Íslandspóstur ohf. Financial Statements 2021 by Pósturinn

Íslandspóstur ohf. Financial Statements 2021

These financial statements are translated from the original version which is in Icelandic. In case of any discrepancy the Icelandic version prevails.

Íslandspóstur ohf. Höfðabakka 9D 110 Reykjavík id. 701296-6139

Íslandspóstur ohf. Financial Statements 2021

Contents Endorsement and Statement by the Board of Directors and the Managing Director The Auditor General's Report Independent Auditor's Report Statement of Profit and Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Annex

2-5 6 7-8 9 10 11 12 13-31 32

Endorsement and Statement by the Board of Directors and the CEO The Financial Statements for Íslandspóstur ohf. for the year 2021 are prepared in accordance with the International Financial Reporting Standards (IFRS). The Company's principal activity The object of the Company is to provide every kind of postal service on the basis of the laws and regulations that apply. Íslandspóstur ohf. plays an important role in connecting people, enterprises and communities through the dissemination of important information, data and goods to all Icelanders and their customers wherever they are in the country. At year-end, there was one shareholder in the Company. Of the five members of the Board, two are women and three are men. Key figures (amounts are in ISK thousands): The profit for the year, according to the Comprehensive Income Statement, amounted to....................................... The assets at year-end, according to the Statement of Financial Position, amounted to............................................ Booked equity at year-end, according to the Statement of Financial Position, amounted to..................................... The equity ratio at year-end, according to the Statement of Financial Position, amounted to.................................. The average number of full-time positions during the year was ........................................................................................

255.840 6.528.633 3.562.949 54,6% 557

Íslandspóstur’s profit in 2021 was ISK 256 million, compared to a profit of nearly ISK 104 million in the previous year. The year’s EBITDA was 13%, compared to 9% in 2020. The Company’s profit margin was 3.4% but was 1.4% in 2020. The current ratio of Íslandspóstur has improved, from being 0.65 in 2019 to being 1.39 at year-end 2020 and is 1.61 for the year 2021. Return on equity is 7.2% but was 3.2% at the year-end of 2020.

Development of the Company’s Operations and Financial Position The year 2021 was the second year of Íslandspóstur where the company operated exclusively in competitive markets. The exclusive rights to letter deliveries 0–50 g formally belonged to the Icelandic state, and therefore, 2020 was also the first year in which the Icelandic state was not the holder of such a right. The Executive Branch’s conclusion was that the PTA designated Íslandspóstur as a universal service provider with their Decision No. 13/2020 – Designation of Íslandspóstur as a universal service provider in the Field of Postal Services in Iceland, dated 11 December 2020. According to this decision it is temporary for up to ten years. However, in 2020, Íslandspóstur had operated as a designated universal service provider on the basis of the PTA’s provisional Decision No. 29/2019 – that Íslandspóstur was obligated to provide universal service in Iceland, dated 11 December 2019. Both decisions imposed a universal service obligation on the Company to fulfil the postal services promises of the new law, in the whole country, in all categories of universal services, which are: letters, bulk mail, packages up to 10 kg, registered mail, insured shipments and cecograms up to 2 kg. As a result, Íslandspóstur has had a year’s worth of experience of operating under the new law and the obligations imposed on the Company with the PTA’s decision. The aforementioned Decision No. 29/2019 required Íslandspóstur to maintain a certain service level in the whole country, including areas where the PTA did not consider market conditions to exist. Unfortunately, the PTA’s subsequent decision did not resolve all the issues in the new Postal Act, which either proved to be predictable and materialised in 2021 or were revealed in the first year of operation under the new laws. The most significant was the requirement in Article 17 of the Act that the universal service provider’s tariff should simultaneously take into account actual costs, that profits should be reasonable, tariffs easily understandable, equal treatment ensured, tariffs transparent, as well as prices being manageable for users. The universal service provider’s tariff must fulfil all these requirements concurrent with the same price being collected from the universal services users, regardless of where they live in the country. There’s no need to hide Íslandspóstur’s position that the Company would have preferred to exercise its right under the new Postal Act to enter into agreements with the Executive Branch on how to fulfil the aforementioned requirements, as well as other requirements made to the universal service provider.

Financial statements of Íslandspóstur ohf.

Endorsement and Statement by the Board of Directors and the CEO In the mid-2021, a new postal law no. 76/2021 was put in effect, but on amendments to the Postal Act no. 98/2019. The changes were few, however, the main reason was that the supervision of postal operators was transferred from the Post and Telecom Administration to the Regional Development Institute. As well as that the provision on the same price throughout the country for universal service (so-called one country - one price) which was valid from 1 January 2020 was restricted to letters under Article 50. On 1 July, Act 76/2021 entered into force, with the disclaimer that a change to one country - one price should be implemented no later than 1 November 2021. The Post's new tariff was implemented on 1 November in accordance with amendments to the new Postal Act. The amending law further stipulated that the Minister of Transport and Local Government, in collaboration with the Minister of Finance and Economic Affairs, should first appoint an interdisciplinary working group to assess how best to achieve the objectives of Article 1. postal law, for instance taking into account technological innovations, competition perspectives and Iceland's international obligations. The working group was to appoint, in addition to representatives of the Minister, appointed professionals and representatives of the views of consumers, employers and different settlements. The group's proposals should be set out in a report, together with a cost estimate, and their impact on the postal market as a whole and the economic impact on competition and regional considerations should be explained. It was also decided that Íslandspóstur should not be represented on this working group. The Board and management of Íslandspóstur have established the policy that the Company should be a participant in the fourth industrial revolution, and Pósturinn has used the year 2020 to reduce digital debt and make arrangements for digitalisation. The goal is to develop a technology that will enable customers to do more informed business with Íslandspóstur in a digital way through an app and improved service pages. The ideology is based on the customers actually having “Mail in their pocket”. Another aspect of this development is new delivery methods that are supported by modern technological advances, such as new Parcel Lockers that were brought into use in various locations around the country, as well as introducing Parcel Points, a service that has been very successful based on customer responses. Work will continue on developing and improving the service options available to customers, since it can be said that the digital transformation will enable Íslandspóstur to simultaneously provide better and less costly services. It is apparent, therefore, that increased emphasis on new delivery methods, as well as further work on automation, can further reduce costs in the future. The new delivery methods were also a factor in the Company being able to respond better than expected to new consumer trends in Iceland following COVID-19. Social distancing rules and the limited number of customers allowed in stores caused online shopping in Iceland to “grow up” overnight and move closer to what is common in our neighbouring countries. In the Post center, the Company's distribution center, investments were made in a new package classifier to increase capacity, as well as changes in car loading, reducing drivers' waiting times and increasing efficiency. Íslandspóstur collaborated closely with the Ministry of Health, and the Company was granted an exemption from the most stringent restrictions on the number of people in the distribution centre. This exemption allowed Íslandspóstur to fulfil its important community role in times like these, but the Company is responsible for, i.a., the transportation of medicine and necessary equipment all over the country. In the context of the disease prevention measures, the importance of Pósturinn’s role in online shopping being possible to the extent it was can furthermore be emphasised. The fact that consumers, and especially those in risk groups, could have access to essential items and do other shopping online reduced contact between people at the height of the spread of COVID-19.

As stated above, a consequence of COVID-19 led to a decrease in foreign shipments, which also had the effect of a significant loss of income that put the Company’s operations under pressure. But domestic parcel shipments were at historic highs. In 2021, there was a decline in domestic deliveries at the Company between years, although there had been a rising increase from the years before Covid-19. The actions of the Company's management to adapt operations to changing market conditions have led to the company being better equipped to meet operational challenges. The key control criterias are delivering good results. The 2021 forecasts assumed a continued reduction in letter deliveries and income from that service item, and those plans were met, but the contraction in letters during the year was 20%. The company expects an even further contraction in letter deliveries in the coming years, as the Icelandic government has, among other things, announced its plans to further reduce letter deliveries. It is also not ruled out that other unforeseen events may have a further effect on the reductions in letter deliveries.

