Public Disclosure Authorized
HRVATSKE CESTE d.o.o. Vončinina 3, Zagreb
Annual Financial Statements Public Disclosure Authorized and Independent Auditors’ Report for the year ended 31 December 2019
Public Disclosure Authorized Public Disclosure Authorized Contents
PAGE
Responsibility for the Annual Financial Statements 1
Independent Auditors’ Report 2 – 7
Income Statement and Statement of Other Comprehensive Income 8
Statement of Financial Position/Balance Sheet 9 – 10
Statement of Changes in Equity 11
Cash Flow Statement 12
Notes to the Financial Statements 13 – 57
Public Good Financial Statements 58 - 60
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Tel: +385 1 2395 BDO Croatia 741 d.o.o. Fax: +385 1 2303 10000 691 Zagreb E-mail: bdo- Trg J. F. [email protected] Kennedy 6b
INDEPENDENT AUDITORS’ REPORT
To the Owner of Hrvatske ceste d.o.o., Zagreb
Report on the audit of the annual financial statements Opinion We have audited the annual financial statements of Hrvatske ceste d.o.o., Zagreb, Vončinina 3 for the year ended 31 December 2019, which comprise the Statement of Financial Position as at 31 December 2019, Income Statement, Statement of Other Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement for the year then ended, and Notes to the Financial Statements, including a summary of significant accounting policies.
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 2019, and of its financial performance and cash flows for the year that ended, in accordance with the International Financial Reporting Standards as adopted by the European Commission and published in the Official Journal of the European Union and with the Roads Act.
Basis for Opinion We conducted our audit in accordance with the International Standards on Auditing (ISAs) Our responsibilities under those standards are further described in our Independent Auditors’ Report in the section Auditors’ responsibilities for the audit of the annual financial statements. 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 /i/ We draw attention to Notes 2.9 b) and c) and 13 to the financial statements which explain that the financial statements are prepared in accordance with the International Financial Reporting Standards with some exceptions determined by the Roads Act. Our opinion has not been modified in this respect.
/ii/ We draw attention to Notes 15 and 2.7. c) which explain that the Company has not completely resolved property and legal affairs, i.e. ownership over property. Procedures of resolving and registering ownership over property are in progress. Our opinion has not been modified in this respect.
/iii/ We draw attention to Note 39 to the financial statements where it is determined that a significant number of legal disputes are initiated against the Company. Our opinion has not been modified in this respect.
/iv/ The Company prepared the annual consolidated financial statements, and in order to better understand the overall business operations of the Company, users should read the consolidated financial statements of the Company combined with these annual separate financial statements. Our opinion has not been modified in this respect.
2 BDO Croatia d.o.o. Registrirano kod Trgovačkog suda u Zagrebu pod brojem 080044149 OIB 76394522236 BDO Croatia d.o.o.
Key Audit Matters Key audit matters are those matters that were, in our professional judgment, of the most importance in our audit of the annual financial statements of the current period and include the recognized most significant risks of substantial misstatement due to error or fraud with the highest impact on our audit strategy, on our resources and the time spent by the engaged audit team. We have dealt with these issues within our audit of the annual financial statements as a whole and in forming our opinion about them, and we do not provide a separate opinion on these matters. We have determined the matters described below as the key audit matters to be communicated in our Independent Auditors’ Report.
Key Audit Matters How we addressed Key Audit Matters
Investment maintenance and reconstruction of property, plant and equipment
In the 2019 annual financial statements, the Company In the audit, we focused on: realized increase and decrease in property, plant and • verifying whether the transactions in equipment as set out in Note 15. 2019 were recorded in accordance with the accounting policies of the Company, and Investment maintenance and reconstruction of • verifying whether for all road property, plant and equipment is defined as a key reconstructions an estimate of the share of audit matter because it involves significant estimates. reconstruction in the investment project has been made and whether this estimate is reasonable. Related disclosures in the corresponding annual financial statements Please see Notes 2.7 (c) (Accounting Policies) and Additionally, we have considered whether 15. the accounting policies are in accordance with International Financial Reporting Standards and whether changes in accounting policies are disclosed in the Notes to the Financial Statements.
Other issues The audit of the annual financial statements of the Company for the year ended at 31 December 2018 was performed by audit firm BDO Croatia d.o.o., Zagreb it expressed its unmodified opinion on those financial statements in the Independent Auditors’ Report of 11 June 2019.
3 BDO Croatia d.o.o.
Other Information in the Annual Report The Management Board 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 Auditors’ 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 Auditors’ Report 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 is to read the other information and consider whether other information have significant contradictions to annual financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of other information, we are required to report this fact. In this sense , we do not have anything to report.
The Management Board of the Company is responsible for the preparation of the Management Report as part of the Company’s Annual Report. In that regard we have conducted procedures required by the Croatian Accounting Act. These procedures include considering of: • whether the Management Report was prepared in accordance with Article 21 of the Accounting Act; Based on the procedures required to be performed as part of our audit of the annual unconsolidated financial statements and the above procedures, in our opinion: • Information contained in the Management Report for the financial year for which the financial statements were made, are complied, in all significant parts, with the annual financial statements of the Company presented from page 8 to 61 to which we have expressed our opinion as stated in the section Opinion above. • The Management Report has been prepared, in all significant aspects, in accordance with Articles 21 and 22 of the Accounting act; Furthermore, taking into account the knowledge and understanding of the Company's business operations and the business environment in which it operates, and which we acquired during our audit, it is our responsibility to report any material misstatements in the Management Report. In this sense we do not have anything to report.
Responsibilities of the Management Board and those in charge of management for the annual financial statements
The Management Board is responsible for the preparation of annual financial statements that give a true and fair view in accordance with IFRS; as defined by the European Commission and published in the Official Journal of the European Union, and for such internal control that the Management Board deems necessary to enable the preparation of the 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 Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those in charge of management are responsible for overseeing the Company’s financial reporting process.
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BDO Croatia d.o.o.
Auditors’ responsibilities for the audit of the annual financial statements
Our objectives are to obtain reasonable assurance as to whether the annual financial statements as a whole are free from material misstatement due to fraud or error and to issue the Independent Auditors' Report that includes our opinion. Reasonable assurance is a higher level of assurance, but is not a guarantee that the audit performed in accordance with IASs will always detect material misstatement when it exists. Misstatements may result from fraud or error and are considered material if they can reasonably be expected to affect, individually or in aggregate, the economic decisions of users made on the basis of those annual financial statements.
As part of the 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 the one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or 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 given 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 of the Company. • conclude on the appropriateness of the Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Independent Auditors’ 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 Auditors’ 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 manner that achieves a fair presentation.
We communicate with those in charge of management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any substantial deficiencies in internal control that we identify during our audit.
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BDO Croatia d.o.o.
Auditors’ responsibilities for the audit of the annual financial statements (continued) We also give a statement to those in charge of management that we have acted in accordance with the relevant requirements regarding independence and we will communicate with them on all relationships and other matters that can reasonably be considered to affect our independence as well as, where applicable, on related protections.
Among the issues we are communicating with those in charge of managing, we determine those issues that are of utmost importance in auditing the annual financial statements for the current period and are therefore key audit issues. We describe these issues in our Independent Auditors’ Report unless the law or regulation prevents public disclosure or when we decide in extremely rare circumstances that the issue should not be disclosed in our Independent Auditors’ Report as it can reasonably be expected that the negative consequences of disclosure will outweigh the benefits of public interest in such communication. BDO Croatia d.o.o. and FACT Revizija d.o.o. are jointly responsible for performing the audit and for the audit opinion, according to the requirements of the Audit Act applicable in Croatia.
Report on other legal requirements
On 24 September 2019 we were appointed by the General Assembly of the Company, based on the proposal of the Company's Supervisory Board to audit the annual financial statements for 2019. On the date of this Independent's Auditors’ Report BDO Croatia d.o.o. has been continuously engaged in carrying out the legal audits of the Company's annual financial statements from 2013, up to the Company's annual financial statements for 2019, a total of 7 years, whereas FACT revizija d.o.o. has been engaged to perform legal audit of the Company’s annual financial statements for 2019, which is a one year long engagement.
In the audit of the Company's annual financial statements for 2019, we determined materiality for the financial statements as a whole in the amount of HRK 35,385,947, which represents approximately 1.3% of total costs and investments for 2019.
We selected the total costs and investments as criterion of materiality since it is our opinion that it is the most appropriate criterion considering the significant fluctuations of profit before taxes in the current period and in the previous periods. Our audit opinion is consistent with the additional report for the Company’s Audit Committee comprised in line with Article 11 of the EU Regulation No 537/2014.
We have not provided to the Company prohibited non-audit services during the period between the initial date of the Company's audited annual financial statements for 2019 and the date of this Report. In addition, we have not provided services for the design and implementation of internal control procedures or risk management related to the preparation and/or control of financial information or the design and implementation of technological systems for financial information and we have remained independent of the Company in the performance of the audit.
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BDO Croatia d.o.o.
Report on other legal requirements (continued) Management Board is responsible for preparing the annual unconsolidated financial statements of the Company for the year ended 31 December 2019 in the prescribed form based on the Ordinance on the structure and contents of financial statements (Official Gazette 95/16) and in accordance with other regulations governing the operations of the Company (“Standard annual financial statements”) and they are given on pages 59 to 61. Financial information presented in the Company’s standard annual financial statements are in accordance with the information presented in the Company’s annual financial statements given on pages 9 to 58 to which we expressed our opinion as stated in the section Opinion above.
The partners engaged in the audit of the Company’s annual financial statements for 2019 resulting in this Independent Auditors’ Report are certified auditor Ivan Čajko for BDO Croatia d.o.o. and certified auditor Nada Sivrić for FACT Revizija d.o.o.
In Zagreb, In Zagreb, 15 July 2020 15 July 2020
BDO Croatia d.o.o. FACT Revizija d.o.o. Trg J. F. Kennedy 6b Zadarska 80 10000 Zagreb 10000 Zagreb
______Ivan Čajko, certified auditor Nada Sivrić, certified auditor
______Ivan Čajko, Board member Irena Kovačić, Board member
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HRVATSKE CESTE d.o.o, Zagreb INCOME STATEMENT AND STATEMENT OF COMPREHNSIVE INCOME as of 31 December 2019
POSITION Note 2018 2019 HRK HRK OPERATING INCOME 3. Sales income 22,679,671 20,068,771 Income from own service consumption 262,472 208,621 Other operating income 160,708,449 181,492,241 Total operating income 183,650,592 201,769,633
OPERATING EXPENSES Material expenses 4. (37,028,698) (38,991,189) Raw materials and supplies /i/ (15,691,976) (17,890,021) Other external costs /ii/ (21,336,722) (21,101,168) Employees expenses 5. (104,368,025) (106,567,670) Amortization and depreciation 6. (21,104,925) (24,763,870) Other expenses 7. (9,518,901) (10,506,363) Value adjustments 8. (2,092,805) (955,354) Provisions 9. (465,870) (4,902,378) Other operating expenses 10. (6,151,833) (10,045,341) Total operating expenses (180,731,055) (196,732,165)
PROFIT FROM OPERATING ACTIVITIES 2,919,537 5,037,468
FINANCIAL INCOME 11. 206,086 929,699 FINANCIAL EXPENSES 12. (3,125,623) (5,967,167) LOSS FROM FINANCIAL ACTIVITIES (2,919,537) (5,037,468)
TOTAL INCOME 183,856,678 202,699,332 TOTAL EXPENSES (183,856,678) (202,699,332)
PROFIT/(LOSS) BEFORE TAXATION 0 0 Income tax 13. (308,690) (355,858) LOSS FOR THE PERIOD (0) (0)
The accompanying accounting policies and notes form an integral part of these financial statements.
