1.3 REPORT OF THE SUPERVISORY BOARD

Report on the work of the Supervisory Board of Pošta Slovenije d. o. o. in 2020

Pursuant to Pošta Slovenije d. o. o.’s Articles of Association, the Supervisory Board comprises six members. Four members are appointed by the Company's founder, while two are appointed by the Company’s works council.

The Supervisory Board comprised the following members in 2020: Matjaž Šifkovič (Chairman), Dejan Kastelic (Deputy Chairman), Matjaž Fortič and Zdravko Selič (members), as well as Božidar Pograjc and Aleš Arnejčič who were elected by employee representatives (until 12 January 2020), and then Dijana Kos and Saša Gržinić from 13 January 2020. The members of the Supervisory Board are independent and take into account the Company’s objectives, to which any differing personal or individual interests are subordinated. Supervisory Board members also take all precautionary measures to avoid conflicts of interest. They possess the necessary economic and other professional-technical knowledge, which ensures the effective and professional work of the Supervisory Board. Members of the Supervisory Board also receive regular training. The Supervisory Board also worked with recognised experts in the fields of auditing, accounting, economics and human resource management (HRM) in the scope of its audit and human resource committees. Those experts serve as external committee members On account of Pošta Slovenije’s acquisition intention in the scope of the MAX project, the Supervisory Board also worked with an independent external advisor/expert in the valuation of companies and major investments.

The Supervisory Board met at nine regular, one extraordinary and four correspondence meetings in 2020. It performed its tasks in accordance with its legal powers and Pošta Slovenije d. o. o.'s Articles of Association and the work plan of Pošta Slovenije d. o. o.'s Supervisory Board adopted for 2020. Meetings were convened in writing and the agenda determined by the Chairman of the Supervisory Board. Members performed their functions conscientiously in 2020, as they regularly attended meetings (only Dejan Kastelic and Matjaž Šifkovič were justifiably absent at one meeting). Apart from this absence, the attendance of other Supervisory Board members at meetings was 100%. All Supervisory Board members participated in discussions and were active in the decision-making process.

The Supervisory Board supervised the Company's operations in accordance with the law and the diligence prescribed therein. In the beginning of the year, it was briefed on the content of surety agreements and the declaration of surety and gave its consent to the conclusion of operations in which Pošta Slovenije d. o. o. acts as a guarantor for contracts concluded between Intereuropa d. d. and banks, and for the conclusion of a declaration of surety with the insurer (insurance company). The Chairman of the Supervisory Board signed Annex No. 2 to the agreement concluded with the statutory auditor due to an increase in the work load during the audit of the annual report of Pošta Slovenije and of the enlarged Pošta Slovenije Group, and Annex No. 3 due to a change to the implementation date of the main audit, and adopted the document Monitoring the quality of the statutory auditor’s work by the audit committee of Pošta Slovenije d. o. o.'s Supervisory Board upon the completion of the annual financial statements (‘quality of the work of the statutory auditor’), and the document ‘Guidelines on ensuring the independence of the auditor of Pošta Slovenije Group's financial statements’.

Throughout the year, the Supervisory Board was briefed regularly on periodic information on the operations of the Company and the Pošta Slovenije Group, on the operations of subsidiaries (excluding the subsidiary Intereuropa d. d.) and the acquisition of Intereuropa d. d., where the Supervisory Board also submitted all the required corporate consents regarding the acquisition of Intereuropa d. d. shares. The Supervisory Board also consented to the acquisition of a 45% participating interest, which was held by partner Mikrografija d. o. o. in APS plus d. o. o., and gave its consent to the adoption of a decision by Pošta Slovenije d. o. o.'s Executive Management in the role of the sole owner of APS PLUS, napredne poštne rešitve, d. o. o. regarding the dismissal of Boštjan Gruden, the managing director of APS PLUS, napredne poštne rešitve, d. o. o. and the appointment of Iztok Renčelj to a five-year term of office to serve as managing director of APS PLUS, napredne poštne rešitve, d. o. o.

