Note 1 Accounting principles

Note 1 Accounting principles

Compliance with legislation and regulations

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), together with interpretation statements from the International Financial Reporting Interpretations Committee (IFRIC), to the extent that they have been approved by the European Commission for application within the European Union. The Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s rule RFR 1, Supplemental Financial Statements for Groups, have also been applied.

The parent company applies the same accounting principles as the group, with exceptions specified in Note 1, Accounting Principles for the parent company. The differences between the parent company’s and the group’s accounting principles result from the parent company’s limitations in applying IFRS as a consequence of the Swedish Accounts Act and the Act of Safeguarding of Pension Commitments, and are to some extent based on tax considerations.

Basis of preparation for parent company and consolidated financial statements

The parent company’s functional currency is SEK, which is also the reporting currency for the consolidated and parent company accounts. This means that all financial reports are presented in SEK. Unless otherwise specified, all figures are rounded to the nearest million. Assets and liabilities are primarily carried at acquisition cost, with the exception of certain financial assets and liabilities that are reported at fair value. These financial assets and liabilities reported at fair value consist of derivatives as well as financial assets classified either as “financial assets reported at fair value in the income statement” or as “available-for-sale financial assets”. (See the description of categories in the “Financial Instruments” section). Available-for-sale fixed assets and disposable items held for trading are reported at the lower of their fair value less the cost of sale or the value at which they were previously reported.

The reporting under IFRS requires the executive management to make assessments, estimates and assumptions that affect the application of the accounting principles and the reported values of assets, liabilities, income and costs. These estimates and assumptions are based on historical experience and a number of other factors considered reasonable under prevailing circumstances. The results of these estimates and assumptions are used to assess the reported values of assets and liabilities whose values cannot be clearly determined using other sources. Actual future values may differ from these estimates and assessments.

The estimates and assumptions used are reviewed regularly. Changes in estimates or valuations are reported in the period when the change is made, if the change only affects that period, or are reported in future periods as well, if the change affects the original as well as subsequent periods.

Assessments made by executive management in the application of IFRS that have a material effect on the financial reports as well as estimates that can lead to significant adjustments in subsequent fiscal year’s financial reports are described in further detail in Note 2, Estimates and Assessments, and in relevant notes where estimates have been used.

Balance sheet, SEKm Dec 31, 2011 Adjustment New IAS 19
Dec 31, 2012 Adjustment New IAS 19
Financial receivables, pensions 3,967 –2,972 995
4,894 –3,931 963
Deferred tax assets
1,042 1,042
134 1,279 1,413
Other assets 21,443
21,443
24,430
24,430
Total assets 25,410 –1,930 23,480
29,458 –2,652 26,806
Equity 11,930 –3,055 8,875
11,559 –4,026 7,533
Pension liabilities 2,590 944 3,534
2,772 1,231 4,003
Deferred tax liabilities
181 181
1,250 143 1,393
Other liabilities 10,890
10,890
13,877
13,877
Total equity and liabilities 25,410 –1,930 23,480
29,458 –2,652 26,806

The consolidated accounting principles have been applied consistently during all periods presented in the group’s financial statements and in the consolidation of subsidiaries, associated companies and joint ventures.

Changes in accounting principles

Changes in accounting principles applicable as of January 1, 2013 due to changes to IFRS are described below. Other changes to IFRS valid as of 2013 have not had any material effect on the company’s or the group’s reporting.

IAS 19 Revised, Employee Benefits. The “corridor method” will be removed under the amendment. Actuarial gains and losses that have not previously been reported to the extent that they were not amortized during the coming year have been reported as of 01-01-2013 in “other comprehensive income”. The new regulations also stipulate that reporting of return on assets under management for pension benefits shall be based on the discount rate used to calculate pension commitments. The difference between actual return and estimated return has therefore been reported in “other comprehensive income”. The change affected the group’s “operating profit” (EBIT), as amortization of actuarial gains and losses is no longer reported as part of personnel expenses. In the current situation, with unreported actuarial losses, the change had a positive effect on “operating profit”. Net financial items were adversely affected as compared to current reporting, as the presumed return is and has been 1 percentage point over the discount rate. The impact on equity and other comprehensive income may produce major fluctuations due primarily to varying discount rates between reporting periods. The change has been applied as of January 1, 2013, with comparative figures for 2012. The effect of the transition to the new rule is shown in the tables.

