Arctic Securities AS, Branch Germany

Arctic Securities AS, Branch Germany

Hamburg

Befreiender Jahresabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

ARCTIC SECURITIES AS

Oslo/Norwegen

Annual Report 2022

Board of Directors' Report for 2022

Arctic Securities AS ("Arctic") is a leading, independent broking firm in the Nordic capital market. Our services include securities research and trading, financial advisory services and arranging capital market transactions. The business is founded on an entrepreneurial spirit, combined with a high level of expertise and a commitment to contribute to long-term value creation in society.

Through subsidiaries Arctic offers offshore, rig and shipbroking, sale and management of alternative investment funds, broking of commercial property, business management services and insurance broking.

The Arctic group has a total of 314 employees at its offices in Oslo, Stockholm, Gothenburg, Hamburg, New York, Singapore and Rio de Janeiro. The Arctic group's turnover in 2022 amounted to NOK 1325 million.

The business

Arctic is a Norwegian broking firm with a licence from the Norwegian Financial Supervisory Authority. Arctic's business covers securities research and trading, financial advisory services and arranging capital market transactions. The activities are organised in the business areas Broking, Research, Corporate Finance and Support Functions.

Arctic has its head office in Oslo and branches in Sweden and Germany. The company also has a representative office in Rio de Janeiro in Brazil, Arctic Brasil Escritorio de Representacao Ltda.

Securities services are also offered by Arctic Securities LLC which has licences from FINRA and the SEC and an office in New York.

In addition, Arctic provides investment services through its tied agent Arctic Capital AS which handles capital raising for investments and the sale of shares in project companies, primarily within real estate. Arctic Capital AS is co-located with Arctic in Oslo

The group's other services are provided through wholly or majority owned subsidiaries of Arctic.

Macroeconomic developments

2022 was primarily characterised by Russia's invasion of Ukraine, which began on 24 February. Human suffering and distress have followed in the wake of war.

The direct effect of the invasion on the financial markets was relatively short-lived: broad European stock indices hit a temporary bottom on 8 March. Following the invasion, food prices rose against the background of fears of a shortage of important agricultural products. European gas prices jumped to record highs over the summer as Russia throttled supplies in retaliation for sanctions from Western countries. The prices of agricultural products and European natural gas have subsequently come down significantly.

The aftermath of the 2020 coronavirus outbreak was still felt two years later. With the lifting of restrictions, the European economy experienced an upturn that counteracted the negative effects of the war in Ukraine. China, on the other hand, implemented an extensive lockdown in the spring. This led to both a significant decrease in economic activity and negative ripple effects with new bottlenecks in the global supply chain, although these lessened as the year went on. The USA experienced a weak first half with a slight decline in GDP due to strong import growth, which moderated GDP growth to 2.1% in 2022. Combined with historically low growth of 3.0% in China, this meant that global GDP growth was almost halved from 6.2% in the "recovery" year of 2021 to 3.4%, according to preliminary estimates from the IMF. This is below the historical average, but similar to the five years before the pandemic overall. Despite headwinds from strong price growth and the near-stoppage of gas supplies from Russia, which had a negative impact on energyintensive businesses, growth in the Eurozone picked up to 3.5% for 2022 as a whole. Considering the historically high inflation rate and rising interest rates, economic activity in Norway held up surprisingly well: overall GDP rose 3.3%, and the rise of 3.8% for mainland Norway was only a moderate slowdown from 4.2% in 2021.

2022 was a challenging year for global financial markets with negative returns for both stocks and bonds. A surprisingly strong acceleration in inflation, particularly in the industrialised countries, resulted in coincident interest rate increases from a large number of central banks. For the OECD area as a whole, growth in consumer prices rose from 4.0% in 2021 to 9.6% in 2022, the highest in nearly 40 years, and from 2.9% to 6.7% excluding food and energy. At the same time continued good employment growth and historically low unemployment in Europe and the USA contributed to higher wage growth. In Norway, too, inflation was markedly higher than expected at the beginning of the year, with a historically high 5.8% increase for the CPI in total and 3.9% excluding taxes and energy (which is Norges Bank's target for core inflation) but with a clearly higher annual rate at the end of 2022. Extensive electricity price support kept overall inflation down, while much of the price growth in Norway was due to higher import prices reinforced by a weaker krone exchange rate, increased prices in sectors exposed to competition as a result of price increases on the world market and the direct and indirect effects of high electricity prices.

