2. BUSINESS REPORT

2.1 MISSION, VISION AND STRATEGIC POLICIES OF POŠTA SLOVENIJE

Mission

To ensure the development and high-quality, competitive and reliable provision of:

postal services,
logistics services,
financial services,
secure electronic postal services,
global postal IT and communications network services, and
sales of merchandise

to private individuals and legal entities in Slovenia and the rest of the world.

To contribute to:

national development in demographically vulnerable areas,
the satisfaction of citizens as users of Pošta Slovenije's services, and
an increase in the competitiveness and operating efficiency of companies and other business entities.

Vision

To be the most important and largest provider of postal and associated logistics services in Slovenia, including after the liberalisation of the EU postal market.

To develop the affiliation and loyalty of employees, to invest in their knowledge and to provide for their social security.

To ensure long-term solvency and the optimum return on invested capital.

Strategic policies of Pošta Slovenije

The Company was witness to numerous changes in 2012, in particular the deepening of the economic and financial crisis, increased competition, and a drop in and the substitution of traditional postal services and payment transaction services, and the increased activity of regulatory bodies (the APEK and the Slovenian Competition Protection Agency – CPA). All of the aforementioned facts will have a significant impact on Pošta Slovenije's operations in the coming years.

Postal, financial and logistics services and the diversification thereof will continue to be crucial to achieving the Company's objectives in the future.

Pošta Slovenije will respond to constant changes in the environment, the general economic crisis, globalisation, changing customer habits, the liberalisation of the postal market and the high fixed costs of maintaining the entire postal network by implementing the following strategic policies:

1. The Company will continue activities relating to five key development areas:

parcels and logistics, where Pošta Slovenije will consolidate its position as the leading provider of parcel services and become a recognised provider of logistic services;
morning delivery, where the Company will become an important service provider in the area of morning deliveries of newspapers and other publications, and news stands;
direct marketing, where Pošta Slovenije will position itself as the leading national provider of such services (direct mail, addressed and partially addressed mail, and unaddressed mail) through the development of new and the upgrading of existing services;
i-services, where Pošta Slovenije will become a leading provider of i-services (digital identification, secure digital storage, secure digital mail, the IT infrastructure, Digital Office services, etc.); and
services at postal outlets, where the Company will expand the range of services it provides.

2. Pošta Slovenije will achieve the objectives in the aforementioned areas more rapidly through acquisitions, the establishment of subsidiaries, capital investments and business partners.

3. The Company will maintain its leading market share of postal services and its status as a leading provider of payment transaction and transaction account services for individuals and small entrepreneurs in cooperation with Poštna banka Slovenije (PBS).

4. The processing of letters, parcels and unaddressed direct mail will be modernised and automated, which serves as the basis for flexible operations, both in terms of the provision of services and the necessary human resources.

5. The Company will optimise the postal network (through changes in the working hours of post offices, contracted post offices and mobile post offices, changes in locations, etc.) and mail delivery (through the centralisation and optimisation of the delivery function).

6. The user will be the focus of all efforts, in order to facilitate simple and user-friendly transactions with Pošta Slovenije.

7. Employees are the heart of Pošta Slovenije, and are therefore vital to customer satisfaction: constant attention is given to professional education and training, and to efforts to attract and retain successful experts. We will establish a culture based on the highest-quality execution.

8. We will maintain an active and responsible environmental policy, taking into account the principle of prudent management in all the Company's business functions.

9. We will ensure a state-of-the-art IT system as a means of achieving the Company's strategic objectives.

The implementation of the aforementioned strategic policies of Pošta Slovenije will ensure positive operating results in the future as well.

2.2 BUSINESS ENVIRONMENT

Macroeconomic environment¹

GDP was down 2.3% in 2012 relative to the previous year. Household consumption began to decline on a year-on-year basis in the second quarter. The decline accelerated further in the final quarter, and household consumption was down 5.8% on the end of the previous year. Euro area economic activity was down in the final quarter of 2012, while the European Commission expects the start of a gradual recovery at the end of 2013.

Outlooks for a recovery in economic activity are uncertain and linked to the realisation of assumptions regarding a gradual recovery in the international environment, the implementation of more sustained solutions to resolve the euro area debt crisis and the resulting stabilisation of conditions on the international financial markets. In the context of the aforementioned conditions and the successful implementation of planned consolidation measures, the Slovenian economy could begin to recover in 2014.

Legislation

In June 2012 the Slovenian government adopted the Fiscal Balance Act (hereinafter: the ZUJF), which for Pošta Slovenije led to an increase in the costs of student labour and a decrease in revenues from the sending of orders. Crucial to the Company is the Postal Services Act (hereinafter: the ZPSto-2), in which the conditions for the provision of postal services in Slovenia are set out. This has a significant impact on the performance of Pošta Slovenije. The aforementioned act sets out the provision of postal services and the conditions for the provision of universal postal services, and defines the competences, organisational structure and functioning of the APEK. Through its activities, Pošta Slovenije is attempting to constructively co-shape changes to the ZPSto-2 and the implementation thereof, so they will be in line with practices in the European Union (hereinafter: the EU) and above all a reflection of the changing expectations of users, which are to a great extent the result of structural changes in the postal sector.

Security and customs requirements are becoming increasingly important factors in international operations. According to forecasts of the Universal Postal Union,² the security of aviation and international borders has and will continue to have a major impact on processes between postal operators and customs administrations.

Regulatory environment

Postal operators in the EU and associated organisations (e.g. the International Post Corporation and the Universal Postal Union) find that current regulations governing postal services are too strict in the areas of competition, pricing policy and the regulation of services, and should be eased. This means appealing to regulatory bodies to study valid requirements regarding the frequency of delivery of universal postal items (for the most part, currently five to six times a week) and delivery deadlines, and allow additional manoeuvring room in the setting of prices of regulated services. Such adaptations to the needs of addressees will bring postal operators a significant reduction in delivery costs and thus the greater economic sustainability of universal postal services.

Pošta Slovenije faces the same problem of over-regulation and restrictions by the APEK with regard to the provision of postal services (e.g. the setting of the amount of discounts granted to exchange services providers, the approval of the range of universal post service prices, the scope and quality of deliveries, etc.). The company will therefore continue with activities to justify and argue proposals that relate to regulation and the implementation of the Postal Services Act.

Economic environment

The current economic and financial situation affects the activities and operations of companies and the government, driving them to optimise costs as reflected by fewer shipments of mail items or even the suspension of the shipment of certain types of mail items, and increased pressure on the Pošta Slovenije's prices. At the same time, competition on the postal services market is intensifying due to exchange postal service providers in the scope of access to Pošta Slovenije's network, consolidators in the unaddressed direct mail segment and international postal operators in the parcel segment.

Postal operators in developed countries are facing the same structural changes on the postal and logistical services market. Technological development (e-substitution), changing user habits and increasing recognition of online sales, e-operations and mobile technologies are reflected in the changing structure of services.

Postal and financial services will remain crucial to Pošta Slovenije, while e-operations and logistics represent potential areas for growth.

Technological environment

E-operations and the expansion of broadband connections, social networks, cloud computing, tablet computers and smart phones have a decisive impact on the decline in Pošta Slovenije's letter and financial services. On the other hand, they require the introduction of new and the upgrading of existing services (e.g. SMS notifications regarding arrived mail items, mobile postal applications, hybrid post offices, etc.). The digital component of operations is thus becoming an integral part of the diversification strategies of postal operators, including Pošta Slovenije.

Pošta Slovenije will join modern postal operators in the EU by modernising postal technologies and upgrading e-operations.

1 Sources: Office of Macroeconomic Analysis and Development (OMAD), Chamber of Commerce and Industry of Slovenia.

2 Source: Doha Postal Strategy 2013–2016, p. 15.

2.3 MARKETING AND SALES

2.3.1 Services

Pošta Slovenije provided 1,034,046,724 services in 2012, a decline of 8% compared to 2011.

A decline was recorded in the majority of services. The reason for the aforementioned decline lies in the technology boom, as well as the current economic and financial situation, which affects the activities and operations of companies that are optimising operations, as reflected in fewer shipments of mail items and the suspension of shipments of certain types of mail items.

Overview of Pošta Slovenije services

Table 1			in thousands
Type of service	2011	2012	Index
1	2	3	4 = 3/2
1. POSTAL SERVICES	1,041,321	956,712	92
1.1. UNIVERSAL SERVICES	267,165	220,013	82
1.1.1 Standard and ordinary letters, postcards and printed matter	254,444	208,622	82
1.1.2 Registered and insured letters	12,504	11,163	89
1.1.3 Ordinary parcels, parcels	217	228	105
1.2. OTHER SERVICES	774,156	736,699	95
1.2.1 Standard and ordinary letters and postcards	9,651	18,695	194
1.2.2 Network access	5,069	17,622	348
1.2.3 Registered and insured letters, ZUP, ZKP and ZPP	15,755	15,448	98
1.2.4 Parcels, business parcels, pallets	7,041	6,927	98
1.2.5 Express mail, EMS, UPS	305	415	136
1.2.6 Addressed and partially addressed direct mail	50,882	48,099	95
1.2.7 Unaddressed direct mail	604,304	558,410	92
1.2.8 Addressed and partially addressed publications	29,982	26,939	90
1.2.9 Unaddressed publications and inserts	48,205	41,117	85
1.2.10 Morning delivery	0	273	0
1.2.11 Other postal services	2,964	2,754	93
2. FINANCIAL SERVICES	35,874	33,183	92
2.1 Postal money orders	484	483	100
2.2 Poštna banka Slovenije	5,673	5,458	96
2.3 Payment transactions	28,962	26,538	92
2.4 Nova KBM	755	704	93
3. OTHER SERVICES	45,985	44,153	96
3.1. Telegrams	220	189	86
3.2. Fax messages	278	0	0
3.3. Merchandise sales	16,558	15,600	94
3.4. Consignment sales of merchandise	14,660	15,054	103
3.5. Games of chance, betting services and lottery	10,768	10,383	96
3.6. Virtual services	586	184	31
3.7. Other	2,915	2,742	94
TOTAL	1,123,180	1,034,047	92
ZUP – letters in administrative proceedings; ZKP – letters in criminal proceedings; ZPP – letters in civil proceedings; EMS – international express mail; UPS – express mail in cooperation with UPS Adria. Note: In 2012 we amended the method used to record fax messages (now included in the item "Other services") and a portion of virtual top-up cards of mobile operators (now included in the item "Sales of merchandise").

Other postal services account for the largest proportion of transactions.

1. Postal services

The volume of postal services was down 8% on 2011, with the sharpest decline having been recorded by standard and ordinary letters, postcards and printed materials in the scope of universal postal services, and the delivery of direct mail and publications.

Universal postal services

Universal postal services represent the permanent, regular and undisrupted provision of specific postal services of a prescribed quality defined by the Postal Service Act across the entire territory of the Republic of Slovenia, at prices accessible to all postal service users.