Total income 39,173
39,173
Total expenses –38,816 147 –38,669
of which, pension expenses –555 147 –408
Participations in associated companies 7
7
Operating profit 364 147 511
Net financial items 16 –160 –144
of which, pensions 72 –160 –87
Tax –123 3 –120
Net profit 257 –10 247
Comprehensive income statement


Revaluation of net pension liability


Change in assets
–383 –383
Change in liabilities
–849 –849
Change in deferred tax
271 271
Total revaluation, pension liability
–961 –961
Translation differences –258
–258
Comprehensive income –1 –971 –972
OPERATING ACTIVITIES


Profit before tax 380 –13 367
Adjustements for items not included in cash flows


Pension assets 506 13 519

IFRS 13 Fair Value Measurement is a new standard to establish uniform principles for ways in which fair value measurements should be conducted. It clarifies and describes the valuation methods’ precedence and validity for fair value and has been applied as of January 1, 2013.

IAS 1 Presentation of Financial Statements . Amended so that “other comprehensive income” items are divided into two categories: items that will be reclassified into net profit and items that will not be reclassified. Items to be reclassified include translation differences and gains and losses for cash flow hedges. The amendment has been applied as of January 1, 2013.

Future changes to accounting principles that take effect in 2014 or later

Several new IFRS standards take effect during forthcoming financial years. The amended standards that are expected to impact the group are listed below. These IFRS standards have not been applied in advance.

IFRS 10 Consolidated Financial Statements is a new standard with new principles for assessing when control exists over an investee that must thereby be included in the consolidated financial statements. Control requires that the parent company have exposure or rights to variable returns by virtue of its involvement with the investee and the ability to affect those returns through power over an investee. The EU requires the application of IFRS 10 as of January 1, 2014. Based on current conditions, it is not considered that IFRS 10 will have an effect on the group’s consolidation of subsidiaries.

IFRS 11 Joint Arrangements is a new standard outlining the accounting by joint ventures and joint operations. The proportional method or equivalent is use for joint operations, while the equity method is used for reporting joint ventures. It will no longer be permissible to use the proportional method for joint ventures. The EU requires the application of the standard as of January 1, 2014. Based on current conditions, it is considered that the standard will have an insignificant effect on the group.

IFRS 12 Disclosure of Interests in Other Entities is a new standard for information on investments in subsidiaries, joint ventures, associated companies and separate unconsolidated units. For the group, the standard chiefly involves increased requirements for information concerning risks. The standard is to be applied as of January 1, 2014.

IFRS 9 Financial Instruments will replace the current IAS 39, Financial Instruments: Recognition and Measurement, with application tentatively required as of 2017 at the earliest. IFRS 9 deals with classification and valuation of financial assets and liabilities and hedge accounting. IFRS 9 will be supplemented with new regulations on the amortization of financial assets. IFRS 9 has not yet been approved for application by the EU, and such approval is not anticipated until the EU has made a decision on a complete IFRS 9 that also includes regulations on amortization. The company has therefore decided to wait with doing an impact analysis and making a decision on early application.

Changes to other future standards have not been applied to the parent company or group’s accounting. The company has elected not to apply new and amended future accounting principles, interpretations or improvements (“Improvements to IFRSs”) in advance.

Segment reporting

A segment is a component of the group that can be distinguished for financial reporting purposes, comprising operational divisions or geographic areas. A segment is identified by the fact that its divisions offer similar products and services and that it is exposed to different risks and opportunities from those of other segments. Segment accounting is based on management’s segment reporting. PostNord Group’s segment grouping is based on its universal service obligation for mail and parcel services in Sweden and Denmark, and on its mission to offer information logistics and logistics services in the Nordic region.

Information on segments is available only for the group.

Classification, etc.

Fixed assets and long-term liabilities essentially comprise amounts expected to be recovered or paid more than 12 months from the close of the accounting period. Current assets and current liabilities for the parent company and group essentially comprise amounts expected to be recovered or paid within 12 months from the close of the accounting period.

Basis of consolidation

The Swedish Ministry of Enterprise, Energy and Communications and the Danish Ministry of Transport announced on February 2, 2009 that Posten AB and Posten Danmark A/S had signed an agreement to merge the companies through a joint venture between the Swedish and Danish states. The owners founded a new company, today named PostNord AB, which became the parent company of the joint group as of June 24, 2009. The Posten AB and Post Danmark A/S groups were consolidated as of July 1, 2009.

The merger has been reported in accordance with the “carry-over method”, meaning that consolidated net assets are reported at the reported values in the accounts of Posten AB and Post Danmark A/S, respectively, at the time of the merger. For reported values as of December 31, 2009, this means that PostNord’s consolidated balance sheet comprises the book values that the two companies would have had if each were reported individually. The group’s opening balances are the book values of each company’s balance sheet at the time of the merger. Therefore, pension liabilities were not recalculated actuarially as of the merger date and no revaluation of assets was performed. In compiling the consolidated Notes, opening balances (as required and not reported at time of merger) were calculated based on 12-31-09 balances and reported changes and income items.