8 HRVATSKE CESTE d.o.o, Zagreb STATEMENT OF FINANCIAL POSITION at 31 December 2019
POSITION Note 31 Dec 2018 31 Dec 2019 HRK HRK ASSETS Long-term assets Intangible assets 14. 18,307,869 38,945,074 Property, plant and equipment 15. 74,994,758,950 76,136148,400 Financial assets 16. 7,706,037 7,706,037 Receivables 17. 1,805,201 1,354,161 Total long-term assets 75,022,578,057 76,184,153,672
Short-term assets Inventories 18. 15,506,514 16,549,034 Trade receivables 19. 12,492,587 5,600,854 Receivables from employees and company members 20. 290,526 147,795
Receivables from the state and other institutions 21. 194,309,205 320,643,533 Other short-term receivables 22. 2,786,722 1,100,905 Cash in banks and on hand 23. 340,038,967 127,511,789 Prepayments and accrued income 24. 98,340,642 89,662,269 Total short-term assets 663,765,163 561,216,179
TOTAL ASSETS 75,686,343,220 76,745,369,851
OFF–BALANCE SHEET NOTES 15,602,810 89,520,923
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HRVATSKE CESTE d.o.o, Zagreb STATEMENT OF FINANCIAL POSITION (continued) as of 31 December 2019
POSITION Note 31 Dec 2018 31 Dec 2019 HRK HRK EQUITY AND LIABILITIES Capital 25. Subscribed (share) capital 107,384,800 107,384,800 Public capital 64,989,583,752 65,683,799,394 Total capital 65,096,968,552 65,791,184,194
Provisions 26. 160,901,864 159,463,425
Long-term liabilities 27. 9,006,024,954 9,005,245,293
Short-term liabilities Liabilities to related companies 28. 306,876 222,038 Liabilities for loans, deposits, etc. 29. 5,984,643 9,953,606 Liabilities to banks and other financial institutions 30. 408,960,019 307,499,998 Trade payables 31. 262,422,224 261,031,380 Liabilities to employees 32. 6,915,267 6,341,028 Taxes, contributions and similar payments payable 33. 29,701,945 5,930,165 Other short-term liabilities 34. 19,356,128 10,310,881 Accrued expenses and deferred income 35. 688,800,748 1,188,187,843 Total short-term liabilities 1,422,447,850 1,789,476,939
TOTAL CAPITAL AND LIABILITIES 75,686,343,220 76,745,369,851
OFF–BALANCE SHEET NOTES 15,602,810 89,520,923
The accompanying accounting policies and notes form an integral part of these financial statements
10 HRVATSKE CESTE d.o.o, Zagreb STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2019
Subscribed Public capital (share) from the result TOTAL POSITION capital HRK HRK HRK Balance at 1 January 2018 107,384,800 63,330,080,756 63,437,465,556 Capital increase – fuel reimbursement 0 2,067,740,730 2,067,740,730 Capital increase – co-financing of public goods 0 5833,781 5,833,781 Capital increase – exchange differences 0 117,997,183 117,997,183 Capital increase – interest 0 187,448 187,448 Capital increase – sale of salt to CRAs 0 22,486,800 22,486,800 Capital increase – transfer from CRAs (road categorisat.) 0 222,760,261 222,760,261 Capital increase – transfer from HAC (tunnel St. Ilija) 0 1,312,798,130 1,312,798,130 Capital increase – recognition of EU accrued income for depreciation 0 15,665,440 15.665440 Capital increase – provision for legal disputes 0 8,912,228 8,912,228 Capital decrease – transfer for costs 0 (150,071,493) (150,071,493) Capital decrease – transfer for corporate income tax 0 (308,690) (308,690) Capital decrease – depreciation 0 (436,106,544) (436,106,544) Capital decrease – investment maintenance/replaced part 0 (115,211,563) (115,211,563) Capital decrease – reconstruction of state roads/replaced (227,974,804) (227,974,804) part 0 Capital decrease – transfer to CRAs according to Decision (318,067,536) (318,067,536) on categorisation of roads 0 Capital decrease – co-financing of CRAs according to the (106,944,673) (106,944,673) Decision on allocation of funds to CRAs 0 Capital decrease – co-financing of unclassified roads 0 (25,504,923) (25,504,923) Capital decrease – exchange differences 0 (1,031,558) (1,031,558) Capital decrease – interest and reimbursement 0 (260,482,317) (260,482,317) Capital decrease – maintenance cost – regular 0 (420,971,838) (420,971,838) Capital decrease – maintenance cost – extraordinary 0 (12,572,604) (12,572,604) Capital decrease – flood relief 0 (8,331,491) (8,331,491) Capital decrease – research and development 0 (8,812,171) (8,812,171) Capital decrease – cost of sold salt to CRAs (22,486,800) (22,486,800) Balance at 31 December 2018 107,384,800 64,989,583,752 65,096,968,552 Capital increase – fuel reimbursement 0 2,137438,424 2137,438,424 Capital increase – co-financing of public goods 0 1,033,093 1,033,093 Capital increase – exchange differences 0 124,921 124,921 Capital increase – interest 0 134,475 134,475 Capital increase – sale of salt to CRAs 0 11,656,047 11,656,047 Capital increase – transfer from CRAs (road categorisat.) 0 31,864,042 31,864,042 Capital increase – transfer from HAC 0 346,176,878 346,176,878 Capital increase – transfer from HAC (project document.) 0 13,825,444 13,825,444 Capital increase – recognition of EU income for 12,674,318 12,674,318 depreciation 0 Capital increase – provision for legal disputes 0 6,340,817 6,340,817 Capital decrease – transfer for costs 0 (159,092,839) (159,092,839) Capital decrease – transfer for corporate income tax 0 (355,858) (355,858) Capital decrease – depreciation 0 (434,980,335) (434.,980,335) Capital decrease – investment maintenance/replaced part 0 (139,719,751) (139,719,751) Capital decrease – reconstruction of state roads/replaced (90,950,610) (90,950,610) part 0 Capital decrease – transfer to CRAs according to the (104,808,721) (104,808,721) Decision on categorisation of roads 0 Capital decrease – co-financing of CRAs according to (118,347,383) (118,347,383) Decision on allocation of funds to CRAs 0 Capital decrease – co-financing of unclassified roads 0 (20,000,000) (20,000,000) Capital decrease – exchange differences 0 (31,059,410) (31,059,410) Capital decrease – interest and reimbursement 0 (243,783,156) (243,783,156) Capital decrease – maintenance cost – regular 0 (458,395,818) (458,395,818) Capital decrease – maintenance cost – extraordinary 0 (33,398,996) (33,398,996) Capital decrease – flood relief 0 (15,581,272) (15,581,272) Capital decrease – research and development 0 (4,922,621) (4,922,621) Capital decrease – cost of sold salt to CRAs (11,656,047) (11,656,047) Balance at 31 December 2019 107,384,800 65,683,799,394 65,791,184,194 The accompanying accounting policies and notes form an integral part of these financial statements.
11 HRVATSKE CESTE d.o.o, Zagreb CASH FLOW STATEMENT as of 31 December 2019
POSITION 2018 2019 HRK HRK Cash flow from operating activities
Cash receipts – customers 28,604,385 21,925,096 Cash receipts – royalties, fees, commissions and similar 2,401,186,546 2,511,327,265 Cash receipts – damage insurance 1,582,493 1,406,695 Cash receipts – tax return 73,828,267 79,017,947 Cash paid – suppliers (687,963,016) (808,649,219) Cash paid – employees (107,868,056) (115,933,863) Cash paid – damage insurance (406,773) (644,511) Other cash receipts and cash paid (21,252,909) 25,360,219 Cash from operating activities 1,687,710,937 1,713,809,629 Cash paid – interest (151,416,592) (247,292,000) Cash paid – corporate income tax (491,072) (240,257) Net cash flow from operating activities 1,535,803,273 1,466,277,372
Cash flow from investment activities Cash receipts from sale of long-term assets 1,048,488 461,497 Total cash flow from investment activities 1,048,488 461,497 Cash paid for purchase of long-term assets (1,350,422,889) (1,541,200,774) Total cash paid from investment activities (1,350,422,889) (1,541,200,774)
Net cash flow from investment activities (1,349,374,401) (1,540,739,277)
Cash flow from financial activities Cash receipts from loan principal 3,773,440,039 0 Other cash receipts from financial activities 118,001,082 130,753 Total cash receipts from financial activities 3,891,441,121 130,753 Cash paid for repayment of loan principal (3,869,708,699) (137,965,840) Other cash paid from financial activities (1,031,558) (230,186) Total cash paid from financial activities (3,870,740,257) (138,196,026)
Net cash flow from investment activities 20,700,864 (138,065,273)
TOTAL NET CASH FLOW 207,129,736 (212,527,178)
CASH AND CASH EQUIVALENTS AT 1 JANUARY 132,909,231 340,038,967 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 340,038,967 127,511,789 (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 207,129,736 (212,527,178)
The accompanying accounting policies and notes form an integral part of these financial statements.
12 HRVATSKE CESTE d.o.o., Zagreb Notes to the financial statements for the year ended 31 December 2019
1. GENERAL
1.1. Legal framework, activities and employees
Hrvatske ceste d.o.o. Zagreb, Vončinina 3, was established based on the Decision on the division and transformation of the Croatian Road Administration (Hrvatska uprava za ceste) into companies Hrvatske ceste, a limited liability company for management, construction and maintenance of state roads and Hrvatske autoceste, a limited liability company for management, construction and maintenance of motorways, adopted by the Government of the Republic of Croatia on 5 April 2001, Class 340-03/01-01/02, Registry No. 5030116-01-5 as the sole founder of the Company. By the Decision Tt-01/2163-2 dated 11 April 2001, the Company, emerged by division and transformation of an institution, was founded and registered. On 3 June 2004, the Croatian Government adopted the Decision on amendments to the Decision on division of property, rights, and liabilities, and on work schedule of employees of the Croatian Road Administration, Decision on the decrease of stock capital of Hrvatske ceste d.o.o. and the Decision on amendments of the Articles of Association of Hrvatske ceste wherefore stock capital is decreased by HRK 21,513,400 and is determined in the amount of HRK 107,384,800.
The Company is registered at the Commercial Court in Zagreb under Reg. Number: 080391653, OIB: 55545787885. The headquarters of the Company is in Zagreb, Vončinina 3.
Scope of activities: • operative activities required to ensure technical and technological coherence of the public roads system in line with the Strategy, supported by research in spatial planning, traffic and civil engineering and economic analyses • strategic planning of public road network development, development of designs with preliminary surveys and site investigation, motorway location survey report required for a location permit • construction of state roads, excluding motorways, which includes:
- land and object acquisition - cession of construction works - organisation of supervision and construction control - organisation of technical review and delivery of state roads, excluding motorways, and parts of state roads for usage and maintenance
• maintenance of state roads, which includes:
- maintenance planning and protection measures - regular and extraordinary maintenance - cession of regular and extraordinary maintenance - planning, supervision and control of maintenance works - decision on usage of roadside land and conduct of supporting service activities on state roads, excluding motorways, etc.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
1. GENERAL (continued)
1.1. Legal framework, activities and employees (continued)
General data on employees:
The number of staff employed by the Company and the structure by qualification level on 31 December 2018 and on 31 December 2019 is presented as follows:
Qualification 31 December 2018 31 December 2019 number % number % M.Sc.,Ph.D. 24 5.35% 25 5.43% University degree 255 56.79% 267 58.04% Higher education 62 13.81% 62 13.48% Secondary school certificate 101 22.49% 100 21.74% Skilled workers 3 0.67% 3 0.65% Other 4 0.89% 3 0.65% TOTAL 449 100.00% 460 100.00%
1.2. Company Bodies Te Company Bodies are the Assembly, Supervisory Board and Management Board. The Republic of Croatia, as the founder, exercises its rights through the Croatian Government, represented by a competent minister. The Supervisory Board has 4 members elected by the Company’s General Assembly, and one of them is elected by the employees according to the Labour Act. Every HRK 1,000,000 of stock capital gives to the Company’s member right to one vote. The Company's Management Board has one to four members elected by the Company's General Assembly through its decision, at the proposal of the Minister of the Sea, Transport and Infrastructure. Mandate of members is 4 years and the Company’s General Assembly may dismiss the members of the Management Board at any time.
Supervisory Board: Bariša Kusić, President since June 9 2016 Ante Parat, Vice president since June 9 2016 Božo Markić, Board member from June 8 2016 until 1 April 2020 Aleksandra Licul, Board member since January 22 2018
Management Board: Josip Škorić, President since October 2 2017 Alen Leverić, Board member since October 2 2017 Nikša Konjevod, Board member since October 2 2017 Senko Bošnjak, Board member since January 7 2019
14 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
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 2019 are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and published in the Official Journal of the European Union (IFRS) and in accordance with the Roads Act. Financial statements of the Company are also in accordance with the Accounting Act (National Gazette 78/15, 120/16, 116/18) which refers to the IFRS as adopted by the European Union and published in the Official Journal of EU. Financial statements have been prepared by applying the accrual accounting basis where effects of transactions are recognized when arisen and are shown in the financial statements for the period to which they relate and with the basic accounting going concern assumption applied. The financial statements of the Company have been prepared in Croatian Kuna as the Company's functional i.e. reporting currency. On 31 December 2019 the exchange rate for 1 USD and 1 EUR was HRK 6.45 and HRK 7.44, respectively (31 December 2018: HRK 6.47 and HRK 7.42, respectively). On 8 July 2011, the new Roads Act became effective (Official Gazette 84/11, 22/13, 54/13, 148/13, 92/14 and 110/19) in which articles 94, 95 and 96 explicitly define the implementation of the capital approach. The capital approach includes keeping records of certain operating events in the following way: • Funds from the annual compensation fee for the use of public roads, user charges and compensation fee for financing the construction and maintenance of public roads which the Republic of Croatia uses to finance construction, maintenance and other public roads’ managing activities and also public roads, represent the property of the Republic of Croatia (public capital), which is kept separately in business books of the legal entity which manages the public road. • The legal entity which manages the public road includes into its operating expenses the depreciation of public roads managed. Part of depreciation which is not covered from own revenues is calculated against the public capital funds. • Public capital also represents income arising from exchange rate differences, interests and other income generated from money management which represents public capital, and public capital is decreased by interests and other compensations connected with financing the construction and maintenance of public roads and also for losses from exchange differences. • Difference between own revenues and expenses realized in the business year is compensated by charging public capital in accordance with the approved operating plan of the Company. • Compensation for financing the construction and maintenance of public roads, which is paid by producers and importers of petroleum products and also the authority of the state administration for commodity supplies, is paid to the account of the Company and represents capital from which the Republic of Croatia finances the construction and maintenance of public roads, return of loans financing the construction of public roads and also recapitalization of the Company, in accordance with the Program. • Public capital is increased by the profit realized by the Company while the Republic of Croatia is the Company’s only member. • Funds arising from the compensation fee for financing the construction and maintenance of public roads, which is paid per litre of collected excise duty on energy products, is used for purposes in line with annual construction and maintenance plans adopted by the Company with prior consent of the Government of the Republic of Croatia.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.2. Adoption of new accounting policies
First adoption of new and changes in current standards effective in the reporting period Adoption of new and amended International standards of financial reporting Standards and interpretations in force in the current period The following new standards and amended current standards issued by the International Accounting Standards Board and interpretations which are issued by the International Financial Reporting Interpretations Committee and which are adopted in the European Union shall remain in force in the current period: New standard that has no impact on the Company and which was adopted in the annual financial statements for the year ended on 31 December 2019 and which resulted in changes of the Company's accounting policies: • IFRS 16 Leases IFRS 16 replaced IAS 17 – Leases and IFRIC 4 – Determining whether an Arrangement Contains a Lease, SIC 15 – Operative Leases and SIC 27 – Evaluating the Substance of Transactions in the Legal Form of a Lease.