Financial statements of Íslandspóstur ohf.

Endorsement and Statement by the Board of Directors and the CEO In 2021, various steps were taken towards sustainability with the aim of integrating sustainability into the Company's culture. The main markers of this roadmap were to create a sustainability team, implement Green Steps, maintain green accounting for the first time, set an environmental and climate policy along with goals and an action plan, select the UN sustainable goals that Pósturinn wants to work towards and finally, publish the first sustainability report - which has now been published. Four Green Steps out of five have already been reached. Five UN sustainable goals have been chosen that the Company intends to work on in particular, thus placing its weight on the scales in a larger context. Those are goals number; 3 Health and well-being, 5 Gender equality, 11 Sustainable cities and communities, 12 Responsible consumption and production, and lastly 13 Climate action. The quality system is based on coordinated processes, deviations are analyzed, improvements are made and the system is reviewed regularly. We are always trying to identify weaknesses in the business and respond to them, reduce any kind of waste and thus promote the sustainability of the business. It also results in more efficient operations. We like to say that the quality system is Pósturinn´s circulatory system. Íslandspóstur's employees are one of the Company's most important resources. The Company is making progress with increased empowerment for the Company's management and the empowerment of the management at Íslandspóstur is taking place in various ways. Key managers receive special training in coaching methods, but the question approach has become established as a motivating management method. Coaching methods promote continuous leadership development among Íslandspóstur´s staff and encourage targeted goal setting in accordance with Íslandspóstur´s human resources policy. In 2021, Pósturinn received recognition from Jafnvægisvogin, which is a dynamic project to increase gender balance in the top management of companies, with the goal that by 2027 the gender ratio will be 40/60 in corporate management in Iceland. In addition, the management set a goal of having no gender pay gap, and as a confirmation, Pósturinn received a renewal of its Equal Pay Certification during the year for the next three years.

Financial statements of Íslandspóstur ohf.

Endorsement and Statement by the Board of Directors and the CEO Governance Pósturinn’s Board of Directors endeavours to maintain good corporate governance and takes into account the Guidelines on Corporate Governance that are published by the Iceland Chamber of Commerce and operates in accordance with the state’s ownership policies, the Articles of Association of the Company and rules of procedure the Board has set itself. The rules include a definition of the Board’s scope of authority and division of tasks, provisions on the competence of Board members, rules on confidentiality and more. Of the five members of the Board, two are women and three are men. The CEO and Managing Director is Þórhildur Ólöf Helgadóttir. Internal controls involve the regular actions and measures the concerned party takes to promote efficiency of operations, the security of funds, the reliability of information and generally to ensure that the aims of the operation are achieved and all legislation and rules are complied with. Internal controls are based on COSO, where it is broken down into monitoring environment, risk assessment, monitoring activities, information and communication and monitoring internal controls. All of this is done with the aim of Íslandspóstur achieving its goals. In addition to the law, owner’s policy and the aforementioned guidelines on governance, the Board of Directors has not established a policy on diversity in relation to the Company’s Board, Executive Board and Supervisory Board with regard to factors such as age, gender or educational and professional background. The Board considers that the aforementioned data, and the Company’s follow-up, fulfil the necessary criteria. The Board of Directors proposes that the profit for the year will be carried forward to next year, but otherwise refers to the Statement of Changes in Equity. Declaration of the Undersigned To the best of my knowledge, these Financial Statements have been prepared in accordance with Chapter VIII of Act No. 3/2006 on Annual Accounts and provides a clear position of assets and liabilities, financial position and the Company´s operational results. The report of the Board of Directors provides a precise overview of the development and achievements in Íslandspóstur’s operations, the Company’s position and describes the main risks and uncertainty factors the Company faces.

The Board of Directors and CEO of Íslandspóstur ohf. hereby confirm the Company’s Financial Statements with their signatures.

Reykjavík, 21 February 2022

Board of Directors

Bjarni Jónsson

Auður Björk Guðmundsdóttir

Eiríkur Hauksson

Guðmundur Axel Hansen

Jónína Björk Óskarsdóttir

CEO

Þórhildur Ólöf Helgadóttir

Financial statements of Íslandspóstur ohf.

The Auditor General's Report

To the Board of Directors and Shareholders of Íslandspóstur ohf.

Expectations, role and responsibilities of the Auditor General The Auditor General operates based on Act no. 46/2016, on the Auditor General and the auditing of government accounts and the Code of Ethics set by the International Organization for Supreme Audit. The role of the Auditor General is to ensure that audits and controls are in accordance with Article 4 of the Act. The Auditor General is responsible for the work of the auditors, who work with the Icelandic National Audit Office and perform an audit based on the Act on Auditors and audit, Act on Financial statements and other general rules that they comply with according to International Standards on Auditing. The Audit was conducted in accordance with Act no. 46/2016 on the Auditor General and audit of state accounts and Act no. 94/2019 on Auditors and auditing. The Icelandic National Audit Office, February 21, 2022.

Guðmundur B. Helgason, Acting Auditor General

Financial statements of Íslandspóstur ohf.

Independent Auditor's Report To the Board of Directors and Shareholders of Íslandspóstur ohf. Opinion We have audited the financial statements of Íslandspóstur ohf. for the year 2021. The financial statements comprise the income statement, the balance sheet, the statement of changes in equity, statement of cash flows, notes to the financial statements including a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of Íslandspóstur ohf. as at December 31, 2021, and 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 and additional requirements in the Icelandic Financial Statement Act.

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 conducted our work in accordance with Act no. 94/2019 on Auditors and auditing and Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the financial statement.

Other information In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed elsewhere in the financial statements.

Responsibilities of the Board of Directors and the CEO for the Financial Statements The Board of Directors and the CEO are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements in the Icelandic Financial Statement Act, and for such internal control as the Board of Directors and the CEO determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the CEO are 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 the Board of Directors and the CEO either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are responsible for monitoring the preparation and presentation of the financial statements. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it 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 financial statements.

Financial statements of Íslandspóstur ohf.

Independent Auditor's Report As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: ˃ Identify and assess the risks of material misstatement of the 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, intentional omissions, misrepresentations, or the override of internal control. ˃ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. ˃ 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 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 the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

The Icelandic National Audit Office, February 21, 2022.

Hinrik Þór Harðarson State Authorized Public Accountant

Financial statements of Íslandspóstur ohf.

Statement of Profit and Loss and Other Comprehensive Income for the year 2021 Notes

Operating revenue ..................................................................................................

Other revenue ...........................................................................................................

Salaries and related expenses ...........................................................................

2021

2020

6.240.301

6.369.449

1.212.619

1.087.962

7.452.920

7.457.411

(4.522.703)

(4.708.232)

Direct cost of postal distribution ........................................................................

(1.212.817)

(1.222.910)

Other operating expenses ....................................................................................

(713.340)

(750.858)

(34.472)

(117.388)

(6.483.332)

(6.799.389)

969.589

658.022

(524.803)

(481.054)

444.786

176.967

Restructuring expenses ........................................................................................

EBITDA

Depreciation ..............................................................................................................

EBIT Finance income ........................................................................................................

19.886

49.481

Finance expenses ....................................................................................................

(116.424)

(179.844)

Exchange rate difference .....................................................................................

(11.373)

61.960

(107.910)

(68.402)

(16.315)

4.933

Profit before income tax

320.560

113.499

Income tax .................................................................................................................. 10

(64.721)

(20.275)

Profit of continuing operations

255.840

93.224

11.151

255.840

104.374

Share in (loss)/profit of subsidiaries ................................................................

Discountinued operations .....................................................................................

