HRVATSKE AUTOCESTE d.o.o. Sirolina 4, Zagreb Annual Financial Statements and Independent Auditor's Report for 2018 CONTENT Responsibility for the annual financial statements 1 Independent Auditor's Report 2-7 Income statement 8 Statement of other comprehensive income 8 Statement of Financial Position/Balance sheet 9 Statement of changes in equity 10 Cash flows Statement 11 - 12 Notes to the financial statements 13 - 57 APPENDIX - Financial statements of company Hrvatske autoceste d.o.o. and Public Good 58 - 60 RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS The Management Board of Hrvatske autoceste d.o.o., Zagreb, SiroLina 4 (,,the Company") is responsible for ensuring that the annual financial statements for the year 2018, are prepared in accordance with the Accounting Act (Official Gazette No. 78/15, 134/15, 120/16 and 116/18) and International Financial Reporting Standards, to give a true and fair view of the financial position, the results of operations, the changes in equity and the cash flows of the Company for that period. After making enquiries, the Management Board reasonably expects the Company to have adequate resources to continue to operate in the foreseeable future. Accordingly, the Management Board prepared the annual financial statements using the going concern basis of accounting. In preparing the annual financial statements, the Management Board is responsible for: * selection and consistent application of suitable accounting policies in accordance with the applicable financial reporting framework; * giving reasonable and prudent judgments and estimates; * the annual financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Company will continue to operate as a going concern. The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position, the results of operations, the changes in equity and the cash flows of the Company and their compliance with the Accounting Act and the International Financial Reporting Standards. The 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 for and on behalf of the Management Board, Boris Huzjan, Diretor 45 epan Baraaic, Board Member HRVATSKE AUTOCESTE d.o.o. Sirolina 4 10 000 Zagreb The Republic of Croatia 31 May 2019 1 Tel: +385 1 2395 741 BDO Croatia d.o.o. Fax: +385 1 2303 691 10000 Zagreb IB D O E-mail: bdo-croatia@bdo.hr Trg J. F. Kennedy 6b INDEPENDENT AUDITOR'S REPORT To the Owner of Hrvatske autoceste d.o.o., Zagreb Report on the audit of the annual financial statements Opinion We have audited the annual financial statements of HRVATSKE AUTOCESTE d.o.o., Zagreb, irolina 4 (the ,,Company") for the year ended 31 December 2018 which comprise the Statement of financial position (Balance Sheet) as at 31 December 2018 the Income Statement, the Statement of Other Comprehensive Income, the Statement of Changes in Equity, the Cash Flows Statement for the year then ended and the accompanying Notes to the Financial Statements, including a summary of significant accounting policies and other explanations. In our opinion, the accompanying annual financial statements, give a true and fair view of the financial position of the Company as at 31 December 2018 and of its financial performance and cash flows for the year then ended in accordance with the Accounting Act and the International Financial Reporting Standards (IFRS) as adopted by European Committee and published in official gazette of European Union and the Roads Act. Basis for Opinion We conducted our audit in accordance with the Accounting Act, Auditing Act and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the annual financial statements section of our Independent Auditor's report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to Notes 14. and 17. to the financial statements which explain certain deviations from the IFRSs required under the Roads Act. Our opinion has not been modified regarding this matter. Registered at the Commercial Court in Zagreb under No. 080044149 OIB 76394522236 2 IB D O BDO Croatia d.o.o. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual financial statements of the current period and include identified most significant risks of material misstatement due to error or fraud with the highest impact on our audit strategy, on our resources available and the time spent by the engaged audit team. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our Independent Auditor's report. Key audit matter How we addressed key audit matter Our audit procedures related to this area, Court Disputes and Contingent liabilities among other things, included: - Receiving and analyzing the lawyer's As of 31 December 2018, the Company had response to our written inquiries provisions for legal disputes and contingent addressed to lawyers and considering liabilities. During the company's regular business, certain issues with them; potential exposure to court disputes may arise. Any - Critical review of the assumptions liabilities disclosed or disclosed contingent used and estimates pertaining to the liabilities, or non-disclosures in the financial claims. This includes assessing the statements, are inherently uncertain and depend on likelihood of unfavorable outcome of a number of significant assumptions and judgments. court proceedings and the reliability These are potentially significant amounts in which of the assessment of the related the determination of the amount for disclosure in amount of liability; the financial statements, if applicable, is subject to - Assessing the adequacy of the a subjective assessment. Because of all this, we disclosure in the financial regard this area as a key auditor's issue. statements, taking into account sensitivity and possible prejudice in Related Disclosures in Related Annual Financial the disclosure of detailed Statements information. See Notes 2.13 and 2.14 (Accounting Policies) and The results of our auditing procedures were Notes 27 and 38. satisfactory and we agree that the assumptions used in the estimation model are appropriate. 3 IB D O BDO Croatia d.o.o. Other Information in the Annual Report The Management Board of the Company is responsible for other information. Other information include information included in the Annual report, but do not include the annual financial statements and our Independent auditor's report on them. Our opinion on the annual financial statements does not include other information, except to the extent explicitly stated in the part of our Independent auditor's report, entitled Report on compliance with other legal or regulatory requirements, and we do not express any kind of conclusion with assurance on them. In connection with our audit of the annual financial statements, it is our responsibility to read the other information and consider whether other information have significant contradictions to annual financial statements or our knowledge gained while performing the audit, or otherwise appear to be materially misstated. If, based on the work we have performed, we conclude that there is material misstatement of other information we are required to report this fact. In this sense, we do not have anything to report. Responsibilities of the Management and Those Charged with Governance for the annual financial statements The Management is responsible for the preparation of annual financial statements that give a true and fair view in accordance with the IFRS, and for such internal control as the Management Board determines is necessary to enable the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual financial statements, the Management Board is responsible for assessing the Company'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 the Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. 4 IB D O BDO Croatia d.o.0. Auditor's Responsibilities for the audit of the annual financial statements Our objectives are to obtain reasonable assurance about whether the annual 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 annual 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 annual 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 internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. * Conclude on the appropriateness of the Management's Board 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 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 annual 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 to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the annual financial statements, including the disclosures, and whether the annual financial statements represent the underlying transactions and events in a manger 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. 5 JB D O BDO Croatia d.o.o. Report on Other Legal Requirements Report based on the requirements of Regulation (EU) No. 537/2014 On 4th September 2018, the General Assembly of the Company appointed us, based on the proposal of the Company's Supervisory Board, to audit the annual financial statements for 2018. On the date of this report we have been continuously engaged in carrying out the statutory audits of the Company' from the audit of the annual financial statements for the year 2008 to the audit of the annual financial statements for the year 2018, which amounts to a total of 10 years. In addition to the matters we have included in our Independent Auditor's Report as Key Audit Matters, we have nothing to report in relation to point (c) of article 10 of Regulation (EU) No 537/2014. By our statutory audit of the annual financial statements of the Company for 2018, we are able to detect irregularities, including fraud in accordance with Section 225. Responding to Non-compliance with law of the IESBA Code of Conduct, which requires to assess, while performing our audit engagement, whether the Company and Group has respected laws and regulations that are generally recognized to have a direct impact on the determination of the material amounts and disclosures in their annual financial statements, as well as other laws and regulations that do not have a direct effect on the determination of significant amounts and disclosures in its annual financial statements but compliance with which may to be the key to the operational aspects of the Company's and Group's business, its ability to continue to operate as a going concern or to avoid significant penalties. Unless we encounter, or find out about, non-compliance with any of the aforementioned laws or regulations that are apparently insignificant, according to our judgment of its content and its influence, financially or otherwise, for the Company, its shareholders and the wider public, we are obliged to inform the Company thereof and request to investigate this case and take appropriate measures to resolve the irregularity and to prevent the reappearance of these irregularities in the future. If the Company, on the balance sheet date, does not correct irregularities based on which incorrect disclosures in the audited annual separate and consolidated financial statements arise that are cumulatively equal to or greater than the amount of materiality to the annual separate and consolidated financial statements as a whole, we are required to modify our opinion in the independent auditor's report. In the audit of the Company's annual financial statements for 2018, we have determined materiality level for the financial statements as a whole of HRK 32,000 thousand, representing approximately 1.5% of the sales income for 2018. We chose sales income as the materiality benchmark because we consider it to be the most appropriate benchmark considering the significant fluctuations in profit before taxes in current and prior periods. Our audit opinion is consistent with the additional audit report prepared for the Company's Audit Committee in accordance with the provisions of article 11 of Regulation (EU) No. 537/2014. We have not provided, to the Company and companies under its control and its parent company within the EU, prohibited non-audit services during the period between the initial date of the Company's audited annual financial statements for the year 2018 and the date of this report. And we have not provided services for the design and implementation of internal control procedures or risk management related to the preparation and I or control of financial information or the design and implementation of technological systems for financial information in the preceding year. And therefore, we have remained independent of the Company in the performance of the audit. 6 IB D O BDO Croatia d.o.o. Report based on the requirements of the Accounting Act The Management is responsible for the preparation of the Management report as part of the Annual report of the Company. We are obliged to express an opinion on the compliance of the Management report as part of the Annual report of the Company with the annual financial statements of the Company. In our opinion, based on our audit of the annual financial statements of the Company, information in the Management report as part of the Annual report of the Company for the year ended 31 December 2018, are in accordance with the financial information stated in the annual financial statements of the Company set out on pages 8 to 56 on which we expressed our opinion as stated in the Opinion section above. In our opinion, based on the work that we performed during the audit, the Company's management report for 2018, which is an integral part of the Annual report for 2018 is prepared in accordance with the Accounting act. Based on the knowledge and understanding of the Company and its environment obtained while performing the audit, we have not found that there are material misstatements in the Company's Management report for 2018, which is an integral part of the Company's Annual report for 2018. In our opinion, based on the work that we performed during the audit, the Statement that code of corporate governance is applied, included in the Annual Report for 2018, is in accordance with the requirements of article 22, paragraph 1, points 3 and 4 of the Accounting act. The Statement that code of corporate governance is applied, included in the Annual Report for 2018, includes information from article 22, paragraph 1, points 2, 5 and 6 of the Accounting act. The Company's non-financial report on corporate social responsibility for 2018 is compiled in accordance with the provisions of the Accounting Act (Official Gazette 78/15, 134/15, 120/16 and 116/18) and forms an integral part of the Company's Annual Report for 2018. The non-financial report will be published as an integral part of the Annual Report accordingly. The Management is responsible for the preparation of annual financial statements for the year ended 31 December 2018 in prescribed form based on the Statute of structure and content of annual financial statements (Official Gazette 95/16) and in accordance with other regulations governing the operations of the Company ("Standard annual financial statements"). Financial information presented in Company's standard annual financial statements are in accordance with the information presented in the Company's annual financial statements given on pages 8 to 56 on which we expressed our opinion as stated in the Opinion section above. The engagement partner on the audit of the annual financial statements of the Company for the year 2018 resulting in this Independent Auditor's report is Ivan Cajko. Zagreb, 31 May 2019 BDO Croatia d.o.o. IBDO CROATIA Trg J. F. Kennedy 6b BDOCroatia d.o.o. 10 000 Zagreb za prOio rev Iu%;ora, konzaIing Ivan Cajko, mber of the Management Board Ivan Cajko, Ce4ffied Auditor 7 Hrvatske autoceste d.o.o., Zagreb INCOME STATEMENT AND STATEMENT OF OTHER COMPREHENSIVE INCOME For the year ended 31 December 2018 DE SC R PTIO N Note 2018 2017 HRK'000 HRK'000 OPERATING INCOME Sales income 3. 