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ADRIS GRUPA d.d.

Rovinj

ANNUAL REPORT AND


INDEPENDENT AUDITOR'S REPORT
31 DECEMBER 2017
ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

Index
THE 2017 MANAGEMENT REPORT ........................................................................................ 3
1. PRINCIPAL ACTIVITY OF THE COMPANY.................................................................................................... 4
2. SUBSIDIARIES .................................................................................................................................................. 4
3. BUSINESS RESULTS, MARKET POSITION AND EXPECTED FUTURE DEVELOPMENT ........................ 4
4. RISKS AND RISK MANAGEMENT .................................................................................................................. 6
5. DATA ON THE PURCHASE OF OWN SHARES .............................................................................................. 6
6. RESEARCH AND DEVELOPMENT ACTIVITIES ........................................................................................... 6
7. SIGNIFICANT EVENTS AFTER THE END OF THE BUSINESS YEAR ......................................................... 6
8. NON-FINANCIAL REPORT.............................................................................................................................. 7
RESPONSIBILITY FOR THE ANNUAL REPORT..................................................................... 8
Independent auditor’s report ..................................................................................................... 9
CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS 31 DECEMBER 2017 ........18
CORPORATE GOVERNANCE STATEMENT FOR 2017 ........................................................ 116
NON-FINANCIAL REPORT ADRIS GRUPA d.d................................................................... 120
1. MANAGEMENT BOARD STATEMENT ........................................................................................................121
2. GENERAL INFORMATION .......................................................................................................................... 122
2.1. Profile......................................................................................................................................................... 122
2.2. Ethics and integrity ................................................................................................................................... 133
2.3. Management .............................................................................................................................................. 134
2.4. Reporting ................................................................................................................................................... 139
3. MATERIAL TOPICS AND STAKEHOLDERS .............................................................................................. 139
3.1. Engagement, involvement of interest groups (stakeholders).................................................................. 139
3.2. Explanation of material topics and their boundaries .............................................................................. 141
4. ECONOMIC TOPICS ..................................................................................................................................... 142
4.1. Economic value ......................................................................................................................................... 142
4.2. Market presence ........................................................................................................................................ 143
5. ENVIRONMENTAL TOPICS ........................................................................................................................ 143
5.1. Energy ........................................................................................................................................................ 145
5.2. Water, wastewater and waste ................................................................................................................... 145
5.3. Biodiversity ................................................................................................................................................ 146
6. SOCIAL TOPICS ............................................................................................................................................ 147
6.1. Relations with employees ......................................................................................................................... 147
6.1.1. Employment .............................................................................................................................................................147
6.1.2. Employee and management relationship ................................................................................................................ 149
6.1.3. Health and safety at work......................................................................................................................................... 149
6.1.4. Training and education .............................................................................................................................................. 151
6.1.5. Variety and equal opportunities, non-discrimination ............................................................................................. 153
6.2. Collaboration with the local community ..................................................................................................... 154
6.3. Customer-orientation ...................................................................................................................................... 157
6.3.1. Product responsibility ................................................................................................................................................... 157
6.3.2. Health and safety of consumers .................................................................................................................................. 159

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ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

ADRIS GRUPA d.d.


Rovinj

THE 2017 MANAGEMENT


REPORT

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ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

1. PRINCIPAL ACTIVITY OF THE COMPANY


The principal activity of ADRIS GRUPA d.d. (hereinafter “Adris” or the “Company”) is management and investment.
The goal of the Company as the corporate centre is coordination of investments, management, development and
operation of the entire system.
Adris comprises three strategic business units: tourism, with Maistra d.d. at the helm, healthy food production, with
Cromaris d.d. at the helm and insurance, with Croatia osiguranje d.d. at the helm (hereinafter: the “Group”).

2. SUBSIDIARIES
Within the scope of its operation, the Company operates directly through the following subsidiaries:
- Adria Resorts d.o.o., Rovinj, Croatia
- Abilia d.o.o., Rovinj, Croatia
- Croatia osiguranje d.d., Zagreb, Croatia

Adris owns the 100% share in the share capital of Adria Resorts d.o.o. and Abilia d.o.o., as well as a 66.12% share in
the share capital of Croatia osiguranje d.d.
The list of all subsidiaries is provided in the financial statements, under the note on General information.

3. BUSINESS RESULTS, MARKET POSITION AND EXPECTED


FUTURE DEVELOPMENT
The tourism business unit, led by Maistra, comprises tourist facilities in Rovinj and Vrsar, as well as Grand Hotel
Imperial (Hilton) in Dubrovnik. In 2017, the business unit saw a double-digit growth of all key business indicators.
This year, the investments into the renovation and the quality improvement of the existing products are continued.
At the beginning of the year, the reconstruction of the accommodation section of Hotel Eden worth HRK 66 million
was finished. Investments into the campsites, worth almost HRK 200 million, have also been completed.
Investments mostly encompass improving the supporting infrastructure and the quality of the campsites’ common
facilities. The year 2017 also saw the beginning of works on the construction of the new Hotel Park, the key product
in the process of rounding off the top-quality hotel offering in Rovinj, which will be finished by the end of this year.
The renewal of Grand Hotel Imperial (Hilton) in Dubrovnik also started at the end of 2017. The refurbished hotel
was re-opened mid-April 2018. The total investment in 2017 amounted to HRK 510m. In addition to investing in
improving the quality of its own amenities, Maistra also aims to increase recognisability of the overall Rovinj tourist
offering. Thus, in May 2017, in addition to numerous other events, Maistra organised the Beach Polo tournament
for the second time as an attractive international sports event.
The tourism business unit saw a 10% increase in the number of bednights in 2017, with a 5% increase in the average
price of a bednight stay. The operating revenue is 13% higher and amounts to HRK 1.14bn. The EBITDA (earnings
before interest, tax, depreciation and amortisation), amounting to HRK 400m, is 21% higher y/y. The EBIT
(earnings before interest and taxes) has increased by 27%, amounting to HRK 229m. The net profit in the amount
of HRK 162m represents a 14% rise compared to 2016 results.
In the period from 2005 to 2017, Adris invested almost HRK 4 billion in tourism, enabling Maistra’s transformation
in line with the highest segments of the offering. Besides the organic growth, in the end of 2017 Adris initiated the
process of acquisition of Croatian hotel company HUP-ZAGREB d.d. The company is present in Zagreb and
Dubrovnik, two tourist destinations that grew by 16 and 13 percent on annual basis, respectively, in the period from
2013 to 2017. It has some two thousand accommodation units and 79% of its capacities are four- or five-star. In that
way, Adris accomplished the diversification of its tourism portfolio. Entering the city hotel segment allows whole-
year operations, decreasing the seasonality of the tourism unit. HUP-ZAGREB d.d. has a long-term franchise model
of cooperation with the biggest global hotel chain, Marriot. The acquisition enabled the creation of the largest
national tourism company, providing space to utilise the operational and financial synergy effects.

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ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

The low total indebtedness of the tourism business segment of the Group makes it possible to proceed with the
strong investment cycle, which is the foundation of the growth, the development and the increase of the company’s
value. Additional HRK 2 billion will be invested in the tourism segment of the Group by 2021, enabling 95% of hotel
capacities to be of the highest quality level.

This year, Cromaris continued the implementation of the strategy of internationalisation of its operations and the
premiumisation of the portfolio. The key elements of marketing and sales strategy comprise further growth of
export, which accounted for 77% of sales revenue in 2017, positioning in the highest price segment and placing
emphasis on products of higher added value. In the category of fresh gilthead and sea bass in Italy as its key foreign
market, Cromaris has been positioned some 20 to 30% above the reference market average when it comes to price.
It is a result of insisting on the quality and the recognisability of the product. The close proximity of the market and
the organisation of the logistics system enable the products to reach Italian, Slovenian and Croatian markets within
24 hours after being fished, while they reach other key markets within 48 hours after being fished.
So far, almost 900 million kuna have been invested in the growth and development of Cromaris. During the past
ten years, high rates of sales growth and revenue growth averaging 23% on an annual basis have been reached. In
2017, the marketing and sales organisation has been strengthened, especially in export markets such as Italy, France
and Poland. In addition to marketing and sales activities, projects of optimisation of sales processes and improving
the operational efficiency have been implemented. Over the next five years, Cromaris plans to invest further HRK
400 million in the developmental cycle.
In 2017, Cromaris recorded a sales volume of 7,334 tonnes, which is 6.5% higher y/y. The sales volume in exports
grew by 9%, primarily on the Italian market. Under the conditions of the severe price dumping by the competition
at the key export markets, a 2-percent increase of average prices was achieved. In line with the increase of both
quantities and prices, the sales revenue increased by eight percent in 2017. The revenue from sales of high added-
value products, primarily the fresh gutted and packed fish and fish fillets, increased by 43 percent. In 2013, the
share of the revenue from added-value products, i.e. products other than fresh ungutted fish, amounted to only
eight percent, while in 2017 the share increased almost four-fold, amounting to some 30 percent. A special product
line was designed: organically grown gilthead and sea bass. The goal is to make 45 percent of the revenue based on
the sales of added value products over the next five years. The process is completely in line with the Cromaris’
differentiation strategy.
The increase in revenue, the change of the sales structure and the cost efficiency influence the prominent increase
in operating income amounting to 57 percent. Net profit amounted to HRK 23.1 million, which represents a 76
percent increase compared to 2016.

The Croatian insurance market grew by four percent in 2017, returning to 2013 levels after several years of decline
or stagnation. Croatia osiguranje maintained the leading position on the Croatian market in 2017, with a total share
of 28.5 percent. With 33.6 percent, it is the market leader in the non-life insurance segment. It has also maintained
the leading position in life insurance, with a market share of 17.9 percent. The total gross written premium in Croatia
amounts to HRK 2.62 billion, which is a two-percent increase y/y, despite the goals of optimisation and portfolio
cleaning. The gross written premium from the insurance business unit amounts to HRK 3.14 billion and is four
percent higher than the last year’s. The combined ratio for regular operation as one of the key indicators of business
efficiency has slightly improved compared to the last year’s, equalling 96,7. The achieved indicators are the result
of the successfully implemented process of organisational and process transformation of the company. Croatia
osiguranje implemented a series of activities aimed at the increase of operating efficiency, especially with respect to
the improvement of operation of its sales network, creating a shallow and efficient organisation and further
digitalisation of operations. Existing products were improved and new ones created, flexible and adjusted to the
target groups of business users. The process of corporate culture restructuring has also given results. Measuring the
organisational health with the OHI index (the Organisational Health Index) shows positive shifts and the key shifts
had been made in the areas of innovation and knowledge sharing, customer orientation and employees’ motivation.
At the beginning of April, CROATIA LLOYD d.d. merged with Croatia osiguranje, which was followed by the merger
with Croatia zdravstveno osiguranje d.d. in July, while BNP Paribas Cardif d.d. (later on CROATIA osiguranje
kredita d.d.) was taken over at the end of October. Those mergers continued the previously defined process of
organisational and market consolidation. The combination of a stable and strong market position and high
organisational and cost efficiency will enable the long-term sustainability of operations. New sources of future

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ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

growth are a combination of organic and acquisition activities. New acquisitions are aimed at strengthening the
insurance business and further development of health offering through synergies with the insurance offering.
In 2017, Croatia osiguranje’s EBT amounted to HRK 304 million, while in 2016 it amounted to HRK 257 million,
with a 18-percent growth. Net profit amounts to HRK 254 million and is 45 percent higher y/y.
With respect to the exposure to Agrokor Group, the Adris Group participates in the restructuring process. In line
with the assessed collection risk, the Company has made appropriate provisions based on the exposure.

4. RISKS AND RISK MANAGEMENT


The Company is exposed to financial risks (foreign exchange, interest and credit), as well as to market risks that
impact the principal activity of the subsidiaries.
The Company uses the usual financial instruments on the financial market of the Republic of Croatia to manage its
financial risks.
Considering the significant value of financial assets the Company manages, special attention is paid to the
management of financial risks, the monitoring of the stability of the banking system and the situation on financial
markets, i.e. the investment of the assets managed through the Treasury department.
As regards the tourism business unit, the return of certain countries to the European tourism market, especially
through the low-prices policy, represents a risk. The potential price dumping risk is primarily related to
Mediterranean countries such as Turkey, Tunisia and Egypt. The lack of workforce in tourism will affect the overall
employee-related expenses in the business unit.

5. DATA ON THE PURCHASE OF OWN SHARES


In 2017, the Company acquired 19,386 own class ADRS2 (ADRS-P-A) shares, accounting for 0.28% of the shares
from this class and 0.11% of the Company’s total share capital at the single price of HRK 471.00.
As at 31 December 2017, the Company owned a total of 151,398 own class ADRS (ADRS-R-A) shares, accounting
for 1.57% of the shares from this class, and 26.192 own class ADRS2 (ADRS-P-A) shares, accounting for 0.38% of
the shares from this class, i.e. 1.08% of the Company’s total share capital.

6. RESEARCH AND DEVELOPMENT ACTIVITIES


The Company continuously monitors events in its surroundings and invests in market research, modifies and
supports activities of the subsidiaries with the purpose of achieving organic growth, as well as recognising business
opportunities and realising new acquisitions.

7. SIGNIFICANT EVENTS AFTER THE END OF THE BUSINESS YEAR


In February 2018, the Company signed a share purchase and strategic partnership agreement, according to which
Adris grupa becomes the owner of a 77.78-percent share in Expertus d.o.o., headquartered in Zagreb, Zelengaj 10,
PIN: 85763228759, which is the owner of 252,993 shares i.e. 58.56% of all shares of HUP-ZAGREB d.d.,
headquartered in Zagreb, Trg Krešimira Ćosića 9, PIN: 66859264899.
With this transaction, the Group continues implementing the strategy of investing in the segment of top hotel
offerings and broadening its tourism portfolio.

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ADRIS GRUPA d.d., ROVINJ
2017 MANAGEMENT REPORT

8. NON-FINANCIAL REPORT
The non-financial report for the reporting year is submitted as a separate document with the Management Report.

ADRIS GRUPA d.d.


Tomislav Popović

7
ADRIS GRUPA d.d., ROVINJ

RESPONSIBILITY FOR THE ANNUAL REPORT


Pursuant to the Croatian Accounting Act in force, the Management Board is responsible for ensuring that
consolidated and separate financial statements are prepared for each financial year in accordance with International
Financial Reporting Standards (IFRS) as adopted in the European Union (EU), which give a true and fair view of
the consolidated financial position and financial performance of the company ADRIS GRUPA d.d., Rovinj and its
subsidiaries (the “Group”) for that period.

The Management Board has a reasonable expectation that the Group and the Company have adequate resources to
continue in operational existence for the foreseeable future. For this reason, the Management Board continues to
adopt the going concern basis in preparing consolidated financial statements.

In preparing consolidated and separate financial statements, the responsibilities of the Management Board include
ensuring that:
- suitable accounting policies are selected and then applied consistently;
- judgements and estimates are reasonable and prudent;
- applicable accounting standards are followed; and
- the consolidated and separate financial statements are prepared on a going concern basis unless it is
inappropriate to presume that the Group and the Company will continue in business.

The Management Board is responsible for keeping proper accounting records, which disclose with reasonable
accuracy at any time the financial position of the Group and the Company and must also ensure that the financial
statements comply with the Croatian Accounting Act in force. The Management Board is also responsible for
safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

Moreover, in accordance with the Accounting Act, the Management Board is obliged to prepare an Annual Report
comprising the financial statements, Management Report and the Corporate Governance Statement. The
Management Report was prepared in line with the requirements of Article 21 and 24 of the Accounting Act, and the
Corporate Governance Statement in line with the requirements of Article 22 of the Accounting Act.

The Annual Report was authorised for issuance by the Management Board on 19 April 2018.

Signed on behalf of the Management Board:

______________ ______________
President of the Management Board Member of the Management Board
mr. Ante Vlahović Tomislav Popović

8
Independent Auditor’s Report
To the Shareholders and Management of Adris grupa d.d.:
Report on the audit of the separate and consolidated financial
statements

Our opinion
In our opinion, the accompanying consolidated and separate financial statements give a true and fair
view of the consolidated financial position of Adris grupa d.d. and its subsidiaries (together - the
“Group”) and separate financial position of the parent entity Adris grupa d.d. (the “Company”) as at 31
December 2017, and their consolidated and separate financial performance and their consolidated and
separate cash flows for the year then ended in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS).
Our opinion is consistent with our additional report to the Audit Committee.
What we have audited
The consolidated and separate financial statements of the Company and the Group comprise of:
 Consolidated and separate statements of financial position as at 31 December 2017;
 Consolidated and separate statements of comprehensive income for the year then ended;
 Consolidated and separate statements of changes in equity for the year then ended;
 Consolidated and separate statements of cash flows for the year then ended; and
 Notes to the consolidated and separate financial statements, which include significant
accounting policies and other explanatory information.

Basis for opinion


We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Separate and Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company and the Group in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have
fulfilled our other ethical responsibilities in accordance with the IESBA Code.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to
the Company and the Group are in accordance with the applicable law and regulations in Croatia and
that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU)
No 537/2014.

The non-audit services that we have provided in the period from 1 January 2017 to 31 December 2017
are disclosed in the Corporate Governance Statement.

PricewaterhouseCoopers d.o.o., Heinzelova 70, 10000 Zagreb, Croatia


T: +385 (1) 6328 888, F:+385 (1) 6111 556, www.pwc.hr
Commercial Court in Zagreb, no. Tt-99/7257-2, Reg. No.: 080238978; Company ID No.: 81744835353; Founding capital: HRK 1,810,000.00, paid in full; Management Board: J. M. Gasparac, President; S.
Dusic, Member; T. Macasovic, Member; Giro account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR8124840081105514875.
Our audit approach
Overview

Materiality
 Overall materiality for the financial statements of the Company as
a whole: Croatian kuna (HRK) 23,862 thousand, which represents
5% of average profit before tax for the last two years, increased by
the impairment of given loans.
 Overall materiality for the financial statements of the Group as a
whole: HRK 27,275 thousand, which represents 5% of average
Materiality profit before tax for the last two years.

Audit scope
 The group engagement team conducted audit work at 4 reporting
Audit units in Croatia, including local and foreign components. The
scope subsidiaries in foreign countries were audited by component
auditors from PwC network.
 Our audit scope addressed 100% of the Group’s revenues and 100%
Key audit of the Group’s absolute value of underlying profit
matters

Key audit matters


 Group and Company - Impairment of loans receivable
 Group - Estimated useful life of property, plant and equipment and
impairment indicators in the tourism business segment
 Group - Estimates used in calculation of insurance contract
liabilities and Liability Adequacy Test (LAT)

We designed our audit by determining materiality and assessing the risks of material misstatement in
the separate and consolidated financial statements. In particular, we considered where management
made subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. We also addressed
the risk of management override of internal controls, including among other matters consideration of
whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the separate and consolidated financial statements are free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the separate and consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall materiality for the separate and consolidated financial statements as a whole as
set out in the table below. These, together with qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect
of misstatements, if any, both individually and in aggregate on the separate and consolidated financial
statements as a whole.

Overall materiality for the Company: HRK 23,862 thousand.


financial statements as a
whole Group: HRK 27,275 thousand

Company: 5% of average profit before tax for the last two years,
How we determined it increased by the impairment of given loans
Group: 5% of average profit before tax for the last two years

We chose profit before tax as the benchmark because we


consider it to be a key metric in the industry of the Company,
and it is the benchmark against which the performance of the
Group is most commonly measured by shareholders. Due to the
Rationale for the
volatility of profit before tax, we used a two-year average of
materiality benchmark
profit before tax for 2017 and 2016. We adjusted the Company’s
applied
profit before tax for the one-time impact of loan receivables
impairment. We chose the percentage to be consistent with the
quantitative materiality thresholds used for profit-oriented
companies in the relevant sector.

Key audit matter


Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the separate and consolidated financial statements of the current period. These matters
were addressed in the context of our audit of the separate and consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How our audit addressed the Key audit matter

Group and Company - Impairment of We tested the detailed listings of loans receivable by
loans receivable examining a sample of loan contracts and bank
Refer to Note 2.15 (Summary of significant statements, and we determined that we could rely on
accounting policies), Note 4 (Critical these listings for the purposes of our audit.
accounting estimates) and Note 25 (Trade We reviewed the terms of the loan agreements to
and other receivables). determine the collateral for the loans identified by
The Group and Company provide loans to management as doubtful.
some partners, which are third parties. In addition, we examined a sample of loans that had
These loans are assessed by management not been identified by management as potentially
for impairment based on an individual impaired and formed our own judgement as to
analysis of each debtor. whether that was appropriate including using
external evidence in respect of the relevant
We focused on this area because counterparties. We found no material exceptions in
Management makes complex and these tests.
subjective judgements about the timing of
impairment recognition on the basis of Where impairment was individually calculated, we
estimated future cash flows and the tested a sample of loans to ascertain whether the loss
event (that is the point at which impairment is
estimated amount of such impairment.
recognised) had been identified in a timely manner
Each loan receivable is separately assessed
including, where relevant, how exposure had been
and impairment is individually calculated.
considered. Where impairment had been identified,
we examined the supporting documentation prepared
by management to support the calculation of the
impairment and compared the estimates to external
evidence where available. We found no material
exceptions in these tests.
For each judgement made, we compared the principal
assumptions made with our own knowledge of
external factors, other practices and actual
experience. In this process we considered the
potential for impairment to be affected by events
which were not captured by management’s estimation
and noted no significant differences.
We consider the judgements made by management to
be reasonable in light of the information available at
the time of reporting.
How our audit addressed the Key audit
Key audit matter
matter
Group - Estimated useful life of property, We obtained and gained an understanding of the
plant and equipment and impairment accounting policies related to the measurement of
indicators in the tourism business segment property, plant and equipment in the tourism
business segment.
See Note 2.6 (Summary of significant
accounting policies), Note 4 (Critical We discussed with management the frequency of
accounting estimates) and Note 17 adaptation and reconstruction of assets to confirm
(Property, plant and equipment). that it is in line with the estimated useful life.
Management assesses annually whether
there are any circumstances due to which Furthermore, we reviewed the Group’s internal
the estimated useful lives of property, plant reports, which include an overview of the realised
and equipment should change compared to financial results by profit units, such as hotels, tourist
those previously determined and whether resorts, and campsites. For each profit unit, we
there are any impairment indicators. determined that the earnings before tax, interest,
During 2017, management did not adjust depreciation and amortisation (EBITDA) realised in
useful lives significantly and did not 2017 is positive, and compared it to the planned
perform an impairment test of these assets, EBITDA for 2017 and related EBITDA in 2016. For
as indicators of impairment were not those profit units where realized EBITDA for 2017
identified. was lower than the plan or the prior year, we
discussed with management their future plans for
We focused on this area due to frequency of these profit units. We also considered external data
adaptation and reconstruction in the available, such as the results of the tourist season in
tourism business segment, and the possible Croatia and the Ministry of Tourism announcements
significant effects on the financial for the coming season, as well as other changes in
laws that have a direct impact on the Group’s
statements if the circumstances affecting
business.
the estimation of useful life and/or
impairment indicators are not identified on
time. We agree with management’s estimate that, on the
basis of available information, there are no
circumstances that significantly affect the estimation
of the useful life of property, plant and equipment or
indicators of impairment of such assets.
Key audit matter How our audit addressed the Key audit matter

Group - Estimates used in the calculation We used our own actuarial specialists to assist us in
of insurance contract liabilities and performing our audit procedures.
Liability Adequacy Test (LAT) In particular, our audit focused on the models
See Note 2.29 (Summary of significant considered more complex and/or requiring significant
judgement in the setting of assumptions used in
accounting policies) and Note 34
calculation of technical provisions or performing the
(Technical provisions).
liability adequacy test.
The Group had technical provisions of HRK We obtained an understanding of the internal actuarial
7,208,947 thousand at 31 December 2017 process including management’s determination and
representing 77% of the Group’s total approval process for setting of economic and actuarial
liabilities. This is an area that involves assumptions.
significant judgement over uncertain future
Our assessments also included challenging, as
outcomes, including primarily the timing necessary, specified economic and actuarial
and ultimate full settlement of long-term assumptions considering management’s rationale for
policyholder liabilities, and therefore we the actuarial judgments applied along with comparison
considered it a key audit matter for our to applicable industry experiences.
audit.
We considered the appropriateness of actuarial
Consistent with the insurance industry, the judgements used in the models, which may vary
Group uses valuation models to support the depending on the product and/or the specifications of
calculations of the technical provisions. the product, and also the compliance of the models with
The complexity of the models may give rise the applicable accounting standards.
to errors, as a result of Furthermore, by performing our recalculations we have
inadequate/incomplete data or the design determined whether the models and systems were
or application of the models. calculating the technical provisions accurately and
completely.
Economic assumptions such as investment
return and interest rates and actuarial We tested the validity of management’s liability
adequacy testing which is a key test performed to check
assumptions such as mortality, morbidity
that the liabilities are adequate as compared to the
and customer behaviour are key inputs
expected future contractual obligations. The inputs used
used to estimate these mainly long-term were reconciled to the accounting records.
liabilities. Significant judgement is applied
Our work on the liability adequacy tests included
in setting these assumptions. assessing the reasonableness of the projected cash flows
The Group’s IFRS liability adequacy test and challenging the assumptions adopted in the context
was performed in order to confirm that of both the Group and industry experience and specific
technical provisions, net of deferred product features.
acquisition cost, were adequate in the Based on the evidence obtained, we found that the
context of expected future cash outflows. assumptions and data used within the models
calculating technical provisions were reasonable. We
consider management's conclusion to be consistent with
the available information.
As a result, the technical provisions are within a
reasonable range of outcomes in the context of the
uncertainties disclosed in the financial statements.
We also assessed the adequacy of the disclosures
regarding these liabilities in the financial statements and
found them appropriate.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in which the Group operates.

In establishing the overall approach to the group audit, we determined the type of work that
needed to be performed at reporting units by us, as the group engagement team or component audit
teams operating under our instructions. Where the work was performed by component auditors, we
determined the level of involvement we needed to have in the audit work at those reporting units to be
able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our
opinion on the Group financial statements as a whole.

We identified 4 reporting units which were covered by our audit procedures. The Group audit team
performed audit procedures at the following 3 reporting units:
 stand-alone Adris grupa d.d. (the parent) and at the consolidation level;
 subsidiary Adria resorts d.o.o. with its two direct subsidiaries Maistra d.d. and Cromaris d.d.;
and
 subsidiary Abilia d.o.o.
The component audit team from PricewaterhouseCoopers d.o.o., Zagreb performed the audit of
Croatia osiguranje d.d. group, with the foreign components of this subgroup audited by component
audit teams from the PwC network, under the Group audit team’s instructions and supervision.

Overall, our audit procedures covered almost 100% of the Group’s revenues and 100% of the Group’s
profit.

By performing the above procedures at components, combined with additional procedures at the
Group level, we have obtained sufficient and appropriate audit evidence regarding the financial
information of the Group as a whole to provide a basis for our opinion on the consolidated financial
statements.

Reporting on other information including the Management Report and Corporate


Governance Statement
Management is responsible for the other information. The other information comprises the Annual
Report of the Company and the Group, which includes the Management Report and Corporate
Governance Statement, but does not include the separate and consolidated financial statements and
our independent auditor’s report thereon.
Our opinion on the separate and consolidated financial statements does not cover the other
information, including the Management Report and Corporate Governance Statement.
In connection with our audit of the separate and consolidated financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the separate and consolidated financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated.
With respect to the Management Report and Corporate Governance Statement, we also performed
procedures required by the Accounting Act in Croatia. Those procedures include considering whether
the Management Report includes the disclosures required by Article 21 and 24 of the Accounting Act,
and whether the Corporate Governance Statement includes the information specified in Article 22 of
the Accounting Act.
Based on the work undertaken in the course of our audit, in our opinion
 the information given in the Management Report and the Corporate Governance Statement for the
financial year for which the separate and consolidated financial statements are prepared is consistent,
in all material respects, with the separate and consolidated financial statements;
 the Management Report has been prepared in accordance with the requirements of Article 21 and 24 of
the Accounting Act; and
 the Corporate Governance Statement includes the information specified in Article 22 of the Accounting
Act.
In addition, in light of the knowledge and understanding of the Company and the Group and its
environment obtained in the course of the audit, we are also required to report if we have identified
material misstatements in the Management Report and Corporate Governance Statement. We have
nothing to report in this respect.

Responsibilities of management and those charged with governance for the separate
and consolidated financial statements
Management is responsible for the preparation and fair presentation of the separate and consolidated
financial statements in accordance with International Financial Reporting Standards as adopted in the
European Union and for such internal control as management determines is necessary to enable the
preparation of separate and consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the separate and consolidated financial statements, management is responsible for assessing
the Company’s and Group’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management either intends to
liquidate the Company and the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s and the Group’s financial
reporting process.

Auditor’s responsibilities for the audit of the separate and consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the separate and consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an
independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these separate and consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the separate and consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
 Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s and Group’s internal control.
 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
 Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s and Group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our independent auditor’s report to the related disclosures in the separate and consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our independent auditor’s report.
However, future events or conditions may cause the Company and the Group to cease to continue
as a going concern.
 Evaluate the overall presentation, structure and content of the separate and consolidated financial
statements, including the disclosures, and whether the separate and consolidated financial
statements represent the underlying transactions and events in a manner that achieves fair
presentation.
 Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the separate and consolidated financial statements of the
current period and are therefore the key audit matters. We describe these matters in our independent
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.

Report on other legal and regulatory requirements


Appointment
We were appointed as auditors of the Company from the date of its incorporation, and we were also
the auditors of the legal predecessors of the Company. Our appointment has been renewed annually by
shareholder resolution representing a total period of uninterrupted engagement appointment of over
14 years.

The engagement partner on the audit resulting in this independent auditor’s report is Tamara Maćašović.

PricewaterhouseCoopers d.o.o.
Heinzelova 70, Zagreb
23 April 2018
ADRIS GRUPA d.d.
Rovinj

CONSOLIDATED AND
SEPARATE FINANCIAL
STATEMENTS
31 DECEMBER 2017

18
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

Group Company
(in thousands of HRK) Note 2017 2016 2017 2016

Operating revenue 5 4,372,750 4,133,093 20,921 13,008


Other income 6 385,754 449,406 5,166 5,442
Change in value of inventories of
work in progress and finished goods 60,214 31,980 - -
Insurance claims incurred, net of
reinsurance 8 (1,665,099) (1,586,071) - -
Cost of materials and services 7 (1,147,458) (1,097,445) (25,738) (37,081)
Staff costs 9 (918,710) (880,301) (22,823) (22,053)
Depreciation and amortisation and
impairment 17, 18, 19 (375,758) (428,822) (18,311) (6,805)
Other operating expenses 10 (517,870) (693,326) (156,561) (385,309)
Other gains 11 271,932 724,298 141,136 679,488
Other losses 12 (82,649) (106,207) (16,495) (54)
Operating profit 383,106 546,605 (72,705) 246,636

Finance income 13 93,483 117,012 130,691 138,871


Finance costs 13 (39,494) (18,283) (32,524) (71,902)
Finance income – net 13 53,989 98,729 98,167 66,969

Share in profit of associates 21 4,214 4,363

Profit before tax 441,309 649,697 25,462 313,605

Income tax 14 (67,665) (148,572) (9,542) (77,880)

Net profit for the year 373,644 501,125 15,920 235,725

Other comprehensive income


Items that will be reclassified
subsequently to profit or loss
Change in fair value of available-for-
sale financial assets - net of deferred
income tax 108,520 104,047 12,923 414
Other (387) 694
Total other comprehensive income 108,133 104,047 12,923 1,108
Total comprehensive income for
the year 481,777 605,172 28,843 236,833

Net profit attributable to:


Company’s shareholders 292,992 446,324 15,920 235,725
Non-controlling interests 80,652 54,801 - -
373,644 501,125 15,920 235,725
Comprehensive income
attributable to:
Company’s shareholders 368,762 515,481 28,843 236,833
Non-controlling interests 113,015 89,691 - -
481,777 605,172 28,843 236,833
Basic/diluted earnings per share
attributable to the Company’s
shareholders(in HRK) 15 18.12 27.78 0.98 14.67

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

19
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

Group Company
(in thousands of HRK) Note 2017 2016 2017 2016

ASSETS
Non-current assets
Property, plant and
equipment 17 4,251,403 4,185,785 232,486 495,568
Investment property 18 954,293 806,006 242,983 4,962
Biological assets 19 31,017 27,493 -
Intangible assets 20 944,986 921,474 2,702 2,774
Investments in subsidiaries 21 - - 3,279,865 3,280,051
Held-to-maturity
investments 22 1,829,027 1,933,529 -
Available-for-sale financial
assets 23 3,683,527 2,501,149 99,507 83,748
Financial assets at fair value
through profit or loss 29 375,732 182,579 -
Deferred tax assets 26 240,343 237,151 110,126 104,311
Investments in associates
and joint ventures 21 91,549 97,566 -
Trade and other receivables 25 124,190 124,277 10 91
Deposits 28 2,487,763 748,992 2,062,908 49,126
15,013,830 11,766,001 6,030,587 4,020,631
Current assets
Inventories 27 468,948 409,371 -
Trade and other receivables 25 2,015,207 2,276,649 1,556,979 1,640,890
Held-to-maturity
investments 22 380,455 306,661 -
Available-for-sale financial
assets 23 82,725 22,837 -
Financial assets at fair value
through profit or loss 29 164,772 356,958 72,853 76,677
Deposits 28 1,373,604 3,765,035 663,546 2,848,700
Income tax receivable - 10,870
Cash and cash equivalents 28 201,660 211,415 5,776 13,984
4,687,371 7,348,926 2,299,154 4,591,121
Total assets 19,701,201 19,114,927 8,329,741 8,611,752

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

20
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

Group Company
(in thousands of HRK) Note 2017 2016 2017 2016

EQUITY AND LIABILITIES


Capital and reserves
Share capital 164,000 164,000 164,000 164,000
Share premium 46,167 36,612 46,167 36,612
Treasury shares (60,799) (102,686) (60,799) (102,686)
Legal reserves 12,448 12,448 12,448 12,448
Fair value reserves 189,880 113,850 41,378 28,455
Statutory reserves 8,566,579 8,210,453 8,007,343 7,637,150
Retained earnings 44,034 404,588 19,752 649,782
30 8,962,309 8,839,265 8,230,289 8,425,761
Non-controlling interests 1,322,655 1,211,790
Total equity 10,284,964 10,051,055 8,230,289 8,425,761

LIABILITIES
Non-current liabilities
Loans 31 304,234 317,217 -
Provisions 33 146,443 244,047 48 117,534
Technical provisions 34 4,707,623 4,626,002 -
Deferred tax liability 26 212,546 198,415 -
5,370,846 5,385,681 48 117,534
Current liabilities
Trade and other payables 32 919,204 897,419 48,590 52,180
Income tax payable 29,163 46,901 4,187 -
Borrowings 31 540,637 477,647 22,777 16,277
Provisions 33 55,063 64,984 23,850 -
Technical provisions 34 2,501,324 2,191,240 -
4,045,391 3,678,191 99,404 68,457
Total liabilities 9,416,237 9,063,872 99,452 185,991

Total equity and liabilities 19,701,201 19,114,927 8,329,741 8,611,752

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

21
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Group
Equity attributable to the Company’s shareholders
Non-
Share Treasury Legal Fair value Statutory Retained controlling
(in thousands of HRK) Note Share capital premium shares reserves reserves reserves earnings interests Total

At 1 January 2017 164,000 36,612 (102,686) 12,448 113,850 8,210,453 404,588 1,211,790 10,051,055

Profit for 2017 - - - - - - 292,992 80,652 373,644


Other comprehensive income
Change in fair value of available-
for-sale financial assets - - - - 76,132 - - 32,388 108,520
Foreign exchange differences - - - - - (362) - (25) (387)
Total comprehensive income - - - - 76,132 (362) 292,992 113,015 481,777
Transactions with owners
Purchase from non-controlling
interests 35 - - - - - (506) - (2,039) (2,545)
Transfer of retained earnings 30 /iv/ - - - - - 614,193 (614,193) - -
Transfer from statutory reserves
to retained earnings 30 /iv/ - - - - - (244,000) 244,000 - -
Dividends declared 30 /v/ - - - - - - (275,757) - (275,757)
Purchase of treasury shares 30 /ii/ - - (9,131) - - - - - (9,131)
Sale of treasury shares 30 /ii/ - 9,555 51,018 - - - - - 60,573
Other - - - - (102) (13,199) (7,596) (111) (21,008)
Total transactions with owners - 9,555 41,887 - (102) 356,488 (653,546) (2,150) (247,868)
At 31 December 2017 164,000 46,167 (60,799) 12,448 189,880 8,566,579 44,034 1,322,655 10,284,964

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

22
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Group
Equity attributable to the Company’s shareholders
Non-
Share Share Treasury Legal Fair value Statutory Retained controlling
(in thousands of HRK) Note capital premium shares reserves reserves reserves earnings interests Total

At 1 January 2016 164,000 27,080 (152,957) 12,448 38,334 7,466,262 981,931 1,137,769 9,674,867

Profit for 2016 - - - - - - 446,324 54,801 501,125


Other comprehensive income
Change in fair value of
available-for-sale financial
assets - - - - 69,157 - - 34,890 104,047
Total comprehensive income 69,157 446,324 89,691 605,172
Transactions with owners
Purchase from non-controlling
interests 35 - - - - - (55) - (304) (359)
Transfer of retained earnings 30 /iv/ - - - - - 1,843,333 (1,843,333) - -
Transfer from statutory
reserves to retained earnings 30 /iv/ - - - - - (250,000) 250,000 - -
Dividends declared 30 /v/ - - - - - (241,245) - (241,245)
Sale of treasury shares 30 /ii/ - 9,532 50,271 - - - - - 59,803
Other transfers 35 - - - - - (811,924) 811,924 - -
Other - - - - 6,359 (37,163) (1,013) (15,366) (47,183)
Total transactions with
owners - 9,532 50,271 - 6,359 744,191 (1,023,667) (15,670) (228,984)
At 31 December 2016 164,000 36,612 (102,686) 12,448 113,850 8,210,453 404,588 1,211,790 10,051,055

