Annual Report • Apr 29, 2019
Annual Report
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ON STATUS AND BUSINESS ACTIVITIES OF THE GROUP IN 2018
Zagreb, April 2019
| Page | |
|---|---|
| Management report | 1 |
| Responsibilities of the Management board for the Annual report | 16 |
| Independent Auditors' report to the shareholders of Zagrebačka burza d.d. Group | 17 |
| Consolidated Statement of comprehensive income | 23 |
| Consolidated Statement of the financial position | 24 |
| Consolidated Statement of changes in equity | 25 |
| Consolidated Statement of cash flows | 26 |
| Notes to the consolidated financial statements | 27 |
In 2018, Zagreb Stock Exchange Group (hereinafter: the Group) recorded the following significant business events:
‐ The 5th Investment Days of the Zagreb and the Ljubljana Stock Exchange in May enlisted the participation of five Slovenian and eleven Croatian issuers, holding 197 one‐on‐one and group meetings with investors from six countries in two days.
‐ In June 2018, the fifth fund‐raising campaign was launched via the Funderbeam SEE platform in 20% ownership of Zagreb Stock Exchange for the company named Entrio. It resulted in indicative interest to invest EUR 170,000 to be used by Entrio to penetrate new markets.
‐ On 5 September 2018, the Zagreb Stock Exchange Quality Management System was successfully audited for compliance with the ISO 9001:2015 standard.
‐ A business cooperation agreement between the Zagreb Stock Exchange and the Croatian Banking Association (HUB) was signed on 21 September 2018, paving the way for specialist training in the area of investment services and capital market in general to be delivered by the ZSE Academy to HUB members.
Operating revenues in 2018 amounted to HRK 23.9 mil, down ‐1.4% compared to the 2017. Revenue reduction largely due to the lower trading fees, is mostly canceled from earnings from other bases.
Operating profit before interest, taxes, depreciation and amortization in 2018 is positive and it amounted to HRK 1.493 thousand while in 2017 was negative and amounted to HRK ‐2,403 thousand.
Figure 1. Operating revenue and EBITDA in 2017 and 2018
| (000 HRK) | 2018 | 2017 |
|---|---|---|
| Issued share capital | 46,357 | 46,357 |
| Total equity | 39,505 | 39,878 |
| Total assets | 46,022 | 46,443 |
| Operating revenues | 23,888 | 24,227 |
| ‐ revenue | 15,421 | 15,858 |
| ‐ other operating income | 8,467 | 8,369 |
| Operating expenses | 23,529 | 28,422 |
| ‐ staff costs | 10,853 | 10,940 |
| ‐ depreciation and amortization | 1,134 | 1,792 |
| ‐ other operating expenses | 11,542 | 15,690 |
| EBIT | 359 | ‐4,195 |
| EBITDA | 1,493 | ‐2,403 |
| Profit / loss before tax | 289 | ‐3,644 |
| Income tax expense | ‐99 | ‐111 |
| Profit / loss for the year | 190 | ‐3,755 |
Table 1. Main business indicators in 2017 and 2018
In 2018, the Group realized HRK 23,888 thousand in operating income, which is a slight decrease by ‐ 1.4% compared to 2017.
The drop in revenues is most noticeable in commissions that are down by ‐9%, as well as sales and lease of equipment that are down by ‐20%, while the membership fees are down by ‐8.8%. Revenues from API services are completely absent which is related to the transition to the new Xetra trading system, on July 1, 2017, when these revenues ceased to exist. In addition, in 2018 there was no income from grant in contrast to 2017 when EBRD funds were received. The loss of income from commissions and membership fees due to significant fall in turnover on both markets is canceled by other sources of income that the Group achieves.
The highest revenue growth was recorded at seminar revenues (+142%). Besides them, revenues from quotation fees (+35%) revenues from the supply of information (+15%) and revenues from quotation maintaining (+0,8%) also grew. Other revenues increased by +31%.
Total 2018 operating expenses of the Group amounted to HRK 23,529 thousand, down by ‐17,2% compared to 2017. The biggest impact on the aforementioned decrease was the decrease in the software costs and licenses for almost HRK 3 million or ‐45%, which is shown in other operating expenses (down by ‐26% compared to 2017). Except that, depreciation and amortization decreased by ‐36.7%, and staff costs slightly decreased by ‐0.8%.
The Group's financial income decreased by ‐89% in 2018 as a result of reduced return on investment.
Taking all this into consideration, the total result of the Group in 2018 amounted to HRK 190 thousand which is HRK 3.945 thousand higher than the previous year when it was negative and amounted to HRK ‐3,755 thousand. Operating profit before interest, taxes, depreciation and amortization in 2018 is positive and it amounted to HRK 1.493 thousand.
During 2018, the Group invested its available cash funds in investment funds (money market and bond funds) and deposits (a vista and fixed‐term) in order to preserve the value of its assets. The available cash funds of the Group stood at HRK 24,220 thousand (units in investment funds, deposits and cash in bank) at the end of 2018.
Total operating revenues in 2018 amounted to HRK 23.9 mil, which is a ‐1.4% decrease compared to the 2017. The highest revenue growth was achieved in seminar revenues (+142%).
The largest stake in operating revenues, as in the previous year, stems from commissions (29,5%) and revenues from maintenance of quotations fees (28.5%).
Figure 2. Total operating revenues structure in 2017 and 2018
Total 2018 operating expenses amounted to HRK 23,529 thousand, a decrease of ‐17,2% compared to 2017.
The biggest impact on the reduction of total operating expenses is the decrease of other operating expenses by HRK ‐4,148 thousand or ‐26.4%, which includes the reduction of software cost and licenses for HRK ‐2,967 thousand or ‐45%. In addition, depreciation and amortization expense decreased by ‐ 36.7%, while staff costs decreased by ‐0.8% compared to 2017.
Staff costs Other operating costs Depreciation and amortisation
Figure 3. Total operating costs in 2017 and 2018
In addition to the above mentioned, other operating expenses also recorded a decrease in the write‐ off of a computer program (‐95%), postal and telephone services (‐42%), utility costs (‐39%), professional services (‐26%) and impairment (‐6%). Business travel costs (+70%), representation (+37%), other costs (+9%), office space rent (+7%), and fees and charges (+7%) increased.
Figure 4. Operating costs structure in 2017 and 2018
In 2018, net profit for the period was HRK 190 thousand, an increase of HRK 3,945 thousand compared to the previous year. As total operating income fell by ‐1.4%, the positive result came after decrease in the operating costs, primarily the software costs and licenses (‐45%) shown in other operating costs.
Operating profit before interest, taxes, depreciation and amortization in 2018 is positive and it amounted to HRK 1.493 thousand while in 2017 was negative and amounted to HRK ‐2,403 thousand.
Figure 5. Net profit / loss for the year and EBITDA in 2017 and 2018
On 31 December 2018, total assets of the Group amounted to HRK 46 mil, which is a decrease of ‐0.9% compared to the previous year.
| (000 HRK) | 2018 | 2017 |
|---|---|---|
| ASSETS | ||
| Total non‐current assets | 17,258 | 20,000 |
| Total current assets | 28,764 | 26,443 |
| Total assets | 46,022 | 46,443 |
| EQUITY AND LIABILITIES | ||
| Total equity | 39,505 | 39,878 |
| Current liabilities | 254 | 326 |
| Long‐term liabilities | 4,141 | 4,027 |
| Total equity and liabilities | 46,022 | 46,443 |
Table 2. Assets and liabilities in 2017 and 2018
Figure 6. Assets and liabilities in 2017 and 2018
There were no significant events after the end of the financial year that affected the reported results.
In 2019, the Group will continue to focus on restoring confidence and raising Corporate Governance standards and reporting on a regulated market. The Group will also focus on greater promotion of existing issuers, with a focus on Prime Market.
The Group will press on with previously initiated projects, placing the greatest emphasis on the project of regional SME capital market development (Progress), and further activities related to financing and investing in start‐ups (Funderbeam SEE).
By the end of 2019, extensive activities regarding moving to a new version of the T7 trading system will be ended.
The Group has pressed on with continuous efforts at developing and improving its own service offering and at expending service provision to the Slovenian market as well.
The Group was not the owner of its own shares on 31 December 2018. In 2018, the Exchange did not acquire its own shares.
SEE Link d.o.o. is a company seated in Skopje established by the Bulgarian, Macedonian and Zagreb Stock Exchanges in May 2014 with the aim of seeting up the regional infrastructure for trading in securities listed in those three exchanges, holding equal equity participations. The issued share capital of SEE LINK is 80,000 EUR and Zagreb Stock Exchange participates with 33.33%.
Ivana Gažić is the President of the Supervisory Board of SEE LINK. Ivan Steriev, CEO of the Macedonian Stock Exchange is a member of the Supervisory Board and Ivan Takev, CEO of the Bulgarian Stock Exchange is also a member of the Supervisory Board.
On 30 December 2015, the Zagreb Stock Exchange took over a 100% participation in company Ljubljana Stock Exchange Inc. The issued share capital of Ljubljana Stock Exchange on 31 December 2018 is EUR 1,401,000, and the Zagreb Stock Exchange participates with 100%.
Ivana Gažić is the President of the Supervisory Board, while Patricia Bakšaj, Director of Legal Affairs and Compliance, Zagreb Stock Exchange, Tomislav Gračan, Member of the Management Board, Zagreb Stock Exchange, and Darja Jermaniš, Director of Market Operations, Ljubljana Stock Exchange are the memebers of the Supervisory Board.
Funderbeam South‐East Europe d.o.o. is a company that the Exchange fonded in 2016 together with company Funderbeam Ventures OÜ. The issued share capital of the company on 31 December 2018 is 244,000 HRK, and the Exchage participates with 20%.
The Group is fully funded by its own capital. The financial instruments the Group invests in are investment funds (money market and bond funds) and deposits (a vista and fixed‐term deposits).
Business operation risks of the Group are detailed in the notes to the financial statements (Note 23).
Zagreb Stock Exchange internal controls system consists of procedures and processes for monitoring of business efficiency, financial reports reliability and legal compliance. All employees, including the Management and Supervisory Board, are included in internal controls system enforcement. The Exchange enforces the internal controls system through two independent control functions: compliance with the relevant regulations function and internal audit function.
These control functions process and monitor the work of all organizational units, company activities and support services in their internal documents.
Risk management is a set of procedures and methods for determining, measuring, assesing, controlling and monitoring risks and also reporting on the risks to which the Exchange is or might be exposed in its operations.
