FINANCIAL STATEMENTS

Transcription

1 FINANCIAL STATEMENTS

2 2 ab LIETUVOS PAŠTAS FINANCIAL STATEMENTS 2010 CONTENTS Contents Independent auditors report to the shareholder of PUBLIC LIMITED company Lietuvos paštas BALANCE SHEET INCOME STATEMENT STATEMENT OF CHANGES IN EQUITY CASH FLOW STATEMENT NOTES TO THE FINANCIAL STATEMENTS COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 PREPARED ACCORDING TO BUSINESS ACCOUNTING STANDARDS PRESENTED TOGETHER WITH INDEPENDENT AUDITORS REPORT

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5 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Balance sheet As at 31 December 2010 As at 31 December 2009 Notes ASSETS (restated) A. Non-current assets I. Intangible assets 4 4,176,980 6,356,315 II. Property, plant and equipment 5 II.1. Land 1,500,000 1,500,000 II.2. Buildings and structures 161,640, ,760,927 II.3. Machinery and equipment 1,110,368 1,559,246 II.4. Vehicles 4,393,453 4,986,591 II.5. Construction in progress 62,000 62,000 II.6. Other property, plant and equipment 2,567,087 4,857,638 Total property, plant and equipment 171,273, ,726,402 III. Non-current financial assets III.1. Investments into subsidiaries 1,6-10,000 III.2. Loans granted to subsidiaries 6-30,000 III.3. Non-current accounts receivable 88,555 58,008 Total non-current financial assets 88,555 98,008 IV. Other non-current assets IV.1. Deferred income tax asset 24 1,720,341 - Total other non-current assets 1,720,341 - Total non-current assets 177,259, ,180,725 B. Current assets I. Inventories, prepayments and contracts in progress I.1. Inventories 7 2,963,459 3,569,779 I.2. Prepayments and contracts in progress 2,504, ,138 Total inventories, prepayments and contracts in progress 5,467,791 4,472,917 II. Accounts receivable II.1. Trade receivables 8 11,938,809 11,795,086 II.2. Accrued income 14,644,219 14,210,264 II.3. Other receivables 759, ,389 Total accounts receivable 27,342,522 26,378,739 III. Other current assets - - IV. Cash and cash equivalents 10 9,695,732 24,055,037 Total current assets 42,506,045 54,906,693 Total assets 219,765, ,087,418 The accompanying notes are an integral part of these financial statements. (cont d on the next page) 5

6 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Balance sheet (cont d) As at 31 December 2010 As at 31 December 2009 Notes EQUITY AND LIABILITIES (restated) C. Equity I. Share capital 1, ,474, ,474,229 II. Revaluation reserve (results) - - III. Reserves ,446 IV. Retained (deficit) 12 (126,399,819) (116,515,737) Total equity 113,074, ,303,938 D. Grants and subsidies 13 14,230 29,028 E. Liabilities I. Non-current liabilities I.1. Non-current borrowings 14 7,600,000 - I.2. Financial lease obligations ,162 1,871,312 I.3. Deferred income tax liability ,540 I.4. Non-current employee benefits 3 2,796,505 3,448,089 I.5. Other non-current liabilities 26 13,881,400 8,536,384 Total non-current liabilities 24,756,067 14,006,325 II. Current liabilities II.1. Current portion of non-current borrowings - 5,345,016 II.2. Current portion of non-current borrowings from credit institutions 14 12,400,000 - II.3. Current portion of non-current financial lease 15 obligations 1,493,433 3,892,072 II.4. Current borrowings 14-8,083,649 II.5. Trade payables 17,329,222 34,637,305 II.6. Advances received 17,752,779 6,756,140 II.7. Payroll related liabilities 8,027,072 10,849,506 II.8. Provisions 3, ,078 1,210,104 II.9. Accrued expenses 18 23,107,729 30,316,926 II.10. Other current liabilities 840, ,409 Total current liabilities 81,920, ,748,127 Total equity and liabilities 219,765, ,087,418 The accompanying notes are an integral part of these financial statements. Acting Chief Executive Officer Lina Minderienė 31 March 2011 Chief Accountant Aurika Pelanienė 31 March

7 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Income statement Notes (restated) I. Sales ,136, ,110,404 II. Cost of sales ,485, ,708,593 III. Gross profit 32,651,045 10,401,811 IV. Operating expenses 21 45,781,625 80,103,965 V. (Loss) from operations (13,130,580) (69,702,154) VI. Other operating income (expenses), net 22 2,322,708 2,844,207 VII. Income (expenses) from financial and investment activities, net 23 (1,292,537) (833,497) VIII. (Loss) from ordinary activities (12,100,409) (67,691,444) IX. Extraordinary gain - - X. Extraordinary loss - - XI. (Loss) before tax (12,100,409) (67,691,444) XII. Income tax 24 1,870,881 (150,540) XIII. Net (loss) (10,229,528) (67,841,984) The accompanying notes are an integral part of these financial statements. Acting Chief Executive Officer Lina Minderienė 31 March 2011 Chief Accountant Aurika Pelanienė 31 March

8 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Statement of changes in equity Note Share capital Revaluation reserve (results) Reserves Retained earnings (deficit) Total Balance as at 31 December 2008 (as stated earlier) 239,474, ,926 (49,072,264) 190,805,891 Change in accounting policy/correction of an error , ,031 Balance as at 31 December 2008 (restated) 239,474, ,926 (48,732,233) 191,145,922 Transfer from reserves - - (58,480) 58,480 - Net (loss) for the year (restated) (67,841,984) (67,841,984) Balance as at 31 December 2009 (restated) 239,474, ,446 (116,515,737) 123,303,938 Transfer from reserves - - (345,446) 345,446 - Net (loss) for the year (10,229,528) (10,229,528) Balance as at 31 December ,474, (126,399,819) 113,074,410 The accompanying notes are an integral part of these financial statements. Acting Chief Executive Officer Lina Minderienė 31 March 2011 Chief Accountant Aurika Pelanienė 31 March

9 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Cash flow statement (restated) I. Cash flows from (to) operating activities I.1. Net (loss) (10,229,528) (67,841,984) Adjustments for non-cash items: I.2. Depreciation and amortization 9,296,624 13,424,578 I.3. Impairment and write-off of property, plant and equipment 353,326 33,703,698 I.4. (Gain) on disposal of property, plant and equipment and intangible assets (20,668) (305,304) I.5. Allowance for receivables and inventories 104, ,197 I.6. Impairment of loans granted and investment into subsidiary 40,000 - I.7. Change in provisions (891,610) 4,658,193 I.8. Change in accrued expenses (7,209,197) 2,350,325 I.9. Change in accrued income (433,955) (2,018,145) I.10. Change in deferred tax (1,870,881) 150,540 I.11. I.12. Elimination of financial and investment activity results 1,221, ,359 Changes in working capital: (9,640,415) (14,094,543) (Increase) decrease in non-current accounts receivable (30,547) 15,189 I.13. Decrease in inventories 508, ,818 I.14. (Increase) decrease in prepayments (1,601,194) 612,553 I.15. (Increase) decrease in trade receivables (150,093) 2,962,272 I.16. (Increase) decrease other receivables (386,105) 309,135 I.17. (Decrease) in trade payables (17,308,083) (9,805,078) I.18. Increase (decrease) in advances received 10,996,639 (1,123,095) I.19. (Decrease) increase in payroll related liabilities (2,822,434) 1,418,334 I.20. Increase (decrease) in other current liabilities 183,140 (27,940) Net cash flows (to) operating activities (20,250,606) (19,160,355) II. Cash flows from (to) investment activities II.1. (Acquisition) of non-current assets (except investments) (1,036,680) (6,880,961) II.2. Proceeds from sale of non-current assets (except investments) 24, ,957 II.3. Interest received 42, ,469 II.4. Loans (granted) - (10,000) Net cash flows (to) investment activities (969,204) (5,946,535) The accompanying notes are an integral part of these financial statements. (cont d on the next page) 9

10 Public Limited Company Lietuvos paštas company code , A. Vivulskis str. 23, Vilnius, Lithuania COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Cash flow statement (cont d) III. Cash flows from (to) financing activities III.1. Proceeds from loans 20,000,000 8,083,649 III.2. (Repayment) of loans (8,083,649) - III.3. Received grants, subsidies - 219,097 III.4. Interest (paid) (1,264,057) (936,828) III.5. Financial lease (payments) (3,791,789) (1,363,799) Net cash flows from financing activities 6,860,505 6,002,119 IV. Net (decrease) in cash and cash equivalents (14,359,305) (19,104,771) V. Cash and cash equivalents at the beginning of the year 24,055,037 43,159,808 VI. Cash and cash equivalents at the end of the year 9,695,732 24,055,037 The accompanying notes are an integral part of these financial statements. Acting Chief Executive Officer Lina Minderienė 31 March 2011 Chief Accountant Aurika Pelanienė 31 March

11 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) Notes to the financial statements 1 General information Public Limited Company Lietuvos paštas (hereinafter the Company) is a public limited company registered in the Republic of Lithuania. The address of its registered office is as follows: A.Vivulskis str. 23, Vilnius, Lithuania. The Company started its activities on 2 January 1992 and was named as state enterprise Lietuvos paštas. Based on the order No Regarding transformation of state enterprise Lietuvos paštas to Public Limited Company Lietuvos paštas issued on 23 December 2005, the Ministry of Transport and Communications of the Republic of Lithuania transformed the state company Lietuvos paštas to Public Limited Company Lietuvos paštas starting from 3 January The Company is engaged in providing universal, reserved, other postal, courier, financial and similar services. All 239,474,229 shares of the Company are ordinary shares with the par value of LTL 1 each and were fully paid as at 31 December 2010 and The share capital did not change in 2010 and The Company did not hold its own shares. Until 1 July 2010 the Company had 6 branches (Kaunas region, Klaipėda region, Panevėžys region, Šiauliai region, Vilnius region and the Company s branch Mail Transportation Centre), which stopped their activities on 1 July 2010 and were unregistered from the Register of Legal Entities. On 4 September 2007 the Company established a subsidiary UAB Lietuvos pašto finansinės paslaugos with a share capital amounting to LTL 10,000. The Company acquired 10,000 shares with the par value of LTL 1 each. In 2010 the subsidiary was not operating. As at 31 December 2010, the number of employees of the Company was 6,870 (as at 31 December ) The Company s management authorised these financial statements on 31 March The shareholders of the Company have a statutory right to either approve these financial statements or not approve them and require the management to prepare a new set of financial statements. 2 Accounting policy The principal accounting policies adopted in preparing the Company s financial statements for 2010 are as follows: 2.1. Basis of preparation These financial statements have been prepared in accordance with the Accounting Law of the Republic of Lithuania, Law on Financial Statements of Entities of the Republic of Lithuania and Lithuanian Business Accounting Standards (BAS), which include the standards and interpretations prepared and approved by the Authority of Audit and Accounting, effective as at 31 December The Company decided not to prepare consolidated financial statements for the year 2009 and 2010, as the results of subsidiary are not significant to the group as allowed by the Law on Consolidated Financial Statements of the Republic of Lithuania Measurement and presentation currency The amounts shown in these financial statements are measured and presented in the local currency of the Republic of Lithuania, litas (LTL). Starting from 2 February 2002, Lithuanian litas is pegged to euro at the rate of litas for 1 euro, and the exchange rates in relation to other currencies are set daily by the Bank of Lithuania Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognised if it is probable that future economic benefits that are attributable to the asset will flow to the Company and the cost of asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over the best estimate of their useful lives. Licenses Amounts paid for licences are capitalised and then amortised over their validity period (3 years). 11

12 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 2 Accounting policy (cont d) 2.3. Intangible assets (cont d) Software The costs of acquisition of new software are capitalised and treated as an intangible asset if these costs are not an integral part of the related hardware. Software is amortised over 3 years. Costs incurred in order to restore or maintain the future economic benefits from the performance of existing software systems are recognised as an expense when the restoration or maintenance work is carried out Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. The initial cost of property, plant and equipment comprises its purchase price, including non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repair and maintenance costs, are normally charged to the income statement in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance and / or that they have resulted in an increase of the useful life of the asset, the expenditures are capitalised as an additional cost of property, plant and equipment. The Company capitalises property, plant and equipment purchases with an estimated useful life exceeding one year and an acquisition cost above LTL 500. Depreciation is computed on a straight-line basis over the following estimated useful lives: Buildings Machinery and equipment Vehicles Computer equipment Communication tools Furniture Other equipment, devices, tools and fixtures Other property, plant and equipment years 6-8 years 4-10 years 3-5 years 3-5 years 6 years 3-8 years 4 years The useful lives are reviewed periodically to ensure that the period of depreciation is consistent with the expected pattern of economic benefits from items in property, plant and equipment. Construction in progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and put into operation Investments Pursuant to BAS 18, Financial assets and financial liabilities, non-current investments (except investments into subsidiaries and associates) are classified as either available-for-sale or held-to-maturity. Investments with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity, other than loans and receivables originated by the Company, are classified as held-to-maturity investments. Investments acquired principally for the purpose of generating a profit from short-term fluctuations in price and other investments, other than investments held-to-maturity, loans and receivables originated by the Company, are classified as availablefor-sale. Held-to-maturity investments are included in non-current assets unless they mature within twelve months of the balance sheet date. Available-for-sale investments are classified as current assets if management intends to realise them within twelve months of the balance sheet date. All purchases and sales of investments are recognised on the trade date. Investments are initially measured at cost, which is the fair value of the consideration given, including transaction costs. Available-for-sale investments are subsequently carried at fair value by reference to their estimated market price at the balance sheet date, without any deduction for transaction costs that the Company may incur on their sale or other disposal. Gains or losses on measurement to fair value of available-for-sale investments are included into result of financial and investment activities in the Company s income statement. Held-to-maturity investments are carried at amortised cost using the effective interest rate method. The portion of amortisation allocated to the reporting period is recognised in the income statement as interest expenses in the financial and investment activities caption. 12

