Span d.d.

Annual Report (ESEF) • Apr 29, 2022

SPAN d.d., Zagreb Annual Report for the year ended 31 December 2021 This version of annual report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the annual report takes precedence over this translation. Contents Page Annual Management Report 1 Responsibility of the Management Board for the Annual Report 5 Independent Auditor's Report Financial statements Statement of comprehensive income 12 Statement of financial position 13 Statement of changes in shareholder’s equity 14 – 15 Statement of cash flows 16 Notes to the financial statements 17 – 84 Annual Management Report SPAN d.d. and its subsidiaries 1 Annual Management Report The Management Board of Span d.d. Zagreb (“Company” or “parent company”) presents separate and consolidated financial statements of the Company for the year ended 31 December 2021. Consolidated financial statements include financial data of the Company and its subsidiaries that make up the Span Group (“Group”). The Management Board of the Company believes that the consolidated financial statements for the period from 1 January to 31 December 2021 have been prepared based on applicable standards and thus provide a comprehensive and truthful overview of assets and liabilities and the financial position and business operations of the Group and Company. The Annual Management Report contains a truthful overview of the development, business results, and financial position of the Group and Company, with a description of the most significant risks to which the Group and Company are exposed. Principal activity The principal activity of the Group and Company is to provide professional services of design, construction, and maintenance of information systems to medium and large users. In its 29 years of operation, the Company developed from a Croatian IT system integrator into a Group that today, together with its 40 international partners, operates with more than 1200 clients on 100 markets on six continents. In 1996 the Company became the first Croatian certified Microsoft solutions provider and in 2001 the Group and Company became a Microsoft Gold Certified Partner and the leading Microsoft partner on the Croatian market. In addition to Microsoft’s technology, the Group and Company base their solutions on technologies of other first-class producers, and own the following accreditations and certificates: • HPE Certified Gold Partner • HPE Aruba Gold partner • Cisco Premier Integrator • Dynatrace Master Partner • Symantec Silver Partner • Veeam Silver Pro Partner • Palo Alto Partner • Fortinet Select Partner • IBM Registered Business Partner • HP Gold Partner • Sophos Gold Partner • Kemp Authorized Partner • Poly Partner • AWS Select Consulting Partner • Google Cloud Partner Key events in 2021 In 2021 the Company started actively preparing for its stock market launch and listing Company shares on the official market of the Zagreb Stock Exchange. On 24 May 2021, the Company’s General Assembly adopted the Decision on listing all of its 1,960,000 shares on the regulated market of Zagrebačka burza d.d., and the Management Board of the Company adopted the Decision on the sale of 578,200 own shares in a public offering. The Public Offering took place from 6 to 10 September 2021 and all of the 578,200 own shares offered were sold (29.5%) at the maximum price of HRK 175 of the range offered (HRK 160 – HRK 175). On 21 September 2021, Zagrebačka burza d.d. and the Company signed a contract on listing Company shares on the Official market of Zagrebačka burza d.d. All of the 1,960,000 regular shares were listed, with individual nominal value of HRK 10.00, registered with CDCC in book-entry form under: • security identifier code SPAN-R-A; and • ISIN code HRSPANRA0007. The first day of trading SPAN shares was 23 September 2021. Annual Management Report (continued) SPAN d.d. and its subsidiaries 2 Key events in 2021 (continued) After a successful Public Offering and the beginning of trading on the Zagreb Stock Exchange, in line with the expansion strategy for Eastern European and Central Asian markets, another group member – Span-IT s.r.l., registered office in Chișinău, Moldova – was established in June, and officially registered in July 2021. Span LLC Ukraine received the “ Microsoft Best LSP partner for Ukraine ” award, for partners delivering state-of- the-art solutions using Microsoft technologies, which reconfirmed the Group’s competences and innovative user solutions. Proof of excellence of both the Group and Company is another (ninth) Microsoft advanced specialisation – SAP on the Microsoft Azure platform, achieved by the Group and Company based on their advanced knowledge, comprehensive experience and proved success in implementing SAP solutions in the Azure Cloud environment. 2021 strategy The business growth strategy of the entire Group and Company is primarily focused on expanding business activities with high added value, including IT services from the following business segments: • Infrastructure services – Cloud & Cyber Security • Services management and customer support; and • Software and business solutions development. The expected growth is based on the geographic expansion to new foreign markets of Eastern Europe and Central Asia for which the Group has a Microsoft LSP partner status, but also on further organic growth in existing markets in all business segments. 2022 strategy In line with the strategy detailed above, in 2022 the Group and Company also expect to further increase their revenue by introducing new products and services to the domestic market, increase their export of services to the global market, and increase their revenue by expanding to markets in which they operate. The strategic framework also entails a closer cooperation with existing key international clients (increasing the number and types of services), as well as developing a Span.zone digital platform enabling a completely autonomous purchase, activation, management, and maintenance of Cloud licences and services. Research and development activities Development expenditure generally refers to own developed intangible assets with the cooperation of several members of the Group. The total worth of intangible assets of the Group referring to development expenditure amounts to HRK 7,543 thousand (HRK 6,908 thousand for the Company). In 2021, on the level of the Group, a total of HRK 43 thousand was activated in the ‘Software development’ item (Company: –) (note 18). Financial instruments The Group and Company do not use financial instruments that affect the assessment of financial position and performance. The Company and Group are primarily exposed to the financial risks of changes in foreign currency exchange rates and interest rates, as further described in the note Financial instruments (note 35). The Company and Group’s Corporate Treasury function supports operations, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company and Group. Financial assets of the Group and Company mainly consist of receivables and cash assets in accounts, while financial liabilities predominantly refer to short-term and long-term borrowings from banks, short-term and long- term lease liabilities, and trade payables. Annual Management Report (continued) SPAN d.d. and its subsidiaries 3 Purchases of own shares In 2019, the Company purchased 27.14% of own shares from a single owner and provisions of HRK 25,000 were made. As at 31 December 2020, the Company owned a total of 34.57% of own shares. In April 2021, the Company allocated 6,850 of own shares to employees. The Company sold all of the 578,200 offered own shares (29.5%) at the price of HRK 175 in the Public Offering in September 2021. In line with Article 222.a (2) of the Companies Act, the Company cancelled the reserves for own shares sold in the IPO and recorded the amount in retained earnings. Company and Group branches The Company and Group have no branches. Group companies SPAN d.o.o. Ljubljana began operations in 2014, offering a wide range of products, services, and solutions on the Slovene market. The company SPAN d.o.o. Ljubljana expanded to providing services in the IT solution segment, having formed a specialised team dedicated precisely to that area. This company is expected to further grow in the following period and enjoys strong support and know-how of the parent company. Span IT Ltd. London began operations in 2010 as a sales representative of the Company and significantly contributed to the growth in export of services and solutions to the market in Great Britain. In 2022, the export of professional services to the market in Great Britain is expected to further increase. SPAN USA, Inc., began operations in 2014 as a sales representative and local technical support centre for USA customers. Further increase in revenue in the USA is expected in 2022 as a direct result of the operations of this office. Digitalni ured d.o.o. began operations in 2011 and was merged with the Company Span on 30/12/2020. Trilix d.o.o. maintained its position of electronic goods processor. The consulting department provides advisory services in managing the organisation and risks, and reconciling business processes with rules and regulations in the IT area. InfoCumulus d.o.o. is wholly owned by the Company since 2017, it achieved positive business results in 2021, and was merged with the Company on 17 February 2022 (note 36). BonsAI d.o.o., a company specialised in developing AI software solutions, began operations in 2017, achieved positive results in 2021, and is 70%-owned by the Company. Further expansion of operations, combined with an increase in income and profitability, is expected in 2022. Furthermore, in 2016, the Company established the subsidiary Span Azerbaijan LLC in Azerbaijan, through which it plans to expand its offer of services and know-how to that market as well. In 2018 the company MMC d.o.o. was recapitalised and the Company acquired 40% business shares, while the 2020 recapitalisation resulted in the Company acquiring 70% business shares. On 30 April 2021, the Company sold its business shares to a third party, thus making MMC d.o.o. no longer a member of the Group. In 2018 the Company established two subsidiaries that it wholly owns: LLC Span, Kiev, Ukraine and Span GmbH, Munich, Germany, in order to expand the markets in which it plans to offer its services and know-how. In 2019 the Company established the subsidiary SPAN SWISS AG, Switzerland, through which it plans to expand its offer of services and know-how to that market as well. In July 2021, the Company officially established another Group member – Span-IT s.r.l., with its registered office in Chișinău, the capital of Moldova. Moldova has a slightly smaller market than Croatia, but with a strategy for stronger inclusion in Western and European integration processes and an advanced digitalisation level. Responsibility for the Annual Report SPAN d.d. and its subsidiaries 4 Supervisory Board 1. Jasmin Kotur, Chairman of the Supervisory Board since 16 December 2019 2. Aron Paulić, Vice-Chairman of the Supervisory Board since 5 November 2021 3. Ante Mandić, member of the Supervisory Board since 30 September 2020 4. Zvonimir Banek, member of the Supervisory Board since 13 December 2019 Management Board: Members of the Management Board since 1 January 2021 until the date of signature of these financial statements were: 1. Nikola Dujmović, President of the Management Board 2. Marijan Pongrac, member of the Management Board 3. Dragan Marković, member of the Management Board 4. Antonija Kapović, member of the Management Board 5. Saša Kramar, member of the Management Board Damir Bočkal ceased to be a member of the Management Board on 30 November 2021. In Zagreb, 29 April 2022, signed by the Management Board: Nikola Dujmović Marijan Pongrac Dragan Marković President of the Management Board Member of the Management Board Member of the Management Board Antonija Kapović Saša Kramar Member of the Management Board Member of the Management Board Responsibility for the Annual Report SPAN d.d. and its subsidiaries 5 The Management Board is responsible for ensuring that financial statements are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (“IFRS”) to give a truthful and objective review of the financial position and the results of the business operations of SPAN d.d. (“the Company”) and its subsidiaries (“the Group”) for that period. After making enquiries, the Management Board has a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the financial statements of the Group and Company. When preparing the financial statements, the Management Board is responsible for: ▪ selecting and then consistently applying suitable accounting policies; ▪ making reasonable and prudent judgements and estimates; ▪ following applicable accounting standards, disclose and explain any material departures in the financial statements; and ▪ preparing the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Management Board is responsible for keeping proper accounting records, which shall at any time reflect with reasonable accuracy the financial position and the results of operations of the Group and Company and their compliance with the Accounting Act. The Management Board is also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In line with Article 21 and 24 of the Accounting Act, the preparation of the Management Report is the responsibility of the Management Board. Signed by the members of the Management Board: For SPAN d.d.: SPAN d.d. Koturaška cesta 47 Zagreb Republic of Croatia 29 April 2022 President of the Management Board Member of the Management Board Member of the Management Board Nikola Dujmović Marijan Pongrac Dragan Marković Member of the Management Board Member of the Management Board Antonija Kapović Saša Kramar The Company is registered at the Commercial Court in Zagreb under the registration number (MBS): 030022053; paid-in share capital: HRK 44,900.00 kuna; Company directors: Marina Tonžetić, Dražen Nimčević, Katarina Kadunc, bank: Privredna banka Zagreb d.d., Radnička cesta 50, 10 000 Zagreb, bank account no. 2340009– 1110098294; SWIFT Code: PBZGHR2X IBAN: HR3823400091110098294. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about for a detailed description of DTTL and its member firms. © 2022 For more information, please contact Deloitte Croatia. INDEPENDENT AUDITOR'S REPORT To the shareholders of SPAN d.d., Zagreb Statement of Audit of the Financial Statements Qualified Opinion We have audited the separate and consolidated financial statements of the company SPAN d.d., Zagreb (“the Company”) and its subsidiaries (“the Group”), which comprise the separate and consolidated statement of financial position as at 31 December 2021, separate and consolidated statement of comprehensive income, separate and consolidated statement of changes in equity and separate and consolidated statement of cash flows for the year then ended, and notes to the separate and consolidated financial statements, including a summary of significant accounting policies (“financial statements”). In our opinion, other than in case of matters described in the Basis for Qualified Opinion section, the accompanying financial statements present fairly, in all material respects, the separate and consolidated financial position of the Group and Company as at 31 December 2021, their separate and consolidated financial performance, and their separate and consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards as adopted by the European Union (“IFRSs”). Basis for Qualified Opinion Group Investment in net assets of the subsidiary SPAN LLC, Kiev, Ukraine We draw attention to note 36 to the consolidated financial statements. The Group consolidates net assets of the subsidiary SPAN LLC, Kiev, Ukraine (“SPAN Ukraine”). On account of ongoing military operations in Ukraine, we were not able to conduct audit procedures in compliance with International Standards on Auditing (ISAs), in particular ISA 600: Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) for the financial information of SPAN Ukraine for the year ended 31 December 2021. With reference to this matter, we were not able to determine the existence of necessary adjustments to the consolidated financial statements of the Group that refer to SPAN Ukraine and their impact on the consolidated financial statements. Emphasis of Matter Group and Company Military operations in Ukraine We draw attention to note 36 to the financial statements detailing the assessment of the Management Board of the real or potential impacts of the military confrontation between Ukraine and Russia on the Group and Company. Our opinion is not qualified in respect of this matter. We conducted our audit in accordance with the Audit Act and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) and have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. Deloitte d.o.o. ZagrebTower Radnička cesta 80 10 000 Zagreb Croatia Company ID: 11686457780 Tel.: +385 (0) 1 2351 900 Fax: +385 (0)1 2351 999 www.deloitte.com/hr INDEPENDENT AUDITOR'S REPORT (continued) Statement of Audit of the Financial Statements (continued) Other Matters The financial statements of the Company for the year ended 31 December 2020 were audited by another auditor, who gave an unmodified opinion on 31 March 2021. Key Audit Matters Other than matters described in the Basis for Qualified Opinion section, we determined that there were no other key audit matters to be disclosed in our report. Other Information The Management Board is responsible