4.4 INTRODUCTORY NOTES AND ACCOUNTING POLICIES
4.4.1 Reporting entity
The Pošta Slovenije Group (hereinafter: the PS Group or Group) comprises the controlling company Pošta Slovenije d. o. o. (hereinafter: PS or the Company), and subsidiaries and associates.
Pošta Slovenije is a limited liability company established in Slovenia where it operates. Its registered office is at Slomškov trg 10, 2000 Maribor. The Republic of Slovenia holds a 100% participating interest in the Company.
The consolidated financial statements have been compiled for the financial year ending 31 December 2020 and can be obtained at the registered office of Pošta Slovenije.
The key area of the Pošta Slovenije Group’s operations is the provision of universal postal services and logistics services, while other postal and courier services. IT services, financial services and the sale of merchandise also play an important role at the controlling company. The Pošta Slovenije Group also performs a number of other activities.
The financial statements are compiled under the assumption of a going concern.
The consolidated financial statements of the Pošta Slovenije Group for the year ended 31 December 2020 include the financial statements of the controlling company and the financial statements of subsidiaries and the attributable results of associates. ThePošta Slovenije Group comprises the following companies:
Company
Status within the Group
Registered office of subsidiary
Partic-ipating interest
Equity as at31/ 12/ 2020
(in EUR)
Net profit or loss for 2020
(in EUR)
Pošta Slovenije d. o. o.
Parent company
PS Logistika d. o. o.
Direct subsidiary
Brnčičeva ulica 45, 1231 Ljubljana-Črnuče
100.00%
13,967,218
909,636
EPPS d. o. o.
Direct subsidiary
Stegne 13A, 1000 Ljubljana
100.00%
6,300,903
1,025,099
APS PLUS d. o. o.
Direct subsidiary
Cesta v Mestni log 81, 1000 Ljubljana
100.00%
-132,863
-700,353
PS Moj Paket d. o. o.
Direct subsidiary
Partizanska cesta 54, 2000 Maribor
100.00%
994,773
420,291
IPPS d. o. o.
Direct subsidiary
Zagrebška cesta 106, 2000 Maribor
100.00%
374,900
239,638
Intereuropa d. d.
Direct subsidiary
Vojkovo nabrežje 32, 6000 Koper
80.89%
124,979,200
2,314,512
Interagent d. o. o., Koper
Direct subsidiary
Vojkovo nabrežje 30, 6000 Koper
100.00%
230,065
15,236
Interzav d. o. o., Koper
Subsidiary of Intereuropa d. d.
Vojkovo nabrežje 32, 6000 Koper
71.28%
55,713
24,433
Intereuropa logističke usluge d. o. o., Zagreb
Subsidiary of Intereuropa d. d.
Josipa Lončara 3, 10090 Zagreb
99.96%
42,741,986
1,647,866
Intereuropa sajam d. o. o.
Subsidiary of Intereuropa d. d.
Avenija Dubrovnik 15, 10090 Zagreb
51.00%
731,876
75,293
Intereuropa Skopje d. o. o.
Subsidiary of Intereuropa d. d.
Bul, Vojvodina 7, 1000 Skopje
99.56%
1,159,382
-70,412
Intereuropa RTC d. d., Sarajevo
Subsidiary of Intereuropa d. d.
Halilovići 12, 71000 Sarajevo
95.77%
11,728,225
-506,547
A.D. Intereuropa logističke usluge, Belgrade
Subsidiary of Intereuropa d. d.
Zemunska 174, 11272 Dobanovci
73.62%
5,904,042
-857,282
Direct investment of Pošta Slovenije d. o. o.
24.49%
TEK ZTS d. o. o., Uzhhorod
Subsidiary of Intereuropa d. d.
Svobody str. 4, 89424 Minaj
89.93%
-146,233
-75,403
Intereuropa Kosova L.L.C.
Subsidiary of Intereuropa d. d.
Zona Industriale Lidhja e pejës p.n., 10000 Prishtina, Kosovo
90.00%
722,990
68,346
Zetatrans A.D.. Podgorica
Subsidiary of Intereuropa d. d.
Ćemovsko polje b.b., 81000 Podgorica
69.27%
16,330,825
496,144
Direct investment of Pošta Slovenije d. o. o.
10.52%
TOV Intereuropa – Kiev, Ukraine
Subsidiary of Intereuropa d. d.
suspended operations
100.00%
-415,637
-262,343
"Intereuropa Global Logistics Service, Albania shpk, Durres"
Subsidiary of Intereuropa d. d.
