CAPÍTULO I. ESTADO DEL ARTE Y LA PRÁCTICA
1.1. Comentarios acerca del síndrome de abstinencia neonatal
Vital Forsikring's portfolio of held-to-maturity bonds represents bonds issued by highly creditworthy borrowers. At end-December 2010, bonds with government guarantees represented approximately 22 per cent of the portfolio. The remaining bonds are generally issued by municipalities/county municipalities and finance companies with sound creditworthiness. All investments in bonds issued by finance companies represent senior debt, which has the highest ranking in the capital structure and first priority if the issuer goes bankrupt. Only in exceptional cases does Vital invest in bonds issued by traditional manufacturing companies.
Note 38 Investment properties
Investment properties owned by the Group are principally owned by Vital Forsikring. The properties in Vital are part of the common portfolio and are owned with the intention to achieve long-term returns for policyholders. Vital's property portfolio is recorded at fair value on the balance sheet date. Vital values the properties based on an internal model and external valuations. In the internal model, the present value of expected cash flows is estimated. Contractual cash flows are discounted with a normalised nominal required rate of return, whereas future non- contractual cash flows are discounted with a required rate of return which includes an extra risk premium. The model stipulates a required rate of return of 6.25 per cent during the contract period and, subsequent to this, 9.25 per cent, for office premises. The anticipated inflation rate and the implicit assumption regarding real interest rates are kept unchanged during the two periods. The difference in the required rates of return thus solely reflects an increase in the risk premium. The increase in the risk premium of 3 percentage points is intended to compensate for the shift from a reliable and known cash flow to a cash flow which does not have the same degree of predictability. In principle, the same rate of return is used for hotels and shopping centres, but following an individual assessment, the required rate of return was revised down- wards by up to 0.75 percentage points for certain properties and upwards by up to 1.5 percentage points for others.
DnB NOR bases the calculation of the normalised required rate of return on a risk-free rate of interest, normally a government bond yield with a duration of three to five years, where a relevant risk premium related to the asset class or the project to be valued is subsequently added. Future market rents are considered individually for each property based on a wide range of information, including external market statistics, external analyses and market assessments, internal market interpretations and information about and knowledge of local market conditions and the properties' technical condition. The model uses market rent rates at the end of the period, which means that real prices are assumed to neither increase nor decline.
There were no changes in the market or the portfolio during 2010 which had any material impact on key parameters used in the internal valuation. Through the year, however, market rents for parts of the office portfolio were adjusted downwards.
At end-December 2010, a complete review was made of the investment properties. The properties in Sweden were valued based on external appraisals from a highly professional, independent appraiser with a leading market position. The properties in Norway were valued based on the company's own valuation model. As a supplement to the values in the internal model, appraisals were obtained from two independent, external appraisers for a representative selection of properties corresponding to approximately 29 per cent of the property portfolio in Norway. The purpose of the external appraisals is to benchmark the internal valuations against independent references. Calculations in the model and balance sheet values are 3.7 per cent higher than the average of the external appraisals, which are considered to be within an acceptable reliability interval.
The property market generally showed a positive trend through 2010. Activity picked up in the rental market. Rent levels stabilised, but due to higher vacancy rates, the expected increase in rent levels largely failed to materialise. There was a significant increase in transaction volumes compared with the two preceding years, and due to strong competition for relatively few attractive properties, the required rate of return declined slightly during the year.
Through 2010, contractual rent for the wholly-owned portfolio in Norway declined by NOK 14 million to NOK 1 575 million, while market rents were down NOK 22 million to NOK 1 697 million. Adjusted for changes in the portfolio, contractual rents rose by NOK 48 million, while market rents increased by NOK 15 million. At year-end 2010, economic vacancy in the portfolio was 4.4 per cent, unchanged from a year earlier. The value of investment property was adjusted upwards by NOK 341 million from end-December 2009 to end-December 2010, of which NOK 3 million represented revaluations of ongoing projects. Costs relating to projects in Vital will normally be guaranteed through turnkey contracts, while income will generally be ensured through contracts concluded before the projects are started.
Valuations are particularly sensitive to changes in required rates of return and assumptions regarding future income flows. Other things equal, a 0.25 percentage point change in the required rate of return will change the value of the property portfolio by approximately 3.5 per cent or NOK 832 million. Other things equal, a 5 per cent change in future market rents will change the value of the property portfolio by approxi- mately 3.9 per cent or NOK 934 million.