13 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 2 Accounting policy (cont d) 2.6. Inventories Inventories are valued at the lower of cost or net realisable value, after impairment evaluation for obsolete and slowmoving items. Net realisable value is the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. Cost is determined by the first-in, first-out (FIFO) method. Unrealisable inventory has been fully written-off Receivables and loans granted Receivables are initially recorded at the fair value of the consideration given. Current receivables are subsequently carried at cost less impairment, and non-current receivables and loans granted at amortised cost, less impairment Cash and cash equivalents Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid investments Borrowings Borrowing costs are expensed as incurred. Borrowings are initially recognised at fair value of proceeds received, less the costs of transaction. They are subsequently carried at amortised cost, the difference between net proceeds and redemption value being recognised in the net profit or loss over the period of the borrowings. The borrowings are classified as non-current if the completion of a refinancing agreement before authorisation of the financial statements for issue provides evidence that the substance of the liability at the balance sheet date was long-term Financial and operating leases Financial leases The Company as the lessee The Company recognises finance leases as assets and liabilities in the balance sheet at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, to the present value of the minimum lease payments. The discount rate used when calculating the present value of minimum payments of finance lease is the interest rate of finance lease payment, when it is possible to determine it, in other cases, the Company s composite interest rate on borrowings applies. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. The depreciation policy for leased assets is consistent with that for depreciable assets that are owned but such assets cannot be depreciated over a period longer than the lease term, unless the Company, under the terms of the lease contract, gets transferred their ownership after the lease term is over. If the result of sales and lease back transactions is financial lease, any profit from sales exceeding the book value is not recognised as income immediately. It is postponed and amortised over the lease term. Operating leases The Company as the lessee Leases where the lessor retains all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The gains from discounts provided by the lessor are recognised as a decrease in lease expenses over the period of the lease using the straight-line method. 13

14 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 2 Accounting policy (cont d) Financial and operating leases (cont d) If the result of sales and lease back transactions is operating lease and it is obvious that the transaction has been carried out at fair value, any profit or loss is recognised immediately. If the sales price is lower than the fair value, any profit or loss is recognised immediately, except for the cases when the loss is compensated by lower than market prices for lease payments in the future, it is then deferred and it is amortised in proportion to the lease payments over a period, during which the assets are expected to be operated. If the sales price exceeds the fair value, a deferral is made for the amount by which the fair value is exceeded and it is amortised over a period, during which the assets are expected to be operated. The Company as a lessor Leases where the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Contingent rents are recognised as revenue in the period in which they are earned Grants and subsidies Grants and subsidies (hereinafter grants) received in the form of non-current assets or intended for the purchase, construction or other acquisition of non-current assets are considered as asset-related grants. Assets received free of charge are also allocated to this group of grants. The amount of the grants related to assets is recognised in the financial statements as used in parts according to the depreciation of the assets associated with this grant and in the income statement a relevant expense account is reduced by the amount of grant amortisation. Grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to income. The incomerelated grants are recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant. The balance of unutilised grants is shown in the caption Grants and subsidies on the balance sheet Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The provisions are reviewed at each balance sheet date and adjusted in order to present the most reasonable current estimate. If the effect of the time value of money is material, the amount of provision is equal to the present value of the expenses, which are expected to be incurred to settle the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost Income tax Income tax charge is based on profit for the year and considers deferred taxation. Income tax is calculated based on the Lithuanian tax legislation. Starting from 1 January 2010 the standard income tax rate in Lithuania is 15 % (20 % in 2009). Tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and / or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses incurred except when the Company does not continue its activities due to reasons which do not depend on Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse based on tax rates enacted or substantially enacted at the balance sheet date. Deferred tax asset is recognised in the balance sheet to the extent the management of the Company believes it will be realised in the foreseeable future, based on taxable profit forecasts. If it is believed that part of the deferred tax asset is not going to be realised, this part of the deferred tax asset is not recognised in the financial statements. 14

15 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 2 Accounting policy (cont d) Revenue recognition Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably. Sales are recognised net of VAT and discounts. Revenue of postal services provision to Lithuanian clients Income is recognised on the basis of the accrual principle of accounting, i.e. it is registered when it is earned, irrespective of when the cash is received. Sales of goods are recognized, recorded in the accounting and presented in the financial statements when goods are sold and the revenue can be reliably measured. Revenue from rendering postal and other services is recognized after the service is rendered, when the outcome of the transaction can be estimated reliably. Revenue from sale of stamps are recognized when the cash is received (invoice is issued), since there is no reliable way to determine in which period the stamp was actually used, i.e. the service was rendered. When according to the service agreement services are provided over more than one reporting period, revenue is allocated proportionally to periods in which the services are rendered. Revenue of postal services provision to foreign posts The activity of the Company is based on international agreements, which regulate the issuance of accounting documents and accounting rules for postal services provided. According to these agreements, the Company is providing and reconciling actual data of postal service provision with the customers of postal services (foreign posts) after the end of the quarter usually during the term of 2-3 months. Based on actual volume of services provided and prevailing tariffs the Company is making income accruals. Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Rent income Rental income is accounted for on a straight-line basis over the lease terms Expense recognition Expenses are recognised on the basis of accrual and revenue and expense matching principles in the reporting period when the income related to these expenses was earned, irrespective of the time the money was spent. In those cases when the costs incurred cannot be directly attributed to the specific income and they will not bring income during the future periods, they are expensed as incurred. The amount of expenses is usually accounted for as the amount paid or due, excluding VAT. In the cases when a long period of payment is established and the interest is not distinguished, the amount of expenses shall be estimated by discounting the amount of payment using the market interest rate. The expenses of settlements with foreign posts are accrued on a monthly bases based on forecasted quantities of postal correspondence to be received and tariffs prevailing. After the settlement documents are reconciled with the service providers (foreign posts), the amount of accrued expenses is adjusted respectively Foreign currencies Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies on the balance sheet date are recognised in the income statement. Such balances are translated at period-end exchange rates Segment information The Company adopted the amendment of BAS 34 Segment disclosure in the financial statements, which took effect on 1 January On the basis of the provision of this amendment, the management of the Company decided not to disclose segment information in these financial statements. 15

16 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 2 Accounting policy (cont d) Impairment of assets Financial assets Financial assets are reviewed for impairment at each balance sheet date. For financial assets carried at amortised cost, whenever it is probable that the Company will not collect all amounts due according to the contractual terms of loans or receivables, impairment is recognised in the income statement. The reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be justified by an event occurring after the write-down. Such reversal is recorded in the income statement. The increased carrying amount is only recognised to the extent it does not exceed the amortised cost that would have been had the impairment not been recognised. Other assets Other assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment loss recognised for the asset no longer exists or has decreased. The reversal is accounted for in the same caption of the income statement as the impairment loss Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with Business Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies. The significant areas of estimation used in the preparation of these financial statements relate to depreciation, impairment evaluation, provisions, accruals of income and expenses and deferred income tax. Future events may occur which may cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded in the financial statements when determinable Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow or economic benefits is probable Subsequent events Subsequent events that provide additional information about the Company s position at the balance sheet date (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events are disclosed in the notes when material Comparative figures Where necessary, comparative figures have been adjusted to correspond to the presentation of the current year. Changes in accounting methods and accounting estimates and corrected errors made in the financial statements of the reporting period are presented in Note 3 in these financial statements. 3 Changes in accounting policies and estimates, correction of an error When preparing financial statements for 2010, the errors were corrected described in the table below, which has been applied retrospectively as it is required by 7 BAS Changes in accounting policies, accounting estimates and correction of errors. No. Description of error 1. Wrong reclassification of receivable and payable amounts. 2. Wrongly accounted amortisation of grants received. 3. Recognition of deferred income tax liability. 4. Recognition of pension provision. 5. Net-off of receivable and payable amounts with the foreign posts. 6. Advances received were wrongly accounted while transferring them to the new system. 7. The transfer of accrued expenses, which were wrongly classified, from provisions to accrued expenses caption. 16

17 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 3 Changes in accounting policies and estimates, correction of an error (cont d) The effect of correction of errors to the Company s financial information for the year ended 31 December 2009 and for prior periods is presented below: Balance sheet As stated earlier (as at 31 December 2009) Correction of error No.1 Correction of error No. 2 Correction of error No. 3 Correction of error No. 4 Correction of error No. 5 Correction of error No. 6 Correction of error No.7 Amounts after correction (as at 31 December 2009) Trade receivables 14,324,637 2,524, (5,053,652) ,795,086 Other captions of non-current and current assets 227,292, ,292,332 Total assets 241,616,969 2,524, (5,053,652) ,087,418 Share capital and reserves 239,819, ,819,675 Retained deficit (49,013,784) - 121,365* ,666* - (48,673,753) Net result of 2009 (63,033,251) - - (150,540) (4,658,193) (67,841,984) Grants and subsidies 150,393 - (121,365) ,028 Deferred income tax liability , ,540 Non-current employee benefits ,448, ,448,089 Trade payables 38,428,906 1,262, (5,053,652) ,637,305 Advances received 5,712,756 1,262, (218,666) - 6,756,140 Provisions 13,105, ,210, (13,105,987) 1,210,104 Accrued expenses 17,210, ,105,987 30,316,926 Other captions of non-current and current liabilities 39,235, ,235,348 Total equity and liabilities 241,616,969 2,524, (5,053,652) ,087,418 Income statement Gross profit As stated earlier (as at 31 December 2009) Correction of error No. 1 Correction of error No. 2 Correction of error No. 3 Correction of error No. 4 Correction of error No. 5 Correction of error No. 6 Correction of error No. 7 Amounts after correction (as at 31 December 2009) 10,401, ,401,811 Operating expenses 75,445, ,658, ,103,965 (Loss) from operations (65,043,961) (4,658,193) - - (69,702,154) (Loss) from ordinary activities (63,033,251) (4,658,193) - - (67,691,444) (Loss) before tax (63,033,251) (4,658,193) - - (67,691,444) Income tax (150,540) (150,540) Net (loss) (63,033,251) - - (150,540) (4,658,193) - - (67,841,984) As at 31 December 2009 the correction of errors No 2 and No 6 were accounted directly in Retained deficit caption in the balance sheet. 17

18 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 4 Intangible assets Cost: Patents and licenses Software Total Balance as at 31 December ,194,498 13,612,787 14,807,285 Additions 81, , ,384 Disposals (34,759) (201,223) (235,982) Balance as at 31 December ,241,013 13,706,674 14,947,687 Accumulated amortisation: Balance as at 31 December ,171,468 7,279,502 8,450,970 Charge for the year 33,859 2,521,567 2,555,426 Disposals (34,733) (200,956) (235,689) Balance as at 31 December ,170,594 9,600,113 10,770,707 Net book value as at 31 December ,419 4,106,561 4,176,980 Net book value as at 31 December ,030 6,333,285 6,356,315 Amortisation expenses of intangible assets are included within cost of sales in the income statement. Intangible assets of the Company with the acquisition cost of LTL 8,031,187 were fully depreciated as at 31 December 2010 (as at 31 December 2009 LTL 3,584,932), but was still in use. 5 Property, plant and equipment Land Buildings and structures Machinery and equipment Vehicles Construction in progress Other property, plant and equipment Total Cost Balance as at 31 December ,730, ,626,236 12,613,994 18,602,333 62,000 29,248, ,882,989 Additions , , ,296 Disposals - (11,305) - (373,389) - (24,172) (408,866) Write-offs - (3,070) (815,454) (421,817) - (5,079,051) (6,319,392) Reclassifications - 363, (363,117) - Balance as at 31 December ,730, ,974,978 11,911,485 17,807,127 62,000 24,329, ,815,027 Accumulated depreciation: Balance as at 31 December ,285,175 11,054,748 12,883,198-24,243,902 89,467,023 Charge for the year - 4,016, , ,946-2,170,256 7,374,583 Disposals - (7,816) - (373,375) - (23,654) (404,845) Write-offs - (1,534) (769,022) (420,763) - (4,775,040) (5,966,359) Balance as at 31 December ,292,815 10,801,117 12,761,006-21,615,464 90,470,402 - Impairment losses: Balance as at 31 December 2009 (13,230,000) (19,580,134) - (732,544) - (146,886) (33,689,564) Reversals - 538,711-79, ,587 Balance as at 31 December 2010 (13,230,000) (19,041,423) - (652,668) - (146,886) (33,070,977) Net book value as at 31 December ,500, ,640,740 1,110,368 4,393,453 62,000 2,567, ,273,648 Net book value as at 31 December ,500, ,760,927 1,559,246 4,986,591 62,000 4,857, ,726,402 18

19 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 5 Property, plant and equipment (cont d) The depreciation charge of the Company s property, plant and equipment for the year 2010 amounts to LTL 6,755,996 (LTL 10,604,097 in 2009). Depreciation of the Company s property, plant and equipment is included within cost of sales in the income statement. Property, plant and equipment of the Company with acquisition cost of LTL 35,763,674 was fully depreciated as at 31 December 2010 (LTL 34,787,918 as at 31 December 2009) but was still in active use. As at 31 December 2010 As at 31 December 2009 Buildings and structures 985,047 1,016,764 Machinery and equipment 9,229,351 6,384,936 Vehicles 6,747,581 8,679,437 Other equipment, devices, tools and fixtures 15,730,580 14,625,567 Other property, plant and equipment 3,071,115 4,081,214 Total 35,763,674 34,787,918 At the end of 2009 the Company made valuation of the property, plant and equipment performed by independent appraisers. The value of the property, plant and equipment was set using price comparison, income and recoverable value methods. The impairment of the property, plant and equipment amounting to LTL 33,689,564 was accounted for in the income statement of the Company for Since the Company is not able to present the value of investment property without substantial time and financial costs, the investment property is presented together with the property, plant and equipment. 6 Investments into subsidiaries and loans granted to subsidiaries As at 31 December 2010 the Company has accounted for impairment amounting to LTL 10,000 for investment into subsidiary UAB Lietuvos pašto finansinės paslaugos and for the loan amounting to LTL 30,000 granted to the subsidiary. The impairment expenses are included into operating expenses in the Company s financial statements. 7 Inventories As at 31 December 2010 As at 31 December 2009 Raw materials and consumables 925,339 1,896,556 Philately production 146, ,479 Goods for resale 2,043,269 1,583,673 3,115,222 3,623,708 Less: net realisable value allowance (151,763) (53,929) 2,963,459 3,569,779 The acquisition cost of the Company s inventories accounted for at net realisable value as at 31 December 2010 amounted to LTL 151,763 (LTL 53,929 as at 31 December 2009). The change in the allowance for inventories for the year 2010 and 2009 has been included into operating expenses. 8 Trade receivables As at 31 December 2010 As at 31 December 2009 (restated) Trade receivables, gross 13,258,026 13,101,102 Less: allowance for doubtful trade receivables (1,319,217) (1,306,016) 19 11,938,809 11,795,086 Changes in allowance for doubtful trade receivables for the year 2010 and 2009 have been included into operating expenses in the income statement. 9 Accrued income Under the accrued income caption the Company is accounting services rendered to foreign posts, which will be finally reconciled and invoices will be issued only in As at 31 December 2010 the accrued income amounted to LTL 14,644,219 (LTL 14,210,264 as at 31 December 2009).