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

23
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Company
Share Share Treasury Legal Fair value Statutory Retained
(in thousands of HRK) Note capital premium shares reserves reserves reserves earnings Total

At 1 January 2017 164,000 36,612 (102,686) 12,448 28,455 7,637,150 649,782 8,425,761

Profit for 2017 - - - - - - 15,920 15,920


Other comprehensive income
Change in fair value of available-for-
sale financial assets - - - - 12,923 - - 12,923
Total comprehensive income - - - - 12,923 - 15,920 28,843
Transactions with owners
Distribution of retained earnings 30 /iv/ - - - - - 614,193 (614,193) -
Transfer from statutory reserves to
retained earnings 30 /iv/ - - - - - (244,000) 244,000 -
Dividends declared 30 /v/ - - - - - - (275,757) (275,757)
Purchase of treasury shares 30 /ii/ - - (9,131) - - - - (9,131)
Sale of treasury shares 30 /ii/ - 9,555 51,018 - - - - 60,573
Total transactions with owners - 9,555 41,887 - - 370,193 (645,950) (224,315)
At 31 December 2017 164,000 46,167 (60,799) 12,448 41,378 8,007,343 19,752 8,230,289

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

24
ADRIS GRUPA D.D., ROVINJ
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Company
Share Share Treasury Legal Fair value Statutory Retained
(in thousands of HRK) Note capital premium shares reserves reserves reserves earnings Total

At 1 January 2016 164,000 27,080 (152,957) 12,448 27,347 6,043,817 1,436,711 7,558,446

Profit for 2016 235,725 235,725


Other comprehensive income
Change in fair value of available-for-sale
financial assets - - - - 1,108 - - 1,108
Total comprehensive income - - - - 1,108 - 235,725 236,833
Transactions with owners

Distribution of retained earnings 30 /iv/ - - - - - 1,843,333 (1,843,333) -


Transfer from statutory reserves to
retained earnings 30 /iv/ - - - - - (250,000) 250,000 -
Dividends declared 30 /v/ - - - - - - (241,245) (241,245)
Sale of treasury shares 30 /ii/ - 9,532 50,271 - - - - 59,803
Merger of Tvornica duhana Zagreb d.d.
(Note 30) - - - - - - 811,924 811,924
Total transactions with owners - 9,532 50,271 - - 1,593,333 (1,022,654) 630,482
At 31 December 2016 164,000 36,612 (102,686) 12,448 28,455 7,637,150 649,782 8,425,761

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

25
ADRIS GRUPA D.D., ROVINJ
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017

Group Company
(in thousands of HRK) Note 2017 2016 2017 2016

Cash flows from operating


activities:
Cash generated from operations 38 715,125 431,946 (30,127) (111,929)
Tax paid (64,959) (614,465) (3,137) (588,476)
Interest paid (22,793) (16,669) (950) (31,791)
Cash flow from operating activities 627,373 (199,188) (34,214) (732,196)

Cash flows used in investing


activities:
Acquisition of company , net of cash
acquired 35 (44,053) - - -
Proceeds from sale of subsidiaries,
net of cash used in acquisition 36 - 4,172 - -
Proceeds from sale of associates 21 6,469 - - -
Investment in held-to-maturity
financial assets 22 (297,995) (119,008) - -
Proceeds from sale of held-to-
maturity financial assets 22 297,801 249,207 935 -
Investment in available-for-sale
financial assets 23 (1,843,733) (800,536) - -
Proceeds from sale of available-for-
sale financial assets 914,446 469,989 - -
Investment/(withdrawal of )
deposits – net 652,660 672,154 159,499 580,716
(Expenses)/Proceeds from
investments in securities and bonds
at fair value through profit or loss 50,108 (240,600) - -
Purchase of tangible and intangible
assets (695,723) (826,228) (3,262) (105,178)
Loans given - 2,325 (736,704) (575,587)
Proceeds from loans given 87,674 - 623,396 967,246
Interest collected 372,253 286,687 193,092 65,090
Proceeds from sale of tangible assets 19,067 26,601 95 10,626
Dividends received 21,258 22,201 4,951 5,391
Other proceeds - - - 136
Cash flow used in investing
activities (459,768) (253,036) 242,002 948,440

Cash flows from financing


activities:
Purchase of treasury shares 30 (9,131) - (9,131) -
Sale of treasury shares 30 60,573 59,803 60,573 59,803
Purchase of non-controlling interest (2,545) - - -
Dividends paid (275,757) (242,282) (273,938) (240,156)
Repayment of borrowings (84,500) - (2,500) (124,262)
Proceeds from borrowings 134,000 671,722 9,000 99,687
Cash flow used in financing
activities (177,360) 489,243 (215,996) (204,928)

Net increase/(decrease) in cash


and cash equivalents (9,755) 37,019 (8,208) 11,316
Cash and cash equivalents at
beginning of year 211,415 174,396 13,984 2,668
Cash and cash equivalents at end
of year 28 201,660 211,415 5,776 13,984

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

26
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

1. GENERAL INFORMATION

Adris grupa Rovinj (the Group) consists of the parent company ADRIS GRUPA d.d., Rovinj (the Company) and the
subsidiaries listed below.
The parent Company is registered in Rovinj, Obala Vladimira Nazora 1, Croatia and is engaged in the management
of investments in subsidiaries and other investments. Through a number of subsidiaries, the Group performs
tourism, trade, mariculture activities and it is also engaged in the insurance business.
As at 31 December 2017 and 2016, the shares of ADRIS GRUPA d.d., Croatia osiguranje d.d. and Maistra d.d. are
listed on the public joint stock company listing on the Zagreb Stock Exchange.
In line with the decision of the Assemblies of both companies, during 2016, Adris grupa d.d. merged with the
subsidiary Tvornica duhana Zagreb d.d.
ADRIS GRUPA d.d. owns the following companies comprising the Adris group (the Group):
Ownership %
Name of subsidiary 2017 2016

ADRIA RESORTS d.o.o. , Rovinj, Croatia: 100 100


· Maistra d.d., Rovinj, Croatia 89.11 89.11
- Grand hotel Imperial d.d. 72.99 72.99
- Slobodna Katarina d.o.o. Rovinj, Croatia 89.11 89.11
· Cromaris d.d., Zadar 99.25 99.25
- Cenmar Export Import d.o.o. Kali, Croatia 99.25 99.25
- Cromaris Italia s.r.l., Treviso, Italy 99.25 99.25
ABILIAd.o.o., Rovinj, Croatia 100 100
Rovita Sofia, Bulgaria liquidated 100
Croatia osiguranje d.d., Zagreb: 66.12 66.12
- CROATIA Lloyd d.d., Zagreb merged 66.12
- CROATIA PREMIUM d.o.o. (previously CROATIA mirovni dom d.o.o.), Zagreb 66.12 66.12
- Histria Construct d.o.o., Zagreb 66.12 66.12
- Core 1 d.o.o., Zagreb 66.12 66.12
- Razne Usluge d.o.o. – currently being wound up, Zagreb 66.12 66.12
- CROATIA-Tehnički pregledi d.o.o., Zagreb 66.12 66.12
- STP Pitomača, Pitomača 66.12 66.12
- STP Blato, Blato 66.12 66.12
- Slavonijatrans-Tehnički pregledi d.o.o., Sl. Brod 50.25 50.25
- Autoprijevoz d.d., Otočac 52.42 -
- Herz d.d., Požega 66.12 66.12
- AUTO MAKSIMIR VOZILA d.o.o. 66.12 -
- CROATIA osiguranje mirovinsko društvo d.o.o., Zagreb 66.12 66.12
- CROATIA zdravstveno osiguranje d.d., Zagreb merged 66.12
- Poliklinika Ars Medica, Pula 66.12 48.95
- Poliklinika CROATIA zdravstveno osiguranje, Zagreb 66.12 66.12
- Milenijum osiguranje a.d., Belgrade 66.12 66.12
- Croatia osiguranje d.d., Mostar 62.74 62.59
- Crotehna d.o.o., Ljubuški 62.74 62.59
- Ponte d.o.o., Mostar 62.74 52.20
- CROATIA remont d.d., Čapljina 43.78 43.68
- Croauto d.o.o., Mostar 41.90 41.80
- Hotel Hum d.o.o. , Ljubuški 62.74 62.59
- CROATIA osiguranje a.d. društvo za osiguranje neživota, Skopje (non-life insurance
66.12 66.12
company)
- CROATIA osiguranje a.d., društvo za osiguranje života, Skopje (life insurance company) 66.12 66.12
- CROATIA osiguranje kredita d.d. 66.12 -
- CO Zdravlje d.o.o. 66.12 -

*The presented ownership share relates to the ultimate share of ADRIS GRUPA d.d. as the ultimate parent

27
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1. Basis of preparation


The financial statements of the Company and the Group have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted in the European Union under the historical cost convention, as
modified by the revaluation of financial assets at fair value through profit or loss and available-for-sale financial
assets. These financial statements were approved by Management on 19 April 2018.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires the Management Board to exercise its judgement in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements are disclosed in Note 4.

a) New and amended standards adopted by the Group:

The Group has adopted the following new and amended standards for its annual reporting period commencing 01
January 2017 which were endorsed by the European Union and which are relevant for the Group’s financial
statements:
- Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
- Disclosure Initiative – Amendments to IAS 7

The adoption of the amendments has required additional disclosure of changes in liabilities arising from financing
activities (see Note 31), it did not have any impact on the current period or any prior period and is not likely to affect
future periods.

b) Standards and interpretations not yet adopted:

Certain new standards and interpretations have been published that are not mandatory for 31 December 2017
reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these
new standards and interpretations is set out below:
· IFRS 9 Financial instruments and associated amendments to various other standards (effective for annual
periods beginning on or after 1 January 2018)
IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities
and introduces new rules for hedge accounting and a new model for impairment of financial assets.
The majority of the group’s debt instruments that are currently classified as available-for-sale will satisfy the
conditions for classification as at fair value through other comprehensive income (FVOCI) and hence there will
be no change to the accounting for these assets.
The other financial assets held by the Group include:
- equity instruments currently classified as AFS for which a FVOCI election is available
- equity investments currently measured at fair value through profit or loss (FVPL) which will continue to be
measured on the same basis under IFRS 9, and
- debt instruments currently classified as held-to-maturity and measured at amortised cost which meet the
conditions for classification at amortised cost under IFRS 9.

28
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1. Basis of preparation (continued)


Accordingly, the Group does not expect the new guidance to affect the classification and measurement of these
financial assets. However, gains or losses realised on the sale of financial assets at FVOCI will no longer be transferred
to profit or loss on sale, but instead reclassified below the line from the FVOCI reserve to retained earnings.
There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the
accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have
any such liabilities. The derecognition rules have been transferred from IAS 39 Financial Instruments: Recognition
and Measurement have not been changed.
The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL)
rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortised
cost, debt instruments measured at FVOCI, contract assets under IFRS 15 Revenue from Contracts with Customers,
lease receivables, loan commitments and certain financial guarantee contracts. Based on the assessments undertaken
to date, the Group expects a decrease in the loss allowance for trade receivables and debt instruments held at
amortised cost by approximately HRK 40 to 60 million.
The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected
to change the nature and extent of the group’s disclosures about its financial instruments particularly in the year of
the adoption of the new standard.
This standard is mandatory for financial years commencing on or after 1 January 2018. The Group will apply the new
rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives
for 2017 will not be restated.

· IFRS 15 Revenue from contracts with customer and associated amendments to various other standards (effective
for annual periods beginning on or after 1 January 2018)
The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for
goods and services and IAS 11 which covers construction contracts.
The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a
customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption.
Management has assessed the effects of applying the new standard on the Group’s financial statements, specifically
analysing impact in each individual business segment and has determined that these changes in standards will not
have a significant effect on the Group’s financial statements.
This standard is mandatory for financial years commencing on or after 1 January 2018. The Group intends to adopt
the standard using the modified retrospective approach which means that the cumulative impact of the adoption will
be recognised in retained earnings as of 1 January 2018 and that comparatives will not be restated.

· IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019, early adoption is permitted only
if IFRS 15 is adopted at the same time)
IFRS 16 will affect primarily lessee accounting and will result in the recognition of almost all leases on the balance
sheet. The standard removes the current distinction between operating and financing leases and requires recognition
of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An
optional exemption exists for short-term and low-value leases.
The income statement will also be affected because the total expense is typically higher in the earlier years of a lease
and lower in later years. Additionally, operating expense will be replaced with interest and depreciation, so key metrics
like EBITDA will change.
Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within
financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash
flows.
Lessor accounting will not change significantly. Some differences may arise as a result of the new guidance on the
definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the
use of an identified asset for a period of time in exchange for consideration.

29
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1. Basis of preparation (continued)


The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the
Group has non-cancellable operating lease commitments of THRK 351, see Note 40. At this stage, the Group is not
able to estimate the total impact of the new standard on the Group's financial statements, it will make more detailed
assessments of the impact over the next twelve months. The Company plans to adopt this standard on its effective
date. The Group intends to apply the simplified transition approach and will not restate comparative amounts for
the year prior to first adoption.

2.2. Consolidation
a) Subsidiaries

Subsidiaries are all entities (including structured 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 over the entity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group and are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations (Note 2.10).
Inter-company transactions, balances and unrealised gains on transactions among the Group companies are
eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
In the separate financial statements, investments in subsidiaries are accounted for at cost less impairment. Cost
is adjusted to reflect changes in consideration arising from contingent consideration amendments.

b) Investments in associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. In the financial statements of the Group, investments
in associates are accounted for using the cost method and are initially recognised at cost. The Group’s investments
in associates include goodwill identified on acquisition, net of any accumulated impairment loss.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of
comprehensive income and its share of post-acquisition movements in reserves is recognised in reserves.
In the separate financial statements of the Company, investments in associates are accounted for using the cost
method. Investments in associates include goodwill identified on acquisition, net of any accumulated impairment
loss.

c) Joint arrangements

The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified
as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The
Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures
are accounted for using the equity method.

30
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.3. Merger of companies under common control


The predecessor method of accounting is used to account for the merger of entities under common control. The
carrying value of assets and liabilities of the predecessor entities are transferred as balances in the merged entity.
On the date of the merger, inter-company transactions, balances and unrealised gains and losses on transactions
between the two entities merging are eliminated, recognising the present value of net assets merged within equity.

2.4. Segment reporting


Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Management Board of the Adris Group that
makes strategic decisions.

2.5. Foreign currencies


a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (the functional currency). The financial statements of
the Company and the Group are presented in Croatian kuna (HRK), which is the Company’s functional currency
and the Group’s presentation currency.

b) Transactions and balances

Foreign currency transactions are translated into the functional currency using exchange rates at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of
comprehensive income.

Translation differences on non-monetary financial assets such as equities held at fair value in the statement of
comprehensive income are recognised in statement of comprehensive income as a part of the fair value gain or loss.

c) Group companies

The results and financial position of all the Group entities that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:

i/ assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
ii/ income and expenses for each statement of comprehensive income are translated at average exchange rates;
and
iii/ all resulting exchange differences are recognised in comprehensive income.

On consolidation, foreign exchange differences arising from the translation of the net investment in foreign
subsidiaries are taken to shareholders’ equity. When a foreign subsidiary is sold, exchange differences that were
recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss on sale.

31
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.6. Property, plant and equipment


Property, plant and equipment is included in the balance sheet at historical cost less accumulated depreciation.
Historical cost includes the cost that is directly attributable to the purchase of the assets.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Company and the Group
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement
of comprehensive income during the financial period in which they are incurred.

Land and assets under construction are not depreciated. Depreciation of other items of property, plant and
equipment is calculated using the straight-line method to allocate their cost over their residual values over their
estimated useful lives as follows:

Useful lives in years

Buildings 12-50
Plant and equipment 2.5-20

The residual value of an asset is the estimated amount that the Company and the Group would currently obtain
from the disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the
condition expected at the end of its useful life. The residual value of an asset is nil if the Company and the Group
expect to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and
adjusted, if appropriate, at each balance sheet date.

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 (Note 2.11).

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included
in other gains/losses in the statement of comprehensive income.

2.7. Intangible assets


a) Software licences

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortised using the straight-line method over their estimated useful lives of 4
years.

b) Trademarks and licences

Trademarks and licences are shown at historical cost. Trademarks and licences have a finite useful life and are
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate
the cost of trademarks and licences over their estimated useful lives of 5 years.

32
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7. Intangible assets (continued)


c) Brands

Brands acquired through business combinations are recognised at initial fair value (at acquisition date) less
accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the brand
over its estimated useful life (of 15 years).

d) Customer relationships and long-term contracts from non-life insurance business

Individually realised customer relationships and acquired long-term contracts and rights from non-life insurance
business are carried at historical cost in the period when the service is provided. Customer relationships and long-
term contracts from non-life insurance business acquired through business combinations are recognised at fair
value on the acquisition date. These contracts and rights have a finite useful life and are carried at cost less
accumulated amortisation and impairment, if any. Amortisation is calculated using the straight-line method over
the estimated relationship and contract duration to allocate the cost of the rights over their estimated useful lives
of 6 years.

e) Value of life assurance business

The value of life assurance policies acquired through business combinations is recognised at fair value on the
acquisition date. These assets have a finite useful life in accordance with the duration of long-term life contracts and
are carried at cost less accumulated amortisation and impairment, if any. Amortisation is calculated using the
straight-line method over the estimated relationship and contract duration to allocate the cost of the rights over
their estimated useful lives of 20 years.

f) Rights from receivables arising from insurance contracts

Individually realised rights arising from insurance contracts are carried at historical cost in the period when the
service is provided. Rights arising from insurance contracts acquired through business combinations are recognised
at fair value on the acquisition date. These rights have a finite useful life and are carried at cost less accumulated
amortisation and impairment, if any. Amortisation is calculated using the straight-line method over the estimated
relationship and contract duration to allocate the cost of the rights over their estimated useful lives of 8 years.

g) Goodwill

Goodwill represents the excess of the fair value of the cost of an acquisition over the fair value of the Group’s share
of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of
subsidiaries is included in intangible assets. Separately recognised goodwill is tested annually for impairment, or
whenever there are indications of impairment, and is carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
cash-generating units that are expected to benefit from the business combination in which the goodwill arose (Note
2.10).

h) Deferred acquisition costs

Deferred acquisition costs for non-life insurance comprise commissions calculated for the internal and external
sales network incurred in concluding insurance policies during the financial year. In this regard, the commission
charged to the sales network represents the total acquisition commission for each insurance policy. Indirect or
general sales costs are not deferred.

33
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7. Intangible assets (continued)


For non-life insurance, at the reporting date deferred acquisition costs are calculated using the methodology
comparable to the method of calculating the provision for unearned premiums at the reporting date.

By introducing the accounting policy of deferral of acquisition costs, the Group has also introduced recording
liabilities for undue commission. Liabilities for undue commission is the difference between the total commission
to be calculated for a particular insurance policy and the accrued commission. The basis for calculating the total
commission is the value of the written (charged) premium, while the basis for calculating the accrued commission
is the amount of the charged premium by each policy.
The recoverable amount of deferred acquisition costs is assessed at each reporting date as part of the liability
adequacy test of non-life insurance.

2.8. Investment property


Investment property, principally comprising office buildings and warehouses, is held for long-term rental yields or
appreciation and is not occupied by the Company and the Group. Investment property is treated as a long-term
investment unless it is intended to be sold in the next year and a buyer has been identified in which case it is
classified within current assets.

Investment property is carried at historical cost less accumulated depreciation. Depreciation for buildings is
calculated using the straight-line method to allocate cost over their estimated useful life of 40 years.

Subsequent expenditure is capitalised only when it is probable that future economic benefits associated with it will
flow to the Company and the Group and the cost can be measured reliably. All other repairs and maintenance costs
are expensed when incurred in the statement of comprehensive income. If an investment property becomes
occupied by the Company and the Group, it is reclassified to property, plant and equipment, and its carrying amount
at the date of reclassification becomes its deemed cost to be subsequently depreciated.

2.9. Biological assets – reproductive shoal and fish in fisheries


Biological assets consisting of reproductive shoals of fish are recorded at fair value less costs incurred up to the sale.
Gains or losses arising from the recognition of a biological asset measured at fair value less estimated costs to sell,
as well as income and expenses arising as a result of changes in the value of these assets are recognised in the income
statement in the period when they are incurred.

Agricultural products, consisting of fish in fisheries, are recorded at cost which comprises food, direct labour, other
direct costs and related production overheads. Inventories of fish in fisheries are recorded in the financial
statements within inventories.

The production cycle from fish spawn to average weight consumable fish lasts from 2 to 3 years. The total number
of fish in the fish farm at the end of a period is determined based on the amount of fish spawn less estimated
mortality and the amounts harvested. Based on the established quantities of fish (by piece) in the fish farm, the total
biomass (mass in kilograms) is assessed by estimating the average weight per unit of fish and, based on the total
number of fish, the total mass of fish in kilograms is calculated.

34
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.10. Business combinations


The acquisition method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises
the:

- fair values of the assets transferred


- liabilities incurred to the former owners of the acquired business
- equity interests issued by the group
- fair value of any asset or liability resulting from a contingent consideration arrangement, and
- fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-
controlling interest in the acquired entity on an acquisition-by-acquisition basis at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred in the statement of comprehensive income.

The excess of
- consideration transferred,
- the amount of any non-controlling interest in the acquiree and
- the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. If those amounts are less than the fair
value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or
loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to
their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an independent financier under comparable
terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously
held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising
from such remeasurement are recognised in profit or loss.

2.11. Impairment of non-financial assets


Assets that have an indefinite useful life are not subject to amortisation and depreciation and are tested annually
for impairment (e.g. goodwill). Assets that are subject to amortisation and depreciation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
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 to sell 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 other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at each reporting date.

35
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments


i/ Classification and recognition

The Company and the Group classify its financial instruments into the following categories: financial assets at fair
value through profit or loss, loans and receivables, available-for-sale financial assets, held-to-maturity investments
and other financial liabilities. The classification depends on the purpose for which the financial assets and liabilities
were acquired.

The Management Board determines the classification of financial assets and financial liabilities at initial recognition
and, where appropriate, re-evaluates this designation at each reporting date.

ii/ Recognition and derecognition

Regular purchases and sales of financial assets at fair value through profit or loss, held-to-maturity investments and
available-for-sale financial assets are recognised on the trading date, that is, the date on which the Company and
the Group commit to purchasing or selling the instrument. Loans and receivables as well as financial liabilities are
initially recognised on the date of occurrence.

The Company and the Group derecognise financial assets (in full or in part) when the contractual rights to receive
cash flows from the financial asset have expired or when it loses control over the contractual rights to such financial
assets. This occurs when the Company and the Group transfer substantially all the risks and rewards of ownership
to another business entity or when the rights are realised, surrendered or have expired.

The Company and the Group cease to recognise financial liabilities only when they cease to exist, that is, when they
are met, cancelled or expired, or when they are transferred. Should the terms of financial liabilities substantially
change, the Company and the Group shall cease to recognise that particular liability and at the same time recognise
a new financial liability, with new terms.

iii/ Initial and subsequent measurement

Financial assets and liabilities are recognised initially at their fair value plus, in the case of a financial asset or
financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the
acquisition or issue of the financial asset or financial liability.
After initial recognition, the Company and the Group measure financial instruments at fair value through profit or
loss, and available-for-sale financial assets at their fair value, without any deduction for selling costs.

For financial instruments traded in active markets, the determination of fair values of financial assets and financial
liabilities is based on quoted market prices. This includes listed equity securities and quoted debt instruments on
official stock exchanges.

For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair
values are estimated from observable financial information based on which value is determined using the
discounted cash flow method and/or the method of comparable companies and transactions.

In cases where the fair value of unlisted equity instruments cannot be determined reliably, the instruments are
carried at cost.

36
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments (continued)


Loans and receivables and held-to-maturity investments are measured at amortised cost net of impairment.
Financial liabilities not classified at fair value through profit or loss are measured at amortised cost. Premiums and
discounts, including initial transaction costs, are included in the carrying amount of the associated instrument and
amortized using the effective interest rate of that instrument.

iv/ Impairment of financial assets

At each reporting date the Company and the Group assess whether there is objective evidence that financial assets
not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence
demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an
impact on the future cash flows of the asset that can be estimated reliably.

Objective evidence of impairment of financial assets (including equity securities) includes default or delinquency
by a borrower, restructuring of loans or advances by the Company and the Group on terms that the Company and
the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the
disappearance of an active market for the security, or other available data relating to a group of assets, such as
adverse changes in the payment status of borrowers or issuers within the group, or economic conditions that are
connected with defaults within the group.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount
of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective
interest rate. Losses are recognised through profit or loss and reflected in impairment provisions. Interest on
impaired assets is recognised as discount amortisation and at collection of payment.

In the case of equity investments classified as available for sale, a significant (more than 20% of investment value)
or prolonged decline (more than one year) in the fair value of the investment below its cost is considered as an
indicator of impairment. If any such evidence exists for available-for-sale financial assets, the cumulative loss,
calculated as the difference between the cost and current fair value, less any loss from impairment of that financial
asset that was previously recognised in profit or loss, is transferred from other comprehensive income and
recognised in profit or loss. Impairment losses recognised in profit or loss on equity securities cannot be
subsequently reversed through profit or loss, but all value increases until the final sale are recognised in other
comprehensive income

v/ Specific instruments

Debt securities
Debt securities are classified as held-to-maturity investments or financial assets at fair value through profit or loss,
depending on the purpose for which the debt security has been acquired.

Loans and receivables from banks


Deposits with banks are classified as loans and receivables and valued at amortised cost less impairment losses and
are recorded separately as deposits according to maturity in the consolidated statement of financial position.

37
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments (continued)


Equity securities
Equity securities are classified as assets at fair value through profit or loss or as available-for-sale financial assets
and measured at fair value, unless it is impossible to reliably establish the fair value (as described above) when they
are measured at cost.

Loans and receivables from policyholders and other parties


Loans and receivables from policyholders and other parties are presented at amortised cost less impairment to
reflect the estimated recoverable amounts. An additional explanation is given in Note 2.15.

Investments in funds
Investments in open-end investment funds are classified as financial assets at fair value through profit or loss or as
financial assets available for sale and they are measured at current fair value.

Investments for the account and risk of life insurance policyholders


Investments for the account and risk of life insurance policyholders include investments in unit-linked products
and are classified as financial assets at fair value through profit or loss.

Receivables from insurance and other receivables


Receivables from direct insurance and other receivables are recognised initially at fair value and subsequently at
amortised cost less value impairment.

Embedded derivatives within insurance contracts and investment contracts


Sometimes, a derivative may be a component of a hybrid (combined) financial instrument or insurance contract
that includes both the derivative and host contract with the effect that some of the cash flows of the combined
instrument vary in a similar way to a stand-alone derivative. Such derivatives are known as embedded derivatives.

Embedded derivatives are separated from their host contract, measured at fair value and changes in their fair value
included in profit or loss if they meet the following conditions:
- the economic characteristics and risks of embedded derivatives are not closely connected with the economic
characteristics and risks of the host contract,
- a separate instrument with the same characteristics as those of the embedded derivative would satisfy the
definition of a derivative,
- the hybrid instrument is not measured at fair value and changes in its fair value are not recognised in profit or
loss.

Embedded derivatives that meet the definition of an insurance contract need not be separated from the host
contract. Furthermore, the Group has used the exemption provided in IFRS 4, ‘Insurance Contracts’:
- it does not separate or measure at fair value the option of the policyholder to repurchase the insurance contract
at a fixed price (or the amount based on the fixed amount and interest rate), even if the price is different from
the book value of the insurance liability in the host contract,
- it does not separate or measure at fair value the option of the policyholder to repurchase the contract with
discretionary participation features.

Offsetting of financial instruments


Financial assets and liabilities are offset and presented in the financial statement on a net basis when there is a
legally enforceable right to offset the recognised amounts and an intention to settle on a net basis, or the acquisition
of assets and settlement of liabilities take place simultaneously.

38
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.13. Leases
Leases where the significant portion of risks and rewards of ownership are not retained by the Company and the
Group are classified as operating leases. Payments made under operating leases are charged to the statement of
comprehensive income on a straight-line basis over the period of the lease. The Company and the Group have no
finance leases.

2.14. Inventories
Inventories of raw materials and spare parts are stated at the lower of cost, or net realisable value. The cost of work-
in-process and finished goods comprise raw materials, direct labour, other direct costs and related production
overheads. Net realisable value is the estimated sales price in the ordinary course of business, less applicable
variable selling expenses.

Trade goods are carried at selling price less applicable taxes and margins.

Small inventory and tools are fully written off when put into use.

2.15. Trade and loan receivables


Trade and loan receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less provision for impairment. Trade receivables are impaired when there is objective
evidence that the Company and the Group will not be able to collect all amounts due according to the original terms
of receivables. Significant financial difficulties, probability that the debtor will enter bankruptcy, and default or
delinquency in payments are considered indicators that the receivables are impaired. The amount of the provision
is the difference between the receivable’s carrying amount and recoverable amount, being the present value of
estimated future cash flows discounted at the effective interest rate. The amount of the provision for trade
receivables and subsequent recoveries of amounts previously impaired are recorded in their net amount in the
statement of comprehensive income within other operating expenses.

2.16. Insurance receivables


i/ Insurance receivables include receivables from insured parties based on non-life insurance premiums.
Receivables based on non-life insurance premiums comprise receivables for written, but not yet invoiced
premium and receivables for invoiced, but not paid premium.
The recognition of insurance premiums is described in Note 2.24 – ‘Gross written premiums’.

ii/ Receivables for invoiced but unpaid premiums are presented at nominal value, and an adjustment is made for
the value of doubtful and uncollectible receivables. Impairment is recognised for all unpaid receivables the
due date of which was 180 days prior to the balance sheet date. Impairment can be decreased for receivables
which are used as basis for payment of claim to the debtor (provision for claims).

iii/ Receivables under the right to recourse are recognised for all recourse cases from an out-of-court procedure
arising from receivables from another insurance company and recourses for which a financial settlement was
concluded with the counterparty. Impairment of recourse receivables is made for all receivables where 180
days passed from the due date. The determined impairment can be decreased by recourse receivables that are
likely to be collected. Recognition of income from recourses is deferred due to uncertainty of collection.
Income from recourses is deferred for recourses which are not settled in cash with the exception of recourses
from other insurance companies which are recognised in profit or loss immediately.

39
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.16. Insurance receivables (continued)


iv/ Other receivables pertain to receivables arising from interest on loans and deposits, receivables arising from
advance payments, receivables arising from received payment instruments, etc.

2.17. Deposits
Bank deposits have defined maturities. Deposits with the original maturity more than 3 months are measured at
amortised cost, classified to the ‘loans and receivables’ category and disclosed separately as ‘deposits’ on the balance
sheet.

2.18. Cash and cash equivalents


Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly
liquid instruments with original maturities of three months or less.

2.19. Share capital


Ordinary shares are classified as equity. Gains directly attributable to the issue of new shares or options are shown
in equity as a deduction, net of income tax, from the proceeds.

2.20. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value
is recognised in the statement of comprehensive income over the period of the borrowings using the effective
interest method.

Borrowing costs 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. All other borrowing costs
are charged to the statement of comprehensive income.

Borrowings are classified as current liabilities, unless the Company and the Group have an unconditional right to
defer settlement of the liability for at least 12 months after the balance sheet date.

2.21. Current and deferred income tax


The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of
comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case tax is also recognised in other comprehensive income or directly in equity,
respectively.

The current income tax charge is calculated according to the tax laws effective in the Republic of Croatia at the
balance sheet date or other countries where subsidiaries are based. The Management Board periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulations are subject to
interpretation and considers establishing provisions, where appropriate, on the basis of amounts expected to be
paid to the Tax Administration.

40
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.21. Current and deferred income tax (continued)


Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets and liabilities are measured using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled.

Deferred income tax is provided on temporary differences arising on investments in a subsidiary, except where the
timing of the reversal of the temporary difference is controlled by the Company and the Group and it is probable
that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.

2.22. Employee benefits


a) Pension obligations and post-employment benefits

In the normal course of business through salary deductions, the Company and the Group make payments to
mandatory pension funds on behalf of its employees as required by law. All contributions made to the mandatory
pension funds are recorded as salary expense when incurred. The Company and the Group do not have any other
pension scheme and consequently, have no other obligations in respect of employee pensions.

The Company and the Group have post-employment benefits to be paid to the employees at the end of their
employment (either upon retirement, termination or voluntary departure). The Company and the Group recognise
a liability for these long-term employee benefits evenly over the period the benefit is earned based on actual years
of service. The long-term employee benefit liability is determined using assumptions regarding the likely number
of staff to whom the benefit will be payable, the estimated benefit cost and the discount rate.

b) Termination benefits

Termination benefits are payable when employment is terminated by the Company and the Group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The
Company and the Group recognise termination benefits when it is demonstrably committed to either: terminating
the employment of current employees according to a detailed formal plan without possibility of withdrawal; or
providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due
more than 12 months after the balance sheet date are discounted to their present value.

c) Long-term employee benefits

The Company and the Group have post-employment benefits to be paid to the employees at the end of their
employment (either upon retirement, termination or voluntary departure). The Company and the Group recognise
a liability for these long-term employee benefits evenly over the period the benefit is earned based on actual years
of service. The long-term employee benefit liability is determined using assumptions regarding the likely number
of staff to whom the benefit will be payable, the estimated benefit cost and the discount rate.

41
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.22. Employee benefits (continued)


d) Short-term employee benefits

The Company and the Group recognise a provision for bonuses where contractually obliged or where there is a past
practice that has created a constructive obligation. In addition, the Company and the Group recognise a liability for
accumulated compensated absences based on unused vacation days at the balance sheet date.

2.23. Provisions
Provisions for restructuring costs, legal claims and other provisions are recognised when: the Company and the
Group have a present legal or constructive obligation as a result of past events; it is more likely than not that an
outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the obligation.

2.24. Revenue recognition


Revenue comprises the fair value of the consideration received or receivable for the sale of products, goods and
services in the ordinary course of the Company’s and the Group’s activities. Revenue is shown, net of value added
tax, excise tax, returns, rebates and discounts and after eliminated sales within the Group.

The Company and the Group recognise revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow to the Company and the Group and specific criteria have been met for each
of the Group’s activities as described below.

/i/ Sales of goods and services

(a) Sales of goods and materials – wholesale


Sales of goods and materials are recognised when the Group has delivered the products to the customer, the
customer has full discretion over the price to sell, and there is no unfulfilled obligation that could affect the
customer’s acceptance of the products. Delivery does not occur until the products have been shipped to the specified
location, the risks of loss have been transferred to the customer and either of the following has occurred: the
customer has accepted the products in accordance with the contract or the Group has objective evidence that all
criteria for acceptance have been satisfied.

Sales are recorded based on the price specific in the sales contracts, net of estimated volume discounts and returns.
Accumulated experience is used to estimate the discounts and returns. No element of financing is deemed present
as sales are made with a credit term of 15 to 60 days, which is consistent with market practice.

b) Sales of services
The Company provides management services to subsidiaries. These services are provided as a fixed-price contract
with contract terms for a period of 12 months. This revenue is recognised in the period the services are provided,
using a straight-line basis over the terms of the contract.

Revenue from the services provided by the Group is determined based on fixed-price contracts with contract terms
of up to 1 year.

42
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.24. Revenue recognition (continued)


Revenue from fixed-price contracts for services is generally recognised in the period the services are provided, using
a straight-line basis over the term of the contract.

c) Sales of goods – retail


Sales of goods sold in retail are recognised when a product is sold to the customer. Retail sales are usually in cash
or by credit card. The recorded revenue includes credit card fees, which are presented under ‘other operating
expenses’.

ii/ Insurance income and expenses

Gross written premiums


a) Gross written premiums represent basic operating income and they comprise the non-life and life insurance
written premiums.
b) Non-life insurance gross written premiums include all amounts of premiums written in the current accounting
period, irrespective of the fact whether these amounts partially or completely pertain to a later accounting
period.
Non-life insurance gross written premiums include all gross premiums written in the accounting period, whose
beginning of the insurance year falls within the accounting period, irrespective of the fact whether they pertain
in whole or in part to later accounting periods. The premiums are presented in gross amounts, that is, they
include brokers’ commissions, but exclude taxes and charges levied with premiums. Written premiums include
the adjustment of the premium written in the prior accounting periods as well as estimates of premiums written
at the end of the period. Written premiums, that is, gross written premiums and unearned premiums include
adjustments for the write-off of receivables from policyholder as a result of insurance termination. Net
impairment losses on receivables for premium of the insured party are recognised within other operating
expenses.
The earned portion of received premiums is recognised as income. Premiums are earned from the date of the
risk occurrence during the insurance period, based on the assumption of risk patterns.
c) Life insurance gross written premiums include all amounts of premiums collected until the end of the accounting
period.
In accordance with the exception permitted by IFRS 4, life insurance premiums are recorded on cash basis.
Supplemental insurance premiums are also recorded on a cash basis.

Claims incurred
Claims incurred include all settled amounts for claims in the accounting period, irrespective of the accounting
period in which they were incurred, net of the reinsurance portion in claims, collected recourses, sold and recovered
amounts and gross of claims provisions at the end of the accounting period but net of claims provisions at the
beginning of the accounting period.

In addition to net settled claims, gross settled claims amounts include the costs related to claims settlement
(appraisals, attorneys’ fees and similar), surrenders and recourse claims expenditures.

43
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.24. Revenue recognition (continued)


iii/ Other income

a) Interest income
Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is
impaired, the Company and the Group reduce the carrying amount to its recoverable amount, being the estimated
future cash inflow discounted at the original effective interest rate of the instrument. The unwinding of the discount
in future periods is recognised as interest income. Interest income on impaired loans is recognised using the original
effective interest rate. Interest received is classified as cash flow from investing activities, while interest paid is
classified as cash flow from operating activities in the statement of cash flows.

b) Dividend income
Dividend income is recognised when the right to receive the dividend has been determined. Dividend received is
classified as cash flow from investing activities, while interest paid is classified as cash flow from financing activities
in the statement of cash flows.

c) Income from government subsidies


Income from government subsidies is recognised at fair value when it may be reliably determined that the subsidies
will be received and that the Group has met all conditions required by the government.

