JP Ceste FB&H d.o.o. Sarajevo Audit of financial statements at 31 December 2018 Content Page Responsibility for the Financial Statements 1 Report cn the Audit of Financial Statements 2 Statement of -omprehensive income 5 Statement of financial position 6 Statement of changes ;n equity Cash flow statement 8 Notes to financial statement9 -33 RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Management is responsible for ensuring that financial statements of the JP Geste Federacije B&H do oo Sarajevo ("the Company") are prepared for each financial year in accordance with the Law on Roads of the F B&H and International Financial Repoting Standards (IFRS) as published by the Internationai Accounting Standards Board (IASB) which give a true and fair view of the state of affairs and results of the Company for the year ended on 31 December 2018 After making enquiries. Management has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future For this reason, Management continues to adopt the going concern basis in preparing the financial statements. In preparing those financial statements, the responsibilities of Management include ensuring that: * suitable accounting policies are selected and then applied consistently * judgments and estimates are reasonable and prudent; * applicable accounting standards are foilowed, subject to any material departures disclosed and explained in the financial statements, and * the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Management is responsible for keeping proper accounting records. which disclose with reasonable accuracy at any time the financial position of the Company. Management must also ensure that the financial statements comply with the Law on Roads of the FB&H and Low on Accounting and Auditing of the FB&H Management is also responsible for safeguarding the assets of the Company, and hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities Signed on behalf of MmaIfent Ljubo Pravdi6, Director JP Ceste Federacije B&H Terezija 54 71000 Sarajevo '26 April 2019 bakertilly Baker Tilly Re Opinion d.o.o. Grbavi6ka 4 71000 Sarajevo Bosna i Hercegovina T: +387 (0) 33 552 150 F: +387 (0) 33 552 152 info@bakertilly.ba To the Owners and Management of JP Ceste Federacije B&H d.o.o. Sarajevo www,bakertilly.ba Report on the Audit of Financial Statements Qualified opinion We have audited the accompanying financial statements of JP Ceste F ederacije B&H d.o.o. Sarajevo (the Company') set out on pages 5 to 33, which comprise the statement of financial position as at 31 December 2018. arid the statement of comprehensive income- cash flow statement and statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report. the accompanying financial statements present fairly in all material respects, Ihe financial position of the Company as at 31 December 2018 and its financial performance and cash flows ior the period then ended in accordance with International Financial Reporting Standards modified in accordance with the requirements of Law on Roads of the FB&H Basis for qualified opinion In accordance with the adopted accounting policy, Company stated the road infrastructure as intangible assets in a form of management rights with indefinite useful life Measurement ot the intangible assets is c.onducted using revaluation model, in accordance with the International Accounting Standard 38. ,,ntangible Assets The last fair value assessment of the road infrastructure was performed as at 31 December 2017 where the effects (decrease in asset value) in the net value amount of BAM 51,576 thousand were recorded in charge of other capital items (sources of funds) This represents a departure from the requirements of International Accounting Standard 38, "Intangible Assets" which provides that if the carrying value of intangible assets decreasea as a result of revaluation, the decrease should be recognized on the revaluation reserve or exoenses, if the effects of the decrease in fair value are exceeding the previously recognized revaluation surplus accounted for the property. The above was the basis tor the qualified opinion for the year ended 31 December 20 I The Company stated receivables from the Government FB&H in the amount of BAM 15 million for which we have riot obtained reasonable audit evidence that these receivables would be collected. Given the above we believe that the Company should make a realistic assessment of the collection of receivables from the Federal Ministry of Finance (Government FB&H), ana accordingly. make the necessary accounting adjustments. The above was the oasis for the qualified opinion for the year ended 31 December 20 17 As at 31 December 2018 Company did not record provision for expected negative outcome for disputes that are being conducted against the Company and expected future expenses related to the project Sarajevo Bypass. Mentioned project is recorded in off-balance sheet and based on that during 2018 Company recorded expenses of penalty interest and expenses of arbitration proceeding in the amount of BAM I 122 thousano in income statements and same is expected in forthcoming period. The total value of disputes against the Company and which are related to the project Sarajevo Bypass is BAM 33.451 thousand 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 lhe Audit of the Fioancial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to ethical iesponsibilities for the audit of financial statements and we have met our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate io orovide a basis for our :pinion 11R: 4200960550009 - PDv '00960550009, Raiffeisen bank J 3ih 6100000452700UH 3akAr Tily R - upiniu, u.u.u. adin- as Baker Tiny i. . mc-,,Dero the giooai networK of Baker iilly international Ltu., ume members of whicn - eDarate 3na independent lege entitie, Emphasis of Matter For better understanding of tire fiiancial position of the Company, we draw attention to the matters described below According to regulations of the Law on roads of the FB&H the Company does not operate on the commercial basis It incurs financial result, which by definition of the Law represents a difference between public revenue ard public expenses, and it cannot be allocated for dividend payments or increase in capital Considering the nature of source of financing, the Company accrues public revenue on the cash basis This type of revenue is out of scope of the International Financial Reporting Standard 15 Revenue from Contracts witt Customers' or other International Accounting Standards All the aforementioned facts are typica for public budget beneficiaries and public extra budgetary funds. Accordingly, for the purpose of consistent presentation of the financial statements the Company chose to present the transactions pertaining to assets entrusted to the Company for management (road infrastructure), in accordance with standards applicable for public budget beneficiaries More precisely all decreases in these assets are charged to other capital items (funds) instead of expenses as required by the International Accounting Standards in the opinion of the Management his treatment more realistically reflects the financial position of the Company. since the presentation and compilation of financial statements is partiv conditioned by the Law on roads of the FB&H and partly by the International Accounting Standards. As described in Note 30 to the financial statements, changes in off-balance sheet records that occurred during 2018 were the subject of our audit. However we emphasize that a significant portion of the balances reported as of 31 December 2018 relating to opening baiances and transactions recorded in prioi periods (even since 2006) which have never been revised, and so we do not express an opinion on the balances stated in off-balance records Responsibilities of Management and Those Charged with Goveniance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error In preparing the financial statements. management is responsible for assessing the Company s ability to continue as a going concern, disclosinq as applicable, matters related to going concern and using the going concern basis ot accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative hut to do so Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error, and to issue an auditor's repori that includes our opinion Reasonable assuiance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will alwaVs detected a material misstatement when it exists Misstatements can arise from fraud or error and are considered material if individually or 'n the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements, As part of an audit in accordance with ISAs. we exercise professional iudgment and maintain professional scepticism throughout the audit We also * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery intentional omissions misrepresentations. or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. but not for the purpose of expressing an opinion on the effectiveness of the Company's ;nternal control. * Evaluate tho appropriateness of accounting policies used and the reasonableness if accounting estimates and related disclosures made by management * Conclude on the appropriateness of management's use ot 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 ability to continue as a going concern. If we conclude that a mateial uncertainty exists we are required to draw attention in our auditor s report to the related disclosures in the 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 auditors repo,t However, future events or conditions may cause the Company to cease to continue as a going concern * Evaluate the overall presentation, structure and content of the financial statements including the disclosures, ano whether the financial statements represent the underlying transactions and events i a manner that achieves fair presentation. 