Subsidiaries

Subsidiaries are companies in which PostNord AB exercises a controlling influence. This implies directly or indirectly holding the right to set the companies’ financial and operational strategies with the aim of attaining financial benefits. Voting rights that can be exercised or immediately converted are considered when determining the existence of a controlling influence.

Subsidiaries are reported in accordance with acquisition method. Under this method, an acquisition is treated as a transaction in which the group indirectly acquires the assets and assumes the actual and contingent liabilities of the subsidiary. The consolidated acquisition cost is calculated using an acquisition analysis performed upon acquisition. The analysis determines the acquisition cost of the shares or operations as well as the fair value of the assets acquired and the actual and contingent liabilities assumed at the acquisition date. The acquisition cost of a subsidiary’s shares or its operations consists of the fair value on the acquisition date of assets, realized or assumed liabilities and equity instruments issued in exchange for the net assets acquired. Acquisition costs attributable to the acquisition are only capitalized for legal entities in line with local accounting and taxation regulations, and are expensed in the consolidated financial statements. Conditional purchase consideration is fixed at fair value at acquisition date. Adjustments made to the related liability for the conditional purchase consideration through the settlement date are reported in total income. The difference between the acquisition cost for subsidiary shares and the fair value of acquired identifiable assets, assumed liabilities and contingent liabilities comprise consolidated goodwill. Ownership changes are reported as equity transactions as long as control is maintained. When controlling influence ceases, gains and losses are reported in net profit and the remainder is revalued in income.

Subsidiaries’ accounts are included in the consolidated statements from the date of acquisition until the date on which the controlling influence ceases to exist.

Associated companies

Associated companies are companies in which the group has a significant, but not controlling, influence on operational and financial management, normally between 20 and 50% of the voting rights. Participations in associated companies are reported in the consolidated statements using the equity method from the date on which the significant influence is established. Under the equity method, the consolidated book value of a participation in an associated company corresponds to the group’s share of that company’s equity as well as consolidated goodwill and any residual value of consolidated surplus and deficit values. The group’s share of associated companies’ net income is reported in the consolidated income statement after being adjusted for any depreciation, impairments or dissolution of acquired surplus or deficit values. Dividends received from an associated company reduce the reported value of that investment. The group’s acquisition cost, goodwill and any deficit values are determined in the same way as for subsidiaries, using an acquisition analysis (see the “Subsidiaries” section above), except that acquisition costs are capitalized in the group.

The equity method is applied until the date on which the significant influence ceases to exist.

Joint ventures

For reporting purposes, a joint venture is a company in which the group exercises a significant influence on operational and financial management decisions jointly with one or more partners based on an agreement. Joint ventures are consolidated in the accounts using the proportional method. Under the proportional method, the group’s stake in each joint venture’s income and costs as well as assets and liabilities are consolidated in the group’s income statement and balance sheet. This is done by combining, item by item, the joint venture partner’s stake in assets and liabilities and income and costs with the corresponding items in the partner’s consolidated accounts. Only equity earned after the acquisition is reported in consolidated equity. The proportional method is applied from the date on which the joint controlling influence is established, until the date on which that influence ceases.

Transactions eliminated on consolidation

Intra-group receivables and liabilities, income and costs, and gains or losses arising from intercompany transactions are eliminated in their entirety upon consolidation. Intra-group losses that indicate impairment are included in the consolidated accounts.

Gains and losses resulting from transactions with associated companies or joint ventures are eliminated in proportion to the group’s stake in those businesses. Losses are recognized to the extent they indicate impairment.

Foreign currency

Foreign currency transactions

A group’s functional currency is the currency of the primary economies in which the companies in the group operate. The group consists of the parent company, subsidiaries, associated companies and joint ventures.

Transactions in foreign currencies are translated into the functional currency at the rate prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate on the balance sheet date. Foreign exchange differences arising from these translations are reported in the income statement. Non-monetary assets and liabilities denominated in foreign currencies and reported at their acquisition costs are translated at the rate prevailing on the transaction date. Non-monetary assets and liabilities denominated in foreign currencies and reported at fair value are translated into the functional currency using the exchange rate on the date of valuation. Changes in exchange rates are then reported in the same way as other changes in the value of assets or liabilities.