2,136,105 1,882,141 Other operating income 3. 282,157 36,220 Total operating income 2,418,262 1,918,361 OPERATING EXPENSES Material costs 4. (260,403) (547,916) Staff costs 5. (469,107) (96,217) Depreciation 6. (954,055) (1,048,091) Other costs 7. (64,764) (24,959) Impairments, excluding financial assets 8. (17,854) (3,807) Provisions 9. (28,295) (12,941) Other operating costs 10. (20,447) (14,198) Total operating expenses (1,814,925) (1,748,129) PROFIT FROM OPERATING ACTIVITIES 603,337 170,232 FINANCIAL INCOME 11. 3,788 5,854 FINANCIAL EXPENSES 12. (5,069) (5,550) PROFIT/(LOSS) FROM FINANCIAL ACTIVITIES (1,281) 304 TOTAL INCOME 2,422,050 1,924,215 TOTAL EXPENSES (1,819,994) (1,753,679) DIFFERENCE BETWEEN TOTAL INCOME AND EXPENSE 602,056 170,536 PROFIT BEFORE TAXATION 602,056 170,536 Corporate income tax 14. (109,470) (30,869) PROFIT FOR THE YEAR 492,586 139,667 Other comprehensive income/loss before taxation 0 0 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 492,586 139,667 The accompanying notes from 1 to 40, set out below, form an inseparable part of these financial statements. 8 Hrvatskeautoceste d.o.o., Zagreb STATEMENT OF FINANCIAL POSITIONI BALANCE SHEET As at 31 December 2018 - continued TOTAL TOTAL DESCRIPTION Note 31 Dec 2018 31 Dec2017 HRK'000 HRK'000 ASSETS Non-current assets Intangible assets 16. 9,582 8,005 Property, plant and equipment 17. 38,851,574 40,768,384 Non-current financial assets 18. 26,413 153,562 Receivables 2,487 2,956 Total non-current assets 38,890,056 40,932,907 Current assets Inventories 19. 41,211 43,015 Receivables from related companies 0 943 Trade receivables 20. 124,191 96,523 Receivables from employees and company members 257 774 Receivables from State and other institutions 21. 82,829 31,336 Other receivables 22. 1,591 1,329 Current financial assets 23. 8,081 5,339 Cash and cash equivalents 24. 522,112 449,211 Total current assets 780,272 628,470 Prepayments and accrued income 25. 96,202 107,109 TOTAL ASSETS 39,766,530 41,668,486 EQUITY AND LIABILITIES Equity 26. Subscribed capital 131,140 131,140 Public capital - Public capital on management 19,582,712 19,582,712 - Public capital from fuel fee 19,313,019 18,796,084 - Public capital from other sources (21,645,450) (19,998,377) Legal reserves 568 568 Retained earnings 15,362 15,362 Other comprehensive profit for the year (Public Good) 492,586 139,667 Total equity 17,889,937 18,667,156 Provisions 27. 50,719 194,198 Non-current liabilities 28. 17,217,434 19,533,693 Current liabilities Liabilities to related companies 0 0 Loans, deposits and similar 29. 14,932 14,118 Liabilities to banks and other financial institutions 30. 3,784,220 2,565,763 Prepayments 212 213 Trade payables 31. 236,502 209,883 Liabilities to employees 32. 25,530 47,960 Taxes, contributions and similar 33. 134,802 106,449 Other current liabilities 179 169 Total current liabilities 4,196,377 2,944,555 Accrued expenses and deferred income 34. 412,063 328,884 TOTAL EQUITY AND LIABILITIES 39,766,530 41,668,486 The accompanying notes from 1 to 40, set out below, form an inseparable part of these financial statements. 9 о м м оо v о°�о oNO о�о n n� �`о й о м й м й о�°` й rn й о�о м О Q о � rn и и м и, о и`� Г rn Г 'Л �� оо rn г� о`Л � � оио оио о о� а� м" м" М � � �'� n.о' Г гrv rn о�о ~р У � v � й^ О г� .о й й�м й м о v оо F- = оо �--- оо �--� 1� а о о о о о о о о о о о � � о о о о о о о о о о.о и � +L-� О .�О ш � й й О � N � М М �` О�` О` у� л � � М � � о = а N О О О О О О О О О О О N О О О О О О О О О О О О N � и О М М М с с р �л" in" �л" � С У С�' U1 = у� а0 О О О О О О О О О О О оО О О О О О О О О О О О О о0 � �О �О �О г О и и и � О � У N � ОП = Ш J О N О� ^ ^ О� ^ О 1� О М N о0 �О О ^ ^ О Г и о с0 � о0 N � N О� � 1� �О Г М и О � О� � о0 о0 О С о й о^о rn и й м й, О ir� м�° "' v � со rn � о v � w � о v" р а� а� м" м" оо" м ��O �.о' Г trv �л" � а й о и ^ �.о О N, rn и м rn о � � о г� и, I� rn rv.о м .о у� С � � N � и � � v И Ш = д t � 7 у а о �V С и rn о о о о о о о о о о v� о и о о о о о о о о о о rn � ;; v й о rn о � 'а т � °о о и .о" .о Г N ��д о м � � и м � и о Е_ � оо" со rn � 1� w v 2 � � а о � с� о о о о о о о о о о о rv о о о о о о о о о о о о г� а � " г� � � `� v Е о й й й � и � � - сб и С� У О� О� о� L С 7 � �' lC� 7 � � а И С_ � О� О О О О О О О О О О О О О О О О О О О О О О О О О� •� � й ,а�+ О � (б V О а У М М М � и Й гО � L й и = � 3 о С С QI О О � �й � ��п � и U1 0 и П1 р � с ш с °П с с O0 О � � о ,и � v о ,и � и � � О д а� �0 � д di г U1 а� U д U1 а � Q И N � О 7 � +-' � � О � � Т Т и � а � Т и �= i > � � v > о� ш О ш О' д г с о о о � �� >, � а о`л }' рА W� , м , ,и о о � � � о а а а а и с с л а>` а � N Ф � ° .� .� .Е Е ш.о ш о и о с .. г V а а�+ а+ i и Ш 1] л +� и а� � i � и v а д а'� О И �1 _ � ш а�го й а а ш v ш � оа ш•� й о а о � � О W р � ` Е v°л о ш ш Е о" � Е � ш ш°л о � ш и Е оо И О� � V й у � � � у у й v й � � у Ш U7 � � � й N � Z М �^ �о � �+ й с �'^ w w> Е т � Е= с с и v v о }' � Q ш д v го т й о о,с v � д о и д го т й о о � � г� О N 2 � °°н •Е °„' о cti cLi й с с`� � v Е w о � cti й$°' � Ё,� v � й U� г, �•Е w ш ш � ш ш� о Е �,о "'G ш ш с v� о с Е �_ и±-' Ш С с. 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U U U и U U U U U � Ш о U V U и U U U U U U G1 (� j а L с ,U ,и ,U ,и ,U ,U ,U ,U � ,U а с т и U ,U ,и ,U U ,и ,U U ,U � � � L и • Н О � д д л л л л д л о д+� � о д д д д л д д л д л о=° s 2 Vf �у п �� � � � � � �� � ш�о о � � � � �� � о �� п � т а а а а а а а а_ а г т а а а а а а а а а а а_ т Hrvatskeautoceste d.o.o., Zagreb CASH FLOWS STATEMENT For the year ended 31 December 2018 DESCRIPTION 2018 2017 HRK'000 HRK'000 Cash flows from operating activities Profit before tax 602,056 170,536 Depreciation and impairments of public goods 954,055 1,048,091 Other changes on public goods (284,632) (257,868) Net foreign exchange differences (3,065) (3,789) Expenditures from provisions 28,295 12,941 Impairments of current asset 17,854 3,807 Income from the sale of assets (626) (1,616) Interest income (722) (1,123) I nterest expenses 5,069 5,550 Income from dividends and profit shares 0 (943) Increase /decrease in inventories 1,804 (41,230) Increase/decrease in trade receivables (27,668) (9,336) Increase/decrease in receivables from related companies 943 1,224 I ncrease/decrease in receivables from employees and company members 517 (695) 1 ncrease/decrease in receivables from the State and other institutions (51,492) 32,490 Inc rease /decrease in other receivables (263) (615) Increase/decrease in prepayments and accrued income 10,906 (106,483) Provisions (143,479) 37,131 Increase /decrease in prepayment liabilities (0) 33 Decrease / increase in liabilities to related companies 0 (98,057) Increase /decrease in trade payables 26,619 85,194 Increase /decrease in liabilities to employees (22,430) 44,261 Increase/decrease in liabilities for taxes, contributions and similar 28,353 53,480 Increase/decrease in other current liabilities 10 71 Increase/decrease in accrued expenses and deferred income 83,179 56,413 Interest paid (5,069) (5,550) Interest collected 722 1,123 Inflows from dividends and profit shares 0 943 Profit tax (109,470) (30,869) Cash flows from operating activities 1,111,466 995,114 Cash flows from investing activities I nflows Inflows from the sate of non-current assets 2,227 7,255 Inflows from the collection of non-current receivables 469 0 Inflows from the sate of financial assets 127,149 472,462 Outflows Outflows for financial assets (2,742) (44,776) Expenses for non-current receivables 0 (2,872) Purchase of non-current tangible and intangible assets (348,734) (71) Cash flows from investing activities (221,631) 431,998 11 Hrvatskeautoceste d.o.o., Zagreb CASH FLOWS STATEMENT For the year ended 31 December 2018 - continued Cash flows from financial activities I nflows Increase in current and non-current financial liabilities 8,527,299 1,044,738 Outflows Payments of non-current and current financial liabilities (9,344,233) (2,234,586) Cash flows from financial activities (816,934) (1,189,848) Net cash flow 72,901 237,264 CASH AND CASH EQUIVALENTS AT THE BEGINING OF THE YEAR 449,211 211,947 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 522,112 449,211 The accompanying notes from 1 to 40, set out below, form an inseparable part of these financial statements. 12 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 1. GENERAL 1.1. Legal framework and activities The company Hrvatske autoceste d.o.o. Zagreb, §irolina 4 was registered at the Commercial Court in Zagreb based on the Decision No. Tt-01 /2180-2 dated 11 April 2001. The Company was founded based on the Decision reached by the Republic of Croatia, on Division and Transformation of the company Hrvatska uprave za ceste (HUC) into Hrvatske autoceste d.o.o. Zagreb and Hrvatske ceste d.o.o. and based on the Founder's Statement on the Establishment of the Company dated 9 April 2001. Subscribed capital amounts to HRK 102,071 thousand. The Republic of Croatia is the sole founder of the Company. Since the subscribed capital was determined based on the partition balance sheet as at 11 April 2001, the Company made corrections of the opening balance during 2001 and 2003, which increased subscribed capital by HRK 29,069 thousand. The difference in the amount of HRK 29,069 thousand was registered at the Commercial Court in Zagreb pursuant to Decision Tt-04/7025-3 dated 16 July 2004. After the increase, the subscribed capital amounts to HRK 131,140 thousand. Operating subject - activities: * Designing and procuring of Location and Building Permits and certificate of occupancy for motorways, * Construction of motorways and road facilities with collection of road tolls on state roads, * Maintenance of motorways and road facilities with collection of road tolls on other state roads, * Other tasks of maintenance of motorways and road facilities with road toll collection on other state roads and other. 1.2. Operating and financial restructuring of the road sector In early 2017, the Croatian Government adopted a Decision on the Business and Financial Restructuring of the Roads Sector. This decision aims to enable the road sector reform, strengthen the supervision and planning for the sector, increase operational efficiency and improve the finances of the sector. The main restructuring elements are: - managing the road sector - planning, financing and investments implementation in the road sector - managing companies and their operating The planned measures of managing roads sector refer to the merger of Hrvatske autoceste odriavanje i naplata cestarine d.o.o. and the Company. Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done. Pursuant to the Merger Agreement of 13 November 2017 and the Decision of the General Assembly of the Company and the General Assembly of HAC-ONC d.o.o. from the 13 November 2017, on 1 December 2017, the Commercial Court in Zagreb recorded the merger in the court register. 13 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 1.3. Employees On 31 December 2018, the Company employed 2,770 persons (31 December 2017: 3,035). The employee qualification structure is the following: Structure 31 Dec 2018 31 Dec 2017 Doctor's/Masters degree 17 16 University degree 303 330 Two-year post-secondary diploma 309 334 Secondary school certificate 1,800 1,936 Skilled workers 251 313 Unskilled workers 90 106 TOTAL 2,770 3,035 1.4. Company Bodies The Company Bodies are the Assembly, Supervisory Board and Management Board. The Republic of Croatia, as the founder, exercises its rights through the Government of the Republic of Croatia. Pursuant to the decision on representing the Croatian Government in the Assembly of Hrvatske autoceste d.o.o. dated 8 November 2004, the Minister of the Sea, Tourism, Transport and Development (Ministry of Maritime, Transport and Infrastructure) represents the Croatian Government in the Company's Assembly. The Supervisory Board consists of 5 members, 4 of which are elected by the Assembly, one at the proposal of the Ministry of Maritime Affairs, Transport and Infrastructure; Ministry of Environmental and Nature Protection, Ministry of Construction and Physical Planning; Ministry of Finance and Ministry of Economy, Labour and Entrepreneurship, while the fifth member is elected by the employees. Members' mandate is 4 years long. Supervisory Board Branimir Jerneid Member since 31 May 2017, President since 2 June 2017 Nino Vela Member since 31 May 2016, Deputy President since 3 June 2017 Darko Kasap Member since 31 May 2016 LadisLav TurEinovic Member since 31 May 2016 Andelko Kasunic Member since 4 May 2018, Representative of employees Management Board Boris Huzjan Director (since 4 December 2017) Stjepan Baranaic Board Member (Member since 13 June 2018) 14 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Summary of significant accounting policies is set out below. 