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 Baker Tilly Re Opinion d.o.o GrbavckaA, 71000 Sarajevo Nihad Fejzi6 Director and Certified Auditor Ezita Inamovic. Certified Auditor Sarajevo 26 April 2019 JP CESTE FEDERACIJE B&H D.O.O. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017 Note BAM 000 BAM 000 Income from operations Public revenue 5 88741 69,581 Grants 602 810 Other operatingrevenue 6 349 311 Total income from operations 89,692 70,702 Operating expenses Material and services 7 (3b.254) (33 160) Employee expenses 8 (3931) (3,816) Depreciation and amortization 13, 14 (602) (810) Other operating expenses 9 ___ - j10 j_7,551 Total operating expenses 50-,272) (45,337) PROFIT FROM OPERATIONS 39,420 25,365 Financial income and expenses inancial income 10 40 1,447 Financial expenses 1 (1 380 - 957 PROFIT BEFORE TAX 38,080 25,855 Income tax 12 PROFIT AFTER TAX 38,080 25,855 The accompanying notes form an integral part of these financial statements. JP CESTE FEDERACIJE B&H D.O.O. STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2018 31/12/2018 31/1212017 - - ------ -_ Note BAM 000 BAM 000 Non-current assets Intangible assets 13 2.131 808 2109775 Property, plant and equipment 14 5.927 5.952 Other long-term receivables 15 7,507 1 Total non-current assets 2,145,242 2,115,728 Current assets Inventories 16 694 484 Trade receivables 17 2.03i 1,928 Other receivables 18 204,284 222891 Cash and cash equivalents 19 40,288 20,657 Total current assets 247,297 245,960 TOTAL ASSETS 2,392,539 2.361,688 Equity and reserves Share capital 20 2 2 Other cpital items -funds _ 1,917,714 1.902,870 Total equity and reserves 1,917.716 1,902,872 Non-current liabilities Deferred ncome 21 83322 61 701 Liabilities for received funds for projects implementatior 22 17499 15973 Long - term borrowings 314 037 330000 Provisions 24 3,993 _ 3 736 Total non-current liabilities 418,851 4 11.410 Current liabilities Trade payables 25 19,397 10431 Short term borrowings 26 31 532 32 848 Provisions 24 78 4 Otherpayables 27 4.965 4, 3 Total current liabilities ---- -- 55,95, 974474406 TOTAL EQUITY AND LIABILITIES 2,392,539 2,361,688 The accompanying notes form an integral part of these financial statements. Signed on behalf of the Company on 26 April 2019 Ljubo Pravdi6, Director JP CESTE FEDERACIJE B&H D.O.O. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 State Retained Other capital capital earnings items (funds) Total BAM 000 BAM 000 BAM 000 BAM 000 Balance as at 31 December 2016 2 - 1,917,534 1,917,536 Profit t0. year - 25 855 25,855 Transfer to deferred income (1 - (25 855) (25 855) Revaluation effects - decrease in fair value (51,576) (51,576) Transfer from deferred income (2) 37,816 37,316 Disposal of the road surface layer (904) _ 904) Balance as at 31 December 2017 2 - 1,902,870 1,902,872 Profit for year - 38,080 38 080 Transfer to deferred income (1) 38 080) - (38 080 Transfer from deferred income (2) 15.405 15405 Disposal of the road surface layer (561 (561) Balance as at 31 December 2018 2 1,917,714 1,917,716 (1) The provisions of the Law on Roads of the FB&H define that the Company does riot operate on a commercial basis nor was established to acquiie profit, but perform its activities basea on approved plan and work program by the Federation of B&H The difference of public revenue and public expenditure of the Company represents financial result, which is tax-free. Stated financial result Gannot De the suulect of re-distribution of dividends or increase of capital. Financial result is distributed to the liabilities according to planned purpose, Such created liabilities represent funds to be spent only for the management, construction, reconstruction maintenance and protection of public roads Accordingly. the Company is transferring the financial result to the funds (Note 21) (2) During 2018 and 2017 the Company transferred funds for the Management construction reconstruction, maintenance and protection of public roads from deferred income to the other capital items " These amounts relate to road infrastructure owned by the Federation of Bosnia and Herzegovina The accompanying notes form an integral part of these financial statements. JP CESTE FEDERACIJE B&H D.0,0. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017 --- BAM 000 BAM 000 Operating activities Profit for the year 38 080 25,355 Adjustment for: Depreciation and amortization 6C2 810 Deferred income upon aepreciation (602) (810) Interest paid 1,069 1 130 Disposal of intangible assets, property plant and equipment 1.742 Provision change, net 331 381 Adjustment for changes in operating assets and liabilities. 41 222 27-367 (increase)/decrease in advances paid (7,506) 218 (Increase)/decrease in inventories (210) 633 Increase in trade receivables (103' (92) Decrease/(increase) in other receivables 18607 (204,882) Increase/(decrease. of GSM licence liabilities 1,526 (3,0821 Increase in trade payables 8,966 1 277 Increase/(decrease) -n other payables 842 (1,047) (Decrease)/increase in deferrea income A452- 8 398 _Net-cash fromijused) in operating activities 62,892 (171,210) Investing activities Purchase of tangible and intangible assets (24,913) 18,974) Net cash used in investing activities (24,913) (18,974 Financing activities (Decrease)/increase in borrowings (17.279) 195,998 Interest paid (1 069) (1,130) Net cash Jused)/from financing activities (18,348) 194,868 Net increase in cash and cash quivalents 19,6314,6 Cash and cash equivalents at beginning of year ___ 20,657 15,973 Cash and cash equivalents at the end of year 40,288 20,657 The accompanying notes form an integral part of these financial statements. 8 JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. OPtTl PODACI JP Direkcija cesta Federacije B&H d o o Saraievc (hereinafter "The Company") is registered in the Cantonal Court in Sarajevo on 25 October 2002, based on Law on Roads of the Federation of Bosnia and Herzegovina ("Official Gazette of the Federation of Bosnia and Herzegovina No 6/02) by which the Company was given to use and manage the main road infrastructure in the Federation of B&H In accordance with the Law on Roads of the FB&H ("Official Gazette of the FB&H" No. 12/10,16/10 and 66/13), during 2011 the Company changed its name tu Javno preduze6e Ceste Federacije B&H d.o a Sarajevu This change is registered in Sarajevo Municipal Court by Decision on the registration number 065-0-Reg-11-000713 dated 29 March 2011. Comoany is headquartered in Sarajevo. at Terezila 54 The operating activities cf the Company are management construction, reconstruction, maintenance and protection of main roads. According to article 17 of Law on Roads of the Federation of B&H operation activities of the Javno preduzede Ceste FB&H are: preparation of long-term, medium term and annual plans ana programs of development reconstruction, renovation construction and maintenance of roads and roads facilities, as weli as reports on implementation of these plans and programs investing activities tor business studies arid projects. renovation construction reconstruction and maintenance of roads and facilities- maintenance and Drotection of roads proposing financial plans and reports to improve methods of collecting funds to roads financing, assign of works of construction, reconstruction renovation and maintenance of roads, prepare base tor concessions assignment, prepare and monitoring the implementation of program of measures and activities to improve traffic safety on roads it manages keeping records (database) of roads facilities, traffic signalization and equipment on roads and cadastral of road land zone - prepare the necessary documentation to secure and implement grants and loan hinds in accordance with i egulations and other acts - activities n the area property-legal activities relating to protection reconstruction and construction of roads: collects the data and informing the public about road conditions and methods of traffic; taKing the necessary measures to preserve and protect environment - other activities defined in the act on establishing Ceste FB&H In accordance with the above Law the tinancial funds for performing operating activities are provided from public revenue, borrowings and donations/grants. As at 31 December 20 18 the Company employed 89 employees (31 December 2017: 86 employees) Management of the Company: Board Ljubo Pravdi6 General Director Bekir IsakoviA Executive Director for economic and legai affairs Dedo Pjanit Executive Direutor for technical affairs Supervisory Board Enal Saraili6 Chairman Sulejman Be6irevi6 Member from 14 December 9018 2eljko Petrovi6 Member Mehmed Hero Member Daliborka Maric Member Haris Jagarevid Member to 4 December 2018 Audit Board