The Exchange has adopted the following procedures related to risk management:
In order to successfully manage risks that affect completion of Company's objectives, the company assesses risks by identifying and analysing them.
Considering the Company's determined objectives and defined core processes, the Exchange has identified and determined risks that could influence the company's business processes. List of risks doesn't encompass all risks but only those on higher level. Other, more detailed risks (lower level risks) are identified during the internal audit of business processes.
The risks are grouped by those that influence the Exchange's organizational units that perform specific business processes within the company and by other risks that are connected with the Exchange's business in general.
Considering the previously defined company's core business processes and determined risks, the Exchange has adopted Risk assessment with regard to their impact on business processes.
Pursuant to provision of Article 272, paragraph, in conjunction with provision of Article 250a, paragraph 4 of the Companies Act (Official Gazette no. 111/93, 34/99, 52/00, 118/03, 107/07, 148/08, 137/09, 125/11, 152/11, 111/12, 68/13, 110/15, hereinafter: CA) and provision of Article 22 of the Accounting Act (Official Gazette no. 78/15, 134/15 i 120/16, hereinafter: AA), the Management Board of company ZAGREB STOCK EXCHANGE Inc., Zagreb, Ivana Lučića 2a (hereinafter: the Company), on 26 April 2018, issued the following
| Shareholder | No. of | Equity in % | |
|---|---|---|---|
| shares | |||
| 1. | EUNEX‐C d.o.o. | 926,212 | 19.9800 |
| 2. | PBZ CO OMF | 462,800 | 9.9834 |
| 3. | BAKTUN, LLC | 364,957 | 7.8727 |
| 4. | ICAM OUTFOX MACRO INCOME | 277,100 | 5.9775 |
| 5. | EBRD | 240,000 | 5.1772 |
| 6. | SZAIF d.d. | 228,000 | 4.9184 |
| 7. | OTP BANK d.d. | 211,800 | 4.5689 |
| 8. | ERSTE & STEIRMARKISCHE BANK d.d. | 152,800 | 3.2962 |
| 9. | HPB d.d. | 133,800 | 2.8863 |
| 10. | ADDIKO BANK d.d. | 133,800 | 2.8863 |
| Others | 1,504,431 | 32.0000 | |
| Total | 4,635,700 | 100.0000 |
Pursuant to the Articles of Association of the Company, shareholder's voting rights are not limited to certain percentage or number of votes nor are there time limitations to acquire voting right. Each ordinary share provides a right to one vote in the General Assembly.
Rights and obligations of the Company deriving from the acquisition of own shares are met in accordance with the provision of the CA.
In 2018 the Company did not acquire own shares.
The Management Board runs Company business operations in line with the Articles of Association and legal regulations.
The Management Board is appointed and dismissed by the Supervisory Board that consists of the following members:
We have audited the consolidated financial statements of Zagrebačka burza d.d. ("the Company") and its subsidiary (together referred to as "the Group"), which comprise the consolidated statement of financial position as at 31 December 2018, and the consolidated statements of comprehensive income, cash flows and changes in equity for the year then ended, and notes, comprising significant accounting policies and other explanatory information (further referred to as "the financial statements").
In our opinion, the accompanying financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2018 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union ("EU IFRS").
We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Croatia and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Report on the Audit of the Financial Statements (continued)
Refer to page 34 (Group accounting policies), page 63 (Key accounting estimates and assumptions), page 50 (Intangible assets).
As at 31 December 2018, the carrying amount goodwill: amounts to HRK 1,168 thousand (31 December 2017: HRK 1,183 thousands) and no impairment losses recognized in 2018 (2017: nil).
| Key audit matter | How our audit addressed the matter |
|---|---|
| As at 31 December 2018, the stated amount of goodwill in relation to the acquisition of Ljubljanska borza d.d., was HRK 1,168 thousand. Relevant accounting standards require that goodwill is tested, at least annually, for impairment. |
Our audit procedures included the following: Evaluating the appropriateness of the Group's determination of CGUs to which goodwill is allocated; Assisted by our own valuation specialists, critically assessing the Group's assumptions and estimates used in value-in-use calculations to determine the recoverable amount of goodwill. This included, but |
| The assessment of the recoverability of goodwill requires significant judgment in determining the forecast future performance of the cash |
was not limited to: assessing the Group's discounted cash flow model for compliance with the relevant accounting standards; |
| generating units (CGUs) to which goodwill is allocated. Management's impairment assessment involves significant estimation, primarily relating to the key assumptions for revenue growth rates, terminal growth rate and discount rates. The key |
assessing the reasonableness of key assumptions applied in the model (including those relating to revenue growth rate, terminal growth rate and discount rate) against market data derived from analyst and industry reports; Comparing the Group's forecast for the current year made as of 31 December 2017 to the current year's outcomes to assess the quality of management's |
| assumptions applied by management are further described in Note 27 Key accounting estimates and assumptions. |
forecasting process; Evaluating the Group's analysis of the sensitivity of the impairment tests' results, in particular in respect of the assumptions with the greatest potential effect on the test results, e.g. those relating to discount rates and |
| The subjectivity of the principal assumptions required an application of a significant amount of audit judgment and effort. Accordingly, we consider this area to be our key audit matter. |
operating profit adjusted by depreciation and amortization. Assessing whether the Group's disclosures about the CGU's, the key assumptions used and sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the |
This version of the independent Auditors' Report is a translation from the original, which was prepared in 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 takes precedence over this translation
valuation of goodwill.
Report on the Audit of the Financial Statements (continued)
Key Audit Matters (continued)
Sales revenue for 2018: HRK 15,421 thousand (2017: HRK 15,858 thousand)
Refer to pages 31, 44 (Significant accounting policies) and page 46 (sales revenue).
| Key audit matter | How our audit addressed the matter |
|---|---|
| The Group earns sales revenues from service fees, which primarily include trading commissions, quotation maintenance, as well as quotation and membership fees. These revenues are generally recognised as the related services are performed, generally when the underlying transactions occur, or, in the case of the quotation maintenance or membership fees, on a systematic basis over the year. |
Our audit procedures included the following: Understanding of the processes and controls associated with the revenue cycle; Assisted by our own IT specialists, testing selected automated controls over the integrity of transfers of transaction volumes between the Group's trading and reporting systems, as well as general IT controls; Assessing the Group's revenue recognition polices |
| The process of revenue recognition is | against relevant financial reporting standards; Assessing the Group's revised accounting policy for revenue recognition and compliance with the |
| highly automated as it is mainly based on the application of fees from the published tariff on the underlying trading volumes or a number of quoted securities. Contracts entered into by the Group are of limited complexity and variety. However, there are a large |
new accounting standard and the IFRIC view on treatment of initial listing service fee, specifically on determination whether the above service represents separate performance obligation and whether there is a material right to the customer to renew the contract; |
| number of transactions to be processed by the Group's IT systems. As such revenue recognition is an area of audit focus. |
For trading commission revenue, on a sample basis, testing the recognition of revenue by reference to the appropriate fees derived from the published tariff and the number of underlying |
| Additionally, IFRS 15 'Revenue from contracts with customers', came into |
transactions or volumes of quoted securities derived from the stock exchange trading system; |
| effect from 1 January 2018, which had impact on recognition of initial listing service fees which were under previous standard IAS 18 recognised when the services occurred, and under IFRS 15 over the period over which the customer has a material right to services rendered. |
For a sample of customer contracts, testing the revenue from membership fees by inspecting contractual terms and independently recalculating the amount of revenue by reference to those terms; For all clients newly listed in 2018, independently recalculating the amount of quotation fees revenue by applying the published tariff. |
| Given the above involved judgment applied by the management, it is considered to be our key audit matter. |
Inspecting manual journal entries posted to revenue accounts focusing on unusual and irregular items, or entries modified subsequent to the balance sheet date. |
| Assessing the disclosures within the Annual Report |
This version of the independent Auditors' Report is a translation from the original, which was prepared in 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 takes precedence over this translation
15;
and for compliance with the requirements of IFRS
Management is responsible for the other information. The other information comprises the Management Report and Corporate Governance Statement included in the Annual Report of the Group, but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
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 Corporate Governance Statement, we also performed procedures required by the Accounting Act in Croatia ("Accounting Act"). Those procedures include considering whether:
Based solely on the work required to be undertaken in the course of the audit of the financial statements and procedures above, in our opinion:
In addition, in light of the knowledge and understanding of the entity and its environment obtained in the course of the audit, we are also required to report if we have identified material misstatements in the Management Report and Corporate Governance Statement. We have nothing to report in this respect.
Management is responsible for the preparation of the financial statements that give a true and fair view in accordance in accordance with EU IFRS, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Group'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 management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's financial reporting process.
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 auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing 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 International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
for the year ended 31 December
| Notes | 2018 HRK'000 |
2017 HRK'000 |
|
|---|---|---|---|
| Income statement | |||
| Sales revenue | 4 | 15,421 | 15,858 |
| Other operating income | 5 | 8,467 | 8,369 |
| Staff costs | 6 | (10,853) | (10,940) |
| Depreciation and amortization | 10,11 | (1,134) | (1,792) |
| Other operating expenses | 7 | (11,542) | (15,690) |
| Operating profit/(loss) | 359 | (4,195) | |
| Financial income | 8a | 66 | 612 |
| Financial expense | 8b | (7) | (9) |
| Net foreign exchange (loss)/gain | (5) | 4 | |
| Net finance income | 54 | 607 | |
| Share of loss of equity - accounted investees | (124) | (56) | |
| Profit/(loss) before tax | 289 | (3,644) | |
| Income tax credit | 9a | (99) | (111) |
| Profit/(loss) for the period | 190 | (3,755) | |
| Other comprehensive income | |||
| Items that may not be reclassified to profit or | |||
| loss Revaluation of non-current asset |
- | 1,306 | |
| Deferred tax on revaluation of non-current | - | (150) | |
| asset Items that are or may be reclassified to profit |
|||
| or loss Foreign operations – foreign currency translation differences |
(241) | (43) | |
| Total comprehensive loss for the year | (51) | (2,642) | |
| Basic and diluted loss per share (in HRK) | 18 | 0.04 | (0.81) |
The accounting policies and other notes set form an integral part of these consolidated financial statements.
