Annual Report 2015

ANNUAL REPORT 2015

The Agrokor Group is the largest privately owned company in Croatia and one of the leading companies in Southeast Europe. Quality, sustainable growth, development and business responsibility are basic corporate values of Agrokor. content

3 Agrokor key facts 4 Agrokor Companies 5 Agrokor Group Business Structure 6 A Message from the President 8 The Agrokor Group 9 Agrokor Group Management Board 10 Investments 12 Sponsorships and Donations 14 Human Resources 16 Integrated Management Systems

18 Retail Business Group

24 Food and Agriculture Business Group 28 Edible Oils and Margarines 30 Meat and Meat Products 32 Ice Cream and Frozen Food 34 Water and Beverages

36 Agriculture

42 Other Businesses

44 Financial Instruments Get the latest news on Agrokor Group’s website 45 Financial Report www.agrokor.hr

106 Contacts linkedin.com/company/agrokor Agrokor key facts

Brands Leading food Diversified portfolio of well-established manufacturer, brands supported by market leading distributor, retailer consumer awareness. and wholesaler with robust market position.

From field to table Vertically integrated business model with local strategic partnership.

Innovation Continually strengthening R&D activities by developing new and improving existing products and processes.

3 Agrokor Companies Annual Report 2015 - Introduction

Retail, holesale and Distribution

Edible Oils and Margarines

aters and Beverages

Ice Cream and Frozen Food

Meat Production and Processing

Agriculture

Other Business

4 Agrokor Group Business Structure

Agrokor - Ownership in Subsidiary Companies

BUSINESS GROUP BUSINESS GROUP OTHER FOOD RETAIL BUSINESS

Ambalažni servis d.o.o. HR.... 96,93% Agrokor - Zagreb d.o.o...... 80,34% Agkor d.o.o...... 55,30%

Ambalažni servis d.o.o. BIH. 100,00% Agrolaguna d.d...... 85,22% Agrokor AG ...... 100,00%

Ambalažni servis d.o.o. Srbija... 96,93% Belje d.d...... 94,23% Agrokor - Energija d.o.o...... 100,00%

Angropromet d.o.o...... 96,93% Dijamant a.d...... 96,14% Agrokor kft...... 100,00%

Euroviba d.o.o...... 91,57% Frikom d.o.o...... 55,30% Agrokor - trgovina d.o.o...... 100,00%

idea d.o.o...... 96,93% Fonyodi kft...... 80,44% INIT d.d...... 67,00%

Frikom Beograd dooel...... 55,30% Irida d.o.o...... 55,30% Kor Broker d.o.o...... 100,00%

Jamnica d.o.o. Beograd...... 80,44% Jamnica d.d...... 80,44% Kron d.o.o...... 100,00%

Jamnica d.o.o. Maribor...... 80,44% Kikindski mlin a.d...... 82,74% L.G. Moslavina d.o.o...... 100,00%

Konzum d.d...... 96,93% Ledo d.d...... 55,30% M-profil SPV d.o.o...... 100,00%

Konzum d.o.o. Sarajevo...... 100,00% Ledo d.o.o. Čitluk ...... 55,30% mStart d.o.o...... 100,00%

Krka d.o.o...... 79,88% Ledo kft...... 55,30% Projektgradnja d.o.o...... 80,86%

Ledo d.o.o. Kosovo...... 55,30% Ledo d.o.o. Podgorica ...... 55,30%

Ledo d.o.o. Ljubljana...... 55,30% Mladina d.d...... 48,98%

Multiplus card d.o.o...... 72,70% Nova Sloga d.o.o...... 100,00%

PIK BH d.o.o. Laktaši ...... 96,93% PIK Vinkovci d.d...... 70,87%

Poslovni sistem Mercator d.d...59,47% PIK Vrbovec d.d...... 96,93%

Roto dinamic d.o.o...... 80,44% Sarajevski kiseljak d.d...... 80,34%

Roto ulaganja d.o.o...... 100,00% Sojara d.o.o...... 51,84%

Super Kartica d.o.o. BiH...... 100,00% Solana Pag d.d...... 96,93%

Super Kartica d.o.o. Srbija...... 64,95% Vupik d.d...... 88,34%

Tisak d.d...... 67,35% Zvijezda d.d...... 51,84%

TPDC Sarajevo d.d...... 51,00%

Velpro-centar d.o.o...... 96,93%

Zvijezda d.o.o. Ljubljana...... 51,84% 78,9% Retail Zvijezda d.o.o. Sarajevo...... 51,84% 16,9% Food and drink Žitnjak d.d...... 86,68% 4,2% Other Business

5 A Message from the President

Ivica Todorić President of the Agrokor Group Annual Report 2015 - Introduction

Dear all,

Each year, large companies, among which Agrokor has deserved- of operations and income increase; modernization of production ly earned its place, face a new test of maturity. How to stay on and increase in competitiveness in the ever expanding and top? How to maintain the leading position in food production increasingly demanding market area; cost rationalization and and retail? business efficiency; and further development ambition.

In 2015, the test of maturity for Agrokor and Mercator was I am satisfied because our chosen direction has proved succe- the merging of the two businesses and I am proud to say that ssful and because we have achieved the main strategic goals. I both companies passed the test with the highest grade, proving am also glad that the Agrokor family, which presently includes with their alliance the synergic potential of combining their more than 60,000 people, is progressively developing into the operations. Together they are stronger, because together they can largest business community in the countries where we operate, a plan better, align their market policies more easily, as well as business community with wider regional and European signifi- rationalize business operations. cance. The Agrokor family does not include only our employees, The first year of joint operations between Agrokor and Mercator who participate in creating positive business results, but also all has been truly encouraging and fully justifies the decision our business partners, suppliers and producers, and primarily made by the two companies to seek a better and safer future on all our customers and buyers of our products and services. In both individual and group level. There are numerous data that 2015 we strived to get as close to them as possible, develop the corroborate such conclusion. It is enough to mention only one, closest possible cooperation, produce the best possible products however. The merged retail chain, with almost 2,000 stores, and provide the best possible services. Our business results prove has strengthened our merged company’s leading position in all that the direction we chose was the right one. five countries in which we operate, including primarily Croatia Each new success gives us the right and responsibility to move and Slovenia, but also Serbia, Bosnia and Herzegovina and further ahead in line with our business expansion and moder- Montenegro. Even so, our business prospects and potential nization strategy, as well as to strive to become even better, for synergies have not yet been fully exhausted. Quite on the stronger and more powerful by investing in new technology contrary, this was only the first year of true joint operations, and people. This is the essence of Agrokor’s philosophy: to keep and both Agrokor and Mercator, just as all other Agrokor Group outdoing itself in order to be able to successfully participate companies, plan to create new values, our assets for the future. in a truly competitive market. And become the leading player. According to the business results achieved, 2015 was yet another The leading position is never a sure thing, however. It commits successful year for Agrokor. Our leading positions in the food the company to make new projects and investments, create new production and retail segment have been confirmed and additi- business ideas and products, and ensure new technologies and onally strengthened. We started the year with a clearly defined the people capable of using the same. We managed to achieve plan to maintain all the positive tendencies concerning the this in 2015, gained valuable experience and are looking forward development of Agrokor and its companies, including stability to the challenges of 2016!

6 In the past year, Agrokor's Management Board was additionally strengthened. Ante Todorić, former Executive Vice President for the Retail Business Group, was appointed Deputy President of the Management Board, and his former position in the Management Board of Agrokor was assumed by Darko Knez, former CEO of Konzum. Ivica Sertić, former President of the Management Board of Jamnica d.d. became a new Member of the Management Board of Agrokor and assumed the position of Executive Vice President for Markets, Sales and Logistics. I am using this opportunity to thank all of them for their contribution and commitment to the company so far, as well as wish them equal success in their new positions.

In conclusion, I wish to share my satisfaction with all those who have helped our companies achieve such good business results, including my associates and management, who were running the business and setting the pace, all 60,000 of our employees, who were diligently performing their business tasks, and our business partners, customers and consumers, whose loyalty commits us to do our best and never let them down.

Each new success gives us the right and responsibility to move further ahead in line with our business expansion Ivica Todorić and modernization strategy, as well as to strive to become President of the Agrokor Group even better, stronger and more powerful by investing in new technology and people. This is the essence of Agrokor’s philosophy: to keep outdoing itself in order to be able to successfully participate in a truly competitive market. And become the leading player.

7 The Agrokor Group

Annual Report 2015 - Introduction 2015 was under considerable impact of the Mercator acquisition and primary focus was kept on the continuation of the integration of retail, with an emphasis on the realization of synergies.

Agrokor remained loyal to its long-term Agrokor is developing its business. In modest signs of recovery and econo- strategy of being a market leader in 2015, the first phase of the enhanced mic growth. Continued adjustments everything it does by offering the hig- e-commerce business begun with of product assortment and further hest quality of services and products at its operations in Croatia by opening leveraging of customer-centric affordable prices in its Primary Markets. the first “dark store” and providing a retailing capabilities enabled all retail The focus was kept on maintaining and logistics platform for servicing online units to tailor competitive pricing increasing market shares across both needs of Zagreb and northern Croatia, policies while offering the best value business groups through proactive mea- which represents a new era in online for money proposition to numerous sures in the form of effective marketing sales of groceries – with plans for faithful customers. Agrokor continued strategies, investments in prices and regional expansion. to expand its retail and wholesale adequate product portfolio management. market coverage by opening new The next step in this key area is the stores while simultaneously expan- Synergies development of a new online mall that ding the range of offered products. By will offer the most popular regional Our market shares were improved and expanding out geographic footprint and international non-food brands. leadership positions preserved across in the region growing economies Along with this, it will also introduce most of businesses within the Food of scale in terms of transportation, new methods of delivery and payment Business Group, whilst our shares in distribution and sales and marketing models for a flawless and secure the Retail Business Groupmarket were were achieved. online shopping experience, while increased as a result of the Mercator acquisition. Continued refurbishment of significant importance will be given to Historical sales recorded flexibility in cooperation with partners stores, tailoring of pricing policies and During 2015, historically highest sa- marketing activities through promoti- through various business models. les of water, beverages and ice cream ons and innovations, as well as product were recorded. This was a result of Wholesale spinoff and range adjustment to the overall environ- improved efficiency of procurement, strengthening ment also further improved Agrokor’s production, logistics, distribution and retail offering. Moreover, a strategic decision was also development and sales of innova- made to enhance focus on the whole- tive products that were supported by Last year was under considerable impact sale business in Croatia by spinning strong marketing communications. of the Mercator acquisition and primary it off into a separate legal entity. focus was kept on the continuation of However, last year will be remembe- Agrokor sees a significant potential of the integration of retail, with an empha- red as one of the more challenging this business in the future, especially sis on the realization of synergies. years for the agricultural sector. This with the establishment of successful was mainly due to reduced prices of long-term cooperation with HoReCa Significant step towards online almost all commodities, including customers, given Croatia’s tourism business agricultural products. Sanctions aga- potential. Improvement of e-commerce platforms inst Russia in relation to agricultural is another strategic direction in which Last year, the region started showing goods from EU and a global imbalan-

8 Agrokor Group Management Board

ce in the supply and demand of almost all agricultural products created an even more complex situation. Supply in excess of demand caused significant price drops and slowing of global Ivica Todorić commerce, as well as an accumulation President of the Agrokor Group of substantial reserves.

Agrokor has made significant investments across all its businesses in the past ten years, which prepared those businesses to cater for future growth and take advantage of the increased scale to further improve their profitability and efficiency.

By recognizing the correlation Ante Todorić between consumer needs, market Deputy President of the Agrokor Group trends and innovation, Agrokor dedi- cated a prominent role to research and development in its long-term vision of achieving competitive advantages and the highest production and quality standards.

Finally, it can be stated that the main targets of Agrokor’s management teams in 2015 were related to raising the productivity and profitability Hrvoje Balent Ivan Crnjac Piruška Canjuga Executive Vice President Executive Vice President Executive Vice President of operations through development Central Purchasing and Services Finance, Strategy and Capital Markets Business Development of new products, reorganization of distribution channels, formulation of new sales policies and to opening of new communication channels with consumers, and concluded that all of these targets have been achieved and that all teams were successful in achieving their goals.

Mislav Galić Darko Knez Ivica Sertić Executive Vice President Executive Vice President Executive Vice President Food Business Group Retail Business Group Markets, Sales and Logistics

9 Investments

The Agrokor Group continues its well thought-through strategic investments in the Business Groups Retail and Food in 2015, the Annual Report 2015 - Introduction focus being on increasing competitiveness, maintaining market shares and investments which shall create added value for customers.

