LATVIJAS GĀZE GROUP CONSOLIDATED AND
JSC "LATVIJAS GĀZE"
FINANCIAL STATEMENTS FOR 2020
Prepared in compliance with the International Financial
Reporting Standards as adopted by the European Union
Riga 2021
2
CONTENTS
CORPORATE INFORMATION .................................................................................................................................................... 3
STATEMENT OF COMPREHENSIVE INCOME ................................................................................................................. 4
BALANCE SHEET ............................................................................................................................................................................... 5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ........................................................................................ 7
COMPANY’S STATEMENT OF CHANGES IN EQUITY .................................................................................................. 8
STATEMENT OF CASH FLOWS ................................................................................................................................................. 9
NOTES TO FINANCIAL STATEMENTS ................................................................................................................................ 10
3
FINANCIAL STATEMENTS
Prepared in compliance with the International Financial Reporting Standards as Adopted by the
European Union
CORPORATE INFORMATION
Company
LEI code
097900BGMO0000055872
Registration number, place and
date of registration
Unified registration number 40003000642
re-registered in Commercial Register on 20 December
2004
Address
Major shareholders
Financial period
1 January – 31 December 2020
Name and address of the auditor
PricewaterhouseCoopers SIA
Kr. Valdemāra street 21-21
Riga, LV-1010, Latvia
Responsible certified auditor:
Jana Smirnova
Certified auditor
Certificate No.188
4
STATEMENT OF PROFIT OR LOSS
EUR
EUR
EUR
EUR
Earnings per share (basic and diluted)
16
0.280
0.506
0.288
0.494
STATEMENT OF COMPREHENSIVE INCOME
Note
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Profit for the period
Other comprehensive income - items that
will not be reclassified to profit or loss
Revaluation of property, plant and
equipment
9
-
-
-
Change in revaluation reserve of
property, plant and equipment
-
-
-
Remeasurement of post-
employment benefit obligations
19
(348 )
(3 )
Total other comprehensive income
(348 )
(3 )
Total comprehensive income for the
period
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
Note
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Revenue from contracts with
customers
2
Other income
3
2 850
1 828
Raw materials and consumables
used
4
(131 301 )
(247 263 )
(129 677 )
(245 588 )
Personnel expenses
5
(26 331)
(25 852 )
(5 277)
(5 033 )
Depreciation, amortization and
impairment of property, plant and
equipment, intangible assets and
right-of use assets
6
(13 519 )
(12 770 )
(1 183)
(785 )
Other operating expenses
7
(9 250)
(9 120)
(3 922)
(4 216)
Dividends received from subsidiary
-
-
Operating profit
Financial expense
(260 )
(399 )
(260 )
(173 )
Profit before taxes
Corporate income tax
(1 494)
(2 268)
(1 494)
(2 268)
Profit for the period
5
BALANCE SHEET
Note
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
ASSETS
Restated
Restated
Non-current assets
Intangible assets
8
Property, plant and
equipment
9
Right-of-use assets
Investment in subsidiary
10
-
-
Other debtors
12
Total non-current assets
Current assets
Inventories
11
Pre-payments for inventories
Trade receivables
12
Other financial assets at
amortised cost
14
Other current assets
15
Cash and cash equivalents
Total current assets
TOTAL ASSETS
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
6
BALANCE SHEET (continued)
Note
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
LIABILITIES AND EQUITY
Restated
Restated
Equity
Share capital
16
55 860
Share premium
Reserves
Retained earnings
Total equity
Liabilities
Non-current liabilities
Provisions
-
-
-
Borrowings
17
-
-
Lease liabilities
-
Deferred income
18
-
-
Employee benefit obligations
19
Total non-current liabilities
Current liabilities
Trade payables
20
Interest-bearing loans and
borrowings
17
-
-
Lease liabilities
Deferred income
18
-
Other liabilities
21
Total current liabilities
Total liabilities
TOTAL LIABILITIES AND EQUITY
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
Share
premium
Reva-
luation
reserve
Employee
benefits
revaluatio
n reserve
Retained
earnings
Total
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
31 December 2018
(restated)
Transactions with owners
Dividends (see Note 16)
-
-
-
-
(21 945 )
(21 945 )
Total transactions with
owners
-
-
-
-
(21 945 )
(21 945 )
Depreciation of
revaluation reserve and
disposal of revalued assets
-
-
(6 593 )
-
-
Comprehensive income
Profit for the year
-
-
-
-
Other comprehensive
income
-
-
-
Total comprehensive
income
-
-
31 December 2019
(restated)
Transactions with
owners:
Dividends (see Note 16)
-
-
-
-
(17 556 )
(17 556 )
Total transactions with
owners
-
-
-
-
(17 556 )
(17 556 )
Depreciation of
revaluation reserve and
disposal of revalued assets
-
-
(6 817 )
-
-
Comprehensive income
Profit for the year
-
-
-
-
11 189
Other comprehensive
income
-
-
-
(348 )
-
(348 )
Total comprehensive
income
-
-
-
(348 )
31 December 2020
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
8
COMPANY’S STATEMENT OF CHANGES IN EQUITY
Share
capital
Share
premium
Employee
benefits
revaluation
reserve
Reorgani-
sation
reserve
Retained
earnings
Total
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
31 December 2018
(restated)
(85 )
Transactions with
owners
Dividends (see Note 16)
-
-
-
-
(21 945 )
(21 945 )
Total transactions with
owners
-
-
-
-
(21 945 )
(21 945 )
Comprehensive
income:
Profit for the year
-
-
-
-
Other comprehensive
income
-
-
-
-
Total comprehensive
income
-
-
-
31 December 2019
(restated)
(51 )
Transactions with owners:
Dividends (see Note 16)
-
-
-
-
(17 556 )
(17 556 )
Total transactions with
owners
-
-
-
-
(17 556 )
(17 556 )
Comprehensive
income
Profit for the year
-
-
-
-
Other comprehensive
income
-
-
(3 )
-
-
(3 )
Total comprehensive
income
-
-
(3 )
-
31 December 2020
(54 )
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
9
STATEMENT OF CASH FLOWS
The Financial statements were approved by the Board of the JSC “Latvijas Gāze” on 21 April 2021,
and they are signed on behalf of the Board by:
Aigars Kalvītis
Chairman of the Board
Inga Āboliņa
Member of the Board
Elita Dreimane
Member of the Board
Group
Group
Company
Company
Note
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Cash flow from operating activities
Profit before corporate income tax
Adjustments:
- depreciation of property, plant and
equipment and right-of-use assets
6
11 497
- amortisation of intangible assets
6
- movement in provisions
(101 )
(34 )
- income from participating interests
-
-
(8 778)
(9 975)
- (profit) / losses from long-term asset
exclusions
(4 )
- interest expenses
Changes in operating assets and liabilities:
- in accounts receivable
- in inventories
- in advances for inventories
(2 216)
(793 )
(2 207)
(803 )
- in accounts payable
(41 )
(10 915 )
(10 637 )
Corporate income tax paid
(1 494)
(2 205)
(1 494)
(2 205)
Net cash inflow from operating activities
Cash flow from investing activities
Payments for property, plant and equipment
9
(7 046)
(9 513 )
(205 )
(2 177)
Payments for intangible assets
8
(2 242)
(3 304 )
(943 )
(2 328)
Proceeds from sale of property, plant and
equipment
Dividends received
22
-
-
Net cash outflow from investing activities
(9 151)
(12 734 )
Cash flow from financing activities
Overdraft paid
-
(8 386)
-
(8 386)
Loan paid
(3 500)
(3 500)
-
-
Leases paid
(25)
(25 )
(93 )
(37 )
Interest paid
(386 )
(396 )
(186 )
(170 )
Dividends paid
16
(17 556 )
(21 945 )
(17 556 )
(21 945 )
Net cash outflow from financing activities
(21 467 )
(34 252 )
(17 835 )
(30 538 )
Net cash flow
Cash and cash equivalents
at the beginning of the reporting period
Cash and cash equivalents
at the end of the reporting period
10
NOTES TO FINANCIAL STATEMENTS
1. Segment information
The information included in the operating segments corresponds to the information used by the
Board of JSC “Latvijas Gāze” for the gas sales & trading segment and the Board of the JSC “Gaso”
for the gas distribution segment in making operational decisions and allocating resources. Given
the regulatory requirements provided in the Energy Law, segments are managed separately.
The Board of each company assesses the performance of each respective segment based on
EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) and monitors
profit before taxes. As the segments are based on legal entities, transactions between entities are
eliminated (see Note 2).
Group 2020
Gas trade
Gas distribution
Total
EUR'000
EUR'000
EUR'000
EBITDA
6 000
20 462
26 462
Depreciation and amortisation
(1 115)
(12 404)
(13 519)
Financial expense
(260)
-
(260)
Profit before taxes
4 625
8 058
12 683
Group 2019
Gas trade
Gas distribution
Total
EUR'000
EUR'000
EUR'000
EBITDA
13 587
22 040
35 627
Depreciation and amortisation
(768)
(12 002)
(12 770)
Financial expense
(173)
(226)
(399)
Profit before taxes
12 646
9 812
22 458
Company / Gas trade
2020
2019
EUR'000
EUR'000
EBITDA
14 438
22 926
Depreciation and amortisation
(1 183)
(785)
Financial expense
(260)
(173)
Profit before taxes
12 995
21 968
11
Group 2020
Gas trade
Gas distribution
Total
EUR'000
EUR'000
EUR'000
Purchase of property, plant, equipment and
intangible assets
1 177
11 258
12 435
Segment assets 31.12.2020
129 530
326 019
455 549
Group 2019
Gas trade
Gas distribution
Total
EUR'000
EUR'000
EUR'000
Purchase of property, plant and equipment and
intangible assets
4 111
10 068
14 179
Segment assets 31.12.2019 (restated)
134 517
328 562
463 079
Company / Gas trade
2020
2019
EUR'000
EUR'000
Restated
Purchase of property, plant and equipment and intangible assets
1 177
4 111
Segment assets 31.12
324 497
329 051
Assets
JSC
“Latvijas
Gāze”
JSC
"Gaso"
Investment
Intercompany
receivables/
payables
Rent
Total
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Assets 31.12.2020
324 497
331 152
(194 534)
(5 310)
(255)
455 549
Assets 31.12.2019
329 051
333 729
(194 534)
(5 167)
-
463 079
2. Revenue from contracts with customers
Group
Gas trade
Gas distribution
2020
Latvia
Other countries
Latvia
Total
EUR'000
EUR'000
EUR'000
EUR'000
Segment revenue
100 587
41 132
46 967
188 686
Inter-segment revenue
(1 301)
-
-
(1 301)
Connection, balancing and
other service fees recognised
as revenue
877
112
1 057
2 046
Other revenue
-
-
1 063
1 063
100 163
41 244
49 087
190 494
Group
Gas trade
Gas distribution
2019
Latvia
Other countries
Latvia
Total
EUR'000
EUR'000
EUR'000
EUR'000
Segment revenue
242 156
21 227
49 509
312 892
Inter-segment revenue
(2 184)
-
-
(2 184)
Connection, balancing and
other service fees recognised
as revenue
1 173
1 439
1 029
3 641
241 145
22 666
50 538
314 349
12
Company
Gas trade
2020
Latvia
Other countries
Total
EUR'000
EUR'000
EUR'000
Segment revenue
100 587
41 132
141 719
Other revenue (balancing services)
877
112
989
101 464
41 244
142 708
The Company`s sales to legal entities comprised 88% and sales to household customers comprised 12% of
total sales.