The surprisingly high inflation rate resulted in an abrupt shift in monetary policy. The US Federal Reserve raised its key interest rate for the first time in March and by a total of 4.25 percentage points by the end of the year. The Bank of England started cautiously late in 2021 and followed with 3.25 percentage points in 2022. The European Central Bank followed suit from mid-June and raised its important deposit rate by 2.5 percentage points. Norges Bank started normalization already in the autumn 2021, before most others, and continued with interest rate increases totalling 2.25 percentage points last year.

After new all-time highs for leading stock indices in the US and Europe around the turn of the year 2021/22, the stock market - especially highly priced tech stocks - was hit by inflation, interest rate increases from the central banks and higher bond yields. From the end of 2021 to the trough, the American S&P 500 index fell 24.9% and the pan- European STOXX 600 by 21.5%, in both cases corresponding to the definition of a bear market. During 2022, MSCI's world index fell by 19.8%, the most since the financial crisis in 2008, while the high concentration of energy companies limited the decline for the Norwegian OSEBX index to just 1.0%.

Financial development and results

The market turmoil in 2022 had a negative impact on new issue activity, which is an important income driver for brokerage houses. However, Arctic has a broad platform supported by the operations in its subsidiaries, and the income for the year shows a good breadth both in relation to products and sectors. Throughout the first part of the year, there was still good interest in the property market. Arctic carried out a number of M&A assignments and equity and bond issues. The shipping and offshore sectors experienced an upswing in 2022, and the subsidiaries delivered very good results for the year. The activities in the subsidiaries make a significant contribution to the results and bonus pool for the employees in the Arctic group. The operating profit for the group was NOK 165 million (2021: NOK 379 million). The basis for bonus provision includes the financial result, and the operating result in the parent company is therefore affected by a good financial result with dividends from the subsidiaries.

Arctic's operating revenues ended at NOK 970 million against NOK 1462 million in 2021, a decline of 34%. The result before tax was NOK 104 million (2021: NOK 373 million). After allocations of the annual result, the company's equity amounted to NOK 712 million (2021: NOK 665 million).

The group's operating revenues totalled NOK 1325 million against NOK 1653 million in 2021, a decline of 20%. The result before tax was NOK 186 million (2021: NOK 412 million). After allocations of the annual result the group's equity was NOK 513 million (2021: NOK 458 million).

The board is satisfied with the financial results, taking into account the markets, and it is the board's view that the company has a satisfactory financial position. The board considers that the annual accounts provide a true and fair view of the company's assets and liabilities, financial position and results.

Capital adequacy and equity

Arctic is subject to rules on capital adequacy. As at 31.12.2022 the company had primary capital of NOK 690 million and a capital ratio of 18.6%, compared to a minimum requirement of 8%.

As at 31.12.2022 the group had primary capital of NOK 489 million and a capital ratio of 12.1%, compared to a minimum requirement of 8%.

Prospects for 2023

Internationally, economic indicators in early 2023 have held up better than expected in autumn of 2022. At that time, there were widespread expectations of a mild recession in Europe over the winter, as a result of high gas/electricity prices, and a corresponding slowdown in the US during the first half of 2023. Various indicators for China also suggest a faster recovery than previously thought. For the financial markets, an important uncertainty is currently whether and how quickly inflation declines, and how much leading central banks will increase key interest rates. At the time of writing, global stock markets have recovered from the lows reached in the autumn of 2022, but an additional challenge is that earnings expectations have come down a lot, with uncertainty as to when there will be an improvement.

Arctic entered 2023 with a good order book. For several of the subsidiaries, the costs for 2023 are already covered by concluded agreements. For Arctic, the transactions carried out so far this year have been dominated by a number of bond issues.

Going concern

In accordance with §3-3a of the Accounting Act it is confirmed that the going concern conditions have been satisfied. This is based on the financial position at the year-end and plans and forecasts for 2023.

Post balance sheet events

In the Board's opinion, no events have occurred after the balance sheet date that would indicate that items in the annual accounts or the notes should have been assessed differently than the amounts recognised in the accounts as at 31.12.2022.

On Friday 10 March 2023, the American bank Silicon Valley Bank was placed under bankruptcy protection. The bank collapses in the USA have created increased uncertainty in the world's financial markets. The unrest quickly spread to Europe when problems at the major Swiss bank Credit Suisse became widely known, and European stock exchanges and several large banks fell heavily. Although the negative events make the markets uneasy, there is still little to indicate a structural crisis in the entire banking sector.