It regularly monitored activities, measures and operations during the COVID-19 pandemic, and due to these extraordinary circumstances associated with the COVID-19 pandemic, it temporarily lowered the basic wage of the General Manager under his employment contract, and consequently also the wages of the other two members of Pošta Slovenije d. o. o.'s Executive Management, from 25 March to 31 May 2020 by 15%, and also by the same percentage (15%) lowered the gross basic wage of the director of the Internal Audit Department for the same period. During the COVID-19 pandemic, the Supervisory Board intensively monitored the measures of Executive Management to ensure sustainable operations and briefed Slovenski državni holding, d. d. (hereinafter: SDH), the regulator – the Agency for Communication Networks and Services (AKOS) and the Ministry of Economic Development and Technology (MGRT) with the possibility of improving the operations of Pošta Slovenije d. o. o., which could be achieved by amending the Postal Services Act, and prior to that by also amending the General act on accounting information and the calculation of the net cost of the universal service obligation; with the amendment of the first act the compensation fund would in part or completely replace financing from public funds (budget), and with the amendment of the second act the methodology for calculating the net cost would then comply with the best practices of the countries that had already determined and also recognised the existence of the net cost, with the addressees also being informed of the possibility of state aid being paid to Pošta Slovenije d. o. o. As there was no response to the Executive Management's request, the Supervisory Board drew SDH, d. d.'s attention to the inadmissible passiveness and idleness of AKOS and called for active cooperation to achieve andensure sustainable operations of Pošta Slovenije d. o. o. also in the future through the required and appropriate changes to the regulatory framework.

It was also briefed on the progress of the lawsuit lodged before the administrative court against the AKOS decision on the rejected application for the net cost refund, and the proposed regulatory amendments connected with the letter of Pošta Slovenije sent to the senior management of AKOS.

It also provided detailed insight into four anonymous reports regarding alleged irregularities and established that all the alleged irregularities from the anonymous reports were completely without merit, of which it notified SDH, d. d.

The Supervisory Board continuously monitored the work of the audit and human resource committees, and was briefed on reports regarding their work. It received quarterly information regarding the start of investment activities in connection with new proposals from the business-financial plan for 2020, and reports regarding the implementation of projects set out in the Strategic Development Programme of the Pošta Slovenije Group until 2025, and a detailed overview of crucial projects at the Company.

It discussed the Company’s risk register for 2020, quarterly risk management reports and the assessment of key risks in 2020. The Supervisory Board was briefed on additional internal controls in the system used for corporate governance and the management of ordering processes, investments and the conclusion of legal transactions within the Pošta Slovenije Group.

It verified and confirmed the formal aspects of the Company’s annual report for the 2019 financial year, and submitted a proposal to the Company’s founder that distributable profit remain undistributed. It determined variable remuneration for members of Executive Management for 2019, and in doing so complied with the provisions of the Act Determining Emergency Measures to Contain the COVID-19 Epidemic and Mitigate its Consequences for Citizens and the Economy.

With regard to cooperation with social partners, the Executive Management reported regularly to the Supervisory Board on the progress of social dialogue and on negotiations with trade unions. It gave its consent to the payment of performance bonuses for 2020 at Pošta Slovenije d. o. o. and IPPS d. o. o.

With the aim of ensuring the success of operations, it discussed a range of measures to raise the level of performance of the Pošta Slovenije Group, and carefully monitored the operations of subsidiaries and activities in connection with corporate governance within the Pošta Slovenije Group. The Supervisory Board also gave the Executive Management the necessary consent to adopt decisions at the general meetings of subsidiaries with regard to changes in status and capital. In April it gave its consent to the decision of Pošta Slovenije d. o. o.'s Executive Management as the sole owner of IPPS d. o. o. to reappoint Janez Zidar as the managing director of IPPS d. o. o. for the next five-year term of office, and approved the business plan of Posita d. o. o. In December, it gave its consent to the Executive Management of Pošta Slovenije d. o. o. in accordance with Pošta Slovenije d. o. o.'s Articles of Association to the decision to change the name, registered office and business address of APS PLUS d. o. o., and consent to the Executive Management to adopt a decision to increase the share capital of APS PLUS d. o. o., the decision on subsequent payment of a cash contribution and the decision on the amendment and issue of new Articles of Association of APS PLUS d. o. o., on behalf of and for the account of Pošta Slovenije d. o. o. as the founder's representative and sole owner of APS PLUS d. o. o.

