Lattelecom Group Consolidated Annual Report for the year ended

Transcription

Lattelecom Group
Consolidated Annual Report
for the year ended
31 December 2013
(according to International Financial Reporting Standards
as adopted by the EU)
Riga, 4 February 2014
This version of financial statements is a translation from the original, which was prepared in Latvian. All possible care has been
taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of
information, the original language version of financial statements takes precedence over this translation
LATTELECOM GROUP
CONSOLIDATED ANNUAL REPORT
CONTENT
MANAGEMENT REPORT .................................................................................................................................. 3
SUPERVISORY COUNCIL ............................................................................................................................. 9
MANAGEMENT BOARD .............................................................................................................................. 10
FINANCIAL REVIEW .................................................................................................................................... 11
INDEPENDENT AUDITOR’S REPORT ........................................................................................................... 14
FINANCIAL STATEMENTS:
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR 2013 .......................................... 15
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 ....................... 16
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2013 ..................................................... 17
CONSOLIDATED STATEMENT OF CASH FLOWS FOR 2013 .................................................................. 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ................................................................ 19
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MANAGEMENT REPORT
The Management Board of SIA Lattelecom presents the management report and consolidated financial
statements of Lattelecom Group (hereinafter Lattelecom) for the financial year ended on 31 December 2013.
BUSINESS REVIEW
2013 has been successful for Lattelecom, which is primarily due to a successful choice of Lattelecom
strategies, as well as due to Latvia’s overall economic growth. Lattelecom has not stopped at that which has
been achieved, and has continued to provide people with greater opportunities for a modern life.
In 2013, Lattelecom won the tender, and was assigned the right to provide pay DVB-T (Terrestrial TV)
services until the year 2021.
In 2013, the transition was successfully completed to the new and technologically up-to-date Interactive TV
portal. The list of TV channels enabling advanced TV functionality – Time Shift TV (TV Archive), TV
Recordings and Series Recordings – has been expanded. In addition, the period during which the
programmes are available on the TV Archive has also been extended to 7 days. In the beginning of 2013
there were 6 channels enabling TV Archive and Pause functions, while at the end of the year – already 33
channels. At the beginning of the reporting period TV Recordings function was enabled by 30 channels, while
at the end of the same period there were as many as 53 such channels. The possibility to rewind the
programme to beginning was initially enabled for 8 channels, while at the end of the year – for 39 channels.
TV Archive and TV Recordings functions are presently used by more than 53% of Interactive TV customers in
total.
Lattelecom Interactive TV and Internet TV have enjoyed exclusivity status with regard to the right to enable
live broadcasting of the following events: annual TEDxRiga Conference, Fashion Mood, Lattelecom 8th
International Conference, ULEB Euroleague Qualifying Round Game. In addition, Lattelecom and Latvian
Television, in association with Latvian National Centre for Culture created a unique Song and Dance Festival
TV channel, which provided the opportunity to watch both historic videos featuring the previous Festivals, as
well as this year’s Festival events. In the latter part of the year a new channel Satori TV was launched for the
customers featuring interviews with writers, musicians, producers, actors and other creative individuals. Kino
(movies) TV channel has been made available for the customers in a test mode involving film trailers, behind
the scenes of the films, and various film-making programmes. The channel was developed together with
Forum Cinemas. Interactive TV channels list has been expanded by adding also Sony Turbo, History
Channel, Da Vinci Learning, Kidzone, MTV Music, Viasat Motor, Illuzion+. While the number of VoD films has
reached 1 400.
Also in 2013, Lattelecom continued to invest in the development of the fibre optic network to enable provision
of fibre optic connections to households. Currently Lattelecom fibre optic Internet is available for more than
476 000 households in Latvia. In 2013, Lattelecom introduced a new Internet speed standard by offering the
public an ultra fast fibre optic Internet connection with the speed of up to 1Gbit/s. However more than 12 500
of the existing Lattelecom ADSL customers located mainly in the regional, suburban or private housing areas
experienced an Internet speed upgrade through the replacement of existing technology with VDSL.
In 2013, WiFi witnessed a major turnover in the history of Internet in Latvia – for the first time ever the
citizens of the country were provided access to the free Internet from 2 000 locations situated throughout
Latvia. Thus, for instance, free WiFi hotspots have been installed in multiple parks in Riga, along with
unveiling free outdoor WiFi zones – WiFi benches (WiFi soliĦš) in 15 regional local governments. Lattelecom
WiFi has also been subscribed to by corporate customers thereby proving that WiFi also plays an important
role in the process of providing quality customer care and services. In 2013, the number of Lattelecom WiFi
users has increased threefold, amounting to more than 60 000 unique users a month.
Company, in association with DNB Bank and SEB Bank, has also implemented a Project enabling installation
of WiFi within ATM’s thus ensuring availability of the WiFi Internet in densely populated areas. WiFi has also
been provided by Lattelecom to support multiple public activities – XXV Latvian Song and XV Dance Festival,
Tall Ships Races 2013 Riga, Esplanāde 2014, TEDx Riga, Nordea Riga Marathon, etc.
1188 Inquiry Service has also been subject to continuous development. 1188 search functionality has been
improved along with designing and launching a new 1188 public transport inquiries modernisation project,
contributing to the sale of public bus tickets via the Internet, and introducing a public transportation planning
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MANAGEMENT REPORT
tool which is a unique application in Latvia. Mobile applications have been launched for iPhone and Android
mobile phone users, along with designing multiple events, business industry and festival guides which are
compatible with the existing mobile applications.
In 2013, Lattelecom has implemented multiple major scale state and local government projects. The existing
corporate data network of AS Latvijas Valsts meži has been modernised covering 47 connection points, and
installing backup infrastructure to ensure interface between the central connection and data centres. Within
the framework of the Court Administration Agency of the Ministry of Justice of the Republic of Latvia
Videoconference Project the existing videoconference systems have been upgraded by installing new
devices, and new videoconference facilities were set up for the use by court institutions and institutions
reporting to the Ministry of Justice. In addition, „Electronic Appointments” system has been designed within
the framework of the National Health Service E-health Project, which is co-financed by the European
Regional Development Fund.
In 2013, Lattelecom social responsibility initiative Connect, Latvia! (Pieslēdzies, Latvija!) celebrated its 5th
anniversary. In 2013, Connect, Latvia! project enabled more than 10 000 people aged 50 and more to
undergo computer literacy training so as to increase competitiveness of these people in a labour market, and
to bridge the digital divide. Over the period of last 5 years the project has enabled more than 20 000 senior
citizens located throughout the Latvia to obtain the relevant computer literacy skills. This Lattelecom project
has also been honoured as a Gold Winner for Cause-Related Campaign of the Year, in the fifth Annual
Golden Bridge Awards 2013 (Sanfrancisco, USA).
On 24 April, 2013, Lattelecom launched the first TIERIII data centre in the Northern Europe – data centre
DATTUM. Data Centre DATTUM has been certified by Uptime Institute, which is the leading company
specialising in this area. There are 62 such data centres in the world, of which only 5 are situated in Europe.
This major scale investment project, together with the data gateways Transbaltic Gateway and BalticNet, has
enabled Latvia to become a data transit country linking Europe and CIS countries. The data centre DATTUM
opening ceremony was attended by Minister of Defence of the Republic of Latvia Artis Pabriks, officials
representing various ministries and state cooperation partners, as well as entrepreneurs from Russia and
Ukraine. This opening event attracted huge media interest, and was widely discussed in Latvia’s media and
social networks, as well as within the global media environment.
SHARE CAPITAL
At the end of 2013, Lattelecom share capital constituted LVL 146 079 000, consisting of 146 079 000 capital
shares with a par value of LVL 1. The Republic of Latvia owns 74 498 000 capital shares with a total nominal
value of LVL 74 498 000, which represents approximately 51% of the share capital. AS TILTS
Communications owns 71 581 000 capital shares with a total nominal value of LVL 71 581 000, representing
approximately 49% of the share capital. AS TILTS Communications is indirectly owned by TeliaSonera AB.
SHARES IN OTHER COMPANIES
SIA Lattelecom owns 23% of the share capital of the mobile telecommunications operator SIA Latvijas
Mobilais Telefons.
Lattelecom Group owns 50% of the share capital of AS Pirmais Slēgtais Pensiju Fonds. This is the only
closed private pension fund registered in the Republic of Latvia the shareholders of which are the employers.
SIA Lattelecom owns 100 % of the share capital of SIA Lattelecom Technology, SIA Lattelecom BPO and SIA
Citrus Solutions and indirectly 100% of share capital of SIA Baltijas Datoru Akadēmija and SIA BPO Baltic.
FINANCIAL RESULTS
The information on the operating and financial results of Lattelecom for the year 2013 is presented in the
financial review on pages 11 to 13, which forms an integral part of this report.
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PROPOSAL ON PAYMENT OF DIVIDENDS
The Management Board of Lattelecom, in accordance with Lattelecom Group dividends policy and relevant
regulations, has proposed that 100% of distributable profits shall be paid out to the shareholders in a form of
dividends.
CHANGES TO CORPORATE MANAGEMENT AND ARTICLES OF ASSOCIATION
On 25 January, 2013, amendments to the Company’s Articles of Association were made, determining that the
number of Members of the Supervisory Council shall be reduced from 11 to 7. The following persons have
been withdrawn from the position of a Member of Supervisory Council: Kārlis KrēsliĦš, Raitis Tukāns, Uldis
Ivars Grava, Yvonne Djerf, Juha-Pekka Weckstrom, and Joakim Rolf Sundström. The following persons have
been elected as Members of Supervisory Council: Jānis Brazovskis, Justin Wesley Bancroft, and Dan Olov
Strömberg.
SUPERVISORY COUNCIL
In 2013, the duties of a Member of Lattelecom Supervisory Council were fulfilled by: Gatis Kokins (Chairman
of Supervisory Council), Ove Lars Alm, Jānis GrēviĦš, Tiia Tuovinen, Jānis Brazovskis, Justin Wesley
Bancroft, Dan Olov Strömberg, Juha-Pekka Weckstrom until 25 January, 2013, Yvonne Djerf until 25 January,
2013, Uldis Ivars Grava until 25 January, 2013, Kārlis KrēsliĦš until 25 January, 2013, Raitis Tukāns until 25
January, 2013, and Joakim Rolf Sundström until 6 March, 2013. Additional information about the Members of
Lattelecom Supervisory Council is provided on pages 9.
MANAGEMENT BOARD
In 2013, the duties of a Member of Lattelecom Management Board were fulfilled by: Juris Gulbis (Chairman of
Management Board), Gints Bukovskis, Ingrīda Rone, Kerli Gabriloviča, Uldis Tatarčuks. Additional information
about the Members of Lattelecom Management Board is provided on page 10.
DISCLOSABLE INTERESTS
Neither Members of Lattelecom Management Board, nor their family members or legal entities operating
under their control own any shares in Lattelecom or its subsidiaries. Members of Management Board have no
influence over any agreements or covenants entered into with regard to Lattelecom operation.
MANAGEMENT BOARD RESPONSIBILITY FOR THE ANNUAL REPORT
The Management Board is responsible for the preparation of the financial statements of Lattelecom. The
financial statements shall fairly present the financial position of the Company as at the end of the reporting
year, and the operating results and cash flows for the reporting year.
The Management Board confirms that appropriate accounting principles were applied consistently in the
preparation of the 2013 financial statements on pages 15 to 49, and that prudence was exercised in making
estimates and forecasts. The Management Board confirms that the laws of the Republic of Latvia have been
abided by, and that the financial statements have been prepared on a going concern basis.
The Management Board is responsible for maintaining proper accounting records and ensuring that the
relevant measures are taken to safeguard the assets of the Company, and to prevent and detect any fraud or
other irregularities.
REGULATORY FRAMEWORK
In 2013, the European Commission came forward with a proposal for a Regulation of the European
Parliament and of the Council laying down measures to complete the European single market for electronic
communications and to achieve a Connected Continent. The proposal aims towards establishment of a
European single market for electronic communications, which also includes the issue of a single licence
permitting operation in the electronic communications market throughout EU, regulations by which to monitor
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MANAGEMENT REPORT
allocation of radio spectrum frequency, harmonised provision of access products (broadband wholesale) EUwide, net neutrality and quality regulations, harmonising EU international call tariffs with national call tariffs,
roaming regulations, etc. The proposals will be adopted once they are duly agreed upon and approved by the
European Parliament.
It has been for several times that the amendments to the Electronic Communications Law have been brought
forward, determining that a regulation has to be introduced to monitor the broadcasted content. The Saeima
has adopted amendments to the law by which communications merchants are obligated, based on the
decision made by the Lotteries and Gambling Supervisory Inspection and in the manner specified by the
Cabinet of Ministers, to restrict Latvia-wide access to the interactive gambling websites owned by such
entities that are not licensed in Latvia.