for other information. Other information comprises the information included in the Annual Report but does not include the financial statements and our Independent Auditor's Report. Our opinion on the annual financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. With respect to the Management Report and the Corporate Governance Statement, which are included in the Annual Report, we have also performed the procedures prescribed by the Accounting Act. These procedures include the examination of whether the Management Report and Corporate Governance Statement include required disclosures as set out in the Articles 21 and 22 and 24 of the Accounting Act and whether the Corporate Governance Statement includes the information specified in the Articles 22 and 24 of the Accounting Act. Based on the procedures performed during our audit, to the extent we are able to assess it, we report that: 1. Information included in the other information is, in all material respects, consistent with the accompanying financial statements; 2. Management Report has been prepared, in all material respects, in accordance with Article 21 and 24 of the Accounting Act; 3. Corporate Governance Statement has been prepared, in all material aspects, in accordance with Article 22, paragraph 1, points 3 and 4 of the Accounting Act, and also includes the information from Article 22, paragraph 1, points 2, 5, 6 and 7 and Article 24, paragraph 2 of the same Act. If we, based on our work done on the other information, conclude that there were material misstatements in the other information, we are required to report this fact. In line with the impacts detailed in the Basis for Qualified Opinion section, we were not able to conclude whether the other information was materially misstated or not with regard to these matters. Except for the effects and potential effects of the matters described in the Basis for Qualified Opinion section of our report and based on the knowledge and understanding of the Group and Company and their environment, which we gained during our audit of the financial statements, we have not identified material misstatements in the other information. Responsibilities of the Management Board and Those Charged with Governance for the Financial Statements The Management Board is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS and for such internal controls as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Management Board is responsible for assessing the Group and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Group and Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. INDEPENDENT AUDITOR'S REPORT (continued) Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and the Company's internal control; • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management; • Conclude on the appropriateness of the Management Board's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group and Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in the financial statements about the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial statements. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Company to cease to continue as a going concern; • Evaluate the overall presentation, structure, and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation; • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the Group audit. We are solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we are required to determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless a law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. INDEPENDENT AUDITOR'S REPORT (continued) Reporting in line with Other Legal and Regulatory Requirements Reporting based on the requirements of the Delegated Regulation (EU) 2018/815 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (“ESEF”) Auditor’s reasonable assurance report on the compliance of financial statements, prepared in line with the provision of Article 462 (5) of the Capital Market Act by applying the requirements of the Delegated regulation (EU) 2018/815 prescribing the single electronic reporting format for issuers (“ESEF Regulation”) We undertook a reasonable assurance engagement on whether the financial statements of SPAN d.d. for the financial year ended 31 December 2021, prepared for publication in line with Article 462 (5) of the Capital Market Act, in the electronic file [747800L0D5F39CX8NA43-2021-12-31-en] , have been prepared in all material aspects in compliance with the requirements of the ESEF Regulation. Responsibilities of the Management Board and Those Charged with Governance The Management Board is responsible for the preparation and content of financial statements prepared in line with the ESEF Regulation. In addition, the Management Board is responsible for maintaining an internal control system enabling the preparation of ESEF documents that are free from material misstatement, whether due to fraud or error. The Management Board of the Company are also responsible for: • preparing financial statements contained in the annual report in a valid XHTML format • selecting and using XBRL markups in line with the requirements of the ESEF Regulation. Those charged with governance are responsible for overseeing the preparation of financial statements in ESEF format as part of the financial reporting process. Auditor’s Responsibility Our responsibility is to carry out a reasonable assurance engagement and to express a conclusion, based on audit evidence collected, on whether the financial statements have been prepared without material departures from the requirements of the ESEF Regulation. We conducted our limited assurance engagement in line with the International Standard on Assurance Engagements (ISAE) 3000 (Revised) – Assurance Engagements Other than Audits or Reviews of Historical Financial Information . This standard requires that we plan and perform the engagement to obtain reasonable assurance for providing a conclusion. Quality assurance We have conducted the engagement in compliance with independence and ethical requirements as provided by the Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants. The code is based on the principles of integrity, objectivity, professional competence and due diligence, confidentiality, and professional conduct. We are in compliance with the International Standard on Quality Control (ISQC 1) for audits and reviews of financial statements, and other assurance and related services engagements and accordingly maintain an overall management control system, including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and statutory requirements. T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. INDEPENDENT AUDITOR'S REPORT (continued) Reporting in line with Other Legal and Regulatory Requirements (continued) Reporting based on the requirements of the Delegated Regulation (EU) 2018/815 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (“ESEF”) (continued) Procedures carried out We carried out the following procedures: • We have read the requirements of the ESEF Regulation; • We have gained an understanding of the internal controls of the Company relevant for the application of the ESEF Regulation; • We have identified and assessed the risks of material non-compliance with the ESEF Regulation, due to fraud or error; • As a result, we designed appropriate procedures as a response to risks identified and for obtaining reasonable assurance for the purpose of expressing our opinion. The aim of our procedures was to assess whether: • The financial statements, included in the annual reports, were prepared in a valid XHTML format; • The data contained in the financial statements, as defined in the ESEF Regulation, were marked up and all of the markups meet the following requirements; • XBRL language was used for markups: o Elements of core taxonomy provided in the ESEF Regulation were used, unless an extended taxonomy element was used in line with Annex IV to the ESEF Regulation; o Markups comply with the Common rules on markups from the ESEF Regulation. We believe the audit evidence we obtained to be sufficient and appropriate to provide a basis for our conclusion. Conclusion Based on the procedures carried out and evidence obtained, we believe that the Company and Group’s financial statements in ESEF format, provided in the file cited above, and in line with the provision of Article 462 (5) of the Capital Market Act, have been prepared in all material aspects in compliance with the requirements of Article 3, 4, and 6 of the ESEF Regulation for the year ended 31 December 2021. In addition to this conclusion and the opinion provided in this Independent Auditor's Report on the accompanying financial statements and annual report for the year ended 31 December 2021, we shall not express an opinion on the information contained therein or other information contained in the previously cited file. T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. INDEPENDENT AUDITOR'S REPORT (continued) Reporting in line with Other Legal and Regulatory Requirements (continued) Other Regulatory Requirements of Regulation (EU) No. 537/2014 of the European Parliament and the Council and Audit Act We were appointed as the statutory auditor of the Group and Company by the shareholders on 18 June 2021 to perform the audit of accompanying financial statements. Our total uninterrupted Group engagement has lasted 4 years and covers the period from 1 January 2018 to 31 December 2021. Our total uninterrupted Company engagement has lasted for a year and covers the period from 1 January 2021 to 31 December 2021. We confirm that: • Our audit opinion on the accompanying financial statements is consistent with the additional report issued to the Audit Committee of the Company on 29 April 2022 in accordance with the Article 11 of Regulation (EU) No. 537/2014 of the European Parliament and the Council; • No prohibited non-audit services referred to in Article 5 paragraph 1 of Regulation (EU) No. 537/2014 of the European Parliament and the Council were provided. In addition to the statutory audit services, we provided the following service to the Company and its controlled undertakings: • Independent limited assurance report on the 2021 remuneration report, based on the provisions of Article 272.r (3) of the Companies Act. The engagement partner on the audit resulting in this independent auditor's report is Marina Tonžetić. Marina Tonžetić Director and Certified Auditor Deloitte d.o.o. 29 April 2022 Radnička cesta 80 10 000 Zagreb Republic of Croatia T his version of our audit report is a translation from the original, which was prepared in the Croatian language. 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, views or opinions, the original language version of the report takes precedence over this translation. Statement of comprehensive income for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 12 Group Company 2021 2020 2021 2020 HRK‘000 HRK‘000 HRK‘000 HRK‘000 Notes Revenue from contracts with customers 5 767,273 610,022 542,238 412,611 Other operating income 6 6,851 3,735 2,694 2,745 Costs of goods sold 7 ( 507,619 ) ( 397,504 ) ( 328,938 ) ( 246,356 ) Raw materials and supplies 8 ( 3,147 ) ( 3,042 ) ( 2,620 ) ( 2,440 ) Services costs 9 ( 71,496 ) ( 51,361 ) ( 58,814 ) ( 38,997 ) Staff costs 10 ( 138,584 ) ( 118,912 ) ( 110,055 ) ( 91,649 ) Amortisation expense 11 ( 15,594 ) ( 14,196 ) ( 13,029 ) ( 12,706 ) Impairment losses (including reversals of impairment losses) on financial assets and contract assets 23 ( 333 ) ( 967 ) ( 85 ) ( 947 ) Other expenses 12 ( 10,419 ) ( 10,482 ) ( 8,877 ) ( 7,834 ) Finance costs 13 ( 5,141 ) ( 11,455 ) ( 4,140 ) ( 9,061 ) Finance income – interest income 14 506 481 264 12 Finance income – other 14 5,608 3,855 3,784 2,734 Profit before tax 27,906 10,174 22,421 8,111 Income tax 15 ( 4,082 ) ( 2,722 ) ( 3,061 ) ( 1,616 ) Profit for the year 23,824 7,452 19,359 6,496 Attributable to: Owners of the Company 23,719 7,798 - - Non-controlling interests 105 ( 346 ) - - 23,824 7,452 19,359 6,496 Other comprehensive income for the year Gain/(loss) on property and land revaluation 19 9,705 - 9,705 - Income tax on property and land revaluation 25 ( 1,747 ) - ( 1,747 ) - Items that may be reclassified subsequently to profit or loss: Foreign exchange differences on translation of foreign operations 832 ( 766 ) - - Total comprehensive income attributable to: Owners of the Company 32,509 7,032 27,317 6,496 Non-controlling interests 105 ( 346 ) - - Earnings/loss per share (HRK) Basic (HRK and lp) 16 15.54 60.81 12.68 50.65 Diluted (HRK and lp) 16 15.54 60.81 12.68 50.65 Statement of financial position as at 31 December 2021 SPAN d.d. and its subsidiaries 13 Group Company Note 31/12/2021 31/12/2020 31/12/2021 31/12/2020 HRK ‘000 HRK ‘000 HRK ‘000 HRK ‘000 Assets Non-current assets Goodwill 17 19,466 19,758 10,781 10,781 Other intangible assets 18 8,614 9,691 7,706 8,514 Property, plant and equipment 19 41,416 32,749 39,666 31,156 Right-of-use assets 20 17,015 10,126 13,456 10,126 Investments in financial assets 21 866 1,914 356 428 Investments in subsidiaries 21.1 - - 27,769 26,986 Long-term trade receivables 4 14 4 14 Deferred tax assets 25 7,729 8,498 6,952 7,902 Total non-current assets 95,110 82,749 106,690 95,907 Current assets Inventories 22 2,026 520 1,972 127 Investments in financial assets 21 879 57 - - Trade and other receivables 23 113,760 116,501 82,322 92,442 Cash and bank balances 32 139,791 29,585 126,920 16,032 Total current assets 256,457 146,664 211,214 108,601 Total assets 351,568 229,413 317,904 204,508 Equity and liabilities Capital and reserves Share capital 28 19,600 19,600 19,600 19,600 Legal reserves 29 79,084 - 79,084 - Profit reserves 28 8,252 8,477 7,413 8,072 Revaluation reserves – Property 30 15,954 8,451 15,954 8,451 Translation reserve of foreign operations 267 ( 565 ) - - Other capital items ( 6,477 ) ( 6,477 ) - - Retained earnings 75,909 24,989 70,866 23,870 Equity attributable to owners of the Company 192,590 54,475 192,917 59,993 Non-controlling interests 31 1,153 1,049 - - Total equity 193,743 55,524 192,917 59,993 Non-current liabilities Borrowings 24 6,895 14,113 6,895 14,113 Deferred tax liability 25 3,502 1,855 3,502 1,855 Lease liabilities 26 10,847 6,285 8,566 6,285 Contractual liabilities 34 10,186 15,277 10,186 15,277 Total non-current liabilities 31,430 37,531 29,149 37,531 Current liabilities Trade and other payables 27 96,478 90,416 69,511 65,258 Lease liabilities 26 7,140 4,409 5,957 4,409 Borrowings 24 9,082 32,817 7,213 31,546 Contractual liabilities 34 5,052 4,070 5,052 4,070 Deferred income 33 8,643 4,646 8,107 1,701 Total current liabilities 126,395 136,358 95,838 106,984 Total liabilities 157,825 173,889 124,987 144,515 Total equity and liabilities 351,568 229,413 317,904 204,508 Statement of changes in shareholder’s equity for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 14 Group Share capital Legal reserves Reserves from profits Revaluation reserves – Property Other capital items Translation reserve of foreign operations Retained earnings Owners of the parent company Non-controlling interests Total HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 Balance at 1 January 2020 19,600 - 8,494 8,906 ( 6,477 ) 201 16,720 47,444 1,425 48,868 Increase in non-controlling interest by concluding a contract - - - - - - - - ( 30 ) ( 30 ) Transferred to legal reserves - - ( 17 ) - - - 17 - - - Profit for the year - - - - - - 7,798 7,798 ( 346 ) 7,452 Other comprehensive income for the year, net of income tax - - - ( 455 ) - ( 766 ) 455 ( 766 ) - ( 766 ) Total comprehensive income - - - ( 455 ) - ( 766 ) 8,252 7,032 ( 346 ) 6,686 Balance at 31 December 2020 19,600 - 8,477 8,451 ( 6,477 ) ( 565 ) 24,989 54,475 1,049 55,524 Transferred to legal reserves - - ( 224 ) - - - 224 - - - Profit for the year - - - - - - 23,719 23,719 105 23,824 Changes in revaluation reserves - - - ( 455 ) - - 455 - - - Changes in other non-controling interest - ( 19,328 ) - - - - 19,328 - - - Dividend paid - - - - - - ( 1,539 ) ( 1,539 ) - ( 1,539 ) IPO and other distributions - 98,412 - - - - 8,733 107,145 - 107,145 Other comprehensive income for the year, net of income tax - - - 7,958 - 832 - 8,790 ( 1 ) 8,789 Total comprehensive income - - - 7,958 - 832 23,719 32,509 104 32,613 Balance at 31 December 2021 19,600 79,084 8,252 15,954 ( 6,477 ) 267 75,909 192,590 1,153 193,743 In 2017, the Group acquired all of the remaining shares in the subsidiary InfoCummulus d.o.o. The difference in the consideration given to non-controlling interest and the net carrying value of non-controlling interest is recognised in other capital items. Statement of changes in shareholder’s equity for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 15 Company Share capital Legal reserves Reserves from profits Revaluation reserves – Property Retained earnings Total HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 Balance at 1 January 2020 19,600 - 7,985 8,906 15,668 52,159 Increase in non-controlling interest by concluding a contract - - - - - - Transferred to legal reserves - - 88 - ( 88 ) - Profit for the year - - - - 6,496 6,496 Effects of merger - - - - 1,339 1,339 Other comprehensive income for the year, net of income tax - - - ( 455 ) 455 - Total comprehensive income - - - ( 455 ) 8,290 7,835 Balance at 31 December 2020 19,600 - 8,072 8,451 23,870 59,993 Transferred to legal reserves - - ( 660 ) - 660 - Profit for the year - - - - 19,359 19,359 Changes in revaluation reserves - - - ( 455 ) 455 - Changes in other non-controling interest - ( 