20 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 10 Cash and cash equivalents As at 31 December 2010 As at 31 December 2009 Cash at bank 4,168,400 15,754,562 Cash on hand 2,389,025 2,356,075 Cash in transit 3,138,307 5,944,400 9,695,732 24,055,037 The Company s foreign and national currency accounts in AB bankas Snoras are pledged to the bank as collateral for the loan taken (Note 14). 11 Share capital The 239,474,229 ordinary shares of the Company with the par value of LTL 1 each are owned by the State of Lithuania. All shares were fully paid as at 31 December 2009 and According to the Law on Limited Liability Companies of the Republic of Lithuania, a company s total equity cannot be less than 1/2 of its share capital specified in the company s by-laws. As at 31 December 2010 the Company was not in compliance with this requirement. The board of the Company was informed about the situation in the Company with the letter No Regarding the ratio of equity to share capital of the Public Limited Company Lietuvos paštas as at 26 October It is expected that the situation in the Company has to be rectified no later than in the 6-month period from the moment when the Board became aware of the equity deficit. 12 Reserves Legal reserve A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5 % of net profit are compulsory until the reserve reaches 10 % of the share capital. Retained earnings (deficit) Pursuant to the provisions of the Law on Limited Liability Companies of the Republic of Lithuania, if the total of retained earnings at the beginning of the financial year and net profit (loss) for the year is negative, the General Shareholders Meeting has to make a decision to cover these losses. Transfers to distributable results should be made in the following sequence: a) transfer from reserves not used in the reporting financial year; b) transfer from the compulsory reserve; c) transfer from the share premium. As at the date of these financial statements the Management of the Company was not informed about the actions of the shareholder of the Company related to this matter. 20

21 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 13 Grants and subsidies As at 31 December 2010 As at 31 December 2009 (restated) Balance as at 1 January ,028 56,140 Received during the year - 219,097 Amortisation (14,798) (246,209)* Balance as at 31 December ,230 29,028 During the Company received USD 433,708 grant from the International post union. The grant received in cash was used for acquisition and installation of systemic software and technical equipment. In 2007 the State Social Insurance Fund Board of the Republic of Lithuania provided LTL 56,000 grant for the acquisition of equipment. The amortisation of grants of the Company in 2010 amounted to LTL 14,798 (LTL 246,209 in 2009). The amortisation of grants is accounted for in the cost of sales caption in the income statement and reduces the amortisation expenses of related assets. * Correction of the amortisation of grants (Note 3) amounting to LTL 121,365 was included into amortisation of grants amount in Borrowings As at 31 December 2010 As at 31 December 2009 Non-current borrowings Borrowings secured by Company s assets 7,600,000-7,600,000 - Current borrowings Current portion of non-current borrowings 12,400,000 - Current borrowings secured by Company s assets - 8,083,649 Terms of repayment of non-current debts are as follows as at 31 December 2010: Year 12,400,000 8,083,649 20,000,000 8,083, ,400, ,400, ,200,000 Interest rate of the borrowings outstanding at the year-end is 3 month VILIBOR + 4.1%. 20,000,000 The Company s foreign and national currency accounts in AB bankas Snoras are pledged to the bank as collateral for the loan amounting to LTL 20,000,000 (Note 10). 21

22 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 15 Financial lease The assets leased under financial lease contracts consist of: As at 31 December 2010 As at 31 December 2009 Software 19,171 30,664 Computer equipment 1,134,907 2,748,944 Vehicles 2,763,760 4,756,625 3,917,838 7,536,233 Principal amounts of financial lease payables at the year-end denominated in national and foreign currencies are as follows (equivalent to LTL): As at 31 December 2010 As at 31 December 2009 EUR 1,102,471 1,716,659 LTL 869,124 4,046,725 The interest rates on the financial lease obligations are as follow: 1,971,595 5,763,384 As at 31 December 2009 and 2010 the interest rate on the Company s financial lease obligations in EUR and LTL varies depending on the 3-month EURIBOR plus 2.9 % interest margin set by the Bank and the interest rate of the part of the Company s financial lease liabilities in LTL varies depending on the 6-month VILIBOR plus 2.4 % interest margin set by the Bank. Future minimal lease payments under the above mentioned financial lease contracts as at 31 December 2010 are as follows: Within one year 1,533,262 From one to five years 484,851 Total financial lease obligations 2,018,113 Interest (46,518) Present value of financial lease obligations 1,971,595 22

23 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 16 Operating lease and loan-for-use The Company has 432 lease agreements for leasing out 20,609 square metres of premises. There are 80 termless agreements and 130 term agreements with the term ending in 2011, however these agreements are intended to be prolonged. The average monthly rent income is LTL 170,025. The Company earned LTL 2,040,304 rent income in 2010, LTL 2,228,398 in The Company has signed 237 lease agreements for hiring 9,603 square metres of premises. 46 agreements are termless and the rest are term which period, if needed and agreed by the parties, would be prolonged. The average monthly rent expenses are LTL 63,603. The Company incurred LTL 763,240 rent expenses in 2010, LTL 664,096 in Minimal future lease payments according to the signed operating lease contracts are as follows: Within one year 564,175 From one to five years 1,339,370 After five years 182,556 2,086,101 The Company is leasing land from the State of Lithuania with rent term of 5-99 years. The annual rent fee approximately amounts to LTL 229 thousand. The Company has made 4 loan-for-use agreements with the loan recipients. Based on these agreements, the Company has transferred 279 square metres of premises. The balance value of assets transferred as loan-for-use amounts to LTL 239,531 as at 31 December Three loan-for-use agreements are term (with the period ending in ), one agreement is termless. The Company has signed 99 loan-for-use agreements with the lenders. Based on these agreements, the Company has received 3,904 square metres of premises square metres of premises were received based on termless loan-foruse agreements, the other agreements are term (ending ). 17 Provisions As at 31 December 2010 and 2009 the Company s provisions consisted of current amount of non-current employee benefits. 18 Accrued expenses As at 31 December 2010 As at 31 December 2009 Final settlement expenses 16,279,717 17,210,939 Vacation accrual 5,009,314 5,238,609 Severance pay accrual expenses - 6,703,000 Accrued variable salary expenses 1,702,175 - Accrued audit expenses 82,500 69,000 Other accrued expenses 34,023 1,095,378 23,107,729 30,316,926 Final settlement expenses comprise of services received from foreign posts, which will be finally reconciled and invoices received only in Accrued expenses with foreign posts amounted to LTL as at 31 December 2010 (LTL as at 31 December 2009). 23

24 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 19 Sales Universal postal services 85,772,780 85,911,519 Financial services 43,333,008 58,667,637 Courier services 9,540,339 13,925,768 Other post services 4,380,574 6,362,773 Other services 31,110,083 36,242, ,136, ,110,404 The other services of the Company include services related to subscription, retail sales, distribution of unaddressed advertising material, delivery of postal items goods trough post and other. Sales revenue decreased in 2010, since the current economical situation in Lithuania had impact on customers switch to alternative service suppliers, who are offering lower prices. While the clients are more often choosing alternative services in the digital environment, the increasing efficiency and cost savings, in Lithuania, the same as in the rest of the world, a natural decline in postal services and services related to postal services markets is observed. 20 Cost of sales Salaries and social security 91,015, ,536,404 International final settlement expenses 15,406,539 13,382,985 Transportation expenses 11,207,315 12,322,866 Depreciation and amortisation 9,296,624 13,424,577 Asset maintenance cost 5,629,721 7,046,982 Electricity 2,647,664 2,589,080 Cost of goods and services for resale 2,615,264 3,292,196 Materials 2,512,501 3,745,142 Business trip and communication expenses 943,189 1,540,981 Other 210,961 (172,620) 141,485, ,708,593 In 2010 the cost of sales decreased due to optimization of activity, decrease of postal network and tight expenses control. 21 Operating expenses Salaries and social security 27,534,155 19,050,775 Communication and information technology cost 4,835,418 6,229,070 Taxes other than income tax 4,673,327 4,605,084 Services of financial institutions 3,489,426 3,662,985 Rent 763, ,096 Security 632, ,478 Utilities 311, ,769 Consulting services 161, ,767 Insurance 136, ,937 Audit services 101, ,539 Impairment of receivables and other assets, write-off 497,514 6,256,389 Impairment of property, plant and equipment - 33,689,564 Other 2,644,444 3,846,512 45,781,625 80,103,965 24

25 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 22 Other operating income (expenses) - net Rent of premises 2,040,403 2,228,398 Special type accommodation service 177, ,322 Vehicle rent 28,192 42,831 Salaries and social security of additional activity personnel (50,013) (86,380) Exploitation expenses of assets used in additional activity (31,751) (82,501) Other operating income (expenses) 158, ,537 2,322,708 2,844, Income (expenses) from financial and investment activities, net Interest income 42, ,469 Foreign currency exchange (loss) (16,929) (30,245) Interest (expenses) (1,279,844) (936,828) Other financial (expenses) (38,551) (12,893) (1,292,537) (833,497) 24 Income tax (restated) Components of the income tax expense (income) Current income tax for the reporting year - - Deferred income tax (expenses) income related to the appearance and disappearance of temporary differences 1,870,881 (150,540) Income tax (expenses) income recorded in income statement 1,870,881 (150,540) As at 31 December 2010 As at 31 December 2009 (restated) Deferred income tax asset Tax loss 10,523,177 7,575,153 Accruals and provisions 3,985,533 5,071,611 Impairment 2,211,147 2,188,491 Deferred income tax asset before valuation allowance 16,719,857 14,835,255 Less: valuation allowance - - Deferred income tax asset, net 16,719,857 14,835,255 Deferred income tax liability Property, plant and equipment (12,802,883) (12,854,255) Accrued income (2,196,633) (2,131,540) Deferred income tax liability (14,999,516) (14,985,795) Deferred income tax, net 1,720,341 (150,540) Deferred income tax asset and liability were accounted for at the rate of 15 % as at 31 December 2010 and

26 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 24 Income tax (cont d) The reported amount of income tax expenses attributable to continuing operations for the year can be reconciled to the amount of income tax expenses that would result from applying the statutory income tax rate of 15 % in 2010 and 20 % in 2009 to pre-tax income from continuing operations as follows: Income tax, accounted for at the statutory rate of 15 % (20 % in 2009) 1,815,061 13,538,289 Recognition of deferred income tax liability, not recognized in previous periods - (10,315,287) Change in tax rate - (3,388,249) Permanent differences 55,820 14,707 Income tax (expenses) recorded in income statement 1,870,881 (150,540) 25 Financial assets and liabilities and risk management Credit risk The Company s procedures are in force to ensure on a permanent basis that sales are made to customers with an appropriate credit history and the sales will not exceed approved credit risk limit. The Company does not provide guarantees for other parties. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Consequently, the Company considers that its maximum exposure is reflected by the amount of trade and other receivables, net of allowance for doubtful receivables recognised at the balance sheet date. Interest rate risk The majority of loans and leases of the Company are with variable rates, related to EURIBOR and VILIBOR, which create an interest rate risk. There were no financial instruments designated to manage the Company s exposure to fluctuation of interest rates outstanding as at 31 December 2010 and Liquidity risk The Company s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Company s liquidity (total current assets / total current liabilities) and quick ((total current assets inventories) / total current liabilities) ratios as at 31 December 2010 were 0.52 and 0.48, respectively (0.54 and 0.50 as at 31 December 2009). The Company is planning to improve its liquidity by obtaining non-current financing from banks to increase its working capital, prolonging payment terms with the suppliers, setting advance payments requirement in the agreements with the customers and shortening payment terms. Foreign exchange risk The foreign exchange risk of the Company is due to purchase and sales transactions in foreign currency. There were no financial instruments designated to manage the Company s exposure to foreign exchange risk. 26

27 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 26 Commitments and contingencies The Company has issued guarantees and ensured for banks for distribution of pensions and other pay outs. The total amount of guarantees issued and valid as at 31 December 2010 is LTL 28,070 thousand. On 2 April 2010 the deputy of the prosecutor general of the Republic of Lithuania brought an action at Vilnius County Administrative Court regarding cancellation of the sales-purchase agreement of a land plot, which was signed between Public Limited Company Lietuvos paštas and UAB Skala on 12 June 2008 and making restitution. At the end of the year 2010 forensic expertise for determining the value of the land plot under dispute is appointed. The value of the transaction under dispute is LTL 17,381,400. Considering the investigation process in terms of timeline, it is pretty much obvious, that the final and binding decision in this case is not going to be made in 2011, since the case is really difficult in terms of law treatment and application, also the dispute is big in amount the amount of agreement under dispute is LTL 17,381,400. Even if the court of first instance makes a decision in this case, the decision of the court would be undoubtedly appealed to the court of higher instance therefore the decision would not stand up and be executable until the appeal court and cassation court inspects the case. Based on these considerations, the Company has classified payable amounting to LTL13,881,400 as non-current liability. 27 Related party transactions The parties are considered related when one party has the possibility to control the other one or have significant influence over the other party in making financial and operating decisions. The related parties of Public Limited Company Lietuvos paštas are state owned entities, which owners rights and obligations are implemented by the Ministry of Transport and Communications. The related parties of the Company are listed in the website The Company has identified related parties with the most significant transactions in 2010 and VĮ Tarptautinis Vilniaus oro uostas (the same shareholder); VĮ Kauno aerouostas (the same shareholder); VĮ Oro navigacija (the same shareholder); VĮ Problematika (the same shareholder); AB Lietuvos geležinkeliai (the same shareholder). The transactions with related parties of the Company and the balances were as follows: 2010 Purchases Sales Receivables Payables Related parties 17, ,103-17,220 17, ,103-17, Purchases Sales Receivables Payables Related parties 26, ,235 17, ,013 26, ,235 17, ,013 The Company did not provide any guarantees or warranties to related parties. There was no valuation allowance for accounts receivable as at 31 December 2010 and Remuneration of the management and other payments: As at 31 December 2010 As at 31 December 2009 The number of managers 6 6 Accounts related to employment relations: Basic salary 430, ,866 27