The negotiation as to whether to relieve VAS Elektroniskie sakari from the duty to be responsible at state level
for the construction and installation of electronic communications networks is still ongoing, as the fulfilment of
this function is not financed by the state budget, while industry merchants object to having been made
shoulder such additional financial burden. The 1st edition of the relevant amendments to the Electronic
Communications Law have been reviewed by the Saeima in the latter part of 2013.
The Universal Service fund or any other such mechanism by which to compensate the costs, arising from the
fulfilment of the Universal Service obligations, has not been introduced by 1 July 2013 – the date specified in
the Electronic Communications Law, which is why Lattelecom has contacted the relevant ministries
requesting that the costs incurred by itself in connection with the fulfilment of the Universal Service obligations
in 2011 and 2012 to be compensated from the state budget. As approved by the Public Utilities Commission,
the Universal Service net costs incurred by Lattelecom in 2012 constituted LVL 168 772. Pursuant to the
Public Utilities Commission Council decision Lattelecom has been obligated to provide the Universal Service
also in 2014, without imposing a duty to also provide payphone services. Lattelecom payphones have been
removed by 31 December 2013.
In December 2013, the Public Utilities Commission Council adopted decisions by which, commencing from 1
July 2014, Lattelecom is deemed to be a merchant enjoying a significant market power in the wholesale
market for (physical) network infrastructure access at a fixed location, determining that Lattelecom shall have
a duty to provide other operators the access to the infrastructure, and defining the duties and obligations
relating to the access to the fibre optic line termination points and fibre optic lines, and imposing the duty to
provide other operators the access to the data flows, and to design a tool by which to ensure the access for
other operators to the information on engineering infrastructure, and obligating to ensure equal treatment,
transparency, adequate cost calculation, regulation of tariffs (without establishing insufficient price balance)
and harmonisation of the tariffs with the costs.
On 1 April 2013, the amendments to the Electronic Mass Media Law were adopted by which free
broadcasting of national commercial TV channels via cable TV was no longer deemed to be mandatory. Thus,
the operators now have to pay for the broadcasting of said channels over their cable TV networks.
In the reporting year Lattelecom submitted a proposal under the tender „DVB-T broadcasting of pay TV
services” and, following the Cabinet of Ministers order, was nominated the winner of this tender. As a result of
this, over the period from 1 January 2014 until 31 December 2021 Lattelecom will ensure DVB-T broadcasting
of pay TV services in accordance with the provisions set forth in the tender regulations and the tender
proposal submitted. Compared to previous periods, when Lattelecom ensured DVB-T broadcasting of both
pay and free TV channels, commencing from 1 January 2014 the broadcasting of free TV programmes will be
indirectly enabled by VAS Latvia State Radio and Television Centre.
In 2013, the Competition Council allowed the merger of market participants SIA Baltcom TV and SIA IZZI
COM imposing certain conditions in this regard, and the merger was then completed by market participants.
RISK MANAGEMENT
Lattelecom and its subsidiaries are conducting a business in a rapidly changing business environment, where
in 2013, as in previous years, the Group’s capacity to quickly adapt to the existing market needs has played a
major role. The Group has identified key risks, which include availability of resources, development of
technology, increased competition, changes in the customer needs and habits, service dependence on
continuity of IT systems operations, as well as partial short-term dependence on the key suppliers. Having
analysed the said risks and identified the most adequate risk strategies, the Group has managed to maintain
its leadership position in the market and meet the stated objectives.
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MANAGEMENT REPORT
Systematic risk management has enabled Lattelecom Group to timely identify business risks and, following
the evaluation of possible impact of said risks, to adopt the most optimal risk management strategy. Risks are
subject to regular evaluation throughout all Lattelecom structural units and subsidiaries, as well as in the key
business processes and projects. In 2013, as in previous years, comprehensive risk analysis of the key
business processes has been updated, continuing also the work on the improvement of business continuity
planning in the most critical business processes.
Following economic evaluation, Lattelecom and its subsidiaries have transferred part of the existing risks for
management by a third party, duly insuring the said risk object. Insurance covers such areas as movable and
immovable property, business interruptions, special civil liability and civil liability, and staff health insurance.
Going forward, as in 2013, Lattelecom business operations will be affected by following strategic risks – the
country’s economic and political factors, impact of the regulatory environment on the Group’s business, the
activities carried out by competitors, fight over market share, changes in the telecommunications and IT
market, and the effect of such changes on the competitiveness of the Group’s services.
FUTURE DEVELOPMENT OF LATTELECOM
In 2013, Lattelecom Group continued to implement the priorities laid down in the strategy guidelines –
revenue increase to be attained in all customer segments, improved customer experience, technology
upgrades and operational efficiency. The goals for the 2014-2016 period have been updated, shortlisting the
key priorities within the framework of the existing strategy guidelines.
In the residential customer segment the Company will continue the provision of Terrestrial TV services, the
right of broadcasting of which has been extended for a period from 2014 to 2022. In the forthcoming years
active work will be carried out focusing on youth and seniors’ persons segments through the advanced use of
broadband services. In regards to the existing customers, the Company will continue the work to ensure more
active use of supplementary services, and improved customer care. In 2013, for the first time ever, the
citizens of Latvia were provided access to the free wireless Internet service in more than 2000 locations, and
going forward more active usage of this particular service will be promoted.
Regarding small and medium enterprise segment, in the forthcoming years the Company aims to continue the
work to improve customer care, focusing also on the retention of the overall market share.
In the upcoming periods for the corporate customer segment cooperation with the state institutions will be
Lattelecom’s top priority. In 2013, the top security standard TIER III was awarded to the newly built data
centre, commencing also the provision of services to international customers. Provision of data centre and
international data transmission services for international customers will be deemed as Lattelecom’s top
priority also in the upcoming periods.
Regarding the core business lines of the subsidiaries, such as network and infrastructure construction,
software development, 1188 Inquiry Service, and training and outsourcing, the current activities will be
focused on the pre-defined areas, aiming towards gradual development and expansion of the services, and
the improvement of customer satisfaction.
In 2013, within the framework of the existing strategy, the Group continued to increase its operational
efficiency, and the simplification of internal processes. Using process excellence methodology Lean four
projects were already completed and one more is to be completed in 2014. This programme will also be
continued in the forthcoming years by providing relevant training and motivation for the employees with the
aim to improve Group’s operations, and to reduce costs.
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LATTELECOM GROUP
SUPERVISORY COUNCIL
SUPERVISORY COUNCIL
Gatis Kokins is Chairman of Lattelecom Supervisory Council since 25 November, 2009. In 2004, he obtained
MBA degree at the Stockholm School of Economics in Riga, in 1993 - MSc degree in physics at the University
of Latvia. He has also studied macroeconomics at the University of London and carried out research at the
Bonn University Synchrotron facility in Germany. Mr G. Kokins has worked at the Faculty of Physics and
Mathematics of the University of Latvia as a researcher, later he held Vice-president's and a Board member
positions at the Deutsche - Lettische bank (after acquisition Hansabanka, now Swedbank). He has also held
the Vice-president's position in Parex bank and has been Chairman of the Supervisory Council of Parex bank
in Lithuania. In 2007, Mr G. Kokins resigned from executive management positions in Parex bank and turned
to entrepreneurship, but in November 2008 (after acquisition of Parex bank by the Latvian government) upon
the Management Board's request, he returned with a view to work on the bank’s stabilisation that lasted till
December 2009. From September 2008 till March 2009, Mr G. Kokins was Chairman of the Board of the
political party Sabiedrība Citai Politikai (now joined the political party Vienotība). From November 2010 till
November 2011, Mr G. Kokins was Advisor to the Minister of Justice Aigars Štokenbergs.
Ove Lars Alm is a member of Lattelecom Supervisory Council since 3 May, 2007 and Deputy Chairman of
Lattelecom Supervisory Council since 6 February, 2013. Mr O. Alm holds the position of CEO of TeliaSonera
Skanova Access AB within the TeliaSonera AB Business Area Broadband Services. Mr O. Alm has worked
within TeliaSonera Group since 1988.
Jānis Grēviņš is a member of Lattelecom Supervisory Council since 10 December, 2004. Previously, since
July 2002, he served as a member of SIA Lattelecom Board of Directors. Since April 2003, Mr J. Grēviņš is
the Director of Riga Business School at Riga Technical University. He is teaching and conducting research on
the contemporary information technologies and the effects of modern communication means in project
management. From 1998 till 2003, Mr J. Grēviņš studied for his PhD and worked as a project coordinator at
the School of Management of the University at Buffalo, State University of New York, USA.
Tiia Tuovinen is a member of Lattelecom Supervisory Council since 18 June, 2008. Ms T. Tuovinen holds
the position of General Counsel within the TeliaSonera AB Business Area Broadband Services. Ms
T. Tuovinen is a member of the board and CEO of Tilts Communications AS. She is also a member of the
Supervisory Council of TeliaSonera Finland Oyj (Finland), TeliaSonera International Carrier AB (Sweden),
Kekkilä Oy (Finland), as well as TEO LT AB (Lithuania). Ms T. Tuovinen has worked within TeliaSonera
Group since 1993.
Jānis Brazovskis is a member of Lattelecom Supervisory Council since 25 January, 2013. From 2000 till
October 2012, Mr J. Brazovskis has served as Deputy Chairman of the Financial and Capital Market
Commission of the Republic of Latvia. From 1996 till 2000, Mr J. Brazovskis served as Deputy Director in the
field of legislation and licensing of Credit Institutions Supervision Department of the Bank of Latvia. In 1993,
Mr J. Brazovskis graduated the Faculty of Law of the University of Latvia.
Justin Wesley Bancroft is a member of Lattelecom Supervisory Council since 25 January, 2013. Since
2012, Mr J. Bancroft is an independent financial consultant and a guest lecturer in the Stockholm School of
Economics in Riga. Until March 2013, Mr J. Bancroft served as Country manager of the Baltic Institute of
Corporate Governance and since 1997 has worked in various leading positions of international audit company
Deloitte in Latvia, Baltic States and Eastern Europe.
Dan Olov Strömberg is a member of Lattelecom Supervisory Council since 6 March, 2013. Mr D. Strömberg
holds the position of CEO within the UAB Omnitel. UAB Omnitel is part of TeliaSonera AB Group.
Mr D.Strömberg has worked within TeliaSonera Group since 1990.
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LATTELECOM GROUP
MANAGEMENT BOARD
MANAGEMENT BOARD
Juris Gulbis is Chairman of Lattelecom Management Board and Chief Executive Officer since 8 May 2008.
Since 1 January 2007 he was Chief Financial Officer and Deputy Chairman of the Management Board. Before
joining Lattelecom Mr J. Gulbis was Executive Director of the S.P.I. Group SA in Geneva, Switzerland - a
company specialising in production and distribution of alcoholic drinks. Previously he held Executive Director's
position at S.P.I. Spirits (Cyprus) Limited as well as the position of Chairman of the Board of the largest Baltic
alcohol bottling and distribution company Latvijas Balzams. From 1994 till 1997 Mr J. Gulbis worked as an
audit manager at Coopers&Lybrand in Riga and London.
Mr J. Gulbis holds an engineering degree in the fields of managing production and constructing roads and
bridges from the Riga Technical University. He has attended various professional courses, including ones
focused on international bookkeeping standards, the specifics of banking and capital markets, as well as
personnel management. He has also completed INSEAD Executive Education Advanced Management
Programme in France.
Mr J. Gulbis is also a member of the largest international association of accountants ACCA (Association of
Chartered Certified Accountants). He is a member of the Council of Employers’ Confederation of Latvia, a
member of the Counsellors’ Convention of Latvian Chamber of Commerce and Industry and a member of the
Advisors’ Board at Riga Technical University.
Gints Bukovskis is Deputy Chairman of the Management Board from 5 June 2009 and a member of
Lattelecom Management Board since 21 July 2008. He also holds the position of Chief Financial Officer.
Earlier Mr G. Bukovskis was an Associated Director of Business Consulting Services at financial consulting
company SIA KPMG Baltics. He has also been a member of the board and the Finance director in several
large enterprises, listed in NASDAQ OMX Riga. He started his career in finance sector as Audit Manager at
SIA PricewaterhouseCoopers. Mr G. Bukovskis has a bachelor's degree in accounting and analysis of
economic activities from the University of Latvia. He is also a member of the largest international association
of accountants ACCA (Association of Chartered Certified Accountants).
Uldis Tatarčuks is a member of Lattelecom Management Board from 12 March 2011. He also holds the
position of Chief Technology Officer. Prior to this, with effect from March 2009 he fulfilled the duties of
Chairman of SIA Citrus Solutions Management Board, but before that U. Tatarčuks was the Member of SIA
Citrus Solutions Management Board and Commercial Director of SIA Citrus Solutions. Before joining
Lattelecom Group he fulfilled the duties of Regional Business Manager of SIA Bite Latvija. Mr U. Tatarčuks
has also been Chairman of AS Falck Apsargs Board, filling also other management positions within this
company. Mr U. Tatarčuks graduated the Latvia Academy of Sports Education with a bachelor’s degree in
sports pedagogy. He has also studied at the University of Latvia, Faculty of Law. He holds MBA degree from
Riga Business School.
