the indirect method. Cash and cash equivalents include cash, bank deposits and other short-term, liquid investments.

Value Added Tax
Norsk Tipping AS’s ordinary activities are exempt from value added tax pursuant to section 5(b), paragraph one no. 6, of the Value Added Tax Act. As a general rule, expenses and investments are inclusive of VAT.

Events after the balance sheet date
Since the accounts were approved by the Board on 5 March 2020 there has been an outbreak of coronavirus in Norway. As a consequence of this, the company chose to produce new annual accounts with the corrected distribution of the annual result.

The company has taken the necessary measures to ensure operations and protect the company’s assets. The outbreak has no consequences for accounting valuations of other accounting items.

The company’s operations are divided into gaming product categories based on the fundamental characteristics of the games in question.

Gaming revenue per product category

Amounts in NOK millions20192018
Lotteries10 56410 521
Sports betting 3 7973 556
Scratch games 1 0511 121
Terminal games6 8249 029
Online gaming 18 03013 895
Total gaming revenue40 26738 122
The company’s operations are divided into gaming product categories based on the fundamental characteristics of the games in question.

Gross gaming revenue per product category (stakes less prizes)

Amounts in NOK millions20192018
Lotteries5 2665 214
Sports betting 947906
Scratch games 458496
Terminal games503692
Online gaming 981835
Total gross gaming revenue 8 1558 142

The gaming revenue was from calendar weeks 1-52 in 2019 (31 December 2018 – 29 December 2019). The company’s activities are targeted at the Norwegian market. There are no natural geographically defined market segments.

Amounts in NOK millions20192018
Salaries and fees 323303
Employer’s national insurance contributions 5149
Pension expenses 6053
Other social expenses 69
Total 440414
Benefits in kind 78

Remuneration of executive personnel in 2019

Amounts in NOK thousandsCEOBoard of Directors
Salaries and fees 2 7441 518
Other remuneration 30
Pension expenses 427

The company’s senior management team consists of six departmental directors plus the CEO. The current annual salaries of the senior management team range from NOK 1.2 million to NOK 1.8 million, with an average of NOK 1.5 million.

The Board determines the salary and other conditions of the CEO, while the Ministry of Culture set the fees for the Board.

No special pension agreements have been entered into with the CEO beyond the general terms and conditions that apply to all other employees.

In the event of involuntary dismissal, a severance payment of up to 6 months’ salary will apply unless otherwise is specifically agreed.

There are no agreements concerning special remuneration in the event of resignation or similar for other employees of Norsk Tipping AS.

The company has entered into retirement pension agreements with a total of five current and four former holders of executive positions with salaries above 12G. These guarantee 66 per cent of salary from the age of 67 and other supplementary benefits. This arrangement has now been discontinued and no similar agreements will be entered into with new employees. Also see unfunded pension plans in note 16.

The company’s funded pension plans satisfy the requirements of the Mandatory Occupational Pensions Act.

Current fee rates paid to Board:

Board ChairNOK 258 100
Deputy ChairNOK 165 700
Board member NOK 141 200
Permanent first deputy memberNOK 92 300
Audit Committee Chair NOK 57 800
Audit Committee memberNOK 40 000
Remuneration Committee ChairNOK 15 500
Remuneration Committee member NOK 7 200

Deputy representatives receive NOK 7,800 for each meeting they attend.

The company has no bonus schemes for either managers or other employees.

The company had total of 430 full-time equivalents in 2019, compared with 426 in 2018.

The company offers mortgages to employees on the same terms and conditions as the Norwegian Public Service Pension Fund (SPK). Employees can also apply for short-term loans of up to four times their monthly salary. See notes 8 and 11. No loans or guarantees have been provided to the CEO, Board Chair, or other close associates.

Auditor, amounts in NOK thousands20192018
Standard auditing services379369
Other attestation services 78
Tax advice 00
Other services 5830
Total444407
Amounts in NOK millions20192018
Operation of installations and equipment 435472
Telecommunications2727
Advertising297324
Cooperation agreements, corporate branding, and information 10093
Costs relating to the Norwegian Gaming and Foundation Authority3940
Consultancy services and fees 8348

Distribution and shipping costs
3948
Printed matter and office supplies 3638
Services related to player cards, ID, and payment systems 175184
TV production 2541
Other expenses 5962
Total other operating expenses1 3151 379

Financial income

Amounts in NOK millions20192018
Interest income 5737
Other financial income 110
Financial income subsidiaries and associated companies 00
Capital gains 1818
Total financial income8655

Financial expenses

Amounts in NOK millions20192018
Interest expenses10
Other financial expenses 00
Capital losses 134
Total financial expenses145

The company operates accounts in NOK, EUR, SEK, and USD. Balances in currency accounts are normally limited to the amounts required in connection with day-to-day operations. Prize transactions in games offered in cooperation with other regulated gaming companies (Vikinglotto and Eurojackpot) are conducted in EUR and mean that the company can at times hold large reserves of EUR.