2.1. Statement of compliance and basis of presentation Financial statements of the Company for 2018 are prepared in accordance with the Accounting Act (Official Gazette No 78/15, 134/15, 120/16, 116/18), International financial reporting standards ("IFRS") and in Regulations on the structure and content of the annual financial statements (OG No 95/16). Financial statements have been prepared using the basic accounting assumption of the transaction in which the effects of transactions are recognized when they occur and reported in financial statements for the period to which they relate and with the application of fundamental accounting assumption of going concern. The Company's financial statements are prepared in HRK as the company's measuring and reporting currency. As on 31 December 2018 the exchange rate of 1 USD and 1 EUR amounted to HRK 6.47 HRK and HRK 7.42 (31 December 2017: HRK 6.30 and HRK 7.51). On 8 July 2011 new Roads Act came to power (Official Gazette 84/11,22/13, 54/13, 148/13) in which Articles 94, 95 and 96 define roads as assets belonging to the Republic of Croatia which is kept in separate business records of the company which manages roads. These assets of the republic of Croatia are presented in these financial statements as public capital, as prescribed by law; the accounting approach to the recognition of certain operating events is the following: the application of the capital approach as defined by enacting clause. The capital approach includes keeping records of certain operating events in the following way: * Funds from the annual fees for the use of public roads, user charges and fees to finance the construction and maintenance of public roads by which the Republic of Croatia finances the construction, maintenance and other management services of public roads and public roads, make the Croatian property (public capital), which is recorded separately in the ledgers of legal entity that manage public road. * A legal entity that manages public road includes depreciation of public roads managed in its operating expenses. Part of the depreciation that is not covered by own income is accounted at the expense of public capital. * Public capital also include income based on foreign exchange differences, interest and other income generated on the basis of money management that makes the public capital and public capital is reduced by interest and other fees associated with financing the construction and maintenance of public roads and for foreign exchange losses. * The difference between own income and expenditures realized in fiscal year shall be compensated at the expense of public capital in accordance with the approved business plan of the Company. * The fee to finance the construction and maintenance of public roads, paid by manufacturers and importers of petroleum products and the competent government authority for the department stores, is paid on the account of the Company and represent the capital by which the Republic of Croatia finances the construction and maintenance of public roads, recovery of loans which financed the construction of state roads and the recapitalization of the Company, in accordance with the program. 15 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.1. Statement of compliance and basis of presentation (continued) * Public capital is increased by the profit realized by the Company and the Republic of Croatia is the only member of the Company. * Funds collected from fees to fund construction and maintenance of public roads, paid by manufacturers and importers of petroleum products and the competent government authority for the department stores, are used for the purposes in accordance with annual plans for construction and maintenance of motorways, which with the consent of the Government brings the Company. 2.2. Adoption of new and revised International Financial Reporting Standards Standards and Interpretations effective in the current period The following new standards and amendments to the existing standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee and adopted by the European Union are effective for the current period: Adoption of new and revised International Financial Reporting Standards Standards and Interpretations effective in the current period The following new standards and amendments to the existing standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee and adopted by the European Union are effective for the current period: * IFRS 9 Financial Instruments: Classification and Measurement The standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. * IFRS 15 Revenue from Contracts with Customers The standard is effective for annual periods beginning on or after 1 January 2018. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity's ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. 16 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.2. Adoption of new and revised International Financial Reporting Standards (continued) Adoption of new and revised International Financial Reporting Standards (continued) Standards and Interpretations effective in the current period (continued) * IFRS 15: Revenue from Contracts with Customers (Clarifications) The Clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted. The objective of the Clarifications is to clarify the IASB's intentions when developing the requirements in IFRS 15 Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amending the wording of the "separately identifiable" principle, of principal versus agent considerations including the assessment of whether an entity is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for accounting of intellectual property and royalties. The Clarifications also provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. * IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance Consideration The Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non- monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. * IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments) The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Adoption of the mentioned changes in standards did not have any significant impact on the financial statements of the Company. 17 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.2. Adoption of new and revised International Financial Reporting Standards (continued) Adoption of new and revised International Financial Reporting Standards (continued) Standards and Interpretations effective in the current period (continued) IAS 40: Transfers to Investment Property (Amendments) The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. * The IASB has issued the Annual Improvements to IFRSs 2014 - 2016 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2018 for IFRS 1 First-time Adoption of International Financial Reporting Standards and for IAS 28 Investments in Associates and Joint Ventures. Earlier application is permitted for IAS 28 Investments in Associates and Joint Ventures. The overview of IASB has issued the Annual Improvements to IFRSs 2014 - 2016 Cycle is presented below: o IFRS 1 First-time Adoption of International Financial Reporting Standards: This improvement deletes the short-term exemptions regarding disclosures about financial instruments, employee benefits and investment entities, applicable for first time adopters. o lAS 28 Investments in Associates and Joint Ventures: The amendments clarify that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. Standards and Interpretations issued by IASB issued but not yet effective and not early adopted by the Company or by the Group At the date of publishing of these financial statements, the following standards, amendments and interpretations issued by the IASB have not yet come into force and which the Company has not previously adopted: * IFRS 16: Leases The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. Management of the Company is currently assessing the impact of the introduction of this new standard. In 2018, the Company made a preliminary estimate of the potential effect of adopting IFRS 16 in its financial statements and estimated that the application will have no impact on the financial statements. 18 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.2. Adoption of new and revised International Financial Reporting Standards (continued) Adoption of new and revised International Financial Reporting Standards (continued) Standards and interpretations issued by IASB issued but not yet effective and not early adopted by the Company or by the Group (continued) * IFRIC 23: Uncertainty over Income Tax Treatments The Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers: whether tax treatments should be considered collectively; assumptions for taxation authorities' examinations; the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and the effect of changes in facts and circumstances. This Interpretation has not yet been endorsed by the EU. * Prepayment Features with Negative Compensation (Amendments to IFRS 9) The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. These Amendments have not yet been endorsed by the EU. * Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. Clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. These Amendments have not yet been endorsed by the EU. * The IASB has issued the Annual Improvements to IFRS Standards 2015-2017 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2019. These annual improvements have not yet been endorsed by the EU. The overview of the Annual Improvements to IFRSs 2015 - 2017 Cycle issued by the IASB is presented below: o IFRS 3 and IFRS 11: The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. o IAS 12: The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises. o IAS 23: The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes 19 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.2. Adoption of new and revised International Financial Reporting Standards (continued) Adoption of new and revised International Financial Reporting Standards (continued) Standards and Interpretations issued by IASB issued but not yet effective and not early adopted by the Company or by the Group (continued) o part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. 2.3. The key estimates and uncertainty of estimates In preparing financial statements, it is necessary to apply certain estimates which have an influence on the Company and related companies' assets and liabilities, revenues and expenses as well as disclosure of the Company 's contingent liabilities. Future events and their effects can't be predicted with certainty; therefore actual results could differ from those estimated. The estimates used in preparing the financial statements are subject to change as new events occur, additional experience, obtaining additional information and insights and changes in the environment in which the company operates. The key estimates used in applying accounting policies in preparing the financial statements relate to the depreciation of non-current tangible and intangible assets, assets impairments, impairment of inventories, impairment of inventories, receivables and provisions and disclosure of contingent liabilities. 2.4. Reporting currency Financial statements of the Company are stated in Croatian Kuna as measuring and reporting currency. Financial statements are presented in the thousands of HRK. 2.5. Revenue recognition a) Operating income Revenue consists of the fair value of the received consideration or receivables for the goods or services sold during the Company's business. Revenues are stated in amounts deducted for value added tax, estimated returns, rebates and discounts. The Company recognizes revenue when the amount of revenue can be measured reliably when the Company has future economic benefits and when specific criteria for all the Company's activities are met. Sales revenue is recognized when the customer acquires control over the product, i.e. when the Company and the Group makes deliveries of goods to the buyer and when there is no outstanding obligation that could affect the acceptance of the product by the buyer. The delivery is done when the goods are shipped to a specific location, the risk of loss is transferred to the buyer and when the buyer accepts the products according to the contracted terms. The products are sold at discounts and fees for realized traffic, and buyers are entitled to refund of defective goods. Sales revenues are stated on the basis of the sale price, reduced by discounts and fees for turnover and returns. In accordance with the new IFRS 15, the Company applies a five-step model for recognizing a contract with customer: 20 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.5. Recognition of income 1) Identification of the contract with the customer(s) 2) Identification of the separate performance obligations in the contract 3) Determination of the transaction price 4) Allocation of the transaction price to the separate performance obligations 5) Recognition of revenue as each performance obligation is satisfied Revenue is recognized for each separate contract delivery obligation in the amount of the transaction price. The transaction price is the amount of contractual remuneration that the Company expects to be entitled in return for the transfer of the promised goods to the buyer. According to the aforementioned, the recognition of revenue is carried out at the same time as when IAS 18 Revenue was effective and no significant effects of IFRS 15 were identified. a) Revenue from Sale of Services Provided that the amount of revenue can be measured reliably and if the Company is likely to receive a fee, the service revenues are recognized in the period in which they are provided. The service contract revenue is recognized in relation to the level of performance of the contract. The levels of performance of the contract are as follows: * the services performed are recognized in relation to the level of execution, determined as a percentage of the time spent over the balance sheet date, in relation to the total estimated time of service; * maintenance fees included in the price of the goods sold are recognized in proportion to the share in the total cost of maintaining the sold product, taking into account the number of previous maintenance services for the previously sold goods; and * contract revenue based on time and material expense is recognized at agreed prices in the period in which the hours worked and in which direct costs were incurred. The most significant revenues of the Company are revenue from toll collection. b) Financial income Interest income is derecognised on a timely basis, on the basis of unpaid principal and at the applicable effective interest rate, which accurately discounts estimated future cash receipts through the expected life of the financial instrument or the net book amount of financial assets. Interest income is recognized as a financial income in the statement of comprehensive income. 