Meliha Mujezinovic - Katana Chairman Sadija Sinanovi6 Member Ivanka Krstanovid Member JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2. ADOPTION OF NEW AND REVISED STANDARDS 2.1 Standards and Interpretations effective in current period in the current year the International Accounting Standards Board has published a larger numoer of amendments to IFRS that are in effect for accounting periods beginning on 1 January 2018 or later The annua. improvements include a large number of amendments to IAS and IFRS, which are shown as follows IAS 28 Investments in Associates and Joint Ventures (annual improvements - applicable from 1 January 2016) IAS 40 Investment property (transfers of investment property, applicable from 1 January 2018) IFRS I First time adoption of International Financial Reporting Standards (annual improvernents applicable from 1 January 2018) IFRS 2 Share-based Payment (classification and measurement of share-based payment transactions, appicable from 1 January 2018) IFRS 4 Insurance contracts (applying IFRS 9 Financial instruments with IFRS 4 applicable from 1 January 20 18) IFRS 9 Finanuial Instruments (finalised version incorporating requirements for classification and measurement impairment general hedge accounting and derecognition aoplicable from 1 January 20 18) IFRS 15 Revenue from contracts with customers (clarification to IFRS 15 applicable from 1 January 2018) IFRIC 22 Foreign currency transactions and advance consideration (applicable from January 20181 2,2 Standards and Interpretations in issue not yet adopted At the date of authorization of these financial statements the following Standards and Interpretations were in issue but not yet effective IAS 28 investments n Associates and Joint Ventures tannual improvements, applicable from 1 January 2019) IFRS 9 Financial Instruments (annual improvements applicable from i January 2019) IFRS 16 leases (applicable from 1 January 2019) IFRS 17 Insurance Contracts (applicable from 1 January 202 1) IFRIC 23 Uncertainty over Income Tax Treatments (applicable from i January 201i) The Company will not adopt these standards amendments and interpretations in advance before the date they enter into force The Management anticipates that the adoption of these standards and interpretations in future periods will not significantly affect the Company's financial statements. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as published by the International Accounting Standards Board adjusted to the requirements of the Law on Roads of the FB&H Basis of preparation The financial statements have been prepared on the historical cost basis, except for certain positions )f intangible assets that are stated in revalorized amount The financial statements are presented in Convertible marks since that are the functional currency of the Company. The Ccnvertible mark (BAM) is officially tied to the Euro (EUR 1 8 AM 1.95583) 3.1 Revenue recognition Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and that the amount of the revenue can be measured reliably. Revenue in the Statement of comprehensive income is recognised at lair value at follow I in the amount of public income arising from operating activities of the Company IL in the amount of income (profit) arising from other activities of the Company and according to following groups, types and subtypes * income from financing. including: income from regular and penalty interests income from toreign exchange and other income from financing, * revenues from sales of fixed assets that are used and connected to the main activities of the Company * income from changes in value of property given and trusted to the management of the Company in amount )f calculated depreciation of those assets for which are secured funds: anct * other income (income from donations, income from fixed assets income from written off liabilities and collected written off receivables, surplus. income from collecter damages of insured property, income from release in provision), ircome from derecognition of disposed item of property in accordance with IAS-36. income from main activities in accordance with the Law on Roads of the FB&H presents public income recognized based on maintenance protection, restoration, reconstruction and construction of public roads Public income consists of the following payments annual fees for using of roads which are paid when motor vehicles, trailers and norse-diawn carts were registered; road charges from retail price of the oil and oil products, - road charges on foreign motor vehicles and trailers special fees for services ,Help-information .on roads road charges which are paid foi exceptional use of public roads (exceptionai transportation); road charges Which are paid for the excessive use of public roads due to the loads and frequency of motor vehicles, fees for using road lana or advertising signs: other fees under special regulations. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3 1 Revenue recognition (continued) income from payment of funds is recognised when funds aie transferrea at bank account of the Company Deferred income from issued Decision for using a public surface is recognised as operating income at the moment of payments. Interest income is recognised on time basis in the amount of calcuiated amounts relating to the accounting period in which they are paid. For received aonations and property without charge Company recognises income in accordance with IAS 20 ,,Accounting for Government Grants and Disclosure of Government Assistance A gain from sale of oropertv that is used to perform operating activities is measured at the net realisable value. Other income is recognised under general principles of revenue recognition or on particular othe, type of income arising from contracts, decisions, legislation or other regulation. 3.2 Deferred income Donations in cash. labour and equipment used in the construction or reconstruction of network facilities and for other operating purposes are presented in the balance sheet as deferred revenue which is recognized as income on a straight-line basis durinq the future period as it would be used in investments or regular uses over the estimated usefui ite of the donated asset. 3.3 Borrowing costs Borrowing costs directly attributable to the acquisition construction or production of qualifying assets, which are assets that necessarily take a substantial Deriod of time to get i eady tor their intendea use or sale are adaed to the cost of those assets, until such lime as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending Iheir expenditure on qualifying assets s deducted from the borrowing costs eligible for capitalization All other borrowing costs are recognized in net profit or loss in the period in which they are incurred. 3.4 Foreign currencies Transactions other than in BAM are initially recorded at Ihe rates of exchange prevailing on the date of the transactions Monetary assets and iiabilities denominated in foreign currencies are retranslated to the functional rate prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period. 3.5 Employee benefits On behalf of its employees, the Company is paying pension and health insurance which are calculated on the gross salary paid as well as tax on salaries which are calculated on the net salary paid. The Company is paying the above contributions into the Entity's Pension and Health Fund, as per the set legal rates during the ourse of the year In addition meal allowances, transport allowances and vacation bonuses are paid in accordance with the locai legislation These expenses are recorded in the income statement in the Deriod in which the salary expense is incurred The Company has oo other liability related in disbursement of retirements or other benefits, related to prior as well as to present employees Retirement severance payments and early retirement bonuses The Company pays to its employee's retirement severance benefits upon retirements in the amount representing 3 average net salaries of the employee. The Company has no other retirement severance payments neither early retirement bonuses plans for employees neither for Management in Liosnia and Herzegovina JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.6 Taxation Income tax The Company does not operate on commercial bases no, is it established to acquire profit. Its activities are performed based on the approved Plan and work program of the FB&H. Difference uf public income and public expenditure represents the Company's financial results which is tax-free. Reported financial results may not be the subject of re-distribution of a dividend or increase in capital. Value Added Tax Law on Value Added Tax introduced VA r obligations and regulated system of VAT payment in the territory of Bosnia and Herzegovina as of 1 January 2006 Prescribed rate of VAT is 17% In accordance with the Decision of Indirpct Taxation Administration number 04/1.UPJR/1-2227-1/1 i, the Company was deregistered from the Registry of .ndirect taxation payers as of 1 Jury 2011 Taxes and contributions which do not deperd oi profit and loss I axes and contributions which do not depend :n profit arid loss represent payments inder current legislation for funding of various utility and government needs. These taxes