28 Public Limited Company Lietuvos paštas COMPANY S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 (all amounts are in LTL, unless otherwise stated) 28 Subsequent events As at the date of release of these financial statements the management of the Company has not yet prepared a draft of profit distribution for No important subsequent events occurred after the date of the balance sheet. 28

29 ANNUAL REPORT

30 30 CONTENTS CONTENTS ABOUT US Foreword by Chairman of the Board Foreword by the CEO Key performance indicators Mission. Vision. Values. Strategic goals General information Authorized capital. Shares. Dividend policy Regulation Management. Structure Management bodies Structure of the company Regions Other companies Activities Membership. International cooperation Major events of the accounting year Major events after accomplishment of financial year SERVICES Sale of services Prices (tariffs) of services Customers Volumes of services Income Market of services provided Quality of service Publishing of postage stamps INFRASTRUCTURE Public network Logistics Assets Investments PLANS AND PROGNOSES Strategic goals and activity objectives Activity plans and prognoses Key risk factors, opportunities, and threats Correspondence between performance results and goals of the company COMMUNITY OF LITHUANIA POST Employees Collective Agreement Social responsibility and safety at work Social cooperation

31 ABOUT US Lithuania Post runs the widest network of access points, which is three times larger than all countries together Genovaitė, manager

32 32 ABOUT US FOREWORD BY CHAIRMAN OF THE BOARD FOREWORD BY CHAIRMAN OF THE BOARD Ladies and Gentlemen Chairman of the Board of AB Lietuvos paštas Rimvydas Vaštakas The last year was the year of revival and transformation of Lithuania Post. After a period of huge losses, the company is rising like a phoenix from the ashes. This can be proved by financial results of Regardless of economic recession, Lithuania Post managed to minimize its losses by 57.6 million litas in the course of one year. The result is really encouraging, and it demonstrates that the strategy of the activities undertaken, management reform and other decisions taken by the company have been right. Good results of 2010 give ground for optimism and hope that all losses of the company will turn into profit in It is of crucial importance for the company to revive and strengthen its positions until the year 2013 when the postal market will be liberalized in the European Union, and Lithuania Post will have to work under conditions of more intense competition and resist the pressure. This is possible only by demonstrating high work results, providing quality, reliable and customer-oriented services, and applying modern and innovative technologies. I believe that with the help of such a professional team all this can be achieved. It would be difficult for the company to achieve such results without tremendous efforts of all employees. After all, due to a responsible attitude towards work and sincerity of employees we can be proud of our achievements. For all this, I would like to express my gratitude to the employees of Lithuania Post. I am glad that the company maintained its position in the list of the largest employers of the country despite the fact that redundancies could not be avoided in At present, the company occupies the fourth position according to the number of employees among all largest companies of Lithuania. I know that Lithuania Post can and is capable to perform well. This is demonstrated by the last year s financial results. I wish everyone faith, patience, unity, and positive thinking in pursuit of your aims. Let us find the best success recipe all together. Yours sincerely Rimvydas Vaštakas Chairman of the Board of AB Lietuvos paštas

33 33 ABOUT US Foreword by the CEO Foreword by the CEO Dear Shareholders Acting Chief Executive Officer Lina Minderienė The last year was really hard for Lithuania Post. We have experienced several scandals, turnover of managers and staff. However, today I am glad that all these changes have strengthened the company and given good results. Although Lithuania Post was unprofitable in the year 2010 we have incurred losses in the amount of 10.2m litas this made 6,6 times less than in 2009, when the loss of 67.8m litas was incurred. Under conditions of economic recession being experienced both by the company and the country we managed to put under control activity costs and minimize losses by 57.6m litas. The task to cut losses by almost 7 times was really challenging and requiring complete commitment. The largest part of funds was saved through structural changes, which enabled to reduce activity costs by 43% in comparison with the same period in The changes resulted in savings of more than 34m litas. Although the company succeeded in cutting costs, a part of services provided by Lithuania Post is still loss-making. In 2010, income from sale of services, if compared with the same period in 2009, decreased by 13% making 174.1m litas. The company s income decreased mainly due to decrease in income from financial services. Therefore, we must make every endeavour to put the situation to a direction favourable for us. In 2010, we worked really hard and a lot. However, today we can see the first sprouts showing recovery of the company. Last year, we took a decision to make activities of post offices more effective; loss-making and inefficient post offices were transferred to the places, which are more convenient and attractive to customers. In relation to this decision, new post offices were set up in three shopping centres. Judging from experience, this solution has served the purpose. After transfer of Riešė Post Office to the shopping centre Link Molėtų, the number of customers increased by 2,5 times during a couple of months. We will keep following this direction in the future. Good results were generated by courier services. Last year, in comparison with 2009, the number of parcels delivered increased by 157%. Such figures resulted from active cooperation with e-trade companies such as pigu. lt. Also, the number of parcels sent to Eastern countries Russia, Ukraine, Belarus has increased. These results reveal that the post is active both in Lithuanian and international markets. We will keep strengthening these positions in the future. Last year, we started developing a new service, namely gift mail, which is further being successfully developed at present. This service was very popular before Christmas period. By offering to our customers special boxes together with selected gifts, we increase the volumes of items delivered and boost sales of goods. With the aim to maintain current customers and attract new ones, we started installing a network of payment terminals in With the help of these terminals, one can pay bills for the services provided by more than various companies and institutions in a quick and convenient way. In 2010, Lithuania Post issued 26 new postage stamps to commemorate such important events of our country and the world as the 21st Olympic Games, the world exhibition EXPO 2010, or the 600th Anniversary of the Battle of Žalgiris. In order to improve customer service culture and increase quality level, starting with October 2010, the programme on quality of customer service improvement was started. Requirements with regard to good customer service were introduced to postmen, couriers, and customer service specialists. Also, booklets with advices on good customer service were distributed to them. One more novelty in Lithuania Post

34 34 ABOUT US Foreword by the CEO surveillance cameras installed in Mail Sorting Department. Being able to observe how items are being sorted, we will ensure that operations are performed in a quality, efficient, and transparent way. With proper fulfilment of one of the main postal functions, we will gain trust and respect of our customers. I am glad that Lithuania Post contributed to the implementation of social projects held last year. Lithuania Post organized several campaigns orientated to the education of small children. Last summer, celebrating the 600th anniversary of Žalgiris Battle, we invited children to send their regards to Vytautas and his soldiers. A similar campaign was organized in Klaipėda during the Sea Festival. The youngest citizens and guests of Klaipėda could send their regards to the Baltic Sea. By such projects, we encourage the young generation to show interest in the history of their homeland and surrounding nature; also, such tasks serve for the development of creativity. Last year, our employees took part in the clean-up campaign Darom 2010; also, together with the residents leading healthy lifestyle, we pedalled bicycles with other participants of Velomarathon, which was held in Vilnius for the first time. One more major work we managed to carry out in 2010 is development of a new vision and mission of Lithuania Post. We have also defined the values to be cherished and set up strategic goals for All these measures were necessary that the company could keep carrying out operations and start making profit. At present, everyone knows, which way has been chosen by Lithuania Post and what the final stop must be. At the end of the year, we set major and ambitious goals: in the course of the nearest two years, we would like to see Lithuania Post as a financially strong and competitive company fully satisfying customer expectations and providing quality postal, logistic, financial, intermediation, and electronic services. We are not considering whether we will or not manage to achieve these goals. We simply must implement them in order to be ready for work in a liberalized market from At present, we are in the midway only. Our aim is to receive the best results with minimal costs. Accordingly, in 2011, we will be further making activities of the company more effective and will offer our customers new and modern services for the best price. During the years to come, we will strengthen our positions in the market. A special attention will be paid to the areas of electronic, financial, and courier services as well as improvement of customer service. Also, we will offer residents new and modern services. Generalinio generalinio direktoriaus žodis Yours sincerely Lina Minderienė Acting Chief Executive Officer

35 35 ABOUT US Key performance indicators Key performance indicators Key indicator Total income (thousand LTL) Sales income (thousand LTL) Profit before taxes, interest, depreciation, and amortization (EBITDA)* (thousand LTL) EBITDA margin (%) Net profit (loss) (thousand LTL) Total assets (thousand LTL) Shareholders property (thousand LTL) Profitability of shareholders property (%) Ratio of equity capital and assets (%) Profit (loss) per share (LTL) Number of shares Investments (thousand LTL) Number of employees at the end of the period (persons) Average number of employees (full-time positions) Average monthly salary (LTL/position) Total number of services provided (thousand items) Total number of universal postal services provided (thousand items) Income from sales per employee * Provisions included

36 36 ABOUT US Mission. Vision. VALUES. Strategic goals Mission. Generalinio Vision. VALUES. direktoriaus Strategic goals žodis Mission To provide quality and professional postal, logistic, financial, intermediation, and electronic services. Vision To be financially stable and modern company fulfilling customer expectations. Values Common goal We are a team of professional employees and managers able team up for a common goal and strive for it. We take balanced, reasoned, and explicit decisions with regard to the management of the company. We share our knowledge and experience with other colleagues. We analyse and assess the results of teamwork and strive for constant advancement. Purposeful and joint work oriented to impressive activity results enables to achieve the goals set and overcome new challenges. Initiative We are ready to accept new challenges; we are quick and flexible in adapting to changes in the market. When we face a problem, we solve it only after a thorough analysis of a situation. We actively search for new ideas and the best solutions when implementing them. We are striving to make the company the leader of the market. Professionalism We duly represent the company both in business environment and private sphere. We carefully examine the situation and resolutely offer solutions. We constantly improve in professional area and broaden knowledge from respective fields, which are applied in routine works. We are open to novelties and strive to be the best. Our work with customers and colleagues is based on responsibility, trust, and mutual understanding. Orientation to business We are creative and constantly look for new business solutions. We achieve the best results with the lowest costs. We have many ideas, the best of which are put into practice. We are flexible, as only flexibility and experience allow taking timely and professional decisions. We strive to ground our business on tested business solutions, and provide the services of the best quality. Innovation We are open to novelties and help to implement novelties from the spheres of management or technologies in the company. We constantly improve working processing, keep the track of postal business novelties and, with attitude towards changes in the market, we can see the actions of our competitors best. Responsibility We are fully responsible for the results of our work and have respect for our promises. We always estimate the importance and results of our actions both outside and inside the company. We act as a harmonious part of environment and society. We are open to criticism, which is always accepted by us and receives feedback. We strive to serve qualitatively and effectively both internal and external customers.

37 37 ABOUT US General information General information The enterprise Lietuvos paštas was established in In 2006, it was reorganized into the Public Limited Company Lietuvos paštas. The Annual Report covers the year The financial year coincides with the calendar year. On 14 July 2010, the Government of the Republic of Lithuania approved The Transparency Policy for State-Owned Companies (hereinafter referred to as Transparency Policy ), according to which the company s accounting must be carried out following the international standards for financial accounting (hereinafter referred to as TFAS ). Statements prepared according to TFAS are considerably broader in scope. Preparing financial statements in line with TFAS for the first time, it is necessary to analyze all differences between the requirements of VAS and TFAS. When preparing statements according to TFAS, it is necessary to provide comparative information for the last two years; therefore, financial data both for the accounting and two previous years must be rearranged following the requirements of TFAS. Lithuania Post decided to prepare financial statements for 2011 according to TFAS. Each year, an independent audit is carried out by independent auditors. The audit of the company s financial statements for 2010, prepared according to VAS, was carried out by the auditing company UAB Ernst & Young Baltic. Basic data Name Legal domicile Public Limited Company Lietuvos paštas A. Vivulskio g. 23, LT Vilnius Telephone Fax Internet site Authorized capital Legal status Term of activity info@post.lt LTL Public limited company, private legal entity of limited civil liability Open-ended Company code VAT identifier LT Data processor of legal entities State Enterprise Centre of Registers Articles of the company Registered with the Register of Legal Entities on 14 September 2009

38 38 ABOUT US Authorized capital. Shares. Dividend policy Authorized capital. Generalinio Shares. direktoriaus Dividend policy žodis The company s authorized capital makes litas. It is divided into shares. The nominal value of one share is 1 litas. All shares of the company belong to one class of ordinary registered shares. The shares of the company are intangible. The shares are recorded in the account of securities managed by the brokerage company Finasta. All shares are owned by the State. Ensuring the rights in the company reserved to the State via the shares, the possession of which is governed by the property law, the State is represented by the Ministry of Transport and Communications of the Republic of Lithuania. No own shares have been obtained before the accounting period and no own shares have been obtained or assigned during the year No shares of other companies have been obtained or assigned. Dividend policy. Lithuania Post has no dividend policy approved. Based on data as of 31 December 2010, the company had thousand litas of undistributed losses. In the future, when the company is profitable, a possibility to pay dividends will be discussed.