Company
Gas trade
2019
Latvia
Other countries
Total
EUR'000
EUR'000
EUR'000
Segment revenue
242 156
21 227
263 383
Other revenue (balancing services)
1 173
1 439
2 612
243 329
22 666
265 995
The Company`s sales to legal entities comprised 87% and sales to household customers comprised 13% of
total sales.
3. Other income
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Net fair value gains on financial derivatives
738
276
738
276
Penalties collected from customers
747
905
669
805
Decrease in provisions for bad debts, net
90
-
154
-
Other
1 275
2 332
267
712
2 850
3 513
1 828
1 793
In 2020 the “Net fair value gains on financial derivatives” includes a net amount of 738 thousand
EUR originating from financial hedging activities. 3 803 thousand EUR out of this amount is
attributable to operational activities during the 12 months reporting period, calculated as the
sum of (5 771) thousand EUR (reverse of previous year accruals), plus the net amount received in
2020 amounting to 9 574 thousand. The remaining amount for outstanding derivatives of (3
065) thousand EUR is evaluated on a mark-to-market basis as of the balance sheet date and is
attributable to 2021 operational activity.
4. Raw materials and consumables used
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Natural gas purchase
129 886
245 883
129 628
245 543
Costs of materials, spare parts and fuel
1 415
1 380
49
45
131 301
247 263
129 677
245 588
13
5. Personnel expenses
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Wages and salaries
20 031
19 544
4 028
3 835
State social insurance contributions
4 690
4 675
905
886
Life, health and pension insurance
1 324
1 319
189
178
Other personnel costs
286
314
155
134
26 331
25 852
5 277
5 033
Average number of employees
997
988
119
116
Group
Group
Company
Company
Salaries of the Council and the Board
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Wages and salaries
2 089
2 642
1 258
1 232
State social insurance contributions
478
549
269
228
Life, health and pension insurance
111
129
45
46
Other personnel costs
76
3
-
-
2 754
3 323
1 572
1 506
6. Depreciation, amortization and impairment of property, plant and equipment,
intangible assets and right-of use assets
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Amortisation of intangibles
2 022
1 917
733
470
Depreciation and impairment of property,
plant and equipment
11 515
11 716
361
290
Depreciation of rights to use assets
21
8
89
25
Income from revaluation of property, plant
and equipment
-
(2 617)
-
-
Additional depreciation from revaluation of
property, plant and equipment
-
1 763
-
-
Capitalised depreciation
(39)
(17)
-
-
13 519
12 770
1 183
785
14
7. Other operating expenses
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Selling and advertising costs
799
820
550
536
Expenses related to premises
(rent, electricity, security and other
services)
1 411
1 382
211
331
Donations, financial support
785
938
712
753
Office and other administrative costs
1 875
1 875
853
849
Taxes and duties
1 005
985
609
611
Costs of IT system maintenance,
communications and transport
1 960
1 738
952
800
Losses from exclusion and sale of property,
plant and equipment
-
303
-
3
Increase in provisions for bad debts, net
-
541
-
216
Other costs
1 415
538
35
117
9 250
9 120
3 922
4 216
8. Intangible assets
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Cost
As at the beginning of period
20 967
17 558
5 468
3 541
Additions
3 062
3 410
991
1 928
Disposals
-
(1)
-
(1)
As at the end of period
24 029
20 967
6 459
5 468
Amortisation
As at the beginning of period
12 830
10 914
669
200
Amortisation
2 022
1 917
733
470
Disposals
-
(1)
-
(1)
As at the end of period
14 852
12 830
1 402
669
Net book value as at the end of the period
9 177
8 137
5 057
4 799
The intangible assets include fully depreciated intangible assets with a total historical cost of
7 207 thousand EUR (Group) and 56 thousand EUR (Company) (31.12.2019: 5 017 thousand EUR
(Group) and 0.2 thousand EUR (Company)). The most part of intangible assets of the Group and
the Company consists of software. As at 31 December 2020 the Group had payables for intangible
assets for a total of 1 102 thousand EUR (as at 31 December 2019: 1 003 thousand EUR), and the
Company has payables for intangible assets for a total of 330 thousand EUR (as at 31 December
2019: 282 thousand EUR).
15
9. Property, plant and equipment
Group
Land,
buildings,
constructions
Machinery
and
equipment
Other
fixed
assets
Assets
under
construction
Total
EUR’000
EUR’000
EUR’000
EUR’000
EUR’000
Cost or revalued amount
31.12.2019
650 929
38 835
16 443
1 079
707 286
Additions
6 159
2 163
1 051
-
9 373
Transfers
-
-
404
(404)
-
Disposals
(1 374)
(747)
(413)
-
(2 534)
31.12.2020
655 714
40 251
17 485
675
714 125
Depreciation
31.12.2019
358 636
23 998
12 002
-
394 636
Calculated
7 814
2 389
1 312
-
11 515
Disposals
(943)
(669)
(385)
-
(1 997)
31.12.2020
365 507
25 718
12 929
-
404 154
Net book value as of
31.12.2020
290 207
14 533
4 556
675
309 971
Net book value as of
31.12.2019
292 293
14 837
4 441
1 079
312 650
As at 31 December 2020, the Group has payables for property, plant and equipment for a total of
EUR 1 350 thousand.
Group
Land,
buildings,
constructions
Machinery
and
equipment
Other
fixed
assets
Assets
under
construction
Total
EUR’000
EUR’000
EUR’000
EUR’000
EUR’000
Cost or revalued
amount
31.12.2018
545 105
32 620
15 565
393
593 683
Additions
6 325
2 236
1 490
718
10 769
Revaluation
100 552
4 900
-
-
105 452
Disposals
(1 053)
(921)
(612)
(32)
(2 618)
31.12.2019
650 929
38 835
16 443
1 079
707 286
Depreciation
31.12.2018
323 273
20 697
11 248
-
355 218
Calculated
7 206
2 320
1 335
-
10 861
Revaluation
28 913
1 835
-
-
30 748
Disposals
(756)
(854)
(581)
-
(2 191)
31.12.2019
358 636
23 998
12 002
-
394 636
Net book value as of
31.12.2019
292 293
14 837
4 441
1 079
312 650
Net book value as of
31.12.2018
221 832
11 923
4 317
393
238 465
As at 31 December 2019, the Group has payables for property, plant and equipment for a total of
EUR 1 395 thousand.
16
Company
Land,
buildings,
constructions
Machinery
and
equipment
Other
fixed
assets
Assets
under
construc-
tion
Total
EUR’000
EUR’000
EUR’000
EUR’000
EUR’000
Cost or revalued amount
31.12.2019
1 811
-
1 593
1
3 405
Additions
-
-
186
-
186
Transfer
-
-
1
(1)
-
Disposals
-
-
(59)
-
(59)
31.12.2020
1 811
-
1 721
-
3 532
Depreciation
31.12.2019
18
-
658
-
676
Calculated
72
-
289
-
361
Disposals
-
-
(39)
-
(39)
31.12.2020
90
-
908
-
998
Net book value as of
31.12.2020
1 721
-
813
-
2 534
Net book value as of
31.12.2019
1 793
-
935
1
2 729
As at 31 December 2020, the Company has no payables for property, plant and equipment.
Company
Land,
buildings,
constructions
Machinery
and
equipment
Other
fixed
assets
Assets
under
construction
Total
EUR’000
EUR’000
EUR’000
EUR’000
EUR’000
Cost or revalued amount
31.12.2018
-
-
1 263
-
1 263
Additions
1 811
-
371
1
2 183
Disposals
-
-
(41)
-
(41)
31.12.2019
1 811
-
1 593
1
3 405
Depreciation
31.12.2018
-
-
415
-
415
Calculated
18
-
272
-
290
Disposals
-
-
(29)
-
(29)
31.12.2019
18
-
658
-
676
Net book value as of
31.12.2019
1 793
-
935
1
2 729
Net book value as of
31.12.2018
-
-
848
-
848
As at 31 December 2019, the Company has payables for property, plant and equipment for a total
of 19 thousand EUR.
The fixed assets include fully depreciated fixed assets with a total historical cost of 12 185 thousand
EUR (the Group) and 443 thousand EUR (the Company) (at 31.12.2019: 8 803 thousand EUR (the
Group) and 78 thousand EUR (the Company)).
17
In 2019, the Group carried out the revaluation of buildings, constructions and machinery and
equipment.
Included in the tables above within “Land, buildings, constructions” is the land owned by the
Group and the Company with the cost and net book value of 1 559 thousand EUR (the Group) as
at 31.12.2020 and 110 thousand EUR (the Company) (as at 31.12.2019: 1 680 thousand EUR (the
Group) and 110 thousand (the Company)). The land is not subject to revaluation.
Revaluation effect (see Note 25)
In 2019, the Group carried out the revaluation of buildings, constructions, machinery and
equipment of the Distribution segment. Considering the unique nature and use of the assets,
revaluation was based on Level 3 data, meaning that the data are not freely observable for the
relevant type of assets.
The revaluation was performed by an external expert using the depreciated replacement cost
method. According to this method, the initial value of assets is determined according to the
prices, requirements and applied materials at the time of the valuation. The key assumptions
during the revaluation process are associated with the materials cost and the cost of the average
construction prices at the time of revaluation. For the determination of values, data available to
the Group about similar constructions of facilities in recent years is used. A significant section of
the revaluation consists of the revaluation of gas distribution pipelines. In case of an increase in
the average construction cost in the country or a significant increase in the cost of materials, the
replacement cost will increase, too. If the cost of construction or materials decreases, the
replacement cost of the assets will decrease accordingly. No economic obsolescence test was
performed as tariffs for services cover all revalued amount.
In the valuation exercise, both the cost and accumulated depreciation are revalued. The asset's
physical, functional and technical depreciation are taken into account as key factors.
As a result of the revaluation, in 2019, the gross asset amount was increased by 105 452 thousand
EUR and the accumulated depreciation was increased by 30 756 thousand EUR. As a result of the
revaluation, a gain of 74 540 thousand EUR was recognised in the statement of comprehensive
income, while a gain of 854 thousand EUR was included in the profit and loss account.