Lagja 1. Rruga Taulantia, Mujo Ulqinaku, Kulla 2. Durres
100.00%
137,240
5,183
Intereuropa Global logistics Service Albania Shpk. Durrës, Albania is not included in the consolidated financial statements because it is not material for the fair presentation of the Group’s financial position, as its operations are limited.
Associate
Status within the Group
Registered office of associate
Partic-ipating interest
Equity as at 31 December 2020 (in EUR)
Net profit or loss for 2020 (in EUR)
Športna loterija in igre na srečo, d.d.
Direct associate
Dunajska cesta 22, Ljubljana
20%
13,153,347
3,409,832
Rail Cargo Logistics d.o.o.
Associate of Intereuropa d. d.
Letališka 35, Ljubljana
26%
165,259
3,018
4.4.2 Basis for compiling the financial statements
The items relating to revenues, costs and expenses of the 2019 financial year include the Intereuropa Group’s items from the business combination onward, i.e. for the period from 13 November 2019 to 31 December 2019, and as such are not directly comparable to the 2020 financial year, where these items are included for the entire year.
a) Statement of compliance
The Executive Management approved the consolidated financial statements on 24 May 2021.
The consolidated financial statements of the Pošta Slovenije Group have been compiled in accordance with the International Financial Reporting Standards (hereinafter: the IFRS), as adopted by the European Union, the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the European Union, and the provisions of the Companies Act (ZGD-1).
Entry into force of the latest amendments to existing standards that apply during the current reporting period
The following amendments to existing standards issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective in the current reporting period:
Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material, adopted by the EU on 29 November 2019 (applicable to annual periods beginning on or after 1 January 2020).
Amendments to IFRS 3 Business Combinations – Definition of a Business, which the EU adopted on 21 April 2020 (effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period).
Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, and IFRS 7 Financial Instruments: Disclosures – Interest Rate Benchmark Reform, adopted by the EU on 15 January 2020 (applicable to annual periods beginning on or after 1 January 2020).
Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions, which the EU adopted on 9 October 2020 and which are applicable to annual periods beginning on or after 1 June 2020, for financial years beginning on or after 1 January 2020.
Amendments to References to the Conceptual Framework in IFRS standards, adopted by the EU on 29 November 2019 (applicable to annual periods beginning on or after 1 January 2020).
The adoption of these amendments to existing standards did not lead to any material changes in the financial statements of the Group.
Standards and amendments to existing standards issued by the IASB and adopted by the EU but not yet effective
On the date on which these financial statements are approved, the International Accounting Standards Board (IASB) issued amendments to IFRS 4 Insurance Contracts – Extension of Temporary Exemption from Applying IFRS 9, which the European Union adopted on 16 December 2020, but which have not yet entered into force (the date of expiry of the temporary exemption was extended to annual periods beginning on or after 1 January 2023).
New standards and amendments to existing standards issued by the IASB but not yet adopted by the EU
The IFRS as adopted by the EU do not currently differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), with the exception of the following new standards and amendments to existing standards:
IFRS 14 Regulatory Deferral Accounts (applicable to annual periods beginning on or after 1 January 2016). The European Commission opted not to begin proceedings to approve this interim standard, but will wait until the publication of the final version thereof.
IFRS 17 Insurance Contracts, including amendments to IFRS 17 (applicable to annual periods beginning on or after 1 January 2023);
Amendment to IAS 1 Presentation of Financial Statements – Classifying Liabilities as Current or Non-current (applies to annual periods beginning on or after 1 January 2023);
Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use (applies to annual periods beginning on or after 1 January 2022);
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a Contract (applies to annual periods beginning on or after 1 January 2022);
Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework for Amendments to IFRS 3 (applies to annual periods beginning on or after 1 January 2022);
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture, and subsequent amendments (the date of application has been postponed indefinitely until the completion of a research project in connection with the equity method);
Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases – Interest Rate Benchmark Reform – Phase 2 (applies to annual periods beginning on or after 1 January 2021);
Amendments to various standards due to annual improvements to the IFRS for the 2018–2020 cycle proceeding from the project of annual improvements to the IFRS (IFRS 1, IFRS 9, IFRS 16 and IAS 41), primarily to eliminate discrepancies and to provide interpretations, (the amendments to IFRS 1, IFRS 9 and IAS 41 apply to annual periods beginning on or after 1 January 2022; the amendments to IFRS 16 are cited only for illustrative purposes and therefore no effective date is given.)