With its regular discussion of the Strategic Development Programme of the Pošta Slovenije Group until 2025, the Supervisory Board also closely monitored Pošta Slovenije's sustainable operations, its sustainable development policies and was especially engaged for the prudent management of the environmental footprint by promoting the introduction of additional electric vehicles and technological changes required for sustainable development.

In order to monitor operating costs, the Supervisory Board tasked the Executive Management with drafting a half-yearly analysis of maintenance costs for all line devices used for the sorting and folding of unaddressed direct mail, and required regular reporting on the use of funds in the scope of key projects, including explanations regarding potential deviations.

It gave its consent to the revised business-financial plan of the Pošta Slovenije Group and Pošta Slovenije d. o. o. for 2020, with projections for 2021 and 2022, and consent to the business-financial plan of the Pošta Slovenije Group and Pošta Slovenije d. o. o. for 2021, with projections for 2022 and 2023, tasking the Executive Management with drafting more ambitious projections for 2023. It also gave its consent to the proposed revised projection of the Strategic Development Programme of the Pošta Slovenije Group until 2025 (November 2020).

At the request of the Executive Management, the Supervisory Board consented to the conclusion of legal transactions for which the Executive Management requires its consent. It discussed information regarding major projects that were/are in progress, in particular with regard to the POINT project (IT support for processes), the reorganisation of the Pošta Slovenije Group (monitoring the completed project), the project to consolidate the area of IT services for the market within the Pošta Slovenije Group (PosiTa) and the OPT PIS project. The Supervisory Board was briefed on the effects of certain previously implemented projects and projects that will be implemented in the future.

It carried out the appointment of a member of Pošta Slovenije d. o. o.'s Executive Management, and pursuant to point 6 of Article 15 of the Articles of Association of Pošta Slovenije d. o. o. reappointed Andrej Rihter, MSc as member of Pošta Slovenije d. o. o.'s Executive Management for a five-year term of office.

To ensure transparent operations it also adopted a tentative work plan of the Supervisory Board of Pošta Slovenije d. o. o. in 2020. Pursuant to the Corporate Governance Code for State-Owned Enterprises, the Supervisory Board began the process of assessing the effectiveness of its work in 2020 in accordance with recommended best practices, which it postponed to a later period as more important content had to be discussed. Due to the dismissal of members of the Supervisory Board and the appointment of new members to the Supervisory Board in the beginning of March 2021, the Supervisory Board did not conduct an assessment of work in 2020.

In terms of the independence of its members, the Supervisory Board assesses that all members worked independently in 2020 (all members submitted statements of independence that were published on the Company’s website). The Supervisory Board also took all precautionary measures to avoid conflicts of interest. If a member of the Supervisory Board disclosed a potential conflict of interest, the Supervisory Board managed that conflict of interest appropriately and adopted the necessary measures. For reasons of solidarity and on the basis of the recommendation of SDH, d. d., all Supervisory Board members, as well as the two external committee members gave up 30% of the remuneration they are entitled to from their membership of the Company's Supervisory Board, for the period from March to May 2020 inclusive.

The Supervisory Board was briefed on the corporate governance statement of Pošta Slovenije d. o. o. and the Pošta Slovenije Group, and approved it.

Proposed resolution on the use of distributable profit

In accordance with the International Financial Reporting Standards, the distributable profit of Pošta Slovenije d. o. o. amounted to EUR 19,366,230 as at 31 December 2020, as confirmed by the certified auditor. The Executive Management and Supervisory Board proposed that a portion of the distributable profit in the amount of EUR 1,500,000 is earmarked for the payment of profit participation to Pošta Slovenije d. o. o.’s sole owner.

Assessment of cooperation with the Executive Management

The Executive Management and Supervisory Board enjoyed a proper relationship in 2020, while mutual cooperation between the members of the Supervisory Board and Executive Management was adequate and at an appropriate level for corporate communication, which enabled the Supervisory Board to adopt competent decisions in accordance with the law and its powers. The Executive Management submitted the requisite documents, data and information to the Supervisory Board in a timely manner, as well as reports and materials, such that the members of the Supervisory Board were well-prepared for discussions and decision making at meetings.