The table below presents the approximate estimated carrying amounts for the revalued asset
groups if the assets were carried at their historic cost basis:
Group’s revaluated assets at net book
value
31.12.2020
31.12.2019
EUR'000
EUR'000
Buildings
104 508
100 886
Machinery and Equipment
10 481
9 604
18
10. Investment in subsidiary
Company
EUR'000
Invested during reorganisation 01.12.2017
194 534
Balance sheet value 31.12.2020 and 31.12.2019
194 534
Shares held
31.12.2020
31.12.2019
JSC “Gaso”
100%
100%
Subsidiary’s
equity
Subsidiary’s
equity
Subsidiary’s
profit
Subsidiary’s
profit
31.12.2020
31.12.2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
JSC “Gaso”
273 411
274 067
8 466
10 465
11. Inventories
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Natural gas and fuel
40 854
48 872
40 854
48 872
Materials and spare parts
1 437
1 304
-
-
Allowance for slow-moving inventory
(71)
(71)
-
-
42 220
50 105
40 854
48 872
12. Trade receivables
Trade receivables
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
Long-term receivables (nominal value)
8
32
5
6
8
32
5
6
Short-term receivables (nominal value)
35 896
34 162
32 519
30 674
Allowance for impairment of short-term
receivables
(7 590)
(8 366)
(7 180)
(8 020)
28 306
25 796
25 339
22 654
19
Allowance for impairment of bad and
Group
Group
Company
Company
doubtful receivables
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Allowance at the beginning of the year
8 366
8 128
8 020
8 107
Expense included in profit or loss statement
91
547
-
216
Income included in profit or loss statement
(181)
(6)
(154)
-
Net changes included in profit or loss
statement
(90)
541
(154)
216
Bad debts written off
(686)
(303)
(686)
(303)
Allowance at the end of the year
7 590
8 366
7 180
8 020
Provisions for debts were made based on an assessment of financial position and business activity
of certain customer segments. The final losses may differ from those currently estimated because
the particular amounts are periodically revised and changes are reflected in the profit or loss
statement.
13. Taxes
Group
Tax movement
Liabilities*
Receivable
Calculated
Paid
Liabilities*
Receivable
31.12.2019
31.12.2019
2020
2020
31.12.2020
31.12.2020
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Value added tax
3 839
-
25 296
(27 287)
1 848
-
Excise tax
892
-
5 983
(5 984)
891
-
Social security
contributions
701
-
7 010
(7 015)
696
-
Corporate income
tax
-
-
1 494
(1 494)
-
-
Personal income tax
338
-
3 606
(3 591)
353
-
Real estate tax
-
-
194
(194)
-
-
Natural resource tax
6
-
14
(9)
11
-
5 776
-
43 597
(45 574)
3 799
-
Group
Tax movement
Liabilities*
Receivable
Calculated
Paid
Liabilities*
Receivable
31.12.2018
31.12.2018
2019
2019
31.12.2019
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Value added tax
5 732
-
60 995
(62 888)
3 839
-
Excise tax
1 139
-
7 209
(7 456)
892
-
Social security
contributions
620
-
6 904
(6 823)
701
-
Corporate income
tax
-
63
2 268
(2 205)
-
-
Personal income tax
313
-
3 572
(3 547)
338
-
Real estate tax
-
-
181
(181)
-
-
Natural resource tax
6
-
8
(8)
6
-
7 810
63
81 137
(83 108)
5 776
-
20
Company
Tax movement
Liabilities*
Receivable
Calculated
Paid
Liabilities*
Receivable
31.12.2019
31.12.2019
2020
2020
31.12.2020
31.12.2020
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Value added tax
2 774
-
16 738
(18 613)
899
-
Excise tax
887
-
5 960
(5 958)
889
-
Social security
contributions
101
-
1 355
(1 352)
104
-
Corporate income
tax
-
-
1 494
(1 494)
-
-
Personal income tax
33
-
801
(780)
54
-
Real estate tax
-
-
13
(13)
-
3 795
-
26 361
(28 210)
1 946
-
Company
Tax movement
Liabilities*
Receivable
Calculated
Paid
Liabilities*
Receivable
31.12.2018
31.12.2018
2019
2019
31.12.2019
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
EUR'000
Value added tax
4 867
-
51 872
(53 965)
2 774
-
Excise tax
1 137
-
7 168
(7 418)
887
-
Social security
contributions
91
-
1 339
(1 329)
101
-
Corporate income tax
-
63
2 268
(2 205)
-
-
Personal income tax
40
-
798
(805)
33
-
6 135
63
63 445
(65 722)
3 795
-
* See Note 21.
14. Other financial assets at amortised cost
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Accrued income
1 313
2 105
1 253
2 105
Reserves funds
260
1 145
260
1 145
1 573
3 250
1 513
3 250
15. Other current assets
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Deferred charges
1 245
674
736
408
Derivative financial instruments
624
7 029
624
7 029
Other receivables
103
198
3
71
1 972
7 901
1 363
7 508
As at 31 December 2020 and 31 December 2019, derivative financial instruments consist of natural
gas swap agreements.
21
16. Shares and shareholders
31.12.2020
31.12.2020
31.12.2019
31.12.2019
% of total
share
capital
Number of
shares
% of total
share
capital
Number of
shares
Share capital
Registered (closed issue) shares
36.52
14 571 480
36.52
14 571 480
Bearer (public issue) shares
63.48
25 328 520
63.48
25 328 520
100.00
39 900 000
100.00
39 900 000
Shareholders
Uniper Ruhrgas International GmbH
(including registered (closed issue)
shares 7 285 740)
18.26
7 285 740
18.26
7 285 740
Marguerite Gas II S. à r.l.
28.97
11 560 645
28.97
11 560 645
Itera Latvija SIA
16.00
6 384 001
16.00
6 384 001
PJSC "Gazprom" (including registered
(closed issue) shares 7 285 740)
34.00
13 566 701
34.00
13 566 701
Bearer (public issue) shares
2.77
1 102 913
2.77
1 102 913
100.00
39 900 000
100.00
39 900 000
As at 31 December 2020 and as at 31 December 2019, the registered, signed and paid share capital
consisted of 39 900 000 shares with a par value of 1.40 EUR each. All shares have equal voting
rights and rights to dividends. The Company has no dilutive potential ordinary shares and
therefore diluted earnings per share are the same as the basic earnings per share. Basic earnings
per share are calculated by dividing the net profit attributable to the shareholders by the
weighted average number of ordinary shares in issue during the year.
Dividends payable are not accounted for until they are declared at the Annual General Meeting.
At the Annual General Meeting in 2021, the management will propose a dividend in respect to
2020 amounting to 0.27 EUR per share. These Financial Statements do not reflect any future
dividends payable, which will be accounted for in the shareholders’ equity as an appropriation of
retained earnings for 2020. Total dividends paid out to shareholders in 2020 amounted to 17 556
thousand EUR (0.44 EUR per share). In 2019, total dividends paid out to shareholders amounted
to 21 945 thousand EUR (0.55 EUR per share).
Earnings per share/ Group
Earnings per share
2020
2019
Net profit attributable to shareholders (a) EUR’000
11 189
20 190
Ordinary shares as at 1 January (number, thousand)
39 900
39 900
Ordinary shares as at 31 December (number, thousand)
39 900
39 900
Weighted average number of ordinary shares
outstanding during the year (b) (number, thousand)
39 900
39 900
Basic earnings per share during the year (a/b) in EUR
0.280
0.506
22
Earnings per share / Company
Earnings per share
2020
2019
Net profit attributable to shareholders (a) EUR’000
11 501
19 700
Ordinary shares as at 1 January (number, thousand)
39 900
39 900
Ordinary shares as at 31 December (number, thousand)
39 900
39 900
Weighted average number of ordinary shares
outstanding during the year (b) (number, thousand)
39 900
39 900
Basic earnings per share during the year (a/b) in EUR
0.288
0.494
17. Interest-bearing loans and borrowings
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Loan from JSC "SEB banka"
Long-term part of the loan
22 167
25 667
-
-
Short-term part of the loan (i.e. less than
12 months)
3 500
3 500
-
-
25 667
29 167
-
-
In 2017 the Company received a long-term loan of 35 000 thousand EUR for 5 years. Under the
reorganisation, the Company transferred this loan to the newly established acquiring JSC “Gaso”.
The loan is due for repayment starting in April 2018. Loan interest rate is fixed % p.a. plus 6 month
EURIBOR. The Company has overdraft possibility. Overdraft interest rate is fixed % p.a. plus 3
month EURIBOR.
18. Deferred income
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR’000
EUR’000
EUR’000
EUR’000
Income from residential and corporate customers’ contributions to construction of gas
pipelines:
Long-term part
18 318
18 434
-
-
Short-term part
1 079
1 046
-
-
Other deferred income:
Short-term part
-
92
-
92
19 397
19 572
-
92
23
Changes of deferred income
Group
Group
Company
Company
2020
2019
2020
2019
EUR’000
EUR’000
EUR’000
EUR’000
Balance at the beginning of the year
19 572
19 677
92
-
Received from residential and corporate
customers during reporting year
974
924
-
92
Included in income of reporting year
(1 149)
(1 029)
(92)
-
Total transfer to next years
19 397
19 572
-
92
19. Employment and post-employment benefit obligations
Group
Group
Company
Company
2020
2019
2020
2019
EUR’000
EUR’000
EUR’000
EUR’000
Obligations at the beginning of the
reporting year
1 757
2 264
57
125
Recognised in profit or loss statement
355
80
2
(32)
Paid
(154)
(180)
(1)
(2)
Revaluations due to changes in
actuarial assumptions – other
comprehensive income
347
(407)
3
(34)
Obligations at the end of the
reporting year
2 305
1 757
61
57
Assumptions used in calculations of obligations
2020
2019
Discount rates, %
0.0025%
0.013-
0.0845%
Company’s employee rotation rate,%
13.89%
13.39%
Group’s employee rotation rate,%
5.01%
6.31%
Employee retirement age, years
63.75-65
63.5-65
Wage growth,%
4.00%
4.00%
Contributions to private pension fund,%
5.00%
5.00%
Compulsory social security contributions (employees),%
23.59%
24.09%
Compulsory social security contributions (retired),%
20.77%
21.31%
24
Assumptions used in calculations
Assumption changes effect on accruals
of obligations
Group
31.12.2020
Group
31.12.2019
Company
31.12.2020
Company
31.12.2019
Changes in assumptions
Discount rate
+ 0.5%
Accruals
decrease by
0.001%
0.004%
3.95%
3.38%
Employee
rotation rate
+ 0.5%
Accruals
decrease by
0.26%
0.29%
0.01%
4.00%
Employee
retirement age
+1 years
Accruals
decrease by
0.73%
1.39%
11.11%
12.60%
Wage growth
+0.5%
Accruals
increase by
0.23%
0.16%
3.52%
3.15%
Contributions
to private
pension fund
+0.5%
Accruals
increase by
0.002%
0.02%
0.34%
0.36%
Compulsory
social security
contributions
+0.5%
Accruals
increase by
0.12%
0.09%
0.39%
0.39%
Assumptions used in calculations
of obligations
Assumption changes effect on accruals
Group
31.12.2020
Group
31.12.2019
Company
31.12.2020
Company
31.12.2019
Changes in assumptions
Discount rate
-0.5%
Accruals
increase by
0.0001%
0.004%
4.28%
3.65%
Employee
rotation rate
-0.5%
Accruals
increase by
0.26%
0.29%
0.01%
4.33%
Employee
retirement age
-1
year
Accruals
increase by
0.98%
2.89%
3.69%
2.59%
Wage growth
-0.5%
Accruals
decrease by
0.18%
0.16%
3.29%
2.94%
Contributions
to private
pension fund
-0.5%
Accruals
decrease by
0.002%
0.02%
0.34%
0.36%
Compulsory
social security
contributions
-0.5%
Accruals
decrease by
0.09%
0.09%
0.39%
0.39%
Accruals were calculated on the assumption that the discount rate in 2020 was 0.0025% (the
Group and the Company) (in 2019 was 0.0845% (the Group) and 0.013% (the Company)), i.e., equals
to the average annual rate of return of treasury securities with the initial maturity of five years and
more, effective in the last two issues of such securities (source: State Treasury).