The following are provided as universal postal services:

the delivery of postal items of up to 2 kg;
the delivery of postal parcels of up to 10 kg;
registered and insured postal item services; and
the delivery of postal items for the blind and partially sighted.

The volume of universal postal services was down 18% on 2011. The reasons for the aforementioned drop were as follows:

the liberalisation of the postal services market (a larger number of mail items sent via network access);
the streamlining of operations by major senders;
the shift to other (electronic) communication channels by individuals and legal entities; and
a notable drop in the number of mail items received in post boxes.

In the scope of universal postal services, the Company recorded a decline in the delivery of standard and ordinary letters, postcards, printed matter, and registered and insured letters, while growth was recorded in deliveries of ordinary parcels and parcels.

2. Financial services

Pošta Slovenije provides financial services in the name and on behalf of Poštna banka d.d. Slovenije, a member of the Nova Kreditna banka Maribor d.d. banking group.

The Company has seen a decline in the number of financial transactions at postal counters. This general negative trend continued in 2012, when the number of financial transactions was down 8% on 2011.

The drop in the volume of payment transaction services has had the most significant impact on the decline in financial services. Customers are migrating to other, more contemporary forms of payment (e.g. e-invoicing, e-banking, standing orders and direct debits). Petrol, Tuš and Mercator also provide payment services as agents for banks in accordance with the Payment Services and Systems Act. Other reasons for the decline in the number of transactions are the competitive prices of services offered by some banks and savings banks, and the opening of payment points in the scope of local cash desks, where transactions can be executed without the payment of a commission.

The number of pension payments to retirees and other pension and disability receipts via money orders was also down, as the nature of this service reduces the proportion of the population that receives pensions in this manner. Younger retirees are accustomed to different, more contemporary transactions and cooperation with the bank. Another reason for the decline is a change to legislation governing social transfers and the resulting migration of certain payments to the social work centre. A decline in these services will thus continue.

3. Other services

A moderate decline in the number of telegrams and faxes received was recorded in 2012, in line with trends in recent years, as the result of alternative channels for sending and receiving messages (e.g. electronic greeting cards, SMS, MMS, etc.).

The volume of games of chance (e.g. scratchcards, betting services and lottery) transactions was down primarily due to a broad alternative network with business hours that are considerably more suited to existing and potential players, and due to the possibility of online payments.

The range of postal and financial services at post offices is supplemented by a selection of attractive retail and consignment merchandise at affordable prices. In 2012 the Company continued to implement the project aimed at spatial and service optimisation for the substantive upgrading of the range of products at post offices, with 82 post offices completed by the end of the year. Post offices are marked with informative signs and equipped with stands that facilitate the positioning of products by type and with regard to customer routes. The Company recorded a drop in merchandise sales in 2012, which was closely linked to postal services, and growth in sales of merchandise on consignment, used to supplement the range of products at post offices.

2.3.2 International cooperation

Pošta Slovenije participated in the 25th Universal Postal Union Congress (UPU) in Doha, where the focus was "New World, New Strategy". The UPU is a specialised organisation of the United Nations, which lays out objectives and adopts operational strategies for the period until the next congress. A new postal strategy was adopted in 2012 that emphasises three dimensions of the postal network (physical, electronic and financial), as well as interconnectivity, governance and development as the key areas for enhancing postal services at the global level.

Pošta Slovenije attended the plenary sessions of PostEurop (Association of European Public Postal Operators), meetings of the UPU and meetings of the European Commission.

The Company also attended international fairs in the region, where it established contacts and offered international postal services. In the scope of project teams managed by the International Post Corporation, the Company was involved in activities relating to the quality of services, international invoicing and the exchange of parcels. Pošta Slovenije hosted a workshop and forum on advanced electronic services under the aegis of PostEurop, and organised meetings of post offices and customs administrations for countries of the former Yugoslavia.

2.3.3 Postage stamps and philatelic products

Pošta Slovenije issued seven regular stamps, 30 commemorative stamps and one picture postcard in 2012.

In cooperation with the Hungarian postal organisation, the Company issued a block with a commemorative postage stamp featuring pottery villages. Pošta Slovenije thus continued the project of joint issues with foreign postal operators. Joint issues are considered something worthy of note and draw a great deal of attention from both stamp collectors and broader interest groups. The Company also issued a thematic set with Slovenian and Hungarian stamp blocks.

Pošta Slovenije used stamps to mark three very important events that took place in Maribor, Slovenia in 2012: Maribor and its partner cities as European Capitals of Culture, the Maribofila multilateral philatelic exhibition and the youth world chess championship.

Commemorative stamps were also issued to mark the 30th Summer Olympic Games in London and to honour Slovenia's first female Olympic gold medallist, Urška Žolnir.

In addition to the 2012 stamp pack, a set of 2012 commemorative stamps on stock cards and thematic stamp sets, the Company also issued a special book of stamps entitled, Oblačilna dediščina na znamkah Pošte Slovenije (Traditional Dress on Pošta Slovenije Stamps). The Company's third book of stamps takes the reader through the different regions of Slovenia and presents the characteristics and special features of the traditional dress of these regions.

All commemorative issues were accompanied by first-day covers and postmarks. Pošta Slovenije thus issued 26 first-day covers and 25 first-day postmarks in 2012.

A postage stamp bulletin was published for each stamp issue (i.e. five times during the year). The aforementioned bulletin presents each stamp issue and philatelic products.

A number of campaigns were carried out to bring users closer to the Company's personalised stamp service. A total of 270 thousand personalised stamps, bearing 2,002 different motifs, were issued in 2012.

2.3.4 Market communications and brand management

The objectives of Pošta Slovenije's advertising activities are to inform target groups about the overall range of products and services, and specific products and services, to inform them of the advantages and certain benefits offered in the range of products and services, to stimulate the interest of target groups to visit or purchase certain services, and to strengthen the Company's image.

Media campaigns can be summed up by the following activities:

Sales of merchandise at post offices: market communication was supported by promotional campaigns that were successful the previous year, particularly in terms of providing advice and assistance to customers. Campaigns were carried out during the first half of the year, prior to Valentine's Day and Easter. Campaigns during the second half of the year promoted sales of school supplies in August and candles in October. The campaigns were enlivened in December with visits by Poštar Pavli and Santa Claus, thus adding further to the pleasant holiday atmosphere at post offices. Another important communication channel for merchandise sales is Pošta Slovenije's sales catalogue and other channels at post offices.
LX-telegrams: the range of LX-telegrams was updated in May 2012 and a new catalogue, which was delivered to households, prepared. A smaller media campaign, in which traditional product advertisements were combined with promotional articles, was carried out.
Business Centre: at the end of the year, established Pošta Slovenije services such as E-Archive, My Mail, Pošta®ca and the back-up data centre were merged, together with a range of new services in the scope of the Digital Office, under the name Business Centre. The Company established a completely new and fresh concept and creative solution that differ from the planned graphic image of other services. These services were also furnished with a website, and were supported by an extensive advertising campaign at the time of launch.
Express mail: two media campaigns were carried out in May and November. The objective of communications with target groups was to inform them about the main advantages of this service and differences compared to the services of the competition. The focus was on promotional articles and publications in the form of advice to business customers.
Your Mail: a campaign to attract new subscribers to the Your Mail service was carried out from March to May 2012.
Financial services: in order to increase the volume of transactions and the satisfaction of existing customers and attract new NKBM and PBS customers, the Company carried out a promotional campaign for financial services in the Dolenjska and Bela Krajina regions.
Personal postage stamps: the Company primarily advertised personal postage stamps by sending pamphlets to households, and targeted participants at various events and post office visitors (e.g. Easter and pre-New Year's campaigns, offers for participants at the NT conference, etc.). Special target groups (e.g. the tourism sector and business partners) were addressed via direct mail. Advertising activities were enhanced by sales promotions, using promotional mascots. New mascots were created during the year for the aforementioned promotions.
Photograph development, postal travel packages, lottery services, ticket sales, etc.: Pošta Slovenije services are also advertised via internal communication channels (e.g. advertising at post offices on LCD screens and posters, "mailings" to registered users, and advertising in Pošta Slovenije's sales catalogue and the in-house newsletter, Poštni razgledi).
World Post Day, 9 October: in 2012 the Company again organised open house at MSLCs and children's shows with Poštar Pavli (Postman Paulie) throughout Slovenia.

Presence on social networks

Numerous activities in 2012 in the scope of the Company's presence on the Facebook social network focused on growth in the community on Pošta Slovenije's profile. Through its presence on the aforementioned social network, Pošta Slovenije increases its recognisability and loyalty to the market brand, attracts new visitors to its website and thus increases the sales of its products and services.Similar to all social networks, a continuous presence and constant communication with users is also necessary on this social network.

Advertising in post offices

The Company's media is gaining even further recognition among advertisers. Post office premises and the Company's advertising media are effective for local advertising, due to the large number of post offices and copies of printed media, and for national advertising. Advertisers can choose to advertise at postal counters, on LCD screens or in print media, or prepare special offers for target groups of Pošta Slovenije employees. The large number of daily visits by customers ensures advertisers' visibility and thus greater success.

Activities for children

Many activities were organised for children in 2012. The goal of the Company's communication with this target group is to acquaint young children growing up in the age of electronic media with the magic of writing and receiving letters. The Company's mascot Poštar Pavli visited children at various events throughout Slovenia, and was accompanied on several occasions by mascots representing personalised postage stamps. There was always something interesting in Pavli's bag to ensure events full of joy and surprise.

A children's corner with Poštar Pavli can be found on the Company's website, where there is always something new, and there is never a lack of entertaining stories about Poštar Pavli's adventures, the lyrics to Pavli's songs, children's games, colouring books and of course prize games.

The now traditional Santa Claus' Post Office was organised in December 2012, and received more than 6,000 letters.

Market research

In September 2012 Pošta Slovenije carried out research regarding the satisfaction of customers with the services of mobile post offices. Users assessed the provision of services as very good, and were most satisfied with the professionalism and attitude of postmen and women.

2.4 POSTAL NETWORK AND LOGISTICS

2.4.1 Network of public postal outlets

At the end of 2012 Slovenia had 560 postal outlets, the same as in 2011. The public postal network included 556 post offices (386 delivery post offices, 138 non-delivery post offices, one seasonal post office, three contracted post offices, 24 mobile post offices and four temporary post offices), two mail sorting and logistics centres and two parcel transhipment post offices.

The Company opened the first three contracted post offices in 2012 (Zdole, Križevci and Materija). Similar to permanent post offices, contracted post offices are bound to provide high-quality and reliable universal postal services. Users can receive the majority of services at a contracted post office as they would at an ordinary post office: the sending of domestic and international letters and parcels, the pick-up of mail items that were not successfully delivered by a postman or woman, payments using universal payment orders and postal payment orders, personal account inquiries, the deposit or withdrawal of funds to or from a personal account or Poštna banka Slovenije savings deposit account, and the purchase of postage stamps, postcards, greeting cards, APEK stickers, universal payment order forms, parcel packaging and envelopes.