The adoption of IFRS 16 resulted in changes in the Company's accounting policies. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 in principle maintains the lessor's accounting as in IAS 17, retaining the distinction between operating leases and finance leases. The application of the new standard from 1 January 2019 had no material impact on the financial statements of the Company. The following amended standards are effective as of 1 January 2019, but had no significant impact on the Company: • IFRIC 23 – Uncertainty over Income Tax Treatments (published on 7 June 2017 and effective for annual periods starting on or after 1 January 2019) • Prepayment Features with Negative Compensation – Amendment to IFRS 9 (published on 12 October 2017 and effective for annual periods starting on or after 1 January 2019) • Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures (published on 12 October 2017 and effective for annual periods starting on or after 1 January 2019) • Annual improvements of IFRSs for reporting period from 2015 to 2017 – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (published on 12 December 2017 and effective for annual periods starting on or after 1 January 2019). • Amendments to IAS 19 – Plan Amendments, Curtailments or Settlements (published on 7 February 2018 and effective for annual periods starting on or after 1 January 2019)
16 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.2. Adoption of new accounting policies (continued)
First adoption of new and changes in current standards effective in the reporting period (continued) Adoption of new and amended International standards of financial reporting (continued)
New standards and interpretations which have not been adopted yet: Several new accounting standards and interpretations have been published, but they are not obligatory for reporting periods ending on 31 December 2019 and they were not adopted by the Company: Amendments to the Conceptual framework of financial reporting (effective for annual periods starting on or after 1 January 2020). The amended conceptual framework includes a new chapter on measurement, guidance on reporting financial performance, improved definitions of an asset and a liability, and guidance supporting these definitions; and clarifications in important areas, such as the roles of stewardship, prudence and measurement uncertainty in financial reporting. Definition of Material – Amendments to IAS 1 and IAS 8 (effective for annual periods starting on or after 1 January 2020). Amendments explain the definition of material and how it should be used in order to include guidance contained in other IFRSs so far. Furthermore, interpretations alongside the definition have been improved. Finally, the amendments ensure consistent use of material in all IFRSs. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, and which provide financial information about a specific reporting entity. Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (published on 26 September 2019 and effective for annual periods starting on or after 1 January 2020). Amendments arose from replacement of reference interest rates such as LIBOR and other interbank offered rate (IBORs). The amendments give the opportunity to provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform. Cash flow hedge accounting under both IFRS 9 and IAS 39 requires the future hedged cash flows to be ‘highly probable’. If these cash flows depend on IBOR, the relief provided by the amendments requires an entity to assume that the interest rate on which the hedged cash flows are based does not change as a result of the reform. Both IAS 39 and IFRS 9 require a forward-looking prospective assessment in order to apply hedge accounting. Cash flows under IBOR and IBOR replacement rates are currently expected to be broadly equivalent, which minimises any ineffectiveness. However, as the date of the reform gets closer, this might no longer be the case. Under the amendments, an entity assumes that the interest rate benchmark on which the cash flows of the hedged item, hedging instrument or hedged risk are based is not altered by IBOR reform. IBOR reform might cause a hedge to fall outside the required 80–125% range which is obligatory according to retrospective effectiveness test in line with IAS 39. IAS 39 has therefore been amended to provide an exception to the retrospective effectiveness test such that a hedge is not discontinued during the period of IBOR-related uncertainty solely because the retrospective effectiveness falls outside the required range. However, the other requirements for hedge accounting, including the prospective assessment, would still need to be met. In some hedges, the hedged item or hedged risk is a non-contractually specified IBOR risk component.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.2. Adoption of new accounting policies (continued)
First adoption of new and changes in current standards effective in the reporting period (continued) Adoption of new and amended International standards of financial reporting (continued) In order for hedge accounting to be applied, both IFRS 9 and IAS 39 require the designated risk component to be separately identifiable and reliably measurable. Under the amendments, the risk component only needs to be separately identifiable at initial hedge designation and not on an ongoing basis. In the context of a macro hedge, where an entity frequently resets a hedging relationship, the relief applies from when a hedged item was initially designated within that hedging relationship. Each ineffectiveness of the hedge shall continue to be shown in the Income Statement according to IAS 39 and IFRS 9. The amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer applicable. The amendment requires disclosure of the nominal amount of hedging instruments to which the reliefs are applied, any significant assumptions or judgements made in applying the reliefs, and qualitative disclosures about how the entity is impacted by IBOR reform and how it is managing the transition process. Sales or contributions of assets between an investor and its associate/joint venture – Amendments to IFRS 10 and IAS 28 (published on 11 September 2014 and effective for annual periods starting on the day or after the day determined by the IASB, still not approved by the EU). These amendments settle the inconsistency between the requirements in IFRS 10 and IAS 28 which refers to sales or contribution of assets between an investor and its associate/joint venture. The main consequence of amendments is that a full gain or loss is recognised when a transaction includes business. Partial gain or loss is recognised when a transaction includes asset that does not represent a business, even in the case of a subsidiary asset. IFRS 17 Insurance Contracts (published on 18 May 2017 and effective for annual periods staring on or after 1 January 2021, still not approved by the EU). IFRS 17 replaces IFRS 4 that enabled companies to continue expressing insurance contracts by applying current practices. For that reason it was difficult for investors to compare financial performance of otherwise similar insurance companies. IFRS 17 is a standard that applies a unique principle for recording all types of insurance contracts, including reinsurance contracts. The standard recognises and measures groups of insurance contracts: (i) risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will recognize profits for a group of insurance contracts during the coverage period and as they are hedged. If a group of contracts incurs or will incur a loss, the entity shall recognize that loss as incurred. Definition of Business – Amendments to IFRS 3 (published on 22 October 2019 and effective from the beginning of the reporting period that starts on or after 1 January 2020, still not approved by the EU). The amendments change the definition of business. Business needs to have inputs and a detailed process that together significantly contribute to the ability to achieve results.
18 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.2. Adoption of new accounting policies (continued)
First adoption of new and changes in current standards effective in the reporting period (continued) Adoption of new and amended International standards of financial reporting (continued) The new guidelines provide a framework for assessing if input and a detailed process exist, including companies in early-stage of development that have not generated results. In the absence of results, there should be an organized workforce for the purposes of classification as a business. The definition of ‘results’ is narrowed to focus on goods and services provided to customers, generating investment income and other income, and excludes returns in the form of lower costs and other economic benefits. It is also no longer necessary to assess whether market participants are able to replace missing elements or integrate acquired activities and assets. The subject may apply a "concentration test". Acquired assets would not be business if almost the entire fair value of gross assets acquired was concentrated in a single asset (or group of similar assets). Unless otherwise stated above, the new standards and interpretations are not expected to have a material impact on the Company's financial statements. The Company's Management Board anticipates that the application of these standards, amendments and interpretations will not have a material impact on the Company's financial statements in the period of their first application.
2.3. Key estimates and uncertainty of estimates Certain estimates are used during preparation of the financial statements that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent liabilities. Future events and their impact could not be predicted with certainty and, thus, the real results may differ from the estimated. Estimates utilized during preparation of the financial statements are subject to changes by occurrence of new events, by gathering additional experience, by obtaining additional information and comprehensions as well as by changing the environment in which the Company operates. Key estimates used in the application of accounting policies during preparation of the financial statements relate to depreciation and amortization of long-term intangible and tangible assets, impairment of assets, impairment of inventories, impairment of receivables and provisions and the disclosure of contingent liabilities.
Expected loss model With IFRS 9, the expected loss model is introduced (ECL). The measurement of the expected loss is based on reasonable and supporting information that is available without excessive expense and effort and which includes information on past events, current and foreseeable future conditions and circumstances. When estimating expected future impairment requirements, historical probabilities of non- fulfilment and future parameters relevant to credit risk are used. The most important part of financial assets are trade receivables and cash.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.3. Key estimates and uncertainty of estimates (continued) Expected loss model (continued) Trade receivables are stated at the amount initially invoiced. Impairment of bad and doubtful receivables is based on the best estimate of the Management Board on bad debt. All receivables from entities in bankruptcy and as well as disputed receivables are fully written off. Management Board of the Company carries out impairment of bad and doubtful receivables based on the aging of all receivables and based on a specific review of significant individual amounts included in receivables. During the reporting period there were no changes in the methods of initial assessment or significant assumptions which were used. During the reporting period there were no significant changes in the carrying value of financial instruments, and therefore there was no significant impact on the amount of value adjustments.
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. Policy of recognition and measuring of income a) Operating income In accordance with the new IFRS 15, relating to the recognition of contracts with customers, the Company applies the model of five steps: • Identify the contract(s) with the customer • Identify the performance obligations in the contract • Determine the transaction price • Allocate the transaction price to each performance obligation • Recognize revenue when (or how) the entity satisfies a performance obligation.
The Company records income from the following areas: • Income from issued licences, consents and control • Income from compensation fees for the use of land. Revenues are recognized for each separate contractual obligation in the transaction price amount. The transaction price is the amount of contractual remuneration that the Company expects to be entitled to in return for the delivery of the promised goods or services. Revenues are stated in amounts less the value added tax, estimated returns, rebates and discounts. Application of this standard did not have significant impact on the accounting policies of the Company, and revenue recognition takes place at the same time as when IAS 18 – Revenue was effective and no significant impact of IFRS 15 is determined. b) Service sales income Provided that the amount of revenue can be measured reliably and if the Company is likely to receive a compensation fee, the service revenues are recognized in the period in which they are provided. c) Lease income Income from business leases is accounted on a flat basis during the lease period.
20 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.5. Policy of recognition and measuring of income (continued) d) Interest income
Interest income is accrued on a time basis, based on outstanding principal and at the applicable effective interest rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or to the net carrying amount of the financial asset. Interest income is recognized as financial income in the Income Statement.
e) Dividend income Income from dividend and from share in profit is recognised at the moment when the right to its receipt is established, that is at the moment of the decision of the General Assembly of the company in whose shares investment was made.
2.6. Policy of recognition and measuring 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 realization of income is expected in the next several accounting periods. Operating expenses include the costs of material, small inventory and services, maintenance services, cost of gross salaries and wages, depreciation of own assets, depreciation of a public good (roads) and other operating expenses covered directly by debiting operating income.
b) Maintenance costs Expenses for repairs or maintenance of property, plant and equipment, result due to recovery or maintenance of future economic benefits that can be expected from the originally estimated standard and criteria in recognising asset value. These costs are usually described as cost of property, plant and equipment repair and maintenance and are recognized in the Profit Statement as an expense when occurred. c) Gross salaries and wages Employee benefits include wages, salaries and pension contributions, contributions on salaries, fees for use of annual leave and sick leave, participation in profits and bonuses and non-monetary benefits of current employees, and benefits after termination of employment, such as severance payments and life insurance, and are recorded as expense in the period in which they occur, regardless of whether the current obligation is settled, in the Income Statement within operating expenses. All pertaining tax levies directly connected to accrued wages and compensations are included in employees’ expenses and represent their constituent part. Reimbursement to employees, in accordance with collective agreements, are included in employees’ expenses and is their component part in the period of gaining rights. So far as the period of obtaining certain right differs from the period of payment for more than one year (long- term receipts), the liability has to be discounted by the average interest rate on the state bonds with similar maturity date.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.6. Policy of recognition and measuring of expenses (continued) d) Depreciation and Amortization Intangible assets, property, plant and equipment are amortized and depreciated.
The amount of investment in long-term assets shall be compensated by the depreciation according to agreed or appropriate period of use of individual right, respectively property, plant and equipment. When estimating the depreciation amount, the expected residual value at the end of the useful life is determined. If this residual amount is of no significance in relation to the total value of assets, it is not taken into depreciation count. Expected residual value of assets which relates to roads is usually nil.
Useful life is estimated for each item of assets individually and it depends on technical characteristics of assets, its economic obsolescence and its intended use. The depreciation/amortization rates applied are as follows:
2018 2019 Description years years Buildings 20 20 Roads and construction objects on roads 66,6 - 142,8 66,6 - 142,8 Equipment 20 20 Intangible assets 4 4
Depreciation/amortization count is performed by method which corresponds to realization of economic benefits from assets. Similar benefit is expected for roads and properties during the whole year, thus a proportional depreciation method for these assets is applied. Depreciation/amortization count is performed individually for all assets.
During the year depreciation/amortization is precalculated and then corrected for the change during the year. Depreciation begins to accrue after the month in which the use of assets commenced.
Depreciation of a public good (roads) as well as the accompanying equipment, in part which may be covered by own income, is charged to the operating expenses for the period, while the difference of the uncovered part of depreciation is to be covered by debiting public capital.
e) Financial expenses Interest expenses resulting from business relationships are recorded within financial expenses, and are recognized as expenses of the period in which they occurred, and they are recorded as accrued expenses until the reporting date.
Foreign exchange losses arising from the translation of cash and receivables and liabilities denominated in a foreign currency (monetary items) into their Kuna equivalent are recorded in the Income Statement as part of financial expenses.
22 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.7. Policy of assets disclosure a) Inventories Inventories are measured by cost or net worth, whichever is lower. At the end of each year, the value of the inventory is impaired due to damage or other justified reasons, at the proposal of authorized persons for inventories.
Inventory of raw material and supplies, spare parts, small inventory, packaging and car tires are recorded at actual value that comprises invoiced value increased by all related acquisition costs which arose by bringing the inventory to the present location and the current state (custom fees, taxes, transportation costs and all other costs that may be attributed to the procurement) by applying the method of weighted average cost. Commercial discounts and similar items are deducted when determining the purchase expenses.
Items are recorded as small inventory when their useful life is shorter than one year, and when their individual value does not exceed HRK 3,500. When putting small inventory, packaging and car tires into service, they are written off at the time of consumption.
