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Annual report '06



The annual accounts comprise the profit and loss statement, the balance sheet, the cash flow statement and the notes, and have been prepared in accordance with the Act relating to Innovation Norway, the Accounting Act and generally accepted accounting principles in Norway in effect as of  31 December 2006.

To make the accounts easier to read, the financial statements are presented in summarised form. The necessary specifications are shown in the notes. Consequently, the notes form an integral part of the annual accounts.

The accounting policies and format of the profit and loss statement and balance sheet primarily follow the regulation on annual accounts for banks and financing enterprises issued by the Financial Supervisory Authority of Norway.
Innovation Norway is not subject to taxation, but invoices with VAT for some of the services that are provided.


Losses on loans

  • Low-risk loans including loans for fishing vessels and agriculture. 
  • Subordinated loans connected with the equity and investment funds.

The rules issued by the Financial Supervisory Authority of Norway on the valuation of losses on loans, etc. apply to these loan schemes. A new loan regulation is planned for implementation in 2007.

Each loan that is in default is assessed and valued at its assumed realisable value in accordance with the underlying collateral. In this context, a loan in default in any loan with unmet payments at least 90 days after the due date.

The realisable value is determined following a specific valuation in each case, depending on location, market value of similar properties or vessels, as well as any appraisals and rental income. Where the assumed value is lower than the loan, the difference is booked as a specified loss provision, given that the loan is regarded as a potential loss.

The same assessment is performed on loans that are not in default, but where a definite risk has been identified and the level of the enterprise’s earnings may indicate future insolvency. Any shortfall in market value compared to the loan’s book value is booked as a specified loss provision. Interest accrued and due but unpaid interest is not booked as income on loans in which a specified loss provision has been made, nor on loans for which the interest receivable must otherwise be regarded as uncertain.

In addition to ordinary specified loss provisions on agricultural loans, an overall assessment is undertaken of the specified loss potential for other loans in default. The number of loans is so large that the assessment of potential losses is performed somewhat more summarily. The assessment is performed on the basis of a formula based on historical data, the trend in losses and loans in default and other relevant information Innovation Norway is able to use this method as it has traditionally benefited from low risk levels and low levels of losses in its portfolio.

Unspecified loan loss provisions, intended to cover latent losses in parts of the portfolio which have not been identified as exposed, are made on the basis of empirical data and specific assessments of developments in particular industries. No unspecified loss provisions are made for subordinated loans linked to equity and investment funds.

  • Risk loans and guarantees, loans from the Norwegian State Environmental Fund and regional loan scheme

Except for the official regulations on unspecified loss provisions, the rules on bookings of loan losses also apply to these schemes.

The booking of losses on loans is considered when the loan has been in default for more than three months or if bankruptcy/debt settlement proceedings have been initiated, enforcement proceedings have been undertaken without result or a guarantee that Innovation Norway has pledged is to be redeemed.

As for low-risk loans, the underlying collateral for the loan will be reviewed and the market price determined according to a specific assessment in each case. Where the assumed value is lower than the loan, the difference is booked as a specified loan loss provision, given that the loan is regarded as exposed. Accrued unpaid interest is included in specified loan loss provisions and booked as income; see the section below on provisions for losses.

  • Subordinated loans from the Seed Capital Fund

The loans from the Seed Capital Fund to the individual seed capital companies are made as subordinated loans and are interest-only, with full redemption after 15 years. Interest is not paid, but is accumulated and added to the principal each year on 31 December. The seed capital monies are used by the companies for equity capital investment in start-ups.

Confirmed losses and loan loss provisions are based on assessments of the individual investment projects. In addition, the seed capital companies are assessed.

Provisions for losses

  • Risk loans and guarantees

Previously, provisions for losses were allocated annually in the government budget to cover future losses on risk loans and guarantees. The allocations/provisions were 25 – 40 percent of the loan and guarantee limits. Losses over and above allocations granted were covered by the State.

Starting in 2002, provisions for losses are covered by the commitment budget for grants. Innovation Norway must therefore make its own assessment of how much of the grant allocations should be used for provisions for future losses on the loan scheme.