2.6. Recognition of expenses a) Operating expenses Expenses are recognized based on the direct connection between occurred expenses and certain realized items of income (principle of confrontation). Based on the mentioned, operating expenses represent all expenses in relation to invoiced income from providing services. Recognition of expenses is deferred to further accounting periods if it is expected realization of revenues in the next several accounting periods. Operating expenses include the costs of materials, small tools and services, maintenance services, the costs of gross wages and salaries, depreciation of own assets, depreciation of public goods (roads) and other operating expenses covered directly by operating income. 21 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.6. Recognition of expenses (continued) b) Maintenance costs Expenses for repairs or maintenance of property, plant and equipment, results due to recovery or maintenance of future economic benefits that can be expected from the originally estimated useful life of assets. These costs are recognized as an expense when occurred. c) Gross salaries and wages Employee benefits include wages, salaries and social security contributions, fees for use of annual leave and sick leave, participation in profits and bonuses and monetary benefits of current employees, and benefits after termination of employment, such as severance and life insurance, and are recorded as expenses as incurred regardless of whether the current obligation is settled. All pertaining tax levies directly connected to accrued salaries and compensations are included in employees' expenses and represent their constituent part. Reimbursement to employees in accordance with collective contracts, are included in employees expenses and are their constituent. If the period of certain right is different than the payment period and longer than one year (non-current), liabilities are discounted by the average interest rate on government bonds of similar maturities. d) Depreciation Intangible assets, property, plant and equipment with indefinite life are depreciated. The amount of investment in non-current assets shall be compensated by the depreciation according to agreed or appropriate period of use of individual right, respectively property, plant and equipment. When assessing the depreciable amount, the expected residual value at the end of useful life is determined. If this is insignificant compared to the total value of assets, it is not respected when calculating depreciation. The expected residual value of assets related to the road is usually zero. Estimated useful life is estimated for each asset item separately, and is dependent on the technical characteristics of the assets, the speed of its economic obsolescence, as well as the expected use. Typically, the expected useful lives of assets are: USEFUL LIFE D ESCRI PTION 2018 2017 (year) (year) Buildings 40 40 Semi-motorways and motorways - upper layer 33 33 Equipment 4-10 4-10 Intangible assets 5 5 Depreciation is calculated using a method which corresponds to the realization of economic benefits from assets. For road and the property it is expected to be equally used throughout the year, therefore, applies a linear method of depreciation of these assets. Depreciation is calculated individually for all assets. During the year depreciation is calculated on an annual temporary calculation corrected for the change during the year. Depreciation begins to accrue after the month in which it commenced use of assets. Depreciation of public good (roads) and accompanying equipment, in part which may be covered by own income, is credited to the expenses of the period, while the difference of the part of depreciation that is not covered will be covered by debiting public capital. 22 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.6. Recognition of expenses (continued) e) Financial expenses Interest expenses resulted from business relations payables are stated within financial expenses. Interest is recognized as expense in the period in which they occurred, and are stated as accruals until the balance sheet date. The conversion of monetary items (cash and receivables and liabilities) denominated in foreign currencies in HRK is done at the spot rate on balance sheet date, which corresponds to the agreed rate of certain activities (mostly middle rate of Croatian National Bank). Foreign exchange differences are recorded separately as positive and negative in the general ledger, and because of their significance are presented separately in the profit and loss. 2.7. Recognition of assets a) Inventories Inventories are measured at cost. Value adjustment of inventories due to the damage, decrease in value or other justified reasons is performed once a year at the suggestion of persons responsible for inventories, as to be measured at the balance sheet date, at cost or net realizable value, whichever is lower. Inventory of raw material and material, spare parts, small inventory, packaging and car-tires are stated at the actual cost that comprise invoicing value of the supplier increased by all attached acquisition costs (customs fees, taxes, transportation costs and all other costs that may be attributed to procurement). Commercial discounts and similar items are deducted when determining the purchase expenses. Items are recorded as small inventory provided their duration of use is shorter than one year, and their individual value does not exceed HRK 3,500 HRK. When putting small inventory, packaging and car-tires in use, they are written off at one-time. Inventories are measured by the weighted average cost method. b) Financial assets Initial Recognition and Measurement The Company classifies financial assets into the following categories: available-for- sale financial assets and loans and receivables. Management classifies financial assets at initial recognition. Subsequent measurement of financial assets Subsequent measurement of financial assets depends on its classification, as follows: - Financial assets available for sale Unlisted shares and listed redeemable bonds traded on an active market are classified as available for sale and are stated at fair value. Gains and losses arising from changes in fair value are recognized directly in equity in the revaluation reserves of that investment, except for impairment losses, interest and negative exchange rate differences on monetary assets that are directly recognized in the statement of comprehensive income. If financial assets are disposed of or need to be impaired, cumulative gains and losses that previously recognize a revaluation reserve arising from an investment are recognized in the statement of comprehensive incomepresented in the income statement within financial income or financial losses in the period in which they arise. 23 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.7. Recognition of assets (continued) b) Financial assets (continued) The fair value of financial instruments traded on active markets is determined at each reporting date in relation to the quoted market price or the quoted price of the distributor without deduction for transaction costs. For financial instruments not traded on an active market, fair value is determined using appropriate valuation techniques. Such techniques may include the use of newer unbundled market transactions; given the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. - Loans and receivables Loans and receivables represent non-derivative financial assets with fixed or determinable repayment periods not traded on an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method less allowances for impairment. Amortized cost is calculated taking into account any discounts or premiums when purchasing, and the fees and charges that form an integral part of the effective interest rate method. Depreciation according to the effective interest rate method is included in the financial income in the statement of comprehensive income. Impairment losses are recognized in the statement of comprehensive income as financial expense. Cessation of recognition Financial assets (or, where applicable, part of financial assets) are derecognised when: * the right to receive cash from assets expired * the Company has transferred its rights to receive cash from the asset or has assumed the obligation to pay the money received in full, without any material deviation from the third party; and I or the Company has transferred all the material risks and rewards of the asset and / or the Company has not retained or transferred all the material risks and rewards of the property but transferred the control of the property. When the Company has transferred its rights to receive cash from the asset or has assumed the obligation to pay the cash received in full, without any material deviation from the third party, and has not retained or transferred all the material risks and rewards of the asset nor transferred control of the property, the property is recognized to the extent that the Company continues to participate in the property. In this case, the Company also recognizes the associated obligation. Assets transferred and related liabilities are measured on a basis that reflects the rights and obligations that the Company held. Impairment of financial assets At each reporting date, the Company verifies whether there is objective evidence of impairment of the financial asset or group of financial assets. The value of a financial asset or group of financial assets is considered to be impaired only if there is objective evidence of impairment as a result of one or more events occurring after initial recognition of an asset and the loss affects the estimated future cash flows of a financial asset or group of financial assets can be reliably estimated. Evidence of impairment may include indications that the borrower or group of debtors have significant financial difficulties, defaults or defaults on payment of interest or principal, probability of bankruptcy or other financial reorganization, and where visible data indicate that there is a measurable reduction in estimated future cash flows, such as prior changes or economic conditions related to omissions. 24 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.7. Recognition of assets (continued) b) Financial assets (continued) Investments in associates and joint ventures Investments in companies in which the Company has significant influence and has no control is measured in separate financial statements at cost less impairment losses. An impairment test is verified annually when an event or changed circumstances indicate that the carrying amount may not be recoverable. c) Property, plant and equipment Non-current assets are: * Land * Buildings * Plant and equipment Under the concept of property, plant and equipment, it is considered buildings with all purposes, plant and equipment (machines, helicopters)) and tools, plant and office inventory, furniture and transport equipment (assets), as defined in the Accounting Act. Equipment and inventory are recorded as property, plant and equipment, respectively non-current tangible assets, according to legal regulations, if their lifetime is longer than one year, and their individual value greater than HRK 3,500 on the day of purchase. Purchase of property, plant and equipment during the year is recorded at cost. Cost represent invoiced value of acquired assets plus any costs incurred by putting the assets into use (import duties, delivery and transmission costs, installation, fees, costs of borrowing) and by the time of use of property. Subsequent expenditure relating to the already recognized assets is added to the carrying amount of that asset when it is probable that future economic benefits will inflow into the Company in a higher amount than originally agreed. Any other subsequent expenditure is recognized as an expense in the period in which it was incurred. Increase in property value is causing an extended lifetime of assets, increased use capacity and increased quality of products. Assets for which replacement of individual parts is expected and which have different useful lives are separated for financial reporting purposes to the appropriate depreciation units for which it is determined useful life in accordance with the characteristics of these assets. Non-current assets are measured at cost less accumulated depreciation and accumulated impairment losses. Book value of an item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of property, plant and equipment included in the Statement of comprehensive income for the period in which they are derocognized, and are classified as a gain or loss equal to the difference between the net amount receivable from the disposal and the carrying value of assets, and are recognized separately from operating income. Internally-generated non-current tangible assets are stated at cost (actual value), if the cost doesn't exceed market value. Roads, as public property that may not become an object of ownership, and which was given to the Company for managing, are recorded within the Company's non-current tangible assets and they are stated as public capital. Costs of designing, expropriation, construction, supervision and other costs related to construction of new roads, as well as 25 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.7. Recognition of assets (continued) c) Property, plant and equipment investment and improvement maintenance costs, which relate to renovation and replacement of part of the road of limited duration of use, are all included in the value of the public property (roads). d) Intangible assets Intangible assets meet recognition conditions if acquired separately and if they arise from contractual or other legal rights. Intangible assets consist of rights, which use will produce economic benefits to the Company in a period longer than one year, and whose individual cost value can be reliably measured. Deprecation of intangible assets is calculated according to the estimated useful life or the contractual term rights to use certain assets. In the case of intangible assets with indefinite useful life, special attention is paid to the impairment test to be conducted for any property before drawing up the annual financial statements. Intangible assets are measured at cost less accumulated depreciation and accumulated impairment losses. Carrying value of intangible assets is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of intangible assets included in the statement of comprehensive income for the period in which they are derecognized, and are classified as revenue in the amount of the difference between the net amount receivable from the disposal and the carrying value of assets. 