2.25. Dividend distribution


Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements in the
period in which the dividends are approved by the Company’s General Assembly.

2.26. Value added tax


The Tax Administration requires the settlement of VAT on a net basis. VAT related to sales and purchases is
recognised and disclosed in the balance sheet on a net basis. Where receivables have been impaired, impairment
loss is recorded for the gross amount of the debtor, including VAT.

2.27. Trade payables


Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not,
they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.

44
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.28. Liabilities and related assets under liability adequacy test


IFRS 4 provides for the implementation of mandatory liability adequacy test under the insurance contract. At each
reporting date the Group estimates whether its reported insurance liabilities are adequate, using current estimates
of future cash flows for all its insurance contracts. Should the above assessment show that the book value of
insurance liabilities is insufficient in relation to the estimated future cash flows, the shortage is charged to profit or
loss. Estimates of future cash flows are based on realistic actuarial assumptions, taking into account current
experience of the occurrence of claims.

2.29. Technical provisions


Technical provisions presented in the financial statements pertain to unearned premiums, mathematical reserve
for life insurance, provisions for claims, fluctuation provisions and other insurance-technical provisions. They are
formed in accordance with the Ordinance on minimum standards, methods of calculating and guidelines for
calculating technical provisions in insurance in line with the Group’s accounting and internal regulations. All
technical provisions have been granted a positive opinion of the appointed certified actuary of the Group.

i/ Unearned premiums

The Group calculates unearned premiums for those types of insurance where the insurance coverage lasts even after
the end of the reporting period, since the insurance year and the reporting period do not overlap. The basis for
calculation of gross unearned premium of non-life insurance is the accrued (written) premium, while the basis for
the calculation of gross unearned premium of supplemental insurance with life insurance is the collected premium.
Unearned premiums are calculated according to the pro rata temporis method, except for the types of loan
insurance where a decrease of insurance cover throughout the contract term is taken into consideration. The
reinsurance share of the gross written premium is determined depending on the reinsurance contract and the
method used for the calculation of the corresponding gross written premium.

ii/ Mathematical life insurance provision

Mathematical life insurance provisions are calculated individually for every insurance contract by using the
prospective net method in accordance with legal regulations and Ordinances of HANFA.

iii/ Claims provisions

Claims provisions contain provisions for reported claims, provisions for incurred but not reported claims,
provisions for costs of processing claims.
Provisions for reported claims are determined by individual assessment. Actuarial methods are applied upon
determining provisions for the costs of processing claims and for incurred but unreported claims.
The reinsurance share in provisions is determined in accordance with reinsurance contracts.

iv/ Provisions for unexpired risks

Provisions for unexpired risks are created where the expected value of claims and costs pertaining to unexpired
periods of policies which are valid on the reporting date, exceeds the provisions for unearned premiums pertaining
to such policies. Provisions for unexpired risks are calculated separately for individual types of insurance, i.e.
homogeneous risk groups.

45
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.29. Technical provisions (continued)


v/ Provision for bonuses and discounts

The provision for bonuses and discounts is established according to the provisions of insurance contracts and the
Ordinance on minimum standards, methods of calculating and guidelines for calculating technical provisions in
insurance in line with accounting regulations.

2.30. Technical life insurance provisions where the policy holder bears the
investment risk
Since the Group issues life insurance policies where the policy holder bears the investment risk, adequate separate
provisions are created for every such insurance contract.

2.31. Reinsurance
The Group cedes premiums to reinsurance in the regular course of business for the purpose of limiting its net loss
potential through risk diversification. Reinsurance contracts do not relieve the Group from its direct obligations to
policyholders.

Premiums ceded and recoverable amounts are presented through profit or loss on a gross basis. Only the contracts
that give rise to a significant transfer of insurance risk are accounted for as reinsurance contracts. Amounts
recoverable under such contracts are recognised in the same year as the corresponding claim. Contracts, through
which significant insurance risk (financial reinsurance) is not transferred, are recorded as deposits. During 2017
and 2016, the Group did not conclude any such contracts.

Reinsurance assets include amounts receivable from reinsurance companies for ceded insurance liabilities.
Receivables from reinsurers are estimated in a manner consistent with the provisions for unpaid claims and claims
paid by reinsured policies. Reinsurance assets include the actual or estimated receivables from reinsurers in respect
of technical provisions. Reinsurance assets relating to technical provisions are created on the basis of the terms of
reinsurance contracts and measured on the same basis as the corresponding reinsured liabilities.

Reinsurance receivables are assessed for value impairment at each reporting date.

2.32. Classification of contracts


Contracts through which the Group undertakes significant underwriting risk on behalf of the other party
(policyholder) by accepting to indemnify the policyholder or another insurance beneficiary, if a particular future
event occurs (insured event) which has a negative effect on the policyholder or other insurance beneficiary, are
classified as insurance contracts. Contracts where the transfer of risk from the policyholder to the Group is not
significant are classified as investment contracts.

46
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.32. Classification of contracts (continued)


Both insurance and investment contracts may contain discretionary participation features. A contract with a
discretionary participation feature is a contractual right held by a policyholder to receive as a supplement to
guaranteed minimum payments, additional payments that are likely to be a significant portion of the total
contractual payments, and whose amount or timing is contractually at the discretion of the issuer and that are
contractually based on:

- the performance of a specified pool of contracts or a specified type of contract,


- realised and/or unrealised investment returns on a specified pool of assets held by the issuer or
- the profit or loss of the company that issues the contracts.

The discretionary element of those contracts is accounted for as a liability within the mathematical provision. The
provision for discretionary bonus within the mathematical provision may comprise amounts arising in relation to
participating policies, for which the allocation of funds has not been determined at the reporting date. When the
allocation of funds is determined, appropriate transfers are made out of this fund.

At the reporting date the Group accounted for a provision for discretionary allocation of profit in the amount of
HRK 30,407 thousand (2016: HRK 35,382 thousand).

2.33. Underwriting risk management


Underwriting risk pertains to the risk that may arise if actual payment of claims and compensations exceed the net
book amount of insurance liabilities due to coincidence, error and/or change in circumstances. Underwriting risk
includes the risk of the occurrence of a loss event, risk of determining the amount of premium (setting the tariff),
the risk of forming provisions and the risk of reinsurance.

Premium risk is present at the moment of issuing the policy, before the insured event occurs. There is a risk that the
costs and losses which may occur might be greater than the premiums received. The provision risk represents the
risk of having the absolute amount of technical provisions wrongly assessed or of having the actual losses vary
around the statistical mean value. Non-life insurance sales risk also includes the risk of disaster which arises from
highly extraordinary events which are not sufficiently covered by the premium risk or provision risk. Life insurance
sales risk includes biometrical risk (which involves mortality, longevity, risk of becoming ill or disabled) and the
risk of withdrawal. The risk of withdrawal represents a higher or lower rate of withdrawal from policies,
interruptions, changes in capitalization (cessation of payments of premium) and surrender.

The Group manages its underwriting risk through underwriting limits, approval procedures for transactions that
involve new products or that exceed set limits, through tariff determination, product design and management of
reinsurance. The Company’s underwriting strategy aims at diversity which will ensure a balanced portfolio and
which is based on a large portfolio of similar risks for several years, which reduces the variability of results. As a
rule, all non-life insurance contracts are concluded on a yearly basis and the policyholders have the right to decline
renewal of contract or to change the contract terms upon renewal.

The Group transfers a portion of the risk to reinsurance in order to control its exposure to losses and protect capital
resources. The Group purchases a combination of proportional and non-proportional reinsurance contracts to
reduce the net exposure to a particular risk depending on the type of insurance.

Underwriting risk is monitored by the actuaries within the scope of their tasks and the Risk Management
Department, in agreement with them, takes the indicators in order to include the risks in the risk management
process at the overall Group level.

A report on the adequacy of provisions, insurance premium and retention is submitted by the appointed certified actuary.

47
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.33. Underwriting risk management (continued)


Concentration of insurance risk
A key aspect of underwriting risk is that the Group is exposed to, is the degree of underwriting risk concentration
which determines the extent to which a particular event or a series of events may affect the Group’s liabilities. Such
concentrations may arise from a single insurance contract or through a number of related contracts which may
result in significant commitments. An important aspect of the insurance risk concentration is that it may arise from
the accumulation of risk through different types of insurance.
Concentration risk may arise from events that are not frequent but with considerable consequences such as
natural disasters, in situations where the Group is exposed to unexpected changes in trends, for example unexpected
changes in human mortality or in policyholder behaviour; or where significant litigation or regulatory risks could
cause a large single loss, or have a pervasive effect on a large number of contracts. The risks underwritten by the
Group are primarily located in the Republic of Croatia.

48
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.33. Underwriting risk management (continued)


The concentration of insurance risk before and after reinsurance in relation to the type of accepted insurance risk
is shown below with reference to the carrying value of claims and benefits (gross and net of reinsurance) arising
under the insurance contract:
31 December 2017 31 December 2016
Reinsurance Reinsurance
share in share in
(in thousands of HRK)
Gross claims claims Net claims Gross claims claims Net claims
incurred incurred incurred incurred incurred incurred
amount in amount in amount in amount in amount in amount in
currency currency currency currency currency currency
Accident insurance 27,386 (33) 27,419 34,199 (310) 34,509
Health insurance 76,988 305 76,683 6,774 1,148 5,626
Road motor vehicle
216,007 254 215,753 205,640 840 204,800
insurance
Railroad rolling stock
630 - 630 1,332 - 1,332
insurance
Aircraft insurance 3,617 3,487 130 2,290 1,691 599
Vessel insurance 52,663 10,331 42,332 37,857 8,872 28,985
Insurance for goods-in-
4,647 (1,675) 6,322 26,112 16,680 9,432
transit
Insurance against fire and
87,321 36,149 51,172 78,641 46,586 32,055
natural disasters
Other types of property
257,045 20,660 236,385 238,161 30,699 207,462
insurance
Motor liability insurance 213,559 (8,102) 221,661 228,580 (14,287) 242,867
Aircraft liability insurance 2,257 1,454 803 (1,651) (422) (1,229)
Vessel liability insurance (1,775) 3,787 (5,562) 3,144 (449) 3,593
Other types of liability
72,281 18,314 53,967 69,631 17,449 52,182
insurance
Loan insurance/credit
(44,737) 259 (44,996) (9,374) (9,750) 376
insurance
Surety insurance 76 - 76 (652) - (652)
Miscellaneous financial
18,574 12,972 5,602 6,235 1,145 5,090
loss insurance
Travel insurance 3,052 - 3,052 3,101 -- 3,101

Total non-life insurance 989,591 98,162 891,429 930,020 99,892 830,128


Life assurance 283,702 (276) 283,978 371,308 7 371,301
Annuity insurance 9,811 - 9,811 11,321 - 11,321
Additional insurance with
1,645 - 1,645 751 - 751
life insurance
Life or annuity insurance
where the policyholder 190,783 - 190,783 102,399 - 102,399
bears the investment risk
Total life assurance 485,941 (276) 486,217 485,779 7 485,772

Total 1,475,532 97,886 1,377,646 1,415,799 99,899 1,315,900

49
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.33. Underwriting risk management (continued)


The Management Board believes that the non-life insurance has no significant exposure to any client group insured
by social, professional, generation or similar criteria. The greatest likelihood of significant losses could arise from
catastrophic events, such as floods, hail, storms or earthquake damage. The techniques and assumptions that the
Group uses to calculate these risks include:
- Measurement of geographical accumulations,
- Assessment of probable maximum losses,
- Excess of loss reinsurance.

Non-life insurance
The basic indicator of underwriting risk is the claims (loss) ratio. The following tables present claims ratios, cost
ratios and combined ratios as well as the claims ratio net of reinsurance.
Comparison of claims ratio and costs for 2017 and 2016:

Non-life insurance 31 December 2017 31 December 2016


Claims ratio -54.55% -51.56%
Cost ratio -43.04% -46.03%
Combined ratio -97.59% -97.59%
Claims ratio, net -56.57% -53.21%

Life insurance
The primary risks in life insurance are interest rate risk and biometrical risks. Interest rate risk is processed through
market risks, and biometrical risks are monitored on the basis of actuarial analyses.
The analysis of mathematical provisions according to guaranteed interest rate is as follows::

Interest included Mathematical Mathematical


in the tariff is in provisions* provisions*
the range of as at 31 December 2017 Share as at 31 December 2016 Share
(in thousands of HRK) % (in thousands of HRK) %
[1, 3] 1,127,172 41.93% 943,621 35.81%
[3, 4] 1,121,655 41.73% 1,183,251 44.91%
[4, 5] 436,536 16.24% 505,503 19.18%
[5, 6] 2,438 0.10% 2,591 0.10%
2,687,801 100.00% 2,634,966 100.00%
* The mathematical provision is the mathematical provision for agreed sums and mathematical provision for additional sums.

The table above shows the mathematical provision according to guaranteed interest rates. The yield on life insurance
investment is presented in the following table and it is sufficient to cover the required interest for the life insurance
portfolio.
Yield on mathematical provision:

(in thousands of HRK) 2017 2016


Average balance of mathematical provision 2,636,005 2,570,256
Yield on investment in mathematical provision 139,835 103,833
Annual yield on mathematical provision 5.30% 4.04%

50
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.33. Underwriting risk management (continued)


Sensitivity of the present value of future profits to changes in significant variables
Profit or loss and insurance liabilities are mainly sensitive to changes in mortality, rates costs and the discount rate
used for the purposes of the liability adequacy test.
The Group assesses the impact of changes in key variables that may have a material effect on the present value of
future profits (PVFP) at the end of the year. For each period, the projection is the calculated profit (vector profit),
and PVFP is calculated as the present value of profits with a discount rate risk.
The table below shows the sensitivity analysis for life insurance.

Life insurance risk – sensitivity analysis 2017 2016


(in thousands of HRK) Change in liabilities Change in liabilities
Interest rate -0.5% 75,877 98,326
Mortality +10% (366) 3,800
Expenses +10% 17,994 29,166

The Group uses the calculation of PVFP for the purposes of managing the sensitivity of insurance risk. The base run refers
to the calculation of liabilities using assumptions for the best estimate calculation. The base run represents the calculation
by applying the assumptions set out in Note 2.34 during the liability adequacy test. For each policy income from premiums
and investments is calculated, and costs are calculated on the basis of administrative costs and claims expenses.
Changes in variables represent reasonable possible changes which, had they occurred, have led to significant changes
in insurance liabilities at the reporting date. The reasonably possible changes represent neither expected changes in
variables nor worst-case scenarios. Changes in each variable were analysed, whereby all other assumptions remained
unchanged, and changes in value of the underlying assets were ignored.
The sensitivity to changes in mortality was calculated by reduction in mortality for pension products by 10% and an
increase in mortality for other products by 10%, while the sensitivity to changes in costs was calculated by increasing the
costs of portfolio maintenance by 10%.
The PVFP results show that changes in interest rates have the most significant effect on profit or loss and the amount
of technical provisions.

Non-life insurance
In non-life insurance variables which would have the greatest impact on insurance liabilities relate to legal claims from
auto insurance liability. Obligations relating to judicial damages are sensitive to legal, judicial, political, economic and
social trends. The Management Board believes that it is not practicable to quantify the sensitivity of non-life insurance to
changes in these variables.

2.34. Principal assumptions that have the greatest effect on recognised insurance
assets, liabilities, income and expenses
i/ Non-life insurance

On the balance sheet date provisions are created for the estimated final cost of settling all claims resulting from events
occurred by that date, whether reported or not, together with relevant costs of processing such claims, decreased by
amounts already paid. The liability for reported but unsettled claims is estimated separately for every individual claim,
taking into consideration the circumstances, available information from the claims adjuster and historical evidence of
amounts of similar claims. Individual claims are regularly examined and provisions are regularly updated when new
information is available. The assessment of provision for incurred, but unreported losses (IBNR) are generally subject to
a greater degree of uncertainty than the provision for reported losses. IBNR provisions are estimated by the Company’s
actuaries.

51
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.34. Principal assumptions that have the greatest effect on recognised insurance
assets, liabilities, income and expenses (continued)
Depending on the feature of each insurance type, the Group’s portfolio and the form and quality of available data, IBNR
provisions are formed using the most appropriate model which is based on deterministic or stochastic methods whose
basis is the claims triangle. In order to describe as best as possible future claims development, the selected model may
contain one or a combination of several methods.

IBNR provisions are formed according to the lines of business, i.e. homogeneous risk groups.

For long-tail claims, the level of provision greatly depends on the assessment of claims development for which there is
historical data until the final development. The residual factor of claims development is prudently assessed by using
mathematical methods of curves which serve as projections of observed factors or which are based on actuarial
assessment.

The actual method which is used depends on the year of claim occurrence and the observed historical development of
claims. To the extent in which these methods use historical loss development, it is assumed that the historical pattern of
claims development will be repeated in the future. There are reasons for partial fulfilment of the above so the methods
should be modified. Possible reasons may be:
- economic, political and social trends (which cause a different level of inflation than expected);
- changes in the combination of the types of insurance contracts which are acquired;
- random variations, including the effect of major losses.
IBNR provisions are initially estimated in gross amount and a special calculation is performed in order to assess the
reinsurance portion.

Discounting
Except for rental claims, non-life insurance provisions are not discounted. The provisions for liability insurance which are
payable in annuities are determined as the current value of future liabilities at the discount rate of 2% per year and based
on Mortality Tables for the Republic of Croatia for the period from 2000 - 2002.

ii/ Life insurance

Mathematical provisions are calculated by the net prospective method using rational actuarial assumptions, in accordance
with the guidelines issued by HANFA. The guaranteed technical interest rate in insurance policies ranges from 1 % to 6
%, depending on the original (historic) tariff.

In the case of death and survival, policyholders are entitled to a share in the Company’s profit realised by life insurance
funds management. Shares in profit are calculated once a year, at the earliest at the end of the first or second year of the
insurance term, depending on the tariff. The amount of the share in the profit is determined by the Management Board.

The Group uses mortality tables for Croatia for the period 2010 to 2012 for the calculation of mathematical reserves. For
the purpose of the calculation of mathematical reserves for insurance contracts concluded before 2010, an interest rate of
3.25% or 3% was used (the maximum rate prescribed by HANFA is 3.3%), for insurance contracts concluded in 2010 the
interest rate used was 3% and 2.75% (the maximum rate prescribed by HANFA is 3%), for insurance contracts concluded
after 2010 until 20 June 2016, the interest rate used was 2.75%, 2.25%, 1.7%, 1.5% and 1% (the maximum rate prescribed
by HANFA is 2.75%) and for insurance contracts concluded after 1 July 2016, the interest rate used was 1.7%, 1.5% and
1% (the maximum rate prescribed by HANFA is 1.75% for contracts with a currency clause and 2% for contracts in HRK).

Profit or loss and equity sensitivity to changes in significant variables


Profit or loss and insurance liabilities are mainly sensitive to changes in the rate of investment and the rate of costs
estimated for the calculation of the liability adequacy.

52
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.34. Principal assumptions that have the greatest effect on recognised insurance
assets, liabilities, income and expenses (continued)
Terms and conditions of insurance contracts that have a significant effect on the amount,
duration, and uncertainty of future cash flows
The Group offers different types of non-life insurance, mainly motor vehicles, property, liability insurance, marine
insurance, transport insurance, and accident insurance. The main source of uncertainty affecting the amount and
timing of future cash flows arises from the uncertainty of the occurrence of future insured events as well as the
uncertainty associated with their amounts. The amount payable under individual claims is limited by the insured
amount as established in the insurance policy.

Other significant sources of uncertainty related to non-life insurance result from legislation that entitles
policyholders to report a claim before the statute of limitation, which occurs three years from the first notification
of the claim, but not later than five years from the beginning of the year after the year of occurrence. This stipulation
is particularly important in cases of permanent disability under accident insurance, due to difficulties in estimating
the period between the occurrence of the accident and the confirmation of permanent consequences thereof.

The portfolio of non-life insurance does not include products that warrant unlimited coverage, while the maximum
amount for which the insurer may be held liable per each policy due to the occurrence of one loss event is always
limited by the contractually agreed insured sum. The exception to this rule is motor vehicles liability insurance in
the Green Card Insurance System member states that have unlimited coverage. Since legal provisions in motor
vehicles liability insurance prescribe the application of insured sums in the state where the damage occurred, this
risk cannot be completely avoided, but it can be transferred through appropriate reinsurance contracts.

2.35. Reclassifications
The Group reclassified certain items in the consolidated statement of comprehensive income for the purposes of
better comparability of the disclosed data.

The effect of the stated changes on comparative information as at 31 December 2016 is as follows:

31 December 31 December
(in thousands of HRK) 2016 2016
Item in Statement of Description of Before After
comprehensive income reclassification reclassification Reclassification reclassification

Other income (Note 6) /i/ 431,118 18,288 449,406


Other gains (Note 11) /i/ 742,586 (18,288) 724,298
Staff costs (Note 9) /ii/ 863,720 16,581 880,301
Other operating expenses
(Note 10) /ii/ 709,907 (16,581) 693,326

/i/ Dividends received were reclassified from other gains to other income.
/ii/ Provisions for unused vacation days were reclassified from other operating expenses to staff costs.

53
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors


The Company’s and the Group’s activities are exposed to a variety of financial risks: market risk (including foreign
exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
Overall risk management is Company carried out by the Company's treasury department.
The Management Board recognizes the importance of having of an efficient and effective Group risk management
system. Competent regulatory bodies control the solvency of companies engaged in the insurance business in order
to ensure that there is coverage for liabilities arising from possible economic changes or natural disasters.

The Group actively manages its assets by using an approach which balances quality, diversification, harmonization
of assets and liabilities, liquidity and return on investments. The Management Board examines and approves
portfolios, determines the limits and supervises the process of managing assets and liabilities. Due attention is also
given to the compliance with the rules established by the Insurance Act.

Transactions with financial instruments result in the Group assuming financial risks. These risks include market
risk, credit risk and liquidity risk. Each of these risks is described below, together with a summary of the methods
used by the Group to manage such risks.

a) Market risk

i/ Foreign exchange risk – the risk of fluctuation of fair value or cash flows under financial
instruments resulting from changes in foreign currency exchange rates
The Group is exposed to the risk of exchange rate fluctuations through its transactions in foreign currencies. The
risk is that the value of a financial instrument might change due to changes in the foreign exchange rates. The Group
is exposed to foreign exchange risk through its investments in debt securities, deposits, loans and through
premiums, claims and technical provisions under insurance policies with a currency clause. The Group manages
foreign exchange risk by attempting to reduce the difference between assets and liabilities denominated in foreign
currency or with a currency clause.

As at 31 December 2017, if the EUR had strengthened/weakened by 1% against the HRK (2016: 1%), with all other
variables held constant, pre-tax profit of the Group for the reporting period would have been higher/lower by HRK
66,530 thousand (2016: HRK 70,776 thousand), pre-tax profit of the Company for the reporting period would have
been higher/lower by HRK 26,360 thousand (2016: HRK 31,829 thousand), mainly as a result of foreign exchange
gains/losses on translation of EUR-denominated financial assets, foreign currency account and loans.

As at 31 December 2017, if the USD had strengthened/weakened by 10% against the HRK (2016: 10%), with all
other variables held constant, pre-tax profit for the reporting period would have been HRK 10,045 thousand (2016:
HRK 19,820 thousand) higher/lower, mainly as a result of foreign exchange gains/losses on translation of USD-
denominated borrowings and trade receivables.

ii/ Price risk


The Company is exposed to price risk arising from investments in equity instruments that are classified in the
balance sheet as financial assets at fair value through profit or loss and available-for-sale financial assets. Price risk
arising from investments in equity instruments is managed by diversifying investments according to the limits
determined by the Management Board.

54
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.1. Financial risk factors (continued)


The Company's investments in equity instruments that are publicly traded are included in the official stock exchange
listing.

Other price-related risks of the Group – the equity securities risk is caused by the fluctuation of fair value or cash
flows in connection with financial instruments resulting from changes in market prices (which are not the result of
interest rate risk or foreign exchange risk), whether this involves changes caused by factors relatable to an individual
financial instrument or its issuer or if there are other factors which effect all similar financial instruments being
traded in the market.

The marketable equity securities portfolio, which is presented in the balance sheet at fair value, exposes the Group
to this risk. The Group's portfolio comprises securities of various issuers, and the concentration risk in any
individual company is monitored and limited by adopted limits and legal requirements in the insurance business.

There is a system of quantitative measures based on statistical methods used for the assessment of market risk,
which reflect expected losses that may occur under normal circumstances as well as unexpected losses which are
estimated as the maximum acceptable loss to which the Group is exposed. Specifically, for certain types of
investments the Group has developed and implemented the VaR value, which it regularly monitors.

The Group assesses, or measures, and controls the exposure to market risk by monitoring exposure to investment,
establishing the limits and powers of investment, and through a series of statistical and other quantitative risk
measures.

In relation to the balance presented as at 31 December 2017, if the value of the investment portfolio had
increased/decreased by 5%, with all other variables held constant, the Group’s profit after tax for the reporting
period would have been higher/lower by HRK 22,161 thousand while other comprehensive income would
increase/decrease by HRK 154,416 thousand (2016: HRK 21,581 thousand and 100,959 thousand, respectively),
and the Company’s profit after tax for the reporting period would have been higher/lower by HRK 2,987 thousand
while other comprehensive income would increase/decrease by HRK 4,080 thousand (2016: HRK 3,067 thousand
and 3,350 thousand, respectively), mainly as a result of gains/losses on equity and debt instruments classified at
fair value in the statement of comprehensive income.

iii/ Cash flow and fair value interest rate risk


The risk of fluctuation in fair value of cash flows under financial instruments is a result of changes in market interest
rates. As the Group and the Company have significant interest-bearing assets, the income and operating cash flows
are substantially dependent of changes in market interest rates. Assets with contracted variable rates expose the
Group and the Company to cash flow interest rate risk. Assets with fixed rates expose the Group and the Company
to fair value interest rate risk. The Group and the Company do not use derivative instruments to actively hedge cash
flow and fair value interest rate risk exposure.

The majority of interest-bearing assets has a fixed interest rate, while a part of borrowings carries variable interest
rates. Fair value interest rate risk on the asset side is partially offset by mathematical reserves (with a guaranteed
fixed interest rate).

As at 31 December 2017, if the effective interest rate on deposits and borrowings had increased/decreased by 1% on
an annual level, the profit after tax for the reporting period would have been by approximately HRK 2,409 thousand
higher/lower (2016: 1% or HRK 1,623 thousand).

55
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.1. Financial risk factors (continued)


b) Credit risk

The Group is exposed to credit risk through the following financial assets:

- debt securities (bonds and commercial bills)


- deposits and given loans
- trade receivables, receivables from reinsurance under settled claims, other receivables
- reinsurance share in claims provisions
- cash at bank

This risk is defined as the potential decrease in market value resulting from adverse changes in the debtor's ability
to repay the debt.

The Group manages this risk by a rigorous up-front analysis of credit risk and exposure monitoring, regular reviews
carried out by the Management and regular meetings held to monitor the credit risk development. The Management
Board has adopted a credit policy and continuously monitors exposure to credit risk. Assessments of
creditworthiness of all policyholders are made, and collaterals are collected prior to payment of granted loans or
renewal of such loans.

Concentration of receivables from the Republic of Croatia:

31 December 31 December
(in thousands of HRK) 2017 2016

Government bonds 4,871,033 3,743,679


Bonds of other state institutions 108,131 183,699
Treasury bills - 8,067
Undue interest on bonds 82,966 77,471
Other receivables 13,675 9,122
5,075,805 4,022,038

See Note 24a for further disclosure on credit risk.

c) Liquidity risk

Cash flow forecasting is performed in the Group’s subsidiaries and aggregated by the Company’s Finance
Department which monitors rolling liquidity forecasts to ensure they have sufficient cash to meet operational needs,
so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. The Group has a
portfolio of liquid assets as part of the liquidity risk management strategy. Surplus cash over and above balance
required for working capital management is invested by the Group’s treasury in time deposits, money market
deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to
provide sufficient headroom as determined by the above-mentioned forecasts.

Surplus cash over and above balance required for working capital management is invested in interest bearing
current accounts, term deposits, money market deposits and marketable securities, choosing instruments with
appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned
forecasts. At the reporting date, the Group held deposits in the amount of HRK 1,373,604 thousand and other liquid
assets of HRK 3,313,767 thousand (2016: deposits of HRK 3,765,035 thousand and other liquid assets of HRK
3,583,891 thousand) that are expected to readily generate cash inflows for managing liquidity risk.

56
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.1. Financial risk factors (continued)


At the reporting date, the Company held deposits in the amount of HRK 663,546 thousand and other liquid assets
of HRK 1,635,608 thousand (2016: deposits of HRK 2,848,700 thousand and other liquid assets of HRK 1,742,421
thousand) that are expected to readily generate cash inflows for managing liquidity risk.

The table below analyses financial liabilities according to contracted maturities at the balance sheet date. The
amounts disclosed in the table are the undiscounted cash flows. Trade and other payables do not include taxes,
payables to employees, advances, accrued expenses, deferred income and other accrued liabilities.

COMPANY (in thousands of HRK) Less than 1 year


31 December 2017
Liabilities
Borrowings 23,909
Trade and other payables 27,872
Total 51,781

31 December 2016
Liabilities
Borrowings 17,114
Trade and other payables 28,777
Total 45,891

Less More
than 1 1-2 2-5 than 5
GROUP (in thousands of HRK) year years years years

31 December 2017
Liabilities
Borrowings 552,781 20,992 105,801 229,737
Trade and other payables 371,079 - - -

31 December 2016
Liabilities
Borrowings 484,079 18,882 86,881 260,846
Trade and other payables 376,114 - - -

d) Capital risk management

The Company and the Group monitor capital on the basis of laws and regulations of the Republic of Croatia which
require a minimum paid up capital of HRK 200 thousand for joint-stock companies. There are no specific measures
required by the owners in managing capital. The Company and the Group are not subject to externally imposed
capital requirements. In addition, there are no internally monitored capital objectives.

57
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.2. Fair value estimation


The Group measures financial instruments in the balance sheet at fair value, in accordance with the following fair
value measurement hierarchy:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
- Inputs other than quoted prices included within level 1 that are observable for the asset, either directly or
indirectly (level 2)
- Inputs for the asset that are not based on observable market data (level 3)

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 or broker and those prices represent actual and regularly occurring market transactions on an arm’s length
basis. The quoted market price used for financial assets held by the Company is the current bid price. These
instruments are included in level 1. Instruments included in level 1 comprise primarily equity investments in bonds,
cash funds and commercial papers classified as trading securities.

Fair value is the amount that should be received for an asset sold or paid to settle a liability in an arm’s length
transaction between market participants at the value measurement date. Fair value is based on quoted market
prices, where available. If market prices are not available, fair value is estimated by using discounted cash flow
models or other appropriate pricing techniques. Changes in assumptions on which the estimates are based,
including discount rates and estimated future cash flows, significantly affect the estimates. Therefore, at this point
the estimated fair value cannot be achieved from the sale of a financial instrument. The fair value of investments at
amortised cost is presented below:

Each instrument is assessed individually and in detail. The levels of the fair value hierarchy are determined on the
basis of the lowest level and the input data that are important for determining the fair value of the instrument.

The following table presents the Company’s assets measured at fair value as at 31 December 2017 and 2016, grouped
according to the fair value hierarchy:

31 December 2017 Total


(in thousands of HRK) Level 1 Level 2 Level 3 balance
Assets
Financial assets at fair value through profit or
72,853 - - 72,853
loss (trading securities)
Available-for-sale financial assets 99,507 - - 99,507
Total assets 172,360 - - 172,360

31 December 2016 Total


(in thousands of HRK) Level 1 Level 2 Level 3 balance
Assets
Financial assets at fair value through profit or
76,677 - - 76,677
loss (trading securities)
Available-for-sale financial assets 83,748 - - 83,748
Total assets 160,425 - - 160,425

58
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.2 Fair value estimation (continued)


The Group’s fair value of investments at amortised cost is presented below:

31 December 2017 31 December 2016

(in thousands of Carrying Carrying


HRK) amount Fair value Difference amount Fair value Difference
Group
Debt securities 2,209,482 2,419,213 209,731 2,240,190 2,421,526 181,336
Loans 619,457 619,457 - 974,835 974,835 -
Deposits 3,861,367 3,861,367 - 4,514,027 4,514,027 -
6,690,306 6,900,037 209,731 7,729,052 7,910,388 181,336

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31
December 2017 and 2016.

(in thousands of HRK) Level 1 Level 2 Level 3 Total balance


31 December 2017
Assets
- Equity securities 433,981 - 2,197 436,178
- Debt securities 3,087,270 103,724 2,139 3,193,133
- Investment funds 136,249 - 692 136,941
Available-for-sale financial assets 3,657,500 103,724 5,028 3,766,252
- Equity securities 87,173 - - 87,173
- Debt securities 35,637 - - 35,637
- Investment funds 416,002 - - 416,002
- Currency forward contracts - 1,692 - 1,692
Financial assets at fair value through
profit or loss 538,812 1,692 - 540,504
Total assets 4,196,312 105,416 5,028 4,306,756

31 December 2016
Assets
- Equity securities 451,305 - 8,767 460,072
- Debt securities 1,984,219 51,212 - 2,035,431
- Investment funds 24,625 - 3,858 28,483
Available-for-sale financial assets 2,460,149 51,212 12,625 2,523,986
- Equity securities 88,685 - - 88,685
- Debt securities 69,658 - - 69,658
- Investment funds 381,194 - - 381,194
Financial assets at fair value through
profit or loss 539,537 - - 539,537
Total assets 2,999,686 51,212 12,625 3,063,523

59
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. FINANCIAL RISK MANAGEMENT (continued)

3.2 Fair value estimation (continued)


The Group has adopted IFRS 13, under which it is required to disclose the fair value hierarchy of financial assets
that are not measured at fair value as well as a description of valuation techniques and inputs used.
Loans and receivables (including bank deposits) have been reported at amortised cost, less impairment. Although
they have been obtained on the basis of a fixed interest rate, the Management Board believes that, due to their
specific features, the book value of these instruments is not significantly different from their fair value, under the
assumption that all payments arising from exposures without impaired value will be collected as agreed and without
taking into account any future losses.
Financial liabilities are recorded at amortised cost. Although they have been agreed on the basis of a fixed interest
rate, the Management Board believes that, due to the repayment of majority of liabilities within few days after the
balance sheet date, the carrying value of these instruments is not significantly different from their fair value.
The fair value of loans and financial liabilities is estimated on the basis of inputs that are not commercially
available rates and would therefore be classified as level 3 in the fair value hierarchy. Investments with available
market prices that are classified in the portfolio of held-to-maturity investments would be classified as level 1.
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely
as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
The fair value of investments classified in the portfolio of held-to-maturity investments determined based on
available market prices are classified as level 1 under IFRS 13.

4. CRITICAL ACCOUNTING ESTIMATES

Estimates are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under existing circumstances. The Company and the Group make
estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a significant risk of causing material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

i/ Impairment losses on loans and receivables

The provision for impairment of certain receivables is based on Management’s estimate of the current value of
expected future cash flows.

In their evaluation of such cash flows, the Management Board assesses the debtor’s financial position and estimated
fair value of insurance instruments. Any asset that suffered an impairment is evaluated separately and the function
of credit risk helps to independently approve a recovery strategy and assessment of realisable cash flows.

The gross amount of loans and receivables, and the rate of recognised impairment loss at the end of the year are as
follows:

31 December 2017 31 December 2016


Gross exposure (HRK’000) 2,677,399 2,713,071
Impairment rate (%) 44% 38%

The change in the impairment rate by 1 pp on the gross amount of the above loans and receivables would lead to an
increase/reversal of impairment in the amount of HRK 26,774 thousand (31 December 2016: HRK 27,130
thousand).

60
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

4. CRITICAL ACCOUNTING ESTIMATES (continued)

ii/ Determining fair value of financial assets

For certain debt and equity securities the Company and the Group apply the weighted average last day market price.
For financial instruments which are rarely traded and which have a non-transparent price, fair value is less objective
and it requires a different level of assessment depending on liquidity, concentration, uncertainty of market-related
factors, assumptions regarding prices and other risks which affect a certain instrument. The Company and the
Group used the discounted cash flow analysis for various financial instruments that are not traded in active markets.

In accordance with the accounting policy set out in Note 2.11, the Company estimates recoverable amounts of trade
receivables and loans receivable based on estimated future cash flows discounted at the effective interest rate.

iii/ Uncertainty of estimates pertaining to the forming of reserves in the insurance segment

The most significant assessments in terms of the Group’s financial statements in the insurance segment pertain to
the forming of reserves. In forming reserves the Group applies regulations issued by HANFA (Croatian Financial
Services Supervisory Agency). The Group’s staff includes certified actuaries. The Management Board believes that
the current level of technical provisions is sufficient.

The Group forms reserves for unexpired risks arising from non-life insurance where it is expected that the claims
and administrative expenses likely to arise upon the expiry of the financial year for contracts concluded before that
date will exceed the unearned premium from such contracts.

Expected cash flows relating to claims and expenses are estimated on the basis of experience of the previous contract
term and adjusted for significant individual losses which are not expected to recur. The liability adequacy test was
performed on all types of insurance. The Management Board believes that the current amount of provisions is
sufficient.

Insurance risk management is described in detail in Note 2.33, while the reserves for insurance contracts are
analysed in Note 2.29. The sensitivity analysis of technical provisions is presented in Note 2.33.

iv/ Useful lives of property and equipment

The Management Board of individual companies determines and revises the useful lives and relevant depreciation
charge for property, plant and equipment. This estimate is based on the assessment of the remaining useful lives of
assets. It could change significantly as a result of technical innovations, investment and competitor actions.

