ADRIS GRUPA d.d. Rovinj

ANNUAL REPORT AND INDEPENDENT AUDITOR'S REPORT 31 DECEMBER 2018

1 Index

THE 2018 MANAGEMENT REPORT ...... 3 1. CORE BUSINESS OF THE COMPANY ...... 4 2. SUBSIDIARIES ...... 4 3. OPERATING RESULTS, MARKET POSITION AND FUTURE PROJECTIONS ...... 4 4. RISKS AND RISK MANAGEMENT ...... 10 5. DATA ON THE ACQUISITION AND SALE OF OWN SHARES ...... 10 6. RESEARCH AND DEVELOPMENT ACTIVITIES ...... 11 7. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD ...... 11 8. NON-FINANCIAL REPORT ...... 11 9. TABLE HARMONIZING THE ANNUAL FINANCIAL REPORT FOR 2018 AND THE REVISED IFRS REPORT FOR 2018 ...... 11 RESPONSIBILITY FOR THE ANNUAL REPORT ...... 13 Independent auditor’s report ...... 14 CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS 31 DECEMBER 2018 ...... 21 CORPORATE GOVERNANCE STATEMENT FOR 2018...... 144 NON-FINANCIAL REPORT FOR 2018 ...... 144 1. MANAGEMENT BOARD STATEMENT ...... 145 2. GENERAL INFORMATION ...... 146 2.1. Profile ...... 146 2.2. Ethics and integrity ...... 158 2.3. Management ...... 159 2.4. Reporting Practices ...... 165 3. MATERIAL TOPICS AND STAKEHOLDERS ...... 166 3.1. Engagement, involvement of stakeholder groups (stakeholders) ...... 166 3.2. Explanation of the material knowledge of topic topics and their boundaries ...... 167 4. ECONOMIC TOPICS ...... 169 4.1. Economic value ...... 169 4.2. Market presence ...... 170 5. ENVIRONMENTAL TOPICS ...... 171 5.1. Energy ...... 173 5.2. Water, waste water and waste ...... 173 5.3. Biodiversity ...... 175 6. SOCIAL TOPICS ...... 177 6.1. Relations with employees ...... 177 6.1.1. Employment ...... 177 6.1.2. Employee and management relationship ...... 179 6.1.3. Health and safety in the workplace ...... 180 6.1.4. Education and training ...... 182 6.1.5. Diversity and Equal Opportunities, Non Discrimination ...... 185 6.2. Collaboration with the local community ...... 185 6.3. Customer-oriented ...... 189 6.3.1. Product responsibility ...... 189 6.3.2. Health and safety of consumers ...... 191

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ADRIS GRUPA d.d. Rovinj

THE 2018 MANAGEMENT REPORT

3 ADRIS GRUPA D.D., ROVINJ MANAGEMENT REPORT FOR 2018

1. CORE BUSINESS OF THE COMPANY

The core business of the company ADRIS GRUPA d.d. (hereinafter: “Adris” or “Company”) is management and investment. The aim of the Company as a corporate centre is to coordinate investment, management, development and operation of the system as a whole. Adris comprises three strategic business units: tourism, managed by Maistra d.d., manufacture of healthy food managed by Cromaris d.d., and insurance managed by Croatia osiguranje d.d. (hereinafter: “the Group”).

2. SUBSIDIARIES

As part of its operations, the Company directly operates through the subsidiaries: - Adria Resorts d. o. o., Rovinj, Croatia - Abilia d. o. o., Rovinj, Croatia - Croatia osiguranje d. d., Zagreb, Croatia - Expertus d. o. o., Zagreb, Croatia - HUP-Zagreb d. d., Zagreb, Croatia

Adris has a 100% share in the capital of Adria Resorts d.o.o. and Abilia d.o.o., a 66.34% share in the capital of the company Croatia osiguranje d.d., a 100% share in the capital of the company Expertus d.o.o. (of which 22.22% acknowledged in accordance with the Optional agreement) and a 35.36% direct share in the capital of HUP-Zagreb d.d. The list of all subsidiaries is listed in the financial statements, in the note General information.

3. OPERATING RESULTS, MARKET POSITION AND FUTURE PROJECTIONS

Environment

In 2018 Croatia’s economy recorded a GDP growth of 2.6 percent which marks a slight slowdown compared to the previous year. There is a whole range of positive trends in public finances. If it were not for the one-off impact of state guarantees for shipbuilding, the state budget would be in surplus this year too. Public debt continues to drop and now amounts to 74.8 percent of GDP. According to data by the Croatian Bureau of Statistics, this year marks the first time that unemployment was recorded below 10%, but without a more in-depth analysis of positive trends, one might come to certain incorrect conclusions. Unemployment is dropping due to the fact that the most vital part of the population is moving abroad. Foreign remittances in the amount higher than HRK 16bn a year positively impact the purchasing power of the local population and GDP. However, in the long term Croatia faces the challenge of labour force shortage and the question of filling the budget on the one hand and the aging population and pressure on the healthcare and pension system on the other. The fact remains that numerous economies in transition are faced with labour force leaving for wealthier countries of Western Europe after EU accession. This results in a shortage of educated labour force across Eastern Europe, as well as Croatia. Increasing salaries would surely have an impact on reduction in emigration of the labour force, but this increase should also be accompanied by productivity and the overall competitiveness of Croatian companies. These negative trends are not expected to end in the short term. Challenges relating to trust in key institutions in entrepreneurship development should also be taken into account. A predictable tax system is also necessary for attracting domestic and foreign investments in the long-term.

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What is Adris and how does it choose its operations?

Adris is an investment and management company with an emphasis on corporate social responsibility. Its goal is to create value and return for its shareholders in the long term, to create new jobs and benefits for the community in which it operates. In achieving its goals, Adris is guided by its strong affiliation to the company, openness to new knowledge and successful global business practices. Adris has its own set of investment criteria, which it examines before entering into business, taking into account the elements of long-term sustainability in each of its operations. Its key criteria include increasing demand, space for further consolidation on regional markets and achieving economies of scale as well as the premiumization of operations. Consequently, the focus is on taking over the leading position in the industry to be entered. Taking into account the small size of the domestic market and limited demand in the long-term, the internationalization of Adris’ operations is necessary. The production of healthy food is a good example, achieving 80 percent of revenue on export markets, while in the tourism division of the Group, this share is higher than 95 percent. In analysing the premiumization process, it should be noted that 84 percent of hotel capacities of the tourism division of the Group today are at the level of four or five stars. Taking into account the quality of its portfolio and presence in top tourist destinations in Croatia, Maistra has the potential to become the leading Croatian tourism company. Revenues from the sale of differentiated products were around 40% for Cromaris in 2018 and the aim is to increase this figure to 50% in the next four years. Cromaris competes on the market with quality and diversity which make it stand out from the competition. In 2018, the equivalent of 9,000 tonnes of fresh fish was sold, just slightly short of the projected 10,000 tonnes, a figure significant for long-term sustainability. Croatia osiguranje has stabilized its market share and maintained its leading position on the Croatian market after a multi-year decreasing trend. Adris’ portfolio today has three growing businesses as shown by multi-year trends. In the last ten years Adris has invested HRK 8.2bn in the acquisition of ownership interest in tourism, healthy food and insurance as well as the organic growth of its operations. In the long term, business models of Adris’ companies are highly resistant to potential crises cyclically occurring at the global level. Today there are models for assessing the quality of strategy in each individual company provided by relevant consultant firms. They stress the importance of the industry in which a company competes by saying that “it is better to be an average company in a good industry than an excellent company in an average industry”. Adris has good companies in good industries.

Highlights of 2018

In 2018 all Adris’ companies recorded an increase in key quantitative and financial indicators. All three businesses had a double-digit growth of net profit: tourism grew by 24%, healthy food by 11% and insurance by 33%. Through the acquisition of the company HUP-Zagreb d.d., Adris additionally strengthened its tourism business segment. Two strong pillars have thus been created with individual levels of annual net profit of around HRK 300m. In the process relating to Agrokor, Adris did all necessary provisions in accordance with the expected risk level. These provisions had no effect on the liquidity, profitability and viability of Adris’ businesses. At the end of 2018, Adris still holds a strong financial position and has high investment potential. Consequently, Adris has the financial capacity to lead a growing dividend policy and implement a new five-year investment cycle worth almost HRK 3bn. Additionally, there is space for further growth through acquisitions. In 2018 Adris grupa recorded total revenues amounting to HRK 5.79bn which represents an increase by 5%. Operating revenues amounted to HRK 5.65bn, i.e. 13% more compared to the previous reporting period. Revenues from sales of goods and services amounted to HRK 5.06bn and were 16% higher compared to the previous year. Revenues from domestic sales stood at HRK 3.55bn, while foreign sales stood at HRK 1.51bn, that is, 12% more compared to last year. Net profit amounted to HRK 446m which represents a growth by 19%. Net profit after minority interest amounts to HRK 307m.

In all three businesses, Adris’ companies Maistra, Cromaris and Croatia osiguranje recorded a double-digit growth of net profit in 2018 and consolidated this growth equals 29% compared to the previous year. If the company HUP-Zagreb d.d. is added to this, Adris operations recorded a consolidated growth of net profit by 52%.

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Factors relevant for data comparability

In 2017 and 2018 Adris grupa d.d. made provisions for receivables arising from loans to Agrokor, thus Group-level results are not entirely comparable. In addition to this, interests for these loans were accrued during the first quarter of 2017. When Lex Agrokor came into force in April 2017, interest stopped accruing on said loans. The company HUP-Zagreb d.d. is included in the consolidated result for 2018, for the accounting period between 1 May and 31 December. Maistra had tax relief in 2018 based on the Act on Investment Promotion which had a positive impact on the net result.

Organic and acquisition growth of the tourism division

At the global level tourism recorded an increase in the number of arrivals by 6% in 2018 making this the second best year since 2010. A good economic environment, recovery of key source markets, better connection between tourist destinations and simpler visa regimes have promoted growth in this period. Europe also recorded a 6% growth while the Mediterranean recorded one percentage point more, i.e. 7%. Global forecasts for 2019 show an increase around 3% to 4%, and multi-year projections until 2030 remain stable and rising. Analyses show that in 2018 tourism in Croatia recorded an increase in arrivals by 7%, and the number of overnight stays by 4%. The year which marked a new record with 106 million overnight stays opens up numerous questions about the sustainability of the current tourism model. The first challenge is the pronounced seasonality. A total of 86% of overnight stays is realized in the period between June and September. A good example of the burden that such seasonality presents for local resources is the fact that 44% more overnight stays are realized in Croatia per square kilometre in relation to the comparable average, calculated with data from Austria, France, Greece, Italy and Spain. This coefficient which reveals the pressure placed on local resources and infrastructure is twice as high if we consider only the most important month of the tourist season in Croatia – August. However, Croatia has significantly less revenue per night from foreign guests compared to the European average. At EUR 127 per overnight stay, Croatia is at one third of European average. The reason for this is certainly one of the least competitive accommodation structures in Europe. More than 80 percent of accommodation capacities in Croatia are characterized by high seasonality, meaning private accommodation and campsites. With hotels making up around 15% of total accommodation capacities, Croatia significantly lags behind leading European and Mediterranean competitors that have 45% to 60% of hotel accommodation in their overall offer. Tax policy promotes a strong growth of private accommodation in Croatia since the level of tax obligations is much lower than in tourist companies. It is therefore clear there is no way to finance the missing infrastructure. Adris’ tourism is going in a completely opposite direction through the development of a tourism that is sustainable in every way, but not completely isolated from the mentioned external trends. The process of ownership consolidation in the company HUP-Zagreb d.d. was finished in 2018 and in early 2019 Adris completed the process of acquiring a 100% share in the company. The process of the functional merger in the tourist division began in June 2018 so that the two tourist companies, Maistra d.d. and HUP-Zagreb d.d. would function as a unified system. It is necessary to have a unified business policy in all business segments in order to reach economies of scale and exploit synergy with the aim of achieving long-term sustainability and increasing value. The unified brand architecture enables the creation of a platform for growth and development as well as easier expansion to other tourist destinations. As already mentioned, the tourist division of the Group has 75% of products in hotels and resorts and a total of 84% in hotel accommodation at the level of four and five stars. Maistra is the leading Croatian tourist company in terms of the quality of its tourist portfolio. The goal is to have the overall offer at the highest level in the next few years. The portfolio structure is in line with a sustainable business strategy. The highest segments of any industry, including tourism, are most resistant to a potential crisis and are the least price-sensitive. It is necessary to maintain a high level of operational excellence in business in order to satisfy the most demanding clients and maintain the adequate level of their loyalty. The tourism segment of the Group is currently present in three leading, recognizable and growing tourist destinations in Croatia: Rovinj, Dubrovnik and Zagreb. Entering the segment of city hotels has additionally reduced the seasonality of operations. Maistra’s development and Adris’ investment cycle which is HRK 4bn worth has created preconditions for improving key business indicators, leading to a strong increase in revenues and profitability. The HRK 1.5bn investments in the ownership interest of HUP-Zagreb d.d. created a precondition for further sustainability in the tourism segment of the Group. In 2018, tourism segment had the EBITDA margin of 38%, and net profit from operations is at the level

6 ADRIS GRUPA D.D., ROVINJ MANAGEMENT REPORT FOR 2018 of around HRK 300m. Current indebtedness of the tourism segment as measured by the relation between debt and EBITDA equals 2.1 times which enables the continuation of a strong investment cycle. One important fact is the good structure of operating income in which hotels and resorts participate with two thirds and campsites with only one third of total operating profit of the Group’s tourism segment. Only five years ago the share of operating profit from hotels and resorts was 41% and at the beginning of the investment cycle only 21%. Adris started a large investment cycle in tourism as early as 2005. It has been building sustainable tourism, as confirmed by the results achieved. In the period between 2005 and 2018 revenues increased at the average annual rate of 8.7% while overnight stays rose on average by 1.9% a year. The emphasis was on increasing quality and creating a recognizable offer. The key lever in the new growth and development cycle consists of good and motivated employees at all levels within the company. Adris’ tourism is a sustainable business today due to several reasons, including the rising demand, a high level of internationalisation, a quality portfolio, presence in top Croatian tourist destinations, profitability and a highly acceptable level of indebtedness. In 2018 Maistra recorded a 4% rise in overnight stays at a 4% higher average price per night. Its operating revenues were 9% higher than previous year, amounting to HRK 1.25 bn. EBITDA (earnings before interest, taxes, depreciation and amortization) from regular business stood at HRK 449m and was 5% higher compared to the previous year. EBIT (earnings before interest and taxes) from regular business rose by 4%, amounting to HRK 275m. Net profit gained from operations amounted to HRK 201m. The construction of the new Grand Park Hotel Rovinj, a key product in the process of completing the high-end hotel offer in Rovinj, is in its final stages. HUP- Zagreb d.d. is a company which significantly contributes to strengthening of the tourism segment of the Group and also achieves an increase in all key business indicators. These indicators include hotels in Zagreb and the operations of hotels in Dubrovnik as part of the subsidiary Hoteli dubrovačka rivijera d.d. In 2018 HUP-Zagreb d.d. recorded a 7% rise in overnight stays with an 8% increase in the average price per night. Operating revenues are 10% higher and amount to HRK 448m. Earnings before interests, taxes, depreciation and amortization (EBITDA) amounts to HRK 176m and is 17% higher than last year. Earnings before interests and taxes (EBIT) recorded an increase of 25% and amounts to HRK 135m. Attributable net profit amounted to HRK 104m. The low total indebtedness of the Group’s tourism segment enables the continuation of a strong investment cycle that forms the basis for growth and development as well as increasing the company's value. More than HRK 2bn are to be invested in the Group’s tourism division by 2023 which will result in 95% of its hotel capacities being at the highest end of the tourism and hotel offer. In addition to investments in Rovinj, Vrsar, Zagreb and Dubrovnik, there are plans to build a hotel in Split, the growing and recognizable tourist destination in Croatia. The key lever for growth alongside capital investments is the investment in the recognisability and experiences in tourist destinations which has a direct and positive influence on the pricing policy.

Cromaris achieves further growth in export and share of differentiated products

The long term rise of the global demand for fish during the last twenty years is around 3% annually with growth of production and sale of fresh fish rising significantly faster and amounting to around 7% annually. The European Union is the largest fish and seafood importer with about one fourth of value in total global sales. The demand for fish is expected to increase due to long term positive trends. Seen in terms of production, fish is the most efficient source of protein gained from farming. Growing health awareness, availability and development of new products tailored to meet the needs of modern consumers are among the key drivers of demand. Analyses show that consumer prices of fish and seafood rose twice as fast than other food products in the period between 2011 and 2017. Today Cromaris is the seventh company in Europe in the segment of sea bream and sea bass farming, and at the same time the fastest growing with a trend of further growth. The average annual rise in sales of 22% was achieved in the period between 2008 and 2018 and in 2018 the level of sales reached almost 9,000 tonnes of whole fish equivalent (WFE). Today, Cromaris is a vertically integrated company which includes a hatchery, farming and processing of fish and a developed international sales network. In 2018 Cromaris achieved 80% of sales revenues on foreign markets which points to a high level of business internationalisation and represents an element of sustainability for the company. Also, it achieves 40% to 50% higher prices on the Italyn market compared to its competitors and is positioned within the premium segment. At the end of 2018 the recognisability of the Cromaris brand in Croatia was 63% and the distribution index or availability was almost 100%. The share of differentiated products in revenues, meaning all products except fresh sea bream and sea bass, amounts to 39% in 2018. Cromaris has rising profitability and in 2018 it recorded the EBITDA margin of 19% which makes it one of the most profitable companies in Europe in terms of sea bream and sea bass production. The many years of fast growth have led to a debt EBITDA ratio of 8.9 times. Recapitalization was therefore

7 ADRIS GRUPA D.D., ROVINJ MANAGEMENT REPORT FOR 2018 planned in early 2019 in the amount of HRK 110m. In two to three years the company should reach the acceptable and sustainable level of debt at around four times EBITDA. Future growth is based on several levers of which the key ones are: increasing availability on key export markets such as Italy, France and Germany, investment in marketing and emphasis on the expansion and sale of differentiated products. Around HRK 1.1bn has already been invested in the growth and development of Cromaris. Cromaris is a sustainable company due to several elements in its favour: the growing demand, internalisation of operations, premiumization strategy, orientation towards added value products, reaching economies of scale and increasing profitability. In 2018, Cromaris recorded sales amounting to 8,166 tonnes, which is 11% more compared to the previous year. Export sales volume grew by 16%, with the biggest increase recorded on the Italyn, French and German market. Revenues from foreign markets accounted for 79% of sales volume and 80% of sales revenue. In the context of strong price dumping coming from the competition on key export markets, a 2% average increase in prices was achieved. For example, in Italy, a key export market, Cromaris achieves around 45% higher average prices of fresh fish than competitors from Greece and Turkey. As a result of higher volume and prices, sales revenues grew by 13% in 2018. Sales revenues from differentiated products, primarily fresh gutted and packaged fish, grew by 46%. As was previously mentioned, high value added products currently account for 39% of total sales which is in line with Cromaris’ differentiation strategy. Higher revenues, different sales structure and cost efficiency resulted in a 6% growth of operating profits. In 2018 direct subsidies were lower by HRK 10m. Net profit amounted to HRK 25.6m and was 11% higher compared to 2017. Cromaris continues with its growth and development strategy. Key levers in the implementation of the strategy are development of the portfolio of high value added products, appropriate marketing and sales activities on all markets and a strong international sales network. Cromaris has launched the process of expanding its fish processing facilities in order to double previous capacities. Cromaris plans to invest additional HRK 260m in the growth and development of its operations by 2023.

Croatia osiguranje continues the transformation process of its operations

After the end of a period of price war in the Croatian insurance market which began in late 2013 resulting in the loss of almost one third of the market due to liberalization, the situation has now stabilized. This has had a positive impact on the overall insurance market which shows long-term positive trends. In 2018 for example, Croatia’s insurance market grew by 7% and is expected to grow in the following years, which correlates with the growth of GDP. Forecasts for the following four years are showing 3% to 4% annual growth of GDP. Comparison with developed EU member states shows there is significant space for growth, as measured by the share of the gross premium in GDP. In 2018 Croatia had the share of gross written premium in GDP around 2.6%, while this figure amounts to 5% to 10% in developed EU countries. In the long term, new technologies impact the market growth potential, as well as improving standard and reducing role of the state, especially in the area of pensions and healthcare. Croatia osiguranje has gone through two strong restructuring phases. Soon after the takeover, a HRK 840m recapitalization followed, causing a strong capitalization of the company. The first restructuring phase between 2014 and 2016 included the “cleanup” of the balance sheet and the first phase of an organizational restructuring. The total costs of this phase amounted to HRK 926m. The structure of employees in Croatia osiguranje has been significantly changed in favour of sales and marketing. The initial 23% share was increased to 60% in late 2018. The number of managers decreased by two thirds. The second phase, during 2017 and 2018, saw the integration of the companies Croatia Lloyd d.d. and Croatia zdravstveno osiguranje d.d. as well as the ownership restructuring in policlinics. Integration has led to a unified business policy as well as higher cost efficiency. The acquisition and integration of Cardif osiguranje d.d., a niche player in the area of credit insurance, was also implemented. A range of technological improvements was implemented across all areas of operations i.e. the level of digitalization has been increased within the whole value chain. The process of increasing the efficiency of the internal sales network was launched in 2016, and in three years productivity has increased by 43%. Croatia osiguranje is definitely the strongest brand and insurance company with the greatest level of trust by its clients. The brand confidence index is at 58% and this result makes Croatia osiguranje better than the second-placed competitor by 15 percentage points. This has certainly contributed to maintaining the leading position on the Croatian insurance market. The period between 2014 and 2018 saw the strong growth of business efficiency as shown in the combined ratio which improved by around 20 percentage points. In 2014 it amounted to 116.9, and in 2018 to 94.1. Croatia osiguranje is on its way to transforming from a typical state-owned enterprise into a customer-oriented company. Measuring the health of the organization through the Organizational Health Index (OHI) shows positive improvements in all its elements and key steps were achieved in the area of innovation and sharing knowledge,

8 ADRIS GRUPA D.D., ROVINJ MANAGEMENT REPORT FOR 2018 customer orientation and employee motivation. It is necessary to strengthen sustainability levers since the company depends only on one thing – the market in Croatia, and in terms of asset management there is a long-term trend of decreasing interest rates. Croatia osiguranje maintained its leading position on Croatia’s market in 2018 as well with the total share of 28.1%. It is a market leader in the non-life insurance segment at 33.2%. Life insurances have also kept the leading position with the market share at 17.7%. In Croatia the total gross written premium amounted to HRK 2.75bn which is 5% more than last year, despite the further optimization and a decrease in part of the portfolio. Gross written premium at Group level amounts to HRK 3.32bn and is 6% higher than last year’s gross written premium. The combined ratio from regular business, as one of the key indicators for business efficiency has increased by 2.4 percentage points in relation to last year’s ratio and equals 94.1. The indicators achieved are the result of a successful continuation of the process transformation of the company with the emphasis on operational excellence. For example, in 2018 alone, further growth of productivity of 18% was achieved in the internal sales network. In 2018 Croatia osiguranje achieved profit before taxes amounting to HRK 403m and in 2017 profit of HRK 304m was achieved, representing a 33% growth. Net profit amounts to HRK 337m and is 33% higher than last year. There are several key growth levers important for the future of the company, which is why projects have been launched to contribute to the further growth and development of the company. The first lever is a modern and competitive portfolio of products. Development of new products is necessary in accordance with customer requirements and technological trends. Entering the area of unfulfilled demand is crucial for creating elements of competitive advantage. The next important lever is the so-called customer journey or managing the overall experience a customer has in working with Croatia osiguranje. The change of perspective from the “sectorial” to the “customer” perspective is a key factor, as well as the further improvement of business processes. Process digitalization, externally towards clients, and internally in processes, is a precondition for maintaining competitive advantage. The fourth, no less important lever is stepping towards business areas complementary to the insurance business such as policlinics.

Financial indicators of Adris grupa

Cash flow from business activities of the group amounted to HRK 726m in 2018 while funds generated in operations were HRK 847m.

Cash flow from investment activities in 2018 amounted to HRK 244m. Cash inflows relate to income from the sale of securities and interest charged. The outflow was primarily the result of acquiring the majority share and acquisition of the company HUP-Zagreb d.d. as well as investments in tangible and financial assets. Investments in tangible assets were mostly related to continuing the previous cycle in the tourist segment with the aim of completing the high-end hotel offer in Rovinj and the construction of the new Grand Park Hotel Rovinj as the key product in this process. Some of the available assets were invested in various financial products, taking into account the optimal balance between return and liquidity.

Cash flow from financial activities is negative and amounts to HRK 539m and is determined primarily by buying minority interest in the company HUP – Zagreb d.d. through a public call for tenders, payment of regular dividends amounting to HRK 285m, buying own shares and loan proceeds resulting from the partial substitution of subsidiaries' development funding with external sources.

Good liquidity and low indebtedness continue to be the key characteristics of the Group’s operations. The liquidity ratio, defined as the ratio of current assets to current liabilities, remains high, amounting to 1.54 in 2018, not including the technical provisions from the insurance business. Debt ratio of 0.50 points to a high potential of the Group for further utilization of financial leverage, i.e. available affordable external financing sources for future business activities. Total short-term liabilities were affected by the consolidation of Croatia osiguranje into the Group's balance sheet. Specifically, industry rules require that Croatia osiguranje maintains provisions for incurred and potential claims in its structure of liabilities. Taking into account the Group’s financial assets available for long term investments, the net financial position is positive which enables Adris a great level of independence in creating its own business policy for further growth and development.

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The capital of Adris grupa was increased in 2018 as well, and on 31 December amounted to HRK 8.80bn. Earnings per share amounted to HRK 19.1, with year-round intensive trading on Croatia’s capital market.

4. RISKS AND RISK MANAGEMENT

The Company is exposed to financial risks (exchange-rate risk, interest rate risk and credit risk) as well as market risks which influence the core business of subsidiaries. The Company uses common financial instruments on the financial market of the Republic of Croatia in order to manage financial risks. In accordance with the significant value of financial assets managed by the Company, particular attention is given precisely to the management of financial risks, monitoring the stability of the banking system and situation on financial markets, i.e. investment of funds managed through the Treasury department. In the tourist segment of the Group, the return of certain countries to the European tourism market represents a risk due to the policy of low prices. The potential risk of dumping primarily relates to countries from the Mediterranean area such as Turkey, Tunisia and Egypt. The lack of workforce in tourism impacts the total growth of costs for staff in this industry.

5. DATA ON THE ACQUISITION AND SALE OF OWN SHARES

On 17 June 2014 the General Assembly of the Company adopted the Decision on authorizing the Management Board for the acquisition of own shares marked ADRS (ADRS-R-A) and ADRS 2 (ADRS-P-A), for the period of five years from the date of adopting the decision, in order to offer these shares to be sold to employees of the Company and subsidiaries. Based on the authority and under conditions determined by the General Assembly through the Decision dated 17 June 2014, the Management of the Company has developed a Program for managing own shares, adopted by the Supervisory Board on 20 April 2015 and the new Program for managing own shares, adopted by the Supervisory Board of the Company on 17 October 2017, regulating the manner and conditions for the sale of own shares to employees of the Company and subsidiaries. In accordance with the authorities and conditions stipulated by the Decision of the General Assembly dated 17 June 2014, in 2018 the Company published a call for the buying of shares of the Company on 16 January, for the period between 16 January and 22 January. On 2 March the Company adopted the Program for buying own shares, authorizing the investment company Interkapital vrijednosni papiri d.o.o., Masarykova 1, 10000 Zagreb to implement the process of buying own shares of the Company in the period between 5 March 2018 and 16 June 2019. This call and program have been published on the webpage of the Zagreb Stock Exchange and the Company (www.zse.hr; www.adris.hr). In accordance with the listed programs, throughout 2018 the Company has: - Acquired 4,844 own shares of the class ADRS (ADRS-R-A) making up 0.05% of shares of this class and 231,913 own shares of class ADRS2 (ADRS-P-A) making up 3.42% of shares of this class i.e. a total of 236,757 shares making up 1.44% of the total Company capital. - Sold to employees of the Company and subsidiaries 60,840 own shares of the class ADRS (ADRS-R-A) making up 0.63% shares of this class and 10,182 own shares of the class ADRS2 (ADRS-P-A) making up 0.15% shares of this class, i.e. a total of 71,022 own shares making up 0.43% of total Company capital. On 31 December 2018 the Company held a total of 95,402 own shares of the class ADRS (ADRS-R-A), making up 0.99% shares of this class and 247,923 own shares of the class ADRS2 (ADRS-P-A) making up 3.65% shares of this class, i.e. a total of 343,325 own shares making up 2.09% of the total capital of the Company.

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6. RESEARCH AND DEVELOPMENT ACTIVITIES

The Company continually keeps track of events in its environment and invests in market research, in addition to modifying and supporting activities of subsidiaries with the purpose of achieving organic growth and recognising business opportunities as well as realizing new acquisitions.

7. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD

The process of transferring shares of minor shareholders HUP-ZAGREB d.d. Zagreb was implemented in February 2019, constituting a total of 18,375 shares. Consideration to be paid for transferred shares was determined in the amount of HRK 3,446.00 per share. February 2019 also saw the transfer of shares owned by minor shareholders HOTELI DUBROVAČKA RIVIJERA d.d. Mlini, a total of 34,203 shares. Consideration for transferred shares was determined in the amount of HRK 271.00 per share.

8. NON-FINANCIAL REPORT

The non-financial report for the reporting year is annexed to the Management Report as a separate document.

9. TABLE HARMONIZING THE ANNUAL FINANCIAL REPORT FOR 2018 AND THE REVISED IFRS REPORT FOR 2018

(in thousands HRK) Differe IFRS entry Amount AFR entry Amount nce Note

Revenue from repealing other provisions amounting to HRK 25,356 is shown in Revenue based on the IFRS statement under the entry Other the use of own profit. Profit from the sale of material 101 products, goods, assets amounting to HRK 21,600 is services shown in the IFRS statement under the entry Other profit. Revenue from the release of provisions for considerations Other operating amounting to HRK 15,249 is netted in revenue (outside the 586,566 IFRS with the cost on the position Costs for employees and in AFR it is shown Other revenue 347,361 group) (253,300) under Other operating revenue (outside the group). Revenue from collected written off receivables amounting to HRK 151,689 and revenue from closing provisions for court proceedings etc. Share in profit from 13,995 amounting to HRK 25,412 are netted in joint ventures the IFRS statement with related expenses in the entry Other operating expenses and in the AFR statement under the entry Other operating revenue (outside the group). Amortization (425,223) Amortization and Value adjustment of (438,497) - value adjustments fixed assets except (13,274) financial assets Claims incurred in insurance net value (1,743,769) Material costs (3,126,343) - of reinsurance

11 ADRIS GRUPA D.D., ROVINJ MANAGEMENT REPORT FOR 2018

Differe IFRS entry Amount AFR entry Amount nce Note Cost for material (1,382,574) and services Revenue from the release of provisions for considerations amounting to HRK Costs for employees (960,298) 15,249 is netted in IFRS with the cost on the position Costs for employees and in Costs for AFR it is shown under Other operating (1,085,854) Provisions for (111,766) employees revenue (outside the group). Other pensions, expenses for employees amounting to considerations and (13,790) HRK 127,015 (fees for transportation, similar financial support etc.) are shown in AFR commitments under the entry Other expenses. Other expenses for employees amounting Other expenses (361,415) to HRK 127,015 (fees for transportation, Value adjustments of financial support etc.) are shown in IFRS current assets under the entry Costs for employees. (130,709) excluding financial Value adjustment of loans given in the amount HRK 243,443 is shown in the assets AFR statement under the entry Financial Reservations for expenses. Revenues from collected Other operating (527,626) launched court (16,669) 60,673 written off receivables amounting to HRK expenses proceedings 151,689 and revenue from closing provisions for court proceedings etc. amounting to 25,412 are netted in the IFRS statement with related expenditures Other operating (79,505) under the entry Other operating expenses expenses and in the AFR statement under the entry Other operating revenue (outside the group). Financial revenue 26,670 Revenue from repealing other provisions amounting to HRK 25,356 is shown in Other income 149,408 the AFR statement under the entry Other operating revenue (outside the group). Financial revenue 129,123 60,950 Share in profit of Profit from the sale of tangible assets subsidiaries and 13,995 amounting to HRK 21,600 is shown in joint ventures the AFR statement under the entry Other operating revenue (outside the group). Financial expenses (46,659) Value adjustment of loans given amounting to HRK 243,443 is shown in Financial expenses (415,064) 243,443 Other losses (124,962) the IFRS statement under the entry Other operating expenses.

ADRIS GRUPA d. d. Marko Remenar

12 ADRIS GRUPA d.d., Rovinj

RESPONSIBILITY FOR THE ANNUAL REPORT

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

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

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

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

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

The Annual Report was authorised for issue by the Management Board on 19 April 2019.

Signed on behalf of the Management Board:

______President of the Management Board Member of the Management Board Member of the Management Board mr. Ante Vlahović Marko Remenar Stipanka Ivandić Štefanek

13

Independent auditor’s report to the Shareholders of Adris grupa d.d. Report on the audit of the consolidated and separate financial statements

Opinion In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the financial position of Adris grupa d.d. (the “Company”) and its subsidiaries (together - the “Group”) as at 31 December 2018, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”).

Our opinion is consistent with our additional report to the Audit Committee.

What we have audited The consolidated and separate financial statements of the Group and the Company which comprise:  Consolidated and separate statements of comprehensive income for the year ended 31 December 2018;  Consolidated and separate statements of financial position as at 31 December 2018;  Consolidated and separate statements of changes in equity for the year then ended;  Consolidated and separate cash flow statements for the year then ended; and  The notes to the consolidated and separate financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated and separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group and the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Company and the Group are in accordance with the applicable law and regulations in Croatia and that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided to the Company and the Group, in the period from 1 January 2018 to 31 December 2018, are disclosed in the Corporate Governance Statement.

PricewaterhouseCoopers d.o.o., Heinzelova 70, 10000 Zagreb, Croatia T: +385 (1) 6328 888, F:+385 (1)6111 556, www.pwc.hr

Commercial Court in Zagreb, no. Tt-99/7257-2, Reg. No.: 080238978; Company ID No.: 81744835353; Founding capital: HRK 1,810,000.00, paid in full; Management Board: J. M. Gasparac, President; S. Dusic, Member; T. Macasovic, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR8124840081105514875.

Our audit approach Overview

 Overall materiality for the financial statements of the Company as a whole: HRK 19.400 thousand, which represents 5% of average profit before tax for the last three years, increased by the impairment of loans receivable. Materiality  Overall materiality for the financial statements of the Group as a whole: HRK 39.000 thousand, which represents 5% of average profit before tax for the last three years, increased by the impairment of loans receivable. Audit  The group engagement team conducted audit work at 4 scope reporting units in Croatia, including local and foreign components. The subsidiaries in foreign countries were audited by component auditors from PwC network.  Our audit scope addressed almost 100% of the Group’s revenues Key audit and almost 100% of the Group’s absolute value of underlying matters profit.

 Group - Acquisition of EXPERTUS d.o.o. (including HUP- ZAGREB d.d. and HOTELI DUBROVAČKA RIVIJERA d.d.)  Group - Estimated useful life of property, plant and equipment and impairment indicators in the tourism business segment  Group - Estimates used in calculation of insurance contract liabilities and Liability Adequacy Test (LAT)

As part of designing our audit we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated and separate financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated and separate financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the consolidated and separate financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated and separate financial statements as a whole.

Overall materiality for The Company: HRK 19.400 thousand the financial statements as a whole The Group: HRK 39.000 thousand

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

We chose profit before tax as the benchmark because we consider it to be a key metric in the industry of the Company, and it is the benchmark against which the performance of the Group and the Company is most commonly measured by shareholders. Due to Rationale for the the volatility of profit before tax, we used a three-year average of materiality benchmark profit before tax for 2018, 2017 and 2016. We adjusted the Group’s applied and the Company’s profit before tax for the one-time impact of loan receivables impairment. We chose the percentage to be consistent with the quantitative materiality thresholds used for profit-oriented companies in the relevant sector.

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

Key audit matter How our audit addressed the key audit matter

Group - Acquisition of Expertus d.o.o. We obtained an understanding of the details of the (including HUP-Zagreb d.d. and HOTELI acquisition transaction through discussions with DUBROVAČKA RIVIJERA d.d.) Group management and reading of the supporting legal documents (namely share-purchase agreement). See Note 35 (Acquisition of subsidiary) for We reconciled the purchase price consideration from the related description and disclosure the transaction agreements to the bank statements

and the liability amount recorded in the financial In April 2018, the Group acquired statements. EXPERTUS d.o.o., which held majority interests in HUP-ZAGREB d.d. and We performed audit procedures to assess the HOTELI DUBROVAČKA RIVIJERA d.d., completeness and appropriateness of identified for total consideration of HRK 1.002.140 assets and liabilities assumed at the acquisition date. thousand. For real estate acquired, we reconciled fair values of This was a significant focus area for our acquired assets to the valuation reports prepared by audit due to the significance of an independent appraiser. We involved our internal management’s judgements and estimates valuation specialists to review the methodology used involved in accounting for this transaction in the valuation reports, and performed the and the resulting overall impact of the following: transaction on the consolidated financial  We tested the mathematical accuracy and statements. The key areas of judgement consistency of calculations within the valuation include the allocation of purchase price, the reports. fair value assessment of identifiable assets  In respect to land, we assessed the reasonableness and liabilities, and evaluation of total of comparative market transactions used to purchase price consideration. determine fair value.

 In respect to business premises (hotel buildings and other commercial properties), we compared the key inputs used within the income-based approach (such as the implied revenues, operating costs and capitalization rates) - used to determine their fair values - to an acceptable range based on available market information.

We tested the purchase price allocation performed by Group management, re-calculated the resulting goodwill, and evaluated the completeness of disclosures made in the financial statements for compliance with IFRS 3.

Key audit matter How our audit addressed the key audit matter

Group - Estimated useful life of property, We obtained and gained an understanding of the plant and equipment and impairment accounting policies related to the measurement of indicators in the tourism business segment property, plant and equipment. See Note 2.6 (Significant accounting We discussed with management the frequency of policies), Note 4 (Critical accounting adaptation and reconstruction of assets to confirm estimates) and Note 17 (Property, plant and that it is in line with the estimated useful life. equipment). Furthermore, we analysed the Group’s internal Management assesses annually whether reports, which include an overview of the realised there are any circumstances due to which financial results by profit units, such as hotels, tourist the estimated useful lives of property, plant resorts, and campsites. For each profit unit, we and equipment should change compared to determined that the earnings before tax, interest, those previously determined and whether depreciation and amortisation (EBITDA) realised in there are any impairment indicators. 2018 is positive, and compared it to the planned During 2018, management did not adjust EBITDA for 2018 and related EBITDA in 2017. For useful lives significantly and did not those profit units where realized EBITDA for 2018 perform an impairment test of these assets, was lower than the plan or the prior year, we as indicators of impairment were not discussed with management their future plans for identified. these profit units. We also considered external data available, such as the results of the tourist season in We focused on this area due to frequency of Croatia and the Ministry of Tourism announcements adaptation and reconstruction in the for the coming season, as well as other changes in tourism business segment, and the possible laws that have a direct impact on the Group’s significant effects on the financial business. statements if the circumstances affecting the estimation of useful life and/or impairment indicators are not identified on time.

Key audit matter How our audit addressed the key audit matter

Group - Estimates used in the calculation We used our own actuarial specialists to assist us in of insurance contract liabilities and performing our audit procedures. In particular, our Liability Adequacy Test (LAT) audit focused on the models considered more complex and/or requiring significant judgement in See Note 2.32 (Significant accounting the setting of assumptions used in calculation of policies) and Note 34 (Technical technical provisions or performing the liability provisions). adequacy test. The Group had technical provisions of HRK We obtained an understanding of the internal 7,465,504 thousand at 31 December 2018 actuarial process including management’s representing 69% of the Group’s total determination and approval process for setting of liabilities. This is an area that involves economic and actuarial assumptions. significant judgement over uncertain future outcomes, including primarily the timing Our assessments also included challenging, as and ultimate full settlement of long-term necessary, specified economic and actuarial policyholder liabilities, and therefore we assumptions considering management’s rationale for considered it a key audit matter for our the actuarial judgments applied along with audit. comparison to applicable industry experiences. Consistent with the insurance industry, the We considered the appropriateness of actuarial Group uses valuation models to support the judgements used in the models, which may vary calculations of the technical provisions. The depending on the product and/or the specifications complexity of the models may give rise to of the product, and also the compliance of the models errors, as a result of inadequate/incomplete with the applicable accounting standards. data or the design or application of the Furthermore, by performing our recalculations we models. have determined whether the models and systems Economic assumptions such as investment were calculating the technical provisions accurately return and interest rates and actuarial and completely. assumptions such as mortality, morbidity We tested the validity of management’s liability and customer behaviour are key inputs used adequacy testing which is a key test performed to to estimate these mainly long-term check that the liabilities are adequate as compared to liabilities. Significant judgement is applied the expected future contractual obligations. The in setting these assumptions. inputs used were reconciled to the accounting The Group’s IFRS liability adequacy test records. was performed in order to confirm that Our work on the liability adequacy tests included technical provisions, net of deferred assessing the reasonableness of the projected cash acquisition cost, were adequate in the flows and challenging the assumptions adopted in the context of expected future cash outflows. context of both the Group and industry experience and specific product features.