Comprehensive profit for the year

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Statement of Financial Position as at 31 December 2021

Assets

Notes

31.12.2021

31.12.2020

Non-Current Assets Property, plant and equipment ...........................................................................

3.283.888

3.315.104

Intangible Assets .....................................................................................................

209.340

269.000

Right-of-use asset ...................................................................................................

630.159

633.918

Long-term receivables ..........................................................................................

197.203

252.850

1.000

235.730

Investments in subsidiaries ................................................................................. Investment in other companies .......................................................................... Deferred tax asset ...................................................................................................

Total Non-Current Assets

52.383

103.880

168.601

4.477.853

4.927.588

Current Assets Inventories .................................................................................................................

119.780

115.475

Accounts receivable ...............................................................................................

1.001.303

839.432

Other receivables ....................................................................................................

141.577

65.989

Cash and cash equivalents ..................................................................................

788.119

1.023.338

Total Current Assets

2.050.779

2.044.234

Total Assets

6.528.633

6.971.822

2.947.500

380.719

367.927

Equity and liabilities Equity Share capital .............................................................................................................

Statutory reserve .................................................................................................... Restricted equity ......................................................................................................

16.958

Retained earnings / (Accumulated deficit) ....................................................

234.730

(25.276)

3.562.949

3.307.109

Total Equity Non-Current Liabilities Interest-bearing liabilities ....................................................................................

1.132.000

1.457.501

Lease liability ............................................................................................................

556.599

559.187

1.688.599

2.016.688

304.656

538.766

Total Non-Current Liabilities Current Liabilities Accounts payable .................................................................................................... Interest-bearing liabilities ....................................................................................

48.000

177.645

Current maturities of lease liability ..................................................................

103.624

96.350

Other current liabilities .........................................................................................

820.805

835.263

Total Current Liabilities

1.277.085

1.648.025

Total Liabilities

2.965.684

3.664.713

Total Equity and Liabilities

6.528.633

6.971.822

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Statement of Changes in Equity for the year 2021

Notes

2020 January 1, 2020 Impact of subsidiary sale ............. Restricted share in earnings ...... Profit for the year ........................... December 31, 2020 2021 January 1, 2021 Statutory reserve ........................... Restricted share in earnings ...... Profit for the year ........................... December 31, 2021

Financial statements of Íslandspóstur ohf.

Statutory

Restricted

Retained earnings /

Total

Share capital

reserves

equity

(Accumulated deficit)

Equity

2.947.500

367.927

30.011

(142.704)

3.202.735

(17.987)

17.987

4.933

(4.933)

2.947.500

367.927

16.958

2.947.500

367.927

16.958

12.792

2.947.500

380.719

104.374

(25.276)

3.307.109

(25.276)

3.307.109

(12.792) (16.958)

104.374

16.958 255.840

255.840

234.730

3.562.949

Amounts are in thousands of ISK

Statement of Cash Flows for the year 2021 Notes

2021

2020

Cash flows from operating activities Profit for the year ...............................................................................................

255.840

104.374

Operating items not affecting cash flow: 524.803

481.054

Profit on sale of assets .....................................................................................

Depreciation .........................................................................................................

(28.439)

(2.717)

Net financial expenses .....................................................................................

107.910

68.402

Share in (loss) / profit of subsidiaries ........................................................

16.315

(4.933)

Income tax ............................................................................................................. 10

64.721

20.275

(100)

475

(Decrease), increase in liabilities ................................................................. Discountinued operations ................................................................................

(11.151)

941.050

655.780

Inventories, (Increase) decrease ...................................................................

(4.305)

17.233

Other operating assets (Increase), decrease ............................................

(193.223)

55.722

Operating liabilities, (Decrease), increase .................................................

(222.926)

341.522

Cash generated from operating activities

Working capital from operating activities

520.595

1.070.257

Interest received .................................................................................................

5.930

14.195

Interest paid .........................................................................................................

(672)

(796)

525.852

1.083.656

Net cash from operating activities Cash flows from investing activities Purchase of intangible assets ........................................................................

(54.745)

(214.978)

Purchased fixed assets ...................................................................................

(314.499)

(237.044)

Proceeds from sales of fixed assets ............................................................

67.377

199.885

3.752

13.428

35.286

Net cash flow due to sale of subsidiaries ..................................................

28.905

Related parties receivables, increase .........................................................

206.552

13.344

(78.136)

(174.603)

Repayment on long-term loans .....................................................................

(489.245)

(379.545)

Payment of interest on lease liability ..........................................................

(88.732)

(70.823)

(107.395)

(80.012)

(685.372)

(530.380)

Bond repayment ................................................................................................. Paid dividends .....................................................................................................

Cash flows from financing activities

Repayment on lease liability ..........................................................................

(Decrease), Increase in cash and cash equivalents ...............................

(237.656)

378.673

Cash and cash equivalents at year's beginning .......................................

1.023.338

562.206

Exchange rate difference of cash .................................................................

2.437

82.459

Cash and cash equivalents at year-end .....................................................

788.119

1.023.338

Non-cash transactions Interest bearing loan converted to share capital

Sales of subsidiary in bond trading

Financial statements of Íslandspóstur ohf.

1.200.000 31.000

Amounts are in thousands of ISK

Notes to the Financial Statments 1.

General information Íslandspóstur ohf. is a public limited company and operates based on Act no. 2/1995 on Public Limitied Companies. Íslandspóstur ohf. is domiciled in Iceland. the legal residence of the Company is at Höfðabakki 9D, 110 Reykjavík. This Financial Statements include the financial statement of Íslandspóstur ohf. and its subsidiaries, at the end of 2021, the company has one subsidiary, Trönur ehf, but there are no operations in the subsidiary. Íslandspóstur's holding in the subsidiary is insignificant at the end of the year and as a result no consolidation is made.

The Company’s Board of Directors and CEO confirmed the Financial Statements with their signatures at February 22, 2021. 2.

Basis of preparation The Financial Statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as approved by EU and additional requirements in the Icelandic Financial Statement Act. The Financial Statements have been prepared on the historical cost basis, except in the following cases:

- Equity method used for shares in associates. The Financial Statements are prepared using the same accounting policies as the previous year. This 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. 3.

Adoption of new and audited International Financial Reporting Standards (IFRSs) The Group has adopted all new applicable International Financial Reporting Standard (IFRSs), amendments thereto and interpretations to the accounting periods that came into effect on January 1, 2021, as approved by the EU and are applicable for the Group's operations. The Group has not adopted any standards, amendments to standards or interpretations of them that are effective for subsequent reporting periods, but may be adopted sooner. The effect of other standards, amendments and interpretations that have not been adopted is, in the opinion of management, none or insignificant to the Financial Statements.

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 recognized in the period in which the estimates are revised and in any future periods affected. Information on important decisions where management’s estimates and accounting policies have the greatest impact on the recorded amounts of assets and liabilities in the financial statements can be found in the following notes: • Note 11 – Estimation of the useful life of fixed assets • Note 12 – Estimation of the useful life of intangible assets • Note 13– Estimation of allowances for long-term receivables • Note 14 – Estimation of allowances for accounts receivable • Note 16 – Estimation of the lease period and discount rate

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 5.

Revenue The revenue is specified as: Domestic postal service .................................................................................................................... Universal service ................................................................................................................................. Foreign postal service ........................................................................................................................

2021

2020

4.936.762 563.169 740.370

5.087.522 509.000 772.926

6.240.301

6.369.449

Íslandspóstur was appointed with an obligation to provide universal service in the field of postal services throughout the country by a postal service regulator in Iceland. As a universal service provider, Íslandspóstur is required to provide certain services throughout the country (universal service), and Íslandspóstur is required to arrange pricing, frequency and quality in accordance with the requirements of law and government directives. Payments to Íslandspóstur from the Icelandic state in 2021 for universal service amounted to a total of ISK 48.8 million. The remaining costs incurred in the year 2021 have been financed by Íslandspóstur, but no further payments have been received before the date when the Company's board and CEO confirmed the annual accounts for 2021.