Risk management

The board is concerned to secure systematic and orderly management of risk in all parts of the business and regards this as a condition for long-term value creation for shareholders and employees.

The company is exposed to market risk relating to fluctuations in the value of financial instruments held on its own book, credit risk related to the financing of customers' trades, settlement risk related to unsettled transactions, currency risk, liquidity risk and operational risk. The company's activities are to a large extent dependent on the expertise of its employees, working together with computer systems, and considerable efforts have been made to reduce and control operational risk. To secure liquidity the company has established sufficient funding facilities and a long-term relationship with its main bank.

Management of financial market risk is further described in note 14 to the annual accounts.

Compliance

Arctic's operations are subject to a number of requirements in law, regulations and industry standards. The board pays close attention to the company having a good control structure in place and that the employees comply with internal and external regulations.

Corporate social responsibility and sustainability

Arctic shall act responsibly as an employer, as an arranger of transactions and as a cooperating partner. Our ethical guidelines, "Code of Conduct" and "Corporate Social Responsibility Policy" set the framework for how Arctic has incorporated ethical principles, social responsibility and sustainability into the organisation's operations and business development. We want to use our position as a trusted member of society to promote projects that contribute to the "green shift".

In recent years, Arctic has established considerable expertise and capacity that supports analysis and facilitation of projects in the renewables sector.

We comply with new ESG requirements and will ensure that Arctic's activities are adapted to the authorities' requirements and market expectations in relation to sustainability. This is done by:

Working environment and personnel matters

Arctic has engaged employees working in a collegial community, characterised by cooperation and inclusivity. This was confirmed by an employee survey carried out in May/June 2022, in which feedback from employees was generally good on issues such as job satisfaction, role definition, cooperation and leadership. Sick leave in Arctic is low and amounted to 1.08% in 2022 (2021: 1.22%), and no injuries or accidents have been reported. The business has no significant direct impact on the external environment.

Arctic has a working environment committee (AMU) made up of representatives from management, the employees, and a health and safety officer to protect and promote the employees' interests. The company has modern office premises close to public transport. Arrangements have been made for keep-fit training and following up health, in addition to giving priority to social activities that strengthen team spirit and a positive culture.

Insurance for board and senior management

A board liability insurance policy has been established which is intended to cover liability claims against the board and management as a result of culpable actions and/or omissions in the exercise of board and management functions for the company, in a coverage amount appropriate for the company.

Equal opportunity

At the end of 2022, Arctic had 225 employees, (2021: 211) of whom 41 were women. This gives a female ratio of 18.3%, which is slightly higher than in 2021 when the ratio was 17.5%. 175 employees work in the Norwegian part of the business and the remaining 50 employees at our branches in Sweden and Germany.

There are two women in Arctic's senior management team, one woman on the board and three women members of the AMU.

Arctic works systematically to identify and implement measures to promote equal opportunity and reduce the risk of discrimination. Arctic's operating instructions stipulate that there shall be no direct or indirect discrimination based on gender, ethnicity, skin colour, orientation, age, language, religion, outlook on life, political or other opinions. All employees are to be treated with respect and dignity. The feedback from the employee survey indicates that there are no differences in the results between gender or age groups - and that employees are not exposed to bullying or harassment.

The company values professional competence and effort regardless of gender and has as a principle that work of equal value shall be rewarded with equal pay. This principle is central to salary and bonus assessments that are carried out and calibrated across departments.

In Arctic, we seek to promote diversity and equal opportunity within the company, and when recruiting or promoting, competence and personal qualifications take precedence over gender. Unfortunately, as is the case for the sector, women are underrepresented in positions with direct customer contact, and we work consciously to improve the gender balance in this area by seeking more female candidates for positions and thereby more appointments.

Arctic also contributes to the work of creating increased interest in finance among female students, and in 2022 helped establish Embla Invest at the Norwegian University of Science and Technology (NTNU). Embla Invest is a group for female students that works to promote interest in finance at NTNU and contribute to creating a better gender balance in the financial industry in the long term. Arctic is the main collaboration partner with the group and has contributed management capital that is invested in the stock market. Through 2022, we supported Embla Invest with professional advice and guidance, as well as contributions to events.