Contracted post offices represent a new step to the more efficient reorganisation and optimisation of the postal outlet network, and will also contribute to the long-term stability and success of Pošta Slovenije's operations and the social security of its employees. They are a response to the falling number of postal services and the liberalisation of the postal services market, which is particularly evident in the poor operating results of smaller post offices.

The project to optimise the postal network, in which the Company standardised the business hours of post offices throughout Slovenia and transformed the first three permanent post offices into contracted post offices, has its basis in the General Act on the Quality of Universal Postal Service Provision. Activities in this area were in line with forecasts of the development of the postal and wider business environment in the future in Slovenia, and in line with trends in developed European countries.

Proportions of various organisational types of post offices –
delivery post offices account for the highest proportion.

Density of the public postal network

Typical indicators of postal network density include the number of postal outlets per km2, per inhabitant and per household (includes delivery post offices, non-delivery post offices, temporary post offices and contracted post offices). One post office covered an average of 38.4 km2, 1,428 households and 3,894 inhabitants in 2012.

Postal counters

Pošta Slovenije provides services at a total of 1,148 postal counters for work with customers, broken down as follows:

103 specialised counters that provide only specific services to users;
184 combined counters that offer a limited range of services (e.g. postal services, the purchase of merchandise and financial services, etc.);
861 universal counters where users can obtain the full range of services.

Frequency of delivery

In 2012 a total of 62.5% of households were covered by a six-day per week delivery service, while 37.5% were covered by a five-day per week delivery service. A total of 0.17% of households received parcels five or six days per week via central delivery points.

The number of households receiving parcels via central delivery points was reduced from 1,340 to 1,279 or by 4.6%.

Two-thirds of households are covered by six-day per week delivery service.

2.4.2 Postal network infrastructure and transportation equipment

Pošta Slovenije uses various means, such as post boxes, PO boxes and central delivery points in the provision of postal services. Compared to the previous year, the number of post boxes fell from 2,608 to 2,345, while the number of PO boxes fell from 17,196 to 17,000.

Mail Sorting and Logistics Centres use the following equipment to prepare and process mail items: automatic sorting machines for letters and parcels, sorting machines for bags, bundling machines, devices for storing unaddressed direct mail, etc.

Pošta Slovenije also uses various transportation means in its activity for external and internal transport. The Company has 1,255 transportation vehicles (such as carts and forklifts) and 3,302 vehicles for external transport purposes. These include various handcarts for postmen and women, two-wheeled carts, bicycles, scooters, cars, light and medium-sized delivery vehicles and freight vehicles. The number of cars was up in 2012, from 1,053 to 1,074, while the number of bicycles rose from 1905 to 1,908.

2.5 QUALITY MANAGEMENT

Quality of domestic postal delivery services

The quality of delivery of items of correspondence was verified in accordance with Article 10 of the General Act on the Quality of Universal Postal Service Provision. The quality of deliveries is measured by a body that is independent of the universal postal service provider. The German company Quotas GmbH was selected by public tender for this role. The aforementioned standard prescribes the measurement of delivery times, from receipt to delivery, for individual priority mail items and first-class mail items. Since Slovenia does not provide domestic priority mail services, the following services are subject to measurement:

standard letters,
ordinary letters weighing up to 20 g, and
ordinary letters weighing between 20 g and 50 g.

In accordance with the General Act on the Quality of Universal Postal Service Provision, the following criteria must be met in domestic postal services over a period of one month:

at least 95% of items of correspondence delivered within one business day (D +1);
at least 99.5% of items of correspondence delivered within two business days (D + 2); and
100% of items of correspondence delivered within three business days (D + 3).

The quality of delivery was up on the previous year, by 1.1 percentage points in the D + 1 category. The quality measurement data for 2012 are as follows:

97.3% of mail items were delivered within one business day (D + 1);
99.8% of mail items were delivered within two business days (D + 2); and
100% of mail items were delivered within three business days (D + 3).

The quality of delivery of items of correspondence was verified in accordance with Article 11 of the General Act on the Quality Universal Postal Service Provision, according to which a universal service provider must meet the following in domestic postal services over a period of one month:

at least 80% of parcels delivered within two business days (D + 2); and
at least 95% of parcels delivered within three business days (D + 3).

The Company fully meets or exceeds the aforementioned values. The quality of delivery was up on the previous year, by 0.9 percentage points in the D + 2 category. The cumulative values of the indicators were as follows in 2012:

99.9% of mail items were delivered within two business days (D + 2); and
99.9% of mail items were delivered within three business days (D + 3).

Quality of international postal delivery services

In the area of international postal services, the Company regularly participates in the measurement of the quality of priority mail delivery services (UNEX) and in the measurement of the quality of parcel delivery services carried out by the International Post Corporation.

Quality standards for priority mail delivery services are set out in the EU postal directive, which states that 85% of parcels must be delivered within three days (D + 3), while 97% of parcels must be delivered within five days (D + 5). In addition to measuring mail delivery from collection to delivery to the recipient, mail delivery within the receiving country is also measured. To meet the aforementioned standards, at least 85% of priority mail items must be delivered the day following its arrival in Slovenia.

In 2012 the Company delivered 96.2% of priority mail items the day after arrival in Slovenia, ranking Pošta Slovenije among the top three postal operators out of the 34 who participate in the independent measurement of quality. The aforementioned results represent an improvement compared to 2011, when the Company delivered 95% of received items the day following arrival.

The quality of delivery is also measured for the exchange of international business parcels. The objectives for achieving quality and thus 100% payment for delivery in the receiving country are agreed by the signatories of the so-called EPG (E Parcel Group) agreement. For full payment, Pošta Slovenije must deliver 100% of received parcels the day following their arrival in Slovenia. The Company has ranked first for two years, as it delivers more than 99% of received parcels on time.

Complaints and redress proceedings

In accordance with the General Act on the Quality of Universal Postal Service Provision, Pošta Slovenije keeps a centralised list of complaints and claims for damages relating to universal postal services in line with SIST EN 14012:2004 standard (Postal services – Quality of services – Handling of complaints and redress procedures).

In accordance with the aforementioned standard, Pošta Slovenije, as a universal postal service provider, must publish a report at least once a year on the number of complaints relating to universal postal services and the time required to resolve complaints.

A total of 1,889 complaints relating to universal postal services were filed between 1 January and 31 December 2012, including 1,696 complaints regarding domestic postal services and 193 relating to international postal services. Of all the complaints filed regarding universal postal services, 460 were justified (442 in domestic postal services and 18 in international postal services). The Company paid damages for 96 complaints during the reporting period (94 regarding domestic postal services and two regarding international postal services). The average time required for the payment of damages to complainants (calculated from the day of receipt of the complaint) was 36.2 days.

There were 352 or 15.7% fewer complaints in 2012 relating universal postal services compared to 2011. The number of complaints filed relating to domestic services was down 15.8% (or 319 fewer complaints), while the number of complaints relating to international services was down 14.6% (or 33 fewer complaints).

2.6 PURCHASING

Pošta Slovenije is a public contracting authority according to the Public Procurement in the Water, Energy, Transport and Postal Services Sectors Act (hereinafter: the ZJNVETPS-UPB 3, Official Gazette of the Republic of Slovenia, No. 72/2011).

In 2012 a total of 133 high-value public tenders and 82 low-value public tenders were executed, while 667 simplified procedures were carried out. Through the consistent implementation of public procurement procedures, the Company ensured the smooth flow of the business process, and economical and timely supply.

Pošta Slovenije complied with the provisions of the Decree on Green Public Procurement (Official Gazette of the Republic of Slovenia, No. 102/2011), meaning that environmental requirements were included among criteria for the selection of the most favourable bids in all orders subject to the aforementioned decree. Here it should be emphasised that the Company purchased environmentally friendly equipment in 2012 according to requirements that exceeded those from the previous period of validity of the decree (e.g. electric-powered bicycles, more efficient energy-saving computer equipment, energy-saving heating, ventilation and cooling systems based on alternative sources, etc.). Pošta Slovenije thus follows strategic guidelines regarding energy efficiency, efficient energy consumption and concern for the environment.

Rationalisation measures were implemented in purchasing processes with the aim of reducing costs while ensuring the requisite level of quality. While preparing orders, the Company analysed the subjects of those orders and the market to obtain the most favourable offer on the basis of substantiated needs. Additional internal controls were established in the execution of agreements and operational purchases in order to ensure increased control over used quantities and activities to achieve favourable market prices in processes.

2.7 INVESTMENTS

The Company earmarked EUR 14,006 thousand for investments in 2012 (according to cash flows). Capital expenditure was earmarked for current operations and development projects, through which the Company ensured growth in revenues, and improved and optimised processes. Investments were also earmarked for the security of employees and the Company's property, and for information security.

The largest proportion of investments (according to cash flows) was earmarked for information technology, building and transportation equipment.

Buildings and post office equipment

The 2282 Cirkulane and 8280 Brestanica post offices were relocated to new business premises, while the 1113 Ljubljana post office began operating in renovated premises. Works to arrange the new boiler at the Krekov trg facility in Celje and regulate the consumption of energy at the Slomškov trg facility in Maribor were completed. Activities to renovate or relocate 20 additional post offices were carried out in 2012, with the majority of activities still in progress.

When investing in facilities, the Company is conscious of energy efficiency, and takes into account requirements and guidelines regarding the construction of low-energy facilities (see section 3.3 for details).

Transportation equipment

Pošta Slovenije's investments in transportation equipment also reflect its efforts to reduce negative environmental impacts, as the Company purchased vehicles with environmentally friendlier motors and electric-powered scooters.

The upgrading of the vehicle fleet's capacity took into account the valid criteria for write-offs, the structure of the terrain and the volume of traffic. In 2012 the Company purchased:

light delivery vehicles that are primarily used on regular delivery routes, for express mail deliveries and for emptying post boxes. The vehicles are used for regular deliveries in the most expansive delivery regions and in regions where delivery by foot or bicycle is not possible;
medium-size delivery vehicles that are primarily used for the delivery and collection of parcels and the transport of mail on routes between postal outlets (e.g. from MSLC to post office and from post office to post office); and
freight vehicles that are primarily used to transport mail items between an MSLC and post offices, and between the two MSLCs.

The Company also takes care that lubricants, various fluids (e.g. motor oil, brake fluid and coolants), and tyres are replaced by authorised service centres that are responsible for the appropriate handling of waste.

Weighing systems

The Company earmarked funds for banknote counting machines and bundling machines.

IT equipment

Funds for IT investments were earmarked for the following:

the establishment of application support for conducting annual development interviews (between the heads of organisational units and employees);
the upgrading of the infrastructure and applications at Telegraf;
additional user equipment at post offices;
the upgrading of communication equipment;
user equipment to support new services;
the upgrading of the operational side of the information system; and
IT equipment for the development of new services.