Surpluses and shortages determined by annual inventory list (inventory counts) are recorded in business records within other income, or other expenses, respectively.
Income from sale of unmarketable goods is recorded within other income.
b) Financial assets The Company adopted IFRS 9 – Financial Instruments from 1 January 2018 and its implementation did not have a significant impact on the Company's financial statements.
The Company recognizes financial assets in its financial statements when it becomes party to the contractual provisions of the instrument. Depending on the business model for asset management and contractual features of cash flows for the said asset, the Company measures financial assets at amortized cost, fair value through other comprehensive income or fair value through Income Statement.
Asset items are classified and measured as follows:
DESCRIPTION Classification and measurement Long-term assets Long-term receivables Hold to collect / amortized cost Short-term assets Cash and cash equivalents Hold to collect / amortized cost Trade and other receivables Hold to collect / amortized cost
The Company's business models reflect the way in which the Company manages assets in order to realize cash flows.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.7. Policy of assets disclosure (continued) i) Trade receivables Trade receivables that do not have a significant financial component at initial recognition have been measured in accordance with IFRS 15 at their transaction price. ii) Impairment
On the basis of expected credit losses the Company recognizes impairment of financial assets. At each reporting date, the Company measures the expected credit losses and recognizes them in the financial statements. Expected credit losses from financial instruments are measured in a manner that reflects: Impartial and weighted amount of probability which is determined by assessing the range of possible outcomes: • time value of money • reasonable and acceptable data about past events, current conditions and predictions of future economic conditions.
For trade receivables, the Company applies a simplified approach of IFRS 9 measurement of expected credit losses using the expected provision for credit losses of trade receivables.
iii) Derecognition of financial assets
The Company derecognises financial assets if and when: • contractual rights to cash from financial assets expire or if they are fulfilled, • financial assets are transferred to another person and the transfer fulfils conditions for termination of derecognition.
The Company transfers financial assets if, and only if, either: (a) it transfers contractual rights to receive cash flows from financial assets, or (b) retains contractual rights to receive cash flows from a financial asset, but assumes a contractual obligation to pay cash flows to one or more recipients in the arrangement.
When the Company transfers financial assets, it is required to estimate the extent to which it retains the risks and rewards of ownership of the financial asset. In this case, when all risks and rewards of ownership are transferred, the Company ceases to recognize financial assets and recognizes separately, as assets or liabilities, all rights and obligations that have arisen or are retained in the transfer.
In case almost all risks and rewards of ownership of financial assets are retained, the Company continues to recognize financial assets.
24 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.7. Policy of assets disclosure (continued)
In case the Company neither transfers nor retains almost all risks and rewards of ownership of financial assets, the Company determines whether it has retained control over financial assets. If no control over financial assets is retained, the Company derecognises financial assets and recognizes separately all rights and obligations that have arisen or are retained in the transfer as assets or liabilities. If control is retained, the Company continues to recognize financial assets to the extent in which it continues to participate in that financial asset. iv) Investments in associates
Investments in associates in which the Company has significant influence, but has no control, are reported in separate financial statements at cost less impairment losses, if any. It is considered that the Company has significant influence if it, directly or indirectly, has between 20% and 50% of voting rights. Except voting rights, the Company may have a significant influence when it has the power to participate in decisions about financial and operating policies of associates. The Company annually reviews the existence of possible impairment of investment cost when an event or changes in circumstances indicate that the carrying amount may not be recoverable. Investments in associates for which impairment loss is recorded are reviewed at each balance sheet date for possible elimination of impairment. Income from dividends and shares is recorded in the Income Statement when the Company makes a decision about their payment.
c) Property, plant and equipment Property, plant and equipment are tangible assets: - intended for use in production or in delivery of goods or services, for renting to others or for administrative purposes, and - for which it is expected to be used for more than one accounting period The expression property, plant and equipment understands buildings with all purposes, plant and equipment (machines) as well as tools, plant and office inventory, furniture and transport equipment (assets), as defined in the Accounting Act and in the accounting standards. Purchase of property, plant and equipment during the year is recorded at purchase cost. Purchase cost represents invoiced value of acquired assets plus any costs incurred by putting the assets into service (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. Subsequent expense, which prolongs the life of the asset and enables the increased capacity of use or increased product quality is recognised as asset value increase, and all other expenses are recognized in the expense of the period in which they arise. After initial recognition of long-term assets, single property, plant and equipment is stated using the cost model or the cost decreased by accumulated depreciation and accumulated impairment losses, respectively.
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HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.7. Policy of assets disclosure (continued)
c) Property, plants and equipment (continued) Carrying value of particular property, plant and equipment ceases to be recognized at the moment of disposal or when the future economic benefits are not expected from the usage or disposal of this property. Gains or losses arising from derecognition of property, plant and equipment are included into profit or loss of the period in which they are derecognized and are classified as income/expense in the amount of the difference between the net amount of receivables from disposal and accounting value of assets and are recorded separately from operating income/expenses Internally-generated long-term tangible assets are stated at cost (actual value), if the cost doesn't exceed market value. Roads, as a public good that may not become an object of ownership, and which have been given to the Company for managing, are recorded within the Company's long-term assets and they are recognised as public capital. Costs of designing, expropriation, construction, supervision and other costs related to the construction of new roads, as well as 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 good (roads). The construction and reconstruction of a public good (road) is financed from the reimbursement paid from the state budget per litre of collected excise duty on energy sources, from excess of own revenues, depreciation of a public good (roads), loans and donations. Borrowing costs that can be measured and attributable to the acquisition, construction or production of a qualifying asset are assigned to asset value and capitalized as part of the purchase cost until the moment of asset activation, and are then recorded as an expense.
Accounting policies adopted in 2017 defined the capitalization policy of investment maintenance in capital goods. Treatment of long-term and short-term assets is regulated and it is defined as follows: • 50% of the cost capitalizes within capital goods, while 50% presents expense in the profit and loss account, i.e. public capital, • reconstruction of the road will be recorded according to the share of reconstruction in the investment project as the expense or capital goods increase.
d) Intangible assets Intangible assets meet recognition conditions if acquired separately and if arising from contractual or other legal rights. Intangible assets consist of rights, the use of which will produce economic benefits to the Company in a period longer than one year, and whose individual cost can be reliably measured. Amortization of intangible assets is calculated according to the estimated useful lives and the contractual duration of rights for the utilization of a single asset, respectively. In case of intangible assets with indefinite useful life, special attention is to be given to the impairment test which is performed for all assets before preparation of the annual financial statements.
26 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.7. Policy of assets disclosure (continued)
d) Intangible assets (continued) Long-term intangible assets are measured using the cost model decreased for accumulated amortization and accumulated impairment losses. Carrying value of intangible assets is derecognized at the moment of disposal or when the future economic benefits are not expected from the usage or disposal of this asset. Gains or losses arising from derecognition of intangible assets are included into profit or loss of the period in which they are derecognized and are classified as income/expense in the amount of the difference between the net amount of receivables from disposal and carrying value of assets.
2.8. Policy on recognition and measuring of liabilities
Initial recognition and measurement
Financial liabilities are classified as financial liabilities that are measured at amortised cost. All financial liabilities are initially recognised at fair value plus associated transaction costs. Financial liabilities include trade and other payables, bank overdrafts as well as loans and borrowings.
Subsequent measurement
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.
Derecognition
The Company ceases to recognize liabilities in the financial statements when, and only when, the obligation has been settled. When the existing financial liability is replaced by another by the same creditor under substantially different terms or the terms of existing liabilities have changed significantly, such change or modification is treated as termination of the original liability and recognition of a new liability, and the difference in the corresponding carrying amounts is recognized in the Income Statement.
2.9. Policy of capital disclosure a) Share capital Share capital represents a part of the total Company's capital. Share capital is registered with the competent commercial court.
b) Public capital Public capital represents the value of state road assets, bridges, tunnels and other structures on roads, which are handed to the Company for management and are reported in the business ledgers of the Company, but are not registered in the share capital of the Company. Public capital is increased from income from fuel reimbursement. 27
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.9. Policy of capital disclosure (continued)
According to the Roads Act, Article 91, compensation fee for financing the construction and maintenance of public roads is to be paid by the litre of collected excise tax on energy sources to the account of the Company from the state budget. Receipts from fuel reimbursement represent funds for financing the construction and maintenance of state roads. Public capital is increased by other income and receipts which can be directly attributable to public capital, such as: public donations and subventions for construction of public good, foreign exchange gains related to the public good and interest on special purpose deposits formed by public capital. Public capital is reduced by accumulated impairment (depreciation) of a public good (roads) for the difference of the amount of depreciation uncovered by own revenues of the Company. Public capital is decreased by the amounts that can be directly attributed to public capital, as costs for maintenance of state roads, financial expenses (loan origination fees, loan fees and guarantees, exchange differences, interest cost in the repayment period, interest cost up to the beginning of the repayment period, default interest, etc.) which are not included in the cost of public good.
c) Profit for the year Profit for the year is the remaining amount after expenses were deducted from net income and decreased by calculated corporate income tax. If expenses exceed income, the remaining amount represents net loss for the year. The Company does not recognise operating result neither as a gain or a loss, but it removes income and expense items related to public roads though a capital approach, and the difference between income and expenses is compensated from public capital and recognised in the Income Statement as income for the period.
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 an obligation to pay taxes on profit. Tax loss is the 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 taxes 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.
Current tax liability is measured by actual tax rate, according to the income tax return.
Deferred tax assets and liabilities are measured at income tax rate which is expected to be applied in the period of cancellation of the difference.
28 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.11. Leases
The Company classifies each lease as operating or financial lease. Leases are classified as financial leases if all the risks and economic benefits associated with ownership are transferred from the lessor to the lessee. Financial lease is recognized in the balance sheet of the lessee as an asset and liability for financial lease. Leases are classified as business leases if there is a contract by means of which the lessor transfers the right to use a property (lease) to the lessee in the agreed period in exchange for countervailing.
The new standard which is effective as of 1 January 2019 established the obligation to recognize a business lease in the financial statements as a property with the right of use under the lease. The Company defines the exception of application of this standard on: • short-term leases (up to one year) • leases whose object of lease is of low value. In that case, business/operating lease is recognized as an expense in the lessee's income statement on a uniform basis throughout the lease period.
Initial measurement
From the first day of the lease, the Company measures the asset with the right of use at cost, whereas the obligation on the basis of this lease is measured at the current value of all payments in connection with leases which have not been made on that day. The payments are discounted at the interest rate contained in the lease or per incremental borrowing rate in cases when this rate cannot be determined.
Subsequent measurement
After initial recognition, the Company measures the asset with the right of use using the cost model. The company increases lease liability for the amount of interest on the basis of the lease and reduces for payments made. Also, the Company remeasures the established obligation for lease for all possible changes.
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 financing the core activities of the Company, established under the Roads Act with the aim of constructing and maintaining public roads, some of the receipts required to finance the activities are provided from fuel reimbursement. From that source the Company finances primarily the construction of public good, and the return of borrowed funds.
Roads, as a public good over which one cannot acquire ownership rights, and which are given to the Company for management, are recorded within the long-term assets of the Company and they are recognised as public capital.
Construction and reconstruction of a public good (roads) is financed from the collected excise duty on energy sources, excess of own revenues, depreciation of a public good (roads), loans and donations. 29
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.12. Government grants and disclosure of government assistance (continued)
Public capital is increased by fuel reimbursement. According to the Roads Act, Article 91, compensation fee for the construction and maintenance of public roads is paid per litre of collected excise duty on energy sources to the Company’s account. Fuel reimbursement is used to cover part or the total depreciation of a public good (roads), if the Company's own resources are not sufficient 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 special purpose donations and grants for the construction of public good, foreign exchange gains related to public goods and interest on special purpose deposits formed by public capital funds.
Public capital is decreased by impairment (depreciation) of a public good (roads) and by amounts that can be directly attributable to public capital, such as financial expenses (loan origination fees, loan fees and guarantees, exchange differences, interest cost in the repayment period, interest expense up to the beginning of the repayment period, default interest, etc.), which are not included in the cost of the public good.
2.13. Provisions
Provision is recognized only when the Company has a present obligation as a result of a past event and if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and if a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provisions are determined for costs of legal proceedings, costs of jubilee awards to employees and retirement costs (regular jubilee awards and severance pays) and also for the costs of stimulating severance pays based on a staff restructuring plan of the Company.
Provisions for costs which relate to employee benefits are based on expected receipts according to the valid Collective Agreement and Work Regulations.
Provision of costs of jubilee awards to employees and retirement costs (regular jubilee awards and severance pays) is determined as a net book value of future outflows using a discount rate equal to the average borrowing rate of the Company.
2.14. Contingent liabilities and assets
Contingent liabilities are not recognized in the financial statements but are disclosed in Notes to the Financial Statements. A contingent asset is not recognized in the financial statements, but is disclosed at the moment when an inflow of economic benefits is probable.
30 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
2.15. Events after the reporting date Events after the reporting date that provide additional information about the Company’s position at the reporting date (adjusting events) are stated in the financial statements before the approval for issuance of the financial statements by the Company’s Management Board. Those events which as a result have no adjustments are disclosed in Notes to the Financial Statements if they are of material significance as additional explanations on circumstances which have arisen after expiration of a business year.
2.16. The fair value of financial instruments
The Management Board of the Company is certain that the fair value of assets and liabilities stated in the Statement of Financial Position/(Balance Sheet) does not differ significantly from their carrying amounts.
2.17. Information about operating segments
The Company is not organized by production segments, but it uses the capital approach, which understands the existence of two parallel records of public good and own income and expenses, as well as assets, liabilities and capital arising from these changes. Item III. to the financial statements include the Company's financial statements and financial statements of public good. Individual positions of the financial statements are reclassified in relation to the financial statements presented on pages 8 to 10.