and contributions are included within other operating expenses 3.7 Tangible assets The Company records property plant and equipment at cost, decreased for accumulated depreciation ana impairment loss if any Cost includes the purchase price and directly attributable costs of bringing the asset to a working condition foi its intended use. Maintenance and repairs, replacements and impruvements of minor importance are expensed as ncurred Significant 'mprovements and replacement of assets are capitalized Gains or losses on the retirement or disposal of property, plant and equipment are included it. the income statement in the period they occur Depreciation commences when the assets are ready for their intended use Depreciation is charged so as to write-off the cost or valuation ot assets other than land and properties under construction over their estimated useful lives. using the straight-line method, on the following annual bases Estimated useful life Depreciation rate Building 100 years 1 00% Speciai equipment tools 10 years 10.00% Vehicles 6.5 years lb 38 % Office furniture 9 vears 11 11 0/1 Computer equipment 5 years 20.00 % Telenhone and communication equipment 10 years 1000% Other office equipment 8 years 12 50 % Measurement and control devices 5 years 20 00 % Heating equipment 10 years 10 00% Artistic worKs / paitings unlimited Deriod 0.00 % JP CESTE FEDERACJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3,8 Intangible assets Intangible assets are assets that by their temporal classification meet the criteria of fixed assets and which also meet all of the following conditions: * it is an asset that can be recognized (such as software oi new processes). * if it is probable that future economic benefits associated with the item will flow to the entity and * the cost of the item can be measured reliably Intangible assets of road infrastructure are not owned by the Company but were entrusted to the management for maintenance in accordance with the Law on Roads of the FB&H The estimated useful life of this infrastructure is unlimited. Fair value estimate of these assets is carried out every two years The subseauent increase in value of intangible assets is defined in course of making investment plan for investment in road infrastructure also defined under the Law on Roads of the FB&H and the Department for technical affairs in a way that the investmen' is considered the following investments. * construction of new roaa infrastructure made at the new route (new route): * all recovery and rehabilitation of roads as a replacement part to ensure the safety and extending the useful life of roads * all reconstruction as a replacement part ihat provide safety and extending the useful life of roads The carrying amount of the replacement parts of repaired and reconstructed roads are derecognised at charge of funds. Other intangible assets that Company has recognized are depreciated over their estimated useful lives using the straight-line method, on tne following annuai bases. Estimated useful life Amortization rate Project documentation 5 years 20.00 % Software 5 years 20.00 u/- Databases and directions foi the design 6 years 16.70 % 3.9 Cash and cash equivalents Cash and cash equivalents include demand accounts and fixed deposits with an original maturity of three months. 3.10 Impairment of assets At each balance sheet date the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any inaication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value ising a pre-tax discoun' rate that reflects current market assessments of the time value of money and the risks specific to the asset If the recoverable amount of an asset (or cash-generating unit) is estimated to he less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount Impairment losses are iecognized as an expense immediately unless the relevant asset is land or buildings other than investment property carried at a revalued amuunt, in which case the impairment loss is treated as a revaluation decrease. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.10 Impairment of assets (continued) Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its rpcoverable amount, out so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an rnpairment loss is recognized as income immediately unless the relevant asset is carried at a revalued amount. in which case the reversal of the impairment loss is treated as a revaluation increase. 3.11 Provisions Provisions are recognized when the Company has a present obligation (legal or constructive, as a result of a past event, is probabie that he Company will he required to settle the obligation and a reliable estimate can be made of the amount of the obligation The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation Where a Drovision is neasured using the cash flows estimated to settle the present obligation its carrying amount is the oresent value of those cash flows. 3.12 Financial Instruments - Initial Recognition and Subsequent Measurement A inanciai instrument is any contract on the basis of which the financial assets of a suoject and the financia obligation or the equity instrument of another entity arise a) Financial assets Initial Recognition and Measurement Financial assets are classified, at initial recognition as subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss. The classification of financial assets at initial recognition depends on the contractual characteristics of the cash flows of the financial asset and the business model of the financial asset management entity With the exception of customer receivables that do not contain a signitiant financial component or for which the Company has applied practical solutions, the Company initially measures financial assets at fair value plus if it does not show finaricial assets at fair value through profit or loss, transaction costs Receivables from customers that do not contain a significant financial componemt j for which the :ompany has applied a practical solution is measured at their transaction price as defined in IFRS 15. For financial assets to be classifiea and measured at amortized cost or fair value through other comprehensive income a condition must be fulfilled that contractual terms of financial assets give rise to a cash flow that is only principal payments and interest on equity at a specified date The Business Modei of the Financial Property Management Company refers to the way the Company manages its financial assets tc generate cash flows The business model determines whether cash flows will be realized through the payment of contracted cash flows. the sale of financial assets or oth Purchases and sales of financial assets that require the delivery of assets within the time frame established by the regulation or the convention on the market (regular trade) are recognized at the trading date, ie at the date when the Company is obligated to buy or sell the property Subsequent measurement For the purpose of suosequent measurement, financial assets are classinea into four groups: Financial assets at amortized iost (debt instruments), Financial assets at fair value through other comprehensive income with cumulative amounts of gains and losses that are transferred to profit or loss (debt instruments) upon discontinuation of recognition. - Financial assets at fair value through other comprehensive income with amounts of gains and losses that are not subsequently transferred to profit or loss (equity 'nstruments) - Financial assets at fair value through profit or loss. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.12 Financial Instruments - initial recognition and subsequent measurement (continued) Derecognition Financial assets are derecognised when and only when. Contractual rights to cash flows from financial assets have elapsed; or the Company has transferred its rights to receive cash flow from financial assets or has assumed the obligation to pay the received cash flows completely without any substantial delay to the third party and (ai the Company nas substantially transferred all the risks and rewards of ownership or (b) the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset but has transferred control of the financial assets When the Company transfers contractual rights to receive cash flows from a financiai asset or has enterea into a transfer agreement, it is required to estimate the exterit to which it retains the risks and rewards of ownership of the financial asset When neither transfers nor retains substantially all of the risks ana rewards of ownership of the financial asset but also has not transferred control over the assets, the Company continues to recognize the financial assets in the amount of its continued participation in financial assets. In this case, the Company also recognizes the related obligation impairment of financial assets The Company recognizes impairment provisions for expected credit losses from financial assets for all debt instruments other than those at fair value through profit or loss. Expected loan losses represent the difference between the contractual cash flows due tc the Company in accoidaiice With the contract and all cash flows expected by the Company to be discounted at the original effective interest (ate or the effective interest rate