How we tailored our Group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. In establishing the overall approach to the group audit, we determined the type of work that needed to be performed at reporting units by us, as the group engagement team or component audit teams operating under our instructions. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.

We identified 4 reporting units which were covered by our audit procedures. The Group audit team performed audit procedures at the following 3 reporting units:  stand-alone Adris grupa d.d. (the parent) and at the consolidation level;  subsidiary Adria resorts d.o.o. with its two direct subsidiaries Maistra d.d. and Cromaris d.d.; and  subsidiary Abilia d.o.o. The component audit team from PricewaterhouseCoopers d.o.o., Zagreb performed the audit of Croatia osiguranje d.d. group, with the foreign components of this subgroup audited by component audit teams from the PwC network, under the Group audit team’s instructions and supervision. Overall, our audit procedures covered almost 100% of the Group’s revenues and 100% of the Group’s profit. By performing the above procedures at components, combined with additional procedures at the Group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the Group as a whole to provide a basis for our opinion on the consolidated financial statements.

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

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

Auditor’s responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our independent auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our independent auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern.

 Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our independent auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements Appointment We were first appointed as auditors of the Company from the date of its incorporation, and were also the auditors of the legal predecessor of the Company. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of over 15 years.

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

PricewaterhouseCoopers d.o.o. Heinzelova 70, Zagreb 19 April 2019 ADRIS GRUPA d.d. Rovinj

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS 31 DECEMBER 2018

21 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018

Group Company (in thousands of HRK) Note 2018 2017 2018 2017

Operating revenue 5 5,064,599 4,372,750 23,345 20,921 Other income 6 347,361 385,754 216,289 5,166 Change in value of inventories of work in progress and finished goods 120,492 60,214 - - Insurance claims incurred, net of reinsurance 8 (1,743,769) (1,665,099) - - Cost of materials and services 7 (1,382,574) (1,147,458) (22,793) (25,738) Staff costs 9 (1,085,854) (918,710) (27,804) (22,823) Depreciation and amortisation and impairment 17, 18, 19 (438,497) (375,758) (18,294) (18,311) Other operating expenses 10 (527,626) (517,870) (261,428) (156,561) Other gains 11 149,408 271,932 33,561 141,136 Other losses 12 (124,962) (82,649) (4,257) (16,495) Operating profit 378,578 383,106 (61,381) (72,705)

Finance income 13 26,670 93,483 64,979 130,691 Finance costs 13 (46,659) (39,494) (37,947) (32,524) Finance income/(costs) – net 13 (19,989) 53,989 27,032 98,167

Share in profit of associates and joint ventures 21 13,995 4,214 - -

Profit before tax 372,584 441,309 (34,349) 25,462

Income tax 14 73,735 (67,665) 42,519 (9,542)

Net profit for the year 446,319 373,644 8,170 15,920

Other comprehensive income Items that will be reclassified subsequently to profit or loss Change in fair value of financial assets through other comprehensive income – net of deferred income tax (45,503) 108,520 (3,593) 12,923 Net change in revaluation reserve (FVPL equity securities – overlay approach) (6,371) Other (2,288) (387) - - Total other comprehensive income (54,162) 108,133 (3,593) 12,923 Total comprehensive income for the year 392,157 481,777 4,577 28,843

Net profit attributable to: Company’s shareholders 307,477 292,992 8,170 15,920 Non-controlling interests 138,842 80,652 - - 446,319 373,644 8,170 15,920 Comprehensive income attributable to: Company’s shareholders 270,337 368,762 4,577 28,843 Non-controlling interests 121,820 113,015 - - 392,157 481,777 4,577 28,843 Basic/diluted earnings per share attributable to the Company’s shareholders (in HRK) 15 19.14 18.12 0.51 0.98

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

22 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018

Group Company Restated Restated Restated Restated 31 31 31 31 31 31 (in thousands of HRK) Note December December December December December December 2018 2018 2017 2016 2017 2016

ASSETS Non-current assets Property, plant and equipment 17 6,126,006 4,251,403 4,185,785 224,283 232,486 495,568 Investment property 18 901,915 954,293 806,006 234,324 242,983 4,962 Biological assets 19 32,199 31,017 27,493 - - - Intangible assets 20 1,057,779 944,986 921,474 2,592 2,702 2,774 Investments in subsidiaries 21 - - - 4,903,789 3,279,865 3,280,051 Held-to-maturity investments 22 - 1,829,027 1,933,529 - - - Debt securities at amortised cost 22 1,883,079 - - - - - Available-for-sale financial 23 - 3,683,527 2,501,149 - 99,507 83,748 assets Financial assets at fair value through other comprehensive 23 3,792,425 - - 95,126 - - income Financial assets at fair value 29 615,526 375,732 182,579 - - - through profit or loss Deferred tax assets 26 406,527 240,343 237,151 155,051 110,126 104,311 Investments in associates and 21 91,249 91,549 97,566 - - - joint ventures Trade and other receivables 25 195,511 124,190 124,277 - 10 91 Deposits 28 868,667 2,487,763 748,992 355,606 2,062,908 49,126 15,970,883 15,013,830 11,766,001 5,970,771 6,030,587 4,020,631 Current assets Inventories 27 591,159 468,948 409,371 38 - - Trade and other receivables 25 1,704,358 1,917,846 2,127,973 1,037,627 1,553,168 1,581,454 Held-to-maturity investments 22 - 426,576 356,913 - - - Debt securities at amortised cost 22 350,564 - - - - - Available-for-sale financial 23 - 126,797 53,546 - - - assets Financial assets at fair value through other comprehensive 23 329,383 - - - income Financial assets at fair value 29 102,371 164,772 356,958 75,429 72,853 76,677 through profit or loss Deposits 28 1,396,856 1,380,772 3,832,750 1,064,496 667,357 2,908,136 Income tax receivable 45,195 - - 13,524 - 10,870 Cash and cash equivalents 28 633,055 201,660 211,415 18,168 5,776 13,984 5,152,941 4,687,371 7,348,926 2,209,282 2,299,154 4,591,121 Total assets 21,123,824 19,701,201 19,114,927 8,180,053 8,329,741 8,611,752

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

23 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018

Group Company Restated Restated Restated Restated 31 31 31 31 31 31 (in thousands of HRK) Note December December December December December December 2018 2018 2017 2016 2017 2016

EQUITY AND

LIABILITIES Capital and reserves Share capital 164,000 164,000 164,000 164,000 164,000 164,000 Share premium 56,036 46,167 36,612 56,036 46,167 36,612 Treasury shares (140,277) (60,799) (102,686) (140,277) (60,799) (102,686) Legal reserves 12,448 12,448 12,448 12,448 12,448 12,448 Fair value reserves 158,689 189,880 113,850 37,785 41,378 28,455 Statutory reserves 8,266,586 8,566,579 8,210,453 7,733,264 8,007,343 7,637,150 Retained earnings 278,782 44,034 404,588 12,151 19,752 649,782 30 8,796,264 8,962,309 8,839,265 7,875,407 8,230,289 8,425,761 Non-controlling interests 1,473,522 1,322,655 1,211,790 - - - Total equity 10,269,786 10,284,964 10,051,055 7,875,407 8,230,289 8,425,761

LIABILITIES Non-current liabilities Borrowings 31 885,261 278,497 291,857 - - - Provisions 33 137,343 146,443 244,047 32 48 117,534 Technical provisions 34 4,888,796 4,707,623 4,626,002 - - - Trade and other payables 32 25,919 25,737 25,360 - - - Other financial liabilities 35 222,675 - - 222,675 - - Deferred tax liability 26 310,802 212,546 198,415 - - - 6,470,796 5,370,846 5,385,681 222,707 48 117,534 Current liabilities Trade and other payables 32 1,061,928 919,204 897,419 55,012 48,590 52,180 Income tax payable 41,978 29,163 46,901 - 4,187 - Borrowings 31 678,262 540,637 477,647 26,927 22,777 16,277 Provisions 33 24,367 55,063 64,984 - 23,850 - Technical provisions 34 2,576,707 2,501,324 2,191,240 - - - 4,383,242 4,045,391 3,678,191 81,939 99,404 68,457 Total liabilities 10,854,038 9,416,237 9,063,872 304,646 99,452 185,991

Total equity and liabilities 21,123,824 19,701,201 19,114,927 8,180,053 8,329,741 8,611,752

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

24 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

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

Balance at 31 December 2017 164,000 46,167 (60,799) 12,448 189,880 8,566,579 44,034 1,322,655 10,284,964 Effect of IFRS 9 adoption 2.39 - - - - 7,165 (7,165) (12,786) (6,042) (18,828) Balance at 1 January 2018 164,000 46,167 (60,799) 12,448 197,045 8,559,414 31,248 1,316,613 10,266,136

Profit for 2018 ------307,477 138,842 446,319 Other comprehensive income Change in fair value of financial assets through other comprehensive income - - - - (31,400) - - (14,103) (45,503) Net change in revaluation reserve (FVPL equity securities – overlay approach) (4,227) (2,144) (6,371) Foreign exchange differences - - - - - (1,513) - (775) (2,288) Total comprehensive income - - - - (35,627) (1,513) 307,477 121,820 392,157 Transactions with owners Purchase from non-controlling interests 36 - - - - - (8,939) (52,581) (581,429) (642,949) Acquisition 35 ------630,465 630,465 Transfer of retained earnings 30 /iv/ - - - - - 15,921 (15,921) - - Transfer from statutory reserves to retained earnings 30 /iv/ - - - - - (290,000) 290,000 - - Dividends declared 30 /v/ ------(281,441) (9,637) (291,078) Purchase of treasury shares 30 /ii/ - - (103,925) - - - - - (103,925) Sale of treasury shares 30/ii/ - 9,869 24,447 - - - - - 34,316 Other - - - - (2,729) (8,297) - (4,310) (15,336) Total transactions with owners - 9,869 (79,478) - (2,729) (291,315) (59,943) 35,089 (388,507) Balance at 31 December 2018 164,000 56,036 (140,277) 12,448 158,689 8,266,586 278,782 1,473,522 10,269,786

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

25 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

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

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

Profit for 2017 ------292,992 80,652 373,644 Other comprehensive income Change in fair value of available- for-sale financial assets - - - - 76,132 - - 32,388 108,520 Foreign exchange differences - - - - - (362) - (25) (387) Total comprehensive income - - - - 76,132 (362) 292,992 113,015 481,777 Transactions with owners Purchase from non-controlling interests 35 - - - - - (506) - (2,039) (2,545) Transfer of retained earnings 30 /iv/ - - - - - 614,193 (614,193) - - Transfer from statutory reserves to retained earnings 30 /iv/ - - - - - (244,000) 244,000 - - Dividends declared 30 /v/ ------(275,757) - (275,757) Purchase of treasury shares 30/ii/ - - (9,131) - - - - - (9,131) Sale of treasury shares 30/ii/ - 9,555 51,018 - - - - - 60,573 Other - - - - (102) (13,199) (7,596) (111) (21,008) Total transactions with owners - 9,555 41,887 - (102) 356,488 (653,546) (2,150) (247,868) Balance at 31 December 2017 164,000 46,167 (60,799) 12,448 189,880 8,566,579 44,034 1,322,655 10,284,964

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

26 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

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

Balance at 31 December 2017 164,000 46,167 (60,799) 12,448 41,378 8,007,343 19,752 8,230,289 Effect of IFRS 9 adoption 2.39 ------(7,370) (7,370) Balance at 1 January 2018 164,000 46,167 (60,799) 12,448 41,378 8,007,343 12,382 8,222,919

Profit for 2018 ------8,170 8,170 Other comprehensive income Change in fair value of financial assets through other comprehensive income - - - - (3,593) - - (3,593) Total comprehensive income - - - - (3,593) - 8,170 4,577 Transactions with owners Distribution of retained earnings 30 /iv/ - - - - 15,921 (15,921) - Transfer from statutory reserves to retained earnings 30 /iv/ - - - - - (290,000) 290,000 - Dividends declared 30 /v/ ------(281,441) (281,441) Purchase of treasury shares 30 /ii/ - - (103,925) - - - - (103,925) Sale of treasury shares 30 /ii/ - 9,869 24,447 - - - - 34,316 Other ------(1,039) (1,039) Total transactions with owners - 9,869 (79,478) - - (274,079) (8,401) (352,089) Balance at 31 December 2018 164,000 56,036 (140,277) 12,448 37,785 7,733,264 12,151 7,875,407

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

27 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

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

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

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

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

28 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018

Group Company (in thousands of HRK) Note 2018 2017 2018 2017

Cash flows from operating activities: Cash generated from operations 37 846,927 715,125 (67,692) (30,127) Tax paid (96,509) (64,959) (17,711) (3,137) Interest paid (24,196) (22,793) (969) (950) Cash flow from operating activities 726,222 627,373 (86,372) (34,214)

Cash flows used in investing activities: Acquisition of company, net of cash acquired 35 (539,495) (44,053) (1,401,248) - Proceeds from sale of associates 21 - 6,469 - - Investment in held-to-maturity financial assets 22 (297,995) - - Proceeds from sale of held-to- maturity financial assets 22 297,801 - 935 Investment in debt securities at amortised cost (400,434) - - - Proceeds from sale of debt securities at amortised cost 370,322 - - - Investment in available-for-sale financial assets 23 (1,843,733) - - Proceeds from sale of available-for- sale financial assets 914,446 - - Investment in financial assets at fair value through other comprehensive income (1,553,214) - - - Proceeds from sale of financial assets at fair value through other comprehensive income 1,182,064 - - - Investment/(withdrawal of) deposits – net 1,683,934 652,660 1,319,933 159,499 (Payments for)/proceeds from investments in securities and bonds at fair value through profit or loss (171,631) 50,108 - - Purchase of tangible and intangible assets (660,715) (695,723) (1,717) (3,262) Loans given (41,659) - (312,352) (736,704) Proceeds from loans given 58,941 87,674 600,017 623,396 Interest collected 252,173 372,253 22,638 193,092 Proceeds from sale of tangible assets 40,906 19,067 473 95 Dividends received 22,570 21,258 216,088 4,951 Other payments - - - - Cash flow used in investing activities 243,762 (459,768) 443,832 242,002

Cash flows from financing activities: Purchase of treasury shares 30 (103,925) (9,131) (103,926) (9,131) Sale of treasury shares 30 34,316 60,573 34,318 60,573 Purchase of non-controlling interests (642,949) (2,545) - - Finance lease payments (1,158) - - - Dividends paid (285,137) (275,757) (279,610) (273,938) Repayment of borrowings (35,291) (84,500) (4,150) (2,500) Proceeds from borrowings 495,800 134,000 8,300 9,000 Net other payments (245) - - - Cash flow used in financing activities (538,589) (177,360) (345,068) (215,996)

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

29 ADRIS GRUPA D.D., ROVINJ CONSOLIDATED AND SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018

Net increase/(decrease) in cash and cash equivalents 431,395 (9,755) 12,392 (8,208) Cash and cash equivalents at beginning of year 201,660 211,415 5,776 13,984 Cash and cash equivalents at end of year 28 633,055 201,660 18,168 5,776

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

30 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

1. GENERAL INFORMATION

Adris grupa Rovinj (the Group) consists of the parent company ADRIS GRUPA d.d., Rovinj (the Company) and the subsidiaries listed below. The parent company is registered in Rovinj, Obala Vladimira Nazora 1, Croatia and is engaged in the management of investments in subsidiaries and other investments. Through a number of subsidiaries, the Group performs tourism, trade, mariculture activities and it is also engaged in the insurance business. As at 31 December 2018 and 2017, the shares of ADRIS GRUPA d.d., Croatia osiguranje d.d., Maistra d.d. and HUP-Zagreb d.d. are listed on the public joint stock company listing on the Zagreb Stock Exchange. ADRIS GRUPA d.d. owns the following companies comprising the Adris group (the Group): Ownership % Name of subsidiary 2018 2017

ADRIA RESORTS d.o.o., Rovinj, Croatia: 100 100 MAISTRA d.d., Rovinj, Croatia: 89.64 89.11 - GRAND HOTEL IMPERIAL d.d., Dubrovnik, Croatia 73.42 72.99 - Slobodna Katarina d.o.o. Rovinj, Croatia 89.64 89.11 CROMARIS d.d., Zadar, Croatia: 100 99.25 - CENMAR EXPORT-IMPORT d.o.o. Kali, Croatia 100 99.25 - Cromaris Italy s.r.l., Treviso, Italy 100 99.25 EXPERTUS d.o.o., Zagreb, Croatia: 100 - - HUP-ZAGREB d.d., Zagreb, Croatia: 95.59 - - HOTELI DUBROVAČKA RIVIJERA d.d., Dubrovnik, Croatia 93.19 - - ASTORIA d.o.o., Zagreb, Croatia 95.59 - ABILIA d.o.o., Rovinj, Croatia 100 100 CROATIA osiguranje d.d., Zagreb, Croatia: 66.34 66.12 - CROATIA PREMIUM d.o.o. (previously CROATIA mirovni dom d.o.o.), Zagreb 66.34 66.12 - Histria Construct d.o.o., Zagreb 66.34 66.12 - Core 1 d.o.o., Zagreb 66.34 66.12 - Razne Usluge d.o.o. – currently being wound up, Zagreb 66.34 66.12 - CROATIA-Tehnički pregledi d.o.o., Zagreb 66.34 66.12 - STP Pitomača, Pitomača 66.34 66.12 - STP Blato, Blato 66.34 66.12 - Slavonijatrans-Tehnički pregledi d.o.o., Sl. Brod 50.42 50.25 - Autoprijevoz d.d., Otočac 52.60 52.42 - Herz d.d., Požega 66.34 66.12 - AUTO MAKSIMIR VOZILA d.o.o. 66.34 66.12 - CROATIA osiguranje mirovinsko društvo d.o.o., Zagreb 66.34 66.12 - Poliklinika Ars Medica, Pula - 66.12 - CO Zdravlje d.o.o. 66.34 66.12 - CROATIA Poliklinika, Zagreb 66.34 66.12 - Milenijum osiguranje a.d., Belgrade 66.34 66.12 - Croatia osiguranje d.d., Mostar 63.04 62.74 - Crotehna d.o.o., Ljubuški 63.04 62.74 - Ponte d.o.o., Mostar 63.04 62.74 - CROATIA remont d.d., Čapljina 42.10 43.78 - Croauto d.o.o., Mostar 41.90 41.90 - Hotel Hum d.o.o., Ljubuški 63.04 62.74 - CROATIA osiguranje a.d. društvo za osiguranje neživota, Skopje (non-life insurance 66.34 66.12 company) - CROATIA osiguranje a.d., društvo za osiguranje života, Skopje (life insurance company) 66.34 66.12 - CROATIA osiguranje kredita d.d. - 66.12 - AK POLICA d.o.o., Varaždin 66.34 -

*The presented ownership share relates to the ultimate share of ADRIS GRUPA d.d. as the ultimate parent (treasury shares of the companies were excluded from the share calculation)

31 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES

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

2.1. Basis of preparation

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European

Union under the historical cost convention, as modified by the initial recognition of financial instruments carried at fair value and the subsequent revaluation of financial instruments measured at fair value through profit or loss and at fair value through other comprehensive income. These financial statements were approved by the Management Board on 19 April 2019.

The accounting policies are consistent with the accounting policies of the previous financial year, except for the revised accounting policies resulting from the application of the new accounting standards IFRS 9 and IFRS 15 effective since 1 January 2018.

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

The Group and the Company have applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018: - IFRS 9 Financial Instruments - IFRS 15 Revenue from Contracts with Customers - Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2 - Transfers to Investment Property - Amendments to IAS 40 - Interpretation 22 Foreign Currency Transactions and Advance Consideration

The Group and the Company had to change their accounting policies and make certain retrospective adjustments following the adoption of IFRS 9 and IFRS 15. This is disclosed in Note 2.39. Most of the other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

(b) New standards and interpretations not yet adopted:

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been early adopted by the Group and the Company. The Group’s and the Company’s assessment of the impact of these new standards and interpretations is set out below: - IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019, early adoption is permitted only if IFRS 15 is adopted at the same time) IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

32 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1. Basis of preparation (continued)

The Group and the Company have set up a project team which has reviewed all of the Group’s and Company’s leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group’s operating leases, and the Company will not be affected. The Group expects to recognise assets (right-of-use assets) of approximately HRK 98,762 thousand on 1 January 2019 and lease liabilities of HRK 98,762 thousand (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018). The Group expects that net profit after tax for 2019 will decrease by approximately HRK 1,350 thousand as a result of adopting the new rules. The Group and the Company will apply the standard from its mandatory adoption date of 1 January 2019. The Group and the Company intend to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

2.2. Consolidation a) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations

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

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

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

33 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.3. Merger of entities under common control

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

2.4. Segment reporting

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

2.5. Foreign currencies a) Functional and presentation currency

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

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

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

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: i/ assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; ii/ income and expenses for each statement of comprehensive income are translated at average exchange rates; and iii/ all resulting exchange differences are recognised in comprehensive income.

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

34 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.6. Property, plant and equipment

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

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

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

Buildings 12-50 Plant and equipment 2.5-20

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

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.11).

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

In accordance with the said policy, during 2018 the Group and the Company reviewed the useful life of non-current tangible assets against the investment and facility reconstruction plan. For certain facilities, where according to the plan significant investments are expected within a reasonable future period that is shorter than the initially recorded useful life, the remaining useful life has changed in accordance with the actual expected useful life of the aforementioned assets in the category of buildings and equipment. As a result of this change, a higher depreciation by HRK 4,521 thousand has been charged against the previously applied rates.

2.7. Intangible assets a) Software licences

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

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

35 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7. Intangible assets (continued) c) Brands

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

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

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

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

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

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

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

36 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7. Intangible assets (continued)

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

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

2.8. Investment property

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

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

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

2.9. Biological assets – reproductive shoal and fish in fisheries

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

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

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

37 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.10. Business combinations

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

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

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

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

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

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

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

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

2.11. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and depreciation and are tested annually for impairment (e.g. goodwill). Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

38 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments – debt instruments (effective since 1 January 2018) i/ Classification and recognition

The Company and the Group classify their financial assets in the following measurement categories: at amortised cost, at fair value through profit or loss and at fair value through other comprehensive income.

The classification of financial assets depends on the Company’s and Group’s business model for managing financial assets and the contractual cash flows. The classification of debt instruments will change when and only when the business model for managing those assets changes. ii/ Recognition and derecognition

Financial assets are recognised in the statement of financial position if the Company and the Group become a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from a financial asset have expired or have been transferred, together with all other rights and obligations. iii/ Measurement at initial recognition

At initial recognition, the Company and the Group measure a financial asset at fair value plus, when a financial asset is not designated at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets measured at fair value through profit or loss are recognised in profit or loss. iv/ Subsequent measurement

Debt instruments – Financial assets at amortised cost

Debt instruments held to collect contractual cash flows where those cash flows represent payments of principal and interest (“SPPI”) are measured at amortised cost.

Interest income from these financial assets is calculated using the effective interest rate method and recognised in the income statement within “Finance income”. Impairment losses are recognised in accordance with the policies set out in Note 2.12 v/ and are recognised within “Other operating expenses”.

The Company and the Group classify the following types of assets into the said category: - trade and other receivables - loans that meet the classification according to the SPPI test and which are held in accordance with the “hold to collect contractual cash flows” business model - bonds - cash and cash equivalents - deposits

39 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments – debt instruments (effective since 1 January 2018) (continued)

Debt instruments – Financial assets at fair value through other comprehensive income (FVOCI)

Debt instruments that are held for collection of contractual cash flows and for selling, where those cash flows represent payments of principal and interest, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in “Finance income” using the effective interest rate method. Impairment losses are recognised in accordance with the policy set out in Note 2.12 v/ and are presented in “Finance costs”.

Debt instruments – Financial assets at fair value through profit or loss

Debt instruments that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. The following financial instruments are classified in the said category: loans that do not meet the SPPI test criteria, where the frequency of the interest rate does not match the interest rate tenor.

Fair value gains or losses on debt instruments are recognised in profit or loss and included on a net basis in profit or loss within “Other gains” or “Other losses” in the period in which they arose. Such fair value gains or losses include contractual interest rates on debt instruments classified in this category. v/ Impairment of financial assets at amortised cost and at fair value through other comprehensive income

The Group assessed on a forward-looking basis the expected credit losses (“ECL”) associated with its debt instruments carried at amortised cost and debt financial instruments carried at FVOCI, regardless of whether there were any impairment indicators.

Any change in fair value of a debt instrument includes the effect of changes in credit risk attributable to the issuer of such financial instrument. For all debt instruments that are measured at FVOCI, it is necessary to estimate and record value adjustments or an expected credit loss allowance. Any changes in the amount of ECL allowance are recognised in profit or loss, while the amount of credit loss impairment is already included in the cumulative change in fair value in other comprehensive income. The impairment allowance is recognised in Other comprehensive income as part of the total change in fair value and should not further impair the carrying amount of financial assets measured at FVOCI in the statement of financial position. Amounts that are recognised in profit or loss as changes in the expected credit loss allowance must equal the amounts that would have been recognised in profit or loss had the asset been measured at amortised cost.

Changes in fair value that were previously recognised in other comprehensive income are recycled to profit and loss in full upon derecognition of a debt instrument.

40 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments – debt instruments (effective since 1 January 2018) (continued)

In respect of current receivables without any significant financing components (premium receivables, receivables arising from settlement of financial transactions, trade receivables and receivables from financial institutions from the use of POS terminals, receivables from properties and business premises under lease, receivables from employees, etc.), the Group applies a simplified approach in accordance with IFRS 9 requirements and estimates an impairment allowance for lifetime expected credit losses since the initial recognition of a receivable.

The concept of the expected credit losses

Expected credit losses (“ECL”) linked to a certain instrument are estimated on the basis of future expected cash flows (arising from the principal, interest, fees and commissions) associated with the relevant contract, including the amounts that may arise from the realisation of relevant collaterals. Any expected cash flows are discounted to their net carrying amount using the relevant effective interest rate.

Expected credit losses are calculated by multiplying the probability of default (PD), loss given default (LGD) and exposure at default (EaD).

Probability-weighted scenarios - expected credit losses are modelled on several forward-looking scenarios that take into account the probability of occurrence of “stressful” and favourable economic conditions, so that the resulting ECL value is a probability-weighted number based on the results of several analysed economic scenarios within which credit risk parameters are modelled.

The appropriate selection of a set of representative economic scenarios based on unbiased and objective information available to the Group as well as the likelihood of an individual (representative) economic scenario are determined by the relevant organisational units of the Group using an expert method.

Definition of default

A default occurs when one of the following conditions is met: - The Group considers that a debtor is unlikely to pay its obligations in full, without recourse by the Group to actions such as realising security (unlikeliness to pay) - The debtor is past due more than 90 consecutive days (in the case of premium receivables, a 180-day period is exceptionally used) on any material credit obligation to the Group (90+ past due). If the debtor is past due more than 90 and less than 180 days, the materiality of the default is assessed separately considering the overall exposure to that debtor. A default sometimes includes smaller amounts arising from revaluation, fees, portion of interest etc. Sometimes there are also certain justified reasons for a debtor to be in default such as technical problems, operating errors etc. Therefore, in such case, the Group takes into account the fact that none of the above indicates any potential problems in the debtor's business operations.

In doing so, the Group follows relevant regulatory guidelines regarding absolute and relative materiality thresholds for each segment in its portfolio, and the definition of default is applied consistently at the Group level.

41 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments – debt instruments (effective since 1 January 2018) (continued)

Probation criteria

In order to reallocate credit exposure to a stage that represents a lower level of credit risk than the one in which the credit exposure is currently classified, it is necessary to demonstrate the timeliness of payment on a consistent basis over a defined period of time (probation period).

The Group may reallocate the exposures from Stage 2 to Stage 1 when the following conditions are met: a) When all the reasons indicating a significant increase in credit risk in the period from the initial recognition of exposures to the reporting date have ceased to exist and b) When the debtor has continuously demonstrated timeliness of payment during the defined probation period: i. Forborne exposures: - at least 6 months from the date of the last restructuring or from the date of transition from non- performing (Stage 3) to performing (Stage 2) exposures, subject to other criteria defined by the Group in respect of the exit from the forborne exposures group or - less than 6 months if the Group, based on empirical data or for justified reasons, determines that such exposures are not expected to significantly increase the debtor's credit risk within a short period of time. ii. Non-restructured exposures: - at least 3 months from the date when all the reasons for a significant increase in credit risk ceased to exist or - within a period of less than 3 months if the Group, based on empirical data, determines that such exposures are not expected to significantly increase the credit risk of the debtor within a short period of time.

Write-off

Write-off directly reduces the gross carrying amount of a financial asset if there is no reasonable expectation of recovery of financial assets, either in full or in part.

Overlay approach

In September 2016, the IASB published an Amendment to IFRS 4 addressing concerns of insurance companies in respect of the different dates of adoption of IFRS 9 Financial Instruments and the new standard relating to insurance contracts, IFRS 17 Insurance Contracts. The Amendment provided two different solutions for insurance companies, namely the temporary exemption from the application of IFRS 9 for companies that meet specific requirements (applicable at the reporting entity level) and the overlay approach. Based on the above, as of 1 January 2018 the Group has elected to apply the overlay approach since the Group’s insurance liabilities account for 80% to 90% of total liabilities and, in addition, the Group performs significant activities not related to insurance.

The overlay approach applies to equity instruments of the insurance company within the Group, which meet the following conditions: - Assets that are measured as financial assets at fair value through profit or loss under IFRS 9 that would not have been measured in full at fair value through profit or loss under IAS 39. - All assets other than those held for the purpose of activities not related to contracts within the scope of IFRS 4.

42 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12. Financial instruments – debt instruments (effective since 1 January 2018) (continued)

The overlay approach can be applied to financial assets: - until they are derecognised, - when they are no longer held for the purpose of performing insurance-related activities, - when at the beginning of the reporting period the Group decides to stop applying the overlay approach for the said instruments, - until the IFRS 17 adoption date (1 January 2022) The Group applies the overlay approach to a portion of financial instruments that are classified as available-for-sale financial assets in accordance with IAS 39 (non-strategic shares and shares in funds). These will be measured at fair value through profit or loss in accordance with IFRS 9.

The application of the overlay approach requires retaining certain accounting policies as required by IAS 39: - Impairment of equity instruments: equity instruments held to perform the Group’s insurance activities are usually classified as available-for-sale financial assets in accordance with IAS 39 and are classified according to IFRS 9 as financial assets through profit or loss. The overlay approach requires impairment of equity instruments in accordance with IAS 39. By applying the overlay approach, any changes in fair value are recognised in the reserve related to the overlay approach, but when the decrease is significant in relation to the acquisition cost, i.e. when the conditions for impairment recognition have been met, the loss from the change in fair value is recognised in profit or loss. Any further decrease is also recognised directly in profit or loss, while the increase is recognised in the overlay reserve. - Recognition of gains or losses from the derecognition of equity instruments in profit or loss: according to the overlay approach, the accumulated overlay reserve is transferred from other comprehensive income to profit or loss when selling equity instruments associated with performing insurance activities to ensure the same results as under IAS 39.

Under the overlay approach, an entity may reclassify the difference arising from the below listed values from profit or loss to other comprehensive income: - the value recognised in profit or loss, if the provisions of IFRS 9 for the classification of financial assets remeasured at fair value through profit or loss are applied, - the value that should be recognised in profit or loss if the provisions of IAS 39 apply to that asset.

The above mentioned difference resulting from the application of IFRS 9 is reclassified from the net financial result of financial instruments measured at fair value through profit or loss to the revaluation reserve of equity instruments (overlay approach) related to unrealised gains or losses from changes in fair value and amounts to HRK 6,371 thousand. This relates to the difference between: - Result under IFRS 9 (without applying the overlay approach): HRK 8,768 thousand of realised and unrealised losses or gains arising from the change in fair value included in the net result on financial instruments measured at fair value through profit or loss, - Result under IAS 39: HRK 2,369 thousand included in the net realisable result of HRK 9,074 thousand and impairment losses of HRK 11,470 thousand.

43 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.13. Financial assets – Equity instruments (effective since 1 January 2018)

Shares in other companies consist of equity instruments of other companies that do not imply control, joint control or significant influence.

Shares in other companies are initially recognised at fair value plus transaction costs. Shares are subsequently measured at fair value. For its investments, the Group has elected: - in respect of strategic equity instruments - to recognise gains or losses from changes in fair value in other comprehensive income, since they are not held for generating returns on investments. Given the above mentioned selection, there is no subsequent reclassification of fair valuation gains or losses in profit or loss when the investment is derecognised. Impairment losses (and their release) on equity instruments valued at FVOCI are not reported separately from other changes in fair value. - in respect of non-strategic equity instruments - please see Note 10.

Dividends are recognised in profit or loss when the Group’s right to receive payment is established.

2.14. Derivative financial instruments (effective since 1 January 2018)

As part of its regular operations, the Group concludes contracts on derivative financial instruments for the purpose of managing foreign exchange risk, and therefore these financial instruments are classified as financial assets or liabilities held for trading - derivatives. The Group’s derivatives include foreign exchange forward contracts.

Derivatives are recorded in the off-balance sheet records at the nominal amount of financial instruments and are measured at fair value. An increase/decrease in fair value is recognised as an asset if their fair value is positive and as a liability if their fair value is negative, whereby changes in the fair value of derivatives are included in profit or loss i.e. in finance income and costs.

2.15. Financial liabilities (effective since 1 January 2018)

Financial liabilities are initially recognised at fair value less transaction costs and are subsequently measured at amortised cost using the effective interest rate method, except for: a) financial liabilities designated at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, are subsequently measured at fair value; b) financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or is accounted for using the continuing involvement approach. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations retained by the entity. The associated liability is measured in such a way that the net carrying amount of the transferred asset and the associated liability is equal to: i. the amortised cost of rights and obligations retained if the transferred asset is measured at amortised cost or ii. the fair value of the rights and obligations retained when measured on a stand-alone basis, if the transferred asset is measured at fair value.

44 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.15. Financial liabilities (effective since 1 January 2018) (continued)

c) financial guarantee contracts. Upon initial recognition, such a contract is subsequently measured at the higher of: i. the amount of an expected credit loss allowance and ii. the initially recognised amount at fair value; d) the obligation to provide a loan at interest rates lower than the market interest rates. Such a liability is subsequently measured at the higher of: i. the amount of an expected credit loss allowance and ii. the initially recognised amount at fair value; e) contingent amounts recognised by the customer arising in a business combination to which IFRS 3 applies. These contingent amounts are subsequently measured at fair value and changes are recognised in profit and loss.

At initial recognition, an entity can irrevocably elect to measure a financial liability at fair value through profit or loss (FVPL option) if: a) in doing so it would eliminate or significantly reduce a measurement or recognition inconsistency (sometimes referred to as an “accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses from them on different bases, or b) the liability is part or a group of financial liabilities or financial assets and financial liabilities that is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Gains or losses from a financial liability designated at fair value through profit or loss are recorded as follows: a) the amount of the change in the fair value of a financial liability attributable to changes in credit risk of that liability is presented within other comprehensive income and b) the remaining amount of the change in the fair value of the liability is presented in profit or loss

Loans received in foreign currency are translated into the functional currency using the exchange rate at the transaction date. Foreign exchange gains and losses from the execution of such transactions and from exchange rate translation on the balance sheet date are recognised in profit or loss.

Gains or losses on changes in contractual terms of a financial liability, which do not result in the derecognition of an existing liability are recognised in profit or loss as incurred. Profit or loss is calculated as the difference between the present value of the changed or original cash flows, discounted using the original effective interest rate.

45 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.16. Leases

Leases where the significant portion of risks and rewards of ownership are not retained by the Company and the Group are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. The Company and the Group do not have any finance leases.

2.17. Inventories

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

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

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

2.18. Trade and loan receivables

Trade and loan receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment, which is determined by using the expected credit loss model (Note 2.12 v/). The amount of the provision for impairment of trade receivables and subsequent recoveries of amounts previously impaired are recorded in the income statement within ‘Other operating expenses’ as net expense or income.

2.19. Insurance receivables

Receivables from direct insurance and other receivables are recognised initially at fair value and subsequently at amortised cost less value impairment. i/ Insurance receivables include receivables from insured parties based on non-life insurance premiums. Receivables based on non-life insurance premiums comprise receivables for written, but not yet invoiced premium and receivables for invoiced, but not paid premium. The recognition of insurance premiums is described in Note 2.24 – ‘Gross written premiums’. ii/ Receivables for invoiced but unpaid premiums are presented at nominal value, and an adjustment is made for the value of doubtful and uncollectible receivables. Impairment is recognised for all unpaid receivables the due date of which was 180 days prior to the balance sheet date. Impairment can be decreased for receivables which are used as a basis for the payment of a claim to the debtor (provision for claims). iii/ Receivables under the right to recourse are recognised for all recourse cases from an out-of-court procedure arising from receivables from another insurance company and recourses for which a financial settlement was concluded with the counterparty. Impairment of recourse receivables is made for all receivables where 180 days passed from the due date. The determined impairment can be decreased by recourse receivables that are likely to be collected. Recognition of income from recourses is deferred due to uncertainty of collection. Income from recourses is deferred for recourses which are not settled in cash with the exception of recourses from other insurance companies which are recognised in profit or loss immediately.

46 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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

2.20. Deposits

Bank deposits have defined maturities. Deposits with an original maturity of more than 3 months are measured at amortised cost and are disclosed separately as ‘deposits’ in the consolidated statement of financial position.

Deposits given meet the SPPI test criteria and the ‘hold-to-collect’ business model. They are initially recognised at fair value and subsequently measured at amortised cost less any impairment losses determined using the expected credit loss model.

2.21. Cash and cash equivalents

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

Cash on bank accounts meets the criteria of the SPPI test and the ‘hold-to-collect’ business model. In this respect, cash is carried at amortised cost less any impairment losses determined using the expected credit loss model.

2.22. Share capital

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

2.23. Borrowings

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

Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are charged to the statement of comprehensive income.

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

47 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.24. Current and deferred income tax

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

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

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

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

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

2.25. Employee benefits a) Pension obligations and post-employment benefits

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

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

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

48 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.25. Employee benefits (continued) c) Long-term employee benefits

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

d) Short-term employee benefits

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

2.26. Provisions

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

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

2.27. Revenue recognition

Revenue is realised from the sale of goods and services in the course of the Group’s and the Company's ordinary activities. Revenue is recognised in the amount of the transaction price. The transaction price is the amount of consideration to which the Group and the Company expect to be entitled in exchange for transferring control over goods or services the Group and the Company promised to deliver to a customer, excluding the amounts collected by the Group and the Company on behalf of third parties.

Revenue is recognised net of value added tax, returns, rebates and discounts. i/ Sales of goods and services a) Sales of goods and materials – wholesale

Sales of goods and materials in wholesale are recognised when control of the goods is transferred to the customer, the goods are delivered to the customer, the customer has full discretion over the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the delivered goods. Delivery occurs when the goods have been shipped to the specific location, the risks of obsolescence, damage and loss have been transferred to the customer, and either the customer has accepted the goods in accordance with the contract, the acceptance provisions, such as the complaint period, have lapsed, or the Group and the Company have objective evidence that all criteria for acceptance have been satisfied.

49 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.27. Revenue recognition (continued)

Revenue from sales with discounts is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for uncalculated discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability arising from the stated contractual right is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period.

A receivable is recognised when the goods are delivered to the customer as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due and all contractual obligations have been met. b) Sales of services

The Group generates revenues from providing tourist services. Tourist services include overnight stays, the consumption of food and beverages, wellness services and other services offered as part of the accommodation of guests. The Group provides tourist services under fixed-price contracts where contracted pricelists form an integral part of each contract. Pricelists include the quantities and types of accommodation units and other services and are defined by the period to which the service relates. All discounts granted on the price from the pricelist represent a reduction in the selling price. Fixed-price contracts for tourist services are recognised in the period in which the services are provided in proportion to the total contracted service since the customers receive the service and realise benefits of using the service evenly during the service period, i.e. the term of the contract. The average service period is several days and the total revenue recognition is limited to the period in which the accommodation units are open to receive guests during the tourist season, all within one calendar year. The amount of revenue that is recognised is determined on the basis of the actual occupancy of accommodation units and the consumption of other services by the guests and the agreed prices at the time of use. Agent commissions represent additional contract acquisition costs and are expensed by the Group when incurred and recognised within other operating expenses.

Revenues from tourist services are recognised within revenue.

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

50 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.27. Revenue recognition (continued) c) Sales of goods – retail

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

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

Claims incurred

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

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

51 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.27. Revenue recognition (continued) iii/ Other income a) Interest income

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

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

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

2.28. Dividend distribution

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

2.29. Value added tax

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

2.30. Trade payables

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

52 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.31. Liabilities and related assets under liability adequacy test

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

2.32. Technical provisions

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

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

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

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

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

53 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.32. Technical provisions (continued) v/ Provision for bonuses and discounts

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

2.33. Technical life insurance provisions where the policy holder bears the investment risk

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

2.34. Reinsurance

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

Premiums ceded and recoverable amounts are presented through profit or loss on a gross basis. Only the contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance contracts. Amounts recoverable under such contracts are recognised in the same year as the corresponding claim. Contracts that do not transfer significant insurance risk (i.e. financial reinsurance) are accounted for as deposits. During 2018 and 2017, the Group did not conclude any such contracts.