Tenants in Vital's properties are subject to a semi-annual credit evaluation. In 2010, 1 per cent of the tenants were categorised as non- creditworthy and unable to provide collateral.
Investment properties according to geographical location Vital
Annual rent Gross Average Fair value level per m2 rental area rental period
Type of building Location NOK million NOK m2 No. of years
Office buildings Eastern Norway 11 177 1 498 557 339 4.7 Office buildings Rest of Norway 3 162 1 424 169 129 3.6 Shopping centres Norwegian cities 7 845 2 111 219 074 3.9 Hotels Norwegian cities 3 845 1 462 158 186 10.6 Office buildings/shopping centres/hotels London/Stockholm/Gothenburg/Malmø 9 881 2 603 244 535 4.0 Other Eastern and Western Norway 49 1 362 3 536 0.0 Total investment properties as at 31 December 2010 35 961 1 793 1 351 798 4.7 Total investment properties as at 31 December 2009 32 766 1 710 1 314 466 5.0 Change in 2010 3 194 83 37 332 (0.3) Total investment properties as at 31 December 2010 35 961 1 793 1 351 798 4.7
Prosjects, expected completion Vital
Amounts in NOK million 2011 2012 2013
Contractual obligations for property purchases and development 817 92 23
Amounts included in the income statement DnB NOR Group
Amounts in NOK million 2010 2009
Rental income from investment properties 2 165 2 069 Direct expenses (including repairs and maintenance) related to investment properties generating rental income 410 414 Direct expenses (including repairs and maintenance) related to investment properties not generating rental income 1 0
Total 1 754 1 655
Changes in the value of investment properties DnB NOR Group
Amounts in NOK million Investment properties
Recorded value as at 31 December 2008 32 558
Additions, purchases of new properties 1 844 Additions, capitalised investments 749 Additions, acquired companies 520 Net gains resulting from adjustment to fair value (778) Net gains resulting from adjustment to fair value of projects (218)
Disposals 720
Exchange rate movements etc. (575)
Recorded value as at 31 December 2009 33 381
Additions, purchases of new properties 1) 4 021
Additions, capitalised investments 1 257 Additions, acquired companies 0 Net gains resulting from adjustment to fair value 338 Net gains resulting from adjustment to fair value of projects 3
Disposals 504
Exchange rate movements etc. 339
Recorded value as at 31 December 2010 2) 38 834
1) On 1 December 2010, DnB NOR Bank ASA took over the property portfolio of Bovista, a company in liquidation. The bank paid a total of DKK 2 023 million for the properties. For further information, see note 2 Changes in group structure.
Note 39 Investments in associated companies
DnB NOR Group
Amounts in NOK million 2010 2009
Recorded value as at 1 January 2 521 2 517 Share of profits after tax 180 93 Additions/disposals (114) 17 Dividends (280) (106)
Recorded value as at 31 December 1) 2 307 2 521 DnB NOR Group
Ownership Recorded Recorded Assets Liabilities share (%) value value 31 Dec. 31 Dec. Income Profit 31 Dec. 31 Dec. 31 Dec.
Amounts in NOK million 2010 2) 2010 2) 2010 2) 2010 2) 2010 2010 3) 2009 3)
Eksportfinans AS 215 549 210 394 818 622 40 1 831 1 911 Faktor Eiendom ASA 4) 2 329 1 258 522 (125) 31 148
Amports Inc. 5) 903 412 88 2 29 142
Nordito AS 6) 395
Nordito Property AS 6) 137 67 21 10 40 80
Doorstep AS 9 0 2 1 50 9 8 Other associated companies 96 206
Total 2 307 2 521
1) Include deferred tax positions and value adjustments not reflected in the company's balance sheet. 2) Values in the accounts of associated companies. Preliminary account have been used.
3) Eksportfinans entered into an agreement with a syndicate comprising most of the companys' owners. With effect from 1 March 2008, the agreement protects the company from further value reductions in the liquidity portfolio of bonds. Taking the guarantee into account, there was a profit contribution of NOK 200 million from the company as at 31 December 2010 compared with a loss of NOK 200 million as at 31 December 2009. 4) During the second quarter of 2010, Faktor Eiendom ASA completed a private placement totalling NOK 250 million, and the bank converted NOK 249
million from debt to equity. The fair value of the bank's ownership interest in the company on the conversion date was based on the company's share price on 21 May 2010, the day after the general meeting approved the share issue. The closing price of the share was NOK 0.87 on 21 May. After the conversion, DnB NOR Bank acquired a 30.8 per cent ownership interest in the company, which was later reduced to 30.6 per cent. Based on the share price of NOK 0.51 as at 31 December 2010, the fair value of the bank's ownership interest was NOK 113 million. Projected financial statement for the third quarter of 2010 is used.