adjusted for the credit risk for purchased or issued financial assets for impairment losses. Expected cash nows should include cash flows from the sale of insurance payments or other credit enhancements that are an integral part of the 1,ontractual terms Expected loan losses are recognized in two phases At each reporting date the Company is required to measure impairment provisions for a financial instrument in the amounL equal to expected credit losses if the rredit risk for that financial instrument has increased significantly from the initial recognition, If at the reporting date the credit risk to the financial instrument has not increased significantly from the initial recogniLion, the Company is required to measure the allowance for that financial instrument in the anount of the same 12 month expected credit losses. For customer and contractual receivables the Company applies a simplified approach when calculating expectea credit losses. Accordingly, the Company does not monitoc changes ir credit riSK nut instead recognizes a write-off of ihe loss n the amount of expected life-expectancy losses for a given life span at each reporting date b) Financial obligations Initial Recognition and Measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, borrowings and loans trade payables and other liabilities. All financial liabilities are initially recognized at fair value and, in the case of loans and credits liahilities to suppliers and other liabilities net of directly related transaction costs. The Company's financial obligations include obligations to suppliers and other obligations 'oans and wredits including bank overdrafts. Subsequent measurement Measurement of financial obligations aepends on their classification as described below JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.12 Financial Instruments - Initial Recognition and Subsequent Measurement (continued) Financia) liabilities at fair value through profit or loss Financial liabilities at fair value through profit or ioss include financial liabilities held for trading and financial liabilities designated at initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of redemption in the near future. Gains or losses on trading liabilities are recognized n piofit or loss. Financial liabilities determined at initial recognition as at fair value through Drofit or loss are determined on the date of initial recognition and oniy if the criteria in IFIRS 9 are met Loans and borrowings After initial recognition, interest-bearing Dorrowings and loans are subsequently measured at amortized cost using the effective interest rate method. Gains or losses are recognized in profit or loss when liabilities are derecognised even through the amortization process. Derecognition A financial liability is derecognised wher and only when it is setiled i.e. when the contractual obligation is dropped or cancelled or expires. Replacement between an existing borrower and lender ot a debt instrument with substantially different terms should be accounted for as extinguishing the original financial obligation and recognition of a new financial liability Similarly, the essential modification of the terms of an existing financial liability or part thereof should be accounted for as extinguishing the original financial ooigation and recognition of a new financial liability. [he difference between the carrying amounts is recognized in the income statement 3.13 Inventories Inventories are stated at the lower of cost and net realizable vaiue Inventories are vaiued based on purchase price and include 'he costs of bringing the inventories to a condition ready for use and present location. Small inventoiy has been wiitten off 100% when put into use 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Company's accounting policies which are described in Note 3. the Board is reduired to make judgments estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources The estimates and associated assumptions are based on histoi cal experience and other factois that are considered to be relevant Actual results may differ from these estimates The estimates and underlying assumptions are reviewed on an on-going basis. Revisiors to accounting estimates are recognized in the period in which the estimate 's revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods 4.1 Key sources of estimation uncertainty The following are the Key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date- that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year Useful lives of tanaible and ntanaible assets As described in the Note 3 the Company reviews the estimated useful lives of tangible and intangiole assets at the end of each annual reporting period. Road infrastructure is valuated at fair value with the engagement of court expert for every two years According to estimate made by Board, right to using roads has unlimited useful life JP CESTE FEDERACIJE B&H DO.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 4.1 Key sources of estimation uncertainty (continued) Provisions for pending litiqations A significant source of uncertainty arises from ,ourt proceedings. At 3 i December 2018, the Company has beer involved in several court proceedings n total amount of BAM 4 454 Inousand. According to Board estimates the Company has made provision in amount of BAM 3,812 thousand 5. PUBLIC REVENUE 2018 2017 -BAM 000 BAM 000 Road charges from retail price of the nil and oil products 56,439 38,3-+0 Registration of motor vehicles - individuals 16,642 16187 Registration of motoi vehicles - legal entities 8,205 7,571 Special fees for services Assistance - Information" on roads 5,094 4,904 Lease of public land - connections 1 195 1 500 Charges for exceptional transportation 55? 381 Rent of public land- billboards 372 344 Income rom scales 117 226 Other 125 128 Total. -_____88,741 69,581 6. OTHER OPERATING REVENUE 2018 2017 - -- BAM 000 BAM 000 income from decrease in provision (Note 24) 207 183 Collected insurance claims 88 77 Income from previous periods AO 16 Gains from saie of tangible assets 11 Income rrom penalties 4 Income from sales of waste 3 -0 Other -- 6 2 Total. 349 311 7 MATERIAL AND SERVICES 2018 2017 BAM 000 BAM 000 Costs of road maintenance 32,220 30,046 Material 2 880 2,971 Energy 143 13E Tools, small inventory and spare parts 11 I Total: ___35,254 33160 IP JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 8 EMPLOYEE EXPENSES 2018 2017 BAM 000 BAM 000 Gross salaries 3,574 3440 Meal allowance transnortation and holiday allowance 245 245 Other employee expenses _ _112 131 Total: 3,931 3,816 9. OTHER OPERATING EXPENSES 2018 2017 -_-_BAM 000 BAM 000 Information Iservices ,,Assistance on road 4803 4,569 Costs related to the project Sarajevo Bypass 1,722 Investments -n progress value write-off 1,420 - Fee for undrawn funds 867 914 Provision for couri proceedings (Note 24) 738 818 Administrative and court expenses by verdicts 134 1b Fees to members of Supervisory board. Audit board and Assembly 110 111 Telecommunication expenses 104 103 Travel costs 94 (1 Reni 62 P Cleaning fees 44 47 Marketing and fair expenses z 39 Entertainment expenses 31 Costs of court proceedings for which no provision was made A 9 Intellectuai services (auditors, lawyers, experts, consultants) 21 83 Insurance 26 33 Advertising expenses 23 23 Provisions for severance payments (Note 24) 2u 16 Expenses for lubilee awards 15 15 Banking services 6 Subsequently determined expenditures from previous years 3 143 Banking fees - single payments 283 Other ___ 163 124 Tota_l 10,485 7,551 * During 2018, the Company presented the costs of the arbitration procedure and the Drocedure of DAB refatea to the Sarajevo Bypass, stated in the Company s off -balance sheet items JP CESTE FEDERACIJE B&H D 0.0. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 10, FINANCIAL INCOME 2018 2017 BAM 000 BAM 000 Penalty interest income 36 46 Interest income 4 3 Foreign exchange gainnet _ 1,398 Total, 40 1, 447 11 FINANCIAL EXPENSES 2018 2017 -_ --_ _ BAM 000 BAM 000 Regular interest 721 902 Foreign exchange iosses, et 380 - Penalty interest 219 55 Total: - _- _--_ _--_1,380 957 12 INCOME TAX in accordance with Article 94 of the Law on Roads of the FB&H, the Company is exempted from paying income tax. 13. INTANGIBLE ASSETS Changes in intangible assets during the year of 2018 may be presented as follows. Other Road intangible Investments in infrastructure assets progress Total BAM 000 BAM 000 BAM 000 BAM 000 Cosi Balance at 1 January 2018 2,031,553 8,100 77 770 2,117-423 Additions 24.694 24,694 Disposals (stripping the damaged layer) e561' (56n Transfer f-om/to 2.72r' (2,720) Disposal. write-off (1,'35) _1 73 Balance at 31 December 2018 2,U33 712 8,100 98,009 2,139,821 Accumulatea amortization Balance at 1 January 2018 7.648 7.648 Amortization 365 365 Balance at 31 December 2018 - 8,013 . 