39 39 ABOUT US Regulation Regulation The market of postal services in the European Union is regulated by Directive 97/67/EC of the European Parliament and the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of services, as well as Directive 2002/39/EC of the European Parliament and the Council of 10 June 2002 amending Directive 97/67/EC with regard to further opening to competition of Community postal services, and Directive 2008/6/EC of the European Parliament and the Council of 20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of Community postal services. The latter Directive foresees the liberalization of the postal market before 31 December 2010; however, eleven member countries of the European Union (Czech Republic, Greece, Cyprus, Latvia, Poland, Lithuania, Luxembourg, Malta, Romania, Slovakia, and Hungary) retained the right to postpone the full market opening until 31 December The provisions set forth in the Directive of the European Parliament and the Council must be transferred to the Postal Law of the Republic of Lithuania (hereinafter referred to as the Postal Law ) until 31 December One of the main goals of the EU postal policy is to coordinate gradual and monitored liberalization of the postal market and ensure smooth provision of the universal postal service (hereinafter referred to as UPS ). Legal basis for the provision of postal and courier services is set forth and relations between the postal and courier service providers and users, rights and responsibilities, liability and payment of indemnity are governed by the Postal Law (Official Gazette Valstybės žinios (hereinafter referred to as Žin. ) 1999, No ; 2004, No ). According to the Postal Law, the provider of UPS must provide universal postal services to all users under equal conditions every working day and not less than 5 working days a week. In order to ensure continuous provision of UPS, the services of clearance, distribution, transport, delivery and handing in of domestic letter-post items, direct mail items, incoming cross-boarder postal items, taking into account weight and price limits, are reserved for Lithuania Post. On the basis of the Postal Law adopted on 13 April 2004, since 1 January 2006, the maximum weight of postal items covered by the reserved area is 50 grammes. Other providers of postal services having a license to provide postal services must provide reserved postal services by applying a tariff of at least two-and-a-half-times the tariff for a letter-post item in the first weight step set to the universal postal service provider. The Ministry of Transport and Communication of the Republic of Lithuania, in its letter No (17-3) dated 28 July 2008, confirmed that Lithuania was going use an exclusive right to postpone the implementation of Directive 2008/6/EC and full market opening until 31 December After full market opening, the reserved postal services will be eliminated. In the Republic of Lithuania, postal activities are regulated by the Ministry of Transport and Communications and the Communications Regulatory Authority (the latter hereinafter referred to as the NRA ). The maximum tariffs of UPS are approved by the Government of the Republic of Lithuania. Presently valid tariffs are applied as of 1 September 2007 (Žin., 2007, No ). Cost accounting of UPS and reserved postal services is carried out following the accounting principles set in order No. IV-625 of Director of the NRA issued on 1 July 2005 Regarding the Approval of Rules of Cost Accounting of Universal Services Provider (hereinafter referred to as the Accounting Rules ) and following the accounting system based on the types of activities (Activity Based Costing, hereinafter referred to as ABC ).

40 40 ABOUT US Management. Structure Management bodies Generalinio Management. direktoriaus Structure žodis Generalinio Management direktoriaus bodies žodis Following the company s Articles, the bodies of the company are: the General Shareholders Meeting, the Board, and the Chief Executive Officer of the company. The Supervisory Board is not formed in the company. The Board of the company represents the shareholders and performs supervisory and control functions. The written decisions of the Ministry of Transport and Communications are equalled to the decisions of the General Shareholders Meeting. The Board of the company is a collegiate body consisting of five members elected for a term of four years. The Chairman of the Board is elected by the Board out of all members. Members of the Board are elected by the General Shareholders Meeting. Members of the Board (data as of 31 December 2010) Full name Position Education Rimvydas Vaštakas Vice Minister of Transport and Communications, Chairman of the Board Vilnius Civil Engineering Institute, Faculty of Mechanical Technology Beginning of term of office Alminas Mačiulis Director Transport Investment Directorate Vilnius Civil Engineering Institute, Faculty of Mechanical Technology. Doctor of Social Sciences Paulius Jankauskas Advisor to the Minister of Transport and Communications Klaipėda University, Faculty of History Jurgita Šoblinskienė Chief Specialist of Law Division of the Ministry of Transport and Communications Vilnius University, Faculty of Law. A Master of Law Tomas Pilukas Head of Transit and Logistics Division under Transport Policy Department of the Ministry of Transport and Communications Vilnius Gediminas Technical University. A Bachelor of Management, qualification of certified engineer-economist During the year 2010, 2 members of the Board out of 5 have changed. On the grounds of the order issued by Minister of Transport and Communications as of 28 April 2010 Regarding the Board of the Public Limited Company Lietuvos paštas, Andrius Urbonas, CEO of Lithuania Post, was dismissed from this position. He was replaced by the newly elected member of the Board Vidas Ramanavičius, Deputy Director of Information and Communication Technologies Department of the Ministry of Transport and Communications. Based on the order issued by Minister of Transport and Communications as of 9 June 2010 Regarding the Board of the Public Limited Company Lietuvos paštas, Deputy Head of Law Division of the Ministry of Transport and Communications Ieva Laurinavičienė and Deputy Director of Information and Communication Technologies Department of the Ministry of Transport and Communications Vidas Ramanavičius were dismissed from the positions of members of the Board. Their positions were taken over by Chief Specialist of Law Division of the Ministry of Transport and Communications Jurgita Šoblinskienė and Head of Transit and Logistics Division under Transport Policy Department of the Ministry of Transport and Communications Tomas Pilukas.

41 41 ABOUT US Management. Structure Management bodies The Board elects and recalls CEO of the company, sets his/her salary and other terms and conditions of labour contract, approves job specifications, awards incentives and imposes penalties. The company is managed by CEO. CEO of the company is the sole management body of the company arranging the daily activities of the company based on authorization granted to him/her. Members of the Board (data as of 31 December 2010) Full name Position Education Lina Minderienė Acting CEO, Directress of Financial Division Vilnius University, studies in finance and credit fields. Qualification of economist granted in 1993 Gytis Kundrotas Arūnas Venckavičius Director of Legal and Administrative Affairs Division Director of Sales Division Vilnius University, programme of integrated studies in law. A Master of Law (2003) Vilnius University, trade programme. A Master of Management and Business Administration (2002) Tomas Jackevičius Director of Postal Operations Divisions Kaunas University of Technology, studies in business administration. A Bachelor Management and Business Administration (2003); a Master of Management and Business administration (2005) Inga Dundulienė Aurika Pelanienė Directress of Postal Network Division Head and Chief Accountant of Accounting Department Vilnius University, studies in accounting and audit. Qualification of economist granted in 1993 Vilnius University, studies in economic informatics. Qualification of economist granted in 1990 Information on salaries, bonuses and other payments paid to the management bodies within the year 2010 Average amount per member of management body Salary (2010, LTL) Total amount In the year 2010, no salaries, bonuses or payments were paid to the members of the Board.

42 42 ABOUT US Management. Structure Structure of the company Regions Other companies Generalinio Structure direktoriaus of the company žodis By decision No. 3-7 passed on 28 January 2010, the Board of AB Lietuvos paštas approved a new structure of the company since 1 February 2010, which was implemented before 1 July The present structure is consists of chief executive officer, directors of 5 divisions (Financial, Sales, Postal Operations, Legal and Administrative Affairs, Postal Network), 19 departments, 4 of which are directly subordinated to CEO (Internal Control and Audit, HR, Marketing and Communication, Business Development). With the implementation of the company s structure, management and administrative functions have been centralized, the units generating income have been strengthen by distinguishing the cost management function and the function ensuring quality and internal control. Klaipėda Region Šiauliai Region Kaunas Region Panevėžys Region Vilnius Region According to the company s structure approved by order No. 1-1 as of 16 January 2009, which was valid until 1 July 2010, there were 6 branches (Kaunas, Klaipėda, Panevėžys, Šiauliai, Vilnius, and Mail Transportation Centre). With the implementation of the new Generalinio direktoriaus Regions žodis structure, the branches were replaced by regions since 1 July Each region has a status of a structural unit (no status of a branch). The area served by one region coincides with the boundaries of two counties of the Republic of Lithuania. Map of company s regions Generalinio direktoriaus Other companies žodis Based on experience of other countries in the area of financial services and following order No issued on 27 July 2007 by the Minister of Transport and Communications of the Republic of Lithuania Regarding Implementation of Resolution No adopted on 26 July 2007 by the College of the Ministry of Transport and Communications of the Republic of Lithuania, Lithuania Post established a subsidiary company UAB Lietuvos pašto finansinės paslaugos in 2007, the aim of which was to develop the provision of financial services together with a financial partner. The authorized capital of Lithuania Post s subsidiary company UAB Lietuvos pašto finansinės paslaugos is made of the financial contribution of the Public Limited Company Lietuvos paštas in the amount of litas shares with nominal value of 1 litas are owned by Lithuania Post making 100% of all shares of the joint-stock company Lietuvos pašto finansinės paslaugos. In 2008, having done preliminary works with regard to the selection of a financial partner, on 27 July 2009, the company announced an international call for tenders to select an investor for a joint development of licensed financial services. Only one tenderer declared a wish to become a financial partner of UAB Lietuvos pašto finansinės paslaugos. However, the terms and conditions presented by the tenderer at the beginning of negotiations have not satisfied the expectations of Lithuania Post; therefore, the negotiations have been suspended.

43 43 ABOUT US Activities Activities Lithuania Post, when serving residents, businesses, institutions, and organizations, provides postal, courier, financial and other services; in total, more than 100 services. Various cross-boarder postal services are provided as well. Group of services Postal services Courier services Services They include clearance, distribution, transport and delivery or handing in of postal items. They are grouped into UPS and other postal services. UPS*: letter-post items up to 2 kg, postal parcels up to 10 kg, registered and insured postal items, inbound postal parcels up to 20 kg from other EU member countries. Other postal services: letter-post items above 2 kg, postal parcels above 10 kg, inbound postal parcels above 20 kg from other EU member countries, direct mail items, writs of summons or other procedural documents. They include clearance, distribution, transport and handing in of postal items by a courier to the addressee in person obtaining his/her signature and providing additional services chosen by the sender. Courier mail items: domestic letter-post items and postal parcels, special items and parcels (marked with Tik pasiuntinys (courier only), Mokėti įteikiant (payment upon delivery), cross-boarder express mail items (EMS) and parcels, EXPRESS items (between the Baltic States), EPG (E-parcel group). * Attribution of services to the group of UPS is regulated by the Postal Law. Financial services Other services Financial services: delivery and payment of pensions, allowances, and other benefits, acceptance of payments, fees, COD amounts, administration of payments, fees, benefits, and COD amounts, acceptance and payment of money orders, sale and repurchase of saving notes issued by the Government, service of holders of bank payment cards, services of financial intermediation. Other services embrace: subscription to periodicals, delivery of unaddressed mail items, services of printing and enveloping, additional postal services (delivery of advice of delivery, transmission of advices into mobile phones, acceptance of postal items with special marks, packing of postal items, sticking of address labels, filling in of various forms related to the services provided, preparation of documents for customs clearance, and other services), retail trade and selling on commission, sending/receiving of postal fax messages, other services (copying, laminating, issuing of material prizes, payment of prize money, binding of documents and books, acceptance of advertisements, recording of information into CDs, scanning, loading of shipments, and etc.).

44 44 ABOUT US Membership. International cooperation Membership. Generalinio International direktoriaus cooperation žodis In 1992, Lithuania was admitted to the Universal Postal Union (UPU) ( becoming one of 191 members; Lithuania Post is the member of PostEurop ( the restricted union of UPU, and the Baltic Postal Union. Also, the company follows the activities of the work groups and committees of the Nordic Postal Union. Universal Postal Union Membership of Lithuania since 1992 Association of European Public Postal Operators Membership of Lithuania Post since 1993 Baltic Postal Union Established in 1994

45 45 ABOUT US Major events of the accounting period Major events Generalinio of the accounting direktoriaus period žodis Novelty of 2010 in Lithuanian market a payment terminal Since 1 January, all postal and courier services, except for UPS, have been levied by VAT on the basis of the Law Amending the Law on Value Added Tax of the Republic of Lithuania (Žin, 2009, No ). On 5 January, the Law Amending and Supplementing Articles 2, 3, 5, 6, 7, and 8 of the Postal Law of the Republic of Lithuania came into force. The main aim of the law is to harmonise the provisions of the Postal law with the provisions of directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market in order to avoid contradictions due to differences in regulation of the same legal relations. On 23 February, the first payment terminals were put into operations. On the grounds of leasing agreement, they were offered to the Lithuanian market by AB Lietuvos paštas and UAB ERP. Using this devices, which are similar to ATMs, users can pay the bills for the services provided by more than various companies and institutions in a quick and convenient way. On the basis of order No. 2-7 issued by the Board of AB Lietuvos paštas on 28 February 2010 Regarding Approval of the Management Structure of the Public Limited Company Lietuvos paštas, the new structure of the company, which was implemented on 1 July 2010, was approved as valid since 1 February Until the latter date, both the old structure and the new one were valid. The transposition of different structural units into the new structure was performed gradually. On the basis of order No issued by the Board of AB Lietuvos paštas on 31 March 2010, Chief Executive Officer of Lithuania Post Andrius Urbonas was recalled from his position and dismissed. Aidas Ignatavičius, Director of Postal Network Division of Lithuania Post, was assigned to temporarily perform the functions of CEO of the company. AB Lietuvos paštas succeeded in the public tendering announced by Information Society Development Committee under the Government of the Republic of Lithuania for the provision of electronic payment services. With mediation of AB Lietuvos paštas, natural and legal persons will be able to make payments for public and administrative services on real time via the interoperability system of information systems of public administration institutions (VAIISIS). This measure is a part of the Programme of the Government of the Republic of Lithuania. On 1 July, the activities of Vilnius, Kaunas, Klaipėda, Panevėžys, and Šiauliai Branches and Mail Transportation Centre were terminated; these units have been excluded from the database of the Register of Legal Entities. Since 1 July, the company provides a special service to the Sate Enterprise Regitra driving licences may be posted and delivered by courier mail. The customer having ordered such a service may get a new driving licence and return his/her old driving licence to the SE Registra using courier mail services. On 2 August, CEO of the company Aidas Ignatavičius resigned from his position. Since 3 August, Directress of Financial Division Lina Minderienė was assigned to temporarily perform the functions of CEO of AB Lietuvos paštas. On 21 September, during the plenary session of the Seimas, a project of the Law on Ratification of Documents Adopted and Amended by the Universal Postal Union in Geneva in 2008 (No. XIP-2320) was submitted. In the course of the session, a decision to approve this project after submission and start discussion procedures was taken. Also, the Committees of Foreign Affairs (the main) and Information Society Development (supplementary) of the Seimas were assigned to discuss this project. On 29 October, a new Customer Service Standard came into force, the aim of which is to unify the employees knowledge and improve their skills necessary when serving the customers.