Kerli Gabriloviča is a member of Lattelecom Management Board since 11 September 2009. She also holds
the position of Commercial Director. Ms K. Gabriloviča joined Lattelecom in 2004. She was Marketing and
Brand Manager as well as Director of Customer Service and Retail. Previously she was Head of Marketing
Department at AS Rīgas Miesnieks, as well as Management Consultant at SIA Ernst &Young Baltic and
Regional Representative at Hoiubank Investments. Ms K. Gabriloviča has specialised in business
administration and economics at the Stockholm School of Economics in Riga. She holds an MSc degree in
business administration and economics specialising in Product Management and CRM from Karlstad
University (Sweden). Since 2013 she holds two Global executive MBA degrees - London Business School
and Columbia Business School.
Ingrīda Rone is a member of Lattelecom Management Board since 10 December 2004. She holds the
position of Director of Personnel Management. Ms I. Rone is a board member of the Latvian Association of
Personnel Management and foundation Mission Possible. In previous years, her professional activities have
been related with personnel management. She holds a bachelor’s degree in psychological science and a
master’s degree in business administration from the Riga International School of Economics and Business
Administration. Previously, she has worked as Personnel Manager at AS Laima and AS Staburadze, as well
as SIA Pepsi Cola General Bottlers Latvia.
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LATTELECOM GROUP
CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL REVIEW
Introduction
During 2013 Latvia’s economy continued to grow and GDP increased by 4.5% in the third quarter of 2013
over the same quarter of the previous year as well as 1.3% over the previous quarter. The growth was driven
by the private consumption which was supported by the increase in the household income and the spending
of the savings. However due to the stabilization of the oil prices, a decrease in energy costs as well as the
stability of food prices the inflation has remained low. Despite the fact that during the third quarter of 2013 the
number of job seekers has increased the job opportunities in Latvia continue to expand. This can be
evidenced by the increase of registered vacant workplaces. The overall weak activity of the investments was
fuelled by the uncertainties surrounding the future growth of euro zone countries, however it is expected that
the investments could increase in 2014 as a result of foreign demand.
Revenue
Lattelecom Group’s revenue in 2013 was equal to LVL 132.3 million, which compared to the previous year is
lower by LVL 14.8 million (See Note 1). Due to the lower overall computer hardware sales in 2013 compared
to previous year a decrease was noted in IT and outsourcing revenue. A decrease was also noted in the
wholesale revenue due to lower special and regular transit turnover. The tendencies in the voice revenue
have remained the same – a continued decrease in revenue, as more customers would use mobile
communication services. However an increase in 2013 compared to 2012 was noted in the revenue of the
internet and television sales as the number of Lattelecom subscribers for these services continued to grow
rapidly.
Revenue
(LVL mill.)
157.2
148.5
147.1
143.7
131.3
133.4
2004
2005
2006
139.9
2007
2008
2009
139.6
2010
135.8
2011
132.3
2012
2013
Operational results
1
In 2013, Lattelecom Group’s normalised EBITDA was LVL 48.5 million (LVL 48.9 million in 2012). EBITDA
profit margin is at 36.6%. Human Resource costs compared to 2012 have increased by LVL 1 million due to
the growth in employee remuneration. A decrease in other operating costs by LVL 9.8 million compared to
2012 (See Note 4) is a result of successful reduction of direct service expenses. In 2013, Lattelecom Group’s
2
operating profit was LVL 18.5 million (LVL 18.8 million in 2012).
Financial income and expenses
In 2013, Group’s net financial income was LVL 13 thousand (net income in 2012 – LVL 97 thousand). A
decrease in the income is explained mainly by the currency exchange loss.
1
Normalised EBITDA (earnings before interest, taxes, depreciation and amortisation, gains from disposal of assets, termination benefits
and share of results of associats) is referred to in this part of the document as an indicator widely used in the telecommunications
industry and known to investors, even though it is not regarded as a generally accepted accounting term and should not be referred to as
an alternative term to operating profit and cash flow.
2
Operating profit – earnings before interest, taxes and revenue from co-participation in the associated companies.
11
LATTELECOM GROUP
Financial results of the associated company
In 2013, Lattelecom’s associated company’s SIA Latvijas Mobilais Telefons (LMT) operational results reflect a
decrease. Compared to 2012, in the reporting year Lattelecom’s revenue from the investment in LMT,
amounting to 23% of LMT shares, have decreased by 32%, amounting to LVL 4,1 million (LVL 6,1 million in
2012).
Taxes
Lattelecom Group is one of the largest taxpayers in Latvia. In 2013, the total of LVL 36.0 million have been
paid in various taxes (LVL 39.0 million in 2012), including LVL 9,0 million in taxes, which have been deducted
from the salaries payable to the employees (LVL 9,4 million in 2012).
Annual profit
In 2013, Lattelecom Group’s profit constituted LVL 19,8 million, which is 10% lower than in previous year (LVL
3
22,0 million in 2012). In 2013, Return of Capital Employed (ROCE ) constituted 12.4% (13.6% in 2012).
Profit
(LVL mill.)
39.0
33.5
34.7
38.1
29.7
2004
2005
2006
2007
2008
20.3
19.3
20.8
22.0
2009
2010
2011
2012
19.8
2013
Subsidiaries
Lattelecom subsidiaries’ operational results in 2013:
Revenue,
Profit,
Subsidiary
LVL million
LVL million
SIA Citrus Solutions
15.7
0.6
SIA Lattelecom Technology
9.6
0.2
SIA Lattelecom BPO
3.1
0.4
SIA Baltijas Datoru akadēmija*
1.7
0.2
SIA BPO Baltic**
1.1
0.0
* SIA Baltijas Datoru Akadēmija is a 100% SIA Lattelecom Technology subsidiary.
** SIA BPO Baltic is a 100% SIA Lattelecom BPO subsidiary.
Cash flow
In 2013, Lattelecom Group’s net cash operating income constituted LVL 49.9 million (LVL 48.0 million in
2012), an increase is explained mainly by the decrease in accounts receivable. Net cash expenditure relating
to investing activities constituted LVL 22.2 million in 2013 (LVL 23.9 million in 2012), which is primarily related
to the resources used as capital expenditure. Net cash expenditure relating to financing activities constituted
LVL 19.9 million in 2013 (LVL 21.3 million in 2012).
3
ROCE (Return On Capital Employed) is shown in percent, measuring profit before tax and interest against average capital employed
during the reported year (assets minus short-term accounts payable and minus long-term liabilities excluding borrowings)
12
LATTELECOM GROUP
Capital expenditure
In 2013, capital expenditure constituted LVL 23.0 million (LVL 26.5 million in 2012), of which the highest value
investments have been in the development of the fibre optic network.
Capital investments
(LVL mill.)
28.9
30.3
29.2
31.4
26.9
27.3
26.5
23.0
21.6
15.3
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
13
LATTELECOM GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
The principal activities of Lattelecom Group (Group or Lattelecom) are the provision of fixed network
electronic communications services (voice, data, TV, Internet and carrier), information technology related
services, call centre services to business and residential customers and sales and servicing of
telecommunications and data equipment and telecommunications network constructions and maintenance
services. The number of employees of the Group at the end of the period was 2 057.
The Parent company of the Group, SIA Lattelecom was incorporated as a state owned company on 9 January
1992. On 14 January 1994 the government of Latvia and TILTS Communications AS, which is a wholly
owned subsidiary within TeliaSonera Group, founded limited liability company Lattelecom, where the Republic
of Latvia owns 51% of the share capital of Lattelecom, and TILTS Communications AS owns 49% of the
share capital. Registered address of Lattelecom is 105 Dzirnavu Street, Riga, LV-1011, Latvia.
At the end of 2013 there were 3 wholly owned subsidiaries of the SIA Lattelecom: SIA Citrus Solutions, SIA
Lattelecom BPO and SIA Lattelecom Technology. Besides, Lattelecom indirectly owned SIA Baltijas Datoru
Akademija, the wholly owned subsidiary of SIA Lattelecom Technology, the main activities of which are
provision of IT training services and SIA BPO Baltic, the wholly owned by SIA Lattelecom BPO, the main
activities of which are provision of accounting and other outsourcing services.
SIA Citrus Solutions was established as a limited liability company on 28 June 2005 (registered address 52
Unijas Street, Riga, LV-1084, Latvia). The principal activities of Citrus Solutions are provision of
telecommunications network construction and maintenance services.
SIA Lattelecom BPO was established as a limited liability company on 11 July 2005 (registered address
2 Gunara Astras Street, Riga, LV-1082, Latvia). The main activities of Lattelecom BPO are services related to
business process outsourcing and customer relations management.
In November 2005 SIA Lattelecom acquired 100% of the share capital of a limited liability company SIA
Microlink Latvia (now SIA Lattelecom Technology). Lattelecom Technology (registered address 16 Dzirnavu
Street, Riga, LV-1010, Latvia) provides wide spectrum of IT solutions and services to the business customers
of the state and private sector.
19
LATTELECOM GROUP
STATEMENT OF ACCOUNTING POLICIES
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with and comply with
International Financial Reporting Standards as adopted by EU (IFRS) and Interpretations issued by its
International Financial Reporting Interpretations Committee (IFRIC) as endorsed by the European Union.
The accounting policies adopted are consistent with those of the previous year except that the Group adopted
those new/revised standards and interpretations becoming mandatory for financial years beginning on or after
1 January 2013:
•
IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013).
IFRS 13 defines fair value, provides guidance on how to determine fair value and requires disclosures
about fair value measurements. However, IFRS 13 does not change the requirements regarding
which items should be measured or disclosed at fair value. The issued standard has no material
impact on Group’s financial statements.
•
Amendments to IFRS 1 First-time adoption of IFRS – Severe hyperinflation and removal of fixed
dates for first-time adopters (effective for annual periods beginning on or after 1 January 2013). The
first amendment replaces references to a fixed date of 1 January 2004 with the date of transition to
IFRSs, thus eliminating the need for companies adopting IFRSs for the first time to restate
derecognition transactions that occurred before the date of transition to IFRSs. The second
amendment provides guidance on how an entity should resume presenting financial statements in
accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its
functional currency was subject to severe hyperinflation. The amendments have no effect on Group’s
financial statements.
•
Amendments to IFRS 1 First-time Adoption of IFRS – Government Loans (effective for annual periods
beginning on or after 1 January 2013). This amendment addresses how a first-time adopter would
account for a government loan with a below-market rate of interest when transitioning to IFRSs. It
also adds an exception to the retrospective application of IFRS, which provides the same relief to
first-time adopters granted to existing preparers of IFRS financial statements when the requirement
was incorporated into IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance in 2008. The amendments have no effect on Group’s financial statements.
•
Amendments to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and
Financial Liabilities (effective for annual periods beginning on or after 1 January 2013). The
amendments require information about all recognised financial instruments that are set off in
accordance with paragraph 42 of IAS 32. The amendments also require disclosure of information
about recognised financial instruments subject to enforceable master netting arrangements and
similar agreements even if they are not set off under IAS 32. The amendments have no material
effect on Group’s financial statements.
•
Amendments to IAS 1 Presentation of Financial Statements – Presentation of Items of Other
Comprehensive Income (effective for annual periods beginning on or after 1 July 2012). The
amendments require companies preparing financial statements in accordance with IFRSs to group
together items within OCI that may be reclassified to the profit or loss section of the income
statement. The amendments also reaffirm existing requirements that items in OCI and profit or loss
should be presented as either a single statement or two consecutive statements. The amendments
have no material effect on Group’s financial statements.
•
Amendments to IAS 12 Income Taxes – Deferred Tax: Recovery of Underlying Assets (effective for
annual periods beginning on or after 1 January 2013). IAS 12 requires an entity to measure the
deferred tax relating to an asset depending on whether the entity expects to recover the carrying
amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery
will be through use or through sale when the asset is measured using the fair value model in IAS 40
Investment Property. The amendment provides a practical solution to the problem by introducing a
presumption that recovery of the carrying amount will, normally be, be through sale. The
amendments have no material effect on Group’s financial statements.
20
LATTELECOM GROUP
•
Amendments to IAS 19 Employee Benefits – Improvements to the Accounting for Post-employment
Benefits (effective for annual periods beginning on or after 1 January 2013). The amendments make
important improvements by: (1) eliminating an option to defer the recognition of gains and losses,
known as the corridor method, improving comparability and faithfulness of presentation; (2)
streamlining the presentation of changes in assets and liabilities arising from defined benefit plans,
including requiring remeasurements to be presented in other comprehensive income, thereby
separating those changes from changes that many perceive to be the result of an entity’s day-to-day
operations; (3) enhancing the disclosure requirements for defined benefit plans, providing better
information about the characteristics of defined benefit plans and the risks that entities are exposed
to through participation in those plans. The amendments have no material effect on Group’s financial
statements.