If the useful life of property, plant and equipment had been 5% longer, with all other variables held constant, the
net profit for the year would have been higher by HRK 9,586 thousand for the Group, or HRK 688 thousand higher
for the Company, and the net carrying value of property, plant and equipment would have been higher by HRK
11,691 thousand for the Group, or HRK 840 thousand higher for the Company (2016: net profit would have been
higher by HRK 8,559 thousand for the Group and HRK 226 thousand higher for the Company, and the net carrying
value of property, plant and equipment would have been HRK 10,438 thousand higher for the Group and HRK 276
thousand higher for the Company).

61
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

4. CRITICAL ACCOUNTING ESTIMATES (continued)

If the useful life of property, plant and equipment had been shorter by 5%, with all other variables held constant,
the net profit for the year would have been lower by HRK 10,596 thousand for the Group, or HRK 761 thousand
lower for the Company, and the net carrying value of property, plant and equipment would have been lower by HRK
9,460 thousand for the Group, or HRK 928 thousand for the Company (2016: the net profit would have been lower
by HRK 9,460 thousand for the Group, or HRK 250 thousand for the Company, and the net carrying value of
property, plant and equipment would have been lower by HRK 11,537 thousand for the Group, or HRK 305 thousand
for the Company).

v/ Impairment testing of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy
stated in Note 2.10. The recoverable amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates (Note 19). In 2017, the Group did not record goodwill
impairment. Changes in critical estimates could have the following effects on goodwill.

Insurance

With other variables held constant, if the pre-tax discount rate had increased by 1%, goodwill would have been fully
impaired, and if the discount rate had decreased by 1%, there would have been no impact on goodwill (2016:
increased by 1%, goodwill would have been fully impaired; reduced by 1%, no impact). If the residual growth rate
had increased by 1%, there would have been no impact on goodwill, and if the residual growth rate had decreased
by 1%, goodwill would have been fully impaired.

Tourism

With other variables held constant, if the pre-tax discount rate had increased by 1%, goodwill would have been fully
impaired, and if the discount rate had decreased by 1%, there would have been no impact on goodwill (2016:
increased by 1%, goodwill would have been fully impaired; reduced by 1%, no impact). If the residual growth rate
had increased by 1%, there would have been no impact on goodwill, and if the residual growth rate had decreased
by 1%, goodwill would have been fully impaired (2016: increased by 1%, no impact; reduced by 1%, goodwill would
have been fully impaired).

62
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

5. SEGMENT INFORMATION

The Management Board has determined operating segments based on the reports reviewed by the Management
Board of the Adris Group that are used to make strategic decisions.

The Management Board defined its reportable segments as operations based on the differences in products and
services. The reportable segments are as follows: (1) the tourism segment, which includes tourist services such as
accommodation in tourist facilities, sale of food and beverages, (2) the insurance segment and (3) the healthy food
segment which includes the production and sale of farmed sea fish. Other segments include construction and sale
of property and other activities related to real estate management, other activities of the parent company and
elimination.

The Adris Group Management Board assesses the performance of the operating segments based on profit before
tax. However, internal reporting on the results additionally includes gross sales for the segments of tourism, healthy
food and the gross written premium for the insurance segment.

(in millions of HRK) Insurance Tourism Healthy food Other Total

Net profit 2017 254 162 23 (8) 431


Net profit 2016 175 142 13 8 338
Segment revenue in 2017 3,679 1,149 398 98 5,324
Segment revenue in 2016 3,389 1,014 369 143 4,915

Reconciliation of net profit and segment revenues and net profit and income for the period:

(in millions of HRK) 2017 2016


Net profit of operating segments 431 338
Gains on sale of share 140 667
Net impairment of loans given (175) (355)
Other items ( net) (22) (149)
Net profit for the year 374 501

(in millions of HRK) 2017 2016


Segment operating revenue 5,324 4,915
Reclassification of items (476) (214)
Eliminations and other (90) (119)
Operating and other income 4,759 4,582

63
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

5. SEGMENT INFORMATION (continued)

Internal reporting on segment results is adjusted to the operations and key events for each segment separately and
the disclosures of this information have been adjusted for the current year and prior period accordingly.

Tourism (in millions of HRK) 2017 2016


Income 1,149 1,014
Operating expense 744 679
EBITDA 405 336
Net profit 162 142

Healthy food (in millions of HRK) 2017 2016


Sales 370 343
Other income 28 26
EBIT 398 369
Interest expense 13 15
Net profit 23 13

Insurance (in millions of HRK) 2017 2016


Gross written premium
- Life 639 630
- Non-life 2,501 2,388
3,140 3,018
Claims incurred
- Life 574 567
- Non-life 1,274 1,244
1,848 1,811
Net profit
- Life 62 22
- Non-life 192 153
254 175

Majority of segment revenue and non-current tangible assets are realised and located in Croatia.

Analysis of sales by category (in thousands of HRK) 2017 2016


Sales of products and goods 370 343
Insurance income 3,140 3,018
Sales of services 1,814 1,554
5,324 4,915

64
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

6. OTHER INCOME

Group:

(in thousands of HRK) 2017 2016

Dividend income 16,901 18,287


Interest income from bonds and commercial papers 179,522 170,472
Interest income from short-term deposits given 38,272 49,863
Insurance fee and commission income 37,138 42,680
Subsidies 12,772 10,631
Income from collected penalty interest 10,530 35,172
Income from guarantee fund 7,313 1,838
Insurance claims recovered 782 888
Income from share in profit of participating interests 14,765 12,908
Income from claims incurred abroad 4,705 7,243
Income from assessment services 3,748 4,156
Other insurance income 24,461 19,941
Other income from sale of products and services 12,904 11,769
Other income 21,941 63,558
385,754 449,406

During 2017, the Company recorded dividend income of HRK 4,951 thousand arising from other investments (2016:
HRK 5,391 thousand).

65
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

7. COST OF MATERIALS AND SERVICES

Group Company

(in thousands of HRK) 2017 2016 2017 2016

Raw materials and supplies

Raw materials and supplies 382,455 369,957 387 533


Energy cost 58,002 53,848 1,325 1,079
Cost of goods sold 9,149 13,943 - -
449,606 437,748 1,712 1,612
External services

Transport, telephone, postage 40,007 40,989 323 489


Repairs and maintenance 81,922 76,992 3,253 2,504
Rental expense /i/ 55,141 58,944 47 2,216
Marketing, advertising and distribution 80,554 73,784 7,142 6,913
Utility services 6,938 19,936 1,345 927
Intellectual services 91,138 79,850 8,866 18,858
Insurance policy acquisition costs 222,497 198,665 - -
Property insurance 9,604 10,671 1,292 921
Cleaning services 6,458 6,623 - -
Tourist agency commissions 49,930 41,954 - -
Laundry services 15,440 13,788 - -
Other 38,223 37,501 1,758 2,641
697,852 659,697 24,026 35,469

1,147,458 1,097,445 25,738 37,081

/i/ The Group leases business and warehouse premises based on cancellable operating lease agreements. The lease
agreements have been concluded for a period of 15 years with an option of being extended.

66
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

8. INSURANCE CLAIMS INCURRED, NET OF REINSURANCE

Group:

(in thousands of HRK) 2017 2016

Claims incurred 1,771,839 1,727,566


Reinsurance share in claims incurred (106,740) (141,495)
1,665,099 1,586,071

(in thousands of HRK) 2017 2016

TOTAL LIFE AND NON-LIFE

Net claims incurred, net 1,492,760 1,370,935


Settled claims 1,533,325 1,555,371
Gross amount 1,621,000 1,664,329
Coinsurance share (849) (3,145)
Reinsurance share (86,826) (105,813)
Change in claims provisions (40,565) (184,436)
Gross amount (21,141) (151,906)
Coinsurance share 42 (14,969)
Reinsurance share (19,466) (17,561)
Change in mathematical provision and other technical provisions, net of
reinsurance (15,009) 114,396
Change in insurance mathematical provisions (4,625) 129,120
Gross amount (4,984) 129,127
Reinsurance share 359 (7)
Change in other technical provisions, net of reinsurance (10,384) (14,724)
Change in special provision for life insurance group where the
policyholder assumes the investment risk, net of reinsurance 187,348 100,740
Gross amount 1,771,839 1,727,566
Reinsurance and coinsurance share (106,740) (141,495)

67
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

9. STAFF COSTS

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Salaries and other staff costs 587,686 544,597 12,054 15,001


Taxes and contributions from and on
salaries 313,156 309,652 10,721 13,597
Provisions for termination benefits – net 17,868 26,052 48 (6,545)
918,710 880,301 22,823 22,053

As at 31 December 2017, the Group had 5,398 employees (2016: 5,304 employees). As at 31 December 2017, the
Company had 27 employees (2016: 36).

Pension contributions for the Group amounted to HRK 124,077 thousand (2016: HRK 119,618 thousand), and for
the Company HRK 1,772 thousand (2016: HRK 1,842 thousand).

10. OTHER OPERATING EXPENSES

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Contributions and taxes irrespective of operating


results 53,501 53,495 1,587 1,831
Licences 2,303 2,015 234 258
Travel and entertainment 25,057 19,641 2,359 2,563
Insurance 6,473 9,811 536 579
Bank charges 19,685 20,839 686 588
Net provision for trade and other receivables (Note
25) 14,175 (4,171) 204 -
Write-off of trade and other receivables 1,136 843 -
Net impairment of loans given (Note 25) 175,626 370,566 142,540 372,257
Net book value of disposed buildings, equipment
and projects 33,909 63,433 - -
Provisions for legal disputes - net (Note 33) 35,155 16,731 - -
Donations 5,574 7,287 3,789 5,005
Administrative charges and insurance fees 28,554 27,960 - -
Allocation of funds for the guarantee fund 11,382 11,261 - -
Other insurance-technical expenses 9,276 7,692 - -
Other 96,064 86,766 3,783 2,228
517,870 693,326 156,561 385,309

68
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

11. OTHER GAINS

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Release of provisions (Note 33) 140,461 667,424 140,461 667,424


Income from bargain purchase 20,554 - - -
Gains on sale of bonds, shares and
investments in funds 517 - 439 -
Gains on change in fair value of financial
assets through profit or loss 51,075 18,968 92 11,415
Gains on sale of tangible assets 18,731 15,417 - 106
Foreign exchange gains 40,594 22,489 144 543

271,932 724,298 141,136 679,488

12. OTHER LOSSES

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Losses on changes in fair value of financial assets


at fair value through profit or loss - - 2,881 -
Losses on sale of tangible assets - - 9,989 -
Loss on sale of subsidiary - 10,107 - -
Foreign exchange losses 82,649 96,100 3,625 54

82,649 106,207 16,495 54

69
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

13. FINANCE INCOME – NET

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Finance income
Interest income from deposits given/i/ 46,128 57,144 46,119 57,159
Interest income from loans given 47,355 59,950 37,194 39,471
Interest income from loans given –
related parties (Note 41) - - 47,244 42,145
Interest income from bonds and
commercial papers - - 134 96
Other - (82) - -
93,483 117,012 130,691 138,871

Finance costs
Interest expense – borrowings (20,668) (18,283) - -
Interest expense – related parties (Note
41) - - (972) (27,065)
Net foreign exchange losses from
financing activities (18,826) - (31,552) (44,837)
(39,494) (18,283) (32,524) (71,902)

53,989 98,729 98,167 66,969

/i/ In the insurance segment, interest on deposits, bonds and commercial papers in the amount of HRK 217,794
thousand (2016: HRK 220,335 thousand) is part of the segment’s activities and, therefore, disclosed in other income
(Note 6); in other segments, short-term placements in the form of deposits are not part of the segments’ principal
activity and the interest on deposits given, bonds and commercial papers of other segments is disclosed as finance
income.

Total interest income in 2017 amounts to HRK 311,277 thousand (2016: HRK 337,429 thousand). Total interest
income accrued and recognised in 2017 for loans given that were impaired as described in Note 25 amounts to HRK
12,741 thousand for the Group and HRK 2,247 thousand for the Company (2016:
HRK 49,965 thousand for the Group and HRK 39,240 thousand for the Company).

70
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

14. INCOME TAX

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Current income tax 82,890 70,036 18,194 6,070


Deferred tax expense/(income)
(Note 26) (15,225) 78,536 (8,652) 71,810
67,665 148,572 9,542 77,880

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted
average tax rate applicable to profits of the consolidated entities as follows:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Profit before tax 441,309 649,697 25,462 313,605

Tax calculated at domestic tax rates


applicable to profits in the respective
countries 86,665 129,939 4,583 62,721
Effect of non-deductible expenses 29,813 140,221 35,435 82,914
Effect of non-taxable income (44,083) (120,306) (30,476) (79,742)
Effect of utilised previously
unrecognised tax losses (4,730) (2,762) - -
Effect of change in tax rate - 24,269 - 11,987
Effect of reinvested profit - (22,789) - -
Income tax charge 67,665 148,572 9,542 77,880

Effective tax rate 15.33% 22.87% 36.18% 24.83%

The parent company and its subsidiaries are subject to taxation according to the laws and regulations of the Republic
of Croatia or other countries where they are registered.

To date, the Tax Administration performed a review of several companies’ income tax returns for the period up to
2013. In accordance with local regulations, the Tax Administration may at any time inspect the Group companies'
books and records within 3 years following the year in which the tax liability is reported and may impose additional
tax liabilities and penalties. The Group companies’ and Company’s Management Boards are not aware of any
circumstances, which may give rise to a potential material liability in this respect.

As a result of changes in tax regulations that became effective in December 2016, as of 1 January 2017 the income
tax rate will be 18% (until 31 December 2016: 20%)

71
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

14. INCOME TAX (continued)

The total unrecognised tax loss carry forward on the Group level is as follows:

(in thousands of HRK) 2017 2016

2017 - 21,959
2018 12,451 13,182
2019 10,192 2,157
2020 828 1,515
2021 1,531 4,655
2022 5,478 -
30,480 43,468

In the financial statements, the Group did not record deferred tax assets on the basis of tax losses in the amount of
HRK 5,486 thousand (2016: HRK 7,824 thousand), as it is not probable that future taxable profit will be available
to utilise the tax losses by the respective companies in the stated amounts before the expiry dates.

15. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit attributable to the parent company’s shareholders
by the weighted average number of ordinary shares, excluding the average number of ordinary shares purchased by
the Company and held as treasury shares. Basic earnings per share equals diluted earnings as there are no diluted
shares.

Group Company
2017 2016 2017 2016

Net profit (in thousands of HRK) 292,992 446,324 15,920 235,725


Weighted average number of shares 16,165,220 16,064,626 16,165,220 16,064,626
Basic/diluted earnings per share (in HRK) 18.12 27.78 0.98 14.67

16. DIVIDEND PER SHARE

The dividends declared in 2017 amounted to HRK 17.00 per share (2016: HRK 15.00 per share).

72
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

17. PROPERTY, PLANT AND EQUIPMENT

Group

Land and Plant and Assets under


(in thousands of HRK) buildings equipment construction Total
At 31 December 2016
Cost 4,731,480 1,247,496 485,920 6,464,896
Accumulated depreciation (1,736,113) (827,004) - (2,563,117)
Net book amount 2,995,367 420,492 485,920 3,901,779

Year ended 31 December 2016


Opening net book amount 2,995,367 420,492 485,920 3,901,779
Additions 659,679 211,622 (146,156) 725,145
Transfer from investment property 354 - - 354
Change in item category 433 (461) - (28)
Impairment (94,533) - - (94,533)
Disposals and write-offs (65,691) (15,201) (31,407) (112,299)
Effect of sale of subsidiaries (Note 36) - (501) - (501)
Depreciation charge for the year (124,179) (95,027) - (219,206)
Foreign exchange differences (759) 143 - (616)
Other movements (10,020) (185) (4,105) (14,310)
Closing net book amount 3,360,651 520,882 304,252 4,185,785

At 31 December 2016
Cost 5,169,557 1,354,797 304,252 6,828,606
Accumulated depreciation (1,808,906) (833,915) - (2,642,821)
Net book amount 3,360,651 520,882 304,252 4,185,785

Year ended 31 December 2017


Opening net book amount 3,360,651 520,882 304,252 4,185,785
Additions 242,722 208,232 128,152 579,106
Transfer to investment property (179,792) - - (179,792)
Acquisition (Note 35) 127 - 127
Reclassifications (54,112) 54,134 (22)
Impairment (16,688) - - (16,688)
Disposals and write-offs (35,784) (20,773) (10,043) (66,600)
Depreciation for the year (127,933) (117,573) - (245,506)
Foreign exchange differences (82) 201 25 144
Other movements (21,596) 17,916 (1,493) (5,173)
Closing net book amount 3,167,386 663,146 420,871 4,251,403

At 31 December 2017
Cost 4,872,183 1,568,583 420,871 6,861,637
Accumulated depreciation (1,704,797) (905,437) - (2,610,234)
Net book amount 3,167,386 663,146 420,871 4,251,403

As at 31 December 2017, the cost of the Group's fully written off property, plant and equipment amounted to HRK
884,073 thousand (2016: HRK 899,612 thousand).
For securing repayments of borrowings from banks and other creditors for several subsidiaries, land and
buildings have been mortgaged in the amount of HRK 544,849 thousand (2016: HRK 572,022 thousand).
In 2017, the Group recognised an impairment loss in the amount of HRK 16,688 thousand (2016: HRK 94,533
thousand) on land and building related to the insurance segment, as estimated by independent third party valuers.

73
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

17. PROPERTY, PLANT AND EQUIPMENT (continued)

Company

Assets under
Other construction
Land and Plant and tangible and
(in thousands of HRK) buildings equipment assets advances Total

At 1 January 2016
Cost 119,168 30,498 4,655 33,114 187,435
Accumulated depreciation (49,633) (25,233) (1,698) - (76,564)
Net book amount 69,535 5,265 2,957 33,114 110,871

Year ended 31 December 2016


Opening net book amount 69,535 5,265 2,957 33,114 110,871
Transfer by merger (Note 30) 1,300 - - 294,738 296,038
Additions 260,787 25,795 1,094 182,699 104,977
Disposals and write-offs - (213) (1) (10,306) (10,520)
Depreciation for the year (2,526) (3,222) (50) - (5,798)
Closing net book amount 329,096 27,625 4,000 134,847 495,568
At 31 December 2016
Cost 381,255 54,350 5,748 134,847 576,200
Accumulated depreciation (52,159) (26,725) (1,748) - (80,632)
Net book amount 329,096 27,625 4,000 134,847 495,568

Year ended 31 December 2017


Opening net book amount 329,096 27,625 4,000 134,847 495,568
Additions 26,890 6,039 597 (30,332) 3,194
(238,562
Transfers to investment property (238,562) - - - )
Disposals and write-offs - (187) - (9,897) (10,084)
Depreciation for the year (8,544) (8,945) (141) - (17,630)
Closing net book amount 108,880 24,532 4,456 94,618 232,486
At 31 December 2017
Cost 165,337 59,396 6,345 94,618 325,696
Accumulated depreciation (56,457) (34,864) (1,889) - (93,210)
Net book amount 108,880 24,532 4,456 94,618 232,486

74
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

18. INVESTMENT PROPERTY

Group Company

(in thousands of HRK) 2017 2016 2017 2016

At 1 January
Cost 960,778 894,990 59,049 59,049
Accumulated depreciation (154,772) (136,941) (54,087) (53,148)
Net book amount 806,006 758,049 4,962 5,901

Additions - purchases 15,770 100,712 34 -


Transfer from non-current tangible
assets 179,792 - 238,562 -
Transfer to non-current tangible assets - (354) - -
Disposals (11,938) (11,751) - -
Impairment (16,856) (23,474) - -
Depreciation for the year (18,556) (16,660) (575) (939)
Foreign exchange differences 75 (516) - -
Net book amount 954,293 806,006 242,983 4,962

At 31 December
Cost 1,095,806 960,778 301,892 59,049
Accumulated depreciation (141,513) (154,772) (58,909) (54,087)
Net book amount 954,293 806,006 242,983 4,962

Rental income recognised in other comprehensive income form 2017 amounted to HRK 13,298 thousand for the
Company and HRK 90,048 thousand for the Group (2016: HRK 7,078 thousand for the Company and HRK 78,188
thousand for the Group).

In 2017, the Group recognised an impairment loss in the amount of HRK 16,856 thousand (2016: HRK 23,474
thousand) on land and building related to the insurance segment, as estimated by independent third party valuers.

The fair value of investment property approximates its carrying value based on the Company’s internal estimate.
No valuation of all investment properties has been performed.

75
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

19. BIOLOGICAL ASSETS

Group:

(in thousands of HRK) 2017 2016

Reproductive shoal at 1 January 27,493 22,043


Losses (mortality) (5,307) (4,529)
Change in fair value as a result of biological transformation 15,960 12,016
Sales (7,129) (2,037)
At 31 December 31,017 27,493

As at 31 December 2017, the Group estimates to have 16,662 kilograms of reproductive shoal (31 December 2016:
17,688 kilograms), and during the year it sold 2,906 kilograms (2016: 3,314 kilograms) of fish from the reproductive
shoal (both fish from preparation and spawning fish).

76
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

20. INTANGIBLE ASSETS

Customer
relationships
and long-term Rights from
contracts from Value of receivables
GROUP non-life life arising from Deferred Other
insurance assurance insurance acquisition intangible
(in thousands of HRK) Goodwill Brand business business contracts costs assets Total

Year ended 31 December 2017


Opening net book amount 207,125 305,045 50,555 60,667 66,000 128,331 103,751 921,474
Additions - - - - - 73,789 27,058 100,847
Acquisition (Note 35) 1,107 109 1,216
Other - - - - - - (382) (382)
Amortisation for the year - (24,733) (15,167) (3,500) (12,375) - (21,632) (77,407)
Disposals, write-offs - - - - - (80) (681) (761)
Foreign exchange differences - - - - - (15) 14 (1)
Closing net book amount 207,125 280,312 35,388 57,167 53,625 203,132 108,237 944,986

At 31 December 2017
Cost 252,482 371,000 91,000 70,000 99,000 203,132 276,155 1,362,769
Accumulated amortisation and
impairment (45,357) (90,688) (55,612) (12,833) (45,375) - (167,918) (417,783)
Net book amount 207,125 280,312 35,388 57,167 53,625 203,132 108,237 944,986

Other intangible assets mainly relate to intangible assets under construction, software, concessions and other rights.

77
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

20. INTANGIBLE ASSETS (continued)

Customer
relationships
and long-
term Rights from
contracts Value of receivables
GROUP from non-life life arising from Deferred Other
insurance assurance insurance acquisition intangible
(in thousands of HRK) Goodwill Brand business business contracts costs assets Total

Year ended 31 December 2016


Opening net book amount 252,482 329,778 65,722 64,167 78,375 68,375 82,482 941,381
Additions - - - - - 60,750 37,503 98,253
Effect of sale of subsidiaries - - - - - (794) (19) (813)
Other movements (45,357) - - - - - 4,290 (41,067)
Change in item category - - - - - - 32 32
Amortisation for the year - (24,733) (15,167) (3,500) (12,375) - (19,174) (74,949)
Disposals, write-offs - - - - - - (1,304) (1,304)
Foreign exchange differences - - - - - - (59) (59)
Closing net book amount 207,125 305,045 50,555 60,667 66,000 128,331 103,751 921,474

At 31 December 2016
Cost 252,482 371,000 91,000 70,000 99,000 128,331 250,479 1,262,292
Accumulated amortisation and
impairment (45,357) (65,955) (40,445) (9,333) (33,000) - (146,728) (340,818)
Net book amount 207,125 305,045 50,555 60,667 66,000 128,331 103,751 921,474

Other intangible assets mainly relate to intangible assets under construction, software, concessions and other rights.

78
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

20. INTANGIBLE ASSETS (continued)

The following intangible asset categories relate to individual assets arising from the acquisition of the insurance
segment with respective remaining useful lives as at 31 December 2017: brand (12.5 years), customer relationships
and long-term contracts from non-life insurance business (3.5 years), value of life insurance business (17.5 years),
and rights from receivables arising from insurance contracts (5.5 years).

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment.

An operating segment-level summary of the goodwill allocation is presented below:

Goodwill – carrying amount


(in thousands of HRK) Insurance Tourism Total
31 December 2016 197,410 9,715 207,125
31 December 2017 197,410 9,715 207,125

The recoverable amount of a CGU is determined based on value in use calculations, and it approximates the carrying
amount of goodwill for 2017 and 2016.

These calculations use pre-tax cash flow projections based on financial budgets approved by the Management Board
covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth
rates stated below. The growth rate does not exceed the long-term average growth rate for the industry in which the
CGU operates.

The key assumptions used for value-in-use calculations are as follows:

Insurance 2017 2016


Annual growth of gross written premiums /i/ 3.34% 3.72%
Annual growth of net profit /ii/ 5.74% 5.64%
Discount rate /iii/ 9.76% 10.97%
Rate of remaining growth /iv/ 2% 2%

i/ Budgeted growth of gross written premium based on past performance and management’s expectations for
the future
ii/ Budgeted growth of net profit based on past performance and management’s expectations for the future
iii/ Pre-tax discount rates applied to the cash flow projections which reflect specific risks related to the industry
iv/ Expected rate of remaining growth is based on past performance and market forecasts for the insurance
industry in Croatia

Tourism 2017 2016


Gross margin /i/ 36.2% 34%
Growth rate /ii/ 5.23% 3.3%
Discount rate /iii/ 9.05% 10.3%
Rate of remaining growth /iv/ 0% 2%

i/ Budgeted gross operating margin based on past performance and management’s expectations for the future
ii/ Weighted average growth rate used to extrapolate cash flows beyond the budget period
iii/ Pre-tax discount rates applied to the cash flow projections which reflect specific risks related to the industry
iv/ Expected rate of remaining growth is based on past performance and market forecasts for the tourism industry
in Croatia

79
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

20. INTANGIBLE ASSETS (continued)

COMPANY
(in thousands of HRK) 2017 2016

At 1 January
Cost 8,086 7,885
Accumulated amortisation (5,312) (5,244)
Net book amount 2,774 2,641

Opening net book amount 2,774 2,641


Additions 34 201
Amortisation for the year (106) (68)
Net book amount 2,702 2,774

At 31 December
Cost 8,120 8,086
Accumulated amortisation (5,418) (5,312)
Net book amount 2,702 2,774

80
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT


VENTURES

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

Investments in subsidiaries - - 3,279,865 3,280,051


Investments in associates 8,855 16,618 - -
Investments in joint ventures 82,694 80,948 - -
91,549 97,566 3,279,865 3,280,051

2017 2016
Ownership Investment Ownership Investment
Group Activity Country % amount % amount
in in
% HRK’000 % HRK’000
Joint ventures
PBZ Croatia
osiguranje d.d., Pension
Zagreb fund Croatia 50.0 81,284 50 79,384
Receivables from
joint funds - HUO Insurance Croatia - - - 139
Nacionalni biro za
osiguranje Skopje Insurance Macedonia - 1,410 - 1,425
82,694 80,948
Associates
Brioni d.d., Pula Transport Croatia - - 25.6 6,613
Autoprijevoz d.d.,
Otočac Transport Croatia - - 28.3 -
Strmec projekt d.o.o.,
Samobor Real estate Croatia 49.76 5,688 50 7,254
Technical
STP Agroservis d.o.o., testing and
Virovitica analysis Croatia 37.0 3,167 37 2,751
8,855 16,618

Joint ventures

Movements in investments in joint ventures are as follows:

(in thousands of HRK) 31 December 2017 31 December 2016

At 1 January 80,948 77,416


Increase using the equity method 1,900 3,532
Impairment (154) -
At 31 December 82,694 80,948

81
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT


VENTURES (continued)

Summarised financial information for joint ventures

Summarised financial information for PBZ Croatia osiguranje d.d. is presented below using the equity method.

Summary statement of financial position


(in thousands of HRK) 31 December 2017 31 December 2016
Financial assets 131,526 114,735
Other assets 13,943 28,008
Total assets 145,469 142,743

Liabilities 6,902 7,975


Capital and reserves 138,567 134,768
Total equity and liabilities 145,469 142,743

Summary statement of comprehensive income


Income 69,156 63,561
Expenses (34,158) (32,367)
Profit before tax 34,998 31,194
Income tax (6,298) (6,226)
Profit for the year 28,700 24,968
Share in profit of joint venture @ 50% 14,350 12,484

Reconciliation of the presented condensed financial information with the carrying value of shares in the joint
venture.

Summarised financial information


(in thousands of HRK) 31 December 2017 31 December 2016
Opening balance of net assets at 1 January /i/ 158,768 151,800
Profit for the period 28,700 24,968
Dividends (24,900) (18,000)
Closing balance of net assets 162,568 158,768
Share in profit of joint venture @ 50% 81,284 79,384
Carrying amount 81,284 79,384

/i/ Opening balances include HRK 24 million which relate to the difference in fair value of the net assets of the
company on acquisition by Adris grupa d.d. (50% attributable to the Group) in 2014.

82
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT


VENTURES (continued)

Associates:

Changes in investments in associates are as follows:

(in thousands of HRK) 31 December 2017 31 December 2016

At 1 January 16,618 16,237


Impairment of investments in associates (1,710) (44)
Sale of shares /i/ (6,469)
Share in profit of associates 416 425
Distribution of profit of associate - -
At 31 December 8,855 16,618

i/ During the year ended 31 December 2017, the Group sold its 25.6% share in the associate Brioni d.d., Pula.

The carrying amount of the assets and liabilities of Brioni d.d. at the reporting date preceding the sale was as follows:

(in thousands of HRK)


Current assets 19,448
Non-current assets 26,154
Current liabilities (9,664)
Non-current liabilities (10,637)
Net assets of associate 25,301
Attributable to the Group @ 25.6% 6,469

Effect of sale on the financial position and profit of the Group in 2017:

(in thousands of HRK)


Sales price (consideration received in cash) 11,074
Investment cost of the Company/Net assets of associate attributable to the Group at the date of
sale (6,469)
Gain on sale 4,605

83
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT


VENTURES (continued)

Subsidiaries:

All subsidiaries included in consolidation are listed in Note 1 to these financial statements. The share of the parent
company’s voting rights in the equity of subsidiaries does not differ from the share in the ownership of the
subsidiaries’ shares.

31 December 2017 31 December 2016

Ownership Ownership
(in thousands of HRK) share Amount share Amount

Investment in subsidiaries – wholly-owned

Adria Resorts d.o.o. Rovinj, Croatia 100% 1,050,000 100% 1,050,000


Abilia d.o.o., Rovinj, Croatia 100% 124,000 100% 124,000
Rovita Bugarska eood, Sofija, Bulgaria - - 100% 186
1,174,000 1,174,186

Investments in subsidiaries – majority interest


Croatia osiguranje d.d., Zagreb, Croatia 66.12% 2,105,865 66.12% 2,105,865
2,105,865 2,105,865

Total investment in subsidiaries 3,279,865 3,280,051

Movements in investments in subsidiaries were as follows:

(in thousands of HRK) 31 December 2017 31 December 2016


At 1 January 3,280,051 3,727,693
Disposals /i/ (186) -
Merger of subsidiary /ii/ - (447,642)

At 31 December 3,279,865 3,280,051

i/ During 2017, the Group liquidated the subsidiary Rovita Bugarska eood, Sofia, Bulgaria.
ii/ In line with the decision of the Assemblies of both companies, in September 2016 the Company merged with
the subsidiary Tvornica duhana Zagreb d.d. (Note 42)

Total non-controlling interests for 2017 amounted to HRK 1,322,655 thousand (31 December 2016: HRK 1,211,790
thousand), of which HRK 1,111,203 thousand relates to non-controlling interests in the subsidiary Croatia
osiguranje d.d. (31 December 2016: HRK 1,032,774 thousand), and HRK 196,262 thousand relates to Maistra d.d.
(31 December 2016: HRK 177,077 thousand) while the remaining amount relates to other subsidiaries.

84
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT


VENTURES (continued)

The following table presents the financial information for each subsidiary with a non-controlling interest significant
for the Group:

Summary balance sheet Croatia osiguranje d.d. Maistra d.d.


31 31 31 31
December December December December
(in thousands of HRK) 2017 2016 2017 2016
Current assets 2,760,650 3,040,614 65,355 105,091
Current liabilities (3,171,436) (2,854,309) (1,096,375) (977,690)
Total net current assets (410,786) 186,305 (1,031,020) (872,599)
Non-current assets 8,907,589 7,968,765 2,884,410 2,554,737
Non-current liabilities (4,928,724) (4,711,035) (283,938) (274,422)
Total net non-current assets 3,978,865 3,257,730 2,600,472 2,280,315
Total net assets 3,568,079 3,444,035 1,569,452 1,407,716

Summary income statement Croatia osiguranje d.d. Maistra d.d.


(in thousands of HRK) 2017 2016 2017 2016
Revenues 3,423.587 3,256,532 1,127,652 1,008,009
Profit before tax 268,028 218,312 185,868 144,616
Income tax (43,601) (73,568) (23,723) (2,787)
Total comprehensive income 224,427 144,744 162,145 141,829
Total comprehensive income attributable
to non-controlling interests 92,908 71,922 20,107 17,769

Summary cash flows Croatia osiguranje d.d. Maistra d.d.


(in thousands of HRK) 2017 2016 2017 2016
Cash flows from operations (84,984) (128,947) 390,415 336,171
Cash flows from investing 93,199 155,730 (511,117) (452,072)
Cash flows from financing (3,440) (2,933) 113,255 122,645

ADDITIONAL INFORMATION Croatia osiguranje d.d. Maistra d.d.


(in thousands of HRK) 2017 2016 2017 2016
Dividends paid to NCI 206 106 - -

85
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

22. HELD-TO-MATURITY INVESTMENTS

Group:

(in thousands of HRK) 31 December 2017 31 December 2016

Government bonds 2,202,292 2,197,884


Corporate bonds - 30,000
Bonds of local self-government - -
Treasury bills 7,190 12,306
2,209,482 2,240,190

Movements in held-to-maturity investments:

(in thousands of HRK) 31 December 2017 31 December 2016

At 1 January 2,240,190 2,411,307


Additions 297,995 119,008
Disposals (297,801) (249,207)
Foreign exchange differences (7,016) (15,304)
Amortisation of premium/discount (23,886) (25,614)

2,209,482 2,240,190
Current portion (380,455) (306,661)
Non-current portion 1,829,027 1,933,529

The currency structure of investments is as follows:

(in thousands of HRK) 31 December 2017 31 December 2016


HRK 752,130 711,666
EUR 1,423,868 1,512,705
Other currencies 33,484 15,819
2,209,482 2,240,190

86
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

23. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Shares, interests and other securities 436,178 376,324 99,507 83,748


Bonds 3,193,133 2,035,432 - -
Investment funds 136,941 112,230 - -
3,766,252 2,523,986 - -
Current portion (82,725) (22,837) - -
Non-current portion 3,683,527 2,501,149 99,507 83,748

The currency structure of investments is as follows:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

HRK 1,669,333 711,971 - -


EUR 1,979,526 1,612,740 99,507 83,748
USD 76,818 155,798 - -
Other currencies 40,575 43,477 - -
3,766,252 2,523,986 99,507 83,748

Movements in available-for-sale investments:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

At 1 January 2,523,986 2,085,751 83,748 83,230


Additions through acquisition 139,063 - - -
Additions 1,843,733 800,536 - -
Disposals (914,446) (483,324) - -
Foreign exchange differences (9,187) (9,036) - -
Fair value increase 183,103 130,059 15,759 518
3,766,252 2,523,986 99,507 83,748

87
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

24. a. FINANCIAL INSTRUMENTS BY CATEGORY

The accounting policies for financial instruments have been applied to the line items below:
Assets at
fair value
Held-to- Available- through
GROUP Loans and maturity for-sale profit or
(in thousands of HRK) receivables investments assets loss Total

31 December 2017
Assets

Trade receivables 869,914 - - - 869,914


Loans receivable 619,457 - - - 619,457
Financial assets at fair value through
profit or loss - - - 540,504 540,504
Other financial assets - 2,209,482 3,766,252 - 5,975,734
Receivables from right of recourse 235,445 - - - 235,445
Reinsurance share in technical
provisions 229,301 - - - 229,301
Deposits 3,861,367 - - - 3,861,367
Cash and cash equivalents 201,660 - - - 201,660
6,017,144 2,209,482 3,766,252 540,504 12,533,382

31 December 2016
Assets
Trade receivables 710,951 - - - 710,951
Loans receivable 974,835 - - - 974,835
Financial assets at fair value through
profit or loss - - - 539,537 539,537
Other financial assets - 2,240,190 2,523,986 - 4,764,176
Receivables from right of recourse 239,191 - - - 239,191
Reinsurance share in technical
provisions 198,091 - - - 198,091
Deposits 4,514,027 - - - 4,514,027
Cash and cash equivalents 211,415 - - - 211,415
6,848,510 2,240,190 2,523,986 539,537 12,152,223

Other
financial
(in thousands of HRK) liabilities

31 December 2017
Liabilities
Borrowings 844,871
Trade and other payables 371,079
1,215,950

31 December 2016
Liabilities
Borrowings 794,864
Trade and other payables (restated) 376,114
1,170,978

88
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

24.a. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

Available-
COMPANY Assets at fair for-sale
Loans and value through financial
(in thousands of HRK) receivables profit or loss assets Total

31 December 2017
Assets
Deposits 2,726,454 - - 2,726,454
Trade and other receivables /i/ 3,082 - - 3,082
Loans receivable 1,546,345 - - 1,546,345
Financial assets at fair value through profit
or loss - 72,853 - 72,853
Available-for-sale financial assets - - 99,507 99,507
Cash and cash deposits 5,776 - - 5,776
4,281,657 72,853 99,507 4,454,017

31 December 2016
Assets
Deposits 2,897,826 - - 2,897,826
Trade and other receivables /i/ 3,338 - - 3,338
Loans receivable 1,572,075 - - 1,572,075
Financial assets at fair value through profit
or loss - 76,677 - 76,677
Available-for-sale financial assets - - 83,748 83,748
Cash and cash deposits 13,984 - - 13,984
4,487,223 76,677 83,748 4,647,648

i/ Trade and other receivables do not include tax receivables, receivables from employees and advances receivable.