as at
| Notes | 31 December 2018 HRK'000 |
31 December 2017 HRK'000 |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property and equipment | 10 | 12,275 | 14,194 |
| Intangible assets | 11 | 2,520 | 2,891 |
| Investment in associate and joint venture | 12 | 42 | 121 |
| Financial assets at fair value through other comprehensive income | 13a | 197 | - |
| Financial assets available for sale | 13b | - | 197 |
| Guarantee deposits | 250 | 249 | |
| Long-term deposits | 15b | 1,484 | 1,878 |
| Loans to related parties | 216 | 173 | |
| Deferred tax assets | 9 | 274 | 297 |
| Total non-current assets | 17,258 | 20,000 | |
| Current assets | |||
| Trade receivables and other assets | 14 | 4,007 | 3,220 |
| Prepaid expenses | 530 | 509 | |
| Financial assets at fair value through profit or loss | 13c | 17,693 | 18,217 |
| Short-term deposits | 15a | 4,083 | 2,633 |
| Cash and cash equivalents | 16 | 2,444 | 1,849 |
| Inventories | 7 | 10 | |
| Income tax receivable | - | 5 | |
| Total current assets | 28,764 | 26,443 | |
| Total assets | 46,022 | 46,443 | |
| Equity and liabilities | |||
| Equity | |||
| Issued share capital | 17 | 46,357 | |
| Share premium | 13,860 | 46,357 13,860 |
|
| Legal reserves | 141 | 141 | |
| Accumulated loss | (21,448) | (21,376) | |
| Revaluation reserve | 1,096 | 1,156 | |
| Translation reserve | (501) | (260) | |
| Total equity | 39,505 | 39,878 | |
| Non-current liabilities | |||
| Long-term financial liabilities | 19 | ||
| Deferred tax liability | 9 | 31 223 |
86 240 |
| Total non-current liabilities | 254 | 326 | |
| Current liabilities | |||
| Trade and other payables | 20 | 1,946 | 2,943 |
| Short-term financial liabilities | 19 | 60 | 60 |
| Income tax liability | 81 | - | |
| Contractual liabilities and provisions | 21 | 4,176 | - |
| Deferred income and other liabilities | 22 | - | 3,236 |
| Total current liabilities | 6,263 | 6,239 | |
| Total equity and liabilities | 46,022 | 46,443 |
The accounting policies and other notes form an integral part of these consolidated financial statements.
| Issued share capital |
Share premium |
Legal reserves |
Accumulated loss |
Revalorizat ion reserve |
Translation reserve |
Total | |
|---|---|---|---|---|---|---|---|
| HRK'000 | HRK'000 | HRK'000 | HRK'000 | HRK'000 | HRK'000 | HRK'000 | |
| As at 1 January 2017 | 46,357 | 13,860 | 141 | (17,621) | - | (217) | 42,520 |
| Loss for the year | - | - | - | (3,755) | - | - | (3,755) |
| Other comprehensive income Revaluation of land and |
|||||||
| building, net of deferred tax Foreign operations – |
- | - | - | - | 1,156 | - | 1,156 |
| foreign currency translation differences |
- | - | - | - | - | (43) | (43) |
| Total comprehensive loss for the year |
- | - | - | (3,755) | 1,156 | (43) | (2,642) |
| As at 31 December 2017 | 46,357 | 13,860 | 141 | (21,376) | 1,156 | (260) | 39,878 |
| First time adoption effect of IFRS 15 |
- | - | - | (322) | - | - | (322) |
| As at 1 January 2018 | 46,357 | 13,860 | 141 | (21,698) | 1,156 | (260) | 39,556 |
| Loss for the year | - | - | - | 190 | - | - | 190 |
| Other comprehensive income Foreign operations – |
|||||||
| foreign currency translation differences Depreciation of |
- | - | - | - | - | (241) | (241) |
| revaluation of building, net of deferred tax |
- | - | - | 60 | (60) | - | - |
| Total comprehensive loss for the year |
- | - | - | 250 | (60) | (241) | (51) |
| As at 31 December 2018 | 46,357 | 13,860 | 141 | (21,448) | 1,096 | (501) | 39,505 |
The accounting policies and other notes form an integral part of these consolidated financial statements.
for the year ended 31 December
| Notes | 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|---|
| Cash flow from operating activities | |||
| Profit/(loss) for the period | 190 | (3,755) | |
| Adjustments: | |||
| Depreciation and amortization | 10,11 | 1,134 | 1,792 |
| Net (losses)/gains from financial assets at fair value through profit or loss |
10 | 31 | (557) |
| Impairment allowance for trade receivables Impairment of bonds at fair value through comprehensive income |
(261) - |
278 44 |
|
| Interest income | 8 | (72) | (55) |
| Interest expense | 8 | 7 | 9 |
| Net foreign exchange gains | 5 | (4) | |
| Gain from sale of property and equipment | (196) | - | |
| Provisions for unused holidays | - | (7) | |
| Write-offs Loss from investment in joint venture |
27 124 |
1,553 56 |
|
| Tax expense | 99 | (111) | |
| Other adjustments | - | 103 | |
| Cash flow before changes in operating assets and liabilities | 1,088 | (654) | |
| Changes in operating assets and liabilities | |||
| Decrease / (increase) in trade receivables | (569) | 1,214 | |
| Decrease / (increase) in prepaid expenses | (21) | 3,361 | |
| Decrease / (increase) in inventories | 3 | 4 | |
| (Decrease) / increase in trade and other payables Decrease in deferred income and accrued expenses and |
(997) | (3,516) | |
| contractual liabilities and provisions | 611 | (1,799) | |
| Change in operating assets and liabilities | (973) | (736) | |
| Income tax | - | - | |
| Net cash inflow/(outflow) from operating activities | 115 | (1,390) | |
| Cash flow from investing activities | |||
| Purchase of equipment | (541) | (3,355) | |
| Proceeds from disposal of property and equipment | 1,730 | - | |
| Purchase of software Proceeds/expenditure from disposal/purchase of units in open |
(62) | (713) | |
| investment funds | 487 | (9,572) | |
| Proceeds/expenditure from investments in deposits | (1,056) | 2,032 | |
| Investments in associates and joint ventures Interest paid |
(45) (7) |
- - |
|
| Interest received | 72 | 55 | |
| Net cash inflow from investing activities | 578 | (11,553) | |
| Cash flow from financing activities | |||
| Borrowings of loan principal | (43) | (173) | |
| Long term loan repayment | (55) | (53) | |
| Net cash inflows from financing activities | (98) | (226) | |
| Net increase in cash and cash equivalents | 595 | (13,169) | |
| Cash and cash equivalents at the beginning of the year | 1,849 | 15,097 | |
| Changes in exchange rates on cash and cash equivalents | - | (79) | |
| Cash and cash equivalents at the end of the year | 16 | 2,444 | 1,849 |
The accounting policies and other notes form an integral part of these consolidated financial statements.
Zagrebačka burza d.d. ("the Company") is a company domiciled in Republic of Croatia and was registered at the Commercial Court in Zagreb on 5 July 1991. The address of the Company's registered office is Eurotower, 22nd floor, Ivana Lučića 2a/22, Zagreb, Croatia.
The business activities of the Company include: management of the regulated market; collection, processing and publishing of trading data; management of Multilateral Trading Facility; development, maintenance and disposition of computer software used for management of the regulated market and for collection, processing and publishing of the data on securities trading; organizing and providing professional trainings for participants of capital markets.
At the year end the Company was owned by 217 shareholders (2017: 273 shareholders). The Company does not have an ultimate parent company.
At 29 July 2016 General Assembly made a decision to split 46,357 ordinary shares of nominal value of HRK 1,000 into 4,635,700 ordinary shares of nominal value of HRK 10. The decision was effective as of 11 August 2017.
At 31 August 2017 all of the 4,635,700 issued ordinary shares were listed to the Official Market of Zagreb Stock Exchange.
The activities of the Company are regulated by Croatian Agency for Supervision of Financial Services ("HANFA") and the activities of the Ljubljanska borza d.d. are regulated by the Slovenian Securities Market Agency ("ATVP").
The Zagrebačka burza d.d. Group ("the Group") consists of Zagrebačka burza d.d., Zagreb, Republic of Croatia, foreign subsidiary Ljubljanska borza d.d.,Ljubljana, Republic of Slovenia. The Group has also foreign joint venture SEE Link d.o.o., Skopje, Republic of Macedonia and associate Funderbeam South-East Europe d.o.o., Zagreb, Republic of Croatia.
These financial statements comprise consolidated financial statements of the Group as defined in International Financial Reporting Standard 10 Consolidated Financial Statements. Zagrebačka burza d.d. prepares separate financial statements, which are published as a separate document.
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by European Union ("IFRS EU").
These are the first financial statements of the Group that include the first application of IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Assets. Changes in accounting policies are explained in Note 3.
These financial statements were authorised for issue by the Management Board on 26 April 2019 for approval by the Supervisory Board.
Financial statements are prepared on a historical cost basis, except for financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, land and buildings which are measured at fair value.
The financial statements are presented in the local currency, Croatian kuna ("HRK"), which is the currency of the primary economic environment in which the Company operates ("the functional currency"). The functional currency of Slovenian subsidiary is euro. All financial information presented in HRK has been rounded to the nearest thousand.
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, and given the information available at the date of preparation of the financial statements, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in future periods affected.
Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have a significant effect on the amounts disclosed in the financial statements are described in Note 27.
Transactions in foreign currencies are translated into respective functional currency at the spot exchange rate at the date of transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is difference between the amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and amortized cost in foreign currency translated at the spot exchange rate at the reporting date.
Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.
Foreign currency differences arising on translation are recognised in profit of loss.
In addition to HRK, the most significant currency in which the Group has assets and liabilities is Euro. The exchange rate used for translation on 31 December 2018 was EUR 1 = HRK 7.417575 (31 December 2017: EUR 1 = HRK 7.513648). Exchange rate used for translation of Group's share in joint venture loss on 31 December 2018 was MKD 1 = HRK 0.1193 (31 December 2017: MKD 1 = HRK 0.1221928).
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into HRK at the spot exchange rates at the reporting date. The income and expenses of foreign operations are translated into HRK at the annual average exchange rates.
Foreign currency differences are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve (translation reserve).
When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, then the relevant proportion of the cumulative amount is reattributed to NCI.
If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, then foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognised in OCI, and accumulated in the translation reserve within equity.
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group measures goodwill at the acquisition date as:
When the total is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
The Group's interests in equity-accounted investees comprise interests in a joint venture and associate. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interest in joint venture is accounted for using the equity method. It is initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity accounted investees, until the date on which joint control ceases.