Security

Pošta Slovenije has encountered a sharp rise in the number of robberies of postal outlets in recent years. In addition to specific organisational measures, the Company also carried out the following activities in 2012 to mitigate security risks: the installation of additional physical security measures at the 150 most exposed post offices, the mounting of a video surveillance system at 150 postal outlets and the construction of the Company's own security-control centre, the installation of smoke pack systems at 270 post offices, the equipping of postal vehicles with tracking systems and the selection of the most favourable bidders for physical security systems at an additional 50 post offices.

Other investments

The Company purchased furniture and other equipment to improve technological processes, and cooling equipment to regulate air conditioning at post offices.

Minor investment works were carried out at 15 facilities with regard to public utility and energy supply connections and canopies. Old furniture was replaced, as were furnaces and gas-consuming devices to ensure orderly heating.

Capital investments

The Company paid up the share capital of PS VilaMedia, oglaševalska agencija d. o. o.

2.8 INFORMATION TECHNOLOGY

Pošta Slovenije has one of the most extensive and uniform information environments in Slovenia. Information technology is present at all locations. The Company has 1,474 postal (and bank) counters, 247 back-office locations and more than 850 work stations at its headquarters and business units. The system comprises more than 15,000 pieces of IT equipment and more than 5,000 km of communications cables. More than 3 million invoices are issued a month and an average of 94 million services recorded. The Company also has around 100,000 external users. The information system as a whole is in good condition, as the level of stability, security and functionality is adequate. The Company also responds appropriately to implement changes owing to legal requirements and business needs. Continuous financial investments and investments in development are therefore required to maintain the good condition of the information system.

Functioning of the information system in 2012

Priority tasks in the area of information technology include ensuring high availability and protecting the integrity of Pošta Slovenije's information system. We again find that the Company was successful in this area, as the information system ensured an appropriate level of availability and responsiveness, while no security breaches were successful.

Expansion of capacities on the backbone network

The Company expanded capacities on the backbone network and in fibre-optic transfer systems in 2012 for the needs of the continuing development of services and the upgrading of the information system. All domain controllers in Pošta Slovenije's information system environment were also upgraded. The capacities of the infrastructure environment were upgraded and supplemented due to the increased demand for E-Archive services.

Own messaging system

The Company developed its own messaging system for the needs of internal notification within the UPO system. The messaging system is used to support Pošta Slovenije's services. It was also used as an indispensable component during the upgrading of the infrastructure, user applications and application for telegram services. Pošta Slovenije developed its own common online payment module that is available to customers for the payment of services.

Upgrading of the HR information system

The HR information system was upgraded to accommodate the implementation of the new collective agreement and new job systematisation. The Company began to computerise the annual development interview process last year in the scope of its comprehensive HRM approach.

Establishment of a data warehouse

The project to establish a data warehouse and business reporting system, with an emphasis on sales content, was completed.

Application support for the administration of the central register of addresses

Completely new application support for the administration of the central register of addresses was developed. The aforementioned register is one of the basic registers on which the project to upgrade delivery preparations and the delivery function and computerise the work of postmen and women will be based. New application support for recipient and sender orders was developed in the context of the aforementioned activities.

Upgrading of the moja.posta.si service

The Company also upgraded the secure digital document exchange service (moja.posta.si) by providing support for the service's functioning on other widely used web browsers. The project to introduce support for international e-serving in the scope of moja.posta.si services was completed.

Certificate agency

The sale of qualified digital certificates on USB keys was a real success last year.

2.9 RISKS, INTERNAL AUDITING AND SECURITY

2.9.1 Corporate risk management

Risk management strategy, organisation and methodology

Pošta Slovenije is aware that the identification and management of risks is a key factor to the Company's performance in a rapidly changing and uncertain environment. The Company therefore updated its existing risk management system in 2010, and established a comprehensive corporate risk management system (hereinafter: CRM) for the constant monitoring and management of risks associated with the business environment. The system is verified and updated constantly with the aim of ensuring that the significant risks to which Pošta Slovenije is exposed are identified in a timely manner, assessed and appropriately managed. Special attention was given in 2012 to the training of employees regarding the risk management process and to enhancing awareness about the importance of the aforementioned process in an increasingly uncertain environment.

The CRM strategy is based on Pošta Slovenije's strategy and strategic development programme. To that end, the CRM process is established as a structured, congruent and continuous process that is carried out through the entire organisation. The process includes the identification and assessment of risks: the recording and handling of risks, the administration and updating of the catalogue of risks, the administration of risk profiles, and the monitoring of and reporting on risk management measures.

The objective of the CRM process is the systematic and timely identification of potential threats and opportunities, and the implementation and monitoring of appropriate risk management measures with the aim of eliminating or mitigating the negative effects of risks on the Company's operating results, and exploiting identified opportunities to the greatest possible extent, which is reflected in positive effects on the Company's operating results.

The Rules on Corporate Risk Management at Pošta Slovenije precisely describe the procedures, responsibilities and competences in the CRM process. The CRM Committee is responsible for the operational implementation of the CRM policy and supervision of its implementation at Pošta Slovenije. It is also responsible for reporting. The Business Process Office (hereinafter: the BPO) provides operational and managerial support in the area of risk management. The CRM Committee and the BPO are responsible for the implementation of related policies, and develop methodologies and tools. They also warn of potential unidentified risks, and assist in the analysis and control of the management of specific risks. Authorised employees, the Executive Management and the Internal Audit Office are responsible for the aforementioned controls.

Corporate risk management process

The Company uses descriptive and value-based criteria to classify identified risks. Descriptively, risks are broken down into two basic categories: environmental risks and operational risks (Table 2).

Systematic breakdown of risks in 2012

Table 2
Seq. no.	Type of risk	Seq. no.	Type of risk
1.	Environmental risks	2.	Operational risks
1.1.	External risks	2.1.	Human resource risks
1.2.	Market risks	2.2.	Development risks
1.3.	Strategic links and investments	2.3.	Risks associated with the functioning of the infrastructure
		2.4.	Security and protection risk
		2.5.	General management
		2.6.	Credit risk
		2.7.	Currency risk
		2.8.	Interest-rate risk
		2.9.	Solvency risk

The Company employs three techniques in measuring exposure to risks:

1. descriptive or qualitative assessment of risks;

2. a combined approach to assessing risks; and

3. quantitative or numerical assessment of risks.

All identified risks are measured using a four-level scale of loss and a four-level scale of the probability of a loss event. A multiplier gives us the level of exposure, the highest level being 16 and the lowest level being 1 (see Table 3).

Risk exposure matrix

Table 3
Probability	Effect or consequence (damage or loss event)
	LOW	MEDIUM	HIGH	VERY HIGH
LOW	1	2	3	4
MEDIUM	2	4	6	8
HIGH	3	6	9	12
VERY HIGH	4	8	12	16

Exposures are assigned to three levels, on the basis of which the level of acceptability of a risk is defined, as well as the prioritisation of risk management measures (see Table 4).

Level of risk acceptability

Table 4
Level of exposure	Acceptability of risk	Risk control measures
High	Risk is unacceptable and must be mitigated.	The necessary measures must be adopted and risks constantly monitored. Steps must be taken to manage risks at acceptable levels. Measures should be aimed at minimising the occurrence of a loss event or at minimising the probability of it occurring, thus lowering the exposure level.
Manageable	Risk is acceptable if monitored.	Measures must be drafted and implemented for managing or mitigating the achieved level of risk. Monitoring is carried out, but no corrective measures are required.
Low	Risk is acceptable.	Events that could result in an escalation of risk are monitored. No corrective measures are required.

The greatest amount of attention is given to risks that are deemed to be significant. On the basis of an analysis, the CRM Committee enters risks significant for Pošta Slovenije's operations in a catalogue of risks. In the catalogue, risks are evaluated and defined in terms of timing and assigned so-called risk administrators. The risk management methodology and measures are also defined.

Risks with the highest exposure level are analysed using risk profiles that assist in the periodic monitoring of indicators and the implementation of planned measures for managing specific risks. The aforementioned serves as the basis for risk administrators' reporting to the CRM Committee.

Pošta Slovenije manages identified risks:

by avoiding risks (e.g. by entering into contractual relationships with verified customers, through payments on delivery and by avoiding high-risk projects);
by transferring risks (e.g. to insurance companies);
by mitigating risks (e.g. by increasing internal control activities, introducing and upgrading business continuity systems and by taking additional security measures in cash operations); and
by assuming risks (e.g. no additional activity has been adopted with regard to risk; business opportunities are sought elsewhere).

Risk management in 2012

The economic and financial crisis, the liberalisation of the postal services market in 2011 and the resulting increase in competition affected the Company's operations in 2012. Pošta Slovenije also faces the substitution of traditional forms of communication by electronic forms of communication. Operations were further hindered by legislation and a reduction in costs by the users of services.

Pošta Slovenije was thus most exposed to the following risks in 2012 due to the macroeconomic conditions and the economic crisis:

external risks (e.g. macroeconomic conditions, legislation and regulations, and public relations),
market risks (e.g. market share, customer satisfaction and competition),
development risks (e.g. new services and capacities),
security risks, and
credit risks.

Pošta Slovenije's exposure to specific types of risk in 2012

Environmental risks

The Company classifies external risks, market risks, and strategic links and investments as environmental risks.

External risks

The external risk category includes risks associated with the macroeconomic situation, risks associated with legislation and regulations and risks associated with public communication. Risks are monitored by systematically monitoring the external environment and implementing numerous measures in a timely manner to mitigate or neutralise potential negative effects on the Company's operations. Despite numerous measures, the negative effects of external risks could not be avoided.

The current macroeconomic situation triggered a general drop in economic activity, bankruptcies, an increase in credit risk, and a drop in demand for new and existing services, in particular i-services, which was reflected in lower operating revenues relative to the previous year.

The external risk category is most characterised by the sub-category of risks associated with legislation and regulations. Key risks in this area are associated with the adoption of implementing regulations that could put Pošta Slovenije in a weaker position relative to the competition. In this area of risks, the Company worked actively to foster changes in implementing regulations deriving from the Postal Services Act (hereinafter: the ZPSto-2), ordered a comparative study regarding the scope of regulatory control, continuously and proactively communicated with the APEK, worked with the competent ministry and briefed it on the consequences of regulations and changes in the postal network, and kept the public informed. To improve relations with the APEK, the Company began cooperating with a consultancy company in June 2012. The aforementioned specialises in governing relations between regulatory bodies and operators, primarily with regard to harmonising operations with regulations and the development of the Company's operational strategy in areas that are subject to regulatory control. Notable progress was made in the second half of 2012 in the coordination of positions with regard to optimising the postal network, primarily in changes to working hours and the transformation of post offices into contracted post offices. The APEK issued six orders in 2012 for the transformation of permanent post offices into contracted post offices (Zdole, Materija, Križevci, Osilnica, Šentrupert and Breginj).