(in thousands of HRK) Other financial liabilities

31 December 2017

Liabilities
Borrowings 22,777
Trade and other payables /i/ 27,872
50,649

31 December 2016

Liabilities
Borrowings 16,277
Trade and other payables /i/ 28,777
45,054

i/ Trade and other payables do not include tax liabilities, liabilities to employees, taxes and contributions and
advances.

89
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

24.b. CREDIT QUALITY OF FINANCIAL ASSETS

The table below presents the Group’s asset analysis by categories as rated by the agencies Standard & Poor's (S&P),
Moody's and Fitch.
Group Group Rating 2017 Rating 2016
(in thousands of HRK) 31 Dec. 2017 31 Dec. 2016 S&P Moody´s Fitch S&P Moody´s Fitch

Held-to-maturity investments 2,209,482 2,240,190


Ministry of Finance, Republic of
Croatia 2,047,769 2,001,443 BB Ba2 BB BB Ba2 BB
Croatian Bank for Reconstruction
and Development (HBOR) 37,734 112,703 BB Ba2 BB BB Ba2 BB
Ministry of Finance, Macedonia 81,227 83,183 BB- - BB BB- - BB
Republic of Bosnia and
Herzegovina - 39 - - - B B3 B-
Ministry of Finance, Serbia 42,752 9,469 BB BA3 BB BB- B1 BB-
No rating - 33,353 - - - - - -
Available-for-sale financial assets 3,193,133 2,035,432
Ministry of Finance, Republic of
Croatia 2,809,081 1,725,544 BB Ba2 BB BB Ba2 BB
Croatian Bank for Reconstruction
and Development (HBOR) 70,397 70,996 BB Ba2 BB BB Ba2 BB
Ministry of Finance, Hungary 13,919 - BBB- Baa3 BBB- - - -
Rated corporations 13,531 15,089 BB- Ba3 - BB Ba2 -
13,871 3,058 BB Ba2 - BB- Ba3 -
Ministry of Finance, Macedonia 145,145 104,753 BB- - BB BB- - BB
Ministry of Finance, Serbia 86,501 66,668 BB Ba3 BB BB- B1 BB-
No rating 40,688 49,324 - - - - - -
Financial assets at fair value
through profit or loss 35,637 69,658
Ministry of Finance, Republic of
Croatia 1,437 1,954 BB Ba2 BB BB Ba2 BB
Ministry of Finance, Serbia 34,200 67,704 BB BA3 BB BB- B1 BB-
Trade and other receivables 1,910,096 2,202,835
Rated corporations 495,920 763,963 - C - B B3 -
No rating 1,414,176 1,438,872 - - - - - -
Reinsurance share in technical
provisions 229,301 198,091
Rated reinsurers 29,795 16,547 A - - A - -
12,060 11,733 A- - - A- - -
64,140 68,384 A+ - - A+ - -
- 1,267 - - - A++ - -
1,912 - AA - - - - -
90,388 70,557 AA- - - AA- - -
- 1,282 - - - AA - -
788 - AA+
60 761 - - A- AA- Aa3 AA-
508 247 - - BBB- - A1 -
2,243 46 - Baa1 A- - Aa1 -
- 68 - - - - - BBB+
- 31 - - - A+ A1 -
- 24 - - - A- - A-
- 20 - - - - Baa1 -
- 12,906 - - - BB Ba2 BB
- - - - - - -
Reinsurers rated by another agency 7,065 9,490 - - - - - -
No rating 20,342 4,728 - - - - - -

90
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

24. b. CREDIT QUALITY OF FINANCIAL ASSETS (continued)

The credit quality of financial assets that are not past due can be assessed by reference to historical information.

The key customers group includes customers depending on the business segment. In the tourism segment, these
include tourist agencies, in the healthy food segment these are retail chains, while in the insurance segment, the
credit quality of not due and unimpaired receivables is estimated based on the credit rating, where the high quality
refers to receivables from companies with a high external credit rating and where the possibility of receivables
becoming non-collectible is extremely low.

Trade receivables – neither past due nor impaired.

(in thousands of HRK) 2017 2016

Tourism
New customers 773 527
Existing customers – with some defaults in the past 1,502 5,642
2,275 6,169
Healthy food
Customers – payments within maturity period 8,018 12,621
Other customers 27,729 22,822
35,747 35,443
Insurance
High quality 1,894 36,447
Standard quality 453,377 341,117
455,271 377,564

Other neither past due nor impaired trade receivables 187,643 49,060
Total neither past due nor impaired trade receivables 682,048 468,236

91
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

25. TRADE AND OTHER RECEIVABLES

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Trade receivables:
Related parties (Note 41) 2,341 2,380
Domestic trade receivables 740,801 616,662 7,583 7,597
Foreign trade receivables 102,269 90,412
Due from exporters 8 8
Uninvoiced receivables 336,449 328,361
1,179,527 1,035,443 9,924 9,977
Impairment of trade receivables (309,613) (324,492) (6,842) (6,639)
Trade receivables – net 869,914 710,951 3,082 3,338

Loans given:
Loans to related parties (Note 41) - - 1,135,662 889,942
Loans to unrelated parties 1,497,872 1,677,628 1,027,455 1,156,365
1,497,872 1,677,628 2,163,117 2,046,307
Impairment of loans given (878,415) (702,793) (616,772) (474,232)
Loans – net 619,457 974,835 1,546,345 1,572,075

Taxes receivable 18,054 57,078


Receivables from right of recourse 235,445 239,191
Reinsurance share in technical provisions 229,301 198,091
Other receivables 167,226 220,780 7,562 65,568
650,026 715,140 7,562 65,568
2,139,397 2,400,926 1,556,989 1,640,981
Less non-current portion (124,190) (124,277) (10) (91)
Current portion 2,015,207 2,276,649 1,556,979 1,640,890

Non-current portion:
31 December 31 December
Group (in thousands of HRK) 2017 2016

Long-term loans receivable 13,911 18,630


Loans given to subcontractors – non-current portion 27
Other loans given – non-current portion 4,343 3,316
Reinsurance share in technical provisions 105,936 99,210
Other non-current receivables 3,094
124,190 124,277

Loans to related companies were granted in HRK with an interest rate of 4.97% p.a. (2016: 5.14% p.a.). The loans
are secured by bills of exchange.

Loans to unrelated companies were granted in HRK with a currency clause linked to the EUR at the market interest
rate. Loans are secured by promissory notes, pledge of shares and mortgage over property. The Company is not
permitted to sell the pledge and the fiduciary right over property and uncollated life insurance policies.

92
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

25. TRADE AND OTHER RECEIVABLES (continued)

Movements in the provision for impairment of trade receivables are as follows:

31 December 31 December
(in thousands of HRK) 2017 2016
At beginning of year 324,492 361,331
Provisions made during the year (Note 10) 168,388 166,299
Collected receivables previously written off (Note 10) (154,213) (170,470)
Effect of sale of subsidiaries - (6,832)
Foreign exchange differences 22 (608)
Write-off of previously impaired receivables (29,076) (25,228)
At 31 December 309,613 324,492

Balances and movements in impairment of loans given are as follows:

Group Company
(in thousands of HRK) 2017 2016 2017 2016
At beginning of year 702,793 332,227 474,232 101,560
Transfer by merger - - - 415
Provisions made during the year (Note
10) /i/ 286,484 386,899 230,214 385,200
Collected receivables previously written
off (Note 10) (110,858) (16,333) (87,674) (12,943)
Foreign exchange differences (4) - - -
At 31 December 878,415 702,793 616,772 474,232

The receivables for loans given to unrelated parties include a receivable of one group in the amount of HRK 1,193,755
thousand for the Group and HRK 1,026,508 for the Company (2016: HRK 1,160,109 thousand for the Group and
HRK 995,109 thousand for the Company). During 2017, the Group made additional adjustments of the stated
receivable in the amount of HRK 265,626 thousand (2016: HRK 385,200 thousand), and the Company in the
amount of HRK 230,244 thousand (2016: HRK 385,200 thousand). Based on the present value estimate of the
expected recoverable amount and the period in which the collection is expected, Management made a provision for
a part of the total receivable, which is uncertain at the balance sheet date. In considering the estimate of the
recoverable amount of receivables (including the security instruments), Management considered the current
process of reorganisation and the liquidity of the stated group and the available information on a potential
settlement.

The maturities of the loans given are as follows:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016
Not later than one year 601,203 952,862 1,546,335 1,571,984
From 2 to 5 years 18,254 21,973 10 91
619,457 974,835 1,546,345 1,572,075

93
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

25. TRADE AND OTHER RECEIVABLES (continued)

The book value of the Group’s non-current receivables approximates their fair value, since the stated interest rates
do not significantly differ from current market rates.

Effective interest rates on current and non-current receivables at the balance sheet date were as follows:

Group Company
31 December 2017 31 December 2016 31 December 2017 31 December 2016
0%-7% 0.30%-8.75% 4%-7% 4%-7%

As at 31 December 2017, the Group's trade receivables in the amount of HRK 187,886 thousand (2016: HRK 242,715
thousand) were past due but not impaired.

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Up to 1 month 73,685 106,043 89 96


1 to 2 months 33,362 41,100 57 62
2 to 3 months 30,507 36,236 2 2
Over 3 months 50,332 59,336 483 523

187,886 242,715 631 683

The carrying amounts of the Group’s and the Company’s trade and other receivables are denominated in the
following currencies:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

EUR 559,886 856,283 410,604 681,557


HRK 1,469,147 1,445,850 1,146,385 959,424
RSD 14,915 14,283 - -
USD 31,629 42,485 - -
BAM 41,088 19,748 - -
MKD 22,578 16,387 - -
GBP 154 5,890 - -
2,139,397 2,400,926 1,556,989 1,640,981

The book value of the Group’s current receivables approximates their fair value due to their short-term maturities.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned
above. The Company does not hold any collateral as security.

94
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

26. DEFERRED TAX

Company:

Deferred tax assets

(in thousands of HRK) 31 December 2017 31 December 2016

Deferred tax assets to be recovered within 12 months 5,655 -


Deferred tax assets to be recovered after more than 12
months 113,554 110,557
119,209 110,557

Movements in deferred tax assets during the year were as follows:

2017 2016
(in thousands of Impairment Impairment
HRK) Provisions losses Total Provisions losses Total

At 1 January 22,480 88,077 110,557 159,157 23,210 182,367


Charged to the
statement of
comprehensive
income (16,825) 25,477 8,652 (134,160) 74,337 (59,823)
Effect of change
in tax rate (2,517) (9,470) (11,987)
At 31 December 5,655 113,554 119,209 22,480 88,077 110,557

Deferred tax liability

As at 31 December 2016, the Company reported a deferred tax liability in the amount of HRK 9,083 thousand (2016:
HRK 6,246 thousand) based on the revaluation of available-for-sale financial assets stated in equity.

(in thousands of HRK) 2017 2016


At 1 January 6,246 6,836
Charged to the statement of comprehensive income 2,837 104
Effect of change in tax rate - (694)
9,083 6,246

95
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

26. DEFERRED TAX (continued)

Group:

Deferred tax assets

31 December 31 December
(in thousands of HRK) 2017 2016

Deferred tax assets to be recovered within 12 months 9,476 5,945


Deferred tax assets to be recovered after more than 12 months 230,867 231,206
240,343 237,151

Deferred tax assets were incurred on temporary differences arising between the carrying amounts of assets and the
legally prescribed tax base.

The movement in deferred tax assets during the year is as follows:

Termination Impairment Legal


benefits losses disputes Other Total
At 1 January 2016 851 155,655 7,150 171,735 335,391
Charged to the income statement 28 63,915 305 (136,589) (72,341)
Effect of change in tax rate (24) (21,262) (147) (4,466) (25,899)
At 31 December 2016 855 198,308 7,308 30,680 237,151
Charged to the income statement 153 25,648 (684) (21,763) 3,354
Foreign exchange differences - (4) - 4
Other - (188) - 26 (162)
At 31 December 2017 1,008 223,764 6,624 8,947 240,343

Deferred tax liability


31 December 31 December
(in thousands of HRK) 2017 2016

Deferred tax assets to be recovered within 12 months 13,259 14,333


Deferred tax liability recoverable after more than 12 months 199,288 184,082
212,547 198,415

The deferred tax liability is mainly calculated on temporary differences between the tax base of tangible assets in
the subsidiaries and its fair value in the consolidated financial statements and on the revaluation of available-for-
sale financial assets.
31 December 31 December
(in thousands of HRK) 2017 2016

At 1 January 198,415 219,954


Acquisition of subsidiary (Note 35) 1,128 -
Charged to the statement of comprehensive income (9,458) (27,440)
Increase charged to other comprehensive income 22,623 27,831
Other (161) (21,930)
At 31 December 212,547 198,415

96
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

27. INVENTORIES

31 December 31 December
(in thousands of HRK) 2017 2016

Raw materials and supplies 36,507 35,620


Work in progress 426,609 369,000
Finished goods 4,882 689
Trade goods 386 3,521
Advances for raw materials and supplies 564 541
468,948 409,371

Borrowings from one of the Group subsidiaries were secured by a pledge over the inventories of work in progress in
the amount of HRK 12,286 thousand (31 December 2016: HRK 13,416 thousand).

The cost of inventories recorded as expenses in 2017 amounted to HRK 382,455 thousand (31 December 2016: HRK
369,957 thousand).

28. DEPOSITS AND CASH

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Deposits 3,861,367 4,514,027 2,726,454 2,897,826


Long-term 2,487,763 748,992 2,062,908 49,126
Short-term 1,373,604 3,765,035 663,546 2,848,700

Deposits have defined maturities and are given with variable interest rates which reflect market rates.

The effective interest rates on deposits during the year were as follows:

Group Company
31 December 31 December 31 December 31 December
2017 2016 2017 2016

Deposits 0%-3.9% 0.3%-3.9% 0.1%-3.0% 0.3%-3.9%

97
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

28. DEPOSITS AND CASH (continued)

Cash on bank accounts and deposits are denominated in the following currencies:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

HRK 1,076,409 1,253,950 605,668 493,691


EUR 2,654,061 3,160,096 2,126,562 2,418,119
USD 1,413 16,947 - -
BAM 237,966 223,117 - -
MKD 66,529 - - -
RSD 26,398 - - -
GBP 102 - - -
Other currencies 149 71,332 - -
4,063,027 4,725,442 2,732,230 2,911,810

The table below presents the analysis of deposits and cash by categories as rated by the agencies Standard & Poor's
(S&P), Moody's and Fitch.

Group Rating 2017 Rating 2016


31 31
(in thousands of December December
HRK) 2017 2016 S&P Moody´s Fitch S&P Moody´s Fitch

Deposits and cash 4,063,027 4,725,442


Rated banks 3,214,894 3,567,405 BB BBB- BB - BBB-
Rated banks - 209,466 - - - B B2 B-
Other banks and
financial
institutions 848,133 948,571 - - - BB- - BB

Company Rating 2017 Rating 2016


31 31
(in thousands of December December
HRK) 2017 2016 S&P Moody´s Fitch S&P Moody´s Fitch

Deposits and cash 2,732,230 2,911,810


Rated banks 2,731,706 2,911,575 BB - BBB- BB - BBB-
Other member
banks of reputable
banking groups in
EU 524 235 - - - BB- - BB

Other member banks of reputable banking groups in the EU relate to banks based in Member States and groups
that are not rated by the above agencies but their parent banks within the EU have the following ratings BBB, BBB+,
BBB- (2016: BBB-, BBB, BB+, BBB+).

98
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

29. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Investments in shares 87,173 88,685 71,416 74,723


Investments in bonds 35,637 69,658 1,437 1,954
Investments in investment funds 416,002 381,194 - -
Foreign currency forward contracts 1,692 - - -
540,504 539,537 72,853 76,677

Changes in fair values of financial assets at fair value through profit or loss are recorded in ‘Other gains’ in the
statement of comprehensive income (Note 11).

The currency structure of investments is as follows:

(in thousands of HRK) 2017 2016

HRK 143,013 311,553


EUR 373,082 197,827
Other currencies 24,409 30,157
540,504 539,537

30. CAPITAL AND RESERVES

i/ As at 31 December 2017 and 2016, the share capital of the Company amounting to HRK 164,000 thousand is
distributed among 9,615,900 ordinary shares and 6,784,100 preference shares, with a nominal value of HRK
10.00 per share. Preference shares have the same rights as ordinary shares, except that they do not have voting
rights in the General Assembly.

ii/ During 2017, the Company purchased 19,386 treasury shares (2016: -). In the same year, the Company sold
155,520 shares (2016: 153,510). As at 31 December 2017, the Company owns 177,590 treasury shares or 1.08%
of all issued shares (31 December 2016: 313,724 treasury shares or 1.91% of all issued shares). In December
2017, the Company issued a Programme for disposing of treasury, enabling the employees within the group
to buy the Company’s shares.

iii/ In accordance with Croatian regulations, in earlier periods the Company formed legal reserves in the amount
of HRK 12,448 thousand. This reserve is not distributable.

iv/ Based on the General Assembly’s decision from 14 June 2017, the Company’s profit from 2016 in the amount
of HRK 235,725 thousand was transferred to the Company’s statutory reserves, retained earnings in the
amount of HRK 378,468 thousand was transferred to statutory reserves, while HRK 244,000 thousand was
transferred from statutory reserves to retained earnings (15 June 2016: profit from 2015 in the amount of
HRK 1,843,333 thousand was transferred to the Company’s statutory reserves, while the amount of HRK
250,000 thousand was transferred from statutory reserves to retained earnings). Statutory reserves are
formed in accordance with the Company’s internal rules and consist of retained earnings transferred to
statutory reserves based on the decisions of the Shareholders’ General Assembly and as such are distributable.
As at 31 December 2017, statutory reserves include cumulative net foreign exchange gains in the amount of
HRK 2,429 thousand (31 December 2016: net foreign exchange gains of HRK 2,067 thousand).

99
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

30. CAPITAL AND RESERVES (continued)

v/ Based on its decision from 14 June 2017, the General Assembly approved a dividend from profit in the amount
of HRK 278,800 thousand or HRK 17.00 per share. (2016: Based on its decision from 15 June 2016, the
General Assembly approved a dividend from profit in the amount of HRK 246,000 thousand or HRK 15.00
per share).

vi/ The transfer within equity from other reserves to retained earnings in the amount of HRK 811,924 thousand
relates to the effect of the merger of the company TDZ d.d. to the parent company Adris grupa d.d. (Note 40).

The ownership structure of the Company as at 31 December 2017 and 2016 is as follows:

Ordinary shares:

2017 2016
Number of Number of
Nominal value shares % shares %

Small shareholders 10 9,464,502 98.43% 9,317,860 96.90%


Treasury shares 10 151,398 1.57% 298,040 3.10%
9,615,900 100% 9,615,900 100%

Preference shares:

2017 2016
Number of Number of
Nominal value shares % shares %

Small shareholders 10 6,757,908 99.61% 6,768,416 99.77%


Treasury shares 10 26,192 0.39% 15,684 0.23%
6,784,100 100% 6,784,100 100%

Total:

2017 2016
Number of Number of
Nominal value shares % shares %

Small shareholders 10 16,222,410 98.92% 16,086,276 98.09%


Treasury shares 10 177,590 1.08% 313,724 1.91%
16,400,000 100% 16,400,000 100%

100
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

31. BORROWINGS

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Long-term borrowings 324,411 339,040 - -


Current portion of long-term borrowings (20,177) (21,823) - -
Non-current portion 304,234 317,217 - -

Short-term bank borrowings 520,460 455,824 - -


Short-term borrowings from related
parties (Note 41) - - 22,777 16,277
Current portion of long-term borrowings 20,177 21,823 - -
Total short-term borrowings 540,637 477,647 22,777 16,277

Long-term borrowings mainly relate to bank borrowings in subsidiaries Maistra d.d., Rovinj and Cromaris d.d.,
Zadar (2016: Maistra d.d., Rovinj, Cromaris d.d., Zadar). The borrowings have been secured with bills of exchange,
promissory notes, pledged life-insurance policies and mortgages over tangible assets and inventories.

The effective interest rates at the balance sheet date were as follows:

Group Company
31 December 31 December 31 December 31 December
2017 2016 2017 2016

Long-term borrowings 3%-3.125% 2.5%-3.125% - -


Short-term bank borrowings 2.2%-6.03% 2.2% - 6% - -
Short-term borrowings from related
parties - - 4.97% 5.14%

In 2017, the Group did not capitalise borrowing costs (2016: HRK 776 thousand).

The Group’s exposure to interest rate changes:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

Borrowings at fixed interest rates 551,099 591,936 22,777 16,277


Borrowings at variable interest rates 293,772 202,928 - -

844,871 794,864 22,777 16,277

101
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

31. BORROWINGS (continued)

The carrying value of the Group’s borrowings approximates their fair value, as contracted interest rates approximate
the Group’s available current borrowing rates.
The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance
sheet date are as follows:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

1-6 months 293,772 202,928 - -

293,772 202,928 - -

The maturity of long-term borrowings is as follows:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

Between 1 and 2 years 15,341 13,359 - -


Between 2 and 5 years 85,316 71,994 - -
More than 5 years 203,577 231,864 - -

304,234 317,217 - -

The carrying amounts of borrowings are denominated in the following currencies:

Group Company
31 December 31 December 31 December 31 December
(in thousands of HRK) 2017 2016 2017 2016

EUR 273,148 282,512 - -


HRK 571,320 509,041 22,777 16,277
Other 403 3,311 - -

844,871 794,864 22,777 16,277

Group Company
(in thousands of HRK) Net debt Net debt

At 1 January 2017 816,410 37,533

Cash flow - net 134,000 9,000


Proceeds from borrowings (107,293) (3,450)
Repayment of borrowings 20,668 972
Dividends declared 278,800 278,800
Dividends paid (275,757) (275,757)
Foreign exchange differences 1,397 (1,245)
At 31 December 2017 868,225 45,853

102
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

32. TRADE AND OTHER PAYABLES

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Trade payables – related parties


(Note 41) - - 249 243
Domestic trade payables 140,535 137,626 3,892 6,861
Foreign trade payables 9,865 24,780 655 417
Tax payable and other payables
due to the state 52,033 63,600 5,977 6,925
Due to employees 64,333 81,825 6,875 8,017

Dividends payable 23,354 21,546 23,076 21,256


Advances from customers 16,001 16,895 - -
Concession liabilities 42,252 35,388 - -
Insurance contract liabilities 100,227 110,456 - -
Liabilities from coinsurance and
reinsurance business 54,846 46,318 - -
Accrued expenses 133,935 100,608 7,651 8,352
Deferred income 255,777 248,415 - -
Other accruals and payables 26,046 9,962 215 109
919,204 897,419 48,590 52,180

The carrying amounts of financial liabilities are denominated in the following currencies:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

HRK 266,988 281,504 47,935 51,691


EUR 64,307 55,942 655 489
BAM 16,703 11,872 - -
RSD 9,619 7,187 - -
USD 9,409 17,035 - -
MKD 3,966 2,452 - -
Other currencies 87 122 - -

371,079 376,114 48,590 52,180

103
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

33. PROVISIONS

Group: Provisions for


termination Legal Other
(in thousands of HRK) benefits disputes provisions Total

At 1 January 2016 100,695 85,311 784,958 970,964


Additional provisions 61,992 16,731 - 78,723
Payment of provisions (23,658) (13,634) - (37,292)
Reversal of provisions (35,940) - (667,424) (703,364)
At 31 December 2016 103,089 88,408 117,534 309,031
Acquisition of subsidiaries (Note 35) 1,371 437 - 1,808
Additional provisions 19,813 49,910 - 69,723
Payment of provisions (54,261) (14,411) - (68,672)
Reversal of provisions (1,945) (14,755) (93,684) (110,384)
At 31 December 2017 68,067 109,589 23,850 201,506

Company: Provisions for long-


term employee Other
(in thousands of HRK) benefits provisions Total

At 1 January 2016 6,545 784,958 791,503


Additional provisions - - -
Reversal of provisions (6,545) (667,424) (673,969)
At 31 December 2016 - 117,534 117,534

At 1 January 2017 - 117,534 117,534


Additional provisions 48 48
Reversal of provisions - (93,684) (93,684)
At 31 December 2017 48 23,850 23,898

Analysis of total provisions:

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Non-current portion 146,443 244,047 48 117,534


Current portion 55,063 64,984 23,850 -
201,506 309,031 23,898 117,534

104
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

33. PROVISIONS (continued)

Provisions for legal disputes


The provision amounting to HRK 109,589 thousand (2016: HRK 88,408 thousand) relates to the provision for legal
disputes regarding the land utilisation right as well as certain legal disputes brought against the Group by various
suppliers and others. The provision charge is recognised in the statement of comprehensive income in Note 10 –
Other operating expenses. The provision amounts have been discounted to their present value. In the Management
Board’s opinion, after taking appropriate legal advice, the outcomes of legal disputes will not give rise to any specific
loss beyond the amounts provided at 31 December 2017.

Provisions for termination benefits


The non-current portion of the provision for termination benefits relates to the estimated amount of termination
benefits in line with the collective bargaining agreement, to which the employees of certain Group companies are
entitled at the end of their employment (either upon retirement, termination or voluntary departure). The present
value calculation of these provisions is based on the number of employees, average gross salary, number of years of
service at the balance sheet date and the discount rate of 1.90% for the Company and 1.52%-2.75% for the Group
(2016: 2.36%-6.15% for the Group).

Other provisions
Other provisions mainly relate to estimated risks that the Management Board identified as a result of the sale of the
tobacco and retail segments. As part of the sales contract of 2015, the Company and the Group have provided certain
guarantees to the buyer based on the realisation of certain future events over which the Company and the Group
have no control. At 31 December 2017 and 2016, Management assessed the likelihood of the realisation of
contractual guarantees and quantified the identified risks based on the likelihood of their occurrence. The final
solution is expected during 2018. During 2017, an additional amount of HRK 46,777 was received as part of realising
these contractual guarantees.

34. TECHNICAL PROVISIONS

31 December 31 December
(in thousands of HRK) 2017 2016

Claims provisions, gross


Provisions for reported but not settled claims 1,602,911 1,621,849
Provisions for incurred, but not reported claims (IBNR) 1,063,776 1,071,045
Provisions for costs of claims handling 151,576 137,682

Claims provisions, gross 2,818,263 2,830,576


Unearned premiums, gross 1,308,560 1,150,010
Mathematical insurance provisions, gross 2,687,801 2,634,966
Other insurance-technical provisions, gross 57,422 63,091
Technical provisions for life insurance where the policyholder bears the
investment risk 336,901 138,599
Total technical provisions 7,208,947 6,817,242

Other insurance-technical provisions include unexpired risk reserves.

105
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

34. TECHNICAL PROVISIONS (continued)

Movements in provision for reported but not settled claims, gross

31 December 31 December
(in thousands of HRK) 2017 2016
LIFE
At 1 January 32,708 24,994
Foreign exchange differences arising on translation of financial
statements of foreign operations 6 (6)
Claims incurred in the current year 24,307 23,409
Transfer from provisions for incurred, but not reported claims 423 798
Change in claims from the previous year (3,809) (3,999)
Settled claims (15,843) (12,488)
At 31 December 37,792 32,708

NON-LIFE
At 1 January 1,589,141 1,676,623
Foreign exchange differences arising on translation of financial
statements of foreign operations 802 (1,796)
Claims incurred in the current year 302,879 295,198
Transfer from provisions for incurred, but not reported claims 133,580 136,201
Change in claims from the previous year (97,891) (83,039)
Settled claims (366,459) (394,688)
Disposal of subsidiary - (39,358)
Effect of merger - -
Increase through acquisition 3,067 -
At 31 December 1,565,119 1,589,141

TOTAL LIFE AND NON-LIFE


At 31 December 1,602,911 1,621,849

106
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

34. TECHNICAL PROVISIONS (continued)

Movements in provision for incurred but not reported claims

31 December 31 December
(in thousands of HRK) 2017 2016
LIFE
At 1 January 3,067 5,020
Foreign exchange differences arising on translation of financial
statements of foreign operations (5) (6)
Increases recognised during the year 764 56
Transfer to provisions for reported claims (423) (795)
Settled claims (1,146) (1,210)
LIFE At 31 December 2,257 3,065
NON-LIFE
At 1 January 1,067,978 1,156,829
Foreign exchange differences 1,989 (1,937)
Increases recognised during the year 272,917 286,368
Transfer to provisions for reported claims (133,611) (136,201)
Settled claims (153,718) (229,405)
Increase through acquisition 5,964
Disposal of subsidiary - (7,674)
Effect of merger - -
NON-LIFE At 31 December 1,061,519 1,067,980

TOTAL LIFE AND NON-LIFE


At 31 December 1,063,776 1,071,045

Movements in provisions for unearned premiums

31 December 31 December
(in thousands of HRK) 2017 2016
LIFE
At 1 January 5,511 4,799
Foreign exchange differences arising on translation of financial
statements of foreign operations (7) (10)
Written premiums during the year 639,376 629,583
Earned premiums during the year (639,386) (628,861)
At 31 December 5,494 5,511
NON-LIFE

At 1 January 1,144,499 1,064,375


Foreign exchange differences arising on translation of financial
statements of foreign operations 2,905 (3,514)
Written premiums during the year 2,501,784 2,391,135
Earned premiums during the year (2,350,532) (2,298,787)
Increase through acquisition (Note 35) 4,410 -
Disposal of subsidiary - (8,710)
Effect of merger - -
At 31 December 1,303,066 1,144,499

TOTAL LIFE AND NON-LIFE


At 31 December 1,308,560 1,150,010

107
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

34. TECHNICAL PROVISIONS (continued)

Movements in mathematical insurance provisions, gross


31 December 31 December
(in thousands of HRK) 2017 2016

At 1 January 2,634,966 2,507,339


Foreign exchange differences arising on translation of financial statements of
foreign operations (1,398) (2,026)
Allocated premium 288,609 354,869
Reversal of liabilities due to benefits paid, surrenders and other terminations (362,370) (309,258)
Capitalised technical interest 64,688 75,914
Change in discretionary bonus 4,221 8,128
Effect of acquisition (Note 35) 59,085 -
At 31 December 2,687,801 2,634,966

Movements in technical provisions for life insurance where the policyholder bears the
investment risk
31 December 31 December
(in thousands of HRK) 2017 2016

LIFE
At 1 January 138,599 34,582
Foreign exchange differences 7 -
Allocated premium 193,297 103,641
Reversal of liabilities due to benefits paid, surrenders and other
terminations (5,985) (2,900)
Unrealised gains on assets in which the policyholders’ funds are invested 10,983 3,276
At 31 December 336,901 138,599

The maturity of gross technical provisions is as follows:


Less than 1 From 1 to 5 From 5 to More than
(in thousands of HRK) year years 10 years 10 years Total
2016
Unearned premiums, gross 916,502 151,340 71,665 10,503 1,150,010
Mathematical insurance
provisions, gross 325,515 1,151,543 612,416 545,493 2,634,967
Claims provisions, gross 898,793 682,210 385,932 863,641 2,830,576
Other insurance-technical
provisions, gross 49,882 9,142 3,345 721 63,090
Technical provisions for life
insurance where the policyholder
bears the investment risk 549 86,376 51,615 59 138599
2,191,241 2,080,611 1,124,973 1,420,417 6,817,242
2017
Unearned premiums, gross 1,075,785 176,986 52,172 3,617 1,308,560
Mathematical insurance
provisions, gross 396,501 1,064,207 652,400 574,693 2,687,801
Claims provisions, gross 976,398 684,714 394,701 762,451 2,818,264
Other insurance-technical
provisions, gross 52,469 4,120 722 109 57,420
Technical provisions for life
insurance where the policyholder
bears the investment risk 171 271,035 65,636 60 336,902
2,501,324 2,201,062 1,165,631 1,340,930 7,208,947

108
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

35. ACQUISITION OF SUBSIDIARIES

As at 18 October 2017, the Group acquired 100% of shares with voting rights of the company BNP Paribas Cardif
osiguranje d.d. The principal activity of the acquired company is non-life insurance and as part of its portfolio offers
services of asset insurance, loan insurance and insurance of various financial losses.

By acquiring shares in BNP Paribas Cardif osiguranje d.d., the Group strengthened its business and market position
on the Croatian market in accordance with the business strategy of market growth.

Details on the fair value of identifiable assets and liabilities of BNP Paribas Cardif osiguranje d.d. at the acquisition
date, gain on bargain purchase and the purchase consideration are shown below:

(in thousands of HRK)

Assets
Intangible assets 109
Deferred acquisition costs 1,107
Property and equipment 127
Available-for-sale investments 140,804
Reinsurance share in technical provisions 203
Receivables from direct insurance business 3,483
Other receivables 1,056
Cash at bank and cash in hand 10,947

Liabilities
Unearned premiums, gross amount (4,410)
Mathematical provisions, gross amount (59,085)
Claims provisions, gross amount (10,105)
Provisions for bonuses and discounts, gross amount (15)
Deferred and current tax liability (1,128)
Liabilities from direct insurance business (1,342)
Other liabilities (1,472)
Other accrued expenses and deferred income (4,725)
Total net assets at fair value 75,554

Gain on bargain purchase (20,554)


Purchase consideration 55,000

Cash flow on acquisition:


Cash and cash equivalents acquired 10,947
Purchase consideration paid in cash (55,000)
Cash flow on acquisition (44,053)

Within the Group's strategy and efforts to strengthen the insurance business, the Group acquired 100% share in the
company BNP Paribas Cardif osiguranje d.d. The purchase of the acquired company resulted in a gain on bargain
purchase, since the fair value of the acquired assets and liabilities exceeds the purchase consideration. The gain on
bargain purchase in the amount of HRK 20,554 thousand is recognised in the consolidated statement of
comprehensive income within Other income.

In the consolidated statement of comprehensive income of the Group, in the period from 1 October to 31 December
2017, BNP Paribas Cardif osiguranje d.d. contributed HRK 4,825 thousand in revenue and HRK 8,792 thousand in
profit before tax.

109
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

35. ACQUISITION OF SUBSIDIARIES (continued)

Had the company BNP Paribas Cardif osiguranje d.d. been consolidated as of 1 January 2017, an increase in income
by HRK 19,196 thousand and increase in profit before tax by HRK 19,608 thousand would have been recognised in
the consolidated income statement.
In November 2017, BNP Paribas Cardif osiguranje d.d. changed its name to CROATIA osiguranje kredita d.d.

Also, in 2017, the Company acquired 100% of shares with voting rights in the company Auto Maksimir Vozila d.o.o.
whose principal activity is insurance representation.

The purchase consideration amounted to HRK 100 thousand and approximately equals the fair value of the acquired
company.

36. SALE OF SUBSIDIARIES

Sale of subsidiaries during 2016


a) Description
In May 2016, the Group sold the 100% share in the company Croatia Sigurimi Sh.a. The financial data related to the
sold subsidiaries in the period up to the sales date are specified below.

b) Data on financial transactions and cash flows


The presented financial transactions relate to the four months ended 30 April 2016.

(in thousands of HRK) 2016

Gross premiums written 5,645


Gross premiums ceded to reinsurance and co-insurance (473)

Written premiums, net of reinsurance 5,172


Change in gross provisions for unearned premiums 686
Changes in provisions for unearned premiums, reinsurance and con-insurance share (31)

Earned premiums, net of reinsurance 5,827


Finance income 349
Other operating income 353

Net operating income 6,529

Claims incurred (2,358)


Reinsurance and co-insurance share in claims incurred (47)

Claims incurred, net of reinsurance and co-insurance (2,405)

Acquisition costs (1,416)


Administration costs (2,083)
Other operating expenses (1,051)

Loss before tax (426)


Income tax (282)
Loss for the year (708)

110
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

36. SALE OF SUBSIDIARIES (continued)

c) Details on the sale of subsidiaries

(in thousands of HRK) 2016

Consideration received and receivables for sale of subsidiaries


- Cash 5,618
- Trade receivables 5,618
Total sales 11,236
Net book amount of net assets sold (21,343)
Loss on sale (Note 12) (10,107)

The value of assets and liabilities of the sold subsidiaries as at 30 April 2016 was as follows:

(in thousands of HRK) 30 April 2016

Intangible assets 19
Property and equipment 501
Available-for-sale financial assets 25,332
Loans and receivables 39,822
Reinsurance share in technical provisions 10,208
Insurance contract and other receivables 1,601
Cash and cash equivalents 1,446
Total assets 78,929

Subscribed share capital 41,131


Fair value reserve (30)
Retained earnings (19,758)
Total capital and reserves 21,343

Technical provisions 55,742


Liabilities arising from insurance contracts, other liabilities and deferred income 1,844
Total liabilities 57,586
Total capital, reserves and liabilities 78,929

37. PURCHASE OF SHARES FROM NON-CONTROLLING INTEREST

During 2017, the Group purchased an additional 0.34% share in the company Grand Hotel Imperial d.d., Dubrovnik
for an amount of HRK 409 thousand, the remaining part of the non-controlling interest, i.e. 26% in the company
Poliklinika Ars Medica, Pula for an amount of HRK 2,000 and additional 0.6% share in the company CO d.d.,
Mostar for an amount of HRK 136 thousand; 2016: additional 0.4% share in the company Croatia osiguranje d.d.,
Ljubuški for the total amount of HRK 359 thousand).

The difference between the carrying amount of the non-controlling interest and the consideration paid amounting
to HRK 506 thousand (2016: HRK 55 thousand), is recorded as a decrease in other provisions in the Group's equity.