The Executive Management operated in accordance with the powers and authorisations vested in it by the law and the Company’s Articles of Association, and took into account and complied with the recommendations issued by the Supervisory Board. The Supervisory Board was briefed on the work of the Executive Management during the financial year primarily via reporting by that body at the Supervisory Board’s meetings and indirectly through the reports of the Supervisory Board’s audit and human resource committees. The Supervisory Board assesses that communication with the Executive Management was appropriate for the effective performance of its supervisory function, as the Executive Management regularly informed the Supervisory Board and the latter’s Chairman about the most significant events and sought advice regarding the most important issues at the Company, such as strategy, key projects, planning, the course of major transactions, etc.

Opinion regarding the work of the Executive Management

The Company’s Executive Management continued its work in 2020 in the following composition: Boris Novak, MSc (General Manager), Andrej Rihter, MSc (member) and Vinko Filipič (member).

In monitoring the operations of Pošta Slovenije d. o. o. during 2020, the Supervisory Board gave particular attention to the effectiveness and efficiency of operations, and to restructuring activities, taking into account current and expected changes in the business environment in which the Company operates, and the integration of the major acquisition. The Supervisory Board assesses that Pošta Slovenije d. o. o.’s Executive Management performed well in 2020 and achieved the majority of its key objectives. It expects the Executive Management to ensure that the necessary activities in connection with the restructuring of operations and the integration of the major acquisition will be carried out promptly and efficiently again next year in accordance with its competences and responsibilities.

Work of the Supervisory Board’s audit and human resource committees

The Supervisory Board’s audit committee functioned in the following composition in 2020: Matjaž Fortič (chair), Zdravko Selič (member) and Božidar Pograjc (employee representative, audit committee member until 12 January 2020), Dejan Kastelic (audit committee member from 12 February 2020), and Katarina Sitar Šuštar (external member).

The audit committee met at eight regular meetings and one correspondence meeting in 2020. At the first meeting in 2020 the audit committee set out the priorities for work in 2020 and a detailed plan of work, conducted a self-assessment of the work in 2019, was briefed on the first version of the work plan of the Internal Audit Department for 2020, and drafted the document Monitoring the quality of the statutory auditor’s work by the audit committee of Pošta Slovenije d. o. o.’s Supervisory Board upon the completion of the annual financial statements (‘quality of the work of the statutory auditor’), which the Supervisory Board approved and adopted.

At meetings the audit committee was briefed regularly on information regarding the operations of the Pošta Slovenije Group, discussing regular/quarterly reports on the work of the Internal Audit Department, reports on profitability and risks, at the same time striving for closer cooperation between key organisational units at the Company aimed at drafting risk analyses and establishing key risks within the Pošta Slovenije Group, and regularly (at each meeting) monitoring auditing and non-auditing services and all the transactions concluded with the statutory auditor of Pošta Slovenije at any Pošta Slovenije Group company. It also ordered an external assessment of the work of Pošta Slovenije’s Internal Audit Department and drafted the document ‘Guidelines on ensuring the independence of the auditor of Pošta Slovenije Group’s financial statements’, which the Supervisory Board also approved and adopted.

The audit committee discussed the unaudited and audited annual report for 2019, and was briefed on the Executive Management’s proposal regarding the distribution of profit and on the report in accordance with the methodology of Pošta Slovenije d. o. o’s cost model. The audit committee was briefed on the draft business-financial plan of the Pošta Slovenije Group and Pošta Slovenije for 2021, with projections for 2022 and 2023. As required, the audit committee discussed problems in the operations of individual subsidiaries and in specific segments of operations, and reports on certain major projects. The audit committee met with the statutory auditor without the Executive Management present and regularly assessed the auditor’s independence in the provision of audit services. In October the audit committee together with the responsible organisational units Procurement and Real Estate and Finances and Accounting began activities to carry out the process of ordering the audit of the Pošta Slovenije Group for financial years 2021 to 2025, where the selection activities are still ongoing.

The audit committee was briefed on the report on the work of the Internal Audit Department in 2019 at its first meeting in 2020. In April the audit committee proposed that the Supervisory Board give its consent to the annual work plan of the Internal Audit Department for 2020, and proposed that the Supervisory Board also give its consent to the Rules of Procedure of the Internal Audit Department. It was briefed on the quarterly reports of the Internal Audit Department during its meetings and on the content of individual internal audits, as required. The audit committee met with the head of the Internal Audit Department, without the Executive Management present.