According to ruling of the Regional Development Institute, no. Á-1/2022, Íslandspóstur has been ruled on the net cost of providing universal service for the year 2021, a total of ISK 563.2 million. Revenues from universal services provided are entered as operating income and to increase trade receivables. Total uncollected claims for net costs for services provided amount to ISK 514.4 million at the end of 2021.

Salaries and related expenses 2021

2020

Salary ....................................................................................................................................................... Pension fund .......................................................................................................................................... Other salary related expenses ........................................................................................................ Other employee cost ...........................................................................................................................

3.693.039 480.408 258.274 90.982

3.866.915 503.492 281.129 56.696

Salaries and related expenses ........................................................................................................

4.522.703

4.708.232

The average number of full-time positions ................................................................................

557

601

Salaries and benefits of the Board of Directors and key management personnel amounted to ISK 157.1 million this year (2020: ISK 153.6 million). There of the CEO’s salary was ISK 25.5 million (2020: ISK 28.3 million) and salaries to the members of the Board of Directors ISK 12.8 million (2020: ISK 12.3 million). Pension fund contributions amounted to ISK 22.2 million (2020: ISK 23.6 million). The salary for the Chairman of the Board is twice the salary of a Board member. Agreements with the Company’s managers do not provide for options to purchase shares in the Company or special payments upon termination of employment. The notice period for managers is mutual 6 months for both parties and 6 months for the CEO. The Company is committed to pay an additional contribution to the Pension Fund for State Employees, which amounts to 6% of the difference between the total salary and the reference salary of the employees who exercise the right to pay contributions to the fund while they work for the Company.

The cost of restructuring operations in 2021 was ISK 34 million (2020: ISK 117 million) and is recognized in a seperate line in the statement of profit and loss.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 7.

Auditor's fees Fees to the Icelandic National Audit Office are specified as follows: 2021

2020

9.200 3.180 1.669

8.509 3.396 0

14.049

11.904

2021

2020

328.668 109.908 86.227

339.136 53.653 88.266

524.803

481.054

2021

2020

13.428 6.459

35.286 14.195

19.886

49.481

Interest expense on short-term debt to credit institutions ................................................... Interest expense and indexation of long-term debt ................................................................ Interest expense on financing leases ...........................................................................................

0 (84.613) (29.750)

0 (130.854) (30.795)

Loss due to share investments ....................................................................................................... Penalty fees ........................................................................................................................................... Other interest expense .......................................................................................................................

0 (672) (1.388)

(17.399) (796) 0

(116.424)

(179.844)

(11.373)

61.960

(107.910)

(68.402)

Audit of the financial statements ................................................................................................... Review of interim financial statements ....................................................................................... Other services .......................................................................................................................................

Depreciation and amortization Depreciation and amortization are specified as follows: Depreciation of property, plant and equipment, see note 11 ............................................... Amortization of intangible assets, see note 12 ......................................................................... Depreciation of right-to-use assets, see note 16 ......................................................................

Financial income and financial expenses Financial income is specified as follows: Dividends from share investments ............................................................................................... Interest income ..................................................................................................................................... Financial expenses are specified as follows:

The exchange rate difference between financial assets and financial liabilities is as follows: Net exchange rate difference ..........................................................................................................

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 10.

Income tax Income tax is calculated and recognized in the Financial Statements and the amount recognized in the income statement amounts to ISK 64.7 million (2020: Revenue recognized amounting to ISK 20.3 million). Income tax will not be paid in 2022, as the Company's income tax base is negative, due to accumulated loss of previous years.

The effective income tax is identifies as follows

11.

2021 Amount

2020 Amount

Profit before income tax ..........................................

320.560

113.499

Tax rate .......................................................................... Nontax. rev., divident received .............................. Discontinued operations .......................................... Results of an associated company ...................... Non-deductible expenses ........................................ Other items ...................................................................

(64.112) 2.686 0 (3.263) (4) (27)

-20,0% 0,8% 0,0% -1,0% 0,0% 0,0%

(22.700) 7.057 (5.710) 987 (4) 95

-20,0% 6,2% -5,0% 0,9% 0,0% 0,1%

Calculated income tax ..............................................

(64.721)

-20,2%

(20.275)

-17,9%

Property, plant and equipment Real estate and land

Equipment and vehicles

Total

Cost Balance January 1, 2020 ................................................................................. Capitalized during the year ............................................................................ Sold and disposed of during the year ......................................................... Balance January 1, 2021 .................................................................................

4.293.014 7.773 0 4.300.787

2.875.696 229.271 (53.941) 3.051.026

7.168.709 237.044 (53.941) 7.351.812

Reclassification of fixed assets ..................................................................... Capitalized during the year ............................................................................ Sold and disposed of during the year .........................................................

196.283 38.957 (58.708)

(191.787) 292.935 (81.739)

4.496 331.892 (140.447)

Balance December 31, 2021 ..........................................................................

4.477.320

3.070.434

7.547.754

Accumulated depreciation Balance January 1, 2020 ................................................................................. Depreciation of the year .................................................................................. Sold and disposed of during the year .........................................................

1.678.295 140.789 0

2.058.707 198.346 (39.430)

3.737.002 339.136 (39.430)

Balance January 1, 2021 .................................................................................

1.819.085

2.217.623

4.036.708

Reclassification of fixed assets ..................................................................... Depreciation of the year .................................................................................. Sold and disposed of during the year .........................................................

323 137.530 (21.021)

(323) 191.137 (80.488)

(0) 328.668 (101.509)

Balance December 31, 2021 ..........................................................................

1.935.916

2.327.950

4.263.866

Book value Book value January 1, 2020 ........................................................................... Book value December 31, 2020 .................................................................... Book value December 31, 2021 ....................................................................

2.614.718 2.481.702 2.541.404

816.989 833.403 742.484

3.431.707 3.315.105 3.283.888

Depreciation rates .............................................................................................

0-4%

Financial statements of Íslandspóstur ohf.

10-33%

Amounts are in thousands of ISK

Notes to the Financial Statments 11.

Property, plant and equipment (cont.) The company's assets are covered by collateral bonds and bonds to guarantee outstanding debt in the amount of ISK 1,180 million. All the Company's properties are pledged. It is the assessment of management that impairment due to COVID is insignificant to PPE.

Real estate and insurance valuation of the Company's assets at year-end:

Real estate and land ......................................................................................... Equipment, vehicles and property insurance .......................................... 12.

Real estate valuation

Insurance valuation

Book value

2.724.176

3.959.699 1.810.380

2.541.404 742.484

Intangible assets Software Cost Balance January 1, 2020 ....................................................................................................................................................... Capitalized during the year ................................................................................................................................................... Balance January 1, 2021 ....................................................................................................................................................... Reclassification of fixed assets ........................................................................................................................................... Capitalized during the year ............................................................................ Sold and disposed of during the year ............................................................................................................................... Balance December 31, 2021 ................................................................................................................................................

529.707 214.978 744.685 (4.602) 54.745 (86.148) 708.680

Accumulated amortization Balance January 1, 2020 .......................................................................................................................................................

422.032

Amortization of the year ........................................................................................................................................................ Balance January 1, 2021 ....................................................................................................................................................... Reclassification of fixed assets ........................................................................................................................................... Amortization of the year ........................................................................................................................................................ Sold and disposed of during the year ............................................................................................................................... Balance December 31, 2021 ................................................................................................................................................

53.653 475.685 (106) 109.908 (86.148) 499.340

Book value Book value January 1, 2020 ................................................................................................................................................. Book value December 31, 2020 .......................................................................................................................................... Book value December 31, 2021 ..........................................................................................................................................