In accordance with the company’s articles of association, surplus liquidity in excess of 2.5 per cent of the gross gaming revenue in the preceding year is transferred each month to the company’s sight deposits with the Treasury in Norges Bank. The interest terms for these deposits follow the government’s sight deposit rate.

Fixed assets

Amounts in NOK millionsArtVehiclesMachinery, equipment
and inventories
Land, buildingsTotal
Acquisition cost as at 01.01.2019111 7064782 188
Year’s disposals ---00
Year’s additions--16723
Acquisition cost as at 31.12.2019111 7224852 210
Accumulated depreciation and write-downs-11 6193121 932
Book value as at 31.12.20191-103173278
1
Annual depreciation--10124125
1
Depreciation schedule (straight-line)Ingen avskr.5 år3–6 år10–25 år

The company has expensed some minor leases for cars, office machinery and equipment.

Intangible assets

Intangible assetsIT infrastructureGames and game
applications
applikasjoner
Distribution-
channels
AgreementsTotal
Acquisition cost as at 01.01.201929118032812811
Year’s disposals -----
Year’s additions--2-2
Acquisition cost as at 31.12.201929118033012813
Accumulated depreciation and write-downs 25117832412764
Book value as at 31.12.20194036049
1
Annual depreciation 44811164
1
Depreciation schedule (straight-line)5 år3-7 år5-7 år3 år

Intangible assets relate to development projects carried out under the company’s direction. The projects involve the development of new solutions or modifications of solutions purchased from external suppliers. The total earnings from ongoing development projects are expected, as a minimum, to equal total related expenses. Costs related to the salaries and other personnel expenses of employees directly involved in the development work are not capitalised since the company has no reliable means of measuring them.

Depreciation and write-downs20192018
Intangible assets6447
Fixed assets125136
Total depreciation189183
Amounts in NOK millionsYear acquiredYear acquiredOwnership interestVoting rightsCost price of shareholdingBook value
Subsidiaries
Norske Spill AS2009Hamar100 %100 %11
Total subsidiaries11
1
Associated companies
Buypass AS2006/2009/2011Oslo50 %50 %3232
Lotteries Entertainment Innovation Alliance AS 2018Hamar25 %25 %11
Total associated companies3434
Total3434

Pursuant to section 3-8, paragraph two, of the Accounting Act, these companies have not been consolidated into Norsk Tipping AS’s accounts. The reason for excluding the companies from consolidation is that they are of no relevance when assessing the Group’s financial position or performance.

The annual accounts for Norske Spill AS have not been reported.

The annual accounts for Buypass have not been reported, but provisional accounts for Buypass AS show a profit of NOK 24 million and equity of NOK 219 million. A dividend of NOK 10.55 million was recognised as income in 2019.

The company Lotteries Entertainment Innovation Alliance AS was founded on 1 October 2018. The company was established as a joint venture in cooperation with three other publicly owned gaming companies. In 2018, the company reported a profit of NOK 1.3 million and equity of NOK 6.1 million.

Amounts in NOK millions20192018
Current liabilities to intragroup companies00
Current liabilities to associated companies 1615
Current receivables from intragroup companies 00
Current receivables from associated companies 00

Transactions with close associates

Amounts in NOK millions20192018
Buypass AS (associated company)
187192
Lotteries Entertainment Innovation Alliance AS 81
Total195193

Purchases of goods and services from Buypass AS involve payment transactions and verifications of identity linked to player cards. These services have been the subject of a competitive tender pursuant to the Public Procurement Act.

Amounts in NOK millions20192018
Long-term loans to employees *)1521
Other receivables2626
Total4147

*) The company offers mortgages to employees on the same terms and conditions as the Norwegian Public Service Pension Fund (SPK).

The company’s stocks consist of goods purchased for the company’s canteen. Other holdings of office supplies and operating materials are expensed on an ongoing basis.

Norsk Tipping AS settles receivables with its sales agents in arrears on a weekly basis by means of automatic deductions. Receivables are generally secured by means of deposits and guarantees provided by the sales agents.

Other receivables include prepaid and accrued costs and other trade receivables due for payment in less than one year after the end of the accounting year.

Amounts in NOK millions20192018
Trade receivables 53
Prepaid costs 5432
Personal loans/salary advances *)77
Other current receivables 6444
Total13086

*) Personal loans/salary advances for employees have a term to maturity of up to four years. Interest rate gains are taxed as such.

Norsk Tipping’s share capital consists of three shares, each with a nominal value of NOK 50,000.
The Ministry of Culture owns 100 per cent of the shares in the name of the Norwegian state.

The company has an investment fund in line with the Gaming Act and guidelines issued by the Ministry of Culture. The investment fund is included in retained earnings in line with other equity.

Amounts in NOK millionsShare capitalNon-distributable equity fundInvestment fundOther equityTotal
Equity as at 31.12.2018 0,151509205364
1
Year’s change in equity:
Net income 5 6765 676
1
Year’s transfers to surplus funds recipients -5 545-5 545
1
Net change in the accounting year131131
1
Equity as at 31.12.20190,151509337496
Amounts in NOK millions20192018
Deposits sales agents3029
Bonus pots linked to games9083
Unpaid holiday pay 3433
Liabilities linked to players’ accounts 303308
Accruals7451
Total531504

Residual surplus funds and distribution match the year’s distribution of surplus funds less advance payments/distribution to surplus funds recipients based on earned surplus funds for the year.

