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5.4 INTRODUCTORY NOTES AND ACCOUNTING POLICIES

5.4.1 Reporting entity

Pošta Slovenije is a limited liability company established in Slovenia where it operates, and is the controlling company of the Pošta Slovenije Group. Its registered office is at Slomškov trg 10, 2000 Maribor. The Republic of Slovenia holds a 100% participating interest in the Company.

The financial statements have been compiled for the financial year ending 31 December 2020.

The financial statements are compiled under the assumption of a going concern.

As the controlling company, Pošta Slovenije compiles consolidated financial statements as part of the same annual report.

The key area of the Company’s operations and its principal activity is the provision of universal postal services, while other postal and courier services, IT services, logistics and financial services and the sale of merchandise also play an important role at the Company.

5.4.2 Basis of preparation

a)Statement of compliance

The Executive Management approved the financial statements of Pošta Slovenije on 24 May 2021.

The Company’s financial statements 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 (hereinafter: the 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 Company.

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);

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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 initial 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 improvements to the IFRS (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 Company does not expect the introduction of these new standards and amendments to existing standards to have a material impact on its 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 Company 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 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, and an assessment of the possibility of applying deferred tax assets. Despite the fact that the Company’s Executive Management 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. Revisions to accounting estimates are recognised in the period in which the estimate is revised, and in all future years affected by the revision.

At least once a year, the Company checks for signs of impairment for individual cash-generating units.

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 Company takes into account expected physical wear, technical and economic obsolescence, and expected legal and other restrictions on use. The Company verifies the useful life of material assets and determines whether a change has occurred in circumstances that would require a change in that useful life.

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 Company 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 Company’s plans (operational and strategic) also represent the basis for defining the lease term. Given the above, the Company 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 Company 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 Company deems a specific item of real estate to generate cash flows as a whole, depending on other items of real estate. The 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. The Company has a network of postal units in place for the provision of universal postal services as defined by the Postal Services Act. The Company may not restrict individual units, as this would affect the link between those units and thus hinder the provision of services or their ability to ensure the requisite quality of services. For this reason, the 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 Company 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

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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 Company 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 Company’s Executive Management 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.

Assessment of the possibility of applying deferred tax assets

The Company creates deferred tax assets in connection with the creation of provisions for jubilee benefits and retirement benefits, the impairment of financial assets, and the impairment of receivables.

As at the date of the completion of financial statements, the Company verifies the amount of disclosed deferred tax assets. 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.

Testing for impairment of inventories

The Company assesses the net realisable value of inventories each year, and if that value is lower than its carrying amount it is impaired.

c) Basis of measurement

The financial statements have been compiled on an historical cost basis, except for financial 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 Company. 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.

5.4.3 Significant accounting policies

Accounting policies and calculation methods are set out in accounting rules and accounting policies, and are the same as those applied in the previous annual reporting cycle.

a) Intangible assets

Intangible assets acquired by the Company 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 Company reduces the carrying amount to the recoverable amount. The net value in use is deemed the recoverable value. The Company estimates net value in use based on future cash flows. That reduction represents an impairment loss that the Company 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 10% to 33.3%

from 10% to 33.3%

- licences

from 10% to 20%

from 10% to 20%

- software

33.3%

33.3%

The useful lives of assets are reviewed annually and adjusted as required.

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b) 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 Company 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 in 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 Company, 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.

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The following estimated rates are used to calculate depreciation:

Type of asset

Year 2020

Year 2019

Postal buildings and housing

from 2% to 5%

from 2% to 5%

- buildings, work, holiday apartments

from 1% to 2%

from 1% to 2%

- parts of buildings (facades, roofs, fittings and fixtures)

3.3%

3.3%

- parts of buildings (heating, cooling and ventilation systems)

5%

5%

Mail sorting and logistic centre buildings

2%

2%

Parking lot

2%

2%

Equipment for performance of activities

from 4% to 33.3%

from 4% to 33.3%

- security room

4%

4%

- server room

6.6%

6.6%

- 24/7 kiosks

5%

5%

- investments in foreign fixed assets

10%

10%

- letter sorters

16.7%

16.7%

- radio communication equipment

33%

33%

Transportation equipment

from 12.5% to 50%

from 12.5% to 50%

- cars (new and used)

from 12.5% to 50%

from 12.5% to 50%

- LDVs and electric vehicles

20%

20%

- MDVs (new and used)

from 14.3% to 33.3%

from 14.3% to 33.3%

- freight vehicles and cargo trailers

12.5%

12.5%

- forklifts and handcarts

12.5%

12.5%

- bicycles and scooters

25%

25%

- motorised HIP HOP bicycle

40%

40%

Computer equipment

from 33.3% to 50%

from 33.3% to 50%

- work stations, computer equipment, printers, telephones, etc.

