Kazpost JSC Consolidated Financial Statements for the year ended 31 December 2014

Transcription

1 Consolidated Financial Statements for the year ended 31 December

2 Contents Independent Auditors Report... Consolidated Statement of Financial Position Consolidated Statement of Profit or Loss and Other Comprehensive Income... 3 Consolidated Statement of Changes in Equity... 4 Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements

3 «КПМГ Аудит» жауапкершілігі шектеулі серіктестік Алматы, Достық д-лы 180, Тел./факс 8 (727) , KPMG Audit LLC Almaty, 180 Dostyk Avenue, company@kpmg.kz Independent Auditors Report To the Board of Directors of Kazpost JSC We have audited the accompanying consolidated financial statements of Kazpost JSC and its subsidiaries (the Group ), which comprise the consolidated statement of financial position as at 31 December, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. «КПМГ Аудит» ЖШС, Қазақстан Республикасының заңнамасы бойынша тіркелген компания жəне Швейцария заңнамасы бойынша тіркелген KPMG International Cooperative ( KPMG International ) қауымдастығына кіретін KPMG тəуелсіз фирмалар желісінің мүшесі. KPMG Audit LLC, a company incorporated under the Laws of the Republic of Kazakhstan, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity..

4 Independent Auditors Report Page 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of Matter We draw attention to the fact that the corresponding figures presented, excluding the adjustments described in Note 3(s) to the consolidated financial statements, are based on the consolidated financial statements of the Group as at and for the year ended 31 December, which were audited by other auditors whose report dated 14 March expressed an unmodified opinion on those statements. As part of our audit of the consolidated financial statements, we have audited the adjustments described in Note 3(s) to the consolidated financial statements that were applied to restate the consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the consolidated financial statements of the Group other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements taken as a whole. Our opinion is not qualified in respect of this matter. Yelena Kim Certified Auditor of the Republic of Kazakhstan Auditor s Qualification Certificate No.МФ of 8 August 2011 KPMG Audit LLC State Licence to conduct audit # dated 6 December 2006 issued by the Ministry of Finance of the Republic of Kazakhstan Alla Nigay General Director of KPMG Audit LLC acting on the basis of the Charter 10 March 2015

5 Consolidated Statement of Financial Position as at 31 December Restated Restated 2012 Note Assets Non-current assets Property, plant and equipment 4 19,852,501 18,692,387 17,473,666 Investment property 5 1,223,017 1,431,356 1,438,421 Intangible assets 6 679, , ,490 Available-for-sale investment securities 10 10,172,347 10,735,358 6,926,193 Loans to employees, non-current portion 7 721, , ,320 Other non-current assets and deferred expenses 579, , ,490 33,227,548 32,626,868 26,921,580 Current assets Inventories 8 746, , ,935 Trade and other receivables and other current assets 9 3,660,323 3,185,591 2,181,588 Loans to employees, current portion 7 49,520 51,027 38,555 Income tax prepayment 137, , ,897 Available-for-sale investment securities 10 1,421, ,987 1,206,548 Bank deposits 11 1,000, ,000 4,016,178 Cash and cash equivalents 12 10,955,443 11,459,872 10,776,699 Total current assets 17,970,496 16,578,535 19,203,400 Total assets 51,198,044 49,205,403 46,124,980 Equity and liabilities Equity Share capital 13 14,067,051 12,251,855 10,167,784 Reserve capital , , ,587 Revaluation reserve for available-for-sale securities 13 (886,835) (493,880) (609,335) Accumulated loss (477,766) (730,083) (766,784) Equity attributable to shareholders of the Parent Company 13,183,037 11,508,479 9,272,252 Non-controlling interests (778) (1,683) 7,307 Total equity 13,182,259 11,506,796 9,279,559 Non-current liabilities Customer accounts and deposits 14 57, , ,263 Loans from financial institutions 15 2,768,529 2,728,735 2,266,203 Employee benefit liabilities , , ,707 Deferred tax liability , , ,470 4,197,185 3,953,024 3,343,643 The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 1

6 Consolidated Statement of Financial Position as at 31 December Restated Restated 2012 Note Current liabilities Trade and other payables and other current liabilities 17 4,321,416 4,187,025 3,415,887 Payables to subscribers and publishing companies for subscription received 18 4,898,009 5,277,573 5,208,386 Payables for money transfers 1,037, , ,296 Payables for pensions, salary and other benefits 127, , ,638 Deferred income 18 1,573,538 1,651,384 1,194,664 Customer accounts and deposits 14 20,703,262 20,762,072 20,329,997 Loans from financial institutions 15 1,106, , ,060 Employee benefits liability 16 49,940 53,080 9,778 Payables under REPO agreements - - 1,681,072 33,818,600 33,745,583 33,501,778 Total liabilities 38,015,785 37,698,607 36,845,421 Total equity and liabilities 51,198,044 49,205,403 46,124,980 Signed and authorised for issue on behalf of the Management Board of Kazpost JSC B.B. Mussin Chairman of the Board M.A. Kabdykalykova Chief Accountant The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 2