107.675 269.000 209.340

Amortization rate .....................................................................................................................................................................

20-33%

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 13.

Long-term receivables and bond holdings 2021 372.209 445.691 (396.949) 420.950 (118.819) 302.131 (104.928) 197.203

2020 657.695 806.765 (1.092.251) 372.209 (88.819) 283.390 (30.540) 252.850

Gross value 389.549 22.758 7.600 1.043 420.951

Expected credit loss (92.273) (18.206) (7.296) (1.043) (118.819)

Book value 297.276 4.552 304 (0) 302.132

Gross value

Expected credit loss

Book value

256.279 91.538 2.795 1.967 352.578

(77.635) (6.630) (2.587) (1.967) (88.819)

178.643 84.908 208 263.759

Balance at January 1, 2020 .............................................................................................................. Additions ................................................................................................................................................. Deposits during the year ................................................................................................................... Balance at December 31, 2020 ....................................................................................................... Allowance for doubtful long-term receivables .......................................................................... Status of long-term receivables ..................................................................................................... Short-term portion of long-term receivables ............................................................................ Balance at December 31, 2020 ....................................................................................................... 31.12.2021 Foreign trade receivables 2021 Foreign trade receivables 2020 Foreign trade receivables 2019 Foreign trade receivables 2018 Total foreign trade receivables 31.12.2020

Expected credit loss 24% 80% 96% 100%

Expected credit loss

Foreign trade receivables 2020 Foreign trade receivables 2019 Foreign trade receivables 2018 Foreign trade receivables 2017 Total foreign trade receivables

30% 7% 93% 100%

Claims on foreign postal companies are classified as fixed assets as long-term claims. These are claims that arise from the settlement of terminal income and charges for postal items between countries. Payments for the transaction can be received up to two and a half years after the claim is formed. Bond holdings at the end of 2021 amounted to ISK 14.2 million (2020: ISK 26.1 million) of which ISK 0.5 million for payment next year.

Changes in the write-down of long-term receivables are identified as follows : Position at the beginning of the year ............................................................................................

2021

2020

(88.819)

(84.537)

Change in write-down of long-term receivables ......................................................................

(30.000)

(4.282)

Position at the end of the year .........................................................................................................

(118.819)

(88.819)

The write-down of long-term receivables is based on the assessment and experience of management. It is unclear what effect COVID will have on foreign trade receivables, as they are settled up to 30 months after the service has been provided. The write-down of foreign trade receivables for 2021 was increased due to uncertainty in revenue flow due to COVID's continued global situation.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 14.

Accounts receivables 2021

2020

Accounts receivables ..........................................................................................................................

1.053.611

885.662

Write-down due to claims that may be lost ................................................................................

(52.308) 1.001.303

(46.231) 839.432

31.12.2021

Expected

credit loss

Gross value

credit loss

Book value

Undue receivables .............................................

1.028.552

(45.321)

983.231

1 - 30 days ............................................................

25%

22.787

(5.697)

17.090

31 - 60 days .........................................................

35%

857

(300)

557

> 61 days ..............................................................

70%

1.414

(990)

424

1.053.611

(52.308)

1.001.303

Total domestic receivables ............................

31.12.2020

Expected

credit loss

Gross value

credit loss

Book value

Undue receivables .............................................

841.041

(17.886)

823.155

1 - 30 days ............................................................

35%

20.465

(7.163)

13.302

31 - 60 days .........................................................

71%

601

(427)

174

> 61 days ..............................................................

88%

23.556

(20.754)

2.801

885.663

(46.230)

839.432

2021

2020

Position at the beginning of the year ...........................................................................................

(46.231)

(56.292)

Change in write-down of trade receivables ................................................................................

(10.064)

3.762

Lost trade receivables during the year ........................................................................................

3.987

6.299

(52.308)

(46.231)

Total domestic receivables ............................

Changes in the write-down of trade receivables are identified as follows:

Position at the end of the year .....................

The allowance is based on management’s judgement and experience from previous years. Account receivables are derecognized when they are truly lost in accordance with Act no. 90/2003.

15.

Inventory 2021

2020

Inventory of operating and sales products .................................................................................

65.644

55.331

Stamps inventory .................................................................................................................................

54.136

60.145

119.780

115.476

The inventory write-off for the year amounted to ISK 6 million (2020: ISK 7 million) and ISK 22 million (2020: ISK 38.8 million) for the cost of goods sold.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 16.

Leases The Company has entered into lease agreements for real estate that are recognized in the consolidated statement of financial position. More information about the right-of-use and lease liability can be found below. Right-of-use asset

Real estate

Recognized on initial application, January 1, 2020 .................................................................. Adjustments for indexed leases ..................................................................................................... New leases ............................................................................................................................................. Amendments to existing leases ...................................................................................................... Depreciation ........................................................................................................................................... Balance at January 1, 2021 .............................................................................................................. Adjustments for indexed leases ..................................................................................................... New leases ............................................................................................................................................. Amendments to existing leases ...................................................................................................... Depreciation ........................................................................................................................................... Balance at December 31, 2021 .......................................................................................................

638.806 23.232 42.867 17.278 (88.266) 633.918 28.984 17.967 35.518 (86.227) 630.159

Duration of contracts

1-13 years

Amounts recognised in profit and loss Depreciation expense from right-of-use assets ....................................................................... Interest expense on lease liabilities ................................................................................................. Short-term lease expense ................................................................................................................... Total amount recognized in profit and loss ...................................................................................

2021

2020

86.227 29.750 39.338 155.315

88.266 30.795 25.970 145.031

The Company paid ISK 149 million in rent for the year 2021, compared to ISK 217 millions in 2020. Lease liability

Real estate

Recognized on initial application, January 1, 2020 ...................................................................................................... Adjustments for indexed leases ......................................................................................................................................... New or renewed leases ......................................................................................................................................................... Amendments to previous agreements ............................................................................................................................. Interest expense on lease liabilities .................................................................................................................................. Lease payments during the period .................................................................................................................................... Balance at January 1, 2020 .................................................................................................................................................. Adjustments for indexed leases ......................................................................................................................................... New or renewed leases ......................................................................................................................................................... Amendments to previous agreements ............................................................................................................................. Interest expense on lease liabilities .................................................................................................................................. Lease payments during the period .................................................................................................................................... Current maturities ................................................................................................................................................................... Balance at December 31, 2021 ...........................................................................................................................................

Financial statements of Íslandspóstur ohf.

651.738 23.232 42.867 17.751 30.795 (110.846) 655.537 28.984 17.967 35.380 29.750 (107.395) (103.624) 556.599

Amounts are in thousands of ISK

Notes to the Financial Statments 16.

Leases (cont.) Lease liability Maturity analysis, undiscounted lease payments

17.

31.12.2021

31.12.2020

Not later than 1 year .............................................................................................................................. Later than 1 year and not later than 5 years ................................................................................ Later than 5 year .................................................................................................................................... Total undiscounted lease payments

105.651 305.093 428.145 838.889

97.862 281.371 474.867 854.100

Short-term liabilities .......................................................................................................................... Non-current liabilities ........................................................................................................................ Year-end lease liabilities of financial position ...........................................................................

103.624 556.599 660.223

96.350 559.187 655.537

Proportion

Amount

2.947.500

100,0%

2.947.500

100,0%

2.947.500

Equity Share capital Share capital is specified as follows:

Total share capital as of 31.12.2021 ...........................................................

The total share capital at year-end was ISK 2,947.5 million. The nominal value of each share is ISK 1 and each equals one vote.

Statutory reserve According to the Icelandic Act on Limited companies, the Company must invest 25% of the nominal value of the share capital to the statutory reserve. A proposal to the statutory reserve shall amount to at least 10% of profit for the year until the reserve ratio amounts to 10% of the nominal value of the share capital, after which the proposal is at least 5% of the profit until the reserve rate is 25% of the nominal value of the share capital.