•
Amendments to various standards Improvements to IFRSs (cycle 2009-2011) resulting from the
annual improvement project of IFRS (IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34) primarily with a view to
removing inconsistencies and clarifying wording (amendments are to be applied for annual periods
beginning on or after 1 January 2013). The revisions clarify the required accounting recognition in
cases where free interpretation used to be permitted. The most important changes include new or
revised requirements regarding: (i) Repeated application of IFRS 1, (ii) Borrowing costs under IFRS 1,
(iii) Clarification of the requirements for comparative information, (iv) classification of servicing
equipment, (v) tax effect of distribution to holders of equity instruments, (vi) Interim financial reporting
and segment information for total assets and liabilities. The amendments have no material effect on
Group’s financial statements.
•
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods
beginning on or after 1 January 2013). The interpretation states that costs associated with a stripping
activity should be accounted for as an addition to, or an enhancement of, an existing asset, and that
this component should be amortised over the expected useful life of the identified component of the
ore body that becomes more accessible as a result of the stripping activity (using the units of
production method unless another method is more appropriate). The interpretation does not apply to
the Group.
A number of new standards, amendments to standards and interpretations, which are not yet effective for the
year ended 31 December 2013, have not been applied in preparing these consolidated statements:
•
IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1
January 2014). IFRS 10 replaces the consolidation guidance in IAS 27 Consolidated and Separate
Financial Statements and SIC-12 Consolidation – Special Purpose Entities by introducing a single
consolidation model for all entities based on control, irrespective of the nature of the investee (i.e.,
whether an entity is controlled through voting rights of investors or through other contractual
arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether
an investor has 1) power over the investee; 2) exposure, or rights, to variable returns from its
involvement with the investee; and 3) the ability to use its power over the investee to affect the
amount of the returns. The Group does not consider that the issued standard would have material
•
IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2014).
IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31 Interests in
Joint Ventures. The option to apply the proportional consolidation method when accounting for jointly
controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets to now only
differentiate between joint operations and joint ventures. A joint operation is a joint arrangement
whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A
joint venture is a joint arrangement whereby the parties that have joint control have rights to the net
assets. The Group does not consider that the issued standard would have material impact on Group’s
•
IFRS 12 Disclosures of Interests in Other Entities (effective for annual periods beginning on or after 1
January 2014). IFRS 12 will require enhanced disclosures about both consolidated entities and
unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require
information so that financial statement users may evaluate the basis of control, any restrictions on
21
LATTELECOM GROUP
consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated
structured entities and non-controlling interest holders' involvement in the activities of consolidated
entities. The Group does not consider that the issued standard would have material impact on
•
IAS 27 (revised in 2011) Separate Financial Statements (effective for annual periods beginning
on or after 1 January 2014). The requirements relating to separate financial statements are
unchanged and are included in the amended IAS 27. The other portions of IAS 27 are replaced by
IFRS 10. The Group does not consider that the issued standard would have material impact on
•
IAS 28 (revised in 2011) Investments in Associates and Joint Ventures (effective for annual periods
beginning on or after 1 January 2014). IAS 28 is amended for conforming changes based on the
issuance of IFRS 10, IFRS 11 and IFRS 12. The Group does not consider that the issued standard
would have material impact on Group’s financial statements.
•
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS
12 Disclosures of Interests in Other Entities – Transition Guidance (effective for annual periods
beginning on or after 1 January 2014). The amendments are intended to provide additional transition
relief in IFRS 10, IFRS 11 and IFRS 12, by limiting the requirement to provide adjusted comparative
information to only the preceding comparative period. Also, amendments were made to IFRS 11 and
IFRS 12 to eliminate the requirement to provide comparative information for periods prior to the
immediately preceding period. The Group does not expect the amendments to have material impact
on Group’s financial statements.
•
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosures of Interests in
Other Entities and IAS 27 (revised in 2011) Separate Financial Statements - Investment Entities
(effective for annual periods beginning on or after 1 January 2014). The amendments provide an
exception to the consolidation requirements in IFRS 10 and require investment entities to measure
particular subsidiaries at fair value through profit or loss, rather than consolidate them. The
amendments also set out disclosure requirements for investment entities. The Group does not
expect the amendments to have material impact on Group’s financial statements.
•
The amendments to IAS 32 Financial instruments: presentation – Offsetting Financial Assets and
Financial Liabilities (effective for annual periods beginning on or after 1 January 2014). Amendments
provide clarifications on the application of the offsetting rules and focus on four main areas (a) the
meaning of currently has a legally enforceable right of set-off; (b) the application of simultaneous
realisation and settlement; (c) the offsetting of collateral amounts; (d) the unit of account for applying
the offsetting requirements. The Group does not expect the amendments to have material impact on
•
Amendments to IAS 36 Impairment of assets – Recoverable Amount Disclosures for Non-Financial
Assets (effective for annual periods beginning on or after 1 January 2014). These narrow-scope
amendments to IAS 36 address the disclosure of information about the recoverable amount of
impaired assets if that amount is based on fair value less costs of disposal. When developing IFRS
13 Fair Value Measurement, the IASB decided to amend IAS 36 to require disclosures about the
recoverable amount of impaired assets. Current amendments clarify the IASB’s original intention that
the scope of those disclosures is limited to the recoverable amount of impaired assets that is based
on fair value less costs of disposal. The Group does not expect the amendments to have material
•
Amendments
to
IAS
39
Financial
Instruments:
Recognition
and
Measurement
– Novation of Derivatives and Continuation of Hedge Accounting (effective for annual periods
beginning on or after 1 January 2014). The narrow-scope amendments allow hedge accounting to
continue in a situation where a derivative, which has been designated as a hedging instrument, is
novated to effect clearing with a central counterparty as a result of laws or regulation, if specific
conditions are met (in this context, a novation indicates that parties to a contract agree to replace their
original counterparty with a new one). The Group does not expect the amendments to have material
22
LATTELECOM GROUP
•
Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures –
Mandatory Effective Date and Transition Disclosures (not yet adopted by the EU). Amendments
defer the mandatory effective date from 1 January 2013 to 1 January 2015. The amendments also
provide relief from the requirement to restate comparative financial statements for the effect of
applying IFRS 9. This relief was originally only available to companies that chose to apply IFRS 9
prior to 2012. Instead, additional transition disclosures will be required to help investors understand
the effect that the initial application of IFRS 9 has on the classification and measurement of financial
instruments. The Group does not expect the amendments to have material impact on Group’s
•
IFRS 9 Financial Instruments and subsequent amendments (effective date has not yet been
determined; not yet adopted by the EU). On 28 October 2010 IASB reissued IFRS 9, incorporating
new requirements on accounting for financial liabilities and carrying over from IAS 39 the
requirements for derecognition of financial assets and financial liabilities. On 19 November 2013 IASB
issued another package of amendments to the accounting requirements for financial instruments.
Standard uses a single approach to determine whether a financial asset is measured at amortised
cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on
how an entity manages its financial instruments (its business model) and the contractual cash flow
characteristics of the financial assets. The new standard also requires a single impairment method to
be used, replacing the many different impairment methods in IAS 39. The new requirements on
accounting for financial liabilities address the problem of volatility in profit or loss arising from an
issuer choosing to measure its own debt at fair value. The IASB decided to maintain the existing
amortised cost measurement for most liabilities, limiting change to that required to address the own
credit problem. With the new requirements, an entity choosing to measure a liability at fair value will
present the portion of the change in its fair value due to changes in the entity’s own credit risk in the
other comprehensive income section of the income statement, rather than within profit or loss. The
amendments from November 2013 bring into effect a substantial overhaul of hedge accounting that
will allow entities to better reflect their risk management activities in the financial statements. It allows
the changes to address the so-called ‘own credit’ issue that were already included in IFRS 9 Financial
Instruments to be applied in isolation without the need to change any other accounting for financial
instruments. It also removes the 1 January 2015 mandatory effective date of IFRS 9, to provide
sufficient time for preparers of financial statements to make the transition to the new requirements.
The Group is considering the implications of the standard, the impact on the Group and the timing of
its adoption by the Group.
•
Amendments to IAS 19 Employee Benefits – Defined Benefit Plans: Employee Contributions
(effective for annual periods beginning on or after 1 July 2014; not yet adopted by the EU). The
narrow scope amendments apply to contributions from employees or third parties to defined benefit
plans. The objective of the amendments is to simplify the accounting for contributions that are
independent of the number of years of employee service, for example, employee contributions that
are calculated according to a fixed percentage of salary. The Group does not expect the
amendments to have impact on the Group’s financial statements.
•
annual improvement project of IFRS (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38)
primarily with a view to removing inconsistencies and clarifying wording (amendments are to be
applied for annual periods beginning on or after 1 July 2014; not yet adopted by the EU). The
revisions clarify the required accounting recognition in cases where free interpretation used to be
permitted. The most important changes include new or revised requirements regarding: (i) definition of
vesting condition; (ii) accounting for contingent consideration in a business combination; (iii)
aggregation of operating segments and reconciliation of the total of the reportable segments' assets
to the entity's assets; (iv) measuring short-term receivables and payables; (v) proportionate
restatement of accumulated depreciation application in revaluation method and (vi) clarification on key
management personnel. The Group does not expect the amendments to have material impact on
•
annual improvement project of IFRS (IFRS 1, IFRS 3, IFRS 13 and IAS 40) primarily with a view to
removing inconsistencies and clarifying wording (amendments are to be applied for annual periods
beginning on or after 1 July 2014; not yet adopted by the EU). The revisions clarify the required
23
LATTELECOM GROUP
accounting recognition in cases where free interpretation used to be permitted. The most important
changes include new or revised requirements regarding: (i) meaning of effective IFRSs in IFRS 1; (ii)
scope of exception for joint ventures; (iii) scope of paragraph 52 in IFRS 13 (portfolio exception) and
(iv) clarifying the interrelationship of IFRS 3 and IAS 40 when classifying property as investment
property or owner-occupied property. The Group does not expect the amendments to have material
•
IFRIC 21 Levies (effective for annual periods beginning on or after 1 January 2014; not yet adopted
by the EU). IFRIC 21 is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent
Assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for
the entity to have a present obligation as a result of a past event (known as an obligating event).
The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the
activity described in the relevant legislation that triggers the payment of the levy. The Group does not
expect the interpretation to have material impact on Group’s financial statements.
Consolidated Statement of Cash Flows for 2012 was corrected in 2013.
2012
Before
correction
LVL
Decrease / Increase in trade accounts payable
Dividends paid
198
(21 834 )
Reclassification
LVL
1019
(1 019 )
2012
Corrected
LVL
(821)
(20 815 )
The amounts shown in these consolidated financial statements are derived from the Group companies’
accounting records, maintained in accordance with Latvian Accounting Regulations, appropriately reclassified
for recognition, measurement and presentation in accordance with the IFRS as adopted by the EU. The
consolidated financial statements are prepared under the historical cost convention except for the financial
instruments (including derivative instruments) at fair value through profit or loss are measured at fair value.
The functional currency of Lattelecom and each of its subsidiaries and the reporting currency for these
consolidated financial statements is the Latvian Lat. All amounts shown in these consolidated financial
statements are presented in thousands of Latvian Lats (LVL) unless stated differently. Balances disclosed as
at 31 December reflect the position as at the close of business on that date.
(b) Estimates and judgements
The preparation of consolidated financial statements in conformity with IFRS as adopted by the EU requires
the management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses, and disclosure of contingencies. The significant areas of estimation used in the
preparation of the accompanying consolidated financial statements relate to revenue recognition,
depreciation, allowance for bad debts and inventories, and impairment evaluation. Although these estimates
are based on the management’s best knowledge of current events and actions, the actual results may
ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity are
described below.
(i) Useful lives of other intangible assets
Initial assessment of useful life of other intangible assets is made on an individual basis, evaluating the
operating period of these assets including assets purchase agreement stipulations and expiration conditions.
Useful lives are reassessed annually and changed when necessary to reflect current thinking on their
remaining lives in light of prospective economic utilisation and other conditions.
(ii) Useful lives for property, plant and equipment
Asset useful lives are assessed annually and changed when necessary to reflect current thinking on their
remaining lives in light of technological change, prospective economic utilisation and physical condition of the
assets concerned.
24
LATTELECOM GROUP
(iii) Capitalisation of intangible assets (software)
Costs that are directly associated with identifiable software products are recognised as intangible assets if
there is technical feasibility to complete intangible asset, there is intention to use or sell the asset, the asset
will generate probable economic benefit exceeding the cost and if there are resources to complete the
development and use the asset.