Investments in the Business Last year Mercator refurbished a Group Retail large number of stores in the region. Slovenia

In 2015 Mercator significantly increased its investments in renovating the retail network as compared to the previous period. More than forty stores of different formats were refurbished (37 market program stores, 1 Modiana, 2 Intersport stores), while seven new stores were opened. Among the most important refurbishment projects in Slovenia was Mercator centar Domžale. Apart from that a warehouse was leased in Sežana, following a fire in the Ljubljana warehouse.

Croatia

The highest individual investments of Konzum Croatia were the opening of the Super Konzum Radnička flagship store and the launching of the Konzum online store – Konzum klik. At the same time Konzum opened another eight new stores, amongst which the openings of big Super Konzum formats in Pula, Zadar, Rovinj and Kukuljanovo stand out. Nine existing stores were refurbished in line with new retail standards, within the scope of which improvements were made in all sales area segments, from assortment to layout.

Bosnia and Herzegovina

In 2015 a total of three new stores of small and maxi format were opened in Mostar, Brčko and Ključ. 51 retail facilities in several cities across Bosnia and Herzegovina were refurbished in line with the new retail standards.

Super Konzum Radnička – Konzum's Serbia new flagship store At the company Mercator-S the strongest focus in 2015 certainly was on building and refurbi-

10 Konzum Klik – the region's most modern logistics and distribution center for online sales of food and drinks.

shing the retail network. Over the course in increasing the security of financial improvements and reconstructions of of the year the company opened twenty six transactions at the points of sale, thus existing lines increasing the biological new retail facilties, whereof one Roda, two creating the preconditions for the further safety of products as well as in finished IDEA super and twenty three IDEA stores. growth and development of this business product preparation tanks. In parallel to that, sixty four existing segment. Over the course of last year stores were refurbished. A new wholesale significant investment were also made Zvijezda center was opened as well, while the two in the modernization of more than sixty Major investments at the company existing ones were completeley renovated. Tisak points of sale with a view to provi- Zvijezda took place in the production Major investment projects were the repur- ding best quality services to end users. of mayonnaise and margarine. The posing of the IDEA Extra retail store in pasteurizer on the margarine production New Belgrade into a shopping center and Investments in the Business line was replaced, a new spreadable the rebranding of the Roda retail network Group Food margarine filling line installed as well throughout Serbia, within the scope of as a new filling and cardboard packaging which the customers have been offered a Ledo plant for margarine cubes. A new plant completely different shopping experience. Apart from regular investments in was installed in mayonnaise production. cooling equipment for the entire Ledo These investments were partly financed Montenegro Group (Croatia, B&H, Serbia, Montenegro, from EU funds. Roda has evolved into one of the largest Slovenia), additional equipment was retail chains in Montenegro with a large purchased for the prodution, mixing and Agrolaguna number of stores. The strengthening dosing of ice cream. The main investments at Agrolaguna and expansion of the retail network were in the production of olive oil and continued by taking over and opening PIK Vrbovec wine. Investments in oil bottling lines the new stores Solaris and Kaća and by In keeping with the continued optimi- and appertaining equipment were renovating the Zelenika Megamarket and zation of the whole production plant and co-financed from EU-funds, while inves- the Risan Market. At the same time the due to increased demand, equipment was tments in the winery cooling tanks were retail network was expanded at the coast, purchased for cutting fresh and processed co-financed from national programs. by opening new stores in Šušanj, Sutomor meat products. PIK Vrbovec also procee- and Budva. New Roda stores were opened ded with building a central waste water PIK Vinkovci as well in Kolašin and Podgorica as well as cleansing facility, as water cleansing Apart from regular purchases of agri- at Cetinje. A new logistics and distribution services are not available in the town of cultural machinery, PIK Vinkovci also center employing sixty five workers was Vrbovec. Apart from complying with legal invested in increasing the capacities of opened in Nikšić, from which more than regulations, this exercise also supports vegetable growing and processing and two hundred pallets of goods are being the high environmental awareness of the purchased appropriate harvesters and a delivered to the retail network daily. company and its connection with the local vegetable reception line in the wareho- community by way of socially responsible use. Tisak operations. Part of these investments Tisak has so far successfully introduced a were co-financed from EU funds. Vupik number of financial services into the kio- The most significant investment was sks (utility bill payment, foreign exchange Jamnica the manure application system. Part of services, Moneygram and other), and in Alongside regular cooling equipment the investments were co-financed from 2015 additional investments were made purchases, Jamnica also invested in EU-funds.

11 Sponsorships and Donations

Understanding the needs of the community in which Agrokor operates is certainly one of the fundamental values on which the Agrokor Group is building its success. Annual Report 2015 - Introduction

The sustainability of Agrokor’s busi- In early 2015, Agrokor Group and its with a Message” campaign for Jana, in ness model is based on the values and member companies continued to ship 2015 Jamnica continued to pursue its principles established in the Corporate new supplies of food and hygiene produ- activities for the purpose of raising funds Principles of Social Responsibility. The cts to flooded areas. As part of the We to help numerous associations, foundati- relationship with the community is also Love Holidays Because We Love Each ons and nonprofit organizations. reflected in donations and sponsorships Other holiday campaign, employees of Every year Agrokor helps national ethnic supporting humanitarian activities, sport all retail companies from across the minorities and war veterans associations and cultural events and institutions, pre- region visited hospitals and homes for engaged in humanitarian activities where servation of cultural heritage, scientific children without adequate parental care other companies within the Group are also and educational institutions, activities and presented seasonal gifts. This holi- involved, thus helping the most socially intended for children and young people, day campaign also included rewarding endangered groups. as well as numerous associations from between employees and rewarding of the all walks of social life. most loyal customers. Education and science donations Agrokor continuously supports the educa- Helping socially endangered Supporting children and young tion of children and young people, as well groups people as many scientific and professional events. Agrokor is in particular focused on As regards the projects specifically As regards the education of young people, helping the most socially endangered intended for children and young people, Agrokor Group also supports the major groups and projects intended to improve it should be underlined that in 2015 humanitarian project titled “A Step into the lives and health of children. Agrokor Konzum continued its joint campaign Life” aiming to provide further education Group’s companies are therefore involved with Henkel titled “Bring a Smile to for children without adequate parental in different campaigns and projects Hospitals”, conducted for the purpose of care. Acting as a partner, in 2015 Agrokor helping the needy ones in society every raising funds for the “Red Noses” clown also supported numerous professional year. doctors association. As part of its “Water conferences including the “Summit100”

Konzum signed a sponsorship contract with the Cedevita basketball club.

12 Jana - Water with a Message

Helping children with special needs through the “Horseback Floating” program. that brought together Southeast Europe- an business leaders in Poreč, the “Third EU-Southeast Europe Summit” conference organized by the renowned The Economist in Split, and the “Challenges of Europe – Growth, Competitiveness and Inequality” conference held on Hvar and featuring among other eminent speakers the Nobel Prize winner Prof. Joseph E.Stiglitz, PhD.

Sports and sporting events sponsorships Sponsoring and supporting the development of Croatian sports are also part of the long-term strategy for Agrokor’s socially responsible activities. Agrokor’s companies are sponsors to sport federations and numerous sports clubs in Croatia and the region. This year, Agrokor supported the Croatian Olympic Committee Konzum joined the “Bring a as the umbrella organization of Croatian Smile to Hospitals” campaign sports, while Group companies supported initiated by the “Red Noses” numerous sport federations and organiza- clown doctors association. tion of sporting events with their sponsorships. Jana sponsored the Croatian Tennis Federation, the Croatian Handball Federation and the organization of the Red Bull Air Race in Rovinj, while Kon- zum supported the Croatian Basketball Federation and became general sponsor of the major Konzum Croatia Open Umag tennis tournament and the Wings for Life World Run race in Zadar.

As a socially responsible corporation, Agrokor undertakes activities within the community in which it conducts its business and thus encourages the creation of a transparent and stimulating business environment. Agrokor is aware that business progress is interrelated with the welfare of the community, which is Konzum became general why it will continue to support numerous sponsor of the major Konzum Croatia Open cultural, educational, sport, humanitarian Umag tennis tournament and other socially responsible projects.

13 Human Resources

By establishing a connection between human resources management strategy, business operations, corporate development and recognizing human potential, Agrokor has chosen competitiveness, creation of new value and goals that can be set high enough to affect our future. Annual Report 2015 - Introduction

Over 60,000 Agrokor’s employees take readiness to achieve business targets and credit for the Group’s success and use preparing the organization for the future. their best efforts every day to improve the quality of our products, services In line with the new trends present in and business processes. In 2015, we the development of companies whose continued to develop our human business will migrate more and more to a resources and the organization itself, virtual environment, the significance of driven by knowledge, innovation and developing and using new technologies commitment to excellence. Intensive and knowledge was identified on time. efforts were used to recruit and retain This is why the Group employed experts experts and talents on all levels of with very specific new skills. Substantial the organization to provide a base for funds were invested in the modernization growth in new market conditions. The of operations, new technologies and human resources management strategy employee training. Agrokor also and policy fostered in Group companies intensified its activities intended to Ljerka Puljić, member of Agrokor increase the engagement of employees as have for years been based on employees’ Supervisory Board, received a special the most important factor for achieving recognition at Lider’s conference after company targets. Agrokor has also begun holding the “Most Powerful Croatian to additionally improve the bonus system Businesswoman” title for ten years. for the purpose of increasing employees’ motivation levels and their contribution to the development of the company. purpose of additionally learning about the corporate organization, business and Education and employee culture. Development of competencies, development respect for values and a culture that This year, Agrokor’s activities were once appreciates and rewards performance again focused on training and develop- are Agrokor Group’s strongest qualities. ment on all levels and in all areas of Ongoing monitoring of the latest trends, business operations with the focus on strategic thinking and usage of modern providing a stimulating work environment human resource management processes that appreciates and rewards effort, help create a competitive advantage for commitment, growth, development and the Group. innovation. During 2015, 77,566 people participated in different forms of employee Executive awards training within Agrokor Academies, companies and outside the Group, and Last year, Agrokor’s executives continued majority of employees undertook several to win numerous important awards different trainings. Only in 2015, 130 confirming their business proficiency and employees from all Agrokor Group com- skill. As part of the “Women in Business” Iva Balent, Agrokor’s Executive Director of panies received training at the Agrokor conference, Lider traditionally presented a Corporate Marketing, was ranked an excellent Futura A Academy, including for the first list of 300 most powerful Croatian busi- number three on the list of most powerful nesswomen where Ljerka Puljić received businesswomen. She thus moved three places time employees of Mercator from across up compared to last year, which indicates that the region. The Futura A Academy condu- a special recognition after holding the her management of one of the most successful cted four programs intended for selected, “Most Powerful Croatian Businesswoman” and creative marketing teams in Croatia has young and highly educated employees of title for ten years. Iva Balent, Agrokor’s been recognized. the Group from across the region, for the Executive Director of Corporate Marke-

14 Agrokor Group, growth trend in Agrokor Group, employee Agrokor Group, percentage of number of employees, 2000-2015 structure by gender, 2015 employees by country, 2015

60000 50000 40000 49% Croatia 30000 20% Slovenia 20000 19% Serbia 10000 61% 39% 9% Bosnia and Herzegovina 3% Montenegro, Macedonia, 2000. 2005. 2010. 2015. Hungary

ting, was ranked an excellent number selected by their coworkers, who demon- three on the list of most powerful busi- strated high levels of collegiality, kindness nesswomen. She thus moved three places and teamwork and made the greatest up compared to last year, which indicates contribution to creating a team spirit Agrokor Group, percentage of employees that her management of one of the most and realizing Konzum’s values. These by business segments, 2015 successful and creative marketing teams awards are just some of the numerous in Croatia has been recognized. internal recognitions presented to the best employees within Agrokor Group for the Piruška Canjuga, Executive Vice President 63% Retail and wholesale purpose of boosting their motivation and for Operations and Business Development, 17% Food and drinks engagement and additionally building our was number one on the special list of 150 11% Kiosks and services corporate culture. 8% Agriculture female management board directors. This 1% Other list also included our female management Trade Unions board members: Irena Jendriš - PIK Vrbo- The long-lasting dialog with representati- vec, Spomenka Bilić - Mercator-H, Ljiljana ves of employees and trade unions within Malić - Belje, Katarina Fratrić - Jamnica, the Group based on social partnership has Ankica Slobodanac - Ledo, Zdenka Majcan granted appropriate rights to the em- - Roto Dinamic, Vesna Kovačević – Zvijez- ployees. Such cooperative strategy used by da, and our supervisory board members: Agrokor still requires that joint efforts be Ljerka Puljić – Agrokor, Gordana Horvat used to achieve the targets, find the best – Konzum, Tatjana Rukavina – Agrokor, Agrokor Futura A training academy had more possible solutions and improve the quality than 130 highly educated participants from Erika Zgrablić - Tisak, Marica Mirković – of the work environment. the entire region in 2015. Belje, Marica Guina Torres Dujisin – Ledo, Manuela Ćelić Marušić – Zvijezda. At the 33rd “Selection of the Best Executives and Companies in Bosnia and Herzegovina” event, Adnan Šteta, Executive Director of Konzum BiH and the Konzum BiH company were presented an “Executive of the Decade” award. This award is presented for long-term work, engagement and results achieved by executives and their companies.