The 5.01% (the Group) and 13.89% (the Company) (2019: 6.31% (the Group) and 13.39% (the
Company)) assumption of employee turnover rate, in turn, resulted from a calculation
methodology based on the proportion between the number of employees having left the
company (on their own initiative) and the number of employees in the reporting period.
The assumption of employee retirement age is based on Article 8.1 of the transitional provisions
of the law “On State Pensions” (hereinafter – the Law) adopted on 2 November 1995 whereby the
age of eligibility for retirement pension as per Section 11 Paragraph one of the Law, – 62 to 65 years
25
– shall increase gradually and is specified for each year individually. As of 31 December 2020, it is
64 years (as of 31 December 2019, it is 63.75 years).
The assumptions concerning the increase of salaries corresponds to the estimated inflation figure
for the next year, which, according to the latest forecasts by the Bank of Latvia, will be around 1.8
%. It is also assumed as only variable for up to six years and constant afterwards. And also Group’s
increase in personnel expenses is taken into account. In the last few years, the Company and the
Group kept it at 4%.
The 5% assumption of contributions to private pension fund is based on Group’s employee
agreement.
The assumptions concerning the mandatory state social security contributions for employees
and pensioners have been made pursuant to the general provisions of the calculation
methodology using the next year’s rates of mandatory state social security contributions as per
Cabinet Regulations No. 786 “Regulations on the distribution of the rate of mandatory state social
security contributions among types of state social security” approved on 17.12.2020 – 23.59% and
20.77% respectively.
20. Trade payables
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR'000
EUR’000
Payables to related parties (Note 22)
-
-
5 132
5 167
Payables to third parties
5 725
5 489
3 070
3 082
5 725
5 489
8 202
8 249
21. Other liabilities
Group
Group
Company
Company
31.12.2020
31.12.2019
31.12.2020
31.12.2019
EUR'000
EUR'000
EUR’000
EUR’000
Prepayments received
11 872
10 843
11 813
10 793
Derivative financial
instruments
3 688
1 258
3 688
1 258
Value added tax
1 848
3 839
899
2 774
Accrued costs
4 324
4 431
1 153
1 081
Excise tax
891
892
889
887
Vacation pay reserve
1 250
901
215
141
Salaries
878
839
169
151
Social security contributions
696
701
104
101
Personnel income tax
353
338
54
33
Natural resource tax
11
6
-
-
Other current liabilities
86
109
14
31
25 897
24 157
18 998
17 250
26
22. Related party transactions
No individual entity exercises control over the Company. The Company and the Group engaged
in the following transactions with entities disclosed below, which own or owned more than 20%
of the shares that deemed to provide a significant influence over the Company – PJSC “Gazprom”
and the companies under its control. JSC “Latvijas Gāze” subsidiary JSC “Gaso” was established in
2017.
Income or expenses
Group
2020
Group
2019
Company
2020
Company
2019
EUR'000
EUR'000
EUR'000
EUR'000
Income from provision of services (incl.
balancing services, natural gas for own use
and other)
JSC “Gaso”
-
-
1 567
2 549
Dividend income
JSC “Gaso”
-
-
8 778
9 975
Purchases of natural gas
PJSC “Gazprom”
102 199
180 655
102 199
180 655
PJSC “Gazprom Export”
2 248
-
2 248
-
Expenses on natural gas distribution and other related
services
JSC “Gaso”
-
-
32 293
35 332
Financial transactions
“Gazprom Marketing and Trading Limited”
19
-
19
-
Related party payables and receivables
Group
31.12.2020
Group
31.12.2019
Company
31.12.2020
Company
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Receivables from related companies
JSC “Gaso”
-
-
178
-
“Gazprom Marketing and Trading Limited”
8
-
8
-
Advance payments to related entities
PJSC “Gazprom”
6 356
5 827
6 356
5 827
PJSC “Gazprom Export”
1 004
-
1 004
-
Payables to related companies for natural gas and services
JSC “Gaso”
-
-
5 132
5 167
27
23. Financial risk management
Financial assets and liabilities
Level
Group
31.12.2020
Group
31.12.2019
Group
31.12.2020
Company
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
Trade receivables
3
28 306
25 796
25 339
22 654
Accrued income
3
1 313
2 105
1 253
2 105
Derivative financial instruments
2
624
7 029
624
7 029
Reserved funds
2
260
1 145
260
1 145
Cash and cash equivalents
2
54 236
48 995
44 968
38 487
Financial assets
84 739
85 070
72 444
71 420
Borrowings
3
25 667
29 167
-
-
Lease liabilities
3
21
385
276
385
Accrued expenses
3
4 324
4 431
1 153
1 081
Derivative financial instruments
2
3 688
1 258
3 688
1 258
Trade payables
3
5 725
5 489
8 202
8 249
Financial liabilities
39 425
40 730
13 319
10 973
Fair value
The fair value of financial instruments traded in active markets is based on quoted market prices
at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency,
and those prices represent actual and regularly occurring market transactions on an arm’s length
basis.
In order to arrive at the fair value of a financial instrument, different methods are used: quoted
prices, valuation techniques incorporating observable data, and valuation techniques based on
internal models. These valuation methods are divided according with the fair value hierarchy into
Level 1, Level 2 and Level 3.
The level in the fair value hierarchy, within which the fair value of a financial instrument is
categorised, shall be determined on the basis of the lowest level input that is significant to the
fair value in its entirety.
The classification of financial assets in the fair value hierarchy is a two-step process:
1. Classifying each input used to determine the fair value into one of the three levels;
2. Classifying the entire financial instrument based on the lowest level input that is
significant to the fair value in its entirety.
Quoted market prices - Level 1
Valuations in Level 1 are determined by reference to unadjusted quoted prices for identical assets
or liabilities in active markets where the quoted prices are readily available and the prices
represent actual and regularly occurring market transactions on an arm’s length basis.
28
Valuation techniques using observable inputs - Level 2
Valuation techniques in Level 2 are models where all significant inputs are observable for the
asset or liability, either directly or indirectly. Inputs other than quoted prices included within Level
1 that are observable for the asset or liability either directly (that is, as price) or indirectly (that is,
derived from prices).
The quoted market price used for derivative financial assets and liabilities held by the Group and
the Company are based on observable market data including current bid and ask prices, that are
estimated by trading counterparties.
Valuation technique using significant unobservable inputs - Level 3
A valuation technique that incorporates significant inputs not based on observable market data
(unobservable inputs) is classified in Level 3. Unobservable inputs are those not readily available
in an active market due to market illiquidity or complexity of the product. Level 3 inputs are
generally determined based on observable inputs of a similar nature, historic observations on the
level of the input or analytical techniques.
The fair value of long-term loans from credit institutions is measured by discounting future cash
flows with market interest rates. As the interest rates applied to loans from credit institutions are
variable and loans received as recent transactions and do not substantially differ from the market
rates, the fair value of non-current liabilities approximately corresponds to their carrying amount.
Financial assets of the Group and the Company fall under Level 3, except cash and cash
equivalents and derivative financial instruments, which fall under Level 2.
Description of fair value measurement for buildings, constructions, equipment and machinery is
disclosed in Note 25, Revaluation of buildings, constructions, equipment and machinery section.
Credit risk
The Group and the Company are exposed to credit risk, which is a risk of material losses arising in
case of a counterparty not being able to fulfil its contractual obligations to the Group and the
Company. Credit risks arise from cash and cash equivalents, as well as credit exposure to
customers, including outstanding receivables.
29
Concentration of credit risk
In the reporting year, Latvijas Gāze group remained exposed to a high risk of customer
concentration – five largest customers together accounted for 63% of the sales volume of 2020
(43% of 2019), from which the single one largest customer accounted for more than 40% (more
than 23% in 2019). Despite of that, single customer concentration in receivables is not high, as
some of the biggest customers made prepayments.
Credit risk management practices
To minimise credit risks the Company has put in place several risk management measures. For
the largest customers the Company uses individual credit risk management policies, which
include several practices such as initial credit limit assessment, detailed monitoring of financial
measures, as well as a regular billing practice to avoid accumulation of current debt. In case of
initial doubts, clients are placed for regular monitoring at the Board level, and, if necessary,
additional collaterals are required to secure the provision of services and the sale of natural gas.
For smaller customers the Company has approved detailed credit risk management policies,
describing the basic steps for monitoring the progress and managing legally mandatory
communication with the clients before an insolvency procedure can be initiated. In case of a
customer becoming doubtful, the Company establishes provisions and starts legal proceedings
to collect the debt. The credit risk of the subsidiary relates mainly to its largest customers. Major
part of subsidiary’s trade debtors as at 31 December 2020 paid their debts in January 2021.
Receivables that are not individually assessed for impairment are classified into groups of
receivables based on days overdue and are collectively assessed for impairment.
The expected credit losses (ECL) model is used according to IFRS 9 for the recognition of
impairment losses. There is a ‘three stage’ approach, which is based on the change in credit
quality of financial assets since initial recognition. In practice, these rules mean that entities will
have to record an immediate loss equal to the 12-month ECL on initial recognition of financial
assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a
significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-
Trade receivables and accrued
income
Group
31.12.2020
Group
31.12.2019
Company
31.12.2020
Company
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
Impaired
7 507
8 281
7 103
7 935
Not overdue
25 601
25 973
22 601
22 582
Overdue less than 90 days, but not
impaired
3 916
1 958
3882
1 921
Overdue more than 90 days, but not
impaired
185
341
185
341
Trade receivables and accrued
income, gross
37 209
36 553
33 771
32 779
Allowance for impairment of bad and
doubtful debts
(7 590)
(8 366)
(7 180)
(8 020)
Trade receivables and accrued
income, net
29 619
28 187
26 591
24 759
30
month ECL. For trade receivables the Group and the Company use operational simplifications
specified in IFRS 9.
ECL rate applied
31.12.2020
31.12.2019
Receivables from natural gas wholesales and
distribution services to the gas traders
0.06%
0.04%
Households
1.3%
1.27%
Distribution other receivables overdue for 1-90 day
7%
21%
Receivables overdue for more than 90 days
100%
100%
Other recoverable receivables
0.02%-0.12%
0.11%
For managing the credit risk associated with cash and cash equivalents, the Company has
approved a financial asset management policy. Based on internal guidelines all credit institutions
with which the Company cooperates are graded once in a quarter, taking into account their
financial measures as well as non-financial indicators. Based on the assessment, limits for current
accounts with one institution are defined and regularly monitored.
Due to low or even negative interest rates as at 31 December 2020 and 31 December 2019, cash
and cash equivalents of the Group and the Company represented only current account balances
with credit institutions.
As a part of an internal assessment, the Group and the Company also analyse the Moody's
Investor Services credit rating of a particular credit institution or its ultimate parent. Based on
such assessment, outstanding cash and cash equivalents of Latvijas Gāze group can be
summarised as follows (grouped by long term rating):
13%
7%
80%
2019
Aa2
Aa3
Ba1
27%
36%
9%
28%
2020
Aa2
Aa3
Baa1
Baa3
31
The Company's cash and cash equivalents can be summarised as follows (grouped by long-term
rating):
Liquidity risk
Liquidity risk is associated with the ability of the Group and the Company to settle their obligations
within the agreed due dates. Due to the high seasonality of operations of the Group and the
Company, cash inflows are also exposed to high fluctuations within the year and most of revenues
are generated during the first and the fourth quarter of the year. At the same time operational
costs related to maintenance works are distributed evenly through the year, while dividend
payments from the prior year are usually released in the third quarter of the year.