The Group does not expect the introduction of these standards and amendments to existing standards to have a material impact on its consolidated financial statements during initial application.
Hedge accounting in connection with the portfolio of financial assets and liabilities, the principles of which the EU has not approved, is not yet regulated.
The Group assesses that the use of hedge accounting in connection with financial assets and liabilities in accordance with IAS 39 Financial Instruments: Recognition and Measurement would not have had a significant impact on its consolidated financial statements were it to have been used on the statement of financial position date.
b) Use of estimates and judgements
In compiling financial statements in accordance with the IFRS, the Executive Management must make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Those estimates include, inter alia, the determination of the useful lives of property, plant and equipment, and intangible non-current assets, testing for the impairment of property, plant and equipment, adjustments to the value of inventories and receivables, assumptions required for the actuarial calculation in connection with defined employee benefits, assumptions included in the calculation of potential provisions for lawsuits, assessing the possibility of applying deferred tax assets, and assumptions and estimates for the impairment of goodwill. Despite the fact that the executive staff of Group companies carefully considers all factors that affect the drafting of assumptions during that process itself, the actual consequences of events may vary from estimates. Accounting estimates must therefore take into account potential changes in the business environment, new business events, additional information and past experiences. The effects of COVID-19 were taken into account in the compilation of assumptions for accounting estimates for 2020. Revisions to accounting estimates are recognised in the period in which the estimate is revised, and in all future years affected by the revision.
The Group checks individual cash-generating units for signs of impairment at least once a year.
Information regarding significant assessments of uncertainty and critical judgements drawn up in the application of accounting policies that have the greatest impact on the amounts in the financial statements are presented below.
Assessment of the useful life of amortisable and depreciable assets
When assessing the useful life of assets, the Group takes into account expected physical wear, technical and economic obsolescence, and expected legal and other restrictions on use. The Group verifies the useful life of material assets and determines whether a change has occurred in circumstances and whether a change in the useful life is required.
Assessment of the term of operating leases concluded for an indefinite period
For the purpose of assessing the term of operating leases concluded for an indefinite period, the Group sets a lease term that best reflects the period for which it is highly likely that the contractual termination option will not be exercised. The Group’s plans (operational and strategic) also represent the basis for defining the lease term. Given the above, the Group sets a period of five years as the most appropriate lease term for contracts concluded for an indefinite period, or a shorter period taking into account its operational plan.
Testing for the impairment of non-financial assets
At least once a year, the Group checks for signs of impairment for individual cash-generating units, where the recoverable amount of non-financial assets is determined on the basis of the present value of cash flows, which in turn is based on an estimate of expected cash flows from a cash-generating unit and the definition of an appropriate discount rate.
In assessing if the impairment of real estate is necessary, the Group deems a specific item of real estate to generate cash flows as a whole, depending on other items of real estate. The controlling company provides both domestic and cross-border universal postal services. The Company provides universal postal services in the public interest to all postal service users throughout the entire territory of the Republic of Slovenia. They are provided continuously, regularly and without interruption under the same conditions. The provision of universal postal services may not be interrupted except due to force majeure or conditions that endanger delivery personnel. In accordance with the Postal Services Act, the controlling company has a network of postal units for the provision of universal services that it cannot restrict, as this would affect the links between those units and thus hinder the provision of services or their ability to ensure the requisite quality of services. For this reason, the controlling company as a whole is defined as a single cash generating unit, whenever it identifies the need for the impairment of non-financial assets required for the performance of its core activity.
Testing for the impairment of receivables and assets from contracts with customers
When compiling the financial statements, the Group assesses value adjustments based on the expected credit loss model, according to which it assesses expected losses that will arise in the future.
Estimated provisions for post-employment employee benefits
The present value of severance pay at retirement is recorded in defined-benefit employment commitments. The latter are recognised on the basis of an actuarial calculation that in turn is based on assumptions and estimates valid at the time of that calculation. Those assumptions and estimates may vary from actual assumptions in the future due to changes. Those changes relate primarily to the definition of the discount rate, estimates of employee turnover and mortality rates, and estimates of wage growth. Post-employment benefit commitments are sensitive to changes in the aforementioned estimates due to the complexity of the actuarial calculation and their long-term nature.
