Turning point in postal services Iceland Post plays an important role in connecting people, companies and communities through the dissemination of important information, data and goods to all Icelanders and their customers wherever they are in the country. Iceland Post employees handle hundreds of thousands of postal items every day, and the quality of the service is among the best known. Their input, therefore, is extremely important for both Iceland Post and its customers. In addition, Iceland Post is in reliable partnership with postal companies all over the world, based on, in most cases, decades of co-operation and comprehensive distribution networks almost everywhere in the world, wherever people can be found. The change in communication of individuals and companies has completely altered postal markets throughout the western hemisphere. This change has had a significant impact on the operation of postal companies, particularly those that have a legal obligation to provide statutory universal services that reach all the residents and companies of each country. Despite legislative changes, the obligation to provide universal services is a constraint on most postal companies and prevents them from being able to arrange their operation as efficiently as possible. This obligation places financial burdens on postal companies, as without it, such burdens would not exist. Iceland Post hired Copenhagen Economics consultants to prepare a report on the estimated cost of postal services in Iceland. The company submitted its exhaustive report to Iceland Post last spring, and it contains, among other things, an assessment of the scope of the financial burden, i.e. universal service net cost. The method used by the company is well known internationally and fulfils requirements for the calculation of universal service net cost, put forward in the Annex to the EU Postal Directive, which postal services in Iceland are under obligation to fulfil. The calculations of Copenhagen Economics are based on the figures from the cost accounting of Iceland Post for 2016. These show that the basic operations of the company returned a profit of ISK 770m in 2016. Approximately ISK 650m of that amount was used to subsidise statutory postal services. Such disposal of profits works against the basic interests of the company. It limits the flexibility of management to make important operational decisions, such as regarding necessary development of operations; the wages and terms of employees, particularly those with the lowest salaries, where there is a need for significant changes; and the possibility of reducing the price of goods and services, both those bound by exclusive rights and those that are offered in the competitive market. The current 38
arrangement of universal service funding has led to the imminent insolvency of Iceland Post should there be no changes to its service obligations. Managers of limited liability companies cannot endure such circumstances given that it contravenes their duties according to the provisions of the Act on Limited Liability Companies. Iceland Post expects that the Copenhagen Economics report can be of use in the formulation of the future arrangement of postal services in Iceland where account is taken of the net cost of statutory services. In addition, Iceland Post expects that the report may be useful in assessing how to finance the costs of statutory services which cannot be met by income from the users of the services, so that the OECD guidelines on the governance of publicly owned companies are met. The report clearly states that the authorities have four options to choose from to reduce the onerous effects of universal service obligations on postal companies: 1) Public procurement of postal services, 2) Limiting the scope of universal service obligations, 3) Increased pricing flexibility and 4) Direct financing of the universal service net cost. The base operation of Iceland Post, according to the above calculations of the universal service net cost, taking into account the volume decline of addressed letters under the exclusice right, returned a profit of ISK 607m in 2018. The net cost of the company of providing statutory universal services, which did not return adequate income, amounted to ISK 900m that year, and the loss of the company according to its 2018 annual financial statements was ISK 293m. Using the same methodology for calculating costs for the period 2013–2018, Iceland Post has covered from its revenue, net costs amounting to a total of ISK 3.500m. The financial results of Iceland Post were different from what was aimed for in 2018. The main criteria for the annual budget were met – except that the price increase for letters within the exclusive right necessary to meet universal service obligations did not go forth as planned and there was a 14% decrease in the number of letters within the exclusive right. Proportionately, this was a doubling of the anticipated volume decline between years. This led to an ISK 517m lower income than the year before. In addition, the income from outbound international letters and parcels fell by ISK 129m between years. There was, therefore, loss in the operation of Iceland Post amounting to ISK 293m in 2018 instead of an ISK 201m profit as forecast in the budget. On 23 October 2018, the Minister of Transport introduced a bill for new legislation on postal services. The current legislation was passed in
2002, and in light of the changes that have occurred in the operating environment of postal services over the past 15 years, it is vital that the legislation is updated and harmonized with the third postal directive of the EU from 2008. This entails, inter alia, the abolishment of the state’s exclusive right to the distribution of addressed letters weighing less than 50 g. In addition, the bill creates the possibility of financing the net cost of statutory postal services. This is a vital improvement which should ensure postal operators fair payment for services provided. It appears, however, that it is necessary for the bill to clearly stipulate, the obligation of the state to enter into service agreements for that part of the postal service that is not provided on market terms, as it is uncertain whether a postal operator would endure the foreseeably long procedural process before a decision is made on the method for funding the net cost that the text of the bill provides for. It is important that new legislation on postal services is passed during the 2019 spring session of the Parliament so that such legislation can enter into force as of the beginning of 2020 as aimed for.
Iceland Post celebrated its 20th anniversary at the beginning of 2018, as it was established as a public limited liability company on 1 January 1998. Over the years, the staff of Iceland Post have tackled demanding operations with great interest and gusto. During 2018, as before the operational factors managed by the Iceland Post staff were successful in all principal respects. The implementation of various cost saving projects for the benefit of the company’s customers have, moreover, been a success. The Board and Management of Iceland Post have focused on equal rights issues within the company. At the beginning of the year, the equal pay policy of Iceland Post was revised, restating the goal that women and men are to enjoy the same terms for equally valuable or comparable work. Also reiterated was that employees may not be discriminated against on the basis of unjustified criteria. Iceland Post received equal pay certification in 2018, confirming that the company’s determination of wages meets the requirements of wage equality in the workplace. Iceland Post had previously been awarded PwC’s gold medal in the company’s equal pay audit.
It is vital that clear rules are established on the arrangement of postal services after the abolishment of exclusive rights. The state’s exclusive rights to the distribution of addressed letters weighing up to 50 g is based on the premise that the income from exclusive rights is intended to cover the cost of other services that the designated operator provides only on the basis of universal services obligation and which are not economical to provide on business terms. On the abolishment of exclusive rights, it must be clear how the authorities are going to ensure postal services, which logistics companies do not have business reasons to undertake, how the pricing of such services will be arranged and how to cover the cost of providing the services according to law. In the same manner, it is necessary to co-ordinate rules and supervision relating to postal services and logistics, in order to counteract the discrimination currently in place depending on whether a company is defined as a postal company or a logistics company.