The Group and the Company use cash flow planning tools to manage liquidity risk. The Group and
the Company prepare yearly, quarterly and monthly cash flows to identify operational cash flow
requirements. In 2020 and 2019 the Group attracted short term credit line and used long term loan.
Division of financial liabilities by maturity date, as at 31 December 2020, Group:
Division of financial liabilities by maturity date, as at 31 December 2019, Group:
2021
2-5 years
Total
Carrying
amount
EUR'000
EUR'000
EUR'000
EUR'000
Borrowings
3 673
22 289
25 963
25 667
Leases
21
21
21
Trade payables and accrued costs
10 049
-
10 049
10 049
Derivative financial liabilities
3 688
-
3 688
3 688
17 431
22 476
39 721
39 425
2020
2-5 years
Total
Carrying
amount
EUR'000
EUR'000
EUR'000
EUR'000
Borrowings
3 994
25 666
29 660
29 167
Leases
89
299
388
385
Trade payables and accrued costs
9 920
-
9 920
9 920
Derivative financial liabilities
1 258
-
1 258
1 258
15 261
25 965
41 226
40 730
14%
8%
78%
2019
Aa2
Aa3
Ba1
31%
42%
11%
16%
2020
Aa2
Aa3
Baa1
Baa3
32
Division of financial liabilities by maturity date, as at 31 December 2020, Company:
2021
2-5 years
Total
Carrying
amount
EUR'000
EUR'000
EUR'000
EUR'000
Leases
90
187
277
276
Trade payables and accrued costs
9 355
-
9 355
9 355
Derivative financial liabilities
3 688
-
3 688
3 688
13 133
187
13 320
13 319
Division of financial liabilities by maturity date, as at 31 December 2019, Company:
2020
2-5 years
Total
Carrying
amount
EUR'000
EUR'000
EUR'000
EUR'000
Leases
89
299
388
385
Trade payables and accrued costs
9 330
-
9 330
9 330
Derivative financial liabilities
1 258
-
1 258
1 258
10 677
299
10 976
10 973
Capital risk management
The Group’s and the Company’s objectives when managing capital are to safeguard the Group’s
and the Company’s ability to continue as a going concern in order to provide returns for
shareholder and benefits for other stakeholders and to maintain an optimal structure to reduce
the cost of capital. The Group and the Company perform management of the capital, based on
proportion of borrowed capital against total capital. This indicator is calculated as proportion of
total liabilities, less cash and cash equivalents, to the total capital of the Group or the Company.
Liabilities include all long term and short-term liabilities, but total capital includes all liabilities and
equity. This indicator is used to evaluate the Group’s and the Company’s capital structure as well
as their solvency.
As at 31 December 2020 and 31 December 2019 the proportion of borrowed capital to total capital
was as follows:
Group
31.12.2020
Group
31.12.2019
Company
31.12.2020
Company
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Restated
Restated
Total liabilities
79 712
80 527
27 537
26 033
(Cash and cash equivalents)
(54 236)
(48 995)
(44 968)
(38 487)
(Reserved funds)
(260)
(1 145)
(260)
(1 145)
(Deferred income)
(19 397)
(19 572)
-
(92)
Net total liabilities
5 819
10 815
(17 691)
(13 691)
Total equity and liabilities
455 549
463 079
324 497
329 051
Borrowed capital proportion to total
capital
1.28%
2.34%
(5.45%)
(4.16%)
33
Market risk
Market risk is the risk that changes due to market factors, such as changes in foreign exchange
rates, interest rates and commodity prices can affect the Group's or Company's profits. As at
31.12.2020 the Group and the Company had a cash balance in foreign currencies of 7 thousand USD
(6 thousand EUR), as at 31.12.2019 the Group and the Company had a cash balance in foreign
currencies of 8 thousand USD (7 thousand EUR). The Group and the Company have no other assets
or liabilities in foreign currencies.
The Company faces a certain market risk arising from injecting significant gas quantities into the
Inčukalns Underground Gas Storage during the injection season for sale during heating period
(calendar spread risk) as well as from the mismatch between purchase and sales pricing concepts.
JSC “Latvijas Gāze” prioritizes internal market risk mitigation by negotiating supply agreement
terms and working with its sales portfolio to the extent it is possible. In addition, the Company
mitigates price risk by entering into derivative transactions.
Other financial assets and liabilities are non-interest bearing or interest rates are fixed, except for
borrowings. As the Group and the Company account for all financial assets and liabilities at
amortized cost, they are not subject to fair value interest rate risk.
Interest rate risk
The entire Group's and the Company's borrowings are subject to interest rates based on a
EURIBOR rate plus a fixed premium.
Interest rate risk is not material for the Group and the Company.
24. Other risk management
Compliance risk
Compliance risk is the risk that the Group and the Company may incur losses, be subject to legal
obligations, be subject to sanctions, or be in bad standing due to the Group and the Company's 's
failure to comply or violate compliance laws, regulations and standards. The Management Board
of the Company and the Management Board of its Subsidiary closely monitor changes in
regulatory enactments, as well as the operation of the Company's and its Subsidiary's internal
control processes in order to ensure compliance with existing regulatory requirements and timely
preparation of necessary future business changes.
The Group and the Company use the following methods to prevent and reduce the compliance
risk:
develop and update regulatory documents in accordance with regulatory enactments of
the Republic of Latvia;
ensure the participation of the Legal Department in the development of the Group's and
the Company's regulatory documents;
if a finding of non-compliance is made, promptly take the necessary measures to remedy
the non-compliance;
34
use standardized forms and texts for contracts, notices, terms of service and other
documents intended for clients in dealings with clients or potential clients;
where appropriate, train unit staff on compliance risk issues.
25. Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires the use of accounting
estimates, which, by definition, will seldom equal the actual results. Management also needs to
exercise judgment in the process of applying the Group’s and the Company’s accounting policies.
This note provides information about the areas that involved higher degree of judgment or
complexity which are more likely to be materially adjusted due to estimates and assumptions
turning out to be wrong.
Revaluation of buildings, constructions, equipment and machinery
The management determines the fair value and the remaining useful life of buildings and
constructions and equipment and machinery based on valuations performed by independent
certified valuators in accordance with real estate valuation standards and based on the average
construction costs relevant for the reporting year when valuation is performed, less subsequent
depreciation. The Group’s internal policy is to perform the revaluations with sufficient regularity,
when there are indications that the average construction costs and/or purchase prices related to
the buildings, gas distribution system and equipment have changed significantly which could lead
to the carrying amount of such assets differing materially from that which would be determined
using fair value at the end of the reporting period, but at least once every five years.
At the end of each reporting period, the management updates Its assessment about the changes
in the construction costs of the assets subject to periodic revaluation, taking into account the
available information such as official statistics data and prices quoted by construction companies
in the procurement process. The management determines whether there are such changes in the
market prices that would result into material difference between the relevant asset’s carrying
amount and its fair value. All resulting fair value estimates are included in level 3 (see also Note 23).
As in 2019 the average construction costs have substantially changed against the average
construction prices used by an independent certified valuator when revaluating assets in 2017, the
management of JSC GASO decided to carry out a revaluation of assets in order to measure the
asset replacement values as at 1 August 2019.
The revaluation of property, plant and equipment was carried out by independent certified
valuators, measuring the initial and residual cost value of each asset under valuation, as well as the
replacement value of accumulated depreciation as at 1 August 2019 for buildings, constructions,
technological equipment, and vehicles for core business. Out of these categories, the items not
valued were land, compensations for land, electricity installations and assets that were set to be
written off in 2019 and 2020. The valuation of assets took place in compliance with the International
Valuation Standards 2012 (IVS 300 Valuations for financial reporting) using the cost approach.
The cost approach method used in the valuation of immovable property was based on the average
construction and purchase prices in Latvia. The measurement of cost replacement values involved
an analysis of the construction cost data of Latvian construction companies, the average pipeline
costs for gas pipelines, as well as the information available to JSC GASO regarding the construction
works carried out in recent years. The value of basic calculation unit for each specific building or
35
group of buildings depended on its structural design, the quality of works, the degree of
improvement, the quality of the construction materials used, the applicability of specific
construction conditions, and other factors found on site.
When it came to movable property, a cost approach was used, i.e., obtaining a value indicator
based on the economic principle that the buyer will not pay for the asset above the expected
acquisition or development costs of an asset of identical utility. This approach is based on the
principle that, where there are no issues with the time needed to develop an equivalent asset,
inconveniences, risks or other factors, the market price paid by the buyer for the asset under
valuation would not be greater than the acquisition or development costs of an equivalent asset.
The depreciated replacement cost value of buildings and constructions was calculated based on
the results of inspection and the construction value in the prices at the time of valuation based on
the utility of equivalent items in line with the construction requirements and materials used at the
time of valuation and considering the technical and functional loss in value over time. The findings
were analysed in light of the construction time of the building or construction and the repairs
required and completed.
The replacement cost of accumulated depreciation for each asset was also measured, with the
asset’s physical, functional and technical depreciation used as key factor. The overall loss in
technical value for buildings and constructions was measured as the sum of losses in value of
individual structural elements, expressed as percentage and attributed to the building or
construction as a whole. With morally obsolete low-quality buildings and constructions, and
constructions where full-fledged practical use is problematic, value adjustment factors were used
to determine the extent of functional loss in value.
Physical loss in value reflects the aging of real estate over time manifesting as, for instance,
defective structural parts and workmanship or incompleteness of structure. It shows the degree of
decay of construction structures and materials and, consequently, the losses in value resulting
from various physical factors.
Functional loss in value manifests as a loss in the market value of real estate caused by an
inappropriate development plan or non-conformity of its other features to the present-day
requirements. It shows the incompatibility of buildings and constructions with the existing real
estate market standards and conjuncture.
The replacement value was measured using the cost approach method on the basis of the average
construction and purchase costs in Latvia. If the figure of average construction and purchase costs
in Latvia used in valuation increased by 1%, the value of the assets revalued would increase by 6 765
thousand EUR. Conversely, if the figure of average construction and purchase costs in Latvia used
in valuation decreased by 1%, the asset value would decrease by 6 765 thousand EUR.
As in 2020 the average construction costs have not changed significantly compared to the average
construction prices, which were taken into account by an independent certified valuator when
revaluing the assets in 2019, the management of JSC GASO has decided not to revalue the assets
in 2020.
36
Estimation of remaining useful life
The Group and the Company annually estimate the useful life of intangible assets and property,
plant and equipment and make adjustments if the forecasts differ. These estimates are based on
the previous experience as well as on the industry practice and revised at the end of every reporting
period. In the past, the actual useful life of assets has occasionally exceeded the estimate.