19,328 ) - - 19,328 - Dividend paid - - - - ( 1,539 ) ( 1,539 ) IPO and other distributions - 98,412 - - 8,733 107,145 Other comprehensive income for the year, net of income tax - - - 7,958 - 7,958 Total comprehensive income - - - 7,958 19,359 27,317 Balance at 31 December 2021 19,600 79,084 7,413 15,954 70,866 192,917 Cash flow statement for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 16 Group Company 31/12/2021 31/12/2020 31/12/2021 31/12/2020 Note HRK ‘000 HRK ‘000 HRK ‘000 HRK ‘000 Profit for the year before tax 27,906 10,174 22,421 8,111 Adjusted by: Finance income 14 ( 506 ) ( 481 ) ( 264 ) ( 12 ) Finance costs 13 1,744 2,501 1,497 2,319 Depreciation of property, plant and equipment 11 4,806 4,880 4,038 3,939 Depreciation of right-of-use assets 11 7,229 6,050 5,980 6,049 Amortisation of intangible assets 11 3,559 3,267 3,011 2,718 Impairment losses, net of reversals, on financial assets 23 333 967 85 947 Gains and losses on sales and value adjustments of tangible and intangible assets ( 208 ) - ( 163 ) - Net carrying value of disposed property, plant and equipment 19 64 548 62 809 Net carrying value of intangible assets 18 330 1,425 - 214 Net carrying value of right-of-use assets 20 - 275 - - Impairment of property, plant and equipment 19 - 119 - - Decrease in non-controlling interests 31 - ( 30 ) - - Operating cash flows before movements in working capital 45,257 29,695 36,667 25,095 Decrease/(increase) in inventories ( 1,506 ) 969 ( 1,846 ) 1,277 Decrease/(increase) in trade and other receivables 14,015 ( 11,426 ) 20,269 ( 9,802 ) Increase/(decrease) in trade and other payables 7,972 35,958 5,295 29,088 Increase/(decrease) in contractual liabilities ( 4,110 ) ( 3,828 ) ( 4,110 ) ( 2,869 ) Increase/(decrease) in deferred income ( 4,537 ) ( 3,740 ) ( 837 ) 6,712 Cash generated from operations 57,091 47,628 55,438 49,502 Income tax paid ( 1,319 ) - - ( 529 ) ( 1,776 ) Net cash from operating activities 55,772 - 47,628 54,909 47,726 Investing activities Purchases of property, plant and equipment 19 ( 3,747 ) ( 2,897 ) ( 2,906 ) ( 2,014 ) Purchases of intangible assets 18 ( 2,525 ) ( 1,607 ) ( 2,203 ) ( 1,505 ) Establishment of a subsidiary - - ( 374 ) - Increasing share in subsidiaries - - - ( 30 ) Net cash (used in)/from investing activities ( 6,272 ) ( 4,504 ) ( 5,482 ) ( 3,549 ) Financing activities Dividends paid ( 1,539 ) - ( 1,539 ) - Interest paid ( 873 ) ( 2,379 ) ( 868 ) ( 2,379 ) Transaction costs associated with loans and borrowings - - - ( 678 ) Repayments of loans and borrowings 24 ( 84,130 ) ( 124,383 ) ( 80,841 ) ( 124,353 ) Cash receipts from loans and borrowings 24 53,060 103,765 49,175 103,594 Repayment of lease liabilities ( 6,928 ) ( 6,207 ) ( 5,583 ) ( 6,207 ) Cash receipts from sale of own shares 101,116 - 101,116 - Net cash (used in)/from financing activities 60,706 ( 29,204 ) 61,461 ( 30,022 ) Net increase/(decrease) in cash and cash equivalents 110,206 13,921 110,888 14,154 Cash and cash equivalents at the beginning of the year 29,585 15,664 16,032 1,878 Cash and cash equivalents at the end of the year 32 139,791 29,585 126,920 16,032 Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 17 1. General information The company SPAN d.d. (“the Company”) is a joint stock company incorporated in the Republic of Croatia . The ultimate controlling parties of the company are Nikola Dujmović, President of the Management Board, and members of the Management Board: Marijan Pongrac, Dragan Marković, Antonija Kapović and Saša Kramar. These financial statements are presented in the Croatian kuna (HRK) and are rounded to the nearest thousand. Foreign operations have been included in line with the policies detailed in note 3. The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group‘s operations are provided below. a. SPAN d.d. The company SPAN d.d., company registration number: 080192242, was established in line with laws and regulations of the Republic of Croatia as a limited liability company on 23 March 1993. On 13 December 2019, the General Assembly adopted the Decision on transforming the company into a joint stock company. Registered office: Zagreb, Koturaška cesta 47 Management Board: Nikola Dujmović, President of the Management Board, and the members Marijan Pongrac, Dragan Marković, Antonija Kapović and Saša Kramar The Company’s core activities are the following: Publishing and printing; Manufacture of office machinery and computers; Renting of office machinery and equipment, including computers; Computing and related activities; Business and other management consulting services. b. Trilix d.o.o. The company Trilix d.o.o., Zagreb, company registration number: 080621127, was established in line with laws and regulations of the Republic of Croatia as a limited liability company on 8 August 2007. Registered office: Ulica grada Vukovara 269F Management Board: Mladen Amidžić , President of the Management Board, and Nikola Dujmović, member The company’s core activities are the following: IT security consultancy; Business and other management consulting services; and Computing and related activities. Trilix d.o.o. maintained its position of a leading electronic goods processor. The consulting department provides advisory services in managing the organisation and risks, and reconciling business processes with rules and regulations in the IT area. c. INFOCUMULUS d.o.o. The company INFOCUMULUS d.o.o., Zagreb, company registration number: 080737093, was established in line with laws and regulations of the Republic of Croatia as a limited liability company on 22 July 2010. Registered office: Zagreb, Koturaška cesta 47 Company directors: Marjan Pongrac, Director, Mihaela Trbojević, Director, Dragan Marković, procurator The Company’s core activities are the following: Research of new IT technologies; Market research and public opinion polling; Business and other management consulting services. InfoCumulus d.o.o. was wholly owned by the Company since 2017 and was merged with the Company on 17 February 2022. d. BONSAI d.o.o. The company BONSAI d.o.o., Zagreb, company registration number: 081100130, was established in line with laws and regulations of the Republic of Croatia as a limited liability company on 12 May 2017. Registered office: Zagreb, Koturaška cesta 47 Company directors: Slaven Mišak, Director, and Nikola Dujmović, Director Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 18 1. General data (continued) The Company’s core activities are the following: New media design (multimedia); and Computer and related activities. e. MMC d.o.o. The company MMC d.o.o., Zagreb, company registration number: 080186176, was established in line with laws and regulations of the Republic of Croatia as a limited liability company on 07 October 1994. On 1 February 2017, the company Span d.d. acquired a 40% share in the company MMC d.o.o., and on 21 February 2020 an additional 30% share. On 26 April 2021, the Company sold all of its shares in MMC d.o.o. Registered office: Zagreb, Koturaška cesta 47 Company directors: Branka Czukor, Director, and Stjepko Varga, Director The Company’s core activity is Business and other management consulting services. f. SPAN d.o.o., Ljubljana The company SPAN d.o.o., Ljubljana, company registration number: 359638900, was established in line with laws and regulations of the Republic of Slovenia as a limited liability company on 18 August 2009. Registered office: Ljubljana , Republic of Slovenia Company director: Ivan Rojec, Director The Company’s core activities are the following: Design of information systems; and Provision of IT solutions on the Slovenian market. SPAN d.o.o. Ljubljana began operations in 2014, offering a wide range of products, services, and solutions on the Slovene market. The company SPAN d.o.o. Ljubljana expanded to providing services in the IT solution segment, having formed a specialised team dedicated precisely to that area. This company is expected to further grow in the following period and enjoys strong support and know-how of the parent company. g. SPAN IT Ltd., London The company SPAN IT Ltd., London, company registration number: 06810505, was established in line with laws and regulations of the United Kingdom as a limited liability company on 05 February 2009. Registered office: London, United Kingdom Company directors: Marijan Pongrac, Director, and Dragan Marković, Director The Company’s core activity is Provision of IT solutions on the market of Great Britain. Span IT Ltd. London began operations in 2010 as a sales representative of the Company and significantly contributed to the growth in export of services and solutions to the market in Great Britain. In 2022, the export of professional services to the market in Great Britain is expected to further increase. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 19 1. General data (continued) h. SPAN USA, Inc. The company SPAN USA, Inc., company registration number: 68-0682850, was established in line with laws and regulations of the United States of America as a limited liability company on 10 October 2012. Registered office: Oak Brook, United States of America Company directors: Marijan Pongrac, Director The Company’s core activity is Provision of IT services and customer support in the USA. SPAN USA, Inc., began operations in 2014 as a sales representative and local technical support centre for USA customers. Further increase in revenue in the USA is expected in 2022 as a direct result of the operations of this office. i. Span Azerbaijan LLC, Baku The company Span Azerbaijan LLC, company registration number: 1701936521, was established in line with laws and regulations of Azerbaijan as a limited liability company on 15 April 2016. Registered office: Baku, Azerbaijan Company Director: Eldar Jahangirov, Director The Company’s core activity is IT consulting and services. j. Span LLC, Kiev The company Span LLC, company registration number: 42424948, was established in line with laws and regulations of Ukraine as a limited liability company on 30 August 2018. Registered office: Kiev, Ukraine Company Director: Oleg Avilov, Director The Company’s core activity is IT consulting and services. k. SPAN GmbH, Munchen The company Span GmbH, company registration number: 242618, was established in line with laws and regulations of Germany as a limited liability company on 31 May 2018. Registered office: Munich, Germany Company directors: Dragan Marković, Director, and Saša Kramar, Director The Company’s core activity is IT consulting and services. l. SPAN Swiss AG The company SPAN Swiss AG, company registration number: 22966934000, was established in line with laws and regulations of Switzerland as a limited liability company on 18 February 2019. Registered office: Zug, Switzerland Company directors: Dragan Marković, Director, and Nikola Dujmović, Director The Company’s core activity is IT consulting and services. m. Span-IT s.r.l., Chișinău The company Span IT s.r.l., company registration number: 1021600030638, was established in line with laws and regulations of Moldova as a limited liability company on 19 July 2021. Registered office: Chișinău, Moldova Company directors: Saša Kramar, Director, Željko Galić, Director, and Smigaliov Serghei, Director The company’s core activity is IT consulting. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 20 2. Adoption of new and revised standards Initial application of new amendments to the existing standards effective for the current reporting period The following new standards, amendments to the existing standards and new interpretations issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period and have been adopted by the Group and Company: • Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition and Measurement”, IFRS 7 “Financial Instruments: Disclosures”, IFRS 4 “Insurance Contracts” and IFRS 16 “Leases” - Interest Rate Benchmark Reform – Phase 2 (effective for annual periods beginning on or after 1 January 2021), • Amendments to IFRS 16 “Leases” – Covid-19-Related Rent Concessions beyond 30 June 2021 (effective from 1 April 2021 for annual periods beginning on or after 1 January 2021), • Amendments to IFRS 4 Insurance Contracts – “Extension of the Temporary Exemption from Applying IFRS 9” , adopted by the EU on 16 December 2020 (the expiry date for the temporary exemption from IFRS 9 was extended to annual periods beginning on or after 1 January 2023). Adoption of amendments to the existing standards and interpretations are not relevant for the Group and Company’s operations and do not materially impact the financial statements. Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective The following standards, amendments to the existing standards and interpretations issued by the International Accounting Standards Board (IASB) and adopted by the EU are not yet effective for the current reporting period: • Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure of Accounting Policies (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” - Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 16 “Property, Plant and Equipment” - Proceeds before Intended Use (effective for annual periods beginning on or after 1 January 2022), • Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” - Onerous Contracts — Cost of Fulfilling a Contract (effective for annual periods beginning on or after 1 January 2022), • Amendments to IFRS 3 “Business Combinations” - Reference to the Conceptual Framework with amendments to IFRS 3 (effective for annual periods beginning on or after 1 January 2022), • IFRS 17 “Insurance Contracts” , including amendments to IFRS 17 issued by IASB on 25 June 2020 - adopted by the EU on 19 November 2021 (effective for annual periods beginning on or after 1 January 2023), • Amendments to various standards due to “Improvements to IFRSs (cycle 2018 -2020)” resulting from the annual improvement project of IFRS (IFRS 1, IFRS 9, IFRS 16 and IAS 41) primarily with a view to removing inconsistencies and clarifying wording – adopted by the EU on 28 June 2021 (The amendments to IFRS 1, IFRS 9 and IAS 41 are effective for annual periods beginning on or after 1 January 2022 . The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 21 2. Adoption of new and revised standards (continued) New standards and amendments to the existing standards issued by IASB but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU as at date of publication of financial statements (the effective dates stated below is for IFRS as issued by IASB): • IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1 January 2016) – the European Commission decided to delay the adoption of this transitional standard until the issue of its final version, • Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023), • Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded), • Amendments to IFRS 17 “Insurance contracts” – Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023). The Group and Company anticipate that the adoption of these new standards and amendments to the existing standards will have no material impact on the financial statements of the Company in the period of initial application. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 22 3. Significant accounting policies Basis of accounting The financial statements have also been prepared in accordance with IFRS Standards adopted by the European Union (IFRS EU) and therefore the Group and Company’s financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties that are measured at revalued amounts, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. When measuring the fair value of an asset or liability item, the Group and Company consider the characteristics market participants would consider when defining the price of assets or liabilities as at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis. The principal accounting policies adopted are set out below. Going concern The Management Board has, at the time of approving the financial statements, a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. Basis of consolidation The financial statements incorporate the financial statements of the Company and entities controlled by the Company made up to 31 December 2021. Control is achieved when the Company: • has power over the investee • is exposed, or has rights, to variable returns from its involvement with the investee; and • is capable of using its power to affect its returns. The Company shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The Company with less than a majority of the voting rights in an entity has rights that are sufficient to give it power when the Company has the practical ability to direct the relevant activities unilaterally. When assessing whether its voting rights are sufficient to give it power, the Company considers all facts and circumstances, including: • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary. Where appropriate, adjustments were made in the subsidiaries’ financial statements in order to align their accounting policies with those of other Group members. The consolidation eliminates in full intra-Group assets and liabilities, equity, income, expenses, and cash flows relating to transactions between entities of the Group. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 23 3. Significant accounting policies (continued) Basis for consolidation (continued) Non-controlling interests in subsidiaries are accounted for separately from the Group’s ownership interest. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. Valuation method is selected separately for each acquisition. Remaining non-controlling interests are initially measured at fair value. After acquisition, the carrying value of non-controlling interests is the amount of shares at initial recognition increased by the share of non-controlling interest in subsequent changes to the equity. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income shall be attributed to the owners of the Company and non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the Company. When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts that were previously recognised in other comprehensive income of the subsidiary are accounted for as if the Group had directly disposed of the assets or liabilities of the Company, i.e., transferred to profit and loss or some of the equity items in line with the IFRSs in force. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 when applicable, or the cost on initial recognition of an investment in an associate or a joint venture. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • deferred tax assets and liabilities and assets and liabilities from agreements on employee benefits, recognised and measured in line with IAS 12 or IAS 19; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share- based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 at the acquisition date (see below); and • assets (or disposal groups) classified as held for sale and measured in line with IFRS 5. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the reassessment finds that the share of the Group in the fair value of the identifiable amount of the acquiree’s net assets exceeds the sum of the consideration transferred, the amount of non-controlling interest, if any, and the fair value of the acquirer’s previously held equity interest in the acquiree, the surplus shall be recognised immediately in profit or loss as a gain from a bargain purchase. The consideration the Group transfers in a business combination includes a contingent consideration arrangement. The Group shall recognise the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 24 3. Significant accounting policies (continued) Business combinations (continued) Changes in the fair value of contingent consideration that are not measurement period adjustments are accounted for depending on the contingent consideration classification. Contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity. Other contingent consideration is subsequently measured at fair value, at a later reporting date, with changes in fair value recognised in profit and loss. When a business combination is achieved in stages, the Group’s previously held interests (including joint operations) in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. The amount of the interest in the acquiree before acquisition, that was previously recognised in other comprehensive income, shall be transferred to profit and loss as would be required if the interest had been disposed. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. The provisional amounts shall be adjusted during the measurement period (see above) or additional assets or liabilities shall be recognised to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. Goodwill Goodwill is initially recognised and measured as set out above. Goodwill is not depreciated but is tested for impairment at least once a year. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro- rata on the basis of the carrying amount of each asset in the unit. Such impairment loss for goodwill will not be reversed in subsequent periods. On disposal of a cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The policy the Group uses for calculating goodwill resulting from acquisition of associates is described in note 17. Revenue recognition IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”) is an accounting standard stipulating the approach for recognising revenue from contracts with customers based on certain principles. IFRS 15 entails a 5-step approach requiring revenue recognition when control over the licences, goods and services is transferred to the customer. The material principle of IFRS 15 refers to the transfer of control described in more detail below with reference to individual revenue groups. Revenue is measured based on the consideration to which the Group and Company expect to be entitled according to the customer contract, excluding amounts collected on behalf of third parties. The Group and Company recognise revenue when they transfer control of a licence, product or service to a customer. The paragraphs below describe types of contracts, timing of meeting delivery commitments, and timing of recognition of revenue. The Group and Company recognise revenue from the following major sources: ▪ sale of licences; ▪ sale of hardware; and ▪ sale of services. Sale of licences With reference to the sale of different types of licences, revenue is primarily realised from the sale of Microsoft licences. The Group and Company are primarily responsible for delivering specific characteristics of licences to customers, they are exposed to the potential risk of rejection of licences by the customer and have the discretion to define prices and benefits from licences to the moment of transfer of control. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 25 3. Significant accounting policies (continued) Revenue recognition (continued) Sale of licences (continued) Licences are prepared for activation for a specific customer and are granted at a particular point in time. The Group and Company determine that the license agreement does not require, and the customer does not reasonably expect, that the Group and Company shall undertake activities that significantly affect the software. Since the licensor shall not undertake activities that significantly affect the intellectual property for which the users have rights and benefits, be they positive or negative activities that do not affect the licensor; and that the activities that might affect the intellectual property do not constitute additional performance actions in the contract, the licences thus represent the right-of-use and the Group, therefore, recognises revenue at a particular point in time. Revenue is recognised when control of the licence has been transferred, that is at the point the licences become available to the customer and the customer has gained the control over a licence. The value of transactions from these contracts have been defined in framework contracts with customers (usually on an annual basis), determined based on price lists, and charged within 45 days. Based on the framework contract, the customers use order requests for purchasing licences to commit to the purchase during the life of the contract. The Group and Company use a practical exception for disclosing the transaction price allocated to outstanding performance obligations since they have the right to the consideration paid by the customer in the amount equivalent to the value of the performance obligation by the reporting date, thus the Group and Company recognises revenue in the amount that they may invoice. The Group and Company do not expect variable consideration with reference to the relevant contracts. In case the contract at the same time includes the delivery of licences and provision of advisory services as part of the solutions requested by the customer, advisory services, as well as licences, are considered individual distinct delivery obligations. Transaction price is distinct in contracts per type of licence and advisory service, thus is determined based on an individual sales price of a licence or service. Sale of hardware The Group and Company sell hardware directly to customers in line with the contract on the sale of hardware and provision of services or individual contracts on the sale of hardware. Revenue is recognised at the point in time when the control over the equipment has been transferred to the customers, and the sale of equipment is considered a distinct delivery obligation. Transferring control to the customer entails physical ownership and use of hardware by the customer, transfer of all rights to use and risks of use of hardware to the customer, as well as the Group and Company’s right to collect. The process of sale of hardware in most cases meets the condition to transfer control after the goods have been delivered to the customer’s specific location. Transaction prices stipulated in these contracts are usually fixed and are collected after the delivery of the hardware and installation services provided. Sale of services Advisory services the Group provides may be divided in two main service groups: services related to contracted projects with customers, and advisory services which refer to customer support based on contracted price lists. Advisory services related to contracted projects (e.g., installation and/or development of different software products for specialised business operations) are recognised as a performance obligation satisfied over time. Revenue is recognised in the financial statements based on the stage of completion of the contract. The management and competent bodies have assessed that the stage of completion determined as the proportion of the expected project duration, i.e., time that has elapsed at the end of the reporting period is an appropriate measure of progress towards complete satisfaction of these performance obligations under IFRS 15. Considering the fact that the projects are related to the time cost of each developer, the time spent on the project reflects the work performed, i.e., delivered. Advisory support services include hourly based standard services recognised at a certain time of delivery of services based on contracted price lists. Support advisory service is considered to be a distinct service as it is both regularly supplied by the Group and Company to other customers on a stand-alone basis and is available for customers from other providers in the market. Discounts are not considered as they are only given in rare circumstances and are not material. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 26 3. Significant accounting policies (continued) Leases (continued) Leases The Group and Company as lessors The Group and Company act only as lessees. The Group and Company assess whether a contract is or contains a lease, at the beginning of the contract. The Group and Company recognise a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which they are the lessee, except for short- term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group and Company recognise the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that have not been settled at the beginning of the lease term, discounted at the rate implicit in the lease. If this rate cannot be readily determined, the Group and Company use their incremental borrowing rate. Lease payments included in the measurement of the lease liability entail the following: • fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; • variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; • the amount expected to be payable by the lessee under residual value guarantees; • the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and • payments of penalties for terminating the lease if the lease term reflects the lessee’s exercise of the option to terminate the lease. The lease liability is presented as a separate line in the statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The right-of-use assets entail the initial measurement of the relevant lease liability, lease payments made at or before the commencement date of the lease, less any lease incentive received for concluding the operating lease and all initial direct costs. These are subsequently measured at cost less accumulated depreciation and accumulated impairment losses. The right-of-use assets are presented as a separate line in the statement of financial position. The Group and Company apply IAS 36 to determine whether a right-of-use asset is impaired and account for any identified impairment loss as described in the ‘Property and Equipment’ policy. Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in ‘Other expenses’ in profit or loss. Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group and Company expect to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 27 3. Significant accounting policies (continued) Leases (continued) As a practical expedient, IFRS 16 allows the lessee to elect not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. The Group and Company have used this practical expedient. For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. Foreign currencies In preparing the financial statements of the Group entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary assets at fair value, denominated in foreign currencies, are retranslated at exchange rates prevailing at the dates the fair values were determined. Non- monetary assets denominated in foreign currencies that are measured at historical cost are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise, unless: • exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; • exchange differences on cash receivables or payables from foreign operations the settlement of which is not planned nor probable in the nearby future, that thus constitute a portion of the net investment in foreign operations, initially recognised in other comprehensive income and on the (partial) disposal of the net investment transferred from equity to profit and loss. In the financial statements, assets and liabilities of the Group’s foreign operations have been calculated using the exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Potential exchange differences are recognised in other comprehensive income and accumulated in a foreign exchange translation reserve (and added to non- controlling interests, if any). On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in a foreign exchange translation reserve in respect of that operation attributable to the owners of the company are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences is re- attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e., partial disposals of associates that do not result in the Group losing significant influence), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income. Government grants Government grants are not recognised until there is reasonable assurance that the conditions attaching to them will be met and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group and Company recognise as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group and Company should purchase, construct, or otherwise acquire non-current assets (including property and equipment) are recognised as deferred income in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group and Company with no future related costs are recognised in profit or loss in the period in which they become receivable. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 28 3. Significant accounting policies (continued) Retirement and termination benefits Payments made to a defined contribution retirement benefit plan are recognised as expenses once the employees have finished working on the position resulting in their right to contributions. Payments made to state-managed retirement benefit plans are accounted for as payments to defined contribution plans where the Group and Company’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. Short-term and other long-term employee benefits A liability is recognised for benefits accruing to employees in respect of salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Taxation The corporate income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on the taxable profit for the year. Taxable profit differs from the net profit reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group and Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Provisions are recognised for matters with uncertain tax charge when an outflow of funds to the tax authority is highly probable. Provisions are measured by using the best estimate of likely tax values. The estimate is based on the judgement of tax experts within the Company in line with prior experience in such activities and, in certain cases, based on tax advice of independent experts. Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are not recognised based on temporary differences at the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group and Company are able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from investment- and interest-related deductible temporary differences are accounted for and reported only to the extent of the probable amount of taxable profit that will allow the use of relief on the basis of deductible temporary differences and if their reversal is expected in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or a part of the asset to be recovered. Deferred tax is measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 29 3. Significant accounting policies (continued) Taxation (continued) Deferred tax (continued) The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and Company expect, at the end of the reporting period, to recover or settle the carrying amounts of their assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group and Company intend to settle their current tax assets and liabilities on a net basis. Current and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. In case of current and deferred taxes resulting from the initial measurement of a business combination, the tax effect is included in the initial accounting for the business combination. Property, plant, and equipment Buildings and land used in the supply of goods or services, or for administrative purposes, are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. As of 31 December 2019, the Group and Company amended the accounting policy, by which date they had recognised buildings and land at purchase cost, less accumulated amortisation, and accumulated impairment losses. In order to present the fair value of buildings and land more accurately, the Group and Company selected the revaluation model. Thus, based on the assessment of an authorised assessor, as of 31 December 2021, the Group and Company recognised an increase in value of buildings and land, and the relevant deferred tax liability. Any revaluation increase arising on the revaluation of buildings is credited to the properties revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in carrying amount arising on the revaluation of buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is recognised in profit or loss. When selling or retiring items of non-current assets recorded at the revalued amount, every surplus recognised in the revaluation reserve is directly transferred to retained earnings Depreciation of non-current tangible assets, determined on the same basis as other property, commences when the assets are ready for their intended use. Owned land is not depreciated. Equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 30 3. Significant accounting policies (continued) Property, plant, and equipment (continued) Depreciation is recognised so as to write off the cost or valuation of assets, other than owned land and non-current tangible assets under construction, over their useful lives, by using the straight-line method, on the following bases: Buildings 5% p.a. IT equipment 15-50% p. a. Office equipment 15-25% p. a. Estimated useful life, residual value, and depreciation method are reviewed at the end of each reporting period, with impacts of potential changes in estimated accounted for prospectively. Buildings and equipment are no longer accounted for or recognised after they have been sold or when future economic benefits associated with their use are no longer expected. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives which are disclosed in note 18. Estimated useful life and depreciation method are reviewed at the end of each reporting period, with impacts of potential changes in estimated accounted for prospectively. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases: Software and other rights 25 % p.a. Estimated useful life, residual value, and depreciation method are reviewed at the end of each reporting period, with impacts of potential changes in estimated accounted for prospectively. Intangible assets with indefinite useful lives that are acquired separately include Software and other rights, and Intangible assets under construction. Internally developed intangible assets Expenses resulting from research activities are recognised as expenses for the period in which they arise. Internally developed intangible assets that are a result of development (or a development stage of an internal project) shall only be recognised if the entity can demonstrate all of the following: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally generated intangible assets is the sum of expenditures incurred as of the date when the assets initially met the previously cited recognition criteria. If internally developed intangible assets cannot be recognised, expenditures from development are recognised in profit and loss for the period in which they incurred. Subsequent to initial recognition, internally developed intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Internally developed intangible assets are sold to third parties once the licence is activated. Internally developed intangible assets entail Software development and Intangible assets under construction. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 31 3. Significant accounting policies (continued) Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill is initially recognised at fair value as at the acquisition date (considered a cost, i.e., assets purchase cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Derecognition of intangible assets Intangible assets are derecognised on disposal or when future economic benefits associated with the use or sale of the item are no longer expected. The gain or loss arising on the derecognition of an intangible asset item is determined as the difference between the net sales proceeds and the carrying amount of the item and is recognised in profit or loss for the period of derecognition. Impairment of buildings and equipment, and intangible assets other than goodwill At each reporting date, the Group and Company review the carrying amounts of their property and equipment, and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of any impairment loss. For assets not generating cash flows independent from other assets, the Group and Company estimate the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with an indefinite useful life are subject to impairment tests on an annual basis and if there is an indication of potential impairment at the end of the reporting period. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generated unit) is estimated to be less that its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised immediately in profit or loss, unless the relevant assets have been recognised in their revalued amount, in which case the impairment loss is treated as a revaluation increase and if the impairment loss exceeds the related revalued amount surplus, impairment losses are recognised in profit and loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss if it eliminates the impairment loss recognised for assets in previous years. All increases in the surplus of this amount are considered revaluation increases. Inventories Inventories are carried at the lower of the cost and net realisable value. Cost comprises direct materials and, where appropriate, direct labour costs and surplus incurred in bringing the inventories to their present location and condition. Cost is calculated by using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred for marketing, selling and distribution. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 32 3. Significant accounting policies (continued) Financial instruments Financial assets and financial liabilities are recognised in the statement of financial position of the Group and Company when the Group and Company become a party to the contractual provision of the instrument. Financial assets and financial liabilities are initially measured at fair value, unless the trade receivable has no significant financial component initially measured at transaction cost. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets The regular purchase and sales of financial assets are recognised or derecognised at the trading date. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are measured subsequently in their entirety at amortised cost. Classification of financial assets Debt instruments meeting the following conditions are subsequently measured at depreciated cost: • the financial asset is held within a business model whose objective is achieved by collecting contractual cash flows; • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Depreciated cost and effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit- impaired on initial recognition), the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or incurred credit-impaired financial assets, the effective interest rate adjusted to the loan is calculated by discounting estimated future cash flows, including expected credit losses, to the depreciated cost of the debt instrument at initial measurement. The depreciated cost of financial assets is the amount at which the financial instrument is measured at initial recognition, less payments of principal and plus accumulated depreciation, using the effective interest rate method for any difference between the opening amount and amount at maturity, adjusted for any loss. Gross carrying amount of financial assets is the depreciated cost of financial assets before adjustments for impairment provisions. Interest income is recognised by applying the effective interest rate for debt instruments, which are subsequently measured at depreciated cost. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial assets which subsequently became credit-impaired, interest income is calculated by applying the effective interest rate to the depreciated cost of financial assets. If, in the following reporting periods, the credit risk for the credit-impaired financial instrument improves in the way that the financial instrument is no longer credit-impaired, the interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial assets. For the purchased credit-impaired financial assets or liabilities, the Group and Company recognise interest income by using the effective interest rate adjusted by the credit risk to the depreciated cost of financial assets at initial recognition. The calculation is not returned to a gross basis, even if the credit risk of the financial assets subsequently improves so that the financial assets are no longer credit-impaired. Interest income is recognised in profit or loss and is included in the ‘Financial income – interest income’ line item (note 14). Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 33 3. Significant accounting policies (continued) Financial instruments (continued) Financial assets (continued) Classification of financial assets (continued) Foreign exchange gains and losses The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. For financial assets measured at amortised cost that are not part of a designated hedging relationship, exchange differences are recognised in profit or loss in the ‘other gains and losses’ line item. Impairment of financial assets The Group and Company recognise a loss allowance for expected credit losses on trade receivables and contractual assets. The amount of expected credit losses is calculated at every reporting date in order to reflect the changes in the credit risk since initial recognition of an individual financial instrument. The Group and Company always recognise lifetime expected credit losses (ECL) for trade receivables, and contract assets. The expected credit losses on those financial assets are estimated using a provision matrix by reference to past credit loss experience of the Group and Company, adjusted for factors that are specific to the debtors, general economic conditions, and an assessment of both the current as well as the forecast direction of conditions as at the reporting date, including, where appropriate, the time value of money. Lifetime ECL represents expected credit losses resulting from all potential cases of default during the expected lifetime of the financial instrument. In contrast, 12-month ECL represents a portion of lifetime ECL resulting from potential default of the financial instrument liabilities within 12 months from the reporting date. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 34 3. Significant accounting policies (continued) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) (i) Significant increase in credit risk When assessing whether the credit risk for the financial instrument significantly increased since the initial recognition, the Group and Company compare the risk of default on the reporting date to the risk of default of the financial instrument on the date of initial recognition. During the assessment, the Group and Company consider both quantitative and qualitative information which are reasonable and available, including the historical experience and forward-looking information, which can be accessed without unnecessary costs or engagements. Forward- looking information considered includes the future prospects of the industries in which the Group and Company’s debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant think- tanks and other similar organisations, as well as consideration of various external sources of actual and forecast economic information that relate to the Group and Company’s core operations. In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition: • an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating; • significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost; • existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations; • an actual or expected significant deterioration in the operating results of the debtor; • significant increases in credit risk on other financial instruments of the same debtor; and • existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations. Irrespective of the outcome of the above assessment, the Group and Company presume that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group and Company have a reasonable and supportable information that demonstrates otherwise. Despite the aforementioned, the Group and Company assume that the credit risk for the financial instrument has not significantly increased since the initial recognition if we determine that the financial instrument has a low credit risk at the reporting date. We believe that the financial instrument has a low credit risk if: (1) the financial instrument has a low risk of default; (2) the debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and (3) adverse changes in economic and business conditions in the long term may, but do not necessarily have to, decrease the lessee’s ability to meet their contractual cash flow obligations. The Group and Company consider a financial asset to have low credit risk when the asset has external credit rating of ‘investment grade’ in accordance with the globally understood definition or if an external rating is not available, the asset has an internal rating of ‘performing’. ‘Performing’ means that the counterparty has a strong financial position and there is no past due amounts. For financial guarantee contracts, the date on which the Group and Company become a party to irrevocable commitment is considered the date of initial recognition for the purposes of estimating the impairment of a financial instrument. When judging if the credit risk significantly increased since initial recognition of the financial guarantee contract, the Group and Company examine the changes in the risk of a debtor’s default. The Company regularly monitors the efficiency of criteria used to determine whether there has been a significant increase in credit risk and reviews them so that the criteria may identify a significant increase in credit risk before any default occurs. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 35 3. Significant accounting policies (continued) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) (ii) Definition of default The Group and Company consider the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable: • when there is a breach of financial covenants by the debtor; or • information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group and Company). Irrespective of the above analysis, the Group and Company consider that default has occurred when a financial asset is more than 90 days past due unless the Group and Company have reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. (iii) Credit-impaired financial assets Financial assets are credit-impaired when one or more events with an adverse effect on estimated future cash flows and financial assets occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: (a) significant financial difficulty of the issuer or the borrower; (b) a breach of contract, such as a default or past-due event (see item above); (c) the lenders for economic or contractual reasons relating to the borrower’s financial difficulty granted the borrower a concession that would not otherwise be considered; (d) it is becoming probable that the borrower will enter bankruptcy or another financial reorganisation; or (e) the disappearance of an active market for the financial asset because of financial difficulties. (iv) Write-off policy The Group and Company write off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group and Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. (v) Measurement and recognition of expected credit losses Measurement of expected credit losses is the function of Probability of Default (PD), Loss Given Default (LGD), i.e., size of loss in case of default, and Exposure at Default (EAD). Probability of Default and Loss Given Default is based on historical data adjusted for forward-looking information. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the understanding of the specific future financing needs of the debtors, and other relevant forward-looking information. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group and Company in accordance with the contract and all the cash flows that the Group and Company expect to receive, discounted at the original effective interest rate. For lease receivables, cash flows used to determine expected credit losses correspond to the cash flows used for measuring lease receivables in line with IFRS 16. For a financial guarantee contract, as the Group and Company are required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed, the expected Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 36 3. Significant accounting policies (continued) Financial instruments (continued) Financial assets (continued) Impairment of financial assets (continued) loss allowance is the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Group and Company expect to receive from the holder, the debtor, or any other party. (v) Measurement and recognition of expected credit losses (continued) If the Group and Company have measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period but determine at the current reporting date that the conditions for lifetime ECL are no longer met, the Group and Company measure the loss allowance at an amount equal to 12- month ECL at the current reporting date, except for assets for which the simplified approach was used. The Group and Company recognise an impairment gain or loss in profit or loss for all trade receivables with a corresponding adjustment to their carrying amount through a loss allowance account. Derecognition of financial assets The Group and Company derecognise a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group and Company do not transfer or retain almost all risks and rewards associated with ownership and, if it still has control over the transferred asset, it recognizes its retained interest in the asset and the related liability in the amounts it may have to pay. If the Group and Company retain substantially all the risks and rewards of ownership of a transferred financial asset, the Group and Company continue to recognize the financial asset and also recognize a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit and loss. Financial liabilities and equity Classification as liabilities or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group and Company are recognised in realised inflows, net of direct issuance costs. Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue, or cancellation of the Company’s own equity instruments. Financial liabilities All financial liabilities are measured subsequently at amortised cost using the effective interest method at the end of each reporting period. Financial liabilities subsequently measured at amortised cost Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for- trading, or (iii) designated as at FVTPL, are measured subsequently at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments, including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts, through the expected life of the financial asset or, where appropriate, a shorter period. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 37 3. Significant accounting policies (continued) Financial instruments (continued) Financial liabilities and equity (continued) Financial liabilities subsequently measured at amortised cost (continued) Foreign exchange gains and losses For foreign-currency financial liabilities measured at amortised cost at the end of each reporting period, foreign exchange gains and losses are determined using the amortised cost of the instrument. Derecognition of financial liabilities The Group and Company derecognise financial liabilities when, and only when, the obligations are discharged, cancelled, or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Where there has been an exchange between the Group and Company and existing creditor with substantially different terms, this transaction is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group and Company account for a substantial change in the terms of an existing liability or a portion thereof as an extinguishment of the original financial liability and recognition of a new financial liability. The terms are considered substantially different if the discounted current value of cash flows, in line with the new terms, including consideration paid, net of fees received and impaired by using the effective interest rate, is at least 10% different from the discounted current value of remaining cash flows of the original financial liability. If the change is not substantial, the difference between: (1) the carrying value before the change; and (2) the current value of cash flows after the change is recognised in profit and loss as a gain or loss from the change in other gains and losses. Treasury shares Treasury shares are held with CDCC (Central Depositary and Clearing Company). Treasury shares are recognised at cost and deducted from equity. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 38 4. Critical accounting judgements and key sources of estimation uncertainty In applying the Group and Company’s accounting policies, which are described in note 3, the Management Board is required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Assessing whether the Group and Company are a principal or agent in the sale of licences IFRS 15 provides guidance for determining whether an entity is the principal or an agent. The Group and Company act as a principal in a transaction if they obtain control of the specified goods or services before they are transferred to the customer. On the contrary, the Group and Company are an agent if they do not control the specified goods or services before they are transferred to the customer. Determining that the Group and Company are a principal is based on the assessment of whether the Group and Company obtain control of the goods and services based on the facts and circumstances stipulated in the contracts with customers. In this assessment, the Group and Company have used the judgement using the main indicators of their business model, business practice, processes, rights and responsibilities that Group and Company have and can be summarized as follows: • identifying a selling opportunity with a customer; • direct contacts with customers to determine their need and demands as well consultation for determining adequate license program; • sharing opportunity details with license providers; o revealing customers identity is the standard rule with vendors in the industry, o industry standard is that licenses cannot be sold to customers without sharing data with the license vendors • discretion with respect to accept or reject orders from customers; • responsibility related to the sales strategy; • responsibility for ensuring that delivered goods and services are in accordance with the customer demands/infrastructure; • responsibility for ensuring the validity of goods and services; • directing license vendors over which licensing program and product to place and to which customer to place it to; • full discretion over establishing a final price for goods and services; • before license activation, full discretion to change the scope, program, withdraw from the deal as well as to change the supplier and choose another supplier on the market (“non-exclusive rights”); • existing commercial agreement with customer by which the Group and Company are primarily responsible for fulfilling the promise to provide goods and services; • customer cannot prove their right to use goods and services without formal order confirmation to the Group and Company, invoice from the Group and Company and payment confirmation; • discretion to re-direct the use of goods and services in the case if customer breach the contract. Determining whether an entity is the principal or an agent in an arrangement require review of indicators relating to principle/agent status. As stated above, the Group and Company continuously review the relationships and contractual arrangements between the Group and the Company and their customers. This includes identifying the specified good and/or services being provided to the customers and the nature of the Group and Company’s promise in the assessment of the agent vs principal status. Assessing whether the Group and Company recognize revenue as point in time or over time The Group and Company determine that the license agreement does not require, and the customer does not reasonably expect, that the Group and Company shall undertake activities that significantly affect the software. Since the licensor shall not undertake activities that significantly affect the intellectual property for which the users have rights and benefits, be they positive or negative activities that do not affect the licensor; and that the activities that might affect the intellectual property do not constitute additional performance actions in the contract, the licences thus represent the right-of-use and the Group, therefore, recognises revenue at a particular point in time. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 39 4. Critical accounting judgements and key sources of estimation uncertainty (continued) Impairment of trade receivables Trade receivables are reviewed at each reporting date and their value is impaired based on the assessment of probability that the reported amount will be recovered. Each customer is considered individually based on the expected date of collection of the receivable and the estimated probability to collect amounts due. The management believes that the trade receivables have been recognised in line with their recoverable amount as at the reporting date. Goodwill impairment A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any gain or loss on remeasurement at fair value is included directly in profit or loss. Such impairment loss for goodwill will not be reversed in subsequent periods. The Group and Company use the smallest cash-generating unit for their goodwill impairment tests. The Group and Company defined every individual subsidiary as the smallest cash-generating unit, having in mind the diversity of sources of income and business models of individual subsidiaries. For goodwill impairment tests, they used the income method based on discounted cash flows. The discounted cash flow method comprised the assessment of future cash flows for a 5-year period, discounting the relevant cash flows, applying a discount rate reflecting the cash flow risk and time value of money, assessing the residual value and terminal value. In the free cash flow forecasts, the compound annual growth rate (CAGR) for the period from 2021 to 2025 amounts to 16.5%. The Group and Company test goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. Sensitivity analysis The Group and Company have conducted a sensitivity analysis for changes in key assumptions used for determining the recoverable amount of each group of cash-generating units to which goodwill has been allocated. The recoverable amount of this cash-generating unit is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the Management Board covering a five-year period. The impairment test established that there were no indications of goodwill impairment. The sensitivity analysis considered the change in terminal growth of the Group and Company ranging from -0.5% to 1.50% and the WACC ranging from 10.23% to 12.23%. The sensitivity analysis within the impairment test did not determine an impairment. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 40 4. Critical accounting judgements and key sources of estimation uncertainty (continued) Useful life of property, plant, and equipment The Group and Company review the estimated useful life of property, plant and equipment and intangible assets at the end of each annual reporting period. Property, plant and equipment are reported at purchase cost less the accumulated value adjustment. Leases – Assessing the incremental borrowing rate The Group and Company are not able to easily determine the lease interest rate, thus they use an incremental borrowing rate for calculating lease liabilities. Incremental borrowing rate is the rate the Group and Company would pay if they, in a similar period and with similar collateral, borrowed funds necessary for purchasing property of similar value as right-of-use assets in a similar economic surrounding. Calculating the incremental borrowing rate requires assessing when such rates are not available or need to be adjusted to reflect the lease terms. The Group and Company use different inputs to calculate the incremental borrowing rate. The interest rate calculated by the Group and Company for contracts represents the lessee’s credit risk, lease period, safety, and economic surrounding. It is determined based on comparable transactions. The data the Company uses for determining the incremental borrowing rate are renewed at least once a year or in case of a significant change in the Group and Company’s credit rating. Income tax The Company is liable for income tax under the laws and regulations of the Republic of Croatia. Tax returns are subject to examination by the tax authorities, which have the right to subsequently review business books of the taxpayer. There are different possible interpretations of tax laws; therefore, the amounts in the consolidated financial statements may be amended subsequently, based on the decision of tax authorities. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 41 Other operating income predominantly includes income from reversal of provisions, income from collection of damages, and income from collection of adjusted receivables. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 42 6.1. Operating segments Products and services resulting in revenue for reportable segments Information reported to the President of the Management Board for the purposes of resource allocation and assessment of segment performance is focused on every type of product/service. In line with IFRS 8, the separate reporting segments of the Group and Company include Software asset and license management, Infrastructure services, Cloud and Cyber Security, Services management and customer support, and Software and business solutions development. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 43 6.1. Operating segments (continued) Products and services resulting in revenue for reportable segments (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 44 6.1. Operating segments (continued) Products and services resulting in revenue for reportable segments (continued) The accounting policies of the reportable segments are the same as the Group and Company’s accounting policies described in note 3. Segment profit represents the profit earned by each segment before central administration costs including directors’ salaries, other general costs, financial expenses and income, and taxes. This is the measure reported to the Group and Company’s Chief Executive for the purpose of resource allocation and assessment of segment performance. In relation to the prior reporting period, in order to obtain quality information, the number of reportable segments of the Group and Company increased to secure a better insight into the business activities. Revenues from major products and services The Group and Company’s revenues from major products and services are disclosed in note 5. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 45 6.1. Operating segments (continued) Territorial analysis of operations Territory, in this context, means the location in which the goods and services have been invoiced. Details on the revenues of the Group and Company from external customers and information on segment assets (non-current assets without financial instruments, deferred tax assets and other financial assets) for each territory are provided below: Information about key customers Included in revenues arising from sale of services are revenues of approximately HRK 64,000 thousand (2020: 68,000 thousand) which arose from sales to the Group and Company’s largest customer. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 46 The average number of employees in 2021 of the Group amounted to 537 and of the Company 436 (2020: Group 495, Company 399). Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 47 Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 48 15. Income tax The standard rate of corporation tax applied to reported profit is 18% (2020: 18%) for companies operating in the Republic of Croatia. Taxation in other jurisdictions is calculated in line with the rates effective in the relevant jurisdictions. In accordance with the tax legislation, the Tax Administration may, at any time, inspect the books and records of the Company within three years from the end of the year in which the tax liability is reported and may impose additional tax liabilities and penalties. The Management Board of the Company is not familiar with any circumstances which may lead to contingent liabilities in that respect. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 49 Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent by the weighted average number of ordinary shares issued during the year, excluding the average number of ordinary shares purchased by the Group and Company and held as own shares. Basic earnings per share is equal to the diluted earnings per share since currently there are no share options that could potentially increase the quantity of shares issued. On 24 May 2021, the General Assembly of Span d.d. adopted the Decision on allocating shares based on the principle that one share of nominal value of HRK 100 be divided into 10 shares, each of nominal value of HRK 10. Goodwill arose on the acquisition of subsidiaries InfoCumulus d.o.o., Delion d.o.o., and Recro-net d.o.o. and MMC d.o.o. During 2021, the Company sold all of its shares in MMC d.o.o. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 50 Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 51 Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 52 Impairment losses In 2020, impairment losses were recognised in relation to the net carrying amount during the sale of software developed internally in the parent company and recognised in profit or loss. Buildings of the Company were pledged as collateral. As at 31 December 2021, the Company increased the value of buildings and land owned based on an assessment by an independent appraiser. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 53 19. Property, plant, and equipment Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 54 19. Property, plant, and equipment (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 55 Fair value measurement of the Group and Company’s buildings The Group and Company’s buildings are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements have been classified as level 3, in accordance with inputs used in the valuation. While assessing the value of buildings and freehold land, the independent appraiser disclosed in their report to have used the comparison approach method, having determined for it to be the most adequate method considering the location, land registry, and cadastral status of the property owned by the Company. Inter alia, the comparison approach method considers and assesses the quality of the building and its position at a similar location for a comparable building type. Details of the Group and Company’s buildings and information about the fair value hierarchy as at the end of the reporting period are as follows: Assets pledged as security A portion of the loans received have been secured by the Company’s pledged assets (registered office building) of net carrying value of HRK 21,789 thousand (2020: HRK 17,152 thousand). Had the Group and Company’s land and buildings been measured on a historical cost basis, their carrying amount would have been as follows: Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 56 19.1. Subsidiaries The following table provides an overview of information on subsidiaries as at 31/12/2021. Company Country of incorporation Ownership Voting rights Trilix d.o.o., Zagreb Croatia 60% 60% InfoCumulus d.o.o., Zagreb Croatia 100% 100% Span d.o.o., Ljubljana Slovenia 100% 100% Span IT Ltd., London Great Britain 100% 100% Span USA Inc., Oak Brook USA 100% 100% Span Azerbaijan LLC, Baku Azerbaijan 100% 100% Bonsai d.o.o., Zagreb Croatia 70% 70% Span GmbH, Munich Germany 100% 100% Span LLC, Kiev Ukraine 100% 100% SPAN SWISS AG Switzerland 100% 100% Span-IT s.r.l., Chișinău Moldova 100% 100% Subsidiaries are all of the companies in which the Group controls financial and business policies, which generally entails more than half of the voting rights. Subsidiaries are completely consolidated as of the date the control is indeed passed to the Company and excluded from consolidation as of the date the control ceases. 19.2. Transactions with related parties Related parties are undertakings in which the Company owns business shares, that is undertakings that are part of the Group. All transactions with related parties are based on usual business and market terms. Balances of receivables and payables between the Company and its related parties as at the date of the statement of financial position are as follows: Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 57 19.2. Transactions with related parties (continued) Transactions between the Company and its related parties presented in the statement of comprehensive income for 2021 and 2020 are detailed below. 19.3. Remuneration of key management personnel Remuneration of directors, i.e., key management of the Group and Company is provided below. Key management personnel include 5 members (2020: 6). 20. Right-of-use assets In its first application of IFRS 16, the Group and Company used the following practical exemptions as allowed by the standard: exemptions from recognising lease contracts that as at their commencement date have a lease period of 12 months or short-term leases of low value assets. The Group and Company have business premises and company vehicles in operating lease. Lease contracts are usually concluded for a period from 3 to 5 years. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 58 20. Right-of-use assets (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 59 20. Right-of-use assets (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 60 21. Investments in financial assets The current value of receivables for deposits and guarantees are considered a reasonable assessment of their fair value. Impairment of financial assets There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the loss allowance for these financial assets. 21.1. Investments in subsidiaries Subsidiaries are all of the companies in which the Company controls financial and business policies, which generally entails more than half of the voting rights. In 2021, the share in M M C d.o.o. was sold, the shares in Span GmbH, Germany and Span Swiss AG, Switzerland were increased, and Span-IT s.r.l., Moldova was established. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 61 22. Inventories Merchandise inventories predominantly refer to hardware purchased for familiar customers and this year exceptionally for 2022 licences, for which the invoice was received on 31/12/2021. These licences were sold on 01/01/2022. The cost of inventories recognised as an expense during the year was HRK 507 million (2020: HRK 397 million) for the Group, and HRK 329 million (2020: HRK 246 million) for the Company. At the end of each business year, the Group and Company examine the net recoverable value of inventories and adjust the value of inventories older than 1 year. The cost or the expense of inventories recognised as expenditures amount to HRK 27 thousand (2020: HRK 35 thousand) for both the Group and Company and refer to the value adjustment of inventories up to their net realisable value. The value adjustment of inventories has been reversed for inventories sold in the amount of HRK 238 thousand (2020: HRK 390 thousand). It is expected that the value of inventories amounting to HRK 2,026 thousand (2020: HRK 520 thousand) for the Group and HRK 1,972 thousand (2020: HRK 127 thousand) for the Company will be realised very quickly, within 12 months the latest. 23. Trade and other receivables Trade receivables The average credit period on sales of goods for the Group is 38 days, and for the Company 38 days (2020: 54 days for the Group, and 68 days for the Company). Interest is not calculated for outstanding trade receivables. The Group and Company always measure impairment of trade receivables in the amount equivalent to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions as at the reporting date. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 62 23. Trade and other receivables (continued) The Group and Company write off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. None of the trade receivables that have been written off is subject to enforcement activities. As the Group and Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group and Company’s different customer segments. The following table shows the movement in lifetime ECL that has been recognised for trade receivables in accordance with the simplified approach set out in IFRS. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 63 23. Trade and other receivables (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 64 24. Borrowings Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 65 24. Borrowings (continued) Analysis of foreign currency borrowings: Other principal features of the Group and Company’s borrowings are the following: (i) The Company does not use overdrafts. (ii) The Company has four main bank loans: (a) A loan, of HRK 9.3 million (2020: HRK 12.3 million) contracted on 05/06/2019 with OTP bank d.d. with a currency clause in EUR, for financing trade and other payables. Repayments commenced on 05/09/2019 and will continue until 05/01/2025. The loan has been secured by promissory notes and bills of exchange issued by the Group companies the Company’s pledged assets (registered office building). A variable, annual interest rate of 1.80% is applied to the loan. (b) A loan, of HRK 3.2 million (2020: HRK 5.7 million) contracted on 23/07/2015 with OTP bank d.d. with a currency clause in EUR, for settling payables to Addiko bank d.d.. Repayments commenced on 23/10/2015 and will continue until 23/03/2023. The loan has been secured by promissory notes and bills of exchange issued by the Group companies the Company’s pledged assets (registered office building). A fixed, annual interest rate of 1.80 % is applied to the loan. (c) A loan, of HRK 1.7 million (2020: HRK 3.3 million) contracted on 16/07/2020 with Privredna banka Zagreb d.d. in HRK for working capital. Repayments commenced on 31/08/2020 and will continue until 31/12/2022. The loan has been secured by promissory notes and bills of exchange issued by the Company. A fixed, annual interest rate of 2.20 % is applied to the loan. (d) A loan, multipurpose framework, of EUR 4.4 million, active as at the reporting date and used only for issuing guarantees in the amount of HRK 7.7 million (2020: HRK 10.4 million of used loans), contracted on 31/03/2011 with OTP banka d.d. with a currency clause in EUR. Each instalment matures within 6 months from its withdrawal. The framework is contracted and renewed annually, the loan to be used by 31/05/2022, ultimate repayment deadline 30/11/2022. Interest rate benchmark for 1-month EURIBOR increased by the interest margin of 2.75%, variable, is applied for EUR. The loan has been secured by the Company’s pledged assets (registered office building) and promissory notes and bills of exchange by the Group’s companies and owners. In addition to the loans cited above, the Group has another two loans: (e) A loan of the member of the Group Span LLC Kiev, with an overdraft of USD 500 thousand, with HRK 0.4 million used as at the reporting date (2020: HRK 0.0 million) contracted on 30/11/2021 with Raiffeisen Bank Ukraine, with a currency clause in USD. The loan is repayable by 30/11/2022. Interest rate benchmark for 3- month UIRD (Ukrainian Index of Retail Deposit Rates) increased by the interest margin of 2.50%, variable, is applied for the loan. The loan is secured by the Company’s corporate guarantee. (f) A loan of the Group member Bonsai d.o.o., multipurpose framework of EUR 400 thousand, HRK 0.8 million used as at the reporting date (2020: -) contracted on 06/07/2021 with OTP banka d.d., with a currency clause in EUR. Each instalment matures within 6 months from its withdrawal. The framework is contracted and renewed annually, the loan to be used by 31/05/2022, ultimate repayment deadline 30/11/2022. Interest rate benchmark for 1-month EURIBOR increased by the interest margin of 1.65%, variable, is applied for EUR. The loan has been secured by promissory notes and bills of exchange issued by the Group companies. (iii) Interest on payables to related parties of the Group and Company amounts to 3.00% (2020: 3.42%) p.a. on the outstanding amount of the loan. The interest rate is the interest rate currently in force for loans between related parties defined by the Ministry of Finance. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 66 25. Deferred tax Below please find an overview of deferred tax liabilities and assets that the Group and Company recognised and the movement thereof during the reporting period. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 67 25. Deferred tax (continued) Deferred tax liability refers to the revaluation of land and buildings owned by the Group and Company, the impact of which was recognised in other comprehensive income for 2021. Deferred tax assets represent the corporate tax amounts that are recoverable based on future deductions of taxable profit and recognised in the statement of financial position. Deferred tax assets are recognised up to the amount of the tax revenues which are likely to be realised. When determining future taxable profit and amount of tax revenues that are likely to be realised in the future, the Group and Company make judgements and estimates based on taxable profit from prior years and expectations of future revenues that are considered reasonable in the current circumstances. The Group and Company recognised deferred tax assets as temporary tax differences and tax losses carried forward. Temporary tax differences predominantly refer to ECL, valuation allowance for inventories, and temporary differences on account of the application of IFRS 16. All impacts of the change were recognised in profit or loss. 26. Lease liabilities The Group and Company are not exposed to substantial liquidity risk in terms of their lease liabilities. Lease liabilities refer to the lease of business premises and company vehicles recognised in line with the provisions of IFRS 16 Leases . 27. Trade and other payables Trade payables and liabilities accounted for mainly comprise outstanding amounts for purchasing trade goods and current costs. The average credit period for the purchase of goods for the Group is 38 days, and for the Company 44 days (2020.: 50 days for the Group, and 56 days for the Company). For most suppliers interest on trade payables is not calculated for the first 180 days from the invoicing date. Afterwards, interest is calculated for open balances by using different interest rates. The Group and Company have financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. The Management Board believes that the carrying amount of trade payables approximates their fair value. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 68 27. Trade payables and other liabilities (continued) 28. Share capital Share capital comprises 1,960,000 shares of nominal value of HRK 10/share. On 24 May 2021, the General Assembly of the company Span d.d. adopted the Decision on allocating shares based on the principle that one share of nominal value of HRK 100 be divided into 10 shares, each of nominal value of HRK 10. This Decision was entered in the court register of the Commercial Court in Zagreb on 25 May 2021. As at 31 December 2021, the Company had 30,900 (2020: 677,600) treasury shares. The Company has formed treasury share reserves in the amount of HRK 616 thousand (2020: HRK 28 million). The Company has a single type of regular shares which do not secure the right to a fixed income. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 69 29. Legal reserves As at 31/12/2020, the share capital of the company Span d.d. comprised 196,000 shares of nominal value HRK 100 per share, so the Company held 67,760 own shares. Reserves of HRK 28 million were formed for those shares. On 24 May 2021, the General Assembly of the company Span d.d. adopted the Decision on allocating shares based on the principle that one share of nominal value of HRK 100 be divided into 10 shares, each of nominal value of HRK 10. This Decision was entered in the court register of the Commercial Court in Zagreb on 25 May 2021. In line with the aforementioned, as at 31 December 2021, the share capital of the company Span d.d. comprised 1,960,000 shares of nominal value of HRK 10, so the Company held 30,900 own shares. Reserves of HRK 615 million were formed for those shares. In line with Article 222.a (2) of the Companies Act, the Company cancelled the reserves for own shares sold in the IPO and recorded the amount in retained earnings. Legal reserves amount to HRK 79,084 thousand and are a result of the public offering of Company shares, that is the difference between the nominal share value (HRK 10) and final IPO price (HRK 175), net of cancelled reserves for own shares sold in the IPO. 30. Revaluation reserves Property revaluation reserve Property revaluation reserve was formed in 2019 from land and buildings revaluation based on an assessment by an independent appraiser and increased in 2021 based on a new assessment by an independent appraiser, and on 31/12/2021 it amounted to HRK 15,954 thousand (2020: HRK 8,451 thousand). Revaluation reserves may be realised once the asset is derecognised or gradually by using assets in the amount defined as the difference between depreciation based on the revalued carrying amount of assets and depreciation based on the original purchase cost. Realised revaluation reserve is transferred to retained earnings. When selling revalued land or revalued buildings, a portion of the properties revaluation reserve referring to the assets sold is transferred directly to retained earnings. Other comprehensive income items included in the properties revaluation reserve are not subsequently transferred to profit or loss. The Group and Company decided to realise the revaluation reserve by gradually using assets and in 2021 they realised revaluation reserves in the amount of HRK 455 thousand and increased the revaluation reserve in the amount of HRK 7,958 thousand based on a new assessment. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 70 31. Non-controlling interests Below please find an overview of summary information on all subsidiaries of the Company, in which the Company has material non-controlling interests. The summarised financial information below represents amounts before intragroup eliminations. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 71 31. Non-controlling interests (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 72 31. Non-controlling interests (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 73 31. Non-controlling interests (continued) In 2021 the Company sold its shares in MMC d.o.o. The Group’s loss from sales amounted to HRK 72 thousand (note 13). Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 74 32. Notes to the cash flow statement The carrying value of the relevant assets approximates their fair value. Below please find an overview of cash and cash equivalents at the end of the reporting period. 