5) This auto transport company receives and prepares cars prior to and following overseas shipping. In the fourth quarter of 2010, the company's three large creditors agreed to recapitalise the company. The company's debt was converted to share capital in November 2010.
6) Nordito AS was merged with PBS Holding AS on 14 April 2010. The DnB NOR Group has a 18.2 per cent ownership interest in the merged company, Nets AS. In connection with the merger, the properties owned by Nordito AS were demerged into a separate company, Nordito Property AS.
DnB NOR Group
Amounts in NOK million 31 Dec. 2010 31 Dec. 2009
Goodwill 1) 5 378 5 405
Postbanken brand name 1) 0 51
Capitalised systems development 1 416 1 490 Sundry intangible assets 370 699
Total intangible assets 7 164 7 644
DnB NOR Group
Capitalised Sundry Postbanken systems intangible
Amounts in NOK million Goodwill 1) brand name 1) development 2) assets 3) 4) Total
Cost as at 31 December 2008 10 038 119 2 171 954 13 282 Additions 711 254 965 Additions from the acquisition/establishment of other companies 29 29 Increase/reduction in cost price (153) (153) Disposals 84 274 358 Exchange rate movements (161) (6) (28) (195) Cost as at 31 December 2009 9 668 119 2 601 1 181 13 569 Total depreciation and impairment as at 31 December 2008 3 372 68 1 063 298 4 801 Depreciation 265 132 397 Impairment 730 52 24 807
Disposals 274 274
Exchange rate movements (161) (6) (28) (195) Total depreciation and impairment as at 31 December 2009 4 264 68 1 112 482 5 925
Recorded value as at 31 December 2009 5 405 51 1 490 699 7 644
Cost as at 1 January 2010 9 668 119 2 601 1 181 13 569 Additions 686 14 700 Additions from the acquisition/establishment of other companies 0 Increase/reduction in cost price 0 Disposals 48 226 274 Exchange rate movements 83 (12) 7 78 Cost as at 31 December 2010 9 752 119 3 227 975 14 073 Total depreciation and impairment as at 1 January 2010 4 264 68 1 112 482 5 925 Depreciation 335 129 464 Impairment 5) 194 51 353 599
Disposals 0
Exchange rate movements 83 (12) 7 78 Total depreciation and impairment as at 31 December 2010 4 375 119 1 812 605 6 910
Recorded value as at 31 December 2010 5 378 0 1 416 370 7 164
1) See note 41 for information regarding goodwill and intangible assets with an indefinite useful life.
2) Software expenses recorded in the balance sheet are depreciated according to the straight line principle over their expected useful life, usually five years.
3) Sundry intangible assets mainly comprise IT software and excess values relating to customer contracts and distributor networks. Sundry intangible assets are depreciated according to the straight line principle over the assets' expected useful lives, which range from three to ten years.
4) The Group's investment in Nordisk Tekstil Holding AS is reported as an investment held for sale, and the value of the ”KID” brand is presented under "Operations and non-current assets held for sale" in the balance sheet. The investment was valued at NOK 559 million at year-end 2010 and was not subject to depreciation or impairment in 2010.
5) For some time, DnB NORD has been working on developing new IT solutions for its operations. Due to significant changes in framework conditions and in the assumptions underlying the project, a new implementation plan and updated cost estimates were worked out, whereby the IT solutions were impaired by EUR 43 million in the second quarter of 2010, the equivalent of NOK 346 million.
Note 41 Goodwill and intangible assets with an indefinite useful life
The DnB NOR Group continually reviews whether the value of recorded goodwill and other intangible assets with an indefinite useful life is intact, and a complete impairment test of all cash-generating units is performed at least once a year. In the DnB NOR Group's balance sheet, the individual goodwill items and intangible assets with an indefinite useful life are allocated to cash-generating units according to which units benefit from the acquired asset. The cash-generating unit is chosen based on considerations relating to where it is possible to identify and distinguish cash flows related to the unit. A cash-generating unit may record goodwill from several transactions, and an impairment test is then performed on the total goodwill entered in the accounts in the cash-generating unit.