Employee awards A Pride of Croatia award was presented to Tisak’s employee Senja Majnović for her selfless act and a humane gesture of customer care when she returned a forgo- tten envelope with cash in it to a customer. Konzum BIH rewarded the work and efforts of the cashiers who achieved the best sales results within the “Sponge Bob Square Pants” loyalty program. In Croatia, Konzum launched a Code Hero award that was presented to the best employees as

15 Integrated Management Systems Quality Management System The year 2015 resulted in a total of 117 certificates of different international standards (ISO 9001, ISO 14000, ISO 22000, OHSAS 18001:2007, HACCP, GMP+, Global G.A.P., DS, ISCC, SQMS, Annual Report 2015 - Introduction BRC, IFS, ESMA, NSF, Halal, Kosher)

New important certificates awarded lity, greenhouse gas emission reduction and IFS Food (International Featured to Agrokor’s companies traceability across the supply chain. Standards) Zvijezda, Ledo, Frikom, Pik Vrbovec, Belje The importance of quality as a competitive and Emba advantage in all manufacturing and trading Focus on high quality and originality

companies within The Agrokor Group has Agrokor’s Food Business Group ensures BRC (British Retail Consortium) been confirmed year after year through that the quality management policy is Ledo numerous auditing and certification cycles. implemented in all Agrokor companies as a business imperative. This continuously Halal Zvijezda supplemented its food safety mana- empowers market differentiation tools, so Belje, Dijamant, Frikom, Ledo BiH and Pik gement system with a prestigious IFS Food Vrbovec the interest in developing and marketing (International Featured Standards) certificate high-quality products has grown in ge- awarded under one of the most demanding Kosher ometric progression. Brands of Jamnica, Agrolaguna, Belje, Irida, Jamnica, Ledo, food standards in the GFSI (Global Food Agrolaguna, Belje, Ledo, Frikom and PIK Nova Sloga, PiK Vinkovci, Solana Pag, Safety Initiative) family supported by all Vrbovec have received prestigious world-c- Zvijezda global retail chains because it guarantees full lass awards as a result of their exceptional safety and highest quality of the food produ- quality and innovative added value. Baranya Global Gap ced, which is particularly relevant to products Belje, Vupik, Pik Vinkovci and Frikom Kulen, a product of Agrokor’s member made under this trademark. In 2015, Zvijezda Belje and the Association of Baranya Kulen was thus included in the list of companies Danube Soya Producers, has been registered in the Belje, Vupik, Pik Vinkovci, Agrokor trgovina meeting the highest safety system require- Registry of Protected Geographic Indicati- ments: Ledo, Frikom, Pik Vrbovec, Belje and ons and such registration applies across the ISCC ( International Sustainability and Emba. Agrokor companies operating in the European Union. The Baranya Kulen is not Carbon Certification System) primary sector (Belje, Vupik, Pik-Vinkovci and only a highly valuable food product, but also Belje, Vupik, Pik Vinkovci, Agrokor trgovina

Frikom) continue to be very much focused a part of Baranya’s cultural and historical GMP+ on monitoring and controlling raw materials heritage. Solana Pag also initiated a process Dijamant, Agrokor trgovina under the Global G.A.P. international stan- to protect the originality of the Pag Fine dard that requires the production of high-qu- Salt and Pag Flower of Salt. ality products using technology that protects the environment and human health, which Education and cooperation with is a critical element in the management of numerous institutions environmentally sustainable agricultural Focus on numerous development programs practices and cattle farming. In addition ensured the maintenance of excellence to Agrokor trgovina, these companies have thanks to internal highly professional implemented the DS (Danube Soya) standard employees, as well as strong partnerships that includes purchasing and trading of soy with renowned national authorities and and its processing for the purpose of stimula- institutions across the world (Faculty of ting the production of high-quality non-GMO Food Technology and Biotechnology, Ruđer soybeans in Danube region countries and Bošković Institute, Croatian Veterinary reducing Europe’s dependence on the imports. Institute, Campden Association, NSF Inter- These four companies were also awarded national, FoodDrink Europe, Clitravi, etc.). another valuable certificate by ISCC (Interna- Substantial contribution was made to the Baranya Kulen, a product of Agrokor’s tional Sustainability and Carbon Certification educational aspect by providing numerous member Belje and the Association of Baranya System), a globally leading certification lectures at national and international confe- Kulen Producers, has been registered in the system that covers the entire supply chain rences and trade conventions, in schools and Registry of Protected Geographic Indications and ensures compliance with high environ- in other educational institutions, as well as and such registration applies across the mental and social requirements of sustainabi- in internal workshops. European Union.

16 Environmental management system Agrokor’s firm environmental pillar of sustainability continues to responsibly promote the sustainable development concept together and in balance Currently 21 Agrokor companies in 4 with the social and economic pillars. countries: Croatia (12), Serbia (5), Bosnia and Herzegovina (3) and Slovenia (1), are holders of the world’s most renowned environmental protection certificate – ISO 14001:2004. Agrokor’s environmental management Education and trainings systems made further progress in 2015. The internal trainings provided in 2015 Improvements were confirmed by accom- include the Second Agrokor Environmen- plished environmental protection targets tal Protection Days held in Poreč with 56 and resulted in reduced adverse environ- experts from 28 Agrokor Group compa- mental impacts, reduced waste generation nies attending. The lectures focused on and consumption of raw materials, water specific environmental targets: more and energy per unit of production or effective energy management, process Zvijezda d.d., Jamnica d.d. and PIK Vrbovec d.d. sales, and increased levels of knowledge, optimization and cost reduction, energy were awarded certificates under the ISO 50001:2011 awareness and responsibility in all management systems, and the ISO energy efficiency standard for the first time. employees. 50001 international energy management NOVA SLOGA d.o.o. of Trstenik, Serbia, standard. ISO 50001:2011 was for the first time awarded a certificate of compliance with the international Numerous company projects environmental standard ISO 14001:2004 A number of interesting projects were where improvements were made through implemented within Agrokor’s integrated more systematic waste management, systems. Professional and systematic better monitoring and higher safety environmental protection yielded results, nies launched interesting submarine and levels. so there was the further optimization lake cleaning and forestation campaigns. of the use of energy resources, increase Solana Pag replaced their equipment as Ledo d.d. of Zagreb, Mercator d.d. of of energy efficiency, and improvement part of a coarse salt washing facility proje- Ljubljana, Slovenia, Mercator-S d.o.o. in process management, waste manage- ct, including the installation of a new dryer of Belgrade, Serbia, and Konzum d.o.o. ment and energy replacement activities, which resulted in additional positive steps of Sarajevo, Bosnia and Herzegovina, which significantly reduced air, soil and toward savings in production and energy successfully completed their ISO 14001 water pollutant emissions. replacement. The C02 Print company of recertification audits, while the rest of Montenegro completed a successful carbon the companies successfully completed PIK Vrbovec reconstructed part of their footprint project with Jamnica in relation to their regular audits. 21 Agrokor com- internal drainage system and commissi- natural carbonated water. panies presently have environmental oned a wastewater treatment plant. The management systems (EMS) in place, completed Belje business complex is an In 2015, 8 Agrokor’s companies prepared certified under ISO 14001:2004, the most example of successful synergy between their Environmental Status Reports for renowned global environmental standard. environmentally advanced cattle farming 2014. Agrokor is a party to the UN Global These certificates are a confirmation of (a 2,000-head dairy cow farm), renewable Compact Network, an active member of the complying with high business criteria energy sources (a 2 MW Agrokor biogas Croatian Business Council for Sustainable that bring significant improvements in power plant) and vegetable production Development, and it thus actively partici- the management of these companies. This (production of grapolo tomatoes on pates in the activities of the Environmental system is supplemented by an energy 4.5 hectares). Improvements are also Protection Community attached to the efficiency management system – 3 com- noticeable in companies’ exterior sites – Croatian Chamber of Economy and other panies were awarded certificates under PIK Vinkovci roofed their diesel tank in institutions. Agrokor is in the fourth the ISO 50001:2011 energy efficiency Polača. In addition to providing a modern year of collecting plastic bottle caps for standard for the first time. ZVIJEZDA d.d., waste management eco-corner, Sara- the benefit of the Croatian Leukemia and JAMNICA d.d. and PIK VRBOVEC d.d. jevski kiseljak installed a waste baling Lymphoma Patients Association, a huma- successfully had their energy efficiency press. Dijamant managed to reduce their nitarian campaign intended to improve the certified in late 2015 and this system wastewater quantities by using specific lives of leukemia and lymphoma patients, has been effectively integrated with the operating methods and reviewing their but also to improve the separation of this existing systems. technological operations. Retail compa- type of waste.

17 Retail

Annual Report 2015 - Retail Business Group

18 Having successfully acquired Mercator Group, Agrokor became a market leader in all five countries where it operates, including Slovenia, Bosnia and Herzegovina, Serbia and Montenegro.

19 Retail Business Group

Significant synergies were also achieved with respect to cost saving, for example marketing costs and other operating costs. Annual Report 2015 - Retail

Super Konzum Radnička

In 2015, the Retail Business Group increased volume of business, joint market stores that were closed generated over 925 completed its first full year of appearance and alignment of the existing million Kuna in revenue. The entire pro- operation after the historical year terms and conditions of business, which cess was completed during 2015 in a fully 2014 in which Mercator Group represents a substantial source of synergic transparent manner and under constant was merged. Having successfully effects. Considering the fact that the busi- supervision by the regulatory authorities. acquired Mercator Group, Agrokor ness operations are done in five countries Irrespective of its leadership in retail, became a market leader in all where the degrees of retail development, Agrokor launched an intensive process of five countries where it operates, purchasing power, competition, etc. vary redesigning all merged retail stores. At including Slovenia, Croatia, Bosnia considerably, significant synergies are the same time, on Mercator’s home mar- and Herzegovina, Serbia and also reflected in the exchange of best ket, activities were undertaken with the Montenegro. experiences. The exchange of best practi- purpose of improving and investing in its ces between countries and companies has present retail network, which immediately Agrokor additionally reinforced its posi- significantly increased business efficiency resulted in improved sales performance. tion on these markets in 2015 and is now in certain areas. All retail stores on all markets have implemented standardized an absolute leader in this part of Europe Market Trends and one of the leading retail groups on the processes such as category management In addition to the completion of the Southeast European market. Such market and pricing. Significant synergies were integration process, retail management position allows for secure and stable also achieved with respect to cost saving, teams faced a very challenging year on future growth. The full integration com- for example marketing costs and other their respective home markets due to the pleted in accordance with the best global operating costs. demand trends and very strong competiti- practices resulted in significant synergies Following the integration of Mercator on on these markets. The overall economic that will increase the value of the present Group, some of the stores were disinvested setting in these five countries in 2015 may operations. in accordance with the decisions of the be defined as very challenging. Economic The synergies achieved may be viewed relevant regulatory authorities in Croatia growth was minimal, personal consumpti- from several business aspects. The and Serbia. These decisions concerning the on low, competition increasingly strong, positive effects of the integration are disinvestment/reduction of the number of and the customer price-sensitive. The divided into two basic groups: increase in stores aim to protect consumers against tourist season, in particular in Croatia as revenue and cost savings. The integration excessive domination of a single retail the largest market, also had a significant of Mercator Group is also reflected in an chain on the relevant market. The 99 positive impact on our overall business.

20 New technologies at Super Konzum’s management and Super Konzum Konzum Radnička Radnička employee team

The price deflation also occurred as one of 5 countries the most negative economic trends for the retail business. Plummeting prices only 1.912 stores fueled the preexisting price war between 1.500.000 buyers per day competing retail chains, but also affected the margin rates. These trends required of retail management teams to apply excepti- Agrokor became an absolute leader in Southeast Europe and onal skills to meet customer expectations the second largest retail group in all of East Europe. and retain the present market shares in the given conditions, while room for margin was to be sought in operating cost reducti- ons in addition to the supply chain.