Retained earnings Retained earnings is the accumulated retained earnings of the company, less dividends and transfers against other equity items. Equity When the state owns a company, great emphasis is placed on long-term perspectives on its structure and operation. At the same time, emphasis is placed on companies owned by it, especially when conducting competitive operations, returning acceptable results and ensuring the maintenance of income-generating assets. This includes e.g. that the Treasury receives a normal return on equity in accordance with the risk of operations.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 18.

Interest-bearing liabilities Interest-bearing liabilities is specified as follows: Interest-bearing liabilities 31.12.2021 31.12.2020 Indexed liabilities in ISK ..................................................................................................................... Non-indexed liabilities in ISK ...........................................................................................................

0 1.180.000

1.635.146 0

Next year's installments of int.-bearing liabilities, short-term share ...............................

(48.000)

(177.645)

Interest-bearing liabilities at year-end ........................................................................................

1.132.000

1.457.501

Maturities on interest-bearing liabilities is specified as follows: Interest-bearing liabilities 2021 2020 48.000 48.000 48.000 48.000 48.000 48.000 892.000 1.180.000

177.645 291.451 174.178 179.149 184.010 187.982 440.731 1.635.146

2021

2020

Interest-bearing liabilities..................................................................................................................

5,0%

3,3%

Transactions due to interest-bearing liabilities

2021

2020

Balance at January 1........................................................................................................................... Installments............................................................................................................................................

1.635.147 (1.689.245)

1.952.985 (379.545)

New loans................................................................................................................................................ Price indexation and exchange rate difference.......................................................................... Balance at December 31....................................................................................................................

1.200.000 34.098 1.180.000

0 61.707 1.635.147

Maturity 2022/2021 ............................................................................................................................ Maturity 2023/2022 ............................................................................................................................ Maturity 2024/2023 ............................................................................................................................ Maturity 2025/2024 ............................................................................................................................ Maturity 2026/2025 ............................................................................................................................ Maturity 2027/2026 ............................................................................................................................ Maturity later .........................................................................................................................................

The weighted average interest rates are as follows:

On July 1, 2021, Íslandspóstur refinanced its long-term loans. Older indexed loans were repaid but instead long-term loans were taken with variable, non-indexed interest rates.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 19.

Deferred tax assets Deferred tax assets 2021

2020

Balance at January 1........................................................................................................................... Diff. between taxed and government charges for the previous year ................................

168.601 0

188.875 95

Calculated income tax for the year ................................................................................................... Balance at December 31, ..................................................................................................................

(64.721) 103.880

(20.370) 168.601

31.12.2021

31.12.2020

5.066

1.049

Deferred tax assets are indentified on individual items as follows:

Property, plant and equipment .......................................................................................................... Lease liability ...........................................................................................................................................

6.013

4.324

Current financial assets .......................................................................................................................

21.145

13.739

Deferred exchange rate difference ..................................................................................................

(2.614)

(8.747)

The effect of carry-forward tax losses ............................................................................................

74.270

158.236

103.880

168.601

The tax loss carry-forward is deductible at the earliest, as follows: From profit of the year in 2029 ...........................................................................................................................................

371.351 371.351

20.

Other current liabilities 2021

21.

2020

Debts to related companies ................................................................................................................

2.051

14.205

VAT ............................................................................................................................................................... Pre-collected income ............................................................................................................................

77.107 46.261

79.206 30.250

Accrued salary and related expenses .............................................................................................

518.086

635.470

Unpaid accrued interest ....................................................................................................................... Other short-term liabilities .................................................................................................................

487 176.813 820.805

3.218 72.913 835.263

Related parties Related parties to the company are the Ministry of Finance, which manages all holdings of Íslandspóstur ohf., The Icelandic state and companies and institutions belonging to it, as well as the company's board, its main management and close family members. The company trades with its related parties and the transactions are priced as if they were unrelated parties. The company uses an exemption according to IAS 24.25 for state-owned companies. However, reference is made to Note no. 5 due to a significant transaction with a related party.

The holding in subsidiaries is due to the company Trönur ehf. This is an insignificant holding at the end of 2021. During the year, the share capital of Trönur ehf. decreased and the holding stands at ISK 1.0 million at the end of 2021.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 23.

Financial assets and financial liabilities Financial assets

2021

Long-term receivables and bond holdings .................................................................................

2020

197.203

252.850

Holdings in other companies ...........................................................................................................

52.383

Accounts receivable ............................................................................................................................

1.001.303

839.432

Other short-term receivable (excluding prepayments) ..........................................................

116.595

30.540

cash and cash equivalents ...............................................................................................................

788.119

1.023.338

2.155.604

2.198.544

Interest-bearing liabilities with credit institutions ...................................................................

1.180.000

1.635.146

Accounts payable .................................................................................................................................

304.656 820.805

305.490 872.487

2.305.461

2.813.124

Financial liabilities

Other short-term liabilities ...............................................................................................................

24.

Financial risk management The Company manages its capital so that it maintains its going concern while maximizing the profitability of its stakeholders with the best balance between liabilities and equity. The Company is not required to comply with external rules on minimum capital adequacy.

The Company’s management monitor and analyze financial risks in operations. Risk management methods reviewed regularly to identify changes in the Company’s market and operations. The following risks have been identified for financial instruments. Fair value The difference between fair value and book value of financial assets and financial liabilities are insignificant. Market risk The Company‘s main risk factors are changes in currency exchange rates, changes in interest rate and inflation. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Currency risk Part of Company's financial assets and financial liabilities is in foreign currency, exposing the Company to risks due to changes in the exchange rate of the relevant currencies against the Icelandic króna. The Company seeks to minimize currency risk by monitoring exchange rate developments and by appropriately combining financial assets and financial liabilities in major trading currencies. The Company does not normally hedge against currency risk.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 24.

Financial risk management (cont.) Below are listed the foreign currencies that mainly affect the Company’s operations. Their exchange rates and balance are based on the closing price of the period.

December 31, 2021

Exchange rate

Assets

Liabilities

Net exposure

EUR .................................................................................. NOK ................................................................................. SEK ..................................................................................

147,6 14,8 14,4

255.840 47 1.781

34.451 5.224 899

221.389 (5.177) 882

DKK ..................................................................................

19,8

4.117

(4.109)

USD .................................................................................

130,4

19.647

8.328

11.319

XDR ..................................................................................

182,5

667.461

197.798

469.663

GBP ..................................................................................

175,7

123.271

255.415

(132.144)

1.068.054

506.231

561.823

Exchange rate

Assets

Liabilities

Net exposure

EUR ..................................................................................

156,1

57.594

49.782

7.812

NOK .................................................................................

14,9

13.642

239

13.403

SEK ..................................................................................

15,6

1.792

751

1.041

DKK .................................................................................. USD ................................................................................. XDR .................................................................................. GBP ..................................................................................

21,0 127,2 183,9 173,6

8 2.353 452.057 307.174 834.620

3.381 16.311 252.247 322.711

(3.373) (13.958) 452.057 54.927 511.909

December 31, 2020

The table below shows what effects a 5% and 10% increase of the relevant foreign currency rate against the ISK would have on P/L and equity based on the balance of assets and liabilities in the applicable currency at the reporting date. The table above shows the balance of assets and liabilities in foreign currencies that the sensitivity analysis covers. The analysis assumes that all other variables, excluding the relevant foreign currency rate, are held constant. The sensitivity analysis covers those currencies that have the highest currency risk. It does not take into account tax effects and comparative figures were prepared in the same manner. The effect on P/L and equity is the same since the change in valuation of the underlying financial instruments in foreign currency is in no case recognized directly in equity. A positive number below indicates an increase in P/L and equity. A decrease of ISK exchange rate against the currencies listed below would have an opposite impact on P/L and equity.