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

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

2.35. Classification of contracts

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

54 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.35. Classification of contracts (continued)

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

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

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

At the reporting date the Group accounted for a provision for discretionary allocation of profit in the amount of HRK 20,650 thousand (2017: HRK 30,407 thousand).

2.36. Underwriting risk management

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

Premium risk is present at the moment of issuing the policy, before the insured event occurs. The risk is that incurred expenses and claims will be higher than the premium received. The provision risk represents the risk that the absolute level of technical provisions is misstated or that the actual claims will fluctuate around the statistical mean value. Non-life insurance sales risk also includes the risk of disaster which arises from highly extraordinary events which are not sufficiently covered by the premium risk or provision risk. Life insurance sales risk includes biometrical risk (which involves mortality, longevity, risk of becoming ill or disabled) and the risk of withdrawal. The risk of withdrawal represents a higher or lower rate of withdrawal from policies, interruptions, changes in capitalization (cessation of payments of premium) and surrender.

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

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

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

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

55 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.36. Underwriting risk management (continued) Concentration of underwriting risk

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

56 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.36. Underwriting risk management (continued)

The concentration of insurance risk before and after reinsurance in relation to the type of accepted insurance risk is shown below with reference to the carrying value of claims and benefits (gross and net of reinsurance) arising under the insurance contract: 31 December 2018 31 December 2017 Reinsurance Reinsurance share in share in (in thousands of HRK) Gross claims claims Net claims Gross claims claims Net claims incurred incurred incurred incurred incurred incurred in currency in currency in currency in currency in currency in currency Accident insurance 41,180 (57) 41,237 27,386 (33) 27,419 Health insurance 165,162 (36) 165,198 76,988 305 76,683 Road motor vehicle 261,629 794 260,835 216,007 254 215,753 insurance Railroad insurance 1,165 - 1165 630 - 630 Aircraft insurance 9,536 8,080 1456 3,617 3,487 130 Vessel insurance 28,015 22,423 5,592 52,663 10,331 42,332 Insurance of goods in 7,843 991 6,852 4,647 (1,675) 6,322 transit Insurance against fire and 83,489 45,137 38,352 87,321 36,149 51,172 natural disasters Other property insurance 212,568 5,072 207,496 257,045 20,660 236,385 Motor liability insurance 350,212 (257) 350,469 213,559 (8,102) 221,661 Aircraft liability insurance 267 (19) 286 2,257 1,454 803 Vessel liability insurance 148 (2,473) 2,621 (1,775) 3,787 (5,562) Other types of liability 86,521 3,078 83,443 72,281 18,314 53,967 insurance Loan insurance/credit -57,835 3,526 -61,361 (44,737) 259 (44,996) insurance Guarantee insurance 166 - 166 76 - 76 Miscellaneous financial 14,804 8,865 5,939 18,574 12,972 5,602 loss insurance Legal expenses insurance 272 200 72 - - - Travel insurance 11,604 - 11,604 3,052 - 3,052

Total non-life insurance 1,216,746 95,324 1,121,422 989,591 98,162 891,429 Life insurance 506,676 50 506,626 283,702 (276) 283,978 Annuity insurance 4,838 - 4,838 9,811 - 9,811 Additional insurance with 4,122 - 4,122 1,645 - 1,645 life insurance Life or annuity insurance where the policyholder 106,576 - 106,576 190,783 - 190,783 bears the investment risk Total life insurance 622,212 50 622,162 485,941 (276) 486,217

Total 1,838,958 95,374 1,743,584 1,475,532 97,886 1,377,646

57 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.36. Underwriting risk management (continued)

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

Non-life insurance

The basic indicator of underwriting risk is the claims (loss) ratio. The following tables present claims ratios, cost ratios and combined ratios as well as the claims ratio net of reinsurance. Comparison of claims ratio and costs for 2018 and 2017:

Non-life insurance 31 December 2018 31 December 2017 Claims ratio -50.39% -54.55% Cost ratio -43.03% -43.04% Combined ratio -93.42% -97.59% Claims ratio, net -54.10% -56.57%

Life insurance

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

Interest included Mathematical Mathematical in the tariff is in provisions* provisions* the range of as at 31 December 2018 Share as at 31 December 2017 Share (in thousands of HRK) % (in thousands of HRK) % [0, 1] 51,205 1.87% - - [1, 3] 1,315,071 48.15% 1,127,172 41.93% [3, 4] 1,047,137 38.34% 1,121,655 41.73% [4, 5] 315,636 11.56% 436,536 16.24% [5, 6] 2,241 0.08% 2,438 0.10% 2,731,290 100.00% 2,687,801 100.00% * The mathematical provision is the mathematical provision for agreed sums and mathematical provision for additional sums.

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

(in thousands of HRK) 2018 2017 Average balance of mathematical provision 2,668,136 2,636,005 Yield on investment in mathematical provision 95,849 139,835 Annual yield on mathematical provision 4.29% 5.30%

58 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Life insurance risk – sensitivity analysis 2018 2017 Change in Change in (in thousands of HRK) liabilities liabilities Interest rate -0.5% 101,040 75,877 Mortality +10% 8,762 (366) Expenses +10% 28,574 17,994

The Group uses the calculation of PVFP for the purposes of managing the sensitivity of insurance risk. The base run refers to the calculation of liabilities using assumptions for the best estimate calculation. The base run represents the calculation by applying the assumptions set out in in Note 2.37 during the liability adequacy test. For each policy income from premiums and investments is calculated, and costs are calculated on the basis of administrative costs and claims expenses. Changes in variables represent reasonable possible changes which, had they occurred, have led to significant changes in insurance liabilities at the reporting date. The reasonably possible changes represent neither expected changes in variables nor worst case scenarios. Changes in each variable were analysed, whereby all other assumptions remained unchanged, and changes in value of the underlying assets were ignored. The sensitivity to changes in mortality was calculated by reduction in mortality for pension products by 10% and an increase in mortality for other products by 10%, while the sensitivity to changes in costs was calculated by increasing the costs of portfolio maintenance by 10%. The PVFP results show that changes in interest rates have the most significant effect on profit or loss and the amount of technical provisions.

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

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

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

59 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.37. Principal assumptions that have the greatest effect on recognised insurance assets, liabilities, income and expenses (continued)

Depending on the feature of each insurance type, the Group’s portfolio and the form and quality of available data, IBNR provisions are formed using the most appropriate model which is based on deterministic or stochastic methods whose basis is the claims triangle. In order to describe as best as possible future claims development, the selected model may contain one or a combination of several methods.

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

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

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

Discounting Except for rental claims, non-life insurance provisions are not discounted. The provisions for liability insurance which are payable in annuities are determined as the current value of future liabilities based on a risk-free interest rate curve (EIOPA_RFR last issued in 2018), the annual rate of adjustment of the rent and the Mortality Tables for the Republic of Croatia for the period from 2010 - 2012. ii/ Life insurance

Mathematical provisions are calculated by the net prospective method using rational actuarial assumptions, in accordance with the guidelines issued by HANFA. The guaranteed technical interest rate in insurance policies ranges from 0% to 6%, depending on the original (historic) tariff.

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

The Group uses mortality tables for Croatia for the period from 2010 to 2012 for the calculation of mathematical provisions. For the purpose of the calculation of mathematical provisions for insurance contracts concluded before 2010, an interest rate of 3.25% or 3% was used (the maximum rate prescribed by HANFA is 3.3%), for insurance contracts concluded in 2010 the interest rate used was 3% and 2.75% (the maximum rate prescribed by HANFA is 3%), for insurance contracts concluded after 2010 until 20 June 2016, the interest rate used was 2.75% to 1% (the maximum rate prescribed by HANFA is 2.75%) and for insurance contracts concluded after 1 July 2016, the interest rate used was 1.75% to 0% (the maximum rate prescribed by HANFA is 1.75% for contracts with a currency clause and 2% for contracts in HRK).

Profit or loss and equity sensitivity to changes in significant variables

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

60 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.37. Principal assumptions that have the greatest effect on recognised insurance assets, liabilities, income and expenses (continued) Terms and conditions of insurance contracts that have a significant effect on the amount, duration, and uncertainty of future cash flows

The Group offers different types of non-life insurance, mainly motor vehicles, property, liability insurance, marine insurance, transport insurance, and accident insurance. The main source of uncertainty affecting the amount and timing of future cash flows arises from the uncertainty of the occurrence of future insured events as well as the uncertainty associated with their amounts. The amount payable under individual claims is limited by the insured amount as established in the insurance policy.

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

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

2.38. Reclassifications

During 2018, the Group and the Company reclassified receivables for undue interest on financial assets in the statement of financial position for the purpose of a better presentation of the receivables for undue interest in respect of the assets to which they relate.

The reclassification does not have a material effect on the Statement of comprehensive income, the Statement of changes in equity or the Statement of cash flows.

61 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.38. Reclassifications (continued)

The effect of the stated changes on the comparative information of the Group as at 31 December 2017 and 1 January 2017 is as follows:

(in thousands of HRK) Before After Item in Statement of financial position reclassification Reclassification reclassification 31 December 2017 Trade and other receivables (Note 25) 2,139,397 (97,361) 2,042,036 Held-to-maturity investments (Note 22) 2,209,482 46,121 2,255,603 Available-for-sale financial assets (Note 23) 3,766,252 44,072 3,810,324 Deposits (Note 28) 3,861,367 7,168 3,868,535 1 January 2017 Trade and other receivables (Note 25) 2,400,926 (148,676) 2,252,250 Held-to-maturity investments (Note 22) 2,240,190 50,252 2,290,442 Available-for-sale financial assets (Note 23) 2,523,986 30,709 2,554,695 Deposits (Note 28) 4,514,027 67,715 4,581,742

The effect of the stated changes on the comparative information of the Company as at 31 December 2017 and 1 January 2017 is as follows:

(in thousands of HRK) Before After Item in Statement of financial position reclassification Reclassification reclassification 31 December 2017 Trade and other receivables (Note 25) 1,556,989 (3,811) 1,553,178 Deposits (Note 28) 2,726,454 3,811 2,730,265 1 January 2017 Trade and other receivables (Note 25) 1,640,981 (59,436) 1,581,545 Deposits (Note 28) 2,897,826 59,436 2,957,262

During 2018, the Group reclassified concession liabilities to trade and other payables in the statement of financial position for the purpose of a better presentation of concession liabilities in respect of the liabilities to which they relate.

The reclassification does not have a material effect on the Statement of comprehensive income, the Statement of changes in equity or the Statement of cash flows.

62 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.38. Reclassifications (continued)

The effect of the stated changes on the comparative information of the Group as at 31 December 2017 and 1 January 2017 is as follows:

(in thousands of HRK) Before After Item in Statement of financial position reclassification Reclassification reclassification 31 December 2017 Borrowings (Note 31) 304,234 (25,737) 278,497 Trade and other payables (Note 32) - 25,737 25,737 1 January 2017 Borrowings (Note 31) 317,217 (25,360) 291,857 Trade and other payables (Note 32) - 25,360 25,360

2.39. Effect of adoption of new standards

Adoption of IFRS 9 Financial Instruments

The Group and the Company have adopted IFRS 9 Financial Instruments as of 1 January 2018. The Group and the Company have chosen not to change the comparative information of the previous period and to recognise adjustments to the carrying amounts of financial assets and liabilities in the opening balance of retained earnings from the date of the first-time application of the standard, i.e. from 1 January 2018, using the simplified method. Comparative information was not changed.

Accordingly, the related revised requirements of IFRS 7 Financial Instruments: Disclosures have been applied only to the current period, while the disclosures in the comparative period repeat the disclosures reported in the previous year.

The significant accounting policies applied in the current period are disclosed in Note 2 Significant accounting policies and Note 4 Critical accounting estimates. The accounting policies that were in effect until 1 January 2018 and applicable to comparative information are disclosed in Note 2.40.

The adoption of the standard has not had a significant impact on the financial statements either for the Group or for the Company.

63 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.39. Effect of adoption of new standards (continued)

The following tables provide an overview of the present values of each category of financial assets previously measured in accordance with IAS 39 and the new amounts as determined under IFRS 9 as at 1 January 2018 for the Group and the Company.

Group: Present value Effect of IFRS 9 Present value under IAS 39 adoption - under IFRS 9 Measurement 31 December effect of as at 1 categories* 2017 measurement January 2018 (ECL)

IAS 39 IFRS 9

(in thousands of HRK)

Debt instruments Bonds HTM AC 2,202,292 (7,505) 2,194,787 Treasury bills HTM AC 7,190 (33) 7,157 Bonds AFS FVOCI 3,237,205 - 3,237,205 Bonds FVPL FVPL 35,637 - 35,637 Trade and other

receivables - Loans L&R AC 619,457 (2,960) 616,497 - Receivables L&R AC 607,190 (216) 606,974 Deposits L&R AC 3,868,535 (7,800) 3,860,735 Cash and cash L&R AC 164,781 (314) 164,473 equivalents Equity instruments Shares AFS FVOCI 339,566 - 339,566 Shares – overlay AFS FVPL 96,611 - 96,611 approach Investment funds AFS FVOCI 28,637 - 28,637 Investment funds – AFS FVPL 8,797 - 8,797 overlay approach Shares FVPL FVPL 14,385 - 14,385 Investment funds FVPL FVPL 416,002 416,002 Derivative financial

instruments Foreign currency FVPL FVPL 1,692 - 1,692 forward contracts

Total financial 11,647,977 (18,828) 11,629,149 assets *The abbreviations used in the table represent the following measurement categories: HTM – Held-to-maturity investments AFS – Available-for-sale financial assets L&R – Loans and receivables FVPL – Financial assets at fair value through profit or loss AC – Financial assets at amortised cost FVOCI – Financial assets at fair value through other comprehensive income

The Group’s financial liabilities as at 31 December 2017 were carried at amortised cost and the transition to the new standard did not result in any change in the classification or measurement of financial liabilities.

64 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.39. Effect of adoption of new standards (continued)

Company:

Present value Effect of IFRS 9 Present value under IAS 39 adoption - under IFRS 9 Measurement 31 December effect of as at 1 categories* 2017 measurement January 2018 (ECL)

IAS 39 IFRS 9

(in thousands of HRK)

Debt instruments Bonds FVPL FVPL 1,437 - 1,437 Trade and other

receivables Loans L&R AC 1,546,345 (6,491) 1,539,854 Receivables L&R AC 3,082 3,082 Deposits L&R AC 2,730,265 (872) 2,729,393 Cash and cash L&R AC 5,776 (7) 5,769 equivalents Equity instruments Shares AFS FVOCI 99,507 - 99,507 Shares FVPL FVPL 71,416 - 71,416

Total financial 4,457,828 (7,370) 4,450,458 assets *The abbreviations used in the table represent the following measurement categories: HTM – Held-to-maturity investments AFS – Available-for-sale financial assets L&R – Loans and receivables FVPL – Financial assets at fair value through profit or loss AC – Financial assets at amortised cost FVOCI – Financial assets at fair value through other comprehensive income

The Company’s financial liabilities as at 31 December 2017 were carried at amortised cost and the transition to the new standard did not result in any change in the classification or measurement of financial liabilities.

Adoption of IFRS 15 Revenue from Contracts with Customers

The Group and the Company applied the simplified approach of transitioning to IFRS 15 allowing the Group and the Company to apply IFRS 15 retrospectively only to contracts with customers that were not completed at the date of initial application (1 January 2018). At the date of adoption of the new standard the Group and the Company did not have such contracts.

Significant accounting policies applied in the current period are disclosed in Note 2 Significant accounting policies. The accounting policies that were in effect until 1 January 2018 and applicable to comparative information are disclosed in Note 2.40. The adoption of the standard has not had a significant impact on the financial statements either for the Group or for the Company.

65 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.40. Accounting policies applicable until 31 December 2017 Financial instruments i/ Classification and recognition

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

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

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

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

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

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

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

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

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

66 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.40. Accounting policies applicable until 31 December 2017 (continued) Financial instruments (continued)

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

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

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

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

In the case of equity investments classified as available for sale, a significant (more than

20% of investment value) or prolonged decline (more than one year) in the fair value of the investment below its cost is considered as an indicator of impairment. If any such evidence exists for available- for-sale financial assets, the cumulative loss, calculated as the difference between the cost and current fair value, less any loss from impairment of that financial asset that was previously recognised in profit or loss, is transferred from other comprehensive income and recognised in profit or loss. Impairment losses recognised in profit or loss on equity securities cannot be subsequently reversed through profit or loss, but all value increases until the final sale are recognised in other comprehensive income v/ Specific instruments Debt securities Debt securities are classified as held-to-maturity investments or financial assets at fair value through profit or loss, depending on the purpose for which the debt security has been acquired.

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

67 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.40. Accounting policies applicable until 31 December 2017 (continued) Financial instruments (continued) Equity securities Equity securities are classified as assets at fair value through profit or loss or as available-for-sale financial assets and measured at fair value, unless it is impossible to reliably establish the fair value (as described above) when they are measured at cost.

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

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

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

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

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

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

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

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

68 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.40. Accounting policies applicable until 31 December 2017 (continued) Trade and loan receivables

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

Deposits

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

Cash and cash equivalents

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

Revenue recognition

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

The Company and the Group recognise revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and the Group and specific criteria have been met for each of the Group’s activities as described below. i/ Sales of goods and services a) Sales of goods and materials – wholesale

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

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

69 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

2.40. Accounting policies applicable until 31 December 2017 (continued)

Revenue recognition (continued) b) Sales of services

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

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

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

70 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

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

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

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

i/ Foreign exchange risk – the risk of fluctuation of fair value or cash flows under financial instruments resulting from changes in foreign currency exchange rates

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

At 31 December 2018, if the EUR had strengthened/weakened by 1% against the HRK (2017: 1%), with all other variables held constant, pre-tax profit of the Group for the reporting period would have been higher/lower by HRK 54,750 thousand (2017: 66,530 HRK thousand), pre-tax profit of the Company for the reporting period would have been higher/lower by HRK 6,751 thousand (2017: HRK 26,360 thousand), mainly as a result of foreign exchange gains/losses on translation of EUR-denominated financial assets, foreign currency account and loans.

As at 31 December 2018, if the USD had strengthened/weakened by 10% against the HRK (2017: 10%), with all other variables held constant, pre-tax profit of the Group for the reporting period would have been higher/lower by HRK 14,369 thousand (2017: HRK 10,045 thousand), mainly as a result of foreign exchange gains/losses on translation of USD-denominated borrowings and trade receivables. ii/ Price risk

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

71 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

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

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

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

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

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

In relation to the balance presented as at 31 December 2018, if the value of investment portfolio had increased/decreased by 5%, with all other variables held constant, the Group’s profit after tax for the reporting period would have been higher/lower by HRK 29,434 thousand, while other comprehensive income would decrease/increase by HRK 168,994 thousand (2017: HRK 22,161 thousand and HRK 154,416 thousand), and the Company’s profit after tax for the reporting period would have been higher/lower by HRK 3,093 thousand, while other comprehensive income would decrease/increase by HRK 3,900 thousand (2017: HRK 2,987 thousand and HRK 4,080 thousand), mainly as a result of gains/losses on equity and debt instruments classified at fair value in the statement of comprehensive income. iii/ Cash flow and fair value interest rate risk

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

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

As at 31 December 2018, if the effective interest rate on deposits and borrowings had increased/decreased by 1% on an annual level, the profit after tax for the reporting period would have been by approximately HRK 3,706 thousand higher/lower (2017: 1% or HRK 2,409 thousand).

72 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued) b) Credit risk

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

- debt securities (bonds and commercial bills), - derivative financial instruments, - deposits and given loans, - trade receivables, receivables from reinsurance under settled claims, other receivables, - cash at bank.

Credit risk is defined as the potential decrease in market value resulting from adverse changes in the debtor’s ability to fulfil the contractual obligation in whole or in part.

The Group has established an adequate credit risk management system by performing a detailed up-front analysis of potential credit exposures, monitoring credit risk exposure over time, and taking appropriate measures in the event of a credit risk rise above acceptable limits.

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

The Group is mainly exposed to credit risk based on receivables from the Republic of Croatia as follows:

IFRS 9 31 IAS 39 31 December IFRS 9 1 December (in thousands of HRK) Note 2018 January 2018 2017

Government bonds 22, 23, 29 5,035,985 4,881,296 4,888,176 Bonds of other state institutions 22, 23, 29 107,351 111,712 111,844 5,143,336 4,993,008 5,000,020

See Note 24 b) for further disclosure on credit risk.

Credit risk categorisation

In order to estimate the amount of impairment and credit loss allowance based on the credit loss assessment, at the reporting date (based on the balance of receivables at that day) the Group classifies the following financial assets in one of the three below listed credit risk stages (categories): financial assets measured at amortised cost, including off-balance sheet exposures arising from loans and financial guarantee contracts, as well as financial assets measured at fair value through other comprehensive income, receivables subject to impairment.  Stage 1 (low credit risk level – “performing”) – Includes credit exposures with no significant increase in credit risk (since initial recognition). For these exposures, impairment i.e. credit loss allowances are determined on the basis of 12-month expected credit losses.  Stage 2 (increased credit risk level – “underperforming”) – Includes credit exposures with a significant increase in credit risk since initial recognition, but with no objective evidence of impairment. For these exposures, impairment i.e. credit loss allowances are determined on the basis of lifetime expected credit losses.  Stage 3 (credit-impaired – “non-performing”) – Includes credit exposures that are in default.

73 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

 Purchased or Originated Credit Impaired Financial Assets (“POCI assets”)

Allocation to credit risk stages

For the purpose of subsequent measurement of financial assets carried at amortised cost and financial assets carried at fair value through other comprehensive income, at each reporting date, the Group determines whether there has been a significant increase in the borrower’s credit risk in the period from initial recognition to the reporting date.

If, at initial measurement, a loan or a debt instrument does not represent a purchased or originated credit impaired financial asset, it will always originally (that is, at the time of initial recognition) be classified in the first credit risk stage, which includes performing credit exposures.

If, at the time of the credit exposure measurement, a significant increase in the credit risk of a borrower is identified, this exposure will be classified in the second credit risk stage, which includes underperforming credit exposures.

If the credit exposure at the time of measurement is in default, this exposure will be classified in the third credit risk stage, which includes non-performing credit exposures.

The Group applies two general methodologies for calculating expected credit losses and impairment charges: 1) on a collective or portfolio basis and 2) on an individual basis.

The Group applies the methodology for calculating expected credit losses and impairment charges on an individual basis to those (non-performing) exposures that are classified in credit risk Stage 3 and that have been identified as individually significant. The Group applies the methodology for calculating expected credit losses and impairment charges on a collective or portfolio basis to exposures that are classified in credit risk Stages 1 and 2, as well as those that are classified in Stage 3, but that have not been identified as individually significant.

When applying the methodology on a collective/portfolio basis, the Group segments its portfolio into homogeneous credit risk groups at the level of which it assesses the credit risk parameters. Taking into account the quantity and quality of historical data available, the Group formed PD-homogeneous groups, LGD-homogeneous groups and EaD-homogeneous groups. On the basis of such formed groups, reliable statistical conclusions can be extrapolated, that are sufficiently valid and representative.

Significant increase in credit risk

When estimating a significant increase in credit risk, the Group considers the following indicators: Significant deterioration in the PD (“probability of default”) of the counterparty in relation to its value at the time of initial recognition of the credit exposure Significant delinquency in payment – The Group determines a significant delinquency in payment when a borrower is continuously late with the repayment of an individual exposure for more than 30 days in a materially significant amount at the borrower level.  Non-relevance of default of 30 days as an indicator of a significant increase in credit risk: in exceptional circumstances the Group may assess the defaults exceeding 30 days as a slight increase in credit risk; for example o if the identified default relates to exposures to the central government or o if the default arises from a so-called technical situation o that is, in all situations in which the Group can demonstrate that it did not arise as a consequence of a significant increase in the credit risk of the counterparty. Significant deterioration in credit rating (internal or external) of the counterparty in relation to its rating at the time of initial recognition of the credit exposure - a decline in credit rating by 3 rating classes The counterparty is placed on the Group’s ‘watch list’

74 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Impairment losses on loans given

In order to estimate individual impairment losses on loans given, the Group considers the probability of default based on its own historical data. Borrowers are not formally rated by external rating agencies and therefore the Group applies this approach based on days past due. The value adjustment of loans measured at amortised cost is determined by using expected credit losses in accordance with the “three-stage” model. The Group also recognised impairment losses on loans given in accordance with IAS 39, since these loans were not repaid without significant delays. For the purpose of implementing IFRS 9, an analysis of individual loans was made with the aim of allocating them to one of the three stages. Probability of default (over a 12-month period – depending on their classification either in stage 1 or 2) was then determined based on the Group’s historical data. Expected credit losses have been calculated on the basis of the probability of default, loan repayment terms from the loan agreement and an estimated collateral recovery.

Impairment losses on cash and cash equivalents

Impairment associated with cash and cash equivalents has been determined individually for cash held in individual financial institutions. In order to assess credit risk, internal scoring models are used for all financial institutions based on all publicly available information. Since all cash components have a low credit risk at the reporting date, the Group has identified the impairment based on 12-month expected credit losses.

Impairment losses on receivables

For current receivables without significant financial components, the Group applies a simplified approach in accordance with IFRS 9 requirements. Considering its historical experience of default rates and recorded losses, regulatory requirements, and future loss expectations for this type of exposure, the Group expertly set up a lifetime ECL provision matrix. Impairment percentages are based on this matrix. Default rates are calculated for the following ageing structure groups: - less than 30 days past due, - 31 to 60 days past due, - 61 to 90 days past due, - 91 to 180 days past due, - 181 to 365 days past due, - more than 365 days past due. c) Liquidity risk

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

Surplus cash over and above balance required for working capital management is invested in interest bearing current accounts, term deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above- mentioned forecasts. At the reporting date, the Group held deposits in the amount of HRK 1,396,856 thousand and other liquid assets of HRK 3,756,085 thousand (2017: deposits of HRK 1,380,772 thousand and other liquid assets of HRK 3,306,599 thousand) that are expected to readily generate cash inflows for managing liquidity risk.

75 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

At the reporting date, the Company held deposits in the amount of HRK 1,064,496 thousand and other liquid assets of HRK 1,144,786 thousand (2017: deposits of HRK 667,357 thousand and other liquid assets of HRK 1,631,797 thousand) that are expected to readily generate cash inflows for managing liquidity risk.

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

COMPANY (in thousands of HRK) Less than 1 year 2-5 years 31 December 2018 Liabilities Borrowings 27,448 - Trade payables and other financial liabilities 29,306 - Other financial liabilities - 275,003 Total 56,754 272,675

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

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

31 December 2018 Liabilities Borrowings 722,639 125,085 302,195 796,704 Trade and other payables 783,475 - - -

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

d) Capital risk management

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

76 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.2. Fair value estimation

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

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer or broker and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily equity investments in bonds, cash funds and commercial papers classified as trading securities.

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

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

The following table presents the Company’s assets measured at fair value at 31 December 2018 and 2017, grouped according to the fair value hierarchy:

31 December 2018 Total (in thousands of HRK) Level 1 Level 2 Level 3 balance Assets Financial assets at fair value through profit or 75,429 - - 75,429 loss (trading securities) Financial assets at fair value through other 95,126 - - 95,126 comprehensive income (trading securities) Total assets 170,555 - - 170,555

31 December 2017 Total (in thousands of HRK) Level 1 Level 2 Level 3 balance Assets Financial assets at fair value through profit or 72,853 - - 72,853 loss (trading securities) Available-for-sale financial assets (trading 99,507 - - 99,507 securities) Total assets 172,360 - - 172,360

77 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.2 Fair value estimation (continued)

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

31 December 2018 31 December 2017

Net Net (in thousands of carrying carrying HRK) amount Fair value Difference amount Fair value Difference Group Debt securities 2,233,643 2,383,424 149,781 2,255,603 2,419,213 163,610 Loans 363,801 363,801 - 619,457 619,457 - Deposits 2,265,523 2,265,523 - 3,868,535 3,868,535 - 4,862,967 5,012,748 149,781 6,743,595 6,907,205 163,610

The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2018 and 2017.

(in thousands of HRK) Level 1 Level 2 Level 3 Total balance 31 December 2018 Assets - Equity securities 473,988 - 2,082 476,070 - Debt securities 2,406,740 1,193,929 4,872 3,605,541 - Investment funds 32,645 - 7,552 40,197 Financial assets at fair value through other comprehensive income 2,913,373 1,193,929 14,506 4,121,808 - Equity securities 89,289 - - 89,289 - Debt securities 12,741 - - 12,741 - Investment funds 613,486 - - 613,486 - Foreign currency forward contracts - 2,381 - 2,381 Financial assets at fair value through profit or loss 715,516 2,381 - 717,897 Total assets 3,628,889 1,196,310 14,506 4,839,705

31 December 2017 Assets - Equity securities 533,488 - 2,197 535,685 - Debt securities 3,131,342 103,724 2,139 3,237,205 - Investment funds 36,742 - 692 37,434 Available-for-sale financial assets 3,701,572 103,724 5,028 3,810,324 - Equity securities 87,173 - - 87,173 - Debt securities 35,637 - - 35,637 - Investment funds 416,002 - - 416,002 - Foreign currency forward contracts - 1,692 - 1,692 Financial assets at fair value through profit or loss 538,812 1,692 - 540,504 Total assets 4,240,384 105,416 5,028 4,350,828

78 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. FINANCIAL RISK MANAGEMENT (continued)

3.2 Fair value estimation (continued)

The Group has adopted IFRS 13, under which it is required to disclose the fair value hierarchy of financial assets that are not measured at fair value as well as a description of valuation techniques and inputs used. Loans and receivables (including bank deposits) have been reported at amortised cost, less impairment. Although they have been obtained on the basis of a fixed interest rate, the Management Board believes that, due to their specific features, the book value of these instruments is not significantly different from their fair value, under the assumption that all payments arising from exposures without impaired value will be collected as agreed and without taking into account any future losses. Financial liabilities are recorded at amortised cost. Although they have been agreed on the basis of a fixed interest rate, the Management Board believes that, due to the repayment of majority of liabilities within few days after the balance sheet date, the carrying value of these instruments is not significantly different from their fair value. The fair value of loans and financial liabilities is estimated on the basis of inputs that are not commercially available rates and would therefore be classified as level 3 in the fair value hierarchy. Investments with available market prices that are classified in the portfolio of held-to-maturity investments would be classified as level 1. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The fair value of level 3 financial assets is determined by applying the discounted cash flow model or other appropriate techniques, using relevant market information available, as well as information on current operations and estimates of possible future operations of the issuer of the respective financial assets. There were no significant transfers of financial instruments carried at fair value in the statement of financial position from level 1 and level 2 to level 3 and vice versa. The fair value of investments held to maturity is determined on the basis of market prices and is classified in level 1 in accordance with IFRS 13.

4. CRITICAL ACCOUNTING ESTIMATES

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

The calculation of expected credit losses requires significant judgments regarding the value and recoverability of collateral, the future and macroeconomic information. The Group applies a neutral and unbiased approach when dealing with uncertainties and making decisions on the basis of significant estimates.

Expected credit losses (“ECL”) linked to a certain instrument are estimated on the basis of future expected cash flows (arising from the principal, interest, fees and commissions) associated with the relevant contract, including the amounts that may arise from the realisation of relevant collaterals. Any expected cash flows are discounted to their net carrying amount using the relevant effective interest rate.

Expected credit losses are calculated by multiplying the probability of default (PD), loss given default (LGD) and exposure at default (EaD).

79 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

4. CRITICAL ACCOUNTING ESTIMATES (continued) ii/ Determining fair value of financial assets

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

In accordance with the accounting policy set out in Note 2.12, the Company and the Group estimate recoverable amounts of trade receivables and loans receivable based on estimated future cash flows discounted at the original effective interest rate. iii/ Uncertainty of estimates pertaining to the forming of provisions in the insurance segment

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

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

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

Insurance risk management is described in detail in Note 2.36, while the reserves for insurance contracts are analysed in Note 2.32. The sensitivity analysis of technical provisions is presented in Note 2.32. iv/ Useful lives of property and equipment

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

If the useful life of property, plant and equipment had been 5% longer, with all other variables held constant, the net profit for the year would have been higher by HRK 11,497 thousand for the Group, or HRK 369 thousand higher for the Company, and the net carrying value of property, plant and equipment would have been higher by HRK 14,021 for the Group, or HRK 449 thousand higher for the Company (2017: net profit would have been higher by HRK 9,586 thousand for the Group, or HRK 688 thousand higher for the Company, and the net carrying value of property, plant and equipment would have been HRK 11,691 thousand higher for the Group, or HRK 840 thousand higher for the Company).

80 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

4. CRITICAL ACCOUNTING ESTIMATES (continued)

If the useful life of property, plant and equipment had been 5% shorter, with all other variables held constant, the net profit for the year would have been lower by HRK 12,708 thousand for the Group, or HRK 407 thousand lower for the Company, and the net carrying value of property, plant and equipment would have been lower by HRK 15,497 for the Group, or HRK 497 thousand lower for the Company (2017: net profit would have been lower by HRK 10,596 thousand for the Group, or HRK 761 thousand lower for the Company, and the net carrying value of property, plant and equipment would have been HRK 12,921 thousand lower for the Group, or HRK 928 thousand lower for the Company). v/ Impairment testing of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.11. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 20). In 2018, the Group did not record goodwill impairment. Changes in key estimates could have the following effects on goodwill.

Insurance

With other variables held constant, if the pre-tax discount rate had increased by 1%, goodwill would have been fully impaired, and if the discount rate had decreased by 1%, there would have been no impact on goodwill (2017: increased by 1%, goodwill would have been fully impaired; decreased by 1%, no impact). If the residual growth rate had increased by 1%, there would have been no impact on goodwill, and if the residual growth rate had decreased by 1%, goodwill would have been fully impaired.

Tourism

With other variables held constant, if the pre-tax discount rate had increased by 1%, goodwill would have been fully impaired, and if the discount rate had decreased by 1%, there would have been no impact on goodwill (2017: increased by 1%, goodwill would have been fully impaired; decreased by 1%, no impact). If the residual growth rate had increased by 1%, there would have been no impact on goodwill, and if the residual growth rate had decreased by 1%, goodwill would have been fully impaired (2017: increased by 1%, no impact; decreased by 1%, goodwill would have been fully impaired).

81 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

5. SEGMENT INFORMATION

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

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

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

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

Net profit 2018 337 393 26 8 764 Net profit 2017 254 162 23 (8) 431 Segment revenue in 2018 3,886 1,515 433 132 5,966 Segment revenue in 2017 3,679 1,149 398 98 5,324

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

(in millions of HRK) 2018 2017 Net profit of operating segments 764 431 Gains on sale of shares 25 140 Net impairment of loans given (243) (175) Other items (net) (100) (22) Net profit for the year 446 374

(in millions of HRK) 2018 2017 Segment operating revenue 5,966 5,324 Reclassification of items (403) (476) Eliminations and other (151) (90) Operating and other income 5,412 4,758

82 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

5. SEGMENT INFORMATION (continued)

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

Tourism (in millions of HRK) 2018 2017 Revenue 1,515 1,149 EBITDA 564 405 Net profit 393 162

Healthy food (in millions of HRK) 2018 2017 Sales revenue 434 370 EBIT 46 44 Interest expense 15 13 Net profit 26 23

Insurance (in millions of HRK) 2018 2017 Gross written premium - Life 681 639 - Non-life 2,641 2,501 3,322 3,140 Net profit - Life 82 62 - Non-life 255 192 337 254

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

Analysis of sales by category (in thousands of HRK) 2018 2017 Sales of products and goods 434 370 Insurance income 3,322 3,140 Sales of services 2,210 1,814 5,966 5,324

83 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

6. OTHER INCOME

Group:

(in thousands of HRK) 2018 2017

Dividend income 22,570 16,901 Interest income from bonds and commercial papers 189,705 179,522 Interest income from short-term deposits given 21,452 38,272 Insurance fee and commission income 41,466 37,138 Subsidies 3,708 12,772 Income from collected penalty interest 4,277 10,530 Income from guarantee fund 1,264 7,313 Insurance claims recovered 2,841 782 Income from claims incurred abroad 4,322 4,705 Income from assessment services 3,850 3,748 Other insurance income 17,169 24,461 Other income from sale of products and services 15,265 12,904 Other income 19,472 36,706 347,361 385,754

During 2018, the Company recorded dividend income of HRK 216,077 thousand arising from other investments (2017: HRK 4,951 thousand).

84 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

7. COST OF MATERIALS AND SERVICES

Group Company (in thousands of HRK) 2018 2017 2018 2017

Raw materials and supplies

Raw materials and supplies 501,073 382,455 339 387 Energy cost 82,528 58,002 1,562 1,325 Cost of goods sold 15,115 9,149 - - 598,716 449,606 1,901 1,712 External services

Transport, telephone, postage 45,174 40,007 317 323 Repairs and maintenance 95,542 81,922 2,415 3,253 Rental expense /i/ 69,919 55,141 109 47 Marketing, advertising and distribution 92,423 80,554 5,454 7,142 Utility services 6,193 6,938 1,262 1,345 Intellectual services 82,838 91,138 8,547 8,866 Insurance policy acquisition costs 264,114 222,497 - - Property insurance 10,027 9,604 1,210 1,292 Cleaning services 7,382 6,458 - - Tourist agency commissions 62,814 49,930 - - Laundry services 8,628 15,440 - - Other 38,804 38,223 1,578 1,758 783,858 697,852 20,892 24,026

1,382,574 1,147,458 22,793 25,738 i/ The Group leases business and warehouse premises based on cancellable operating lease agreements. The lease agreements have been concluded for a period of 15 years with an option of being extended.

85 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

8. INSURANCE CLAIMS INCURRED, NET OF REINSURANCE

Group:

(in thousands of HRK) 2018 2017

Claims incurred 1,839,106 1,771,839 Reinsurance share in claims incurred (95,337) (106,740) 1,743,769 1,665,099

(in thousands of HRK) 2018 2017

TOTAL LIFE AND NON-LIFE

Net claims incurred 1,604,495 1,492,760 Settled claims 1,578,976 1,533,325 Gross amount 1 ,695,1 1 6 1 ,621 ,000 Coinsurance share 252 (849) Reinsurance share (11 6,391 ) (86,826) Change in claims provisions 25,519 (40,565) Gross amount 4,825 (21,141) Coinsurance share (550) 42 Reinsurance share 21,243 (19,466) Change in mathematical provision and other technical provisions, net of reinsurance 42,122 (15,009) Change in insurance mathematical provisions 47,069 (4,625) Gross amount 46,960 (4,984) Reinsurance share 109 359 Change in other technical provisions, net of reinsurance (4,947) (10,384) Change in special provision for life insurance group where the policyholder assumes the investment risk, net of reinsurance 97,152 187,348

Gross amount 1,839,106 1,771,839

Reinsurance and coinsurance share (95,337) (106,740)

86 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

9. STAFF COSTS

Group Company (in thousands of HRK) 2018 2017 2018 2017

Salaries and other staff costs 723,762 587,686 14,863 12,054 Taxes and contributions from and on salaries 363,551 313,156 12,941 10,721 Provisions for termination benefits – net (1,459) 17,868 - 48 1,085,854 918,710 27,804 22,823

As at 31 December 2018, the Group had 6,535 employees (2017: 5,398 employees). As at 31 December 2018, the Company had 24 employees (2017: 27).

Pension contributions for the Group amounted to HRK 160,566 thousand (2017: HRK 124,077 thousand), and for the Company HRK 1,939 thousand (2017: HRK 1,772 thousand).

10. OTHER OPERATING EXPENSES

Group Company (in thousands of HRK) 2018 2017 2018 2017

Contributions and taxes irrespective of operating results 63,213 53,501 1,918 1,587 Licences 7,717 2,303 520 234 Travel and entertainment 27,403 25,057 2,844 2,359 Insurance 13,259 6,473 506 536 Bank charges 21,737 19,685 2,893 686 Net provision for trade and other receivables (Note 25) (11,133) 14,175 67 204 Write-off of trade and other receivables 33 1,136 - 843 Net impairment of loans given (Note 25) 170,408 175,626 247,460 142,540 Net book value of disposed buildings, equipment and projects 11,586 33,909 - - Provisions for legal disputes - net (Note 33) (2,155) 35,155 - - Donations 46,016 5,574 3,102 3,789 Administrative charges and insurance fees 30,164 28,554 - - Allocation of funds for the guarantee fund 12,394 11,382 - - Other insurance-technical expenses 9,481 9,276 - - Other 127,503 96,064 2,118 3,783 527,626 517,870 261,428 156,561

87 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

11. OTHER GAINS

Group Company (in thousands of HRK) 2018 2017 2018 2017

Release of provisions (Note 33) 25,356 140,461 24,486 140,461 Income from bargain purchase - 20,554 - - Gains on sale of bonds, of shares and investments in funds 73,054 517 - 439 Gains on change in fair value of financial assets through profit or loss - 51,075 7,515 92 Gains on sale of property, plant and equipment 21,600 18,731 1,147 - Foreign exchange gains 29,398 40,594 413 144

149,408 271,932 33,561 141,136

12. OTHER LOSSES

Group Company (in thousands of HRK) 2018 2017 2018 2017

Losses on change in fair value of financial assets through profit or loss 8,209 - 716 2,881 Losses on sale of property, plant and equipment - - - 9,989 Loss on sale of bonds, shares and investments in funds 13,211 - - - Foreign exchange losses 103,542 82,649 3,541 3,625

124,962 82,649 4,257 16,495

88 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

13. FINANCE INCOME – NET

Group Company (in thousands of HRK) 2018 2017 2018 2017

Finance income Interest income from deposits given /i/ 18,119 46,128 17,695 46,119 Interest income from loans given 8,479 47,355 15 37,194 Interest income from loans given – related parties (Note 40) - - 47,197 47,244 Interest income from bonds and commercial papers 72 - 72 134 26,670 93,483 64,979 130,691

Finance costs Interest expense – borrowings (34,169) (20,668) (174) - Interest expense – related parties (Note 40) - - (965) (972) Net foreign exchange losses from financing activities (12,490) (18,826) (36,808) (31,552) (46,659) (39,494) (37,947) (32,524)

(19,989) 53,989 27,032 98,167

/i/ In the insurance segment, interest on deposits, bonds and commercial papers in the amount of HRK 211,157 thousand (2017: HRK 217,794 thousand) is part of the segment’s activities and, therefore, disclosed in other income (Note 6); in other segments, short-term placements in the form of deposits are not part of the segments’ principal activity and the interest on deposits given, bonds and commercial papers of other segments is disclosed as finance income.