Estimated provisions for lawsuits and contingent liabilities
Provisions are recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. The executive staff of Group companies regularly verifies whether an outflow of resources embodying economic benefits is probable to settle a contingent liability. If this becomes probable, the contingent liability is reclassified, such that the associated provisions are created in the financial statements at the moment the level of probability changes.
Testing for the impairment of goodwill
The Group checks for indications of the impairment of goodwill at every reporting date. The Group takes into account external and internal sources of information when assessing whether there are any indications that an asset is impaired.
If such indications exist, the Group assesses the recoverable amount of the asset in question. The recoverable amount is the greater of the fair value minus selling costs, or the value in use. If fair value cannot be measured reliably, value in use is applied as the recoverable amount. When calculating the value of an asset in use, the Group must take into account estimated future cash flows from that asset, expectations regarding potential changes in value or time distributions and future cash flows, the time value of money (discount rate), the cost of assuming uncertainties that are embedded in an asset and other relevant factors (e.g. illiquidity).
The Pošta Slovenije Group based its assessment of the impairment of goodwill on the future cash flows of cash-generating units that can be separated in terms of items of goodwill. The valuation was compiled by the certified business valuer to verify the potential impairment of goodwill, which the Group company APS PLUS d.o.o. disclosed in its books of account from the merger of another company in previous years. It was established that the recoverable amount of the cash-generating unit of APS PLUS d. o. o. is zero euros. The impairment of goodwill was recognised in the amount of EUR 128,116.
Assessment of the possibility of applying deferred tax assets
The Group creates deferred tax assets in connection with the creation of provisions for jubilee benefits and retirement benefits, the impairment of financial assets, the impairment of receivables and tax losses.
As at the date of the completion of financial statements, the Group verifies the amount of disclosed deferred tax assets and liabilities. A deferred tax asset is recognised in the event that it is probable that future net profits will be available against which the deferred tax asset can be utilised in the future. Deferred tax assets are reversed to the extent that it is no longer probable that the related tax benefit will be realised.
Testing for impairment of inventories
The Group assesses the net realisable value of inventories each year, and if that value is lower than its carrying amount it is impaired.
Changes in accounting estimates
Changes in the estimated useful life of buildings
When assessing the useful lives of buildings within the Intereuropa Group, the independent valuers of real estate established that these useful lives had changed. The estimated useful life of high structures was changed to 50 years, while the useful life of low structures was changed to 30 years. The change in the useful life of buildings resulted in lower depreciation costs (by EUR 900,872) in 2020.
Change in the period applied for the foreseeable future
The Group assessed that the period deemed the acceptable foreseeable future for the purpose of assessing the utilisation of tax losses is five years given the circumstances in connection with the COVID-19 pandemic. The period deemed the foreseeable future was seven years until 2020.
c) Basis of measurement
The financial statements have been compiled on an historical cost basis, except for assets at fair value through other comprehensive income.
d) Functional and reporting currency
The financial statements have been compiled in euros (without cents), i.e. in the functional currency of the Group. All financial information is presented in euros, rounded to the nearest unit. Cash and cash equivalents, and liabilities are translated into the functional currency using the daily exchange rate applicable on the statement of financial position date. All exchange rate differences are recognised in the income statement. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated using the exchange rate applicable on the transaction date.
Financial statements of companies abroad
When translating the financial statements of subsidiaries based abroad with a functional currency that differs from the reporting currency (euros) for their inclusion in the consolidated financial statements, the Group translates assets and liabilities into the reporting currency of the consolidated financial statements at the exchange rate applicable on the reporting date, while it translates revenues and expenses disclosed in the income statement and items disclosed in other comprehensive income at the average exchange rate for the period in question, which the Group assesses is an adequate approximation of the exchange rate on the transaction date. Equity items are translated at the exchange rate on the final day of the period in which a change in equity arose. Any resulting exchange rate differences are recognised in other comprehensive income (foreign currency translation differences) until the disposal of a subsidiary, at which time exchange rate differences are transferred to the income statement.
Significant accounting policies
Accounting policies and calculation methods are the same as those applied in the previous annual reporting cycle.
a) Basis for consolidation
The consolidated financial statements of the Group include the financial statements of the controlling company and subsidiaries.
The Pošta Slovenije Group is presented in the consolidated financial statements as if it were a single company. The consolidated financial statements are compiled on the basis of the individual financial statements of companies included in consolidation, with the relevant consolidating adjustments, which are not booked in the books of account of those companies.