46 46 ABOUT US Major events of the accounting period On 5 November, an Agreement on Amendments to Collective Agreement amending point 16 of Annex 2 (which came into force on 1 January 2011) signed. As set forth in the amendments, the employees directly serving the company s customers may receive a variable pay for generated turnover. The variable pay will be paid from the fund of variable pay for generated turnover made of 5% from the amount of salaries and bonus payments paid for the actual working time during that month of all earlier mentioned employees. On 12 November, the Board of AB Lietuvos paštas decided Acting Chief Executive Office of AB Lietuvos paštas Lina Minderienė to be the most qualified candidate to manage Lithuania Post. She will be assigned to the position of CEO after receipt of permission to work with secret information. A new post office in Šiauliai Established in 2010 in the shopping centre Akropolis

47 47 ABOUT US Major events after accomplishment of financial year Major Generalinio events after direktoriaus accomplishment žodis of financial year On 1 January 2011, the law amending article 3 of the Postal Law and supplementing this law by articles 13, 14, 15, 16, and 17 came into force. The Postal Law was supplemented by new articles (13, 14, 15, 16, and 17) setting the procedures of application of specific measures against the providers of postal and/or courier services failing to comp-ly with the requirements of legal acts governing the provision of postal and/or courier services. The law foresees specific measures (fines, temporal suspension of activities) to be applied to the persons acting a certain market, i.e. postal and/or courier services market, depending on the nature of breaches committed, which would be appropriate and balanced with regard to the extend of breaches of requirements set in legal acts governing the provision of postal and/or courier services. Based on decision No of the Board of the Bank of Lithuania dated 24 February 2011, Lithuania Post was granted a payment institution licence giving the right to provide the payment services defined in points 1, 2, 3, 5, and 6 of article 5 of the Law on Payments of the Republic of Lithuania. Lithuania Post received a licence of payment institution

48 SERVICES More than 53.5 million of postal items have been delivered and received within a year, the total weight of which made tons. This is more than 10 elephants could lift Jonas, courier

49 49 pservices Sale of services Prices (tariffs) of services Customers Generalinio direktoriaus Sale of services žodis Generalinio Prices (tariffs) direktoriaus of services žodis The establishment of tariffs for UPS is governed by the Postal Law. Economically grounded cost prices of services/ goods, estimated according to reported and regulated expenses, make a basis for the prices/tariffs of other services/ goods. The new tariffs of universal and other postal services are approved by the orders of CEO of Lithuania Post taking into account the maximum tariffs for UPS set by the Government. According to article 8.5 of the Postal Law, the tariffs of UPS must be geared to the costs of the universal postal services provided, but must be affordable for all users of postal services, transparent and non-discriminatory. Cost accounting of UPS and other services is conducted following the Rules of Cost Accounting. The tariffs for the services provided must correspond to the costs incurred while providing these services. Where the Government fixes lower tariff ceilings for universal postal services to a universal postal service provider than costs of postal services, the difference between the costs and tariffs shall be covered in the manner set forth by the Government from the funds earmarked in the State budget. According to article 8.6 of the Postal Law, the universal service provider may apply special tariffs. When setting such tariffs, avoided costs are estimated as compared to the standard postal services. The special tariffs of UPS and other postal services are approved by the orders of CEO of Lithuania Post. The European postal operators, providers of postal services designated to provide universal postal services in their countries, having signed the international REIMS East agreement make settlements according the rates established taking into account the quality of service achieved (as set in standards). Lithuania Post signed this agreement in 2005 followed by REIMS III in REIMS IV foreseeing a more favourable ratio between quality of service and terminal dues was signed by Lithuania Post and the majority of parties to REIMS East agreement at the end of In order to maintain competitiveness of designated postal operators in liberalizing market, a new draft REIMS agreement currently is being prepared. The new agreement would enable member countries to reduce terminal dues rates even more and achieve a closer relation with the costs incurred. It is planned that the new agreement will come into force on 1 January Generalinio direktoriaus Customers žodis A wide range of services provided by Lithuania Post satisfies the needs both of residents and organizations. The services of the company are used by state enterprises, municipalities, public and budget institutions, public organizations, state-owned and private businesses. In 2010, approximately 10% of economic operators out of (source: had agreements with Lithuania Post for the provision of services. Income from services provided under agreements constitutes about 70% of income form sales of services. 27.6% of income is made of income from counter operations provided to natural persons (hereinafter referred to as natural persons ). In 2010, this customer group generated 31.5% of income from postal services and 30.3% from courier services. 72.4% of Lithuania Post s income was received for the services provided to legal persons; the largest part of income 84.4% was received for financial services and 83.8% for other services.

50 50 SERVICES Customers Breakdown of income according to customer groups Customer group All services Postal services Based on services Courier services Financial services Other Natural persons 27.6% 31.5% 30.3% 15.6% 16.2% Legal persons 72.4% 68.5% 69.7% 84.4% 83.8% The largest Lithuania Post s customers are UAB Itella Information, state institutions, and mass media companies. While providing mediation services in granting short-term credits, Lithuania Post is cooperating with two partners. In post offices, the customers may use the services of the financial institution UAB General Financing, belonging to the group of the French bank Societe Generale and UAB Ūkio banko lizingas, a subsidiary undertaking of the bank AB Ūkio bankas, providing the service of consumer credit Pinigai dabar (money now). Consumer credits can be paid out in cash or transferred to the customers bank accounts. In cooperation with Lietuvos draudimas, the leading insurance company in Lithuania, the services of mandatory motor TPL insurance and accident insurance are also provided in post offices. In 30 post offices marked with a special sign, customers may use the service of wireless ZEBRA Internet, the equipment for which has been installed by the company TEO LT. The only thing customers need is to obtain a temporal access code and connect to the Internet. The first access points were put into operation in resort localities attracting numerous guests, also in places well visited by tourists and in all main post offices. For already five years, Lithuania Post has been cooperating with the Norwegian company Select engaged in selling by post and having a 30 years experience in this field. The company offers various goods: clothes, haberdashery, sport facilities, household articles and automobile accessories, tools, and etc. Lithuania Post delivers goods chosen from the catalogue and returns disliked goods back to the company Select. The company IMP (International Masters Publishers) operates as a distance seller and has been producing quality household products and goods for the families for 35 years. UAB IMP Baltic is a subsidiary company of the Swedish company IMP AB established to carry out activities in the Baltic States Lithuania, Latvia, and Estonia. Lithuania Post is providing for this company the services of distribution of addressed and unaddressed advertising materials and delivery of goods. Lithuania Post is cooperating with an international direct marketing company Studio moderna, which started its activities in 2003 and has become a leader in the area of direct marketing. This company is popular in 20 countries of Central and Eastern Europe. The goods ordered are delivered by Lithuania Post. The international financial corporation Western Union is cooperating with Lithuania Post. Money transfers can be sent to and received from almost 200 countries. In Lithuania, this service is provided in 182 post offices. Money sent by the sender may be received within minutes.

51 51 SERVICES VOLUMES of services Generalinio VOLUMES direktoriaus of services žodis In 2010, Lithuania Post provided thousand services showing a decrease of 4.4% as compared to Due to general economic recession in the country and development of electronic communications and technologies, demand for postal services has decreased: the number of postal services provided decreased by 9.8%; decrease in the number of courier and financial services provided was respectively 70.6% and 14.3%. The number of other services, as compared to the data of last year, has increased by 4% due to the rise in volumes of unaddressed mail. Volumes of services provided (million items) Postal Courier Financial Other services m m m m. Special boxes In 2010, a new service, namely special boxes with a prepaid postage, was introduced

52 52 SERVICES Income Generalinio direktoriaus Income žodis Generalinio direktoriaus žodis In 2010, the company s gross income was thousand litas. The number decreased by 13.3% as compared to 2009 with the result of thousand litas. During the accounting year, income from sales (excluding financial and other activities) was thousand litas (in 2009, it made thousand litas). Like in 2009, income from universal postal services constituted the largest part of all income making 48.2%. Universal postal services mean postal services provided throughout the territory of Lithuania on a continuous basis. The attribution of the services to UPS is governed by the Postal Law. Income from sales (million litas) Postal Courier Financial Other services m m m m. The largest part of income from sales, making 51.8%, was received for the provision of postal services. Income from financial services constituted 24.9%. Other services (subscription to periodicals, unaddressed mail, retail trade and selling on commissions, and other services) generated 17.8% of income; courier services generated 5.5% of income. In 2010, the company s income from postal services decreased by 2.3% if compared to Despite the fact that customers chose alternative electronic services more often, and the market of services related with postal services has shrunk, the level of income from UPS remained the same as in Income from UPS constituted 95.1% of income from postal services. In comparison with 2009, income from courier services decreased by 31.5% in 2010 due to the fact that income in the amount of thousand litas for the services provided to the Central Electoral Commission was included into income from courier services provided in Growth rate of income from sales of courier services is slowed down by limited technical possibilities of AB Lietuvos paštas. In addition to this, income from letter-post items delivered by couriers is falling as customers choose a more attractive (in terms of price) service of registered letter-post items. In 2010, income from financial services decreased by 26.1%. With the changes of customer habits and a need to save funds, the customers choose electronic services provided by alternative service providers. Also, more providers of this service enter the market. Expansion of competitive environment and possibilities to offer lower prices to the customers lead to a decrease of Lithuania Post s income from the provision of services of payment collection and administration as well as delivery of pensions. Income from other services, in comparison with 2009, decreased by 14.2%. Shrinkage of periodicals market determined a decrease in come from subscription to periodicals. Income from retail trade and selling on commission decreased due to shortened working hours of post offices. Income from distribution of unaddressed mail increased due to a rise in demand for this service.

53 53 SERVICES Market of services provided Market of services provided Data on the market share in the area of postal and courier services occupied by Lithuania Post and other market players is observed by the Communications Regulatory Authority ( which prepares quarterly surveys on the postal sector. The NRA s data for the 3rd quarter of 2010 reveals that 59% of the postal and courier services market (based on income) is made of courier services and 41% of the market is taken by postal services. Within the 3rd quarter of 2010, if compared with the same period of 2009, the common market of postal and courier services increased by 11.7% (from 52m litas to 58.1m litas): the segment of courier services increased by 12.7%; the segment of postal services increased by 10.3%. Changes in the market share occupied by Lithuania Post: decrease in postal services market by 0.2 percentage points; decrease of 0.3 percentage points in the market of courier services; decrease of 0.7 percentage points in the common market of postal and courier services making in total 42.1%. Market of postal and courier services Source: data of the NRA. LTLm mln. Lt % Market of postal and courier services (LTL m) LP market share in the area of postal and courier services (%) % 37.4% 42.8% 42.1% 50% 0 3rd qr. of rd qr. of rd qr. of rd qr. of % Lithuania Post is the main provider of postal services and an absolute leader in the market of postal services. However, the most profitable market of courier services is captured by international companies. Based on income for the 3rd quarter of 2010, Lithuania Post occupied 93.8% of postal services market. Breakdown of postal services market (based on income of rd qr.) Source: data of the NRA. 6.2% AB Lietuvos paštas Other providers of postal and courier services 93.8%

54 54 SERVICES Market of services provided The NRA s report shows that the company occupied 6.6% of courier service market in the 3rd quarter of 2010 (based on income). The largest part of the market (based on income) were taken by UAB DPD Lietuva (29.8%.), UAB DHL Lietuva (9.7%.) and UAB Venipak LT (8.3%). Generalinio direktoriaus žodis Breakdown of postal services market (based on income of rd qr.) Source. Data of the NRA. UAB Venipak LT 8.3% UAB Unipakas 3.5% Lex System GmbH 5.6% UAB Greitasis kurjeris 0.2% UAB Vilpostus 4.3% AB Lietuvos paštas 6.6% Other providers 31.6% UAB DPD Lietuva 29.8% UAB DHL Lietuva 9.7% UAB Šiaulių naujienos 0.4% According to the NRA s data, as of 1 February 2011, there were 72 market players in the field of postal and courier services, out of which 12 companies provided postal and courier services, and 60 companies provided courier services only. There are about 70 alternative service providers in the market of subscription to periodicals. 30% of periodicals are delivered by Lithuania Post. In urban areas, periodicals are usually delivered by the publishers themselves. Approximately 70% of periodicals subscribed with the company are delivered in rural areas. Data on income shows that the market share of Lithuania Post in this market constitutes about 56%. The market of financial services is distinct from other markets in terms of numerous service providers and an active competition. The number of providers involved into acceptance of payments and fees increases. These services have been started providing by store networks, lottery terminals Perlas, kiosks of Lietuvos spauda and other providers. Competitions increases in the market of delivery and payment of pensions and benefits. Lithuania Post delivers pensions and benefits in 59.6% of the territory; in terms of delivery of benefits, the company occupies 35.5% of this market.