Milestones in the operation of postal services are ahead with the entry into force of new postal legislation. Changed external conditions create new opportunities, and Iceland Post is well-prepared to take advantage of them. Ahead are numerous interesting projects, with the ultimate goal of further strengthening services to customers, improving the working conditions of employees and securing the operating basis of Iceland Post for the future. Iceland Post’s employees are now, as ever, ready to tackle new and demanding tasks, knowing that their contribution is extremely important. As I thank them all for their hard work during the year under challenging circumstances, I would, at the same time, like to thank, on behalf of the employees of Iceland Post, our customers for their loyalty and good relations. We pledge, that the employees of Iceland Post will hereafter, as before, pour all their efforts into providing our customers with reliable and good services.
The backbone of the operation of Iceland Post is its delivery network, which is based on its reliability and speed. The delivery network is decreasingly supported by letters and increasingly by packages. The number of addressed letters has decreased by 67% since 2000, while at the same time, the number of homes and companies, and thereby mailboxes, has increased considerably. Thus, the cost of the delivery network increases at the same time as such cost is divided among ever fewer letters if it were not for other aspects involved, such as the increase in the number of packages and economisation in operations.
Ingimundur Sigurpálsson, Managing Director & CEO
39
CONSOLIDATED FINANCIAL STATEMENTS*
*These consolidated financial statements are translated from the original which is in Icelandic. Should there be discrepancies between the two versions, the Icelandic version will take priority over the translated version.
40
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Endorsement and statement by the Board of Directors and the Managing Director
ENDORSEMENT AND STATEMENT BY THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR Operations in 2018 The consolidated financial statements include the financial statements of Íslandspóstur ohf. and its subsidiaries, Trönur ehf., Samskipti ehf., Frakt flutningsmiðlun ehf. and Gagnageymslan ehf. The Group's loss for the year amounted to ISK 292,7 million according to the income statement. Equity as at December 31, 2018 amounted to ISK 2.237 million according to the balance sheet. The Company's share capital as at December 31, 2018 amounted to ISK 1.448 million and is wholly owned by the Icelandic State. Over the past years the volume of letters within the exclusive right has decreased significantly. This development is expected to continue in coming years. At the same time the quantity of parcels from abroad has materially increased but due to international agreements, which the Company is bound by, the revenue generated by this service has not been sufficient to offset related costs and necessary investment associated with these services. As a result revenue from letters within the exclusive right has not been sufficient to cover cost relating to the universal service obligation. The Company is operated at a loss and its liquidity has decreased significantly. It is essential that a new postal legislation, which a bill has been presented to the parliament, will include the possibility of funding of the universal service obligation to the extent that the cost is not met by revenue for the service provided in line with the requirement set forth in the legislation. Without any change to the liquidity under current condition the Company would not be able to meet its financial conditions on their due dates in upcoming months. The Board of Directors was of the opinion, taking into consideration current situation, that new financing of the Company would have to be secured. In a shareholders meeting, held on the 6th of March 2019 the Board of Directors was granted authorisation to propose a share increase of up to ISK 1.500 million. Corporate governance The Board of Directors of Íslandspóstur endeavours to maintain good corporate governance in line with the Guidelines on Corporate Governance issued by the Icelandic Chamber of Commerce in collaboration with the Confederation of Icelandic Employers and Nasdaq OMX Iceland. The Board of Directors operates on the basis of the State‘s ownership policy for public limited companies, the Company's Articles of Association and the Board of Directors' operating procedures. The procedures include among other things definition of the competences and division of tasks between the Directors of the Board, provisions on the qualification of the Directors of the Board, confidentiality rules and more. The Board of Directors consists of four male and one female board members. In August 2018 an alternate board member replaced an existing board member resulting in a change of the sex ratio. Prior to the change the Board of Directors consisted of three male and two female board members. The alternate board consists of two female and two male members. Statement by the Board of Directors and the Managing Director The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. According to the best of our knowledge, it is our opinion that the consolidated financial statements give a true and fair view of the consolidated financial performance of the Group for the year 2018, its assets, liabilities and financial position as at December 31, 2018 and its consolidated cash flows for the financial year 2018. Further, in our opinion the consolidated financial statements and the Endorsement of the Board of Directors and the Managing Director gives a fair view of the development and performance of the Group's operations and its position and describes the principal risks and uncertainties faced by the Group. The Board of Directors and the Managing Director of Íslandspóstur ohf. have today discussed the Company's consolidated financial statements for the year 2018 and confirm them by means of their signatures. The Board of Directors and the Managing Director recommend that the consolidated financial statements be approved at the annual general meeting of Íslandspóstur ohf. Reykjavik, 11th of March, 2019. The Board of Directors: Bjarni Jónsson, Svanhildur Hólm Valsdóttir Thomas Möller, Halldór Gunnarsson, Eiríkur Haukur Hauksson Managing Director: Ingimundur Sigurpálsson
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
3
_______________________________________________________
41
Independent auditor´s report
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Íslandspóstur ohf. Opinion We have audited the accompanying consolidated financial statements of Íslandspóstur ohf. and its subsidiaries („the Group“) for the year 2018. The financial statement comprise the endorsement and statement by the Board of Directors and the Managing Director, the balance sheet, the income statement, statement of changes in equity, statement of cash flows, notes to the financial statements including a summary of significant accounting policies. We confirm that to the best of our knowledge, the report of the Board of Directors accompanying the consolidated financial statements includes the information required by the Financial Statement Act if not disclosed elsewhere in the financial statements. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2018, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of Íslandspóstur ohf. and have fulfilled the requirements of the Code of ethics for auditors in Iceland. We believe that the audit evidence we have obtained during our audit is sufficient and appropriate to provide a basis for our opinion. Responsibilities of the Board of Directors and CEO for the Consolidated Financial Statements The Board of Directors and CEO are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs as adopted by the EU. The Board of Directors and CEO are also responsible for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing Íslandspóstur ohf. ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responible for overseeing the Íslandspóstur ohf. financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. Our audit is in accordance with ISAs and is based on professional judgement and professional scepticism. We also: •
42
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, misrepresentations, intentional omissions, or the override of internal control.