Total interest income amounts to HRK 237,827 thousand (2017: HRK 311,277 thousand). Total interest income accrued and recognised for loans given that were impaired as described in Note 25 amounts to HRK - thousand for the Group and HRK - thousand for the Company (2017: HRK 12,741 thousand for the Group and HRK 2,247 thousand for the Company).

89 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

14. INCOME TAX

Group Company (in thousands of HRK) 2018 2017 2018 2017

Current income tax 69,688 82,890 - 18,194 Deferred tax expense/(income) (Note 26) (143,423) (15,225) (42,519) (8,652)

(73,735) 67,665 (42,519) 9,542

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

Group Company (in thousands of HRK) 2018 2017 2018 2017

Profit before tax 372,584 441,309 (34,349) 25,462

Tax calculated at domestic tax rates applicable to profits in the respective countries 67,065 86,665 (6,182) 4,583 Effect of non-deductible expenses 32,111 29,813 3,114 35,435 Effect of non-taxable income (149,087) (44,083) (155,443) (30,476) Effect of utilised previously unrecognised tax losses (1,197) (4,730) - Effect of recognition of tax loss available for carryforward 115,992 - 115,992 - Effect of reinvested profit and investment incentives (138,619) - - - Income tax charge (73,735) 67,665 (42,519) 9,542

Effective tax rate (19.79%) 15.33% 123.79% 37.47%

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

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

90 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

14. INCOME TAX (continued)

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

(in thousands of HRK) 2018 2017

2018 - 12,451 2019 4,134 10,192 2020 2,257 828 2021 5,501 1,531 2022 10,326 5,478 2023 13,397 - 35,615 30,480

In its financial statements, the Company recorded deferred tax assets on the basis of tax losses in the amount of HRK 158,512 thousand (2017: -), as it expects to fully utilise the tax losses before their expiry dates. In its financial statements, the Group did not record deferred tax assets on the basis of tax losses in the amount of HRK 6,411 thousand (2017: HRK 5,486 thousand), as it is not probable that future taxable profit will be available to utilise the tax losses by the respective companies in the stated amounts before the expiry dates.

15. EARNINGS PER SHARE

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

Group Company 2018 2017 2018 2017

Net profit (in thousands of HRK) 307,477 292,992 8,170 15,920 Weighted average number of shares 16,063,611 16,165,220 16,063,611 16,165,220 Basic/diluted earnings per share (in HRK) 19.14 18.12 0.51 0.98

16. DIVIDEND PER SHARE

The dividends declared in 2018 amounted to HRK 17.50 per share (2017: HRK 17.00 per share).

91 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

17. PROPERTY, PLANT AND EQUIPMENT

Group

Assets Land and Plant and under

(in thousands of HRK) buildings equipment construction Total At 1 January 2017 Cost 5,169,557 1,354,797 304,252 6,828,606 Accumulated depreciation (1,808,906) (833,915) - (2,642,821) Net book amount 3,360,651 520,882 304,252 4,185,785

Year ended 31 December 2017 Opening net book amount 3,360,651 520,882 304,252 4,185,785 Additions 242,722 208,232 128,152 579,106 Transfer to investment property (179,792) - - (179,792) Acquisition (Note 35) 127 - 127 Reclassifications (54,112) 54,134 (22) - Impairment (16,688) - - (16,688) Disposals and write-offs (35,784) (20,773) (10,043) (66,600) Depreciation for the year (127,933) (117,573) - (245,506) Foreign exchange differences (82) 201 25 144 Other movements (21,596) 17,916 (1,493) (5,173) Closing net book amount 3,167,386 663,146 420,871 4,251,403

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

Year ended 31 December 2018 Opening net book amount 3,167,386 663,146 420,871 4,251,403 Additions 83,114 132,555 386,546 602,215 Transfer to intangible assets - - (2,334) (2,334) Transfer to investment property (473) - (2,987) (3,460) Acquisition (Note 35) 1,561,361 64,813 1,517 1,627,691 Reclassifications (1,323) 1,323 - - Impairment (9,101) - - (9,101) Disposals and write-offs (3,225) (2,221) (22,133) (26,579) Depreciation for the year (173,636) (134,821) - (308,457) Foreign exchange differences (905) (134) (7) (1,046) Other movements (1,528) (2,531) (267) (4,326) Closing net book amount 4,622,670 722,130 781,206 6,126,006

At 31 December 2018 Cost 7,134,503 1,876,022 781,206 9,791,731 Accumulated depreciation (2,511,833) (1,153,892) - (3,665,725) Net book amount 4,622,670 722,130 781,206 6,126,006

As at 31 December 2018, the cost of the Group’s fully written off property, plant and equipment amounted to HRK 841,669 thousand (2017: HRK 884,073 thousand). For securing repayments of borrowings from banks and other creditors for several subsidiaries, land and buildings have been mortgaged in the amount of HRK 833,655 thousand (2017: HRK 544,849 thousand). In 2018, the Group recognised an impairment loss in the amount of HRK 9,094 thousand (2017: HRK 16,688 thousand) on land and a building related to the insurance segment, as estimated by independent third party valuers.

92 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

17. PROPERTY, PLANT AND EQUIPMENT (continued)

Company

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

At 1 January 2017 Cost 381,255 54,350 5,748 134,847 576,200 Accumulated depreciation (52,159) (26,725) (1,748) - (80,632) Net book amount 329,096 27,625 4,000 134,847 495,568

Year ended 31 December 2017 Opening net book amount 329,096 27,625 4,000 134,847 495,568 Additions 26,890 6,039 597 (30,332) 3,194 Transfers to investment property (238,562) - - - (238,562) Disposals and write-offs - (187) - (9,897) (10,084) Depreciation for the year (8,544) (8,945) (141) - (17,630) Closing net book amount 108,880 24,532 4,456 94,618 232,486

At 31 December 2017 Cost 165,337 59,396 6,345 94,618 325,696 Accumulated depreciation (56,457) (34,864) (1,889) - (93,210) Net book amount 108,880 24,532 4,456 94,618 232,486

Year ended 31 December 2018 Opening net book amount 108,880 24,532 4,456 94,618 232,486 Additions 803 1,228 - (350) 1,681 Disposals and write-offs - (393) - (30) (423) Depreciation for the year (547) (8,773) (141) - (9,461) Closing net book amount 109,136 16,594 4,315 94,238 224,283

At 31 December 2018 Cost 166,140 55,546 6,345 94,238 322,269 Accumulated depreciation (57,004) (38,952) (2,030) - (97,986) Net book amount 109,136 16,594 4,315 94,238 224,283

93 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

18. INVESTMENT PROPERTY

Group Company

(in thousands of HRK) 2018 2017 2018 2017

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

Additions - purchases 5,282 15,770 58 34 Transfer from non-current tangible assets 679 179,792 - 238,562 Disposals (77,527) (11,938) - - Acquisition (Note 35) 47,752 - - - Impairment (4,173) (16,856) - - Depreciation for the year (24,015) (18,556) (8,717) (575) Foreign exchange differences (376) 75 - - Net book amount 901,915 954,293 234,324 242,983

At 31 December Cost 1,134,083 1,095,806 301,950 301,892 Accumulated depreciation (232,168) (141,513) (67,626) (58,909) Net book amount 901,915 954,293 234,324 242,983

Rental income recognised in other comprehensive income in 2018 amounted to HRK 15,062 thousand for the Company and HRK 121,892 thousand for the Group (2017: HRK 13,298 thousand for the Company and HRK 90,048 thousand for the Group).

In 2018, the Group recognised an impairment loss in the amount of HRK 4,173 thousand (2017: HRK 16,856 thousand) on land and a building related to the insurance segment, as estimated by independent third party valuers.

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

94 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

19. BIOLOGICAL ASSETS

Group:

31 December 31 December (in thousands of HRK) 2018 2017

Reproductive shoal at 1 January 31,017 27,493 Losses (mortality) (2,387) (5,307) Change in fair value as a result of biological transformation 5,076 15,960 Sales (1,507) (7,129)

At 31 December 32,199 31,017

As at 31 December 2018, the Group had an estimated 16,817 kilograms of reproductive shoal (31 December 2017: 16,662 kilograms), and during the year it sold 1,495 kilograms (2017: 2,906 kilograms) of fish from the reproductive shoal (both fish in the process of preparation and spawning fish).

95 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

20. INTANGIBLE ASSETS

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

Year ended 31 December 2018 Opening net book amount 207,125 280,312 35,388 57,167 53,625 203,132 108,237 944,986 Additions - - - - - 85,925 49,199 135,124 Acquisition (Note 35) 83,607 - - - - - 737 84,344 Other ------(5) (5) Amortisation for the year - (24,733) (15,167) (10,585) (12,375) - (43,165) (106,025) Disposals, write-offs ------(266) (266) Foreign exchange differences - - - - - (354) (25) (379) Closing net book amount 290,732 255,579 20,221 46,582 41,250 288,703 114,712 1,057,779

At 31 December 2018 Cost 293,779 371,000 91,000 70,000 99,000 288,703 326,012 1,539,494 Accumulated amortisation and (115,421 impairment (3,047) ) (70,779) (23,418) (57,750) - (211,300) (481,715) Net book amount 290,732 255,579 20,221 46,582 41,250 288,703 114,712 1,057,779

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

96 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

20. INTANGIBLE ASSETS (continued)

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

Year ended 31 December 2017 Opening net book amount 207,125 305,045 50,555 60,667 66,000 128,331 103,751 921,474 Additions - - - - - 73,789 27,058 100,847 Acquisition (Note 35) 1,107 109 1,216 Other ------(382) (382) Amortisation for the year - (24,733) (15,167) (3,500) (12,375) - (21,632) (77,407) Disposals, write-offs - - - - - (80) (681) (761) Foreign exchange differences - - - - - (15) 14 (1) Closing net book amount 207,125 280,312 35,388 57,167 53,625 203,132 108,237 944,986

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

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

97 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

20. INTANGIBLE ASSETS (continued)

The following intangible asset categories relate to individual assets arising from the acquisition of the insurance segment with respective remaining useful lives as at 31 December 2018: brand (11.5 years), customer relationships and long-term contracts from non-life insurance business (2.5 years), value of life insurance business (16.5 years), and rights from receivables arising from insurance contracts (4.5 years).

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

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

Goodwill – carrying amount (in thousands of HRK) Insurance Tourism Total 31 December 2017 197,410 9,715 207,125 31 December 2018 197,410 49,764 290,732

The recoverable amount of a CGU is determined based on value in use calculations, and it approximates the carrying amount of goodwill for 2018 and 2017.

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

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

Insurance 2018 2017 Annual growth of gross written premiums /i/ 2.75% 3.34% Annual growth of net profit /ii/ 1.9% 5.74% Discount rate /iii/ 9.37% 9.76% Rate of remaining growth /iv/ 2% 2% i/ Budgeted growth of gross written premium based on past performance and management expectations for the future ii/ Budgeted growth of net profit based on past performance and management expectations for the future iii/ Pre-tax discount rates applied to the cash flow projections which reflect specific industry-related risks iv/ Expected rate of remaining growth is based on past performance and market forecasts for the insurance industry in Croatia

Tourism 2018 2017 Gross margin /i/ 36.6% 36.2% Growth rate /ii/ 4.4% 5.23% Discount rate /iii/ 7.43% 9.05% Rate of remaining growth /iv/ 0% 0% i/ Budgeted gross operating margin based on past performance and management expectations for the future ii/ Weighted average growth rate used to extrapolate cash flows beyond the budget period iii/ Pre-tax discount rates applied to the cash flow projections which reflect specific industry-related risks iv/ Expected rate of remaining growth is based on past performance and market forecasts for the tourism industry in Croatia

98 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

20. INTANGIBLE ASSETS (continued)

COMPANY (in thousands of HRK) 2018 2017

At 1 January Cost 8,120 8,086 Accumulated amortisation (5,418) (5,312) Net book amount 2,702 2,774

Opening net book amount 2,702 2,774 Additions 35 34 Disposals, write-offs (28) - Amortisation for the year (117) (106) Net book amount 2,592 2,702

At 31 December Cost 8,126 8,120 Accumulated amortisation (5,534) (5,418) Net book amount 2,592 2,702

99 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Investments in subsidiaries - - 4,903,789 3,279,865 Investments in associates 9,165 8,855 - - Investments in joint ventures 82,084 82,694 - - 91,249 91,549 4,903,789 3,279,865

31 December 2018 31 December 2017 Ownership Investment Ownership Investment Group Activity Country % amount % amount % HRK’000 % HRK’000 Joint ventures PBZ Croatia osiguranje d.d., Pension Zagreb fund Croatia 50.0 80,669 50.0 81,284 Nacionalni biro za osiguranje Skopje Insurance Macedonia - 1,415 - 1,410 82,084 82,694 Associates Strmec projekt d.o.o., Real Samobor estate Croatia 49.76 5,688 49.76 5,688 Technical testing STP Agroservis d.o.o., and Virovitica analysis Croatia 37.0 3,477 37.0 3,167 9,165 8,855

Joint ventures:

Movements in investments in joint ventures are as follows:

(in thousands of HRK) 31 December 2018 31 December 2017

At 1 January 82,694 80,948 Increase using the equity method - 1,900 Decrease using the equity method (610) - Impairment - (154) At 31 December 82,084 82,694

100 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)

Summary financial information for joint ventures

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

Summary statement of financial position (in thousands of HRK) 31 December 2018 31 December 2017 Financial assets 90,558 131,526 Other assets 53,040 13,943 Total assets 143,598 145,469

Liabilities 6,260 6,902 Capital and reserves 137,338 138,567 Total equity and liabilities 143,598 145,469

Summary statement of comprehensive income Revenue 68,458 69,156 Expenses (35,081) (34,158) Profit before tax 33,377 34,998 Income tax (6,007) (6,298) Profit for the year 27,370 28,700 Share in profit of joint venture @ 50% 13,685 14,350

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

Summary financial information (in thousands of HRK) 31 December 2018 31 December 2017 Opening balance of net assets at 1 January /i/ 162,568 158,768 Profit for the period 27,371 28,700 Dividends (28,600) (24,900) Closing balance of net assets 161,339 162,568 Share in profit of joint venture @ 50% 80,669 81,284 Carrying amount 80,669 81,284 i/ Opening balances include HRK 24 million which relate to the difference in fair value of the net assets of the company on acquisition by Adris grupa d.d. (50% attributable to the Group) in 2014.

101 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)

Associates:

Changes in investments in associates are as follows:

(in thousands of HRK) 31 December 2018 31 December 2017

At 1 January 8,855 16,618 Impairment of investments in associates - (1,710) Sale of shares /i/ - (6,469) Share in profit of associates 310 416 Distribution of profit of associate - - At 31 December 9,165 8,855 i/ During the year ended 31 December 2017, the Group sold its 25.6% share in the associate Brioni d.d., Pula.

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

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

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

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

102 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)

Subsidiaries:

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

31 December 2018 31 December 2017

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

Investments in subsidiaries – wholly-owned

Adria Resorts d.o.o. Rovinj, Croatia 100% 1,050,000 100% 1,050,000 Abilia d.o.o., Rovinj, Croatia 100% 124,000 100% 124,000 Expertus d.o.o., Zagreb, Croatia 100% 1,002,140 - - 2,176,140 1,174,000

Investments in subsidiaries – majority interest Croatia osiguranje d.d., Zagreb, Croatia 66.34% 2,111,365 66.12% 2,105,865 HUP-Zagreb d.d., Zagreb, Croatia 35.94% 616,284 - - 2,727,649 2,105,865

3,279,86 Total investments in subsidiaries 4,903,789 5

Movements in investments in subsidiaries were as follows:

(in thousands of HRK) 31 December 2018 31 December 2017 At 1 January 3,279,865 3,280,051 Increase /i/ 1,623,924 - Decrease /ii/ - (186)

At 31 December 4,903,789 3,279,865 i/ During 2018, the Company acquired the 100% share in Expertus d.o.o., Zagreb, a 0.22% share in Croatia osiguranje d.d., Zagreb, and directly acquired a 35.94% share in HUP-Zagreb d.d., Zagreb. ii/ During 2017, the Group liquidated the subsidiary Rovita Bugarska eood, Sofia, Bulgaria.

Total non-controlling interests for 2018 amounted to HRK 1,449,238 thousand (31 December 2017: HRK 1,322,655 thousand), of which HRK 1,170,188 thousand relates to non-controlling interests in the subsidiary Croatia osiguranje d.d. (31 December 2017: HRK 1,111,203 thousand), and HRK 219,305 thousand relates to Maistra d.d. (31 December 2017: HRK 196,262 thousand), while the remaining amount relates to other subsidiaries.

103 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

21. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)

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

Summary balance sheet Croatia osiguranje d.d. Maistra d.d. 31 31 31 31 December December December December (in thousands of HRK) 2018 2017 2018 2017 Current assets 2,683,255 2,760,650 80,278 65,355 Current liabilities (3,274,476) (3,171,436) (912,460) (1,096,375) Total net current assets (591,221) (410,786) (832,182) (1,031,020) Non-current assets 8,858,017 8,907,589 3,319,425 2,884,410 Non-current liabilities (5,086,473) (4,928,724) (628,361) (283,938) Total net non-current assets 3,771,544 3,978,865 2,691,064 2,600,472 Total net assets 3,180,323 3,568,079 1,858,882 1,569,452

Summary income statement Croatia osiguranje d.d. Maistra d.d. (in thousands of HRK) 2018 2017 2018 2017 Revenue 3,605,715 3,423,587 1,218,324 1,127,652 Profit before tax 390,887 268,028 185,995 185,868 Income tax (64,046) (43,601) 103,435 (23,723) Total comprehensive income 326,841 224,427 289,430 162,145 Total comprehensive income attributable to non-controlling interests 110,733 92,908 31,974 20,107

Summary cash flows Croatia osiguranje d.d. Maistra d.d. (in thousands of HRK) 2018 2017 2018 2017 Cash flows from operating activities 256,557 (84,984) 382,255 390,415 Cash flows from investing activities 36,998 93,199 (531,195) (511,117) Cash flows from financing activities (1,619) (3,440) 138,875 113,255

Additional information Croatia osiguranje d.d. Maistra d.d. (in thousands of HRK) 2018 2017 2018 2017 Dividends paid to NCI 200 206 - -

104 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

22. DEBT SECURITIES AT AMORTISED COST

During the first-time application of IFRS 9, the Group has classified its financial assets previously classified under IAS 39 as held-to-maturity investments into the new measurement category debt securities at amortised cost in accordance with IFRS 9 (Note 2.39).

The structure of the stated financial assets of the Group is presented in the table below:

(in thousands of HRK) 31 December 2018 31 December 2017 31 December 2016

Government bonds 2,182,921 2,248,413 2,248,136 Corporate bonds 50,722 - 30,000 Treasury bills - 7,190 12,306 2,233,643 2,255,603 2,290,442

Movement in the gross amount and provisions for credit losses of bonds carried at amortised cost (IFRS 9): Provisions for credit Gross amount (in thousands of HRK) losses

Opening balance at 1 January 2018 (IAS 39) 58,425 2,314,028 Initial IFRS 9 adjustment 7,538 - Opening balance at 1 January 2018 in accordance with IFRS 9 65,963 2,314,028 Movements affecting credit losses: Additions or purchases 1,304 400,434 Disposals (1,389) (376,644) Change in assumptions in the ECL measurement model (1,747) Amortisation of premium/discount - (18,605) Movements not affecting provisions for credit losses Write-offs (40,300) (40,300) Foreign exchange differences and other movements - (21,439) At 31 December 2018 23,831 2,257,474

All bonds carried at amortised cost are included in stage 1 (12-month ECL).

105 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

22. DEBT SECURITIES AT AMORTISED COST (continued)

Changes in held-to-maturity investments during 2017 (IAS 39):

(in thousands of HRK) 31 December 2017

At 1 January 2,290,442 Additions 297,995 Disposals (301,932) Foreign exchange differences (7,016) Amortisation of premium/discount (23,886)

2,255,603 Current portion (426,576) Non-current portion 1,829,027

The currency structure of investments is as follows:

(in thousands of HRK) 31 December 2018 31 December 2017 31 December 2016

HRK 856,714 798,251 761,918 EUR 1,311,233 1,423,868 1,512,705 Other currencies 65,696 33,484 15,819 2,233,643 2,255,603 2,290,442

106 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

23. FINANCIAL ASSETSAT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

During the first-time application of IFRS 9, the Group has classified its financial assets previously classified under IAS 39 as available-for-sale financial assets into the new measurement category financial assets at fair value through other comprehensive income in accordance with IFRS 9 (Note 2.39).

As at 1 January 2018, the Group and the Company recorded the following investments as financial assets at fair value through other comprehensive income, since they are held for strategic purposes rather than for the purpose of realising subsequent profit on sale and there are no plans to sell them in the short or mid-term. In 2017, these investments were recorded as available-for-sale investments (Note 2.39).

Group Company 31 31 31 31 31 31 (in thousands of December December December Decembe December Decembe HRK) 2018 2017 2016 r 2018 2017 r 2016

Equity securities 516,267 573,119 488,554 95,126 99,507 83,748 Debt securities 3,605,541 3,237,205 2,066,141 - - - 4,121,808 3,810,324 2,554,695 - - - Current portion (329,383) (126,797) (53,546) - - - Non-current portion 3,792,425 3,683,527 2,501,149 95,126 99,507 83,748

Equity securities

Group Company 31 31 31 31 31 31 (in thousands of December December Decembe Decembe December Decembe HRK) 2018 2017 r 2016 r 2018 2017 r 2016

Shares, interests and other securities 476,070 535,685 460,072 95,126 99,507 83,748 Investment funds 40,197 37,434 28,482 - - - 516,267 573,119 488,554 95,126 99,507 83,748

Debt securities

Group Company 31 31 31 31 31 31 (in thousands of December December December Decembe December Decembe HRK) 2018 2017 2016 r 2018 2017 r 2016

Bonds 3,605,541 3,237,205 2,066,141 - - - 3,605,541 3,237,205 2,066,141 - - - Current portion (329,383) (126,797) (53,546) - - - Non-current portion 3,276,158 3,110,408 2,012,595 - - -

107 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

23. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (continued)

Movement in the gross amount and provisions for credit losses of bonds carried at fair value through other comprehensive income (IFRS 9):

Provisions for credit Gross amount (in thousands of HRK) losses

Opening balance at 1 January 2018 (IAS 39) - 3,237,205 Initial IFRS 9 adjustment 10,801 10,801 Opening balance at 1 January 2018 in accordance with IFRS 9 10,801 3,248,006 Movements affecting credit losses: Additions or purchases 3,073 1,506,601 Disposals (1,980) (1,139,021) Change in assumptions in the ECL measurement model (2,630) (2,630) Amortisation of premium/discount - (18,057) Movements not affecting provisions for credit losses Write-offs - - Foreign exchange differences and other movements - 19,906 At 31 December 2018 9,264 3,614,805

The currency structure of investments is as follows:

Group Company 31 31 31 31 31 31 (in thousands of December December December Decembe December Decembe HRK) 2018 2017 2016 r 2018 2017 r 2016

HRK 1,591,950 1,713,405 742,680 - - - EUR 2,335,156 1,979,526 1,612,740 95,126 99,507 83,748 USD 123,930 76,818 155,798 - - - Other currencies 70,772 40,575 43,477 - - - 4,121,808 3,810,324 2,554,695 95,126 99,507 83,748

Movements in available-for-sale investments (IAS 39):

Group Company (in thousands of HRK) 2017 2017

At 1 January 2,554,695 83,748 Increase through acquisition 139,063 - Additions 1,857,096 - Disposals (914,446) - Foreign exchange differences (9,187) - Fair value increase 183,103 15,759 Fair value decrease - - At 31 December 3,810,324 99,507

108 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

24. a. FINANCIAL INSTRUMENTS BY CATEGORY

The accounting policies for financial instruments have been applied to the line items below:

For measurement purposes, IFRS 9 Financial Instruments: Recognition and measurement classifies financial assets into the following categories: a) financial assets at amortised cost; b) financial assets at fair value through other comprehensive income; c) financial assets at fair value through profit or loss. Financial assets at Financial Financial assets at fair value assets at fair value through through GROUP amortised other comprehensive profit or (in thousands of HRK) cost income loss Total

31 December 2018 Assets Trade receivables 579,721 579,721 Loans receivable 363,801 - - 363,801 Financial assets at fair value through profit or loss - - 717,897 717,897 Other financial assets 2,233,643 4,121,808 - 6,355,451 Receivables from right of recourse 215,256 - - 215,256 Reinsurance share in technical provisions 234,381 - - 234,381 Deposits 2,265,523 - - 2,265,523 Cash and cash equivalents 633,055 - - 633,055 6,525,380 4,121,808 717,897 11,365,085

For measurement purposes, IFRS 39 Financial Instruments: Recognition and measurement classifies financial assets into the following categories: a) loans and receivables; b) available-for-sale financial assets c) held-to- maturity financial assets; d) financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss has two sub-categories: a) assets designated as such at initial recognition, b) assets held for trading. Financial assets at fair value Held-to- Available- through GROUP Loans and maturity for-sale profit or (in thousands of HRK) receivables investments assets loss Total

31 December 2017 Assets Trade receivables 869,914 - - - 869,914 Loans receivable 619,457 - - - 619,457 Financial assets at fair value through profit or loss - - - 540,504 540,504 Other financial assets - 2,255,603 3,810,324 - 6,065,927 Receivables from right of recourse 235,445 - - - 235,445 Reinsurance share in technical provisions 229,301 - - - 229,301 Deposits 3,868,535 - - - 3,868,535 Cash and cash equivalents 201,660 - - - 201,660 6,024,312 2,255,603 3,810,324 540,504 12,630,743

Other financial (in thousands of HRK) liabilities 31 December 2018 Liabilities Borrowings 1,563,523 Trade and other payables 783,475

109 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

2,346,998 31 December 2017 Liabilities Borrowings 844,871 Trade and other payables 371,079 1,215,950

110 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

24. a. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

Financial Financial assets at assets at fair Financial fair value through value COMPANY assets at other through amortised comprehensive profit or (in thousands of HRK) cost income loss Total

31 December 2018 Assets Deposits 1,420,102 - - 1,420,102 Trade and other receivables /i/ 7,225 - - 7,225 Loans receivable 1,025,189 - - 1,025,189 Financial assets at fair value through profit or loss - - 75,429 75,429 Available-for-sale financial assets - 95,126 - 95,126 Cash and cash deposits 18,168 - - 18,168 2,470,684 95,126 75,429 2,641,239

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

31 December 2017 Assets Deposits 2,730,265 - - 2,730,265 Trade and other receivables /i/ 3,082 - - 3,082 Loans receivable 1,546,345 - - 1,546,345 Financial assets at fair value through profit or loss - - 72,853 72,853 Available-for-sale financial assets - 99,507 - 99,507 Cash and cash deposits 5,776 - - 5,776 4,285,468 99,507 72,853 4,457,828 i/ Trade and other receivables do not include tax receivables, receivables from employees and advances receivable.

(in thousands of HRK) Other financial liabilities

31 December 2018 Liabilities Borrowings 26,928 Trade and other payables /i/ 251,981 278,909

31 December 2017 Liabilities Borrowings 22,777 Trade and other payables /i/ 27,872 50,649

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

111 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

24. b. CREDIT QUALITY OF FINANCIAL ASSETS

The table below presents the Group’s asset analysis as at 31 December 2018 according to IFRS 9 by categories as rated by Standard & Poor’s (S&P). Rating in Stage 1 Stage 2 Stage 3 2018 12-month Lifetime Lifetime (in thousands of HRK) S&P ECL ECL ECL Total

Financial assets at amortised cost

Debt securities Ministry of Finance, Republic of Croatia BB+ 1,999,786 - - 1,999,786 Croatian Bank for Reconstruction and Development (HBOR) BB+ 38,499 - - 38,499 Ministry of Finance, Macedonia BB- 58,063 - - 58,063 Ministry of Finance, Serbia BB+ 91,620 - - 91,620 No rating - 69,506 - - 69,506

Total gross carrying amount 2,257,474 - - 2,257,474 Less credit loss allowance (23,831) - - (23,831) Net book amount 2,233,643 - - 2,233,643

Trade and other receivables

Rated corporations No rating 1,052,626 165,000 1,014,018 2,231,644

Total gross carrying amount 1,052,626 165,000 1,014,018 2,231,644 Less credit loss allowance (402,945) (25,971) (859,204) (1,288,120) Net book amount 649,681 139,029 154,814 943,524

Reinsurance share in technical provisions Rated reinsurers A 7,369 - - 7,369 A- 27,331 - - 27,331 A+ 76,975 - - 76,975 AA 79,522 - - 79,522 AA- 4,099 - - 4,099 AA+ 633 - - 633 Reinsurers rated by another agency 18,126 - - 18,126 No rating 20,586 - - 20,586

Total gross carrying amount 234,641 - - 234,641 Less credit loss allowance (260) (260) Net book amount 234,381 234,381

112 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Financial assets at fair value through other comprehensive income

Ministry of Finance, Republic of Croatia BB+ 3,081,371 - - 3,081,371 Croatian Bank for Reconstruction and Development (HBOR) BB+ 69,115 - - 69,115 Ministry of Finance, Hungary BBB- 36,924 - - 36,924 Rated corporations BB- 14,019 - - 14,019 Rated corporations BB 13,647 - - 13,647 Rated corporations BBB 20,778 - - 20,778 Ministry of Finance, Macedonia 250,033 - - 250,033 Ministry of Finance, Serbia 55,917 - - 55,917 Ministry of Finance, Austria AAA 20,791 - - 20,791 No rating - 52,210 - - 52,210

Total gross carrying amount 3,614,805 - - 3,614,805 Less credit loss allowance (9,264) - - (9,264) Net book amount 3,605,541 3,605,541

Financial assets at fair value through profit or loss

Ministry of Finance, Republic of Croatia BB+ 1,437 - - 1,437 Ministry of Finance, Serbia BB+ 11,304 11,304

Total gross carrying amount 12,741 - - 12,741 Less credit loss allowance - - - - Net book amount 12,741 - - 12,741

113 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

The table below presents the Group’s asset analysis as at 31 December 2017 according to IAS 39 by categories as rated by Standard & Poor’s (S&P), Moody’s and Fitch.

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

Held-to-maturity investments 2,209,482 Ministry of Finance, Republic of Croatia 2,047,769 BB Ba2 BB Croatian Bank for Reconstruction and Development (HBOR) 37,734 BB Ba2 BB Ministry of Finance, Macedonia 81,227 BB- - BB Ministry of Finance, Serbia 42,752 BB BA3 BB No rating - - - - Available-for-sale financial assets 3,237,205 Ministry of Finance, Republic of Croatia 2,853,153 BB Ba2 BB Croatian Bank for Reconstruction and Development (HBOR) 70,397 BB Ba2 BB Ministry of Finance, Hungary 13,919 BBB- Baa3 BBB- Rated corporations 13,531 BB- Ba3 - 13,871 BB Ba2 - - - - - Ministry of Finance, Macedonia 145,145 BB- - BB Ministry of Finance, Serbia 86,501 BB Ba3 BB Ministry of Finance, Slovenia - - - - Ministry of Finance, Austria - - - - No rating 40,688 - - - Financial assets at fair value through profit or loss 35,637 Ministry of Finance, Republic of Croatia 1,437 BB Ba2 BB Ministry of Finance, Serbia 34,200 BB BA3 BB Trade and other receivables 1,812,735 Rated corporations 495,920 - C - No rating 1,316,815 - - - Reinsurance share in technical provisions 229,301 Rated reinsurers 29,795 A - - 12,060 A- - - 64,140 A+ - - 1,912 AA - - 90,388 AA------788 AA+ 60 - - A- - - - - 508 - - BBB- 2,243 - Baa1 A- Reinsurers rated by another agency 7,065 - - - No rating 20,342 - - -

114 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

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

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

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

Trade receivables – neither past due nor impaired.

(in thousands of HRK) 2018 2017

Tourism Customers – payments within maturity period 1,450 773 Existing customers – with some defaults in the past 4,631 1,502 6,081 2,275 Healthy food Customers – payments within maturity period 48,550 8,018 Other customers - 27,729 48,550 35,747 Insurance High quality - 1,894 Standard quality 329,734 453,377 329,734 455,271

Other trade receivables neither past due nor impaired 1,136 187,643 Total trade receivables neither past due nor impaired 385,501 680,936

115 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

25. TRADE AND OTHER RECEIVABLES

Group Company 31 31 31 31 31 31 (in thousands of HRK) December December December December December December 2018 2017 2016 2018 2017 2016

Trade receivables: Related parties (Note 40) - - - 2,230 2,341 2,380 Domestic trade receivables 481,508 569,495 616,662 8,635 7,583 7,597 Foreign trade receivables 107,549 102,269 90,412 - - - Due from exporters 8 8 8 - - - Uninvoiced receivables 247,111 245,031 245,622 - - - 836,176 916,803 952,704 10,865 9,924 9,977 Credit loss allowance (2017: (256,455) (309,613) (324,492) (6,909) (6,842) (6,639) Impairment of trade receivables) Trade receivables - net 579,721 607,190 628,212 3,956 3,082 3,338

Loans given: Loans to related parties (Note - - - 874,476 1,135,662 889,942 40) Loans to unrelated parties 1,395,466 1,497,872 1,677,628 1,014,945 1,027,455 1,156,365 1,395,466 1,497,872 1,677,628 1,889,421 2,163,117 2,046,307 Credit loss allowance (2017: (1,031,665) (878,415) (702,793) (864,232) (616,772) (474,232) Impairment of loans given) Loans – net 363,801 619,457 974,835 1,025,189 1,546,345 1,572,075

Taxes receivable 15,947 18,054 57,078 647 - - Receivables from right of 215,256 235,445 239,191 - - - recourse Reinsurance share in technical 234,381 229,301 198,091 - - - provisions Other receivables 490,762 332,589 154,843 7,835 3,751 6,132 956,346 815,389 649,203 8,482 3,751 6,132 1,899,869 2,042,036 2,252,250 1,037,627 1,553,178 1,581,545 Less non-current portion (195,511) (124,190) (124,277) - (10) (91) Current portion 1,704,358 1,917,846 2,127,973 1,037,627 1,553,168 1,581,454

Non-current portion: 31 31 31 December December December Group (in thousands of HRK) 2018 2017 2016

Long-term loans receivable 10,096 13,911 18,630 Other loans given - non-current portion - 4,343 3,343 Reinsurance share in technical provisions 94,537 105,936 99,210 Other non-current receivables 90,878 - 3,094 195,511 124,190 124,277

Loans to related companies were granted in HRK with an interest rate of 4.55% p.a. (2017: 4.97% p.a.). The loans are secured by bills of exchange.

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

116 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

25. TRADE AND OTHER RECEIVABLES (continued)

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

On that basis, the loss allowance as at 31 December 2018 (after IFRS 9 adoption) for trade receivables is as follows:

(in thousands of HRK) Not past due 0 - 90 90 - 180 > 180 Total

Gross amount of trade receivables 385,588 145,823 44,898 259,867 836,176 Credit loss allowance (87) (383) (404) (255,581) (256,455) Net trade receivables 385,501 145,440 44,494 4,286 579,721

Changes in the credit loss allowance for the Group’s trade receivables are as follows:

Credit loss (in thousands of HRK) allowance At 1 January 2018 309,613 Contribution by acquisition (Note 35) 2,047 Changes in estimates and assumptions (11,133) Derecognition of financial assets during the year (43,784) Foreign exchange differences (288)

At 31 December 256,455

Changes in the credit loss allowance for the Group’s and the Company’s loans given are as follows:

Group Company Credit loss Credit loss (in thousands of HRK) allowance allowance At 1 January 2018 878,415 616,772 Contribution by acquisition (Note 35) 2,960 - Changes in estimates and assumptions 170,408 247,460 Derecognition of financial assets during the year (20,118) -

At 31 December 1,031,665 864,232

117 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

25. TRADE AND OTHER RECEIVABLES (continued)

Balances and movements in the provision for impairment of trade receivables in 2017 are as follows:

31 December (in thousands of HRK) 2017 At beginning of year 324,492 Provisions made during the year (Note 10) 168,388 Collected receivables previously written off (Note 10) (154,213) Foreign exchange differences 22 Write-off of previously impaired receivables (29,076) At 31 December 309,613

Balances and movements in the impairment of loans given in 2017 are as follows:

Group Company (in thousands of HRK) 2017 2017 At beginning of year 702,793 474,232 Provisions made during the year (Note 10) 286,484 230,214 /i/ Collected receivables previously written off (110,858) (87,674) (Note 10) Foreign exchange differences (4) -

At 31 December 878,415 616,772

Receivables for loans given to unrelated parties include receivables from a group in the amount of HRK 1,181,266 thousand for the Group and HRK 1,014,019 thousand for the Company (2017: HRK 1,193,755 thousand for the Group and HRK 1,026,508 thousand for the Company). During 2018, the Group additionally impaired this receivable by the amount of HRK 247,460 thousand (2017: HRK 265,626 thousand), and the Company by the amount of HRK 247,460 thousand (2017: HRK 230,244 thousand). Based on the present value estimate of the expected recoverable amount and the period in which the collection is expected, Management made a provision for a part of the total receivable, which is uncertain at the balance sheet date. In considering the estimate of the recoverable amount of receivables (including the security instruments), Management considered the current restructuring process and the liquidity of the stated group and the settlement reached.

The maturities of loans given are as follows:

Group Company 31 31 31 31 31 31 December December December December December December (in thousands of HRK) 2018 2017 2016 2018 2017 2016 Not later than one year 351,949 601,203 952,862 1,025,189 1,546,335 1,571,984 From 2 to 5 years 11,852 18,254 21,973 - 10 91 363,801 619,457 974,835 1,025,189 1,546,345 1,572,075

118 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

25. TRADE AND OTHER RECEIVABLES (continued)

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

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

Group Company 31 December 2018 31 December 2017 31 December 2018 31 December 2017 0-10.57% 0%-7% - 4%-7%

As at 31 December 2018, the Group’s trade receivables in the amount of HRK 194,220 thousand (2017: HRK 187,886 thousand) were past due but not impaired.

Group Company (in thousands of HRK) 2018 2017 2016 2018 2017 2016

Up to 1 month 75,098 73,685 106,043 46 89 96 1 to 2 months 43,113 33,362 41,100 45 57 62 2 to 3 months 27,935 30,507 36,236 20 2 2 Over 3 months 48,074 50,332 59,336 479 483 523

194,220 187,886 242,715 590 631 683

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

Group Company (in thousands of HRK) 2018 2017 2016 2018 2017 2016

EUR 361,454 559,886 856,283 147,221 410,604 681,557 HRK 1,398,057 1,371,786 1,297,174 890,406 1,142,574 899,988 RSD 27,700 14,915 14,283 - - - USD 38,968 31,629 42,485 - - - BAM 46,581 41,088 19,748 - - - MKD 27,094 22,578 16,387 - - - GBP 15 154 5,890 - - - 1,899,869 2,042,036 2,252,250 1,037,627 1,553,178 1,581,545

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

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

119 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

26. DEFERRED TAX

Company:

Deferred tax assets

(in thousands of HRK) 31 December 2018 31 December 2017

Deferred tax assets to be recovered within 12 months 1,408 5,655 Deferred tax assets to be recovered after more than 12 months 161,937 113,554 163,345 119,209

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

2018 2017 (in thousands of Provisi Impairment Provisi Impairment HRK) ons Tax loss losses Total ons losses Total

At 1 January 5,655 - 113,554 119,209 22,480 88,077 110,557 Charged to the statement of comprehensive (16,825 income (4,247) 158,512 (110,129) 44,136 ) 25,477 8,652 At 31 December 1,408 158,512 3,425 163,345 5,655 113,554 119,209

Deferred tax liability

As at 31 December 2018, the Company reported a deferred tax liability in the amount of HRK 8,294 thousand (2017: HRK 9,083 thousand) based on the revaluation of available-for-sale financial assets stated in equity.

(in thousands of HRK) 2018 2017 At 1 January 9,083 6,246 Charged to the statement of comprehensive income (789) 2,837 At 31 December 8,294 9,083

120 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

26. DEFERRED TAX (continued)

Group:

Deferred tax assets

31 December 31 December (in thousands of HRK) 2018 2017

Deferred tax assets to be recovered within 12 months 9,098 9,476 Deferred tax assets to be recovered after more than 12 months 405,723 230,867 414,821 240,343

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

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

Termi nation Tax benefit incentiv Impairment Legal s Tax loss es losses disputes Other Total

At 1 January 2017 855 - 198,308 7,308 30,680 237,151 Charged to the income statement 153 - 25,648 (684) (21,763) 3,354 Foreign exchange differences - - (4) - 4 Other - - (188) - 26 (162) At 31 December 2017 1,008 - - 223,764 6,624 8,947 240,343 Charged to the income statement 37 158,512 92,747 (125,969) 21 (4,905) 120,443 Acquisition 314 - 46,027 - - 514 46,855 Effect of IFRS 9 adoption - - - 6,793 - 6,793 Reclassification (637) - - 5,457 (6,039) 1,606 387 At 31 December 2018 722 158,512 138,774 110,045 606 6,162 414,821

Deferred tax liability 31 December 31 December (in thousands of HRK) 2018 2017

Deferred tax liability recoverable within 12 months 15,376 13,259 Deferred tax liability recoverable after more than 12 months 298,036 199,288 313,412 212,547

121 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

26. DEFERRED TAX (continued)

The deferred tax liability is mainly calculated on temporary differences between the tax base of tangible assets in the subsidiaries and its fair value in the consolidated financial statements and on the revaluation of available-for- sale financial assets. 31 December 31 December (in thousands of HRK) 2018 2017

At 1 January 212,547 198,415 Acquisition of subsidiary (Note 35) 141,631 1,128 Charged to the statement of comprehensive income (14,813) (9,458) Charged to equity through other comprehensive income (13,838) 22,623 Other (12,115) (161) At 31 December 313,412 212,547

27. INVENTORIES

31 December 31 December (in thousands of HRK) 2018 2017

Raw materials and supplies 36,707 36,507 Work in progress 547,793 426,609 Finished goods 3,783 4,882 Trade goods 391 386 Advances for raw materials and supplies and other 2,485 564 591,159 468,948

As at 31 December 2017, borrowings from one of the Group subsidiaries were secured by a pledge over the inventories of work in progress in the amount of HRK 12,286 thousand. In 2018, work in progress ceased to be a collateral.

The cost of inventories recorded as expenses in 2018 amounted to HRK 464,474 thousand (2017: HRK 382,455 thousand).

28. DEPOSITS AND CASH

Group Company (in 31 31 31 31 31 December 31 December thousands of December December December December 2016 2016 HRK) 2018 2017 2018 2017

Deposits 2,265,523 3,868,535 4,581,742 1,420,102 2,730,265 2,957,262 Long-term 868,667 2,487,763 748,992 355,606 2,062,908 49,126 Short-term 1,396,856 1,380,772 3,832,750 1,064,496 667,357 2,908,136

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

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

Group Company 2018 2017 2016 2018 2017 2016

Deposits 0.05%-5% 0%-3.9% 0%-3.9% 0.1%-1.18% 0.1%-3.0% 0.3%-3.9%

122 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

28. DEPOSITS AND CASH (continued)

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

Group Company (in thousands of 31 December 31 December 31 December 31 December 31 December 31 December HRK) 2018 2017 2016 2018 2017 2016

HRK 1,249,993 1,078,895 1,276,381 626,642 606,513 503,768 EUR 1,251,440 2,658,743 3,205,380 811,628 2,129,528 2,467,478 USD 1,120 1,413 16,947 - - - BAM 239,421 237,966 223,117 - - - MKD 80,145 66,529 - - - - RSD 49,869 26,398 - - - - GBP 143 102 - - - - Other currencies 26,447 149 71,332 - - - 4,793,15 2,971,24 2,898,578 4,070,195 7 1,438,270 2,736,041 6

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

Group Rating in 2018 Rating in 2017 31 31 (in thousands December December of HRK) 2018 2017 S&P Moody´s Fitch S&P Moody´s Fitch

Deposits and cash 2,898,578 4,070,195 Rated banks 1,852,185 3,220,566 BB+ BBB- BB BBB- Other banks and financial institutions 1,046,393 849,629 - - -

Company Rating in 2018 Rating in 2017 31 31 (in thousands of December December HRK) 2018 2017 S&P Moody´s Fitch S&P Moody´s Fitch

Deposits and cash 1,418,603 2,732,230 Rated banks 1,416,913 2,731,706 BB+ BBB- BB - BBB- Other member banks of reputable banking groups in EU 1,690 524 - - -

Other member banks of reputable banking groups in the EU relate to banks based in Member States and groups that are not rated by the above agencies, but their parent banks within the EU have the following ratings BB+ (2017: BBB, BBB+, BBB-).

123 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

29. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Group Company 31 31 31 31 December December December December (in thousands of HRK) 2018 2017 2018 2017

Investments in shares 89,289 87,173 73,992 71,416 Investments in bonds 12,741 35,637 1,437 1,437 Investments in investment funds 613,486 416,002 - - Foreign currency forward contracts 2,381 1,692 - - 717,897 540,504 75,429 72,853

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

The currency structure of investments is as follows:

31 December 31 December (in thousands of HRK) 2018 2017

HRK 234,440 143,013 EUR 362,459 373,082 Other currencies 120,998 24,409 717,897 540,504

30. CAPITAL AND RESERVES

/i/ As at 31 December 2018 and 2017, the share capital of the Company amounting to HRK 164,000 thousand is distributed among 9,615,900 ordinary shares and 6,784,100 preference shares, with a nominal value of HRK 10.00 per share. Preference shares have the same rights as ordinary shares, except that they do not have voting rights in the General Assembly. ii/ During 2018, the Company purchased 236,757 treasury shares (2017: 19,386). In the same year, the Company sold 71,022 shares (2017: 155,520). As at 31 December 2018, the Company owns 343,325 treasury shares or 2.09% of all issued shares (31 December 2017: 177,590 treasury shares or 1.08% of all issued shares). In December 2017, the Company issued a Programme for disposing of treasury shares, enabling the employees of Group companies to purchase the Company’s shares. iii/ In accordance with Croatian regulations, in earlier periods the Company formed legal reserves in the amount of HRK 12,448 thousand. This reserve is not distributable. iv/ Based on the General Assembly’s decision from 27 June 2018, the Company’s profit for 2017 in the amount of HRK 15,921 thousand was allocated to the Company’s statutory reserves, while the amount of HRK 290,000 thousand was allocated from statutory reserves to retained earnings (on 14 June 2017, profit for 2016 in the amount of HRK 235,725 thousand was allocated to the Company’s statutory reserves, retained earnings in the amount of HRK 378,468 thousand was allocated to statutory reserves, while the amount of HRK 244,000 thousand was allocated from statutory reserves to retained earnings). Statutory reserves are formed in accordance with the Company’s internal rules and consist of retained earnings transferred to statutory reserves based on the decisions of the Shareholders’ General Assembly and as such are distributable. As at 31 December 2018, statutory reserves include cumulative net foreign exchange gains in the amount of HRK 916 thousand (31 December 2017: net foreign exchange gains of HRK 2,429 thousand).

124 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

30. CAPITAL AND RESERVES (continued)

v/ Based on its decision from 27 June 2018, the General Assembly approved a dividend from profit in the amount of HRK 287,000 thousand or HRK 17.50 per share (2017: Based on its decision from 14 June 2017, the General Assembly approved a dividend from profit in the amount of HRK 278,800 thousand or HRK 17.00 per share).

The ownership structure of the Company as at 31 December 2018 and 2017 is as follows:

Ordinary shares:

31 December 2018 31 December 2017 Number of Number of Nominal value shares % shares %

Small shareholders 10 9,520,498 99.01% 9,464,502 98.43% Treasury shares 10 95,402 0.99% 151,398 1.57% 9,615,900 100% 9,615,900 100%

Preference shares:

31 December 2018 31 December 2017 Number of Number of

Nominal value shares % shares %

Small shareholders 10 6,536,177 96.35% 6,757,908 99.61% Treasury shares 10 247,923 3.65% 26,192 0.39% 6,784,100 100% 6,784,100 100%

Total:

31 December 2018 31 December 2017 Number of Number of Nominal value shares % shares %

Small shareholders 10 16,056,675 97.91% 16,222,410 98.92% Treasury shares 10 343,325 2.09% 177,590 1.08% 16,400,000 100% 16,400,000 100%

125 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

31. BORROWINGS

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Long-term borrowings 919,332 298,674 - - Current portion of long-term borrowings (34,071) (20,177) - - Non-current portion 885,261 278,497 - -

Short-term bank borrowings 644,191 520,460 - - Short-term borrowings from related parties (Note 40) - - 26,927 22,777 Current portion of long-term borrowings 34,071 20,177 - - Total short-term borrowings 678,262 540,637 26,927 22,777

Long-term borrowings mainly relate to bank borrowings in the subsidiaries Maistra d.d., Rovinj, Cromaris d.d., Zadar and Hoteli Dubrovačka Rivijera d.d., Dubrovnik (2017: Maistra d.d., Rovinj and Cromaris d.d., Zadar). The borrowings have been secured with bills of exchange, promissory notes, pledged life insurance policies and mortgages over tangible assets and inventories.

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

Group Company 31 31 December 31 December 31 December December 2018 2017 2018 2017

Long-term borrowings 0%-4.7% 3%-3.125% - - Short-term bank borrowings 0%-3% 2.2%-6.03% - - Short-term borrowings from related parties - - 4.55% 4.97%

In 2018, the Group capitalised borrowing costs in the amount of HRK 4,073 thousand (2017: -).

The Group’s exposure to interest rate changes:

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Borrowings at fixed interest rates 704,991 525,362 26,927 22,777 Borrowings at variable interest rates 858,532 293,772 - -

1,563,523 819,134 26,927 22,777

126 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

31. BORROWINGS (continued)

The carrying value of the Group’s borrowings approximates their fair value, as contracted interest rates approximate the Group’s available current borrowing rates. The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance sheet date are as follows: Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

1-6 months 662,742 293,772 - -

662,742 293,772 - -

The maturity of long-term borrowings is as follows:

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Between 1 and 2 years 37,153 15,341 - - Between 2 and 5 years 241,108 85,316 - - More than 5 years 607,000 177,840 - -

885,261 278,497 - -

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

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

EUR 92,033 273,148 - - HRK 1,471,196 545,583 26,927 22,777 Other 294 403 - -

1,563,523 819,134 26,927 22,777

(in thousands of Group Net debt 2017 Company Net debt 2017 HRK) Net debt 2018 Net debt 2018

At 1 January 868,225 816,410 45,853 37,533

Acquisition of subsidiary 517,079 - 222,675 -

Cash flows - net Proceeds from borrowings 495,800 (107,293) 8,300 (3,450) Repayment of borrowings (59,487) 20,668 (5,119) 972 Interest expense 34,169 - 1,139 - Dividends declared 287,000 278,800 287,000 278,800 Dividends paid (285,137) (275,757) (279,610) (275,757) Foreign exchange differences (442) 1,397 (5,729) (1,245) At 31 December 1,842,825 868,225 274,509 45,853

127 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

32. TRADE AND OTHER PAYABLES

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Trade payables – related parties (Note 40) - - 177 249 Domestic trade payables 164,321 140,535 4,197 3,892 Foreign trade payables 21,949 9,865 25 655 Tax payable and other payables to the state 67,289 52,033 7,741 5,977 Due to employees 78,053 64,333 8,817 6,875 Dividends payable 29,295 23,354 24,907 23,076 Contract liability - advances from customers 26,479 16,001 - - Concession liabilities 72,079 67,989 - - Insurance contract liabilities 97,290 100,227 - - Liabilities from coinsurance and reinsurance business 59,302 54,846 - - Accrued expenses 211,406 133,935 7,952 7,651 Deferred income 240,614 255,777 - - Other accruals and payables 19,770 26,046 1,196 215 1,087,847 944,941 Less non-current portion (25,919) (25,737) - - Current portion 1,061,928 919,204 55,012 48,590

Deferred income mainly results from the insurance business, which is not within the scope of IFRS 15.

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

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

HRK 674,432 266,988 54,987 47,935 EUR 54,731 64,307 25 655 BAM 18,912 16,703 - - RSD 8,186 9,619 - - USD 20,331 9,409 - - MKD 5,087 3,966 - - Other currencies 1,796 87 - -

783,475 371,079 55,012 48,590

128 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

33. PROVISIONS

Group: Provisions for termination Legal Other (in thousands of HRK) benefits disputes provisions Total

At 1 January 2017 103,089 88,408 117,534 309,031 Acquisition of subsidiary (Note 35) 1,371 437 - 1,808 Additional provisions 19,813 49,910 - 69,723 Payment of provisions (54,261) (14,411) - (68,672) Reversal of provisions (1,945) (14,755) (93,684) (110,384) At 31 December 2017 68,067 109,589 23,850 201,506 Acquisition of subsidiary (Note 35) 2,103 5,962 1,355 9,420 Additional provisions 3,907 18,343 - 22,250 Payment of provisions (8,727) (13,514) - (22,241) Reversal of provisions (4,877) (20,498) (23,850) (49,225) At 31 December 2018 60,473 99,882 1,355 161,710

Company: Provisions for long- term employee Other (in thousands of HRK) benefits provisions Total

At 1 January 2017 - 117,534 117,534 Additional provisions 48 48 Reversal of provisions - (93,684) (93,684) At 31 December 2017 48 23,850 23,898 Additional provisions - - - Reversal of provisions (16) (23,850) (23,866) At 31 December 2018 32 - 32

Analysis of total provisions:

Group Company 31 December 31 December 31 December 31 December (in thousands of HRK) 2018 2017 2018 2017

Non-current portion 137,343 146,443 32 48 Current portion 24,367 55,063 - 23,850 161,710 201,506 32 23,898

129 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

33. PROVISIONS (continued)

Provisions for legal disputes The provision amounting to HRK 99,882 thousand (2017: HRK 109,589 thousand) relates to the provision for legal disputes regarding the land utilisation right as well as certain legal disputes brought against the Group by various suppliers and others. The provision charge is recognised in the statement of comprehensive income in Note 10 – Other operating expenses. The provision amounts have been discounted to their present value. In the Management Board’s opinion, after taking appropriate legal advice, the outcomes of legal disputes will not give rise to any specific loss beyond the amounts provided at 31 December 2018.

Provisions for termination benefits The non-current portion of the provision for termination benefits relates to the estimated amount of termination benefits in line with the collective bargaining agreement, to which the employees of certain Group companies are entitled at the end of their employment (either upon retirement, termination or voluntary departure). The present value calculation of these provisions is based on the number of employees, average gross salary, number of years of service at the balance sheet date and the discount rate of 1.70% for the Company and 1.5%-3.54% for the Group (2017: 1.52%-2.75% for the Group).

Other provisions Other provisions mainly relate to estimated risks that the Management Board identified as a result of the sale of the tobacco and retail segments. As part of the sales contract from 2015, the Company and the Group have provided certain guarantees to the buyer based on the realisation of certain future events over which the Company and the Group have no control. At 31 December 2018 and 2017, Management assessed the likelihood of the realisation of contractual guarantees and quantified the identified risks based on the likelihood of their occurrence. The final resolution is expected during 2019.

34. TECHNICAL PROVISIONS

31 December 31 December (in thousands of HRK) 2018 2017

Claims provisions, gross Provisions for reported but not settled claims 1,620,899 1,602,911 Provisions for incurred, but not reported claims (IBNR) 1,048,771 1,063,776 Provisions for costs of claims handling 150,525 151,576

Claims provisions, gross 2,820,195 2,818,263

Unearned premiums, gross 1,422,650 1,308,560 Mathematical insurance provisions, gross 2,731,290 2,687,801 Other insurance-technical provisions, gross 53,396 57,422 Technical provisions for life insurance where the policyholder bears the investment risk 437,973 336,901 Total technical provisions 7,465,504 7,208,947

Other insurance-technical provisions include unexpired risk reserves.

130 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

34. TECHNICAL PROVISIONS (continued)

Movements in provision for reported but not settled claims, gross

31 December 31 December (in thousands of HRK) 2018 2017 LIFE At 1 January 37,792 32,708 Foreign exchange differences arising on translation of financial statements of foreign operations (34) 6 Claims incurred in the current year 51,131 24,307 Transfer from provisions for incurred, but not reported claims 120 423 Change in claims from the previous year (7,221) (3,809) Settled claims (15,517) (15,843) At 31 December 66,271 37,792

NON-LIFE At 1 January 1,565,119 1,589,141 Foreign exchange differences arising on translation of financial statements of foreign operations (801) 802 Claims incurred in the current year 286,334 302,879 Transfer from provisions for incurred, but not reported claims 97,306 133,580 Change in claims from the previous year (29,039) (97,891) Settled claims (364,291) (366,459) Increase through acquisition - 3,067 At 31 December 1,554,628 1,565,119

TOTAL LIFE AND NON-LIFE At 31 December 1,620,899 1,602,911

131 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

34. TECHNICAL PROVISIONS (continued)

Movements in provision for incurred but not reported claims

31 December 31 December (in thousands of HRK) 2018 2017 LIFE At 1 January 2,257 3,067 Foreign exchange differences arising on translation of financial statements of foreign operations (4) (5) Increases recognised during the year 985 764 Transfer to provisions for reported claims (120) (423) Settled claims (942) (1,146) At 31 December 2,176 2,257

NON-LIFE At 1 January 1,061,519 1,067,978 Foreign exchange differences (1,229) 1,989 Increases recognised during the year 247,222 272,917 Transfer to provisions for reported claims (97,306) (133,611) Settled claims (163,611) (153,718) Increase through acquisition - 5,964 At 31 December 1,046,595 1,061,519

TOTAL LIFE AND NON-LIFE At 31 December 1,048,771 1,063,776

Movements in provisions for unearned premiums

31 December 31 December (in thousands of HRK) 2018 2017 LIFE At 1 January 5,494 5,511 Foreign exchange differences arising on translation of financial statements of foreign operations (15) (7) Written premiums during the year 686,466 639,376 Earned premiums during the year (686,576) (639,386) At 31 December 5,369 5,494

NON-LIFE At 1 January 1,303,066 1,144,499 Foreign exchange differences arising on translation of financial statements of foreign operations (3,133) 2,905 Written premiums during the year 2,642,219 2,501,784 Earned premiums during the year (2,524,871) (2,350,532) Increase through acquisition (Note 35) - 4,410 At 31 December 1,417,281 1,303,066

TOTAL LIFE AND NON-LIFE At 31 December 1,422,650 1,308,560

132 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

34. TECHNICAL PROVISIONS (continued)

Movements in mathematical insurance provisions, gross 31 December 31 December (in thousands of HRK) 2018 2017

At 1 January 2,687,801 2,634,966 Foreign exchange differences arising on translation of financial statements of foreign operations (4,055) (1,398) Allocated premium 385,747 288,609 Reversal of liabilities due to benefits paid, surrenders and other terminations (403,753) (362,370) Capitalised technical interest 58,288 64,688 Change in discretionary bonus 7,262 4,221 Effect of acquisition (Note 35) - 59,085 At 31 December 2,731,290 2,687,801

Movements in technical provisions for life insurance where the policyholder bears the investment risk, gross 31 December 31 December (in thousands of HRK) 2018 2017

LIFE At 1 January 336,901 138,599 Foreign exchange differences (14) 7 Allocated premium 107,348 193,297 Reversal of liabilities due to benefits paid, surrenders and other terminations (10,401) (5,985) Unrealised gains on assets in which the policyholders’ funds are invested 4,139 10,983 At 31 December 437,973 336,901

The maturity of gross technical provisions is as follows: Less than 1 From 1 to 5 From 5 to More than (in thousands of HRK) year years 10 years 10 years Total 2018 Unearned premiums, gross 1,143,728 222,603 53,185 3,134 1,422,650 Mathematical insurance provisions, gross 343,070 1,159,363 659,592 569,265 2,731,290 Claims provisions, gross 1,042,791 677,653 372,763 726,988 2,820,195 Other insurance-technical provisions, gross 47,102 4,248 2,006 40 53,396 Technical provisions for life insurance where the policyholder bears the investment risk 16 346,775 91,037 145 437,973 2,576,707 2,410,642 1,178,583 1,299,572 7,465,504 2017 Unearned premiums, gross 1,075,785 176,986 52,172 3,617 1,308,560 Mathematical insurance provisions, gross 396,501 1,064,207 652,400 574,693 2,687,801 Claims provisions, gross 976,398 684,714 394,701 762,451 2,818,264 Other insurance-technical provisions, gross 52,469 4,120 722 109 57,420 Technical provisions for life insurance where the policyholder bears the investment risk 171 271,035 65,636 60 336,902 2,501,324 2,201,062 1,165,631 1,340,930 7,208,947

133 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

35. ACQUISITION OF SUBSIDIARIES

Acquisition of subsidiaries in 2018 In April 2018, the Group acquired the 100% share in the company EXPERTUS d.o.o. Zagreb, thereby indirectly acquiring a 58.6% ownership share in the company HUP-ZAGREB d.d. Zagreb engaged in the tourism business in Croatia.

By acquiring a share in the company EXPERTUS d.o.o., and indirectly in the company HUP-ZAGREB d.d. and the company HOTELI DUBROVAČKA RIVIJERA d.d., the Group strengthened its position on the Croatian market.

Details on the fair value of identifiable assets and liabilities of the EXPERTUS Group at the acquisition date, the non-controlling interests and the purchase consideration are shown below:

(in thousands of HRK)

Assets Intangible assets 737 Property and equipment 1,627,691 Investment property 47,752 Deferred tax assets 46,855 Inventories 5,605 Other receivables 73,866 Prepaid expenses and accrued income 22,637 Cash at bank and on hand 239,969

Liabilities Provisions for legal disputes, termination benefits etc. (9,420) Borrowings (294,404) Deferred and current tax liability (140,126) Other liabilities (56,013) Accrued expenses and deferred income (15,323)

Total net assets at fair value 1,548,998

Non-controlling interest (630,465) Goodwill 83,607 Purchase consideration 1,002,140

Cash flow on acquisition: Cash and cash equivalents acquired 239,969 Purchase consideration paid in cash (779,464) Cash flow on acquisition (539,495)

The total purchase consideration in the amount of HRK 1,002,140 thousand includes a fee for the 22.22% ownership share in the amount of HRK 222,675 thousand, which is payable within a period of up to 5 years.

Goodwill arising on acquisition primarily relates to the customer base and synergy with existing hospitality operations.

Acquisition-related costs of HRK 2,119 thousand have been charged to service costs in the consolidated income statement for the year ended 31 December 2018.

Had the EXPERTUS group been consolidated as of 1 January 2018, an increase in income by HRK 97,188 thousand and a decrease in profit before tax by HRK 4,260 thousand would have been recognised in the consolidated income statement. In June 2018, the Group acquired an additional 35.94% share in the company HUP-ZAGREB d.d. for an amount of HRK 616,284 thousand (Note 21).

134 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 35. ACQUISITION OF SUBSIDIARIES (continued)

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

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

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

(in thousands of HRK)

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

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

Total net assets at fair value 75,554

Gain on bargain purchase (20,554) Purchase consideration 55,000

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

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

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

135 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

35. ACQUISITION OF SUBSIDIARIES (continued)

Had the company BNP Paribas Cardif osiguranje d.d. been consolidated as of 1 January

2017, an increase in income by HRK 19,196 thousand and increase in profit before tax by

HRK 19,608 thousand would have been recognised in the consolidated income statement. In November 2017, BNP Paribas Cardif osiguranje d.d. changed its name to CROATIA osiguranje kredita d.d.

Also, in 2017, the Company acquired 100% of shares with voting rights in the company Auto Maksimir Vozila d.o.o. whose principal activity is insurance representation. The purchase consideration amounted to HRK 100 thousand and approximately equals the fair value of the acquired company.

36. PURCHASE OF SHARES FROM NON-CONTROLLING INTEREST

In 2018, the Group purchased an additional 0.53% share in Maistra d.d., Rovinj for an amount of HRK 17,303 thousand, an additional 0.22% share in Croatia osiguranje d.d. Zagreb for an amount of HRK 5,500 thousand, the remaining portion of the non-controlling interest, i.e. 0.75% of Cromaris d.d., Zadar for an amount of HRK 3,862 thousand and an additional 35.94% share in HUP-Zagreb d.d., Zagreb for an amount of HRK 616,284 thousand (2017: additional 0.34% share in Grand hotel Imperial d.d., Dubrovnik for an amount of HRK 409 thousand, the remaining portion of the non-controlling interest, i.e. 26% in Poliklinika Ars Medica, Pula for an amount of HRK 2,000 thousand and an additional 0.6% share in CO d.d., Mostar for an amount HRK 136 thousand).

The difference between the carrying amount of the non-controlling interest and the consideration paid amounting to HRK 61,520 thousand (2017: HRK 506 thousand) is recorded as a decrease in other provisions in the Group’s equity in the amount of HRK 8,939 thousand, and a decrease in the Group’s retained earnings in the amount of HRK 52,581 thousand.

136 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

37. CASH GENERATED FROM OPERATIONS

Group Company (in thousands of HRK) Note 2018 2017 2018 2017

Profit before tax 372,583 441,309 (34,349) 25,462

Depreciation and amortisation and impairment 17, 18, 20 438,497 375,758 18,294 18,311 Loss/(gain) on sale of subsidiaries 36 - - - 186 Share in profit of associates and joint ventures 21 (13,995) (452) - - Interest income 6, 13 (237,827) (311,277) (64,979) (130,691) Interest expense 13 34,169 20,668 1,139 972 Gains on sale of property, plant and equipment 11 (21,600) (18,731) (1,147) - Write-off of property, plant and equipment and intangible assets 10 11,586 33,909 - 9,989 Fair value (gains)/losses on financial assets at fair value through profit or loss 11, 12 - (10,653) (7,515) - (Gains)/losses on sale of financial assets 11 (64,845) (51,075) - 92 Provision for impairment of receivables – net 10 222,463 190,937 243,365 143,383 Dividend income 6 (22,570) (16,901) (216,077) (4,951) Income from bargain purchase 11 - (20,554) - - Unrealised foreign exchange differences 12,490 18,808 17,970 24,448 Other adjustments (17,338) 15,161 (1,038) 8,019

Movements in working capital: - provisions 33 (49,216) (107,525) (23,866) (93,636) - technical provisions 34 256,556 318,090 - - - trade receivables 23,817 (174,274) (931) (255) - other current assets (41,282) 98,342 (4,006) (26,026) - inventories (116,605) (59,577) (38) - - trade and other payables 60,044 (26,838) 5,486 (5,430) Cash generated from operations 846,927 715,125 (67,692) (30,127)

137 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

38. CONTINGENCIES AND UNCERTAIN EVENTS

Supervision of the ownership transformation and privatisation process In the period from 2002 to 2004, audits of the ownership transformation and privatisation processes in the legal predecessors of Maistra d.d., Rovinj were performed: Jadran-turist d.d., Rovinj and Anita d.d., Vrsar.

According to the report, the ownership transformation and privatisation process of the previously socially owned company Anita d.d., Vrsar has not been performed entirely in compliance with legal provisions. The audit did not result in an opinion with respect to the ownership over property of the companies. The companies have responded to the audit report, but up to the balance sheet date no legal action was taken. The Management Board believes that the outcome of the stated process will not have a significant effect on the Group’s operations.

39. COMMITMENTS

As at 31 December 2018 and 2017, the Company had no commitments.

Group:

Costs for the purchase of non-current tangible assets were agreed with suppliers at the balance sheet date in the amount of HRK 360,565 thousand (2017: HRK 393,037 thousand), which have not yet been realised or recognised in the balance sheet as at 31 December 2018 and 2017. At the balance sheet date, the Group had commitments for future investments amounting to HRK 60,393 thousand based on binding bids for investments in venture capital funds.

Future minimum lease payments made under non-cancellable operating leases of hospitality facilities and business premises are as follows:

31 31 December December (in thousands of HRK) 2018 2017

Up to one year 409 351 From 1 to 5 years 1,858 - Over 5 years - - 2,267 351

138 ADRIS GRUPA D.D., ROVINJ NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

40. RELATED PARTY TRANSACTIONS

The Group is controlled by private persons, none of which have individual control.

For the purposes of these financial statements, parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

During 2018, in the ordinary course of operations, the Group had no transactions with related parties.

The Company had the following related party transactions during 2018 and 2017:

31 December 31 December (in thousands of HRK) 2018 2017

Trade receivables – subsidiaries (Note 25) 2,230 2,341 Loans given to subsidiaries (Note 25) 874,476 1,135,662 Trade payables – subsidiaries (Note 32) 177 249 Short-term borrowings from subsidiaries (Note 31) 26,927 22,777 Interest payable to subsidiaries 91 94

INCOME Dividend income from subsidiaries 210,483 225 Management fee from subsidiaries 5,766 6,168 Rental income from subsidiaries 10,086 9,941 Other operating income – subsidiaries 4,430 1,262 Interest income from subsidiaries (Note 13) 47,197 47,244 Net exchange differences from loans to and borrowings from subsidiaries - 9

EXPENSES Finance costs – subsidiaries (Note 13) 965 972 Administration costs – subsidiaries (Note 7) 485 533 Other operating expenses from operations with subsidiaries 2,597 2,644

Key management compensation

Group Company (in thousands of HRK) 2018 2017 2018 2017

Salaries and other short-term benefits 102,617 100,687 18,256 17,504

Key management of the Group comprises 151 employees (2017: 145 employees) and key management of the Company comprises 9 employees (2017: 7 employees).

41. EVENTS AFTER THE BALANCE SHEET DATE

In February 2019, a squeeze-out of minority shareholders of HUP-ZAGREB d.d. Zagreb was performed, i.e. a 4.25% ownership share for an amount of HRK 63,320 thousand. In February 2019, a squeeze-out of minority shareholders of HOTELI DUBROVAČKA RIVIJERA d.d. Mlini was performed, i.e. a 2.43% ownership share for an amount of HRK 9,269 thousand.

139

ADRIS GRUPA d.d. Rovinj

CORPORATE GOVERNANCE STATEMENT FOR 2018

140 ADRIS GRUPA D.D., ROVINJ

CORPORATE GOVERNANCE STATEMENT FOR 2018

In its business strategy, business policy, key internal acts and business practice, ADRIS GRUPA d.d. (hereinafter: the Company) as well as the Group, develops and acts in accordance with good corporate governance practice, aiming to contribute to transparent and efficient operation and better links with the business environment it operates in.

In 2009 the Company adopted its own Corporate Governance Code defining standards for corporate management and transparency of the Company’s operations in order to safeguard primarily investors, as well as all other interested parties, through the good and responsible management and monitoring of operational and management functions. The aims and principles of corporate governance are developed on the basis of the following principles: - transparency of operations - clearly developed procedures for the activities of the Supervisory Board, Management Board as well as other bodies and structures making important decisions - avoiding conflict of interest - efficient internal monitoring - efficient system of responsibilities.

Due to the fact that shares of the Company are listed on a regulated market, the Company implements the Corporate Governance Code adopted jointly by the Croatian Financial Services Supervisory Agency and the Zagreb Stock Exchange, available on their webpages.

The Company complies with and implements prescribed corporate governance measures and provides detailed explanations of any existing discrepancies in the questionnaire published annually on the webpages of the Zagreb Stock Exchange and the Company in accordance with regulations (www.zse.hr; www.adris.hr).

Information on major equity holders of the Company is available on the website of the Central Depository and Clearing Company.

The Company’s capital is divided into 16,400,000 shares, issued in non-materialised form, and divided into the following two groups: - 6,784,100 preferred shares (ADRS2, earlier ADRS-P-A) with priority in the payment of dividend, the payment of remnant assets from the liquidation or bankruptcy estates, and the payment of cumulated unpaid dividend prior to payment of dividend to ordinary equity holders, not carrying voting rights in the General Assembly of the Company - 9,615,900 ordinary shares (ADRS, earlier ADRS-R-A) carrying voting rights in the General Assembly of the Company, and the right to the payment of dividend and the payment of remnant assets in the liquidation and bankruptcy estates.

The corporate governance structure of the Company is based on a dual system comprising the Supervisory Board and the Management Board. Under the Statute and the Companies Act, the Supervisory Board, Management Board and General Assembly represent the three essential bodies of the Company.

The sessions, activities and scopes of authority for the General Assembly are governed by the Companies Act and the Statute of the Company. The call for a General Assembly, decision proposals and decisions adopted, are published in accordance with provisions of the Companies Act, the Capital Market Act and the Zagreb Stock Exchange Rules. The right to participate in the General Assembly is granted to all shareholders who apply for the participation in the General Assembly at least six (6) calendar days prior to the date the General Assembly is held. This deadline does not include the day the application is received, or the day when the General Assembly is held.

The Management Board of the Company comprises three Members authorized to represent the Company independently and individually. On 31 December 2018, members of the Management Board include: - Ante Vlahović, Chairman of the Management Board - Tomislav Popović, Member of the Management Board (end of mandate on 31 December 2018)

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- Marko Remenar, Member of the Management Board - Stipanka Ivandić Štefanek, Member of the Management Board.

The Supervisory Board of the Company comprises seven Members. On 31 December 2018, members of the Supervisory Board include: - Rino Bubičić, Chairman of the Supervisory Board - Tomislav Budin, Vice-chairman of the Supervisory Board - Marica Šorak-Pokrajac, Vice-chairman of the Supervisory Board - Hrvoje Patajac, Member of the Supervisory Board - Roberto Škopac, Member of the Supervisory Board - Ida Lokmer, Member of the Supervisory Board - Erika Zgrablić, Member of the Supervisory Board (employees’ representative).

Rules on the appointment and recall of members of the Supervisory Board, scopes of authority of the Management and Supervisory Boards and amendments to the Statute are regulated by the Statute of the Company in accordance with the Companies Act. The Statute of the Company is published on the Company’s website (www.adris.hr).

There are no limitations relating to gender, age, education, professional or other circumstances in the executive, management and supervisory bodies or at any other level.

On 17 June 2014, the General Assembly of Adris grupa d.d. adopted the decision authorising the Management Board to acquire own ADRS2 (earlier ADRS-P-A) and ADRS (earlier ADRS-R-A) shares for a period of five years from the adoption of the decision in order to offer these shares for sale to the employees of the Company and its subsidiaries. Pursuant to this decision, the Management Board of Adris grupa d.d. produced the Own Shares Management Program, adopted by the Supervisory Board of the Company on 17 October 2017.

In 2018, the Company acquired 4,844 own shares of the class ADRS (ADRS-R-A), making up 0.05% of the shares from this class and 231,913 own shares of the class ADRS2 (ADRS-P-A) making up 3.42% of the shares in this class, i.e. a total of 236,757 shares making up 1.44% of the Company’s total share capital. Notices of any acquisition or sale of own shares are published in accordance with the Companies Act, the Capital Market Act and the Zagreb Stock Exchange Rules.

The Audit Committee, operating as a part of the Supervisory Board, analyses financial statements, supports the accounting department of the Company, monitors the integrity of financial information, in particular the accuracy and consistency of accounting methods used by the Company and the Group, including criteria for the consolidation of financial statements of companies belonging to the Group, supervises the execution of audits in the Company, discusses certain matters brought to its attention by the auditors or management, monitors the efficiency of internal quality control and risk management system, proposes the appointment of the auditing company and advises the Supervisory Board. The Audit Committee also monitors non-audit services provided by auditors in accordance with applicable legislation. During 2018, the Company’s and the Group’s auditors provided the following non-audit services to the Company and to Group members: services relating to defining measures for harmonization with the new General Data Protection Regulation, reviewing the model and format of the reporting tool, due diligence services, advisory services relating to transfer prices and added value tax as well as training services.

The internal controls system in financial reporting ensures that financial statements of the Company represent with adequate accuracy the financial result and position of the Company, as well as its compliance with the International Financial Reporting Standards.

Accounting policies of the Company represent principles, rules and practice the Company uses in compiling and presenting financial statements. A summary of accounting policies is published in financial statements of the Company.

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Internal accounting control procedures include controlling the formal, substantive and arithmetical accuracy of accounting documents: - formal accuracy controls determine whether the document has been compiled in accordance with legislation currently in force - substantive controls determine whether the operational change actually occurred and whether this was within the scope specified - arithmetical accuracy controls include the control of arithmetic operations (division, multiplication, addition, subtraction) used to obtain results presented in the document.

Accounting documents controls are implemented in accordance with the organizational structure of the Company and internal acts by the authorized person in accordance with the defined scope of authority. Formal, substantive and arithmetical controls are confirmed by a physical and/or electronic signature of the authorized person performing the control procedure.

______Marko Remenar Member of the Management Board

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1. MANAGEMENT BOARD STATEMENT

The business strategy “Being first, being better, being different” is the basis for all business decisions of the company as reflected in the aspiration of Adris to be not only one of the most successful companies, an initiator and leader of economic trends, but also an innovative, socially responsible company focusing on the future. Successful companies cannot and must not act with no regard for the environment they operate in, and this is why responsibility towards the community in all segments of business needs to become a permanent and systematic obligation.

Participation in establishing social justice, equal opportunities, the promotion of competitive and socially responsible business and taking responsibility for the role and impact our company has in the local and wider community, is incorporated within our business strategy and commitment to sustainable business.

This is the second year in which we have published the Non-financial report, i.e. the Corporate Social Responsibility Report which presents results of the strategic commitment of Adris grupa management and efforts of all our employees throughout the years.

We again worked in accordance with the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI), enabling a standardized representation of our achievements and comparability with results which will be published in reports to follow.

Adris grupa has achieved outstanding results in 2018 as well, and a strong growth in all key business indicators. The business year of 2018 was marked by the acquisition of the company HUP-Zagreb d.d. which significantly contributes to strengthening the tourist segment of the Group.

Our corporate values, focus on identified goals, being open to new knowledge, modern technologies and best corporate and organizational practices alongside the known loyalty of our employees and shareholders of the companies, guarantee our success in the future.

ADRIS GRUPA d. d. Marko Remenar Member of the Management Board

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2. GENERAL INFORMATION

2.1. Profile

ADRIS GRUPA d.d., with its headquarters in Rovinj, Vladimira Nazora 1 (hereinafter: Adris or the Company) is one of the leading companies in Croatia and the region according to criteria of profitability and innovation.

It is organized in three strategic business segments (hereinafter: the Group). The tourist segment is managed by Maistra d.d., the healthy food segment is led by Cromaris d.d., and the insurance segment is managed by Croatia osiguranje d.d.

As a corporate centre Adris invests in the system, coordinates operations within the system and manages it, developing it as a whole. The Group’s operations have been marked by a growth in all key business indicators. The Group’s revenue grew over five times in this period, profit by ten times and capital by 20. The market value of Adris’ shares has increased by more than 100 times. Adris currently operates with an annual revenue over HRK 5bn.

The business strategy of the Group – “Being first, being better, being different” – is the basis for its mission and vision: ensuring the development of all our strategic business segments taking into account the satisfaction of our employees and end users in such a way that guarantees the increase in the value of share capital and is in accordance with the interests of the community in which Adris operates, in addition to being a regional leader in all aspects of operations based on tradition, own potentials as well as innovative and dynamic approach to the market.

In its growth and development strategy, Adris strengthened the tourist division of its portfolio led by MAISTRA d.d. (hereinafter: Maistra or the tourism segment) owing to the acquisition of the company HUP-ZAGREB d.d. Adris holds a significant place managing 3% of capacities and 5% overnight stays realized in the Republic of Croatia. The process of business integration of the company HUP-ZAGREB d.d. in the tourist segment of the Group is currently in progress. The aim of the project is to establish a unified model for managing the tourist segment of operations in order to continue sustainable growth in the long term. The tourist segment of Adris grupa today has 84% of hotel capacities at the level of four and five stars. Alongside the quality portfolio and operative excellence, sustainability is founded on the stronger positioning in three growing and internationally recognizable destinations – Rovinj, Dubrovnik and Zagreb.

CROMARIS d.d. (hereinafter: Cromaris or healthy food segment) is a mariculture leader in Croatia specializing in the farming and processing of white fish, particularly bass and bream. It is currently the largest manufacturer of quality white fish in the Adriatic region and the seventh in Europe. Two of the seven fisheries are located in Istria (North Adriatic) and five are located in the Zadar aquatory (Middle Adriatic). All fishery locations have been chosen for the extremely clean sea and nature, removed from pollutants. Adris stepped into the healthy food segment in 2009 and has invested almost HRK 1.1bn into the development of the company. This has resulted in a strong growth of all business indicators, opening of new markets, widening the production portfolio and further technology and production improvements.

The oldest insurance company in Croatia – CROATIA osiguranje d.d. (hereinafter: Croatia osiguranje or the insurance segment), operating within Adris since 2014, still holds the leading position on the market in Croatia with a total share of 28.1%. It is a market leader in the non-life insurance segment at 33.2%. The leading position has been maintained in life insurance as well with a market share of 17.7%. Adris’ powerful step towards the insurance industry confirms the intention to continue with investments in Croatia, as well as ensuring that through further investments and responsible management, Croatia osiguranje develops into a regional insurance leader competitive on the global market. In addition to the Croatian market, Croatia osiguranje is present on markets in Slovenia, Serbia, BiH and Macedonia.

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An overview of the overall structure of the Group with the list of all Group subsidiaries and notes on their core businesses for the date 31 December 2018 is provided on the following pages.

% share of direct parent Type of Company name Country company in Core business relation capital / voting rights consulting, engineering, Abilia d. o. o. Croatia direct 100.00% construction and real estate business Adria resorts d. o. o. Croatia direct 100.00% management Maistra d. d. Croatia indirect 89.64 % hotel industry and tourism aquaculture and fish retail Cromaris d. d. Croatia indirect 100.00 % and wholesale Slobodna Katarina d. o. o. Croatia indirect 100.00 % hotel industry and tourism fish and fish product Cromaris Italy s.r.l. Italy indirect 100.00 % wholesale and retail

Grand Hotel Imperial d. d. Croatia indirect 81.91 % hotel industry and tourism

Expertus d. o. o. Croatia direct 77.78 % hospitality and tourism indirect/ HUP-ZAGREB d. d. Croatia 95.59 % hotel industry and tourism direct HOTELI DUBROVAČKA Croatia indirect 97.49 % hotel industry and tourism RIVIJERA d. d. ASTORIA d. o. o. Croatia indirect 100.00 % services (real estate business)

Croatia osiguranje d. d. Croatia direct 66.34 % insurance and reinsurance

CROATIA osiguranje d. d., Bosnia and indirect 95.02 % insurance MOSTAR Herzegovina MILENIJUM osiguranje a.d.o., Serbia indirect 100.00 % insurance Belgrade 95.00% interest CROATIA osiguranje d. d. - life in capital / Macedonia indirect life insurance business insurance company, Skopje 100% voting rights CROATIA osiguranje d. d. - property and casualty property and casualty Macedonia indirect 100.00 % insurance company, Skopje insurance Skopje CROATIA osiguranje mirovinsko društvo za voluntary pension fund Croatia indirect 100.00 % upravljanje dobrovoljnim management mirovinskim fondom d. o. o. PBZ CROATIA osiguranje d. d. management of mandatory for mandatory pension funds Croatia indirect 50.00 % pension funds management RAZNE USLUGE d. o. o. - management, consulting and undergoing Croatia indirect 100.00 % real estate business, liquidation wholesale CROATIA - TEHNIČKI inspection and analysis of Croatia indirect 100.00 % PREGLEDI d. o. o. motor vehicles construction and real estate CROATIA PREMIUM d. o. o. Croatia indirect 100.00 % business

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% share of direct parent Type of Company name Country company in Core business relation capital / voting rights construction and real estate HISTRIA CONSTRUCT d. o. o. Croatia indirect 100.00 % business

CROATIA Poliklinika Croatia indirect 100.00 %

inspection and analysis of HERZ d. d. Croatia indirect 100.00 % motor vehicles

SLAVONIJATRANS inspection and analysis of Croatia indirect 76.00 % TEHNIČKI PREGLEDI d. o. o. motor vehicles inspection and analysis of STP d. o. o. Croatia indirect 100.00 % motor vehicles STANICA ZA TEHNIČKI inspection and analysis of PREGLED VOZILA BLATO d. Croatia indirect 100.00 % motor vehicles o. o. Bosnia and inspection and analysis of CROTEHNA d. o. o. indirect 100.00 % Herzegovina motor vehicles Bosnia and inspection and analysis of CROAUTO d. o. o. Mostar indirect 66.79 % Herzegovina motor vehicles maintenance and repair of all types of motor vehicles, retail CROATIA-REMONT d. d. Bosnia and and wholesale trade of indirect 69.79 % Čapljina Herzegovina automotive parts and associated equipment and vehicle inspections HOTEL HUM d. o. o. for Bosnia and indirect 100.00 % hospitality and tourism hospitality and tourism Herzegovina Bosnia and PONTE d. o. o. Mostar indirect 100.00 % insurance brokerage Herzegovina

CORE 1 d. o. o. Croatia indirect 100.00 % real estate business

inspection and analysis of AUTOPRIJEVOZ d. d. Otočac Croatia indirect 79.29 % motor vehicles inspection and analysis of AGROSERVIS - STP d. o. o. Croatia indirect 37.00 % motor vehicles

STRMEC PROJEKT d. o. o. Croatia indirect 49.76 % real estate business

AUTO MAKSIMIR VOZILA d. Croatia indirect 100.00 % insurance brokerage o. o. polyclinic management and polyclinic management CO ZDRAVLJE d. o. o. Croatia indirect 100.00 % consulting

AK POLICA d. o. o. Croatia indirect 100.00 % insurance brokerage

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The Group’s main brands, products and services by segments:

T O U R I S M

Rovinj Zagreb under construction: Grand Park Hotel Rovinj ***** Sheraton Zagreb Hotel ***** Hotel Monte Mulini ***** The Westin Zagreb Hotel ***** Hotel Lone ***** Panorama Zagreb Hotel ****

S Hotel Eden **** Hotel International **** Hotel Adriatic **** Hotel Jadran *** Hotel Istra **** Hotel Zagreb **

H O T E L H OE L T Hotel Amarin **** Dubrovnik Hotel Katarina *** Hilton Imperial Dubrovnik ***** Vrsar Sheraton Dubrovnik Riviera Hotel ***** Hotel Pineta *** Hotel Mlini **** Hotel Astarea ***

Vrsar Dubrovnik

TN Belvedere **** Apartmani Srebreno **** TN Petalon **** Villa Lovorka **** TN Funtana *** Villa Srebrenka **** TA Riva *** Villa Supetar **** TA Koversada **** Ville Mlini **** TOURIST RESORTS AND APARTMENTS TN Villas Koversada ** Rovinj Vrsar

Kamp Polari *** Kamp Porto Sole *** Kamp Veštar **** Kamp Koversada *** CAMPS Kamp Amarin *** Kamp Valkanela *** HOSPITALITY VENUES – Dubrovnik

Restoran Lungo Mare Pizzeria Mlini Pizzeria Supetar Bistro Studenac OTHER Restoran Konoba

H E A L T H F O O D

FRESH FISH FRESH PACKED FISH Adriatic sea bass Packed, fresh, gutted sea bass Adriatic sea bream Packed, fresh, gutted sea bream Kornati meagre Packed, fresh, gutted sea bass and sea bream Fresh sea bass fillets Packed fresh sea bass fillets Fresh sea bream fillets Packed fresh sea bream fillets Fresh meagre fillets Packed fresh meagre fillets Fresh meagre steaks Packed fresh meagre steaks DELIS CROMARIS ORGANIC Smoked sea bass Organic sea bass Smoked sea bream Organic sea bream Marinated sea bass Packed, fresh, gutted organic sea bass Marinated sea bream Packed, fresh, gutted organic sea bream

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I N S U R A N C E VEHICLE INSURANCE LIFE INSURANCE Motor third party liability insurance (TPL) Croatia Scholarship - fixed term personal annuity Casco insurance of road motor vehicles Croatia Senior - fixed term personal annuity Croatia asistencija - roadside assistance policy Krug Života - permanent term life insurance Legal protection - TPL Plus Riziko plus – term life insurance Car accident insurance for driver and passengers Children’s savings insurance Supplemental casco coverages with motor third party liability insurance Casco Duo, Hail, Burglary, TPL Croatia Invest III - investment life insurance Tow, Collision with animals, Damage from roof, Glass breakage Motor third party liability insurance for vehicles with Life Invest - investment life insurance transferable registration plates Voluntary motor third party liability insurance: Premium, Basic, Exclusive – combined endowment insurance of railway rolling stock, vehicle insurance at insurance repair shops and car washes Supplemental insurance against consequences of PROPERTY INSURANCE motor vehicle accidents Fire insurance and insurance against other hazards Supplemental critical illness insurance Insurance against earthquake risk and downtime Supplemental malignant diseases insurance due to earthquake Downtime insurance ACCIDENT INSURANCE Property insurance against all hazards - industrial Individual accident insurance and some other companies Croatia imovina property insurance Collective accident insurance Tourist homes insurance - Turist plus Athlete insurance Insurance of guests, visitors, excursion attendees and Household insurance tourists Moj majstor (”My Handyman”) Bank loan borrower insurance Compulsory insurance of passengers in public Insurance against burglary and robbery transport Machinery breakdown insurance Hospital days OPB - insurance of compensation of salary to Glass breakage insurance employer in the event of employee sick leave Electronic and electromechanical equipment DI - insurance of compensation to employed persons insurance in the event of incapacity for work Building construction insurance Standard of living insurance Structure and building assembly insurance TRAVEL INSURANCE Combined residential building insurance Travel health insurance Insurance of the properties of trade show exhibitors Casco Motorway Film company insurance Travel cancellation insurance Insurance of stocks in refrigerated trailer trucks Luggage insurance Additional accident insurance with travel health Insurance of stocks in refrigerating devices insurance Eyeglass insurance Private liability insurance with travel health insurance Crop and plantation insurance Croatia asistencija with travel health insurance Animal insurance BANCASSURANCE VESSEL AND TRANSPORT INSURANCE Bancassurance Casco insurance of ships in international sea transport Bancassurance for entrepreneurs Casco insurance of ships in domestic sea transport INSURANCE PACKAGES

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I N S U R A N C E

Ship transport casco insurance for boats/yachts Small business package Ship/yacht voluntary liability insurance Family package River-lake ship casco insurance Entrepreneurs’ package River-lake boat casco insurance Farmers’ package Ship in construction Microentrepreneur Platform casco Loss of income for boats/yachts LOAN INSURANCE Skipper liability Loan repayment insurance Lessee liability insurance Payment cards and personal belongings insurance Aviation casco insurance - air carriers Guarantee protection insurance General aviation casco insurance Claims insurance Insurance against the loss of pilot licence Railway rolling stock casco insurance LIABILITY INSURANCE Mandatory aircraft operator insurance Third party public liability insurance Mandatory liability insurance for drones Defective product liability insurance Liability insurance for shipping companies/platforms Liability insurance for managers Liability insurance for domestic shipping companies Professional indemnity for lawyers Mandatory liability insurance for vessel owners/users Professional indemnity for public notaries Liability insurance for marinas Professional indemnity for bankruptcy trustees Liability insurance for dry marinas Professional indemnity for auditing companies Liability insurance for small harbours Professional indemnity for real estate brokers Professional indemnity for persons conducting energy Liability insurance for anchorages audits and energy performance certification of buildings Ship repairer liability insurance Professional indemnity for tax consultants Professional indemnity for travel Airport liability insurance package organisers Professional indemnity for security and Shipping agent liability insurance detective services Professional indemnity for Ship pilot liability insurance insurance agents Professional indemnity for Loss of income for sea-going vessels insurance and reinsurance brokers Professional indemnity for K & R for international ships (Kidnap & Ransom) court-appointed experts Professional indemnity for Goods in transit insurance real state managers Professional indemnity for Insurance of goods handling at warehouses accounting services Liability insurance for transporters for Professional indemnity for goods received for transport in road traffic healthcare workers Third party liability insurance for road haulage Professional indemnity for veterinarians operators transporting dangerous goods Cabotage insurance Liability insurance for undertakers Professional indemnity for Liability insurance for freight forwarders finishing construction work services TIR carnet insurance ATA carnet insurance HEALTH INSURANCE Insurance of guarantees for the payment Supplemental health insurance of costs incurred on fuel and toll cards

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I N S U R A N C E Additional programme with supplemental insurance: Insurance of guarantees for tourist travel packages insurance of extra payments for medications from the HZZO’s supplementary list (so-called B list) Supplemental health insurance (basic programmes: Insurance of freight forwarder guarantees for the Primarijus, Primarijus PLUS, Active, Balance, payment of customs debt Comfort, Deluxe and Senior) Insurance of guarantees for hazardous waste Additional dental services insurance programme transport Insurance against redemption of counterfeit foreign Additional second medical opinion currency and HRK means of payment insurance programme Insurance against dishonest practices of the Additional insurance programme for costs insurant’s employees of treatment abroad Supplemental insurance programmes for Insurance against the loss of financial resources in the compensations to employees in the event of insurant’s place of business temporary incapacity for work Insurance against counterfeiting and modification of Best Doctors Plus - insurance covering second checks, redemption and collection of counterfeit medical opinion and treatment abroad money Insurance against unauthorised payments of savings Diagnose.me - insurance covering second medical deposits and payments from the citizens’ current opinion accounts Insurance against electronic and computer crime Insurance against damage to place of business and its RETIREMENT SAVINGS content Insurance against damage arising from the abuse of Retirement savings card by unauthorised individuals

O T H E R REAL ESTATE MANAGEMENT Tourism investments management Office construction management Real estate sales Construction of residential and commercial Industrial investments management Real estate rental buildings

The Company’s share capital amounts to HRK 164,000,000.00 and is divided into 16,400,000 shares issued in non-materialized form, managed in the central depository computer system operated by the Central Depository & Clearing Company. The shares are divided into: - 6,784,100 preferred shares (ADRS2) with priority in the payment of dividend, the payment of remnant assets from the liquidation or bankruptcy estates, and the payment of cumulated unpaid dividend prior to payment of dividend to ordinary equity holders, not carrying voting rights in the General Assembly of the Company - 9,615,900 ordinary shares (ADRS) carrying voting rights in the General Assembly of the Company, and the right to the payment of dividend and the payment of remnant assets in the liquidation and bankruptcy estates.

The Company's shares are listed on the regulated market, in the segment Regular, operated by the market operator Zagreb Stock Exchange. At the beginning of 2018, the Company signed the Agreement on the Performance of Market Operator Services for the Company’s Ordinary and Preferred Shares. On 31 December 2018, no one was registered in the register of shares of the Central Depository & Clearing Company as a holder of more than 20% of the total number of shares (total share capital) of the Company. Continuing the unique and advantageous tradition of employee participation in company ownership structure, Adris has put in place a stock purchase and management programme that will allow the current generations of employees to participate in the company’s ownership as well, giving those who generate value a chance to participate in making decisions about this value.

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Group size

Basic information of Group size:

2018. 2017. Total assets on 31 December 2018 (in million HRK) 21,124 19,701 Total equity on 31 December 2018 (in million HRK) 10,270 10,285 Total liabilities on 31 December 2018 (in million HRK) 10,854 9,416 Sales 1 January - 31 December 2018 (in million HRK) 5,065 4,373 Total number of employees on 31 December 2018 6,535 5,398

Information on Group employees

Number of employees at the end of the reporting period: 31 December 2018 31 December 2017 Employees with Employees with Employees with Employees with indefinite fixed term indefinite fixed term contracts contracts contracts contracts FT PT FT PT FT PT FT PT Croatia 3,747 10 1,845 13 2,927 6 1,538 14 - Women 2,063 6 1,063 8 1,621 5 881 5 - Men 1,684 4 782 5 1,306 1 657 9 Bosnia and 245 - 32 10 228 0 37 6 Herzegovina - Women 107 - 14 4 111 - 21 1 - Men 138 - 18 6 117 - 16 5 Serbia 297 18 116 36 278 16 132 32 - Women 174 11 76 18 159 9 79 19 - Men 123 7 40 18 119 7 53 13 Macedonia 103 - 83 2 94 1 85 0 - Women 60 - 51 1 53 1 54 - - Men 43 - 32 1 41 - 31 - Italy 7 - - - 4 - - - - Women 4 - - - 2 - - - - Men 3 - - - 2 - - - Slovenia 5 - - - 4 - - - - Women 1 - - - 2 - - - - Men 4 - - - 2 - - - UKUPNO 4,404 28 2,076 61 3,531 23 1,792 52

*FT = full time *PT = part time * Data on the number of employees are prepared on the basis of the absolute number of employees, not on the basis of working hours.

The employee structure reflects the seasonality of the tourism segment’s business, with a high share of employees who have a fixed term contract. On 31 December 2018, their share was 99% (2017: 67% of the total number of employees of the Group’s tourism segment). The season lasts for the entire year thanks to the long-standing efforts to improve the quality of facilities, hotels in particular, and the acquisition of HUP-Zagreb d.d., by which the Group diversified its tourism business geographically and moved into the city hotel segment. We therefore no longer discuss seasonal employment, but year-round employment that allows future professional and personal development of employees. Less than a fifth of the employees who have fixed-term contracts have been employed for less than six months. 93% seasonal employees (2017: 43%) have 9-12 month employment contracts and 28% seasonal employees (2017: 34%) have 6-9 month contracts. So-called permanent seasonal worker co-financing agreements were signed with 33 employees in 2018 (2017: 34) based on the active employment policy programme run by the Croatian Employment Service.

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The Group’s supplier chain

In all Group companies, the Procurement function is in charge of supplier relations and procurement process management and is responsible for getting the best value for the company in procuring goods and/or services, for defining the procurement strategy, for defining activities and responsibilities related to the execution of the annual procurement plan, and for managing requirements and costs. Corporate social responsibility principles are incorporated into the supplier management policy and relate primarily to the obligation to respect human and labour rights, protect the environment, and fight against corruption. We are continually working on the informatization and improvement of all processes, B2B data exchange with suppliers, and a better flow of goods, services and information in general.

The strategic importance of supplier relations management drove the Group to launch a procurement management project in 2017 and to continue intensive work on this project in 2018. The objective of the project is to improve the Procurement function in the Group’s Companies and increase the utilisation of synergies at the Group level. A process management concept was introduced on three levels.

Strategic Procurement – added value generation and risk management - Monitoring the procurement market, understanding business requirements, identifying key effects on costs, keeping track of trends and technology - Developing strategies for procurement categories and suppliers in order to add value - Maintaining and developing relationships with key suppliers at the highest management level - Procurement risk management - Innovation management (from suppliers to internal clients)

Tactical procurement - cost-cutting - Identification of opportunities to cut and avoid costs; analysis of purchase amounts - Sourcing process management, including identifying framework arrangement guidelines - Management of initiatives, including savings tracking - Periodic risk assessment and mitigation of potential conflicts - Maintaining and establishing contact with suppliers - Periodic reporting on defined KPIs

Operational Procurement - Order Administration - Order request administration - Simple ad hoc queries, e.g. for regular orders from existing suppliers - Ordering goods and services - Managing procurement conditions - Resolving problems and complaints related to delivery

Key procurement categories by segments:

Procurement category Other Health food Tourism Insurance

Food  Beverages  Production feedstock  Spawn  Packaging  Transport services  Maintenance     Small inventory and consumables     Fixed assets    

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Other costs and services    

Total number of Group suppliers across the supply chain at the end of the reporting period by segments:

Country 31 December 2018 31 December 2017 Republic of Croatia 9,171 5,527 Bosnia and Herzegovina 910 112 Serbia 10 175 Macedonia 366 344 Italy 110 82 France 37 31 Other countries 595 396 TOTAL 11,199 6,667

The number of suppliers shown only includes direct suppliers. The number of indirect suppliers across the supply chain is inestimable.

The entire Group made an estimated total of HRK 4.8 billion of payments to suppliers in the reporting period (2017: HRK 1.7 billion).

Local suppliers account for around 84% of total procurement value (2017: around ¾).

Significant changes in the Group and its supply chain

In 2018 Adris acquired an interest in the company Expertus d.o.o. and indirectly (and later directly after a takeover offer) gained control in the company HUP-ZAGREB d. d., and consequently in the companies HOTELI DUBROVAČKA RIVIJERA d. d. and ASTORIA d. o. o.

The shares of Cromaris’ minority shareholders were transferred in line with the Decision of the Company’s General Assembly on 10 September 2018, making Adris the Company’s sole shareholder. The affiliate company Cenmar export-import d. o. o. was merged with Cromaris at the end of the year.

In the same reporting period, in the insurance segment of the Group’s business, the Company CROATIA osiguranje kredita d. d. was merged with CROATIA osiguranje d. d., and Poliklinika CROATIA zdravstveno osiguranje-ARS MEDICA was merged with the institution Poliklinika CROATIA zdravstveno osiguranje, which was renamed CROATIA Poliklinika.

CROATIA osiguranje d. d. implemented the eNabava application system for procurement records and management to informatise all its procurement processes. eNabava is a specialised system supporting the informatisation of all procurement processes, from requests, tenders, e-auctions and agreements to purchase orders and cost analyses. The eNabava system simplified the processes, made the procurement process quicker and more efficient, led to direct financial savings (eAukcija) and transparency, and facilitated data analysis, supplier relations management, and supplier agreement management.

There were no significant changes in supplier locations, supply chain structure, or supplier relations in the reporting period.

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External initiatives, memberships in associations and interest organizations, certificates

The Group’s initiatives and memberships in associations and interest organizations: Health Other Tourism Insurance food

Croatia ACCA (Association of Chartered Certified Accountants)  American Chamber of Commerce in Croatia  FEAP (Federation of European Aquaculture Producers)  FLAG (Fisheries Local Action Group) Plodovi mora  GARP (Global Association of Risk Professionals)  HAD (Croatian Actuarial Association)  HDTP (Croatian Transport Law Association)  HGK (Aquaculture Group)  HIIR (Institute of Internal Auditors Croatia)  Croatian Chamber of Economy (HGK)    

Croatian Chamber of Mechanical Engineers 

Croatian Employers’ Association (HUP)     Croatian Association of Congress Tourism Professionals  Croatian Tourism Association  Croatian Parliament – State Commission for Assessment  of Damages from Natural Disasters HUO (Croatian Insurance Bureau)  HUOJ (Croatian Public Relations Association)  HUUP (Croatian Association of Project Management) 

IIA (Institute of Internal Auditors) 

Camping Association of Croatia (KUH)  Cluster Mariculture Split  LAG (Local Action Group) Mareta  Lloyd's Register EMEA  German Croatian Chamber of Industry and Commerce  RIF (Croatian Association of Accountants and Financial   Experts) Expert Council of Vehicle Inspection Stations  Dubrovnik Tourism Board  City of Zagreb Tourism Board  Župa dubrovačka Municipality Tourism Board  City of Rovinj Tourism Board  Funtana Municipality Tourism Board  Vrsar Municipality Tourism Board  Association of Pension Funds Management Companies and  Pension Insurance Companies Association of Employers in Croatian Hospitality  (UPUHH)

Serbia

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Health Other Tourism Insurance food Croatian Business Club  Belgrade Chamber of Commerce  Serbian Chamber of Commerce  Foreign Investors Council  Association of Leasing Companies of Serbia  UOS (Association of Serbian Insurers) 

Bosnia and Herzegovina Actuarial Association in BH  Green Card Bureau in BH  Economic and Social Council of Federation BH  Federal Commission for the Election of Civil Servants  Chambers of Commerce in FBH  Association of Employers in FBH in the Finance Sector  Croatian Audit Chamber  Croatian Association of Court-Appointed Experts and  Estimation Officers The Union of Accountants, Auditors, and Financial  Workers of FBH Tourism Cluster of Herzegovina  Hotel and Restaurant Association of Bosnia and  Herzegovina Institute of Internal Auditors in BH  Association of Insurance Companies in Federation BH  Association of Insurers of Republic of Srpska  Association of Vehicle Inspection Stations with  the Chamber of Economy of FBH Association of Court-Appointed Experts  Insurance Protection Fund of the Federation of Bosnia  and Herzegovina Insurance Protection Fund of the Republic of Srpska 

Macedonija American Business College Skopje  Association of Chartered and Certified Accountants  European Business Association  Chamber of Commerce of the Republic of Macedonia  HR Association  Institute of Directors of the Republic of Macedonia  Institute of Chartered Accountants  Institute of Certified Auditors of the Republic of  Macedonia Institute for Accountants  Chamber of Architects and Engineers of the Republic of  Macedonia Chamber of Mediators of the Republic of Macedonia  Chamber of Journalists of the Republic of Macedonia  Chamber of Court-Appointed Experts of the Republic of  Macedonia

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Health Other Tourism Insurance food Macedonian Actuarial Association "Actuary"  Macedonian Actuarial Association  National Insurance Bureau  Handball Federation of Macedonia  Macedonian Lawyers Association  Association of Internal Auditors of the Republic of  Macedonia

In addition, for many years the Group has been cooperating with local schools, colleges and universities in organising internships and career promotion activities, and has actively participated in local community projects, as well as projects aimed at raising awareness of the need for environmental protection, for example participating in landscaping projects, seabed cleanup projects, Earth Day and Water Day celebrations, etc.

The list of the Group's certificates: Health food Tourism Insurance

ISO 9001 certificate    ISO 14001 certificate   ISO 22000 certificate  FSSC 22000  HACCP   IFS Food  Global G.A.P.  FRIEND OF THE SEA  KOSHER   HALAL  IZVORNO HRVATSKO (Croatian Creation)  Hrvatski EKO proizvod  EU Organic  Naturland  BRC Global Standard for Food Safety  Q Quality Label presented by the Croatian Ministry of  Tourism Blue Flag - FEE (Foundation for Environmental  Education) Sustainable Hotels  Travelife Gold Award  TUI Environmental Champions  Leading hotels of the world  Unique design hotel  Energy efficiency inspection certificate for large  enterprises

2.2. Ethics and integrity

The standards of professional and ethical conduct required from all the Group’s stakeholders are defined by the Code of Ethics, even though Adris considers ethics more than a system of procedures, regulations and declarative

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NON-FINANCIAL REPORT FOR 2018 principles. The ethics of the Group’s business system are built on the conviction that it is important to insist on personal responsibility of every individual within the system of accepted rules of conduct. The Group's policy is to respect the laws of the countries in which it operates, as well as any regulatory requirements affecting its business.

Internal communication acts are used to inform employees about the provisions of the Code of Ethics. Any employee can file a complaint about suspicious business activities, irregularities observed, or violations of legal regulations or the provisions of the Code of Ethics. Every complaint filed is investigated thoroughly. The report on the conducted investigation is then filed to the Management Board, along with proposed disciplinary actions and other actions in the event that the complaint proves justified. The confidentiality of the complainant’s data is guaranteed, with zero tolerance for any possible retaliation against the person suspected of having filed a complaint. The manner of filing a complaint and the procedure after the complaint has been filed are regulated by the provisions of the Code of Ethics.

The Code of Ethics also regulates the issues of bribery, corruption and competition, and the latter is further regulated by the Code of Conduct in the Application of Competition Protection Regulations.

There were no complaints about suspicious business activities, irregularities observed or violations of legal provisions or provisions of the Code of Ethics in the reporting period.

We would like to add that the Group does not violate the rights of autochthonous communities, nor does it use child or forced labour in its activities, and it requires the same of its business partners. The Group does not provide financial or any other support to political parties, politicians and related institutions.

2.3. Management

As a joint stock company, Adris Group commits to abide by the highest principles of good corporate governance and regulatory compliance. The corporate structure is the foundation of effective strategic and operational management of the Company.

The corporate governance structure of the Company is based on a dual system comprising a Supervisory Board and a Management Board of the Company. Under the Statute and the Companies Act, the Supervisory Board, the Management Board and the General Assembly are the three core bodies of the Company. The specific management authorities and responsibilities of these bodies are governed by the relevant Croatian legislation, the Company Statute and the Code of Corporate Governance, regulations or statutory acts.

The General Assembly of the Company elects the members of the Supervisory Board for a term of up to four years, while the Supervisory Board appoints the members of the Management Board of the Company for a term of up to five years. The members of the Management Board and the Supervisory Board of the Company must comply with the relevant standards regarding education and professional experience, have high moral standards and be available to perform the functions.

The Management Board consists of three members, who are authorized to represent the Company independently and individually. The Members of the Management Board of the Company on 31 December 2018 are: - Ante Vlahović, MSc, President of the Management Board - Tomislav Popović, Member of the Management Board, whose term expired on 31 December 2018 - Marko Remenar, Member of the Management Board - Stipanka Ivandić Štefanek, Member of the Management Board.

The Supervisory Board of the Company comprises seven Members. The Members of the Supervisory Board of the Company on 31 December 2018 are: - Rino Bubičić, President of the Supervisory Board - Tomislav Budin, Deputy President of the Supervisory Board

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- Marica Šorak-Pokrajac, Deputy President of the Supervisory Board - Hrvoje Patajac, Member of the Supervisory Board - Roberto Škopac, Member of the Supervisory Board - Ida Lokmer, Member of the Supervisory Board - Erika Zgrablić, Member of the Supervisory Board (employee representative).

The Supervisory Board meets at least four times a year, or at any time when the circumstances in the Company so require, and actively participates in key management decisions in accordance with the Statute and the Companies Act.

The Audit Committee, operating as a part of the Supervisory Board, analyses the financial statements, supports the accounting department of the Company, monitors the integrity of financial information, in particular the accuracy and consistency of accounting methods used by the Company and the Group, including the criteria for the consolidation of the financial statements of companies belonging to the Group, supervises the execution of audits in the Company, discusses certain matters brought to its attention by the auditors or the management, monitors the effectiveness of the interior quality control system and risk management system, proposes the appointment of the audit company, and provides advice to the Supervisory Board. The Audit Committee also monitors non-audit services provided by auditors in accordance with applicable legal regulations.

The strategic corporate business functions are: - Finances, Accounting and Audit - Controlling - Legal - Human Resources - Corporate Communications.

Senior management or corporate function directors are responsible for managing the key functional business areas and activities, for interdepartmental functional management and leadership, corporate strategy implementation, and providing management support to the Company's Management Board.

All stakeholders (members of the Management Board and the Supervisory Board, shareholders, employees) are under obligation to act in the best interest of the Company. They are under obligation to avoid any situation that may lead them to a conflict of interest with the Company. They may not be in any financial, ownership or any other relationship with suppliers, customers or other business partners that could negatively affect their independent decision-making on behalf of and for the benefit of the Company.

Detailed rules for avoiding conflicts of interest are regulated by internal rules, which include, inter alia, that the members of the Management Board and/or the Supervisory Board, without the prior written approval of the Supervisory Board, and employees without the prior written approval of the Management Board, may not provide services to other companies or have financial interests in other companies that are or may become a supplier, buyer or competitor of Adris, nor may they work or cooperate with other companies in activities that may conflict with Adris.

Furthermore, no stakeholder of Adris (member of the Management Board and the Supervisory Board, shareholder or employee) may, without prior written approval of the Supervisory Board, enter into contractual relations with Adris on the basis of which it acquires or could acquire assets or certain rights to the assets of Adris or any of its affiliated companies, except in the case of a contractual relationship based on regular business and on the basis of established commercial policies for the purpose of marketing their products or services in a general, all-available offer.

Management remuneration

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The remuneration process emphasizes the importance of achieving quantitative (financial and operational) and qualitative (developmental) goals, which is achieved by identifying annual business targets and a system for monitoring the accomplishment thereof.

The total income of the Management Board members and senior management of the Company consists of a fixed and variable annual reward defined in accordance with the relevant contracts signed. The remuneration of Management Board members is defined by the Supervisory Board of the Company, and the remuneration of the senior management is defined by the Management Board of the Company.

The criteria for achieving the variable annual reward are determined annually after the approval of the business plan, and are defined: - As common (group) goals, defined in the area of achieving quantitative (financial and operational) goals as well as in the area of achieving qualitative (developmental) goals - As individual goals, defined in the area of achieving key function performance indicators and developmental individual or functional goals (e.g. volume development, average cost, cost-cutting, project development and implementation, employee development).

Members of the Supervisory Board may be rewarded for their work and this reward is determined by shareholders at the General Assembly.

Key impacts, risks and opportunities

Risk management is carried out in accordance with the long-term business development strategy by considering the impact of each individual risk, both on the micro- and on the micro-level, on potential opportunities in deciding on investments in creating new value and in protecting existing assets.

Risk management is primarily the responsibility of the Management Board and the management, but the application of the precautionary principle implies the inclusion of all Group units in the risk management process. All employees are expected to contribute to overcoming and mitigating risks.

Adris is exposed to financial risks (currency, interest and credit) as well as political and market risks affecting the core businesses of the Group’s Companies. The company uses the customary financial instruments applicable in the financial market of the Republic of Croatia and the markets of the countries in which it operates to manage financial risks. In addition to increased market activity in existing and emerging markets, due to the significant value of the financial assets managed by the Company, special attention is paid to managing financial risks, monitoring the stability of the banking system and the financial market conditions, and the distribution of funds managed through the treasury.

Due to the specific features of some of the Group’s segments, key impacts, risks and opportunities are divided by segments below.

Among financial risks (currency, price, interest, credit, liquidity), the tourism segment is largely exposed to currency risk, which is considerable in its business operations considering the high share of foreign sales revenues. This part of the business is exposed to changes in the value of the euro because a significant part of the receivables and foreign income is declared in this currency, and its movement can impact future business results and cash flows. As far as currency risks are concerned, in addition to the euro, we must also mention the British pound, since it could depreciate against the euro as a result of Brexit. This could impact demand, of course, depending on how much the pound devaluates.

The tourism segment is subject to business, financial and operational risks that are inseparable from the tourism industry, and each can lead to a reduction in revenue and limit growth opportunities. The most important such risks are: - Increase in competition - Changes in operating costs, including energy, food, employee compensation and insurance

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- Rise in costs due to inflation that is not fully offset by rising prices and fees in our business - Changes in tax and state regulations affecting salaries, rates, interest rates or construction standards, and maintenance costs and procedures - Administrative burdens associated with applicable laws and regulations - Labour shortages or work disruptions - Increase in costs, delay or cancellation of planned or future investment projects - Availability and cost of capital needed to finance investments, capital, liabilities, expenses and services - Changes in the desirability of geographic regions - Economic or political instability in important source markets.

Among the aforementioned risks and further highlighting them are those associated with a lack of workforce. This leads to an increase in the cost of work in the tourism industry, and considering that there is a lack of workforce in the construction industry, it also affects price correlation - investment costs, while in the end it can lead to delays in realization and cancellation of investment projects. The described situation on the labour market could become even more unfavourable when in 2020 the last restrictions on the free movement of employees within the European Union are lifted (in the rest of the countries that have such restrictions).

The availability of a quality workforce is a prerequisite for further and long-term sustainable development of the tourism division. We believe that the only solution is the systematic development of our own staff, as well as encouraging and designing education programs and professional development at all levels.

In addition to the previously described risks, some other factors, especially those that are completely outside the control of companies, may adversely affect business. These are, for example, security threats of various types, including enhanced security measures that would be triggered in response to such events, the impact of weather conditions on the duration and success of the tourist season, a high degree of seasonality, the financial and general operating status of airline companies affecting the number of routes and capacity, natural or other disasters, and the like.

The Croatian EU Presidency in 2020 represents a special opportunity, as well as a challenge for the tourism division of the Group, especially for hotels in Zagreb. There is an expected increase in the number of nights by several tens of thousands in the period of the first six months of 2020 (25-35 thousand nights), which presents the possibility of creating added value and a great opportunity for further affirmation of Zagreb as a tourist destination.

A very important factor with regulatory risks in the field of tourism business is regulating the settlement of property and legal relations, the way of disposal/utilization and the amount of compensation for real estate used by tourism companies, such as: - regulations on land for tourism use: in most cases there are still no concession agreements that will determine the properties that are the subject of this concession; finally determine the amount of concession fees for that land and arrange other issues related to its use - regulations on state property management: In 2018, a new State Property Law entered into force; its adoption brings about legal uncertainty regarding the amount of fees and the disposal of such property, in particular also in the part where this law governs state-owned properties in camps, which are subject also to regulations on land for tourism use, and there is some ambiguity about how the regulation applies to these kinds of real estate (the so-called tourist land in camps) - regulations on the leasing and sale of business premises: in 2018, the Law on Amendments to the Law on Lease and Sale of Business Premises entered into force, which also applies to real estate which is subject to the regulations on tourist land, leading to ambiguities similar to those in the new regulations on the management of state property - regulations on concessions and maritime legislation: In the application of these regulations, there is a tendency to increase the level of concession fees for beach concessions, and there is a likelihood of increased fees and potential future concessions on the maritime domain.

The risks that Cromaris faces can be divided into:

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- financial - operational.

Among financial risks we can highlight market and price risk due to the competitive impact on the markets where Cromaris sells their products and the Management attaches great importance to these risks through continuous market analysis and timely corrective action.

Due to being a member of the Adris Group, a uniform currency structure of revenues and expenses as well as a conservative approach to financial commitments, Cromaris is not under significant threat of other financial risks (liquidity, interest and currency risk).

Operational risks are most pronounced in fish production, in the form of climatic, technological and procedural risks, which are aimed at eliminating or reducing as little as possible by investing in meeting the highest environmental standards, investing in recent technology and employee training.

Regarding the impact of external risk factors, Croatia osiguranje operated in a challenging environment in relation to the risks of legislative changes throughout 2018, while the continuation of positive economic and fiscal trends manifested through positive macroeconomic indicators, which subsequently had a positive impact on the business of Croatia osiguranje. In the next period, we expect a slight slowdown in economic growth trends as a result of the coastal environment and the slowdown in the economic growth of our main trading partners, which suggests that the overall macroeconomic environment remains uncertain.

The risks that a company may encounter with our business can be divided into the following: - financial risks, which include market and credit risk with respect to the Group's investment in various financial instruments - business risks, which include operational, strategic risk and regulatory risk (compliance risk) as well as cybernetic risk - insurance risks, which include the premium and reserve risks in terms of determining the amount of the premium and the adequacy of technical reserves that at all times must be sufficient to fulfil all obligations under the insurance contracts. These aforementioned risks are indirectly influenced by the risks of climate change that are most pronounced for Croatia osiguranje in terms of crop insurance due to increased damage caused by natural disasters like frost and hail, as well as other damage to property caused by hail, floods, storms and other causes that can be associated with climate change.

Risk management systems and regular monitoring and control exposure to risks are defined in the internal acts of Croatia osiguranje.

The impact of the environment on financial risks is manifested through changes in the value of the investment portfolio (real estate, equity shares, investment funds, bonds), reduced interest income due to lower interest rates (bonds, deposits and loans) and exchange rate fluctuations (currency risk). Managing these risks includes continuous monitoring of key risk indicators and timely reaction to financial market conditions, defining a strategy for investing assets, establishing and controlling internal exposure limits, using financial derivatives to mitigate currency risk and continuously adjusting the maturity of assets and liabilities, guided by the principles of prudence (investing in instruments whose risks can be properly identified, measured and monitored), safety, quality and marketability.

Operational risk is also significant because it correlates with the size of Croatia osiguranje and the complexity of organization, processes, number of employees, sales network division and IT system size, and is present in all phases of business processes.

Operational risk management is based on an appropriate organizational structure, established key functions and established internal control system, that is, activities and processes that ensure operational efficiency, accuracy, precision and timeliness, and compliance with regulatory and internal regulations. Another aspect of managing

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NON-FINANCIAL REPORT FOR 2018 operational risks relates to the organization of separate areas of management and monitoring of operational risks regulated through activities across different risk groups. These include, for example, IT risks; information, corporate security and fraud; establishment of business continuity; workplace protection; fire protection and environmental protection; money laundering and terrorist financing; personal data protection system (GDPR), new products, distribution insurance (IDD) and risk compliance.

The still relatively low purchasing power and weak economic activity of the market greatly impacts on Croatia's strategic risk for insurance (risk of competition, the risk of changes in industry and demand, the risk of failure to meet the plan sizes and the risk of poorer technical results due to regulatory changes). Managing this risk implies a regular analysis and monitoring of the environment in which Croatia osiguranje operates with special emphasis on macroeconomic circumstances and competitive activities, systematic strategic and financial planning, which includes monitoring the implementation of plans and taking measures due to significant deviations, the development and introduction of new products and distribution channels and timely reaction to changes in the business environment.

Reputation risk is very significant, as it usually manifests itself as a consequence of the materialization of some other risk, considering that it is partially exogenous to the company. The system for reputation management consists of adequate and timely strategic decisions of the Company's management at all levels, i.e. their rapid and effective reaction to changes in the market, adequate regulations and their continuous improvement in all business segments, efficient marketing strategies, regular supervision of reputation risk through monitoring and analyses of media announcements (connotations), results of insurance market research, customer satisfaction analysis, corrective and protective actions conducted on the basis of reports on non-compliance and the continuous promotion of the culture of business behaviour.

Many legislative changes had a significant impact on Croatia osiguranje's business during 2018 (the application of EU regulations, changes in Croatian laws), new legislation which the company continuously harmonized with, or implemented in its internal acts and processes. In the insurance business, this particularly applies to the following areas: product distribution (IDD), treatment of insurance products that have an investment component (PRIIPS), anti-money laundering and terrorist financing (ZSPNFT), protection of individuals with regard to personal data processing and free movement such data (GDPR), as well as in the capital market area.

Given the awareness of the magnitude and severity of cyberattacks on the global scale, as well as their potential negative effects in the event of an attack on Croatia osiguranje, cybernetic risk was also identified.

Croatia osiguranje is aware of possible changes in the financial markets and changes in the global and regional economic situation that would be expected to spill over to the economic situation in the Republic of Croatia. In this sense, the possible risks are the increase in interest rates, but also the realization of negative predictions about the arrival of a new recession. As part of its own Risk and Solvency Assessment (ORSA), stress proofing and sensitivity tests are regularly carried out, thus examining the impact of certain extraordinary (external and internal) circumstances and events to which Croatia osiguranje could be exposed, as well as possible activities for their prevention.

Risks and opportunities due to climate change for the Group depend on particular activities. Because of the nature of business and its reliance on natural resources in daily activities, climate change it is considered as having the largest impact on Cromaris, and to a lesser extent on tourism-related areas of business.

Looking at global trends, the consequences of climate change include an increase in average temperatures, extreme weather conditions, altered schedule and amount of precipitation (in the Mediterranean region conditions are increasingly more dry, which makes it more vulnerable to drought and forest fires) and melting glaciers. Of the aforementioned climatic changes, the rise in sea temperature could, in the case of Cromaris, from one hand have a favourable effect on the speed of growth, and therefore on the costs of production. On the other hand, with increasing temperatures, greater problems with pathology can be expected at Cromaris sites. For the time being, the rest of the potential impacts of climate change on regular business have not been detected.

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The tourism division of the Group partly depends on the preservation of natural resources. Climate change, i.e. extreme weather conditions and altered schedule and amount of precipitation, can have a direct impact on the tourism offer or the demand for products and services of the company, which can affect the Group's competitiveness and financial performance. The Group manages the risks associated with climate change through ongoing activities for the protection of natural resources, development of new products, i.e. services that are not directly related to natural resources, investment in infrastructure, cultural heritage, gastronomic offer and building the image of a desirable destination.

2.4. Reporting Practices

List of entities included in the consolidated financial statements

The Group is made up of the Adris Group and affiliated companies in which the Adris Group owns more than 50% ownership and control. The list of entities included in the consolidated financial statements is set out in the Notes to the Consolidated financial statements (Note - general data), which are publicly available on the Company's website, the Zagreb Stock Exchange website and in the Official registry of the required information at HANFA.

Changes in information

This report is subject to change in the information in the previous report due to the acquisition of HUP-ZAGREB d.d and its affiliated companies and their inclusion in this report.

Changes in reporting

Changes in reporting relate to the inclusion of HUP-ZAGREB d.d and its affiliated companies and their inclusion in this report.

Reporting period and cycle

The reporting period is one calendar year beginning on 1 January and ending on 31 December. This Report covers) and 2018. The previous report was published on 26 April 2018 as an integral part of the Annual Report) and for 2017. The reporting cycle is annually (once a year).

Contact for issues from the Sustainability report

Contact for issues related to the Sustainability Report: [email protected].

External verification / Revision of the Sustainability Report

External verification of the Sustainability Report was not executed.

The independent external auditors carrying out audits of financial statements performed the procedures prescribed by the provisions of the Croatian Accounting Act related to the Management Report. These procedures include checking whether the Management Report includes the disclosures prescribed in Articles 21 and 24 of the Accounting Act. Also, according to their opinion the information in the Management's Report for the financial year for which the unconsolidated and consolidated financial statements have been prepared in all significant determinations consistent with the unconsolidated and consolidated financial statements. Finally, the Management Report was drawn up in accordance with Articles 21 and 24 of the Accounting Act.

Statement of preparation of the report in accordance with the standards

This Report is prepared in accordance with GRI standards: Basic Option.

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3. MATERIAL TOPICS AND STAKEHOLDERS

The process of determining material topics and their outlines began by identifying the stakeholders affected by the decisions, activities and results of the Group on the one hand, which can influence the Group's decisions, and activities and results of the Group on the other. The initial assessment of material topics showed the traceability of materiality from the previous period.

3.1. Engagement, involvement of stakeholder groups (stakeholders)

Involving stakeholders is a special challenge and this is an area where we need to work intensively to ensure that we understand the needs of stakeholders we consider important for our business. Namely, it is only through transparent communication that it is possible to achieve the understanding necessary for business development.

Different informal and formal methods are used in the process of involving stakeholders in the Group. All stakeholder groups can communicate with the Group's companies through various communication channels, including a free telephone line and email addresses on the websites of individual companies, while most of the individual groups of stakeholders of a particular group of companies are in contact with each other and thus maintain a certain level of communication on a continuous basis.

The Group's primary stakeholders are the following groups: customers, employees, suppliers and partners, stakeholders, regulatory and public administration bodies, communities and trade unions.

Customers

Customers are a very important group of stakeholders in all Group's companies. We adapt products and services to customers’ needs, lifestyle changes and trends. Particular attention is paid to the quality of products and services, so customers have free customer phones in certain of the Group's companies, and are also allowed to make suggestions and remarks via electronic mail and Internet interface. Communication is also maintained by conducting questionnaires on service satisfaction, e-mails and social networks. Customers are allowed to lodge complaints under consumer protection regulations.

Employees

Employees are the most valuable asset of the Group. By providing continuous training and additional education and career development planning, we strive to motivate employees and increase their satisfaction and efficiency. At the same time, they expect the highest standards of excellence. Our employees at all levels are actively involved in suggesting and creating improved solutions, and the working environment provides them with the opportunity for a continuous professional and personal development. Communication with employees takes place through regular daily, weekly and monthly meetings, employee meetings, meetings with members of workers' councils and trade unions and the traditional annual gathering for Adris Group sports games.

Suppliers and partners

We work closely with our suppliers and partners to create value suitable to their needs. Through intensive collaboration, we create and improve business relationships, thus contributing to the achievement of immediate business results and long-term goals associated with sustainable development. We are in touch with our suppliers and partners almost every day, and have regular meetings, visits and exchanges of knowledge and experience with the aim of mutually improving the services and products for end-users.

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Shareholders

The long-term management strategy of the company is focused on creating an increase in the value of share capital. The Group maintains communication with Shareholders: - by holding a General Assembly - financial statements (quarterly and annual) - additional notices published on the Group's web site, the Zagreb Stock Exchange website and all the information provided on the Croatian Financial Services Supervisory Agency (HANFA) website.

Regulatory bodies and public administration bodies

During the regular operations of the Group companies, they cooperate with the competent regulatory and other state bodies. These relationships are based on the expertise and professional approach which have been built over many years of collaboration.

Community

The Group's companies are closely related to the community where they conduct their business because they are involved in developing and raising the quality of life by employing the local population and making local contributions. The Group, as one of the largest business entities in the country, has the additional responsibility of creating a transparent, equal and stimulating business environment. Communication takes place through membership in business and professional associations, as well as organizational and financial support to numerous associations, institutions, projects and activities in local communities.

There are some concrete examples to confirm it. In 2018, the Rovinj City Council made a decision to give out awards and recognition, and its first award was the Coat of Arms of the City of Rovinj, a prestigious honour for Lifetime Achievement to individuals who, through their many years of work achieved specific results and attainments. For his outstanding contributions to the development of the economy of Rovinj, Istria, and Croatia, the Rovinj Coat of Arms was awarded to MSc. Ante Vlahović, President of Adris Board. The work of Cromaris has also been recognized, and in 2018 it was awarded by the City of Zadar for its contribution to the economy.

Unions

There are four unions currently operating within the Group. The Group, according to the representatives of all active unions, acts equally and in accordance with the provisions of the Labour Act and the applicable collective agreements. The Group companies regularly hold meetings with trade union representatives, informing them on time about changes or new developments in the business, involving them in the decision-making process through the consultation process and negotiating the rights and obligations that are regulated by collective agreements.

3.2. Explanation of the material knowledge of topic topics and their boundaries

This year, we retained the focus on the issues and topics that we identified last year, with the review, consideration and assessment of strategically important potential additional issues and topics in the field of sustainability that have the greatest impact on the Group and its stakeholders. Environmental, social and economic material issues of the Group have been identified, which are at the same time its strategic goals.

After identifying material issues, a determination was made of their importance, and then an assessment of their materiality. The final list of all identified material topics included in this Report has not changed in relation to the previous reporting period.

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The outlines of material issues were determined on the basis of their estimated impact on Group companies and their relevance for the identified groups of stakeholders.

Material topics Material boundaries The boundaries of material theme within the themes outside the Group Group ECONOMIC Economic value All subjects in the Group Local/national level of operation Market presence All subjects in the Group Local/national level of operation

ENVIRONMENTAL Energy All subjects in the Group Local/national level of operation Tourism division and Water, waste water and waste Local level of operation healthy food Tourism division and Biodiversity Local level of operation healthy food

SOCIAL Relations with employees Employment All subjects in the Group Local/national level of operation It is not a material topic outside of Health and Safety at Work All subjects in the Group the Group Academic community, educational Education and training All subjects in the Group institutions Variety and Equal Opportunities, non- It is not a material topic outside of All subjects in the Group discrimination the Group Collaboration with the local community All subjects in the Group Local/national level of operation Customer centricity Responsibility for the product All subjects in the Group Group Markets, Customers Tourism division and Health and safety of customers Group Markets, Customers healthy food

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4. ECONOMIC TOPICS

4.1. Economic value

Economic value is a material subject for the Group because only a positive financial result enables the distribution of economic value through the payment of salaries and benefits to employees, payments to the state, payment of operating and financial costs and direct or indirect payments to other stakeholders. The capital that Adris creates remains in Croatia, helps the development of the economy in the country and the region and creates new jobs. In the last ten years, Adris has invested more than 8.2 billion Kuna and has secured the existence of not only its more than 6.900 of its employees, but also a great number of indirectly employed persons.

The basis for managing the economic value is a long-term business strategy, which is elaborated in more detail in the annual business plan and monitored on a monthly and weekly basis. The business plan and estimate are used to plan future steps in the realization of economic indicators and to identify and remove impacts that could cause the plan to fail. The entire Group participates in planning and business assessment, while the Management Board is primarily responsible for business results.

Regarding the business results achieved, the Group shall inform the public of the quarterly and annual financial statements prepared in accordance with the International Accounting Standards.

Thus, in 2018, the Company achieved growth in all of its business results. Along with optimal operating liquidity and increasing profitability, elements of business policy were implemented, enabling long-term value for stakeholders.

In the tourism division of the Group, the investment cycle continued with emphasis on positioning in the highest sectors of tourist offer. During 2018, most of the construction of the new Grand Park Hotel Rovinj was done, which was our single largest investment, and represents a key product in the process of rounding out the top hotel offer in Rovinj. The hotel will have 20< accommodation units overlooking the nucleus of the old town, and will be able to receive 900 guests. There will be six restaurants, a 3800m2 wellness & spa centre, a congress hall and many other luxurious facilities. There is also a shopping promenade that will offer famous global and domestic brands. The best local and world architects and designers were hired for this project, among them the Milanese studio Piera Lissoni - Lissoni Architecture, which is one of the most respected and world-renowned Italyn designers, whose works are exhibited in many museums in Europe and around the world today. The opening of the new hotel will include the arrangement of the exclusive zone Monte Mulini. Grand Hotel Imperial Dubrovnik, built in 1897 is one of the most recognizable features of Dubrovnik. Its construction at that time revolutionized tourism in Croatia and raised it to a world-class level. This year's renovation of the reception area, all the accommodation units and the Executive Lounge, brings a new shine to a recognizable palace, and the charm of its old glamor still wins at first glance. The highest sector offers have stable demand and are less price-sensitive. By continuing the cycle of ambitious investment, as much as 95% of the accommodation capacities will be designated with four or five stars by 2020. At the beginning of 2018, the tourism division of the Group completed the acquisition of the company HUP-ZAGREB d.d., so the period until the end of the year was marked by the process of business integrating the company HUP- ZAGREB d.d. into the tourism division of the Group. The goal of the project is to establish a unique model for managing the tourism division in order to continue long-term sustainable growth.

Cromaris has continued its activities in export markets, primarily through local organization and marketing activities in Italy, the largest European market for bass and bream. The share of sales revenue on export markets is 80 percent, and shows a trend of further growth. Sustainability of a business depends on the competitiveness of key export markets. Positioning in the highest price sectors by virtue of quality is the key element of business policy and sustainability as a whole.

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Croatia osiguranje continued with the process of transforming its business, increasing process efficiency and customer orientation. Stable leadership positions on the Croatian market and strengthening of regional subsidiaries are good foundations for growth. Demand forecasts show steady growth in the market, which will, along with maintaining its market share and cost efficiency, secure an increase of profits and company value.

Expected growth of demand in all activities, positioning in sustainable segments, selective investments and operational excellence are the pillars of further enhancing the value of all Group operations.

The Group's generated and distributed direct economic value during the reporting period:

(in HRK million) R. b. 2018 2017

Produced direct economic value 1 (= 2) 5,428.8 4,687.0 - Income 2 5,428.8 4,687.0

Distributed economic value 3 (= 4+5+6 5,078.0 4,479.4 +7+8+9) - Operating costs 4 3,581.6 3,268.5 - Employee costs 5 1,085.9 826.1 - Payments to owners (dividends) 6 292.3 275.2 - Placements with creditors (interest) 7 34.2 20.7 - Payments for taxes and penalties for the state 8 70.7 83.3 - Donations payments (foundations, 9 13.3 5.6 associations,…) Retained economic value 10 (=1-3) 350.8 207.6

4.2. Market presence

The strategic goal of the Group is to provide workers with a competitive salary in relation to the industry and the environment, as well as other material and non-material labour conditions, i.e., to contribute to the economic well- being of employees.

By comparing the ratio between the minimum starting salary in the Group and the minimum salary in the countries where we operate, in most areas the Group has better starting salaries than the minimum guaranteed salaries. Only in the insurance segment in Serbia and Macedonia is the starting salary equal to the minimum guaranteed salary, which is a consequence of the salary structure itself, where it can be higher (and generally is higher) than the minimum guaranteed salary, which is achieved on the basis of the commission and added to the basic salary.

Wage policies and employee reward policies are based solely on the type and complexity of work, responsibilities, knowledge and skills needed to accomplish tasks, and exclude any form of discrimination.

The largest share of employees in the Group is comprised of local population, in all positions within the Group. The share of local senior management in total senior management at the end of the reporting period is 94%, (2017: 93%).

For the purposes of this Report, the General Management and division directors are considered to be senior management, the term local implies the country of residence of the person at the time of his/her employment, while the significant place of business implies HR, depending on the countries where the affiliated companies are located.

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5. ENVIRONMENTAL TOPICS

Our business activities have an impact on the environment and therefore its preservation and protection, the preservation of biodiversity, the prevention of pollution and the reduction of our environmental impacts is our obligation. Moreover, to our two strategic divisions – tourism and healthy food production – the environment is a key resource that the overall performance of the Group depends on. Therefore, environmental protection is approached comprehensively, applying and certifying management systems with the goal of introducing green business, environmental concerns and social inclusion into the local community. The Group is focused on finding solutions that will make products and services energy-efficient, save natural resources and preserve the health of employees and users.

In addition, the Group, through the activities of the Adris Foundation and the Program of Creativity, Ecology, Heritage and Goodwill, allocates considerable resources to promote ecological awareness and awareness of the importance of conserving natural resources. In line with the objectives of the Foundation in the field of Ecology, grants are awarded to finance educational programs aimed at raising ecological awareness in the Republic of Croatia, local community projects aimed at raising environmental standards and awareness of citizens, and other nature conservation development projects in Croatian society. From among the applications received for the 2018 Ecology grant donation fund, the following projects were awarded funding: - AGRICULTURAL FACULTY OF THE UNIVERSITY OF ZAGREB= Can we save the burned land? - PIČAN COUNTY= Clean-up of the Sopot waterfall and marking the pathways to it - FACULTY OF PHILOSOPHY, UNIVERSITY OF SPLIT= Itegra Dalmatica – Possibilities of developing rural eco-tourism through an integrative approach to the preservation and development of the community - DAISY KINDERGARTEN, Pleternica= I can be an entrepreneur too - KARLOVAC COMMUNITY COLLEGE= Green curd – a highly valuable food product - STJEPAN RADIĆ PRIMARY SCHOOL, ČAGLIN= Green classroom - NON-PROFIT “ŠIBENIK METEO – OBSERVING AND FORECASTING THE WEATHER”= Developing the GLOBE system in schools in Šibenik-Knin County.

Within certain Group companies, there are departments whose responsibilities include environmental protection, health and safety at work. These departments systematically and operationally carry out policies from these areas and are responsible to their company management.

On May 5, 2008, Maistra certified the environmental protection management system according to ISO 14001:2004, which together with the implemented quality management system according to ISO 9001:2008 is part of the overall organizational integrated quality management system. The systems have been implemented in all Maistra hotels, resorts, camps and business functions. In 2018 the transition was made to the new requirements of the ISO 9001:2015 and 14001:2015 standards, and certificates were renewed; in 2018 an energy review of large companies was carried out.

The Environmental Management Policy - Maistra Management has committed itself to professionally and responsibly monitoring and managing all aspects of its processes and services, thereby minimizing negative environmental impacts, whereby the following rules were established: - Uvođenjem novih ekološki prihvatljivih materijala i zamjenskim djelovanjem na tvari koje izravno ili neizravno utječu na okoliš smanjuju se štetni utjecaji na okoliš i povećava stupanj iskoristivosti energije, a upravljanjem otpadom smanjuje se količina svih vrsta otpada koji nastaju u našim procesima i na površinama na kojima se nalaze i posluju naši objekti. Posebna pažnja posvećuje se zaštiti voda, i to racionalnom upotrebom vode i savjetovanjem gostiju da čine jednako, kontroliranom upotrebom sredstava za čišćenje te upotrebom pročišćene otpadne vode, kao i sprečavanjem zagađenja mora te provođenjem Operativnih planova interventnih mjera u slučaju iznenadnog zagađenja voda prilagođenih svakom našem objektu. - Maistra kontinuirano planira i provodi razne aktivnosti usmjerene zaštiti okoliša kroz ispunjenje zahtjeva sadržanih u međunarodnim normama i propisima te provjerava poduzete aktivnosti i ocjenjuje njihovu učinkovitost. Uspostava i primjena sustava upravljanja okolišem, stalna izobrazba, usavršavanje i motivacija

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By introducing new environmentally friendly materials and substitutes for substances that directly or indirectly affect the environment, we reduce their environmental impacts, increase the level of energy utilization and waste management, and reduce the amount of all types of waste that arise both in our processes and in the areas where are facilities are located and operate. Special attention is paid to the protection of water by rational use of water and advising our guests to do the same; the controlled use of cleaning agents and the use of purified wastewater as well as the prevention of sea pollution and the implementation of Action Plans for emergency measures in case of sudden pollution of the water have been adapted for each of our facilities. - Maistra continuously plans and carries out various activities aimed at environmental protection through the fulfilment of the requirements of international standards and regulations and verifies the activities undertaken and assesses their effectiveness. The establishment and implementation of an environmental management system, continuous training, improvement and motivation of employees at all levels of the organization evolves and promotes awareness of the need for environmental protection and affects the reduction, and wherever possible also the prevention of pollution. - The necessary organizational, professional and financial resources are provided for the purpose of implementing the environmental policy. - Apart from training employees, knowledge is transferred to our guests, suppliers and business partners and we strive to act as an example of proper procedures for the benefit of nature and the environment. - Maistra has the right and obligation to oversee the correctness of the processes that our external suppliers, partners and/or guests are conducting at our locations. - The goal for Maistra d.d. procurement function is close co-operation with the local community. The desire is to provide guests with quality products and food from local producers, thus promoting and stimulating economic growth and local community development, thereby reducing the high cost of transport of goods and CO2 emissions, which directly influences environmental preservation. - Maistra has been labelled as Friend of the Environment, with the quality "Q" label and the Blue Flags for promoting economic, social and environmental advancement in society and the environment. Generational ecological awareness, i.e. insisting on being sure that our actions today do not endanger future generations of tomorrow, is Maistra's primary task.

Mariculture is an activity that is of crucial importance to the quality of the marine environment in which fish and shellfish are bred. The impact of mariculture on the environment is minimal and mostly refers to the accumulation of organic matter close to the fish farm enclosure, and in combination with the cultivation of shellfish filtering the water, this effect is further decreased. Research shows that the environment recovers from the influence of breeding activities in less than a year after the removal of fish farming structures.

All Cromaris farms are located in a natural environment, away from settlements and industrial plants. The abundance of the breeding sites is also reflected in the fact that everything lies within or near the ecological network area, which aims to ensure the long-term survival of Europe's most valuable and endangered species and habitats. That is why special care is taken to protect the environment.

The key to preserving the environment is the implementation of the principles of sustainable development through good production practices and an efficient environmental management system certified by Cromaris in accordance with ISO 14001:2004.

According to the requirements of the Environmental Impact Study, authorized research institutions track the following parameters: - seawater sample (dissolved oxygen, ammonia, nitrite, nitrate, organic nitrogen, phosphates, organic phosphorus, chlorophyll) - sea bottom sediment (redox potential, organic carbon, total nitrogen, total phosphorus) - the state of natural biological communities.

In addition to monitoring parameters according to the Environmental Impact Study of Cromaris' farms, the state of the environment and the shellfish farms are monitored by government bodies at reference stations,

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NON-FINANCIAL REPORT FOR 2018 phytoplankton composition, and in the tissue of bivalves metals (As, Cd, Hg, Pb), benzo (a) pyrene and E. coli bacteria.

Additional requirements are defined by organic production, so in the fish tissue they analyse: organochlorine pesticides, organophosphate pesticides, mercury, cadmium, lead, dioxins and furans + PCDD- PCDF- + additives = dioxins, furans and sum of dioxin-like PCBs, antioxidant ethoxyquin.

5.1. Energy

Energy is a material topic for the Group as it affects the economic, environmental and social dimensions. The key fuels used at Group level are electricity, fuel oil, other fuel and gas.

Table of Key Energy Consumption Expenses for the Group during the Reporting Period: Energy Measuring unit 2018 2017

Electricity MWh 75057 54439 Fuel oil Thousands of litres 2052 1801 Other fuels Thousands of litres 1303 1422 Natural gas MW 21267 7071 Gas propane butane in the tank Thousands of litres 399 337 Gas butane, CO2 and nitrogen in tona 109 46 bottles

When it comes to energy savings, the Group is focused on reducing fuel oil consumption by switching to urban gas in facilities where fuel oil is still in use, given that gas is the most environmentally friendly fuel. Its combustion results in significantly less carbon dioxide levels than other fossil fuels. Energy efficiency is particularly emphasized in investment projects by choosing ecological meals when constructing and installing high energy class appliances.

Heat pumps are used for heating and cooling the seawater in the Cromaris hatchery. One with the help of heat exchangers * and produce the heat produced by the seawater used in cultivation. The cranes work on electric power and have an extremely advantageous energy efficiency coefficient. Compared to other heaters, they give more calories for each kilos of energy. This energy uses non-fossil energy with maximum energy efficiency.

5.2. Water, waste water and waste

Water, Waste Water and Waste are material topics for the Group due to their direct impact on the environment, the local community and the economic performance of the Group.

Water

For the needs of the Group, water from local waterworks is used. In the tourism segment, a small fraction of the water is drained from several wells for which water permits have been obtained, which is used for irrigation and swimming pools. Seawater is also used at the Cromaris hatcheries. During the reporting period, a total of 1.4 million m3 of water was taken from the local waterworks (2017: 1.1 m3), well water use totalled 27 thousand m3 water (2017: 30 thousand m3), while seawater taken amounted to total of more than 1.8 million m3 of water (2017: it was not possible to measure). During the reporting period, the Group's total water consumption amounted to 3.2 million m3 (2017: 1.1 million m3).

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Waste water Maistra only releases wastewater into the sea from facilities on Sv. Andrija Island. Prior to discharge the wastewater is purified at a wastewater treatment plant, part of which is used for irrigation. Wastewater that drains into the sea is compliant with the water permit issued by Croatian waters and as such does not pollute the sea and does not adversely affect biodiversity.

Other Group-level wastewater is discharged into urban drainage systems.

At its location in Gaženica, Cromaris discharges wastewater into the sea. Before being discharged into the sea wastewater is purified in an MBR (membrane bioreactor), a water purification system. According to the results of the test samples of wastewater it is within the permissible concentrations prescribed by the Water Permit. At the location of the Nin hatchery, ground water is treated after use by filtering, temperature reduction and sludge dehydration. That purified water is discharged into the sea. Sanitary effluents are discharged into a collection pit and disposed by an authorized wastewater treatment plant.

During the reporting period, the Group's total filtration amounted to 1< million m3 of water (2017: 43 thousand m3), bearing in mind that that this data does not include water taken from the sea at the Cromaris hatchery, of which 7 thousand m3 was reused mainly for irrigation (2017: 6 thousand m3).

Waste

Waste at the Group level is regularly separated. Hazardous waste is being separated from non-hazardous waste, and waste is separated by type. In accordance with legal regulations, all waste is disposed of by collectors authorized by the Ministry, according to prescribed documentation. During the reporting period at Group level, a total of about 2.4 thousand tons of waste was disposed of (2017: 1.9 thousand tons), of which about 1% is hazardous (2017: 4%), and the remainder refers to non-hazardous waste.

Compared to last year, the most significant shifts in the prevention of waste generation, reuse and recycling were made in Cromaris. Thus, in the Processing/Logistics Centre in Gaženica, the daily use of styrofoam "crates" was replaced by plastic. Instead of throwing them out and piling up waste, the plastic "crates" were washed in the plant at the end of the working day in order to re-use them the next day. The quantities of waste produced in Gaženica were significantly reduced by the introduction of this practice. Also, on Cromaris's farms fish food is delivered in large 1-ton bags (a so called a big bag), instead of the 29kg type. The bags are not discarded after use, but instead they are returned for reuse. Significant progress has been made in terms of reducing food waste. In every possible division, the goal is to ensure the highest possible food efficiency in both primary production and processing. Notwithstanding the company slogan "Fresh from the Adriatic Sea", some of their products which failed to be used, processed, or sold fresh within a certain time frame were not discarded, but frozen and sold to other companies in order to find their way to final consumers. Similarly, in order to achieve the maximum utilization of quality fish, in the Cromaris offer from 2018 there is a product that includes fish parts, "Mix of fresh fish for soup and stew", which includes all the ingredients needed for fish soup, and is available for sale at affordable prices.

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5.3. Biodiversity

In the vicinity of Maistra facilities are the following special areas: Special areas Protected since Vicinity of facility Area Special reserve of forest vegetation Konti 1964 Koversada 65 ha Special Reserve in the Sea Lim Channel 1980 Koversada, Amarin 429.41 ha Significant landscape of the Lim channel 1964 Koversada, Amarin 882.8 ha Significant landscape of Rovinj islands and 1968 Rovinjski objects 1,371.19 ha coastal area Special ornithological reserve Palud - Palù 2001 Veštar 226.86 ha Special paleontological reserve Datule - 1994 Veštar 425.65 ha Barbariga Geological monument of nature near the 1987 Rovinj 4.05 ha quarry Fantazia - Monfiorenzo Cave Forest Park Zlatni rt - Škaraba 1948 Rovinjski hotels 52.4 ha

In its operations, the tourism division of the Group undertakes actions aimed at preventing negative impacts on the environment and biodiversity, and strives to preserve and, as far as possible, improve the existing situation. Special attention is paid to horticultural design.

With the construction of the new Grand Park Hotel Rovinj, the design of the luxurious Monte Mulini zone in Rovinj is also being completed. In addition to the construction of the new hotel, it was necessary to undertake the complete revitalization of the forests in the area, which were mainly made up of an obsolete, sensitive and predominantly degraded forest cover. Just as the design and rejuvenation of the forest landscape in the environment of the existing hotels Monte Mulini and Hotel Lone was done, the environment of the new hotel Park was also revitalized in the same way. As a result of the landscaping, a maturing younger pine forest with designed reliefs and grasslands is already visible in the current surroundings of existing hotels. A special quality of the area which is being rehabilitated is the proximity of the historic centre of the town of Rovinj. Therefore, the premises at the entrance to the Monte Mulini area and the Punta Corrente park/forest require carefully planned out designs which will function as a representative, open city park connecting the hotel's park systems with the main coastal promenade and the park/forest Punta Corrente. The revitalization plan for this valuable forest landscape was conceived in several stages and degrees of construction intensity. Along with the current planting of trees and shrubs, there are also plans for walkways along the area of the zones that are connected to the existing systems of walkways through Monte Mulini and Punta Corrente. In accordance with the project signed by KAPPO – studio za krajobraznu arhitekturu, prostorno planiranje, okoliš d. o. o., the project has been designed and executed in several phases and has been carried out as follows: - inventory and evaluation of the state of vegetation cover - landscape architecture phase of project - the main project for obtaining a citizen's license – the design of landscape architecture - Conceptual solution: Renovation of the landscape of the Monte Mulini area - Project execution: The Environment of Hotel Park. After comprehensive valorisation of their existing states, we started salvage logging, and removed old, neglected and dangerous trees, leaving healthy specimens. 34 dry, sick, spindly and bare, as well as leaning and dangerous Aleppo pine and cypress trees were removed. Due to being withered, 112 different tall shrubs (laurel, ligustrum and lemprika) also were removed. After earthworks were done, the subsequent replenishing of the terrain was carried out by planting, harmonizing and integration with the landscape and biodiversity of the zone and the nearby Punta Corrente park/forest. Within the project, on an area of approximately 3.12 hectares, were planted: - 199 pine trees 4.0 - 4.9m - 60 pine trees 9.0 - 6.0 m - 79 black oak trees - 30 cypress trees - 11 chub trees - 4 honey locust trees - 6 rowan trees.

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Altogether there are 349 new trees and more than 9,000 seedlings of taller and lower bushes and perennials. This comprehensive project, which includes revitalizing and restoring valuable landscapes, ensures that future generations have a distinctive image of the Monte Mulini area and the connecting Punta Corrente park/forest park.

Cromaris Hatchery Lim, located in the Lim Channel on the west coast of Istria, meets the criteria in the categories of landscape and special reserves.

Significant landscape – Slopes of Lim Bay – since January 17, 1964 The slopes of Lim Bay are located at the border of the EU-Mediterranean and sub-Mediterranean zones and represent a textbook example of the positive influence on the development of vegetation. The northern slopes of the Lim Bay meet the conditions for the development of evergreen oak hornbeam, while the southern slopes are suitable for sub-Mediterranean deciduous vegetation of downy oak and oriental hornbeam. In the eastern part of the Lim Bay Thelygonum cynocrambe can be found.

Special Reserve - Sea and Undersea Lim Bay - from September 9, 1980 The shore of the Gulf is rocky and steep, and due to poor vegetation the vegetation reaches low to the sea level. The rocky, steep coastline in the underwater area quickly goes from rocky to muddy even from the shallower depths, and this condition prevails throughout the aquarium. This type of sediment is abundant with organisms (especially shellfish) which are plundered by many species of fish that come here to grow. The bay also serves as a shelter from which they migrate along the western coast of Istria. Because of many submarine springs, the sea shore in the Bay of Lim is of reduced salinity, and at the very surface is almost sweet. Salinity varies depending on the season and depth. Deep layers of the sea have characteristics of open sea water. The sea is less clear in the bay, indicating the richness of plankton.

The hatchery is acceptable for the ecological network, with the use and implementation of the environmental protection measures and the environmental monitoring program as defined in the Environmental Impact Study. The Environmental Impact Study describes in detail the business unit's possible impact on biodiversity and there are prescribed environmental protection measures and environmental monitoring programs. According to the current results of tracking at the site, there has been no significant environmental impact. It should be noted that the hatching of autochthonous species on the Cromaris farms (sea bass Spader aurata, bream Dicentrarchus labrax, meagre Argyrosomus regius) reduces the potential for the negative effects of fish escaping from their enclosure into the natural environment.

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6. SOCIAL TOPICS 6.1. Relations with employees

Employees are the most valuable resource of the Group, without whom business goals cannot be achieved, and the materiality of this resource is unquestionable. Employee satisfaction is one of the Group's strategic goals, and therefore the potential impact on employees is considered in the process of making long-term decisions. Human Resources Management is responsible for managing the employees’ needs.

6.1.1. Employment

For years Adris Group has enjoyed the status of one of the most desirable employers in Croatia and the region. Continuous investment and improvements in employee rights is one of the biggest reasons why the Group as a whole is today one of the most successful and most desirable Croatian and regional companies.

The employment procedures in Adris Group are described in the official Employment Procedure document, or in the relevant internal acts of the Group members defining powers, responsibilities and employment procedures. The recruitment process emphasizes the importance of attracting, selecting and retaining the best talent in all management and operational segments of the business to achieve the pinnacle of ambitious business goals with the full contribution of the best human resources.

New employment needs are defined in the process of preparing the annual plan and must be approved by the Management Board, which confirms the validity of the identified need and complies with the current annual labour cost plan.

The selection process consists of the application of expert assessment methods on candidates and the selection of the candidate who best meets the conditions of the competition. It is run by the Human Resources Department, which at each stage of the selection process informs the head of the department for which the new employee is recruited and involves it in evaluating the relevant selection criteria.

In the tourism division of the Group's operations, during the last few years there has been a lack of high quality workforce, therefore in this division the Group is particularly focused on the implementation of an active policy for attracting and recruiting staff through cooperation with the local community, educational institutions and internal programs focused on the development of specific staff profiles that are lacking. As of 2018, the plan for 2019 included significant funds to be invested in improving the accommodation conditions for seasonal employees in the upcoming period.

In 2018, Cromaris launched a project for the first employment of young experts who have earned a bachelor, graduate or doctoral degree. The first presentation of the project and the Cromaris team of experts was at the University of Zadar, Department of Ecology, Agriculture and Aquaculture. The project was presented to students of the Agriculture and Food Technology University, University of Zagreb, students at the faculty of Maritime Studies, University of Split, and students at the University of Dubrovnik.

In the year 2018 Croatia osiguranje was focused on recognizing, attracting and employing people with high development potential, focus, agility and commitment as a prerequisite for successfully addressing every business challenge. In search of future employees with these competences, participation in a large number of career days organized by individual colleges (Faculty of Electrical Engineering and Computing, Faculty of Science/Mathematics, Faculty of Economics) enabled the successful introduction of the company as an employer of choice that provides smart and focused careers, significant opportunities for personal growth and development and quality management of people. As an agile company oriented at new technologies and with the aim of further linking with the academic community in the relevant STEM areas, Croatia osiguranje became the general sponsor of the

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New-employed workers and fluctuations during the reporting period:

2018 2017 Employment Employment Employment Age groups Start End Start Employment End Women Men Women Men Women Men Women Men

Republic of Croatia 712 603 589 468 306 241 316 233 < 18 172 138 160 127 23 32 11 21 18–24 82 106 55 65 23 32 11 21 25‒29 153 127 94 87 58 56 33 36 30‒39 124 98 89 72 110 84 77 72 40‒49 94 78 92 49 66 44 100 46 50‒59 55 38 65 44 48 20 81 40 60‒64 28 16 24 14 1 5 13 13 > 65 4 2 10 10 0 0 1 5 Bosnia and Herzegovina 29 27 15 14 19 33 5 15 18‒24 1 5 0 0 2 4 0 2 25‒29 6 6 4 0 7 7 0 2 30‒39 14 10 4 6 5 16 1 6 40‒49 5 3 4 1 4 6 3 4 50‒59 3 2 2 0 1 0 0 1 60‒64 0 1 1 3 0 0 1 0 > 65 0 0 0 4 0 0 0 0 Serbia 92 68 26 22 122 94 118 96 18‒24 9 12 2 4 19 15 11 10 25‒29 18 10 8 3 23 15 24 12 30‒39 23 19 6 6 45 25 41 25 40‒49 20 10 6 3 23 18 24 21 50‒59 13 11 3 3 9 13 16 19 60‒64 5 4 1 2 3 8 2 7 > 65 4 2 0 1 0 0 0 2 Macedonija 45 36 49 29 32 27 35 26 18‒24 6 4 5 3 1 3 7 3 25‒29 15 13 16 7 10 5 7 8 30‒39 16 7 17 4 9 6 14 10 40‒49 7 9 10 12 9 10 4 4 50‒59 1 1 1 2 3 3 3 1 60–64 0 2 0 1 Italy 2 2 0 0 1 0 0 2 30‒39 2 1 0 0 1 0 0 2 50-59 0 1 0 0 0 0 0 0 Slovenia 1 4 0 0 0 0 0 0

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2018 2017 Employment Employment Employment Age groups Start End Start Employment End Women Men Women Men Women Men Women Men 30‒39 0 2 0 0 0 0 0 0 40–49 1 1 0 0 0 0 0 0 50–59 0 1 0 0 0 0 0 0 TOTAL 881 740 679 533 480 395 474 372

The fluctuation does not show seasonal employees, who are most largely present in the tourism segment, where the rate of return of seasonal employees is around 80 5. The seasonal employee fluctuation is monitored by the percentage of employees who are spending the next year working. It is precisely the creation and increase of seasonal employees loyalty that is an important part of the human resources management policy in tourists * in the part of the Group's operations.

Review of the use of maternity leave during the reporting period: 2018 2017 Women Men Women Men

The number of people who could use parental leave 234 32 175 116 The number of people who used parental leave 233 5 60 58

Number of persons who could return to work after parental 135 4 30 22 leave during the reporting period Number of persons who returned to work after parental leave 112 4 29 22 during the reporting period The number of persons who remained employed for at least 12 50 2 11 16 months after their parental leave ended

All employees have the same benefits, regardless of whether they are employed for a certain or indefinite period of time, i.e. full or part-time: they are entitled to a reimbursement, a Christmas gift, a gift for children up to 15 years of age, different assistance defined by a collective agreement, transportation reimbursement, hot meal, severance pay etc.

6.1.2. Employee and management relationship

Maintaining good relations and social dialogue with employees is a key factor in creating a positive work climate and employee satisfaction. Employees are regularly and on time informed of all important business changes and are involved in processes that are important for them.

The period of notice for employees is defined by the provisions of labour law and labour regulations at the Group level, i.e. by collective agreement in the companies where there are unions.

Where possible, some companies of the Group have an employee representative on the Supervisory Board, so in the event of important business changes that can significantly affect the employees, employee representatives are acquainted with them even before a final decision is made. Employees are additionally notified through all channels of internal communication and by direct communication with their manager about the upcoming changes that are relevant to the company's business and to the employees personally.

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6.1.3. Health and safety in the workplace

The aim of safety at work is to create safe working conditions and to prevent adverse events, primarily related to accidents and injuries at work and disorders in the work process. Effective implementation of health and safety at work ensures employee performance, reduced number of injuries, lower costs and better working conditions, contributing to employee satisfaction and better business performance, so health and safety at work is also a material issue.

Within certain of the Group's companies there are departments whose responsibilities include health and safety at work, which systematically and operationally implement policies in these areas and are responsible to the companies’ management boards.

Within the framework of these policies, internal controls of the application of the rules on occupational safety are continuously carried out and, in cases of observed irregularities, they propose solutions aimed at reducing the risk or eliminating the causes of injuries, accidents or disturbances in the work process, etc. Work injuries are analysed - their causes and measures which will be taken to prevent injuries and work-related illnesses. Examinations, measurements and surveys of work means and equipment, and the working environment are carried out at prescribed intervals.

In accordance with applicable regulations, employees are sent to health examinations and are trained in occupational safety at work during recruitment process.

Health and safety issues are regulated by regulations and internal acts, and collective agreements in companies with active unions. These regulations and acts regulate basic issues related to health and safety protection, such as: - appointment of an employee protection officer and their work in the interests of employees in the field of occupational safety - employer’s obligations, such as: acquiring and maintaining the plant, equipment, tools, workplace and access to workplaces and organizing work in a way that protects the health and life of employees; providing work and protective clothing and footwear, providing each employee with adequate training in health and safety at work and other in accordance with regulations; enabling health and safety officer to carry out their duties without interruption, provide them with all necessary information and enable them to inspect all regulations and documents, enabling them to provide health and safety training - employee obligations, such as: work with due care and in a way that does not endanger the life or health of other employees and the safety of equipment and devices; know the conditions and dangers of work in the workplace; follow prescribed and recognized safety measures and instructions of the producers of work equipment; maintain and use in the proper state of the safety devices and personal protective equipment entrusted to them for use and handling; warn managers of all failures and defects in machinery, equipment, safety devices, personal protective equipment as well as irregularities in the work and procedures of other persons who may damage, destroy certain equipment or endanger the life and health of employees; during the conclusion of a work contract and in the course of work, to acquaint the employer or the competent physician with the physical disadvantages or illnesses which, when performing certain tasks, may cause consequences for the life and health of the employee or their working environment; master the knowledge of health and safety to the extent necessary for safe work; undergo testing for the influence of alcohol or other addictive substances; undergo health, psycho-physical and other examinations to which the employee is addressed.

Within specific companies of the Group there are health and safety committees and the employees’ trustees ensuring the safety at work. The board members are representatives of the employees, occupational health specialists, physicians, occupational medicine specialists and employer representatives.

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Overview of injuries during the reporting period: 2018 2017 Women Men Women Men Republic of Croatia - average number of employees 3151 2534 2570 2086 - number of employees that sustained minor injuries at 45 49 42 26 work - number of employees more seriously injured at work 7 3 7 9 - number of fatalities at work 0 0 0 1 - number of occupational diseases 0 0 0 0 - total sick days 1771 909 1833 1796 Bosnia and Herzegovina - average number of employees 130 150 125 134 - number of employees that sustained minor injuries at 0 0 0 0 work - number of employees more seriously injured at work 0 0 0 0 - number of fatalities at work 0 0 0 0 - number of occupational diseases 0 0 0 0 - total sick days 0 0 0 0 Serbia - average number of employees 271 180 280 192 - number of employees that sustained minor injuries at 0 0 1 0 work - number of employees more seriously injured at work 0 0 0 0 - number of fatalities at work 0 0 0 0 - number of occupational diseases 0 0 0 0 - total sick days 2906 727 60 0 Macedonia - average number of employees 116 75 108 72 - number of employees that sustained minor injuries at 0 0 0 0 work - number of employees more seriously injured at work 0 0 0 0 - number of fatalities at work 0 0 0 0 - number of occupational diseases 0 0 0 0 - total sick days 1615 263 1586 0 Italy - average number of employees 4 3 2 2 - number of employees that sustained minor injuries at 0 0 0 0 work - number of employees more seriously injured at work 0 0 0 0 - number of fatalities at work 0 0 0 0 - number of occupational diseases 0 0 0 0 - total sick days 0 0 0 0 Slovenia - average number of employees 1 4 0 0 - number of employees that sustained minor injuries at 0 0 0 0 work - number of employees more seriously injured at work 0 0 0 0 - number of fatalities at work 0 0 0 0

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- number of occupational diseases 0 0 0 0 - total sick days 0 0 0 0

6.1.4. Education and training

One of the core human resource management strategies is investing in education and employee development, which is a necessary prerequisite for adapting to new trends and challenges in the business environment, and thus ensuring the long-term viability of the Group. By enabling continuous training and additional education, along with career development planning, we strive to motivate employees and increase their satisfaction and efficiency.

At the Group level, the education and training program can be divided into three levels: - basic training programs (e.g., foreign language skills, basic communication skills program, internship programs, ...) - special training programs for individual and specific jobs (depending on the specific needs of particular companies in terms of their activity) - programs for improving managerial skills.

The Adris program of apprenticeship and recruitment of young highly educated people called "Future in Adris" enables participants of the program to become trained to new and fully-qualified Adris managers and technologists over several years, experts who will gain the knowledge of Adris in the future. The "Future in Adria" program has included up to 96 people in previous cycles.

With the aim of creating and maintaining a culture that supports the development and advancement of employees and enhances their ambitiousness, expertise and accountability in line with new job requirements, roles and expectations, there are three levels of programs created for different levels of expertise in the tourism division. In basic training programs, 298 participants were included in the tourist division, 256 specialists were included in special training programs for individual and specific jobs, and 108 trainees were involved in the program for promoting management skills.

The MAIstart training program was launched in 2017, offering an intensive one-year work and education program under the mentorship of leading tourism sector experts with a view to getting acquainted with the company's business and gaining basic knowledge about the functioning of key departments and functions within the Maistra portfolio. In 2017, the MAIstart program was completed by four people, in 2018 two people were included in this program.

A talent management program was also developed - the Maistra Business Academy. This program prepares managers for a higher-level position that holds greater responsibilities. The business academy represents the second year of education, which continues on the standby program and is directed to department heads to improve their career development and monitor and evaluate progress towards key organizational needs. Business academy represents the second year of education, which carries on from the internship program and is directed at department heads to improve their career development and monitor and evaluate progress towards key organizational needs. The aim of this structured program is to offer students the technical skills, insights into personal competences, and experience needed to familiarize themselves with the organization's business, culture and standards. The business academy was created to prepare internal talent for existing positions. The second generation of the Business Academy involved 12 participants. In the segment related to the development of expert knowledge of the tourism industry, cooperation began with the Ecole hôtelière de Lausanne, one of the best faculties for hospitality management and hospitality management sector in the world.

In recent years, Maistra has increased internal trainings conducted by employees/internal trainers in line with the Train the trainer program. More than 80 internal trainers have been educated at the Maistra level.

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In 2017, the University of Zadar - Department of Ecology, Agriculture and Aquaculture launched the BLUE SMART project - Blue Education for Sustainable Management of Aquatic Resources, in which Cromaris participated as a project partner. The aim of the project was to create new skills and knowledge in the blue economy sector and increase the employability of current and future employees of this sector in Zadar County. The project was concluded in December 2018. The project partners, guided by the needs of the sector, have launched a new university graduate study program, "Sustainable management of aquatic ecosystems", as well as developing an innovative e-course, "Fundamentals of Good Practice in Fisheries", designed to facilitate re-training and improve workforce knowledge (also including currently unemployed people) in different sectors, and to assist in finding employment, strengthening skills, as well as enabling career advancement.

In 2018, Cromaris spent three years examining employee satisfaction and organizational climate, with the goals being: - to determine the general employee satisfaction level - to determine the aspects of the job which, to a large extent, contribute or do not contribute to employee satisfaction - to determine the impact of satisfaction and possible differences in employee satisfaction in all organizational units of Cromaris d.d - to determine the perception of the management style in organizations within the organizational units of the Company - "Measure" the level of activity of the intended contribution (engagement) of the employees in the organization.

Overall average satisfaction level of all Cromaris employees d.d. from the level of satisfied, to very satisfied. After each employee satisfaction and organizational climate survey, activities and steps are taken to improve the company's working conditions and consequently increase employee satisfaction, motivation and engagement.

In 2018, Croatia osiguranje was focused on the development of a working environment that promotes high engagement and personal responsibility for achieving common business goals. Key activities are listed below in the main areas:

Continued improvement of organizational health In 2018 Croatia osiguranje completed the second cycle of research into its organizational health index (OHI), within which all employees of the company had the opportunity to express their opinions about what works well in the company culture and manner of work, as well as what they consider areas of improvement. Greater responsiveness and employee engagement was noted in relation to the previous year. A total of 78% of employees participated in the survey, the overall organizational health index showed statistically significant (13.5%) improvement compared to the survey conducted in 2017, and significant improvement was achieved in 9 out of 10 categories. Based on the results of the survey, an action plan was made for further improvements. Along with continuous work and focus on activities launched in 2017, which have brought positive shifts in organizational functioning, areas for improvement in 2018 were defined: customer focus, market insight, and incentives for innovation at all organizational levels. A desirable working environment has been developed through various forms of information, socializing and exchange of knowledge: the CO Conference, the Sports Games Group, the CO Forum and other smaller events. For the first time, CO FAMILY DAY was held, bringing together employees and their families at multiple locations across the country. The Family Day was held under the aegis "Thank You", and the aim was to thank all employees and members of their families for the support they provide for the company's business success.

Developing talents Croatia osiguranje has launched the project "Talent Management" as a key strategic human resource process that enables people who have the potential to take on more complex and responsible tasks in the future and managers and experts in time. An assessment of each employee’s potential and planning for their further development is carried out by a methodology that enables fair and correct processes. With the help of human resource management experts, executives evaluated their employees by taking into account their current work results, as well as their demonstrated potential for learning, taking on new jobs, and gaining new experiences. For people with recognized potential for

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NON-FINANCIAL REPORT FOR 2018 taking on more complex and responsible jobs, a comprehensive development program was prepared, which includes, among other things, the development of leadership skills and management of people and processes. The "Efficient Management" program, which is an integral part of the development program, is organized through three modules to improve the skills of managing and building effective teams and building open, collaborative and results- oriented organizational culture. In 2018, about 55% of employees in this group actually took on more demanding jobs through promotion to management positions or participation in strategic projects of the Company.

By supporting and investing in the career development of its employees, the company encourages the development of a working environment for satisfied, agile and responsible individuals, clearly focused on customers and achieving outstanding results.

Knowledge development Along with the regular education programs that employees attend to improve their professional competencies, in 2018 a series of initiatives were launched with the aim of internal sharing of the knowledge and learning from other colleagues' experiences. During 2018, nearly 400 employees participated in 28 training sessions held by internal educators and educators. Additionally, trainers from the Education Department even increased the number of training days held by 15% compared to 2017, and 52% compared to 2016, with more than 1,500 employees attending training sessions. There were 34 topics covered by all channels of sales, and training was also provided for interested entrants from the administration department. E-learning has been launched as an extremely important educational platform, and to date more than 2,000 users spent more than 10,000 hours in e-learning sessions.

Encouragement and acceptance of innovation In the area of promoting and accepting innovation, a transparent idea management process was introduced, a tool for creating ideas was implemented, and the first Design Thinking workshops were organized to expand upon the proposed ideas. These activities encourage employees to think beyond the standard framework of their job and to tackle problems creatively, and the ideas are evaluated in a transparent way. During the fourth quarter, when the process was launched, 34 employees submitted 54 ideas, some of which will be implemented in early 2019. The ideas implemented will undoubtedly create added value for the company.

Annual hours of employee training and education during the reporting period:

Average hours of Total number of Total hours of education per year per employees education per year Employee category employee Women Men Women Men Women Men

2018 Management 56 104 2039 3709 36 36 Other workers 3161 2272 50012 32322 16 14 TOTAL 3217 2376 52051 36031 16 15

2017 Management 46 104 1532 2086 33 20 Other workers 3069 2349 41411 27794 13 12 TOTAL 3115 2453 42943 29880 14 12

By investing in education and training, or by developing competences and adopting new knowledge during employment, employees also raise their personal competitiveness in the labour market.

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6.1.5. Diversity and Equal Opportunities, Non Discrimination

The Group employs, pays salaries and promotes employees, and makes other work-related decisions based on relevant factors, primarily qualifications and work performance, not based on race, gender, colour, religion, age, ethnicity, sexual orientation, disability or other permanent characteristics. We are devoted to creating a professional working environment in which our employees are treated with respect and dignity and where there is no inappropriate behaviour, discrimination or disturbance.

There are people in the Group who have been appointed by the Management Board, in consultation with the union and/or the workers’ council in the companies where one is active, and which are concerned with the dignity of employees.

During 2018 six actions were conducted in Croatia osiguranje in the area of the dignity protection of workers and the measures taken from the proceedings were implemented: - consultations of the Human Resources Management division and Management for the purpose of applying professional standards of conduct (management) and professional and efficient communication - conducted labour law procedures for evaluating the violation of the work obligation to prevent potential controversies and conflicts and create a more comfortable working environment for all team members.

Diversity of managing bodies and employees at the end of the reporting period:

2018. 2017. Management Other employees Management Other employees Age groups Women Men Women Men Women Men Women Men

< 18 0 0 9 7 0 0 5 6 18‒24 0 0 232 259 0 0 169 154 25‒29 2 3 380 328 0 0 305 277 30‒39 17 31 1053 875 7 28 936 777 40‒49 16 53 994 641 26 49 845 507 50‒59 10 22 832 528 10 22 656 440 60‒64 5 4 86 156 2 4 55 106 > 65 0 1 6 9 1 1 3 7

IN TOTAL 50 114 3592 2803 46 104 2974 2274

6.2. Collaboration with the local community

In 2018, Adris Foundation, the largest corporate foundation in this part of Europe, concluded its twelfth donation cycle, in which it awarded more than HRK 3 million for outstanding projects and scholarships for two programs - Knowledge and Discoveries – as well as Creativity, Ecology, Heritage and Kindness.

The Foundation has also supported projects related to the strengthening and development of Croatian science, the use of new technologies and the promotion of interdisciplinary research as well as projects to improve health and disease prevention in this cycle.

KNOWLEDGE AND DISCOVERIES PROGRAM: - PULA GENERAL HOSPITAL = Self-reported disease symptoms and the side effects of treatment of patients with malignant diseases

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- FACULTY OF TEXTILES/TEHNOLOGY, UNIVERSITY OF ZAGREB = Prevention and treatment of chronic wounds with active antimicrobial nanoparticles - FACULTY OF MEDICINE, UNIVERSITY OF ZAGREB = Non-invasive approaches to diagnosing portal hypertension - testing and comparison of existing methods and discoveries of new serum markers - HePortoNEW - ARCHITECTURAL FACULTY, UNIVERSITY OF ZAGREB (FACULTY OF DESIGN) = Comprehensive knowledge cogeneration system. Strengthening the sustainability of local communities through the humanization of technology - FACULTY OF PHILOSOPHY, J.J. STROSSMAYER UNIVERSITY, OSIJEK = Cognitive resistance of children at risk of poverty in eastern Slavonia - FACULTY OF MEDICINE, UNIVERSITY OF SPLIT = How does SPRTN cause liver cancer? - CROATICA SOCIETY FOR THE PROMOTION OF CROATIAN CULTURE AND SCIENCE = History of the Croatian Language, 6th book: 20th Century – Part Two - FACULTY OF MECHANICAL ENGINEERING AND NAVAL ARCHITECTURE, UNIVERSITY OF ZAGREB = SOS SMS - Prevention and early detection of disease with assistance from mobile applications - FACULTY OF FORESTRY, UNIVERSITY OF ZAGREB = Education and information to prevent tick-borne diseases - FACULTY OF MEDICINE, UNIVERSITY OF ZAGREB = "Plantaris alpha": Radiological determination of m. plantaris incidence

SCHOLARSHIPS: - SIX SCHOLARSHIPS FOR HIGH SCHOOL STUDENTS - SEVEN SCHOLARSHIPS FOR STUDENTS OF UNDERGRADUATE AND GRADUATE STUDIES - TWO SCHOLARSHIPS FOR POSTGRADUATE EXPERT AND SCIENTIFIC TRAINING

2018 was proclaimed to be the European Year of Cultural Heritage, so the Adris Foundation devoted special attention to projects in the field of Heritage in this competition cycle with the aim, for example, of preserving and promoting Croatian language as the foundation of Croatian identity, protection of locally important historical sites, valuable collections and their legacy. Support for restoration and revitalization projects in the old town city centres continues.

PROGRAM OF STUDY, ECOLOGY, HOSPITALITY AND KINDNESS: AREA OF CREATIVITY: - CROATIAN ASSOCIATION OF ARTISTS, Zagreb = Esthetization and rehumanization of hospital areas: Art for Health - ART ASSOCIATION "TEATAR POEZIJE", Zagreb = Multimedia platform development: Krleža.hr - the first step in the development project of the Miroslav Krleža Centre - AUDIOVISUAL ASSOCIATION FOR CREATIVITY "ARTIZANA", Zagreb = A lesson about humanity - documentary film - CROATIAN ASSOCIATION OF ARTISTS, Zagreb = From Zagreb With Love - THE MUSEUM OF CONTEMPORARY ART, Zagreb = The Quest for Reality: Jadranka Fatur and hyperrealism - CROATIAN DESIGNERS' ASSOCIATION, Zagreb = Monograph "Boris Ljubičić – Symbol, sign, logo, brand” - CROATIAN MUSIC ARTIST ASSOCIATION, Zagreb = Blagoje Bersa: pieces for piano II. Part two and Franz Liszt: transcript of Schubert's songs. Creating an audio master for international publication - MATICA HRVATSKA, Zagreb = Young musicians in Matica hrvatska - SAMOBOR PERCUSSIONISTS ASSOCIATION, Bregana = Tradition on percussions

PODRUČJE EKOLOGIJA: - FACULTY OF AGRICULTURE, UNIVERSITY OF ZAGREB= Can we save the burned terrains? - PIČAN COUNTY= Clean-up of the Sopot waterfall and marking the pathways to it - FACULTY OF PHILOSOPHY OF THE UNIVERSITY OF SPLIT= Itegra Dalmatica – Possibilities of developing rural eco-tourism through an integrative approach to the preservation and development of the community - TRATINČICA KINDERGARTEN, Pleternica= I can be an entrepreneur too

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- KARLOVAC COMMUNITY COLLEGE= Green curd – a highly valuable food product - STJEPAN RADIĆ PRIMARY SCHOOL, ČAGLIN= Green classroom - NON-PROFIT “ŠIBENIK METEO – OBSERVING AND FORECASTING THE WEATHER”= Developing the GLOBE system in schools in Šibenik-Knin County

AREA OF HERITAGE: - KRŠAN COUNTY = Renovation and revitalization of the Kožljak Old Town - J.J. STROSSMAYER UNIVERSITY, OSIJEK - MATHEMATICAL DEPARTMENT = Croatian language in the network cloud of world languages - NIKOLA TESLA TECHNICAL MUSEUM, Zagreb = Tesla up (to) date - CROATIAN CIVIC ASSOCIATION OF MONTENEGRO, Kotor = Croatian Journal - NATIONAL AND UNIVERSITY LIBRARY IN ZAGREB = Exhibition "Croatian Glagolitic" - CROATIAN ACADEMY OF SCIENCES AND ARTS, Zagreb = Designing a visual solution for graphic design and graphic preparation of materials for the permanent exhibition of the Croatian Museum of Medicine and Pharmacy HAZU in Zagreb - ARCHAEOLOGICAL MUSEUM, ZAGREB = The year of Branimir: "Croatia at the time of Prince Branimir - on the occasion of the 1130th anniversary of the year Duke Branimir's name was carved into the altar beam at Gornji Muć" - CROATIAN CARTOGRAPHIC SOCIETY, Zagreb = Public availability of the collection "Collectio Felbar" - FACULTY OF LAW, UNIVERSITY OF ZAGREB = e-Rare: digitization of rare and old books from 16th-19th centuries and in the fund of the Faculty of Law Library, University of Zagreb - STATE STUD FARM ĐAKOVO AND LIPIK = Supply of information / educational plaques - "LIJEPA NAŠA" ECOLOGICAL SOCIETY, DUBRAVA ZABOČKA = „Kinč“ of our Christmas Eve

AREA OF KINDNESS: - ASSOCIATION FOR PROMOTING THE NEEDS OF CHILDREN AND YOUNG PEOPLE "SMIJEŠAK ZA SVE", Zagreb = Today I'm Here! For You! - HUMANITARIAN ASSOCIATION "FRA MLADEN HRKAĆ", Zagreb = Together let’s help people who arein treatment away from home - BEA CENTRE FOR EATING DISORDERS, Zagreb = Advisory centre for those who suffer from eating disorders and their families - HRABRI TELEFON, Zagreb = Hrabri Telefon - Advisory phone line for children and parents - FRANCISCANS INTERNATIONAL, LOCAL BROTHERHOOD TRSAT, Rijeka = Psychosocial support and resocialization of the homeless in the "Ruže sv. Franje" homeless shelter - CROATIAN MOUNTAIN RESCUE SERVICE STATION, GOSPIĆ = Capacity increase of HGSS Stations Gospić for more efficient rescue from floods, waters, rivers and lakes - COMMUNITY RESOURCE CENTER, SELCE = Co-financing of independent life for young persons emerging from the social welfare system - CROATIAN DONOR NETWORK, Pula = Education of medical student lectures for Croatian donor networks - BLATINE PRIMARY SCHOOL - ŠKRAPE, Split = Playing is also learning - DAY CENTER FOR REHABILITATION OF VERUDA - PULA = Development of creativity in children with cerebral palsy - VOLUNTARY FIRE FIGHTING SOCIETY STRMEC PODRAVSKI = Upgrade of vehicle with firefighting equipment - LEUKEMIA AND LYMPHOMA ASSOCIATION - SPLIT = Counselling for sufferers of haematological and other malignant diseases and members of their families - KRISTINA KUNTARIĆ from Zagreb

Including this donation cycle, the Foundation has, since its founding in 2007, awarded almost HRK 90 million to projects and individuals that inspired innovation, creativity, scientific development, the preservation of Croatian natural and cultural heritage, and kindness and solidarity in Croatian society. More than 300 scholarships for excellence have been awarded to secondary school students, undergraduate and graduate students, attendees of

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NON-FINANCIAL REPORT FOR 2018 postgraduate professional and scientific training and postgraduate doctoral studies. The Adris Group provides funding for the Adris Foundation through a payment of 1% of annual profit. Adris grupa za financiranje Zaklade Adris izdvaja jedan posto godišnje dobiti.

The success of the tourism division of the Group depends largely on the further development of the destinations in which it operates. Therefore, the Group plays an active role in developing these destinations through various strategic projects, cooperation with local government units and tourist communities. Operating within the Maistra Marketing and Sales, the Department of Destination Management is primarily tasked with cooperating with the local community, as well as developing the destination value chain, specific tourist products, experiences and events through the cooperation model of the main stakeholders in the destination. It also gives specialized and professional support for promotion, sales and event management for defined tourism products on which the destination builds its competitiveness, with the aim of increasing the number of arrivals and overnight stays or occupancy of accommodation capacities, as well as increasing the pre-season and the post-season revenues.

Rovinj and Maistra were, as in the past years, sponsors and hosts of major world competitions, thus in 2018 they organized the Rovinj Beach Polo Tournament for the third time.

Given the high presence of Croatia osiguranje in local communities throughout Croatia with more than 250 branch offices (its own and representatives), the sponsorship and donation strategy of the company is focused on initiating positive changes in local communities and is closely related to the core activity, value and personality of the Group and Croatia osiguranje as a brand. Sponsorships and donation policies are implemented in three key areas: - Culture and Heritage - Support for projects of national importance to the local community, projects promoting the preservation of cultural values and natural resources as well as material and immaterial goods - - Sports and health - encouraging the development of national and local sports clubs, supporting projects that promote healthy and responsible living - - Life and security - reducing risks, increasing inclusion and improving the quality of life of those who are most in need, especially the youngest and oldest members of the community.

In 2018, Croatia osiguranje provided a number of sponsorships and donations. More than 40 valuable initiatives in the fields of culture and heritage were supported, including Špancirfest, Varaždin Baroque Nights, Vinkovačke jeseni, Aurea Fest - Zlatna žica Slavonija, Rab fjera, Pag Art Festival, Samobor Musical Nights, Summer in the town of Zrinski in Čakovec, an exhibition of the work of Emanuel Vidović in the Museum of the City of Split, as well as the programs of the Zagreb Arts and Crafts Museum and the Vatroslav Lisinski Concert Hall. Among the heritage conservation projects are the Sinjska alka, the Barban Ring Race, the Neretva marathon boat race, the project of the preservation of the intangible cultural heritage of Istria launched in Vodnjan, the Old Sports Olympics in Brođanci, and other projects.

In terms of its sponsorships and sports donations, Croatia osiguranje has supported more than 80 sports clubs throughout Croatia, including football, handball, basketball, volleyball, biking, water polo, sailing, swimming and other sports. Through their own communication channels, sponsored clubs continually emphasize the importance of supporting Croatia osiguranje in achieving its results, which contributes to the positive reputation of the company and its market position as the leading domestic insurer.

In the year 2018, Croatia osiguranje helped the work of several hospitals, children's homes and humanitarian organizations: the Special Hospital for Paediatric Chronic Diseases Gornja Bistra, the "Dr. Ivo Pedišić" General Hospital of Sisak, the Vatreno Srce Foundation for the Zagreb Clinic for Children's Diseases, and the Special Hospital for children with neurodevelopmental disorders in Goljak, along with other initiatives.. The company continues to invest in firefighting, and actively works with the Croatian Firefighting Association to equip fire departments throughout Croatia. Croatia osiguranje has also invested heavily in sharing and improving community knowledge by supporting professional gatherings and conferences, with more than 30 projects supported in the sectors of insurance, actuarial, finance, technology, law, healthcare and a number of specific topics related to the core business of the company (e.g., traffic, fires, agriculture). Employees and experts from the company attended a number of sponsored

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NON-FINANCIAL REPORT FOR 2018 professional conferences and conferences as participants, lecturers or panellists (STEM Games, Future of Fintech, the Brave New World Technology Festival, Days of Croatian Financial Institutions ...) Croatia osiguranje makes a special effort to donate of financial resources and used information technology equipment to educational institutions. In doing so, during 2018 the company assisted operations in more than 50 kindergartens, primary schools, high schools, colleges and universities.

In 2018, Croatia osiguranje continued its support for sports clubs and cultural events in Bosnia and Herzegovina. Its most significant investments are in the Široki football and basketball club, but other local sports clubs are also supported by the work of the company's insurers. In the cultural sector, the company supported Mostarsko proljeće in the organization of Matica hrvatska Mostar. It also helps the work of educational institutions through donations of used IT equipment and sports equipment.

6.3. Customer-oriented

6.3.1. Product responsibility

Responsibility towards the customers is the key guideline of Group's operations. Retaining trust and consumer satisfaction as a result of top-notch and innovative products and services tailored to their needs is one of the Group's most important strategic goals. Consumer satisfaction is the most important source of income, so it's of high importance for the Group.

The main mission of Maistra is to become a first-class and recognizable tourist company that will provide a highly personalized and hospitable service with strong reliance on destination brands and an authentic Istrian, Croatian and Mediterranean atmosphere. Maistra continually follows market trends, listening to the demands of its customers to develop contemporary and competitive content to meet the needs of the most demanding guests, with the goal of positioning itself among the best tourist companies in the Mediterranean.

During 2018 the redesign of existing core brands was undertaken. A new typeface was used, which is more elegant, readable and lighter, and the logo is easier to apply to different tools (from printed materials to signage). Due to the expansion of the company's business to other destinations and plans for further investing in new destinations, the logo is no longer used for Rovinj and Vrsar destinations. Due to the heterogeneity of Maistra's portfolio, three new sub-brands were introduced to facilitate communication with partners and target groups of visitors through each marketing channel – the Maistra Collection, Maistra Select and Maistra Camping. Each sub-brand is a collection of accommodation facilities that, because of their offer, location, target groups and specialty experiences, bear the defined characteristics of a particular brand. What links them are the attributes of the core brand of the Maistra Hospitality Group - with the key message "Renewing the Spirit, Mind and Body".

Last year, a new "Experience" program was created, in which guests can encounter the authentic experience of Rovinj and Vrsar, and discover the traditions behind the Istrian lifestyle, fall in love with the region and become Maistra's best ambassadors. Experience packages are divided into three groups: Greenscape, Bluescape and Townscape, depending on the type of experience, which can be oriented toward nature, the sea or the city, to complement the overall experience of staying in Maistra's facilities.

After the expansion of the offer in 2016 with the new family hotel Amarin, designed and built to meet the needs of families with children, there is a new challenge for Maistra - the opening of the new Grand Park Hotel Rovinj, which will be the most luxurious hotel in Croatia. Below the hotel is the ACI Rovinj, a luxurious marina, one of the best in the Mediterranean Sea, where modern yachtsmen can find everything they need.

The segment of surveying and listening to consumer demands in order to provide them with the best service and to respond to their requests and needs as well as to create their loyalty, is the one that we are working on continually working, but which also has room for further improvements. In order to achieve this goal, continuous communication with consumers is necessary, and their feedback is of utmost importance. Comments, suggestions,

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NON-FINANCIAL REPORT FOR 2018 complaints and praises that consumers leave during their stay, whether in direct communication with staff or via forms and questionnaires, as well as those on social networks, enable us to constantly improve the quality of our service. That is why each year Maistra is striving to improve the ratings of segments where there is most room for improvement, as well as focus on further development of destination products, events and experiences in destinations in which it manages accommodation facilities.

Out of 7,835 surveyed guests last year we received 5,263 feedback information. The total rating for all surveys for last year is 94/100.

Cromaris is the leader of Croatian mariculture and its operation includes breeding, processing and sale of autochthonous Adriatic fish. The locations of the Cromaris farms were selected because of the exceptional cleanliness and the quality of the sea, which is the basic prerequisite for the cultivation of top-quality white fish. The base of Cromaris's offer is the three types of best quality white fish – sea bass, bream and meagre, as well as their processed products, which make it easier for consumers to buy and prepare fish: fillet fish, fresh cleaned fish, fish packed in a modified atmosphere: whole, fillets and steaks of meagre, as well as smoked and marinated fillets. Special segment of offer includes fresh sea bass and bream grown according to the principles of organic production. Today, Cromaris is the seventh company in farming sea bass and bream in the world, and it is recognized as the leader in quality on the market.

Technologically most modern fish breeding process, ensuring traceability from input raw materials to the final product through all phases of production, processing and distribution and daily catches as well as fast distribution of fish guarantee delivery of fresh fish of certified quality to customers in Croatia within 24 hours and customers across Europe within 24 to 48 hours.

As a result of the application of a consistent strategy based exclusively on top quality and freshness of products, the many certificates that Cromaris already holds, which are listed in the Overview of initiatives, memberships in associations and interest groups of the Group chapter, have also been complemented by the latest - BRC certificate. British retail consortium (BRC) has developed the international standards for the food industry that meet the criteria of the GFSI (Global Food Safety Initiative), and today they represent a framework that many companies base the assessment of their suppliers and the production of their brands. BRC standards guarantee the quality and safety of food products and refer to the following:

- HACCP system - Quality management system - Production conditions - Product control - Process control - Hygiene requirements for employees.

In 2018, for the first time, together with some of the biggest brands from the industry, Cromaris participated in the prestigious certification of taste and quality for food and beverages Superior Taste Award awarded by the iTQi (International Taste & Quality Institute) headquartered in Brussels. Products are evaluated by a blind test method based on the appearance, smell, texture and taste of the product, while the judges are not familiar with the brand or origin of the tested product. The products that have achieved a result higher than 70 % are awarded the prestigious Superior Taste Award with one, two or three golden stars, similar to Michelin stars for gastronomy. Cromaris won the Superior Taste Award for 2018 for all three applied products: sea bass, bream and meagre. Sea bass received a maximum of three gold stars for its extraordinary taste with a score of 90.2 %, while the bream (result 86.2 %) and meagre (result 86.9 %) were rated as excellent and received two golden stars for extraordinary taste.

Permanent investments, innovations and a differentiated approach that Cromaris nurtures in all aspects of business - from production, research and development, processing to logistics and sales - are focused on top quality and freshness of products.

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In 2018, Cromaris decided to communicate the basic brand values to consumers in a slightly different manner. In order for the public to receive information about which fish from the farm has the best quality and is the freshest, the statement from the biggest experts in this area was requested – crew from the sea depths. These truthful experts were sought after in the vastness of the Adriatic Sea. In six separate stories of the ad campaign for the Croatian market, entitled Dolphins, Octopus, Waiter, Seal, Mirko and Tasty?, the conclusion was the same: "Those who know about fish, chose Cromaris!” In this campaign Cromaris wanted to take a step further by basing the starting point on market research. In addition, several more different and interesting communication approaches were applied. There are many criteria for selecting the media of communication - from the target group to available budgets. In this campaign, the type of creative solution has played an extremely important role in selecting television and internet channels. In addition, the campaign also had its extension in the form of promotions in retail outlets throughout Croatia.

In Croatia osiguranje "customer orientation" is one of the strategic priorities. In this area, we have begun to improve the overall customer experience in all phases of interaction with the company, with emphasis on personalization of the service.

Croatia osiguranje regularly monitors trends on highly developed insurance markets with a focus on the EU. In addition, it conducts market research activities with a goal to better understand the needs of the market and creating a product that will adequately respond to them. It thus links the relevant insurance products globally to the needs of consumers in Croatia. It introduces new and innovative products that will ensure long-term growth and retaining of the leading market position. When developing products, emphasis is placed on creating products with quality insurance coverage as well as on the overall service. Particular emphasis is placed on a quality and accessible service that will provide adequate coverage for the risks that consumers are faced with. Croatia osiguranje monitors trends and continuously implements the latest technology solutions as well as numerous innovations to ensure consumer satisfaction.

Croatia osiguranje continues to measure on a quarterly basis the satisfaction of clients who have bought automotive insurance, comprehensive insurance, property insurance and life insurance, using Net promoter score (NPS) methodology. Half-year service quality monitoring (Mystery Shopping) was also continued, which checks the quality of the service in retail outlets, focusing on expertise, sales skills and employee friendliness. The research results show that clients have a positive attitude and trust towards Croatia osiguranje, regardless of the sales channel, and are satisfied with the knowledge and competence of their advisor. Croatia osiguranje is the first insurance carrier in Croatia who has a certificate of quality management system according to the ISO 9001: 2019 international standard. The business operations in accordance with the requirements of international standards are confirmed by the permanent commitment of Croatia osiguranje: - For understanding and meeting customer requirements - For improving the quality of products and services - For the satisfaction of employees and business partners - For the strengthening of leading positions on the national and regional markets.

6.3.2. Health and safety of consumers

Meeting the highest health and safety standards is a priority of the Group, especially for the tourist segment of the Group and Cromaris, given the nature of their business.

In the tourist segment of the Group’s business operations this is achieved through: - implementation and certification of the HACCAP system, guaranteeing high control, quality and safety in the process of preparation, production and distribution of food and beverage services, while taking into account the diversity of nutrition and its nutritional value - labelling of allergen data, regular sampling of food health safety and not ordering food products that may cause health hazards to consumers

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- implementation of organizational and technical measures aimed at the safety and health of people, such as placing evacuation and rescue plans at visible locations in all facilities, testing of fire alarms and fire extinguishing systems, work equipment, work environments, electrical and lightning-rod installations - concern about consumer safety and their assets through 24-hour security.

Numerous certifications listed in the Overview of initiatives, memberships in associations and interest groups of the Group support this. Hotels the Monte Mulini, Lone, Eden and Istra, including the tourist resort Belvedere are certified by the Travelife Gold Award, which is also the leading initiative for training, management and certification of tourism companies dedicated to sustainable development. Hospitality facility which is awarded with the Travelife certificate must meet many criteria, the most important one being preservation of the environment through the rationalization of energy and water consumption, reduction of pollution through waste control, positive social action such as employee welfare benefits by securing good working conditions and investment in education, as well as cooperation with the local community, support to the local economy and care for the preservation and protection of tradition. An important criteria for evaluation is the level of communication with guests - inclusion of guests in sustainable business activities, for example through the organization of beach cleaning, emphasis on the importance of recycling during the hotel stay and rationalization of water and energy consumption.

"Living Healthy" is the national public health project of the Croatian Public Health Institute, which aims to promote health and create potential for good health before health problems or health threats arise. As part of the activities related to health and nutrition, the Croatian Institute for Public Health awards products that meet the criteria prescribed by the Institute a guarantee mark “Living Healthy”, whose aim is to additionally inform the consumer in an easier way and to provide them with an easier way to choose food whose ingredients are recommended for proper nutrition. Fresh fish from Cromaris satisfied the specific criteria for raw fish which prescribe that the content of saturated fatty acids may not exceed 4 g / 100 g and the salt content may not be more than 1 g / 100 g.

With this Cromaris additionally proved that its fresh fish is an excellent choice as part of a healthy and balanced diet.

By using its own recipes for fish food, Cromaris has managed to further enrich its products with omega-3 fatty acids that have a positive impact on human health. Foods rich in unsaturated fatty acids contribute to maintaining normal cholesterol levels in blood and normal functioning of the heart and the brain. Moreover, fish is rich in protein, phosphorus and vitamin E and as such it is the perfect meal for all those who want a balanced diet.

Cromaris carefully selects suppliers and high-quality products to be used in the manufacturing process. Along with supplying quality certified food, it continuously controls the composition of fish food at accredited laboratories to ensure the food of the desired characteristics without the presence of GMOs and animal origin other than fish.

The Group is continuously working to improve its processes, taking appropriate technical, personnel and organizational measures to protect the personal information of its consumers, employees and associates, and the rights of the respondents are of utmost importance. The General Data Protection Regulation introduced new obligations with the aim of raising information security in the area of access to and management of personal data at the highest level, and preparations for its implementation began in 2017 in all Group companies.

In 2018, in Croatia osiguranje d.d. respondents submitted a total of 48 requests/complaints/objections regarding the processing of personal data and the exercise of their rights. On the basis of internal audits that were carried out, two (2) cases of violation of confidentiality of personal data were verified and measures were taken to eliminate the risk of harm to the respondents. In the rest of the Group no complaints were filed regarding the violation of the right to privacy.

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GRI Index

Standard GRI Announcement Announcement title Chapter Organisational profile 102-1 Company name 2.1. Profile Activities, brands, products and 102-2 2.1. Profile services 102-3 Headquarters of the company 2.1. Profile 102-4 Location of business activities 2.1. Profile Ownership structure and legal 2.1. Profile 102-5 form 102-6 Markets 2.1. Profile 102-7 Company’s size 2.1. Profile 102-8 Employees and other workers 2.1. Profile 102-9 Supply chain 2.1. Profile Significant changes in the 2.1. Profile 102-10 company and its supply chain 102-11 Precautionary principle 2.1. Profile 102-12 External initiatives 2.1. Profile 102-13 Membership in associations 2.1. Profile Strategy 1. Management Statement of the highest ranking 102-14 Board Statement person in the company 2.1. Profile Key impacts, risks and 102-15 2.3. Management opportunities Ethics and integrity GRI 102: General Values, standards and principles of 2.2. Ethics and 102-16 Disclosures, 2016 conduct integrity Mechanisms for counselling and 2.2. Ethics and 102-17 expression of integrity concerns about ethical behaviour Management 102-18 Management structure 2.3. Management Stakeholder engagement 3.1. Engagement, involvement of 102-40 List of shareholders interest groups (stakeholders) 3.1. Engagement, involvement of 102-41 Collective bargaining interest groups (stakeholders) 3.1. Engagement, Identifying and selecting involvement of 102-42 stakeholders interest groups (stakeholders) 3.1. Engagement, Approach to stakeholder involvement of 102-43 engagement interest groups (stakeholders) 3.2. Explanation of Key issues and stakeholder materially 102-44 interests significant topics and their boundaries Reporting

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Standard GRI Announcement Announcement title Chapter Organizational units included in 102-45 2.4. Reporting consolidated financial statements 3.2. Explanation of Procedure for determining the materially 102-46 content of reports and boundaries significant topics of aspects and their boundaries 102-47 List of material topics 2.4. Reporting 102-50 Reporting period 2.4. Reporting 102-51 Date of the last report 2.4. Reporting 102-52 Reporting cycle 2.4. Reporting Contact for inquiries regarding the 2.4. Reporting 102-53 report 102-54 Compliance option 2.4. Reporting 102-55 GRI content index Index GRI 102-56 External verification 2.4. Reporting Directly created and distributed 201-1 4.1. Economic value economic value GRI 201: Economic Financial consequences and other performance, 2016 201-2 risks and opportunities related to 2.3. Management climate change The range of the standard starting salary per gender 4.2. Market 202-1 GRI 202: Market compared to the local presence presence, 2016 minimum wage Share of senior management 4.2. Market 202-2 employed from local community presence 4.1. Economic value Investments in infrastructure and 203-1 6.2. Collaboration supporting services with the local GRI 203: Indirect community economic impacts, 2016 4.1. Economic value Significant indirect economic 203-2 6.2. Collaboration impact with the local community GRI 204: Procurement Consumption share on local 204-1 2.1. Profile practices, 2016 suppliers Percentage and total number of 2.2. Ethics and 205-1 business units subjected to integrity analysis of corruption risk GRI 205: Anti- Communication and training on 2.2. Ethics and corruption, 2016 205-2 anticorruption policies and integrity procedures Confirmed corruption incidents 2.2. Ethics and 205-3 and measures taken integrity Legal proceedings undertaken due to behaviours contrary to the GRI 206: Anti- principle of freedom of 2.2. Ethics and competitive Behaviour, 206-1 competition, antitrust and integrity 2016 monopolistic practices and their outcomes Energy consumption within the 302-1 5.1. Energy organization GRI 302: Energy, 2016 302-4 Reducing energy consumption 5.1. Energy Reducing energy needs in 302-5 5.1. Energy products and services 5.2. Water, GRI 303: Water, 2016 303-1 Extraction of water by source wastewater and waste

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Standard GRI Announcement Announcement title Chapter 5.2. Water, Sources of water significantly 303-2 wastewater and affected by extraction of water waste 5.2. Water, Volume of recycled and recovered 303-3 wastewater and water waste Business locations owned, leased, administered or in the immediate vicinity of protected 304-1 5.3. Biodiversity areas and areas of high biological value in terms of biodiversity outside of protected areas GRI 304: Biodiversity, Description of significant 2016 influences of activities, products and services on biodiversity in 304-2 5.3. Biodiversity protected areas or in high value areas in regards to biodiversity outside of protected areas 304-3 Protected and restored habitats 5.3. Biodiversity 5.2. Water, Total discharge of water by 306-1 wastewater and quality and destination waste 5.2. Water, GRI 306: Wastewater Total weight of waste by type and 306-2 wastewater and and waste, 2016 method of disposal waste Waters significantly affected by the 5.2. Water, 306-5 discharge and leaking of water wastewater and from the organization waste New employment and staff 401-1 6.1.1. Employment fluctuations Benefits provided to full-time GRI 401: Employment, employees that are not provided to 401-2 6.1.1. Employment 2016 temporary employees or employees on a part-time basis 401-3 Parental leave 6.1.1. Employment The shortest period it takes GRI 402: 6.1.2. Employee for notification in advance about Labour/Management 402-1 and management significant changes in business Relations, 2016 relationship operations Labour force represented in the 6.1.3. Health and 403-1 formal joint committees for health safety in a working and security issues environment Types and rates of injury, 6.1.3. Health and professional illness, lost days and safety in a working 403-2 absences, and the total number of environment GRI 403: Occupational deaths related to accidents at work health and safety, 2016 by region and sex Workers with high frequency or 6.1.3. Health and 403-3 at high risk of diseases related to safety in a working their occupation environment Health and safety issues 6.1.3. Health and 403-4 covered by formal agreements with safety in a working trade unions environment Average annual number of 6.1.4. Training and 404-1 training hours per employee by education employee category GRI 404: Training and Programs for acquiring skills and education, 2016 life-long learning that support 6.1.4. Training and 404-2 permanent employment education opportunity for employees 6.1.5. Variety and GRI 405: Diversity and Structure of governing bodies and 405-1 equal opportunities, equal opportunity, 2016 structure of employees non-discrimination

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Standard GRI Announcement Announcement title Chapter Ratio of basic salary and fees of 6.1.5. Variety and 405-2 men and women by employee equal opportunities, category non-discrimination Total number of cases of 6.1.5. Variety and GRI 406: Non- 406-1 discrimination and corrective equal opportunities, Discrimination, 2016 measures taken non-discrimination Business units on individual locations with community 6.2. Collaboration GRI 413: Local 413-1 inclusion programs and impact with the local communities, 2016 assessments as well as community development programs 6.3.1. Product Impact of products and services on responsibility 416-1 health and safety 6.3.2. Health and GRI 416: Customer safety of consumers health and safety, 2016 Incidents of noncompliance 6.3.1. Product and voluntary codes regarding the responsibility 416-2 impact of products and services on 6.3.2. Health and health and safety safety of consumers 6.3.1. Product Labelling of products and services, responsibility 417-1 and requesting product and service 6.3.2. Health and information safety of consumers Incidents connected to non- 6.3.2. Health and GRI 417: Marketing and conformity of product and services safety of consumers Labelling, 2016 417-2 labelling and information about products and services Incidents connected to non- 6.3.2. Health and 417-3 conformity of marketing safety of consumers communication Total number of legitimate 6.3.2. Health and complaints regarding customer safety of consumers GRI 418: Customer 418-1 privacy violations or privacy, 2016 loss of personal information about the customer

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