8,013 Carying value Balance at 31 December 2018 2,033,712 87 98,009 2,131 808 Balance at I January 2018 2,031,553 452 77.770 2,109,775 2C JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 13. INTANGIBLE ASSETS (CONTINUED) Changes in intangible assets auring the year of 2017 may be presented as foiiows Other Road intangible Investments in infrastructure assets progress Total BAM 000 BAM 000 BAM 000 BAM 000 Cost Balance at 1 January 2017 2,071,623 8,063 72,863 2-152,549 Additions 8888 ic888 Decrease in fair value based on revaluation 1, 576) (51,576) 1 ransfer of VAT to other receivables (1,534) (1 o34) Disposals (stripping the damaged layer) (904) (904) Transfer from/to _ 12,410 37 (12,44Z Balance at 31 December 2017 2,031,553 8100 77,770 2,117,423 Accumutated amortization Balance at 1 January 2017 7.071 - 7,071 Amortization __-_577 577 Balance at 31 December 2017 7,648 - 7,648 Carrynq value Balance at 31 December 2017 2,031,553 452 77,770 2,109,775 Balance at 1 January 2017 2,071,623 992 72,863 2,145,478 Road infrastructure is owned by the Federation of Bosnia and Herzegovina. In accordance with the Law on Roads of 1he FB&H the Company is entrusted with management of highway roads and therefore road infrastructure is recognised as intangible assets in the form o right Road infrastructure is recorded at fair value According to 3dopted acccunting policies, estimation of fair value is made by professional estimator every two years The last fair value estimation has been made as at 21 December 2017 The effect is recorded on the accounts of capital/sources of funds JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 14. PROPERTY, PLANT AND EQUIPMENT Changes in property, plant arid equipment during 2018 may be presented as follows Equipment and Investments in Land Buildings Vehicles progress Total BAM 000 BAM 000 BAM 000 BAM 000 BAM 000 Cost Balance at 1 January 2018 927 4,832 4,522 131 10,412 Additions - 219 219 Transfer from/to 167 i 167) Disposais - _ _______(73) (7j (80) Balance at 31 December 2018 927 4,832 4,616 176 10,551 Accumulated d7wecation Balance at 1 January 2018 485 3,975 - 4,460 Depreciation 50 187 237 Dispsals 535 (08 4, Balance at 31 December 2018 ._____535 4,089 _ 4,624 Balance at 31 December 2018 927 4,297 527 176 5,927 Balance at I Janua 2018 927 4,347 547 131 59952 Changes in property. plant and equipment during 2017 may be presented as follows Equipment and Investments in Land Buildings Vehicles progress Total BAM 000 BAM 000 BAM 000 BAM 000 BAM 000 Cost_________ ___ Balance at 1 January 2017 927 4,925 4,515 131 10,498 Additions 8F 86 Transfer from/tc 86 (86) Dispqsals (93_(7)_(72 Balance at 31 December -9_ -_ _ (Z 2017 927 4,832 4,522 131 10,412 Accumulated er-eciation Balance at 1 January 2017 528 3,870 4.398 Depreciatio- 50 183 233 Disposals (____________93) (78) ___ __ ii Balance at 31 December --- 2017 485 3,975 4,460 Carrying value _ Balance at 31 December 2017 927 4.347 547 _ 131 5,952 Balance at 1 January 2017 927 4,397 645 - 131 6 100 JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 15. OTHER LONG-TERM RECEIVABLES 31/12/2018 31/12/2017 BAM 000 BAM 000 Advances paid _ _ _7,507 1 Total: 7,507 1 Advance receivables are mostly related to the data for the execution of works within the project Modernization of the road 16. INVENTORIES 31/12/2018 31/12/2017 --_ BAM 000 BAM 000 Salt 645 434 Fuei 49 5J Small inventory tires and safety equipment 46 47 Impairment of small inventoiy, tires and sft equpment (46) (47) Total: 694 484 17. TRADE RECEIVABLES 31/12/2018 h31/12/2017 BAM 000_ BAM 000 Trade receivables from the sale of rights 673 615 Bad and doubtful receivables 1,358 I 313 T o t a l - 2 ,031 1,9 2 8 Sales revenue (public land use) is recognized at the moment of collection 18. OTHER RECEIVABLES 31/12/2018 31/12/2017 -- -BAM 000 BAM 000 Creait funds (1 186,035 204,774 Receivables from the Government of the FB&H (2) 15,000 15,000 Receivables for VAT 2,284 1,633 Advances paid 642 1 026 Receivables based on claims 296 206 Short-term accruals 21 25 Receivables for off balance records 1?1 Other __ 66 Total: 204,284 222,891 (1) As at 31 December 2018 credit funds in totai amount of BAM 186,035 (2017- BAM 204 774) represent the effective borrowings approved by the ElB and the IBRD that became effective oi1 31 December 2018 and withir. the framework of the road modernization project in FB&H These funds will be settled in 1he next period oy withdrawing the runds ie by realization of Ihe tranche JP CESTE FEDERACIJE B&H D,0-O NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 18. OTHER RECEIVABLES (CONTINUED) (2) Receivaoles form the Government of the FB&H as of 31 December 201b and 20 7 in the amount of BAM 15 million refer to transfei of funds to the Federal Ministry of Finance for the purpose of payment of liabilities toward EBRD As of 31 December 20 13, ihese receivables are amounted to BAM 19 million but during 2014 ine Company collected approximately BAM 4 million on the basis of these receivables. Repayment date is not defined. 19 CASH AND CASH EQUIVALENTS -31112/2018 31/12/2017 BAM 000 BAM 000 Current bank accounts 38,079 18.634 Current oank accounts - expropriation a319 1 788 Current bank accounts - implernentatior accounts 377 219 Foreign currency bank accounts 11 i 1 Casm in nand _ 5 Total 40,288 20,657 20. SHARE CAPITAL % 31112/2018 % 31/12/2017 ownership BAM 000 ownership BAM 000 The Federation of Bosnia and Heizegovina 100,00 2 100,00 2 Total; - - 100,00 2 _ 100,00 2 21. DEFERRED INCOME 31/12/2018 31/12/2017 BAM 000 BAM 000 Detened income - funds to finance curtent investments in road infrastructure Funds - financial result of current and previous years 57.263 35 076 Funds - capital investments - Government FB&H grant 18 608 18 739 Other funds - deferred income 0,613 1,613 Subtotal 77 484 55.428 Deferred income - funds forpuichase of own dssets Funds - buildings 4,225 4,272 Funds - land 927 92, Funds - equipment, paintings and transport vehicles 527 54' Funds - Bailey bridge 72 75 Subtotal 5,751 5,821 Deferred incomP - finds for purchase of othei intangible assets Funds - software - databases 79 438 Funds- licenses 8 14 Subtotal 87 452 Total: 83,322 61,701 24 JP CESTE FEDERACIJE B&H D O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 21 DEFERRED INCOME (CONTINUEDI Changes in deferred income may oe presented as follows. 2018 2017 -_BAM 000 BAM 000 Balance at 1 January 61,701 66,074 Financial result 38,080 25,855 Accrued depreciation and amortization (602) (810) Transfer from source of assets to other capital items 15,405) (37.816) Transferring funds and write-off (452) Purchases - 8,398 Balance at 31 December 83,322 61,701 22. LIABILITIES FOR RECEIVED FUNDS FOR PROJECTS IMPLEMENTATION 31/12/2018 31/12/2017 BAM 000 BAM 000 Labilities for funds received from GSM license - implementer JF Ceste FB&H 15580 15,580 Liabilities for funas received from GSM license - other implementers 1,919 393 Total. 17,499 _ 15,973 In accordance with decisions of Council of Ministers of B&H funds collected from issuance of GSM license in Bosnia and Herzegovina are directed to the financing of project documentations for Corridor Vo. planned construction of highways and foi financing main, regional and local roads as well as other infrastructure In order to implement decision of Council of Ministers ' B&H, an earmarked account was created at JP Ceste FB&H from which the distribution of funds is made in accoraance with decision of Federal Government following proposals by Federal Ministry of Finance and -ederal Ministry of Transport and communications In accordance with the Decision on transfer of funds which was published ii. the Official Gazette of the FB&H numoer 21 dated 9 March 2012 Special Treasury Account of the Budget FB&H should be opened for all future deposits of funds related to GSM licence This Decision rescinds the previous Decision on transfer of GSM L,cence Funds Transfer which was issued during the year of 2006. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 23. LONG-TERM BORROWINGS Interest rate Maturity 3111212018 31/12/2017 -_-% date BAM 000 BAM 000 European Investment Bank (EIE) 1,56 15/4/2037 113.438 113,438 international Bank for Reconstruction and 6m Euribor + Development (IBRD) margin 15/2/2038 97,792 97 792 European Investment Baiik (EIB) 6m Euribor 3/2/2032 74,761 81,519 European Bank for Reconstruction and Development (EBRD) Euribor - 4/6/2022 38 066 46 102 International Development Association (IDA) 0,75 n a 15/6/2027 16,512 18.997 JP Autoceste FB&H d o.o Saraievo _ - 5000 5000 Subtotal- 45,569 362848 Less current portion I oresented within short- term liabilities) -- (ii 5332 848)_ Total: -_ 314,037 330,000 The borrowings are repayable as follows On demana or within one year 31 532 32 848 In the second year 16,962 16,899 In the third to fifth year inclusive 42019 49,851 After _five_ears -- 25E056 263,250 The amount of 5,OJO KM that relates to the oDligation towards the JP Autoceste FB&H d.o.o Mostai has nc officially defined deadline for return, since the obligation should have been settled long ago, and is presented within the amount of liabilities due within a year The Company reclassified the aforementioned amount from short-term to long -term liabilities on the basis of the confirmation received from the aforementioned legal entity. Otherwise- the loan from the legal entity JP Autoceste FB&H was approved on the basis of the Decision of the Government of the Federation of B&H No. 695,2012 of 8 May 2012. The aforementioned Decision did not specify the deadline for repayment of the loan Long term liabilities g,anted by European Bank for Reconstruction and Development (EBRD) refer to liability based on Agreement dated 17 July 