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
4
_______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Independent auditor´s report, cont.
INDEPENDENT AUDITOR'S REPORT, CONT. •
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
•
Evaluate on an overall basis whether the consolidated financial statements give a true and fair view of the underlying transactions and events, evaluate the presentation, structure and content of the consolidated financial statements, including disclosures with regard to fair presentation.
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with The Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we may identify during our audit.
Reykjavik, 11th of March, 2019. The National Audit Office of Iceland: Skúli Eggert Þórðarson Auditor General Óskar Sverrisson Auditor CPA
43
Income statement for the year 2018
INCOME STATEMENT FOR THE YEAR 2018 2018
2017
Postal services ................................................................................
6.711.999
7.472.188
Other revenue .................................................................................
2.016.865
1.722.224
8.728.864
9.194.412
OPERATING REVENUE
Notes
4
OPERATING EXPENSES 5.640.625
5.420.566
Direct cost postal distribution ..........................................................
1.240.337
1.323.186
Other operating expenses ...............................................................
1.776.921
1.691.735
8.657.883
8.435.487
70.981
758.925
( 414.541)
( 407.778)
( 343.560)
351.147
Salaries and related expenses ........................................................
5
EBITDA ........................................................................................... Depreciation ....................................................................................
8
EBIT ............................................................................................... Finance income ..............................................................................
174.382
32.282
Finance expenses ...........................................................................
( 195.599)
( 150.615)
( 21.217)
( 118.333)
Net finance expenses ......................................................................
7
( 364.777)
232.814
72.122
( 16.415)
( 292.655)
216.399
Owners of the Company .................................................................
( 287.485)
211.684
Non-controlling interests .................................................................
( 5.170)
4.715
Total comprehensive (loss) profit for the year .................................
( 292.655)
216.399
(Loss) profit before income tax ........................................................ Income tax ......................................................................................
18
Comprehensive (loss) profit for the year...........................................................
TOTAL COMPREHENSIVE PROFIT (LOSS) ATTRIBUTABLE TO:
(LOSS) EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE (Loss) earnings and diluted earnings per share on each ISK 1 share ......................................
16
( 0,20)
0,15
Notes no. 1-28 are an intergral part of these Consolidated Financial Statement
Amount are in ISK thousand
44
Consolidated Financial Statements of ร slandspรณstur ohf. 2018 _______________________________________________________
Notes no. 1-28 are an integral part of these Consolidated Financial Statement
6
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Balance sheet December 31, 2018
BALANCE SHEET DECEMBER 31, 2018 ASSETS
2018
2017
8
4.130.539
3.393.425
9
79.883
82.404
Long term receivables .....................................................................
10
752.012
744.455
Bonds .............................................................................................
11
2.393
5.207
Deferred tax asset ...........................................................................
18
70.340
0
5.035.167
4.225.491
Notes
Property, plant and equipment ........................................................ Investment in other companies .......................................................
NON-CURRENT ASSETS Inventories ......................................................................................
12
177.842
180.038
Accounts receivable and other receivables .....................................
13
938.582
1.038.000
Cash and cash equivalents .............................................................
14
198.478
215.076
Assets held for sale ........................................................................
15
0
7.798
CURRENT ASSETS
1.314.902
1.440.912
TOTAL ASSETS
6.350.069
5.666.403
EQUITY Share capital ...................................................................................
16
1.447.500
1.447.500
Statutory reserve .............................................................................
17
367.927
367.927
Undistributed profit ..........................................................................
17
21.681
32.335
Retained earnings ...........................................................................
391.172
668.003
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
2.228.280
2.515.765
Non-controlling interests .................................................................
9.060
14.230
EQUITY
2.237.340
2.529.995
2.026.720
1.562.409
LIABILITIES Loans and borrowings .....................................................................
19
Deferred tax liability .........................................................................
18
0
4.231
NON-CURRENT LIABILITIES
2.026.720
1.566.640
Short term loan ...............................................................................
17.384
0
Loan from The Central Bank of Iceland ...........................................
22
Accounts payable ............................................................................
500.000
0
657.089
749.295
281.947
176.465
Current portion of loans and borrowings ..........................................
19
Current tax ......................................................................................
18
0
11.428
Short term liabilities ........................................................................
20
629.589
632.580
CURRENT LIABILITIES
2.086.009
1.569.768
LIABILITIES
4.112.729
3.136.408
TOTAL EQUITY AND LIABILITIES
6.350.069
5.666.403
Notes no. 1-28 are an intergral part of these Consolidated Financial Statement
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
Notes no. 1-28 are an integral part of these Consolidated Financial Statement
7
Amounts are in ISK thousands _______________________________________________________
45
Statement of changes in equity for the year 2018
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 2018
Total
Noncontrolling interests
Total equity
668.003
2.515.765
14.230
2.529.995
( 287.485)
( 287.485)
( 5.170)
( 292.655)
( 10.654)
10.654
0
1.447.500
389.608
391.172
2.228.280
9.060
2.237.340
Equity 1.1.2017 .................. 1.447.500
370.436
486.145
2.304.081
9.515
2.313.596
10.584
( 10.584)
0
211.684
211.684
4.715
216.399
19.242
( 19.242)
0
400.262
668.003
2.515.765
Share capital
Other reserves
Retained earnings
Equity 1.1.2018 .................. 1.447.500
400.262
YEAR 2018 Loss for the year ................. Transferred from other reserves ................. Equity 31.12.2018 ..............
0
YEAR 2017 Statutory reserve contriburion ..................... Profit for the year
0
Transferred to other reserves ................. Equity 31.12.2017 ..............
1.447.500
0 14.230
2.529.995
For further information on other reserves, see note 17.
Notes no. 1-28 are an intergral part of these Consolidated Financial Statement
46
Amount are in ISK thousand Consolidated Financial Statements of Ă?slandspĂłstur ohf. 2018 _______________________________________________________
Notes no. 1-28 are an integral part of these Consolidated Financial Statement Amounts are in ISK thousands
8
_______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Statement of cash flows for the year 2018 STATEMENT OF CASH FLOWS FOR THE YEAR 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Notes
2018 ( 292.655)
(Loss) profit for the year ....................................................................
2017 216.399
Operating items not affecting cash flow: Loss on sale of assets ...................................................................... Depreciation ...................................................................................... Net finance expenses ........................................................................ Income tax ........................................................................................