Foreign entities’ financial statements

Assets and liabilities held by foreign entities, including goodwill and other consolidated surplus and deficit values, are translated into SEK at the exchange rate prevailing on the balance sheet date. Income and costs in foreign entities are translated into SEK using an average exchange rate, approximately equal to the exchange rates prevailing on the transaction date. Translation differences arising from the translation of foreign entities are recognized directly in other comprehensive income.

Income

Income from services is reported in the income statement based on the stage of completion at the balance sheet date. The Mail and Logistics business segments recognize income when a physical mail item has been collected for physical transport. Income related to services featuring an electronic component (hybrid service) is recognized once the object has been converted into a physical format and been received for physical transport in the form of a mail item. Mail processing facility fees relate to the handling period; that is, the period in which the mail item was received from abroad. Distribution income is recognized in the period in which the service is performed. Income from post office boxes is accrued over the contract duration. Services in Information Logistics are generally performed over a short period of time, the income recognized when the service has been delivered.

The sale of goods is recognized upon delivery in accordance with the terms and conditions of sale, such that income is reported when the risks and rewards associated with the goods are transferred to the counterparty.

Income is not recognized if the financial rewards are unlikely to befall the group. Net sales are reported excluding value-added tax and in view of intended discounts and similar income reductions.

Operating expenses and financial income and expenses

Operating expenses

Personnel expenses are attributed to the period in which duties are performed. Changes in vacation and wage liabilities are reported on an ongoing basis, as employee entitlements accrue. Thus, periods during which large numbers of employees are on vacation usually feature below-average personnel expenses. Other expenses are reported in the period during which the goods or services have been delivered or utilized (e.g. rental costs).

Payments for assets leased under operational leases

Payments for operational leases are reported in the income statement on a straight-line basis over the leasing period. Rewards received upon signing a leasing contract are reported as part of the total leasing cost in the income statement on a straight-line basis over the leasing period. Variable costs are expensed in the period in which they arise.

Payments for assets leased under finance leases

Minimum lease payments are divided between interest and amortization of the remaining liability. Interest expenses are distributed over the leasing period so that each reporting period is charged with a payment corresponding to a fixed interest rate for the liability reported in that period. Variable costs are expensed in the period in which they arise.

Financial income and expenses

Financial income and expenses consist of interest income from bank deposits, receivables and interest-bearing securities; interest paid on loans; dividend income; exchange rate differences; unrealized and realized gains and losses on financial investments; and derivatives used in financial operations. The interest on pension liabilities and the return on assets under management for pensions calculated according to IAS 19 are reported in net financial items.

Interest income on receivables and interest expense on liabilities are calculated using the effective interest method. When the effective interest rate is used, the present value of all receipts and disbursements during the fixed-interest term equals the reported value of the receivable or liability. The interest component of a finance lease payment is reported in the income statement using the effective interest method. Interest income and expense include accrued transaction costs and any discounts, premiums or other differences between the original reported value of the receivable or liability and the amount settled at maturity.

Issue expenses and similar direct transaction costs related to raising loans are included in the calculation of effective interest.

Dividend income is recognized when the right to receive dividends has been confirmed.

Financial instruments

Financial instruments reported on the assets side of the balance sheet include cash and cash equivalents, accounts receivable, shares, loans receivable, bond premiums and derivatives. Reported on the equity and liabilities side are accounts payable, debt and equity instruments issued, loans and derivatives.

Financial instruments are initially recognized at acquisition cost, equivalent to the instrument’s fair value plus transaction costs, for all financial instruments except those classified as financial assets reported at fair value in the income statement. Subsequent accounting differs, depending on how the financial instrument is classified, as detailed below.

A financial asset or liability is entered on the balance sheet when the company becomes a party to the instrument’s terms and conditions. Accounts receivable are recognized on the balance sheet once the invoice has been sent. Liabilities are recognized when a counterparty has rendered services and payment is due under the terms of the contract, even if an invoice has yet to be received. Accounts payable are recognized when an invoice is received.

Financial assets are taken off the balance sheet when the rights of the contract have been realized, when they mature or when they are no longer controlled by the company. The same applies to portions of financial assets. Financial liabilities are taken off the balance sheet when contractual obligations are fulfilled or otherwise cease. The same applies to portions of financial liabilities.

Acquisitions and disposals of financial assets are recorded on the date of transaction, which is the day on which the company becomes legally bound to acquire or dispose of the financial assets. This does not apply to the acquisition or disposal of listed securities, which are recorded on the settlement date.