(iv) Inventories
The Group performs estimates for calculation of net realisable values for slow-moving and obsolete
inventories to determine the loss of decrease in the value of inventories. Typically net realisable values are
determined for each position separately if it is not possible historical experience is used to estimate possible
loss.
(v) Revenue recognition
Principles for revenue allocation for bundled services are described in policy (n).
(vi) Allowances for doubtful debts
The Group makes allowances for doubtful accounts receivable. Estimates based on historical experience are
used in determining the level of debts that management believes will not be collected.
(vii) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past
events, and it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate of the amount of the obligation can be made.
(c) Basis of consolidation
(i) Subsidiaries
The consolidated financial statements include subsidiaries that are controlled by the Parent Company. Control
is presumed to exist where more than a half of the subsidiary’s voting rights are controlled by the Parent
Company or it otherwise has the power to exercise control over the operating and financial policies so as to
obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred
to the Group and until the date that control ceases. The financial statements of the subsidiaries are prepared
for the same reporting year as the Parent Company, using consistent accounting policies.
The purchase method of accounting is used to account for the acquisition of subsidiaries [other than those
acquired from parties under common control]. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured at their fair values at the acquisition date.
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity
instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from
contingent consideration arrangements but excludes acquisition related costs such as advisory, legal,
valuation and similar professional services. Transaction costs incurred for issuing equity instruments are
deducted from equity; transaction costs incurred for issuing debt are deducted from its carrying amount and
all other transaction costs associated with the acquisition are expensed.
(ii) Associated companies
Investments in associated companies are accounted for by the equity method and are recognised initially at
cost. These are undertakings in which the Group holds from 20% to 50% of the voting rights and over which
the Group exercises significant influence, but which it does not control.
Equity method of accounting involves recognising in the profit or loss the Group’s share of the associate’s net
profit or loss for the year and eliminating unrealised gains and unrealised losses on transactions between the
Group and the associated undertaking to the extent of the Group’s interest in the associates. Dividends
received from the associate reduce the carrying amount of the investment.
The Group’s interest in the associate is carried in the statement of financial position at an amount that reflects
its share of the net assets of the associate including any goodwill on acquisition. Investments in associated
undertakings are reported as non-current assets in the Group’s consolidated statement of financial position.
(iii) Transactions eliminated on consolidation
The consolidated financial statements comprise the financial statements of the parent company and its
subsidiaries as at 31 December 2013. All intra-group balances, income and expenses and unrealised gains
25
LATTELECOM GROUP
and losses resulting from intra-group transactions are eliminated in preparing the consolidated financial
statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against
the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(d) Foreign currencies
All transactions denominated in foreign currencies are translated into Lats at the Bank of Latvia rate of
exchange prevailing on the day the transaction took place. Gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies are recognised in the profit or loss. At the year end foreign currency monetary assets and liabilities
are translated at the Bank of Latvia rate of exchange ruling at 31 December, and all associated exchange
differences are dealt with through the profit or loss.
Exchange rates in the last two years have been:
USD/LVL
LTL/LVL
GBP/LVL
2013
as at 31 December
0.515
0.204
0.843
2012
as at 31 December
0.531
0.204
0.857
Within the framework of Latvia's preparation for full-fledged membership in the Economic and Monetary
Union, the Bank of Latvia has fixed the peg rate of the Lat and the euro at EUR 1 = LVL 0.702804 effective
since 1 January 2005.
(e) Intangible assets
(i) Goodwill
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration
transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest
in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill) is
recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all
liabilities and contingent liabilities assumed and reviews appropriateness of their measurement. Goodwill is
not amortised and instead is tested for impairment annually or more frequently if indicators of impairment
exist. Following initial recognition goodwill is measured at cost less any accumulated impairment losses. An
impairment loss in respect of goodwill is not reversed.
26
LATTELECOM GROUP
(ii) Research and development costs
Research costs are expensed as incurred. Development expenditure on an individual project is recognised
as an intangible asset when the Group can demonstrate the technical feasibility of completing the asset so
that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the
asset will generate future economic benefits, the availability of resources to complete the asset and the ability
to measure reliably the expenditure during development. Other development costs are expensed as incurred.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring
the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Asset
is amortised over the period of expected future benefit. During the period of development, the asset is tested
for impairment annually.
(iii) Other intangible assets
Other intangible assets comprise costs of acquired trade names, customer contracts, computer software
licences, other licences, the related implementation services and capitalised staff costs of the software
development team. Where the software is an integral part of the related hardware that cannot operate without
that specific software, computer software is treated as property, plant and equipment. Other intangible assets
are amortised using the straight-line method over their useful lives as follows:
Trade names
Customer contracts
Software and licences
Useful lives, years
3–7
3–7
3–5
Other intangible assets are stated at historical cost less accumulated amortisation and any accumulated
impairment losses. Where an indication of impairment exists, the carrying amount of any intangible asset is
assessed and written down immediately to its recoverable amount, which is the higher of an asset’s net
selling price and value in use, recognising impairment loss as an expense in the profit or loss. Review for
impairment is carried out at each end of the reporting period date. The recoverable amount of an intangible
asset not yet available for use is tested for impairment annually, irrespective of whether there is any
indication that it may be impaired. For the purposes of assessing impairment, assets are grouped at the
lowest level, for which there are separately identifiable cash inflows.
Labour costs and licence acquisition costs are initially accumulated in software implementation in progress
projects. On the date when item of intangible asset is brought into use, development or acquisition value is
reclassified from software implementation in progress to intangible assets.
(f) Property, plant and equipment
All property, plant and equipment are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Depreciation of property, plant and equipment is calculated using the
straight-line method to allocate the depreciable amount of the assets over their estimated useful lives as
follows:
Buildings
Cable network
Telecommunications equipment
Other fixed assets
Useful lives, years
10 – 40
20 – 40
5 – 10
2–7
Land is not depreciated as it is deemed to have an indefinite life.
The useful life and residual value of an asset is reviewed at least at each financial year-end. Effect from a
change in the estimated useful life of an asset is recognised prospectively by including it in the profit or loss
in the current period and future periods.
27
LATTELECOM GROUP
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount, which is the higher of an asset’s fair value less cost to sell and value
in use, recognising impairment loss as an expense in the profit or loss. Review for impairment is carried out
at the end of the reporting period. For the purposes of assessing impairment, assets are grouped at the
lowest level, for which there are separately identifiable cash inflows. The entire telecommunications network
is fully owned by Lattelecom and is considered as one cash generating unit. The Group considers its
subsidiaries as a separate cash generating units, where each unit represents a separate business line Lattelecom Technology is software development, Lattelecom BPO is business process outsourcing and
Citrus Solutions is construction.
Gains and losses on disposals of assets are determined by comparing proceeds with the carrying amount,
and are included in the results from operating activities.
Leasehold improvements are included within buildings and amortised over the shorter of the useful life of the
improvement and the term of lease.
The cost of the construction of property, plant and equipment is determined by the reference to the actual
costs incurred to the suppliers and subcontractors as at the end of the reporting period. Interest costs on
borrowings to finance the construction of property, plant and equipment and other operating expenses
directly attributable to the construction of property, plant and equipment (costs of own labour, material and
other costs) are capitalised as part of the cost of the asset during the period of time that is required to
complete and prepare the property for its intended use.
Labour costs and equipment acquisition costs are initially accumulated in capital work in progress projects.
On the date when item of property, plant or equipment is brought into use, development or acquisition value is
reclassified from capital work in progress to fixed assets.
(g) Financial assets
Financial assets comprise investments in equity and debt securities (excluding investments in associates),
trade and other receivables, cash and cash equivalents and loans issued and derivative financial assets.
Cash and cash equivalents comprise current accounts with banks, cash on hand, and deposits with banks
with initial maturity up to three month.
Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables,
held-to maturity investment, or available-for-sale financial assets, as appropriate:
(i) Financial assets at fair value through profit or loss
An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such
upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group
manages such investments and makes purchase and sale decisions based on their fair value in accordance
with the Group’s documented risk management or investment strategy. Upon initial recognition attributable
transaction costs are recognised in the profit or loss as incurred. Financial instruments at fair value through
profit or loss are measured at fair value, and changes therein are recognised in the profit or loss.
(ii) Loans and receivables
Loans and receivables are initially recognised at fair value plus any directly attributable transaction costs,
which for trade receivables is usually the original invoiced amount and subsequently carried at amortised cost
using the effective interest method less allowances made for doubtful receivables. Allowances are made
specifically where there is objective evidence of a dispute or an inability to pay. The additional allowances are
made based on an analysis of balances by age and previous losses experienced. Loans and receivables are
classified in current assets, except for maturities greater than 12 months after the end of the reporting period
date. These are classified as non-current assets.
An impairment or bad debt loss is recognised in the profit or loss whenever it is probable that the Group will
not collect all amounts due according to the contractual terms of loans or receivables. The impairment loss is
measured as the difference between that asset’s carrying amount and the present value of estimated future
cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is only
reversed if it can be related objectively to an event after the impairment was recognised and is reversed to
the extent the carrying value of the asset does not exceed its amortised cost at the date of reversal. The
amount of the reversal is included in the profit or loss.
28
LATTELECOM GROUP
(iii) Held-to-maturity investments
If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as
held-to-maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition, held-to-maturity investments are measured at
amortised cost using the effective interest method, less any impairment losses.
(iv) Available-for-sale financial assets
Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than
impairment losses, and foreign currency differences on available-for-sale monetary items, are recognised
directly in other comprehensive income. When an investment is derecognised, the cumulative gain or loss is
reclassified from other comprehensive income to profit or loss for the year.
Financial assets are derecognised when the rights to receive cash flows from assets have expired or have
been transferred and the Group has transferred substantially all risks and rewards of ownership.
Financial assets are reviewed for impairment at the end of the reporting period. A financial asset is impaired if
objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that
the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not
consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active
market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in
its fair value below its cost is objective evidence of impairment.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference
between its carrying amount, and the present value of the estimated future cash flows discounted at the
original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is
calculated by reference to its fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining
financial assets are assessed collectively. In assessing collective impairment the Group uses historical trends
of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s
judgment as to whether current economic and credit conditions are such that the actual losses are likely to be
greater or less than suggested by historical trends.
All impairment losses are recognised in the profit or loss. An impairment loss is reversed if the reversal can be
related objectively to an event occurring after the impairment loss was recognised.
(h) Financial liabilities
Non – derivative financial liabilities comprise trade and other payables and borrowings.
(i) Trade and other payables
Trade payables are recognised initially at fair value plus any directly attributable transaction costs and
subsequently measured at amortised cost using the effective interest method. The carrying value of trade
and other payables approximate their fair values due to their short maturity. A financial liability is removed
from the statement of financial position, when the obligation specified in the contract is discharged or
cancelled or expires.
(ii) Borrowings
All borrowings are initially recognised at the fair value of the consideration received plus directly attributable
transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the
effective interest rate method. Gains and losses are recognised in the profit or loss as interest
income/expense when the liabilities are derecognised as well as through the amortisation process. The part of
outstanding amount, which is due after more than 12 months, is included in non-current liabilities.
29
LATTELECOM GROUP
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are
capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation is
determined by applying the capitalisation rate to the expenditures on a qualifying asset. Capitalisation rate is
the weighted average interest rate on borrowings that are outstanding during the period.
The Group may hold derivative financial instruments to hedge its foreign currency exposures. Derivatives are
recognised initially at fair value; attributable transaction costs are recognised in the profit or loss when
incurred.
(i) Leases
Leases of assets under which the lessee assumes substantially all the benefits and risks of ownership are
classified as finance leases. All other leases are classified as operating leases.
(i) A Group company is a lessee
When assets are leased out under an operating lease, income from operating leases is recognised in the
profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and
arranging an operating lease are included in the initial measurement of the finance lease receivable and
reduce the amount of income recognized over the lease term.
If a Group company is a lessee in a finance lease arrangement, it recognizes the asset in the statement of
financial position as a receivable at an amount equal to the present value of the lease payments. Lease
income is recognised over the term of the lease on the basis of constant periodic rate of return.
(ii) A Group company is a lessee
Payments made under operating leases are charged to the profit or loss on a straight-line basis over the
period of the lease.
If a Group company is a lessee in a finance lease arrangement, it recognises in the statement of financial
position the assets as an item of property, plant and equipment and a lease liability measured as the lower of
the fair value of the leased property and the present value of the minimum lease payments. Each lease
payment is allocated between the liability and finance charge so as to achieve a constant interest rate on the
balance of liability outstanding. The interest element of the lease payment is charged to the profit or loss over
the lease period. The item of property, plant and equipment acquired under a finance lease is depreciated
over the shorter of the useful life of the asset and the lease term, unless it is reasonably certain that the
Group will obtain ownership by the end of the lease term.
(j) Inventories
Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined by the
weighted average cost method for items that are interchangeable. For inventory items that are not
interchangeable, specific costs are attributed to the specific individual items of inventory. Net realisable value
is the estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses.