Advance payments and distribution to surplus funds recipients

Amounts in NOK millions20192018
Health and rehabilitation purposes104101
The Bingo Operators’ surplus funds for good causes3733
Grassroots Share recipients 458419
Sports purposes 749753
Cultural purposes150
Government’s anniversary gift to the Norwegian Trekking Association’s (DNT) 015
Total1 3631 320

Residual surplus funds payable

Amounts in NOK millions20192018
Year’s distribution of surplus funds 5 5455 523
Advance payments 1 3631 320
Total4 1824 203

Norsk Tipping AS has both funded (financed by notional assets in the Norwegian Public Service Pension Fund (SPK)) and unfunded pension plans. The funded pension plans are administered by SPK, see the detailed description of the arrangement below. The unfunded pension plans involve retirement pension agreements with current and former holders of executive positions with salaries above 12G, as well as two other pension agreements for former senior employees.

The company has also on occasion entered into supplementary agreements concerning pensions funded through operations with some employees who left following organisational changes.

Norwegian Public Service Pension Fund (SPK)
Description of the arrangement:
Norsk Tipping AS has a group pension scheme for its employees in the Norwegian Public Service Pension Fund (SPK). The pension scheme provides benefits in line with the Norwegian Public Service Pension Fund Act. The benefits cover retirement, disability, spouse, and child pensions. In addition, the calculation applies to benefits from the age of 62 under the early retirement arrangement (AFP) for public sector employees. The pension benefits are coordinated with the national insurance scheme’s benefits. The company’s premium contributions are expensed under payroll and personnel expenses as they are incurred.

Premiums are set and pension liabilities calculated based on actuarial principles as part of the SPK arrangement. The arrangement is not fund based, rather it is based on the simulated administration of pension assets (‘notional assets’) as if the assets were invested in government bonds. Pension payments are guaranteed by the state (section 1 of the Norwegian Public Service Pension Fund Act). The pension scheme cannot be moved in the same way as a private pension scheme and this calculation assumes that the arrangement will be continued by SPK. The simulation is based on the bonds being held until maturity. The pension assets are therefore valued at their book value.

Funded pension plans

Pension expenses

Amounts in NOK millions20192018
Present value of year’s pensionable earnings4646
Interest expense from pension liabilities2118
Return on pension assets -22-20
Employees’ pension contributions -6-6
Administrative expenses 11
Net pension expenses before amortisation3940
1
Recognised effect of estimate deviations 1211
Accrued employer’s national insurance contributions 1)88
1
Net pension expenses funded pension schemesr6059
1
No. of active employees included in the calculation437430

1) Employer’s national insurance contributions are net defined benefit pension liabilities multiplied by the current percentage for employer’s national insurance contributions. Net actuarial gains and losses not recognised on the balance sheet include employer’s national insurance contributions.

Pension liabilities

Amounts in NOK millions31.12.201931.12.2018
Calculated pension liabilities906842
Employer’s national insurance contributions 5247
Pension assets (at market value) -540-507
Net accrued pension liabilities 418382
Unrecognised effect of estimate deviations -310-288
Net pension liabilities 10894

Financial assumptions:

Amounts in NOK millions 2019 2018
Discount rate1,80 %2,60 %
Expected return on fund assets 4,20 %4,30 %
Expected wage adjustment 2,25 %2,75 %
Expected G adjustment 2,00 %2,50 %

The financial assumptions are based on NRS(V) Pension assumptions (September 2019). Changes in the assumptions from the calculation date to the balance sheet date are deemed not to have a material effect on the accounts.

Common assumptions used within insurance have been used as actuarial assumptions for demographic factors and departures. The calculations are based on the mortality assumptions in K2013.

Unfunded pension schemes and pensions funded through operations

As mentioned in note 2, the company has unfunded pension plans, as well as agreements involving pensions funded through operations with some employees linked to their leaving the company. The agreements concerning pensions funded through operations provide entitlement to 66 per cent of salary from the age of 67.

Amounts in NOK millionsUfonderte avtalerDriftspensjon
Provisions as at 01.01 560,7
New provisions/expenses in the period 50,6
Paid out in 2019 20,4
Liabilities as at 31.12580,9

Provisions/expenses in the period were charged in full to the accounts for 2019.

Total pension liabilities

Amounts in NOK millions20192018
Unfunded pension plans 5856
Funded pension plans 10894
Pensions funded through operations 11
Total pension liabilities167151

The item cash and cash equivalents includes tax withholding funds amounting to NOK 20.05 million. Surplus liquidity is transferred only a monthly basis to the company’s sight deposits with the Treasury in Norges Bank. This is classified as a bank deposit. The balance of the sight deposits with the Treasury as at 31 December 2019 was NOK 4,672 million.