The fair value of a listed financial asset corresponds to the asset’s bid rate in the market on the balance sheet date. The fair value of unlisted financial assets, consisting of endowment insurance policies and cash, is ascertained through various valuation methods such as the use of recent transactions, the price of comparable instruments and discounted cash flows.

The values of financial assets and groups of financial assets are assessed by the company in every reporting period to discern any objective impairment. The criteria for determining the need for any impairment is primarily based on the counterparty’s officially communicated inability to meet its obligations or on its ability to pay demonstrated by experience in the financial markets.

Financial instruments are classified into categories, depending on the purpose for which each instrument was acquired. The classification is determined at the time of acquisition. The categories are as follows:

Financial assets reported at fair value in the income statement

This category contains two subgroups: financial assets held for trading and other financial assets that the company has initially chosen to place in this category. A financial asset is classified as “held for trading” if acquired for the purpose of resale in the short term. Derivatives are classified as held for trading unless they are used for hedge accounting. Assets in this category are carried at their fair value, with changes in value recognized in the income statement.

Loans receivable and accounts receivable

Loans receivable and accounts receivable are financial assets that are not derivatives but have fixed payments or determinable payments and are not listed in an active market. They are created by the company when providing money, goods or services directly to the debtor, not for the purpose of trading in the right to recover the debt. This category includes acquired receivables. Assets in this category are valued at their amortized cost. The amortized cost is determined based on the effective interest rate calculated at the acquisition date.

Held-to-maturity investments

Held-to-maturity investments are financial assets with fixed or pre-determinable payments and fixed maturity, and which the company has the express intent and ability to hold to maturity. Assets in this category are valued at their amortized cost. The amortized cost is determined based on the effective interest rate calculated at the acquisition date. Thus, surplus and deficit values as well as direct transaction costs are distributed over the instrument’s duration.

Available-for-sale financial assets

Available-for-sale assets are those financial assets that are not classified in any other category, or financial assets which the company has initially chosen to place in this category. Assets in this category are carried at their fair value, with changes in value recognized in equity, except those attributable to impairments. When the assets are disposed of and removed from the balance sheet, unrealized gains and losses in the equity are reversed to the income statement. Interest measured with the effective interest rate method, as well as dividend income and exchange rate differences, are recognized in the income statement.

Financial liabilities held for trading and other financial assets

Financial liabilities held for trading consist of interest-bearing liabilities and derivatives not used for hedge accounting. Liabilities in this category are reported at fair value, with changes in value recognized in the income statement.

Other financial liabilities

Financial liabilities not held for trading are valued at amortized cost. The amortized cost is determined based on the effective interest rate calculated at the acquisition date. Thus surplus and deficit values as well as direct issue expenses are distributed over the liability’s duration. Borrowing costs attributable to the acquisition, construction or production of assets that take a significant time to complete will be capitalized.

Cash and cash equivalents

Cash and cash equivalents consist of cash, money in demand deposits at banks and similar institutions, and short-term liquid investments with maturities shorter than three months from the date of acquisition that are exposed to minimal risk of fluctuation in value. Funds in transfer on the statement of cash flows are not treated as cash and cash equivalents. They are accounting items that PostNord transfers on behalf of customers. These funds are therefore unavailable to PostNord and may not be used by its business operations. The Funds in Transfer item fluctuates independently of operating earnings, investments and other payment streams in the business operations.

Financial investments

Financial investments are classified either as financial fixed assets or short-term investments, depending on the purpose of the investment. If the maturity or expected investment period is longer than one year, they are classified as financial fixed assets; if shorter than one year but longer than three months, they are short-term investments.

Interest-bearing securities acquired with the aim of being held to maturity belong to the category “financial investments held to maturity” and are valued at amortized cost. Interest-bearing securities that the company does not intend to hold to maturity are classified as “financial assets recognized at fair value in the income statement” or “available-for-sale financial assets”.

When assets are reported at fair value in the income statement, changes in value are recognized under net financial items.

Long-term receivables and other short-term receivables

Long-term receivables and other short-term receivables are receivables created by the company when providing money not for the purpose of trading in the right to recover the debt. Those with an expected holding period longer than one year are classified as long-term receivables, those less than one year as other short-term receivables. These receivables belong to the category Loans Receivable and Accounts Receivable.

Accounts receivable

Accounts receivable are classified under Loans Receivable and Accounts Receivable. Accounts receivable are reported at the amount expected to be received less doubtful receivables, assessed on an individual basis. Accounts receivable are written down when considered doubtful; that is, if more than 90 days past due or due from a customer with a history of payment difficulties. Accounts receivable from customers recognized as solvent and with good payment histories are not considered doubtful even if more than 90 days past due as long as the customer can be expected to pay appropriate interest. The expected maturity of accounts receivable is short, so they are reported at their non-discounted nominal value. Impairments on accounts receivable are reported under expenses.