Marketing Activities and Loyalty Rewarding Programs Intensive marketing activities – promotions and campaigns, including several major special campaigns – successfully increased the loyalty levels among customers of Agrokor’s retail chains that inevitably offer the consumer the best value for money, with a special emphasis on fresh categories. These marketing activities may be divided Slovenia into two basic groups – activities relating Croatia to promotion and campaigns intended to increased customer loyalty to the Konzum, Mercator, Idea and Roda brands. Serbia BiH In 2015, there was a successful integration of loyalty rewarding programs on all Monte- markets. The customers who were registe- negro red in one loyalty program or both became the beneficiaries of a single program. The number of active customers remained on the same level and even slightly increased with respect to the loyalty rewarding program, which means that no customers were lost during the transitional period. All in all, Agrokor Retail loyalty rewarding programs are absolute leaders on their respective markets thanks to their quality and market position that has also been recognized by TOTAL the outside partners who joined them.

Focus on Fresh Categories In addition to strong loyalty rewarding 1.000 1.912 912

21 Konzum Klik employees at the new State of the art delivery boxes allow for online logistics center in Vrbani cold chain maintenance and higher quality of delivery

programs, Agrokor Retail continued to departments. Our special departments and with a pre-delivery notification showing a pursue value-for-money communication product ranges include exotic and ecolo- photograph and full name of the delivery activities focused on customers, with an gical fruits and vegetables, special meat person. We also introduced our special emphasis on fresh categories. The strategy and seafood delicacies, the largest range DRIVE IN service allowing the customer of managing two major categories (fresh of toys in the Dream Factory department, to collect the ordered products only 2 meat and fruits & vegetables) as key com- a juice bar, and a gastro department with hours after the transaction is completed. It petitive advantages proved to be crucial readymade meals including sushi, wok, is also interesting to note that, in addition for Agrokor Retail and these categories nutritionally balanced stew-type dishes, to the standard range, Konzum Klik will were once again proven to perfectly fit and pizza and pasta for which customers develop a range of products specifically into Agrokor Retail. In addition there was choose the ingredients and are prepared intended for online customers and inclu- a change and improvement in the presen- on the spot. Super Konzum Radnička also ding an extensive offer of international Annual Report 2015 - Retail tation styles and shares of categories in offers its customers a pleasantly designed cuisine, eco-products, etc. newly opened and redesigned retail stores, area for immediate consumption, which Konzum will continue to improve its which resulted in increased sales. shows just how much effort was used in Konzum Klik service to make it more this flagship store to meet the needs of In addition to fresh categories, particular available to customers across Croatia and focus was placed on improving and modern customers. is also planning to expand it within the enhancing private label. A joint Central region. Konzum is a market leader when Purchasing Team was established for all Konzum Klik – A New Konzum Online Shopping Concept it comes to implementing the best retail countries for the purpose of standardizing technologies and innovations which is and centralizing private-label product ma- In 2015, Konzum presented its Konzum demonstrated by additional smart cart and nagement, taking into account all specific Klik – a new online shopping concept by self-service checkout services introduced characteristics of each market. Konzum which announced a new era in online sales of food and beverage in Croatia. in a number of stores, in addition to the Konzum Klik web shop itself and the Super Konzum Radnička – A New This investment included the construction Flagship Store and fit-out of a new logistic center having use of best solutions at Super Konzum Radnička. In 2015, Konzum took a big step forward a floor area of over 5,000 square meters and presented to the market an entirely and a full redesign of the website to Employee Training new retail concept within the new Super include numerous new functionalities Konzum Radnička, which represented the and a range of over 8,000 products. The In 2015, intensive trainings and educa- most substantial of Konzum’ investments concept is entirely focused on the speed tions were conducted in all countries for made last year. The transformation of what of shopping and the safety and quality process standardization and improvement was once Mercator’s most popular store of the products supplied. The search purposes, as the way of implementation of on Vukovarska Street in Zagreb into the engine enables simultaneous searching the most modern global practices. Agrokor new Super Konzum Radnička represents for several products and also recognizes continued to provide training programs at a major shift in retail in the entire region and distinguishes between local dialects. the most prestigious business schools both and a conceptual deviation from the Customers may compile their own lists in this part of Europe and globally. For standard store concept, which is visible in or select a favorite, which makes their the purpose of making additional impro- each department. Super Konzum Radnička shopping quicker and more efficient, and vements, a retail program was designed is not merely a new store, but a whole new the system intuitively suggests possible with IEDC Bled Business School, which shopping experience designed to meet additions during a product search. All was attended by our employees from all the needs of a modern shopper and their products are accompanied by high-quality countries, which resulted in a highly busy and increasingly demanding lifestyle. photographs and detailed descriptions, and positive effect. Beside the extensive range of over 30,000 some are accompanied by videos, which products, the main novelty is in the range allows the customer to be fully informed. Wholesale of services and added values provided One of the most interesting new functio- Agrokor’s Wholesale was additionally to customers in each of the improved nalities is that the customer is provided empowered during the integration and its

22 Konzum is a market leader when it comes to implementing the best retail technologies and innovations which is demonstrated by additional smart cart and self-service checkout services introduced in a number of stores, in addition to the Konzum Klik web shop itself and the use of best solutions at Super Konzum Radnička.

New version of the MultiPlusCard smartphone application

leadership on all markets was reinforced. Having implemented a new strategy inten- As the markets are developing, the custo- ded to diversify its business, Tisak aims to mer structure is changing. Such change in become a leading point for a number of quick the customer structure was not equal in all financial and logistic services it will offer countries and depended on the degree of to its customers. In addition to continuously market development and the ratio between improving the existing core segment of modern and traditional trade. Therefore, its business, the company is developing the customer structures prevailing in and investing in new segments identified Slovenia and Croatia are different than on the market: courier services, financial those in Bosnia and Herzegovina, Serbia and electronic services, and non-hazardous and Montenegro where the share of tradi- waste disposal. As a result of improving the tional trade still substantially exceeds its service quality and increasing the number levels in European Union member states. of partners, a significant growth in revenue Regardless of the rate at which the whole- obtained from courier services was recorded sale structure is changing, the HORECA in 2015 compared to the preceding year. In segment is becoming increasingly signifi- addition, there was an investment in a new cant and the overall wholesale volume will company named Tisak InPost d.o.o. that was follow its growth, thus compensating for established for the purpose of introducing an the drops recorded in other segments, such as small businesses. innovative system of Parcel Machines to the Croatian market. On certain markets, in particular in Croa- tia, wholesale is significantly affected by The company has so far successfully intro- the seasonal character of business, i.e. the duced several financial services at its kiosks tourist season during the summer months. and additional investments were made in This is why HORECA segment largely 2015 to increase the security of financial focuses on adjusting and increasing the transactions at retail outlets, which allows service quality due to the financially signi- for further growth and development of this ficant sales volume on the one hand and business segment. Tisak also significantly the challenges presented by the relatively increased the number of its retail outlets short season of only a few summer months offering currency exchange services and on the other hand. In the upcoming period, launched Moneygram, a new international the HORECA segment will be the area of money transfer service. additional focus as the good performance Having developed its Tisak Media chain figures recorded in 2015 only confirm the adequacy of this strategic orientation. In of specialty stores, Tisak Retail managed late 2015, a decision was made to outsource to become a leading bookstore chain and a wholesale operations to a newly formed channel for selling multimedia products and corporation in Croatia, thus giving even toys. In addition to investing in the develop- more attention to the wholesale business ment of new business segments, substantial and the HORECA segment. funds were invested in 2015 in the modernization of over 60 Tisak’s retail outlets. The Tisak change to the business strategy successfully Tisak is a leading national distributor of implemented by Tisak’s executive team has print publications and tobacco products been positively received by both customers and a leading retail chain of kiosks with and business partners and provides a solid Tisak successfully introduced several over 1,200 retail outlets across Croatia. base for further development of the company. financial services at kiosks in 2015

23 Business Group Food and Agriculture Annual Report 2015 - Food and Agriculture

Tim

24 Production of healthy, quality and innovative products with respect to tradition and needs of customers.

Tim

25 Business Group Food and Agriculture

Every era and every fiscal year set and on their sales performance. During The competitive advantages of companies specific challenges for businesses. After 2015, Agrokor continued to record in the Food Group are based on their fo- a number of years of highly adverse positive business trends, achieve signi- cus on specific consumer preferences and trends in the business environment the ficant results, and the Food Group thus needs, the implementation of the most year 2015 was very successful. In the reconfirmed its value within Agrokor. recent knowledge and state-of-the-art past years Agrokor companies were technology in each segment of producti- Last year companies continued to enhan- successful in overcoming adversity such on, systematic management, supervision ce their position on the existing markets, as economic crisis in general, reduced and optimization of business processes, but also took a step toward new export purchasing power, growth in the private as well as assigning teams to make markets. Listening to consumer needs, label segment and highly price-sensitive improvements in all business segments monitoring trends and rapid innovations consumers, as well as the weather condi- – from our R&D activities to sales and tions that have a significant impact on have proved to be a good strategy in the distribution. The introduction of novelties the performance of companies supplied long term, as reflected in the fact that in their product ranges and planning of within the vertically integrated Agrokor all companies within the Food Group are production activities has set a foundation Group’s system with raw materials for in addition to being very well accepted for a successful summer season that has the production of branded products mar- among consumers, also dominant over traditionally had a significant impact on keted by companies in the Food Group their rivals. the performance of companies. Last year,

In 2015, the companies maintained their leadership in their respective segments of the local market. Ongoing investments in product innovation in line with global trends and based on listening to market needs also helped maintain the demand and increase our customer loyalty levels. Also, exports were strengthened by opening new export markets. Annual Report 2015 - Food and Agriculture

Excellent performance of certain brands within the Food Division helped implement our strategic investment decisions, which finally resulted in even greater presence of certain products on the market and improved their perception among consumers.

26 the weather conditions that significantly global trends and based on listening to shed specific forms of cooperation with affect the consumption of ice cream, wa- market needs also helped maintain the them. Excellent performance of certain ter and beverages were once again very demand and increase customer loyalty brands within the Food Group helped the favorable after a number of unfavorable levels. Numerous marketing activities implementation of strategic investment years, thus supporting the activities with targeted messages that made the decisions, which finally resulted in even undertaken by teams in the respective companies in this segment recognized greater presence of certain products on companies to allow for successful fulfi- among consumers and the public also the market and improved their perception llment of plans. In addition, companies helped in this respect. among consumers. also created new demand on all markets In 2015 Agrokor also continued increa- Last year’s overall performance of the by developing new products responding sing these companies’ focus on exports. Food Group reconfirmed its exceptional to consumer needs and by focusing on In addition to reinforcing previously position within the Agrokor. In short, the nutritional quality of products. assumed positions by increasing shares the companies within the Food Group In 2015, the companies maintained their in the respective markets, some new are leaders thanks to their well-designed leadership in their respective segments markets were penetrated and some of the projects, use of new technologies, and of the local markets. Ongoing inves- companies increased their presence in investments in product development, tments in product innovation in line with popular global retail chains and establi- innovations and people.

27 Business Group Food Edible Oils and Margarines

As regards to production of oil and margarine, the year 2015 will be remembered as a very successful one, primarily with respect to operating income.

The skills of Agrokor’s people, As regards to production of oil and mar- tain stocks of oil made from the “old” raw especially those working on the garine, the year 2015 will be remembered material at somewhat higher prices, which development of oil companies, as a very successful one, primarily with are a normal result of the price increase allow for monitoring of all leading respect to operating income. Namely, recorded in the autumn of 2015 based on trends in this industry, continuous both Agrokor’s companies, Zvijezda and the price of new raw material. In addition, launching of innovative, healthy, Dijamant, recorded a growth in operating the relatively large supply of raw material high-quality products, and retaining income despite the fact that their revenue allowed Agrokor’s companies not only to of highest ranking and image. remained on a stable level. Such increase purchase it at competitive prices, but also in operating income was contributed to to make room for greater operating income. by several factors – first of all, Zvijezda The excellent strategic position of Dija- continued to implement its serious restru- mant’s factory in Serbia, in the very hub of cturing program including discontinuing sunflower seed production, is of great im- of activities that will in future be more portance to this line of business because it profitable through synergies with other allows it to purchase raw material on very Agrokor’s companies (for example, inte- competitive terms with respect to logistics. gration of distribution with PIK Vrbovec, The construction of a state-of-the-art greater use of production synergies with warehouse, holding over 100 thousand tons Dijamant, reorganization of the sales divisi- of raw sunflower seed and including drying on according to the new market conditions facilities and an automated connection with marked by further concentration in the the production plant, has finally proved to retail sector, etc.). Furthermore, part of be of significant strategic importance as it the profitability results from the fact that allows this industry to securely purchase sunflower was purchased in 2014, being between 150 and 200 thousand tons of the basic raw material for oil processing, sunflower even in the most challenging at very competitive prices, almost EUR 100 years, which is also the full processing per ton lower that those prevailing in the capacity of this factory. A stable supply of Annual Report 2015 - Food and Agriculture autumn of 2015, allowing for sale of cer- raw material is an enormous advantage

Zvijezda launched a new product – margarine for shortcrust pastries. Apart from providing an irresistible combination of softness and crispness, it also ensures longer freshness.