Subsidiaries are companies controlled by the Group. The controlling company controls a subsidiary if it is exposed to a variable return or has the right to a variable return from its interest in that company, and it may affect that yield through its influence over that company. The controlling company is deemed to have control over a subsidiary if, based on existing rights, it is able to direct important activities at that company that have a significant impact on the yield of the latter. The existence and effect of potential voting rights that may be currently exercised or exchanged are taken into account when assessing the controlling company’s influence. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control is assumed until the date that it ceases. The accounting policies of subsidiaries have been harmonised with those of the Group. The individual financial statements of consolidated companies are compiled for the financial year that ended on the same day as the financial year at the controlling company.
In the case of a controlling company and its subsidiaries, full consolidation is applied. This means the combining of the financial statements of the controlling company and its subsidiaries by summing similar items of assets, liabilities, equity, revenues and expenses, and by excluding the financial investments of the controlling company in the equity of subsidiaries, intercompany operating receivables and liabilities, intercompany revenues and expenses, and the separate disclosure of minority interests in equity, net profit and comprehensive income.
Associates are companies over which the Group exercises significant influence, but does not control their financial and business policies. Investments in associates are initially recognised at historical cost and then accounted for according to the equity method. The consolidated financial statements of the Pošta Slovenije Group include the latter’s share in the profits and losses of associates calculated according to the equity method, from the date when significant influence begins until the date it ceases.
Business combinations, goodwill and bargain purchase gain
Business combinations are accounted for using the acquisition method. Acquisition costs are set in the total amount of consideration at fair value on the acquisition date, plus the amount of all non-controlling interests at the acquired company. The acquiring company measures the amount of non-controlling interest in the acquired company for each business combination, either at fair value or as a proportion of the identifiable net assets of the acquired company. The acquiring company recognises acquisition costs in the costs of services.
At the time of the acquisition, the Group assessed whether the allocation of acquired financial assets and liabilities was in line with contractual provisions, the economic situation and material circumstances on the acquisition date.
In a business combination carried out in several steps, the acquiring company’s previously held interest in the equity of the acquired company is remeasured at fair value through profit or loss on the acquisition date. The amount of contingent consideration that is expected to be transferred to the acquiring company is recognised at fair value on the acquisition date. Subsequent changes in the fair value of contingent consideration that is deemed an asset or liability is recognised in the income statement or as a change in other comprehensive income in accordance with IFRS 9. If contingent consideration is recognised in equity, it may not be remeasured until it is settled within equity.
Goodwill is initially recognised at historical cost, which is the surplus of the total amount of transferred consideration and the recognised amount of non-controlling interests over the fair value of identifiable assets acquired and assumed liabilities. If consideration is less than the fair value of the identifiable net assets of the acquired company, the difference is recognised in the income statement as a bargain purchase gain (negative goodwill).
Following initial recognition, goodwill is recognised at historical cost, minus accumulated impairment losses. For the purpose of testing goodwill for impairment, goodwill acquired in a business combination is allocated, from the acquisition date, to every cash-generating unit of the Group that expects benefits from that business combination will flow to it, regardless of whether the other assets and liabilities of the acquired company are allocated to those units.
Whenever goodwill is part of a cash-generating unit and a portion of that cash-generating unit’s operations are sold, the goodwill relating to the sold cash-generating unit is recognised at the carrying amount of the operations of that unit for the purpose of determining the gain or loss from the disposal of those operations. Goodwill sold in such circumstances is measured based on the relative value of the sold activity and the portion of the cash-generating unit that the Group retains.
b) Intangible assets
Goodwill
Goodwill that arises as the result of the acquisition of a subsidiary is measured at historical cost, minus any accumulated impairment losses.
Other intangible assets
Intangible assets acquired by the Pošta Slovenije Group that have a finite useful life are disclosed at historical cost, less accumulated amortisation and any accumulated impairment loss. Historical cost includes the costs that can be directly attributed to the acquisition of a specific intangible asset. Borrowing costs that can be directly attributed to the purchase or manufacture of an asset under construction are recognised as a part of that asset’s historical cost. The historical cost model is used to measure all groups of intangible assets.
If the assessed recoverable amount is lower than the carrying amount of the intangible asset, the Group reduces the carrying amount to the recoverable amount. The net value in use is deemed the recoverable value of intangible assets. The Group estimates net value in use based on future cash flows. That reduction represents an impairment loss that the Group recognises directly as an operating expense in the income statement.