Liabilities

Liabilities are classified as other financial liabilities and are thus initially reported at the amounts received less transaction costs. After its acquisition date, a loan is valued at its amortized cost using the effective interest rate method. Those with an expected maturity of more than one year are classified as long-term liabilities, and those of less than one year as short-term liabilities.

Accounts payable

Accounts payable are classified under other financial liabilities. The expected maturity of accounts payable is short, so they are valued at their non-discounted nominal value.

Derivatives and hedge accounting

Derivatives held by the group are in the form of forward contracts used to minimize the group’s exposure to fluctuations in exchange rates and electricity rates. Changes in the values of derivatives are recognized in the income statement, based on the purpose of the holding.

Foreign currency receivables and liabilities

Forward contracts are used to hedge assets and liabilities against foreign exchange risk. Hedge accounting is unnecessary for matching, as the hedged item is translated at the exchange rate on the balance sheet date and the hedge instrument is measured at fair value with changes in value recognized in the income statement under foreign exchange differences. PostNord thereby achieves essentially the same matching of income and expenses as through hedge accounting. Changes in value related to operating receivables and liabilities are recognized under operating profit, while changes in value related to financial receivables and liabilities are recognized under net financial items.

Transaction exposure – cash-flow hedges

Forward contracts are used to hedge exposure to fluctuations in exchange rates related to cash flows under contractual agreements. Value changes are recognized in the income statement.

Net investments

Investments in foreign subsidiaries (net assets including goodwill) are not hedged. At year-end they are translated at the exchange rate on the balance sheet date. Foreign exchange differences recognized in the parent company’s income statement are eliminated in the consolidated accounts through revaluation of the net assets in the subsidiary included in equity.

Tangible fixed assets

Owned assets

Tangible fixed assets are entered as assets on the balance sheet when it is likely that the future financial rewards of ownership will befall the company, and if the acquisition cost of the asset can be reliably determined.

Tangible fixed assets are reported at acquisition cost less accumulated depreciation and impairments. The acquisition cost consists of the purchase price as well as costs directly related to bringing the asset to the necessary place and condition for its use in accordance with the purpose of the acquisition. Examples of directly related costs included in acquisition cost are delivery and handling, installation, registration of title, consulting fees and legal fees. Loan expenses are not included in the acquisition cost of fixed assets produced by the company. Accounting principles for depreciations are described below.

Tangible fixed assets consisting of parts with different useful lives are treated as separate components of tangible fixed assets.

The reported value of a tangible fixed asset is taken off the balance sheet when the asset is discarded or disposed of, or when no further financial rewards are expected to be gained from the use or disposal/ sale of the asset. Gains or losses arising from the discarding or disposal of an asset are calculated as the difference between the sale price and the asset’s carrying value, less expenses directly related to the sale. Gains and losses are reported under other income/expenses.

Leased assets

Leases are classified in the consolidated financial statements as either finance or operational leases. Under finance leases, the economic risks and rewards associated with ownership are essentially transferred to the lessee. If such is not the case, the agreement is deemed an operational lease.

Assets leased through finance lease agreements are reported as assets in the consolidated balance sheets. Obligations to pay leasing payments in the future are reported as current and long-term liabilities. Leased assets are depreciated according to plan, while lease payments are reported as interest and amortization of the liability.

For operational leases, leasing fees are expensed during the term based on usage and thus may differ from the leasing fees actually paid during the year.

Additional costs

Additional costs related to tangible assets are added to the acquisition cost only when it is likely that the future financial rewards of the asset will befall the company and the acquisition cost can be determined reliably. All other additional costs are reported as expenses in the period in which they were incurred.

Critical to the determination of whether additional costs should be added to the acquisition cost is whether or not the charge is related to exchanges of identifiable components or subcomponents; if so, such charges are capitalized. The cost of creating a new component is also added to the acquisition cost. Any reported value of an exchanged component or subcomponent not already depreciated is discarded and recognized as an expense at the date of exchange. Repairs are expensed as they arise.

Depreciation principles

Tangible fixed assets are depreciated on a straight-line basis over the estimated useful life of the asset. Land is not depreciated. The group applies component depreciation, such that the estimated useful lives of material subcomponents are a basis for depreciation.