28 Zvijezda green peppers mayonnaise is a new mix of premium mayonnaise and highly aromatic green peppers. Zvijezda’s experts selected quick drying unripened green peppers in order to preserve their color and specific aroma.

for Agrokor’s oil business and makes this In 2015, both companies continued to to the production of this oleaginous plant. activity, although not the most profitable make substantial investments in deve- In addition, both these companies have a one, one of the most stable ones within lopment and launched a number of new longstanding tradition and the strongest Agrokor Group. products with higher added value in an brands on the finished product market, attempt to recover and increase their while consumer surveys always name Both Agrokor’s oil, margarine and margin levels that are traditionally low them as the strongest brands. Further- mayonnaise brands, Zvijezda and Di- and limited for oil. These new products more, regardless of the relatively limited jamant, are leaders and the strongest managed to absorb some of the downward profitability of oil, the skills of Agrokor’s brands on their respective markets, and trend that has been present in the spre- people, especially those working on the their increased exports in 2015 may be adable margarine category for several development of oil companies, allow moni- considered their greatest success. The years now. In addition, both companies toring of all leading trends in this indu- acquisition of the Mercator retail chain traditionally record an increase in the sale stry, continuous launching of innovative, by Agrokor certainly helped in this respe- of delicacies and mayonnaise, where they healthy, high-quality products, and retai- ct as it provided sales synergies between are also unparalleled leaders. ning highest ranking and the image of the Agrokor’s companies producing food, Although exposed to various challenges, best companies. Internal development is while their improved positioning in the primarily due to major global players something that distinguishes Agrokor’s existing retail network resulted in increa- using an aggressive approach on the production companies from a number of sed sales. However, these companies have regional market which has been particu- rivals, allowing them to continue securely only just begun to use their synergies larly relevant after Croatia entered the EU producing their own brands without being and the potential of such cooperation is market and after Serbia signed an Accessi- forced to make private labels where profits far from being realized, with substantial on Treaty with the EU, the oil business has are objectively lower. All these elements, results not to be expected before the next proven to be extraordinarily strong and but primarily the people trained to use period. Please note that both the Zvijezda stable within Agrokor. This is partly due state-of-the-art technologies in all sectors, brand, its Margo brand and Dijamant’s to the fact that Dijamant’s position is very strengthen the belief that growth poten- brands have been present in retail across strong and stable, primarily on the raw tials in this line of business have not been the region, but a greater focus on both material market in Serbia as one of the exhausted, so Agrokor expects stable and sides resulted in increased sales. most competitive countries with respect secure growth in this segment.

Omegol with seeds contains millet and flax, rapeseed oil rich with Omega 3, vitamins A and D important for normal functioning of the immune system while containing no gluten.

29 Business Group Food Meat and Processed Meats

The year 2015 was marked by increased revenue and market shares in almost all leading product groups.

PIK Vrbovec is one of the flagships The greatest step of Agrokor's processing industry. The forward in 2015 was development plan set for the best undoubtedly the domestic producer of fresh meat and Less is More project processed meat products, which is based resulting from identified on vertical „from farm to table“ integra- customer needs for products that are tion, has been implemented ever since healthier, yet of equal its acquisition. Substantial investments quality and taste. in the entire value chain in meat production and processing resulted in a better market position for PIK Vrbovec on the local market and acquiring of significant market shares in each product category, while strategic focus on listening and responding to customer needs allowed us to spread onto export markets.

The year 2015 was marked by increased revenue and market shares in almost all leading product groups. Selling high-quality products based on carefully selected and controlled input of established origin proved to be the right choice. PIK Vrbovec presently holds over 40% of the market for red meat and processed meat products, which makes it a leader in all categories of products it makes: ham, durable salami, red meat wurst, morta- Annual Report 2015 - Food and Agriculture della, cooking and roasting sausages and PIK cold cuts.

Building on the business results achieved by it, in 2015 PIK Vrbovec continued to invest, this time focusing on increa- PIK Vrbovec presently sing production capacities and efficien- holds over 40% of the cy, to adequately respond to the planned market for red meat and sales growth. The modern technology processed meat products, which makes it a leader in used to package products in a controlled all categories of products atmosphere represents a great advantage it makes: ham, durable over the competition and has proven to salami, red meat wurst, be a growth factor in the medium term mortadella, cooking and as well. It is important both for fresh roasting sausages and PIK meat and for sliced products that are cold cuts. expected to record the highest sales

30 PIK-ova kvaliteta i inovativnost u proizvodnji i mesnih prerađevina i svježeg mesa prepoznate su i na stranim tržištima na kojima je u 2015. godini ostvaren znatan količinski rast prodaje. Osim na tržišta CEFTA-e, proizvodi se izvoze i u više od 15 zemalja EU-a.

levels in the summer months. of sales rose significantly in 2015. In addition to CEFTA markets, its products PIK Vrbovec was also the first company to recognize the value of the are sold in over 15 EU countries. The Croatian Farm Meat projects and is now most important markets are Serbia, Italy number one among the holders of the and Slovenia where a substantial incre- CROATIAN FARM MEAT designation, ase in revenue was recorded compared formally recognized for its consistency to last year. All this demonstrates the ČEŠKA in the use of this designation. All company's strategic focus on its vision SLOVAČKA customers of PIK fresh pork, baby beef to be a regional leader and an important and ground meat are guaranteed dome- player on the European market. stic origin, raising and processing, while MAĐARSKA Agrokor's decision to invest in internal Distribution of partners' finished production of raw materials on its pig products is also an important part of SLOVENIJA and baby beef farms in addition to meat PIK's business that helps it operate HRVATSKA processing will certainly provide for su- more efficiently and has in particular stainable growth and efficiency of meat been recognized in the HoReCa segment BOSNA I SRBIJA production and processing activities. HERCEGOVINA where the service level is highly impor- The greatest step forward in 2015 was tant beside product quality. CRNA undoubtedly the Less is More project ITALIJA GORA resulting from identified customer In 2015, PIK improved its wastewater needs for products that are healthier, treatment system by building a state-of- yet of equal quality and taste. Thanks the-art mechanical and biological wa- to this unique project, the market was stewater treatment plant, which allows it offered a full range of PIK-branded to discharge treated water directly into a processed meat products containing no natural recipient. flavor enhancers, colorants, gluten or even soy. The basic idea and aim was to PIK is a trendsetting company within provide customers with excellent value the meat industry that always offers for money for top products containing its customers something innovative, no undesirable ingredients and the pro- modern, alluring and tasty, which is ject also received a prestigious Award why the entire region considers it to be for Customer Focus within the European a benchmark. This position is owed to Business Awards. ongoing investments, training of em- In the past few years, PIK's business has ployees, and a general improvement in been increasingly focused on exports the level of knowledge and skill nece- and the share of sales recorded on inter- ssary to offer adequate products in the national markets in the overall product market based on listening to customer range significantly increased in 2015. PIK's quality and innovation in the pro- needs and preferences, but also for this duction of both processed meat products entire complex business to be managed and fresh meat were also recognized in a way to obtain substantial operating on foreign markets where the volume income.

31 Business Group Food Ice Cream and Frozen Food

In 2015, significant investments in new product development in all categories were continued, and this continuity fully affirmed the market leader position, confirmed by numerous recognitions and awards.

Business process improvement, with improvement of all internal processes. the preconditions for a successful ice the emphasis on production, production This has helped create and maintain a cream season were carried out, which planning and activities and projects competitive advantage to successfully was this year once again marked by aimed at cost optimization, represented follow the ongoing changes through numerous new products. This has an important factor in the efforts to efficient management of own processes. become a traditional characteristic of achieve the business goals set for the In 2015, significant investments in new the Ice Cream Group. All newly laun- Ice Cream and Frozen Food Business product development in all categories ched products were accompanied by Group. Business process improvement in were continued, and this continuity specific marketing messages intended 2015 included, among other, implemen- fully affirmed the market leader positi- for the customers. With its King Choco- tation of information systems to support on, confirmed by numerous recognitions late Obsession, Ledo marked the 20th logistics and sales, centralization of and awards. anniversary of the brand, Silk Milk retro brought us back to the past, while the procurement, and development and Various marketing activities to create Ledonardo 3 cone was created by the customers themselves. Apart from the mentioned products, numerous other novelties have found their place in the market as well, among which Jackpot should be particularly mentioned as the With its King Chocolate first ice cream bar with a lottery ticket. Obsession, Ledo marked the This unique and to customers rather 20th anniversary of the brand. interesting project was a result of the cooperation between Ledo and Hrvatska Lutrija. Frikom launched 33 new products, of which 19 new ice cream products and 14 products from the frozen food segment, with the aim of adjusting its product mix to market and customer demand. One of the best-selling Frikom

Annual Report 2015 - Food and Agriculture products, the Kapri ice cream bar, got a new design, and the company also produced the Kapri ice cream cup, which resulted in brand strengthening and a 54% increase in sales.

The past year was also marked by novelties in other frozen food categories: fish, meat, pasta and ready-made dishes. Each season and each year, Agrokor follows market demand and market trends, and strives to create products that meet the same. In addition to new products, in 2015 novelties in sales activities were introduced, opened new and additional One of the best-selling Frikom products, the Kapri ice cream bar, got a new design, and the company also produced the Kapri ice cream cup, which resulted in brand strengthening and a 54% increase in sales.

sales channels for the impulse product mix while also working on the strategic positioning of cooling equipment in the Ice Cream Group, which contributed to results. In the Frozen Food Group, Agrokor continued developing the HORECA sales channel. With the increase in the number of customers and the associated product mix as well as with the increase and repositioning of the said group in relation to key buyers, additional sales growth was achieved. In order to help business clients, a web shop service was introduced that allows comprehensive insight into offer, makes placing product orders simpler and quicker, and ensures higher flexibility of delivery.

One of the strategic goals is to develop and increase export operations. There- fore continuous efforts to strengthen international operations were made by Nova ambalaža Grandissima dodatno exporting products in more than twenty je ojačala vizualni identitet ove European, African and Asian countries. premium linije obiteljskih sladoleda. In 2015, a significant step forward was made in strengthening international presence and started cooperation with the American company Kroger, one of the world's largest food retail chains. Ledo launched ice cream bar packages in Kroger stores that were sold under Kroger’s own Private Selection brand. Business expansion outside the region continued with ice cream exports to the United Arab Emirates, and a significant increase in revenues from ice cream exports to external customers was also recorded. Special attention in the Frozen Food category was also devoted to the sale of frozen vegetables in the Russian market, where Frikom achieved a significant growth. Business Group Food Waters and Beverages

The Waters and Beverages segment demonstrated its great value within the company and, more importantly, potential to develop new products, enlarge its overall market and thus raise the value of the entire business.

In the Waters and Beverages segment, Agrokor Group operates bottling plants in countries within the region whose mineral water sources have been exploi- ted for many years and are traditionally familiar to customers in the area. The management of these portfolios in Agrokor Group shows that a business involving products that have been present in the market for a long time and are part of local customers’ daily lives may be continuously improved and expanded by using well designed activities.

By focusing on the perception of products in this segment among customers, in 2015 with investment decisions and different sales and marketing activities there was the reinforcement of the market positions of these popular brands: Jamnica, Jana, Sarajevski kiseljak, Sensation, and Mivela.

Expansion of the product range sold under existing and well-established brands and introduction of new products and packaging confirmed that potentials for increasing the total value of this entire Annual Report 2015 - Food and Agriculture business segment are still monitored and developed on an ongoing basis. This is supported by further market growth in Croatia and enhancement of positions for brands already present in over twenty international markets.

Thanks to their exceptional characteristics and quality, products within the Waters and Beverages category hold positions comparable to those held by renowned global brands. In addition, their quality has been continuously As a result of its rebranding, last confirmed by numerous international year represented a development awards and recognitions. At the in- turning point for Sensation. ternational Mineral Water Challenge

34 The “Water with a Message” campaign in which each customer receives a message as value added to the basic product -a bottle of water is specifically intended to arouse emotions and connect the consumer with the brand giving the message.

competition held in Portugal in 2015, Jamnica won a gold medal in the Car- bonated Waters category. This product with a longstanding tradition has thus reconfirmed its unquestionable quality that has been recognized in the local area for ages and has become recognized on export markets as well thanks to its prudent management and adequate marketing investments. Sensation received the same award in the Flavored Carbonated Mineral Waters category.