Impairment of trade receivables and accrued income
The loss allowance for financial assets, including trade receivables and accrued income, is based
on assumptions about risk of default and the expected loss rates. The Group and the Company use
their judgement in making these assumptions and selecting the inputs to the impairment
calculation, based on the Group’s and the Company's past history, existing market conditions as
well as forward looking estimates at the end of each reporting period. As individual assessment is
not possible due to the large number of individual balances, only the significant debtors are
assessed individually. Receivables that are not individually assessed for impairment are classified
into groups of receivables based on days overdue and are collectively assessed for impairment.
Details of the key assumptions and inputs used to estimate expected credit losses are disclosed in
Note 23, Credit risk section.
Determination whether the entity acts as a principal or an agent in provision of
certain services
The management has determined that the Group acts as an agent for natural gas transmission
services and the Company acts as an agent for natural gas transmission and distribution services
as they do not control the respective services before they are transferred to the customer. The
following arguments support the above-mentioned conclusion:
The Group (in relation to transmission services) and the Company (in relation to
transmission and distribution services) neither owns nor operates any of the assets
necessary to provide respective services.
The customers do not perceive getting the different elements/services from different
providers. From the customer´s perspective, there is no other value added apart from the
only one benefit, i.e. a supply of gas (including its transmission and distribution), in
particular, there are no alternative service providers, and all gas trading companies must
enter into agreements with transmission and distribution operators.
Any issues related to the physical transportation of natural gas through the distribution or
transmission network, the measurement of natural gas transported through the systems,
and repairing or modernizing pipes is fully under the control of distribution and
transmission operators and cannot be influenced by gas trading companies.
The moment of the transmission & distribution and the sale and transfer to the end-user
are not separated due to the nature of business. Nevertheless, only the providers of
transmission and distribution services are capable to track the quantities delivered and they
reconcile the quantities between themselves as the infrastructure is fully under the control
of transmission and distribution operators.
Transmission and distribution services are subject to a regulated non-discriminatory tariff
approved by a local regulatory body. Any expenditure incurred in providing these services
37
including the volume of capital expenditure which may impact future tariffs, is the
responsibility of transmission and distribution operators.
The end-users are charged with a transmission and distribution fixed fee calculated based
on a formula: regulated tariff for distribution/transmission x quantity delivered. The
Company passes on the costs for distribution and transmission services to the customers
without adding any additional fees or charges.
Determination whether the entity acts as a principal or agent in collecting and
paying excise duty
The management has determined that with regard to excise duty, the Company acts as an agent
by collecting the excise duty on behalf of the government. As a result, the excise tax is deducted
from the net revenue (similar to other sales taxes) rather than included in both revenue and cost
of sales as such a presentation reflects the substance of the arrangements.
The following considerations support the judgements made by the management:
Although the “production” and “sale” (a transfer to the end-user) are not really separated
due to the nature of business, the triggering event to pay the excise tax is a “delivery” to the
end user. This indicates that the excise duty is paid close to the transfer to end customer
and therefore it is closer in nature to a sales tax.
The excise duty is clearly separate from the selling price and it is shown separately on the
invoices to commercial clients. A change in the tax would result in an equivalent change in
the amount passed through to the customer. Even in a non-typical situation when the gas
would be given to end-user free of charge, the excise tax needs to be calculated as it follows
from the requirement of the law. This is considered a strong indicator that the entity is
collecting the tax on behalf of the government.
One may argue that there are indicators which may support a gross treatment (e.g. the
pricing is based on physical quantity, not tied to value of revenue/the selling price or a
failure by customer to pay does not provide the rights to claim the tax back). Nevertheless,
in the view of management, in the context of the arrangements they do not have to be
regarded as superior and decisive in order to conclude on an accounting treatment with
respect to the excise duty.
Non-recognition of deferred tax liability
Deferred tax liability is not recognised in the consolidated financial statements of the Group in
relation to the taxable temporary differences associated with investment in subsidiary (arising
from existence of untaxed with corporate income tax retained earnings in subsidiary, arisen after 1
January 2018) as the management has determined that subsidiary’s profit for the years ended from
31 December 2018 to 31 December 2020 will not be distributed in the foreseeable future. The
management exercised significant judgement in interpreting the longevity of the period
described as “foreseeable future”. In the management’s opinion, in the current business
environment, it is not possible to develop reliable business plans and forecasts for a period of time
exceeding 3-5 years, despite the fact that the subsidiary in question operates in a regulated
industry with regulated tariffs and is a monopoly provider of natural gas transmission services in
Latvia, therefore, the period of foreseeable future cannot exceed 5 years or even less.
Management’s judgement is based also on the following considerations:
38
The subsidiary will first distribute the retained earnings accumulated till 31 December 2017
to take an advantage of new corporate income tax regime which permits the tax payers to
distribute the said retained earnings without levying tax on such distributions (as these
retained profits have been taxed under previous tax regime);
It is estimated that the time period while the “previous” retained earnings are fully
distributed will exceed 5 years;
It is assumed that in the consecutive years, after the distribution of “previous” retained
earnings, the subsidiary will distribute dividends from current earnings not exceeding
annual profit amount.
Control over subsidiary
While the JSC "Gaso" is given a statutorily independence in terms of running the gas distribution
business, the overall corporate control by JSC "Latvijas Gāze", in its capacity as a parent entity, is
fully retained. The normal corporate control rights by the parent group entity over the distribution
subsidiary are expressly acknowledged in Art 45(3)(3) of the Latvian Energy Law (which provision,
in its turn, transposes a rule specified in Art.26(2)(c) of the Directive 2009/73/EC of the European
Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in
natural gas and repealing Directive 2003/55/EC). Particularly, in the context of IFRS 10
“Consolidated financial statements”, the critical aspect of control is ensured by the fact that the
power to appoint the Council of JSC “Gaso” lies with the Board of the JSC “Latvijas Gāze” (with the
consent of the Council of the Company) acting in its capacity as sole shareholder of JSC “Gaso”.
Council of JSC “Gaso”, in its turn, appoints the Board of JSC “Gaso”, which is in charge of operational
activities that significantly affect the subsidiary’s returns.
26. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set
out below. These policies have been consistently applied during all years presented, unless
otherwise stated.
Basis of preparation
The consolidated and separate financial statements (financial statements) of the JSC “Latvijas
Gāze” are prepared in accordance with the International Reporting Standards (IFRS) and
interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted for use in the
European Union, and are presented together in one document.
The financial statements are prepared on a historical cost basis, except for derivative financial
instruments that are measured at fair value and certain classes of property, plant and equipment
that are carried at revalued amount, as disclosed in the notes below.
All amounts shown in these financial statements are presented in thousands of Euros (EUR), unless
identified otherwise. Euros (EUR) is the functional and presentational currency of the Group and
the Company.
39
These financial statements have been approved for issue by the Board of Directors of the Company
on 21 April 2021. In accordance with the requirements of the Commercial Law, the Company
announces the Annual Shareholders' Meeting after receiving the auditor's report and the
Supervisory Board's report, simultaneously sending the Annual Report to the Company's
shareholders.
Adjustment of opening balances
In 2020 the Company migrated all its balances and settlements with household customers to a
new IT system MECOMS. After migration process a difference of 1 159 thousand EUR between
accounting records and detailed listing of accounts receivable from households was detected.
According to the results of a detailed investigation this difference historically originated from the
accounting periods before reorganisation of the Company, which took place according to the
requirements included in the Energy Law to ensure operational separation of the distribution
business from the sales & trading activities, at the end of 2017. Since the reorganisation sales
volume has been recognised based on gas amounts in the distribution system, which was
calculated by JSC GASO on a monthly basis based on the Rules of Cabinet of Ministers No 78 dated
7 February 2017 and it fully agrees to the accounting records of the Company. The detected
difference was accumulated over a long period of time before the reorganisation and represents a
sum of individually insignificant differences between actual gas consumption in Latvia and
submitted values of gas counters, which were historically allocated to individual customers
balances within the previously used IT system. As this amount of 1 159 thousand EUR relates to the
periods before the earliest period reported in these financial statements, the comparative
information as of 1 January 2019 and 31 December 2019 has been adjusted retrospectively. The
impact of the adjustment is as follows:
Group 31.12.2019
EUR’000
Company 31.12.2019
EUR’000
As originally
reported
Restated
Change
As originally
reported
Restated
Change
Accounts receivable
26 955
25 796
(1 159)
23 813
22 654
(1 159)
Retained earnings
(111 878)
110 719
1 159
(23 447)
(22 288)
1 159
New Accounting Pronouncements
Standards or interpretations effective for the first time for the annual periods beginning
1 January 2020
A number of new standards and interpretations have been published that are mandatory for
annual periods beginning on or after January 1, 2020, and which did not have a significant impact
on the financial position or operations of the Group and the Company:
Amendments to the Conceptual Framework for Financial Reporting (effective for annual
periods beginning on or after 1 January 2020). The revised Conceptual Framework includes a new
chapter on measurement; guidance on reporting financial performance; improved definitions and
guidance - in particular, the definition of a liability; and clarifications in important areas, such as the
roles of stewardship, prudence and measurement uncertainty in financial reporting.
Definition of a business - Amendments to IFRS 3 (effective for acquisitions from the beginning
of annual reporting period that starts on or after 1 January 2020). The amendments revise definition
40
of a business. A business must have inputs and a substantive process that together significantly
contribute to the ability to create outputs. The new guidance provides a framework to evaluate
when an input and a substantive process are present, including for early stage companies that
have not generated outputs. An organized workforce should be present as a condition for
classification as a business if are no outputs. The definition of the term ‘outputs’ is narrowed to
focus on goods and services provided to customers, generating investment income and other
income, and it excludes returns in the form of lower costs and other economic benefits. It is also
no longer necessary to assess whether market participants are capable of replacing missing
elements or integrating the acquired activities and assets. An entity can apply a ‘concentration
test’. The assets acquired would not represent a business if substantially all of the fair value of gross
assets acquired is concentrated in a single asset (or a group of similar assets).
Definition of materiality – Amendments to IAS 1 and IAS 8 (effective for annual periods beginning
on or after 1 January 2020). The amendments clarify the definition of material and how it should be
applied by including in the definition guidance that until now has featured elsewhere in IFRS. In
addition, the explanations accompanying the definition have been improved. Finally, the
amendments ensure that the definition of material is consistent across all IFRS Standards.
Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence the decisions that the primary users of general purpose financial statements make on
the basis of those financial statements, which provide financial information about a specific
reporting entity.
Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (effective for annual
periods beginning on or after 1 January 2020). These amendments provide certain reliefs in
connection with interest rate benchmark reform. The reliefs relate to hedge accounting and have
the effect that IBOR reform should not generally cause hedge accounting to terminate. However,
any hedge ineffectiveness should continue to be recorded in the income statement.
Standards or interpretations effective for the first time for the annual periods beginning on
or after 1 January 2021 or not yet adopted by the EU
Certain new or revised standards and interpretations have been issued that are mandatory for the
Group’s annual periods beginning on or after 1 January 2021, and which the Group and the
Company have not early adopted. No significant impact on the financial statements of the Group
and the Company is expected from these standards or interpretations.
Classification of liabilities as current or non-current – Amendments to IAS 1 (effective for annual
periods beginning on or after 1 January 2022, not yet adopted by the EU).
Amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-2020 –
amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (effective for annual periods beginning on or after
1 January 2022, not yet adopted by the EU).
Interest rate benchmark (IBOR) reform – phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16 (effective for annual periods beginning on or after 1 January 2021, not yet adopted by
the EU).