55 55 SERVICES Quality of service Quality of service When providing UPS, Lithuania Post must comply with established quality of service standards. The main quality of service indicator is the time required for the routing of items. Lithuania Post must fulfil the quality of service requirements set for the delivery of items falling into the area of universal postal service approved by order No issued by the Minister of Transport and Communications of the Republic of Lithuania on 12 October These standards have been established in relation to the time limit for routing of postal items measured from end to end according to the formula D+n, where D represents the date of deposit and n the number of working days which elapse between that date and that delivery to the addressee. Following article 4.7 of the Postal Law, the NRA supervises the compliance of universal service provider with the established quality standards. According to the quality of service targets set for UPS, 85% of priority letter-post items must be delivered next working day (D+1 85%) and 97% of items must be delivered within 3 working days (D+3 97%). According to the data collected by an independent surveyor UAB Seikonas, quality of service results with regard to UPS achieved by Lithuania Post in 2010 were: D % and D %. UPS quality of service performance Source. Data for presented by the NRA. Data for 2010 presented by UAB Seikonas D % D % 100% 95.66% 98.92% 99.08% 97.61% D+3 97% 90% D+1 85% 80% 75.56% 74.61% 70% 64.95% 60% 57.85% 50% 2007 m m m m. The quality of service targets with regard to UPS are set up in the European standard EN UNEX system for the measurement of quality of service performance developed by International Post Corporation is used for making records on the quality of service level achieved by Lithuania Post when delivering priority cross-boarder letter-post items from EU member countries. Year * K means the date when cross-boarder letter-post items are received at Mail Sorting Department Quality of service target for delivery of cross-boarder postal items K+1 87% K+1 88% K+1 89% UNEX results (%) On October 2010, Nordic-Baltic Quality of Service Working Group held a meeting in Tallinn (Estonia). In the course of the meeting, participants made reports on results achieved in accordance with Activity Plan 2010, discussed quality of service results between the Baltic and Nordic countries based on UNEX data, analyzed presently faced problems, and set an action plan for With the aim to achieve the quality of service target, it is planned to develop Lithuania Post s quality management system setting quality of service targets for separate (partial) operational processes. With the implementation of the European standard EN on Postal Services. Quality of Service. Measurement of Complaints and Redress Procedures and after setting a centralized claims registration system following the requirements of this standard, all claims received are entered into the WorkTrace claims management programme and investigated following the provisions of the Rules for Handling of Claims of Postal Services Users Applied in Lithuania Post.

56 56 SERVICES Publishing of postage stamps Postage stamps issued in 2010 Generalinio Publishing direktoriaus of postage stamps žodis Generalinio direktoriaus žodis Means of postal prepayment mean postage stamps, souvenir sheets, envelopes, postcards (plain postcards) as well as aerogrammes with preprinted stamps, franking impressions and special approved prepayment impressions valid in Lithuania. Lithuania Post, being the universal postal service provider, is obliged to issue and withdraw from circulation the means of postal prepayment as prescribed in the Postal Law (paragraph 4 of article 8.3). In 2010, 26 commemorative postage stamps in the edition of 5.1m and 1 souvenir sheet in the edition of 0.025m were issued. According to the Postage Stamps Publishing Plan 2010 approved by Minister of Transport and Communications, 18 first day issue cancellations, which were used to cancel commemorative postage stamps and souvenir sheets put into circulation, were issued: - three postage stamps from the set Famous People dedicated to political and military figure of the Grand Duchy of Lithuania Jonas Karolis Chodkevičius, Lithuanian linguist Jonas Jablonskis, and political and public figure Mykolas Krupavičius (1); - a postage stamp dedicated to the 21st Olympic Games held in Vancouver (Canada) titled XXI Olympic Winter Games. Vancouver (2); - in the three postage stamps from the set Coats of Arms of Lithuania Towns the coats of arms of Šilalė, Jonava, and Varėna are depicted (3); - to commemorate the 20th anniversary of the event when the Supreme Council of the Republic of Lithuania adopted legal acts proclaiming the reestablishment of an independent state of Lithuania, the postage stamp 20th Anniversary of the Restoration of the Independence of Lithuania was issued (4); - the first postage stamp in Lithuania dedicated to Easter Sunday (5); - the postage stamp EXPO 2010 dedicated to the world exhibition EXPO 2010 held in Shanghai (China) (6); - 100th Anniversary of Vladas Mikėnas. This postage stamp is dedicated to the first Lithuanian chess player, Vladas Mikėnas, who was awarded the titles International Master (by the World Chess Federation in 1950) and the Honorary Grandmaster (7); - a set of two postage stamps dedicated to the International Children s Book Day under the title Europe. Children s Books (8); - in the souvenir sheet Nature Heritage Objects of Lithuania. The Oak of Stelmužė, one of the most famous and important nature heritage objects of Lithuania, the thickest and oldest oak growing in Lithuania and one of the oldest oaks in Europe, is depicted (9); - 600th Anniversary of the Battle of Grunwald. The postage stamp is dedicated to commemorate 600th anniversary of the Battle of Grunwald (Žalgiris) (10); - two postage stamps from the set From the Stocks of Museums were issued on the occasion of 75th Anniversary of the Museum of Kretinga (11); - a postage stamp under the title Youth Olympic Games. Singapore 2010 was issued on the occasion of the first Youth Olympic Games held in Singapore (12); - one of the postage stamps from the set the World Heritage Objects. Archaeological Site of Kernavė named Archeological Site of Kernavė from the Birds Eye View depicts a unique landscape of Kernavė; the other one depicts one of the five hill-forts of Kernavė, namely the Mindaugo Sosto piliakalnis (13); - the both postage stamps of the two from the set Red Book of Lithuania. Forest Fauna and Flora depict a stock pigeon, a member of the family of Columbidae, and a dragonfly, Lesser Emperor, included into the Red Book of Lithuania (14); - one of the postage stamps from the set Churches of Lithuania depicts the Cathedral of Kaišiadorys, the other one the Telšiai Cathedral (15); - the postage stamp Holy Christmas 16.

57 57 SERVICES Publishing of postage stamps Postage stamps issued in and New Year (16); - the postage stamp the Grand Cross of the Order of the Lithuanian Grand Duke Gediminas from the set the Main State Awards (17). Also, 4 special cancellations were issued: May 2010, International Stamp Fair. Essen; - 7 August 2010, 100th Anniversary of the Ateitis Movement; - 1 October 2010, Klaipėda County I. Simonaitytė Public Library ; - 4 December January 2011, Christmas Trees Avenue of the Baltic Sea Region. During the year 2010, Lithuania Post issued and distributed 4 information publications intended for the philatelists, journalists, and regions of the company under the title Ekspres informacija (express information). The publication was issued in the edition of 490 in Lithuanian and 780 in English. Also, the annual information publication (catalogue) 2009 metų Lietuvos pašto ženklai ir proginiai antspaudai (the postage stamps and special cancellations of Lithuania 2009) was issued in the edition of 120 in Lithuanian and 50 in English. In 2010, Lithuania Post arranged online elections of the most beautiful stamp of Based on the results of the survey, the following postage stamps have been declared to be the most beautiful: 1st place the postage stamp the Worldwide Regatta of Sailing Ships by H. Ratkevičius; 2nd place the souvenir sheet 1000th Anniversary of Lithuania by H. Ratkevičius; 3rd place postage stamps from the set Holy Christmas and New Year by I. Balakauskaitė

58 Infrastructure Within one year, while transporting mails, delivering postal items, also for internal needs of the company, the employees of Lithuania Post cover more than 20m kilometres. That would be the same as to travel around the Earth 500 times Antanas, logistics specialist

59 59 Infrastructure Public network Generalinio direktoriaus Public network žodis Fulfilling the requirements regarding the density of UPS access points, Lithuania Post must maintain a certain network of post offices. Accor-ding to the provisions set forth in order No issued by the Minister of Transport and Communications on 14 July 2009 regarding Amendments to the Order on Approval of the Characteristics of the Public Postal Network of the Provider of the Universal Postal Service (Žin., 2009, No ), at least one UPS access point or one work place of UPS provider s agent must be kept operational in rural areas covered by the territory of one subdistrict. For the continuous provision of postal services throughout the territory of Lithuania, UPS network consisting of permanent post offices in urban and rural areas, their sub-offices, and stops of mobile post offices has been established. UPS access points and public letter boxes are installed following the requirements defined in the Characteristics of the Public Postal Network. Lithuania Post has installed and provides daily (on working days) service for public letter boxes; public letter-boxes are installed in urban areas and ones in rural areas. UPS access points and public letter boxes are installed following the requirements defined in the Characteristics of the Public Postal Network. On 31 December 2010, the public network of Lithuania Post consisted of 872 UPS access points: 725 permanent post offices (in urban areas 214, in rural areas 511), 12 sub-offices (8 in urban areas, 4 in rural areas), and 135 mobile UPS access points in rural areas covered by 28 mobile posts. In 2010, the first payment terminals in Lithuania were put into operation. With the help of these terminals, bills for the services provided by more than 1.5 thousand different companies and institutions may be paid. UPS access points In mobile post offices In rural post offices In urban post offices 15.4% 25.5% 59.1% With the aim to improve activity results, the company closed down 13 loss-making UPS access points and established three new UPS access points in places more accessible to customers.

60 60 Infrastructure Logistics Logistics Car used for provision of courier services The company s logistics processes are related with collection, distribution, transport and delivery of services/ goods to customers within a certain period of time; arrangement, planning, and control of stock and material supply to post offices. The whole territory of the country is divided into delivery areas. In these areas, postal items are delivered by postmen on foot or using cars. Postal items are delivered to letter-boxes of residents for incoming deliveries. Out of them, letterboxes are installed in urban areas and in rural areas. Registered items are delivered to addressees in person obtaining his/her signature. In urban areas, postal items are delivered to residents and companies 6 days per week, in rural areas 5 days per week. To transport and deliver services/ goods, the company uses own and rented vehicles. As of 31 December 2010, the company used vehicles; out of this number, 381 were owned by the company, 21 rented from legal persons, and 801 rented from natural persons (from postmen driving cars). Fleet of vehicles Own transport Rented from natural persons Rented from legal persons 8.7% 42.3% 180 vehicles up to 5 years old or 47% 66 vehicles from 5 to 10 years old or 17% 49.0% 136 vehicles older than 10 years or 36% Cross-boarder postal items are transported by planes and vehicles. The main airlines the company cooperates with: Air Baltic Corporation SAS Scandinavian Airlines Lufthansa Austrian Airlines Czech Airlines Finnair Lot Polish Airlines GATS (The Global Aliance of Transportation System) Aeroflot Russian Airlines Cross-boarder postal items are transported by land transport to/from Minsk, Riga, and Lazdijai (for mail exchange with the Polish Post).

61 61 Infrastructure Assets Generalinio direktoriaus Assets žodis Generalinio direktoriaus žodis At the end of the accounting year, the balance value of buildings, facilities, constructions, and sub-buildings owned by the company made thousand litas. Out of thousand sq.m. of own facilities, Lithuania Post used thousand sq.m. for its own purposes, 21.1 thousand sq.m. were rented out, 33.1 thousand sq.m. of premises were not used. For postal activities, 13.5 thousand sq.m. of facilities were rented from other entities. Usage of own and rented area Area of own facilities used for postal activities Area rented Vacant area Area rented for postal activities 16.7% 6.9% 10.7% 65.7% Due to drop in the prices for real estate, there were no plans to sell and no units of real estate (buildings, constructions, facilities) were sold in Lithuania Post s Strategic Activity Plan envisages sale of unused and ineffectively used real estate; the funds received would be used for the development of current and new activities. The company pays a special attention to the maintenance of real estate and management of rental and utility costs. Customer service area The company rents facilities in shopping centres

62 62 Infrastructure Investments Investments Striving to make activities more effective, in 2010, Lithuania Post reorganized the company s structure, reviewed operational processes and prepared an investment programme enabling to make activities more efficient. In 2010, investments were allocated only for essential technological devices, measures ensuring security of valuables, and implementation of on-going projects. In total, investments amounted to thousand litas (in 2009, investments made thousand litas). In terms of investments into intangible assets, 376 thousand litas were allocated: 81 thousand litas to obtain licences and 295 thousand litas for the project Development of the System for the Delivery of E-messages and E-documents to Natural and Legal Persons. For the purpose of tangible assets, 660 thousand litas were invested: 26 thousand litas for the reconstruction of Rokiškis Post Office in Panevėžys Region; 113 thousand litas to obtain weighting devices, lifts, and signal devices; 406 thousand litas to obtain computers and computer equipment; 115 thousand litas to obtain furniture and other tangible assets. Investment (LTLm) 30 25, In intangible assets In intangible assets 20 15, , , m m m m. A new post office in Kaunas Customer service area

63 Plans and prognoses In 2010, more than 15m customers were provided services at post offices. This is twice as many as people in New York reside Anatolijus, manager

64 64 Plans and prognoses Strategic goals and activity objectives Strategic Generalinio goals and direktoriaus activity objectives žodis Strategic goals 1. Increase income while providing first-rate, customer-oriented, and profitable services Objectives - Improve current services, develop new and innovative services meeting customer needs 2. Develop competence and motivation of employees - Develop personnel management system - Develop qualification of employees 3. Improve activities of the company, implement a competitive activity model and flexible structure and make activity costs balanced - Modernize and improve internal processes in order to make activities more efficient, achieve higher quality of service level and improve the image of the company - Introduce changes to internal processes to increase efficiency of the company s activities - Implement measures intended to boost income - Efficient use of real estate - Enlargement of market share in the area of courier services - Make substantial changes to the company s infrastructure enabling to achieve higher performance and provide services of higher quality to customers As forecasted, the company s income in will grow. It is foreseen that Lithuania Post will be profitable since 2011 with profit before taxes of 556 thousand litas. In 2012, it will make thousand litas; in thousand litas. Presentation of strategic goals for Panevėžys Region

65 65 Plans and prognoses Activity plans and prognoses ACTIVITY plans and prognoses In 2010, Lithuania Post proceeded with implementation of the investment project on the Development of the System for the Delivery of E-messages and E-documents to Natural and Legal Persons (e-delivery system), which was started in This project is included into the list of the state projects of the measure E-government Services of Priority 3 entitled Information Society for All of the Economic Growth Operational Programme of the Information Society Development Committee (IVPK) under the Government of the Republic of Lithuania and can be financed using funds from the Support Fund. E-delivery system will be integrated into the interoperability system of information systems of public administration institutions created by IVPK thus ensuring security of electronic services and setting a unified format for personal identification, payment, and communication between state institutions. Information currently being sent by state institutions to natural and legal persons by ordinary post (in hard copies) will be transferred in a harmonized format into the e-delivery system managed by Lithuania Post and will be delivered to addressees by or ordinary mail. It is foreseen to implement the E-delivery system within 30 months. Taking into account the fact that the current infrastructure of the company does not meet present-day needs and determines decrease in competiveness level in the market, the company prepared an investment programme in 2010 focusing on the development of the following areas: - infrastructure, - logistics, - IT. Lithuania Post is planning to implement the projects using own funds and credits. In order to receive bank credits and make use of the most favourable crediting terms and conditions, the company is expecting to receive the state guarantee.