As a result of its rebranding, last year represented a development turning point for Sensation. The double-figure growth recorded last year for this exceptional product with a perfectly adjusted taste directed the investment decisions. By investing in the introduction of the so-called sleeve label and changing the product’s visual identity, there was an enhanced perception of Sensation among customers, which helped make portfolio is a priceless asset, so it was a new edition of Jana natural mineral this product stand out on the shelf, only logical to choose to communicate water labels containing Louise Hay’s and thus further reinforced its market the benefits provided by the form in messages of love, health, positive positions. In addition to its unquestiona- which magnesium is contained in Mive- thoughts and affirmations. bly good position in the mineral water la. The resulting sales growth indicated segment and its tradition of 125 years, Beside investing in the development a need to enlarge the capacities of the Sarajevski kiseljak was also successful of new products and introducing inno- Mivela natural mineral water bottling with the Sensation brand. vations in the production processes in plant and warehousing facilities. Its line with the Group’s long-term deve- Mivela mineral water achieved further production will double after an additio- lopment strategy, there was a continued progress in its market penetration last nal Mivela bottling line is installed. year. Communication of functional investment in the development of characteristics of this natural mineral In 2015, Jamnica continued to pursue new markets and product sales and water rich in magnesium, whose impact successful “Water with a Message” cam- distribution processes. According to the on many health and vitality aspects paign that has been very well accepted established trend, expectations are that is undisputable, as well as intensive due to its communication specifically the Waters and Beverages segment will marketing activities, reinforced Mivela’s focused on involving customers in continue to follow the development of market positions across the region. activities that ultimately result in the customer needs in the upcoming period In times when the market demands implementation of humanitarian pro- and provide for further increase in the value-added products, having a natural jects. In addition to new humanitarian value of this line of business through jewel of such mineral composition in the projects, the market was presented with appropriate responses.

35 Agriculture Annual Report 2015 - Agriculture

36 Investment in own agricultural production enables aditional competitive advantage of the final product.

37 Agriculture

In 2015, Agrokor’s agricultural companies successfully increased profitability.

The year 2015 will be remembered as pricing policies to the market trends, which one of the most challenging years for the was one of the main causes for the decrease agricultural sector in Agrokor’s history. in financial revenue and performance This situation mainly resulted from redu- of agricultural companies. Despite this, ced prices of all commodities, including Agrokor’s agricultural companies managed all categories of agricultural products. to secure growth in profitability compared Continued sanctions against Russia in to 2014, primarily by using internal restru- relation to agricultural goods from EU, a cturing methods and implementing new global imbalance in the supply and demand technologies that significantly reduced the of almost all agricultural products, and in production costs. particular the abolishment of milk produ- In the area of crop husbandry, the precision ction quotas within EU made the situation sowing project was continued, which on the commodities (cereals, oleaginous means the fertilization and soil treatment plants) market even more complex. costs were significantly reduced while Such market trends that resulted primarily sowing efficiency by using new equipment in a supply in excess of the demand caused was significantly reduced. Such reduction significant price drops and slowing of glo- in soil treatment costs resulted in increased bal commerce, as well as the accumulation productivity and efficiency and, consequen- of substantial reserves in certain regions. tly, profitability of crop husbandry operati- The EU agricultural market saw major mar- ons. Excellent yields of crops at relatively ket disruptions in several sectors, which lower costs allowed the animal feed sector caused the producer prices to additionally to improve its performance further in the drop, and then put pressure on smaller mar- supply chain, which enabled Agrokor’s kets such as the Croatian one, which are farms to make profit after all despite the unable to compete with developed markets reduced prices in cattle farming. such as Germany, The Netherlands, Den- In the pig farming sector where Agrokor mark, Poland, etc. in terms of production accounts for over 50% of the Croatian mar- volume or organization. Namely, these ket, the prices of fattening pigs dropped to traditionally large producers also generate the lowest level in history; however, the pig most agricultural product surpluses, but farming sector managed to be profitable in have lost the Russian market and failed to 2015 as a result of further rationalization compensate for such loss on third markets and improved organization of farms, as as a result of increased supply from other well as more competitive production of regions (South America, New Zealand), and animal feed. Excellent results in cattle their surplus mostly ended up on small and farming were recorded in dairy production, weak markets of Southeast Europe, inclu- which directly improved the performance ding Croatia. All this resulted in an enor- Excellent yields of crops at and profitability of cheese factory in Belje mous increase in the imports of certain relatively lower costs allowed that produces the leading regional fresh food products that are competitive due to the animal feed sector to cheese brand – ABC. ABC Cheese thus low prices of raw materials, which created improve its performance further became one of the leading Agrokor’s export in the supply chain, which additional pressure on the trends on the products in 2015. The share of its exports enabled growth in profitability. internal agricultural and food markets in in total sales exceeded 50%. Croatia. The meat, dairy and winemaking sectors were particularly exposed to such Another processing activity within Belje – Annual Report 2015 - Agriculture developments. All this resulted in a need the production of traditional Kulen cured for Agrokor’s companies to adjust their meat – blossomed in 2015. Around the

38 39 By making substantial investments in its own vineyards and by combining personal skills and leading technologies, Agrokor managed to provide wine that follows all leading market trends and fully meets the expectations of modern lovers of wine as part of their daily diet.

middle of the year, the product was re- Owing primarily to controlling the entire cognized as a geographically protected value chain in animal feed production product on the EU market, which was and producing milk and processing it appropriately promoted, and the produ- into cheese at their own farms, Agrokor’s ct, which is still made according to the agricultural companies finished the year local recipe and using almost traditional in this sector with very good performance technology despite being treated as an figures. industrial product, then proceeded to In 2015, management of Agrokor’s agricul- record excellent sales results, almost tural companies was primarily focused on 30% more than the preceding year, and increasing productivity, reducing producti- Agrokor thus demonstrated it has the on costs, and finding new markets for their skill and ability to create a product with products. They particularly focused on high added value in the very difficult meat and meat product sector, guided by export markets where substantial results its fundamental production postulates have yet to be achieved in the upcoming – high quality and compliance with the period. highest production standards. There are great expectations in this Perhaps the most challenging sector in segment, mainly with respect to winema- agriculture was milk production as the king – following substantial investments production quotas on the EU market in quality and development, wines reached were abolished in mid-2015, which a level of quality and distinctiveness and provided additional opportunities for assumed such market position that distin- the leading countries to increase their guish them from the rest of the supply, production volumes and resulted in a entered all distribution channels, and are further drop in milk prices in addition to expected to achieve growth in exports in a lack of demand. Management of Agro- the upcoming period. By making substan- kor’s agricultural companies therefore tial investments in its own vineyards, focused on increasing the efficiency of the processing technology and cellar milk production, as well as the producti- technology and by combining personal on of cow feed, which is one of the basic skills and leading technologies, Agrokor elements affecting efficiency in such managed to provide wine that follows all production. leading market trends and fully meets the

In the pig farming sector where Agrokor accounts for over 50% of the Croatian market, the prices of fattening pigs dropped to the lowest level in history; however, the pig farming sector managed to be profitable in 2015 as a result of further rationalization and improved organization of farms, as well as more competitive production of

Annual Report 2015 - Agriculture animal feed.

40 Agrokor’s agricultural operations will continue to focus on increasing irrigated areas and consequently vegetable production.

expectations of modern lovers of wine context, PIK Vinkovci leased freezing part of the field to table value chain. as part of their daily diet. Thanks to facilities which proved to be the right As Agrokor does not need to make any these marketing advantage elements, choice because it allowed us to fully new investments in this sector, further Agrokor is certain that its wines will exploit all vegetables produced. increase in efficiency and profitability also dominate the international market Although Agrokor made significant in the years to come can be expected, in the future as they presently dominate investments in its agricultural activities which will inevitably occur in this the local and regional markets. in the past ten years and although the sector. Regardless of the relatively Management additionally focused on investments in agriculture do not pay low prices prevailing in the sector further development in the production back as quickly as those made in other at present, a positive outlook can be of fruits sold fresh through Agrokor’s Agrokor’s industrial activities, it should maintained on their potentials that will retail system or frozen, mainly as an be noted that many sectors within certainly be realized in the upcoming export product, which is why agricultu- Agrokor’s food production operations years and additionally treat their value ral operations will continue to focus on would not have such a good competitive as an important element of their syner- increasing irrigated areas and con- position without such investments in gies with Agrokor’s food production sequently vegetable production. In this primary production and without being operations.

The Mitrovac complex is a successful synergy example between advanced livestock production, renewable energy sources and vegetable production, consisting of a dairy cow farm with 2,000 cows, a 2 MW biogas power station run by Agrokor energija and a greenhouse for growing grappolo tomatoes on an area of 4.5 h.

41 Other Businesses Commodities trading is closely connected to the company’s core agricultural activity.

42 Other Businesses

Agrokor-trgovina thus allows all companies in the value chain within Agrokor access to raw material at the most competitive prices, thereby avoiding the risk of fluctuation or inability to obtain a raw material.

Agrokor’s other activities are basically commodity trade activities primarily in connection with Agrokor’s core business - agriculture. Agrokor-trgovina is a leading regional trading company whose core business is trading commodities on commodity exchanges – cereals, oleaginous plants, meal, oil, inorganic fertilizer, seed and plant protection products. Having been in business for a long time, Agrokor-trgovina has become an important regional trader of cereals, oleaginous plants and meal and has expanded its business to the neighboring countries, but also to global markets using Agro- kor’s logistic competitive advantages – primarily the transshipment towers in Vukovar and Zadar. It uses synergies of the system in its operations and trades surpluses resulting from its own agricultural production activities that cannot be used in the food production value chain. As a leading production material trader, Agrokor-trgovina also coordinates and actively participates in the commodities market in the region, mainly in cooperation with producers, entering into contracts with them and partially funding their agricultural production in advance through the sales of fertilizer, seed and na that placed all surpluses of produced seed sales activities recorded a financial plant protection products. Agrokor-tr- and purchased goods on the regional and increase by 12%. govina thus allows all companies in the European markets and thus relieved the value chain within Agrokor access to raw After centralizing the procurement of agricultural companies of their surpluses material at the most competitive prices, they cannot use in their own processing raw materials required for agricultural thereby avoiding the risk of fluctuation activities. In 2015, Agrokor-trgovina production for the entire region with or inability to obtain a raw material. This increased its protein sales volume by Agrokor-trgovina, the combined volume provides the entire Agrokor system with 10% and its market share to 60%. The of the required raw materials resulted greater stability and security as regards company also increased its cereals sales in synergies that helped increase the its access to the raw materials market. volume by 12% and its market share in efficiency of Agrokor’s agricultural This company’s success is mostly a result the segment to 18%. An upward trend in operations. All this indicates that it is of oleaginous plant growing and cattle sales on international markets continued fully justified for Agrokor as a system to farming activities, but also the producti- with an increase in volume by 22% com- on and processing of other crops across continue pursuing this line of business pared to the preceding period. Exports of the region. as part of its full portfolio because it cereals to foreign markets increased by makes a significant contribution to Last year, which was marked by growing 78% and financial performance by 81%. improving our overall competitiveness in global production and levels of stocks At the same time, the volume of protein food production. with reduced global demand and relative- sales increased by 11% on the local mar- ly low price levels, it was Agrokor-trgovi- ket and by 7% on foreign markets, while

43 Financial Report

Report of the Management Board Statement of Responsibilities of the Management Board Independent Auditors Report Consolidated Statement of Income Consolidated Statement of Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Additional information

45 Agrokor Group

R E P O R T O F T H E M A N A G E M E N T B O A R D for the year ended 31 December 2015

The members of the Management Board have the pleasure of presenting their Annual Report for the Agrokor Group (the Company and its subsidiaries collectively “the Group”) for the year ended 31 December 2015.

Results and Dividends

The Statement of Income is set out on page 5 and shows the result of the Group for the year.

Principal activities, trading review and future development

The Group operates through its two business groups: Business Group Food and Business Group Retailing. A detailed review of these activities and future developments is set out in the President’s Report and Review of Operations.