Associates are entities over which the Group has significant influence but no control. Investments in associates are accounted for using the equity method of accounting in the consolidated financial statements and are initially recognised at cost.
The Group's share of its associates' post-acquisition gains or losses is recognised in the income statement and its share of their post-acquisition movements in reserves is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate.
Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any noncontrolling interest and other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the income statement. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or in accordance with the Group's accounting policy for financial instruments (refer to accounting policy 3 c) Financial instruments) depending on the level of influence retained.
Intra-group balances, and income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
The Group has initially applied IFRS 15 Revenue from contracts with customers and IFRS 9 Financial Instruments as of January 1, 2018. Except as described below, the accounting policies applied in these financial statements are the same as those applied in the Group's financial statements for the year ended 31 December 2017.
Due to the transition method chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated.
On 1 January 2018, the Group adopted IFRS 15 'Revenue from contracts with customers' (IFRS 15).
Under IFRS 15, revenue is recognized according to the form of transfer of goods and services to customers. The amount recognized should reflect the amount the entity expects to be entitled to in return for those products and services.
The Group adopted IFRS 15, using the cumulative effect method, by recognizing the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance at January 1, 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 18, Revenue.
The impact of adopting the new standard has been reflected through transition adjustments to the Group's opening accumulated losses at the start of the current year, as presented in the consolidated statement of changes in equity. The table below provides a summary of the impact at the date of transition:
| HRK '000 | ||||
|---|---|---|---|---|
| New | ||||
| As at 31 | Classification | As at 1 | ||
| December | Re | according to | January | |
| 2017 | measurement | IFRS 15 | 2018 | |
| Deferred income and accrued expenses | 2,729 | 329 | (3,058) | - |
| Contractual liabilities | - | - | 3,058 | 3,058 |
| Deferred tax | (297) | (7) | - | (304) |
| Accumulated loss | (21,376) | (322) | - | (21,698) |
The effect of initially applying IFRS 15 is attributed to the timing of recognition of initial listing fees. Under IFRS 15, revenue is recognized when performance obligations have been satisfied. The identification of performance obligations and determining the timing of when performance obligations are satisfied, either at a point in time or over time, requires judgement.
Until 31 December 2017, the initial listing fees for securities were each accounted for as a separate performance obligation, and revenue was recognised when (or as) the promised service was transferred to the customer and the customer obtained control of such service. More specifically, this was the point in time when the initial listing took place. Under IFRS 15, the Group determined that the initial listing service and the initial year sustaining service contain one single performance obligation, and therefore concluded that the initial listing fee should be deferred over a period over which the customer has a material right to the services rendered.
There were no other changes to the recognition of revenue as a result of applying IFRS 15.
In 2018, the Group received HRK 1,601 thousand of total initial listing fees, of which HRK 1,029 thousand was recognised in profit or loss for the year 2018, with the balance of HRK 572 thousand to be recognised over the remaining deferral period. Initial listing fees received in 2017 in the amount of HRK 329 thousand were recognised during 2018.
b) New Standards, Interpretations and Amendments to published Standards Accepted by the European Union
In July 2014, the International Accounting Standards Board issued the final version of IFRS 9 Financial Instruments.
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
Details of the new significant accounting policies and the nature and effects of changes in the previous period are listed below.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows. The standard eliminates IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale.
According to IFRS 9, derivative instruments embedded in contracts that result in a financial asset according to the standard are not separated from the contract. Instead, the hybrid financial instrument as a whole is assessed at the initial classification. IFRS 9 largely retains the existing requirements of IAS 39 related to the classification and measurement of financial liabilities.
Financial assets at amortized cost are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is decreased by impairment losses. Interest income, foreign exchange differences and allowances are recognized in the income statement. Any gain or loss is recognized in the income statement.
Financial assets at fair value through profit or loss are subsequently measured at fair value. Net gains and losses, including all interest income or dividends, are recognized in the income statement.
Financial assets at amortized cost of the Group as at 31 December 2018 include: Trade and other receivables, loans and cash and cash equivalents. They are classified as loans and receivables under IAS 39 and are now classified as assets held at amortized cost.
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' model. The new impairment model also applies to financial assets at amortised cost, certain loan commitments and financial guarantee contracts valued through other comprehensive income, but not to equity investments. Under IFRS 9, credit losses are recognized earlier than under IAS 39.
The Group adopted IFRS 9, using the cumulative effect method, by recognizing the cumulative effect of initially applying IFRS 9 as an adjustment to the opening balance at January 1, 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 39. The Group estimated that the new standard has no effect on the valuation of financial instruments, only on the classification.
b) New Standards, Interpretations and Amendments to published Standards Accepted by the European Union (continued)
The following table shows the original measurement categories in accordance with IAS 39 and the new categories of measurements in accordance with IFRS 9 for the financial assets and financial liabilities of the Group as of January 1, 2018.
| Original | Original | New carrying | ||
|---|---|---|---|---|
| classification under | New classification | carrying amount | amount under | |
| in thousand HRK | IAS 39 | under IFRS 9 | under IAS 39 | IFRS 9 |
| Financial assets | ||||
| Borrowings to | Loans and | |||
| related parties | receivables | Amortized cost | 173 | 173 |
| Loans and | ||||
| Trade receivables | receivables | Amortized cost | 3,143 | 3,143 |
| Cash and cash | Loans and | |||
| equivalents | receivables | Amortized cost | 1,849 | 1,849 |
| Loans and | ||||
| Guarantee deposits | receivables | Amortized cost | 249 | 249 |
| Units in open | Fair value through | Fair value through | ||
| investment funds | profit and loss | profit and loss | 18,217 | 18,217 |
| Fair value through | ||||
| other comprehensive | ||||
| Investment in bond | Available for sale | income | - | - |
| Fair value through | ||||
| Investment in equity | other comprehensive | |||
| instruments | Available for sale | income | 197 | 197 |
| Total financial | ||||
| assets | 23,828 | 23,828 | ||
| Financial liabilities | ||||
| Other financial | Other financial | |||
| Trade Payables | liabilities | liabilities | 1,552 | 1,552 |
| Total financial | ||||
| liabilities | 1,552 | 1,552 |
Property and equipment are stated at historical cost or deemed cost less accumulated depreciation and impairment losses, except for owner-occupied property which have been measured according to the revaluation method. The latter method requires that property, whose fair value can be measured reliably, to be recognized at a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value of land and buildings is measured on the basis of market benchmarks, in an appraisal that is normally prepared by professionally qualified appraisers.
Subsequent cost is included in the asset's carrying amount or is recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the period in which they have incurred. Depreciation is provided on all assets except land and assets not yet brought into use on a straight-line basis at prescribed rates designed to writeoff the cost over the estimated useful life of the asset.
The estimated useful lives are as follows:
| Buildings | 31 years |
|---|---|
| Computer and office equipment | 4-7 years |
| Office furniture and equipment | 5-7 years |
| Computer software | 2-5 years |
| Trading system software | 6-18 years |
| Leasehold improvements | period of lease |
When an item of property is revalued, the carrying value of that asset is adjusted to the revalued amount so that the accumulated depreciation is eliminated against the gross carrying amount of the asset.
After initial recognition of property:
The useful life, the residual value and amortization methods are checked and corrected, if necessary, at each reporting date.
.
According to IFRS 3 Business Combinations, any excess of the cost of the acquisition over the acquirer's interest in the fair value of the identifiable assets and liabilities acquired on the date of the acquisition is presented as goodwill and recognised as an asset. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (or the group of cash-generating units) to which the goodwill relates.
Where 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 pro-rata to the other assets of the unit on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
After initial recognition, financial assets are classified as assets at amortized cost, assets at fair value through other comprehensive income (FVOCI) and assets at fair value through profit and loss (FVTPL).
Financial assets are measured at amortized cost if they meet both of the following conditions and if they are not valued at fair value through profit and loss (FVTPL):
This category includes: loans and receivables from customers, cash and cash equivalents and placements with banks.
A debt instrument is measured at fair value through other comprehensive income if it meets both of the following conditions and if it is not valued at fair value through profit and loss account (FVTPL):
In the initial recognition of an investment in equity instruments that are not held for trading, the Group may irrevocably decide to display subsequent changes in fair value through other comprehensive income. This choice is made on the basis of a particular investment.
This category includes shares and bonds.
All other financial assets are classified as financial assets at fair value through profit or loss.
In addition, at initial recognition, the Group may irrevocably evaluate financial assets at fair value through profit or loss, although it meets the measurement requirements at amortized cost or at fair value through other comprehensive income, if this eliminates or substantially reduces the accounting mismatch that would contrary.
As at 31 December 2018, financial assets at fair value through profit or loss refer to investments in open-end investment funds. These assets are classified as held for trade.
Group's financial liabilities that are not measured at fair value through profit or loss are measured at amortized cost, which includes liabilities for loans, guarantee deposits and other liabilities.
Financial assets are not reclassified after initial recognition, except in the period after the change in the financial model for the financial asset management.
Business models determines how to manage a group of financial assets as a whole (portfolio) in order to achieve a specific business goal and define the way in which financial assets are expected to generate cash flows. Financial assets held for trading and whose performance is assessed on the basis of fair value are measured at fair value through profit and loss account, as it is not held for the purpose of collecting the contracted cash flows nor for collecting contractual cash flows and for sale.
Financial assets and financial liabilities at fair value through profit or loss are recognized at the trading date, ie the date on which the Group assumes the obligation to buy or sell the assets. Loans and receivables and other financial liabilities that are valued at amortized cost are recognized at the time the financial asset is transferred to the borrowers or liabilities received from the lender.
The Group ceases to recognise financial assets (in whole or in part) when the right to receive cash flows from a financial asset expires or when it loses control of the contractual rights over such a financial asset. This occurs when the Group substantially transfers all the risks and rewards of ownership to another business entity or when the rights have been exercised, ceded or expired. The Group ceases to recognize financial liabilities only when they cease to exist, ie when they are met, cancelled or expired. If the terms of the financial liability change, the Group will cease to recognize this obligation and start recognizing the new financial liability with the new terms.
From 1 January 2018, any cumulative gain or loss recognized in the comprehensive income from equity securities at fair value through other comprehensive income shall not be recognized in the income statement upon termination of recognition of such securities. All interest on transferred financial assets that meets the conditions for cessation of recognition is recognized as a separate asset or liability.