31.12.2021 Effect on P/L and equity

31.12.2020

10%

EUR ..................................................................................

11.069

22.139

391

781

NOK .................................................................................

(259)

(518)

670

1.340

SEK .................................................................................. DKK .................................................................................. USD ................................................................................. XDR .................................................................................. GBP ..................................................................................

44 (205) 566 23.483 (6.607)

88 (411) 1.132 46.966 (13.214)

52 (169) (698) 22.603 2.746

104 (337) (1.396) 45.206 5.493

28.091

56.182

25.596

51.191

Financial statements of Íslandspóstur ohf.

10%

Amounts are in thousands of ISK

Notes to the Financial Statments 24.

Financial risk management (cont.) Interest rate risk Interest rate risk is the risk that the fair value or future cash flow of financial instruments will fluctuate due to changes in market rates. Interest rate risk arises because of the Company's non-current liabilities carry both fixed and variable interest rates. The risk is controlled by monitoring interest rates and by borrowing loans with an appropriate combination of fixed and variable rates.

Interest rates on the Company’s borrowings are presented in note 18 for interest-bearing liabilities. All interestbearing liabilities of the Company, totalling ISK 1.180 million, carry variable non-indexed interest (31 December 2020: ISK 1.398 million variable interest and ISK 237 million fixed interest)

The table below shows the effect of a 50 and 100 point increase in interest rates on P/L and equity at the reporting date. The sensitivity analysis covers the interest-bearing assets and liabilities that carry variable interest rates and assumes that all other variables, excluding the relevant interest rates, are held constant. The sensitivity analysis reflects the effects that appear in the P/L and equity without tax effects. 31.12.2021 50 p. Effect on P/L and equity ..........................................

5.780

100 p. 11.560

31.12.2020 50 p. 6.992

100 p. 13.983

Inflation risk Interest-bearing liabilities for the amount of ISK 1.180 million are indexed based on the Consumer Price Index (December 31, 2020: ISK 1.635 million indexed based on the consumer price index). Therefore, the development of the consumer price index affects the carrying amount of the loans and cash flow related to them. An increase in inflation from 3,59% at year end 2020 to 5,1% year end 2021 and has affected the uninsured interest rate of the Company's interest-bearing liabilities to increase.

Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s management regularly monitor the development of credit-related assets and a credit policy has been implemented for the approval of new customers as well as receiving bank guarantees to minimize credit risk. This credit policy are reviewed regularly to reflect the changing circumstances of the counterparty. Underlying collateral is not taken into account when assessing the maximum loan risk.

The maximum credit risk is the carrying amount detailed below: 31.12.2021

31.12.2020

Bonds and other long-term receivables ......................................................................................

420.950

372.209

Accounts receivable ............................................................................................................................

1.053.611

885.663

Other short-term receivables .......................................................................................................... Cash and cash equivalents ...............................................................................................................

246.506 788.119

96.529 1.023.338

2.509.186

2.377.739

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 24.

Financial risk management (cont.) The tables below show the carrying amount of financial assets by age (number of days past maturity) and classification: December 31, 2021

Bonds and other recei.

Not reached maturity .......................................

420.950

420.950 Bonds and other recei.

Not reached maturity ....................................... 1-30 days ..............................................................

1.028.552

246.506

22.787 857 1.414

1-30 days .............................................................. 31-60 days ........................................................... >61 days ................................................................

December 31, 2020

Other shortAccounts receivable term receivable

372.209

1.053.611

Total 1.696.009 22.787 857 1.414

246.506

1.721.067

Accounts Other shortreceivable term receivable

Total

841.041 20.465

96.529

1.309.779 20.465

31-60 days ...........................................................

601

>61 days ................................................................

23.556

372.209

885.663

96.529

1.354.401

The Company evaluates the allowance for doubtful accounts based on the likelihood of an default during the lifetime of the receivables. Accounts receivable are divided into age categories and allowances are estimated for each category based on previous years’ experience, management’s estimates and future prospects in the customer’s economic environment. The Company’s management believes that the carrying amount of accounts receivable and other shortterm receivables reflect their fair value. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations within the required time limits. The Company’s management monitor the liquidity position by analyzing the maturity of financial assets and liabilities to ensure that the Company can reimburse their liabilities at maturity. Liquidity position, developments on the market and the impact of market conditions and future prospects on the Company are regularly monitored. Collectibility of domestic receivables has been good over the year and its development is closely monitored. The payment of long-term debt has resulted in a decline in financial expenses. This has led to an improvement in cash position as well as cash in hand.

2025

Liabilities at December 31, 2021: 2023

Within a year

2024

or later

Total

Non-int.-bearing .............

1.125.461

Variable int. rates .......... Lease liability ..................

48.000 105.651

48.000 89.105

48.000 79.298

1.036.000 564.835

1.180.000 838.889

1.279.112

137.105

127.298

1.600.835

3.144.350

2024

Liabilities at December 31, 2020: 2022

Within a year Non-int.-bearing .............

1.374.029

Variable int. rates ..........

62.688

Fixed int. rates ................

114.958

121.855

Lease liability ..................

97.862 1.649.537

Financial statements of Íslandspóstur ohf.

2023

or later

Total 1.374.029

62.688

1.210.271

86.262

76.679

593.296

854.099

270.805

139.367

1.803.567

3.863.276

1.398.335 236.813

Amounts are in thousands of ISK

Notes to the Financial Statments 25.

Accounting and financial separation 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 December 9, 2021 a summary of Íslandspóstur’s accounting separation from 2020 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 2021 operation will be provided to the PTA as instructed in the regulation.

26.

Other information about the operating environment The conclusion the executive branch came to was that the Post and Telecom Administration would name Íslandspóstur responsible for universal service with ruling number 13/2020 – The naming of Íslandspóstur ohf. as universal server around the country, dated 11 December 2020. According to the ruling, the decision is temporary for up to ten years. Despite this, Íslandspóstur had operated as such based on the provisional ruling of the Post and Telecom Administration number 29/2019 – The obligation of Íslandspóstur ohf. to provide universal service around the country, dated 11 December 2019. Both rulings laid an obligation on the Company to fulfil the law’s provision of universal service around country in all categories of universal service, which are letters, high volume mail, packages of up to 10 kg, registered mail, insured mail and cecograms of up to 2 kg.

27.

Accounting policies Revenue recognition The Company’s revenue recognition reflects the remuneration that the Group expects to receive as a result of a sale of services and products to the customer. The Company's revenues from contracts with customers are mainly generated by the sale of postal services, which includes, among other things, distribution of letters, parcels, mail and related services. Revenue is recorded when the Company’s contractual obligations have been fulfilled. Service revenues are recognized, as the case may be, at the time the service was provided, or at the same time as the service is provided. Sale of goods are recognized when goods are delivered and the Company has transferred to the buyer the significant risks and rewards of ownership of the goods. Revenues are shown in the Statement of Profit and Loss with regard to discounts. Revenue that has been collected during the fiscal year but relates to subsequent fiscal years is recognized in the Statement of Financial Position as a pre-collected income. Foreign mail revenues relating to the fiscal year are recognized as long-term receivables, but these are receivables from foreign postal companies that arise from the settlement of cross-border mail transactions, deposits for the receivables can take up to two and a half year from when the transaction takes place.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 27.