Subsequent expenditure
Subsequent expenditure related to intangible assets is only capitalised when it increases the future economic benefits of the asset to which the expenditure relates. All other costs are recognised in profit or loss as expenses as they arise.
Amortisation
Amortisation is charged individually on a straight-line basis over the useful life of intangible assets. Amortisation begins the day after an asset is available for use, and ceases to be calculated on the day an asset is classified as held-for-sale or on the day when that asset is derecognised, whichever comes first.
For intangible assets, the final useful life is applied. The following estimated rates are used to calculate amortisation:
Type of asset
Year 2020
Year 2019
Intangible assets
from 4.34% to 33.3%
from 6.67% to 33.3%
The useful lives of assets are reviewed annually and adjusted as required.
c) Property, plant and equipment
Property, plant and equipment are disclosed at historical cost, less accumulated depreciation and any accumulated impairment loss. Historical cost includes the costs that can be directly attributed to the acquisition of a specific item of property, plant and equipment. Costs included as part of a produced asset comprise costs of materials, direct labour costs and other costs that can be directly ascribed to making the asset fit for its intended use. The Group also discloses advances paid for fixed assets among property, plant and equipment.
Borrowing costs that can be directly attributed to the purchase, construction or manufacture of an asset under construction are recognised as a part of that asset’s historical cost if this involves significant values on the basis of a calculation under the capitalised borrowing costs methodology. The historical cost model is used to measure all items of property, plant and equipment.
Gains and losses during sale or elimination are determined by comparing the sales revenue with the carrying amount. Gains and losses from sales are recognised the income statement. Items of property, plant and equipment that are held for sale are disclosed separately from other assets. Depreciation is not calculated for those items.
As a rule, major fixed assets are assessed for external and internal signs of impairment once a year. If such indications exist, the recoverable amount of the asset is estimated. Items of property, plant and equipment must be revalued for reasons of impairment if their carrying amount exceeds their recoverable amount. The recoverable amount is the greater of fair value less selling costs, or value in use. The assessment of value in use comprises an assessment of the inflows and outflows that will arise from the continued use of an asset and its final disposal, and the application of an appropriate discount rate (before income tax) that reflects the current market assessment of the time value of money and the potential risk specific to the asset. Three valuation approaches are used for the measurement of fair value (market approach, income approach and cost approach). The market and income approaches were applied in the assessment of fair value less selling costs. The market approach uses prices and other relevant information that arises from market transactions that include identical or comparable assets, liabilities or a group of assets and liabilities, such as those held by a business entity. The income approach applies the measurement of fair value set on the basis of a value that is determined by current market expectations regarding future amounts from cash flows that are discounted to their present value. Impairment losses are recognised in operating expenses. An asset is derecognised when it is sold or no economic benefit is expected to flow from the continued use of that asset. Gains and losses from the derecognition of an individual asset are included in the income statement in the year the asset is removed from the books of account.
Subsequent expenditure
Subsequent costs in connection with items of property, plant and equipment are recognised in the carrying amount of the asset in question if it is probable that the future economic benefits embodied within the part will flow to the Group, and its historical cost can be measured reliably. All other costs (such as day-to-day servicing) are recognised in profit or loss immediately when they arise.
Depreciation
Depreciation is charged on a straight-line basis over the useful life of each individual asset or the parts thereof. Land and assets in acquisition are not subject to depreciation. Depreciation is calculated individually and begins when an asset is available for use, and ceases to be calculated on the day an asset is classified as held-for-sale or on the day when that asset is derecognised, whichever comes first.
The following estimated rates are used to calculate depreciation:
Type of asset
2020
2019
Buildings and housing
from 1.47% to 5%
from 0.56% to 5%
Mail sorting and logistic centre buildings
from 1.47% to 3.33%
from 0.56% to 3.33%
Parking lots
from 2% to 2.5%
from 2% to 2.5%
Equipment for performance of activities
from 4% to 50%
from 6.6% to 3.33%
Transportation equipment
from 10% to 50%
from 10% to 50%
Computer equipment
from 25% to 50%
from 25% to 50%
Different depreciation rates are used for certain components of real estate, as follows:
facade and building fixtures and fittings (3.3%);
replacement of the roof on buildings (3.3% or 5% if the building is older than 30 years);
heating and ventilation systems (5%).