Individual provisions are transferred to one provision for losses per scheme and commitment year. Provisions for losses for unused borrowing facilities and commitments are returned to the State Provisions for losses are placed in an earmarked account at Norges Bank, which does not generate interest for Innovation Norway.

The provisions for losses are debited with loss provisions and confirmed losses, including lost interest and expenses. Liquidity coverage from the provisions for losses is only transferred when the loss is finally confirmed.

  • Loans from the Norwegian State Environmental Fund and the regional loan scheme

Provisions for losses are debited according to the same criteria as for risk loans. The provision for losses for the Norwegian State Environmental Fund scheme was established through a one-time allocation. There is no specific loss fund per commitment year and unused loans and commitments are not deducted from the provision for losses but returned to the State.

  • Subordinated loans from the Seed Capital Fund

A provision for losses corresponding to 25 percent of the original loan capital has been allocated to the Seed Capital Fund. The provision is debited with 50 percent of confirmed losses on individual projects until 25 percent of the original disbursed loan capital is lost. Only the principal may be charged to the provision for losses; no interest may be charged. The remaining 50 percent of project losses are covered by the private investors in the seed capital companies. Accumulated losses over and above 25 percent of the disbursed loan capital must be covered by the seed capital companies.

Repossessed assets

Repossessed assets are booked at assumed realisation value according to the same valuation principles as for losses on loans Any write-downs/gains on the sale are booked as losses on loans/included in previously written-off loans respectively. Repossessed assets are classified as current assets.

Income and expenses on repossessed assets from low-risk loans are booked as operating revenue and operating expenses in the profit and loss accounts.


  • Current assets

Investments in equities are valued according to the lowest value principle. All equities are classified as current assets. Innovation Norway has three portfolios in all. These are:

  1. Risk loans converted to shares
  2. Equities related to the Investment Fund for Northwest Russia
  3. Equities related to the Investment Fund for Eastern and Central Europe

The market price is used for the market value of listed securities. The valuation of unlisted equities and listed equities with low liquidity is based on the individual valuation of each investment.

Dividends received and other dividends from the companies are booked as income under Miscellaneous operating income.

  • Long-term equity holdings

Innovation Norway has equities in three companies which are classified as fixed assets. These equities are valued at cost price in the accounts. The stake and the size of the companies indicate that no consolidated accounts should be prepared.

Innovation Norway owns 100 percent of the shares in Nortra AS, which in turn owns 100 percent of the shares in VisitNorway AS. The companies have no operations or book assets apart from bank accounts valued at book value. Due to the trivial importance of the subsidiaries for the accounts, no consolidated accounts have been prepared.

Subsidiaries are valued according to the cost method in Innovation Norway’s accounts. The investment is valued at the acquisition cost of the equities unless depreciation has been necessary. Depreciation to the fair value of the asset is undertaken when the fall in value is due to reasons which cannot be expected to be temporary and it must be assumed necessary according to good accounting practice. Depreciations are reversed when the reason for depreciation no longer applies.

Classification and valuation of balance sheet items

Current assets and short-term liabilities comprise items that are due for payment within one year after their date of acquisition. Other items are classified as a fixed asset/long-term liability.

Current assets are valued at the acquisition cost or fair value, whichever is lower. Short-term liabilities are entered in the balance sheet at a nominal amount on the date of establishment.

Fixed assets are valued at their acquisition cost, but written down to their fair value in the event of a fall in value that is not expected to be temporary. Long-term liabilities are entered in the balance sheet at a nominal amount on the date of establishment.

Losses on accounts receivable

Accounts receivable relating to project activities are entered at face value less provisions for expected losses. Provisions for losses are made on the basis of an individual assessment of each receivable. In addition, an unspecified provision for accounts receivable is made to cover a general risk of losses.

Balance sheet items in foreign currencies

Balance sheet items in foreign currencies are converted at the rate of exchange on the balance sheet date.


Booking of interest generated by the Seed Capital Fund

Innovation Norway does not book as income interest on subordinated loans made to seed capital companies. Since these are high risk projects and the seed capital companies only start to pay interest after fifteen years (and then only on the investments that are profitable), there is no booking of interest received on loans as it accrues, only upon redemption.