5.347
9.890
8
414.541
407.778
7
21.217
118.333
18
( 72.122)
4.987
76.328
757.387
WORKING CAPITAL FROM OPERATING ACTIVITIES Changes in operating assets and liabilities: Inventories, decrease ........................................................................
2.007
2.196
Receivables, decrease (increase) .....................................................
328.233
( 350.108)
Current liabilities, (decrease) increase ..............................................
( 202.145)
268.175
CASH GENERATED FROM OPERATING ACTIVITIES
128.095
( 79.737)
Interest received ...............................................................................
64.073
16.390
...................................................................................
( 133.703)
( 111.211)
Income tax paid .................................................................................
0
( 372)
134.793
582.457
Interest paid
NET CASH FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES Real estate and land .........................................................................
8
( 858.086)
( 55.097)
Machinery, equipment and vehicles ..................................................
8
( 381.086)
( 595.417)
Proceeds from sales of fixed assets ..................................................
88.454
11.518
Other changes ..................................................................................
17.838
3.685
NET CASH USED IN INVESTING ACTIVITIES
( 1.132.880)
( 635.311)
680.624
0
CASH FLOWS FROM FINANCING ACTIVITIES New loans ......................................................................................... Loan from The Central Bank of Iceland .............................................
19
500.000
0
Repayment on long-term loans ......................................................... NET CASH (USED IN) FROM FINANCING ACTIVITIES
( 199.135)
( 137.730)
981.489
( 137.730)
DECREASE IN CASH AND CASH EQUIVALENTS .............................
( 16.598)
( 190.584)
CASH AND CASH EQUIVALENTS AT YEAR BEGINNING .................
215.076
405.660
198.478
215.076
1.169.204 ( 1.169.204)
0 0
CASH AND CASH EQUIVALENTS AT YEAR END .............................
14
NON CASH TRANSACTIONS
New loans ......................................................................................... Repayment on long-term loans .........................................................
Notes no. 1-28 are an intergral part of these Consolidated Financial Statement
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018
Notes no. 1-28 are an integral part of these Consolidated Financial Statement
9
Amounts are in ISK thousands
47
Notes
NOTES
1.
2.
REPORTING ENTITY
Íslandspóstur ohf. ("the Company") is a company domiciled in Iceland. The address of the Company’s registered office and headquarters is Stórhöfði 29, Reykjavík. The consolidated financial statements of the Company as at and for the year ended 31 December 2018 comprise the Company and its subsidiaries, together referred to as the “Group”.
BASIS OF PREPARATION a. Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as approved by EU. The Company's Board of Directors approved the consolidated financial statements on March 11, 2019. b. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis. c. Functional and presentation currency These consolidated financial statements are presented in Icelandic kronas, which is the Company’s functional currency. All financial information presented in Icelandic kronas has been rounded to the nearest thousand if not otherwise noted. d. Use of estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates 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. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
3.
CHANGES IN SIGNIFICANT ACCOUNTING POLICIES The Group has applied the same accounting policies as in previous years with the following exceptions. a. IFRS 15 Revenue from Contracts with Customers The Company has adopted IFRS 15 for annual periods beginning 1 January 2018. The standard establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The adoption of the standard had no impact on retained earnings or minority interest as at 1 January 2018, nor on the income statement or the balance sheet resulting from its operation in 2018. b. IFRS 9 Financial Instruments IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non‑financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 has comparable rules as in IAS 39 on classification and assessment on financial liabilities. The standard however eliminates few classes of financial assets, i.e. financial assets held to maturity, loans and receivables and available for sale financial assets. Upon initial recognition IFRS 9 requires financial assets to be classified as: amortised cost, fair value through other comprehensive income or fair value through profit or loss.
Amount are in ISK thousand
48
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
10
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Notes cont. NOTES CONT.
3.
CHANGES IN SIGNIFICANT ACCOUNTING POLICIES, CONT. b. IFRS 9 Financial Instruments, cont. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investment at fair value through other comprehensive income, but not to investments equity instruments. The adoption of IFRS 9 had no effect on the Group's equity at 1 January 2018 or the book value of financial assets or liabilities, but the following changes were made to the classification of financial assets at 1 January 2018.
Financial assets Bonds .........................
Original classification under IAS 39 Loans and receivables
New classification under IFRS 9 Amortised cost
Loans and receivables
Amortised cost
5.207
Accounts receivable and other receivables ..............
4.
5.
1.038.000
REVENUE
The Group's revenue are mainly for postal services which includes delivery of letters, parcels, unaddressed mail, and related postal services. Revenue is recognised when the Group has fulfilled its performance obligations.
SALARIES AND RELATED EXPENSES
The Company has engaged in paying a pension fund contribution to the Pension Fund of State Employees amounting to 6% of the difference betweeen total salaries and standard salaries of those employees exploiting their right to payment of pension fund premiums while working for the Company. Salaries, related expenses and other personnel expenses are specified as follows:
2018
2017
Salaries .................................................................................................... Contribution to defined contribution fund .................................................. Salary related expenses ........................................................................... Other personnel expenses .......................................................................
4.459.263 539.201 398.784 243.377
4.314.860 459.296 381.597 264.813
Total salaries and related expenses .........................................................
5.640.625
5.420.566
Full-time equivalent units .........................................................................
850
878
Salaries and perquisite of the Board of Directors and executive management amounted to ISK 126 million (2017: ISK 119 million) during the year, whereof the salaries of the Managing Director amounted to ISK 25 million (2017: ISK 20 million) and the salaries of Directors of the Board amounted to ISK 12 million (2017: ISK 10 million). Salaries to the Chairman of the Board are the double of the salaries of other Board members. Agreements with the Company's management neither include provisions on option rights to shares in the Company nor special employment termination payments.
6.
AUDITOR'S FEE
Payments to the Icelandic National Audit Office are specified as follows:
2018
2017
Audit of financial statements .................................................................... Interim financial statements review ..........................................................
4.690 5.065
6.985 5.881
Total .........................................................................................................
9.755
12.866
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
11
Amounts are in ISK thousands _______________________________________________________
49
NOTES CONT. Notes cont.
7.
FINANCE INCOME AND EXPENSES Finance income Finance income comprises interest income on funds invested, foreign exchange gain on foreign currencies and dividends received. Interest income is recognised as it accrues in the income statement. Finance expense Finance expenses comprise interest expense on borrowings and foreign exchange loss on foreign currencies. Foreign currencies Transactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss arising is recognised in the income statement. Finance income and expenses are specified as follows:
8.