111
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

38. CASH GENERATED FROM OPERATIONS

Group Company
(in thousands of HRK) Note 2017 2016 2017 2016

Profit before tax 441,309 649,697 25,462 313,605

Depreciation and amortisation and


impairment 17, 18, 20 375,758 428,822 18,311 6,805
Loss/(gain) on sale of subsidiaries 36 - 10,107 186 -
Share in profit of associates 21 (452) (3,957) - -
Interest income 6, 13 (311,277) (337,429) (130,691) (138,871)
Interest expense 13 20,668 18,283 972 27,065
Gains on sale of property, plant and
equipment 11 (18,731) (15,418) - -
Write-off of property, plant and equipment
and intangible assets 33,909 8,806 9,989 -
Fair value (gains)/losses on financial assets
at fair value through profit or loss 19 (10,653) (5,450) - -
(Gains)/losses on sale of financial assets 11 (51,075) (18,968) 92 (11,415)
Provision for impairment of receivables –
net 10 190,937 351,149 143,383 372,258
Dividend income 6 (16,901) (18,287) (4,951) (5,391)
Income from bargain purchase 11 (20,554) - - -
Unrealised foreign exchange differences 18,808 55,861 24,448 29,318
Other adjustments 15,161 - 8,019 -

Movements in working capital:


- provisions 33 (107,525) (667,424) (93,636) (673,969)
- technical provisions 34 318,090 160,315 - -
- trade receivables (174,274) (65,556) (255) (1,096)
- other current assets 98,342 (73,913) (26,026) -
– inventories (59,577) (40,266) - -
- trade and other payables (26,838) (14,206) (5,430) (30,238)
- other - 9,780 - -
Cash generated from operations 715,125 431,946 (30,127) (111,929)

112
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

39. CONTINGENCIES AND UNCERTAIN EVENTS

Legal disputes
In line with the Privatisation Act, during the privatisation process of a tourist sector company, title was recognised
over land built upon and a minor part of land not built upon. Before the privatisation process, the companies utilised
a significantly larger land surface. However, in the period from 1995 to 2001, the companies initiated legal
proceedings against the state for the purpose of title recognition over the entire land surface used for the
performance of business activities. Up to the balance sheet date, the proceedings have not been finalised, although
the Court of first instance ruled in favour of the companies. After the balance sheet date, the Act on Tourist Land
entered into force under which, after determining ownership between the state and tourism companies, the
companies will be required to pay a concession on state land. Since the entire process of determining ownership is
still in progress, at this point it is not possible to assess the impact of the legislation on the Group's operations.

Supervision of the ownership transformation and privatisation process


In the period from 2002 to 2004, audits of the ownership transformation and privatisation processes were
performed in the legal predecessors of Maistra d.d., Rovinj: Jadran-turist d.d., Rovinj and Anita d.d., Vrsar.

According to the report, the ownership transformation and privatisation process of the previously socially owned
company Anita d.d., Vrsar has not been performed entirely in compliance with legal provisions. The audit did not
result in an opinion with respect to the ownership over property of the companies. The companies have responded
to the audit report, but up to the balance sheet date no legal action was taken. The Management Board believes that
the outcome of the stated process will not have a significant effect on the Group’s operations.

40. COMMITMENTS

As at 31 December 2017 and 2016, the Company had no commitments.

Group:

Costs for the purchase of non-current tangible assets were agreed with suppliers at the balance sheet date in the
amount of HRK 393,037 thousand (2016: HRK 132,558 thousand), which have not yet been realised or recognised
in the balance sheet as at 31 December 2017 and 2016.

Future minimum lease payments made under non-cancellable operating leases of hospitality facilities and business
premises are as follows:

(in thousands of HRK) 2017 2016

Up to one year 351 417


From 1 to 5 years - 353
Over 5 years - -
351 770

113
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

41. RELATED PARTY TRANSACTIONS

The Group is controlled by private persons, none of which have individual control.

For the purposes of these financial statements, parties are generally considered to be related if one party has the
ability to control the other party, is under common control, or can exercise significant influence over the other party
in making financial and operational decisions. In considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal form.

During 2017, in the ordinary course of operations, the Group had no transactions with related parties.

The Company had the following transactions with related parties during 2017 and 2016:

31 December 31 December
(in thousands of HRK) 2017 2016

Trade receivables – subsidiaries (Note 25) 2,341 2,380


Loans given to subsidiaries (Note 25) 1,135,662 889,942
Trade payables – subsidiaries (Note 32) 249 243
Short-term borrowings from subsidiaries (Note 31) 22,777 16,277
Interest payable to subsidiaries 94 72

INCOME
Dividend income from subsidiary 225 449
Management fee from subsidiaries 6,168 5,476
Rental income from subsidiaries 9,941 4,601
Other operating income – subsidiaries 1,262 305
Interest income from subsidiaries (Note 13) 47,244 42,145
Net exchange differences from loans to and from subsidiaries 9 -

EXPENSES
Finance costs – subsidiaries (Note 13) 972 27,065
Administration costs – subsidiaries (Note 7) 533 281
Other operating expenses from operations with subsidiaries 2,644 5,358

Key management compensation

Group Company
(in thousands of HRK) 2017 2016 2017 2016

Salaries and other short-term benefits 100,687 78,247 17,504 22,004

Key management of the Group comprises 145 employees (2016: 171 employees) and key management of the
Company comprises 7 employees (2016: 14 employees).

114
ADRIS GRUPA D.D., ROVINJ
NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

42. MERGER OF SUBSIDIARIES

As at 1 September 2016, the Company merged with the subsidiary Tvornica duhana Zagreb d.d., Zagreb at the
carrying amounts of assets and liabilities. The Company acquired the following assets and liabilities through the
merger:

(in thousands of HRK) Net book amount

Property, plant and equipment 296,038


Trade and other receivables - non-current assets 91
Loans given 962,405
Financial assets at fair value through profit or loss 836
Cash and cash equivalents 136
Trade and other receivables - current assets 1,629
Trade and other payables (1,569)
Investments in subsidiaries (447,642)
Net assets 811,924

The effect of the merger is presented as an increase in Company equity in the amount of HRK 811,924 thousand.

43. EVENTS AFTER THE BALANCE SHEET DATE

In February 2018, the Company entered into a share purchase and strategic partnership agreement, pursuant to
which it will become the majority owner of Expertus d.o.o., which is the majority owner of the company HUP-Zagreb
d.d.
With this transaction, the Group continues its strategy of investing in the highest hotel offer segments and with the
expansion of its tourism portfolio.

115
ADRIS GRUPA d.d.
Rovinj

CORPORATE GOVERNANCE
STATEMENT FOR 2017

116
ADRIS GRUPA D.D., ROVINJ
CORPORATE GOVERNANCE STATEMENT FOR 2017

ADRIS GRUPA d.d. (hereinafter: the Company) and the Group are following good corporate governance practice in
their development and in their operations, striving to contribute to transparent and efficient operation and better
ties with the business community that they operate in through their business strategy, business policy, key internal
acts and business practice.

In 2009, the Company enacted the Corporate Governance Code defining the operating procedures for the
Supervisory Board, the Management Board and other bodies, ensuring avoidance of conflicts of interest, efficient
internal supervision and an efficient responsibility system. The Code regulates the obligation of publication of data
in the categories of price-sensitive information in order to ensure equal treatment of shareholders and transparency
of information for existing and future investors.

Since the Company’s shares are listed in a regulated market, the Company implements the Corporate Governance
Code jointly adopted by the Croatian Financial Services Supervisory Agency and the Zagreb Stock Exchange,
available on their respective websites.

The Company complies with and implements the prescribed corporate governance measures and provides detailed
explanations for any deviations in the annual questionnaires published on the websites of the Zagreb Stock
Exchange and the Company (www.zse.hr; www.adris.hr) as required by law.

Information on major equity holders of the Company is available on the website of the Central Depository and
Clearing Company.

The Company’s share capital is divided into 16,400,000 shares, issued in non-materialised form, and divided into
the following two groups:
 6,784,100 preferred shares (ADRS2, earlier ADRS-P-A) with priority in dividend payment, the payment of
remaining liquidation assets or bankruptcy estate, and the payment of accumulated unpaid dividend prior to
the payment of dividend to ordinary equity holders, not carrying voting rights in the General Assembly of the
Company
 9,615,900 ordinary shares (ADRS, earlier ADRS-R-A) carrying voting rights in the General Assembly of the
Company, and the right to dividend payment and the payment of remaining liquidation assets and bankruptcy
estate.

The corporate governance structure of the Company is based on a dual system comprising a Supervisory Board and
a Management Board. Under the Articles of Association and the Companies Act, the Supervisory Board, the
Management Board and the General Assembly are the three essential bodies of the Company.

The convening, the activities and the scope of authority of the General Assembly are governed by the Companies
Act and the Articles of Association of the Company. The invitation to General Assembly meetings, proposed
decisions and adopted decisions are published in line with the Companies Act, the Capital Market Act and the
Zagreb Stock Exchange Rules. The right to participate in the General Assembly is granted to all shareholders who
apply for participation in the General Assembly at least six (6) calendar days prior to the date the General Assembly
is held. The said deadline does not include the day the application is received, or the day when the General Assembly
is held.

The Management Board of the Company comprises two Members. The Members of the Management Board of the
Company on 31 December 2017 are:
 Ante Vlahović, MSc, President of the Management Board
 Tomislav Popović, Member of the Management Board

117
ADRIS GRUPA D.D., ROVINJ
CORPORATE GOVERNANCE STATEMENT FOR 2017

The Supervisory Board of the Company comprises seven Members. The Members of the Supervisory Board of the
Company on 31 December 2017 are:
 Rino Bubičić, President of the Supervisory Board
 Tomislav Budin, Deputy President of the Supervisory Board
 Marica Šorak-Pokrajac, Deputy President of the Supervisory Board
 Hrvoje Patajac, Member of the Supervisory Board
 Roberto Škopac, Member of the Supervisory Board
 Ida Lokmer, Member of the Supervisory Board
 Erika Zgrablić, Member of the Supervisory Board (employees’ representative).

Rules on the appointment and revocation of Members of the Management and Supervisory Boards, the scopes of
authority of the Management and Supervisory Boards and amendments to the Articles of Association are set forth
by the Company’s Articles of Association in line with the Companies Act. The Company’s Articles of Association of
the are published on the Company’s website (www.adris.hr).

There are no gender, age, education, professional or other restrictions in the executive, management and
supervisory bodies or at any other level.

On 17 June 2014, the General Assembly of Adris grupa d.d. adopted the Decision authorising the Management
Board to acquire own ADRS2 (earlier ADRS-P-A) and ADRS (earlier ADRS-R-A) shares for a period of five years
from the adoption of the Decision in order to offer the said shares for sale to the Company’s employees and its
related companies. Pursuant to this Decision, the Management Board of Adris grupa d.d. produced the Own Shares
Management Programme, adopted by the Company’s Supervisory Board on 20 April 2015. To include the employees
and managers of Croatia osiguranje d.d. and its related companies into the programme, the Company’s
Management Board prepared a new Own Shares Management Programme, adopted by the Company’s Supervisory
Board on 17 October 2017.

In 2017, the Company acquired 19,386 own class ADRS2 (ADRS-P-A) shares, accounting for 0.28% of the shares
from this class and 0.11% of the Company’s total share capital at the single price of HRK 471.00. Notices of any
acquisition or release of own shares are published in line with the Companies Act, the Capital Market Act and the
Zagreb Stock Exchange Rules.

The Audit Committee, operating as a part of the Supervisory Board, analyses the financial statements, supports the
Accounting Department of the Company, monitors the integrity of financial information, in particular the accuracy
and the consistency of accounting methods used by the Company and the Group, including the criteria for the
consolidation of the financial statements of companies belonging to the Group, supervises the execution of audits
in the Company, discusses certain matters brought to its attention by the auditors or the management, and advises
the Supervisory Board. The Audit Committee also monitors the non-audit services provided by the auditors in line
with the applicable laws. During 2017, the Company’s and the Group’s auditors provided the following services to
the Group members: benchmark analyses, services related to implementation of measures intended to improve the
production process, in-depth analyses, services related to transfer prices and educational services.
The internal control system in the financial reporting process ensures that the Company’s financial statements
represent the financial result and the financial position of the Company with acceptable accuracy and that they are
compliant with the International Financial Reporting Standards.

The Company’s accounting policies represent the principles, rules and practice implemented by the Company in the
preparation and presentation of its financial statements. A summary of the accounting policies is included in the
Company’s financial statements .

118
ADRIS GRUPA D.D., ROVINJ
CORPORATE GOVERNANCE STATEMENT FOR 2017

Internal accounting control processes control the formal, essential and arithmetic accuracy of accounting
documents:
 The control of the formal accuracy of an accounting document determines whether the document is
prepared in accordance with the applicable regulations
 The control of the essential accuracy of an accounting document determines whether the business change
has actually occurred and whether it occurred in the specified volume
 The control of the arithmetic accuracy of an accounting document includes the control of arithmetic
operations (division, multiplication, addition and subtraction) used to obtain the results presented in the
document.

Accounting documents are controlled in accordance with the organisational structure of the Company and the
internal acts of the Company by an authorised person in line with the defined scope of authority. The control of the
formal, essential and arithmetic accuracy is confirmed by a physical and/or electronic signature of the authorised
person who performed the control.

___________________
Member of the Management Board
Tomislav Popović

119
ADRIS GRUPA d.d.
Rovinj

NON-FINANCIAL REPORT
ADRIS GRUPA d.d.

120
ADRIS GRUPA D.D., ROVINJ
NON-FINANCIAL REPORT

1. MANAGEMENT BOARD STATEMENT


The Adris Group is one of the leading Croatian companies. In recent years, it has achieved remarkable results and
recorded a strong growth in all key business indicators. Its business strategy "Be the first, be better and be different"
is the basis for all company business decisions, which is reflected in the company’s desire not to be not just one of
the most successful companies, the initiator and the frontrunner in new economic trends, but also a socially
responsible company facing the future. Successful companies cannot and should not act without having a sense of
the environment in which they operate, and therefore having a responsibility to the community in all business
segments must become a permanent and systematic obligation. The Adris Group has a long-standing practice of
socially responsible behaviour reflected in a number of recognizable projects and initiatives, most notably in the
work of the corporate foundation – the Adris Foundation.

Participating in establishing social justice, equal opportunities, creating a competitive and socially responsible
business and taking responsibility for the role and impact our company has in the local and wider community is an
integral part of our business strategy and commitment to sustainable business.

In the wake of these experiences, we are launching this Non-financial Report, i.e. the Corporate Social
Responsibility Report for the first time, presenting the results of the strategic commitment of the Adris Group
leadership and many years of effort of all our employees.

In preparing the Report, we have relied on the Global Reporting Initiative (GRI) Sustainability Reporting
Guidelines, which has enabled a standardized presentation of our achievements and comparability with the results
that will be published in the forthcoming reports.

Following the end of the strategic transformation of its portfolio, the Adris Group now unites three sustainable
businesses. The objective of the Adris Group is to ensure the development of all strategic business units, taking into
account the satisfaction of employees and end-consumers in a way that ensures the growth of share capital which is
in line with the interests of the community where we operate.

Nowadays, we are exposed to new business challenges, but our corporate values, focus on set goals, openness to
new knowledge, modern technologies, and best corporate and organizational practices, with the recognizable
commitment of our employees and company stakeholders are a guarantee of our further strengthening.

Adris Grupa d.d.


Tomislav Popović

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NON-FINANCIAL REPORT

2. GENERAL INFORMATION

2.1. Profile

ADRIS GRUPA d.d., with headquarters in Rovinj, Vladimira Nazora 1 (hereinafter: Adris Group or the Company),
is today one of the most successful companies in Croatia and the region and a leader according to the criteria of
profitability and innovation. It is based on the 132-year business experience of the Rovinj Tobacco Factory.

It is organized in three strategic business units (hereinafter: the Group). The tourism business unit is run by Maistra
d.d., with the strongly growing segment of the food industry led by Cromaris d.d. In early 2014, the Adris Group
became the majority owner of the oldest Croatian insurance company – Croatia osiguranje d.d., thus making the
Adris Group the regional insurance industry leader.

The goal of the Adris Group, as the corporate centre, is to coordinate work, management, investment and
development of the entire system. When creating a new, modern company, the preconditions for starting new
attractive businesses were also created.

The Group's business strategy - “Be the first, be better and be different" is the basis for its mission and vision: further
business development and continuous expansion in the domestic and regional markets.

In the segment of tourism, led by MAISTRA d.d. (hereinafter: Maistra or Tourism segment), founded in 2005, with
headquarters in Rovinj and a legacy of 50 years of experience in tourism, in the context of Croatian tourism, the
Adris Group occupies a significant position with 12% and 14% of overnight stays in Istria, i.e. 3% of total capacity
and 4% of all overnight stays in the Republic of Croatia. With tourist facilities located in prestigious locations in
Rovinj, Vrsar and Dubrovnik, where the facilities are managed by the related company Grand Hotel Imperial d.d.,
Maistra is on the right track to become a first-class and recognizable international hospitality brand. Relying
strongly on destination brands and providing an authentic Istrian, Croatian and Mediterranean experience, its offer
is based on highly personalized service and the development of innovative and competitive content. In addition to
luxury hotels Monte Mulini, Lone and Adriatic and the innovative family concept of the Amarin Hotel, Maistra will
soon introduce the new hotel Park with the highest level of offer.

By merging several smaller domestic fish breeding and processing companies in the new CROMARIS d.d. company
(hereinafter: Cromaris or Healthy Food segment), with headquarters in Zadar, in 2009 the Adris Group seriously
entered the field of aquaculture and production of highest quality white fish. In the development of the Adris Group,
the company invested more than HRK 900 million, a result of which was strong growth of all business indicators,
opening of new markets, and expansion of the production portfolio and further technological and product
improvements. Cromaris is today the leading Croatian and eighth manufacturer of sea bass and sea bream in the
world, with an average annual growth of 20%, whereas more than 75% of its revenues are realized in the markets of
Italy, Slovenia, Germany, France, Poland, the Czech Republic, Slovakia, Austria, Montenegro, Serbia and Hungary.

At the beginning of 2014, the Adris Group became the majority owner of Croatia's leading and oldest insurance
company – CROATIA osiguranje d.d. (hereinafter: Croatia osiguranje or Insurance segment). The strong
breakthrough of the Adris Group in the insurance industry is a confirmation of the intent to continue investing in
Croatia, but also the desire to make Croatia osiguranje a regional insurance leader competitive in the global market
with continuous investments and responsible management. In addition to the Croatian market, Croatia osiguranje
is also present on the markets of Slovenia, Serbia, Bosnia and Herzegovina and Macedonia.

What follows is an overview of the Group's overall structure with a list of all affiliated companies of the Group and
a description of their core business as of 31 December 2017.

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NON-FINANCIAL REPORT

Share % of direct
Type of
Company name Country parent company in Core business
connection
capital / voting rights
consulting, engineering,
Abilia d.o.o. Croatia direct 100,00 % construction and real
estate business
Adria resorts d.o.o. Croatia direct 100,00 % management
Maistra d.d. Croatia indirect 89,11 % hospitality and tourism
aquaculture and retail and
Cromaris d.d. Croatia indirect 99,25 %
wholesale fish trade
Slobodna Katarina d.o.o. Croatia indirect 100,00 % hospitality and tourism
breeding, processing and
Cenmar export import d.o.o. Croatia indirect 100,00 %
sales of seafood
wholesale trade of fish and
Cromaris Italia d.o.o. Italy indirect 100,00 %
fish products
Grand Hotel Imperial d.d. Croatia indirect 81,91 % hospitality and tourism
Croatia osiguranje d.d. Croatia direct 66,12 % insurance and reinsurance
CROATIA osiguranje d.d., Bosnia and
indirect 94,89 % insurance
MOSTAR Herzegovina
MILENIJUM osiguranje
Serbia indirect 100,00 % insurance
a.d.o., Belgrade
CROATIA osiguranje d.d. –
life insurance company, Macedonia indirect 100,00 % life insurance
Skopje
CROATIA osiguranje d.d. –
Macedonia indirect 100,00 % non-life insurance
non-life insurance, Skopje
CROATIA osiguranje pension
company for voluntary voluntary pension funds
Croatia indirect 100,00 %
pension fund management management
d.o.o.
PBZ CROATIA osiguranje d.d.
mandatory pension funds
for mandatory pension funds Croatia indirect 50,00 %
management
management
management, consulting
RAZNE USLUGE d.o.o. in
Croatia indirect 100,00 % and real estate business,
liquidation
wholesale trade
CROATIA – TEHNIČKI inspection and analysis of
Croatia indirect 100,00 %
PREGLEDI d.o.o. motor vehicles
driving service and
CROATIA PREMIUM d.o.o. Croatia indirect 100,00 % inspection of personal
vehicles
construction and real
HISTRIA CONSTRUCT d.o.o. Croatia indirect 100,00 %
estate business
Clinic CROATIA Health specialist medical practice
Croatia indirect 100,00 %
Insurance – ARS MEDICA activities
Clinic CROATIA Health specialist medical practice
Croatia indirect 100,00 %
Insurance activities
inspection and analysis of
HERZ d.d. Croatia indirect 100,00 %
motor vehicles
SLAVONIJATRANS inspection and analysis of
Croatia indirect 76,00 %
TEHNIČKI PREGLEDI d.o.o. motor vehicles

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Share % of direct
Type of
Company name Country parent company in Core business
connection
capital / voting rights
inspection and analysis of
STP d.o.o. Croatia indirect 100,00 %
motor vehicles
STANICA ZA TEHNIČKI
inspection and analysis of
PREGLED VOZILA BLATO Croatia indirect 100,00 %
motor vehicles
d.o.o.
Bosnia and inspection and analysis of
CROTEHNA d.o.o. indirect 100,00 %
Herzegovina motor vehicles
Bosnia and inspection and analysis of
CROAUTO d.o.o. Mostar indirect 66,79 %
Herzegovina motor vehicles
maintenance and repair of
all types of motor vehicles,
CROATIA-REMONT d.d. Bosnia and retail and wholesale of
indirect 69,79 %
Čapljina Herzegovina automotive parts and
associated equipment and
vehicle inspection
HOTEL HUM d.o.o. for Bosnia and
indirect 100,00 % hospitality and tourism
hospitality and tourism Herzegovina
Bosnia and insurance brokerage and
PONTE d.o.o. Mostar indirect 100,00 %
Herzegovina pension funds
CORE 1 d.o.o. Croatia indirect 100,00 % real estate business
inspection and analysis of
AUTOPRIJEVOZ d.d. Otočac Croatia indirect 79,29 %
motor vehicles
inspection and analysis of
AGROSERVIS – STP d.o.o. Croatia indirect 37,00 %
motor vehicles
STRMEC PROJEKT d.o.o. Croatia indirect 49,76% real estate business
AUTO MAKSIMIR VOZILA insurance representation
Croatia indirect 100,00 %
d.o.o. and brokerage activities
CROATIA loan insurance d.d. Croatia indirect 100,00 % insurance
clinics management and
CO ZDRAVLJE d.d. Croatia indirect 100,00 % clinics management
consulting

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Main brands, products and services of the Group by segments.

HOTELS – Rovinj VEHICLE INSURANCE


Under construction: New Hotel
Motor Third party liability insurance (TPL)
Park*****
Hotel Monte Mulini***** Legal protection TPL plus
Hotel Lone***** Burglary
Hotel Eden**** TPL Tow
Hotel Adriatic**** Bonus protection
Hotel Istra**** Car accident insurance
Hotel Amarin**** Casco Insurance
Croatia roadside assistance policy and Travel
Hotel Katarina***
Angel
Casco Duo
HOTELS – Vrsar
Hotel Pineta*** LIFE INSURANCE
Croatia Scholarship - Fixed term personal
annuity

HOTELS – Dubrovnik Complementary personal accident insurance

Hilton Imperial Dubrovnik***** Croatia Invest III


Complementary malignant diseases insurance
INSURANCE
TURISM

TOURIST RESORTS AND Permanent life insurance for the case of death -
APARTMENTS – Rovinj Circle of life
TN Amarin**** Life Invest

TN Villas Rubin*** Combined endowment insurance

“Saving through life” insurance for children

TOURIST RESORTS AND


Riziko plus – term life insurance
APARTMENTS – Vrsar
TN Belvedere****
TN Petalon**** PROPERTY INSURANCE
TN Funtana*** Home insurance

TA Riva*** Tourist suites insurance

TA Koversada**** Burglary and robbery insurance

TN Villas Koversada** Fire insurance


Insurance of pets
CAMPS – Rovinj Earthquake insurance
Camp Polari*** Insurance of crops
Camp Veštar**** Insurance against breaking of glass
Camp Amarin*** Home assistance

ACCIDENTS INSURANCE

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CAMPS – Vrsar Individual accident insurance

Camp Porto Sole*** Standard of living insurance

Camp Koversada*** Collective accident insurance

Camp Valkanela*** Manager insurance


Insurance for children, pupils and students

TRAVEL INSURANCE
Travel health insurance
Casco CAR TRAVEL
FRESH FISH Trip cancellation insurance
Additional accident insurance with travel
Adriatic sea bass
insurance

Adriatic sea bream Private liability insurance with travel insurance

Kornati meagre Croatia Asistencija - roadside assistance policy

Fresh sea bass fillets


Fresh sea bream fillets TRANSPORT INSURANCE
Liability insurance for owners/users of
Fresh meagre fillets
boats/yachts
Fresh meagre steaks Insurance for boats and yachts
Hull and Machinery ship insurance
FRESH PACKED FISH Aviation insurance
HEALTHY FOOD

Packed, fresh, gutted sea bass Ship repairer liability insurance

Packed, fresh, gutted sea bream Insurance of a vessel during construction

Packed, fresh, gutted sea bass and sea Liability insurance for owners or users of
bream marinas/nautical tourism ports

Packed fresh sea bass fillets Liability insurance for road carriers

Packed fresh sea bream fillets Cargo insurance


Packed fresh meagre fillets
Packed fresh meagre steaks BANCASSURANCE
Bancassurance
DELIS
Smoked sea bass PACKAGES
Smoked sea bream Crafts and trades package
Marinated sea bass Family package
Marinated sea bream Entrepreneurial package
Agricultural package
CROMARIS ORGANIC
Organic sea bass LOAN INSURANCE
Organic sea bream Loan repayment insurance

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Packed, fresh, gutted organically farmed


sea bass

Packed, fresh, gutted organically farmed


HEALTH INSURANCE
sea bream
Supplemental Health Insurance
Balance supplemental insurance
Comfort supplemental insurance
Deluxe supplemental insurance
Senior supplemental insurance
REAL ESTATE MANAGEMENT Active supplemental insurance

Tourism investments management Supplemental insurance

Industrial investments management Booking doctor appointments


OTHER

Construction of office space


Insurance check
management

Construction of residential-business
facilities
Real estate sales RETIREMENT SAVINGS
Real estate rent Retirement savings

The share capital of the Company amounts to HRK 164,000,000.00 and is divided into 16,400,000 shares issued
in the non-materialized form, managed in a central depository system operated by the Central Depository & Clearing
Company d.d. The shares are divided into:

- 6,784,100 preferred shares, marked ADRS2, with priority dividends pay-out rights, pay-out of the
remaining liquidation or bankruptcy estate and priority right when collecting accumulated unpaid
dividends prior to dividends payment to regular shareholders, without the right to vote at the General
Assembly of the Company
- 9,615,900 ordinary shares, marked ADRS, with the right to vote at the General Assembly of the Company,
the right to dividends payment and the pay-out of the remaining liquidation or bankruptcy estate
The Company's shares are listed on the regulated market, in the segment Regular, operated by the market operator
Zagreb Stock Exchange.

On 31 December 2017, no one was registered in the register of shares of the Central Depository & Clearing Company
as a holder of more than 20% of the total number of shares (total share capital) of the Company.

Continuing the unique and useful tradition of employee participation in company ownership structure, Adris Group
in 2015, 25 years after the privatization of the Tobacco Factory Rovinj, launched a new stock acquisition program
that will enable the current generation of employees to participate in the company's ownership. This is a
continuation of a valuable experience – which those who create value being able to participate in deciding about
this value.

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Group size

Basic information of Group size:


Group
Total assets as at 31 Dec. 2017 (in million HRK) 19.696,2
Total equity as at 31 Dec. 2017 (in million HRK) 10.285,0
Total liabilities as at 31 Dec. 2017 (in million HRK) 9.411,2
Sales revenue in 2017 (in million HRK) 4.372,7
Total no. of employees as at 31 Dec. 2017 5.398

Information on employees

Number of employees at the end of the reporting period:


Group
Indefinite Fixed-term
employment employment
FT PT FT PT
Croatia 2.927 6 1.538 14
- Women 1.621 5 881 5
- Men 1.306 1 657 9
Bosnia and Herzegovina 228 0 37 6
- Women 111 0 21 1
- Men 117 0 16 5
Serbia 278 16 132 32
- Women 159 9 79 19
- Men 119 7 53 13
Macedonia 94 1 85 0
- Women 53 1 54 0
- Men 41 0 31 0
Italy 4 0 0 0
- Women 2 0 0 0
- Men 2 0 0 0
TOTAL 3.531 23 1.792 52
*FT = full time
*PT = part time
*Data on the number of employees are prepared on the basis of an absolute number of people, not working hours.

The employee structure reflects the seasonality of the Maistra business, with a high share of fixed-term employees,
so that on 31 December 2017, that share was 67% of the total number of Maistra employees. Due to the long-standing
efforts in improving the quality of facilities, especially in hotels, the season lasts all year round. Therefore, we are
no longer talking about seasonal employment, but rather year-round employment that enables further professional
and personal employee development. Only one fifth of fixed-term employees are hired for a period of under six
months. For 43% of seasonal employees, the employment period is between nine and twelve months and 34% of
seasonal employees have a contract for six to nine months. In 2017, 34 employees were hired under the co-financing
agreement for so-called permanent seasonal employees, based on the active employment policy program by the
Croatian Employment Service.

Group supply chain

In all Group companies, the Procurement function is responsible for managing the relationship with suppliers and
procurement processes, and is responsible for achieving the best value for the company when procuring goods
and/or services, determining the procurement strategy, prescribing activities and responsibilities related to the
implementation of the annual procurement plan, needs management and cost management. The principles of
corporate social responsibility are built into the policy of managing the suppliers and relate primarily to the
obligation to respect human and labour rights, environmental protection and the fight against corruption. We are
constantly working on computerization and advancement of all processes, B2B data exchange with suppliers and
generally a greater flow of goods, services and information.

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Managing relationships with suppliers is of strategic importance to the Group and thus in 2017, a procurement
management project was initiated with the aim of improving Procurement within companies in the Group and
increasing the use of synergies at the Group level. The concept of process management was introduced on three
levels.

Strategic Procurement – creating added value and risk management


 Monitoring the procurement market, understanding business requirements, identifying key costs, tracking
trends and technology
 Developing strategies for procurement categories and suppliers with the aim to add value
 Maintaining and developing relationships with key suppliers at the highest management level
 Procurement risk management
 Innovation management (from suppliers to internal clients)

Tactical procurement - cost reduction


 Identification of space for reduction and avoidance of costs, analysis of procurement amounts
 Managing sourcing processes, including defining negotiation guidelines framework
 Managing initiatives, including tracking savings
 Periodic risk assessment and mitigation of potential conflicts
 Maintaining and establishing contact with suppliers
 Periodic reporting on defined KPIs

Operational Procurement - Order Administration


 Managing order requests
 Simple ad hoc queries, e.g. for custom orders from existing suppliers
 Ordering goods and services
 Managing procurement conditions
 Troubleshooting and complaints regarding delivery

Key procurement categories by segments:

Healthy
Procurement category Other Tourism Insurance
Food

Food 

Beverages 

Raw production materials 


Spawn 
Packaging 
Transport services 
Maintenance    
Small inventory and consumables    
Property, plant and equipment    
Other costs and services    

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Overview of the total number of suppliers throughout the supply chain at the end of the reporting period by
segments:
Total number of
Country
Group's suppliers
Republic of Croatia 5.527
Bosnia and Herzegovina 112
Serbia 175
Macedonia 344
Italy 82
France 31
Other countries 396
UKUPNO 6.667

The presented number of suppliers includes direct suppliers, while the number of indirect suppliers throughout the
supply chain cannot be estimated.

It is estimated that during the reporting period the entire Group made payments to suppliers in the total value of
HRK 1.7 billion.

About ¾ of the total procurement comes from local suppliers.

Significant changes in the Group and its supply chain

By the decision of the General Assembly of Maistra, the share capital increased from the amount of HRK
1,164,040,520.48 by HRK 113,945,044.17 to HRK 1,277,985,564.65 from the profit realized in 2016. The share
capital was increased without issuing new shares by proportionally increasing the share of all issued shares in the
Company's share capital. The Company’s Articles of Association have also been amended accordingly.
In the reporting period, Cromaris started breeding at the new Žman farm, which increased the white fish breeding
capacity by 700 tons.

In the reporting period, the CROATIA osiguranje Group acquired the 79.29% share in Autoprijevoz d.d. Otočac, the
100% share in AUTO MAKSIMIR VOZILA d. o. o., and the 100% share in BNP Paribas Cardif d.d. (subsequently
CROATIA osiguranje kredita d.d.). In addition, CROATIA LLOYD d.d. and CROATIA zdravstveno osiguranje were
merged with CROATIA osiguranje d.d. A new company was also founded - CO ZDRAVLJE d.o.o.

There were no significant changes in the suppliers' location, the structure of the supply chain, nor in the relations
with the suppliers in the reporting period.

External initiatives, membership in associations and interest organizations, certificates

Overview of initiatives, memberships in associations and interest organizations of the Group:


Healthy
Other Tourism Insurance
Food

Croatia
American Chamber of Commerce in Croatia 
FEAP (Federation of European Aquaculture Producers) 
FLAG Fruits of the sea 
GARP (Global Association of Risk Professionals) 
CAA (Croatian Actuarial Association) 
HGK (the aquaculture affiliation of the Croatian Chamber

of Economy)
IIA (Institute of Internal Auditors Croatia) 

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Healthy
Other Tourism Insurance
Food
Croatian Chamber of Economy (HGK)    
Croatian Chamber of Mechanical Engineers  
Croatian Employers' Association (CEA)    
Croatian Parliament – State Commission for Assessment of

Damages from Natural Disasters
Croatian Psychological Society 
CIB (Croatian Insurance Bureau) 
CAPM (Croatian Association for Project Management) 
Camping Association of Croatia (KUH) 
Cluster mariculture Split 
LAG Mareta 
Lloyd's Register EMEA 
CAAFE (Croatian Association of Accountants and Financial

Experts)
Vehicle inspection expert advice 
Dubrovnik Tourist Board 
Rovinj Tourist Board 
Funtana Tourist Board 
Vrsar Tourist Board 
Association of Croatian Pension Funds Management

Companies and Pension Insurance Companies
Association of Employers in Croatian Hospitality

(UPUHH)

Serbia
Croatian Business Club 
Belgrade Chamber of Commerce 
Serbian Chamber of Commerce 
Foreign Investors Council 
Association of leasing companies of Serbia 
UOS (Association of Serbian Insurers) 

Bosnia and Herzegovina


Actuarial Association in Bosnia And Herzegovina 
Green Card bureau in Bosnia and Herzegovina 
Economic and Social Council of the Federation of Bosnia

and Herzegovina
Federal Commission for the Selection of Civil Servants 
Chambers of Commerce in FBiH 
Association of Employers of the FBiH in finance sector 
Croatian Audit Chamber 
Croatian Association of Court Expert Witnesses and

Valuers
The Union of Accountants, Auditors, and Financial

Workers of Federation of Bosnia and Herzegovina
Tourism Cluster Herzegovina 

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Healthy
Other Tourism Insurance
Food
Hotel and Restaurant Association of Bosnia and

Herzegovina
Institute of Internal Auditors in Bosnia and Herzegovina 
Association of Insurance in the Federation of Bosnia and

Herzegovina
Association of Insurers of Republic of Srpska 
Association of Vehicle Inspection Stations at Chamber of

Economy of FBiH
Association of Court Expert Witnesses 
Protection Fund of the Federation of Bosnia and

Herzegovina
Republic of Srpska Protective Fund 

Macedonia
American Business College Skopje 
Association of Charted and Certified Accountants 
European Business Association 
Chamber of Commerce of the Republic of Macedonia 
HR Association 
Institute of Directors of the Republic of Macedonia 
Institute of Chartered Accountants 
Institute of Certified Auditors of the Republic of Macedonia 
Institute for Accountants 
Chamber of architects and engineers of Republic of

Macedonia
Chamber of Mediators of the Republic of Macedonia 
Union of Journalists of the Republic of Macedonia 
Chamber of Experts Witnesses of the Republic of

Macedonia
Macedonian Actuarial Association "Actuary" 
Macedonian Actuarial Association 
National Insurance Bureau 
Handball Federation of Macedonia 
Macedonian Lawyers Association 
Association of Internal Auditors of the Republic of

Macedonia

For many years, the Group has been cooperating with local schools, colleges and universities in the implementation
of professional practice, organizing career-focused activities, actively participating in local community projects, as
well as those aimed at raising awareness of the need for environmental protection, for example participating in
environmental projects, cleaning the underwater world, marking Earth Day and Water Day, etc.

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The list of Group's certificates:


Healthy
Tourism Insurance
Food

ISO certificate 9001   


ISO certificate 14001  
ISO certificate 22000 
FSSC 22000 
HACCP  
IFS Food 
Global G.A.P. 
FRIEND OF THE SEA 
KOSHER 
IZVORNO HRVATSKO (Croatian Creation) 
Hrvatski EKO proizvod 
EU Organic 
AB 
Naturland 
Bio Siegel 
Quality "Q" label of the Ministry of Tourism of the Republic

of Croatia
Blue Flag – FEE (Foundation for Environmental

Education)
Sustainable Hotels 
Travelife Gold Award 
TUI Environmental Champions 
Leading hotels of the world 
Unique design hotel 

2.2. Ethics and integrity


A reputation which does not solely aim at making profit, but one of creating a long-term sustainable value system
that will benefit the society in which we live, is a valuable asset of the Company, so it is vital to ensure its
preservation. Therefore, the Adris Group Management has adopted a Code of Ethics that defines the standards of
professional and ethical conduct as required by each of the Group's stakeholders.