(k) Contingent assets and liabilities
Contingent assets are not recognised in the consolidated financial statements, but disclosed in the notes
when an inflow of economic benefits is probable. Contingent liabilities are not recognised in the financial
statements. They are disclosed in the notes unless the possibility of an outflow of resources embodying
economic benefits is remote.
(l) Employee benefits
(i) Short-term employee benefits
Short-term employee benefits are recognised as a current expense in the period when employees render the
services. These include salaries and wages, social security contributions, bonuses, paid holidays and other
benefits.
30
LATTELECOM GROUP
(ii) Pension fund
The Group participates a defined contribution pension plan. The defined contribution plan is a postemployment benefit plan under which an entity pays fixed contributions into a separate fund and will have no
legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to fund
all employee benefits relating to employee service in the current and prior years.
Monthly contributions into the non-profit joint stock company Pirmais Slēgtais Pensiju Fonds (hereinafter – the
Pension Fund) are made based on individual employee’s choice within the defined company benefit
framework. The Group recognises contributions to a defined contribution plan as an expense when an
employee has rendered service.
The Group owns 50% of the shares of Pension Fund. However Lattelecom is only a nominal shareholder as
all risks and benefits arising from its activities will accrue to Lattelecom’s employees – members of the
pension plan. Therefore, the initial investment into the pension fund was recognised as an expense as it did
not meet the asset recognition requirements.
(m) Income taxes
Income tax expense comprises current and deferred tax. Income tax is recognized in the profit of loss, except
to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this
case, the tax is also recognized in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and
liabilities and their carrying value for financial reporting purposes. Deferred tax assets and liabilities are
measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting
period.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
The principal temporary differences arise from depreciation of property, plant and equipment and accrued
expenses.
(n) Revenue recognition
Revenue from sales of goods is recognised when significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of goods, recovery of the consideration is probable, the
associated costs and possible return of goods can be estimated reliably, there is no continuing management
involvement with the goods, and the amount of revenue can be measured reliably.
Revenue from services is recognised when services are rendered to customers or other electronic
communications operators in accordance with contractual terms and conditions. Revenue from electronic
communications services is recognised when the services are rendered based on usage of the network and
facilities. Revenue includes unbilled calls, to the extent that they can be identified, and estimated revenues
from domestic and foreign network operators based on rates negotiated directly with each of those operators.
Sales revenue of prepaid TV and data transmission cards is recognised when electronic communications
services are provided rather than at a point of sale. When rendering billing and cash collection services,
amounts collected on behalf of third parties are not recognised as revenue, only fee charged for services is
recognised as revenue.
Lattelecom may bundle services and products into one customer offering. Offerings may involve the delivery
or performance of multiple products (multiple deliverables). In some cases, the arrangements include initial
installation, initiation, or activation services and involve consideration in the form of a fixed fee or a fixed fee
coupled with a continuing payment stream. Equipment is accounted for separately from service where a
market for each deliverable exists. The revenue is allocated to equipment and services in proportion to the fair
value of the individual items. Services invoiced based on usage are not included in the allocation.
31
LATTELECOM GROUP
The Group recognises revenue based on the amount invoiced to customer net of value added tax when it has
earned revenue from sale of the goods or services and the net amount retained (that is, the amount billed to
customer less the amount paid to service provider) when it has earned a commission or fee.
Revenue from long-term contracts is accounted for using the percentage of completion method. Long-term
contracts can be negotiated, e.g. for the construction of electronic communications network, software
development and implementation. When the outcome of a long–term contract can be estimated reliably,
contract revenue and contract costs are recognised as revenue and expenses in the profit or loss on the
percentage of completion method on the end of the reporting period date. The stage of completion is
assessed by reference to surveys of work performed. When the outcome of a long–term contract cannot be
estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that it is
probable will be recoverable. Contract costs are recognised as expense in the period in which they are
incurred. An expected loss on long–term contracts is recognised as an expense immediately.
Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the
effective rate over the period to maturity.
Dividends are recognised when the right to receive payment is established.
(o) Government grant
Government grants that become receivable as compensation for expenses or losses already incurred are
recognised as income of the period in which they become receivable and their amount can be estimated
reliably. Detailed information is provided in the Note 1, section 5.
(p) Earnings per share
Earnings per share are calculated by dividing profit or loss for the year by the weighted-average number of
ordinary shares outstanding during the year. The average number of shares in issue during the year is
weighted to take into account the timing of the issue of new shares.
(q) Dividends
Dividends are recorded in the financial statements of the Group in the period in which they are approved by
the Group’s shareholders.
(r) Events after the Reporting Period
The amounts recognised in financial statements are adjusted to reflect events after the reporting period that
provide additional information about the Group’s position at reporting period (adjusting events). Events after
the reporting period that are not adjusting events are disclosed in the notes to the financial statements when
material.
(s) Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or
disclosure purposes based on the following methods. When applicable, further information about the
assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
The carrying value of short-term financial assets and liabilities is assumed to approximate their fair values.
Fair value of the remaining financial instruments is estimated by discounting the expected future cash flows to
net present values using appropriate prevailing market interest rates available at the end of the period. Market
interest rates apply to interest-bearing debt and the book value of these items is regarded as corresponding to
their fair value.
(t) Deferred income
Deferred income recognised by the Group reflects long-term and short-term part of advances received from
customers for the operating lease and other services not yet provided. Deferred income is initially recognized
at the present value of consideration received. Income is recognised in profit of loss in the period when
services are provided to customers.
(u) Client acquisition costs
Commissions paid out to group employees, dealers or agents for private client attraction, with whom fixedterm agreements have been signed, are recognized as expense within a period of duration of client
agreement.
32
LATTELECOM GROUP
(v) Cash Flow Hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects
profit or loss (for example, when the forecast purchase that is hedged takes place).
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for
example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from
equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately
recognised in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction
is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the income statement.
Lattelecom uses hedge accounting for highly probable transactions. Documentation on hedges include the
relationship between the hedging instrument and the hedged item, risk management objectives and strategy
for undertaking hedge transactions and whether the hedging instrument used is highly effective in offsetting
changes of cash flows of the hedged item.
33
LATTELECOM GROUP
NOTE 1
REVENUE AND OTHER INCOME
Revenue from core services
Revenue from data, TV and Internet services
Revenue from electronic communications voice services (1)
Revenue from electronic communications operator services (2)
Revenue from non-core services (3)
Total
Other operating income (4)
Government grants (5)
- reimbursement for the loss
Total
2013
LVL’000
2012
LVL’000
63,121
33,099
12,420
108,640
23,635
132,275
59,132
39,038
17,382
115,552
31,551
147,103
1,881
1,467
169
134,325
43
148,613
(1) Revenue from electronic communications voice services includes all revenue earned from domestic and
international calls, and installation and subscription services.
(2) Revenue from electronic communications operator services includes revenue from interconnection
services with domestic and international electronic communications operators and leased circuit lines.
(3) Revenue from non-core services includes revenue from IT service rendering, electronic communications
and information technology equipment sales and servicing, as well as call centre services, network
construction and maintenance services, and training services.
(4) Other operating income includes income from sale of current assets, delayed payment interest and
insurance compensation.
(5) Under the Electronic Communications Law the Public Utilities Commission defines the scope and content
of Universal Service and imposes a Universal Service Obligation (USO) on an electronic communications
operator. By the decision of the Council of Public Utilities Commission the USO was imposed on Lattelecom
for the year 2012, 2011 and preceding years. The USO stipulated that subscribers be provided with access to
the public fixed telephone network (obligation is in force from October 1, 2006) with local, long-distance and
international telephony services, data transmission services with transmission speed at least 9,600 bit/s, the
provision of access to a comprehensive directory and comprehensive telephone directory enquiry service,
and an obligation to maintain payphones.
In 2013 the amount of the reimbursable loss arising out of the performance of the USO during the year 2012
in amount of LVL 0.169 million was approved by the Public Utilities Regulatory Commission. The above
amount is calculated according to the methodology issued by the Council of Public Utilities Commission. The
amount is recognised as income in the profit or loss for the year 2013. For 2011 USO approved amount LVL
0.043 million was income in the profit or loss for the year 2012.
The amount of reimbursable loss incurred by Lattelecom from fulfilment of USO during 2013 was not
recognised as income in period to which it relates, as it could not be measured reliably as at the date of issue
of the financial statements as the determination of the final approved grant amount is at the full discretion of
the Public Utilities Commission.
NOTE 2
CHARGES BY OTHER ELECTRONIC COMMUNICATIONS OPERATORS
Foreign electronic communications operators
Domestic electronic communications operators
Total
2013
LVL’000
(3,347)
(2,218)
(5,565)
2012
LVL’000
(6,683)
(3,784)
(10,467)
34
LATTELECOM GROUP
NOTE 3
EMPLOYEE COSTS
Salaries and wages
Social insurance payments
Termination benefits
Contributions in pension fund
Other benefits
Capitalised to non-current assets (see Note 8, 9b)
Total
Number of staff at the end of the year
Average number of permanent and temporary employees during the year
2013
LVL’000
(28,552)
(7,282)
(867)
(109)
(1,125)
(37,935)
4,297
(33,638)
2012
LVL’000
(27,747)
(7,013)
(690)
(65)
(1,220)
(36,735)
4,104
(32,631)
2013
2,057
2,030
2012
2,113
2,038
2013
LVL’000
(20,137)
(10,743)
(5,699)
(3,410)
(3,194)
(2,002)
(1,303)
(988)
(607)
(190)
(168)
(48,441)
961
(47,480)
2012
LVL’000
(28,693)
(10,529)
(6,719)
(3,017)
(3,496)
(2,167)
(1,265)
(1,027)
(846)
(198)
(270)
(58,227)
937
(57,290)
2013
LVL’000
17
17
2012
LVL’000
32
74
106
NOTE 4
OTHER OPERATING EXPENSES
Direct service costs
Network related technical costs
Rent, maintenance and utilities costs
Marketing and advertising costs
General administration expenses
Transport costs
IT costs
Bad debt expenses
Cost of materials
Land and property tax
Billing costs
Capitalised to non-current assets (see Note 8, 9b)
Total
NOTE 5
FINANCE INCOME
Interest income
Net foreign exchange profit
Total
The amount of LVL 17 thousand (LVL 32 thousand in 2012) comprises interest income from short-term cash
deposits.
FINANCE COSTS
Interest expense:
- bank borrowings
- other
Net foreign exchange loss
Total
2013
LVL’000
2012
LVL’000
(2)
(2)
(2)
(4)
(6)
(3)
(9)
(9)
35
LATTELECOM GROUP
NOTE 6
INCOME TAX
Current income tax expense
Current income tax adjustment related to the prior years*
Deferred tax income
Total
2013
LVL’000
(3,888)
128
836
(2,924)
2012
LVL’000
(4,261)
32
1,232
(2,997)
*For accruals which do not have appropriate supporting documents at the time of submission of income tax
declaration, the Group adjusts the taxable amount accordingly. Adjustments are made to balances of accrual
accounts reducing them by amounts for which supporting justification documents were received.
In 2013 and in 2012 Lattelecom applied the officially enacted tax rate of 15% upon calculation of corporate
income tax for the current year.
Reconciliation of accounting and taxable profit and analysis of the tax charge:
Accounting profit before tax
Tax calculated at 15%
Adjusted for tax effect of:
- expenses not deductible for tax purposes
- income not deductible for tax purposes
- associate's result reported net of tax
- tax adjustment for the prior years
- tax relief for donations
Total
Effective income tax rate
2013
LVL’000
22,708
2012
LVL’000
25,003
3,406
3,750
290
(25)
(622)
(65)
(60)
2,924
180
(6)
(911)
33
(49)
2,997
12.9%
12.0%
The tax rate of 15% was applied to all temporary differences in the calculation of deferred income tax as at
31 December 2013 and as at 31 December 2012.
Movement in the deferred income tax account is as follows:
At the beginning of the year
Property, plant and equipment and intangible assets
Accrued expenses, provisions and tax losses
Government grant (Note 1 and 13)
Released to the profit or loss
At the end of the year
2013
LVL’000
(4,683)
329
359
148
836
(3,847)
2012
LVL’000
(5,915)
318
798
116
1,232
(4,683)
Deferred income tax assets and liabilities are off-set when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when the deferred income taxes relate to the same taxable entity
and the same fiscal authority.