Financial assets and liabilities are initially recognized at fair value increased by, in case of financial assets and financial liabilities not at fair value through profit or loss, transaction costs that are directly related to the acquisition or issuance of a financial asset or a financial liability. Transaction costs of financial assets at fair value through profit or loss are recognized immediately in profit or loss, while other financial instruments are amortized. All financial assets at fair value through profit or loss are subsequently carried at fair value, excluding impairment of selling costs. Loans and receivables are valued at amortized cost less impairment losses and other financial liabilities at amortized cost. The amortized cost is calculated using the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument.
The fair value of financial assets at fair value through profit or loss is quoted bid market price at the reporting date, without any deduction for selling costs. The Group assesses separately each financial instrument to determine if there is an active or inactive market for the instrument.
The Group uses the following levels for determining the fair value of financial instruments:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities,
Level 2: other techniques for which all inputs which have significant effect on the recorded fair value are observable, either directly or indirectly,
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The Group classifies financial assets in the following categories: financial assets and liabilities at fair value through profit or loss; loans and receivables; and financial assets at fair value through comprehensive income. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition and re-evaluates this designation at every reporting date.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets which are classified as held for trading or, on initial recognition, designated by the Group as at fair value through profit or loss. The Group does not apply hedge accounting.
Trading assets are those that the Group acquires or incurs principally for the purpose of sale and repurchase in the near term, or held as part of a portfolio which is managed for the purpose of making profit in the short term. Those include investments in open-ended investment funds.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise guarantee deposits with banks classified as "guarantee deposits", "short-term deposits", "trade receivables and other assets" and ""borrowings to related parties".
Assets at fair value through comprehensive income relate to equity and debt securities. Financial assets at fair value through comprehensive income are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at fair value, unless there is no reliable measure of fair value.
Purchases and sales of financial assets at fair value through profit or loss and financial assets at fair value through comprehensive income are recognized on the settlement date. Loans and receivables and other financial liabilities carried at amortized cost are recognized when financial assets are placed with borrowers or received from lenders.
The Group derecognizes financial assets when the contractual rights to receive cash flows from the financial asset have expired or when it loses control over the contractual rights on those financial assets. This occurs when the Group transfers substantially all the risks and rewards of ownership to another entity or when the rights are realized, surrendered or have been expired.
Financial assets at fair value through profit or loss and financial assets at fair value through comprehensive income cease to be recognized at the settlement date. Loans and receivables are derecognized on the date of the transfer of funds by the Group.
Financial liabilities are derecognized when the financial liability ceases to exist, i.e. when obligations per liability have been fulfilled, cancelled or the liability has expired. If the terms of a financial liability change, the Group will cease recognizing the liability and will immediately recognize a new financial liability, with new terms and conditions.
Financial assets and liabilities are initially recognized at fair value plus, in the case of a financial asset and liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issuing of the financial asset or financial liability.
After initial recognition the Group measures financial instruments at fair value through profit or loss and financial assets at fair value through comprehensive income at their fair value, without any deduction for selling costs. Equity securities classified as at fair value through comprehensive income that are not quoted on an active market and whose fair value cannot be reliably determined are stated at cost less impairment.
Loans and receivables are measured at amortized cost less impairment losses, financial liabilities other than those at fair value through profit or loss are measured at amortized cost. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and they are amortized using the effective interest rate of the instrument.
Gains and losses from a change in the fair value of financial assets at fair value through profit or loss are recognized in the income statement.
Gains and losses from a change in the fair value of financial assets through comprehensive income are recognized in other comprehensive income. For monetary assets which are at fair value through comprehensive income, impairment losses, foreign exchange rate gains and losses, interest income and amortization of premium or discount using the effective interest method are recognized in income statement.
Gains or losses arising from financial assets and financial liabilities carried at amortized cost are included in profit or loss over the period of amortization, using the effective interest rate method. Gains or losses may also be recognized in profit or loss when the financial instrument is derecognized or when its value is impaired.
The Group recognises impairment losses based on expected credit losses related to financial assets measured at amortized cost and contractual assets.
Impairment of trade receivables is always measured in the total amount of expected credit loss in the total economic life of the asset concerned.
When estimating expected credit losses, the Group considers reasonable and substantiated information that is relevant and available at no additional cost or effort. This includes quantitative and qualitative information and analysis, based on the Group's historical experience and credit rating assessment, including information related to the future.
The Group considers that the risk of a financial asset is high if more than 90 days have elapsed since the date of its maturity. Such property is impaired in full.
At each reporting date, the Group assesses whether financial assets carried at amortised cost is credit‐ impaired. A financial asset is 'credit‐impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following:
The Group considers that a financial asset is not recoverable if it is unlikely that the debtor will fulfil his obligations to the Group completely without the Group having to initiate actions such as the use of a collateral asset (if any). The maximum period to be taken into account when estimating expected credit loss is the maximum contracted period during which the Group is exposed to credit risk.
ECL are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECL are discounted at the instrument's effective interest rate.
At each reporting date the Group assesses whether there is objective evidence that the financial assets which are not classified as financial assets at fair value through profit or loss have been impaired. Financial assets are impaired when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an adverse impact on estimated future cash flows.
The Group considers evidence of impairment on an asset-by-asset basis.
Objective evidence that financial assets are impaired include default or delinquency of a borrower, restructuring of a loan, or an advance received by the Group under the terms which the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a Group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group of the similar assets.
Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets' original effective interest rate. Losses are recognized in profit or loss and recorded in an allowance account against relating asset. Interest income on the impaired asset continues to be recognized as unwinding of discount. When a subsequent event causes the decrease of the amount of impairment loss, the loss is reversed in income statement.
For investments classified as assets at fair value through comprehensive income, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the assets are impaired. If any such indication exists for financial assets at fair value through comprehensive income, the cumulative loss, measured as the difference between the acquisition cost and the current fair value on that financial asset is removed from other comprehensive income and recognized in income statement.
If, in a subsequent period, the fair value of a debt instrument at fair value through comprehensive income increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in income statement, the impairment loss is reversed through income statement. Any subsequent recovery in the fair value of an impaired equity security at fair value through comprehensive income is recognized in other comprehensive income, not in income statement.
Trade receivables, other assets and short-term deposits with banks are initially recognized at fair value plus transaction costs, and subsequently carried at amortized cost less any impairment losses.
Investments in open and closed-ended funds are classified as financial assets at fair value through profit or loss and are carried at fair value.
Trade and other payables are initially recognized at fair value, and subsequently measured at amortized cost.
The carrying amounts of the Group's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is re-estimated.
The recoverable amount is estimated at each reporting date for intangible assets that have an indefinite useful life (at the reporting date the Group did not have such assets) and intangible assets that are not yet available for use.
Assets that are subject to amortization or depreciation are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.
An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in income statement.
The recoverable amount of equipment and intangible assets is the higher of the asset's fair value less costs to sell and value in use. For the purpose of assessing the amount of impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows available (cash-generating units). 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 or cash-generating unit. Non-financial assets that have been impaired are reviewed for reversals of the impairment at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and to the extent that the carrying amount of the assets does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.
Payments made under operating leases are recognized in income statement on a straight-line basis over the term of the lease.
Leases where all the risks and rewards incidental to ownership of an asset are transferred to the lessee are classified as finance leases. A liability at an amount equal to the present value of the future lease payments, including any guaranteed residual value, is recognised. Finance expense is recognised in profit or loss over the term of the lease using the effective interest rate method.
Cash and cash equivalents for the purpose of preparation of cash flow statements and the statement of financial position comprise gyro accounts and cash in hand.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS are calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.
Obligations for contributions to defined contribution pension plans are recognized as an expense in income statement of the period in which they have been incurred.
Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan either to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Income tax charge is based on taxable profit for the year and comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at the reporting date, and considering the adjustments to tax payable in respect of positions from previous years.
Deferred taxes are calculated using the balance sheet method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable profit in the years in which those temporary differences are expected to be realized, or settled, based on tax rates enacted or substantially in force at the reporting date.
Deferred tax assets and liabilities are not discounted and are classified as non-current assets and/or liabilities in the statement of financial position. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized.
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation which can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting of the expected future cash flows at a pre-tax rate that reflects current assessment of the time value of money and the risks specific to the liability.
A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided by the Group.
Share capital represents the nominal value of paid-in shares classified as equity and it is denominated in HRK. Share premium represents the excess of the paid-in amount (net of transaction costs) and nominal value of the issued shares upon initial issue of shares. Any profit for the year after appropriations is transferred to retained earnings.
A legal reserve has been created in accordance with Croatian law, which requires 5% of the profit for the year to be transferred to the reserve until the total of legal reserves and capital reserves reaches 5% of issued share capital. The legal reserve can be used for covering current and prior period losses in the amount of up to 5% of issued share capital.
Revenue comprises the fair value of the consideration received or receivable for the sale of the services in the ordinary course of the Group's activities, as follows: trading commissions, membership fees, fees for the maintenance of quotations and other fees.
Commission income is recognized when the service is provided. Income from fees is deferred over the relevant period to which the fees relate.
Income from maintenance of quotations, subscriptions for information and subscriptions for the real time monitoring of trade is deferred over the period of duration of the relevant quotation or subscription.
Interest income is recognized in income statement in the corresponding time period for all interest-bearing financial instruments measured at amortized cost using the effective interest rate method.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components, whose operating results are reviewed regularly by the Management Board of the Bank (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.
The owners and the management (Chief operating decision makers –"CODM")) for the purpose of assessing performance and making resource allocations decisions identified operating segments on a geographical basis. Geographical segmentation is based on the domicile of the group subsidiaries.
The geographical information analyses the Group's revenue and non-current assets by the Group's country of domicile and other countries.
The Group does not specify any additional reportable segments per product or service type in this moment, given that it is sufficient for CODM to assess the performance and make resource allocation decision on the level of the entire group. Segment reporting analysis is presented in Note 26.
The Group has identified two primary segments: Croatia and Slovenia. The primary segmental information is based on the geographical location of business segments. Segmental results are measured at reported amounts in the financial statements.
Several new and altered Standards and Interpretations have been issued by the International Accounting Standards Board ("IASB") and its International Financial Reporting Interpretations Committee but are not applicable to entities reporting under IFRS as adopted by EU, for the year ended 31 December 2018, and have not been applied in preparation of these financial statements.