The risks associated with a rise in concession fees for student work from 14% to 23% was realised at the end of May 2012 with the adoption of the Fiscal Balance Act (Official Gazette of the Republic of Slovenia, No. 40/2012). However, costs from student work were not exceeded in 2012, as student work was successfully managed through the optimisation of processes. Given the aforementioned facts, the Company successfully managed the risks associated with legislation and regulations.

The Company likewise assesses that it successfully managed risks associated with public communication. The emphasis of the communication strategy was on communications with external and internal publics, and the consistent application of the Company's corporate image, all with the aim of maintaining Pošta Slovenije's good reputation. With the aim of regularly monitoring publicity via social networks and through annual meetings with post office managers and work meetings with the General Manager at postal units, the Company strengthens its cooperation and communication with employees at all levels and organises events for the external public (e.g. promotional postage stamps, the opening of post offices, the annual meeting for business partners, etc.), while an open door policy provides employees access to the Executive Management. Using the appropriate communication approach, the Company responded in a timely manner to negative publicity in the media in 2012 by publishing clarifications and maintaining proper relationships with journalists.

Market risks

The following factors had a significant impact on the realisation of the risks associated with a loss of market share: the economic and financial crisis and the resulting increase in the number of bankruptcies, rationalisation measures implemented by customers due to the economic crisis and a drop in general purchasing power, the effect of the liberalisation of the postal market in 2011 and increasing competition. Thus, in the scope of the aforementioned risks, the risk associated with a loss of revenues from universal postal services was realised. The latter was the result of access to Pošta Slovenije's network by exchange postal service providers (the level of discounts is set by the APEK), the use of substitute means (e.g. electronic forms of communication) and the rationalisation of operations by major customers (e.g. banks, insurance companies, the Disability Insurance Institute, etc.). The risk of structural changes is seen in both the postal services segment and financial services segment, which is reflected in a decline in payment transaction services due to the substitution of the aforementioned services with e-operations and intense competition in this area. The drop in revenues in the unaddressed direct mail segment was the result of discounts offered by consolidators, which is line with the commitments Pošta Slovenije gave to the CPA. Insufficient growth in revenues was also recorded in sales of i-services, primarily as the result of the economic crisis and competition in this area. We assess that the Company was reasonably successful in managing the risk of loss of market share in 2012.

Despite a number of measures to prevent risks associated with customer satisfaction, the Company has not been able to fully avoid delays, damaged mail items and other complaints. The Company manages these risks by training and motivating employees for appropriate mail handling, by identifying locations where irregularities arise, identifying and eliminating causes, disciplining offenders, agreeing on delivery times, etc. Quality standards are prescribed in the General Act on the Quality of Universal Postal Service Provision. Quality is regularly measured and monitored in the scope of required standards. We therefore assess that we managed this risk successfully.

Strategic links and investments

This category of risks includes risks associated with failure to achieve expected returns on investments or the loss of invested funds. Following the owner's decision to purchase NKBM shares, a negative effect was disclosed in the Company's 2012 income statement in the amount of EUR 4.3 million owing to a drop in the NKBM share price and the resulting impairment of the investment.

Operational risks

Managing operational risks is important for the smooth functioning and successful development of the Company. These include human resource risks, development risks, risks associated with the functioning of the infrastructure, security and protection risks, risks associated with general management, credit risk, currency risk, interest-rate risk and solvency risk.

Human resource risks

Due to the labour-intensive nature of the postal activity and owing to the large number of employees, Pošta Slovenije is exposed to significant human resource risks, the most important being risks associated with abuse and fraud by employees, absenteeism, demotivated and dissatisfied employees and workplace injuries. These risks are reflected primarily in absenteeism, an unsatisfactory level of commitment and operational errors.

Errors in work processes and procedures cannot be completely avoided owing to the large number of employees and the diverse nature of such risk, which is primarily mitigated through the establishment of a system of continuous employee training, control mechanisms in work processes, cooperation between organisational units, self-education and by appropriately motivating employees.

In terms of risks associated with employee abuse and fraud, the most common acts are evasion, the counterfeiting of documents and embezzlement, which are managed using a system of internal controls. Acts related to such risks are identified and punished through internal controls (e.g. internal control inspectors, internal auditors and a prevention of money laundering officer) and external controls (e.g. external auditors, Poštna banka Slovenije, etc.). Despite these measures, cases of employment embezzlement, fraud and theft totalling EUR 140 thousand were identified in 2012. The management of these risks was therefore assessed as reasonably successful.

Exposure to absenteeism is managed by improving working conditions, monitoring the implementation of occupational health and safety measures, through periodic medical examinations and through the external control of sick leaves.

The total number of workplace injuries was up by 0.65% in 2012 relative to 2011 (from 306 workplace injuries to 308). However, the number of days lost due to workplace injuries was down by 10.98% (or 884 days). Nevertheless, given the specific nature of the postal activity and the large number of employees, Pošta Slovenije is exposed to the risk of workplace injuries. The organisational unit responsible for this area (the Occupational Health and Safety and Fire Safety Section) organises numerous education and training events, controls and warns of possible injury risks and performs other regular tasks, all in accordance with the relevant legislation and internal acts and with the aim of managing risks associated with workplace injuries.

The risk associated with dissatisfied employees (due to the remuneration system, workload, working conditions, etc.) was partially realised due to the adoption of a new collective agreement in March 2012. However, there was no major resistance by employees, as the majority signed the aforementioned agreement. The unsatisfactory level of commitment is managed through measures such as rewarding useful proposals and ideas, a training system, regular communication with trade unions and the works council, internal communication, annual employee development interviews, the payment of performance bonuses and profit sharing in accordance with operating results. We assess that the Company successfully managed human resource risks.

Development risks

Development risks primarily comprise risks associated with delays in the development and launch of services, services that are uninteresting for the market, insufficient capacities and excessive development costs, as the result of the changing demands of customers (both legal entities and individuals) and the associated changes on the market (e.g. a decline in traditional postal services). The Company thus follows market trends and customer demands in accordance with the development strategy, and develops and introduces new services (such as the Digital Office service). The Company manages the risk of developmental and technological delays by monitoring and benchmarking foreign postal operators and the competition and by establishing a system for promoting the continuous flow of ideas from employees and customers for new services or for improving existing services. The BPO is responsible for using the prescribed methodologies and for control over the implementation of projects that are in line with the Company's annual business plan and overall strategy.

The risk associated with the payment of dividends to the owner was realised in 2012, as EUR 8 million and EUR 3 million in dividends were paid to the Company's owner and employees respectively. The dynamics of the excessively high payments of profits and other demands by the owner could threaten the Company's continued development. A high level of investment in the upgrading of postal logistics technology, where the replacement or upgrading of elements is required, is expected until 2017. We asses that the Company managed development risks reasonably well.

Risks associated with the functioning of the infrastructure

The realisation of risks associated with the functioning of the infrastructure (e.g. the postal network, the IT infrastructure and the support infrastructure) could contribute to a deterioration in the quality of services, and thus to the failure to achieve the prescribed quality of postal deliveries and the provision of other services. These risks were successfully managed with the implementation of planned measures.

The greatest risk regarding the postal network is the failure to ensure the level of quality in the provision of universal postal services as set out in the Rules on the Quality and Method of Providing Universal Postal Services. This risk is managed through the daily monitoring of the process and flow of mail items, from collection to delivery. The quality of domestic postal deliveries is measured in line with the SIST EN 13850 standard. The annual cumulative value of the quality of delivery exceeds the prescribed level, by 2.3 percentage points in the D + 1 category (95%) and by 0.3 percentage points in the D + 2 category (99.5%). The requirements of SIST EN 14012:2004 standard are taken into account in the centralised management and handling of complaints and claims procedures associated with universal postal services. We assess that the Company successfully managed risks associated with the functioning of the postal infrastructure.

IT infrastructure risks represent the mainstay of information system management, and include risks associated with the security, integrity and availability of the IT system. They are managed by appropriately training employees, through the expert use of information technologies, through information security control mechanisms and through additional control with the employment of a qualified information systems auditor back in 2011. The main categories of IT risks are presented below, together with a brief description of how these risks are managed. Risks associated with ensuring business continuity in the area of IT are managed for the most critical segments of operations through the drafting and implementation of business continuity plans that are primarily based on ensuring redundant systems and appropriate response times during the replacement of equipment for the most critical parts of IT systems. Managing risks associated with the functioning of hardware and communication equipment is critical for the functioning of the overall information system. Managing risks in this area is ensured through long-term cooperation with maintenance service providers and long-term maintenance agreements. The Company uses high-quality equipment from internationally recognised suppliers, with compliance with standards and the prompt elimination of faults as prerequisites. Risks associated with the functioning of software are an integral part of the information system, and are managed by using high-quality software that is compliant with the relevant standards. The prompt elimination of faults is likewise ensured. A valid maintenance agreement is attached to all software used in Pošta Slovenije's information system. We assess that the Company successfully managed risk associated with the functioning of the information infrastructure.

Security and protection risks

A great deal of attention is given to security and protection risks due to the nature of operations (e.g. cash operations, the scope of operations, the number of employees and the size of the IT infrastructure). These risks are managed successfully.

Security risks associated with postal and financial transactions were managed successfully in financial terms by transferring these risks to insurance companies. However, the Company is highly exposed to these risks due to other negative effects (e.g. threats to human life). These risks were therefore treated as the risks to which the Company was most exposed. In 2012 the number of robberies of postal outlets was down by three relative to 2011 and by seven relative to 2010. The number of burglaries in 2012 was down by six compared to 2011 and by ten compared with 2010.

A great deal of attention was given to information security. The Company successfully managed risks in this area. Internal and external audits of specific segments of the information system were carried out in line with legal requirements and at the Company's own initiative. The risks associated with the personnel who manage and use the information system are managed by centrally allocating the relevant user rights and with the help of three separate domains (e.g. development, testing and production environments). The threat of computer viruses is managed through the use of a centralised control and management system. Moreover, the Company constantly monitors the appropriateness of related tools and provides for the continuity of the associated contractual relationship under the principle of the continuous provision of the latest information regarding the newest threats.

Risks associated with general management

The risks associated with general management are seen in the provision of resources and management-related business processes. The Company successfully managed these risks.