33.3%

33.3%

- data centres

50%

50%

The useful lives of assets are reviewed annually and adjusted as required.

c) Leases

Company as lessee

Right-of-use assets under leases

Upon initial recognition, the Company measures a right-of-use asset at 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 Company measures such assets using the cost model, less accumulated depreciation and any accumulated impairment loss, corrected for the remeasurement of the lease liability.

The Company 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

The majority of lease contracts for real estate are concluded for an indefinite period. For the purpose of accounting for lease contracts, the Company set a lease term that best reflects the period for which it is highly likely that the contractual termination option will not be exercised. The Company’s plans (operational and strategic) also represent the basis for defining the lease term. Given the above, the Company 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.

Lease payments are discounted at the interest rate implicit in a lease if that rate can be readily determined. If the aforementioned interest rate cannot be determined, the Company applies its incremental borrowing rate, which must reflect the incremental borrowing rate with a similar guarantee and in an economic environment similar to the lease contract. The interest rate takes into account the lessee’s credit rating, the nature and quality of collateral provided and the economic environment in which a transaction is concluded. The Company also performed a simulation of the effects on the financial statements in the event of a change in the interest rate of +/- 0.5 basis points, and determined that those effects are negligible.

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Lease liabilities

Upon initial recognition, the Company 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 it 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 Company 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.

Leases in which the Company 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 Company recognises short-term leasing costs on a straight-line basis in the income statement.

Company as lessor

As lessor, the Company recognises lease payments from operating leases in operating revenues on a straight-line basis over the lease term.

The Company 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.

d) Investment property

Investment property is property purchased to generate rental revenues and/or increase the value of non-current investments.

A specific item of real estate is classified 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 Company 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 Company 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.

e) Investments in subsidiaries and associates

Investments in subsidiaries are accounted for at historical cost. The Company recognises revenues from financial assets in the amount it receives from the distribution of company’s profits that accumulated following the date of acquisition of a particular financial asset. If the impairment of an investment is required due to losses generated by a subsidiary, the amount of that impairment loss is measured as the difference between the carrying amount of the investment and the present value of expected cash flows.

The Company initially recognises investments in associates at historical cost.

f) Financial assets

Financial assets comprise cash and cash equivalents, receivables, loans and investments. The Company’s financial assets include investments in equity instruments. The Company 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 Company becomes party to the instrument’s contractual provisions.

The Company 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 Company uses to manage them (purpose). With the exception of operating receivables that do not contain a significant financing arrangement, the Company 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 Company’s business model for managing financial assets defines how the Company 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.

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.

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The Company 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 Company’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 and loans granted

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 Company 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 Company 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. Expected credit losses are determined separately for domestic trade receivables, foreign trade receivables and domestic receivables for default interest. The percentages of expected credit losses were as follows as at 31 December 2020:

Percentages of expected credit losses for domestic trade receivables and default interest

in %

31. 12. 2020

31. 12. 2019

Non-past-due receivables

0.39%

0.62%

Past-due receivables:

- up to 30 days

3.56%

6.50%

- from 31 to 60 days

8.85%

14.38%

- from 61 to 90 days

14.72%

25.37%

- from 91 to 180 days

34.21%

48.83%

- from 181 to 365 days

100.00%

100.00%

- more than 365 days

100.00%

100.00%

On the basis of the impairment of receivables’ model the percentage of expected credit losses for domestic trade receivables and default interest given their high recoverability rate until the end of 2020, despite the COVID-19 effect, improved significantly relative to the previous year.

Percentages of expected credit losses for foreign trade receivables

in %

31. 12. 2020

31. 12. 2019

Non-past-due receivables

0.49%

0.97%

Past-due receivables:

- up to 30 days

0.71%

1.44%

- from 31 to 60 days

0.81%

1.76%

- from 61 to 90 days

0.86%

1.88%

- from 91 to 180 days

1.94%

3.35%

- from 181 to 365 days

6.45%

7.37%

- from 366 to 730 days

68.02%

100.00%

- more than 730 days

100.00%

100.00%

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On the basis of the impairment of receivables’ model the percentage of expected credit losses for foreign trade receivables, which relate primarily to international invoicing for postal services, given their high recoverability rate until the end of 2020, despite the COVID-19 effect, improved significantly relative to the previous year.