Supervisory Board

The Supervisory Board of Agrokor d.d. consists of the following members:

Ivan Todorić Chairman Ljerka Puljić Deputy Chairman Damir Kuštrak Member Tomislav Lučić Member Tatjana Rukavina Member

Management Board

The Management Board of Agrokor d.d. consists of the following members:

Ivica Todorić President Ante Todorić Deputy President Piruška Canjuga Executive Vice President for Business Development Ivan Crnjac Executive Vice President for Finance, Strategy and Capital Markets Mislav Galić Executive Vice President for the Food Business Group Hrvoje Balent Executive Vice President for Central Purchasing and Services Darko Knez Executive Vice President for the Retail Business Group Ivica Sertić Executive Vice President for Markets, Sales and Logistics

Agrokor Group

C O N S O L I D A T E D S T A T E M E N T O F I N C O M E For the years ended 31 December 2015 and 2014 (in thousands of HRK)

Notes 2015 2014

CONTINUING OPERATIONS: Revenue 4 47,163,595 34,042,326 Sale of services 4 1,850,052 926,733 Other income 5 389,131 352,068 49,402,778 35,321,127

Changes in inventories of finished goods and work in progress 256,955 76,718 Cost of materials and goods sold (34,924,403) (24,762,193) Cost of services (4,098,365) (2,928,004) Staff costs 6 (4,704,998) (3,286,319) Depreciation and amortization (1,620,709) (1,168,342) Other costs 7 (1,736,436) (1,563,562) Excess of fair value of net assets over the cost of acquisition, net of written off goodwill 8 1,129,916 411,767 Sale of properties, net (53,247) (79,114) (45,751,287) (33,299,049)

Financial income 9 753,694 576,980 Financial expenses 10 (2,769,039) (2,502,361) (2,015,345) (1,925,381)

Share of loss of associates 14 (3,957) (7,189)

PROFIT BEFORE TAX FROM CONTINUING OPERATIONS: 1,632,189 89,508

Taxation 31 (336,165) (225,196)

PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 1,296,024 (135,688)

DISCONTINUED OPERATIONS: Loss after tax for the year from discontinued operations 11 (118,373) (89,859)

PROFIT/(LOSS) FOR THE YEAR 1,177,651 (225,547)

ATTRIBUTABLE TO: Equity holders of the parent 939,867 (243,010) Non-controlling interests 237,784 17,463

The accompanying notes form an integral part of these consolidated financial statements. 5 Agrokor Group

C O N S O L I D A T E D S T A T E M E N T O F O T H E R C O M P R E H E N S I V E I N C O M E For the years ended 31 December 2015 and 2014 (in thousands of HRK)

Notes 2015 2014

Profit for the year 1,177,651 (225,547)

Other comprehensive income

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

Exchange differences on translation of foreign operations (23,555) (82,131)

Net movement of cash flow hedges 12 26,517 9,359

Net gain/( loss) on available-for-sale financial assets 12 5,074 10,282

Net other comprehensive income to be reclassified to profit or loss in subsequent periods 8,036 (62,490)

Other comprehensive income not to be reclassified to profit or loss in subsequent periods:

Revaluation of land (189,059) -

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods (189,059) -

Other comprehensive income/(loss) for the year, net of tax (181,023) (62,490)

Total comprehensive income/(loss) for the year, net of tax 996,628 (288,037)

Attributable to: Equity holders of the parent 803,154 (277,073) Non-controlling interests 193,474 (10,964)

The accompanying notes form an integral part of these consolidated financial statements.

6 Agrokor Group

C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N As at 31 December 2015 and 2014 (in thousands of HRK)

Notes 2015 2014

ASSETS NON-CURRENT ASSETS Property, plant and equipment 16 22,966,428 25,609,599 Intangible assets 13 5,267,780 1,854,136 Biological assets 18 434,384 444,427 Investments accounted for using the equity method 14 174,821 55,863 Other non-current financial assets 15 3,601,342 3,184,832

TOTAL NON-CURRENT ASSETS 32,444,755 31,148,857

CURRENT ASSETS Inventories 17 7,582,323 7,087,766 Live-stock and crops 18 693,246 642,239 Assets held for sale 19 1,806,756 308,902 Loans and deposits 20 1,155,204 1,664,284 Accounts receivable 21 5,856,654 6,258,732 Other current assets 22 672,120 611,521 Cash and cash equivalents 23 2,608,618 2,681,314

TOTAL CURRENT ASSETS 20,374,921 19,254,758

TOTAL ASSETS 52,819,676 50,403,615

The accompanying notes form an integral part of these consolidated financial statements.

Agrokor Group C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S For the years ended 31 December 2015 and 2014 (in thousands of HRK)

2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax from continuing operations 1,632,189 89,508 Loss before tax from discontinued operations (118,373) (89,805) Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortisation of property plant and equipment and intangible assets 1,620,709 1,168,342 Excess of fair value of net assets over the cost of acquisition, net of written off goodwill (1,129,916) (411,767) Financial income (753,694) (576,980) Impairment of financial assets 20,668 7,769 Loss on sale of properties 53,247 79,114 Gain / loss on sale of financial assets 103,832 (34,965) Value adjustment of receivables 108,558 101,717 Group share of profit of associates 3,957 7,189 Financial expenses 2,769,039 2,502,361 Net cash flows from operating activities before changes in working capital 4,310,216 2,842,483 Change in receivables 258,777 (592,674) Change in inventories (545,564) (2,344,718) Change of liabilities towards creditors (4,842) 3,209,098 Change of other current assets (65,236) (271,460) Change in other current liabilities (303,330) 575,575 Net cash inflow from operating activities before interest and taxes 3,650,021 3,418,304 Income tax paid (219,052) (224,631) Interest paid (2,201,739) (1,913,694) Net cash provided from operating activities 1,229,230 1,279,979

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries, net of cash acquired (589,959) (1,912,885) Additions to properties and intangible assets (1,490,697) (1,463,496) Increase in non-current financial investments (2,550,591) (9,270,133) Increase in current investments 509,080 117,242 Proceeds from sale of properties 336,472 582,913 Proceeds from sale of financial assets 113,087 263,549 Interest received 409,649 148,413 Dividends received 567 382 Net cash used in investing activities (3,262,392) (11,534,015)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from non-current debt 3,585,999 9,651,761 Repayments of non-current debt (613,423) (133,570) Proceeds/(repayments) of current debt (1,090,800) 702,293 Proceeds of current non-bank debt 274,074 18,292 Dividends paid (190,939) (281,691) Purchased treasury shares (4,445) (223,788) Increase of share capital - 1,915,707 Net cash from financing activities 1,960,466 11,649,004

NET INCREASE IN CASH AND CASH EQUIVALENTS (72,696) 1,394,968

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 2,681,314 1,286,346

CASH AND CASH EQUIVALENTS, END OF THE YEAR 2,608,618 2,681,314

The accompanying notes form an integral part of these consolidated financial statements.

9 Agrokor Group

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the years ended 31 December 2015 and 2014 (in thousands of HRK)

Attributable to equity of the parent Non - Total Share Share Revaluation Cash flow AFS Retained Total controlling equity capital premium surplus hedge reserve reserve earnings interest Notes

Balance at 01 January 2014 24 161,591 789,739 1,029,566 (35,876) (32,446) (326,126) 1,586,448 2,938,713 4,525,161

Net income for 2014 - - - - - (243,010) (243,010) 17,463 (225,547) Other comprehensive income - - - 9,359 10,282 (53,704) (34,063) (28,427) (62,490) Total comprehensive income - - - 9,359 10,282 (296,714) (277,073) (10,964) (288,037)

Increase of share capital 18,532 1,897,175 - - - - 1,915,707 - 1,915,707 Acquisition of subsidiaries - - - - - 226,442 226,442 1,348,886 1,575,328 Acquisition of non-controlling - - 246 - - (970,083) (969,837) 969,837 - Transferinterest to reserves - - (2,862) - - 2,862 - - - Provisions for employee benefits - - - - - (20,016) (20,016) (10,284) (30,300) Treasury shares - - - - - (223,299) (223,299) (489) (223,788) Dividends distributed for the year - - - - - (223,420) (223,420) (58,214) (281,634) Balance at 31 December 2014 24 180,123 2,686,914 1,026,950 (26,517) (22,164) (1,830,354) 2,014,952 5,177,485 7,192,437

Balance at 01 January 2015 180,123 2,686,914 1,026,950 (26,517) (22,164) (1,830,354) 2,014,952 5,177,485 7,192,437 Net income for 2015 - - - - - 939,867 939,867 237,784 1,177,651 Other comprehensive income - - (155,398) 26,517 5,074 (12,906) (136,713) (44,310) (181,023) Total comprehensive income - - (155,398) 26,517 5,074 926,961 803,154 193,474 996,628

Acquisition of subsidiaries - - - - - (108,057) (108,057) (345,670) (453,727) Acquisition of non-controlling - - 33,024 - - (281,064) (248,040) 248,040 - Transferinterest to reserves - - (42,311) - - 42,311 - - - Provisions for employee benefits - - - - - (15,196) (15,196) (10,348) (25,544) Dividends distributed for the year - - - - - (145,828) (145,828) (44,868) (190,696) Balance at 31 December 2015 24 180,123 2,686,914 862,265 - (17,090) (1,411,227) 2,300,985 5,218,113 7,519,098

The accompanying notes form an integral part of these consolidated financial statements.

10 Agrokor Group NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2015 and 2014

General Agrokor d.d. (the Company) is a joint stock company which is incorporated in the Republic of Croatia.

Parent of the Company is Adria Group Holding B.V. Netherlands with a share of 95.52%; ultimate parent of the Group is Agrokor projekti d.o.o. Zagreb, Croatia, while ultimate controlling party is Mr. Ivica Todorić.

The Company’s registered main office is located at Trg Dražena Petrovića 3, Zagreb.

The principal activities of the Company and its subsidiaries (the Group) are consumer retailing, manufacturing and distribution of food products.

At 31 December 2015 the Group employed 55,957 employees (31 December 2014: 56,927 employees).

NOTE 1 SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis of Preparation

The consolidated financial statements of the Company and its subsidiaries (collectively, Group) have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by EU. The consolidated financial statements also comply with the Croatian Accounting Act on consolidated financial statements, which refers to the IFRS as endorsed by the EU.

The consolidated financial statements have been prepared on a historical cost basis, except for certain property, plant and equipment, biological assets, part of financial assets and liabilities which are included at fair value, as described in the following accounting policy notes.

The accounting policies have been consistently applied by the Group and are consistent with those of the previous year, except as described in the note 1.29.

The Group’s consolidated financial statements are presented in Croatian Kuna (HRK) which is the functional currency of the Company and the presentation currency for the consolidated financial statements. The effective exchange rate of the Croatian currency (expressed in HRK) at 31 December 2015 was HRK 6.99 per United States Dollar (USD) (2014: HRK 6.30) and HRK 7.64 per Euro (2014: HRK 7.66). All amounts disclosed in the financial statements are rounded to the nearest thousands of HRK, except when otherwise indicated.

1.2 Principles of Consolidation

The consolidated financial statements comprise the accounts of the Company and its subsidiaries as at 31 December 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:  Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);  Exposure, or rights, to variable returns from its involvement with the investee;  The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:  The contractual arrangement with one other vote holders of the investee;  Rights arising from other contractual arrangements;  The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more or the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

11 Agrokor Group A listing of the Group’s subsidiaries and a summary of the financial effect of the acquisition of subsidiaries during the year is set out in note 2. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non- controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

1.3 Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition related costs incurred are expensed. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the income statement. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is dispose of, the goodwill associated with disposed operation is included in the carrying amount of the operation when determining gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

1.4 Investments in Associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control is similar to those necessary to determine control over subsidiaries. The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of the net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or join venture is included in the carrying amount of the investment and is not tested for impairment individually. The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in equity of the associate or joint venture, the Group recognises its share of any changes, when

12 Agrokor Group applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on income statement and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and fair value of the retained investment as well as proceeds from disposal is recognised in profit or loss.

1.5. Current versus non-current classification

The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is:  Expected to be realised or intended to be sold or consumed in normal operating cycle;  Held primarily for the purpose of trading;  Expected to be realised within twelve months after the reporting period, or  Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current.

A liability is current when:  It is expected to be settled in normal operating cycle;  It is held primarily for the purpose of trading;  It is due to be settled within twelve months after the reporting period; or  There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.

1.6 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below:

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented in income statement. Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial 13 Agrokor Group recognition date and only if the respective criteria are satisfied. The Group has not designated any financial assets at fair value through profit or loss. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using EIR method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of EIR. The EIR amortisation is included in interest income in the income statement. The losses arising from impairment are recognised in the income statement.

Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held- to-maturity investments are measured at amortised costs using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as interest income in the income statement. The losses arising from impairment are recognised in the income statement.

Available-for-sale financial investments Available-for-sale financial investments include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available-for-sale reserve to the income statement. Interest earned whilst holding available-for-sale financial investments is reported as interest income using EIR method. Available-for-sale financial investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured shall be measured at cost. The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

De-recognition A financial asset is derecognised when the rights to receive cash flows from the asset have expired, or when the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party, and either the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Impairment of financial assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective 14 Agrokor Group evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. For financial assets carried at amortised cost: if there is objective evidence that impairment has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. The carrying value of the asset is reduced and loss is recognised in profit or loss. For available for sale financial instruments: when there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value less any impairment loss on that investment previously recognised in income statement, is removed from other comprehensive income and recognised in income statement.