There are no new or revised standards or interpretations that are not yet effective that are expected
to have a material impact on the Company or the Group.
41
Financial instruments
Financial assets Classification
The Group and the Company classify their financial assets in the following measurement
categories:
those to be measured subsequently at fair value (either through OCI or through profit
or loss), and
those to be measured at amortised cost.
The classification depends on the Group’s and Company’s business model for managing the
financial assets and the contractual terms of the cash flows.
Recognition and de-recognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on
which the Group and the Company commit to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or have been transferred and the Group and the Company have transferred
substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Group and Company measure a financial asset at its fair value plus, in the
case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s and Company’s business
model for managing the asset and the cash flow characteristics of the asset. All Group’s and
Company’s debt instruments are classified in the amortised cost measurement category.
Amortised cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost. Interest income from these
financial assets is included in finance income using the effective interest rate method. Any gain or
loss arising on derecognition is recognised directly in profit or loss and presented in other income/
(expenses). Foreign exchange gains and losses and impairment losses are presented within other
income /(expenses) in the statement of profit or loss.
The following financial assets of the Company and Group were classified in this category:
trade receivables;
accrued income;
reserved funds;
42
cash and cash equivalents.
Equity instruments
The Group and the Company have no investments in equity instruments.
Derivative financial instruments
Derivative financial instruments are carried at their fair value. All derivative instruments are carried
as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair
value of derivative instruments are included in profit or loss for the reporting period. The Company
and the Group do not apply hedge accounting.
Impairment
The Group and the Company assess on a forward-looking basis the expected credit losses (“ECL”)
associated with their debt instruments carried at amortised cost. The impairment methodology
applied depends on whether there has been a significant increase in credit risk.
The measurement of ECL reflects:
an unbiased and probability weighted amount that is determined by evaluating a range
of possible outcomes,
time value of money and
all reasonable and supportable information that is available without undue cost and effort
at the end of each reporting period about past events, current conditions and forecasts of
future conditions.
For trade receivables and accrued income without a significant financing component, the Group
and the Company apply a simplified approach permitted by IFRS 9 and measure the allowance for
impairment losses at expected lifetime credit losses from initial recognition of the receivables. As
individual assessment is not possible due to the large number of individual balances, only the
significant debtors are assessed individually. Receivables that are not individually assessed for
impairment are classified into groups of receivables based on days overdue and are collectively
assessed for impairment.
Revenue from contracts with customers
Revenue is income arising in the course of the Group’s and Company’s ordinary activities. Revenue
is measured in the amount of transaction price. Transaction price is the amount of consideration
to which the Group and the Company expect to be entitled in exchange of transferring control
over promised goods or services to a customer, excluding the amounts collected on behalf of third
parties. The Group and the Company recognise revenue when it transfers control of a good or
service to a customer.
43
Sale of natural gas – wholesale
The Group and the Company sell natural gas in the wholesale market. Revenue is recognized at
the point in time when the product (natural gas) is delivered to the wholesaler (buyer) and he has
full discretion as to the place and price of the products, and the wholesaler (buyer) has no claim for
performance of the contract that could affect the acceptance of the products from the wholesaler
(buyer). Delivery takes place when products are delivered to a particular location, the prescription
and limitation risks are passed on to the wholesaler (buyer), and the Group and the Company have
objective evidence that all acceptance-transfer criteria are met.
It is considered that there is no financing element here, because the sale is made with a credit term
of 10-30 days, which corresponds to the prevailing market practice.
A receivable is recognised when the goods are delivered as this is the point in time that the
consideration is unconditional because only the passage of time is required before the payment is
due.
Sale of natural gas to end users – commercial customers and households
The Group and the Company sell natural gas to end users – corporate customers and households.
These sales meet over the time recognition criteria as the customer receives and uses the benefits
simultaneously as the gas is delivered. Revenue is recognised based on the actual quantities
delivered up to the end of the reporting period, normally one month, as the gas sold is priced on a
per quantity basis.
Households settle their debts according to equalized payment schedules with end-dates not
necessarily coinciding with calendar year-end, based on the actual consumption during previous
settlement year. Management exercises judgement when estimating revenue for quantities
delivered but not yet billed to these customers. This is determined using an established
methodology within the Group.
If the contract includes variable consideration, revenue is recognised only to the extent that it is
highly probable that there will be no significant reversal of such consideration.
Excise duty
The excise duty is levied on the natural gas delivered to the end user and is calculated on the basis
of fixed rate per quantity delivered depending upon purpose of use of natural gas by the end user.
The Group and the Company act as an agent in collecting the excise duty from customers, and pay
it to the government, therefore revenue is recognised net of excise tax levied on the customers.
Sale of services – natural gas distribution
The Group provides natural gas distribution services to the gas traders who sell the natural gas to
end users. Revenue from providing services is recognised over time in the period in which the
services are rendered. The management exercises judgement related to the quantity of natural
gas delivered to the household end-customers of the Group, as explained in the policy “Sale of
natural gas to end users – commercial customers and households” above.
44
Connection fees
When connecting to the gas network, the clients must pay a connection fee based on the actual
costs of infrastructure to be built in order to connect them to the network. The management has
concluded that the connection fees do not represent a separate performance obligation from the
ongoing provision of network distribution services, and thus the revenue from connection fees is
deferred and recognised as revenue over the estimated customer relationship period, which, in
management’s view, approximates 30 years. Connection fees received from customers are carried
in the statement of financial position as “Deferred income” within long-term liabilities.
Contract assets and contract liabilities related to contracts with customers
Due to equalised invoicing and settlement arrangements with household customers, these
customers routinely are in the position of over-payment in relation to their actual consumption. It
is also common for households to make an advance payment for the whole year ahead, based on
the actual consumption of prior settlement year. There are also corporate customers who have
overpaid to the Group and the Company for the goods and services received. The balances of
overpaid amounts that represent contract liabilities are offset against future consumption. They
are reported within other liabilities as prepayments received.
Contract asset that relates to contract with the natural gas transmission and storage operator,
where the Group and the Company have undertaken commitment to store an agreed quantity of
natural gas in the underground storage for particular period of time is reported as accrued income
within other current assets. The revenue is receivable when all the conditions of the contract are
fulfilled.
Financing component
The Group and the Company do not have any contracts where the period between the transfer of
the promised goods or services to the customer and payment by the customer exceeds one year.
Consequently, the Group and the Company do not adjust any of the transaction prices for the time
value of money.
Property, plant and equipment
Property, plant and equipment are tangibles, which are held for use in the supply of goods and in
the provision of services, and used in more than one period. The Group`s and the Company’s main
asset groups are buildings and constructions, which include distribution gas pipelines, as well as
equipment and machinery that is mainly related to technical gas distribution.
The Group’s buildings and constructions (including the gas distribution system) and equipment
and machinery are recognised at fair value as determined under the policy of revaluation of fixed
assets approved by the Board, less accumulated depreciation and impairment loss. Revaluation
shall be made with sufficient regularity to ensure the carrying amount does not differ materially
from the one, which would be determined using fair value at the end of the reporting period. All
other property, plant and equipment groups (including land) are stated at historical cost, less
accumulated depreciation and impairment charge. The historical cost includes expenditure
directly attributable to the acquisition of the items.
45
Assets purchased, but not ready for the intended use or under installation process are classified
under “Assets under construction”. This group is measured at cost less accumulated impairment
losses. Subsequent costs are included in the asset’s carrying amount or recognised as separate
asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Group or the Company and the cost of the item can be measured reliably. All
other repairs and maintenance are charged to the profit or loss statement for the financial period
when they incurred.
Upon revaluation of property, plant and equipment, the accumulated depreciation is changed in
proportion to changes in the gross value of the property, plant and equipment revalued. Increases
in the carrying amount arising on revaluation of buildings, gas distribution system and equipment
are credited to Revaluation reserve in shareholders’ equity. Decreases that offset previous increases
of the same asset are charged against revaluation reserve directly in equity; any further decreases
are charged to the profit or loss statement. The revaluation surplus is transferred to retained
earnings on the retirement or disposal of the asset. Each year, the difference between depreciation
based on the revalued carrying amount of the asset charged to profit or loss and depreciation
based on the asset’s original cost is reclassified from the property, plant and equipment revaluation
reserve to retained earnings.
Land and assets under construction are not depreciated. Depreciation on other assets is calculated
using the straight-line method to allocate their cost or revaluated amounts to their residual values
over their estimated useful lives, as follows:
years
Buildings 20 - 100
Constructions, including gas distribution system 20 - 70
Machinery and equipment 5 - 20
Other fixed assets 2 - 10
The assets’ useful lives are reviewed, and adjusted as appropriate, at the end of each reporting
period. An asset’s carrying amount is written down immediately to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount.
Gains or losses on disposals are determined by comparing carrying amount with proceeds and are
charged to the profit or loss statement during the period when they are incurred.
Intangible assets
Intangible assets primarily consist of software licences and patents. Intangible assets have a finite
useful life and are carried at cost less accumulated amortisation and impairment loss.
Amortisation is calculated using the straight-line method to allocate the cost of intangible assets
over their useful lives. Generally, intangible assets are amortised over a period of 5 to 10 years.
Impairment of non-financial assets
All the Group’s and Company’s the non-financial assets, except for land, have a finite useful life.
Assets subject to amortisation or depreciation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An
46
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash generating units). Non-financial assets having suffered
impairment are reviewed for possible reversal of the impairment at each reporting date.
Inventories
Inventories are stated in the balance sheet at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and estimated costs necessary to make the sale. The cost of natural gas is
composed of the gas purchase price and is determined using FIFO (first in first out) method. The
cost of other materials, spare parts and other inventories is determined using the weighted
average method.
The value of outdated, slow-moving or damaged inventories has been provisioned for.
Leases
The Group and Company are lessee. Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net present value of the following lease
payments:
fixed payments (including in-substance fixed payments), less any lease incentives
receivable;
variable lease payments that are based on an index or a rate, initially measured using
the index or rate as at the commencement date;
amounts expected to be payable by the Group and the Company under residual value
guarantees;
the exercise price of a purchase option if the Group and the Company are reasonably
certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the Group
and the Company exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the
measurement of the liability.
Lease duration used in the calculation is based on signed agreements for external lease and 5 years
for intragroup lease.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot
be readily determined, which is generally the case for leases in the group, the lessee’s incremental
borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic
environment with similar terms, security and conditions. Discount rate applied to measure lease
liabilities as at 31 December 2020 and 31 December 2019 is 3.33%.
47
Lease payments are allocated between principal and finance cost. The finance cost is charged to
profit or loss over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets
Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease
incentives received;
any initial direct costs, and
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the
expected lease term on a straight-line basis. If the Group or the Company is reasonably certain to
exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful
life. While the Group and the Company revalues its land and buildings that are presented within
property, plant and equipment, they have chosen not to do so for the right-of-use buildings held
by the Group or the Company.
Principles of consolidation
Subsidiaries are all entities over which the Group has control. The Group controls an entity when
the group is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between group
companies are eliminated in consolidation.