31
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
3. OPERATING INCOME
2018 2019 DESCRIPTION HRK HRK Income from issued licences, consents, controls 18,652,820 15,891,839 Income from fees for land use and supporting service activities 3,430,975 3,594,031 Income from services, tenders, trainings 595,876 582,901 Domestic sales 22,679,671 20,068,771 Income from own consumption 262,472 208,621 Other operating income /i/ 160,708,449 181,492,241 TOTAL 183,650,592 201,769,633
Income from issued licences, consents and controls recognised for 2019 in the amount of HRK 15,891,839 (2018: HRK 18,652,820) represents the Company's own revenue as defined in Article 86 of the Roads Act and was generated from the fees for special transport according to the Ordinance on special transport (Official Gazette 119/07, 52/08) and Ordinance on the criteria for calculation of fees for special transport (Official Gazette 68/10), and from 25 October 2018 according to the new Ordinance on special transport (Official Gazette 92/18). A decrease of 15% in 2019 mainly refers to the significantly decreased traffic of carriers.
Income from compensation fees for the use of roadside land and from supporting service activities recognised for 2019 in the amount of HRK 3,594,031 (2018: HRK 3,430,975) arose from provision of land-use rights alongside public roads, which are, in line with the Roads Act, given to the Company for management. The terms and conditions for the use of roadside land, compensation fee amount as well as rights and obligations in performing supporting service activities on roadside land are determined in the Ordinance on the use of roadside land and performance of supporting service activities (Official Gazette 78/14) and the Decision on compensation fee amount for creating the right of easement and the right of construction on a public road (Official Gazette 87/14).
Other operating income /i/
2018 2019 DESCRIPTION HRK HRK Collected indemnities from insurance 1,582,493 1,406,695 Income from damages and penalties collected 27,969 33,245 Recovery of amounts previously written off 1,740,493 5,007,658 Recovery of prior-period revenues 3,068,993 9,396,265 Income from sale of non-current assets 505,555 918,950 Write-off of liabilities to suppliers 307,794 136,412 Other income not specified 206,734 29,125 Income from guarantees 2,922,737 5,133,570 Rent and lease income 274,188 337,482 Part of PC for coverage of income and expense differences 150,071,493 159,092,839 TOTAL 160,708,449 181,492,241
32 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
Income from collected written-off receivables increased due to collection of written-off receivables for financing works on state roads from previous years in the amount of 4.63 million HRK, which is visible in Note 22 Other receivables. Collected revenues from previous periods increased mostly due to collection of recourse disputes caused by negligence in road maintenance, with the largest collection being from Ceste – Rijeka d.o.o. in the amount of HRK 5.31 million.
4. MATERIAL EXPENSES
Raw materials and supplies /i/
2018 2019 DESCRIPTION HRK HRK Energy costs (power, gas, heating, fuel) 14,555,844 16,582,292 Cleaning supplies, office materials and restaurant supplies 711,227 884,717 Written-off small inventory and car tires 424,905 423,012 TOTAL 15,691,976 17,890,021
Other external expenses /ii/
2018 2019 DESCRIPTION HRK HRK Maintenance of buildings and equipment 6,355,443 7,215,922 Postage and telecommunication charges 2,794,915 2,922,759 Rental services 3,798,122 2,554,296 Lawyer services 591,775 186,892 Auditing services 184,000 178,000 Legal services and costs of hiring expert witnesses 169,760 64,758 Intellectual and consulting services 453,430 436,920 Municipal utility services 1,559,372 1,538,636 Transportation 656,967 701,771 Property insurance premiums 406,773 644,511 Employee insurance premiums 95,933 141,852 Medical services 732,088 389,010 Student service expenses and other expenses 1,099,990 1,357,021 Bank and payment transaction fees 224,110 194,731 Software maintenance 164,700 630,900 Road and vehicle inspection fees 140,712 137,970 Commercial and media monitoring 251,000 407,482 Website and intranet design 165,335 56,046 Advertising 490,682 460,207 Graphic, photographic and photocopying services 16,235 8,571 Archiving services 370,736 101,726 Cleaning, washing and ironing services, waste analysis 494,104 561,406 Security and fire protection services 120,540 209,781 TOTAL 21,336,722 21,101,168
33
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
5. EMPLOYEES EXPENSES 2018 2019 DESCRIPTION HRK HRK Net wages and salaries 59,702,244 61,504,299 Taxes and contributions from salaries 29,578,857 30,214.568 Contributions on salaries 15,086.924 14,848.803 TOTAL 104,368,025 106,567,670
6. DEPRECIATION AND AMORTIZATION
2018 2019 DESCRIPTION HRK HRK Depreciation and amortization of tangible and intangible assets 457,211,469 459,744,205 Transfer to public capital (436,106,544) (434,980,335) TOTAL 21,104,925 24,763,870 The depreciation of a public good for 2019 charged to public capital amounts at HRK 434,980,335 (2018: HRK 436,106,544), in accordance with Article 96 of the Roads Act.
Depreciation of public roads (civil engineering structures with roadbed) is calculated using the depreciation rates ranging from 0.70% to 1.50%. Since the Company is not the owner of public roads, the depreciation of public roads was presented using the capital approach.
Under the capital approach, depreciation of public roads is recognised as an expense in the Income Statement and covered from own revenues to the possible extent. If own revenue is not sufficient to cover the total depreciation charge, the uncovered balance is recovered by charging it to public capital, i.e. transferring the depreciation expense to public capital.
7. OTHER EXPENSES
2018 2019 DESCRIPTION HRK HRK Field addition and separate life 236,435 271,966 Cost of transportation to and from workplace 2,133,110 2,100,753 Aid for workers (sick leave, sickness, death, disability, 282,785 464,254 newborns) Voluntary pension insurance fund 2,271,780 2,717,500 Awards – jubilee awards 149,500 163,250 Awards – gift for children of employees 183,900 199,300 Severance payments 112,000 80,000 Other fees (Easter/Christmas bonus, vacation bonus) 1,364,512 1,876,532 Per diems and business travel costs 447,549 561,802 Transport and accommodation costs – business travels 640,382 436,547 Professional training costs 438,297 391,804 Trainee fees and scholarships 0 3,500 Entertainment expenses 247,998 283,428 Membership fees 173,427 134,211 Forest fees 48,261 52,388 Litigation costs and fees 336,160 273,566 Professional literature and press costs 131,795 149,935 Fees to the members of the Supervisory Board 236,015 238,841 Taxes independent of the operating result 84,995 106,786 TOTAL 9,518,901 10,506,363
34 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
8. VALUE ADJUSTMENTS
2018 2019 DESCRIPTION HRK HRK Value adjustment of trade receivables 232,487 955,354 Value adjustment of other receivables 1,860,318 0 TOTAL 2,092,805 955,354
9. PROVISIONS
2018 2019 DESCRIPTION HRK HRK Provisions for retirement and jubilee awards benefits 465,870 32,067 Provision for legal disputes initiated 0 4,870,311 TOTAL 465,870 4,902,378
Provisions based on ongoing legal disputes are charged to the Income Statement for those disputes relating to the Company (disputes regarding ownership, management costs, labour disputes, etc.), and for all disputes caused by construction or maintenance of state roads provisions are debited to public capital (failures to maintain state roads, compensation for damages due to accidents caused by road construction, disputes over land for road construction and similar expenses).
In 2019, in line with the actuary's calculation, the total amount of provisions for retirement benefits increased to the amount of HRK 113,881, and the amount of total provisions for jubilee awards decreased to the amount of HRK 81,815. Provisions for legal disputes already initiated are described in Note 26.
10. OTHER OPERATING EXPENSES 2018 2019 DESCRIPTION HRK HRK Penalties and damages 5,854,013 8,334,878 Subsequently determined expenditure 9,195 1,317,739 Non-written-off value of disposed assets and shortages 1,125 2,724 Other non-specified expenses (donations) 287,500 390,000 Total 6,151,833 10,045,341
Penalties and damages in the amount of HRK 8,334,878 (2018: HRK 5,854,013) refer to the payment to legal and physical entities for damages that are caused by traffic accidents on state roads. Increase in 2019 is a consequence of a lost dispute with the City of Rijeka in the amount of HRK 3,066,897 based on the construction contract.
35
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
11. FINANCIAL INCOME 2018 2019 DESCRIPTION HRK HRK Income from call rate 41,183 30,179 Income from default interest 60,197 856,173 Income from borrowing interest 6,781 0 Other financial income (legal disputes) 94,025 37,515 Foreign exchange gains for liabilities and receivables 3,900 5,832 TOTAL 206,086 929,699
Other financial income (legal disputes) in the amount of HRK 37,515 (in 2018 the amount was HRK 94,025) occurred by payment of litigation costs and lawyer's services from sued customers, for which we hired law firms. After collecting lawyer's services from sued customers, law firms charge that cost to the Company and it is recognised as expense for lawyer's services (the Company agreed with lawyers that they will be paid only for the amount of lawyers’ costs which the Company gets from sued customers). A significant increase in default interest in 2019 is a consequence of finalisation of a legal dispute with Istarske ceste d.o.o. which resulted in calculation of default interest to the Company and in receivables in the amount of HRK 806,726.
12. FINANCIAL EXPENSES
2018 2019 DESCRIPTION HRK HRK Interest expenses – unrelated companies by court judgments 3,118,679 5,635,575 Default interest expenses 6,944 26,045 Expenses from interests IFRS 16 0 291,865 Exchange differences IFRS 16 0 13,682 TOTAL 3,125,623 5,967,167
Interest expenses by court judgments in the amount of HRK 5,635,575 (2018: HRK 3,118,679) mostly refer to accrued interests on payments to legal and physical entities for damages that are caused by traffic accidents on state roads, and the significant increase is due to the calculated interest for the lost dispute with the City of Rijeka in the amount of HRK 3,080,030.
In relation to IFRS 16 – Leases and the obligation to apply it in the financial statements for 2019, there was a change in structure of expenses and for the majority of contracted leases costs are not recorded under Other external expenses, but as amortisation and depreciation expenses and financial expenses.
36 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
13. CORPORATE INCOME TAX
Set out below is the reconciliation between taxable profit and accounting profit:
Tax balance sheet Tax balance sheet POSITION 2018 2019 HRK HRK
Total income 183,856,678 202,699,332 Total expenses (183,856,678) (202,699,332) Profit/(loss) for the year 0 0 Profit increase/loss decrease 70%/50% of entertainment expenses, 30% of expenses for the use of personal cars 1,473,431 2,052,706 Expenditures determined in the supervisory process 0 0 Value adjustment and receivables write-off 388,437 315,351 Provision cost 294,193 0 Tax base increase for other expenses 10,000 0 Total profit increase/loss decrease 2,166,061 2,368,057 Profit decrease/loss increase Receipts from collection of receivables 64,897 76,696 written off Government grants for training and education 386,222 314,372 Total profit decrease/loss increase 451,119 391,068
Tax base 1,714,942 1,976,989 Corporate income tax rate 18% 18% Tax liability 308,690 355,858 Paid advances 432,158 324,193 Difference for payment/refund (123,468) 31,665 Advances for the following tax period 39,477 29,655
The corporate income tax rate effective in the Republic of Croatia for 2019 was 18%.
The Company prepares its financial statements and declares profit in accordance with International Financial Reporting Standards, with some exceptions determined by the Roads Act (Official Gazette 84/11, 22/13, 54/13, 148/13, 92/14). The departures in the presentation of the Company's profit were due to the application of the Roads Act.
According to the Roads Act, the loss for the period is charged to public capital. Otherwise, the loss for 2019 would amount to HRK 159,092,839 and for 2018 it would amount to HRK 150,071,493.