Premiums/discounts on borrowing and lending

Premiums and discounts related to new borrowings are booked as income or charged as an expense, respectively, during the lifetime of the loan as an adjustment of current interest expenses. The establishment fee connected with the disbursement of loans is booked as income on the disbursement date.

Interest support fund

When an interest-fee risk loan is granted, the interest support on the loan scheme is booked as income corresponding to the loss of income owing to the exemption from paying interest.

The scheme is financed by an annual allocation of grant monies to the interest support fund. The allocations must be taken from the annual grant budget for regional development from the Ministry of Local Government and Regional Development and the Innovation Scheme from the Ministry of Trade and Industry. For each year, sufficient funds must be allocated to cover the granting of exemptions from paying interest during the year in question.

Revenue and expenses for project activities

For projects, revenue is booked as it is earned. This means that revenue is booked in line with project progress. In other words, the accumulated share of the project’s earnings is recorded as income. The progress rate is determined on the basis of completed production.

For projects expected to result in a loss, the entire expected loss is expensed. Disputed claims are not booked as revenue until they have been decided or are certain.

Internal netting of expenses

The internal netting of Innovation Norway’s operating expenses among its various business areas is based on a calculation of Full-Time Equivalents used per operation. This netting has to be based on estimates to a certain extent.

Tangible fixed assets

Tangible fixed assets are recorded in the balance sheet and depreciated over the anticipated lifetime of the fixed asset. Direct maintenance of fixed assets is expensed on an ongoing basis under operating costs, while significant added costs or improvements are added to the cost price of the fixed asset and depreciated in step with the fixed asset. If the recoverable amount of the fixed asset is lower than the balance sheet value, depreciation is performed to the recoverable amount. The recoverable amount is the net market value or the value in use, whichever is greater. Value in use is the present value of the future cash flows that the asset will generate.

Operational leasing is expensed as a normal rental cost and classified as an ordinary operating cost.

Ordinary depreciation is calculated on a straight line basis over the economic lifetime of the fixed assets based on the historical cost price. Corresponding principles are used for intangible assets.


Booking of income related to government allocations

Allocations are booked as income in line with accrued expenses connected with the purposes that the allocations are intended to meet. This means that some of the allocation may be transferred to the following year. Innovation Norway receives allocations for administration, promotion, innovation, etc.

Grant funds

Innovation Norway has annual commitment budgets for grant schemes for various purposes. The following rules apply to the grant schemes organised with funds:

Until they are disbursed, grant monies that are allocated through the government budget, are placed in earmarked accounts at Norges Bank that do not pay interest to Innovation Norway. This liquidity, with appurtenant funds, is recorded in the balance sheet.

For some grant schemes, the commitments lapse if the monies are not used within three years after they are granted. Unused grant monies for these schemes are returned to the State.

Grant monies that are disbursed have no effect on Innovation’s earnings and are therefore neither recorded as income nor expensed in the profit and loss account.

Innovation Norway also receives grant monies from the counties, which are placed in an interest-bearing fund at DNBNOR. The interest is used to increase the grant commitment budget for the following year.

Pension obligations

Pension expenses and pension obligations are calculated according to linear accrual based on anticipated final salary. The calculation is based on a number of assumptions, including discount rate, future pay adjustments, pensions and benefits from the national insurance scheme, future returns on pension funds and actuarial assumptions regarding mortality and voluntary withdrawal. Pension funds are valued at fair value and deducted in net pension obligations in the balance sheet. Changes in the obligation owing to plan amendments are amortised over the assumed remaining earning period or twelve years. Changes in obligations and pension funds owing to changes in and deviations from estimate assumptions (estimate changes) are amortised over the average remaining earning period if the deviations exceed 10 percent of the gross pension obligation/pension funds.

Cash flow statement

The cash flow statement has been prepared according to the indirect method. Cash and cash-equivalents comprise cash, bank deposits and other short-term liquid investments, which immediately and with an insignificant exchange risk can be converted to known cash amounts and have maturities of less than three months.