The Transparency Act

The company has initiated a process to clarify responsibility and reporting obligations under the Transparency Act and will make a report on this available on the company's website by 30 June.

Research and development activities

The company has no ongoing research and development projects.

Other subsidiaries in the group and associated companies

Arctic Offshore International AS (100% ownership) is responsible for broking offshore related operations worldwide. The company offers services within chartering, new construction, second-hand sales and value assessments - and conducts its operations from Oslo and Rio de Janeiro.

Arctic Offshore Rig AS (85% ownership) undertakes rig broking and associated services worldwide. The company's office is in Oslo.

Arctic Shipping AS (76.5% ownership) conducts shipbroking activities, with the main emphasis on buying and selling vessels, contracting of newbuildings and chartering. The company's office is in Oslo.

Arctic Asia Shipping Pte Ltd (60% ownership) conducts shipbroking activities from its office in Singapore.

Arctic Alternative Investments Management AS (100% ownership) holds a licence as manager of alternative investment funds (AIF).

Arctic Property AS (100% ownership) holds a licence as a real estate agent and acts as a broker of commercial property.

Arctic Real Estate Management AS (72.5% ownership) offers business management services and management for companies with project investments, primarily within real estate. The company is approved by the Norwegian Financial Supervisory Authority as an authorized accounting firm. The company has a branch in Sweden with an office in Stockholm. The company manages a substantial portfolio of project companies Arctic Real Estate Development (70% ownership) has long-term development projects in commercial and residential property.

Arctic owns 47.5% of the company Cleanworld AS and 12% of Greenfact AS. The companies' business consists of respectively broking and research services relating to green certificates.

Arctic also has an interest of 50% in Ursus Real Estate Management AS which manages real estate funds.

Allocation of the year's result

The company's accounts show a profit after tax of NOK 96 million (2021: NOK 285 million). The board proposes that the annual result is allocated as follows:

The board wishes to acknowledge the engagement and positive attitude of the employees and to thank the company's customers for their trust in the past year.

Income Statement

Balance Sheet

Indirect cash flow statement

Note 1 Accounting principles

The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway, including the regulations on financial statements etc. for investment firms.

The group accounts include Arctic Securities AS and companies where Arctic Securities AS has a controlling influence. Controlling influence is normally achieved when the group owns more than 50% of the shares in the company and the group is in a position to exercise actual control over the company. Minority interests are included in the group's equity. Transactions and receivables between companies in the group have been eliminated. The group accounts have been prepared applying uniform principles, in that the subsidiary follows the same accounting principles as the parent company.

Companies that have been bought or sold during the year are included in the group accounts from the date that control is obtained until control ceases.

Subsidiaries that have been acquired are recorded in the group accounts based on the parent company's acquisition cost. The acquisition cost is allocated to identifiable assets and liabilities in the subsidiary, which are entered in the group accounts at fair value at the date of acquisition. Any excess value beyond that which can be attributed to identifiable assets and liabilities is recorded in the balance sheet as goodwill. Goodwill in the group accounts is depreciated linearly over the expected lifetime of the assets acquired.

Shares in subsidiaries are entered at the lower of cost price and fair value in the parent company's accounts.

Revenue recognition

Revenues from fees related to advisory services are recognised when the assignment has been completed and there are no conditions that could release the client from its payment obligation. Fees related to buying and selling financial instruments (brokerage commission) for clients are recognised as revenues on the trade date. When using cobrokers or sales agents on assignments income from the customer is posted in full, and costs related to co-brokers and agents are posted as a direct cost. Interest income related to various forms of financing of clients' positions, is recognised continuously. Insurance broking commission is recognised in accordance with the earnings principle, i.e. when the assignment has been completed and a transfer of risk and control has taken place. Shipbrokers' commission is recognised when the underlying freight has been earned.

Fixed assets

Fixed assets are recorded in the balance sheet at acquisition cost less accumulated depreciation. Fixed assets are written off linearly according to the expected economic lifetime. Intangible assets such as software, licences, goodwill etc. are written off correspondingly.

Accounts receivable

Outstanding accounts with buyers and sellers of financial instruments are recognised at nominal value after deducting a provision for expected losses. The provision for losses is estimated on the basis of an individual assessment of each receivable. Outstanding accounts related to trades entered into before, but with settlement day after the balance sheet date, are presented gross, split between clients and investment firms in accordance with the provisions of the regulations on financial statements for investment firms. Fees in relation to corporate finance assignments that are earned, but have not been invoiced, are included in other receivables.