Based on its internal methodology, the Company also impairs loans to employees and loans to subsidiaries.

g) Other non-current assets

The Company discloses prepaid costs from the housing reserve fund in other non-current assets.

h) Assets held for sale

Non-current assets for which it can be justifiably expected that the carrying amount will be settled by sale and not by continued use are classified as assets held for sale. The Company stops depreciating assets that meet the criteria for this classification and measures them at the lower of their carrying amount or fair value less costs to sell.

The following criteria must be met for classification of assets to non-current assets held for sale:

the assets must be available for immediate sale;

the sale must be highly likely;

the Executive Management must adopt a sales plan and the assets must be actively sold at a reasonable price with regard to their fair value. The probability of a significant change to the sales plan or the termination of sales-related activities must be minimal; and

the sale is expected to be completed within one year.

The reasons for classifying real estate as assets held for sale include: the relocation of a post office, the transformation of a post office into a mobile post office or another form, or its closure, land not required for the Company’s core activity, empty business premises following the termination of a rental agreement and empty apartments that employees are not interested in renting.

Assets for which the conditions are no longer met must be reclassified to fixed assets or to another asset category (e.g. investment property), In such cases, assets must be measured at the lower of:

the carrying amount prior to reclassification to non-current assets held for sale, less depreciation that would have been recognised if the asset had not been reclassified, in which case all retroactively calculated depreciation is charged to the current financial year’s operating results; and

the recoverable amount on the day of reclassification from non-current assets held for sale back to fixed assets.

i) Assets from contracts with customers

Assets from contracts with customers represent the right to consideration for the exchange of goods or services that have been transferred to a customer. The Company discloses in assets from contracts with customers services not yet invoiced to postal operators (international invoicing) that were rendered during the year for which financial statements are compiled, and that will not be charged until it receives a confirmed annual statement of transactions from a foreign postal operator and reconciles prices.

At the end of the financial year, expected receivables from foreign operators, which serve as the basis for accruing revenues, are calculated based on issued quarterly statements of account. Because these are accrued revenues for which the Company does not have the right to issue invoices until the reconciliation of statements of account, the balance of contract assets in the statement of financial position as at the reporting date is impaired using the percentage of expected defaults that applies to foreign trade receivables that have not fallen due for payment.

j) Inventories of material and merchandise

Inventories are valued at the lower of historical cost and net realisable value. Net realisable value is determined according to the sales value as at the reporting date, less selling costs and other general costs typically associated with a sale.

An inventory unit of material or merchandise is valued at historical cost, comprising the purchase price, import duties and direct purchase costs. The purchase price is reduced by any discounts received. The moving average price method is used to disclose inventories.

Inventories of material and merchandise represent a negligible proportion of total assets. Inventories are not revalued due to increases in value, but are revalued due to impairment if their carrying amount exceeds their net recoverable amount. Impairment amounts are recorded in revaluation operating expenses for working capital. Inventories are revalued at the end of the financial year following a review of changes thereto.

The carrying amounts of inventories of significant value are in line with their recoverable amount.

k) Advances and other assets

Advances and other assets comprise advances (except advances paid for fixed assets covered in fixed assets) and security deposits paid and current deferred costs.

l) Equity

Total shareholder equity comprises called-up (share) capital, the share premium account, legal reserves, the fair value reserve, net profit or loss brought forward and net profit or loss for the financial year.

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The share premium account comprises amounts from the reversal of the general capital revaluation adjustment in accordance with the ZGD-1.

Legal reserves comprise amounts retained from profits in accordance with the ZGD-1. They are recognised by the body responsible for compiling the annual report when they arise.

The Company recognises fair value reserves due to the valuation of non-current and current financial instruments at fair value through comprehensive income. Also disclosed in these reserves are actuarial gains and losses, and deferred tax from non-current employee benefits (severance pay).

m) Provisions

Provisions are recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The Company creates provisions for severance pay at retirement, loyalty bonuses and other provisions (lawsuits).

Provisions for severance pay and loyalty bonuses are created in the amount of estimated future payments, discounted on the reporting date. They are created on the basis of an actuarial calculation using the number of employees and the amount of loyalty bonuses to which employees are entitled and subsequent severance pay at retirement. Provisions of this kind are created on the basis of calculations by an authorised actuary.