2018
2017
Interest earned and indexation ................................................................. Dividend ................................................................................................... Foreign exchange difference ....................................................................
25.205 17.325 131.852
16.630 15.652 0
Total financial income ..............................................................................
174.382
32.282
Interest expenses and indexation ............................................................. Foreign exchange difference ....................................................................
( 195.599) 0
( 137.848) ( 12.767)
Total financial expense ............................................................................
( 195.599)
( 150.615)
Total net financial expense .......................................................................
( 21.217)
( 118.333)
PROPERTY, PLANT AND EQUIPMENT Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” in the income statement. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. All other cost is recognised in the income statement as incurred. Depreciation Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives are specified as follows: Buildings ........................................................................................................................... Machines, equipment and vehicles ...................................................................................
20-25 years 3-10 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
50
Consolidated Financial Statements of Íslandspóstur ohf. 2018 Amount are in ISK thousand _______________________________________________________
12
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
NOTES Notes CONT. cont.
8.
PROPERTY, PLANT AND EQUIPMENT, CONT.
Property, plant and equipment and depreciation are specified as follows: Cost
Real estates and land
Machinery, equipment and vehicles
Total
Balance at 1.1.2017 ........................................................ Additions during the year ................................................. Disposals .........................................................................
3.211.171 55.097 ( 157)
3.550.477 595.417 ( 81.779)
6.761.648 650.514 ( 81.936)
Balance at 31.12.2017 .....................................................
3.266.111
4.064.115
7.330.226
Balance at 1.1.2018 ........................................................ Additions during the year ................................................. Disposals ......................................................................... Transferred from held for sale .........................................
3.266.111 858.086 ( 38.342) 8.270
4.064.115 381.086 ( 378.080) 0
7.330.226 1.239.172 ( 416.422) 8.270
Balance at 31.12.2018 .....................................................
4.094.125
4.067.121
8.161.246
Depreciation Balance at 1.1.2017 ........................................................ Depreciation for the year ................................................. Disposals .........................................................................
1.498.685 103.899 ( 157)
2.092.866 303.879 ( 62.371)
3.591.551 407.778 ( 62.528)
Balance at 31.12.2017 .....................................................
1.602.427
2.334.374
3.936.801
Balance at 1.1.2018 ........................................................ Depreciation for the year ................................................. Disposals ......................................................................... Transferred from held for sale .........................................
1.602.427 124.988 ( 25.925) 2.977
2.334.374 289.553 ( 297.687) 0
3.936.801 414.541 ( 323.612) 2.977
Balance at 31.12.2018 .....................................................
1.704.467
2.326.240
4.030.707
Book value 1.1.2017 .......................................................................... 31.12.2017 and 1.1.2018 ................................................. 31.12.2018 ......................................................................
1.712.486 1.663.684 2.389.658
1.457.611 1.729.741 1.740.881
3.170.097 3.393.425 4.130.539
Depreciation rates ...........................................................
0-5%
10-33%
Insurance and evaluation of assets Insurance value, official premises valuation and book value of proprety, plant and equipment at year end were as follows: Insurance value of real estate .................................................................. Official premises valuation of real estate and land ................................... Book value of real estate and land ........................................................... Insurance value of machinery, equipment and vehicles ........................... Book value of machinery, equipment and vehicles ...................................
2018 4.004.740 2.278.257 2.389.658 2.164.652 1.740.881
2017 3.879.830 2.169.237 1.663.684 1.674.760 1.729.741
Mortgages The Group's operating assets are pledged for an insurance bill and bonds to secure liabilities amounting to ISK 1.905 million at year end (2017: ISK 1.243 million.)
Consolidated Financial Statements of Íslandspóstur ohf. 2018 Amount are in ISK thousand _______________________________________________________
13
Amounts are in ISK thousands _______________________________________________________
51
Notes cont.
NOTES CONT.
9.
INVESTMENT IN OTHER COMPANIES
The Group’s investment in equity securities and certain debt securities is classified as available-for-sale financial assets. When investment in equity securities does not have a quoted market price in an active market and whose fair value cannot be reliably measured it is measured at cost less any impairment recognised. Investment in other companies is specified as follows:
2018 Nominal value
Internet á Íslandi hf. ................................ Vörusjá ehf. ............................................ Sendill is Unimaze ehf. ........................... Eurogiro, nominal value 100 thousand DKK .........
3.781 27.500 34
Total investment in other companies ......
2017
Book value 45.351 27.500 7.032
Nominal value
Book value
3.781 27.500 34
45.351 27.500 7.032
0
2.521
79.883
82.404
10. LONG TERM RECEIVABLES
In the 2018 financial statements receivables due by international postal operators have been reclassified to non-current assets, as long term receivables. These receivables originate from settlements between postal operators of terminal dues payable for the delivery of international items and are settled up to two and a half year from the time they originate.
11. BONDS
Bonds are specified as follows:
2018
2017
Balance at 1.1 .......................................................................................... Indexation ................................................................................................ Maturities ................................................................................................. Change in allowance ................................................................................ Current maturities ....................................................................................
8.084 165 ( 6.033) 587 ( 410)
12.998 222 ( 5.682) 546 ( 2.877)
Bonds at 31.12 .........................................................................................
2.393
5.207
12. INVENTORIES
Inventories are measured at the lower of cost and net realizable value. The net realizable value is the estimated sales value in transactions between unrelated parties less estimated cost of selling the goods. The cost of inventories is based on the average cost principle, and includes expenditure incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition.
Inventories at year end are specified as follows:
2018
2017
Inventories, consumables ........................................................................ Inventories, postage stamps ....................................................................
88.969 88.873
82.304 97.734
Total inventories .......................................................................................
177.842
180.038
Inventories recognised as cost of sales amounted to ISK 133 million. (2017: ISK 135 million.)
13. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES Accounts receivable and other receivables are specified as follows:
2018
2017
Nominal value of accounts receivable ...................................................... Write down of probable loss on accounts receivable ................................ Current maturities of bonds ...................................................................... Various short term receivables .................................................................
1.053.297 ( 154.615) 410 39.490
1.177.238 ( 170.118) 2.877 28.003
Total accounts receivable and other receivables ......................................