The Group is required to apply IFRS 16 Leases from January 1, 2019, and it is necessary to assess the firsttime adoption effect of IFRS 16 on the Group's financial statements. The final impact of the first-time adoption effect may differ as new accounting policies are subject to change until the first financial statements which will include the first-time adoption date are issued.
IFRS 16 was issued in January 2016 and supersedes IAS 17 Leases and related interpretations. IFRS 16 prescribes the principles for recognising, measuring, presenting and issuing leases and requires that lessees take into account all leases within a single accounting model similar to the financial leasing model under IAS 17. The new Standard introduces a number of limited scope exceptions for lessees which include - leases where the underlying asset has a low value ('small-ticket' leases, eg personal computers), and short-term leases (12 months or less). At the beginning date of the lease, the lessee will recognize the obligation to pay the lease as a liability and the rights to use the asset in question as an asset during the lease period.
The Group has completed an initial assessment of the potential impact on its financial statements but has not yet completed its detailed assessment. The effects of the new standard arise from lease of business premises and vehicles. There is no significant impact of the new standard expected on the Group's net assets.
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Commissions | 7,052 | 7,757 |
| Income from quotation maintaining | 6,819 | 6,767 |
| Income from quotation fee | 1,029 | 763 |
| Membership fees | 521 | 571 |
| Total sales revenue | 15,421 | 15,858 |
Commissions are charged from members based on value of realised transactions at the time of execution of the transaction.
Income from quotation maintenance represents an annual commission for the continuation of inclusion of the securities in the Official and Regular Market quotations.
Quotation fees are collected from issuers of securities on the Official and Regular Market.
Membership fees include one-time admission fee payable for acquiring the status of Exchange Member, as well as fees charged to existing members on a quarterly basis.
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Income from application programming interface services | - | 704 |
| Income from the supply of information | 5,609 | 4,878 |
| Sale and lease of equipment | 196 | 246 |
| Income from seminars | 1,461 | 603 |
| Income from grant | - | 1,021 |
| Other income | 1,201 | 917 |
| Total other operating income | 8,467 | 8,369 |
| Salaries | 2018 HRK '000 |
2017 HRK '000 |
|---|---|---|
| Net salaries | 6,444 | 6,676 |
| Payroll deductions | 1,393 | 1,407 |
| Payroll contributions | 2,535 | 2,395 |
| Total salaries | 10,372 | 10,478 |
| Other staff costs | 481 | 462 |
| Total staff costs | 10,853 | 10,940 |
The number of employees at the end of 2018 was 37 (2017: 38). Staff costs include HRK 1,008 thousand (2017: HRK 989 thousand) of defined pension contributions paid into obligatory pension funds. Contributions are calculated as a percentage of employees' gross salaries. In 2018 bonus payments in Ljubljanska borza d.d. amounted to HRK 298 thousand (2017: HRK 201 thousand). In 2018 no bonuses were paid in Zagrebačka burza d.d., (2017: HRK 359 thousand).
| 2018 | 2017 | |
|---|---|---|
| HRK '000 | HRK '000 | |
| Software and licences | 3,564 | 6,531 |
| Professional services | 1,497 | 2,042 |
| Rental expenses | 1,380 | 1,291 |
| Post and telephone services | 282 | 483 |
| Utility expenses | 506 | 831 |
| Fees and charges | 787 | 736 |
| Entertainment | 199 | 145 |
| Business travel | 254 | 149 |
| Write off of software | 27 | 616 |
| Impairment of debt securities classified as available for sale | - | 44 |
| Impairment of trade receivables | 261 | 278 |
| Other expenses | 2,785 | 2,544 |
| Total other operating expenses | 11,542 | 15,690 |
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| a) Financial income | ||
| Net (losses)/gains from financial assets at fair value through profit or | ||
| loss | (31) | 557 |
| Interest income | 72 | 55 |
| Other financial income | 25 | - |
| Total financial income | 66 | 612 |
| b) Financial expense | ||
| Interest expense | (7) | (9) |
| Total financial expense | (7) | (9) |
| Net financial result | 59 | 603 |
a) Income tax credit
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Current income tax expense Deferred income tax |
(86) (13) |
(73) (38) |
| Total income tax credit | (99) | (111) |
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Loss before tax | 289 | (3,644) |
| Tax calculated at 18% (2017: 18%) | 52 | (656) |
| Effects of different tax rates | 14 | 7 |
| Tax non-deductible expenses | 117 | 113 |
| Non-taxable income | (362) | (122) |
| Use of tax losses | 40 | (4) |
| Tax losses from Zagrebačka burza d.d. not recognised as deferred | ||
| tax assets | 24 | 627 |
| Effect of tax rate change in Slovenia from 17% to 19% | - | 10 |
| Consolidation adjustments | 214 | 136 |
| Income tax credit | 99 | (111) |
| Effective income tax rate | 34,25% | n/a |
Gross tax losses arising from Zagrebačka burza d.d. amounting to HRK 10,363 thousand are available for offset against the future taxable profits of the Company at the end of 2018. A tax loss may be carried forward by the Company for five years subsequent to the year in which it arose, subject to review by the Ministry of Finance. At the end of 2017 the Company had HRK 11,182 thousand of tax loss available to be carried forward to subsequent years. At both reporting dates the Company did not recognise deferred tax assets in respect of tax losses carried forward, as it is uncertain when sufficient taxable profits will be available against which the deferred tax assets can be utilised.
At 31 December 2018 the Group did not recognize deferred tax assets in respect of temporary differences (unused holiday provisions, receivables impairment allowances) and carried forward tax losses on Zagrebačka burza d.d., as it is uncertain if taxable profits will be available against which the deferred tax assets can be utilised. For the next reporting date, the Group will re-evaluate assumptions for the recognition of deferred tax assets.
Tax losses can't be transferred and used within group members. Despite the existence of tax losses from previous periods, Ljubljana Borza d.d. had a current income tax expense of 81 thousand kuna, since tax losses in Slovenia can only be used up to 50% of the profit. Therefore, Ljubljanska borza d.d. took advantage of tax losses of 40 thousand kuna.
At 31 December the gross tax losses available to be carried forward are as follows:
| 2018 | 2017 | |
|---|---|---|
| HRK '000 | HRK '000 | |
| Up to 1 year | 1,006 | 692 |
| Up to 2 years | 2,329 | 1,006 |
| Up to 3 years | 3,672 | 2,329 |
| Up to 4 years | 3,221 | 3,672 |
| Up to 5 years | 135 | 3,483 |
| Total tax loss available to be carried forward | 10,363 | 11,182 |
At 31 December 2018 the Group recognised deferred tax assets arising from temporary differences (trade receivables, depreciation and tax losses carried forward) from Ljubljanska borza d.d.
| as at | Trade | Tax losses carried | ||
|---|---|---|---|---|
| receivables | Depreciation | forward | Total | |
| 1 January 2017 | 94 | 10 | 225 | 329 |
| (Decrease) / increase in deferred tax assets recognized in the income statement |
(29) | 2 | (5) | (32) |
| Effects of changes in exchange rate | 1 | (1) | - | - |
| 31 December 2017 | 66 | 11 | 220 | 297 |
| 1 January 2018 | 66 | 11 | 220 | 297 |
| First time adoption effect of IFRS 15 | - | - | 7 | 7 |
| (decrease) / increase in deferred tax assets recognized in the income statement |
14 | - | (44) | (30) |
| 31 December 2018 | 80 | 11 | 183 | 274 |
| as at | Fair value adjustment of property |
|---|---|
| 1 January 2017 | 84 |
| increase in deferred tax liabilities recognized through other comprehensive income |
150 |
| Reduction in deferred tax liability recognized in profit or loss |
(3) |
| Changes in deferred tax liability due to changes in rates in Slovenia from 17% to 19% |
9 |
| 31 December 2017 | 240 |
| 1 January 2018 | 240 |
| Reduction of deferred tax liability recognized through income statement |
(17) |
| 31 December 2018 | 223 |
| Land and building |
Computers | Furniture and other equipment |
Leasehold improvements |
Under construction |
Total | |
|---|---|---|---|---|---|---|
| HRK '000 | HRK '000 | HRK '000 | HRK '000 | HRK '000 | HRK '000 | |
| Cost | ||||||
| At 1 January 2017 | 9,589 | 6,201 | 2,608 | 1,118 | 73 | 19,589 |
| Additions | 1,943 | 8 | 671 | 154 | 579 | 3,355 |
| Disposals | - | (622) | (24) | - | (652) | (1,298) |
| Effects of movements in | 28 | - | (31) | - | - | (3) |
| exchange rate Change in fair value of |
||||||
| property | 1,306 | - | - | - | - | 1,306 |
| Termination of amortization | ||||||
| due to revaluation of the property |
(548) | - | - | - | - | (548) |
| At 31 December 2017 | 12,318 | 5,587 | 3,224 | 1,272 | - | 22,401 |
| At 1 January 2018 | 12,318 | 5,587 | 3,224 | 1,272 | - | 22,401 |
| Additions | 43 | 26 | 215 | - | 257 | 541 |
| Disposals | (1,331) | (1,104) | (988) | - | (203) | (3,626) |
| Effects of movements in exchange rate |
(155) | (39) | - | (194) | ||
| At 31 December 2018 | 10,875 | 4,509 | 2,412 | 1,272 | 54 | 19,122 |
| Accumulated | ||||||
| depreciation | ||||||
| At 1 January 2017 | (274) | (5,740) | (1,734) | (1,100) | - | (8,848) |
| Charge for the period | (279) | (118) | (152) | (11) | - | (560) |
| Disposals | - | 622 | - | - | - | 622 |
| Effects of movements in exchange rate |
5 | - | 26 | - | - | 31 |
| Termination of amortization | ||||||
| due to revaluation of the property |
548 | - | - | - | - | 548 |
| At 31 December 2017 | - | (5,236) | (1,860) | (1,111) | - | (8,207) |
| At 1 January 2018 | - | (5,236) | (1,860) | (1,111) | - | (8,207) |
| Charge for the period | (345) | (111) | (268) | (35) | - | (759) |
| Disposal | - | 1,104 | 988 | 2,092 | ||
| Effects of movements in | - | - | 27 | - | 27 | |
| exchange rate | ||||||
| At 31 December 2018 | (345) | (4,243) | (1,113) | (1,146) | - | (6,847) |
| Net book value at 31 December 2017 |
12,318 | 351 | 1,364 | 161 | - | 14,194 |
| 31 December 2018 | 10,530 | 266 | 1,299 | 126 | 54 | 12,275 |
| Software | Long-term deferred costs |
Goodwill | Total | |
|---|---|---|---|---|
| Cost | HRK '000 | HRK '000 | HRK '000 | HRK '000 |
| At 1 January 2017 | 17,904 | 177 | 1,190 | 19,271 |
| Additions | 689 | 20 | - | 709 |
| Write-offs | (15,293) | (4) | - | (15,297) |
| Effect of movements in exchange rates |
(52) | (1) | (7) | (60) |
| At 31 December 2017 | 3,248 | 192 | 1,183 | 4,623 |
| At 1 January 2018 | 3,248 | 192 | 1,183 | 4,623 |
| Additions | 47 | 15 | - | 62 |
| Write-offs | (996) | (4) | - | (1,000) |
| Effect of movements in exchange rates |
(114) | (2) | (15) | (131) |
| At 31 December 2018 | 2,185 | 201 | 1,168 | 3,554 |
| Accumulated amortization | ||||
| At 1 January 2017 | (15,256) | - | - | (15,256) |
| Charge for the period | (1,232) | - | - | (1,232) |
| Write-offs | 14,704 | - | - | 14,704 |
| Effect of movements in exchange rates |
52 | - | - | 52 |
| At 31 December 2017 | (1,732) | - | - | (1,732) |
| At 1 January 2018 | (1,732) | - | - | (1,732) |
| Charge for the period | (375) | - | - | (375) |
| Write-offs | 973 | - | - | 973 |
| Effect of movements in exchange rates |
100 | - | - | 100 |
| At 31 December 2018 | (1,034) | - | - | (1,034) |
| Net book value | ||||
| At 31 December 2017 | 1,516 | 192 | 1,183 | 2,891 |
| At 31 December 2018 | 1,151 | 201 | 1,168 | 2,520 |
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Investment in SEE Link d.o.o. (33.33 %) Investment in Funderbeam South-East Europe d.o.o. (20 %) |
42 - |
121 - |
| Total investment in associates and joint venture | 42 | 121 |
As at 31 December the Group's associate and joint venture were as follows:
| Holding | |||||
|---|---|---|---|---|---|
| Company | Country | Native of business | 2018 % |
2017 % |
|
| Joint venture | SEE Link d.o.o. | Macedonia | stock-exchange order routing |
33.3 | 33.3 |
| Associate | Funderbeam SEE d.o.o. | Croatia | finance intermediary | 20 | 20 |
SEE Link d.o.o. is a joint venture (Zagrebačka burza d.d. has 1/3 ownership) that was founded in 2014. During 2017, all three owners paid in additional HRK 177 thousand in order to increase share capital of SEE Link d.o.o.