The following amounts, determined after offsetting, are shown on the statement of financial position:
Deferred income tax assets
Deferred income tax liabilities
Total
2013
LVL’000
869
(4,716)
(3,847)
2012
LVL’000
528
(5,211)
(4,683)
36
LATTELECOM GROUP
NOTE 6
INCOME TAX (continued)
Deferred tax amounts shown in the statement of financial position relate to temporary differences arising from
the tax bases and carrying amounts of assets and liabilities as follows:
To be recovered after more than 12 months:
Property, plant and equipment and intangible assets
Accrued tax losses
To be recovered within 12 months:
Accrued expenses and provisions
Total
2013
LVL’000
2012
LVL’000
(7,542)
(123)
120
(7,871)
(245)
166
(104)
3,802
(3,847)
(130)
3,397
(4,683)
2013
19,782
146,079,000
0.14
2012
22,006
146,079,000
0.15
NOTE 7
EARNINGS/DIVIDENDS PER SHARE
Net profit attributable to ordinary shares (LVL‘000)
Number of ordinary shares outstanding
Basic and diluted earnings per share for profit for the period (LVL)
The share capital according to the Charter of Incorporation of SIA Lattelecom currently amounts to
146,079,000 shares of LVL 1 each. All shares have been fully paid. The holders of ordinary shares are
entitled to receive dividends as declared; they are also entitled to one vote per share as well as the residual
capital. The Parent Company has no potential dilutive ordinary shares and therefore diluted earnings per
share are the same as the basic earnings per share. The dividends paid in 2013 and 2012 were
LVL 20.9 million (LVL 0.14 per share) and LVL 21.8 million (LVL 0.15 per share) respectively.
37
LATTELECOM GROUP
NOTE 8
INTANGIBLE ASSETS
Customer
Goodwill contracts
LVL’000
At 31 December 2011
Cost
Accumulated amortisation /
impairment loss
Net book value
Year ended 31 December 2011
Opening net book value
Additions
Transfers
Disposals
Amortisation charge
Closing net book value
At 31 December 2012
Cost
impairment loss
Net book value
Additions
Transfers
Disposals
Amortisation charge
At 31 December 2013
Cost
impairment loss
Net book value
Software
Trade Software and implementation
names
licences
in progress
LVL’000 LVL’000
Total
LVL’000
LVL’000
LVL’000
4,420
1,196
389
28,813
1,105
35,923
(4,420)
-
(1,131)
65
(389)
-
(22,167)
6,646
1,105
(28,107)
7,816
-
65
(65)
-
3
3
6,646
1,420
(62)
(2,690)
5,314
1,105
1,405
(1,423)
1,087
7,816
1,405
(62)
(2,755)
6,404
4,420
1,196
392
30,078
1,087
37,173
(4,420)
-
(1,196)
-
(389)
3
(24,764)
5,314
1,087
(30,769)
6,404
-
-
3
4
(1)
6
5,314
3,007
(188)
(2,971)
5,162
1,087
2,040
(3,011)
116
6,404
2,040
(188)
(2,972)
5,284
4,420
-
396
29,546
116
35,674
(4,420)
-
-
(390)
6
(24,384)
5,162
116
(30,390)
5,284
The additions to Intangible assets include the operating expenses, which are directly attributable to the
implementation of software and are capitalised based on the hours spent on those projects. The total amount
of expenses capitalised to intangible assets was LVL 0.682 million in 2013 (LVL 0.708 million in 2012) (see
Note 3, 4).
38
LATTELECOM GROUP
NOTE 9
PROPERTY, PLANT AND EQUIPMENT
Land and
buildings
LVL’000
At 31 December 2011
Cost
Accumulated depreciation
Net book value
Additions
Transfers
Disposals
Classified as held for sale
Depreciation charge
At 31 December 2012
Cost
Net book value
Additions
Transfers
Disposals
Reclassified to/from held for sale
Depreciation charge
At 31 December 2013
Cost
Net book value
Electronic
Cable communications
network
equipment
LVL’000
LVL’000
Other
assets
LVL’000
Capital
work in
progress
LVL’000
Total
LVL’000
24,317
(11,146)
13,171
198,156
(101,214)
96,942
264,284
(216,576)
47,708
24,288
(18,629)
5,659
4,629
4,629
515,674
(347,565)
168,109
13,171
392
(115)
117
(1,136)
12,429
96,942
4,050
(7,893)
93,099
47,708
11,742
(400)
(16,369)
42,684
5,659
2,424
(98)
(2,372)
5,610
4,629
25,050
(18,608)
11,071
168,109
25,050
(613)
117
(27,770)
164,893
24,983
(12,554)
12,429
202,022
(108,923)
93,099
261,869
(219,185)
42,684
23,334
(17,724)
5,610
11,071
11,071
523,279
(358,386)
164,893
12,429
2 535
(88)
(367)
(1,149)
13,360
93,099
4,074
(8)
(7,804)
89,361
42,684
14,739
(527)
(15,172)
41,724
5,610
2,787
(54)
(2,189)
6,154
11,071
21,094
(24,135)
8,030
164,893
21,094
(677)
(367)
(26,315)
158,629
24,757
(11,397)
13,360
206,060
(116,699)
89,361
264,781
(223,057)
41,724
22,782
(16,628)
6,154
8,030
8,030
526,410
(367,781)
158,629
(a) Leasehold improvements
Included in the land and buildings are the following amounts of leasehold improvements:
Cost
Net book value
2013
LVL’000
1,758
(1,475)
283
2012
LVL’000
2,130
(1,770)
360
Commitments in respect of operating lease agreements are disclosed in Note 20b.
(b) Capitalisation to property, plant and equipment
The additions to property, plant and equipment include capitalised direct expenses related with development
of fixed assets incurred on qualifying capital expenditure projects and capitalised based on the labour hours
spent on those projects. The total amount of expenses capitalised to property, plant and equipment was
LVL 4.576 million during 2013 (LVL 4.333 million - in 2012) (see Notes 3, 4).
During 2013 and 2012 the Group did not bear borrowing costs to finance construction of property.
39
LATTELECOM GROUP
NOTE 9
PROPERTY, PLANT AND EQUIPMENT (continued)
(c) Fully depreciated property, plant and equipment
A number of property, plant and equipment items that have been fully depreciated are still used in operations.
The total acquisition cost of this property, plant and equipment as at 31 December 2013 amounted to
LVL 99.545 million (LVL 95.305 million – in 2012).
(d) Title to the assets
Altogether 95% (in 2012 – 93%) of total land and buildings owned by the Parent Company have been
registered with the Land Registry by 31 December 2013. The residual of property in the remaining book value
of LVL 134,953 has not been registered yet and the Group is in the process of preparing documentation for
registration with the Land Registry due to insufficient technical documentation. At the moment of
establishment of SIA Lattelecom the above property was recognized as the part of property, plant and
equipment based on the State contribution in kind documentation.
(e) Non-current assets classified as held for sale
Movement in the non-current assets held for sale is as follows:
Classified as held for sale
Reclassified to plant, property and equipment
Sold
2013
LVL’000
643
766
(399)
(105)
905
2012
LVL’000
950
253
(370)
(190)
643
2013
LVL’000
23,279
2012
LVL’000
23,847
4,798
(652)
4,146
(6,304)
21,121
6,952
(883)
6,069
(6,637)
23,279
NOTE 10
INVESTMENTS IN ASSOCIATED COMPANY
Opening carrying amount
Share of results before tax
Share of tax
Share of results of associate (net of tax)
Dividends received
Closing carrying amount
SIA Lattelecom holds 23% of the shares in SIA Latvijas Mobilais Telefons (LMT). There were no changes in
the interest held in the associated undertaking in 2013 or 2012.
LMT is a mobile communications operator in Latvia. The main activities of LMT are provision of mobile
telecommunications services (see Note 21).
2013
LVL’000
2012
LVL’000
Statement of comprehensive income
Revenue
Net profit
121,448
18,027
128,861
26,390
Statement of financial position
Non-current assets
Current assets
Total assets
117,158
41,947
159,105
130,008
24,999
155,007
Capital and reserves
Non-current liabilities
Current liabilities
Total equity and liabilities
91,824
5,524
61,757
159,105
101,252
4,712
49,043
155,007
Summarised information on LMT group (unaudited):
40
LATTELECOM GROUP
NOTE 11
LONG-TERM RECEIVABLES
2013
LVL’000
818
69
887
Receivables from government (see Note 13)
Trade receivables
Total
2012
LVL’000
1,637
66
1,703
Current portion of receivables from government is included in trade and other receivables (see Note 13).
NOTE 12
INVENTORIES
Cables, wires and other materials
Inventory held for re-sale
Prepayments for inventories
Allowance for impairment of obsolete and slow moving inventories
Total
2013
LVL’000
2,674
2,558
(507)
4,725
2012
LVL’000
2,236
2,093
24
(802)
3,551
2013
LVL’000
802
129
(424)
507
2012
LVL’000
551
335
(84)
802
2013
LVL’000
9,649
2,394
4,160
692
725
(4,004)
13,616
2012
LVL’000
11,223
3,381
2,786
861
240
(4,041)
14,450
Allowance for impairment of obsolete and slow moving inventories:
Charged to profit or loss during the year
Written off
NOTE 13
TRADE AND OTHER RECEIVABLES
Trade receivables
Receivables from other electronic communications operators
Accrued income
Receivables from government – current portion (see Note 1, 11)
Other receivables
Less: Impairment loss allowance for trade and other receivables
Total
Movement on impairment loss allowance for trade and other receivables was as follows:
Balance at 1 January 2012
Charged to profit or loss during the year 2012
Debts written-off
Balance at 31 December 2012
Individually
impaired
LVL’000
3,794
626
(1,748)
2,672
Collectively
impaired
LVL’000
1,040
401
(72)
1,369
Total
LVL’000
4,834
1,027
(1,820)
4,041
Charged to profit or loss during the year 2013
Recovered debts
Debts written-off
Balance at 31 December 2013
1,338
(910)
3,100
(350)
(115)
904
1,338
(350)
(1,025)
4,004
41
LATTELECOM GROUP
NOTE 13
TRADE AND OTHER RECEIVABLES (continued)
As at 31 December, the ageing structure of current trade receivables is as follows:
Not due
Overdue less than 30 days
Overdue 30-90 days
Overdue 90-180 days
Overdue 180-365 days
Overdue more than 365 days
Total
2013
Gross
LVL’000
11,950
1,035
324
317
133
3,861
17,620
Net
LVL’000
11,950
998
263
295
107
3
13,616
2012
Gross
LVL’000
12,337
1,491
454
206
194
3,809
18,491
Net
LVL’000
12,337
1,433
328
128
91
133
14,450
Trade receivables disclosed above include amounts that are past due at the end of the reporting period for
which the Group has not recognised an allowance for doubtful debts because there has not been a significant
change in credit quality and the amounts are still considered recoverable.
Overdue less than 30 days
Overdue 30-90 days
Overdue 90-180 days
Overdue 180-365 days
Overdue more than 365 days
Total
2013
Gross
LVL’000
71
115
283
87
3
559
Net
LVL’000
71
115
283
87
3
559
2012
Gross
LVL’000
84
64
76
78
44
346
Net
LVL’000
84
64
76
78
44
346
The average payment terms of accounts receivable is 45 days for foreign electronic communications
operators, 30 days for local electronic communications companies, and 15 days – for subscribers and other
debtors.
NOTE 14
CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term bank deposits
Total
2013
LVL’000
7,927
8,671
16,598
2012
LVL’000
5,562
3,297
8,859
As at 31 December 2013 the weighted average interest rate of short-term bank deposits was 0.31 and the
average maturity - 46 days (2012– 0.38% and 51 days respectively). Changes in interest rates were in line
with the overall market trends.
Cash at bank includes LVL 27 thousand reserved for EUR banknotes and coins received as part of
frontloading, which are necessary to comply with the dual circulation period requirements as of 1 January
2014. EUR 37 thousand in banknotes and coins were received as part of the frontloading.
NOTE 15
DEFERRED INCOME
The amount of LVL 2.626 million (LVL 3.366 million in 2012) comprises the prepaid long-term rights for cable
capacity lease. Short–term part of the prepaid rights in amount of LVL 0.759 million (LVL 0.759 million in
2012) was included in short–term deferred income and customer prepayments (see Note 18). The long-term
portion falls due as follows:
Between one and five years
More than five years
Total
2013
LVL’000
2,228
398
2,626
2012
LVL’000
2,691
675
3,366
42
LATTELECOM GROUP
NOTE 16
TRADE AND OTHER PAYABLES
Accrued liabilities for services received
Trade payables to providers of goods and services
Accrued liabilities for salaries
Taxes and social insurance payments
Payables related to investments in non-current assets
Unused vacations
Trade payables to other electronic communications operators
Warranties
Total
2013
LVL’000
8,614
5,946
3,916
2,512
2,210
1,407
910
275
25,790
2012
LVL’000
6,859
6,566
3,421
2,314
1,949
1,310
1,906
241
24,566
The average payment terms of accounts payable are 45 days for foreign electronic communications
operators, 30 days for local electronic communications companies and for other suppliers.
NOTE 17
BORROWINGS
Credit cards
Total
2013
LVL’000
3
3
2012
LVL’000
2
2
As at 31 December 2013 and 2012, bank borrowings were not used. Average interest rate of credit facilities
used in 2013 was 0.63% (in 2012 – 1.05%)
Available undrawn borrowing facilities:
Expiring within one year
Expiring beyond one year
2013
LVL’000
6,000
-
2012
LVL’000
13,028
6,000
The available undrawn borrowing facilities expiring within one year are LVL 6 million credit line from AS SEB
Banka.