2.8. Liabilities Initial Recognition and Measurement All financial liabilities are initially recognized at fair value plus the associated transaction costs. The Company's financial liabilities include liabilities to suppliers and other liabilities, overdrafts and loans and loans. Financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of comprehensive income when liabilities are derecognised as well as through the effective interest rate method (EKS) in the amortization process. Amortized cost is calculated taking into account any discounts or premiums on the acquisition and the fees or expenses that are an integral part of the effective interest rate. Depreciation according to the effective interest rate method is included in the financing costs in the statement of comprehensive income. Cessation of recognition A financial liability is derecognised when the liability is met, canceled or expired. When the existing financial liability is replaced by another by the same creditor under substantially different terms or the terms of the existing obligations have been substantially altered, such change or modification is treated as a cessation of the original obligation and recognition of the new liability and the difference in the corresponding carrying amounts is recognized in the comprehensive income. 26 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.9. Capital a) Stock capital Stock capital represents part of the Company's total capital. Stock capital is registered with the competent commercial court. b) Public capital Public capital represents the value of assets - motorways, a semi-motorways, bridges, tunnels and other facilities on the motorways, which are given to the Company under management and reported in the ledgers of the Company, but are not registered in the stock capital. Fees for financing construction and maintenance of public roads from the state budget must be paid in accordance with the provisions of the Roads Act to the accounts of the Company and represents the capital (hereinafter: public capital) of the Republic of Croatia, which financed the construction and maintenance of public roads, the loan repayment for financing construction of motorways and state roads, and recapitalization of the Company in accordance with the program from the article of the Roads Act. The difference between own revenues and expenses realized in fiscal year shall be compensated at the expense of public capital based on the approved plan of the Company. Public capital also includes income based on exchange rate differences, interests and other revenue from the cash management that make the public capital, while public capital is reduced by the interests and other fees associated with financing the construction and maintenance of public roads, and for exchange rate losses. Profit realized by the Company, while the Republic of Croatia is the sole Company's member, increases public capital. Public capital is reduced by impairment (depreciation) of public goods (roads) by the difference of the amount of depreciation uncovered by own revenues of the Company. c) Other reserves The classified part of the capital - company's principal, which refers to the formation of reserves under the law or regulations due to provision of additional hedging measures from the effects of losses, is reported as other reserves. Other reserves might include a dedicated portion of retained earnings provided for hedge of capital. 2.10 Corporate income tax Taxable income is the profit for the period specified in accordance with tax regulations, and according to which there is a duty of paying taxes on profits. The tax loss is loss for the period determined in accordance with tax regulations, according to which there is no obligation to pay corporate income tax. Corporate income tax expense is the cumulative amount of current and deferred tax included in the determination of net profit or loss for the period. Deferred tax liabilities are the amounts of corporate income tax payable in future periods relating to taxable temporary differences. Deferred tax assets are amounts of corporate income tax recovery in future periods, and relate to: (a) Temporary deductible differences (b) Unused tax Losses carried forward and (c) Unused tax reliefs carried forward. The tax liability is measured at the current tax rate, according to reported income tax. Deferred tax assets and liabilities are measured at the corporate income tax rates that are expected to apply in period of cancellation of the differences. 27 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.11. Leases Leases are classified as finance Leases whenever all the risk and rewards of ownership are transferred to the lessee. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Finance leases are recognized at the beginning of the lease period as the assets and liabilities by an amount equal to the fair value of the leased property, plant or equipment, or the present value of minimum payments, determined at the beginning of the lease, whichever value is lower. All initial direct costs of lessee are added to the amount that is recognized as an asset. The assets under finance leases are depreciated in the same manner as defined for intangible assets, i.e. property, plant and equipment. However, if there is uncertainty as to the lessee to acquire ownership at the end of the lease, the assets are fully depreciated in a period shorter than the lease period. Operating leases are recognized as expense on straight-tine basis during the lease period. 2.12. Government Grants and Disclosure of Government Assistance Due to the specific role of the Company, and the specific methods of evaluation, billing and finance the core activities of the company Hrvatske autoceste d.o.o., established under the Act on public roads with the aim of construction and maintaining public roads, some of the inflows needed to finance the activities, is provided from the proceeds of fees from oil products from which it finances primarily construction of public roads, and the return of borrowed funds. Road as a public good over which one cannot acquire ownership rights, which are given to the management of the Company, are recorded in the non-current assets of the Company and recorded as public capital. Construction and renovation of public goods (roads) are funded by fees from oil products, the surplus of own income, assets depreciation of public goods (roads), loans and dedicated grants. Public capital is increased by the proceeds of fees from oil derivatives. According to the Roads Act, receipts from fees from oil products are paying producers and importers of oil products, and the competent government authority for commodity stocks per litre delivered, and imported refined oil products at the expense of the Company. Proceeds from the fees for oil derivatives are used to cover part or the total depreciation of public goods (roads), if the Company's own resources are not available for their coverage, and to finance road construction in a broader sense. Public capital is increased by other income and receipts that are directly attributable to public capital, such as donations and dedicated grants for the construction of public goods, foreign exchange gains related to public goods and interest on dedicated deposits formed by public capital funds. Public capital is reduced by the impairment (depreciation) of public goods (roads) for difference of the amount of depreciation uncovered by the Company's own revenues. Public capital is reduced by amounts that are directly attributable to public capital, such as financial expenses (cost of loan processing, credit fees and guarantees, foreign exchange differences, interest expenses in the period of repayment, the interest expense up to the beginning of the repayment period, default interest, etc.), which is not included in the purchase value of the public good. 28 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 2.13. Non-current assets held for sale and discontinued operations Non-current assets can be classified as held for sale if their carrying value can be compensated primarily through sale rather than through continuing use. Non-current assets held for sale are measured at carrying and fair value less costs to sell, depending which is lower. 2.14. Provisions A provision is recognized only when the Company has a present obligation as a result of a past event and it is probable, that the obligation will require an outflow of resources with economic benefits and a reliable estimate can determine the amount of the obligation. Provisions are reviewed at each Balance sheet date and adjusted to reflect current best estimates. Provisions are established for litigation costs, severance payment costs, reimbursements to employees for non-current employment and retirement (regular jubilee awards and severance payments) and cost of stimulating severance payments based on the Company's personnel restructuring plan. Provisions for expenses related to employee benefits are based on expected earnings in accordance with the applicable collective agreement and the Rulebook and are measured at the projected unit credit method. Provisions for reimbursements to employees for non-current employment and retirement (regular jubilee awards and severance payments) are determined as the current value of future cash outflow using the discount rate which corresponds to the interest rate on state bonds. 2.15. Contingent liabilities and assets Contingent liabilities are not recognized in the financial statements but are disclosed only in the notes to the financial statements. Contingent assets are not recognized in the financial statements, but are recognized when an inflow of economic benefits becomes probable. 2.16. Subsequent events Subsequent events that provide additional information about the Company's position on the balance sheet date (events that have the effect of adjustments) are recognized in the financial statements prior to the adoption of the financial statements by the Assembly (Adoption of the report for publication). Those events that are not adjusting events are disclosed in the notes to the financial statements when of material importance as an explanation of the circumstances occurred at the expiration of the fiscal year. 2.17. Operating segments The Company is not organized according to the production segments, but the Company uses capital approach, which implies the existence of two parallel records of public goods and own revenues and expenditures, as well as assets, liabilities and equity arising from these changes. 2.18. Comparatives Comparatives have been reclassified as necessary to make them consistent with the current year. 29 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued NOTES TO THE INCOME STATEMENT Below given is the overview of the Income Statement for the Company. Income Statement of the public good is stated within the capital. 3. OPERATING INCOME 2018 2017 DESCRIPTION HRK '000 HRK'000 Income from fees for use of land 56,779 42,302 Tolls income 2,053,931 1,825,076 Rent income 4,858 3,648 Income from sales of goods 10,874 7,115 Other sales income 9,663 4,000 Total sales income 2,136,105 1,882,141 Income from surpluses 195 208 Income from sale of assets 626 2 Income from liabilities write-offs 171,869 6,503 Income from claims, penalties and similar 48,523 15,739 Collected written-off receivables 1,168 2,229 Income from earlier years 1,354 115 Other operating income 58,422 11,424 Total other operating income 282,157 36,220 Total 2,418,262 1,918,361 /il Income from fees for use of land originated from entrusting use of road land and the performance of supporting activities on land in accordance with Article 73 of the Roads Act (O.G. 84/11, 22/13, 54/13, 148/13, 92/14). Conditions and way of use of the road land, conditions and procedures of delegating use of road land to legal and physical person and rights and obligations of performing accompanying activities on the road land are prescribed by the Ordinance on Measures for Calculation of Fees for Usage of Road Land and Fees for Performing Accompanying Activities (O.G. 78/14), as well as measures for calculating amount of fee for their usage. Pursuant to Article 25 of the Road Act, which entered into force on 28 July 2011, what is prescribed is the foundation of the easement and the right to build on the public road for construction of utility, energy and water management structures and buildings of electronic communication subject to the execution of the agreement with the public road manager. For this type of installations that were performed before entry into force of the Roads Act, the contracts were signed on the use of road land. The Roads Act, Article 86, paragraph 2 and 3, provides the exemption from payment of fees for right of way I construction of installations that are exclusively or predominantly owned by the Republic of Croatia or local and territorial (regional) government or owned by the authorized easement / right of construction, which are predominantly owned by the Republic of Croatia or local and regional (regional) governments. For other authorized persons of construction easement stipulates the obligation to pay compensation for the right of use of construction according to the Decision on the establishment of fees for the right of way and rights to build on the public road (O.G. 87/14). 