With respect to risks associated with the provision of resources, special attention was given to efficiency in the implementation of investments and other orders. In the scope of investments, one case was identified in which unexpected construction works to rehabilitate land were incurred. The value of the investment was thus higher than planned. An external risk was realised in the aforementioned case when the seller withheld information. Pošta Slovenije has taken all appropriate measures. Fewer investments in buildings were implemented in 2012 due to changing investment plans, taking into account the strategic development project to optimise work hours at post offices. Given the objectives and policies of the project, the Company temporarily halted project activities related to the planning of the investment cycle for buildings. The reason lies in the reassessment of the justification of specific investments in terms of the location of delivery post offices following the centralisation of the delivery function, while amended points of departure were clarified in revised investment plans. Other investments were carried out in line with the value set out in investment programmes, while other orders were executed in line with or below estimated values. Possible risks associated with the execution of public tenders were managed by precisely monitoring the results of public tenders and by precisely defining the tasks of contract administrators with regard to monitoring the implementation of contracts. Pošta Slovenije is bound by the Public Procurement Act to conduct its procurement activities via public tender procedures. Timely planning, analysing the range of goods and services on the market, the careful drafting of public tenders and the conclusion of custodial contracts are critical steps for managing the risk of delivery delays, the risk of procuring inappropriate goods and services, the risk of uneconomical purchases and investments, and the risk of non-execution due to changed circumstances. In terms of purchasing risks, the rise in the prices of refined petroleum products led to an increase in energy costs, which were higher than planned. Despite a delay in the conclusion to legal transactions and higher energy costs than planned, we assess that the Company successfully managed these risks.

In management processes, the Company is most exposed to the risk of the inappropriate optimisation of business processes, which it manages by drafting optimisation alternatives, through simulations and by benchmarking best practices. The business process management project was completed in 2012. The aim of the project was to establish additional control mechanisms to ensure the optimisation of business processes. The outcome of the project was an analysis and proposal to improve operations on the basis thereof. A decision was taken to include short-term measures in regular activities, while other measures are approached gradually or in phases. The risks associated with inappropriate optimisation were further managed in 2012 through the management and monitoring of the aforementioned project by the project office, and through the establishment of a corporate risk management system that is constantly improved.

Credit Risk

Pošta Slovenije focuses a great deal of attention on credit risk owing to the economic crisis and its resulting exposure. By applying a standard policy regarding payment terms and maximum exposure limits to individual customers, the Company can generally prevent significant negative deviations with regard to the regular payment of receivables. Receivables are systematically managed at the business unit level and at the Company's headquarters, where they are centrally managed. Pošta Slovenije is in a more favourable position compared to other sectors in terms of the non-settlement of financial obligations by a specific customer owing to the nature of products, the activities of major customers, the Company's highly dispersed customer base and the active collection of receivables. Total value adjustments created in 2012 represented 1.2% of operating revenues (compared with 4.6% in 2011). We therefore assess that the Company successfully managed credit risk compared to other companies.

Currency risk

Similar to all postal service providers, Pošta Slovenije is involved in international postal transactions. Nevertheless, the majority of its cash flows are in euros. The volume of transactions in foreign currencies is insignificant. Thus, the Company's exposure to currency risk is negligible.

Interest-rate risk

Exposure to interest-rate risk, i.e. the risk of changes in interest rates on deposits and loans, is low. By planning investment activities, current operations and deposits, the Company's cash flows are coordinated, and generally do not require additional borrowings. The latter are managed by raising loans with a variable EURIBOR interest rate and favourable premiums over market interest rates. Deposits are placed at banks at fixed interest rates. Interest-rate risk is managed successfully given the situation on banking markets and the Company's sound financial position (credit rating).

Solvency risk

Solvency risk is the risk of inadequate liquidity or maturity mismatches between the Company's assets and liabilities, which could result in insolvency or insufficient funds to settle liabilities at maturity. This risk is closely linked to credit risk due to the global economic crisis. The Company has therefore managed this risk with greater care due to liquidity problems faced by Slovenian companies. The aforementioned risk is successfully managed through the prudent planning of cash flows (e.g. investments, and the management of credit risk and current operations) and by raising a revolving loan.

Strategic approach to risks

The Company will be most exposed to the following risks in the coming years (Table 5):

external risks (e.g. macroeconomic conditions, and legislation and regulations),
market risks (e.g. market share, customer satisfaction and competition),
development risks (e.g. development of services and capacities), and
credit risks.

Level of Pošta Slovenije's exposure to specific types of risk

Table 5
Seq. no.	Type of risk	Low (1–3)	Manageable (4–8)	High (9–16)

1.	Environmental risks
1.1.	External risks			X
1.2.	Market risks			X
1.3.	Strategic links and investments		X

2.	Operational risks
2.1.	Human resource risks		X
2.2.	Development risks			X
2.3.	Risks associated with the functioning of the infrastructure		X
2.4.	Security and protection risk		X
2.5.	General management		X
2.6.	Credit Risk			X
2.7.	Currency risk	X
2.8.	Interest-rate risk	X
2.9.	Solvency risk	X

The Company is aware that only the intensive implementation of risk management activities will ensure Pošta Slovenije's commercial success in the future.

The further development of the CRM will include:

the development of standards and procedures for measuring, reporting and managing risks;
the development and upgrading of the system of responsibilities and authorisations for specific risks;
the organisation of workshops to train employees and enhance their awareness of risks, as well as the identification, assessment and monitoring of risks;
the continuous monitoring of exposure to specific risks (and their possible interaction) and ensuring their appropriate management; and
constant improvement of the system for monitoring and reporting on the implementation of risk management measures, training and participation in the most relevant seminars and conferences on the subject of risk management and related areas, and the monitoring of trends and best practices with regard to risk management methodologies.

2.9.2 Internal audit

Pošta Slovenije's Internal Audit Office (IAO) is functionally and organisationally segregated from other organisational units and is directly accountable to the Executive Management, as it is organised as a central corporate office independent from audited sectors, namely Pošta Slovenije's other organisational units. It functions on the basis of the Rules of Procedure of the Internal Audit Office, while work instructions are set out in the Internal Audit Manual. In its work, the IAO abides by the Code of Internal Auditing Principles and the Code of Conduct for Internal Auditors issued by the Slovenian Institute of Auditors. The work of the IAO is aimed at verifying and assessing the internal control system and risk management. The IAO regularly reports findings and recommendations for improving the efficiency of internal controls for risk management to audited units and the Executive Management of Pošta Slovenije, and the Supervisory Board's audit committee on a quarterly basis.

The work of the IAO is based on the analysis of the risks associated with the functioning and control of key business processes carried out at Pošta Slovenije, and on the basis of risks recognised by expert divisions. The scope and allocation of internal auditing tasks are defined in the office's strategic policies and annual work plan.

When conducting internal audits, the IAO focuses on verifying the existence and functioning of the internal control system in work processes. It also focuses on risk management, and the correctness, timeliness and reliability of information that the Executive Management and others require for making business decisions.

IAO auditors performed internal audits in all key areas of the Company's operations in terms of risk and provided consultancy services in the following areas: marketing, purchasing, logistics, international operations, information technology and information security, the human resource function and corporate governance.

The IAO employed three workers in 2012 who, in addition to audits, also provided consultancy services to internal users with the aim of improving the efficiency of operations. It also organised and coordinated the compilation of data for the auditing of Pošta Slovenije's 2011 annual report and the collection and compilation of data for the preliminary audit of 2012 operations. It also coordinated special audits of Pošta Slovenije's operations that were performed by competent external audit firms and other control providers.

Internal auditors are independent from the organisational units they audit, which facilitates the professional and impartial performance of their work. They are continuously trained and educated, and monitor the latest developments in the auditing profession.

2.9.3 Internal controls

The Internal Control Section (ICS) is part of the Corporate Security and Control Division. In certain segments, the head of the section also coordinates the work of business unit inspectors, who are directly responsible to business unit directors.

Internal control inspectors, who are experts in post office work technology, work independently and in line with internal control work instructions, adopted by the General Manager. Inspectors give guidance to post offices and employees on how to provide quality services, and how to achieve prescribed standards, effective organisation and streamlined operations.

Inspectors work with the Inspectorate of the Republic of Slovenia for Electronic Communications, Electronic Signature and Post. In specific tasks, they also work with the IAO, the auditors of Poštna banka Slovenije, the Corporate Security Section, with persons responsible for the prevention of money laundering at Poštna banka Slovenije and Pošta Slovenije, and with the postal transactions commission. They also provide independent initiatives for streamlining operations.

Inspectors from the ICS and business units performed the following tasks in 2012:

comprehensive inspections of operations at 502 post offices;
468 partial inspections of the operations of post offices (including 1,230 post offices and the MSLC sections in Ljubljana and Maribor);
24 inspections of leftover mail at the MSLCs in Ljubljana and Maribor; and
16 special investigations concerning transactions at post offices on the basis of a request from the person responsible for the prevention of money laundering at Poštna banka Slovenije and Pošta Slovenije.

Inspectors reviewed 547 complaints in 2012, 349 (or 64%) of which were justified and 198 unjustified, representing a 21% increase compared to 2011. From a more detailed analysis, it is clear that complaints regarding lost mail were down 35% compared to 2011, while complaints due to failure to meet delivery deadlines were down 37%. The number of complaints due to the pillaging of mail items, failure to follow the addressee's order and the incorrect delivery of mail were up.

The implementation of the Prevention of Money Laundering Act and the Anti-Money Laundering Instruction Manual for Post Offices was controlled by inspectors during controls of the operations of post offices. Control of foreign exchange operations was also carried out at those post offices where these services are provided. Inspectors carried out special inspections in 16 cases to clarify the circumstances surrounding individual transactions, and reported their findings to those responsible for the prevention of money laundering at Pošta Slovenije.

Comprehensive inspections were followed by final interviews with post office managers and controllers who were tasked with eliminating irregularities and deficiencies. Final interviews conducted following inspections carried out by ICS inspectors included the directors of individual business units, or their deputies, and the heads of logistics sections. Inspected post offices also receive a written report with the findings from inspections. Responsible persons are obliged to report to their respective business unit and the ICS with regard to the elimination of identified deficiencies.

The score for post office operations affect assessments of the quality of post office managers' work and assessments of the work quality of other employees in individual post offices. Business units take measures when major irregularities are identified. Scores calculated when a full inspection of postal operations is concluded are taken into account in proposals to reward the most effective post office managers.

2.9.4 Security

In the broadest sense, the planning and implementation of measures to ensure corporate security is the responsibility of the Corporate Security Section (hereinafter: the CSS), which functions within the Corporate Security and Control Division. The head of the CSS is directly accountable to the director of the aforementioned division, and in functional terms also coordinates the work of employees responsible for security at business units, who report directly to relevant section heads.

At the strategic level, the primary tasks of the CSS are the development of the Company's overall security policy and the implementation thereof. At the operational level, specific measures are implemented and coordinated to ensure the security of people and property. In the scope of the aforementioned tasks and in cooperation with other organisational units, the CSS primarily carries out the following tasks:

the formulation of security guidelines;
security analyses and the drafting of reports that serve as the basis for planning, selecting and introducing new security methods, means and measures;
organising, monitoring and participating in the drafting of security training programmes; and
cooperating with security and defence institutions, performing other security tasks as defined in laws and other regulations or by Pošta Slovenije's General Manager in accordance with his competences.