Financial instruments

Financial instruments acquired in regard to buying and selling, or to take advantage of price and interest rate fluctuations in the short term, as well as hedging of such positions are included in the trading portfolio and are valued at fair value on the balance sheet date. These positions are included in the company's current assets. Positions in unlisted financial instruments are valued at the lower of estimated market value and historical cost. The estimated market value is based on observable transaction levels when relevant, internal calculations of the real values behind the asset and/or external valuations.

Agreements regarding financial derivatives are entered into as part of the company's ordinary brokerage activities. Financial instruments acquired for hedging purposes in connection with such derivatives are classified as other financial instruments. The company does not use hedge accounting. Other financial instruments are valued at fair value on the balance sheet date.

Shares and interests in subsidiaries/associated companies

Shares in subsidiaries and interests in associated companies are valued at the lower of the cost price and fair value in the company's financial statements. Investments in associated companies are accounted for using the equtiy method. Positive result from investment in associated company that will not be distributed as dividend is transferred to fund for unrealized gains.

Leasing

Operational leasing agreements are expensed on an ongoing basis. The company has no significant financial leasing contracts.

Pensions

The company has a defined contribution pension scheme pursuant to the Company Pensions Act. The annual pensions expense corresponds to the year's premium.

Taxes

The tax expense in the income statement consists of both tax payable for the accounting period, and the period's change in deferred tax. On the basis of the temporary differences that exist between accounting and tax values, deferred tax is calculated at 25% for 2021 and 2022 for the companies affected by the finance tax, while other companies use 22% for 2021 and 2022.

Temporary differences which may increase or decrease tax and which reverse or may be reversed in the same period are set off and entered net. The net deferred tax receivable is recognised in the balance sheet to the extent that it is likely that it may be used.

Debt

Debt is recognised at the nominal amount at the time it is established. Unrealised result item due to interest rate changes are not posted to the income statement.

Foreign exchange

Cash in foreign currencies is converted at the exchange rate at the balance sheet date.

Cash flow statement

The cash flow statement has been prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits, and other short-term liquid investments.

Presentation currency and conversion of foreign companies

The group's presentation currency is Norwegian kroner. Foreign branches and companies that are included in the group and have a different functional currency are converted to Norwegian kroner through the income statement being converted at average transaction rates and the balance sheet being converted at the rate at the end of the financial year. Conversion differences are posted against equity. On the disposal of foreign subsidiaries accumulated conversion differences related to subsidiaries are posted to the income statement.

Note 2 Operating income

^* In 2021, Arctic Securities AS' investment in financial instruments issued by ERH AS was revalued. Booked write-downs amounted to NOK 107 million, in 2022 a partial reversal of NOK 1 million has been made. No other adjustments related to Arctic Securities AS' investments in financial instruments issued by ERH AS has been made, but distributed interest in the form of bonds is recognized as income at the valuation as nominal outstanding on the principal. Reference is made to further details in note 14. Other value adjustments relate to other shares and bonds. The valuation are based on observable transactions in the market and recognized valuation models.

Revenue is presented for the individual countries on the basis of where the service provider is located.

Operating income in accordance with Section 5-7 of the Regulations on the Annual Financial Statement of Investment Firms in Norway

Note 3 Remuneration, number of employees and loans to employees

The company's employees totalled 228.8 full time equivalents and the group's 314.2 in 2022

The Chief Executive Officer and the Board members have no agreement for share-based remuneration or agreements for payment on contract termination or amendment. The Chief Executive Officer is included in the company's remuneration scheme.

No loans have been made or guarantees provided on behalf of the Chief Executive Officer or the Chairman of the Board in 2022.

3.2 Remuneration scheme

Arctic Securities AS is subject to the regulations on remuneration schemes in financial institutions in section 15 of the regulations on financial institutions and financial groups of 9 December 2016 no. 1502 (the "Financial Institutions Regulations"). The regulations implement the requirements on remuneration schemes which follows EU's Capital Requirement Directive (CRD IV). The are two commission delegated regulations concerning remuneration pursuant to article 94 no. 2 in the Capital Requirement Directive; 604/2014 and 527/2014.