The depreciation periods are as follows:
Buildings, land improvements and improvements to leased properties 20–50 years
Equipment and installations for leased premises 5–10 years
Sorting equipment 5–10 years
Vehicles 4–10 years
Computer equipment 3–7 years
Other machinery and equipment 3–10 years

The residual values and estimated useful lives of assets are evaluated annually.

Intangible assets

Goodwill

Goodwill represents the difference between the acquisition cost of a subsidiary and the fair value of the acquired identifiable assets and assumed and contingent liabilities.

The group has not applied IFRS retroactively to goodwill arising from business combinations occurring prior to January 1, 2004; rather, the reported value at that date has been taken as the consolidated acquisition cost, after impairment testing.

Goodwill is measured at acquisition cost less any accumulated impairments. Goodwill is allocated to cash-generating units and is not amortized but is tested for impairment annually. Goodwill arising from the acquisition of an associated company is included in the reported value of the holding in that associated company.

Goodwill relates mainly to the acquisition of the DPD businesses in 2001, of Strålfors businesses in 2006 and of Tollpost AS. Goodwill from these acquisitions is denominated in SEK, NOK, EUR, GBP and DKK.

Capitalized development expenditures

Development-related expenditures are capitalized whenever it is deemed they will provide future financial benefits. The reported value includes direct expenses for acquired services and materials. Other development expenditures are expensed in the income statement as they arise. Capitalized development expenditures are reported on the balance sheet at acquisition cost less accumulated amortization and impairments. PostNord defines development expenditures as costs related to the development of commercially viable services and products that can be incorporated into PostNord’s offering. These costs include costs that are directly related to the newly developed offering. Development expenditures are capitalized when they satisfy IAS 38 criteria and are estimated to amount to a material sum for the overall development project. Other development expenditures are expensed as normal operating expenses.

The main criteria for capitalization are that the development efforts will lead to proven future rewards or cost savings and cash flows and that the necessary technical and financial conditions exist for completing the development work once it has been commenced.

Other development projects, such as projects related to essential ERP systems, are capitalized when they amount to or are estimated to amount to a material sum for the overall project. Otherwise, such charges are expensed.

Other intangible assets

Other intangible assets comprise acquired brands and other rights, which are reported at the acquisition cost less accumulated amortization and impairments. Straight-line depreciation is used for the term of such rights, usually 5–10 years.

Additional costs

Additional costs related to capitalized intangible assets are recognized as assets on the balance sheet only when they enhance the future financial benefits that exceed the original assessments. All other payments are expensed as they arise.

Amortization principles

Amortization is reported in the income statement on a straight-line basis over each intangible asset’s estimated useful life, where this can be ascertained. Goodwill and intangible assets with indeterminate useful lives are tested for impairment annually or as soon as there is an indication of impairment of the asset in question. Intangible assets are amortized from the date on which they were made available for use.

The following amortization periods are applied:
Capitalized, completed development efforts 5–10 years
Brands, customer relations, licenses and other rights 5–10 years

Inventory

Inventory is valued at the lower of acquisition value, determined using the first-in-first-out (FIFO) method, and net realizable value.

Impairments

The reported values of consolidated assets – with the exception of available-for-sale assets and disposal items reported in accordance with IFRS 5, investment properties, inventories, assets under management used to finance employee benefits, and deferred tax credit – are tested at each balance sheet date to discern the need for any impairment. If such indications exist, the asset’s recoverable value is calculated. The assets listed as exceptions above are tested to applicable standards.

The recoverable value of goodwill, other intangible assets with indeterminate useful lives and intangible assets not yet ready for use is calculated annually.

For impairment of financial assets, see the “Financial Instruments” section.

An impairment loss is reported when the reported value of an asset of a cash-generating unit exceeds its recoverable value. Impairment losses are reported in the income statement.

Impairments on assets related to cash-generating units are primarily allocated to goodwill. Proportional impairments are subsequently charged to all other assets in the unit.

Calculation of recoverable amount

The reported values of the group’s assets are tested at each balance sheet date to discern indications of impairment. If such indications exist, the recoverable value of individual or naturally affiliated assets is measured as the higher of the fair value less selling expenses and the useful value. The measurement of useful values is based on PostNord’s assessment of future cash flows. In the measurement of useful values, future cash flows are discounted using a discount rate that takes into account risk-free interest and the risk linked to each specific asset. The assessments are based on the corporate business plans and are augmented by other relevant information, used to enhance accuracy.

Reversal of impairments

Impairment losses on goodwill are never reversed. Impairment of other assets is reversed if there is both an indication that the impairment no longer exists and a change in the assumptions used as a basis for measuring such assets’ recoverable values.