938.582
1.038.000
Amount are in ISK thousand
52
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
14
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Notes cont.
NOTES CONT.
14. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and call deposits. Cash and cash equivalents are specified as follows:
2018
2017
Market securities ...................................................................................... Current bank deposits .............................................................................. Funds .......................................................................................................
0 193.031 5.447
26.801 184.497 3.778
Total cash and cash equivalents ..............................................................
198.478
215.076
15. ASSETS HELD FOR SALE
Fixed assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and net fair value. Fixed assets held for sale are specified as follows: Balance at 1.1 .......................................................................................... Reclassified to operating assets ............................................................... Disposals ................................................................................................. Total fixed assets held for sale .................................................................
(
2018
2017
7.798 5.292) ( 2.506)
7.798 0 0
0
7.798
16. EQUITY Share capital The Company's total share capital according to its Articles of Association amounts to ISK 1.448 million and has all been paid. One vote is attached to each ISK 1 share in the Company. Dividend No dividends paid in the year 2018 (2017: No dividends). Statutory reserve The Company has the obligation to allocate at least 10% of its profit, which is not used to meet possible losses of previous years and is not allocated into other statutory reserves, into a legal reserve until reaching 10% of share capital. When that target has been reached, contributions must be at least 5% until the reserve amounts to 25% of share capital. The Company may use the legal reserve to settle against losses that can not be settled with other reserves. When the reserve amounts to more than 25% of share capital, the amount in excess may be used to increase share capital or, in accordance with provisions of Article 53 of the Act on Limited Companies, no. 2/1995, for other concerns. Undistributed profits Undistributed profits comprise share in profit less losses of subsidiaries and associated companies that exceeds dividend received or declared from those companies. If a subsidiary or an associated company is sold or liquidated, the undistributed profit or loss relating to that entity shall be transferred to retained earnings. Earnings per share The Group presents basic and diluted earnings per share data for its ordinary shares, which are calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. The Company has neither concluded option agreements nor acquired new loans convertible into share capital and therefore diluted earnings per share equals basic earnings per share.
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
15
Amounts are in ISK thousands _______________________________________________________
53
Notes cont.
NOTES CONT.
17. OTHER RESERVES Other reserves are specified as follows: Statutory reserve
Undistributed profits
Other reserves 1.1.2017 .................................................. Share in profit or loss of subsidiaries ............................... Statutory reserve contribution ..........................................
357.343
13.093 19.242
370.436 19.242 10.584
Other reserves 31.12.2017 ..............................................
367.927
32.335
400.262
Other reserves 1.1.2018 .................................................. Share in profit or loss of subsidiaries ...............................
367.927
32.335 ( 10.654)
400.262 ( 10.654)
Other reserves 31.12.2018 ..............................................
367.927
21.681
389.608
10.584
Total
18. INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Income tax in the income statement is specified as follows: Current tax Taxes for the year ....................................................................................
2018
2017
0
11.428
Deferred taxes Temporary differences .............................................................................
( 72.122)
4.987
Income tax recognised in the income statement ......................................
( 72.122)
16.415
Effective income tax is specified as follows:
2018
(Loss) profit for the year .......................... Income tax .............................................. Profit (loss) before income tax ................
2017
( 292.655) ( 72.122)
216.399 16.415
( 364.777)
232.814
Income tax according to current income tax rate ......................... Non-taxable income ................................ Non-deductibe expenses ........................ Effects of tax losses ............................... Other ......................................................
20,0% 1,2% 0,0% ( 1,5%) 0,0%
( 72.955) ( 4.509) 4 5.338 0
20,0% ( 3,1%) 0,0% ( 9,9%) 0,1%
46.563 ( 7.329) 12 ( 23.140) 309
Effective tax rate .....................................
19,8%
( 72.122)
7,1%
16.415
Amount are in ISK thousand
54
Consolidated Financial Statements of Ă?slandspĂłstur ohf. 2018 _______________________________________________________
16
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Notes cont.
NOTES CONT.
18. INCOME TAX EXPENSE, CONT.
The Company's income tax asset and liability is specified as follows:
2018
2017
Income tax asset (liability) at 1.1 .............................................................. Changes in estimates related to prior year ............................................... Calculated income tax for the year ........................................................... Income tax payable ..................................................................................
( 4.231) 2.449 72.122 0
756 0 ( 16.415) 11.428
Income tax asset (liability) at 31.12 ..........................................................
70.340
( 4.231)
Property, plant and equipment ................................................................. Accounts receivable ................................................................................. Deferred foreign exchange difference ...................................................... Tax loss carry-forwards ............................................................................ Inventories ...............................................................................................
( 39.642) 17.172 ( 12.422) 105.398 ( 166)
( 30.683) 18.192 8.342 0 ( 82)
Total .........................................................................................................
70.340
( 4.231)
Income tax asset (liability) is specified as follows at year end:
19. INTEREST BEARING LIABILITIES
In 2018, the Company's loans to Landsbanki were refinanced. Older loans were repaid and 3 new loans were issued. The total increase in loans was ISK 500 million. kr. where overdraft was changed to longterm loans.
Interest bearing liabilities are specified as follows:
2018
2017
Loans bound by consumer price index ..................................................... Loans in ISK, non-indexed ....................................................................... Loans in EUR ........................................................................................... Loans in CHF ........................................................................................... Loans in JPY ............................................................................................ Current maturities ....................................................................................
2.169.710 95.136 19.514 18.019 6.288 ( 281.947)
1.689.594 5.780 19.871 17.664 5.965 ( 176.465)
Long term liabilities at 31.12 ....................................................................
2.026.720
1.562.409
Repayments of long-term liabilities at year end are specified as follows over the coming years: Year 2018 ................................................................................................ Year 2019 ................................................................................................ Year 2020 ................................................................................................ Year 2021 ................................................................................................ Year 2022 ................................................................................................ Year 2023 ................................................................................................ Subsequent repayments ..........................................................................
281.947 294.749 305.711 308.715 202.045 915.499
176.479 181.728 187.303 191.695 197.662 84.795 719.212
Total long-term liabilities ..........................................................................
2.308.666
1.738.874
20. SHORT-TERM LIABILITIES
Short-term liabilities are specified as follows:
2018
2017
Salaries and related expenses ................................................................. Accrued vacation ..................................................................................... Value added tax payable .......................................................................... Deferred revenue ..................................................................................... Other short-term libilities ..........................................................................