All of these tasks primarily relate to providing security for employees and post office property, as the CSS analyses security-related events that directly or indirectly pose a threat to the security of employees and property. Taking into account the results of analyses, the CSS plans and implements measures to reduce security threats.

In order to ensure the Company's internal security, Pošta Slovenije began introducing integrity tests and security checks using a polygraph method in 2012, in addition to standard physical, technical and mechanical security measures. The aforementioned security measures are only used when other security measures cannot ensure a sufficient level of security.

The Company also continued to update its video surveillance system, with completion expected in 2013. Based on a threat assessment, the security systems of individual post offices were upgraded with dye-pack systems and mechanical anti-burglary protection systems. Postal vehicles that transport insured postal items were equipped with tracking systems and panic button systems.

A special achievement in the area of security is the construction of the Company's own control centre, a centralised operational unit for identifying and coordinating the implementation of the necessary measures should extraordinary events occur.

The Company recorded 20 criminal acts in 2012, the most numerous and the most dangerous acts carried out by perpetrators to the detriment of Pošta Slovenije being robberies. For this reason, employee security continues to be ensured primarily through a combination of technical and mechanical systems to prevent burglaries. If despite the aforementioned measures employees are the victim of a criminal act, the Company provides both psychological help and legal assistance. Among criminal acts that threaten the property of Pošta Slovenije, there was an increase in the number of criminal acts to the detriment of the Company committed by its employees in 2012. For this reason, more attention was given to this problem in 2012 than in previous years.

Robberies of post offices accounted for the highest proportion of criminal acts in 2012.

A review of statistical data regarding the number of criminal acts and the resulting damage indicates that this type of security problem is comparable with the previous year and in line with expectations. Given the adverse economic and social situation in Slovenia, which represents an important driver of criminal activity, the security situation at the Company is assessed as satisfactory.

In accordance with the dynamics of the implementation of its security policy, the Company will enhance efforts next year to ensure the security of postmen and women, while upgrading existing security systems. The security of people and property will remain one of the Company's core tasks in the future.

2.10 BUSINESS ANALYSIS

Pošta Slovenije's operations in 2012

Table 6			in EUR
REVENUES AND EXPENSES	2011	2012	Index
1	2	3	4 = 3/2
REVENUES FROM POSTAL SERVICES	183,018,733	175,336,490	96
Revenues from letter services	116,149,038	108,171,230	93
Revenues from network access	1,128,587	3,843,129	341
Revenues from parcel services	22,164,230	22,276,904	101
Revenues from express mail (EMS, UPS)	1,954,611	2,253,153	115
Revenues from direct mail, publications, inserts, etc.	41,622,266	38,792,075	93
REVENUES FROM OTHER SERVICES	54,670,684	51,628,253	94
Revenues from financial services	36,703,340	34,283,041	93
Other revenues	17,967,345	17,345,212	97
CAPITALISED OWN PRODUCTS AND SERVICES	12,742	16,004	126
REVALUATION OPERATING REVENUES AND REVENUES FROM SUBSIDIES AND THE ELIMINATION OF PROVISIONS	657,392	1,517,804	231
OPERATING REVENUES	238,359,551	228,498,551	96
COSTS OF MATERIALS	4,429,676	4,302,289	97
COSTS OF ENERGY	7,198,888	7,736,630	107
COSTS OF SERVICES	37,185,545	39,359,548	106
LABOUR COSTS	147,482,780	147,986,726	100
AMORTISATION/DEPRECIATION	13,756,248	13,230,392	96
OTHER COSTS	1,215,513	1,159,935	95
PROVISIONS	1,864,423	1,730,846	93
HISTORICAL COST OF MERCHANDISE	3,370,982	2,955,021	88
REVALUATION OPERATING EXPENSES	1,111,745	542,479	49
OPERATING EXPENSES	217,615,802	219,003,866	101

OPERATING PROFIT OR LOSS	20,743,749	9,494,685	46
FINANCE INCOME	2,035,631	2,043,077	100
FINANCE COSTS	12,533,247	5,117,253	41
OTHER REVENUES	633,072	596,237	94
OTHER EXPENSES	346,943	99,793	29
PROFIT OR LOSS BEFORE INCOME TAX	10,532,263	6,916,953	66
DEFERRED TAXES	-2,551,049	-658,765	26
INCOME TAX	4,223,114	1,243,861	29
NET PROFIT OR LOSS	8,860,198	6,331,857	71

OPERATING REVENUES

Operating revenues were down 4% in 2012 relative to 2011. They are divided into the following main categories at Pošta Slovenije:

revenues from postal services, and
revenues from other services.

Revenues from other services are further divided into:

revenues from financial services, and
other revenues.

Operating revenues also include capitalised own products and services, revaluation revenues, revenues from subsidies and revenues from the reversal of provisions.

Revenues from postal services account for the largest proportion of postal service revenues (77%), followed by revenues from financial services, the proportion of which is gradually declining.

Revenues from postal services account for the largest proportion of revenues.

Operating revenues were down in 2012.

Revenues from letter services were down relative to 2011 as the result of a decline in the number of services rendered. Contributing to the decline was the increasing use of electronic forms of communication and the optimisation of costs by customers who send fewer items by mail or have completely stopped sending items, and the liberalisation of the market, as customer ship mail items via exchange service providers, which is recorded as the separate item "Network access".

Revenues from express mail were up on account of additional transactions with UPS.

Revenues from direct mail and publications were down in all segments as a result of the migration of customers to consolidators and a decline in the number of subscribers to publications due to more contemporary forms of media and communication channels.

Revenues from financial services were down 7%, primarily owing to a drop in the volume of payment transactions. The reasons for the aforementioned drop were as follows:

the migration of individuals to other forms of payment (e.g. standing orders, e-banking and m-banking);
the opening of payment points in major cities (local cash desks);
the competitive prices of other payment service providers; and
the opening of payment points by new payment service providers (e.g. Tuš, Petrol and Mercator).

Other revenues fell by 3%, primarily due to a drop in consignment sales and merchandise sales, as purchasing power remains notably lower due to the economic crisis, and a decline in sales of telegrams, as customers use more contemporary forms of communication (SMS, MMS, electronic greeting cards, etc.). Revenues from certain other services (e.g. fax and photocopying services) were also down slightly compared to 2011.

Operating revenues were at the level planned for 2012, with revenues from financial services and other revenues lagging slightly behind the planned figures.

The Company expects that the adverse conditions from 2012 (changes to legislation, the escalation of the economic and financial crisis and the activities of regulatory bodies such as the APEK and CPA) will have a significant impact on Pošta Slovenije's operations in 2013 and in the future. For this reason, the Company expects a drop in services and thus operating revenues, primarily in the universal services segment, publications and direct mail, and financial services. The Company will attempt to offset the decline in traditional postal services and payment transactions by introducing new contemporary postal, financial and electronic services.

OPERATING EXPENSES

Operating expenses in 2012 were up 1% on 2011.

At 68%, labour costs account for the highest proportion of operating expenses, followed by the costs of services, and amortisation and depreciation costs.

Labour costs account for two-thirds of operating expenses.

Operating expenses were up slightly in 2012.

The Company implemented several short-term measures aimed at reducing costs in 2012 due to the adverse economic situation. These included the rationalisation of processes, a reduction in consumption, the efficiency of purchases and a reduction in the prices of suppliers. Long-term measures were also introduced, including the transformation of postal units into mobile and contracted post offices, the centralisation of the delivery function, etc. Only energy costs and the costs of services were up relative to 2011.

Energy costs were up by 7%, primarily due to the following:

higher costs of fuel for transportation equipment due to the rising prices of refined petroleum products in 2012,
higher heating costs due to a rise in heating oil prices, and
higher electricity supply prices.

Contributing most to the 6% increase in the costs of services were higher costs from international invoicing, while the following costs were also up slightly:

insurance costs due to higher insurance premiums,
the printing and design of publications and sales catalogues due to the introduction of the new service, Povej naprej (Tell it Forward),
the maintenance of security devices due to the upgrading of the anti-burglary system and the unplanned maintenance of security cases,
banking services and other payment transaction services due to an increase in the number of universal payment order forms, and
consulting.

Operating expenses were 1% higher than planned in 2012. The costs of material and energy, services, labour and provisions were up.

The Company will continue to rationalise costs in 2013, and is planning a 1% reduction in costs. The costs of energy can be expected to increase owing to the continued rise in energy prices, while the introduction of new services will result in additional costs of services. Labour costs, which account for the highest proportion of costs, are expected to decline.

PROFIT OR LOSS

Pošta Slovenije generated a profit of EUR 6,332 thousand in 2012, a decrease of 29% or EUR 2,528 thousand on 2011. The impairment of the investment in shares of Nova Kreditna banka Maribor affected the level of net profit in both of the aforementioned years. The total effect was a deterioration in net profit of EUR 4.3 million in 2012 and EUR 9.9 million in 2011.

Operating profit was down 54% on 2011 as the result of lower operating revenues and slightly higher operating expenses. The drop in revenues was expected, as traditional mail items are being replaced by electronic forms of communication, while major customers are rationalising their operations and competition is increasingly intense due to the liberalisation of the market.

Net profit in 2012 was lower than in 2011.

INDICATORS

Performance indicators

Table 7			in EUR
INDICATOR	2011	2012	Index
1	2	3	4 = 3/2
Added value (operating revenues less costs of materials, energy and services, other costs and the historical cost of merchandise)	184,958,947	172,985,129	94
Added value as a % of operating revenues	77.6	75.7
Added value per employee (added value divided by the average number of employees based on hours worked)	29,718	28,114	95
Labour productivity (net operating revenues divided by the average number of employees based on hours worked)	38,190	36,887	97
Labour costs per employee	23,696	24,051	101
EBITDA – gross cash flow (operating revenues less costs of materials, energy and services, other costs, the historical cost of merchandise and labour costs)	37,476,166	24,998,403	67
EBITDA margin as a % of operating revenues	15.7	10.9
EBIT – operating profit (operating revenues less operating expenses)	20,743,749	9,494,685	46
EBIT margin as a % of operating revenues	8.7	4.2
E – net profit	8,860,198	6,331,857	71
Net profit (E) as a % of operating revenues	3.7	2.8
Overall efficiency (total revenues / total expenses) in %	104.6	103.1
Operational efficiency (operating revenues / operating expenses) in %	109.5	104.3
ROS – return on sales in % (net profit divided by operating revenues decreased by capitalised own products and revaluation operating revenues)	3.7	2.8
ROE – return on equity in % (net profit divided by average equity)	3.6	2.6
ROA – return on assets in % (net profit divided by total assets)	2.9	2.1
CAPEX – capital expenditure in % (value of investments divided by operating revenues decreased by capitalised own products and revaluation operating revenues)	13.0	6.2
Dividend to equity ratio in % (dividends paid during the current year / average equity)	2.4	3.3