The company has established a remuneration scheme that takes account of the current rules on the calculation and payment of remuneration to selected employees. The remuneration scheme has been approved by the company's board. A remuneration committee has been established that carries out an annual review of the remuneration scheme and the way it is practised, as well as preparing all matters regarding the remuneration scheme that are decided by the board.

All employees of the company receive fixed remuneration at a reasonable level and may in addition receive variable remuneration that is determined on a discretionary basis by the company. The intention is that the company's remuneration arrangement should provide good incentives for employees and long-term motivation at the same time as contributing to avoiding unacceptable risk taking and conflicts of interest for the company. In detemining the variable remuneration account is taken of the achievement of financial and non-financial targets, cooperation, risk factors and work of particular value to the company.The remuneration scheme is practiced gender-neutral.

The company's remuneration scheme provides that the relationship between fixed and variable remuneration is to be balanced. The general meeting has approved that the Company can decide to award variable remuneration for certain persons covered by the Financial Institutions Regulations' special rules up to 200% of the fixed remuneration.

In total 12 employees as of the year-end were covered by the Financial Institutions Regulations' special rules on remuneration to senior employees, employees with jobs that are of significant importance for the company's risk exposure, employees with control functions and employee representatives. Fixed remuneration for this group of people in 2022 ranged from NOK 1.3 million to NOK 12.5 million. The fixed part of the remuneration is sufficiently high to enable the company not to pay any variable remuneration. Total remuneration for this group of people in 2022 ranged from NOK 2 million to NOK 28 million. When awarding variable remuneration, half is paid out, while the remainder is given in the form of contingent capital which is retained and distributed over a period of the following three years. With each annual payment of contingent capital, a specific assessment is made of the company's profit development and risk exposure, and the remaining amount of the contingent capital can be withdrawn by the company if profit development, subsequent behaviour, failure to comply with regulations, etc. dictates. In 2022, no sign-on or severance pay has been granted to these employees.

Note 4 Pensions

The company has a contribution-based pension scheme in accordance with the Company Pensions Act.

The pension scheme covered a total of 224 people in Arctic Securities AS and 312 people in Arctic Securities Group in 2022. Senior employees in Arctic Securities AS and in Arctic Securities Group are covered by the same pension scheme as the other employees in the company.

Note 5 Intangible assets

Arctic Securities AS

^* The booked amount related to facilities under construction mainly relates to investments in licenses and development of a new webpage.

Goodwill arises from the merger with the Nordic Fixed Income with accounting effect from 2016. The value is a continuation of goodwill included in the group from an acquisition cost of NOK 21.2 million. The depreciation period is set at 10 years due to additional value relating to the "licence value", organisation value and existing customer base, which is considered to have a value significantly above 5 years. Nordic Fixed Income has been merged with accounting continuity.

Arctic Securities Group

The book value of goodwill relates to the purchase of Arctic Offshore International AS with NOK 40.3 million. Further, goodwill on the purchase of Arctic Shipping AS amounts to NOK 4.5 million. NOK 3.2 million was recorded as goodwill in 2019 related to the acquisition of Nord Kapitalforvaltning AS (Arctic Alternative Investments Management AS).

Note 6 Fixed assets

Arctic Securities AS

^* Additions are depreciated by reference to the remaining lease period

Arctic Securities Group

Note 7 Losses on receivables and erroneous trades

Increased specific loss provisions in the period relate to adjustments of intra-group balances of NOK 18.2 million.

Note 8 Other operating costs

Rental and lease agreements:

The company has several office lease agreements. The company sublets part of these premises.

Net lease costs amounted to NOK 38.3 million in 2022 for the company and NOK 47.7 million for the group. The group's leasing cost for fittings and similar amounted to NOK 0.8 million in 2022.

Auditor:

The amounts include VAT.

Note 9 Subsidiaries, associated companies etc.

Arctic Securities - Subsidiaries

Arctic Securities AS has recorded a income of NOK 110,6 million related to dividends from its subsidiaries in 2022.

Arctic Securities AS - Investment in shares and interests

Investment in other shares amounts to NOK 0.165 million. The shares in SP Capital 1 AS has been written down with NOK 1.150 million to NOK 0 in 2022.

Arctic Securities Group - Investment in shares and interests

The investment is booked at cost price.

The investment is booked in ARED Invest AS, a wholly-owned subsidiary of Arctic Real Estate Development AS.