7 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December Note Revenue 19 30,365,539 27,820,372 Cost of sales 20 (26,760,180) (23,864,673) Gross profit 3,605,359 3,955,699 General administrative expenses 21 (5,169,880) (4,699,373) Finance income 22 1,663,423 1,103,814 Finance cost 22 (381,103) (331,816) Accrual of allowance for trade and other receivables and other current assets 9 (107,415) (163,353) Distribution expenses (50,110) (78,984) Operating loss (439,726) (214,013) Net foreign exchange gain/(loss) 329,793 (46,988) Net income on available-for-sale investment securities 102,314 23,183 Other non-operating income , ,958 Profit before income tax 293, ,140 Income tax (expense)/benefit 24 (148,067) 52,408 Net profit for the year 145, ,548 Profit attributable to: Shareholders of the Parent Company 146, ,060 Non-controlling interests (947) (11,512) 145, ,548 Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Unrealised (loss)/income on available-for-sale investment securities (390,787) 138,638 Realised income on available-for-sale investment securities, reclassified to profit or loss (2,168) (23,183) (392,955) 115,455 Items that will never be reclassified to profit or loss: Revaluation of obligations for defined benefit plan, net of deferred taxes 16,24 108,664 - Other comprehensive income, net of tax (284,291) 115,455 Total comprehensive income for the year, net of tax (139,232) 280,003 Attributable to: Shareholders of the Parent Company (138,285) 291,515 Non-controlling interests (947) (11,512) (139,232) 280,003 Basic and diluted earnings per share: Profit for the year attributable to ordinary shareholders of the Parent Company, in KZT Signed and authorised for issue on behalf of the Management Board of Kazpost JSC B.B. Mussin Chairman of the Board M.A. Kabdykalykova Chief Accountant The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 3

8 Consolidated Statement of Changes in Equity for the year ended 31 December Equity attributable to shareholders of the Parent Company Note Share capital Reserve capital Revaluation reserve of available-for-sale securities Accumulated loss Total Noncontrolling interests Total equity 1 January 10,167, ,587 (609,335) (766,784) 9,272,252 7,307 9,279,559 Net profit for the year , ,060 (11,512) 164,548 Net change in fair value of available-for-sale financial assets , , ,455 Total comprehensive income , , ,515 (11,512) 280,003 Issue of shares 13 2,084, ,084,071-2,084,071 Dividends (141,538) (141,538) - (141,538) Foreign exchange translation differences ,179 2,179 2,522 4, December 12,251, ,587 (493,880) (730,083) 11,508,479 (1,683) 11,506,796 Net profit for the year , ,006 (947) 145,059 Net change in fair value of available-for-sale financial assets - - (392,955) - (392,955) - (392,955) Revaluation of obligations for defined benefit plan, net of deferred taxes , , ,664 Total comprehensive income - - (392,955) 254,670 (138,285) (947) (139,232) Issue of shares 13 1,815, ,815,196-1,815,196 Foreign exchange translation differences (2,353) (2,353) 1,852 (501) 31 December 14,067, ,587 (886,835) (477,766) 13,183,037 (778) 13,182,259 Signed and authorised for issue on behalf of the Management Board of Kazpost JSC B.B. Mussin Chairman of the Board M.A. Kabdykalykova Chief Accountant The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 4