203.156 339.118 32.222 31.371 23.722
219.780 330.799 45.025 31.705 5.271
Total accounts payable and other short-term liabilities .............................
629.589
632.580
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
17
Amounts are in ISK thousands _______________________________________________________
55
NOTES CONT. Notes cont.
21. FINANCIAL RISK MANAGEMENT Overview The Group has exposure to the following risks: * credit risk * liquidity risk * market risk This note provides information on the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has assigned to the Managing Director of the parent company the task of monitoring the Group's daily risk management. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. The Group has established a credit policy under which all new customers are measured before the Group’s standard payment and delivery terms and conditions are offered. Each new customer is analysed individually for creditworthiness and credit limits are set. When managements feel it is needed a guarantee is requested. Most of the Group's customers have been its customer for many years and there have been insubstantial losses on receivables in proportion to turnover. Credit risk management due to customers mainly involves age of receivables and financial standing of single customers. The Group's accounts receivable and other receivables both regard individuals and companies. Customers classified as "high risk" may not have further credit transactions with the Group unless their debt is settled. The Group establishes an allowance for impairment that represents its estimate of losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial assets in its entirety or a portion thereof. The allowance for impairment of accounts receivable at year end amounts to ISK 155 million (2017: ISK 170 million) and the allowance for impairment of notes receivable at year end amount to ISK 0 million (2017: ISK 1 million).
56
Consolidated Financial Statements of Íslandspóstur ohf. 2018 Amount are in ISK thousand _______________________________________________________
18
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
NOTES Notes CONT. cont.
21. FINANCIAL RISK MANAGEMENT, CONT. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Residual contractual maturities of financial liabilities are specified as follows at year-end: 2018 Debenture loans .............. Accounts payable and short term payables ....... 2017 Debenture loans .............. Accounts payable and short term payables .......
Book value 2.308.666
Within 1 year 392.749
2-3 years 780.746
4-5 years 633.089
More than 5 years 1.605.017
2.086.009
2.086.009
4.394.675
2.478.758
780.746
633.089
1.605.017
1.738.874
276.294
532.558
511.236
1.472.973
1.558.340
1.558.340
3.297.214
1.834.634
532.558
511.236
1.472.973
Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk Of the Group's borrowing which totals 2% in foreign currency, a curve of EUR, CHF and JPY, proposes currency risk which is not hedged. Intrest rates on these borrowings are much lower than on borrowings by the Parent Company denominated in ISK. The Group is exposed to currency risk on receivables from foreign postal operators and customers denominated in a currency other than the respective functional currencies of Group entities. Those currencies mainly creating foreign exchange risk are SDR and EUR. The Group does not in general hedge against currency risk. Interest rate risk The Group's borrowings in ISK are bound by consumer price index and carry both fixed and variable interest. Borrowings in foreign currencies carry fixed interest. If the interest rate would have been 1% higher the Group's result would have been ISK 23 million lower in the year 2018 but ISK 23 million higher had the interest rate been 1% lower. If interest rates in the year 2017 had been 1% higher the result for the year 2017 would have been ISK 17 million lower and at the same time ISK 17 million higher had the interest rate for the year 2017 been 1% lower. Other market price risk Other market price risk is limited, as investments in bonds and shares are an insubstantial part of the Group's operation. Capital management The Board's policy is to maintain a strong capital base to sustain future development of the business. The Company's Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Company is not obliged to comply with external rules on minimum equity.
22. RELATED PARTIES
The Groups related parties is the State and companies and institution that are part of the State, Board of Directors, key management and their close family members. The Group has transactions with its related parties on an arm‘s length basis.
Consolidated Financial Statements of Íslandspóstur ohf. 2018 Amount are in ISK thousand _______________________________________________________
19
Amounts are in ISK thousands _______________________________________________________
57
Notes cont.
NOTES CONT.
23. GROUP ENTITIES
The subsidiary ePóstur ehf. was merged with the company as of 1 January 2018. The merger was confirmed in October 2018. At year end 2018 a purchase agreement was signed for the sale of all issued shares in Gagnageymslan ehf. Work is ongoing to complete the sale process. Ownership interest
Subsidiaries: Samskipti ehf. ............................................................................................. Trönur ehf. .................................................................................................. Frakt flutningsmiðlun ehf. ........................................................................... ePóstur ehf. ................................................................................................ Gagnageymslan ehf. ..................................................................................
2018
2017
100,0% 100,0% 62,5% 100%
100,0% 100,0% 62,5% 100% 100%
24. ACCOUNTING AND FINANCIAL SEPERATION
Regulation 313/2005 imposes requirements on accounting and financial separation of postal operators. The regulation includes provisions on implementation of such separation and on disclosure requirements to the Post and Telecom Administration (PTA). In accordance with the requirements of the regulation Íslandspóstur annually submits to PTA its accounting separation and cost accounting. The PTA issued on February 8, 2019 a summary of Íslandspóstur’s accounting separation from 2017 operation and concluded from its review of the underlying data and cost accounting, that Íslandspóstur’s cost accounting and accounting separation was in line with acceptable methodology and legal requirements of the aforementioned regulation on accounting and financial separation of postal operators. The results of the accounting and financial separation for the 2018 operation will be provided to the PTA as instructed in the regulation.
25. OTHER INFORMATION ABOUT THE OPERATING ENVIRONMENT
The Icelandic Government has the exclusive rights to distribute letters up to 50 grams but has entrusted Íslandspóstur to execute these rights. Associated with the right is the universal service obligation which ensures all equal access to certain aspects of the postal service, both locally and cross-border, with specific quality and at affordable prices. The universal service obligation of Íslandspóstur requires the Company to distribute shipments up to 20 kilograms. The service obligation requires the Company to provide certain types of services that are not profitable but revenue from the exclusive rights is intended to compensate for those costs. The current postal legislation is from the year 2002 but a bill for new postal law has been presented to the parliament in accordance with the third European Postal Directive from 2008. The bill includes the abolition of the Governments exclusive right to distribute letters up to 50 grams. The bill also opens for the possibility of funding the universal service obligation to the extent that the cost is not met by revenue for the services provided. This is a significant addition aiming to secure postal service providers fair compensation for their services. It is however important that the wording of the final legislation is clarified regarding the Government´s obligation to fund the universal service for the cost not met by related revenue to secure that the service can be provided in line with the requirement set forth in the legislation. Over the past years the volume of letters within the exclusive right has decreased significantly. This development is expected to continue in coming years. At the same time the quantity of parcels from abroad has materially increased but due to international agreements, which the Company is bound by, the revenue generated by this service has not been sufficient to offset related costs and necessary investment associated with these services. As a result revenue from letters within the exclusive right has not been sufficient to cover cost relating to the universal service obligation. The Company is operated at a loss and its liquidity has decreased significantly. As a response to this situation a shareholders meeting was held on the 6th of March 2019 where the Board of Directors was granted authorisation to propose a share increase of up to ISK 1.500 million.