37
HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
14. INTANGIBLE ASSETS
Concession rights, patents, licences, commodity and Intangible assets service brands, in preparation Total DESCRIPTION software and other intangible rights assets HRK HRK HRK COST Balance at 1 January 2018 61,089,991 0 61,089,991 Additions 2018 0 10,537,283 10,537,283 Transfer to use 2018 10,537,283 (10,537,283) 0 Withdrawal, alienation and shortages 0 0 0 Balance at 31 December 2018 71,627,274 0 71,627,274 Additions 2019 14,781,206 15,519,827 30,301,033 Transfer to use 2019 15,519,827 (15,519,827) 0 Withdrawal, alienation and shortages (39,920,162) 0 (39,920,162) Balance at 31 December 2019 62,008,145 0 62,008,145
IMPAIRMENT Balance at 1 January 2018 47,735,562 0 47,735,562 Amortization 2018 5,583,843 0 5,583,843 Withdrawal, alienation and shortages 0 0 0 Balance at 31 December 2018 53,319,405 0 53,319,405 Amortization 2019 9,663,828 0 9,663,828 Withdrawal, alienation and shortages 2019 (39,920,162) 0 (39,920,162) Balance at 31 December 2019 23,063,071 0 23,063,071
NET CARRYING VALUE Balance at 1 January 2018 13,354,429 0 13,354,429 Balance at 31 December 2018 18,307,869 0 18,307,869 Balance at 31 December 2019 38,945,074 0 38,945,074
38 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
15. PROPERTY, PLANT AND EQUIPMENT Plant and equipment, DESCRIPTION tools, furniture, Tangible assets Other transport Prepayments for under tangible Total property, plant Land Buildings vehicles tangible assets construction assets and equipment COST HRK HRK HRK HRK HRK HRK HRK Balance at 1 January 2018 29,715,475 80,361,432,268 94,588,694 41,962,543 2,286,554,601 102,919 82,814,356,500 Addition 0 0 0 358,533,169 1,000,775,940 0 1,359,309,109 Transfer to use 0 1,323,387,554 4,921,257 0 (1,332,644,511) 0 (4,335,700) Changes on prepayments 0 0 0 (59,889,845) 0 0 (59,889,845) Transfer to CRA (categorisation) 0 (374,303,352) 0 0 0 0 (374,303,352) Transfer from CRA (categorisation) 0 378,873,581 0 0 0 0 378,873,581 Transfer from HAC 0 1,643,343,706 13,244,349 0 0 0 1,656,588,055 Reconstruction – transfer to PC 0 (227,974,804) 0 0 0 0 (227,974,804) Withdrawal, shortages, replaced part – invest. maintenance 0 (115,212,688) (7,701,414) 0 0 0 (122,914,102) Balance at 31 December 2018 29,715,475 82,989,546,265 105,052,886 340,605,867 1,954,686,030 102,919 85,419,709,442 Addition 47,868 0 0 68,157,272 1,572,016,240 249,780 1,640,471,160 Transfer to use 0 915,614,374 4,774,082 0 (920,388,456) 0 0 Changes on prepayments 0 0 0 (104,918,675) 0 0 (104,918,675) Transfer to CRA (categorisation) 0 (140,087,979) 0 0 0 0 (140,087,979) Transfer from CRA (categorisation) 0 63,035,156 0 0 0 0 63,035,156 Transfer from HAC 0 346,176,878 0 0 13,825,445 0 360,002,323 Reconstruction – transfer to PC 0 (90,950,610) 0 0 0 0 (90,950,610) Withdrawal, shortages, replaced part – invest. maintenance (467,216) (139,921,935) (8,573,142) 0 0 0 (148,962,293) Balance at 31 December 2019 29,296,127 83,943,412,150 101,253,826 303,844,464 2,620,139,259 352,699 86,998,298,525 IMPAIRMENT Balance at 1 January 2018 0 9,451,973,376 85,382,348 0 0 0 9,537,355,724 Depreciation 0 446,326,911 5,300,717 0 0 0 451,627,628 Transfer of roads to CRA and cities 0 (56,235,816) 0 0 0 0 (56,235,816) Transfer of roads from CRA and cities 0 156,113,321 0 0 0 0 156,113,321 Transfer from HAC 0 330,545,576 13,244,349 0 0 0 343,789,925 Withdrawal, alienation and shortages 0 0 (7,700,290) 0 0 0 (7,700,290) Balance at 31 December 2018 10,328,723,368 96,227,124 0 0 0 10,424,950,492 Depreciation 0 444,932,681 5,147,695 0 0 0 450,080,376 Transfer of roads to CRA and cities 0 (35,279,258) 0 0 0 0 (35,279,258) Transfer of roads from CRA and cities 0 31,171,115 0 0 0 0 31,171,115 Withdrawal,alienation and shortages 0 (202,183) (8,570,417) 0 0 0 (8,772,600) Balance at 31 December 2019 0 10,769,345,723 92,804,402 0 0 0 10,862,150,125 NET CARRYING VALUE Balance at 31 December 2017 29,715,475 70,909,458,892 9,206,346 41,962,543 2,286,554,601 102,919 73,277,000,776 Balance at 31 December 2018 29,715,475 72,660,822,897 8,825,762 340,605,867 1,954,686,030 102,919 74,994,758,950 Balance at 31 December 2019 29,296,127 73,174,066,427 8,449,424 303,844,464 2,620,139,259 352,699 76,136,148,400
39 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
15. PROPERTY, PLANT AND EQUIPMENT (continued)
The Company's title to properties is not fully resolved. Therefore, the Company has no registered title to all properties. Resolving the issues and registering the title are in progress.
Movements in tangible assets in preparation during 2019:
31 Dec 2018 Addition Impairment 31 Dec 2019 DESCRIPTION HRK HRK HRK HRK Administrative and assembly buildings and other facilities 16,553,541 12,301,405 22,317,368 6,537,578 Total PC – reconstruction SR – land 15,017,342 24,334,628 6,517,393 32,834,577 PC – reconstruction SR – projects 22,519,986 15,056,028 948,771 36,627,244 PC – reconstruction SR – works 180,958,622 188,501,445 90,763,617 278,696,450 PC – reconstruction SR – 10,158,369 9,036,263 4,432,440 14,762,193 supervision PC – reconstruction SR – co- (1,163,047) 0 4,004,607 (5,167,654) financing (constr. and design) PC – reconstruction SR – other 2,019,758 1,676,937 677,569 3,019,126 Reconstruction SR Total 229,511,031 238,605,301 107,344,397 360,771,935 PC – invest. maint. SR – land 49,589 5,326,937 5,376,526 0 PC – invest. maint. SR – projects 21,800 8,647,744 8,669,544 0 PC – invest. maint. SR – works 0 262,154,054 262,154,054 0 PC – inves. main. SR – supervision 0 12,402,565 12,402,565 0 PC – invest. maint. SR – other 0 1,317,111 1,317,111 0 Investment maintenance SR 71,389 289,848,410 289,919,800 0 Total PC – SR – purchase of land 202,597,570 31,743,048 73,856,288 160,484,330 PC – SR – studies and projects 313,322,940 37,008,663 30,175,560 320,156,044 PC – SR – construction 913,143,377 292,629,286 389,337,762 816,434,900 PC – SR – co-financing (constr. (2,088,916) 0 (1,327,072) (761,844) and design) PC – SR – other costs 29,931,120 8,696,310 18,982,102 19,645,329 PC – SR – consulting services 2,639,313 1,489,390 1,051,659 3,077,044 State roads – Total 1,459,545,404 371,566,698 512,076,300 1,319,035,802 PC – Bridges – purchase of land 51,206,401 41,126,940 265,134 92,068,207 PC – Bridges – studies and 60,544,767 7,966,593 33,647 68,477,713 projects PC – Bridges – construction 109,393,437 631,358,680 823,785 739,928,332 PC – Bridges – consulting services 4,604,058 3,098,442 13,928 7,688,571 Bridges – Total 225,748,663 683,550,654 1,136,494 908,162,823 Repair of landslides 22,690,502 0 0 22,690,502 Plant and equipment 565,500 6,750,787 4,375,667 2,940,620 Tools, transportation equip. and 428,684 428,684 0 vehicles 0 TOTAL 1,954,588,130 1,603,051,940 937,598,710 2,620,139,260
40 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
16. LONG-TERM FINANCIAL ASSETS
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Corporate shares 7,061,300 7,061,300 Investment in shares 7,061,300 7,061,300 Investment in long-term securities - frozen FX savings 644,737 644,737 Investments in securities 644,737 644,737 TOTAL 7,706,037 7,706,037
Investment in shares and stakes:
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Industrogradnja d.d. 1,000 1,000 a) Total shares in companies 1,000 1,000 Via tel d.o.o. Zagreb 5,222,300 5,222,300 Ceste Zadarske županije d.o.o. Zadar 676,000 676,000 Ceste Sisak d.o.o. 1,162,000 1,162,000 b) Total stakes in companies 7,060,300 7,060,300 TOTAL 7,061,300 7,061,300
The Company is the sole founder and member of Via Tel d.o.o., Zagreb.
17. LONG-TERM RECEIVABLES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Receivables for flats with tenancy rights 1,805,201 1,354,161 TOTAL 1.805,201 1,354,161
18. INVENTORIES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Inventories of raw material and supplies 15,492,071 16,536,422 Inventories of food in the restaurant 14,443 12,612 Small inventory in use 322,774 322,983 Impairment of small inventory in use (322,774) (322,983) Car tires in use 467,218 462,199 Value adjustment of car tires in use (467,218) (462,199) TOTAL 15,506,514 16,549,034
41 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
19. TRADE RECEIVABLES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Domestic trade receivables 12,492,587 5,600,854 Bad and doubtful receivables 8,417,639 7,927,455 Impairment of bad and doubtful receivables (8,417,639) (7,927,455) TOTAL 12,492,587 5,600,854
Age structure of trade receivables: 31 Dec 2018 31 Dec 2019 Overdue maturity date: HRK HRK Undue 7,342,510 3,976,900 Up to 60 days 288,951 351,994 From 61 to 180 days 231,404 104,616 From 181 to 360 days 4,515,269 1,100,634 Over 360 days 114,453 66,710 TOTAL 12,492,587 5,600,854
20. RECEIVABLES FROM EMPLOYEES AND COMPANY MEMBERS
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Receivables for shortages 85,466 78,461 Receivables for advances 500 0 Other amounts due from employees 204,560 69,334 TOTAL 290,526 147,795
21. RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Receivables from the Ministry of Finance (fuel reimbursement) 151,226,444 299,664,868 Receivables for value added tax 43,015,090 20,938,851 Receivables from the Croatian State Health Insurance Fund 67,671 39,814 TOTAL 194,309,205 320,643,533
Receivables for fuel reimbursement at the end of the year depend on the planned amount in the Financial Plan of the Company as an extra budgetary user of the State budget. On the cash principle, at the moment of fulfilling the given revenues/expenses the Ministry of Finance ceases to pay the reimbursement regardless of the collected excise duty payments.
42 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
22. OTHER RECEIVABLES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Other receivables Hrvatske vode 3,387,738 2,197,738 Other receivables Municipality Brtonigla 210,000 0 Other receivables City of Novi Vinodolski 804,573 804,573 Other receivables CRA Primorsko-gor. 87,497 87,497 Other receivables City of Dubrovnik 33,938 0 Other receivables City of Varaždin 1,339,001 0 Other receivables City of Kutina 792,319 792,319 Other receivables Vodovod d.o.o. Sl.Brod 318,062 318,062 Other receivables Municipality Kloštar 0 546,643 Other receivables – DUZS (refugee camp) 1,860,318 0 Other receivables – investm. cycle (CRA) 7,984,617 7,984,617 Total other corrected receivables 16,818,063 12,731,449 Adjustment of other receivables (16,818,063) (12,731,449) Other receivables CRA Primorsko-gor. 122,890 18,578 Other receivables Municipality Kloštar 546,643 0 Other receivables City of Rijeka 691,530 0 Other receivables KD VIK Rijeka 495,222 0 Other receivables Tekija 930,437 0 Other receivables for co-financing – Municipality Funtana 0 302,940 Other receivables for co-financing – City of Karlovac 0 666,685 Other receivables for co-financing – City of Pula 0 (37,853) Other receivables for co-financing – Vodovod i odvodnja Cres 0 111,313 Other receivables for co-financing – HEP Zabok 0 38,821 Total other receivables 2,786,722 1,100,483 Receivables for deposit fee 0 422 TOTAL 2,786,722 1,100,905
Receivables for co-financing refer to cooperation with local authorities, utility companies, public companies and other companies where construction or reconstruction of state roads takes place and related to joint design and construction of objects in the planned project in case the owners or infrastructure managers are the same.
23. CASH AT BANKS AND ON HAND
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Foreign currency account 1,964,337 4,923,734 Giro account balance 301,986,713 112,128,977 Specific-purpose funds and letters of credit 36,007,173 10,353,161 Cash on hand 80,744 105,917 TOTAL 340,038,967 127,511,789
43 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
24. PREPAID EXPENSES AND ACCRUED INCOME
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Prepaid expenses 98,340,643 89,662,269 TOTAL 98,340,643 89,662,269
At the end of 2017 and in April 2018, phases I and II of the financial restructuring of the Company were implemented by reprograming existing loans. The said amount refers to the cost of financing new debts that are accrued over the term of the contract.
25. CAPITAL
The subscribed capital, as disclosed in the Statement of Financial Position (Balance Sheet) at 31 December 2019 in the amount of HRK 107,384,800 (31 December 2018 the same amount), represents own permanent sources of funding the operations of the Company and comprises the share capital registered at the Commercial Court in Zagreb.
Public capital derived from the result, as reported in the Statement of Financial Position (Balance Sheet) at 31 December 2019 in the amount of HRK 65,683,799,394 (31 December 2018: HRK 64,989,583,752) represents the net book value of public goods – public roads managed by the Company at the moment of establishment and the difference between receipts (revenue) and expenditure (expenses and investments) of public goods in the period subsequent to the establishment of the Company.
• Receipts or increase in public capital
The component of public capital from other sources of funding includes receipts such as net foreign exchange differences on loans taken out for the construction of state roads and other liabilities in connection therewith, interest on term deposit from public capital and other.
Amounts credited to public capital in 2019 were as follows:
DESCRIPTION 31 Dec 2019 % portion HRK Capital increase – fuel reimbursement 2,137,438,424 83.45 Capital increase – co-financing of public goods 1,033,093 0.04 Capital increase – exchange differences, interest and other 259,396 0.01 Capital increase – sale of salt to CRA 11,656,047 0.46 Capital increase – transfer from CRA (road categorisation) 31,864,042 1.24 Capital increase – transfer from HAC 360,002,322 14.06 Capital increase – recognition of EU income for depreciation 12,674,318 0.49 Capital increase – decrease in provisions for legal disputes 6,340,817 0.25 TOTAL 2,561,268,459 100.00
44 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
25. CAPITAL (continued)
Pursuant to Articles 86 and 91 of the Roads Act, fee for financing the construction and maintenance of public roads is to be paid from collected excise tax on energy sources in the amount of HRK 0.80 per litre to the account of the Company from the State budget. (see Note 2.9.b)
• Expenditures or decrease in public capital
The component of public capital from other sources of funding includes also expenditures such as interest on long-term loans, loan commitment fee, fees for issued government guarantees, costs of co-financing other public goods and depreciation of state roads (to the extent not covered out by the Company's own revenue) that are treated as deductions from public capital.