Arctic Securities Group - Associated companies

Ursus Real Estate Management AS was established 27.12.2019, and is considered to be an associated company. The shares in Cleanworld AS and Greenfact AS were acquired in January 2020 and is considered to be associated companies. The insterest is accounted for according to the equity method in the group.

Added value as of 31.12.22 related to the purchase of shares in Cleanworld is NOK 17.4 million, and NOK 1.7 million related to the purchases of Greenfact AS.

Ortus Marine was established in 2016 and is valued at cost price.

Note 10 Receivables and liabilities

Other long-term debt carries interest at 3 month NIBOR plus a margin.

Internal group transactions

Internal group transactions involve the delivery of services on market-based terms. In 2022 NOK 5.4 million was invoiced by Arctic Securities AS to other group companies. All transactions between group companies take place on an arm's-length basis and are charged on the basis of estimated market prices. Loans to group companies are on market terms.

Receivables on clients and securities firms

Included in receivables on clients and securities firms are trades carried out before the balance sheet date with settlement after the balance sheet date. The item receivables on securities firms also includes receivables on clearing houses.

Long-term debt to credit institutions

Long-term debt to credit institutions is secured by a charge over shares in subsidiaries and the property at Lisaetra.

Liabilities to securities firms and clients

The items liabilities to securities firms and liabilities to clients include liabilities relating to trades carried out before the balance sheet date with settlement after the balance sheet date. The item liabilities to securities firms also includes liabilities to clearing houses.

Note 11 Recognised currency gains and losses

Note 12 Tax

The tax effect of temporary differences and the loss carried forward that gives rise to deferred tax and deferred tax receivables, specified by types of temporary differences.

Note 13 Equity

The company's profit after tax in relation to total capital amounted to 5.0% as of 31.12.2022.

The company has bought and sold its own shares in 2022.

^* Related to the share capital increase in Arctic Shipping AS.

The group's profit after tax in relation to total capital amounted to 7.0% as of 31.12.2022.

Capital adequacy

The company must have a capital ratio of at least 8% based on rules set by the Financial Supervisory Authority.

The company and the group use the standard method for calculating capital requirements for credit risk, and the basis method for calculating capital requirements for operational risk.

The company and the group have not issued other capital instruments than ordinary shares.

^* Reference to form for publication of composition of primary capital, cf. Circular 14/2014 from the Financial Supervisory Authority.

Note 14 Financial market risk

Financial instruments

In conducting the broking business, situations may arise where the company chooses to take proprietary trading positions without it being natural or possible to take corresponding hedging positions. The company and the group are thus exposed to fluctuations in the market, and these can be significant in special situations. Positions that represent risk are subject to restrictions and routines have been established for following these up.

The item Other financial instruments of NOK 42 million consists of shares and associated forward contracts in ERH AS, where the shares have been acquired to hedge the delivery obligation related to the forward contracts, with a term of 1-4 months, against two professional counterparties. The nominal value of the futures corresponds to the acquisition cost of the shares, NOK 42 million. The credit risk associated with the future is hedged through the provision of satisfactory collateral.

Credit risk

As an integral part of its broking services, the company and the group offer various forms of financial derivatives and financing solutions. Such derivatives involve several forms of risk, including both market risk and credit risk. To the extent they involve counterparty risk, the company and the group have routines for obtaining collateral from counterparties and following it up.

Currency risk

The company and the group have no client-driven activity in currency trading other than as a direct consequence of other activities apart from the capitalisation and funding of foreign subsidiaries, the company and the group endeavour to reduce currency risk where it is quantifiable.

Liquidity risk

The need for liquidity fluctuates considerably on a daily basis and thus also between the dates for financial reporting. The liquidity fluctuations relating to operations are covered through drawings on an overdraft facility with the company's and the group's bank.

The accounts for 2022 show a negative cash flow of NOK 19 million for Arctic Securities AS. This is mainly due to distributions and repayment of debt. Short-term investments of an operational nature and restricted liquidity related to margin collateral and various security funds etc., are continuously adjusted against external overdraft financing, in combination with the positive cash flow from operations.

For the Group, the accounts for 2022 show a positive cash flow of NOK 62 million. This is mainly due to the difference between the parent company's cash flow and cash flow from the subsidiaries' operations.

Interest risk

The company and the group have interest-bearing debt to banks and are therefore exposed to an interest rate risk in covering their capital requirements for ongoing operations. In addition to this, the company and the group are also exposed to interest risk through derivative trades.