30 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 3. OPERATING INCOME (continued) /ii/ Toll income represents Company's own income collected from the users of public roads, increased by the value added tax, and it serves to cover the costs of maintenance in broader sense, i.e. to cover operating, financial and extraordinary expenses of the Company, and depreciation of public roads up to the amount of total income of the Company. Tolls are charged pursuant to the Decision on the toll amount and system of toll collection for using motorways and Tunnel St. Ilija from 14 October and pursuant to the Decision on stimulation models of toll collection and prepaid toll collection dated 27 January 2015 which was approved by the Minister of Traffic in Article 87, Paragraph 2 of the Roads Act. 4. MATERIAL EXPENSES 2018 2017 DESCRIPTION HRK'000 HRK'000 Raw material and material 132,001 15,978 Sold goods 1,463 2,021 Other external costs 126,939 529,917 Total 260,403 547,916 li/ Raw material and material costs are shown as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Used raw material and material 63,388 11,333 Used energy 55,537 4,154 Used reserved parts for maintaining material assets 7,342 288 Small inventory and car-tires write-offs 5,621 190 Other material expenses 113 12 Total 132,001 15,978 /ii/ Other external costs are shown as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Transport services 1,706 199 PTT services 6,591 1,163 Maintenance services 63,034 500,410 Rental services 1,645 502 Advertising and propaganda 629 354 Research and development services 1,482 695 Utility services 7,184 876 Intellectual and agency services 17,354 14,240 Medical services 65 8 Bank services and payment transaction services 1,131 893 Assets insurance premiums 4,309 4,478 Staff insurance premiums 543 48 Reimbursement of usage intellectual ownership rights 486 478 Utility fees 7,944 1,293 Data processing and software maintenance 9,322 3,737 Road fees and technical inspection of vehicles 1,809 235 Other services 1,705 308 Total 126,939 529,917 31 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 4. MATERIAL EXPENSES (continued) Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done. As a result, there is no longer a Maintenance Service operated by HAC-ONC d.o.o. provided the company. 5. STAFF COSTS 2018 2017 DESCRI PTION HRK'000 HRK'000 Net salaries 285,241 54,668 Taxes and contributions from salaries 113,168 27,248 Contributions on salaries 70,698 14,301 Total 469,107 96,217 Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done. Because of merger, 2,842 workers were transferred from HAC ONC d.o.o. into the Company. 6. DEPRECIATION 2018 2017 DESCRIPTION HRK'000 HRK'000 Depreciation of intangible assets 4,763 1,047 Depreciation of tangible assets 12,646 5,043 Depreciation of public good 936,646 1,042,001 Total 954,055 1,048,091 7. OTHER COSTS 2018 2017 DESCRIPTION HRK'000 HRK'000 Other material rights of employees 60,798 22,894 Professional education 596 170 Representation 422 73 Memberships 480 309 Woods contribution 597 508 Court costs 1,000 598 Professional Literature and newspapers 109 57 Fees for non-permanent work contracts 377 258 Taxes independent of the business result and other fees 385 92 TOTAL 64,764 24,959 32 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 8. IMPAIRMENT 2018 2017 DESCRI PTION HRK'000 HRK '000 Assets impairment (except financial assets) 17,854 3,807 TOTAL 17,854 3,807 9.PROVISIONS 2018 2017 DESCRIPTION HRK'000 HRK'000 Jubilee awards, retirements, etc, 1,247 452 Provisions for restructuring costs 0 11,273 Provision for due receivables 11,213 0 Provisions for legal proceedings 15,835 1,216 TOTAL 28,295 12,941 10. OTHER OPERATING COSTS 2018 2017 DESCRI PTION HRK'000 HRK'000 Non-written-off value of written-off and disposed assets 3,140 2,437 Donations, gifts in kind 11,555 10,602 Shortages 947 1 Fines, penalties and damages 133 0 Subsequently identified expenses from earlier years 4,375 881 Other operating costs 297 277 Total 20,447 14,198 In the amount of donations of HRK 11,214 thousand is included in the toll fee passage for the public utility vehicles with the right of passing (police, emergency, firefighters, military) who are allowed to use the highway without charge. The proposed changes to the Roads Act provide for compensation for the value added tax that the Company now calculates and pays. Other donations and donations in the amount of HRK 341 thousand were approved by the Company's Management Board in accordance with the Donation and Sponsorship Procedure. 11. FINANCIAL INCOME 2018 2017 DESCRI PTION HRK'000 HRK'000 Dividends and share portion 0 943 Interests, exchange rate differences, dividends and other income 0 943 from related companies Interest income 723 1,123 Exchange rate gains 3,065 3,788 Interests, exchange rate differences, dividends and other income 3,788 4,911 from related companies Total 3,788 5,854 33 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 12. FINANCIAL EXPENSES 2018 2017 DESCRIPTION HRK'000 HRK '000 Interest expenses 5,069 5,550 Interests, exchange rate differences and other expenses with 5,069 5,550 unrelated companies and other entities Total 5,069 5,550 Interest expense related to the legal interest rate by court rulings and default interest from the business relationship. Interest on received loans is recorded at the expense of public property. 13. DEPRECIATION AND IMPAIRMENT OF PUBLIC GOOD The Company prepares reports and reports profit in accordance with the International Financial Reporting Standards, with the exception determined by applying the Roads Act (Official Gazette 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit. The stated Act stipulates that a negative operating result of the period is transferred to the public capital, and impairment (depreciation of public roads) in the part that is not covered by the Company's own revenue, is transferred to the public capital. The impairment of public roads in the concession is recognized directly to the public capital on the basis of impairment calculation carried out in accordance with the rates prescribed for the depreciation of motorway. In 2018, the depreciation costs of the public good are covered by the Company's total income as a result of reduced depreciation due to the expiry of useful life, toll revenue growth and business rationalization. 34 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 14. CORPORATE INCOME TAX /il In accordance with the legislation, income tax is calculated at the rate of 18% (2017: 18%) on the base which comprises the difference of income over expenses realized in the accounting period for which the tax base is determined. In 2018, the tax liability amounts HRK 109,470 thousand while in 2017 tax liability was HRK 30,869. /ii/ The Company prepares reports and reports profit in accordance with International Financial Reporting Standards with variations determined by applying the Roads Act (OG 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit and capitalizing interests for financing investments in building and maintaining motorways. Application of Article 95 and 96 of the Roads Act on the Company provides a consistent application of the law without any change in the reporting manner and data comparability with data on the level of the Company. The reconciliation of accounting profit to taxable profit of the Company was conducted as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Income 2,422,050 1,924,215 Expenses (1,819,994) (1,753,679) Profit/(loss) for the year 602,056 170,536 Tax non-deductible expenses 6,916 2,543 Tax benefits (804) (1,585) Profit/(loss) after increase and decrease 608,168 171,494 Tax loss carried forward 0 0 Tax base 608,168 171,494 Tax liability 109,470 30,869 Tax loss available for transfer 0 0 liiil The Company prepares reports and states profit in accordance with the International Financial Reporting Standards with variations determined by applying the Roads Act (OG 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit and capitalizing interests for financing investments in building and maintaining motorways. 35 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 15. STATEMENT OF OTHER COMPREHENSIVE INCOME - PUBLIC GOOD Statement of other comprehensive income - Public Good, is shown in Appendix - Financial Statement of Hrvatske autoceste d.o.o. and public good. NOTES TO THE STATEMENT OF FINANCIAL POSITION/BALANCE SHEET 16. INTANGIBLE ASSETS Concessions, patents, licenses, Intangible Total intangible DESCRIPTION Development trademarks and assets under assets service marks, construction software and other rights HRK '000 HRK '000 HRK '000 HRK '000 COST Balance as at 31 December 2016 192 96,262 0 96,454 Direct additions 0 0 1,773 1,773 Transfer to use 0 1,773 (1,773) 0 Asset transfer in use HAC-ONC 0 4,235 0 4,235 Disposals, write-off and shortages 192 (433) 0 (433) Balance as at 31 December 2017 192 101,837 0 102,029 Direct additions 0 0 6,340 6,340 Transfer to use 0 6,340 (6,340) 0 Balance as at 31 December 2018 192 108,177 0 108,369 ACCUMULATED DEPRECIATION Balance as at 31 December 2016 192 88,328 0 88,520 Depreciation during the year 0 3,778 0 3,778 Asset transfer in use HAC-ONC 0 2,159 0 2,159 Disposals, write-off and shortages 0 (433) 0 (433) Balance as at 31 December 2017 192 93,832 0 94,024 Depreciation during the year 0 4,763 0 4,763 Balance as at 31 December 2018 192 98,595 0 98,787 CARRYING VALUE Balance as at 31 December 2016 0 7,934 0 7,934 Balance as at 31 December 2017 0 8,005 0 8,005 Balance as at 31 December 2018 0 9,582 0 9,582 36 й а�о о� с� й��о �� о и о0 О� f� М � $ о� г� cv v^ Г й�о ? ,°Л° м гv Q О р У � N ��=� �� й N� � � оо Г .о �- о� = О � Г О� .о .о `-' и N О О О О О О О N О О О О О N 4 � � � � д � �„) Г Г Г '� � О у г`�о = с а� и о о с� ао о о о оо ш�•° в�"�о�о �rn Nм^м и � с � �?�р и � N и cv � -° и Г и о v р� °� р� .� уи, � � 1� N� v v� оо м и � 1� � а0 Г ~ й О = Г Г � N гб U �� �� О О О О О О � й О О О О м Ш д и О Г � о м � � р� F' р N �, � й У м рр N р М � ьг гиб а' i i �О а � О О� О� О О й м О� О� О О й N � ` ш в а v °° Г � `о ,` � м о���йс м" �'_'.о" ^ .-с� о L��= У Г О '_' Г r � � ' = Г Г � с о о�� о о и � о о° и��� �� 8 и v о�о, м й^�, �.., � р• •о �о г�i а` ^ й м� � .а У N м '^ _. 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О• Ш '0 С А Е � л --. о и GJ з � С � и � С � й с_ С �О •� Е с го � О и о о ° о _а � V fб и рЛ и V'й О V � С � '� �j + � �'' С � го С С и �, Z � г r Ш�о с� с aci О � s � v � а°и й � с и U а_ ^ � с с с с с •i0 � а о о о о о 2 Е И = и _ +� i� +� i+ ++ и а+ � Q� и U U V U U С СQ� г � W � � с � � i i i и ° Е 4cJ � � U й � й й й й й t�j � �` � Z � ш Й'� о о о о о �, � � L W� а а � и 7 V U U V V 1� с О i i i. i i О 7 д � Q д ~ •� � о`о о v v v� v с'^ Е N й� � t�/ 'G Ч 3 'й 7 7 7 7 7 ++ �г � � и С и и и й и и и и и и [ � � а Q а °' С� � и г�б гб гб гб г�б 2 а.°+ а�+ О й � � +�•+ �а го го�� � � � � � с� Е � Z М и � � �� с ����� ° а � j w w у� v � О О О О О С и й +�+ Z� д � й й й П1 ^ `2 2��� й Ш •и > V ш С � о °л °л °л Е С � й v � � Ф д Е � � ш� а о о о о� v ш v ш.ш Е°•Е + 7 Н b � с с с'Е Й о о о о о й �� � го � •� . . . , С + О и и и и > с с с с с> й Ф д � Н�' � с с с с � о о о о о с г�+ +•� W � � � � � а�+ � � � � � +�' С j :� � О` ш ш ш ш� с с с с с~ v�'�.° 2 Z Li � с ��� го U U U U v � � v 1-° Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 17. PROPERTY, PLANT AND EQUIPMENT (continued) Investments in land are shown as follows: 31 Dec 2017 Increase Decrease 31 Dec 2018 Description HRK'000 HRK'000 HRK'000 HRK'000 Istarski lpsilon 33,726 9,541 (5,800) 37,467 Motorway Zagreb - GoriEan 0 9 (4) 5 Motorway Zagreb - Macelj 467 40 (19) 488 Bosi[jevo - Junction Sveti Rok 0 47 (47) 0 Junction Sveti Rok - Tunnel Sveti Rok - Split 0 3 1 4 Split - Metkovi6 - PloEe 0 226 (226) 0 PloEe - Dubrovnik 715 0 0 715 Motorway Zagreb - Lipovac 60 296 (353) 3 Motorway Rupe - Rijeka - 2uta Lokva 0 0 0 0 Motorway Beli Manastir - Osijek - B.and H.- NoEe 51,982 472 (55) 52,399 Krk bridge 204 0 0 204 Junction Vrbovec - Koprivnica - Border crossing 791 599 0 1,390 Junction Vrbovec - Bjelovar - Border crossing 26,842 515 0 27,357 Motorway Zagreb - Sisak 16,279 264 (192) 16,351 Total 131,066 12,012 (6,695) 136,383 Investments in construction objects are shown as follows: 31 Dec 2017 Increase Decrease 31 Dec 2018 Description HRK'000 HRK'000 HRK'000 HRK'000 Istarski Ipsilon 8,008 199 0 8,207 Motorway Zagreb - GoriEan 756 430 (157) 1,029 Motorway Zagreb - Macelj 0 0 0 0 Bosi[jevo - Junction Sveti Rok 212 289 (54) 447 Junction Sveti Rok - Tunnel Sveti Rok - Split 813 5,365 (2,348) 3,830 Split - Metkovi6 - PloEe 13,217 2,519 (1,275) 14,461 Entry into the Port of NoEe, EU Project 0 0 0 0 PloEe - Dubrovnik 1,331 0 0 1,331 Junction Metkovi6 - Border crossing with Bosnia and 4 18 (18) 4 Herzegovina Motorway Zagreb - Lipovac 52,663 21,679 (55,819) 18,523 Motorway Rupe - Rijeka - 2uta Lokva 0 830 0 830 Motorway Beli Manastir - Osijek - Svilaj 1,233,161 147,426 (2,145) 1,378,442 Zagreb detour 1,395 53 (78) 1,370 Junction Vrbovec - Koprivnica - Border crossing 24,434 1,005 0 25,439 Junction Vrbovec - Bjelovar - Border crossing 305,462 11,669 0 317,131 Motorway Zagreb - Sisak 14,660 23,113 (21,723) 16,050 Total 1,656,116 214,595 (83,617) 1,787,094 40 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 18. NON-CURRENT FINANCIAL ASSETS 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Share in principal of BINA FINCOM d.d. 45,502 53,085 Share in joint venture HAC-ONC d.o.o. 0 0 IV investments into financial assets (33,459) (33,459) Share in principal of BINA ISTRA d.d. 3,790 3,790 a) Shares (stakes) in related companies 15,833 23,416 Receivables for loans given to related companies 23,121 19,186 Value adjustment of receivables for loans given to related (12,541) (12,541) companies b) Loans to related companies 10,580 6,645 Receivables for deposits in abroad 0 123,501 c) Loans, deposits and similar 0 123,501 Total (a + b + c) 26,413 153,562 /il Share in the principal of BINA-FINCOM d.d. Zagreb relates to 758,361 shares in the nominal value of HRK 70, i.e. 44.00%. /ii/ Share in the principal of BINA-ISTRA d.d. Zagreb relates to 378,985 shares in the nominal value of 10 HRK, i.e. 14.78%. Shares of the company BINA-ISTRA d.d. were given as fiduciary to Deutsche Trustee Company Limited from London. /iii/ On 21 November 2012, company Hrvatske autoceste-odriavanje i naplata cestarine d.o.o., Zagreb ("the Subsidiary) was founded on the basis of the Statement on founding a limited liability company. During 2014, ARZ ON was merged to the Company and an Agreement signed between the two based on which HAC ONC provides services of toll collection and roads maintenance for both. Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done. /iv/ Based on the agreement on subordinated debt signed on 14 December 2010, the shareholders reduced the share capital of the Concessionaire (BINA-ISTRA d.d.) from the amount of HRK 256,417 thousand by the amount of HRK 230,775 thousand to the amount of HRK 25,642 thousand, which represents a decrease of the share capital of the Concessionaire by 90%, by the conversion of the amount of HRK 230,775 thousand to interest-free subordinated debt. The concessionaire will pay to the Company subordinated debt in the amount of HRK 31,901 thousand in equal annual instalments in the period from 2012 to 2027. Iv/ Pursuant to the Subordinated Debt Agreement of 19 April 2018, shareholders reduced the share capital of the company BINA-FINCOM d.d. from HRK 120,648 thousand in the amount of HRK 17,235 thousand to HRK 103,413 thousand, representing a decrease in the share capital of the company BINA-FINKOM d.d. for a 14.29% conversion of the amount of 17,235 into the non-interest bearing Subordinated Debt. BINA- FINKOM d.d. will repay to the Company repaid Subordinated debt in the amount of HRK 7,584 thousand in equal annual installments from 2018 to 2027. 41 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 19. INVENTORIES 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Raw material and material 30,688 31,548 Impairment of inventory (628) (28) Spare parts 9,621 9,652 Impairment of spare parts (592) (592) Small inventory 1,697 2,113 Car-tires 169 181 Small inventory in use 15,910 13,751 Impairment of small inventory in use (15,910) (13,751) Car-tires in use 2,939 2,924 Impairment of car-tires in use (2,939) (2,924) a) Raw material and material 40,955 42,874 b) Finished products 256 141 Total (a+b) 41,211 43,015 20. TRADE RECEIVABLES 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK'000 Domestic trade receivables 124,191 96,522 Doubtful and disputable trade receivables 39,081 25,733 Impairment of doubtful and disputable receivables (39,081) (25,733) Total 124,191 96,522 21. RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Receivables for gas reimbursement 81,338 29,739 Receivables from RH Ministry of Finance 0 0 Receivables for sick leaves 911 837 Other receivables from the State and other institutions 580 760 Total 82,829 31,336 Receivables for gas fee relates to receivables for accrued fee from oil derivatives for November and December current year. According to the Law on Excise Tax (O.G. 83/09) and the Regulation on Excise Duties (O.G. 1/10), there was a change in reporting in the calculation of excise taxes on petroleum products. The Company records mentioned receivables based on monthly reports of the Ministry of Finance, respectively Customs Administration, which receives up to 20th day of the month for the previous month. 42 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 22. OTHER RECEIVABLES 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK'000 Prepayment receivables 7 5 Receivables of insurance companies 130 204 Other receivables 4,626 4,094 Impairment of other receivables (3,172) (2,973) Total 1,591 1,330 23. CURRENT FINANCIAL ASSETS 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Current portion of loans granted to associated companies 14,624 9,713 Impairment of loans to associated companies (9,337) (7,581) Receivables for domestic deposits 2,794 3,207 Total 8,081 5,339 24. CASH AND CASH EQUIVALENTS 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK'000 Giro account 12,034 11,589 Treasury 6,894 5,085 Foreign currency account 145,371 209,053 Foreign currency treasury 4,477 3,316 Fixed-term deposits in foreign currency 0 0 Overnight term assets - HRK 353,336 220,168 Total 522,112 449,211 25. PREPAID EXPENSES AND ACCURED INCOME 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK '000 HRK '000 Prepaid expenses 18 192 Accrued undue interests 22 654 Financing expenses of public good construction 96,162 106,263 Total 96,202 107,109 43 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 26. CAPITAL li/ Subscribed capital stated in the Balance sheet as at 31 December 2018 in the amount of HRK 131,140 thousand (31 December 2017 in the same amount) represents own permanent sources for the Company's operations and include stock principal registered at the Commercial court in Zagreb. /ii/ Public capital under management is shown as follows: 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Public capital under management - transfer under demerger balance sheet 19,582,712 19,582,712 Public capital from gas fee - total revenue 19,313,019 18,796,084 Public capital from other financing sources - net expenditure (21,645,450) (19,998,377) Total 17,250,281 18,380,419 /iii/ Public capital from other financing sources is shown as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Balance as at 1 January (19,998,377) (19,254,870) Profit distribution 139,667 0 Public capital - deposit interests 32 81 Public capital - collection from the guarantees 153 0 Public capital - yield from portion in investment funds 558 942 Public capital - cofinancing by the EU - entry to port PloEe 45,406 0 Public capital - exchange rate gains 516,740 701,589 Public capital - exchange rate loss (237,819) (549,582) Public capital - financing expense (696,954) (769,384) Public capital - suspended projects 0 (572) Public capital - impairment of public good under concession (102,058) (103,079) Income from conversion of investment in progress to public good (1,312,798) 9 Public capital - capital of merged company 0 (23,511) Balance as at 31 December (21,645,450) (19,998,377) liii-a/ Receipts or increase of public capital Receipts such as net foreign exchange differences from loans for construction of public roads, prepayments for construction of public roads and other obligations related to the construction of public roads and interest on term deposits from public capital are stated within public capital. Increases in public capital are shown as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Profit distribution 139,667 0 Public capital - financing the construction of motorways 45,406 0 Public capital - deposit interests 32 81 Profit distribution 153 0 Public capital - income from portions in investment funds 558 942 Public capital - foreign exchange gains 516,740 701,589 Total 702,556 702,612 44 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 26. CAPITAL (continued) /iii-b/ Expenditures or decrease of public capital Expenditures such as interest for non-current loans, bank fees for granting loans, fees for issued state guarantees, costs of co-financing other public property and impairment (depreciation) of public roads (in part that is not covered by own income of the Company), which decrease public capital are stated within public capital from other financing sources. Decrease in public capital is shown as follows: 2018 2017 DESCRIPTION HRK'000 HRK'000 Public capital - foreign exchange losses (237,819) (549,582) Public capital - financing costs (696,954) (769,384) Public capital - suspended projects 0 (572) Public capital - impairment of public good under concession (102,058) (103,079) Public capital - transfer to HC d.o.o. (1,312,798) 0 Public capital - capital of merged company 0 (23,511) Total (2,349,629) (1,446,128) /iv/ Legal reserves stated in as at 31 December 2018 in the amount of HRK 568 thousand (31 December 2017: in the same amount) occurred due to the distribution of a part of generated income for 2001 in the amount of 5% of income after taxation, pursuant to Article 222 of the Company Act. 27. PROVISIONS 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK '000 Provisions for severance payments and similar liabilities 34,835 33,946 Provisions for restructuring costs 0 0 Provisions for costs in guarantee period 49 49 Provisions for costs of initiated court disputes 15,835 160,203 Total 50,719 194,198 Movements of provisions in 2018 are shown as follows: 31 Dec 2017 31 Dec 2018 provisions provisions DESCRIPTION HRK'000 HRK'000 HRK'000 HRK'000 Provisions for severance payments and similar liabilities 33,946 889 0 34,835 Provisions for restructuring costs 0 0 0 0 Provisions for costs in guarantee period 49 0 0 49 Provisions for costs of initiated court disputes 160,203 15,835 (160,203) 15,835 Total 194,198 16,724 (160,203) 50,719 45 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 28. NON-CURRENT LIABILITIES 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Liabilites to the Ministry of Finance for bond funds 4,989,736 5,054,363 Current portion of liabilities to the Ministry of Finance 0 0 Liabilities for loans, deposits etc. 4,989,736 5,054,363 Liabilities to domestic banks and other financial institutions 8,408,707 14,479,274 Liabilities to foreign banks and other financial institutions 7,603,164 2,565,763 Current portion (Note 33) (3,784,220) (2,565,763) Liabilities to banks and other financial institutions 12,227,651 14,479,274 Liabilities for the sale of social housing to tenants' rights 47 56 Other non-current liabilities 47 56 Total 17,217,434 19,533,693 /il Movements in liabilities to banks and other financial institutions are shown as follows: 2018 DESCRIPTION HRK'000 1 January 2018 22,099,400 Loan repayments (9,344,233) New loans 8,527,298 Foreign exchange differences (280,858) 31 December 2018 21,001,607 Current portion of principal (3,784,220) 31 December 2018 17,217,387 Maturity of non-current liabilities, except other non-current liabilities, is shown as follows: Maturity Amount HRK '000 2019 (current portion) 3,785,179 2020 908,198 2021 1,278,855 2022 1,519,876 2023 1,289,784 After 2023 12,219,715 Total 21,001,607 46 С и�е � с и v м� c•i м о и и м оо �о � о �о м р о �� м rn г� � О г� rn и г� оо � ;_, и � м � и ао � о с� и и и�.с р а ^ о°�о � � ��о � о�Oо .ио � N v О й м О � в м rn м у S и г� � с� г� м � с� м� с � ао � с ° � i У � i1 У м 7 2 � 2 V V С С О О г г с г� о гv С с� ��о м о rn�о о оо и о v � о rn ао rn � м rn сЧ м оо .� о й � ;;, g � � � м.о о� и ао �.о о г� оо м� р � � i � Г а0 �О О�О О 1� N� О� �О м � О О� � � � а0 � N � � О� а0 �О N� м О� и � а� У у У �О с � � � N м i1 = � _ � i С) о и �.о м � о.о rn о м о� rn� °° °г� г� � °о rn й �.°о � c�.i � о о`°о .с и �.р � � 1� м � � о о а°�о ао" о g г� .о о г� .о оо" м" �.о rn v�л" м и' � rn� N�.мо м^� с^•i м� rn� й N� р ��°о � rмj" Ш У � c.i р _ � о = � м м +� о\° о\° й � �' N М U1 U1 о\° о о\° о\° о\° о\° о\° ° о\° � о\° о\° у � V V L �'' � N �, � �, N N � N р N N С +��' � N и N � N V V �' V �' V V - с �' л С ш�� л л л л>, л>. >, л л л j, с. с го т ia га га га га ,F га га га га � �; П1 7 7 7 7 7 7 7 w 7 7 7 7 с с с С с С с О С С С С � � N j� С с с С с С с С С С С � О `� го г� гд га га га �а � rt га га га й v Е Е Е Е Е Е Е� Е Е Е Е � ш ш ш ш ш ш ш Ш N N Ш и и и и и и и и и и и � й j � О v � о�� � о о о о о о о о р о о о Е о мс•i � о оо88°иооово�о ++ � 1� с о о � Г �° ;,, ом й °и v � й N °о � °о `оо" о о с .- N � �� � � а � � � а 7 � С � О С � � � � �% V � Ш Ш � � � � � � � � � � � � � � ,..- � � � � � � � � � � � � � � i Ш W Ш Ш Ш Ш Ш W W W W Ш Н � W `� � й W N � � га ш ш L J � �' о рд � � Q_ i� � � � � � _ }, о о .о о � rn с� м rn г� и м И И 'С N М N м М N N N N N N N й � � � � N N У � О О О О О О О О О О О О „ V � Е: � � � гб N N N N N N N N N N N N о � а� г � � � � � ао w о й � оС о д ° � � Z М ? И '� и io а и, а� � °++' г N и ;�, Е � с �,�v г � $ �_ � С � У д о �`' �, г � � ° fб � ° ++ = L J � и J т И i0 ~� � � й о � осл � 0 а� ,^ ,� . ^ :� . ^ �~ л � д N r� ` r д � ш� о i. � Г д и и ;_, >,_ � �.о о о м � � b W*' v д° о �� о� � а го Г° Г��� � О � Е Е ° �' 3 � т_ т_ т °- а � � � � 'к � О � о � о о � д а, ш т д т д ш о = г �.L N О м W � `1 Ш Ш Ш W О О О Ш о Ш о� Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 28. NON-CURRENT LIABILITIES (continued) During 2017, the Company started a process of financial restructuring involving optimization of HAC, ARZ and HC debts and was implemented on the basis of a state-Level strategy agreed with representatives of international financial institutions. The aim of this strategy is to improve the structure of debt financing of companies in the road sector and to optimize the share of debt that the sector can repay from its own resources, progressively reduce the level of annual debt repayment, thereby reducing the road sector's impact on public finances. The first phase of the financial restructuring was concluded in December 2017, when the Republic of Croatia and Hrvatske autoceste d.o.o. have concluded a transfer of funds; The Republic of Croatia entrusted the issuance of Eurobonds in the amount of EUR 1.275 billion, white Hrvatske autoceste d.o.o. has been donated EUR 673 million which amounts to EUR 658 million net worth. The net amount of funds received was used to settle credit obligations towards the Republic of Croatia and early repayment of previously contracted tong-term loans. The second phase of the financial restructuring was completed in April 2018 when the Government's decision on granting approval for a new indebtedness to a group of domestic banks and the decision on granting a state guarantee in the amount of EUR 1.141 billion. Seventeen existing loans were repaid prematurely through a new loan to maximize the financial repercussions of restructuring a part of the Company's debt - lower interest rates and longer repayment terms. In the April 2018 the Company signed a long-term loan agreement with the purpose of refinancing the existing borrowing, which involved early repayment of 17 existing Company's borrowings. The contract was signed with the following domestic banks: CROATIA BANKA d.d., ERSTE±STEIERMARKISCHE BANKA d.d., HRVATSKE PO TANSKE BANKA d.d., ISTARSKE KREDITNE BANKA UMAG d.d.,OTP banka d.d., Privredna banka Zagreb d.d., Splitska banka d.d. and ZagrebaEka banka d.d. in amount of EUR 1.141 billion in kuna equivalent at the midpoint exchange rate of the CNB. The loan is due in 12 years, with the repayment in the first 3 years from the date of the conclusion of this Agreement, whereby the creditors witi. repay 5% of the loan principal's utilization in 6 instatments. The principal and the interest are paid semi-annuatty, the interest rate is 6M EURIBOR + 1.95%. 