2007, approved in amount of EUR 45 million According to the agreed conditions loan as approved for purpose of rehabilitation of roads in the FB&H Repayments are conducted through 24 eaual semi-annual instalments with grace period of three years Agreement provided that Company will pay 0 5% of Commitment for un drawn amount on annual basis During 2i14, Company completed funds withdrawal of this loan. Funds borrowed from European Investment Bank (EIB) are related to the liability according to the Loan Agreement dated on 26 March 2007 and amount to EUR 50 million. According to the agreed terms the loan is approved for rehabilitation of roads in Federation of Bosnia and Herzegovina. Period of repayment is defined by at least 6 years from the first tranche of payments, and pay of final instalment will be no earlier than 4 years and no later than 18 years from the date of payment of last tranche During 2014 Company withdrew last, seventh tranche in amount of EUR 5 5 million During 20 18, withdrawal of funds on this loan was completed Funds borrowed from the European Investment Bank (EIB) relate to the obligation in accordance with the loan agreement from 9 June 2017 approved in the amount of EUR 50 million According to the agreed terms, the loan was approved for the purpose of realizing the FB&H road modernization project Loan repayment period is 20 years with a grace period of 5 years, included. Annuity maturities are annually or semi-annually in equal repayments of principal The amount of each tranche is at least EUR 3 million and the interest rate is fixed or variable with fixed intervals and will be more specifically defined before the Dayment of the tranche Until ^ 1 December 2018, the first tranche in the amount of EUR 10 million was withdrawn 2 JP CESTE FEDERACIJE B&H D.O.. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 23. LONG-TERM BORROWINGS (CONTINUED) Long-term liabilities approved ny the International Bank for Reconstruction and Development (IBRD) relate to the liabilities in accordance with trie Loan Agreement from 11 August 2017. approved in the amount ot EUR 58 million According to the agreed terms, the loan was approved for the purpose of modernizing the road sector in the Federation of Bosnia and Herzegovina. The loan repayment period is 22 vears with a grace period of twelve years. Agreement orovides that tne Company will pay 0.25% of Commitment tor un-arawn amount on annual basis By 31 December 2018 EUR 3 67 million was withdrawn on this loa.. Long term liabilities granted by International Development Association (IDA) refer to iiability based on the Agreement dated on 22 October 2008, approved in amount of XDR 8,200 thousand According to the agreed conditions. the loan is approved for ourpose of rehabilitation of roads in the FB&H Repayments are conducted through 20 equal semi-annual instalments with grace period of ten years. Agreement provides that the Company will pay a single bank commission of 0,250/o on the amount of the loan and the commission for un- drawn amount of the loan is 0.25% Maturity of annuities are semi- annual (February and August) The Company signed a sub-agreement on 25 September 20 17 w,th the European Bank for Reconstruction and Development (EBRD) for the approval of a long-term ;oan foi the mplementation of a post-flood repair and modernization project. The repayment period is 15 years with a grace period of 3 years. The interest rate is Euribor+1 %, while the single fee defined by the sub-agreement refers to 1% ot the amount of the loan and the commission for un-drawn funds is 0 50/ on annual basis Until 31 December 2018, the ioan did not become effective and the Company did not record it in its books 24. PROVISIONS _ _1Short term Long term 31/12/2018 31/12/2017 31/12/2018 31/12/2017 BAM 000 BAM 000 BAM 000 BAM 000 Provision for court proceedings 78 4 3,734 3 482 Provisions for retirement - 259 254 Total: _._78 4 3,993 3,736 Changes in provisions in 2018 and 2017 may De presented as follows 2018 2017 -_BAM 000 BAM 000 Balance at beginning of the year 3,740 3,359 Increase of provision during the year in charge of costs (Note 9) 758 834 Payments for retirement (14) Payments for court proceedings 206) (270) Release of provision (Note 6) (207) (183) Balance at the end of the year 4,071 3,740 JP CESTE FEDERACJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 25. TRADE PAYABLES 31/1212018 31/12/2017 ----_-_BAM 000 BAM 000 Foreign trade payables 15.191 3975 Domestic trade payabies 4,206 6456 Total: 19,397 10,431 26. SHORT TERM BORROWINGS 31/12/2018 31112/2017 ----____BAM 000 BAM 000 Cui rent portion of long-term borrowins JNote 23 31 532 32,848 Total: __1,532 32,848 Loan granted by the related party JF Autoceste FB&H was approved in accordance with the Decision of the Government FB&H number 695/2012, dated on 8 May 2012 Maturity of the loan was not definea by this Decision. 27. OTHER PAYABLES 31/12/2018 31112/2017 ---_-_-_ _ BAM 000 BAM 000 Deferred income from public land use fees ana recouise claims 2 327 2,243 Accrued costs of bank fees 1 465 1,051 Retained payment (retentions) 524 197 Liabilities towards employees 218 200 Interest payables and bank fees 217 249 Taxes and contributions 148 134 Other 66 _49 Total- 4,965 4,123 28. CONTINGENT LIABILITIES AND ASSETS As at 31 December 2018 the Company granted loan funds in the total amount of KM 416,031 thousand arid the total amount withdrawn amounts to BAM 231 547 thousand 29. POTENTIAL LIABILITIES According to the statement of the Management and a table report obtained from the commission for inventory of court proceedings as of 31 December 2018 there were several court claims against the Company in the amount of BAM 4 454 thousand. Based on the assessment of the Management, provision has been made for court proceedings in the amount of BAM 3,812 thousand (Note 24). JP CESTE FEDERACIJE B&H D 0.0. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 30. OFF. BALANCE RECORDS The Company reports orojects that were financed from the budget of Government ot the FB&H in off-balance records The Company does not own, ncr economic benefits of tnese projects will flow to the Company- Off balance sheet at 31 December 2018 may be presented as follows: 31112/2017 Increase during Decrease 3111212018 BAM 000 2018 during 2018 BAM 000 ASSETS Bypass Sarajevo - investments 211,329 2.334 552 213.111 Others fixed assets buildings 1 778 1 778 Bank account - Intesa SanPaolo Bank - Bypass Sarajevo 859 1 106 1 131 834 Bank arcount Raiffeisen bank qauarantee Osijek Koteks) 9.301 9 301 Advances paid 3,03 349 2654 Received bank guarantees 8.654 11 466 4,292 15828 Given bills of exchange borrowings 357 40Z 306 357 709 Receivables for VA T 31 1 62 284 89 Receivables for Lorrection - SCT 8588 8,588 Receivables based on compensation for damage 2,792 2.792 Other 24" 0 250 Penalty interest 366 366 TOTAL ASSETS 604,259 15,649 6,608 613,300 LIABILITIES Liabilities to the Government of the FB&H - Bypass Sarajevo 34 938 34 938 Trade oayables 695 1 834 1 883 646 Liabilities for oank guarantees 17 955 11 466 4,292 25,129 Liabilities for given bills of exchange 157 403 306 :357 709 Liabilities for retention 9,56, 9,561 Liabilities basea on compensation for damage LOT 1 2 792 2.792 Liabilities based on balance records 131 131 Funds - EBRD 3178B 73,531 -3 531 Funds EIB 20515 64823 371 65,194 Funds OFID Fund 1022 29.115 1 j70 30485 Funds - budget FB&H 13,315 - 13,315 TOTAL LIABILITIES 604,259 _ 15,347 6.306 6136 361330 Increases in investments in the Sarajevo Bypass are related to the interim payments of the contractors as well as recorded supervision services and technical assistance Decreases during the year represent recorded positive exchange rate aifferences on the basis of payment of invoices to suppliers from OFID funds in USD from the previous period. Exchange differences are recorded in a way that the liabilities and investments are reduced. We draw attention to the fact that the construction of the Sarajevo Bypass has started in the previous period (since 2006), and the Company was in charge of implementing the project The construction of the project was funded from the loan funds approved by the European Bank for Reconstruction and Development and European Investment Bank, as well as the budgeT of the Federation of B&H The owner of this property is the Government of the Federation of Bosnia and Herzegovina. which settles the liabilities towards mentioned Banks. JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 30. OFF -BALANCE RECORDS (CONTINUED) Changes to the bank account of Intesa SanPaolo Bank oui ing 2018 are related to VAT collection according to ITA Solvency interest on current account, and refund of money paid for the costs of arbitration proceedings based on the Executive conclusion and payment of costs of the DAB commission procedure Reductions :n the bank account relate to payments by suppliers Decreases in receivables for advances made during 2018 refer to the write-down of the advance made by the International Chamber of Commerce under the Management's Conclusion and the transfer to the balance sheet Increases in bank guarantees received during 2018 refer to the -ecording of new guarantees issued during the year while the reductions relate to the expiration of expired bank guarantees