9 Consolidated Statement of Cash Flows for the year ended 31 December Note Cash flows from operating activity Profit before income tax 293, ,140 Adjustments for reconciliation of profit before income tax to net cash flows Depreciation and impairment of property, plant and equipment and investment property 4,5 1,802,817 1,938,747 Depreciation and impairment of intangible assets 6 126, ,675 Net revenue from the disposal of property, plant and equipment 23 (10,994) (252,652) Finance income 22 (1,663,423) (1,103,814) Finance cost , ,816 Accrual of impairment of trade and other receivables 9 107, ,353 Accrual of allowance for obsolete inventories 21 7,641 - Gain on recovery of impairment allowance for available -for-sale investment securities 10 (100,252) - Impairment of withholding tax receivables - 6,059 Employee benefits liability , ,492 Unrealised foreign currency (gain)/loss (194,266) 108,668 Cash flows from operating activities before changes in working capital 978,102 1,994,484 Changes in inventories (39,047) 108,769 Changes in trade and other receivables and other current assets (693,132) (1,107,356) Changes in loans to employees 5,591 (776,792) Changes in trade and other payables and other current liabilities 224, ,601 Changes in payables to publishing companies for subscription received (379,564) 69,187 Changes in payables for money transfers 128, ,648 Changes in payables for pensions, salary and other benefits (79,218) (101,455) Changes in deferred income on subscription (52,087) 434,366 Changes in deferred income on mail delivered (25,759) 22,354 Changes in customer accounts and deposits (117,949) 382,393 Changes in employee benefits liability (59,154) (52,865) Changes in bank deposits (500,000) 3,500,000 Cash flows (used in)/from operating activities (609,435) 5,149,334 Income tax paid (46,012) (71,467) Interest paid (319,618) (297,538) Interest received 1,630, ,353 Net cash flows from operating activities 655,535 5,704,682 Cash flows from investing activities Acquisition of property, plant and equipment (2,720,571) (2,987,628) Acquisition of intangible assets (261,505) (240,260) Proceeds from sale of property, plant and equipment - 334,372 Acquisition of available-for-sale investment securities (980,094) (2,837,732) Proceeds from sale of available-for-sale investment securities 499,319 - Net cash flows used in investing activities (3,462,851) (5,731,248) The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 5

10 Consolidated Statement of Cash Flows for the year ended 31 December Note Cash flows from financing activities Issue of shares 13 1,815,196 2,084,071 Proceeds from loans from financial institutions 971,691 1,274,000 Repayment of loans from financial institutions (550,950) (829,325) Dividends paid to shareholders of the Parent Company 13 - (141,538) Changes in securities sold under "repo" agreements - (1,681,072) Net cash flows from financing activities 2,235, ,136 Effect of changes in exchange rates on cash and cash equivalents 66,950 3,603 Net change in cash and cash equivalents (504,429) 683,173 Cash and cash equivalents as at 1 January 11,459,872 10,776,699 Cash and cash equivalents as at 31 December 12 10,955,443 11,459,872 Signed and authorised for issue on behalf of the Management Board of Kazpost JSC B.B. Mussin Chairman of the Board M.A. Kabdykalykova Chief Accountant The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. 6

11 1 BACKGROUND (a) (b) Organisation and operations Kazpost JSC (the Company ) was incorporated in accordance with legislation of the Republic of Kazakhstan in the form of a joint stock company. The Company s registered office is 13, Auezov Street, Astana, As at 31 December and 31 December, 100% of the Company's shares are owned by Sovereign Welfare Fund Samruk-Kazyna JSC ( Samruk-Kazyna or the Shareholder ). The Company s principal activities comprise acceptance, transportation and delivery of ordinary and express mail, and provision of banking services. In addition, the Company acts as an agent for newspaper and magazine deliveries and acts as an agent offering subscriptions for periodic publications of newspapers and magazines. It also acts as loan underwriting and collection agent for some Kazakhstani banks. The Company holds a license from the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Institutions (the FMSA ) No. 14 dated 24 February 2006 for banking operations in national and foreign currencies: acceptance of deposits, opening and maintenance of bank accounts for individuals and legal entities. The Company also holds a license from FMSA No dated 3 February 2004 for broker dealer activities on securities market with the right to maintain clients accounts as a nominal holder, as well as the license from FMSA No. 001 dated 12 May 2006 for transfer agent activity. The Company is considered to be a natural monopoly of public postal services and, accordingly, is subject to regulation by the Ministry of Transport and Communication of the Republic of Kazakhstan that is responsible for the approval of the tariff computation methodology and tariff rates for these services. As at 31 December, the Company had the following subsidiaries: Name Electronpost.kz LLP Kazpost GmbH LLC Country of incorporation Republic of Kazakhstan Federal Republic of Germany Ownership Principal activity Printing and publishing activities 100% 100% Postal and logistic services 50% 50% The Company and its subsidiaries are collectively referred to as the Group. The accompanying consolidated financial statements for the year ended 31 December were authorised for issue by Management of the Group on 10 March Kazakhstan business environment The Group s operations are located in Kazakhstan. Consequently, the Group is exposed to the economic and financial markets of Kazakhstan, which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Kazakhstan. The consolidated financial statements reflect management s assessment of the impact of the Kazakhstan business environment on the operations and the financial position of the Group. The future business environment may differ from management s assessment. 2 BASIS OF ACCOUNTING (a) (b) Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), as issued by International Accounting Standards Board ("IASB"). Basis of measurement The consolidated financial statements are prepared on the historical cost basis except that available-for-sale investment securities are stated at fair value. 7