33. Deferred income Deferred income refers to accruals and deferrals, i.e., income recognised in future periods in which the service is realised. 34. Contractual liabilities Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 75 35. Financial instruments (a) Classes and categories of financial instruments and their fair values The following table provides information on: • classes of financial instruments based on their nature and characteristics; • the carrying amounts of financial instruments; • fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and • fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed. Level 1 to 3 fair value measurements are based on the degree of measurability of fair value: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). (b) Financial risk management objectives The Company and Group’s Corporate Treasury function supports operations, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company and Group. These include market risk (including currency risk, interest rate risk, and price risk), then credit risk and liquidity risk. The Group and Company seek to minimise the effects of these risks by using financial instruments to hedge against the relevant exposures. The Company and Group have concluded a framework contract on derivative financial instruments for hedging against the interest and currency risk, as well as other risks that incur or may incur due to changes in prices, values etc. (c) Market risk The Company and Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates (see below). The Company and Group have introduced changes to the ways in which they manage this risk. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 76 35. Financial instruments (continued) (c)(i) Foreign currency risk management The Group and Company undertake transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The Group and Company have not concluded a contract on derivative financial instruments for hedging against the currency risk. The table below details the carrying amounts of the Group and Company’s foreign-currency denominated monetary assets and liabilities at the reporting date. Foreign currency sensitivity analysis The Group and Company are mainly exposed to the currency of EU member states (EUR) and the currency of the USA (USD). The following table details the Group and Company’s sensitivity to a 1 % increase and decrease in currency units against the relevant foreign currencies. 1 % is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 1% change in foreign currency rates. The sensitivity analysis includes certain receivables (trade and other receivables) and payables (loan liabilities to financial institutions, trade payables, and other contractual liabilities) denominated in a foreign currency. A positive number below indicates an increase in profit and other equity where the HRK strengthens 1 % against the relevant currency. For a 1 % weakening of the HRK against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 77 35. Financial instruments (continued) (c)(i) Foreign currency risk management (c)(ii) Interest rate risk management The Group and Company are exposed to interest rate risk because entities in the Group and Company borrow funds at both fixed and floating interest rates. The risk is managed by the Group and Company by maintaining an appropriate mix between fixed and floating rate borrowings. The Group and Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 78 35. Financial instruments (continued) Interest rate risk sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the reporting date was outstanding for the whole year. A 1 % increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 1% higher/lower and all other variables were held constant: • the Company’s profit for the year ended 31 December 2021 would decrease/increase by HRK 93 thousand (2020: decrease/increase by HRK 227 thousand). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. Company Interest rate risk In HRK ‘000 2021 2020 Variable-rate instruments Borrowings and loan liabilities 9,271 22,701 Total 9,271 22,701 1% interest rate increase 93 227 • the Group’s profit for the year ended 31 December 2021 would decrease/increase by HRK 104 thousand (2020: decrease/increase by HRK 227 thousand). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. Group Interest rate risk In HRK ‘000 2021 2020 Variable-rate instruments Borrowings and loan liabilities 10,436 22,701 Total 10,436 22,701 1% interest rate increase 104 227 Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 79 35. Financial instruments (continued) (d) Credit risk management The Group and Company have adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group and Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Before accepting any new customer, a dedicated team responsible for the determination of credit limits uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Monitoring procedures are also in place to ensure that follow-up action is taken to recover overdue debts. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions. None of the trade receivables that have been written off is subject to enforcement activities. Furthermore, the Group and Company review the recoverable amount of each trade debt and debt investment on an individual basis at the end of the reporting period to ensure that adequate loss allowance is made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group and Company’s credit risk is significantly reduced. Trade receivables refer to a large number of customers from different economic sectors and regions. Of the trade receivables balance at the end of the year, HRK 7,783 thousand (2020: HRK 10,315 million) is due from Customer 1, the Group and Company’s largest customer. Apart from this, the Group and Company do not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company and Group consider counterparties having similar characteristics related parties. As at 31 December 2021, an amount of HRK 221 thousand (2020: HRK 957 thousand) has been estimated as a loss allowance in accordance with IFRS 9 for the Group and HRK 46 thousand for the Company (2020: HRK 130 thousand) (note 23). (d)(i) Collateral held as security and other credit enhancements Where appropriate, the Company and Group hold collateral to cover their credit risks associated with their financial assets and continuously monitor customers. d)(ii) Overview of the Group and Company’s exposure to credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and Company. As at 31 December 2021, the Group and Company’s maximum exposure to credit risk without taking into account any collateral held or other credit enhancements, which will cause a financial loss to the Group and Company due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group arises from: • the carrying amount of the respective recognised financial assets as stated in the statement of financial position. For trade receivables, the Group and Company have applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL. The Group and Company determine the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Thus, the credit risk profile of the relevant assets has been presented based on the past due status in relation to the Group’s provision matrix. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 80 35. Financial instruments (continued) d)(ii) Overview of the Group and Company’s exposure to credit risk (continued) Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 81 35. Financial instruments (continued) (e) Liquidity risk management Responsibility for liquidity risk management rests with the management, which has established an appropriate liquidity risk management framework for managing short, medium, and long-term funding and liquidity. The Group and Company manage liquidity risk by maintaining adequate reserves and credit lines, continuously comparing the planned and realized cash flow by monitoring the maturity of claims and liabilities. Details on unused credit products available to the Group and Company to additionally decrease liquidity risk are provided below. The Company has access to financing facilities, of which HRK 67,658 thousand were unused at the reporting date (2020: HRK 48,529 thousand). The Group has access to financing facilities, of which HRK 73,885 thousand were unused at the reporting date (2020: HRK 48,529 thousand). The Group and Company expect to meet their other obligations from operating cash flows and proceeds of maturing financial assets. (e)(i) Liquidity and interest risk tables The remaining period until the contract maturity of non-derivative financial liabilities of the Group and the Company was analysed in the following tables. The tables have been drawn up based on the undiscounted cash outflows for financial liabilities in line with the earliest date when the Group and the Company may demand payment. The tables detail cash flows from principal and interest. Based on expectations at the end of the reporting period, the Group and Company consider that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses. The contractual maturity is based on the earliest date on which the Group and Company may be required to pay. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 82 35. Financial instruments (continued) (e)(ii) Financing instruments The Group and Company use a combination of cash inflows and available banking instruments for managing liquidity. The table below presents the cash inflows from assets: (f) Capital risk management The Group and Company manage their capital to ensure they will be able to continue as a going concern while maximizing the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group and Company consists of net debt (borrowings after deducting cash and bank balances) and equity of the Group and Company (comprising issued capital, reserves, retained earnings and non-controlling interests). The Group and Company are not subject to any externally imposed capital requirements. Gearing ratio: The gearing ratio at the end of the year was as follows: Debt is defined as long- and short-term borrowings. Equity includes share capital, profit reserves, other provisions, other capital items, translation reserves of foreign operations, revaluation reserves, and retained earnings, all of which the Group and Company manage as equity. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 83 36. Events after the reporting period We would like to highlight the following significant events after the reporting period: Purchase of treasury shares On 20 January 2022, the Company acquired 20,000 own shares at the price of HRK 212 based on the Programme of repurchase of own shares adopted by the Management Board of the Company. Merger with the subsidiary Infocumulus d.o.o. On 17 February 2022, the subsidiary Infocumulus d.o.o. was acquired by the Company, as entered in the Court register based on the Acquisition agreement of 16 December 2021 and the Minutes from the Assembly of the acquiree of 25 January 2022. Military operations in Ukraine On 24 February 2022, Russia invaded Ukraine and we are currently not able to assess the impact of the invasion on TOV Span’s operations as events are unfolding day-by-day. The Company TOV Span has 31 employees. Below please find a separate statement of comprehensive income of the subsidiary for 2021 and 2020, as well as its contribution to the Group’s consolidated result. Notes to the financial statements for the year ended 31 December 2021 SPAN d.d. and its subsidiaries 84 36. Events after the reporting period (continued) Investment incentives On 25 February 2022, the Company received the Ministry of Economy and Sustainable Development’s Confirmation of awarding funds from the Government programme granting the Company tax incentives as a support for eligible labour expenses related to its investment project. Furthermore, the Ministry approved a 50% income tax exemption for a period of 10 years that is applicable as of 2022 (payment of income tax for the year 2021) if the conditions from the Act are met. Acquisition of the subsidiary Ekobit d.o.o. On 14 March 2022, the Company signed a purchase contract for all shares in the company Ekobit d.o.o. in a transaction worth HRK 37,390 thousand. A portion of the purchase price depending on the business results of the company Ekobit d.o.o. is subject to adjustments in 2022. According to the decision of the so-far owners of Ekobit d.o.o., a portion of the amount of HRK 3,266 thousand will be paid via own shares of the Company to meet the Employee Share-Based Compensation policy of Ekobit d.o.o. 37. Authorisation of financial statements The financial statements were approved by the Management Board on 29 April 2022. For SPAN d.d.: President of the Management Board Member of the Management Board Member of the Management Board Nikola Dujmović Marijan Pongrac Dragan Marković Member of the Management Board Member of the Management Board Antonija Kapović Saša Kramar 747800L0D5F39CX8NA432019-12-31747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMember747800L0D5F39CX8NA432020-12-31747800L0D5F39CX8NA432021-12-31747800L0D5F39CX8NA432020-01-012020-12-31747800L0D5F39CX8NA432021-01-012021-12-31747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMember747800L0D5F39CX8NA432019-12-31ifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432019-12-31ifrs-full:CapitalReserveMember747800L0D5F39CX8NA432019-12-31ifrs-full:OtherReservesMember747800L0D5F39CX8NA432019-12-31ifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432019-12-31ifrs-full:OtherEquityInterestMember747800L0D5F39CX8NA432019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember747800L0D5F39CX8NA432019-12-31ifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember747800L0D5F39CX8NA432019-12-31ifrs-full:NoncontrollingInterestsMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:CapitalReserveMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:OtherReservesMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:OtherEquityInterestMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember747800L0D5F39CX8NA432020-12-31ifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432020-12-31ifrs-full:CapitalReserveMember747800L0D5F39CX8NA432020-12-31ifrs-full:OtherReservesMember747800L0D5F39CX8NA432020-12-31ifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432020-12-31ifrs-full:OtherEquityInterestMember747800L0D5F39CX8NA432020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember747800L0D5F39CX8NA432020-12-31ifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember747800L0D5F39CX8NA432020-12-31ifrs-full:NoncontrollingInterestsMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:CapitalReserveMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:OtherReservesMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:OtherEquityInterestMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember747800L0D5F39CX8NA432021-12-31ifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432021-12-31ifrs-full:CapitalReserveMember747800L0D5F39CX8NA432021-12-31ifrs-full:OtherReservesMember747800L0D5F39CX8NA432021-12-31ifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432021-12-31ifrs-full:OtherEquityInterestMember747800L0D5F39CX8NA432021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember747800L0D5F39CX8NA432021-12-31ifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember747800L0D5F39CX8NA432021-12-31ifrs-full:NoncontrollingInterestsMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMemberifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMemberifrs-full:CapitalReserveMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMemberifrs-full:OtherReservesMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMemberifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432019-12-31ifrs-full:SeparateMemberifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMemberifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMemberifrs-full:CapitalReserveMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMemberifrs-full:OtherReservesMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMemberifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432020-01-012020-12-31ifrs-full:SeparateMemberifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMemberifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMemberifrs-full:CapitalReserveMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMemberifrs-full:OtherReservesMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMemberifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432020-12-31ifrs-full:SeparateMemberifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMemberifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMemberifrs-full:CapitalReserveMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMemberifrs-full:OtherReservesMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMemberifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432021-01-012021-12-31ifrs-full:SeparateMemberifrs-full:RetainedEarningsMember747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMemberifrs-full:IssuedCapitalMember747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMemberifrs-full:CapitalReserveMember747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMemberifrs-full:OtherReservesMember747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMemberifrs-full:RevaluationSurplusMember747800L0D5F39CX8NA432021-12-31ifrs-full:SeparateMemberifrs-full:RetainedEarningsMemberiso4217:HRKiso4217:HRKxbrli:shares