The useful lives of assets are reviewed annually. The estimated useful lives of buildings changed in 2020.
d) Leases
Group as lessee
Right-of-use assets under leases
Upon initial recognition, the Group measures a right-of-use asset under lease at historical cost, which includes:
the amount of the initially measured lease liability;
lease payments that were received at or prior to the commencement of a lease, less lease incentives;
initial direct costs incurred by the lessee; and
estimated costs that the lessee will incur in the removal of an asset that is the subject of a lease, costs for the restoration of the location where an asset is located, or the return of an asset that is the subject of a lease to the condition stated in the terms of a lease.
Following initial recognition, the Group measures such assets using the cost model, less accumulated depreciation and any accumulated impairment loss, corrected for the remeasurement of the lease liability.
The Group excludes the following from calculations:
low-value leases of up to EUR 5,000, in which the value of the new underlying asset is taken into account;
leases of intangible assets; and
short-term leases of up to 1 year.
If a lease contract contains provisions regarding non-lease components and the latter are included in the lease price or it is impossible to determine the amount of costs accrued in
Lease liabilities
Upon initial recognition, the Group measures lease liabilities at the present value of future lease payments on the day of recognition. Lease payments are discounted at the interest rate implicit in a lease if that rate can be determined, otherwise the Group applies the incremental borrowing rate that it would have to pay if it acquired an asset with a similar value as a right-of-use asset for a similar period, based on a similar guarantee in a similar economic environment.
Following initial recognition, the Group measures the aforementioned liability such that its carrying amount is:
increased by the amount of interest on a lease;
decreased by the amount of lease payments; and
increased or decreased, such that the amount of the liability is restated to the remeasured or amended lease.
Due to the situation caused by the COVID-19 pandemic, the Group applies the practical solution not to assess whether a change to lease payments that meet the conditions given below is a change in a lease. Those conditions are:
the result of a change in lease payments is a change in consideration for a lease that is almost equal to or less than the consideration for a lease immediately prior to that change;
the reduction in lease payments only affects payments that would originally fall due on or before 30 June 2021 (i.e. an adjustment to lease payments would meet this condition if it caused a reduction in lease payments on or before 30 June 2021 and an increase in lease payments after 30 June 2021); and
there is no material change in other lease conditions.
Leases in which the Group assumes all the material risks and rewards incidental to the ownership of an asset are treated as finance leases. After initial recognition, a leased asset is disclosed at the lower of its fair value or the present value of minimum lease payments. Following initial recognition, assets under finance leases are depreciated in the same manner as other items of property, plant and equipment. The Group recognises short-term leasing costs on a straight-line basis in the income statement.
Sale and leaseback transactions
In sale and leaseback transactions in which it acts as seller, i.e. lessee, the Group measures a right-of-use asset proportionately with that part of the previous carrying amount of the right-of-use asset that it has kept. Accordingly, it only recognises the amount of gains or losses that relate to the rights that were transferred by the buyer, i.e. lessor. Such gains are recognised in other operating revenues.
Group as lessor
As lessor, the Group recognises lease payments from operating leases in operating revenues on a straight-line basis over the lease term.
The Group discloses assets that it leases in the statement of financial position with regard to the nature of an asset that is the subject of a lease.
e) Investment property
Investment property is property purchased to generate rental revenues and/or increase the value of non-current investments.
The Group classifies a specific item of real estate as investment property when more than 30% of the total surface area of that real estate is leased. That proportion of real estate that is leased out is classified as investment property; the remainder is disclosed under property, plant and equipment.
The Group measures investment property using the historical cost model, i.e. at historical cost less accumulated depreciation and any impairment. The straight-line depreciation method is used. The same depreciation rates used for property, plant and equipment are applied to investment property.
When compiling the annual financial statements, the Group assesses whether there are signs indicating the need to impair investment property. Indication of the need to impair investment property is given when losses exceed gains from the sale of investment property.
f) Financial assets
Financial assets comprise cash and cash equivalents, receivables, loans and investments. The Group’s financial assets include investments in equity instruments. The Group initially recognises loans, receivables and deposits at fair value on the transaction date. Other financial assets are initially recognised on the trade date, i.e. when the Group becomes party to the instrument’s contractual provisions.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or the rights to receive contractual cash flows from the financial asset are transferred in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
At the time of initial recognition, financial instruments are classified to one of the following categories: financial assets measured at amortised cost, financial assets measured at fair value through other comprehensive income and financial assets measured at fair value through profit or loss. The classification of financial instruments at the time of initial recognition depends on the characteristics of contractual cash flows and the business model that the Group uses to manage them (purpose). With the exception of operating receivables that do not contain a significant financing arrangement, the Group measures financial assets at the time of initial recognition at fair value which, for financial assets that are not recognised at fair value through profit or loss, is increased by transaction costs. Operating receivables that do not contain a significant financing arrangement are measured at the transaction price, which is determined in accordance with IFRS 15.