12 3 BASIS OF ACCOUNTING, CONTINUED (c) (d) (e) Functional and presentation currency The functional currency of the Company and the majority of its subsidiaries is the Kazakhstan tenge (KZT) as, being the national currency of the Republic of Kazakhstan, it reflects the economic substance of the majority of underlying events and circumstances relevant to them. The KZT is also the presentation currency for the purposes of these consolidated financial statements. Financial information presented in KZT is rounded to the nearest thousand. Use of estimates and judgments The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, 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 those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies is described in the following notes: impairment allowance for trade and other receivables and other current assets - Note 9; impairment of available for sale financial instruments Note 10; useful lives of property, plant and equipment Note 3(h); employees benefits liabilities Note 16; estimates of fair values of financial assets and liabilities Note 27. Changes in accounting policies and presentation The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January. Investment Entities (Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements) (see (i)); Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32 Financial Instruments: Presentation) (see (ii)); Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36 Impairment of Assets) (see (iii)). Nature and effect of the specified changes are specified below. (i) (ii) Investment entities These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. Offsetting financial assets and financial liabilities Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities do not introduce any new rules for offsetting financial assets and financial liabilities, but contains the clarifications of offsetting criteria in order to eliminate the inconsistencies in their application. The amendments specify, that an entity currently has a legally enforceable right to set-off if that right is not contingent on a future event; and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. 8

13 2 BASIS OF ACCOUNTING, CONTINUED (e) Changes in accounting policies and presentation, continued (ii) Offsetting financial assets and financial liabilities, continued The Group does not expect that these amendments will have an impact on its consolidated financial statements as the Group does not present financial assets and financial liabilities on net basis in the consolidated statement of financial position. (iii) Recoverable Amount Disclosures for Non-Financial Assets The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment. 3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in note 2(e), which addresses changes in accounting policies. (а) (i) Basis of consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. (ii) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree s identifiable net assets at the acquisition date. Changes in the Group s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 9

14 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (а) Basis of consolidation, continued (iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. (iv) (v) (vi) Acquisitions from entities under common control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established; for this purpose comparatives are revised. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group s controlling shareholder s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity except that any share capital of the acquired entities is recognised as part of additional paid-in capital. Any cash paid for the acquisition is recognised directly in equity. Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss for the period. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee (using equity method) or as an available-for-sale financial asset depending on the level of influence retained. Interests in equity-accounted investees The Group s interests in equity-accounted investees comprise interests in associates and a joint venture. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in associates and joint ventures are accounted for using the equity method and are recognised initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the investee. 10

15 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (а) Basis of consolidation, continued (vii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (b) (i) (ii) (iii) (iv) (v) Recognition of income and expenses Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal except as disclosed in the following sections. Revenue from rendering of services is recognised by reference to the stage of completion. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Mail delivery services Revenue from the delivery of common and registered mail is recognised with reference to the stage of completion at the reporting date. Stage of completion is assessed based on mail delivery average time. Delivery expenses are recognised as incurred. Commission income When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Group. The Group earns commission income from a diverse range of services it provides to its customers. Fee and commission income includes commission income for transfer of pensions, salaries and benefits to the state employees, commission for the processing of utilities and other payments, commission for money transfers, as well as fees received for the issuance of loans on behalf of third parties such as second-tier banks. Commission income is recognised upon completion of the transaction to which it relates. Income from rentals Rental income arising from operating leases is accounted for on a straight-line basis over the lease term and included in revenue due to its operating nature. Goods sold Revenue is recognised when there is a persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Other expenses To the extent that the Group s contributions to social programs benefit the community at large and are not restricted to the Group s employees, they are recognised in profit or loss as incurred. 11

16 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Kazpost JSC (c) (d) (e) (i) Finance income and finance costs The Group s finance income and finance costs include: interest income; interest expense; dividend income the net gain or loss on the disposal of available-for-sale financial assets; the net gain or loss on the revaluation of the financial assets and liabilities, represented in foreign currency; the fair value loss on contingent consideration classified as financial liability; the reclassification of net gains previously recognised in OCI. Interest income or expense is recognised using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group s right to receive payment is established. Deferred income on subscription Deferred income on subscription is the sum of cash, which the Group has collected by the end of the year for the delivery of periodicals, which will be delivered during the next year. Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currency of the Group's entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Nonmonetary items in a foreign currency that are measured based on a historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising in translation are recognised in profit or loss, except for differences arising on the translation of available-for-sale equity instruments, which are recognised in other comprehensive income. The following foreign exchange rates of tenge have been used in the preparation of the consolidated financial statements: 31 December 31 December SDR USD EUR GBP RUR