66 66 Plans and prognoses Key risk factors, opportunities, and threats Key risk factors, Generalinio opportunities, direktoriaus and threats žodis Political risk factors The activities of Lithuania Post, as the designated postal operator providing UPS, is strictly regulated and controlled; therefore, the company cannot compete with other postal services providers, which are acting without restraints, only in local zones, being able to apply prices flexibly and react quickly to changes in the market. The company s competiveness in a liberalized market partly will depend on how the rules regarding the provision of services and the requirements regarding quality of service and cost accounting to be applied for all market players or Lithua-nia Post only will be set the Postal Law, the new version of which is to be approved before 31 December Therefore, amendments to the law currently being prepared may have both a positive and negative impact of the company s activities. Economic risk factors Fulfilling the state s obligation to ensure continuous provision of UPS in the whole territory of the country under equal conditions not less than 5 working days per week, Lithuania Post must comply with order No issued by the Minister of Transport and Communications on 20 October 2004 regarding Characteristics of the Public Postal Network of the Provider of the Universal Postal Service (Žin., 2004, No ; 2009, No ), i.e. to maintain a certain network of post offices, for serving of which the systems of logistics and delivery (performed by postmen) have been created. With decreasing demand for UPS and other services provided by the company, the maintenance and service of this network is becoming a heavy economic burden. The company s income is directly related with the number of services provided. As demand for UPS, income from which makes 50% of the company s total income, correlates with the general economic situation of the country, the country s economic status may be considered as the key risk factor. Due to expansion of online services and possibilities to substitute postal services by electronic ones, demand for traditional postal services is decreasing in the market; the company will inevitably encounter with losses of a part of income. Social risk factors The services provided by the company are closely related with the demographic situation of the country. Data of the Department of Statistics reveals that the number of Lithuanian residents diminished by 2.5% in As the company s income for the services provided to private customers constitutes 30%, the decreasing number of Lithuanian residents will have a negative impact on the company s results. Technological risk factors Aiming to ensure the provision of new services meeting the needs of constantly changing market, to reach substantial increase in the company s performance and competiveness level in the market, the company foresees to allocate the largest part of investments to the development of infrastructure, logistics, and IT areas. Opportunities 1. Introduction of new services, development of current services: - Development of courier mail services: expansion of international and domestic market - Development of e-services - Development of international services - A window for public services - Development of financial services: payment, intermediation, funds management, and payment of cash services 2. Development of channels for the provision/sale of new services 3. Optimization of public postal network 4. Flexibility in applying tariffs

67 67 Plans and prognoses Key risk factors, opportunities, and threats 5. Reduction of costs 6. Improvement of employee motivation system 7. Personnel training 8. Sale or renting out of surplus real estate 9. Modernization of logistics processes 10. Sales promotion 11. Adjustment of UPS reserved services market 12. Compensation of losses connected with provision of UPS Threats 1. Competitors are more flexible and quick in the development of technological processes of operations 2. Growing labour market, threat to lose the best employees 3. Entrance of international companies 4. Unfair competition 5. Liberalization of the market 6. Insufficient fulfilment of demand for investments System of internal control Department of Internal Control and Audit has been established in the company, which is directly subordinated to CEO. Department of Internal Control and Audit consists of two groups: quality control group and the group of internal audit. The group of internal audit monitors and assesses: functioning of the system of internal control; efficiency of management of risk factors taking into account the efficiency of activities and cost-effectiveness; reliability of production of management and financial reports; compliance of activities with internal and external requirements; security of various types of assets. Quality control group supervises compliance with requirements and standards regarding quality of service set forth in the legal acts of the Republic of Lithuania, European Union directives and the acts of the Universal Postal Union as well as requirements set by the company regarding handling and delivery of letter-post items, postal parcels and other items. Following the standard EN 14012, this group classifies, examines and investigates claims with regard to the quality of services provided, submits proposals on the improvement of quality of service.

68 68 Plans and prognoses Correspondence between performance RESULTS and goals of the company Correspondence Generalinio between direktoriaus performance žodis RESULTS and goals of the company Lithuania Post is successfully implementing the Strategic Activity Plan set by the Board of AB Lietuvos paštas for Losses in the amount of thousand litas were planned for Based on audited data, the company incurred losses in the amount of thousand litas, i.e thousand litas or 39.4% less. A better result was achieved due to a strict costs control costs were thousand litas less than planned. Optimization of the company s activities and cuts in the postal network (during the year 2010, 13 loss-making access points were closed down) determined decline in the number of employees. In 2010, the number of full-time positions diminished by Reorganization of the company, reduction of expenses, and enhancement of efficiency will be further carried on in the future. The company will further proceed following the direction of effective management, cuts in expenses, and provision of profit making services; it will pursue the strategy to be in line with customers needs striving to occupy a larger part of postal and courier mail services market; working conditions of employees will be improved by refining the salary payment system and operational processes. Post offices are transferred to shopping centres Customer flows in shopping centres are larger, post offices are more profitable

69 COMMUNITY of Lithuania Post About 7 thousand employees are involved in the activities of Lithuania Post. The same number of people resides in Ignalina Vytautas and Jolanta, customer service specialists

70 70 Community of Lithuania Post DARBUOTOjai Employees The number of employees in The number of employees at the end of the year Average number of employees in full-time positions During the year, the number of employees decreased by 986 from up to More than fifty percent of employees hold part-time positions as due to low work loads in rural areas and seasonal work they cannot be employed as full-time employees. The number of full-time employees decreased by or 15.4%. The number of managing personnel and specialists, making 10.0% of staff, decreased by 18.5%. The number of other employees decreased by 15.1%. Breakdown of employees according to positions Heads of post offices 10.7% Sorting attendants 9.7% Drivers, mail escorts, drivers-mail escorts 4.0% Other specialists 1.5% Managing personnel and specialists 10.0% Other workers 3.0% Customer service specialists 16.2% Postmen, postmen driving cars, deliverers of pensions 42.9% Couriers and couriers driving cars 2.0% The structure of employees based on their education has changed slightly during the last year. The number of employees having university degrees remained fixed at 11%; the number of employees having certificates of secondary or vocational school increased by 3 percentage points making in total 62%. A fall of 2 percentage points, down to 23%, can be seen in the number of employees with non-higher professional education. There was an increase of 1.2 percentage points in the number of employees with primary and basic education. Comparing with 2009, the number of employees under 35 years of age decreased by 1.1 percentage points; drop in the number of employees of years of age diminished by 1 percentage point. The number of employees aged from 45 up to 55 years old increased by 1 percentage point. The group of employees aged between 55 and 60 years of old increased by 3%. The number of employees of retirement age decreased by 2 percentage points.

71 71 Community of Lithuania Post Employees Education of employees 4% 11% Graduates of universities Graduates of higher schools Graduates of vocational and secondary schools Graduates of basic and primary schools 62% 23% Age of employees up to 35 years of age years of age years of age years of age Employees of retirement age 15% 35% 5% 23% 17% 28% In 2010, only mandatory trainings for certain occupations (lift-operators, electricians, first-aid courses) and internal trainings conducted by the company s specialists were organized. Within the year 2010, 927 employees took part in various internal and mandatory trainings. 27 employees underwent special trainings and became internal trainers of the company who will conduct trainings in 2011 for employees of the company introducing the Customer Service Standard. The company s annual wage fund. Generalized average monthly salaries according to positions In 2010, labour costs (excluding social security costs) made 47.7% of total costs. Salary expenses made thousand litas, i.e thousand litas or 22.3% less than in Labour costs diminished due to a decrease in the number of employees determined by the changes in the company s structure and other cost saving measures applied. The average salary of employees decreased by 6.6% from litas down to litas. Average salary (in litas) Managing personnel and specialists Other specialists Heads of post offices Sorting attendants Drivers, mail escorts, drivers-mail escorts Postmen, postmen driving cars, deliverers of pensions Couriers, couriers driving cars Customer service specialists Other workers ų ų ų ų ų į ų

72 72 Community of Lithuania Post Collective agreement Collective agreement In Lithuania Post, a Collective Agreement signed on 28 April 2005 between the employer and the trade union is valid. Since 2009, two trade unions carry out their activities in the company. Amendments to the Collective Agreement are made only by the way of social dialogue, under close cooperation between the representatives both of the employer and the trade unions having in-depth discussions on existing problems, the expectations and needs of employees and the employer. Only as a result of intensive and considerable discussions common agreements are reached and included into the Collective Agreement by amendments signed by the employer and the representatives of the trade unions. It is worth pointing out that Lithuania Post s Collective Agreement foresees provisions improving working conditions of the employees: the Agreement foresees pre-emptive rights of certain employees to keep his/her working place in case of reductions in the number of employees due to economic or operational reasons or structural changes in the company; employees raising children up to the age of 14 can choose a shift, if possible; additional and special rest breaks included into the general working time are foreseen for the groups of certain occupations; for the employees who must take an exam granting the right to be armed with a service weapon, the company covers the costs of one exam; material support is foreseen for employees in case of decease of their relatives; employees exposed to higher danger and threat to their life or health are insured against occupational accidents. Also, the Collective Agreement defines guarantees for the trade unions: the right to convene meetings (conferences) of the members during working hours not more than 2 times per year; employees elected by the trade union and the members of the union are released from work up to 3 working days per year to attend professional development courses and take part in the events organized by the union. On 5 November 2010, an Agreement on Amendments to Collective Agreement was signed. The Agreement foresees that the employees directly serving the company s customers will be paid a variable pay for generated turnover from the fund of variable pay for generated turnover. Postal team

73 73 Community of Lithuania Post Social responsibility and safety at work Social responsibility Generalinio and direktoriaus safety at work žodis Generalinio direktoriaus žodis The company ensures all social guarantees for the employees. The Co-llective Agreement foresees measures to ensure supplementary safety of the employees. The company carries out assessment of working places with regard to professional risks. The employees are supplied with personal protective measures following the procedures set forth in the Collective Agreement. In 2010, postmen of urban areas were equipped with wheeled bags, all postmen were equipped with flashlights and gas sprays. For the purpose of accident and occupational disease prevention, the following measures were applied: regular occupational health surveillance, trainings and testing, internal control with regard to safety at work and health control. In 2010, 325 heads of post offices and 48 managers of the company s departments, sections, and groups were trained and attested from the area of safety at work and health. In 2010, 54 occupational accidents occurred in Lithuania Post (in 2009, there were 41 accidents). 21 employees, mainly postmen, incurred injuries. In 2010, employees were insured against occupational accidents. The insurance company paid litas in compensation. The company installs and controls the status of equipment ensuring protection of employees and valuables. In 2010, based on needs, burglar and fire alarm systems were installed. In order to prevent theft of postal items and breaches of work discipline, surveillance cameras were updated in Mail Sorting Department.

74 74 Community of Lithuania Post Social cooperation Social cooperation Every year, Lithuania Post pays attention to social responsibility projects carried out both internally and externally. While cutting down electricity, water, and fuel consumption and saving paper, we contribute to environmental protection. Lithuania Post is a part of the society; therefore, it is of great importance to us to live in a clean and safe environment. When creating welfare for each of us around, the employees of Lithuania Post participate in various environmental projects. Last year, a part of Lithuania Post s employees joined the cleanup campaign Darom 2010; also, they willingly took part in Velomarathon, which was held in Vilnius for the first time. The postal team pedalled bicycles 8 kilometres. Lithuania Post cooperated with the organizers of the project The Road of Freedom. In all post offices, residents could make payments for special nominal One of priority areas developed by Lithuania Post is the education of children. In 2010, Lithuania Post organized several campaigns orientated to the education of small children. Last summer, celebrating the 600th anniversary of the Battle of Žalgiris, Lithuania Post invited children to send special postcards with their regards to Vytautas and his soldiers. All regards written by children were published on the Internet site of Lithuania Post at A similar campaign was organized in Klaipėda during the Sea Festival. The youngest citizens and guests of Klaipėda could write their regards to the Baltic Sea. Through participation in such projects, the young generation is encouraged to show interest in the history of their homeland and surrounding nature; also, such tasks serve for the development of creativity. The values cherished by Lithuania Post are also shared with local communities. Sportsmen of Lithuania Post in Velomarathon 22 August 2010 bricks of The Road of Freedom, which were used to build the sculpture dedicated to commemorate the restoration of the State of Lithuania. In October 2010, the staff of Plungė Culture Centre organized an afternoon event for children to mark the World Post Day. In the course of the event,

75 75 Community of Lithuania Post Social cooperation Postcards writing event during the Sea Festival 27 July 2010 children were told about the postal history, activities, work of postmen and the like. In November, a closer look into the postal system could be taken by Alytus pupils who were invited to participate in excursions to local post offices. All participating pupils were given special safety reflectors, which help to make them more visible when darkness fell. The theme for the international letter writing competition four young people of 2011 was announced. The United Nations declared 2011 as the International Year of Forests. Respectively, the theme of the letter is related with this issue to raise awareness on protection and preservation of forests. The international letter writing competition is organized by the International Bureau of the Universal Postal Union together with the United Nations Educational, Scientific and Cultural Organization (UNESCO). Lithuania Post hosted the meeting with the participants of the project Schoolchildren to the Government This project, aiming to encourage talented pupils of higher grades to show interest in the activities of state institutions, work of politicians, and become active citizens, was organized for the second time. Lithuania Post cherishes old traditions, encourages residents to show interest in the activities and history of post. Last year, the most beautiful postage stamp was elected. Everybody could vote for his/her favourite postage stamp on the website of Lithuania Post. On November 16, marking the postal day, on the initiative of Lithuania Post, everybody willing to get acquainted with the postal history could visit the Communications History Museum in Kaunas free of charge. A great attention is paid to the welfare of employees. The company endeavours to create good and comfortable working conditions. Being aware that people make the most valuable part of the company, a special attention is paid to the training of employees and development of qualification. Lithuania Post supports environmental initiatives and invites to take a serious attitude towards the sorting of waste. From now, all post offices collect spent batteries. Residents may throw them into the boxes marked with the special marks Gyvybės medis (tree of life). Yours sincerely Acting Chief Executive Officer of Public Limited Company Lietuvos paštas Lina Minderienė