For the Adris Group, business ethics is more than a system of procedures, regulations, and declarative principles.
The ethics of the business system of the Group derives from beliefs about the importance of insisting on the personal
responsibility of every person within the system of accepted code of conduct. The Group's policy is to respect the
laws of the countries in which it operates, as well as any regulatory requirements affecting its business.

Under the Code of Ethics, employees are familiar with internal communication channels. Any employee may file a
complaint about suspicious business activities, irregularities observed, or non-compliance with certain legal
provisions or provisions of the Code of Ethics. Each filed complaint is thoroughly investigated. Subsequently, the
report on the conducted research shall be submitted to the Management Board, along with a proposal of disciplinary
measures and other actions if the complaint is justified. The confidentiality of the complainant's data is guaranteed,
with zero tolerance for any possible retaliation to the person suspected of having filed a complaint. The manner of
filing a complaint and the procedure after the application has been filed shall be governed by the provisions of the
Code of Ethics.

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The Code of Ethics also regulates the issue of bribery and corruption, and market competition, the latter being
further regulated by the Code of Conduct on the Application of Regulations on the Protection of Competition.

There were no complaints about suspicious business activities, irregularities observed or violations of certain
statutory provisions or provisions of the Code of Ethics in the reporting period, except in the insurance segment.
The Ethics Committee of Croatia osiguranje received two complaints from the area of treatment of employees, an
investigation was performed in accordance with the provisions of the Code of Ethics and the complaints were
resolved in an appropriate manner.

It should be added that the Group does not violate the rights of autochthonous communities, nor does it engage in
child or forced labour, which it also requires from its business partners. The Group does not provide financial or
any other support to political parties, politicians, and related institutions.

2.3. Management
As a joint stock company, the Adris Group is committed to work in accordance with the highest principles of good
corporate governance and regulatory compliance. The corporate structure is the foundation of effective strategic
and operational management of the Company.

The corporate governance structure of the Company is based on a dualistic system consisting of the Supervisory
Board and the Management Board of the Company. The Supervisory Board and the Management Board of the
Company together with the General Assembly, in accordance with the Articles of Association and the Companies
Act, are the three core governing bodies of the Company. The specific management authority and responsibilities of
these bodies are governed by the relevant Croatian legislation, the Company Articles of Association and the
Corporate Governance Code, regulations or prescribed acts.

The General Assembly of the Company elects the members of the Supervisory Board for a term of up to four years,
while the Supervisory Board appoints the members of the Management Board of the Company for up to five years.
The members of the Management Board and the Supervisory Board of the Company must comply with the relevant
standards regarding education and professional experience; they must have high moral standards and be available
to perform the functions.

The Management Board consists of two members, who are authorized to represent the Company independently and
individually. The composition of the Management Board of the Company as at 31 December 2017 was as follows:
 mr. sc. Ante Vlahović, Chairman of the Board
 Tomislav Popović, Board Member

The Supervisory Board consists of seven members. The composition of the Supervisory Board of the Company as at
31 December 2017 was as follows:
 Rino Bubičić, Chairman of the Supervisory Board
 Tomislav Budin, Deputy Chairman of the Supervisory Board
 Marica Šorak-Pokrajac, Deputy Chairman of the Supervisory Board
 Hrvoje Patajac, Supervisory Board Member
 Roberto Škopac, Supervisory Board Member
 Ida Lokmer, Supervisory Board Member
 Erika Zgrablić, Supervisory Board Member (employee representative).

The Supervisory Board meets at least four times a year, or whenever necessary, and actively participates in key
management decisions in accordance with the Articles of Association and the Companies Act.

The Supervisory Board has an Audit Committee that analyses the financial statements, supports the Company's
accounting, monitors the integrity of financial information, and in particular the correctness and consistency of the
accounting methods used by the Company and the Group, including the criteria for consolidating financial
statements of the Group companies, oversees the audit process at the Company, discusses certain issues highlighted
by the auditors or management and advises the Supervisory Board.

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Strategic corporate business functions are:


 Finance, Accounting and Audit
 Controlling
 Legal
 Human Resources
 Corporate Communications

Senior management or corporate office directors are responsible for managing key functional business areas and
activities, inter-department functional management and leadership, corporate strategy implementation, and
providing management support to the Company's Management Board.

All stakeholders (members of the Management Board and the Supervisory Board, shareholders, employees) are
obliged to act in the best interest of the Company. It is imperative to avoid any situation that may lead to a conflict
of interest with the Company. They must not be in any financial, ownership or other connection with suppliers,
customers or other business partners that could negatively affect their independent decision-making on behalf of
and for the benefit of the Company.

Detailed rules for avoiding conflicts of interest are prescribed by internal regulations, which include, inter alia, that
the members of the Management Board and/or the Supervisory Board, without the prior written approval of the
Supervisory Board, and employees without the prior written approval of the Management Board, may not provide
services to other companies or have financial interests in other companies who are or may become a supplier, buyer
or competitor of the Adris Group, nor may they work or cooperate with other companies in activities that may
conflict with the Adris Group.

Furthermore, no member of the Adris Group (member of the Management Board and the Supervisory Board,
shareholder or employee) may, without prior written approval of the Supervisory Board, enter into contractual
relations with the Adris Group on the basis of which it acquires or could acquire assets or certain rights over the
assets of the Adris Group or its related companies, except in the case of a contractual relationship based on regular
business and on the basis of established commercial policies for the purpose of placing their products or services on
a general, all-available offer.

Management remuneration

The remuneration process emphasizes the importance of achieving quantitative (financial and operational) and
qualitative (developmental) goals, which is achieved by identifying annual business goals and a system of
monitoring their achievements.

The total income of the Management Board and senior management of the Company consists of a fixed and variable
annual reward defined in accordance with the relevant contracts signed. Management Board members are
remunerated by the Supervisory Board of the Company, while the Management Board of the Company determines
the senior management remuneration.

The criteria for achieving the variable annual reward are determined annually after the approval of the business
plan, and are defined:
 as common (group) goals: defined in achieving quantitative (financial and operational) goals as well as in
the area of achieving qualitative (developmental) goals
 as individual goals: defined in achieving key function performance indicators and developmental
individual or functional goals (e.g. volume development, average cost, cost reduction, project development
and implementation).

Members of the Supervisory Board may be rewarded for their work and such compensation shall be determined by
shareholders at the General Assembly.

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Key influences, risks and opportunities

The Group monitors and assesses the risks at the micro and macro level. Risk management is carried out in
accordance with the long-term business development strategy by considering the impact of each individual risk on
potential investment decision making in creating new value and protecting existing assets.

Although the Management Board and senior management are primarily responsible for risk management, applying
the principle of prudence implies including all Group units in the risk management process. All employees are
expected to contribute to overcoming and mitigating risks.

The Adris Group is exposed to financial risks (currency, interest and credit) as well as political and market risks
affecting the Group's core businesses. For the purpose of financial risk management, the Company uses the usual
financial instruments applicable to the financial markets of the Republic of Croatia and the markets of the countries
in which it operates. In addition to increased market activity in existing and emerging markets, due to the significant
value of the financial assets held by the Company, special attention is paid to managing financial risks, monitoring
the stability of the banking system and the financial market conditions, or the distribution of funds managed
through the treasury.

Due to the specific features of the Group segments, key influences, risks and opportunities for each segment are
listed below.

Among financial risks (currency, price, interest, credit, liquidity), the tourism segment is largely exposed to currency
risk, which is reflected in the high share of sales from abroad. This part of the business is exposed to changes in the
value of the euro because a significant part of the receivables and foreign income is denominated in that currency,
so its movement may have an impact on future business results and cash flows.

The tourism segment is subject to business, financial and operational risks that are inseparable from the tourism
industry, and each of them can lead to a reduction in revenue, i.e. to limit growth opportunities. Among the most
important of these risks are:
- competition growth
- changes in operating costs, including energy, food, employee compensation and insurance
- the rise in costs due to inflation that is not fully offset by rising prices and fees in our business
- changes in tax and state regulations affecting wages, rates, interest rates or construction standards, and
maintenance costs and procedures
- administrative burdens associated with applicable laws and regulations
- labour shortages or work disruptions
- increase in costs, delay or cancellation of planned or future investment projects
- availability and cost of capital needed to finance investments, capital, expenditure obligations and services
- changes in the desirability of geographic regions.
Within the afore-mentioned risks, special attention is currently paid to those associated with the lack of workforce.
This leads to an increase in labour costs in the tourism business, and due to the lack of workforce in the construction
industry, this also affects the price increase, i.e. investment costs, and may ultimately lead to delays in the realisation
and cancellation of investment projects. The described situation on the labour market may become even worse after
abolishing the remaining restrictions on the free movement of employees within the European Union (in the rest of
the countries that have such restrictions) in 2020.

The availability of quality workforce is a prerequisite for further and long-term sustainable development of the
tourism segment. This segment actively carries out measures to ensure competitive working conditions, in
particular through ensuring greater security of employment and employee satisfaction.

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In addition to the risks described above, some other factors, particularly those outside the control of companies,
may adversely affect their business. These include, for example, security threats of various kinds, including
increased security measures that would be triggered in response to such events, the financial and general condition
of airline operations affecting the number of routes, capacity and other risks, natural or other disasters and the like.

A very important factor with regulatory risks in the field of the tourism business is regulating the settlement of
property and legal relations, the amount and way of using compensations for properties used by tourism companies,
such as:
- regulations on land for tourism use: in most cases there are no concession agreements that will determine
the properties that are the subject of such concession; finally determine the amount of concession fees for
that land and resolve other issues related to its use
- regulations on state property management: the adoption of a new law on state property management is
currently announced; its adoption could lead to additional legal uncertainty as to the amount of
remuneration and the way it is managed, in particular also in the part where this law governs state-owned
properties in campsites, which are also subject to regulations on land for tourism use
- regulations on concessions and maritime domain: in the application of these regulations, there is a
tendency to increase the level of concession fees for concessions on beaches and increases are likely in fees
and potential future concessions on the maritime domain
- real estate tax regulations: it is not yet known whether and when these regulations will be introduced, and
which can be an additional burden on companies if their tax rates are higher than those that companies
already pay for utility fees (which are already high).

The risks that Cromaris is facing in its business operations can be divided into:
 financial
 operational.

Among financial risks we can highlight market and price risk due to the competitive impact on the markets where
Cromaris sells its products and the Management attaches great importance to these risks through continuous
market analysis and timely corrective action.

Due to being a member of the Adris Group, a uniform currency structure of revenues and expenses as well as a
conservative approach to financial commitments, Cromaris is not significantly threatened by other financial risks
(liquidity, interest and currency risk).

Operational risks are most pronounced in fish production, in the form of climatic, technological and procedural
risks, which are aimed at eliminating or reducing as little as possible by investing in meeting the highest
environmental standards, investing in recent technology and employee training.

Considering the impact of external risk factors, Croatia osiguranje operates in challenging environments in relation
to political risk (implementation of structural reforms) and the risk of legislative changes, while macroeconomic
risk still shows signs of positive movement and consequently affects only the operations of Croatia osiguranje. While
the continuation of positive economic trends is expected to carry on in the forthcoming period, it is important to
point out that the overall macroeconomic environment is still very unstable and the risks that the company faces in
its business can be divided into the following:
 financial risks, which include market and credit risk with respect to the Group's investment in various
financial instruments
 business risks, which include operational, strategic risk and regulatory risk (compliance risk).
The environment in which Croatia osiguranje business operates has the greatest impact on market risk and credit
risk. The impact of the environment on market risk is manifested through the change in the price of the investment
portfolio (real estate, equity shares, investment funds, bonds), reduced interest income due to lower interest rates
(bonds, deposits and loans) and exchange rate fluctuations i.e. open currency position (currency risk). Croatia
osiguranje regularly evaluates these factors when defining the investment property strategy. This is guided by the
principles of prudence (investing in instruments whose risks can be properly identified, measured and monitored),
security, quality and viability.

The environmental impacts also relate to strategic risk (competition risk, risk of change in demand), mainly due to
still low purchasing power, weak economic activity and market liberalization. Managing this risk implies a timely
and effective response of Croatia osiguranje to changes in the environment, i.e. systematic strategic and financial
planning.

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Legislative changes (application of EU regulations, amendments to the law in the Republic of Croatia) with which
the company continuously adjusts have a major impact on Croatia osiguranje business. In the insurance business,
this particularly applies to the following areas: product distribution (IDD), dealing with insurance products that
have an investment component (PRIIPS), money laundering and terrorist financing (ZSPNFT), and in the area of
capital markets.

Operational risk is also significant because it correlates with the size of Croatia osiguranje and the complexity of
organization, processes, number of employees, sales network and IT system size and is present in all phases of
business processes. Also, due to the significant amount of amendments to the bill, an increased operational risk and
general additional cost is expected due to aligning the company's business with the legal regulations.

Operational risk management is based on the established system of internal controls, i.e. activities and processes
that strive to ensure operational efficiency, precision, accuracy and timeliness of data and compliance of business
with regulatory and internal regulations. The second aspect of operational risk management refers to the
organization of separate areas of operational risk monitoring regulated by activities and regulations by separate
entities such as:
 IT risk management
 management of information and corporate security and fraud risk
 management of business continuity risks
 management of occupational safety, fire protection and environmental protection risks
 risk management of money laundering and terrorist financing
 compliance risk management.

The management of the above-mentioned business and financial risks is defined by the internal acts of Croatia
osiguranje, which also ensures regular monitoring and control of exposure to the stated risks, and the establishment
of internal limits (financial risks) also determined the company's tolerance to key risks.

Risks and opportunities due to climate change for the Group depend on a particular activity. Due to the nature of
business and the reliance on natural resources in day-to-day activities, climate change is considered to have the
greatest impact on Cromaris, and to a lesser extent on the tourism part of the business.

Looking at the global trends, the consequence of climate change is the increase in average temperature, extreme
weather conditions, changed distribution and quantity of precipitation (in the Mediterranean area the conditions
are drier year by year, thus it is even more susceptible to drought and forest fires) and melting glaciers. Among the
afore-mentioned climatic changes, the rise in sea temperature in the case of Cromaris could on the one hand have
a beneficial effect on the rate of increase and thus on production costs. On the other hand, with increasing
temperature, more complex problems with pathology can be expected at Cromaris locations. There is no noticeable
impact of other climatic changes on regular business activities.

The tourism part of the Group depends partly on preserved natural resources. Climate change, i.e. extreme weather
conditions and changed distribution and quantity of precipitation may have a direct impact on the tourist offer or
demand for products and services of the company, which may reflect on the competitiveness and financial
performance of the Group. The Group manages the risks associated with climate change by pursuing activities to
protect natural resources, develop new products, or services that are not directly related to natural resources,
investing in infrastructure, cultural heritage, gastronomic offer and building an image of a desirable destination.

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2.4. Reporting
List of entities included in the consolidated financial statements

The Group comprises the Adris Group and related companies in which the Adris Group owns more than 50%
ownership and control. The list of entities included in the consolidated financial statements is set out in the notes
to the consolidated financial statements (Note - General information), which are publicly available on the
Company's website, the Zagreb Stock Exchange website and in the Official Registry of required information of the
Croatian Financial Services Supervisory Agency (HANFA).

Reporting period and cycle


The reporting period is one calendar year beginning 1 January and ending 31 December.
This Report covers year 2017.
Since this is the first Report, there have been no previous reports of this type.
The reporting cycle is annual (once a year).

Contact for questions from the Sustainability Report

Contact for questions from the Sustainability Report: izvjesca@adris.hr.

External verification/audit of Sustainability Report

An external verification of the Sustainability Report was not performed.


Independent external auditors performing the audit of the financial statements, in respect of the Management
Report, have conducted procedures prescribed by the provisions of the Croatian Accounting Act. These procedures
include verifying whether the Management Report includes the disclosures required by Articles 21 and 24 of the
Accounting Act and, in their opinion, Information in the Management Report for the financial year for which the
separate and consolidated financial statements have been prepared, are, in all material respects, in accordance with
the separate and consolidated financial statements, and the Management Report has been prepared in accordance
with Articles 21 and 24 of the Accounting Act.

Statement of Preparation of the Report in accordance with the Standards

This Report has been prepared in accordance with GRI standards: Basic Option.

3. MATERIAL TOPICS AND STAKEHOLDERS

The process of determining material topics and their borders began by identifying the stakeholders affected by the
Group's decisions, activities and results on the one hand, which can influence the Group's decisions, activities and
results on the other.

3.1. Engagement, involvement of interest groups (stakeholders)


Engaging stakeholders is a special challenge and this is an area where we need to work intensively to ensure that we
understand the needs of the stakeholders we consider important for our business. Namely, it is only through
transparent communication that it is possible to achieve the understanding necessary for business development.

Different informal and formal methods are used in the process of involving stakeholders in the Group. All
stakeholder groups can communicate with the Group's companies through various communication channels,
including a free telephone line and email addresses on the websites of individual companies, while most of the
individual groups of stakeholders of a particular group of companies are in contact with each other and thus
maintain a certain level of communication on a continuous basis.

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The Group's primary stakeholders are the following groups: consumers, employees, suppliers and partners,
stakeholders, regulatory and public administration bodies, communities and trade unions.

Consumers

Consumers are a very important group of stakeholders in all the Group's companies. We tailor products and services
to consumer needs, changing their lifestyle and trends. Particular attention is paid to the quality of products and
services, so consumers have free consumer phones in certain Group's companies and are also allowed to make
suggestions and remarks via electronic mail and Internet interface. Communication is also maintained by
conducting questionnaires on service satisfaction, e-mails and social networks. Consumers are allowed to complain
under consumer protection regulations.

Employees

Employees are the most valuable asset of the Group. By providing continuous training and additional education and
career development planning, we strive to motivate employees and increase their satisfaction and efficiency. At the
same time, the highest standards of excellence are expected from them. Our employees at all levels are actively
involved in suggesting and creating improved solutions, and the working environment provides them with the
opportunity for continuous professional and personal development. Communication with employees takes place
through regular daily, weekly and monthly meetings, employee meetings, meetings with members of workers'
councils and trade unions and the traditional annual gathering at the Adris Group sports games.

Suppliers and partners

We work closely with our suppliers and partners to create value suitable to the needs of consumers and other
stakeholders. Through intensive collaboration, we create and improve business relationships, thus contributing to
the achievement of immediate business results and long-term goals associated with sustainable development. We
are in touch with our suppliers and partners almost every day, and have regular meetings, visits and exchanges of
knowledge and experience with the aim of mutually improving the services and products for end-users.

Shareholders

The long-term management strategy of the company is focused on creating an increased equity capital value. The
Group maintains communication with shareholders through:
- holding the General Assembly
- financial statements (quarterly and annual)
- additional notices published on the Group's web site, the Zagreb Stock Exchange website and all the
information provided on the website of the Croatian Financial Services Supervisory Agency (HANFA).

Regulatory bodies and public administration bodies

During regular operations, the Group companies cooperate with the competent regulatory and other state bodies.
These relationships are based on the expertise and professional approach which have been built during many years
of collaboration.

Community

The Group companies are closely related to the community where they conduct their business because they are
involved in developing and raising the quality of life by employing the local population and paying local
contributions. The Group, as one of the largest business entities in the country, has the additional responsibility to
create a transparent, equal and stimulating business environment. Communication takes place through
membership in business and professional associations and organizational and financial support to numerous
associations, institutions, projects and activities in local communities.

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Unions

There are four unions currently operating within the Group. The Group treats the representatives of all active unions
equally and in accordance with the provisions of the Labour Act and the applicable collective agreements. The Group
companies regularly hold meetings with trade union representatives, informing them on time about changes or new
developments in the business, involving them in the decision-making process through the consultations and
negotiating the rights and obligations that are regulated by collective agreements.

3.2. Explanation of material topics and their boundaries


Based on the consideration and assessment of strategic issues and focus on sustainability topics that have the
greatest impact on the Group and its stakeholders, the environmental, social and economic material topics of the
Group have been identified, and are at the same time its strategic goals.
After the identification of material topics, their importance was determined, and then checked. In conclusion, a list
of all identified material topics included in this Report was created.

The boundaries of material topics are determined on the basis of the estimated impact of Group companies and
their relevance to identified groups of stakeholders.

Material topics Material topic Material topic boundaries outside


boundaries inside the the Group
Group
ECONOMIC
Economic value All subjects in the Group Local /national level of operation
Market presence All subjects in the Group Local /national level of operation
ENVIRONMENTAL
Energy All subjects in the Group Local /national level of operation
Water, waste water and waste Segment tourism and Local /national level of operation
healthy food
Biodiversity Segment tourism and Local /national level of operation
healthy food
SOCIAL
Relations with employees
Employment All subjects in the Group Local /national level of operation
Health and safety in a working environment All subjects in the Group Isn't a material topic outside the
Group
Training and education All subjects in the Group Academic community, educational
institutions

Variety and equal opportunities, non- All subjects in the Group Isn't material topic outside the
discrimination Group
Collaboration with the local community All subjects in the Group Local /national level of operation
Customer focus
Product responsibility All subjects in the Group Group markets, consumers
Health and safety of consumers Tourism and healthy Group markets, consumers
food segment

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4. ECONOMIC TOPICS

4.1. Economic value


The economic value is a material topic for the Group because only a positive financial result allows the distribution
of economic value through salaries and employee benefits, state contributions, payments of operating and financial
costs, and direct or indirect payments to other stakeholders.

The basis for managing the economic value is a long-term business strategy, which is elaborated in more detail in
the annual business plan and monitored on a monthly and weekly basis. The business plan and estimate are used
to plan future steps in the realization of economic indicators and to identify and remove impacts that could cause
the plan to fail. The entire Group participates in planning and business assessment, while the Management Board
is primarily responsible for business results.

In 2017, the Adris Group achieved growing business results in all its segments. Along with optimal operating
liquidity and increasing profitability, elements of business policy were implemented, enabling long-term value for
shareholders.

In the tourist segment of the Group, the investment cycle continued with emphasis on positioning in the highest
segments of the tourist offer. The highest offer segments have a stable demand and are less price-sensitive segments.
The number of four and five-star hotels is already larger than three quarters and in three years, more than 95% of
offered hotels will be at the highest level. A strong investment cycle supports the realization of these plans. In
addition to organic growth, at the end of 2017 the tourist segment of the Group started the acquisition of HUP-
ZAGREB d.d. HUP-ZAGREB d.d. has hotel facilities in Zagreb and Dubrovnik, two growing tourist destinations.
With this acquisition, the tourist segment of the Group has created the preconditions for becoming the national
tourist leader. The use of operational and financial synergies will drive additional value in the post-acquisition
period. Cromaris continued its activities in the export markets, primarily through strengthening the local
organization in Italy, the largest European market for sea bass and sea bream. The export markets sales share is
77% with further growth trends. The sustainability of a business depends on its competitiveness in key export
markets. Positioning in the highest price segments due to quality is a key element of business policy and
sustainability as a whole. Croatia osiguranje continued with the process of transforming its business, increasing
process efficiency and customer orientation. Stable leadership positions on the Croatian market and strengthening
of regional subsidiaries are good foundations for growth. Demand forecasts show steady growth in the market,
which will, in addition to keeping the market share and cost efficiency, secure an increase of profits and company
value.

Expected growth of demand in all activities, positioning in sustainable segments, selective investments and
operational excellence are the pillars of further enhancing the value of all Group operations.

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Generated and distributed direct economic value in the reporting period:

no. Amount
[millions HRK]
Direct economic value generated 1 (=2) 4.687,0
- Income 2 4.687,0

Economic value distributed 3 (=4+5+6 4.479,4


+7+8+9)
- Operating costs 4 3.268,5
- Employee costs 5 826,1
- Payments to owners (dividends) 6 275,2
- Payments to creditors (interest) 7 20,7
- Payments for taxes and penalties to the state 8 83,3
- Donations paid (foundations, associations, ...) 9 5,6

10 (=1-3) 207,6
Retained economic value

4.2. Market presence


The strategic goal of the Group is to provide competitive salaries to workers in consideration to the industry and the
environment, as well as other material and non-material labour conditions, i.e. to contribute to the economic well-
being of employees.

By comparing the ratio between the minimum starting salary in the Group and the minimum salary in the countries
where we operate, in most areas the Group has better starting salaries than the minimum guaranteed salaries. Only
in the insurance segment in Serbia and Macedonia the starting salary is equal to the minimum guaranteed salary,
which is the consequence of the salary structure itself, where it can be higher (and generally is higher) than the
minimum guaranteed salary, which is achieved on the basis of the commission and added to the basic salary.

The salary policy and the employee reward policy is based solely on the type and complexity of work, responsibilities,
knowledge and skills needed to accomplish tasks and it excludes any form of discrimination.

The largest share of employees in the Group is comprised of local population, in all positions within the Group. The
share of local senior management in total senior management at the end of the reporting period is 93%.

For the purposes of this Report, the General Management and segment directors are considered to be senior
management, the term local implies the country of residence of the person at the time of his/her employment, while
the significant place of business implies the Republic of Croatia or countries where the related companies are
located.

5. ENVIRONMENTAL TOPICS

Our business activities have an impact on the environment and therefore its preservation and protection, the
preservation of biodiversity, the prevention of pollution and the reduction of our environmental impacts is our
obligation. Moreover, to our two strategic segments – tourism and healthy food production – the environment is a
key resource that the overall performance of the Group depends on. Therefore, environmental protection is
approached comprehensively, applying and certifying management systems with the goal of introducing green
business, environmental concerns and social inclusion into the local community. The Group is focused on finding
solutions that will make products and services energy-efficient, save natural resources and preserve the health of
employees and users.

Within certain Group companies, there are departments whose responsibilities include environmental protection,
health and safety at work. These departments systematically and operationally carry out policies from these areas
and are responsible to their company management.

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On 5 May 2008, Maistra certified the environmental protection management system according to ISO 14001:2004,
which, together with the implemented quality management system according to ISO 9001: 2008, is part of the
overall organizational integrated quality management system. The systems have been implemented in all Maistra
hotels, resorts, campsites and business functions.

In applying the environmental management policy, the Maistra Management has committed itself to professionally
and responsibly monitor and manage all aspects of its processes and services, thereby minimizing the negative
impact on the environment, while laying down the following rules:
 By introducing new environmentally friendly materials and substitutes for substances that directly or
indirectly affect the environment, we reduce harmful environmental impacts, increase the level of energy
utilization and by managing waste, we reduce the amount of all types of waste that arise in our processes,
and on the locations where our facilities are situated and where they operate. Special attention is paid to
the protection of water by rational use of water and advising our guests to do the same; the controlled use
of cleaning agents and the use of purified wastewater as well as the prevention of sea pollution and the
implementation of the Action Plans for emergency measures in case of sudden water pollution, tailored for
each of our facilities.
 Maistra continuously plans and carries out various activities aimed at environmental protection by
meeting the requirements of international standards and regulations and verifies the activities undertaken
and assesses their effectiveness. The establishment and implementation of an environmental management
system, continuous training, improvement and motivation of employees at all levels of the organization
develops and promotes awareness of the need for environmental protection and affects the reduction, and
wherever possible also the prevention of pollution.
 Necessary organizational, professional and financial resources are provided for the purpose of
implementing environmental policy.
 Apart from training employees, knowledge is transferred to our guests, suppliers and business partners
and we strive to act as an example of proper procedures for the benefit of nature and the environment.
 Maistra has the right and obligation to oversee the correctness of the processes that our external suppliers,
partners and/or guests are conducting at our locations.
 The goal of the Maistra d.d. procurement function is close co-operation with the local community. The
desire is to provide guests with quality products and food from local producers, thus promoting and
stimulating economic growth and local community development, thereby reducing the high cost of
transport of goods and CO2 emissions, which directly affects the preservation of the environment.
 Maistra holds the Friend of the Environment label, quality "Q" label and Blue Flags promoting economic,
social and environmental advancement in society and the environment. Generational environmental
awareness, i.e. insisting that our actions today do not endanger future generations of tomorrow, is
Maistra's primary task.

Mariculture is an activity that is of crucial importance to the quality of the marine environment in which fish and
shellfish are bred. The impact of mariculture on the environment is minimal and mostly refers to the accumulation
of organic matter close to the fish farm cage and in combination with shellfish pollinating water, this effect further
decreases. Research shows that the environment recovers from the influence of breeding activities in less than a
year after the removal of fish farming structures.

All Cromaris farms are located in a natural environment, away from settlements and industrial plants. The
abundance of the breeding sites is also reflected in the fact that everything lies within or near the ecological network
area, which aims to ensure the long-term survival of Europe's most valuable and endangered species and habitats.
That is why special care is taken to protect the environment.

The key to preserving the environment is the implementation of the principles of sustainable development through
good production practices and an efficient environmental management system certified by Cromaris in accordance
with ISO 14001: 2004.

According to the requirements of the Environmental Impact Study, authorized research institutions track the
following parameters:
- seawater sample (dissolved oxygen, ammonia, nitrites, nitrates, organic nitrogen, phosphates, organic
phosphorus, chlorophyll)
- sea bottom sediment (redox potential, organic carbon, total nitrogen, total phosphorus)
- the state of natural biological communities.

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In addition to monitoring parameters according to the Environmental Impact Study of Cromaris' farms, the state
of the environment and the shellfish farms are monitored by government bodies at reference stations,
phytoplankton composition, and in the tissue of bivalves metals (As, Cd, Hg, Pb), benzo (a) pyrene and bacteria E.
coli.

Additional requirements are defined by organic production, so in the fish tissue they analyse: organochlorinated
pesticides, organophosphate pesticides, mercury, cadmium, lead, dioxins and furans (PCDD + PCDF) (sum);
dioxins, furans and sums of dioxin-like PCBs, antioxidant ethoxyquin.

5.1. Energy
Energy is a material topic for the Group as it affects economic, environmental and social impacts.
The key fuels used at Group level are electricity, fuel oil, other fuel and gas.

Consumption of key fuels during the Reporting Period:


Measuring
Fuel Total cost for Group
unit
Electricity MWh 54.439
thousands of
Fuel oil 1.801
litres
thousands of
Other fuel 1.422
litres
Natural gas MW 7.071
thousands of
litres 337
Gas propane butane in the tank
ton
46
Gas butane, CO2 and nitrogen in bottles

When it comes to saving fuels, the Group is focused on reducing fuel oil consumption by switching to urban gas in
facilities where fuel oil is still in use, given that gas is the most affordable fuel for the environment. Its combustion
produces significantly less amounts of carbon dioxide than other fossil fuels. Energy efficiency is particularly
emphasized in investment projects by selecting ecological materials during construction and installation of high
energy class appliances.

5.2. Water, wastewater and waste


Water, wastewater and waste are material topics for the Group due to their direct impact on the environment, the
local community and the economic performance of the Group.

Water

For the needs of the Group, water from local waterworks is used. In the tourism segment, a small part of water is
drained from several wells for which water permits have been obtained and it is used for irrigation and swimming
pools. During the reporting period 30 thousand m3 of water was taken from the wells. During the reporting period,
the Group's water consumption amounted to just over 1 million m3.

Wastewater

Maistra releases wastewater into the sea just from facilities on Sv. Andrija Island. Prior to discharge the wastewater
is purified at a wastewater treatment plant, part of which is used for irrigation. Wastewater that drains into the sea
is compliant with the water permit issued by Hrvatske vode (Croatian water management company) and as such
does not pollute the sea and does not adversely affect biodiversity. Wastewater at the Group level is discharged into
urban drainage systems.

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Cromaris at the location of Gaženica discharges wastewater into the sea. Before being discharged into the sea
wastewater is purified in an MBR (membrane bioreactor), a water purification system. According to the results of
the test samples of wastewater it is within the permissible concentrations prescribed by the Water Permit. At the
location of the Nin nursing ground, water is treated after use by filtering, temperature reduction and sludge
dehydration. Such purified water is discharged into the sea. Sanitary effluents are discharged into the collection pit
and disposed by an authorized wastewater treatment plant.

During the reporting period, the Group filtrated a total of 43 thousand m3 of water, of which 14% was reused mainly
for irrigation.

Waste

Waste at the Group level is regularly separated. Hazardous waste is being separated from non-hazardous waste, and
waste is separated by type. In accordance with legal regulations, all waste is disposed of by collectors authorized by
the Ministry, according to prescribed documentation. During the reporting period at the Group level, a total of about
1.5 thousand tons of waste was disposed of, of which about 4 % is hazardous and the rest refers to non-hazardous
waste.

5.3. Biodiversity
In the vicinity of Maistra facilities there are the following special areas:
Special areas Protected since Vicinity of facility Area
Special reserve of forest vegetation 1964 Koversada 65 ha
Kontija
Special sea reserve Lim Channel 1980 Koversada, Amarin 429.41 ha
Significant landscape Lim Channel 1964 Koversada, Amarin 882.8 ha
Significant landscape Rovinj islands 1968 Rovinj facilities 1371.19 ha
and coastal area
Special ornithological reserve Palud 2001 Veštar 226.86 ha
- Palù
Special paleontological reserve 1994 Veštar 425.65 ha
Datule – Barbariga
Geological natural monument 1987 Rovinj 4.05 ha
quarry Fantazija – Cava di
Monfiorenzo
Forest park Zlatni rt – Škaraba 1948 Rovinj hotels 52.4 ha

In its operations, Maistra takes action to prevent negative impacts on the environment and biodiversity: all the
interventions in the area are carried out in accordance with the legal regulations and acts, all necessary permissions
and solutions are obtained, and the maximum effort is sought to preserve and, as far as possible, improve existing
conditions. In areas where Maistra operates during investment projects, efforts are made to preserve existing
vegetation or try to replace it with the same after the projects are completed, and special attention is paid to
horticulture.

Cromaris breeding farm Lim, located in the Lim Channel on the west coast of Istria, meets the criteria in the
categories of significant landscape and special reserve.

Significant landscape – Slopes of Lim Bay – from 17 January 1964


The slopes of Lim Bay are located at the border of the EU-Mediterranean and sub-Mediterranean zones and
represent a school example of positive influence on the development of vegetation. The northern slopes of the Lim
Bay meet the conditions for the development of evergreen oak hornbeam, while the southern slopes are suitable for
sub-Mediterranean deciduous vegetation of downy oak and oriental hornbeam. In the eastern part of the Lim Bay
Thelygonum cynocrambe can be found.

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Special reserve - Sea and underwater of Lim Bay - from 2 September 1980
The coastline of Lim Bay is rocky and steep, and because of the low waves vegetation reaches low to the sea level.
The rocky, steep coastline quickly transfers from a rocky to muddy bottom already in the shallow area and prevails
in the entire aquarium. This type of sediment is abundant with organisms (especially shellfish) that are plundered
by many species of fish that come here to spawn. The Lim Bay also serves as a shelter from which they migrate along
the western coast of Istria. Due to many submarine springs, salinity is reduced in the Lim Bay and at the very top it
is almost sweet. Salinity varies depending on the season and depth. Deep layers of sea have characteristics of open
sea water. The sea is less clear in the Lim Bay, indicating the richness of plankton.

The breeding farm is acceptable for the ecological network, with the use and implementation of the environmental
protection measures and the environmental monitoring program as defined in the Environmental Impact Study.
The Environmental Impact Study describes in detail the possible business unit's impact on biodiversity and there
are prescribed environmental protection measures and environmental monitoring programs. According to the
results of monitoring at the site, there was no significant environmental impact.

6. SOCIAL TOPICS

6.1. Relations with employees


Employees are the most valuable resource of the Group, without them no business goals can be achieved, and the
materiality of this resource is unquestionable. Employee satisfaction is one of the Group's strategic goals, and
therefore the potential impact on employees is considered in the process of making long-term decisions. Human
Resources Management is responsible for managing the employees’ needs.

6.1.1. Employment
For years, the Adris Group has enjoyed the status of one of the most desirable employers in Croatia and the region,
while continuous investing and improving employees' rights is one of the most significant reasons why the Group
as a whole is today one of the most successful and most desirable Croatian and regional companies.

The employment procedure at the Adris Group is described in the official document Employment Procedure or in
the relevant internal acts of the Group members defining the authorities, responsibilities and employment
procedures. The recruitment process emphasizes the importance of attracting, selecting and retaining the best talent
in all management and operational segments of the business to achieve the ultimate ambitious business goals with
the full contribution of the best human resources.

The needs for new employment are defined in the process of preparing the annual plan and must be approved by
the Management Board, which confirms the validity of the identified need and compliance with the Work Cost Plan
for the current year.

The selection process consists of the application of expert assessment methods to candidates and the selection of
the candidate who best meets the conditions of the competition. It is run by the Human Resources Department,
which at each stage of the selection process informs the head of the department in which the new employee is
recruited and involves it in evaluating the relevant selection criteria.

In the tourism part of the Group's operations during the last few years there has been a lack of high quality
workforce, therefore in this part the Group is particularly focused on the implementation of an active policy of
attracting and recruiting staff by cooperating with the local community, educational institutions and internal
programs focused on the development of specific staff profiles that are missing.

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Newly-employed workers and fluctuation during the reporting period

Employment
Age group Employment start end
Women Men Women Men

Republic of Croatia 306 241 316 233


18‒24 23 32 11 21
25‒29 58 56 33 36
30‒39 110 84 77 72
40‒49 66 44 100 46
50‒59 48 20 81 40
60‒64 1 5 13 13
> 65 0 0 1 5
Bosnia and Herzegovina 19 33 5 15
18‒24 2 4 0 2
25‒29 7 7 0 2
30‒39 5 16 1 6
40‒49 4 6 3 4
50‒59 1 0 0 1
60‒64 0 0 1 0
Serbia 122 94 118 96
18‒24 19 15 11 10
25‒29 23 15 24 12
30‒39 45 25 41 25
40‒49 23 18 24 21
50‒59 9 13 16 19
60‒64 3 8 2 7
> 65 0 0 0 2
Macedonia 32 27 35 26
18‒24 1 3 7 3
25‒29 10 5 7 8
30‒39 9 6 14 10
40‒49 9 10 4 4
50‒59 3 3 3 1
Italy 1 0 0 2
30‒39 1 0 0 2

Total 480 395 474 372

The fluctuation does not include seasonal employees who are largely present in the tourism segment, where the rate
of return of seasonal employees is about 80%. The fluctuation of seasonal employees is monitored by the percentage
of employees returning the following year. It is precisely the creation and increase of seasonal employee loyalty that
is an important part of the human resources management policy at Maistra.