There is only one subsidiary in the consolidated group – JSC “Gaso” which was established on 1
December 2017 as a result of a reorganisation (spun-off of distribution business segment from the
parent company JSC “Latvijas Gāze”). The reorganisation was determined to be a transaction
among entities under common control and was recorded based on predecessor values. As a result,
on the reorganisation date, the assets and liabilities with resulting entries in equity were
transferred to the opening balance sheet of subsidiary based on their predecessor amounts in the
books of JSC “Latvijas Gāze”. The reorganisation as such did not impact the consolidated financial
statements following an establishment of Group as consolidated financial statements continued
to report the natural gas trading and distribution business in one consolidated entity.
Reorganisation and investment in subsidiary
In the separate financial statements of the parent company, investment in subsidiary’s capital is
accounted at cost less any impairment loss. The cost of investment was determined with the
reference to the carrying amount in the predecessor’s (i.e., JSC “Latvijas Gāze”) books of assets and
liabilities that were transferred to subsidiary AS “Gaso” as a result of reorganisation.
48
Reorganisation was determined to be a transaction between entities under common control and
accounted for at predecessor values based on the following:
In the course of the reorganization process, JSC “Latvijas Gāze” acquired ownership of
100% of JSC “Gaso” shares in exchange for the net assets transferred to JSC “Gaso”,
thereby acquiring non-monetary assets (shares) in exchange for a combination of non-
monetary and monetary assets and liabilities (i.e., JSC ”Gaso” transferable assets
according to the asset allocation act).
The assets and liabilities of the new group immediately after the reorganization were the
same as assets and liabilities of JSC “Latvijas Gāze” immediately before the
reorganization;
The absolute and relative participation of JSC “Latvijas Gāze” shareholders in the net
assets of the newly created group immediately after the reorganization was the same as
their share in the net assets of JSC “Latvijas Gāze” immediately before the reorganization.
As a result of this reorganisation the Company recognised a reorganisation reserve which arose as
a result of a difference between the net assets received and transferred within reorganisation
process.
Dividends from the subsidiary are recognised in the separate financial statements of the Company
when the right to receive the dividend is established. The dividend is recognised in the profit or
loss statement.
If there is objective evidence that the carrying amount of the investment in the subsidiary exceeds
its recoverable amount, the impairment loss is calculated as the difference between these two
amounts and recognised immediately in profit or loss. The recoverable amount of investment is
the higher of its fair value less costs of disposal and it value in use. Value in use is the present value
of the future cash flows expected to be derived from the investment in subsidiary. Impairment loss
with regard to investment in subsidiary is reversed if the recoverable amount of investment has
increased above the previously estimated recoverable amount used in measuring the recognised
impairment loss, but reversal should not exceed the initial cost of investment.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision-maker of each legal entity in the Group (i.e., the parent entity and
subsidiary). Although the internal reporting formats are similar for both entities, there is no single
chief operating decision-maker for the whole Group, given the legal requirements regarding
operational independence of natural gas distribution operator from its vertically integrated parent
company – the largest natural gas trader in Latvia. Management Board and Supervisory Board of
each entity are regarded as chief operating decision-makers who are responsible for allocating
resources and assessing performance of each segment.
Share capital and dividend authorised
Ordinary shares are classified as equity. No preference shares have been issued. Incremental
external costs directly attributable to the issues of new shares are shown in equity as a deduction,
net of tax, from the proceeds. Dividend distribution to the Group’s parent company’s shareholders
49
is recognized as a liability in the financial statements in the period in which the dividends are
approved by the Company's shareholders.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group and the Company
prior to the end of the reporting period which are unpaid. The amounts are unsecured and usually
paid within 30 days of recognition with an exception of personnel related accruals where the
payment terms might be up to 12 months. If the payment is not due within 12 months after the
reporting period, such payables are presented as non-current. Trade and other payables are
recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Borrowings and borrowing costs
Borrowings are recognised initially at fair value net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost using the effective interest method. Fees paid for
establishment of loan facilities are recognised as transaction costs of the loan to the extent that it
is probable that some or all of the facility will be drawn down. Borrowings are derecognised when
the obligation specified in the contract is discharged, cancelled or expired. Borrowings are
classified as current liabilities unless the Group and the Company have an unconditional right to
defer settlement of the liability for at least 12 months after the reporting period.
General and specific borrowing costs that are directly attributable to the acquisition or
construction of a qualifying asset are capitalised during the period of time that is required to
complete and prepare the asset for its intended use or sale. Qualifying assets are assets that
necessarily take a substantial period of time to get ready for their intended use or sale. All other
borrowing costs are recognised in the profit or loss statement in the period in which they are
incurred.
Provisions
Provisions are recognised when the Group or the Company have a present legal or constructive
obligation as a result of past events, it is probable that an outflow of resources will be required to
settle the obligation and the amount can be reliably estimated. Provisions are not recognised for
future operating losses.
Provisions are measured at the present value according to the management’s best estimate of the
expenditure required to settle the present obligation at the end of the reporting period.
Employee benefits
Wages, salaries and bonus plans
Liabilities for wages and salaries, including non-monetary benefits, annual leave and bonuses that
are expected to be settled wholly within 12 months after the end of the period in which the
employees render the related service are recognised in respect of employees’ services up to the
end of the reporting period and are measured at the amounts expected to be paid when the
liabilities are settled. The Group and the Company recognise a liability and expense for bonuses
50
based on a formula that takes into consideration the profit attributable to the Company’s
shareholders after certain adjustments. The Group and the Company recognise liability where
contractually obliged or where there is a past practice that has created a constructive obligation.
The liabilities are presented as Other liabilities in the balance sheet.
Social security and pension contributions
The Group and the Company pay social security contributions for state pension insurance to the
state funded pension scheme in compliance with the Latvian legislation. The state funded pension
scheme is a fixed-contribution pension plan whereby the Group and the Company have to make
payments in an amount specified by law. The Group and the Company also pay contributions to
an external fixed-contribution private pension plan. The Group and the Company do not incur legal
or constructive obligations to pay further contributions if the state funded pension scheme or
private pension plan are unable to meet their liabilities towards employees. The social security and
pension contributions are recognised as an expense on an accrual basis and are included within
staff costs.
Vacation pay accrual
The amount of accrual for unused annual leave is determined by multiplying the average daily
wage of employees for the last six months of the reporting year by the amount of accrued but
unused annual leave at the end of the reporting year.
Post-employment and other employee benefits
Under the Collective Agreement, the Group and the Company provide certain defined benefits
over employment and upon termination of employment to employees whose employment
conditions meet certain criteria. The amount of benefit liability is calculated annually based on the
current salary level and the number of employees who are entitled to receive those payments, as
well as based on actuarial assumptions, using the projected unit credit method.
The present value of the benefit obligation is determined by discounting the estimated future cash
outflows using the market rates on government bonds.
The net interest cost is calculated by applying the discount rate to the net balance of the defined
benefit obligation. This cost is included in employee benefit expense in the statement of profit or
loss.
Re-measurement gains and losses arisen from experience adjustments and changes in actuarial
assumptions are recognised in other comprehensive income in the period in which they occur
within separate reserve “Employee benefits revaluation reserve”. They are included in retained
earnings in the statement of changes in equity and in the balance sheet.
Changes in the present value of the defined benefit obligation resulting from plan amendments
or curtailments are recognised immediately in profit or loss as past service costs.
51
Income tax
The corporate income tax is calculated for distributed profits (20/80 from the net amount payable
to shareholders). The tax on the distributed profit is recognised when the Company’s shareholders
decide upon distribution. Corporate income tax is also paid on conditionally distributed profits
(non-business related disbursements, entertainment and donation costs exceeding certain criteria
and similar). Such tax is not regarded as income tax in the context of IAS 12 as it is calculated on
the gross rather than net amounts, and recognised in the statement of profit or loss as other
operating cost.
The Group recognise deferred tax liability for taxable temporary differences associated with
investment in subsidiary (arising from existence of untaxed retained earnings arisen after 1 January
2018 in subsidiary) except to the extent that it is probable that the temporary difference will not
reverse in the foreseeable future, i.e., the untaxed retained earnings will not be distributed from
subsidiary to the parent company in foreseeable future. In the reporting periods ended 31
December 2020 and 31 December 2019 the management of the Group did not recognise the
deferred tax liability in the consolidated financial statement related to the above.
Related parties
Related parties are defined as the Company’s shareholders with a significant influence and the
entities where these shareholders have control or joint control, as well as members of the Council
and the Board of the Company or its subsidiary, their close relatives and entities in which they have
a significant influence or control.
27. Remuneration of certified auditors company
Group
Group
Company
Company
2020
2019
2020
2019
EUR'000
EUR'000
EUR'000
EUR'000
Statutory audit
46
41
31
26
Non-audit services
2
1
1
1
48
42
32
27
28. Contingent liabilities
The Company has a long-term agreement with PJSC Gazprom based on “take or pay” rules that
determine the minimum quantity to be purchased in the respective period. If the entity is not able
to consume the agreed volume, legal obligations might arise.
Financial obligations arising from long-term gas purchases are calculated based on the same
principles that govern internal budgeting. The resulting long-term obligations as of the balance
sheet date amounted to approximately 1.93 billion EUR on 31 December 2020 and to 2.29 billion
EUR on 31 December 2019.
According to the Commercial law of Republic of Latvia, in the case of reorganization, the
incumbent company bears solidary responsibility together with the newly established company
with regard to the liabilities that originated prior to reorganisation and were transferred to the
newly established company, and whose settlement date occurs within five years after the
52
reorganization date. As at 31 December 2020 and 31 December 2019, the Group and the Company
are not aware of any existing liabilities that they would be liable for in relation to the above.
As at 31 December 2020 as a part of financial guarantees SEB banka has reserved 260 thousand
EUR (31.12.2019: 1 166 thousand EUR and in Swedbanka 30 thousand EUR).
The following table summarised other contracted commitments at the end of reporting year:
Commitments
Group
31.12.2020
Group
31.12.2019
Group
31.12.2020
Company
31.12.2019
EUR'000
EUR'000
EUR'000
EUR'000
Contracted and
unfinished
860
686
696
244
Contingent liabilities related to the corporate income tax from distributable profit of the
Company
When the net profit for 2020 will be distributed, corporate income tax liabilities will arise (20/80
from net amount distributed to shareholders). Dividends received from the subsidiary will not give
rise to additional tax liability in the hands of the Company when distributed further to the
shareholders of the Company. Assuming a proposed distribution of profit for 2020 as disclosed in
Note 16 (10 773 thousand EUR or 0.27 EUR per share), taking into account the subsidiary’s dividends
of 8 778 thousand EUR, the resulting corporate income tax charge will be around 498 thousand
EUR, to be recognised in the Group’s and the Company’s profit or loss when the decision about
distribution is approved by the shareholders.
29. Subsequent events
As in May 2021 the existing overdraft agreement of the JSC “Latvijas Gāze” with OP Corporate Bank
plc will expire, JSC “Latvijas Gāze” has concluded a new overdraft agreement with OP Corporate
Bank plc that will be utilized to purchase natural gas during the next two natural gas injection
seasons. The new overdraft limit is 30 million EUR and expires on 31 May, 2023. Apart from the
above, between 31 December 2020 and the signing of these financial statements there have been
no events of impact upon the Company’s or the Group’s financial position or financial results as at
the balance sheet date.
___________________________
Olga Bobrova
Chief Accountant