Financial ratios

Table 8
Ratios	2011	2012

I. Financing ratios (in %)
Self-financing ratio (equity / total equity and liabilities)	83.15	83.08
Non-current financing ratio (total equity capital and non-current debt, including provisions) / total equity and liabilities	88.48	88.74
II. Investing ratios (in %)
Fixed asset investment ratio (fixed assets / total assets)	65.67	67.41
Non-current investment ratio (total non-current assets, excluding deferred tax assets / total assets)	75.59	75.70
III. Horizontal financial structure ratios
Equity to fixed assets ratio (equity / fixed assets)	1.27	1.23
Liquidity ratio (cash and cash equivalents plus current investments / current liabilities)	1.00	0.99
Quick ratio (cash and cash equivalents, current investments and current receivables / current liabilities)	2.23	2.32
Current ratio (current assets / current liabilities)	2.60	2.64
IV. Turnover ratios
Current operating assets turnover ratio (operating expenses for the year / average balance of operating assets)	4.67	5.10

CASH FLOW

Cash flow statement

Table 9			in EUR
ITEM	2011	2012	Index
1	2	3	4 = 3/2
A. CASH FLOWS FROM OPERATING ACTIVITIES
a) Inflows from operating activities	303,499,761	293,113,432	97
– Inflows from the sale of products and services	288,510,910	276,951,013	96
– Other cash flows from operating activities	14,988,852	16,162,419	108
b) Outflows from operating activities	-270,588,838	-274,362,508	101
– Outflows for the purchase of materials and services	-91,034,097	-93,032,439	102
– Outflows for salaries and wages, and employees' profit participation	-111,562,239	-111,602,522	100
– Outflows for all contributions	-67,236,810	-68,717,581	102
– Other outflows from operating activities	-755,691	-1,009,966	134
c) Net cash flows from operating activities (a + b)	32,910,923	18,750,924	57

B. CASH FLOWS FROM INVESTING ACTIVITIES
a) Inflows from investing activities	203,173,527	206,613,164	102
b) Outflows from investing activities	-221,472,352	-217,992,215	98
c) Net cash flows from investing activities (a + b)	-18,298,825	-11,379,051	62

C. CASH FLOWS FROM FINANCING ACTIVITIES
a) Inflows from financing activities	5,000,000	0	0
b) Outflows from financing activities	-20,454,621	-8,000,000	39
c) Net cash flows from financing activities (a + b)	-15,454,621	-8,000,000	52

D. CLOSING CASH BALANCE
a) Cash flows in the reporting period (Ac+Bc+Cc)	-842,522	-628,127	75
b) Opening cash balance	2,517,376	1,689,120	67
c) Postal order and petty cash transactions, and exchange rate differences	14,266	-8,151
d) Closing cash balance	1,689,120	1,052,842	62

Cash flow from operating activities

Inflows from operating activities were down 3% on 2011, primarily as the result of a decrease in the volume of services rendered and changes in the structure of services (the sending of mail items via exchange service providers). Contributing to the 1% increase in outflows from operating activities were higher outflows for all types of contributions (the payment of corporate income tax for 2011 and corporate income tax prepayments for January and February 2012), higher outflows for the purchase of materials and services (increase in outflows for the purchase of consignment merchandise as the result of an increase in payments for games of chance) and other outflows (coverage for post office robberies and meeting attendance fees).

Inflows from operating activities exceeded outflows by EUR 18,751 thousand in 2012.

Cash flow from investing activities

Inflows from investing activities were up in 2012, primarily due to an increase in the call of short-term deposits. Outflows were lower as shares of Nova Kreditna banka Maribor were purchased in 2011.

Cash flow from financing activities

The net cash flow from financing activities was negative the last two years, as there was no need for additional long-term borrowing.

Inflows from operating activities were down in 2012.

Outflows from operating activities were up in 2012.

Outflows for wages and employees' participation in profit accounted for the largest proportion of outflows from operating activities.

Cash flow ratios in 2012

Table 10
Cash flow ratios	2011	2012	Index
1	2	3	4 = 3/2
Coverage of outflows from operating activities by inflows from operating activities (inflows from operating activities divided by outflows from operating activities)	1.12	1.07	95
Coverage of investments by outflows from financing activities (net cash flows from operating activities divided by the sum of outflows from financing and investing activities – outflows for the acquisition of property, plant and equipment, excluding outflows for the acquisition of current financial investments)	1.08	0.85	79
Reinvestment ratio in current period (net cash flows from operating activities divided by net cash flows from investing activities)	1.80	1.65	92
Coverage of outflows from financing activities (inflows from operating activities divided by outflows from financing activities)	1.61	2.34	146

The coverage of investments and outflows from financing activities was less than 1 in 2012, meaning the Company failed to cover outflows from investments and financing activities with net cash flows from operating activities and that additional sources of financing (deposited funds) were required.

Measures to improve financing from own cash flows

Pošta Slovenije gives a great deal of attention to the monitoring and collection of receivables, as the economic crisis has had a considerable negative impact on solvency, and resulted in serious difficulties for some of the Company's customers. The Company continued to conclude agreements on the settlement of receivables, terminate agreements due to the non-payment of liabilities and continuously send reminders.

2.11 POST-BALANCE SHEET EVENTS

The subsidiary company PS Moj paket d. o. o., which is 100% owned by Pošta Slovenije, was established in January 2013. The aforementioned company's core activity is retail trade by mail and via the internet.

The Financial Services Tax Act entered into force in 2013. The introduction of a 6.5% tax on financial services will affect revenues from financial services.

2.12 PLANS FOR THE FUTURE

New services and improvements:

Activities will be carried out to establish cashless payments of goods and services at post offices and upon delivery. Mobile payments will also be supported in the scope of the aforementioned services.
In cooperation with pharmacies, the Company will introduce the possibility of ordering and delivering cosmetic products, medical devices and food supplements.
Pošta Slovenije will begin activities to establish a central database of complaints with the aim of recording, classifying, tracking and more efficiently resolving complaints, using previously available sources of business data and information.
The Company will introduce printed discount coupons for customers (via a toll-free telephone number) who do not transact via the internet.
Activities will begin to establish a functioning "postomat" for receiving and sending mail.
In the scope of developing new information technologies, Poštna banka Slovenije will introduce new services at postal counters and enhance existing services in the UPO application for customers of PBS, as follows: copies of bridging loan agreements and copies of annexes to deposit agreements; copies of agreements on special overdraft facilities and the activation thereof; new transactions for the needs of monitoring financial remuneration and remuneration from sales promotions of PBS accounts; the upgrading of transactions for corporate transaction account holders (cash withdrawals and non-cash transfers) using a corporate debit card; copies of forms for opening corporate accounts; and informative calculations for loans and savings.

In the area of philatelic products, the Company will:

issue a joint stamp with the Austrian postal service (Österreichische Post) to mark the oldest underground post office in the world, which operated between 1899 and 1927 in Postojna Cave;
issue a commemorative stamp to mark the 300th anniversary of the Tolmin Peasant Revolt. A special philatelic and numismatic set will be issued for this event. In addition to the aforementioned stamp, the set will contain a collector's coin issued for the occasion by the Bank of Slovenia;
issue a stamp to mark the largest sporting event in Slovenia since its independence – EuroBasket 2013 (the European basketball championships); and
issue stamps from a wildlife series, printed using a special technique – a salt coating on the front of every stamp.

Internationally, the Company will:

carry out activities to expand cooperation with postal operators in the region and in Asia. Online sales is an area that provides the Company additional opportunities to expand and grow; and
expand the free return of parcels, which is already offered for Germany, the United Kingdom, Belgium and the Netherlands (the service is currently being tested for France).

Postal network and logistics:

The Company will purchase a second line of devices for folding unaddressed direct mail (UDM) in 2013. We will thus include an additional 170 thousand households in the machine folding of UDM.
Based on the successful implementation of a pilot project to optimise the delivery function, the Company will continue with the aforementioned optimisation with the aim of introducing efficient software tools in operations that will assist in the planning of delivery areas and the routes of postmen and women.
An increase in the proportion of environmentally friendly vehicles is planned in the area of transportation. The electric-powered Kyburz tricycle (with a trailer) will be introduced to the vehicle fleet in 2013.
Pošta Slovenije will continue to optimise the postal network, with the second phase of centralisation of the delivery function and the transformation of post offices into contracted and mobile post offices.

Information technology:

A data centre will be developed and put into production at the Ljubljana MSLC for the Company's own needs and the needs of customers. A plan will be drafted to set up additional capacities for the data centre at the Maribor MSLC, including the upgrading of the power supply, taking into account green approaches and a responsible approach to the environment in this segment.
The Company will continue to upgrade the delivery module of the UPO application and computerise the work of postmen and women with palmtop computers.
The appropriate application support will be provided for wholesale services and needs adapted with regard to supply chain services.
Pošta Slovenije will continue with activities to establish an open electronic service system that will represent a substitute for traditional postal services and facilitate electronic service, and the sending and receiving of electronic items, without prior user registration, directly from customers' e-mail.
Activities will be carried out to obtain accreditation from the Archives of the Republic of Slovenia for the digitalisation of documentary materials. Accredited digitalisation service represents a precondition for providing digitalisation services to public law entities.
The Company aims to improve the recognition of Pošta Slovenije as a competent provider of IT services and all forms of cloud computing services, for which the Company will establish partnerships with the largest global service providers in this area.
The overhauling and computerisation of the human resource function will continue with the upgrading and development of existing information support. The objectives of the overhaul, which are based on efforts to improve the efficiency and success of operations, are: the modernisation of job systematisation, the computerisation of IT requests and the management of a central register, the upgrading of the system used to manage working hours and the introduction of employee e-files.

Employee development:

The computerisation of HRM processes – support of annual development interviews (between heads of organisational units and employees), management of employees' competencies, support for the management of employee education and training, the monitoring of employee effectiveness and performance, and employee advancement.
Management academy – systematic management of managers at all managerial levels.
Sales and sale management academy – continuous employee education and training in the areas of sales and marketing.
Management of the ageing workforce – establishment of an appropriate work environment taking into account the optimal performance of work tasks.
Management of disabled employees – improve employee effectiveness, reduce absenteeism and keep disabled employees active in the workplace in the context of financial incentives earmarked by the government for employment.

2.

BUSINESS REPORT

2.1

MISSION, VISION AND STRATEGIC POLICIES OF POŠTA SLOVENIJE

Mission

Vision

Strategic policies of Pošta Slovenije

2.2

BUSINESS ENVIRONMENT

Macroeconomic environment1

Legislation

Regulatory environment

Economic environment

Technological environment

1 Sources: Office of Macroeconomic Analysis and Development (OMAD), Chamber of Commerce and Industry of Slovenia.

2 Source: Doha Postal Strategy 2013–2016, p. 15.

2.3

MARKETING AND SALES

2.3.1

Services

1. Postal services

Universal postal services

Other postal services

2. Financial services

3. Other services

2.3.2

International cooperation

2.3.3

Postage stamps and philatelic products

2.3.4

Market communications and brand management