17 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Kazpost JSC (e) (i) (f) (g) Foreign currency, continued Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the presentation currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated to the presentation currency at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such item form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Assets held for sale or distribution Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale or distribution rather than through continuing use, are classified as held for sale or distribution. Such assets, or disposal group, are generally measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit assets, investment property, which continue to be measured in accordance with the Group s other accounting policies. Impairment losses on initial classification of assets and disposal groups as held for sale or distribution to owners and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. Intangible assets and property, plant and equipment are not amortised from the moment of their classification to the category of the assets, held for sale or distributions to owners. In addition, equity accounting of equityaccounted investees ceases once classified as held for sale or distribution. 13

18 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (h) (i) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. The cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and transfer the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income/other expenses in profit or loss. (ii) (iii) (i) (i) Subsequent expenditure The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Special spare parts and auxiliary equipment with significant initial cost and useful life over one year are recognised within property and equipment. Other spare parts and auxiliary equipment are recognised within inventories as expenses upon transfer to operation. Amortisation Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. Depreciation is based on the cost of an asset less its estimated residual value. Depreciation is generally recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of property, plant and equipment for the current period and comparative period are as follows: Buildings and constructions 5-60 years Machinery and equipment 2-15 years; Vehicles 3-28 years Other property, plant and equipment 2-15 years. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Intangible assets Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. 14

19 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (i) (i) (ii) Intangible assets, continued Research and development, continued Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The capitalised expenditure includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in the profit or loss as incurred. Subsequent to initial recognition, capitalised development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Client database The client database has been acquired through a business combination. At initial recognition the asset was measured at its fair value at the date of the acquisition. (iii) Other intangible assets Other intangible assets that are acquired by the Group, which mainly comprise software, are measured at cost less accumulated amortisation and accumulated impairment losses. (iv) (v) (j) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the profit or loss as incurred. Amortisation Amortisation is based on the cost of an asset less its estimated residual value. Amortisation is generally recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Client database 5 years Other intangible assets 5-10 years. Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in normal course of business, or for the use in production or supply of goods or services or for administrative purposes. Investment property is accounted for using the cost model. Investment property is stated at cost less accumulated depreciation and impairment losses. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of investment property, which varies from 10 to 60 years. Land and construction-in-progress are not depreciated. When the use of a property changes such that it is reclassified as property and equipment, its carrying value at the date of reclassification becomes its cost for subsequent accounting. 15

20 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (k) (i) (ii) Leases Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the fulfilment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group s incremental borrowing rate. Leased assets Assets held by the Group under leases that transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present (discounted) value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised in the statement of financial position. (iii) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum rental fees under the financial lease contracts shall be allocated between the financial expense and the decrease of the unpaid liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (l) (i) Financial instruments The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Non-derivative financial assets and financial liabilities recognition and derecognition The Group initially recognises loans and receivables and debt securities issued on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group currently has a legally enforceable right to set off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Group and all counterparties. 16

21 3 SIGNIFICANT ACCOUNTING POLICIES, CONTINUED (l) (i) Financial instruments, continued Non-derivative financial assets and financial liabilities recognition and derecognition, continued Loans and receivables Loans and receivables are a category of financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables category comprises the following classes of financial assets: loans to employees (see Note 7), trade and other receivables (see Note 9), bank deposits (see Note 11), and cash and cash equivalents as presented (see Note 12). Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid investments with maturities of three months or less from the acquisition date that are subject to insignificant risk of changes in their fair value. In the statement of cash flows, cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Group s cash management. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets, which were intentionally classified into the specified category or which were classified to none of the above categories of financial assets. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in equity is reclassified to profit or loss. Unquoted equity instruments whose fair value cannot reliably be measured are carried at cost. Available-for-sale financial assets comprise equity securities and debt securities. (ii) (iii) Non-derivative financial liabilities - measurement The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise customer current accounts and deposits, loans and borrowings from other financial institutions, trade and other payables, payables on money transfers, payables on pensions, salary and other payments, and securities sold under "repo" agreements. Repurchase and reverse repurchase agreements Securities sold under sale and repurchase (repo) agreements are accounted for as secured financing transactions, with the securities retained in the consolidated statement of financial position and the counterparty liability are included into current liabilities as securities sold under "repo" agreements. The difference between the sale and repurchase prices represents interest expense and is recognised in profit or loss over the term of the repo agreement using the effective interest method. 17