Summary of financial data for SEE Link d.o.o. is as follows:
| 31 December 2018 |
31 December 2017 |
|
|---|---|---|
| HRK '000 | HRK '000 | |
| Non-current assets | 1,018 | 1,490 |
| Current assets | 504 | 445 |
| Out of which Cash and cash equivalents | 197 | 406 |
| Total assets | 1,522 | 1,935 |
| Non-current liabilities | - | - |
| Current liabilities | 1,405 | 1,575 |
| Out of which Current financial liabilities | - | - |
| Total liabilities | 1,405 | 1,575 |
| Total revenues | 735 | 979 |
| Depreciation and amortization | 452 | 452 |
| Net interest (expense)/income | (1) | (1) |
| Income tax | - | - |
| Loss for the year | (239) | (156) |
Group investing in an associate and a joint venture is carried out according to the equity method.
Funderbeam South-East Europe d.o.o. is an associate established in 2017, while in 2018 it started operations. During 2018 the Company paid HRK 44.8 thousand on behalf of the Funderbeam South-East Europe d.o.o. as an increase in the Associate's share capital. Share ownership after increasing the amount of investment remained at 20%.
Summary of financial data for Funderbeam South-East Europe d.o.o. is as follows:
| 31 December 2018 HRK '000 |
|
|---|---|
| Ownership share | 20% |
| Noncurrent assets | 151 |
| Current assets | 263 |
| Of which cash and cash equivalents | 239 |
| Total assets | 414 |
| Long term obligations | 225 |
| Short-term liabilities | 1,005 |
| Of which short-term financial liabilities | 914 |
| Total liabilities | 1,230 |
| Total revenue | 358 |
| Net interest (cost) / income | (34) |
| Income tax | - |
| Loss for the year | (890) |
The Group has estimated that it doesn't have control over SEE Link d.o.o. and Funderbeam South-East Europe d.o.o. in accordance with the requirements of IFRS 10.
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| a) Financial assets at fair value through other comprehensive income |
||
| Investment in equity instruments | 202 | - |
| Investment in bonds | 197 | - |
| Impairment allowance for bonds | (197) | - |
| Impairment allowance for shares | (5) | - |
| Total | 197 | - |
| b) Financial assets available for sale | ||
| Investment in equity instruments | - | 202 |
| Investment in bonds | - | 197 |
| Impairment allowance for bonds | - | (197) |
| Impairment allowance for shares | - | (5) |
| Total | - | 197 |
Movement in impairment allowance for trade receivables
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Balance at 1 January | (202) | (158) |
| Impairment loss Total |
- (202) |
(44) (202) |
Investment in bonds relate to bond acquired for uncollected receivables. In 2018 the Group recognised impairment on this bond, which was recorded directly in profit or loss account (Note 7), given significant decline in value of investment.
The investment in equity instruments is carried at cost, given that they do not have quoted price and its fair value cannot be reliably measured.
| c) Financial assets at fair value through profit or loss | 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|---|---|---|
| Shares in open-ended investment funds | 17,693 | 18,217 |
| 17,693 | 18,217 |
Shares in open-ended investment funds are classified as fair value level 1 as at 31 December 2018 and 31 December 2017.
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Trade receivables | 5,607 | 5,072 |
| Advances placed | 41 | 54 |
| Other assets | 533 | 23 |
| Impairment allowance | (2,174) | (1,929) |
| Total | 4,007 | 3,220 |
In 2016 the Company launched SME Growth Market Project in cooperation with the European Bank for Reconstruction and Development ("EBRD"). The purpose of the grant is for consulting services for feasibility study of SME market stock exchange. As part of the project the Group recognised amount granted by the EBRD into other assets and into deferred income in the same amount.
Movement in impairment allowance for trade receivables
| 2018 HRK '000 |
2017 HRK '000 |
|
|---|---|---|
| Balance at 1 January Impairment loss Write off |
(1,929) (469) |
(1,915) (427) |
| Release of impairment allowance | 16 208 |
264 149 |
| Total | (2,174) | (1,929) |
At the reporting date the Group had overdue receivables which were not impaired of HRK 644 thousand (31 December 2017: HRK 569 thousand). The Management holds these receivables to be fully recoverable.
Overdue receivables not impaired as at 31 December 2018 (HRK '000):
| < 90 days | 91-120 days | 121-180 days | 181 - 360 days | >360 days |
|---|---|---|---|---|
| 526 | 62 | - | 56 | - |
| < 90 days | 91-120 days | 121-180 days | 181 - 360 days | >360 days |
|---|---|---|---|---|
| 498 | 1 | 37 | 33 | - |
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Short-term deposits with maturity over 3 months | 4,083 | 2,633 |
| Total short-term deposits | 4,083 | 2,633 |
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Short-term deposits with maturity over 3 months | 1,484 | 1,878 |
| Total short-term deposits | 1,484 | 1,878 |
Long-term deposit of EUR 250 thousand is a deposit in one business bank in Slovenia approved for 2 years at an interest rate of 0.45%.
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Gyro account in foreign currency (EUR) | 1,045 | 1,706 |
| Gyro account in domestic currency | 1,396 | 137 |
| Cash in hand | 3 | 6 |
| Total cash and cash equivalents | 2,444 | 1,849 |
Share number movement:
| Number of shares | Nominal value of share capital in HRK |
Issued share capital in HRK '000 |
|
|---|---|---|---|
| 1 January 2017 | 4,635,700 | 10 | 46,357 |
| 31 December 2017 | 4,635,700 | 10 | 46,357 |
| 1 January 2018 | 4,635,700 | 10 | 46,357 |
| 31 December 2018 | 4,635,700 | 10 | 46,357 |
All of the issued shares are authorized and fully paid in ordinary shares. On 31 August 2017, all of the issued shares were listed to the Official Market of Zagreb Stock Exchange.
As at 31 December 2018 the Group had 217 shareholders (2017: 273 shareholders) with ownership interests in the Group ranging between 0.01% and 19.98%.
Calculation of profit per share as at 31 December 2018 was based on the profit of HRK 190 thousand and a weighted average number of ordinary shares outstanding of 46,357,000 calculated as follows:
| 31 December 2018 |
31 December 2017 |
|
|---|---|---|
| Net profit/(loss) for the period (HRK'000) | 190 | (3,755) |
| Weighted average number of ordinary shares during the period | 4,635,700 | 4,635,700 |
| Basic and diluted profit/(loss) per share (in HRK) | 0.04 | (0.81) |
Diluted earnings per share are the same as basic given there is no potential dilution effect from any instruments.
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Long-term financial liability | 31 | 86 |
| Short-term financial liability | 60 | 60 |
| Total financial liabilities | 91 | 146 |
Financial liabilities relate to the finance lease of a motor vehicle acquired in 2018.