Credit facilities are not subject to commitment fee and no assets are pledged to secure bank borrowings and
credit facilities.
NOTE 18
DEFERRED INCOME AND CUSTOMER PREPAYMENTS
Customer prepayments
Deferred income
Total
2013
LVL’000
1,762
1,715
3,477
2012
LVL’000
2,655
1,549
4,204
The amount of LVL 0.759 million (LVL 0.759 million in 2012) of the prepaid short–term rights for cable
capacity lease was included in short–term deferred income.
NOTE 19
PROVISIONS
As at 31 December 2013 there were made provisions for royalty payments, legal proceedings and other
liabilities in amount of LVL 4.361 million (LVL 4.402 million in 2012).
43
LATTELECOM GROUP
NOTE 20
COMMITMENTS
(a) Capital and inventory purchase commitments
Capital expenditure and inventory purchase contracted for deliveries of equipment and software at the end of
the reporting period date (but not yet fulfilled and therefore not recognised in the financial statements)
amounted to LVL 1.520 million (LVL 0.813 million in 2012).
(b) Commitments under operating leases
The Group as a lessee has entered into operating lease agreements concerning office space, technical sites,
computers and cars. The total amount of annual lease expenses was LVL 1.219 million in 2013
(LVL 1.150 million in 2012). At 31 December 2013 the future aggregate minimum lease payments under noncancellable operating leases were as follows:
2013
LVL’000
664
505
1 169
Less than one year
Between 1 and 5 years
Total
2012
LVL’000
220
15
235
NOTE 21
RELATED PARTY TRANSACTIONS
TILTS Communications AS holds 49% of Lattelecom’s issued ordinary share capital.
TeliaSonera AB owns 100% of the shares of TILTS Communications AS thus indirectly owning 49% of the
shares of SIA Lattelecom. In addition, TeliaSonera AB holds 49% of the issued share capital of SIA Latvijas
Mobilais Telefons.
The Republic of Latvia is the direct and ultimate controlling party of the Group and holds 51% of
SIA Lattelecom issued ordinary share capital. Routine trading transactions with the Latvian government
including its departments and agencies and transactions between state-controlled entities, which are
providers of public utilities, for which the standard terms and conditions, have been applied and which do not
represent a significant portion of a type of transaction, are excluded from the scope of related party
disclosures.
SIA Latvijas Mobilais Telefons (LMT) (SIA Lattelecom holding 23% of the shares) is an associated company
since June 1997 (see Note 10).
Lattelecom Group owns 50% of the shares of AS First Closed Pension Fund (Pension Fund). However
Lattelecom is only a nominal shareholder as all risks and benefits arising from its activities will accrue to
Lattelecom’s employees – members of the pension plan.
The following transactions were carried out with related parties:
a) Sales of services
LMT
TeliaSonera
Pension Fund
Total
(telecommunication services, interconnection fees)
(international telephone traffic)
(telecommunications and IT services)
2013
LVL’000
2,677
483
7
3,167
2012
LVL’000
2,534
1,547
2
4,083
2013
LVL’000
791
695
1,486
2012
LVL’000
1,262
541
1,803
b) Purchases of goods and services
LMT
TeliaSonera
Total
(mobile telephone services, interconnection fee)
(international telephone traffic, various services)
44
LATTELECOM GROUP
NOTE 21
RELATED PARTY TRANSACTIONS (continued)
c) Outstanding balances arising from sale/purchase of goods/services
Receivables from related parties:
LMT
TeliaSonera
Total
Payables to related parties:
LMT
TeliaSonera
Total
2013
LVL’000
2012
LVL’000
462
28
490
616
275
891
40
43
83
216
11
227
Regarding outstanding balances to related parties no assets are pledged to secure the debts and liabilities,
no warranties are issued or received. The settlement is made in cash. There are no doubtful debts allowances
provided for related parties debts.
d) Key management remuneration
Salaries
Termination benefits
Other benefits
Total
2013
LVL’000
1,534
17
17
1,568
2012
LVL’000
1,535
75
11
1,621
No members of the Management Board, Supervisory Council or members of their families or legal entities
controlled by them own or have interest in shares or share options of SIA Lattelecom.
NOTE 22
FINANCIAL RISK MANAGEMENT
Financial risks with respect to the Group’s liquidity, currency, interest rate and counter-party credit risk are
managed by Lattelecom on a centralised basis.
The Group due to its day-to-day business operations is exposed to financial risks, primarily to currency risk
and interest rate risk, which may impact directly the operating results and financial position of the Group
companies. The Group hedges risks from foreign currency exchange and interest rate fluctuations through its
normal operating and financing activities and, when deemed appropriate, through the use of derivative
financial instruments. Financial risk management activities are undertaken to support the underlying operating
business transactions of the Group, and the Group companies do not undertake any speculative transactions
that would increase exposure to currency or interest rate risks.
(a) Liquidity risk
Appropriate treasury policies are in place to ensure that the Group companies have sufficient liquidity and are
able to finance their operations without funding constraints. Financing and liquidity risk is reduced by
spreading maturities of the borrowings and by maintaining flexibility in funding by keeping credit facilities
available. In addition, the management believes that the Group's operating cash flows, available long term
credit facilities and the Group's track record of expanding maturing credit lines will continue to ensure that is
has sufficient liquidity.
Lattelecom credit facilities consist of LVL 6.0 million credit line granted by AS SEB bank available till July
2014.
As at 31 December 2013 credit lines were not used.
45 45
LATTELECOM GROUP
NOTE 22
FINANCIAL RISK MANAGEMENT (continued)
The following table demonstrates contractual maturities of financial liabilities:
As at 31 December 2013
TOTAL
LVL’000
6 months
or less
LVL’000
Financial liability
Trade and other payables
Short-term borrowings
Total
27,418
3
27,421
27,386
3
27,389
-
32
32
TOTAL
LVL’000
6 months
or less
LVL’000
6-12
months
LVL’000
More than
12 months
LVL’000
24,566
2
24,568
24,486
2
24,488
-
80
80
Financial liability
Total
6-12
months
LVL’000
More than
12 months
LVL’000
(b) Currency risk
The Group companies are exposed to currency risk arising from movements in exchanges rates. The Group’s
policy is to hedge net underlying exposure to committed and anticipated foreign currency transactions. Hedge
accounting was applied to highly probable capital expenditure and inventory purchase transactions, therefore
the effective portion of changes in the fair value or financial instruments that are designated and qualify as
cash flow hedges is recognized in other comprehensive income. But the gain or loss relating to the ineffective
portion or other transactions that do not qualify as cash flow hedge is recognized immediately in the profit or
loss.
Euro is the preferred currency in settlements with foreign business partners. Within the framework of Latvia's
preparation for full-fledged membership in the Economic and Monetary Union, the Bank of Latvia has fixed
the peg rate of the lats and the euro at EUR 1 = LVL 0.702804. Since January 2005 the Bank of Latvia
unilaterally limits the lats’ exchange rate against the euro to +/- 1% of the peg rate. Due to the peg of LVL to
EUR and the relatively well-balanced operating cash inflows and outflows in foreign currencies, the Group is
not significantly exposed to EUR and USD exchange risk.
The following table demonstrates the sensitivity to a possible change in exchange rates, with all other
variables held constant:
Financial asset/(liability)
Cash and cash equivalents
Trade and other receivables
Net statement of the financial position exposure
Impact to net result if foreign currency had
strengthened/ (weakened) against LVL by 10%
Impact to net result if EUR had strengthened/
(weakened) against EUR/LVL peg rate fixed
by Bank of Latvia by 1%
TOTAL
LVL
EUR
USD
Other
LVL’000
LVL’000
LVL’000
LVL’000
LVL’000
16,598
14,503
(27,418)
(3)
3,680
10,114
11,756
(24,326)
(3)
(2,459)
4,590
2,474
(1,978)
5,086
1,674
34
(991)
717
220
239
(123)
336
72/(72)
34/(34)
5/(5)
46
LATTELECOM GROUP
NOTE 22
Financial asset/(liability)
Net statement of financial position exposure
Impact to net result if foreign currency had
strengthened/ (weakened) against LVL by 10%
TOTAL
LVL
EUR
USD
Other
LVL’000
LVL’000
LVL’000
LVL’000
LVL’000
8,859
16,153
(24,566)
(2)
444
7,103
14,290
(22,389)
(2)
(998)
868
1,543
(1,539)
872
830
92
(564)
358
58
228
(74)
212
36/(36)
21/(21)
Impact to net result if EUR had strengthened/
(weakened) against EUR/LVL peg rate fixed
by Bank of Latvia by 1%
9/(9)
(c) Interest rate risk
The Group’s is primarily financed from shareholder’s equity, cash flows from operating activities and to a
lesser extent borrowings. The Group’s exposure to market risk from changes in interest rates is related to its
debt obligations, since the bank borrowings and facilities are maintained on floating interest rates which are
fixed for a period of 1 month.
During 2013, short-term bank deposits were at fixed interest rates and maturity within less than three months
(see Note 14).
(d) Credit risk
Financial instruments, which potentially subject the Group to concentrations of credit risk, consist principally of
trade receivables (Note 11, 13), cash at bank and short-term bank deposits (Note 14). The carrying amount of
the above instruments represents the maximum credit exposure of the Group. The Group has policies in
place to ensure that sales of products and services are provided to customers with an appropriate credit
history. Credit risk concentration with respect to trade receivables is limited due to the extent of the customer
base of the Group. Trade receivables are presented net of allowances for doubtful debts. Derivative
counterparties and cash transactions are limited to financial institutions with an appropriate credit standing.
The Group closely monitors and limits the amount of credit exposure of the Group companies to any financial
institution. There are no significant concentrations of credit risk within the Group based on the type of
customers (no significant reliance on specific individual customers).
The maximum exposure to credit risk for trade and other receivables (current and non-current), which are
financial instruments by geographic region was:
Domestic
Lithuania
Germany
Russia
Sweden
United States
Canada
Norway
Other countries
Total
2013
LVL’000
16,383
305
293
247
160
127
96
13
883
(4,004)
14,503
2012
LVL’000
17,091
444
270
293
173
207
260
346
1,110
(4,041)
16,153
47
LATTELECOM GROUP
NOTE 22
Maximum exposure to credit risk for trade and other receivables (current and non-current), which are financial
instruments by type of counterparty:
2013
LVL’000
1,510
13,843
3,154
(4,004)
14,503
Receivables from government
Corporate customers
Individuals
Total
2012
LVL’000
2,498
14,356
3,340
(4,041)
16,153
The maximum exposure to credit risk for financial instruments:
2013
Gross
LVL’000
Net
LVL’000
2012
Gross
LVL’000
Net
LVL’000
Neither past due nor impaired
Long-term receivables
Cash at bank and in hand
Short-term bank deposits
Total
11,950
887
7,927
8,671
29,435
11,950
887
7,927
8,671
29,435
12,337
1,703
5,562
3,297
22,899
12,337
1,703
5,562
3,297
22,899
Past due and impaired
Total
5,670
35,105
1,666
31,101
6,154
29,053
2,113
25,012
NOTE 23
CAPITAL MANAGEMENT
Lattelecom Group’s target is to maximise the shareholders value by maintaining a strong capital base to
sustain creditor, customer and market confidence and future development of the business. The Group
performs capital management by monitoring the return on capital employed (ROCE). Specific targets are set
by Supervisory Council for annual capital expenditure. Regular reporting on capital expenditure progress is
provided to Supervisory Council.
The groups target for ROCE for 2013 was 11.4% and in 2013 the actual ratio was 12.4% (13.6% in 2012).
The actual capital expenditures amounted to LVL 23.0 million (LVL 26.5 million in 2012), which is 86% the
targeted total expenditures for 2013.
There were no changes in the Group’s approach to capital management during the year. Neither the
Company nor any of its subsidiaries are subject to externally imposed capital requirements.
NOTE 24
FAIR VALUES
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of
financial position, are as follows:
Trade and other accounts receivables, net
2013
LVL’000
Carrying
amount
Fair value
16,598
16,598
14,503
14,503
(27,418)
(27,418)
(3)
(3)
2012
LVL’000
Carrying
amount
Fair value
8,859
8,859
16,153
16,153
(24,566)
(24,566)
(2)
(2)
All financial assets and liabilities held by the Group are carried at amortized cost, excluding derivative
financial instruments.
48
LATTELECOM GROUP
NOTE 25
EVENTS AFTER THE REPORTING PERIOD
There have been no events after the end of the reporting period date that could materially affect the
consolidated financial statements as at and for the year ended 31 December 2013.
49

Lattelecom Group Consolidated Annual Report for the year ended

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