Provisions for severance pay and loyalty bonuses are based on an actuarial calculation (using the Projected Unit Credit method), taking into account the following:

the Pension and Disability Insurance Act;

mortality and disability rates;

the probability of retirement;

the probability of employee turnover (a turnover rate of 7.5% for employees up to 40 years of age, a turnover rate of 3.75% for employees between the ages of 41 and 50 and a turnover rate of 1.75% for employees more than 51 years of age);

a discount rate of 0.3475%;

wage growth in the Republic of Slovenia of 2.5% and wage growth at the Company of 2%, and growth of 1% in the lowest wages under Pošta Slovenije’s collective agreement;

an employer contribution rate of 16.1% (for payments exceeding the amounts defined by the Decree on the Reimbursement of Work-Related Expenses and Other Employment Earnings); and

growth in the amounts set out in the aforementioned decree of 0.25%.

Unrealised actuarial gains or losses for severance pay in the current year are recognised in equity, while the costs of current service and interest are disclosed in the income statement. The costs of current service and interest, as well as actuarial gains and losses associated with loyalty bonuses are likewise disclosed in the income statement.

The Company creates provisions for potential liabilities arising from economic disputes and civil suits, and for labour disputes. It verifies the justification of created provisions every year taking into account the status of a dispute and the likelihood of a favourable or unfavourable resolution thereof. The amount of provisions for lawsuits is determined with regard to the amount of a claim for damages, or estimated by the Legal Affairs Department with regard to the expected amount (if the actual amount of the claim is unknown).

n) Deferred revenues

The majority of the Company’s deferred revenues comprise deferred revenues in connection with received and unused financial assets for the implementation of projects.

o) Financial and operating liabilities

At the time of initial recognition, financial liabilities are classified as financial liabilities at fair value through profit or loss, loans received and operating liabilities. Financial liabilities are initially recognised on the date when the Company becomes a contractual party in connection with the instrument in question. Except for loans received, all financial liabilities are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest rate. In terms of maturity, they are classified as current financial liabilities (maturity of up to 12 months following the statement of financial position date) or non-current financial liabilities (maturity exceeding 12 months following the statement of financial position date). All gains and losses are recognised in the income statement when a financial liability is derecognised and taking into account the depreciation of the effective interest rate. The Company derecognises a financial liability when the commitments stipulated in the contract have been discharged, have been cancelled or have expired.

The Company has no financial liabilities at fair value through profit or loss.

The Company discloses liabilities from bank loans and liabilities from leases in non-current financial liabilities. The current portion of those liabilities is disclosed in current financial liabilities.

The Company discloses liabilities for the payment of the variable component of the wages of management staff and liabilities to employees who were reassigned from Pošta Slovenije to the subsidiary IPPS in non-current operating liabilities.

p) Liabilities from contracts with customers

Liabilities from contracts with customers represent the obligation to transfer goods or services to a customer in exchange for the

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consideration that the Company has received from a customer. The Company discloses advances and security deposits received in liabilities from contracts with customers. Contract liabilities are recognised as revenue when the Company fulfils its performance obligation.

q) Other liabilities

Other liabilities include current deferred revenues and accrued costs. The latter primarily relate to international invoicing costs and the costs of unused annual leave.

r) Contingent assets and liabilities

Contingent assets and liabilities are all contingent receivables and liabilities that could affect the Company’s future operating results due to repayment or settlement, and that cannot be included in the statement of financial position because the conditions for such disclosure have not been met.

These items primarily include received performance guarantees, guarantees from the providers of exchange postal services and specific business customers, and other bank guarantees (customs and other guarantees).

The value of contingent assets and liabilities is verified at least once a year during the regular inventory of the Company’s assets or when the annual accounts are compiled.

s) Revenues from contracts with customers

The Company recognises revenues from contracts with customers when it transfers control over goods or services in an amount that reflects the consideration for those goods or services that it believes it is entitled to. Revenues from contracts with customers are recognised at the fair value of consideration received or the relevant amount of a receivable, less refunds, discounts, rebates and quantity discounts.

Revenues from the sale of merchandise are recognised when control over the merchandise sold is transferred, i.e. when a customer accepts the merchandise or the Company delivers the merchandise to a customer.

To assess whether it has transferred control over an asset to a customer, the Company takes into account indications of the transfer of control that include, inter alia, the following:

A company has