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Review of the use of parental leave during the reporting period:


Women Men

Number of people who were in the position to use parental leave 175 116
Number of people who used parental leave 60 58
Number of people who could return to work after parental leave during the reporting
30 22
period
Number of people who returned to work after parental leave during the reporting
29 22
period

Number of people who remained at work for at least twelve months after the end of 11 16
their parental leave

All employees have the same benefits, regardless of whether they are employed for a certain or indefinite period of
time, i.e. full or part-time: they are entitled to a reimbursement, a Christmas gift, a gift for children up to 15 years
of age, different assistance defined by the collective agreement, transportation reimbursement, hot meal, severance
pay etc.

6.1.2. Employee and management relationship

Maintaining good relations and social dialogue with employees is a key factor in creating a positive work climate
and employee satisfaction. Employees are informed regularly and timely of all important business changes and are
involved in processes that are important for them.

The period of notifying employees is defined by the provisions of the Labour Act at the Group level, i.e. by the
collective agreement in the companies where there are unions.

Where possible, certain Group companies have an employee representative on the Supervisory Board, so in the
event of important business changes that can significantly affect the employees, employee representatives are
acquainted with them even before a final decision is made. Employees are additionally notified through all channels
of internal communication and by direct communication with their manager about the upcoming changes that are
relevant to the company's business and to the employees personally.

6.1.3. Health and safety at work

The aim of safety at work is to create safe working conditions and to prevent adverse events, primarily related to
accidents and injuries at work and disturbances in the work process. Effective implementation of health and safety
at work ensures employee performance, reduced number of injuries, lower costs and better working conditions,
contributing to employee satisfaction and better business performance, so health and safety at work are also a
material issue.

Within certain Group companies there are departments whose responsibilities include health and safety at work,
which systematically and operationally implement policies in these areas and are responsible to the companies’
management boards.

Within the framework of these policies, internal controls of the application of the rules on occupational safety are
continuously carried out and, in cases of observed irregularities, they propose solutions aimed at reducing the risk
or eliminating the causes of injuries, accidents or disturbances in the work process, etc. Work injuries are analysed
- their causes and measures which will be taken to prevent injuries and work-related illnesses. Examinations,
measurements and surveys of work means and equipment, and the working environment are carried out at
prescribed intervals.

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In accordance with applicable regulations, employees are sent to health examinations and are trained in
occupational safety at work during the recruitment process.

Health and safety issues are regulated by regulations and internal acts, and collective agreements in companies with
active unions. These regulations and acts regulate basic issues related to health and safety protection, such as:
 appointment of a health and safety employee officer and their work in the interest of employees in the field
of safety at work
 employer’s obligations, such as: acquiring and maintaining plants, equipment, tools, workplace and access
to workplaces and organizing work in a way that protects the health and life of employees; providing work
and protective clothing and footwear, providing each employee with adequate training in health and safety
at work and other in accordance with regulations; enabling the health and safety officer to carry out their
duties smoothly, provide them with all necessary information and enable them to inspect all regulations
and documents and participate in health and safety trainings
 employee obligations, such as: work with due care and in a way that does not endanger the life or health of
other employees and the safety of equipment and devices; be familiar with the conditions and dangers of
work in the workplace; follow prescribed and recognized safety measures and instructions of the producers
of work equipment; maintain and use in the proper state the safety devices and personal protective
equipment entrusted to them for use and handling; warn managers of all failures and defects in machinery,
equipment, safety devices, personal protective equipment as well as irregularities in the work flow and
procedures of other persons who may damage, destroy certain equipment or endanger the life and health
of employees; during the conclusion of a work contract and in the course of work, to acquaint the employer
or the competent physician with the physical disadvantages or illnesses which, when performing certain
tasks, may cause consequences for the life and health of the employee or their working environment;
master the knowledge of health and safety to the extent necessary for safe work; undergo testing for the
influence of alcohol or other addictive substances; undergo health, psycho-physical and other
examinations which employees are referred to.

Within specific Group companies, there are health and safety committees and the employees’ trustees insuring
safety at work. The members of boards are employee representatives, occupational health specialists, physicians,
occupational medicine specialists and employer representatives.

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Overview of injuries during the reporting period:


Women Men
Republic of Croatia
- average number of employees 2,570 2,086
- number of employees that sustained minor injuries at work 42 26
- number of employees that sustained serious injuries at work 7 9
- number of employees that sustained fatal injuries at work 0 1
- number of occupational disease cases 0 0
- total number of sick days 1,833 1,796
Bosnia and Herzegovina
- average number of employees 125 134
- number of employees that sustained minor injuries at work 0 0
- number of employees that sustained serious injuries at work 0 0
- number of employees that sustained fatal injuries at work 0 0
- number of occupational disease cases 0 0
- total number of sick days 0 0
Serbia
- average number of employees 280 192
- number of employees that sustained minor injuries at work 1 0
- number of employees that sustained serious injuries at work 0 0
- number of employees that sustained fatal injuries at work 0 0
- number of occupational disease cases 0 0
- total number of sick days 60 0
Macedonia
- average number of employees 108 72
- number of employees that sustained minor injuries at work 0 0
- number of employees that sustained serious injuries at work 0 0
- number of employees that sustained fatal injuries at work 0 0
- number of occupational disease cases 0 0
- total number of sick days 1,586 0
Italy
- average number of employees 2 2
- number of employees that sustained minor injuries at work 0 0
- number of employees that sustained serious injuries at work 0 0
- number of employees that sustained fatal injuries at work 0 0
- number of occupational disease cases 0 0
- total number of sick days 0 0

The fatal injury at work was the consequence of a traffic accident. The working conditions and working environment
did not have any impact on the occurrence of the injury at work.

6.1.4. Training and education

One of the core human resource management strategies is investment in education and employee development,
which is a necessary prerequisite for adapting to new trends and challenges in the business environment, and
thereby ensuring the Group's long-term sustainability. By providing continuous training and additional education
and career development planning, we strive to motivate employees and increase their satisfaction and efficiency at
work.

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At the Group level, the education and training program can be divided into three levels:
 basic training programs (foreign language skills, basic communication skills program, internship
programs, ...)
 special training programs for individual and specific jobs (depending on the specific needs of particular
companies in terms of their activity)
 managerial skills improvement programs.

In 2012, the Adris Group decided to encourage positive processes in the Croatian society by launching a unique
apprenticeship program and recruitment of young highly educated people entitled "Future at Adris". As one of the
leading Croatian companies based on the criteria of innovation, competitiveness and profitability, the Adris Group
continues to encourage and reward excellence and work, promote knowledge and accountability and overall
economic growth and development of Croatia by giving opportunities to young and educated people looking for
challenges. Program participants thus have the opportunity to grow from interns to new and fully-qualified Adris
managers and technologists, experts whose knowledge will lead them and the Adris Group into the future. The
"Future at Adris" program is conceived as a unique one-year national program that offers the best highly educated
young people a one-year internship at the Adris Group member companies, and best of them obtain permanent
employment and continuous professional training. In 2017, the third cycle of the program was completed.

The MAIstart training program was launched in 2017, offering an intensive one-year work and education program
under the mentorship of leading tourism sector experts with a view to getting acquainted with the company's
business and gaining basic knowledge about the functioning of key departments and functions within the Maistra
portfolio.

A talent management program was also developed - the Maistra Business Academy. This program prepares
managers for a higher-level position that holds greater responsibilities.

Employees also have the opportunity to attend various forms of professional programs and professional education,
participation in professional conferences and fairs, exhibitions and conferences in Croatia and abroad.

Maistra has increased internal trainings conducted by employees/internal trainers in line with the Train the trainer
Program in recent years. More than 50 internal trainers have been educated at the Maistra level.

The University of Zadar - Department of Ecology, Agronomy and Aquaculture has launched the BLUE SMART
Project – “Blue Education for Sustainable Management of Aquatic Resources”, in which Cromaris participates as a
project partner. The goal of the project is to create new skills and knowledge in the blue economy sector and increase
the employability of current and future employees of this sector in the Zadar County.
Project results:
Establishment of a graduate study program for Sustainable Management of Water Ecosystems
The planned study program will be based on interdisciplinary management of water ecosystems with special
emphasis on environmental protection. The course is also planned to adapt to working students , which includes
afternoon and weekend classes, to enable education alongside employment and to upgrade the existing education
levels to professionals from other sectors.
Creation of an e-Course Basics of good practice in fishing
The development of an innovative e-Course will enable additional professionalization of employees in the sector.
The materials and course contents will be available in the form of an open platform divided into different modules.
At Croatia osiguranje, 2017 was highly dedicated to the improvement of knowledge, skills and the sales staff work
procedures, which is why the project "Improving the efficiency of the sales network" was launched and
implemented. A number of modern human resources and work tools were introduced, supported by external
consultants, while quality transfer of methodology and knowledge to internal employees and management was
provided by the “Train the trainer” program. Formal training in leadership and people management was provided
for team leaders through two-day, highly interactive and practical workshops.

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At Croatia osiguranje, a management program for the company's top management and all sales management levels
was initiated and implemented. A program called Efficient Management, which was organized through three
modules for a total of seven working days, was created for members of the management and sector directors. The
goal of the program was to improve the skills of managing and building effective teams and building an open,
collaborative and result-oriented organizational culture.

Modular education for management was also attended by the sales department directors.

Annual hours of training and employee training during the reporting period:
Average hours of
Total number of Total hours of education per year per
Employee category employees education per year employee

Women Men Women Men Women Men

Management 46 104 1,532 2,086 33 20


Other employees 3,069 2,349 41,411 27,794 13 12
0 0 0 0 0 0
Total 3,115 2,453 42,943 29,880 14 12

By investing in education and training, or by developing competences and adopting new knowledge during
employment, employees also raise personal competitiveness in the labour market.

6.1.5. Variety and equal opportunities, non-discrimination

The Group employs, pays salaries and promotes employees, and makes other work-related decisions based on
relevant factors, primarily qualifications and work performance, not based on race, gender, skin colour, religion,
age, ethnicity, sexual orientation, disability or other permanent features.
We are devoted to creating a professional working environment in which our employees are treated with respect
and dignity and where there is no inappropriate behaviour, discrimination or harassment.

There are people in the Group who have been appointed by the Management Board, in consultation with the union
and/or the workers’ council in the companies where one is active, and which are concerned with the dignity of
employees.

During 2017, no employee complaints were received at the Group level.


At Croatia osiguranje, a measure was carried out in a preventive manner with the aim of reminding of the standards
of professional conduct and the Company’s values, as well as improving interpersonal relationships and team work
performance. In this sense, the following activities were undertaken:
1. consultation of the Human Resources Management and Management Sector
2. distribution of employees to prevent potential future disagreements and conflicts and create a more
comfortable working environment for all team members
3. workshop on standards of professional conduct (management) and professional and efficient
communication.

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Variety of managerial bodies and employees at the end of the reporting period:
Management Other employees
Age group
Women Men Women Men

< 18 0 0 5 6
18‒24 0 0 169 154
25‒29 0 0 305 277
30‒39 7 28 936 777
40‒49 26 49 845 507
50‒59 10 22 656 440
60‒64 2 4 55 106
> 65 1 1 3 7

Total 46 104 2,974 2,274

6.2. Collaboration with the local community


By establishing the Foundation in 2007, the Adris Group took a step forward in corporate social responsibility
activities and providing more direct assistance to the development and progress of the Croatian society. By
systematically directing resources from its own business to philanthropic purposes, Adris Group has firmly
confirmed its corporate social responsibility and the concept of active participation of large and successful
companies in creating a more advanced social environment for all citizens. Hundreds of projects, individuals,
associations and institutions, thanks to the support of the Adris Foundation, have achieved their goals, leaving a
mark in the field of science, culture, preservation of natural heritage, creativity, working with young people, care for
people with disabilities, humanitarian work, and similar.

Funds are awarded to projects and individuals from the fields Knowledge and Discovery, including scholarships,
and the fields of Creativity, Ecology, Heritage and Kindness. Priorities, benchmarks and ways of allocating funding
for programs and scholarships are detailed in the Regulations Book in order to ensure the transparency and fairness
of the Foundation's funding allocation. The Adris Group allocates one percent of its profits to the Foundation
annually.

Including grants paid in 2017, since its founding in 2007, the Foundation has awarded nearly 40 million HRK for
projects and individuals who encourage innovation, creativity, the development of science, the preservation of
Croatian natural and cultural heritage and the kindness and solidarity in the Croatian society. In addition, over the
past ten years, the Foundation has secured 300 scholarships for excellent high school students, undergraduate and
graduate students, postgraduate specialist and scientific studies, and postgraduate doctoral studies.

In the 2017 competition, the Foundation supported projects related to the preservation of fundamental values and
social changes in the Croatian society, the strengthening of recognisability of Croatian science in the world,
improvement of health, food production issues and preservation, nature conservation and indigenous species etc.
Among more than 50 projects that received donations that year, the project entitled Quinuclidine and quinuclidine
derivatives - compounds of high biological and medical potential of the Faculty of Science of the University of Split
stood out, which will continue research on quinuclidine derivatives and their antimicrobial activity with the aim of
synthesizing compounds that will be potential candidates for the development of new medicines.

Within the project Hepatitis E viral infection in patients before and after the transplantation of solid organs in
Croatia of the Clinical hospital Merkur, support was given to the unique study of Hepatitis E viral infections in
patients before and after the transplantation of solid organs, during which researchers at the Clinical hospital
Merkur will investigate the extent of this problem, and try to give concrete responses to the ways of expanding these
risk factors that are necessary for finding prevention measures.

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The project of the School of Medicine of the University of Zagreb, entitled New markers for breast cancer detection
and monitoring - BIOBREAST, will be of great significance to Croatian and world medicine, as it will contribute to
a better quality of life and treatment of patients with breast cancer in a non-invasive and safe way. The Study of the
linkage of environmental pollution with antibiotics and the development of antibiotic resistance to human
pathogens of the Ruđer Bošković Institute will lead to results that will influence the development of effective policy
and environmental management strategies with a view to reducing the emissions of insufficiently processed
industrial waters.

Another project stands out among the donated ones, the Research on the causes of olive drying syndrome - a new
and poorly studied phenomenon in olive growing of the Institute for Agriculture and Tourism with the aim of
introducing and educating olive producers as well as the scientific community with the cause of the olive drying
syndrome, while supporting the project Biology and the ecology of the American cricket (Scaphoideus titanus), the
Flavescence dorée proliferator of Rijeka Polytechnics, will contribute to the improvement and preservation of the
rich tradition of wine production in Istria, which has continued since antique times.

In 2017, the Foundation contributed to the preservation of Croatian cultural and historical heritage. The funded
projects were Revitalization of the old town core of Buje, which will help transform the Old Town core of Buje into
an attractive urban space, and Constructing the promenade along the wall in the historical core of Nin – Obala
Petra Krešimira IV, a unique promenade to connect the cultural sights of the oldest Croatian royal town.

Thanks to the Foundation, the Historical and Maritime Museum of Istria received the funds for the implementation
of the project Gajba and Tić (working title Love and sexuality in Istria), an exhibition that is the result of
cooperation between a large number of institutions and which brings intriguing but dignified historical changes in
the concept of love and sexuality in Istria from prehistory to present times.

Maistra's success largely depends on the further development of the destinations in which it operates and Maistra
plays an active role in the development of the destinations through various strategic projects, cooperation with local
self-government units and tourist communities. Within its Sales and Marketing, Maistra operates a Department of
Destination Management whose primary task is to co-operate with the local community and to develop a destination
value chain, specific tourist products, experiences and events through a co-operation model of major stakeholders
in the destination. That also includes specialized and professional support for promotion, sales and event
management for defined tourist products on which the destination builds its competitiveness, with the aim of
increasing the number of arrivals and overnight stays and occupancy of accommodation capacities, as well as
increasing revenues in terms of pre and post season.

Rovinj and Maistra have been hosts of major world competitions such as the Red Bull Air Race, Beach Polo Rovinj
tournament and RC44 regatta over the past years. What these events mean for the destination, but also for Maistra
is best described by tens of thousands of visitors who were attracted by those events to the destination.

Given the presence of Croatia osiguranje in local communities throughout Croatia with more than 250 branch
offices (its own and representatives), the sponsorship and donation strategy of the company is focused on initiating
positive changes in local communities and is closely related to the core activity, value and personality of the Group
and Croatia osiguranje as a brand.

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Sponsorship and donation policy is implemented in three key areas:


1. Culture and Heritage - Support to projects of national importance to the local community, projects that
promote the preservation of cultural values and natural resources and material and immaterial goods
2. Sports and health - encouraging the development of national and local sports clubs, supporting projects
promoting healthy and responsible living
3. Life and security - reducing the risk, increasing involvement and improving the quality of life of those most
in need, especially the youngest and oldest members of the community.

In 2017, Croatia osiguranje ran a number of sponsorships and donations. More than 50 valuable initiatives in the
field of culture and heritage were supported, including the Dubrovnik Summer Festival, Dalmatian Chanson
Evenings in Šibenik, Varaždin Baroque Evenings, Vinkovci Autumns, Embroideries of Đakovo, Golden strings of
Slavonija and museum programs of the Museums of Arts and Crafts, the Museum of Contemporary Art and the
Concert Hall Vatroslav Lisinski. The heritage conservation projects comprise the Sinjska alka, the Barban Ring
Race, the Neretva marathon boat race, the Croatian Knight Tournament of the Museum of Croatian Zagorje and the
Kajkavian Culture Week in Krapina.

The year was marked by a large multimedia, interdisciplinary and interactive exhibition Croatia is Hrvatska, which
used the Grič tunnel as a venue to summarize over 130 years of Croatia osiguranje, Croatian political, cultural,
scientific and economic history, as well as the history of everyday life of Croatian citizens. It was awarded event of
the year title (Media Marketing), the best-designed exhibition in the world (International Interior Design
Association), the best organized event in 2017 (HUOJ) and with 103.000 visitors was recorded as the most visited
exhibition in Croatia ever.

In the sphere of sponsorships and donations in sports, Croatia osiguranje supported more than 70 sports clubs
throughout Croatia, including football, handball, basketball, volleyball, cycling, water polo, sailing, swimming and
other sports. Sponsored clubs through their own communication channels continually emphasize the importance
of supporting Croatia osiguranje in achieving its results, thus contributing to the reputation of the company and the
market position of the leading and preferred domestic insurer. A part of the clubs carry the name of the company
in its name, such as VK Jug Croatia osiguranje, which won the Croatian Senior Championship, the Croatian Junior
Championship, the Regional League, became vice-champions in the European Water Polo Competition in 2017, and
was proclaimed the best sports team by the choice of Slobodna Dalmacija readers.

In 2017, Croatia osiguranje supported the work of several hospitals and children's homes: the Maestral Children's
Hospital in Split, the Children's Disease Clinic Klaićeva, the Vukovar County Hospital, the Kantrida Children's
Hospital / KBC Rijeka, the KBC in Split, the Sestre Milosrdnice Clinical Centre, Varaždin General Hospital and the
General Hospital in Pula.

Significant resources were invested in helping voluntary firefighters, and during the large fires in Dalmatia, a large
amount of firefighting equipment was donated and delivered to firefighters in the field. The crisis management plan
included a quick response of the company to aid the victims, as well as the creation of opportunities for accelerated
assessment and payment of damages in burnt or flooded areas.

Croatia osiguranje has also invested heavily in sharing and improving community knowledge by supporting
professional conferences and conferences through more than 20 different supported projects in the field of
insurance, actuaries, finance, technology, law, healthcare and a series of specific topics related to the core business
of the company (traffic, fire, agriculture), and employees and experts from the company were also present as
participants, lecturers or panellists at sponsored meetings and conferences.

Croatia osiguranje pays special attention to the investments of financial resources and donations of used IT
equipment to educational institutions, within which the work of more than 50 kindergartens, schools, gymnasiums,
faculties and universities was supported during 2017.

Subsidiaries of Croatia osiguranje in the region also support valuable local sports and cultural initiatives, such as in
Bosnia and Herzegovina, where it supports the work of the soccer and basketball club Široki, as well as concerts by
Croatian artists Oliver and Gibonni, and the Mersad Berber exhibition in Sarajevo. Croatia osiguranje supports the
Macedonian Handball Association.

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6.3. Customer-orientation

6.3.1. Product responsibility

Responsibility towards the customers is the key guideline of Group's operations. Retaining trust and consumer
satisfaction as a result of top-notch and innovative products and services tailored to their needs is one of the Group's
most important strategic goals. Consumer satisfaction is the most important source of income, so it is of high
importance for the Group.

Maistra is one of the leading tourism companies in Croatia and the region. Today the tourism offer knows no
boundaries; guests are better informed and more demanding. Nevertheless, in the fiercest competition in the world,
Maistra is highly regarded among lovers of unique experiences in an exciting environment that is worth coming
back to. It is the result of a ten-year effort and well-thought-out investment policy of the Group. Maistra
continuously monitors market trends, listens to the demands of its consumers to be at the top of the tourist offer,
and develops products that will make it recognizable. After the expansion of Maistra’s offer in 2016, by adding the
new family hotel Amarin, designed and built to meet the needs of families with children, Maistra faces a new
challenge – the opening the new hotel Park, a jewel of the Rovinj hotel offer, conceived as a luxurious hotel with
complete service, ideal for vacation and business.

Knowing and listening to consumer demands to provide them with the best service and respond to their demands
and needs in order to build loyalty is a constant work in progress, but there is room for further improvements. In
order to achieve this goal, continuous communication with consumers is needed, with their feedback being
extremely important. Comments, suggestions, complaints and compliments that consumers leave during their stay
either in direct communication with staff, through questionnaires, as well as those on social networks, enable the
constant improvement of service quality. Therefore, each year Maistra strives to improve the ratings of the segments
with most room for improvement, those segments currently being value for money, cleanliness, wellness services
and offering more content to guests.

Out of 11,812 surveyed guests last year we received feedback from 9,561. The average aggregate rating for all surveys
for the last year is 90/100.

"From the sea to you" is the Cromaris concept, wishing to deliver the freshest and highest quality fish to its
consumers. Therefore, controlled traceability of primary raw materials to the final product is ensured from their
own spawning ground, through fish farms, processing, and logistics, all the way to retail outlets.

The key factor in the process of breeding and achieving top quality fish is the quality of the spawn. The fish spawn
for four to five months on average, after which the fish go to one of the carefully selected Cromaris farms.

In addition to the ideal breeding sites, Cromaris farms are one of the most modern in the Mediterranean - equipped
with top-of-the-range automatic feeding systems, underwater cameras in cages, net cleaning robots, and the largest
marine aquaculture vessel in Croatia (Croatian shipbuilding). All this allows daily fishing and fast shipping of fish
from the farm to the fish sorting centre.
After catching it, the fish is shipped to the processing-logistic centre for sorting. Depending on the order, it is packed
in Styrofoam boxes and sent fresh to the market or it is processed into fresh fillets, packed fish, smoked and
marinated fish. Five to six hours after it is fished out of the farm, fresh fish is ready for shipping across Croatia and
Europe.

12 to 48-hour delivery of extra fresh fish from the moment it leaves the Adriatic Sea is what gives Cromaris the
competitive advantage and distributive power in the region.

Cromaris is focused on top quality because it always wants to provide the best to its consumers. Product data is
transmitted through all phases of production, processing and distribution. The implemented traceability system
through LOT numbers on final products allows traceability of the entire breeding process, the location of the
breeding cage, the food consumed by the fish and the temperature regime from fishing to delivery. The entire
technological process from spawning of the fish to the finished product takes place under strictly controlled
conditions. All of this is part of the Cromaris quality policy, food safety and environmental protection.

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Certifications issued by authorized institutions confirm the quality and professionalism of Cromaris business
activities: from business process certification, through product certification to ecological production certificates,
listed in the Overview of initiatives, memberships in associations and interest organisations of the Group, among
which we are particularly proud of ISO certification 22000: 2005 (Food Safety Management Systems), which sets
requirements for the establishment and maintenance of a complete and effective food safety management system,
the FSSC 22000 (Food Safety System Certification), which includes the requirements of ISO 22000 (Food Safety
Management Systems) and represents its upgrading, IFS Food (International Featured Standard), which provides
a high level of transparency across the entire supply chain, i.e. food transport, and Global G.A.P., which represents
the aquaculture standard that sets the criteria for legal compliance, food safety, health and safety at work, for animal
welfare and environmental care and ecology.

Croatia osiguranje regularly monitors trends on highly developed insurance markets with a focus on the EU. In
addition, it conducts market research activities with a goal to better understand the needs of the market and creating
a product that will adequately respond to them. It thus links the relevant insurance products globally to the needs
of consumers in Croatia. It introduces new and innovative products that will ensure long-term growth and retain
the leading market position.

When developing products, emphasis is placed on creating products with quality insurance coverage as well as on
the overall service. Particular emphasis is placed on a quality and accessible service that will provide adequate
coverage for the risks that consumers are faced with. Croatia osiguranje monitors trends and continuously
implements the latest technology solutions as well as numerous innovations to ensure consumer satisfaction.

Croatia osiguranje measures on a quarterly basis the satisfaction of clients who have bought automotive insurance,
property insurance and life insurance, using the Net promoter score (NPS) methodology. The result or the NPS
number is the difference between the number of people who would recommend the company (promoters) and those
who would not recommend it (detractors) and show the customer's experience during contact with the company at
all stages: information, sales or damage processing. Half-year service quality monitoring (Mystery Shopping) was
also established, which checks the quality of the service in the sales area, focusing on the expertise, sales skills and
employee friendliness. The research results show that clients have a positive attitude and trust towards Croatia
osiguranje, regardless of the sales channel, and are satisfied with the knowledge and competence of their advisor.
The company expects quick service, regardless of whether it is about selling an insurance policy or solving claims,
and the price is primary only for automobile liability customers.

Croatia osiguranje is the first insurer in Croatia that has a certificate of quality management system according to
the international standard ISO 9001: 2015. Acquiring and renewing the certificate has confirmed the focus on the
efficiency of the quality management system in meeting customer requirements.

Doing business in accordance with the requirements of the international standard confirms the permanent
commitment of Croatia osiguranje to:
1. understanding and meeting customer requirements
2. improving the quality of products and services
3. employee and business partner satisfaction
4. strengthening the leading position on the national and regional market.

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6.3.2. Health and safety of consumers

Meeting the highest health and safety standards is a priority of the Group, especially Maistra and Cromaris, given
the nature of their business.

In Maistra this is achieved by:


• implementation and certification of the HACCAP system, guaranteeing high control, quality and safety in the
process of preparation, production and distribution of food and beverage services, while taking into account the
diversity of nutrition and its nutritional value
• labelling of allergen data, regular sampling of food health safety and not ordering food products that may cause
health hazards to consumers
• clearly displaying evacuation and rescue plans at visible locations in all facilities
• examination of smoke detection and fire extinguishing systems, work equipment, work environment, electrical
and lightning conductor installations
• concern about consumer safety and their assets through 24-hour security.

Numerous certifications listed in the Overview of initiatives, memberships in associations and interest groups of
the Group support this. Hotels Monte Mulini, Lone, Eden and Istra, including the tourist resort Belvedere are
certified by the Travelife Gold Award, which is also the leading initiative for training, management and certification
of tourism companies dedicated to sustainable development. A hospitality facility to be awarded the Travelife
certificate must meet many criteria, the most important one being preservation of the environment through the
rationalization of energy and water consumption, the reduction of pollution through waste control, positive social
action such as employee welfare benefits by securing good working conditions and investment in education, then
cooperation with the local community, support to the local economy and care for the preservation and protection of
tradition. An important criterion for evaluation is the level of communication with guests - inclusion of guests in
sustainable business activities, for example through the organization of beach cleaning, emphasis on the importance
of recycling during the hotel stay and rationalization of water and energy consumption.

„Let food be thy medicine and medicine be thy food", this statement by Hippocrates reminds us to choose the food
that protects and positively affects our health.

Fish is a nutritionally rich food that contains a high percentage of easily digestible proteins and significant amounts
of highly unsaturated omega-3 fatty acids, such as EPA and DHA. Based on the long-term monitoring of the
nutritional parameters of Cromaris products in accredited laboratories, we can state the following nutritional claims
for each product category:
- FRESH GILT-HEAD BREAM AND EUROPEAN BASS are rich in omega-3 fatty acids, phosphorus, proteins and
unsaturated fatty acids
- SMOKED BASS AND BREAM FILLETS are rich in phosphorus and protein and are a source of omega-3 fatty acids
and vitamin E
- MARINATED EUROPEAN BASS AND BREAM FILLETS are rich in unsaturated fatty acids and vitamin E and are
a source of protein and omega-3 fatty acids.

In 2017, unique fish food recipes were developed, affecting the nutritional composition of fish as a finished product.
With its new fish food, Cromaris has managed to further enrich its products with omega 3 fatty acids that have a
positive impact on human health. By the share of essential omega 3 and omega 6 fatty acids in the finished product,
Cromaris is leading in the world's bass and bream industry.

The approval of the European Food Safety Authority (EFSA Journal 2010, 8 (10): 1796, 29-30) regarding the
consumption of fatty acids EPA and DHA states the following: "Consumption of basses and breams from breeding
farms twice a week as a rich source multiple unsaturated omega-3 fatty acids (EPA, DHA) and as part of a healthy
lifestyle, has proven to help maintain normal cardiac function, maintain normal blood pressure and maintain
normal triglycerides and concentrate LDL cholesterol in the blood."

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Cromaris carefully selects suppliers and high-quality products to be used in the manufacturing process. Along with
supplying quality certified food, it continuously controls the composition of fish food at accredited laboratories to
ensure the food of the desired characteristics without the presence of GMOs and animal origin other than fish. In
order to achieve the best conditions for the growth and health of Cromaris fish, the food composition is adapted to
certain species, their life cycles and environmental factors, and no growth promoters or hormones are used.

The Group is continuously working to improve its processes, taking appropriate technical, personnel and
organizational measures to protect the personal information of its consumers, employees and associates, and the
rights of the respondents are of utmost importance. The General Data Protection Regulation introduces new
obligations with the aim of raising information security in the area of access to and management of personal data
at the highest level, and preparations for its implementation began in 2017 in all Group companies.

In 2017, one case of a violation of the right to privacy was filed at the Group level, where there was a technical error
in an isolated case that was immediately removed.

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GRI Index

GRI Standard Publication Publication title Chapter


Organisational profile
102-1 Organisation name 2.1. Profile
102-2 Activities, brands, products and services 2.1. Profile

102-3 Organization Head Office 2.1. Profile


102-4 Location of business activities 2.1. Profile
102-5 Ownership structure and legal form 2.1. Profile
102-6 Markets 2.1. Profile
102-7 Organisation size 2.1. Profile
102-8 Employees and other staff 2.1. Profile
102-9 Supply chain 2.1. Profile
Significant changes in organisation and
102-10 2.1. Profile
supply chain
102-11 Precautionary principle 2.1. Profile
102-12 External initiatives 2.1. Profile
102-13 Memberships in associations 2.1. Profile
Strategy
Statement of the highest ranked person in the 1. Management
102-14
organisation Board Statement
2.1. Profile
102-15 Key influences, risks and possibilities 2.3. Management
Ethics and integrity
GRI 102: General
standard Values, standards and principles of
102-16 2.2. Ethics and integrity
information, 2016 conduct
Mechanisms of consulting and expressing
102-17 2.2. Ethics and integrity
concern regarding ethical conduct

Management
102-18 Management structure 2.3. Management
Inclusion of stakeholders
3.1. Engagement,
involvement of
102-40 List of stakeholders
interest groups
(stakeholders)
3.1. Engagement,
involvement of
102-41 Collective negotiation
interest groups
(stakeholders)
3.1. Engagement,
involvement of
102-42 Identifying and selecting stakeholders
interest groups
(stakeholders)
3.1. Engagement,
involvement of
102-43 Access to involving stakeholders
interest groups
(stakeholders)
3.2. Explanation of
102-44 Key topics and stakeholders’ interests materially significant
topics and their
boundaries

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GRI Standard Publication Publication title Chapter


Reporting practice
Organisational units included in the 2.4. Reporting
102-45
consolidated financial statements practice
3.2. Explanation of
Determining report content
102-46 materially significant
and aspect boundaries
topics and their
boundaries
2.4. Reporting
102-47 List of material topics
practice
Reporting period 2.4. Reporting
102-50
practice
2.4. Reporting
102-51 Date of last report
practice
2.4. Reporting
102-52 Reporting cycle
practice
2.4. Reporting
102-53 Contact for reporting issues
practice
2.4. Reporting
102-54 Compliance option
practice
102-55 GRI content index GRI Index
2.4. Reporting
102-56 External verification
practice
Directly generated and 4.1. Economic value
201-1
GRI 201: distributed economic value
Economic
indicators, 2016 201-2 Financial consequences and other 2.3. Management
risks and conditions associated with
climate change
The range of the standard starting
4.2. Market presence
202-1 salary by gender compared to the local
GRI 202: Market minimum wage
presence, 2016 The share of senior management 4.2. Market presence
202-2
employed from the local community
employee 4.1. Economic value
GRI 203: Indirect Investments in infrastructure and 6.2. Cooperation with
203-1
economic impacts, accompanying services local community
2016 4.1. Economic value
6.2. Cooperation with
203-2 Significant indirect economic impact
local community
GRI 204:
204-1 Consumption share on local suppliers 2.1. Profile
Procurement
process, 2016. Percentage and total number of
205-1 business units subjected to 2.2. Ethics and integrity
corruption risk analysis
GRI 205: Anti- Communication and training on anti-
corruption, 2016 205-2 corruption policies and procedures 2.2. Ethics and integrity

Confirmed corruption incidents and


205-3 2.2. Ethics and integrity
measures taken
Legal proceedings initiated for conduct
contrary to the principle of freedom of
GRI 206: Anti-
206-1 competition, antitrust and monopoly 2.2. Ethics and integrity
competitive
practices and their outcomes
behaviour, 2016
302-1 Energy consumption within the 5.1. Energy
organisation
GRI 302: Energy, 302-4 Reducing energy consumption 5.1. Energy
2016 Reducing energy needs in products
302-5 5.1. Energy
and services
5.2. Water, wastewater
303-1 Extracting water by source
and waste
GRI 303: Water,
Sources of water are 5.2. Water, wastewater
2016 303-2
significantly affected by water and waste
extraction

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GRI Standard Publication Publication title Chapter


Volume of recycled and recovered 5.2. Water,
303-3
water wastewater and
Business locations owned, leased, waste
administered or in close proximity to
304-1 protected areas and areas of high value 5.3. Biodiversity
in terms of biodiversity outside
protected areas
GRI 304: Biodiversity, Description of significant impact of
2016 activities on biodiversity, products and
services in protected areas or areas of
304-2 5.3. Biodiversity
high biodiversity outside protected
areas
304-3 Protected and restored habitats 5.3. Biodiversity
Total water discharge by 5.2. Water,
306-1
quality and destination wastewater and
Total weight of waste by type and waste
5.2. Water,
GRI 306: Wastewater 306-2
method of disposal wastewater and
and waste, 2016
Water that has been significantly waste
5.2. Water,
306-5 affected by the discharge and leakage
wastewater and
of water from the organisation
waste
New employment and staff
401-1 6.1.1. Employment
fluctuation
Benefits provided to full-time
GRI 401: employees which are not provided to
Employment, 2016 401-2 employees temporarily or on a part- 6.1.1. Employment
time basis
401-3 Parental leave 6.1.1. Employment
GRI 402: The shortest period for notifying 6.1.2. Employee and
Employee and 402-1 of significant changes in business management
management relationship
relationship,
2016
Workforce represented in formal joint 6.1.3. Health and
403-1 committees for health and safety safety at work
issues
Types and rates of injury, occupational
diseases, lost days and absences and 6.1.3. Health and
403-2 the total number of deaths related to safety at work
GRI 403: Health accidents at work by region and gender
and safety at
work, 2016
Workers with high frequency or high 6.1.3. Health and
403-3 risk of diseases related to their safety at work
occupation
Health and safety issues covered by 6.1.3. Health and
403-4 formal agreements with trade unions safety at work

The average annual number of


6.1.4.
404-1 training hours per employee by
Education and
employee category
GRI 404: training
Education and Skills and lifelong learning programs
training, 2016 that support the permanent 6.1.4.
404-2
employment opportunities of Education and
employees training
6.1.5 Diversity and
Composition of management bodies
405-1 equal opportunities,
GRI 405: Diversity and staff structure
non-discrimination
and equal
opportunities, 2016 Ratio of basic salary and remuneration 6.1.5 Diversity and
405-2 of men and women by category of equal opportunities,
employee non-discrimination
6.1.5 Diversity and
GRI 406: Non- Total number of cases of
406-1 equal opportunities,
discrimination, 2016 discrimination and corrective
non-discrimination
measures taken

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GRI Standard Publication Publication title Chapter


Business units at individual
GRI 413: Local locations with community 6.2. Cooperation
413-1
communities, engagement programs, impact with local community
2016 assessments and development
programs
Assessment of the impact of 6.3.1 Responsibility
products and services on health for the product
416-1 and safety 6.3.2. Health and
GRI 416: Health and safety of consumers
safety of consumers, 2016 Cases of non-compliance with 6.3.1 Responsibility
regulations and voluntary for the product
416-2
codes relating to the effects of 6.3.2. Health and
products and services on safety of consumers
health and safety 6.3.1 Responsibility
Labelling products and services
for the product
417-1 and requests for information about
6.3.2. Health and
products and services
safety of consumers
GRI 417: Marketing
Incidents of non-labelling of
and labelling, 2016 6.3.2. Health and
417-2 products and services and
safety of consumers
information on products and
services
Incidents of disregarding 6.3.2. Health and
417-3
marketing communications safety of consumers
Total number of legitimate
GRI 418: Consumer 6.3.2. Health and
418-1 complaints regarding customer
privacy, 2016 safety of consumers
privacy violations or loss of
customer information

164