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|
|---|---|---|
| Trade payables | 979 | 1,552 |
| VAT liability | 72 | 30 |
| Other short-term payables | 895 | 1,361 |
| Total trade and other payables | 1,946 | 2,943 |
| 31 December 2018 HRK '000 |
|
|---|---|
| Contractual liabilities from quotation maintaining | 1,922 |
| Contractual liabilities from initial listing fees | 572 |
| Other contractual liabilities | 431 |
| Total contractual liabilities | 2,925 |
| Provisions for bonuses and severances of Ljubljanska borza d.d. and other provisions |
1,251 |
| Total contractual liabilities and provisions | 4,176 |
The contractual liability as at 31 December 2018 is shown below:
Contractual liabilities mostly relate to received customer fees for which services have not yet been executed. Trends of the Group's contractual liabilities in 2018 are shown below:
Deferred income (note 22 without provisions for bonuses and severances)
| HRK '000 | |
|---|---|
| 31 December 2017 | 2,729 |
| First time adoption effect | 329 |
| 1 January 2018 (adjusted) | 3,058 |
| Income recognised in the income statement | (3,058) |
| Increase due to received fees (excluding amounts recognised as income during the period) | 2,925 |
| 31 December 2018 | 2,925 |
| 31 December 2017 HRK '000 |
|
|---|---|
| Deferred income from quotation maintaining | 2,297 |
| Deferred income from grant agreement | - |
| Provisions for bonuses and severances of Ljubljanska borza d.d. | 507 |
| Other deferred income | 432 |
| Total deferred income and accrued expenses | 3,236 |
Total future minimum lease payments under non-cancellable operating leases are as follows:
| 31 December 2018 HRK '000 |
31 December 2017 HRK '000 |
|||||
|---|---|---|---|---|---|---|
| Office space |
Motor vehicles |
Total | Office space |
Motor vehicles |
Total | |
| Less than one year | 692 | 79 | 771 | 710 | 78 | 788 |
| Between one and five years | 917 | 228 | 1,145 | 234 | 86 | 320 |
| More than five years | - | - | - | - | - | - |
| Total operating leases | 1,609 | 307 | 1,916 | 944 | 164 | 1,108 |
The Group does not have significant amount of variable interest-bearing assets. The most significant interestearning assets are short-term deposits in banks. Interest-bearing liabilities relate to finance lease which outstanding amount of HRK 200 thousand does not represent significant interest rate risk. The impact of changes in market interest rates on income statement is therefore assessed as not significant. As at 31 December 2018 remaining maturity of deposit with fixed interest rate is short-term and therefore the Management of the Group believes that fair value of this deposit is close to its carrying value.
Except for HRK 683 thousand (2017: HRK 740 thousand) of the funds on the gyro account denominated in euro, trade receivables in amount of HRK 31 thousand and HRK 12 thousand of trade payable denominated in euro, there are no other financial assets and liabilities denominated in foreign currency. Thus the Group is not significantly exposed to foreign currency risk.
The maximum net exposure to credit risk is as follows:
| 31 December 2018 |
31 December 2017 |
|
|---|---|---|
| HRK '000 | HRK '000 | |
| Cash and cash equivalents (excluding cash in hand) | 2,441 | 1,843 |
| Short-term deposits | 4,083 | 2,633 |
| Trade receivables and other assets | 4,007 | 3,220 |
| Guarantee deposits | 250 | 249 |
| Long-term deposits | 1,484 | 1,878 |
| Loans given to related party | 216 | 173 |
| Total | 12,481 | 9,996 |
The Group generally does not take collateral due to the nature of its operations. Other than short-term deposit and cash in domestic banks (Note 15, 16), the Group did not have significant concentration of credit risk at the reporting date.
Price risk is the risk that the value of financial instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer, or by factors affecting all instruments traded in the market. The Group's investment in open-ended investment funds (cash funds) are carried at fair value with fair value changes recognized in income statement. Accordingly, such changes in market conditions will directly affect gains or losses on financial instruments recognized in income statement.
Price risk is mitigated by the Group through diversification of its portfolio of investments in open-ended investment funds to various types of funds, managed by different investment companies, and investing in cash funds. Assuming all other variables unchanged, a decrease/increase in the market price of units in investment funds by -/+1% at the reporting date would result in decrease/increase of profit before tax by HRK 177 thousand (2017: HRK 182 thousand).
The Group does not have interest-bearing borrowings. Cash and cash equivalents and financial assets at the reporting date significantly exceed liabilities. During the year the Group had satisfactory liquidity position. Financial liabilities which include trade and other payables and deferred income and accrued expenses have maturity up to one year.
The Group considers that it has an immediate related party relationship with its key shareholders, joint venture and associate, the Supervisory and Management Board members and other executive management (together "key management"); close family members of key management; and jointly controlled by Management Board members and their close family members, in accordance with definitions contained in International Accounting Standard 24 "Related Party Disclosures" ("IAS 24").
As at 31 December 2018, the Group has no obligation to key shareholders that relates to funds on transactions accounts and no obligation for rendered services.
During 2018 the Company granted to Funderbeam South-East Europe d.o.o. a loan in the amount of HRK 45 thousand, with a one-time repayment upon maturity in 2021 (2017: HRK 150 thousand and EUR 3 thousand). During 2018 the Company did not have expenses towards SEE link d.o.o. (2017: HRK 31 thousand).
Remuneration to key management (together Zagrebačka burza d.d. and Ljubljanska borza d.d.) throughout the year was HRK 3,149 thousand (2017: HRK 3,148 thousand). The total remuneration of Supervisory Board members amounted to HRK 47 thousand (2017: HRK 47 thousand).
In presenting the geographic information, segment revenue has been based on the geographic location of customers and segment assets were based on the geographic location of the assets.
| HRK '000 | 2017 | |||||
|---|---|---|---|---|---|---|
| Croatia | Slovenia | Reportable segments total |
Adjustments | Consolidation totals |
||
| External revenues | 14,002 | 10,741 | 24,743 | - | 24,743 | |
| Staff costs | (6,348) | (4,592) | (10,940) | - | (10,940) | |
| Depreciation and amortization |
(1,245) | (531) | (1,776) | (16) | (1,792) | |
| Other operating expenses | (10,733) | (4,957) | (15,690) | - | (15,690) | |
| Financial income | 568 | 44 | 612 | - | 612 | |
| Financial expense | (1) | (8) | (9) | - | (9) | |
| Net foreign exchange gain/(loss) |
4 | - | 4 | - | 4 | |
| Segment (loss)/profit before tax |
(3,753) | 697 | (3,056) | (588) | (3,644) | |
| Segment income tax credit | - | (104) | (104) | (7) | (111) | |
| Segment (loss)/profit for the year |
(3,753) | 593 | (3,160) | (595) | (3,755) | |
| Capital expenditure | 476 | 3,589 | 4,065 | - | 4,065 |
| HRK '000 | 2018 | |||||
|---|---|---|---|---|---|---|
| Croatia | Slovenia | Reportable segments total |
Adjustments | Consolidation totals |
||
| External revenues | 13,351 | 10,768 | 24,119 | (231) | 23,888 | |
| Staff costs | (6,274) | (4,579) | (10,853) | - | (10,853) | |
| Depreciation and amortization |
(368) | (766) | (1,134) | - | (1,134) | |
| Other operating expenses | (6,693) | (4,958) | (11,651) | 109 | (11,542) | |
| Financial income | 1,299 | 12 | 1,311 | (1,245) | 66 | |
| Financial expense | - | (7) | (7) | - | (7) | |
| Net foreign exchange gain/(loss) |
(5) | - | (5) | - | (5) | |
| Segment (loss)/profit before tax |
1,310 | 470 | 1,780 | (1,491) | 289 | |
| Segment income tax credit | - | (122) | (122) | 23 | (99) | |
| Segment (loss)/profit for the year |
1,310 | 348 | 1,658 | (1,468) | 190 | |
| Capital expenditure | 39 | 564 | 603 | - | 603 |
The Management Board uses estimates and assumptions concerning the future events. The resulting accounting estimates will therefore, by definition, seldom equal the actual results. The estimates and judgments which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Trade receivables are estimated at each reporting date and are impaired according to the estimate of probability of collection. Each customer is evaluated individually based on the expected date of collection of the amount due and estimated probability of collection of the outstanding amount. The Management holds that trade receivables are stated at their recoverable amount at the reporting date.
The Group provides for tax liabilities in accordance with the tax laws of the Republic of Croatia. Tax returns are subject to the approval of the tax authorities who are entitled to carry out subsequent inspections of taxpayers' records. There are different possible interpretations of tax laws; therefore amounts in the financial statements may be changed subsequently depending on the decision of the tax authorities.
The Group reviews the estimated useful lives of property and equipment and intangible assets at the end of each reporting period.
The Group has assessed that investment in SEE Link d.o.o. represents investment in joint venture considering that the Group has rights to the net assets of the arrangement.
The Group determines whether goodwill is impaired at least on an annual basis, in accordance with accounting policy 3b. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
The recoverable amount of cash generating units is determined based on value-in-use calculations. These calculations use cash flow projections from financial budgets approved by management and cover a period of five years.
Goodwill relates entirely to goodwill arising on acquisition of the subsidiary Ljubljanska borza d.d. The Group annually performs an impairment test in order to assess whether the recoverable amount of goodwill indicates potential impairment of its carrying amount. The calculation of the recoverable amount of goodwill is based on five year plans for revenue on the Slovenian market and business plans of the subsidiary developed by the Group bearing in mind it's corporate and marketing strategy, relevant markets trends.
The calculation of the recoverable amount implies a terminal growth rate for cash flows after the projected five year period amounting to 2%. Cash flows created from such plans are discounted using the discount rate which reflects the return of the underlying asset, which is defined for the purposes of the goodwill impairment test as a weighted cost of capital for the Slovenian market.
The sensitivity analysis indicates that an impairment loss in respect of goodwill arising on acquisition of Ljubljanska borza d.d. would arise in case of increase of the weighted average cost of capital by 700 basis points (assuming an unchanged terminal growth rate) an impairment loss would arise in the amount of HRK 291 thousand.
The calculations of value in use for the CGU is most sensitive to the following assumptions:
Revenue and gross margins - Revenue and gross margins are based on average values achieved in the recent years preceding to the start of the business plan period. These are increased over the business plan period for anticipated expansion in business, synergies and efficiency improvements.
Growth rates - The business plan terminal growth rates are based on market outlook. Average revenue growth rate for business plan period is 2.09%.
Discount rates - Discount rates represent the current market assessment of the risks specific to the CGU. This is the benchmark used by the Group to assess operating performance and to evaluate future investment proposals.
The Group believes that the loans granted are fully recoverable and that there are no indicators of impairment at the reporting date.
At the balance sheet date, the Group did not recognise deferred tax assets related to carry forward tax losses in the amount of HRK 10,363 thousand, as the Management has assessed that it is not probable that sufficient taxable profits will be available to utilise the deferred tax assets. This will be reassessed at the next balance sheet date.
The audit fee for the financial statements of the Group amounted to HRK 160 thousand (2017: HRK 138 thousand). During the year, the external auditor has provided services, other than legally obligatory, related to compliance verification. In accordance with the EU Regulation, services provided during 2018 are permitted non-audit services.
No other events or transactions have occurred since 31 December 2018 or are pending that would have a material effect on these separated financial statements at that date or for the period then ended, or that are of such significance in relation to the Group's affairs to require mention in a note to the separate financial statements.
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