Amounts debited to public capital in 2019 were as follows:
DESCRIPTION 31 Dec 2019 % portion HRK Capital decrease – transfer for costs and corporate income tax (159,448,697) 8.54 Capital decrease – depreciation (434,980,335) 23.30 Capital decrease – investment maintenance SR, replaced part (139,719,751) 7.48 Capital decrease – reconstruction SR – replaced parts (90,950,610) 4.87 Capital decrease – co-financing of CRA according to the (118,347,383) 6.34 Decision on allocation of funds to CRAs Capital decrease – co- financing of unclassified roads (20,000,000) 1.07 Capital decrease – transfer to CRA according to the Decision on (104,808,721) 5.61 categorisation of roads Capital decrease – exchange differences, interest and other (274,842,566) 14.72 Capital decrease – maintenance cost – regular (458,395,818) 24.55 Capital decrease – extraordinary maintenance (33,398,996) 1.79 Capital decrease – flood relief (15,581,272) 0.83 Capital decrease – research and development (4,922,621) 0.26 Capital decrease – cost value of sold salt to CRA (11,656,047) 0.62 TOTAL (1,867,052,817) 100.00
Profit for the year, stated in the Statement of Financial Position (Balance Sheet) at 31 December 2019 in the amount of HRK 0 (31 December 2018: HRK 0 kuna), represents the operating result based on the application of the equity approach described in Notes 2.9.c) and 13 to the financial statements.
45 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
26. PROVISIONS
Movements in provisions in 2019 are shown as follows:
New Provisions 31 Dec 2018 provisions reversed 31 Dec 2019 DESCRIPTION HRK HRK HRK HRK Long-term provisions for severance 1,047,166 113,881 1,161,047 payments 0 Long-term provisions for jubilee 1,485,486 (81,815) 1,403,671 awards 0 Long-term provisions for legal 158,369,212 (1,470,506) 156,898,706 disputes initiated Total 160,901,864 (1,438,439) 159,463,425
As stated in Note 9, provisions for legal disputes initiated shall be charged to the Income Statement for those disputes relating to the Company (disputes concerning ownership, management costs, labour disputes and the like) and for all disputes that are caused by construction or maintenance of state roads (failure to maintain state roads, compensation for damage caused by traffic accidents due to road construction, land dispute over road construction and the like).
In 2019, pursuant to the Decision of the Management Board, provisions for legal disputes initiated were reduced at the expense of public capital in the amount of HRK 6,340,817, and they were increased in the amount of HRK 4,870,311 at the expense of the Company which resulted in the decrease in total long-term provisions by HRK 1,470,506.
Significant amounts of decrease in public capital refer to disputes for compensation of damages caused by failures in regular maintenance of roads in the amount of HRK 3.16 million and disputes for damages caused by road construction or reconstruction in the amount of HRK 2.72 million. Increase in provisions at the expense of the Company refers to the largest extent to new disputes related to agreements on setting up advertising billboards in the amount of HRK 3.23 million and additional disputes of Autocesta Zagreb-Macelj in the amount of HRK 1.77 million due to revenues from issuing special transport permits.
27. LONG-TERM LIABILITIES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Liabilities to banks in Croatia 7,902,310,644 7,891,400,703 Liabilities to banks abroad 1,380,950,329 1,284,723,657 Current portion of long-term debt (see Note 30) (277,236,019) (183,007,199) Other long-term liabilities 0 12,128,132 TOTAL 9,006,024,954 9,005,245,293
Banks in Croatia
Long-term 31 Dec 2019 Current portion portion Interest rate HRK HRK HRK < 2% 3,426,694,683 (75,098,017) 3,351,596,667 2%-4% 4,464,706,020 0 4,464,706,020 TOTAL 7,891,400,703 (75,098,017) 7,816,302,686
46 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
27. LONG-TERM LIABILITIES (continued)
Banks abroad
31 Dec 2019 Current portion Long-term portion Interest rate HRK HRK HRK < 2% 139,739,665 (11,644,972) 128,094,693 2%-4% 644,850,773 (35,327,041) 609,523,732 4%-6% 500,133,218 (60,937,169) 439,196,049 TOTAL 1,284,723,657 (107,909,182) 1,176,814,474
Movements in liabilities to banks and other financial institutions are presented as follows: 2018 2019 DESCRIPTION HRK HRK
1 January 9,379,529,633 9,283,260,973 Loans paid (3,869,708,699) (137,965,840) New loans 3,773,440,039 0 Exchange differences 0 30,829,226 31 December 9,283,260,973 9,176,124,359 Reclassification of liability for long-term loan EBRD (139,270,179) 0 Current portion of the principal (137,965,840) (183,007,199) 31 December 9,006,024,954 8,993,117,161
Long-term liabilities to banks and other financial institutions are due as follows:
Amount Maturity year HRK 2020 183,007,199 2021 351,094,638 2022 539,700,626 2023 541,735,427 After 2023 7,560,586,470 TOTAL 9,176,124,359
47 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
27. LONG-TERM LIABILITIES (continued)
Overview of liabilities to banks in Croatia: Maturity Agreed
amount in the Interest Long-term Currency Current original Payment rate 31 Dec 2019 portion portion currency Domestic banks HRK HRK HRK HBOR 2033 EUR 95,194,088 Quarterly 2-4% 614,932,361 0,00 614,932,361 MINISTRY OF FINANCE 2030 EUR 517,263,323 Annual 2-4% 3,849,773,659 0,00 3,849,773,659 ERSTE BANK d.d., HPB d.d., PBZ d.d., Semi 2030 467,144,462 < 2% 3,426,694,683 (75,098,017) 3,351,596,667 SG-SPLITSKA BANKA, ZABA d.d. EUR annual TOTAL amounts due to banks in Croatia 1,079,601,873 7,891,400,703 (75,098,017) 7,816,302,686
Overview of liabilities to banks abroad: Maturity Agreed
amount in Interest Long-term Currency Current the original Payment rate 31 Dec 2019 portion portion currency Foreign banks HRK HRK HRK European Investment Bank I ("EIB") 2027 EUR 60,000,000 Semi annual 4-6% 203,514,759 (32,651,919) 170,862,840 European Investment Bank II (betterment II/A) 2030 EUR 60,000,000 Semi annual 4-6% 296,618,460 (28,285,250) 268,333,209 European Investment Bank III (Split bypass) 2036 EUR 42,900,000 Semi annual 2-4% 239,586,034 (14,606,452) 224,979,582 European Bank for Reconstruction and Semi annual 139,739,665 (11,644,972) 128,094,693 Development (EBRD) /i/ 2031 EUR 33,347,054 < 2% European Investment Bank IV (betterment ll/B) 2034 EUR 60,000,000 Semi annual 2-4% 405,264,739 (20,720,589) 384,544,150 TOTAL amounts due to banks abroad 256,247,054 1,284,723,657 (107,909,182) 1,176,814,474
/i/ The loan agreement concluded on 12 December 2006 with the European Bank for Reconstruction and Development (EBRD) includes contractual provisions based on business indicators. In case of non-fulfilment of these contractual provisions by the Company, the loan obligation becomes due. Under the contract, the Company's obligation is to meet the contractual ratios at each reporting date. In line with the letter from the European Bank for Reconstruction and Development from 7 February 2019, Article 4.02 of that loan agreement is deleted. This means that meeting the requirements from that article shall have no impact on the agreed loan repayment schedule.
48 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
28. LIABILITIES TO RELATED COMPANIES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Liabilities to Via tel d.o.o. 306,876 222,038 TOTAL 306,876 222,038
29. LIABILITIES FOR LOANS, DEPOSITS ETC.
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Liabilities for received deposits 5,954,643 9,753,606 Liabilities for received guarantees 30,000 200,000 TOTAL 5,984,643 9,953,606
Liabilities for received deposits refer to received deposits arising from agreements on roadside land usage in the amount of HRK 1.13 million, deposits paid to the Company’s account instead of issuing a bank guarantee from construction contracts in the amount of HRK 2.67 million, as well as deposits paid instead of issuing a tender guarantee in the amount of HRK 5.95 million.
30. LIABILITIES TO BANKS AND OTHER FINANCIAL INSTITUTIONS
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Loan interest payable 131,724,000 124,492,800 Current portion of long-term loans (see Note 27) 277,236,019 183,007,199 TOTAL 408,960,019 307,499,999 In the amount of loan interest payable the greatest share refers to liability for interest for the MFIN loan in the amount of HRK 99,777,700.
31. TRADE PAYABLES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Trade accounts payables – investments 126,442,697 165,240,326 Trade accounts payable – goods and services 115,021,940 76,765,349 Liabilities under cession arrangements 19,886,181 17,376,056 Liabilities under factoring arrangements 1,071,406 1,649,649 TOTAL 262,422,224 261,031,380
Aging structure of trade payables is presented below: 31 Dec 2018 31 Dec 2019 HRK HRK Undue 244,469,365 246,148,903 Up to 60 days 6,516,535 1,770,100 From 61 to 180 days 279,993 1,871,502 From 181 to 360 days 1,945,590 705,540 Over 360 days 9,210,741 10,535,335 TOTAL due payables 262,422,224 261,031,380
49 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
32. LIABILITIES TO EMPLOYEES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Net salaries and wages 6,574,037 6,053,493 Other liabilities to employees 341,230 287,535 TOTAL 6,915,267 6,341,028
33. LIABILITIES FOR TAXES, CONTRIBUTIONS AND SIMILAR PAYMENTS
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Liabilities for repurchase of public flats 65% 1,173,381 880,204 Contribution on salaries 1,814,045 1,539,696 Contribution from salaries 2,110,455 1,898,864 Taxes and surtaxes from salaries 2,003,261 1,563,599 Value added tax 22,642,929 0 Contributions independent of the operating result 41,866 16,193 Corporate income tax payable (83,992) 31,609 TOTAL 29,701,945 5,930,165
34. OTHER SHORT-TERM LIABILITIES
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Liabilities to CRA 11,389,502 10,285,393 Liabilities for unclassified roads (winter maintenance) 7,966,626 25,488 TOTAL 19,356,128 10,310,881
Liabilities to County road administrations (CRA) refer to unused funds in line with the Decision on allocation of funds for the construction and maintenance of county and local roads to county administrations for roads in 2019 (Official Gazette 119/2019) and balance from previous periods for which the CRAs failed to submit documentation on works executed. The calculated costs for unclassified roads refer to unused funds for 92 units of local authorities in line with the Schedule of funds for co-financing winter maintenance on unclassified roads from 1 January to 31 December 2019 and the balance of funds from previous periods which has consent from the competent minister and for which the heads failed to submit documentation on works executed.
50 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
35. ACCRUED EXPENSES AND DEFERRED INCOME
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Accrued expenses for co-financing CRAs 38,759,542 21,430,595 Accrued expenses for co-financing unclassified roads 6,365,380 17,612,174 Deferred income from use of roadside land 826,909 1,000,042 Deferred income – collected guarantees – guarantee period 3,563,643 3,752,773 Deferred income – collected guarantees – termination of contract 39,757,061 35,188,535 Deferred income – employment aid 0 22,563 Deferred income – EU funds 599,528,213 1,109,181,161 TOTAL 688,800,748 1,188,187,843 Accrued expenses and deferred income at 31 December 2019 in the amount of HRK 1,188,187,843 (31 December 2018: HRK 688,800,748) relate to accrued expenses in the amount of HRK 39,042,769 (31 December 2018: HRK 45,124,922), the obligation for collected guarantees in the guarantee period and after termination of contract in the amount of HRK 38,941,308 (31 December 2018: HRK 43,320,704) and deferred income for received resources from EU funds in the amount of HRK 1,109,181,160 (31 December 2018: HRK 599,528,213). Deferred income in the amount of HRK 1,000,042 refers to roadside land compensation fees. Deferred income for collected guarantees in the amount of HRK 35,188,535 (31 December 2018 in the amount of HRK 39,757,061) is due to unsettled disputes regarding damage compensations because of contracts terminated due to contractor’s fault. Overview of projects funded from EU funds:
31 Dec 2018 Description 31 Dec 2019 HRK HRK Bridge Pelješac and access roads 335,380,551 838,885,753 Bridge land – island Čiovo 164,402,943 167,482,864 Bypass Vodice 39,959,943 39,384,823 Southern bypass Osijek 25,890,873 22,794,835 Plano – Split 27,219,973 25,115,471 Bypass Petrijevci 2,136,887 7,970,097 Connecting road Škurinje – Port of Rijeka 758,250 3,617,439 Dubrovnik – airport – Montenegro border 627,742 627,742 Bypass Dicmo 534,075 534,075 CEF PSA 531,964 531,964 Southern bypass Poreč 512,943 0 Bypass Nedelišće and Pušćina 451,819 451,819 Eastern connection road in Slavonski Brod 449,732 449,732 Sv. Helena – Vrbovec – Bjelovar – Virovitica – border with Hungary 367,177 859,134 Program of rehabilitation of dangerous places on state roads in Croatia 286,450 456,250 Crocodile II Croatia 16,951 19,162 TOTAL 599,528,213 1,109,181,160
51 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
35. ACCRUED EXPENSES AND DEFERRED INCOME (continued)
For the amount of depreciation of HRK 12,674,318 (31 December 2018 HRK 15,665,440) that charged public capital and which refers to roads and objects financed by EU funds, position of deferred income from EU funds is abolished in 2019.
36. RELATED PARTY TRANSACTIONS
Related party Receivables Liabilities Income Expense HRK HRK HRK HRK 2019 Via tel d.o.o. 0 222,038 0 2,073,739 Hrvatska elektroprivreda 44,069 1,356,149 9,858,386 20,674,028 Hrvatske šume 4,863 0 375,146 61 Hrvatske vode 0 74,039 120 5,372,276 Hrvatska pošta 0 35,732 0 406,894 Narodne novine 0 0 0 433,796 Hrvatska radio televizija 0 160 0 147,072 Hrvatske telekomunikacije 44,520 253,383 462,651 2,361,185 Jadrolinija 1,850 0 14,149 0 Hrvatske željeznice 0 0 210 0 INA Matica 50,671 0 70,558 1,946,862 TOTAL 145,973 1,941,501 10,781,220 33,415,913 2018 Via tel d.o.o. 0 306,876 0 1,370,861 Hrvatska elektroprivreda 4,948 3,437,296 306,063 12,315,446 Hrvatske šume 2,025 29,771 462,015 23,982 Hrvatske vode 0 6,073 990 5,185,143 Hrvatska pošta 0 81,294 150 392,694 Narodne novine 0 50,625 0 458,088 Hrvatska radio televizija 0 0 0 142,080 Hrvatske telekomunikacije 45,488 720,828 373,486 2,432,827 INA Matica 98,670 365,461 110,581 1,819,704 TOTAL 151,131 4,998,224 1,253,285 24,140,825
The Company is obliged to create consolidated financial statements with VIA TEL d.o.o., a company which is 100% owned by Hrvatske ceste d.o.o.
52
37. MANAGEMENT REMUNERATION
Management remuneration is presented as follows: 2018 2019 DESCRIPTION HRK HRK Gross salaries 1,182,136 1,552,432 TOTAL 1,182,136 1,552,432
38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Capital risk management The Management Board of the Company manages its capital to ensure that it will be able to continue as a going concern, while maximising the return to stakeholders through optimisation of debt and equity balance. The capital structure of the Company consists of cash and cash equivalents, and equity attributable to equity holders of the Company, which consists of share capital and public capital.
Debt-to-equity ratio The Management Board of the Company reviews the capital structure. As a part of this review, the Management Board considers the cost of capital and risks associated with each class of capital. The debt-to-equity ratio for the year ended 31 December 2019 was 13,92% (year ended 31 December 2018: 13,92%).
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK
Long-term and short-term loan debt 9,420,969,616 9,322,698,897 Financial liabilities 9,420,969,616 9,322,698,897 Less: Cash at banks and on hand (340,038,967) (127,511,789)
Net debt 9,080,930,649 9,195,187,108 Equity 65,096,968,552 65,791,184,194 Net debt-to-equity ratio 13,95% 13,98%
Categories of financial instruments
31 Dec 2018 31 Dec 2019 DESCRIPTION HRK HRK Long-term financial assets 7,061,300 7,061,300 Long-term receivables 1,805,201 1,354,161 Short-term receivables 209,879,040 327,493,087 Short-term financial assets 0 0 Cash at banks and on hand 340,038,967 127,511,789 Financial assets 558,784,508 463,420,337
Loan liabilities 9,420,969,616 9,322,698,897 Other liabilities 1,168,405,052 1,631,486,760 Financial liabilities 10,589,374,668 10,954,185,657
53 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) Financial risk management objectives The Management Board of the Company monitors and manages financial risks arising from the Company's operations using internal reports analysing the exposures by degree and magnitude of risks. Financial risks include market risk (including currency risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Company seeks to minimize the effects of these risks.
The Company does not enter into, or trade with financial instruments, including derivative financial instruments, for speculative purposes.
Foreign currency risk management The official currency of the Company is Croatian Kuna ("HRK"). However, certain foreign- currency denominated transactions are translated to Croatian Kuna using exchange rates in effect at the reporting date. Hence, the Company is potentially exposed to the risk of fluctuations in foreign exchange rates. Since a significant number of loans are subject to a currency protection clause (mainly Euro), the Company's exposure to this risk is significant. The net carrying value of the Company's cash assets and liabilities denominated in foreign currency at the reporting date is as follows:
Liabilities Assets Description 31 Dec 2018 31 Dec 2019 31 Dec 2018 31 Dec 2019 HRK HRK HRK HRK
EUR 9,283,260,973 9,176,124,359 1,964,337 4,923,734 Foreign currency sensitivity analysis The following table details the Company’s sensitivity to a 1% increase and decrease in Croatian Kuna against the relevant foreign currency. The sensitivity analysis includes foreign currency denominated receivables and liabilities and adjustments of their translation at the period end for a 1% change in foreign currency rates. The sensitivity analysis includes external loans where the denomination of the loan is different from Croatian Kuna. A positive number below indicates an increase in profit and other equity components where HRK strengthens 1% against the relevant currency. For a 1% weakening of the HRK against the relevant currency, there would be an equal or opposite effect on profit or equity.
2018 2019 DESCRIPTION HRK HRK
EUR effect 90,060,250 89,931,172
TOTAL 90,060,250 89,931,172
54 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
Price risk management The Company provides its services on the market of the Republic of Croatia. The Management Board of the Company determines the prices for its services with consent of the Croatian Government.
Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates relative to the interest rate, which applies to financial instruments. Interest rate cash flow risk is the risk that the interest cost of an instrument will fluctuate over time. Due to the fact that the Company uses loans with fixed interest rates, the Company is not exposed to interest rate risk.
Credit risk management Credit risk refers to the risk that counterparty will fail to meet its contractual obligations resulting in financial loss to the Company. Credit risk arising from collecting short-term receivables is relatively low, as receivables from the State are recovered within the periods defined by applicable laws. Trade receivables are impaired for bad and doubtful receivables.
Liquidity risk management Liquidity risk is the risk that the Company will not be able to meet its financial liabilities to the counterparty. Ultimate responsibility for liquidity risk management rests with the Management Board, which has built an appropriate liquidity risk management framework for the management of the Company's short, medium and long-term funding and liquidity management requirements. During the reporting period, the Company was settling the amounts it owes to its creditors, suppliers and the State within the legally defined deadlines. As disclosed in Note 27 to the financial statements, the most significant portion of financial liabilities is due after 2019. The Company manages its liquidity by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Analysis of liquidity risk
The following table analyses the remaining period until the contractual maturities of the Company's financial liabilities. The table is composed of undiscounted cash outflows on financial liabilities at the earliest date on which the Company may request the payment. The table includes cash flows of principal and interest. The remaining period up to the contractual maturity of the Company's financial liabilities is as follows:
55 HRVATSKE CESTE d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 December 2019
38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
LIABILITIES 1-6 months 6 months – 1 year 1 - 5 years Over 5 years Total
HRK HRK HRK HRK HRK
2019 Interest free 283,835,492 - - - 283,835,492
Interest bearing 91,503,600 91,503,600 2,506,197,939 6,486,919,222 9,176,124,360
2018 Interest free 318,702,440 - - - 318,702,440
Interest bearing 8,618,010 8,618,010 2,089,455,039 6,916,569,915 283,260,973
The following table analyses the remaining period until the contractual maturities of the Company's financial assets. The table is composed of undiscounted cash inflows on financial assets at the earliest date on which the Company may request the payment. The remaining period up to the contractual maturity of the Company's financial assets is as follows:
6 months – 1 ASSETS 1-6 months year 1 - 5 years Over 5 years Total HRK HRK HRK HRK HRK 2019 Interest free 327,493,087 1,354,161 328,847,248 2018 Interest free 209,879,040 1,805,201 11,684,241
39. LEGAL DISPUTES AND CONTINGENT LIABILITIES
The Company keeps systematic records of legal disputes against and initiated by the Company. The Legal, HR and General Affairs Department is assisted by external attorneys. However, the records of legal actions managed by external attorneys are kept at the Company On 31 December 2019, there were 1,068 legal disputes outstanding against the Company, with total claims amounting to approximately HRK 269,258,373 (31 December 2018: 1,115 legal disputes, with total claims of approximately HRK 240,384,253). Legal disputes, the same as other potential benefits and liabilities, are not recognised in the Statement of Financial Position (Balance Sheet) since outcomes, as well as inflow and outflow of funds related to that, are uncertain. At the moment when outcomes of potential benefits and liabilities become certain, they are recognised as extraordinary income, or, in case of damages, as cost provisions. As described in Note 27 to the financial statements, at 31 December 2019 the Company, in line with professional legal advice, formed corresponding provisions for legal disputes initiated.
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III. PUBLIC GOOD FINANCIAL STATEMENTS
As the capital approach implies keeping simultaneously two sets of accounts, one for public good and one for own revenue and expenses, as well as assets, liabilities and equity arising from those changes, set out below are the financial statements of the Company and the financial statements of the public good. Certain items of the financial statements are reclassified compared to the financial statements set out on pages 9 to 11.
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BALANCE SHEET AS OF 31 DECEMBER 2019
P O S I T I O N Company Public good Total HRK HRK HRK
ASSETS
LONG-TERM ASSETS Tangible and intangible assets 194,080,208 75,981,013,266 76,175,093,474 Financial assets 7,706,037 0 7,706,037 Receivables 1,354,161 0 1,354,161 Total long-term assets 203,140,406 75,981,013,266 76,184,153,672
SHORT-TERM ASSETS Inventories 12,612 16,536,422 16,549,034 Receivables Trade receivables 2,267,145 3,333,709 5,600,854 Other receivables 20,986,701 300,905,532 321,892,233 Total receivables 23,253,846 304,239,241 327,493,087 Cash 127,511,789 0 127,511,789 Total short-term assets 150,778,248 320,775,662 471,553,910
PREPAID EXPENSES AND ACCRUED INCOME 0 89,662,269 89,662,269
TOTAL ASSETS 353,918,654 76,391,451,197 76,745,369,851
EQUITY AND LIABILITIES
CAPITAL AND RESERVES Share (subscribed) capital 107,384,800 0 107,384,800 Public capital from the result 0 65,276,641,395 65,276,641,395 Profit / (loss) for the year (159,448,697) 566,606,696 407,157,999 Total capital and reserves (52,063,897) 65,843,248,091 65,791,184,194
PROVISIONS 31,527,889 127,935,536 159,463,425
LONG-TERM LIABILITIES 225,997,077 8,779,248,216 9,005,245,292
SHORT-TERM LIABILITIES Trade payables 9,245,686 252,007,731 261,253,417 Taxes and contributions payable 5,930,165 0 5,930,165 Liabilities to employees 6,341,028 0 6,341,028 Short-term loan liabilities 124,492,800 183,007,199 307,499,999 Other liabilities 1,325,301 18,939,186 20,264,487 Total short-term liabilities 147,334,980 453,954,116 601,289,096
ACCRUED EXPENSES AND DEFERRED INCOME 1,122,606 1,187,065,238 1,188,187,843
TOTAL EQUITY AND LIABILITIES 353,918,654 76,391,451,197 76,745,369,851
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INCOME STATEMENT for the period from 1 January to 31 December 2019
Budgeted 2019 Budget Deviation P OS I T I O N 2019 Company Public good Total 2019 from budget
HRK HRK HRK HRK % HRK OPERATING INCOME Fuel income 1,989,000,000 0 2,137,438,424 2,137,438,424 7.46% 148,438,424 Income from co-financing (cities and municipalities) 3,000,000 0 1,033,093 1,033,093 -65.56% (1,966,907) Sales income 20,680,000 20,068,771 0 20,068,771 -2.96% (611,229) Sales income (salt) 0 0 11,656,047 11,656,047 0% 11,656,047 Income from own service consumption 200,000 208,621 0 208,621 4.31% 8,621 Other income (lease) 318,000 337,482 0 337,482 6.13% 19,482 Provisions 0 0 0 0 - 0 Total operating income 2,013,198,000 20,614,874 2,150,127,564 2,170,742,438 7.83% 157,544,438
OPERATING EXPENSES Raw material and supplies (40) 20,086,000 17,890,021 0 17,890,021 -10.93% (2,195,979) Sold goods (salt) 0 0 11,656,047 11,656,047 0% 11,656,047 Transfer of funds to CRAs and unclassified roads 130,000,000 0 138,347,383 138,347,383 6.42% 8,347,383 Regular maintenance 452,000,000 0 440,321,582 440,321,582 -2.58% (11,678,418) Extraordinary maintenance 21,000,000 0 33,398,996 33,398,996 59.04% 12,398,996 Flood relief 21,000,000 0 15,581,272 15,581,272 -25.80% (5,418,728) Studies and developm. preparation 5,850,000 0 4,922,621 4,922,621 -15.85% (927,379) Other external expenses (41 and 42) 49,259,000 21,101,168 18,074,235 39,175,404 -20.47% (10,083,596) Employee expenses 109,530,300 106,567,670 0 106,567,670 -2.70% (2,962,630) Depreciation and amortisation 463,000,000 24,763,870 434,980,335 459,744,205 -0.70% (3,255,795) Other expenses (44 and 46) 11,951,000 10,506,363 0 10,506,363 -12.09% (1,444,637) Provisions 0 4,902,378 0 4,902,378 0% 4,902,378 Total operating expenses 1,283,676,300 185,731,470 1,097,282,472 1,283,013,941 -0.05% (662,359)
FINANCIAL INCOME 1,800,000 929,699 259,396 1,189,095 -33.94% (610,905)
FINANCIAL EXPENSES 258,465,198 5,967,167 274,842,566 280,809,733 8.65% 22,344,535
EXTRAORDINARY INCOME 18,319,000 22,061,920 0 22,061,920 20.43% 3,742,920
EXTRAORDINARY EXPENSES 11,060,000 11,000,695 0 11,000,695 -0.54% (59,305)
TOTAL INCOME (without EU funds) 2,033,317,000 43,606,493 2,150,386,960 2,193,993,453 7.90% 160,676,453 TOTAL EXPENSES 1,553,201,498 202,699,332 1,372,125,037 1,574,824,370 1.39% 21,622,872
Profit / (loss) before taxation 480,115,502 (159,092,839) 778,261,922 619,169,083 28.96% 139,053,581 Income tax 0 (355,858) 0 (355,858) - (355,858) PROFIT / (LOSS) FOR THE YEAR 480,115,502 (159,448,697) 778,261,922 618,813,225 28,89% 138,697,723
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