29. LIABILITIES FOR LOANS AND DEPOSITS 31 Dec 2018 31 Dec 2017 D E S C R I P T 10 N HRK'000 HRV000 Liabilities for received deposits 14,932 14,118 Total 14,932 14,118 30. LIABILITIES TO BANKS AND OTHER FINANCIAL INSTITUTIONS 31 Dec 2018 31 Dec 2017 D E S C R I P T 10 N HRK'000 HRK'000 Current portion of non-current loans 3,784,220 2,565,763 Total 3,784,220 2,565,763 48 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 31. TRADE PAYABLES 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK '000 HRK '000 Domestic trade payables 62,191 59,038 Trade payables for investments 93,308 72,999 Trade payables for non-current tangible assets 345 990 Trade payables for expropriation 30,872 26,987 Cessions 397 654 Trade payables - subcontractors 6,763 3,667 Trade payables - physical persons 41,932 43,672 Foreign trade payabLes 131 199 Liabilities for non-invoiced works and services 556 1,677 Other trade payables 7 0 Total 236,502 209,883 32. LIABILITIES TO EMPLOYEES 31 Dec 2018 31 Dec 2017 DE S CRI PTION HRK '000 HRK '000 Net salaries and wages 22,657 30,015 Severance payments liabilities 470 15,689 Other liabilities to employees 2,403 2,256 Total 25,530 47,960 33. LIABILITIES FOR TAXES AND CONTRIBUTIONS 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Contributions on salaries 5,611 7,920 Contributions from salaries 6,318 9,001 Taxes and surtaxes from salaries 2,614 5,988 Corporate income tax 88,491 30,226 Honorariums and temporary working contracts 14 12 VAT 31,666 52,950 Contributions independent of the result 0 352 Liabilities for buying company apartments, 65% 88 0 Total 134,802 106,449 49 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 34. ACCRUED EXPENSES AND DEFERRED INCOME 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Accrued interests by granted loans 108,732 109,714 Accrued legal default interests and unpaid fees 1,997 1,997 Accrued agreed interests 9,920 15,414 Accrued borrowing fee 148,427 0 Accrued unused vacation costs 20,924 32,470 a) Accrued expenses 290,000 159,595 Unrealized sales receipts to the balance sheet date 89,702 81,095 Deferred income from state for expropriation 0 612 Deferred income - EU Project 27,393 69,368 Deferred income - motorways, for using motorway land 4,344 3,278 Other deferred income 624 14,936 b) Income for the future period 122,063 169,289 Total (a + b) 412,063 328,884 35. PAYMENTS TO THE MANAGEMENT BOARD 2018 2017 DESCRIPTION HRK '000 HRK'000 Gross salary 1,072 839 TOTAL 1,072 839 36. TRANSACTIONS WITH RELATED PARTIES 31 Dec 2018 31 Dec 2017 DESCRIPTION HRK'000 HRK'000 Non-current assets Share in principle BINA FINCOM d.d. 45,502 53,085 Share in principle BINA ISTRA d.d. 3,790 3,790 Fair value adjustment of financial assets (33,459) (33,459) a) Total (Note 18.) 15,833 23,416 Receivables for loans given to BINA ISTRA d.d. 17,054 19,186 Receivables for loans given to BINA FINCOM d.d. 6,067 0 Impairment of subordinated debt - BINA ISTRA d.d. (12,541) (12,541) Due portion (Note 24.) 2,132 2,132 b) Loans given to related companies 12,712 8,777 Total (a + b) 28,545 32,193 50 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 36. TRANSACTIONS WITH RELATED PARTIES (continued) a) The most significant transactions with other companies owned by the government: 2018 2017 Description HRK'000 HRK'000 Current receivables Hrvatske ceste d.o.o. 1,645 110 Motorway Rijeka - Zagreb d.o.o. 44,596 34,811 Odagilja i i veze d.o.o. 254 200 Ministry of Finance of the Republic of Croatia 35 36 Hrvatska pogta d.d., Zagreb 669 0 47,199 35,157 Income Hrvatske ceste d.o.o. 8,118 154 Motorway Rijeka - Zagreb d.o.o. 429,009 271,322 OdagiljaEi i veze d.o.o. 2,651 1,211 Ministry of the Sea, Transport and Infrastructure 6,088 258 Ministry of finance of the Republic of Croatia 308 12 Hrvatska pogta d.d., Zagreb 11,912 11,297 HAC-ONC d.o.o. 0 2,997 Ministry of Interior 1,557 1,367 Total 459,643 289,618 Current liabilities Motorway Rijeka -Zagreb d.o.o. 18,993 17,922 Total 18,993 17,922 Expenses Motorway Rijeka - Zagreb d.o.o. 259,490 163 Hrvatska Po9tanska Banka d.d. 10 8 HEP ODS d.o.o. 2,579 21 Hrvatske ceste d.o.o. 16 0 Narodne novine d.d. 708 171 HAC-ONC d.o.o. 0 495,747 Hrvatska Poita d.o.o. 1,061 185 Total 263,864 496,295 51 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 37. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Capital risk management The Company manages its capital so as to ensure business continuity, maximizing the return to shareholders through the optimization of the balances of debt and equity. The Company's capital structure consists of cash and cash equivalents and equity, which includes the subscribed capital, reserves and retained earnings and public capital. Financing ratio The Company's management reviews the capital structure. As part of the review, the Board considered the costs and risks associated with each class of capital. The actual ratio of financing the Company is 1.14 annually for the year ending 31 December 2018 (1.16 or the year ended 31 December 2017). 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK'000 Liabilities for credits 21,001,654 22,099,456 Financial liabilities 21,001,654 22,099,456 Less: cash and cash equivalents (522,112) (449,211) Net debt 20,479,542 21,650,245 Principal* 17,889,937 18,667,156 Debt to equity ratio 1,14 1.16 * The principal includes overall Company's capital Financial instrument categories 31 Dec 2018 31 Dec 2017 DESCRI PTION HRK'000 HRK'000 Non-current financial assets 26,413 153,562 Non-current receivables 2,486 2,956 Current receivables 208,868 130,904 Current financial assets 8,081 5,339 Cash and cash equivalents 522,112 449,211 Financial assets 767,960 741,972 Liabilities for loans and deposits 14,932 14,118 Liabilities for credits 21,001,654 22,099,456 Current liabilities 397,225 364,674 Financial liabilities 21,413,811 22,478,248 52 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 37. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) On the reporting date, the Company has the most significant concentration of the loan risk in for of trade receivables, receivables from the State (the owner) and warranty deposits places with a foreign business bank (Note 21., 22. and 23. to the financial statements). The carrying amount of stated financial assets represents maximum exposure of the Company to the loan risk. The objectives of the financial risk management Management of the Company controls and manages the financial risk which could have an influence on the Company's operations through internal reporting in which exposure to risks are analysed on the base of stage and significance. Financial risk includes market risk (including also foreign exchange risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Company seeks to minimize the impact of these risks. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Foreign currency risk The official currency of the Company is Croatian Kuna (HRK), However, certain transactions in foreign currencies are translated into Croatian Kuna by applying the exchange rates valid on the balance sheet date, and, consequently, the Company is potentially exposed to risks of changes in exchange rates, As the Company has a significant number of loans in foreign currency (usually related to the EUR), the Company has significant exposure to this risk, The carrying amounts of monetary assets and monetary liabilities of the Company denominated in foreign currencies at the reporting date are summarized as follows: Assets Liabilities Balance as at 31 December 2018 2017 2018 2017 HRK '000 HRK '000 HRK '000 HRK '000 EUR 0 0 21,001,606 22,021,028 USD 0 123,501 0 78,372 Analysis of sensitivity to foreign currency risk The Company is primarily exposed to the countries, whose currency is EUR. The following table analyses the foreign currency risk of the Company in the event of a 1% increase in the value of Kuna against Euro. The 1% sensitivity rate is used in internal foreign currency risk reports to key managers and represents the Management's assessment of predictable changes in the exchange rates. The sensitivity analysis includes only open monetary items in foreign currency, and their translation at the end of the period is adjusted based on the 1 -percent change in exchange rates. The influence of changes in the exchange rate is given in the following table: EUR influence Decrease by 1 p.p. Increase by 1 p.p. DE SC R IPT 10 N 2018 2017 2018 2017 HRK'000 HRK'000 HRK'000 HRK'000 Influence on the profit/loss for the period (210,016) (220,994) 210,016 220,994 53 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 37. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) Price risk management The Croatian market is the largest market on which the Company provides its services. The Management Board determines the prices of its services with the approval of the Government of the Republic of Croatia. Interest rate risk Interest rate risk is the risk that the value of financial instruments will change due to changes in market interest rates in relation to interest rates applicable to financial instruments. Interest rate cash flow risk is the risk that interest costs on financial instruments will fluctuate over time. The Company is exposed to interest rate risk as the Company uses loans with variable interest rates. Sensitivity analysis of interest rates Sensitivity analysis was performed only for the financial instruments with variable interest rates based on the exposure of the Company to interest rates at the end of the reporting period assuming that the outstanding amount at the end of the reporting period was unsettled during whole year. If interest rates were 50 basis points higher, the balance of loan indebtedness as at 31 December 2017 would be influenced by the increase of the interest rate expense in the amount of HRK 110,000 thousand HRK on exposure to the interest rate risk. This is mainly attributable to the Company's exposure to interest rates on loans with variable interest rates. Credit risk management Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. Financial assets that potentially expose the Company to credit risk consist mainly of cash, money equivalents and trade receivables, Trade receivables have been adjusted to allow for bad and doubtful accounts. Liquidity Risk Management Liquidity risk is the risk that the Company will not be able to settle its financial obligations to the other contracting party. The ultimate responsibility for managing the credit risk lies with the management, who set up a quality framework for managing liquidity risk by the short, medium and long positions of the Company and define the requirements related to liquidity management. The Company has, during the reporting period, settled its obligations to creditors, suppliers, employees and the country within the statutory deadlines. Although the Company receives substantial funds from gas derivatives and toll, in subsequent periods the Company's Management Board is planning additional debts in order to continue the smooth operations of the Company. The Company manages its liquidity through continued monitoring of anticipated and actual cash flows and by adjusting maturity of financial assets and liabilities. 54 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 37. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) Analysis of liquidity risk The following table details the remaining period to contractual maturity of financial liabilities of the Company. The table is prepared on the basis of undiscounted cash flows of financial liabilities at the earliest date on which the Company may be requested to make the payment. The remaining period to the contractual maturity of financial liabilities of the Company is shown as follows: LIABILITIES 3mnh- Up to 1 month 1-3 months 3 months-i Over 1 year Total year HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 31 Dec 2018 Non-interest 0 0 0 0 0 bearing Interest bearing 2,464 108,502 3,678,031 17,212,609 21,001,606 31 Dec 2017 Non-interest 144,701 98,154 29,300 39,015 311,170 bearing Interest bearing 211,413 127,092 2,227,257 19,533,637 22,099,400 The following table details the remaining period to contractual maturity of financial assets of the Company. The table is prepared on the basis of undiscounted cash flows of financial assets at the earliest date on which the Company may be requested to make the payment. The remaining period to the contractual maturity of financial assets of the Company is shown as follows: ASSETS 3 months-i1 vr1ya Up to 1 month 1-3 months Over1 year Total year HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 31 Dec 2018 Non-interest 0 0 0 26,413 26,413 bearing Interest bearing 0 0 2,673 5,408 8,081 31 Dec 2017 Non-interest bearing t 0 0 0 153,562 153,562 bearing Interest bearing 0 0 3,085 2,254 5,339 55 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued 38. COURT DISPUTES AND CONTINGENT LIABILITIES The Company keep systematic records of court disputes in which the Company acts both and the plaintiff and the defendant. The operating of the Sector for Legal, Personnel and General Affairs is assisted by external lawyers but the records that the lawyers keep on the disputes are kept in the Company's premises. As at 31 December 2018 the following disputes were initiated against the Company: 31 Dec 2018 Litigation value DESCRIPTION HRK'000 Economy and other disputes with contractors 399,075 Disputes resulting from construction works 18,937 Disputes resulting from expropriation 88,243 Disputes for reimbursement of damages resulting from traffic 17,949 Labour disputes 3,097 Other disputes (enforcements, offence proceedings...) 101,959 TOTAL 629,260 Court disputes and other potential benefits and liabilities are not stated in the statement of financial position (balance Sheet) since the outcomes, as well as the inflow and outflow of assets on this base are uncertain. In the moment when the outcome of potential benefits and liabilities becomes certain, they are included as extraordinary income, i.e. as expense provisions in case of damages. As described in Note 27. to the financial statement, as at 31 December 2018 in line with the professional legal advice, the Company formed pertaining provisions in the amount of HRK 15,835 thousand. 39. COURT DISPUTES AND CONTINGENT LIABILITIES After the Balance Sheet date, there were no subsequent events which would significantly influence Company's annual financial statements for 2018 which would consequently have to be published or which would result in changes in the financial statements. 40. PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS The financial statements, set out on the previous pages, were prepared by the Management Board of the Com any, and authorized for issue on 31 May 2019. Boris Huzjan, Direct r Stjepan Bara afi6, Board Member Hrvatske autoceste d.o.o. Sirolina ulica 4 10 000 Zagreb Republika Hrvatska 56 Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 - continued APPENDIX - FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD Since capital approach implies existence of two parallel records of public goods and own income and expenses, as well as assets, liabilities and capital emerging from these changes, we present below financial statements of the Company and financial statements of Public goods. Certain positions of the financial statements were reclassified compared to the financial statements on pages 8 to 12. 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