Accounting policies (cont.) Expense recognition Expenses incurred to earn revenue during the period are recognized as operating expenses. Expenses incurred during the fiscal year but relating to subsequent fiscal years are recognized in the Statement of Financial Position as prepaid expenses. Expenses relating to the fiscal year but payable later are recognized as liabilities as accrued expenses in the Statement of Financial Position. Financial income and financial expenses Financial income consists of interest income and dividend income. Interest income is recognized in the Statement of Profit and Loss as it accrues based on effective interest rate. Dividend income is recognized in the Statement of Profit and Loss on the date the dividend is approved. Financial expenses consist of interest expenses on borrowings and impairment of financial assets and are recognized in the income statement during the period in which they accrue. Borrowing costs are recognized in the income statement based on effective interest rate. Trading in currencies other than ISK is converted into ISK at the exchange rate on the day of the transaction. Exchange rate differences arising from the payment of liabilities and collecting receivables are recognized in the statement of comprehensive income. Monetary assets and liabilities in foreign currencies are translated using the currency rate at year-end and the accrued exchange rate difference is recognized in the statement of comprehensive income among financial items.

Taxation Income tax is calculated and recognized in the financial statements. Taxable profit differs from net profit as reported recognized in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's current tax rate is 20%. The tax currently payable is income tax that is likely to be paid within the next 12 months for taxable income of the year and corrections in income tax for previous years. Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. The difference is due to the fact that the income tax base is based on criteria other than their financial statements. Deferred income tax is not transferred due to temporary differences arising from the initial registration of goodwill. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 27.

Accounting policies (cont.) Property, plant and equipment Property, plant and equipment are recognized as an asset when it is probable that future economic benefits associated with the asset will flow to the company and the cost of the asset can be measured in a reliable manner. Property, plant and equipment, which qualifies for recognition as an asset is initially measured at cost. The cost of a property, plant and equipment comprises its purchase price and any directly attributable cost of bringing the asset to working condition for its intended use. After initial recognition, property, plant and equipment are recognized at cost price or revalued cost less accumulated amortization. Depreciation is calculated on a straight-line basis from the depreciable amount over its useful life and recognized in the statement of comprehensive income. The depreciable amount is cost price less expected residual value. Plots and lands are not depreciated. Information on the depreciation ratio of assets can be found in note 11. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Depreciation methods, useful lives and residual values are re-evaluated on the settlement date and changed if necessary. Intangible assets Intangible assets are software that has a limited life and are recognized at amortized cost. The intangible assets will be amortized on a straight-line basis over their useful life. The amortization charge for each period is recognized as expense in the consolidated financial statements. More information on amortization can be found in note 12.

Financial assets Financial assets are recognized at fair value on initial recognition. When financial assets are not measured at fair value through profit or loss, all direct transaction costs are recognized to increase their value at initial recognition. The company recognizes all its financial assets at amortized cost.

Financial assets consist of long-term receivables, bonds, accounts receivables, short-term receivables with the exception of prepaid expenses and deduction taxes, holdings in other companies and cash.

Financial assets that are estimated to be held-to-maturity and their contractual cash flow consist only of principal and interest payments shall be recognized at amortized cost unless the instrument is defined as a fair value through profit or loss in accordance with the fair value option. Such assets are initially recognized at fair value plus all related transaction costs. After initial recognition, such financial assets are measured at amortized cost based on effective interest rate, less impairment. The Group's financial assets that are valued at amortized cost are long-term receivables, trade receivables, other short-term receivables, holdings in other companies, related party requirements and cash. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Cash and cash equivalents The companies cash and cash equivalent consist of cash and bank balances.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Notes to the Financial Statments 27.

Accounting policies (cont.) Impairment of financial assets The IFRS 9 impairment model is based on expected credit loss. The companies financial assets that fall within the scope of the impairment model are long-term receivables, accounts receivable, other short-term receivables (with the exception of prepayments and deduction taxes), related party requirements and cash.

When evaluating expected credit loss for accounts receivable, the Company uses a simplified approach. This approach assumes that the Company evaluates an allowance that is equal to expected credit loss during the life of the receivables. The company accounts receivable are subdivided into categories according to the number of days over maturity. When estimating a fixed allowance ratio for each category, the Company's bad debts are taken into account in historical context, adjusted for future economic development expectations if needed. See detailed discussion of expected credit loss for accounts receivable in note 24.

At each settlement date, it is examined whether there is objective evidence of impairment of financial assets. A financial asset has been impaired if there is objective evidence that one or more events that have occurred will affect the expected future cash flow of the asset and that impairment can be reliably estimated. The company makes a specific impairment of financial assets where there is an objective indication of impairment. Impairment is expensed in the statement of comprehensive income. Impairment is reversed if the reversal can be objectively linked to events that occurred after the impairment was recognized. Leases The company evaluates whether a contract is or contains a lease, at inception of the contract. The company recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.

The lease liability and the right-of-use asset is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the company uses its incremental borrowing rate. The lease payments included in the measurement of the lease liability comprise fixed payments less any incentives, variable lease payments that depend on an index or rate, expected residual guarantees and the exercise price of purchase options if the company expects to exercise the option. The company re-evaluates the lease liability if the lease term has changed, when lease payments changes in an index or rate or when a lease contract is modified and the modification is not accounted for as a separate lease. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfer’s ownership of the underlying asset or the cost of the right-of-use asset reflects that the company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

Financial liabilities The Company's financial liabilities consist of accounts payable, other short-term liabilities and interest-bearing liabilities. Other financial liabilities, including interest-bearing liabilities, were initially measured at fair value less transaction costs. For subsequent recognition, they are recognized at amortized cost based on effective interest rate. The Company derecognizes financial liabilities only when an obligation due to them no longer exists.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Annex Non-financial information Íslandspóstur ohf. plays a vital role in connecting people, businesses and communities by disseminating important information, data and products to the Icelandic people and their customers wherever they are in the country. The staff of Íslandspóstur handle hundreds of thousands daily mailings. In addition, Íslandspóstur is in close cooperation with postal companies all over the world to ensure the density of the distribution system. Postal service plays an important role, not least for businesses, and plays a key role in online business. The recent European Commission’s policy on Digital Single Market (DSM) emphasizes the importance of active and reliable postal services as the basis for active cross-border online business.

Social responsibility Íslandspóstur ohf. places great emphasis on corporate social responsibility and wants to work in harmony with the environment and society. The Company's vision is for sustainability to be intertwined with the Company culture and a part of all decision making. This year, Íslandspóstur publishes for the first time the a sustainability report and a sustainability report in parallel with the annual report. In 2021, the board approved a new environmental and climate policy, along with goals and an action plan. The Company's carbon footprint largely lies in its operations themselves, that is the sorting, transporting and distribution of mail. Therefore Íslandspóstur closely monitors technological advancements in transportation, renewable energy, and infrastructure as well as looking for oppurtunities to decrease its operations' negative environmental impact through these measures. Moving forward, the goal is also to engage its operations with the UN Sustainable Development Goals so that Íslandspóstur can contribute to attaining those goals and five goals have been chosen that Íslandspóstur intends to work on specifically and place its weight on the scales in a larger context.

Human resources Year 2021, approximately 729 employees work for Íslandspóstur and perform around 557 full-time positions. Íslandspóstur has received equal pay certification and is working systematically to eliminate gender pay gap and that the goal of the management is to have it 0%. This year, great emphasis was put in performance measures and employee feedback through HR Monitor and placed on monthly human resource surveys and follow-up with results for the benefit of employees and the company as a whole. A maintainance evaluation for the year of 2021 showed a base pay gap of only 0,02%, in favour of women, and the company received an equal pay certification renewed during the year and is valid until the year 2024. Íslandspóstur also received recognition from Jafnvægisvogin for good results in gender equality issues during the year.

Ethics, corruption, bribery and human rights The Company respects the general human rights, everyone’s right to freedom of association and collective bargaining. Emphasis placed on contractors to comply with applicable laws in the country that apply to all their employees, whether they are employees or subcontractors. This year the Company set a written benchmark for actions regarding money laundering. The Company's risk policy, internal controls and HR policy tackle procedures involving ethics, corruption, human rights and bribery.

Financial statements of Íslandspóstur ohf.

Amounts are in thousands of ISK

Íslandspóstur ohf. Financial Statements 2021

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