An impairment is reversed only to the extent that the reported value of an asset, after reversal, does not exceed the reported value that the asset would have had if no impairment had been recognized, taking into account the amortization that would have been charged.

Dividends paid

Dividends are reported as liabilities after they have been approved for payment by the AGM.

Employee benefits

Pension commitments

PostNord pension commitments are met in part through defined benefit plans featuring a contractually binding promise regarding a given future pension level for employees, and in part through defined contribution plans for which premiums have been set aside and for which the employee assumes the risk as regards the future pension level. The group’s obligations with respect to defined contribution plans are reported as personnel expenses in the income statement as they accrue through the employees’ performance of their work duties. Most of the defined benefit plans consist of a pension plan set up for PostNord AB (publ) in Sweden and some smaller plans in Norway and France. Actuarial calculations are prepared for all defined benefit plans in accordance with the “projected unit credit method” in an effort to establish the present value of commitments concerning benefits for current and former employees. Actuarial calculations are prepared annually and are based on actuarial assumptions, which are made at the end of the fiscal year. These assumptions cover inflation, changes in the income base amount, personnel turnover, discount rates, rates of return and life expectancy.

The group’s net commitments consist of the estimated present value of pension commitments less the fair value of assets under management. Changes in the present value of commitments owing to changed actuarial assumptions are treated as actuarial gains or losses. Actuarial gains and losses are reported in other comprehensive income. Pension provisions and similar commitments appearing on the Group’s balance sheet equal the commitments’ present value at fiscal year-end, less the fair value of assets under management including special payroll tax. A liability is reported if the value of the commitment exceeds the value of assets under management. If assets under management exceed commitments, an asset is reported in the consolidated balance sheet. If the pension cost and pension provision set for Swedish plans deviate from the corresponding amount in accordance with RedR 4, the difference is also reported for special payroll tax in accordance with UFR 4 (originally published as URA 43). For pensions and similar benefits financed through defined contribution plans, amounts corresponding to PostNord’s annual fees for the plans are reported.

Severance pay

Provisions for severance pay are made only if PostNord can be proven to have committed to terminate an employment contract before its expiration, without a reasonable possibility of withdrawal. If compensation is paid for voluntary termination, a provision is reported when the offer has at least been accepted by the concerned parties’ representative and when the number of employees that will accept the offer can be reliably calculated. When PostNord terminates employee contracts, a detailed plan is prepared covering workplaces, positions and the estimated number of employees affected, as well as compensation paid to each personnel group or position and the period of implementation of the plan.

Provisions

Provisions are made for commitments resulting from an event and for binding loss contracts, in which it is probable that an outflow of resources will be needed to settle the commitment. Provisions are reported in the balance sheet when there is a legal or informal obligation to do so and when the amount can be determined reliably. Provisions for restructuring are made when an adequately detailed plan is in place and has been communicated in a fashion that creates firm expectations among stakeholders, or their representatives, who will be affected by the measures.

Taxes

Tax on net earnings is comprised of current tax and deferred tax. Taxes are recognized in the income statement except when the underlying transaction is recognized directly in equity, provided that the subsequent tax effect is also reported in equity. Current tax is the tax calculated on the year’s taxable income. Adjustments of current tax attributable to earlier periods are also included.

Deferred tax is calculated in accordance with the balance sheet method, based on the temporary differences between the reported and taxable values of assets and liabilities. The amounts are calculated based on how temporary differences are expected to be equalized, and by applying the tax rates and tax regulations that have been decided or announced as of fiscal year-end. Temporary differences are not treated in consolidated goodwill. Legal entities report untaxed reserves including the deferred tax liability. In the consolidated financial statements, untaxed reserves are divided into deferred tax liability and equity. Deferred tax assets in deductible temporary differences and loss carry-forwards are reported only to the extent that it is probable that they will lead to lower tax disbursements in the future. Assessment of this probability is based on data contained in PostNord’s business plans.

Pledge assets and contingent liabilities

Contingent liabilities are reported when there is a possible commitment arising from an event, the fulfillment of which can only be confirmed by one or more uncertain future events. Contingent liabilities are also reported when there is a commitment that is not reported as a liability or provision because an outflow of resources is not likely to be required. Pledged assets are reported for given guarantees and assets pledged as securities.

Transactions with associated parties

The company’s disclosure of transactions with the Swedish and Danish states has been limited to reports of a non-commercial nature; consequently, specific commissions from the state and licenses from authorities have been reported as related party transactions.

The group’s consolidated balance sheet as of January 1, 2013 has been adjusted as follows: