SEE Weekly

Analyst: Tajana Striga Above expected kuna bond issue? [email protected]

+385 1 6033 522

SEE yields mixed

Fed left monetary policy unchanged with key interest rates unchanged in line with market expectations. However, statement released after meeting was more cautious than expected whereby Fed members acknowledge improved consumer and business sentiment, but stays dovish on inflation still below 2% long-term target. All in all, until newly elected US president Trump details his planned fiscal expansion, the markets currently expect only two rate hikes in 2017, while FOMC baseline remains three rate hikes. Despite that, SEE yields saw rather modest moves this week, with Slovenian and Croatian USD yields down 9bp and 6bp, respectively, and Serbian USD yields barely rose by 4bp. Euro yields stayed unchanged in and rose 4bps in . Locally, investors’ focus is on the next week's bond auction in Croatia, including two issues in kuna with 5Y and 11Y maturities. Given the generous HRK17bn excess liquidity and potential ECB tapering later this year, we expect the MinFin to issue in excess of HRK5.5bn maturity and place HRK7-8n to strengthen cash reserves ahead of the upcoming USD bond maturity. Subdued banks’ credit activity and new European rules on sovereign debt risk requirements also bode well for demand as well as recent S&P (- and Fitch) rating outlook upgrade from negative to stable that led to some 15bp spread tightening since then. We see 5Y and 11Y yields just below 2% and 3%, respectively, with the former subject do downside risks as the future buying conduct of ECB may shift meaningfully towards the sub 5Y sector and the CNB may resume easing focused on the medium part of the yield curve.

CHART OF THE WEEK: YIELD CHANGE, (average) wow, bp 10

Source: Bloomberg, Addiko research 5

0

-5

-10 EUR USD EUR USD USD SLO CRO SRB

Kuna appreciated, EUR/RSD stabile

Croatian MinFin issued HRK800m of 1Y T-bills, surpassing not only the plan (HRK600m) but also redemptions (HRK626m), resulting in HRK174m higher stock of short-term debt. Despite ample interbank excess liquidity of roughly 5% of GDP, 1Y yield barely fell to 0.59% amid bid-to-cover ratio of 1.2x. Meanwhile, the kuna rallied almost 500 pips this week on the back of stronger corporate FC sales (and possibly institutional sales ahead of kuna bond issue), and, fundamentally, external and fiscal risks mitigation, with high likelihood of the EDP suspension this spring. The latter would thus pave the way for rating upgrades, in line with the recent outlook upgrades by S&Ps and Fitch from negative to stable. If anything meaningfully, depreciation pressures stem from the expected sporadic worsening of goods trade balance on the back of stronger goods import caused by domestic demand recovery and potential political instability in the euro zone given the number of forthcoming elections.

The EUR/RSD traded range bound this week, with the NBS selling EUR15m in order to curb the dinar depreciation. That said, there are number of reasons for the dinar to continue to move around 124 barriers. Namely, stronger macro picture and risk profile, lower internal and external imbalances, improvement in banks’ net foreign asset and general NBS’ intolerance of the weaker dinar in view of 33% of external debt in USD(un-hedged) and stronger USD. Downside risks stem from political instability in case of material changes in the parliamentary math, US reflation and stronger USD as well as stronger import demand. Meanwhile, the NBS continued withdrawing excess interbank liquidity through repo while short end dinar rates stayed largely unchanged and we expect for the similar performance to continue in the short-term given still supportive external environment and expected

'on-hold' NBS stance on their next meeting in mid-February. *SEE Weekly editorial deadline: 4pm Thursday

SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION SEE Weekly Economic Highlights

Slovenia

• Private consumption growth at its strongest pace since 2008. December's retail trade surprised on the upside in flash estimate as it soared 14.6% mom (working-day-adjusted) and fully matched the strong November's 10.2% yoy increase. Before a full data set publication by the end of February, we currently see that general department store sales, car purchases and higher number of trading days boosted the headline sales figure during the all-important x-mass period. For the 4Q16, retail trade surged 10.0% yoy, tripling its growth pace relative to Q3 average. December trade data combined by further improvement in consumer confidence gauges (EC sentiment up 2.2pp on Q3 average) on our calculations bode well at least 3.5% yoy household consumption growth in 4Q16 (the highest since the spring 2008) after 2.6% yoy in Q3, driven by accelerating 2.5%-alike (yoy) employment growth, easier financial conditions, accelerating retail credit, stronger consumer sentiment, despite temporary weakness in the overall wage growth dynamics. The sharp improvement in consumer confidence in January to its best level ever reflects ongoing public wage hikes (additional 4% wage and benefits hike this year after 6% in 2016), as well as better employment prospects. On Q4 GDP growth outlook, the expected surge in private consumption and stronger private (equipment) capex, notwithstanding fading boost from net exports, support our 0.7% qoq and 2.9% yoy forecast, implying the FY16 average GDP growth of 2.7%.

• Rising inflationary pressures...? Next week we will see releases of inflation and merchandise trade data for January and December, respectively. For starters, CPI inflation is set to decline by -0.5% mom, with cheaper clothing prices (within usual post-holiday sales) and utility tariffs likely to offset resurgent oil and food prices. On a yoy level, CPI is seen soaring to 1.4% (highest level since the autumn 2013), largely reflecting the fact that the slump in energy prices at the start of 2016 drops out of the annual comparison. At the current level, Slovenian inflation is somewhat below the euro zone's, with some positive impact on competitiveness. Given the uncertain inflation outlook, we do not expect the ECB to change its monetary policy course until the core inflation rate rises lastingly.... as exports momentum stays intact. Meanwhile, we expect export growth to pick up to a 7%-alike (yoy) pace given the upside investment-driven surprises in the euro zone's activity in the eve of 2016. We can derive similar messages from better export order books as well as the increase in manufacturing capacity utilization to 84.7%. Merchandise import growth will also likely pick up on stronger import-driven domestic demand and higher commodity prices, leading to the overall slightly negative net trade contribution to Q4 growth. SEE Weekly Economic Highlights

Croatia

• Industrial output continues sprint in December... December’s seasonally adjusted industrial production sprinted 3.9% mom (prev. +2.7%), following already several months of decent monthly growth. Besides unusually higher number of working days, the strongest contribution came from non-durable goods (+6.5% mom), with all other segments outside the energy sector contributing positively as well (energy -1.6% mom). On the yoy level, industrial production soared 12.9% yoy, with 23.8% stronger energy generation in one of the coldest winters ever and very volatile refinery output, followed by 8.9% stronger non-durable goods being the main drivers. For the 4Q16, industrial production rose 7.2% yoy on average, thus well surpassing both 3.2% yoy increase in 3Q16 and 3.8% growth in 4Q15. Industrial production thus increased by 5.0% yoy for the FY16 on average. Meanwhile, manufacturing increased 7.1% yoy in 4Q16 mainly supported with stronger production of electrical equipment, fabricated metal products and pharmaceutical products. Such performance implies an 1pp-alike positive contribution to the GVA formation in final quarter of the last year. The latter alongside the expected 3.5%-alike increase in household consumption and slightly negative net trade contribution implies 3.5% GDP growth in 4Q16, shaping the FY16 GDP growth at 3.0% on our estimates. For more insights please chek our flash note on 4Q16 Industrial Production.

• Retail sales growth is strongest in 9 years... December’s working-day-adjusted real retail trade (+5.8% yoy) posted the strongest growth in nine years, substantially above our already optimistic 4%-alike yoy forecast. Before detailed data release on 13th February, we see retail trade driven by strong holiday-related spending with higher number of trading days, PIT cuts, X- mass bonuses in public sector, 82.4% yoy (!!!) stronger car sales, solid 2%+ real net wage growth, resurgent consumer credit and steady 2%-alike employment gains. Moreover, we expect positive contribution from tourist spending during Advent and X-mass fairs in Zagreb. For the 4Q16, real retail trade rose 4.6% yoy on average, well above 3.2% yoy growth in the same quarter last year, suggesting 3.6% yoy increase in household consumption in the national accounts in Q4. The latter alongside strong industrial output growth (7.2% yoy), stronger private investments and upside surprises in external demand on strong euro zone activity implies a 3.5% GDP growth in 4Q16 for an average 3.0% GDP growth in 2016, on our estimates. For more insights please chek our flash note on 4Q16 Retail Trade.

• Retail sales growth is strongest in 9 years... The broadest money M4 growth accelerated in December (+4.7% yoy, prev. 3.5% yoy) and thus exceeded HRK300bn for the first time ever. A brief look at M4 components reveals the expansion was driven by the most liquid M1 money supply where the growth accelerated to 18.1% yoy (prev. +14.0% yoy) on the back of faster corporate and retail demand deposit growth thanks to strong FC tourist inflow and other exporters' stronger sales. Furthermore, savings and term deposits contributed positively as well, with their growth accelerating to 1.1% yoy (prev. +0.7% yoy), driven by corporate (+7.2% yoy, prev 6.1% yoy) that offset negative influence from household deposit slowdown amid ongoing decline in saving rate. On the other hand, FX deposits contributed negatively as the decline intensified (-0.9% yoy, prev. 0.6% yoy) on the back of slowing corporate deposit intake (+1.9% yoy, prev. +5.0% yoy) due to high-base effect generated by last year’s BAT’s takeover of TDR as well as unusually strong kuna, while stronger retail deposit withdrawal doesn’t help the numbers either. That said, total deposit growth accelerated to 3.6% yoy (prev. +2.6% yoy) with the overall deposits reaching HRK266bn, and keeping their share in M4 money supply stably higher above 90%. Given the deposit collection acceleration, funding surplus or excess of collected deposits above issued loans reached the record level of HRK7.8bn. Meanwhile, net foreign asset declined slightly towards EUR1.6bn as mother banks withdrawing funds at year-end and local banks also sold EUR716m in the CNB's FX interventions. For more insights please chek our flash note on December's Monetary Aggregates. SEE Weekly Economic Highlights

• Next week, we get December’s merchandise trade data, where we expect solid mid-single digit growth in goods exports in line with sky-rocketing industrial output in the same month, steady external demand with the strongest sentiment indicators in the euro zone in five years and price competitiveness gains. Following a 2.5% yoy increase in November, we see stronger import growth in December on the back of stronger import-intensive domestic demand additionally underpinned by strong x-mas spending and higher commodity prices. In line with that, December’s goods trade deficit is set to increase slightly, but still leaving us with somewhat lower yoy trade deficit for the 4Q. We see slightly negative net trade contribution to GDP growth in 2016, while in 2017, we see exports supported by improved global outlook, and imports growth driven by stronger consumer demand leading to somewhat higher goods trade deficit.

Serbia

• Hard indicators on strong footing... Notwithstanding high base effect, industrial production growth accelerated in December (+3.9% yoy vs. 1.3% yoy in November), wrapping up a 2.8% yoy expansion in 4Q16 (vs. 3.7% yoy in 3Q) and 4.8% yoy in FY16 (vs. 8.4% yoy in 2015). That said, given previous year high base effect when it soared 37.2% yoy in December, energy generation contributed negatively with 4.8% yoy increase, despite extremely cold winter. However, manufacturing continued to expand at 4.9% yoy pace, while non-durable goods, capital and intermediate goods production accelerated somewhat. Looking ahead, we expect industry’s solid performance to continue on the back of ongoing big-ticket infrastructure projects and strong private investments notably in tradable sectors. At the same time, December’s merchandise trade data show that deficit declined by just 1.9% yoy to EUR488m as soaring export growth (+18.6% yoy vs. 18.9% in November) outdid 11.7% yoy stronger imports (vs. 9.2% yoy in November). That said, the FY16 trade deficit reached EUR4.0bn, down 8.9% yoy, with import cover (on a 3mma) up 546bp to 75.6% in December. Going forth, we expect strong export performance to continue on the back of stronger EU demand and ongoing increase of FDI inflows in tradable sectors while at the same time import will be driven by stronger domestic demand, resulting in marginal trade deficit widening in the course of the year. Last but not least, real retail sales continued their strong performance in December (+6.8% yoy vs. 7.4% in November) for a 6.5% yoy increase in 4Q16 and 7.7% yoy increase in FY16 on the back of ongoing private employment gains, moderate wage hikes, cheaper debt service and recent retail lending acceleration.

• Unspectacular Q4 GDP growth... According to flash estimate, Serbia’s 4Q16 GDP growth slowed slightly to 2.5% (prev. 2.6% yoy), shaping the FY16 growth at 2.7%, just below our 2.8% forecast. Until full data is released at the end of February, we see growth driven by strong private investments notably in tradable sectors as well as ongoing big-ticket infrastructure projects that have increased public capex by roughly 30% yoy and supported public consumption growth. Also, we expect personal consumption to contribute positively on the back of ongoing private employment gains, moderate wage hikes, cheaper debt service, lower citizens’ savings rate and the ongoing retail lending acceleration. While exporters' capacity certainly benefitted from the aforementioned investments and strong economic prospects of the main trading partners, we see net trade contribution to the growth negative given very much import intensive domestic demand. For more insights please chek our flash note: Unspectacular Q4 GDP growth SEE## Weekly

Key FI, FX & MM data

BONDS SPREADS Coupon ASK YTM 1W Δ (bp) 1M Δ (bp) YTD Δ (bp)* Level 1W Δ (bp) 1M Δ (bp) YTD Δ (bp)* SLOREP 25/03/2022 2,250% 0,064% 0 6 4 -25 1 -7 -15 SLOREP 09/09/2024 4,625% 0,608% -1 11 13 28 -4 -10 -20 EUR SLOREP 28/07/2025 2,125% 0,956% 0 46 47 78 3 40 30 SLOREP 30/03/2026 5,125% 1,021% 0 22 21 92 2 5 3 SLOREP 25/03/2035 1,500% 2,101% 0 33 50 131 3 34 26 SLOVEN 10/05/2018 4,750% 1,600% -22 -19 -13 67 -18 -14 -6 SLOVENIA SLOVEN 18/02/2019 4,125% 2,029% -15 -4 -4 82 -12 -3 0 USD SLOVEN 26/10/2022 5,500% 3,234% -1 -16 -15 120 9 -16 -5 SLOVEN 10/05/2023 5,850% 3,373% -3 -11 -12 125 6 -13 -5 SLOVEN 18/02/2024 5,250% 3,465% -3 -14 -10 124 6 -17 -5 CROATI 09/07/2018 5,875% 0,130% 8 8 -6 91 15 3 -9 EUR CROATI 30/05/2022 3,875% 2,158% -3 -9 -11 245 0 -21 -25 CROATI 11/3/2025 3,000% 2,861% 8 5 11 276 10 -6 -7 CROATI 27/04/2017 6,250% 0,990% -2 -5 -7 43 -2 0 -3 CROATI 05/11/2019 6,750% 3,103% -14 -34 -28 162 -8 -32 -23 CROATI 14/07/2020 6,625% 3,411% -18 -36 -33 185 -12 -37 -29 CROATIA** USD CROATI 24/03/2021 6,375% 3,622% -3 -21 -18 182 5 -21 -11 CROATI 04/04/2023 5,500% 4,123% -9 -15 -13 200 0 -16 -6 CROATI 26/01/2024 6,000% 4,273% 6 0 2 205 5 -16 -10 SERBIA 21/11/2017 5,250% 1,888% 16 17 -25 114 16 24 -15 SERBIA 03/12/2018 2,875% 2,847% -1 -21 -31 171 3 -19 -27 USD SERBIA 25/02/2020 4,875% 3,733% -2 -17 -39 227 4 -15 -33 SERBIA SERBIA 28/09/2021 7,250% 4,050% 1 -13 -35 206 10 -13 -26 Source: Bloomberg, ** Addiko Fixing * or since date of issuance

FX MARKETS MONEY MARKETS LEVEL 1W Δ 1M Δ YTD Δ EURIBOR O/N 1W 1M 3M 12M SLOVENIA Level -0,35 -0,38 -0,37 -0,33 -0,10 EUR/USD 1,0811 0,7% 3,4% 3,5% 1W Δ (bp) 1 0 0 0 0 EUR/CHF 1,0687 -0,5% -0,2% -0,5% 1M Δ (bp) -2 -1 0 -1 -2

CROATIA ZIBOR O/N 1W 1M 3M 12M EUR/HRK 7,4435 -0,7% -1,5% -1,3% Level 0,55 0,60 0,65 0,80 1,25 CHF/HRK 6,9653 -0,2% -1,2% -0,8% 1W Δ (bp) 0 0 0 0 0 USD/HRK 6,8854 -1,4% -4,7% -4,6% 1M Δ (bp) -5 -5 -5 -5 -5

SERBIA BELIBOR EUR/RSD 124,0071 0,1% 0,4% 2,5% Level 2,80 2,98 3,33 3,46 3,67 CHF/RSD 115,927 0,5% 0,9% 15,3% 1W Δ (bp) -2 -1 -1 0 -1 USD/RSD 114,8639 -0,6% -1,9% 15,5% 1M Δ (bp) -5 -7 -1 -3 0 Source: Reuters, Bloomberg, Hypo Fixing Source: Reuters, Bloomberg, Addiko Fixing

TREASURY BILLS

SLOVENIA 3M 6M 12M 18M Last yield -0,26% -0,22% -0,25% -0,19%

CROATIA 3M 6M 12M 3M EUR, FX-linked 12M EUR, FX-linked Last yield 0,20% 0,28% 0,59% 0,20% 0,05%

SERBIA 3M 6M 53W 2Y 3Y 53W, EUR 2Y, EUR 3Y, EUR 5Y, EUR Last yield 2,75% 2,65% 3,57% 4,74% 4,74% 0,78% 1,07% 1,65% 2,90%

Source: respective MinFin SEE###### Weekly

Charts of the Week

EUR/HRK and EUR/RSD 1M movements SLO: Retail trade vs consumer confidence

25 0 Real retail trade (wda, yoy) 7,570 124,0 20 -5 Consumer Confidance -10 15 7,550 -15 123,8 10 -20 7,530 5 -25 123,6 0 -30 7,510 -5 -35 123,4 -10 7,490 -40 EUR/HRK (lhs) -15 EUR/RSD (rhs) -45 7,470 123,2 -20 -50 5-Jan-17 14-Jan-17 23-Jan-17 1-Feb-17 Jan-05 May-07 Sep-09 Jan-12 May-14 Sep-16

CRO: Industrial production yoy% Croatia: Retail sales and consumer expectations Original data Trend Retail sales wda, YoY, % 10 10 10 Seasonally adjusted Consumer expectations, rhs 0 5 5 -10

0 0 -20

-5 -5 -30

-10 -10 -40

-15 -15 -50 Jan-06 Mar-08 May-10 Jul-12 Sep-14 Nov-16 Jan-06 Feb-08 Mar-10 Apr-12 May-14 Jun-16

SRB: Merchandise import cover (%, 3mma) SRB: Industrial production (%, YoY) 20% 120

15% 79 110 10% 77 5% 100

75 0% 90 73 -5%

-10% 80 71 -15% Total ind. Prod. (ls) 70 69 2014 2015 2016F -20% ESI confidence euro area (rs)

67 -25% 60 jan feb mar apr may jun jul aug sep oct nov dec Jan-05 Nov-07 Sep-10 Jul-13 May-16

Source: respective statistical offices, MinFins, central banks; Bloomberg; Eurostat; ECB, Addiko research SEE###### Weekly

Forecasts, Calendar, Publications

SELECTED ECONOMIC FORECASTS

Export of goods EUR/local Real GDP Unemployment CPI inflation Budget balance Public debt Import of goods & External debt & services C/A (%/GDP) currency (yoy, %) rate (ILO, %) (avg, yoy, %) (%/GDP) (%/GDP) services (EURbn) (%/GDP) (EURbn) (avg)*

2015 2,3 9,0 -0,5 -2,7 83,2 30,1 26,5 5,2 116,6 1,11 2016F 2,7 8,0 -0,1 -2,3 80,4 31,9 28,0 7,0 110,8 1,10 2017F 2,7 7,6 1,4 -2,2 78,3 33,6 29,7 6,5 106,8 1,06

SLOVENIA 2018F 2,6 7,2 1,8 -1,8 76,2 35,3 31,4 5,9 103,5 1,00

2015 1,6 16,3 -0,5 -3,2 86,7 22,0 20,8 5,2 103,7 7,61 2016F 3,0 13,5 -1,1 -1,9 85,6 23,1 21,4 3,3 93,0 7,53 2017F 3,5 11,8 1,6 -2,5 83,8 24,3 22,7 2,7 90,2 7,51 CROATIA 2018F 2,9 10,7 1,8 -2,0 82,1 25,0 23,8 2,2 88,5 7,48

2015 0,7 17,7 1,4 -3,7 76,0 15,6 18,9 -4,9 80,4 121,5 2016F 2,8 17,9 1,1 -2,0 74,2 16,8 19,8 -3,9 75,4 123,1 2017F 3,2 17,7 2,1 -2,0 72,7 17,8 20,7 -4,0 71,3 123,6 SERBIA 2018F 3,0 17,1 3,0 -2,2 73,3 18,7 21,8 -4,1 70,9 124,5

2015 3,2 27,7 -1,0 0,7 44,7 5,0 -7,8 -5,8 60,0 1,96 2016F 2,4 26,3 -1,0 -0,7 44,5 5,2 -7,9 -5,4 60,7 1,96 2017F 3,2 25,7 1,6 -0,7 43,2 5,4 -8,3 -6,0 62,0 1,96 2018F 3,5 24,9 2,1 -1,3 42,6 5,7 -8,7 -6,4 58,3 1,96

2015 3,2 17,9 1,4 -8,5 66,4 1,5 -2,2 -13,6 152,1 1,11 2016F 2,6 17,7 0,1 -3,3 69,2 1,6 -2,4 -15,2 154,6 1,10 2017F 3,2 17,3 1,8 -7,1 74,6 1,7 -2,5 -16,7 161,2 1,04 2018F 3,2 16,9 2,0 -6,4 78,9 1,8 -2,7 -17,0 164,1 1,07 MONTENEGRO

Source: Addiko research, as of 18 January 2017 * for Slovenia and Montenegro EUR/USD

KEY EVENTS IN THE NEXT TWO WEEKS Date Release Period Units Previous SLOVENIA 6-Feb-17 Retail trade January mom/yoy 1.4%/7.6% 9-Feb-17 External Balance December EURm -15

CROATIA 9-Feb-17 External Balance December EURm -488

SERBIA

Recent Economic Publications Report Date Croatia: Retail sales growth is strongest in 9 years 2-Feb-17 Croatia: Funding surplus at record high 1-Feb-17 Serbia: Unspectacular Q4 GDP growth 31-Jan-17 Croatia: Industrial output continues sprint in December 30-Jan-17 SEE Weekly: Sentiment indicators staying strong 27-Jan-17 SEE OUTLOOK PRESENTATION: ENJOYING THE GROWTH PICK UP 24-Jan-17 Slovenia issues EUR1bn and EUR300m at 63bp and 112bp over MS, respectively 19-Jan-17 SEE OUTLOOK: ENJOYING THE GROWTH PICK UP 18-Jan-17 Croatia: Yearly inflation enters positive territory 16-Jan-17 S&P upgrades Serbian 'BB-/B' rating outlook to positive 19-Dec-16 S&P softens tone and upgrades Croatian 'BB/B' rating outlook to stable 19-Dec-16 SEE Weekly: Defying Italian concerns? 9-Dec-16 Serbia: NBS staying on hold 8-Dec-16 SEE Weekly: Q3 GDP growth above expectations 2-Dec-16 Croatia: Net bank's foreign asset at record high 1-Dec-16 Slovenia: Q3 GDP growth tops expectations, we are upgrading 2017 outlook 30-Nov-16 Croatia: Q3 GDP meets expectations, we upgrade 2017 outlook 30-Nov-16 02-Feb-17

SEE Weekly

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SEE Weekly

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We use two other categorizations for stocks in our coverage: Restricted: The coverage of the company has been suspended temporarily due to market events that make coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where Addiko Bank is acting as an advisor in a merger or strategic transaction involving the company.

Under review: Financial forecasts and/or target are not disclosed owing to circumstances such as changes in the research team and other market events that require additional efforts to determine the value of the company based on the used valuation methods.

Our company valuations are based on but not limited to the following valuation methods: Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA, etc.), peer-group comparisons, historical valuation approaches (e.g acquisition multiple comparisons), discount models (DCF, DVMA, DDM), break-up value approaches or asset-based evaluation methods. Furthermore, recommendations may be also based on the Economic profit approach. Although the definition and application of these methods are based on generally accepted industry practices and models developed in the financial economics literature, please note that there is a range of reasonable variations within these models. Valuation models are dependent on macroeconomic factors, such as interest rates, exchange rates, commodities, and on assumptions about the economy that are subject to uncertainty and also may change over time. Any valuation is dependent upon inputs that are based on the subjective opinion of the analysts carrying out this valuation. Investors and other recipients of this research may request further information and details with respect to the valuation models or assumptions applied to the models. Furthermore, market sentiment and the overall liquidity situation affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on industry-specific developments. Our recommendations and target prices derived from the models might consequently change accordingly. Recommendations generally relate to a 12-month horizon. They are, however, also subject to market conditions and can only represent a snapshot. The ratings may in fact be achieved more quickly or slowly than expected, or need to be revised upward or downward. This report may include research based on technical analysis. Technical analysis is generally based on the study of trading volumes and price movements in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying issuer or instrument and may offer an investment opinion that conflict with other research generated by Addiko Bank. Investors may consider technical research as one input in formulating an investment opinion. Additional inputs should include, but are not limited to, a review of the fundamentals of the underlying issuer/security/instrument.

Distribution of recommendations Number of recommendations from Addiko Bank, Economic Research Department, at 31.03.2016 Broken down by categories 2 (25%) Buy / Add 1 (13%) Hold 0 (0%) Sell / Reduce 6 (63%) Under review 0 (0%) Restriction

There of recommendations for companies to which investment banking services were provided during the preceding twelve months - Buy / Add - Hold - Sell / Reduce

Coverage policy A list of the companies covered by Addiko Bank is available upon request.

Frequency of reports and updates

Although it has not been determined in advance whether and in what intervals this report will be updated, if the publication is a fundamental research report, it is our intention that each of these companies are covered at least once a year, in the event of key operations and/or changes in the recommendation, subject to applicable quiet periods and capacity constraints.

SIGNIFICANT FINANCIAL INTEREST: Addiko Bank and/or affiliate (pursuant to relevant domestic law) regularly trade shares of the analyzed company(ies). Addiko Bank and/or affiliate (pursuant to relevant domestic law) acts as a market maker in government bonds issued by the Croatian Ministry of Finance (Treasury).

ANALYST CERTIFICATION The author of fundamental analyses in this report is Ines Antic. Ines Antic is employed in Addiko Bank registered in Zagreb, Slavonska Avenija 6 as junior analyst.

The research analyst(s) or analysts who prepared this report (see the first page) hereby certifies that: (1) the views expressed in this report accurately reflect their personal views about the subject securities or issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. On a general basis, the efficacy of recommendations and clients' feedback are factors in the performance appraisals of analysts. ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST To prevent or remedy conflicts of interest arising as a result of the preparation and publication of research, Addiko Bank has established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by Addiko Bank Legal and Compliance. Department Conflicts of interest arising as a result of the preparation and publication of research are managed through its use of internal databases, notifications by the relevant employees as well as legal and physical and non-physical barriers (collectively referred to as 'Chinese Walls') designed to restrict the flow of information between one area/department of Addiko Bank and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department. For further details see our Policy for managing conflicts of interest in connection with investment research at http://www.addiko.com/bank/dokumenti/Politika_sukob_interesa.pdf Addiko Bank d.d. is regulated by the Croatian Financial Services Supervisory Agency (HANFA) for the conduct of designated investment business in Croatia.

02-Feb-17

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Addiko Economic Research Contacts

Name Telephone Email

Hrvoje Stojic, Economic Research Director +385-1-603-0509 [email protected]

Tajana Striga, Analyst +385-1-603-3522 [email protected]

Ines Antic, Junior Analyst +385-1-603-3657 [email protected]

Addiko Bank d.d. Slavonska avenija 6, 10000 Zagreb [email protected] phone: +385-1-603-3522 fax: +385-1-604-6306