The value of items on and off the balance sheet is affected by interest rate movements. The table below shows potential financial consequences for the company and the group resulting from a change in the interest rate of one percentage point, split by currency and the term to next interest rate adjustment.

Remaining term

Balance sheet items have different maturity dates. The table below shows the maturity structure of asset and liability items in the balance sheet.

At the year end the balance sheet was affected by a high level of customer-driven activity. Positions in listed financial instruments are booked at observable market values and positions in unlisted financial instruments at the lower of estimated market value and historical cost.

Note 15 Bank deposits

Arctic Securities AS

Bank deposits of NOK 100.7 million consisted as of 31.12.2022 of NOK 69.4 million provided as security for various clearing houses, stock lending arrangements, derivative lines, and deposits in default funds, and NOK 21.2 million in restricted tax deductions. The balance on the operating account was NOK 10.1 million.

Arctic Securities Group

Bank deposits of NOK 358.2 million consisted as of 31.12.2022 of NOK 69.4 million provided as security for various clearing houses, stock lending arrangements, derivative lines, and deposits in default funds, and NOK 25.3 million in restricted tax deductions. The balance on the operating account was NOK 263.6 million.

Arctic Securities AS and Arctic Securities Group

The company's and the group's liquidity is organised as a multi-currency loan with DNB with an aggregate drawing facility of NOK 1050 million. NOK 81 million of a granted overdraft facility of NOK 500 million was undrawn as of 31.12.2022. NOK 407 million of a granted facility related to securities financing of 550 million was undrawn as of 31.12.2022.

For Arctic Securities AS NOK 125.8 million was held on client accounts, of which debt to clients amounted to NOK 123.2 million as of 31.12.2022. As for Arctic Securities Group, NOK 125.9 million was held on client accounts, of which debt to clients amounted to NOK 123.3 million.

Long-term debt to credit institutions of NOK 87.1 million is classified as short-term debt to credit institutions as of 31.12.2022. Reference is made to further details in note 18.

Note 16 Share capital and shareholder information

Arctic Securities AS had 120 shareholders as of 31.12.2022.

The largest shareholders in % as of 31.12.2022 were:

The Chief Executive Officer has indirect ownership in Arctic Securities AS through Arctic Partners AS, Florabakken AS and Florabarna AS. The chairman of the board Inge K. Hansen owns 1,000 shares and the board member Arthur Sletteberg owns 1,500 shares in Arctic Securities AS at the year end.

The company owned 13,046 own shares as of 31.12.2022.

Transactions with related parties

Transactions with related parties take place on commercial terms. During the year, transactions were carried out with a related shareholder where Arctic acted as an intermediary and was remunerated for its role as such. In terms of amount, these fees amount to NOK 41 thousand. In addition to this, the related party has entered into an agreement on ordinary commercial terms for future purchases of securities from Arctic. The transaction amount under the agreement amounts to NOK 144 million and satisfactory collateral has been provided for the exposure. The related party is a shareholder in the company with an ownership interest that enables it to exercise significant influence. See also Note 14.

Note 17 Guarantees

The company has provided the following guarantees through DNB as of 31.12.2022:

As security for the guarantees and the overdraft facility etc. first factoring charges have been established over receivables and short-term securities. Arctic Securities AS is a member of Verdipapirforetakenes Sikringsfond.

Note 18 Post balance sheet events

Long-term debt to credit institutions is classified as short-term debt to credit institutions as of 31.12.2022 due to principal maturity during 2023. A new extended loan agreement has been agreed in March 2023.

To the General Meeting of Arctic Securities AS

Independent Auditor's Report

Opinion

We have audited the financial statements of Arctic Securities AS, which comprise:

In our opinion

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by relevant laws and regulations in Norway and the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

The Board of Directors and the Managing Director (management) are responsible for the information in the Board of Directors' report. The other information comprises information in the annual report, but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the information in the Board of Directors' report.

In connection with our audit of the financial statements, our responsibility is to read the Board of Directors' report. The purpose is to consider if there is material inconsistency between the Board of Directors' report and the financial statements or our knowledge obtained in the audit, or whether the Board of Directors' report otherwise appears to be materially misstated. We are required to report if there is a material misstatement in the Board of Directors' report. We have nothing to report in this regard.

Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors' report

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's and the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Note: This translation from Norwegian has been prepared for information purposes only.