The audit committee tasked the Internal Audit Department with conducting two extraordinary internal audits, which were the result of anonymous reports of alleged irregularities, after which the audit committee established that the alleged irregularities were completely unfounded.

In the area of risk management, the audit committee was continuously briefed on interim risk management reports and on the risk register, which was prepared during the drafting of the business plan for 2021.

The members of the audit committee participated in ca. 18 hours of training organised by SDH, d. d., and the Slovenian Directors’ Association in 2020.

The chair of the audit committee reported regularly on the work of the committee at meetings of the Supervisory Board.

The human resource committee of the Supervisory Board functioned in the following composition: Matjaž Šifkovič (chair), Zdravko Selič (member) and Aleš Arnejčič (member from 1 January 2020 to 12 January 2020 inclusive, when his term of office expired), and Jasna Brovč Potokar (external member). For the purpose of reporting on its work and other matters at meetings of the Supervisory Board (and in the scope of its competences), the human resource committee prepares materials and proposes resolutions for the Supervisory Board, but may not adopt decisions regarding matters that fall within the competences of the Supervisory Board.

The committee met at two regular meetings and one correspondence meeting in 2020, where it was briefed on reports on the implementation of resolutions from previous committee meetings, examined the work programme and CVs of all candidates for the directors of subsidiaries whose term of office expired in 2020 and who were nominated as candidates by the Executive Management of Pošta Slovenije d. o. o. It prepared expert bases for the Supervisory Board regarding the course and method of carrying out the selection procedure for the function of Executive Management member, examined the employment contract for the selected Executive Management member and confirmed its content, establishing that the contract complied with the applicable regulations and the restrictions on the conclusion of these contracts. The committee also examined the criteria for calculating the variable portion of remuneration of members of Pošta Slovenije d. o. o.’s Executive Management, and proposed that the Supervisory Board pay the variable portion of remuneration for 2019 and pointed out to the Supervisory Board, on the basis of the provisions of the Act Determining Emergency Measures to Contain the COVID-19 Epidemic and Mitigate its Consequences for Citizens and the Economy (ZIUZEOP), more precisely Article 99, that in 2020 Pošta Slovenije d. o. o.’s Executive Management is prohibited from receiving payment of the retained portion of the variable elements of remuneration for 2017.

All members regularly attended the meetings of the human resource committee in 2020. The members of the Supervisory Board who are not members of the committee were briefed on the latter’s work in the form of minutes of the committee’s meetings. They can access all the materials for the meetings of the human resource committee at the SHP NS portal. The chair of the human resource committee also provided regular reports on the committee’s work at meetings of the Supervisory Board.

Auditor’s report

The Supervisory Board carefully examined the auditor’s report, which includes the latter’s positive opinion. Given the content and additional information available to it, the Supervisory Board finds that the auditor performed its work professionally and in line with valid legislation and business practices. The Supervisory Board has no remarks regarding the auditor’s report.

Position of the Supervisory Board with regard to the annual report for the 2020 financial year

The Supervisory Board carefully examined the annual report of Pošta Slovenije d. o. o. and the Pošta Slovenije Group for the 2020 financial year, as submitted by the Company’s Executive Management. The annual report was compiled in a clear and transparent manner, and the Supervisory Board assesses that it presents a true and fair picture of the Company’s assets and liabilities, and of its financial position and operating results in 2020. The Supervisory Board has no comments that would in any way inhibit its decision to approve the annual report. The Supervisory Board therefore approved the annual report of Pošta Slovenije d. o. o. and the Pošta Slovenije Group for the 2020 financial year pursuant to the third paragraph of Article 282 of the ZGD-1. The 2020 annual report was approved by the prescribed deadline, i.e. one month from its submission to the Supervisory Board by the Company’s Executive Management.

The Supervisory Board compiled the report on the verification of the annual report of Pošta Slovenije d. o. o. and the Pošta Slovenije Group for the 2020 financial year and the proposal on the distribution of profit for the financial year in accordance with the provisions of the ZGD-1. That report is intended for Pošta Slovenije d. o. o.’s sole owner.

Franci Mihelič

Chairman of the Supervisory Board