Inspecting an overview of active bank guarantees on 31 12 2018 We have determined that the total balance of these balances is not consistent with the stated balance in the outbound balance for the amount of BAM 3,038 thousana (2 out of the bank guarantees Strabag AG Austria in the amount o BAM 3,032 thousand and Behi6-Sanny Boy ir the amount of BAM 6 thousand) The increase in the bills of exchange during 2018 refers to the effect of the calculation of exchange rate aifferences on 30 June In 2018, based on IDA credits whose originai currency is XDR. We note that the Company did not calculate the exchange rate differences on December 31 2018. and was underestimated for the amount of 123 thousand exchange rate differences Changes in VAT receivables during 2018 relate to the recorded input VAT per invoice of suppliers, and the reductions refer to VAT collection according to the Indirect Taxation Authority's Decisions. Interest-rate increase was generated on the basis of late payment of the amount of retention in connection with the project for the 1construction of the Sarajevo Bvpass (LO1 1) Given that the Management's Conclusion has been defined as transferring this amount to the balance sneet the Company has, by mistake jeduced the amount of the investment and not the default interest Gommitments on the basis ot the bills of exchange during 2018 refer to the effect of calculating exchange rate differences on 30 June 2018, based on IDA credits whose original currency is XDR We note that the Company did not calculate the exchange rate differences on 31 December 2018 and was underestimated for the amount of 123 thousaiid exchange rate differences Changes in the obligations for received bank guarantees during 2018 relate to the recording of new guarantees issued during the year, while the reductions relate to the expiration of expired bank guarantees Changes in obligations towards suppliers during 2018 refer to recorded and paid invoices based on the construction of the Sarajevo Bypass Road, as well as obligations writte off related to the arbitration procedure and the DAB commission and the transfer to the balance sheet Increase in Source of Funds - OFID 1022 refers to recorded exchange rate differences as at 31 December 2018. the balance of which is expressed in USD. Decrease in liabilities in the balance sheet during 2018 refers to the closing of receivables after the bill has been billed. ^hanges in sources of funds - EIB 20515 during 2018 refer to direct payments to suppliers by the Bank on invoices related to the construction of the Sarajevo Bypass. As of 31 December 2018, against the Company, were conducted litigation with a total value of BAM 33 451 thousand and all were related to the construction of the Sarajevo Bypass Center Of the above amount in the arbitration is a dispute value of 20,237 thousand the international Chamber of Commerce The Company did not evaluate the outcomes of these disputes or any reservations were made Attention is drawn to the fact that during 2018 the Company had expenses related to the Sarajevo Bypass in the amount of BAM 1 722 thousand, which are recorded in the income statement ir JP CESTE FEDERACIJE B&H D.O.O. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 31. RELATED PARTY TRANSACTIONS rhe remuneration of Management and Supervisory board members during the year was as follows. 2018 2017 BAM 000 BAM 000 Gross salaries of Board members 283 23, Supervisory board 75 78 Other remuneration of Board members 21 21 Total: 379 336 32. FINANCIAL INSTRUMENTS Gearing (solvency) ratio The Management reviews the capital structure on a monthly basis As part of this review the Management considers the cost of capital and the risks associated with each class of capital. The gearing ratio at the yearend was as follows 31/12/2018 31/12/2017 BAM 000 BAM 000 Debt (i) 345 569 362,848 Cash ana cash equivalents 140,288) [20_,657 Net debt 305,281 342,191 Equity and other sources of assets )_ I 917,714 1.902,872 Net debt to equity ratio 0,16 0,18 (i) Debt is defined as long -term ana shor-term borrowings, s detailed in Notes 23 and 26 (ii) Equity includes total capital and other non-refundable funds of the Company (Note 21) Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies Hence exoosures to exchange rate fluctuations arise. Exchange ate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts. roreign currency sensitivity analysis in Management s opinion the sensitivity analysis .s unrepresentative of the inherent foreign exchange risk since in accordance with the Law on Central Bank of Bosnia and Herzegovina tne Convertible Mark ('BAM') is officially tied to the Euro Change in the exchange rate would require the amendments of the law and approval by Parliamentary Assembly of Bosnia and Herzegovina. Interest rate risk management The Company is exposed to interest rate risk as entities in the Company borrow funds at floating interest rates. The Company's exposures to interest rates or financial assets and financial liabilities are detailed in the liquidity risk management. Interest rate sensitivity analysis The sensitivity analysis has been determined for financial Instruments that the Company is exposed to interest rate risk on the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amour of liability outstanding at the balance sheet date was outstanding for the whole year A 50 basis point increases or decrease (0.5%) is ised when reporting nterest rate risk internally to Management and represents management s assessment of the reasonably possible hange in interest rates JP CESTE FEDERACIJE B&H D-0.0. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 32. FINANCIAL INSTRUMENTS (CONTINUED) Interest rate risk management (continued) If interest rates had been 50 basis points '050/) higher/lower and all other variables were held constant: the Company's profit fci the year ended 31 December 2018 would decrease/increase by BAM 1 620 thousand (2017 BAM 1,694 thousand), based on interest rate risk exDosure -rhis is mainly attributable to the Company's exposure to interest rates on its variable rate bonowings Credit risk management Credit risk refers to the risk that counterparty will default or its contractual obligations resulting in financial loss to the Company The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate as a means of mitigating the risk of financial loss from defailts Liquidity risk management Ultimate responsibility for iquidity risk management rests with the Management of the Company which has built an appropriate liquidity ris< management framework for the management of the Company's short medium and long.-term funding and liquidity management requirements The C:ompanv manages liquidity risk by maintaining adequate reserves banKing facilities and reserve borrowing facilities. by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities Liguidity and interest risk tables The following table details the Company's expected maturity for its non-derivative financial assets The tables below nave been drawn up based on the undiscountea contractual maturities of the financial assets including interest That will he earned on those assets except where the Company anticipates that the cash flow will occur in a different period Maturiy for non-derivative financial assets Weighted average Less than 1 6 6-12 1 -5 Over 5 effective 1 month months months years years Total interest rate BAM 000 BAM 000 BAM 000 BAM 000 BAM 000 BAM 000 31 December 2018 Non-interest bearin _ 59,603 59,603 TOTAL 59,603 59,603 31 December 2017 Non-interest bearing _ 39218 39,218 TOTAL _ 39,218 - 39,218 The following tables detail the Company's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounteo cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. JP CESTE FEDERACIJE B&H D.OO. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 32 FINANCIAL INSTRUMENTS (CONTINUED) Liquidity and interest risk tables (continued) Maturig for non-derivative financial assets Weightea Over 5 average Less than 1 3 3-12 1 5 years effective I month months months years BAM Total interest rate BAM 000 BAM 000 BAM 000 BAM 000 000 BAM 000 31 December 2018 Variable interest rate instruments 073% 10.000 3 12 12 475 54-063 251,009 .330,668 Fixed Interest rate instruments 0 750%L 2.064 8110 6903 17,077 Non-interest bearing_ 26,969 ___ 26,969 TOTAL 36,969 3,121 14 539 62,173 257,912 374.714 31 December 2017 Variable interest rate instruments 0,57% 10000 1 318 12.665 62 946 261 457 350,386 Fixed interest rate instruments 0,750/ 950 2,033 7989 8 711 19683 Non-interest bearing 11 26k ______ __ 1 '262 TOTAL _ 28,212 3,318 14,698 70.935 270,168 387,331 Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows. * the fair value of financial assets and financial iabilities with standard terms and conditions ano traced on active liquid markets is determined with reference to quoted market prices * the fair value of other financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices fron observable current market transactions and dealer quotes for similar instruments 33. POST BALANCE-SHEET DATE EVENTS According to the Management, there were -, other subsequent events that could significantly affect the financial statements in the period between the end of the year ana the date of issue of this report.