Amount are in ISK thousand
58
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
20
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Notes cont.
NOTES CONT.
26. INTERIM FINANCIAL STATEMENTS The Group's operation is divided as follow by quarters (unaudited information): Year 2018
Q4
Q3
Q2
Q1
Total
1.844.675 682.648 2.527.323
1.489.880 422.481 1.912.361
1.658.696 515.212 2.173.908
1.718.748 396.524 2.115.272
6.711.999 2.016.865 8.728.864
1.597.642
1.282.802
1.427.360
1.332.821
5.640.625
319.889 543.874 2.461.405
290.743 365.759 1.939.304
299.168 483.009 2.209.537
330.537 384.279 2.047.637
1.240.337 1.776.921 8.657.883
EBITDA ...........................
65.918
( 26.943)
( 35.629)
67.635
70.981
Depreciation ...................
( 122.819)
( 100.007)
( 95.590)
( 96.125)
( 414.541)
EBIT ................................
( 56.901)
( 126.950)
( 131.219)
( 28.490)
( 343.560)
Finance revenues (expenses) ...................
36.557
( 14.098)
( 5.232)
( 38.444)
( 21.217)
Profit (loss) before income tax ....................
( 20.344)
( 141.048)
( 136.451)
( 66.934)
( 364.777)
Postal services ................ Other revenues ................ Salaries and related expenses .......... Direct cost of postal distribution .................... Other operating cost ........
Income tax ......................
5.703
24.188
24.689
17.542
72.122
Loss ................................
( 14.641)
( 116.860)
( 111.762)
( 49.392)
( 292.655)
2.128.921 529.769
1.769.602 413.038
1.768.690 409.307
1.804.975 370.110
7.472.188 1.722.224
2.658.690
2.182.640
2.177.997
2.175.085
9.194.412
1.594.693
1.281.885
1.322.577
1.221.411
5.420.566
370.449 488.896 2.454.038
318.609 408.783 2.009.277
320.021 418.704 2.061.302
314.107 375.352 1.910.870
1.323.186 1.691.735 8.435.487
EBITDA ...........................
204.652
173.363
116.695
264.215
758.925
Depreciation ....................
( 100.595)
( 103.585)
( 101.661)
( 101.937)
( 407.778)
EBIT ................................
104.057
69.778
15.034
162.278
351.147
Finance expenses ...........
( 118.333)
Year 2017 Postal services ................ Other revenues ................
Salaries and related expenses .......... Direct cost of postal distribution .................... Other operating cost ........
( 31.782)
( 5.034)
( 74.709)
( 6.808)
Profit (loss) before income tax ....................
72.275
64.744
( 59.675)
155.470
232.814
Income tax ......................
( 40.143)
20.399
( 29.607)
32.936
( 16.415)
Profit (loss) ......................
32.132
85.143
( 89.282)
188.406
216.399
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
21
Amounts are in ISK thousands _______________________________________________________
59
Notes cont.
NOTES CONT.
27. KEY RATIOS The Company's key ratios are as follows:
2018
2017
Current ratio - current assets / short term liabilities .................................. Equity ratio - equity / total capital ............................................................. Internal value of share capital - equity / share capital ...............................
0,63 0,35 1,54
0,92 0,44 1,74
EBITDA ratio on total earnings ................................................................. EBIT ratio on total earnings ...................................................................... Return on equity .......................................................................................
0,8% -3,9% -11,6%
8,3% 3,8% 9,4%
28. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. a. Basis of consolidation (i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iii) Non-controlling interests (NCI) NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. (iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. b. Financial instruments Financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Amount are in ISK thousand
60
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
22
Amounts are in ISK thousands _______________________________________________________
ÁRSSKÝRSLA 2018
ANNUAL REPORT
Notes cont.
NOTES CONT.
28. SIGNIFICANT ACCOUNTING POLICIES, CONT. c. Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in the income statement. (ii) Other assets The carrying amounts of the Group’s non-financial assets, other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. d. Obligations An obligation is recognised in the financial statements if the Group has a present legal or constructive obligation due to past events, it is likely that payment will take place and it can be measured reliably. e. Standards issued but not yet effective A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 and can be early adopted. The Group did not early adopt these standards when preparing these financial statements. Of those standards that are not yet effective, IFRS 16 is expected to have a material impact on the Group's financial statements in the period of initial application.
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
23
Amounts are in ISK thousands _______________________________________________________
61
Notes cont.
NOTES CONT.
28. SIGNIFICANT ACCOUNTING POLICIES, CONT. e. Standards issued but not yet effective, cont. IFRS 16 Leases The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements. The actual impacts of adopting the standard on 1 January 2019 may change from current assessment. IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. Leases in which the Group is a lessee The Group will recognise new assets and liabilities for its operating leases of real estates. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. Leases in which the Group is a lessor No significant impact is expected for leases in which the Group is a lessor. Transition The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information. Based on the information currently available, the Group estimates that as at 1 January 2019 it will recognise additional lease liabilities of 315 million kr., right to use asset of 296 million kr. and 19 million kr. as a reduction to equity. The Group does not expect the adoption of IFRS 16 to impact its loan covenants.
Amount are in ISK thousand
Consolidated Financial Statements of Íslandspóstur ohf. 2018 _______________________________________________________
24
Amounts are in ISK thousands _______________________________________________________
Hönnun og umbrot: Elías Jóhann Jónsson Prentun: Ísafoldarprentsmiðja Ljósmyndir: Bernhard Kristinn, Svenni Speight
Íslandspóstur Stórhöfða 29 110 Reykjavík Sími / Tel +354 580 1000 postur@postur.is www.postur.is