The Group’s business model for managing financial assets defines how the Group manages its financial assets to ensure cash flows. That business model determines whether cash flows are the result of the collection of contractual cash flows, the sale of financial assets or both. If an equity instrument is not held for trading, the Group can make an irrevocable decision upon initial recognition to measure that asset at fair value through other comprehensive income. Other equity instruments for which the aforementioned irrevocable decision is not made are measured at fair value through profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, cash on bank accounts, sight deposits and short-term deposits at banks with a maturity of three months or less.
The Group uses the reference exchange rates of the European Central Bank (ECB) published by the Bank of Slovenia (as summarised from the ECB’s exchange rates, except for those currencies for which the ECB does not publish daily reference exchange rates and for which monthly exchange rates are taken into account), to convert cash and cash equivalents denominated in foreign currencies. Exchange rate differences are disclosed as finance costs or finance income.
Financial assets at amortised cost
For classification to the category of financial assets at amortised cost, the Group’s primary objective is to collect the contractual cash flows based on a financial instrument that are solely payments of interest and principal. This category includes trade receivables and loans for which the repayment of principal and interest is expected at maturity. The following are important in that regard:
recognition at amortised cost;
initial recognition at fair value plus direct transaction costs;
measurement at amortised cost using the effective interest method, less any impairment losses, following initial recognition; and
translation of trade receivables denominated in foreign currencies into the functional currency on the statement of financial position date. The reference exchange rates of the ECB published by the Bank of Slovenia (as summarised from the ECB’s exchange rates, except for those currencies for which the ECB does not publish daily reference exchange rates and for which monthly exchange rates are taken into account), are used to convert receivables denominated in foreign currencies.
Financial assets at fair value through other comprehensive income
Equity instruments that are listed on a regulated market are classified as financial assets measured at fair value through other comprehensive income. The following are important in that regard:
measurement at fair value; and
recognition of positive and negative (until impairment) effects in fair value reserves.
Impairment of financial assets
Impairment of trade receivables
The assessment of the impairment of financial assets disclosed at amortised cost is based on expected credit losses associated with the probability of default of receivables and loans over the entire life of a financial asset. The Group impairs financial assets in the form of a value adjustment. It recognises the write-off of a financial asset when it justifiably expects that it will not collect contractual cash flows.
The Group applies a simplified approach for trade receivables and default interest where, based on past experiences regarding defaulted receivables and estimates for the future, it creates a provision matrix with impairment percentages by maturity interval. The expected loss model takes into account the projected inflation rate in the year that follows the year for which the impairment was calculated. The projected inflation rate is determined according to the forecast of the Institute of Macroeconomic Analysis and Development.
The Group impairs receivables that are subject to legal actions, enforcement or bankruptcy proceedings, registered in compulsory composition proceedings prior to publication of confirmation thereof or in recovery proceedings via specialised institutions, or that are deemed doubtful based on other objective reasons, generally in 100% of their value, except where the law permits a reduction in liabilities for calculated and unpaid value added tax. Impairments are reduced for that amount.
Impairment of loans granted and deposits
The Group impairs loans granted and deposits based on the management’s assessment of their irrecoverability.
When assessing the impairment of loans granted, the Group assesses evidence of impairment for each loan separately. If it assesses that the carrying amount of a loan exceeds its fair value (i.e. its realisable value), the Group impairs that loan. The assessment of impairment is based on expected credit losses in connection with the probability of loan default over the next 12 months, unless credit risk has risen significantly since initial recognition. In such cases, the assessment of impairment is based on the probability of default over the entire life of the financial asset in question. Expected credit losses comprise the difference between contractual cash flows that have fallen due according to the relevant contract and all cash flows that the Group expects to receive. Expected cash flows will also include cash flows from the sale of a collateralised asset.
The Group assesses impairments for expected credit losses in two steps. For credit exposures for which there has been no significant increase in credit risk since initial recognition, impairments for expected credit losses are recognised for credit losses resulting from potential defaults over the next 12 months. For those