Financial liabilities Initial recognition and measurement Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial instruments at initial recognition. All financial liabilities are recognised initially at fair value and, and in the case of loans and borrowings, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.

Subsequent measurement The measurement of financial liabilities depends on their classification as described below:

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationship. Separate embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on liabilities held for trading are recognised in income statement. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition and only if the respective criteria are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.

Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of EIR. The EIR amortisation is included as interest expense in the income statement.

De-recognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another form from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement.

Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Derivative financial instruments and hedge accounting Initial recognition and subsequent measurement The Group uses derivative financial instruments such as forward currency contracts, cross currency swaps to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a 15 Agrokor Group derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to profit or loss when the hedge item affects profit or loss. For the purpose of hedge accounting the Group classified its hedges as cash flow hedges. Hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges that meet the strict criteria for hedge accounting are accounted for as described below:

Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement as other financial expenses. The ineffective portion relating to foreign currency contracts is recognised in finance costs. Amounts recognised as other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or its designation as hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

1.7 Fair value measurement

The Group measures financial instruments such as derivatives and non-financial assets such as biological assets at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:  Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities  Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable  Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as whole) at the end of each reporting period.

16 Agrokor Group

1.8 Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired, as described in the accounting policy 1.10 Impairment of assets. Intangible assets with finite useful lives are amortized on a straight-line basis over their expected useful lives, which do not exceed ten years. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite useful life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from de-recognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Research and development costs Research costs are expensed as incurred. An internally-generated intangible asset arising from development is recognised if, and only if, all of the following have been demonstrated:  The technical feasibility of completing the intangible asset so that it will be available for use or sale;  The intention to complete and its ability and intention to use or sell the asset;  How the intangible asset will generate future economic benefits;  The availability of resources to complete the asset; and  The ability to measure reliably the expenditure during development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, over the period of expected useful life not exceeding a maximum period of five years.

1.9 Property, Plant and Equipment

Property, plant and equipment, with the exception of land, are carried at cost less accumulated depreciation and/or impairment losses, if any. In 1993 fixed assets were revalued at year end in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies. The revaluation effect was allocated to income. Hyperinflation accounting was discontinued in 1993. Subsequent revaluations relate only to land and have been based upon valuations performed by independent appraisers. Valuations are performed with sufficient frequency to ensure that the carrying amount of a revalued asset does not differ materially from its fair value. The basis used in appraisals is comparable market prices. When an asset is revalued, any increase in the carrying value is credited directly to a revaluation surplus within equity or appropriate obligations for deferred taxation, if applicable. The relevant portion of the revaluation surplus realised in respect of a previous valuation is released from the asset valuation surplus directly to retained earnings upon the disposal of the revalued asset. Items of property, plant and equipment that are retired or otherwise disposed of are eliminated from the statement of financial position, along with the corresponding accumulated depreciation. Any gain or loss arising from derecognising of assets (calculated as the difference between net sales receipts and the carrying value of the asset at the time of disposal) is taken to the income statement in the year of de-recognition. When significant parts of buildings, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the building, plant or equipment as a replacement in the recognition criteria is satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

17 Agrokor Group Depreciation is recorded by a charge to income computed on a straight-line basis over the estimated useful life of the asset, as follows: Buildings 5 to 55 years Plant, Machinery and Equipment 4 to 15 years Leasehold improvements 5 to 10 years Other fixed assets to 5 years The useful life, depreciation method and residual values are reviewed at each financial year-end and if expectations differ from previous estimates, any changes are accounted for as a change in an accounting estimate.

1.10 Impairment of Assets

The Group assesses at each financial year-end whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount is estimated as the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and value in use. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash- generating unit to which the asset belongs. Cash-generating units are primarily identified at entity level. Where carrying values exceed this estimated recoverable amount the assets are written down to their recoverable value. The following criteria are also applied in assessing impairment of specific assets:

Goodwill Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash- generating unit level, as appropriate and when the circumstances indicate that the carrying value may be impaired.

1.11 Leased Assets

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Group as a lessee Finance leases, which effectively transfer to the Group substantially all the risk and benefits incidental to ownership of the leased item, are capitalised at the lower of the fair value of the leased property or present value of the minimum lease payments at the inception of the lease term and disclosed as leased property, plant and equipment. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement. Capitalised leased assets are depreciated over the shorter of leased term and its useful life. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The accounting treatment of a sale and leaseback transaction depends upon the type of lease involved. If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, and the transaction is established at fair value, any profit or loss is recognised immediately.

Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

18 Agrokor Group

1.12 Non - current assets held for sale

Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell or to distribute. Costs to distribute are the incremental costs directly attributable to the distribution, excluding the finance costs and income tax expense. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be withdrawn. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of income. Property, plant and equipment and intangible assets once classified held for sale is not depreciated or amortised. Assets and liabilities classified as held for distribution are presented separately as current items in the statement of financial position.

1.13 Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials – lower of purchase costs or net realisable value. Cost formula is determined at weighted average basis. Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Merchandise – lower of purchase costs or net realisable value. Cost formula is determined at weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

1.14 Agriculture

The Group recognises a biological asset or agricultural produce, such as livestock and crops, when there is control over the asset as a result of past events; it is probable that future economic benefits associated with the asset will flow to the entity and the fair value or cost of the asset can be measured reliably. A biological asset is measured on initial recognition and at each balance sheet date at its fair value less costs to sell, except when the fair value cannot be measured reliably. Agricultural produce harvested from an entity’s biological assets is measured at its fair value less costs to sell at the point of harvest.

For biological assets valued at cost, depreciation is recorded by a charge to income computed on a straight-line basis over the estimated useful life of the asset, as follows: Vineyards 10-20 years Apple orchards 10 years Olive groves 20 years The useful life, depreciation method and residual values are reviewed at each financial year-end and if expectations differ from previous estimates, any changes are accounted for as a change in accounting estimate.

1.15 Trade and other receivables

Trade receivables, which generally have 90 days terms are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

1.16 Cash and Cash Equivalents

Cash and cash equivalents in the statement of financial position are defined as cash on hand, balances with banks, demand deposits, deposits with contractual maturity of less than 3 months.

19 Agrokor Group

1.17 Taxation

Corporate taxation is based on the accounting profit for the year adjusted for permanent and temporary differences between taxable and accounting income. Corporate taxation is provided for in accordance with fiscal regulations in the countries where the Group entities are located. Companies’ income tax returns are subject to examination by the Tax Authorities. Since the application of tax laws and regulations to several types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the Tax Authorities. Deferred income tax is calculated, using the liability method, on all temporary differences at the reporting date due to differences in treatment of certain items for taxation and for accounting purposes within the consolidated financial statements. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilised. At each reporting date, the Group re-assess unrecognised deferred tax assets and the appropriateness of carrying amount of the tax assets.

1.18 Foreign Currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in Croatian Kuna (HRK) which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

Transactions and balances: Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated into the reporting currency using the reporting period closing exchange rate. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Exchange differences arising on foreign currency transactions and the translation of monetary and non-monetary assets and liabilities are recognised in the consolidated income statement in the period in which they arise.

Group companies: The assets and liabilities of foreign subsidiaries are translated into the reporting currency using the Croatian National Bank middle exchange rate at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. The effects of translating these items are included in other comprehensive income. Any goodwill and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as assets and liabilities of that foreign subsidiary and are translated at the closing rate.

1.19 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates and sale taxes. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as a principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following recognition criteria must also be met before the revenue is recognised: In relation to the sale of goods, revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer and no significant uncertainties remain regarding the derivation of consideration, associated costs or the possible return of goods. In relation to the rendering of services, revenue is recognised by reference to the stage of completion of the transaction, when no significant uncertainties remain concerning the derivation of consideration or associated costs. Interest income arising from the use by others of the Group’s resources is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the revenue can be measured reliably. Interest income is recognised as it accrues (taking into account the effective yield on the asset) unless collection is in doubt. Dividends revenue is recognised when the Group’s right to receive the payment is established.

20 Agrokor Group

1.20 Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

1.21 Segment information

For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows:  Agrokor Holding – parent company for management of the Group  Food, Manufacturing and Distribution – production of food (ice-cream and frozen food, edible oils and margarines, waters and drinks, meet and meet products, agriculture products) and distribution of the products to customers  Retail and Wholesale – retail store chain and related businesses  Other Businesses – commodities brokerage No operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance cost and finance income) are managed on a group basis and are not allocated to operating segments. Segment results include revenue and expenses directly attributable to a segment and the relevant portion of Group revenue and expenses that can be allocated on a reasonable basis to a segment, whether from external transactions or from transactions with other segments of the Group. Operating profit expressed in segment information section consists of sales revenues, cost of sales, other revenues (income from sales of financial assets, collected written-off receivables, inventory surpluses and other revenues) and other expenses (depreciation and amortisation, wages and salaries, taxes, social insurance and pension costs, write off of bad debts and other short-term assets, research and development costs and other expenses). Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis, as well as finance liabilities which are allocated to segments based on the segment allocation of the subsidiary being the original debtor. Segment assets are determined after deducting related allowances that are reported as direct offsets in the Group’s statement of financial position. Segment assets and liabilities do not include income tax items. Segment results are determined before any adjustments for non-controlling interest. Capital expenditure represents the total cost incurred during the period to acquire segment assets that are expected to be used during more than one period.

1.22 Pensions and employee benefits

The Group, in the normal course of business, makes fixed contributions into the State mandatory pension funds on behalf of its employees. The Group does not operate any other pension scheme or postretirement benefit plan, and consequently, has no legal or constructive obligation to make further contributions if the funds do not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The Group makes payments to employees that include one-off retirement and jubilee benefits as well as scholarships for children of employees that died at work. The obligation and costs of these benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs are recognised on a straight-line basis over the average period until the amended benefits become vested. Gains or losses on the curtailment or settlement of pension benefits are recognised when the curtailment or settlement occurs. The pension obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest rate on government bonds where the currency and terms of the government bonds are consistent with the currency and estimated terms of the defined benefit obligation.

21 Agrokor Group

1.23 Provisions

Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in income statement net of any reimbursement.

1.24 Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

1.25 Subsequent Events

Post year-end events that provide additional information about a Group’s position at the reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material.

1.26 Estimates

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, 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.

Impairment of Goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

Purchase price allocations Significant estimates are used in purchase price allocation process and mainly relate to assessments of fair value of land, impairment of plant and equipment, valuation of allowances and doubtful debts, provisions for employee benefits, legal claims as well as value of any separable intangible assets existing at the acquisition date.

Furthermore, in the Group’s normal course of business, estimates are used for, but not limited to: assessments of value of land, depreciable lives and residual values of property, plant and equipment and intangible assets, allowances for inventories and doubtful debts and provisions for employee benefits, legal claims and taxes. Future events and their effects cannot be perceived with certainty. Details of estimates and related amounts are disclosed in the respective accounting policies and notes to the financial statements.

1.27 Judgements In the process of applying the Group’s accounting policies, the management made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Operating Lease Commitments – Group as Lessee The Group has entered into significant operating lease arrangements as a lessee. The Group has determined that the lessor retains all the significant risks and rewards of ownership of properties which are leased by the Group as operating leases.

22 Agrokor Group Sale and leaseback transactions The Group has entered into significant sale and lease back transactions. The Group has determined that the lessor retains all the significant risks and rewards of ownership of properties which are leased by the Group as operating leases and transactions are established at fair values.

1.28 Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income account and is released to the income statement in equal amounts over the expected useful life of the relevant asset.

1.29 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year unless otherwise stated and disclosed.

The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year which were endorsed by the EU. When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Group, its impact is described below:

Amendments to IAS 19 Employee Benefits IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service costs in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July 2014. Adoption of this amendment is not relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties.

Annual Improvements On 12 December 2013 the IASB issued two cycles of Annual Improvements to IFRSs; Cycles 2010-2012 and 2011- 2013 that contain 11 changes to nine standards: IFRS 1 First-time Adoption of IFRS; IFRS 2 Share-based Payment; IFRS 3 Business Combinations; IFRS 8 Operating Segments; IFRS 13 Fair Value Measurement; IAS 16 Property, Plant and Equipment; IAS 24 Related Party Disclosures, IAS 38 Intangible Assets and IAS 40 Investment Property. Respective amendments are effective on or before 1 July 2014. The adoption of these Annual Improvements did not have material effect to financial position or results of the Group. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

IFRS 9 Financial Instruments: Classification and Measurement In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The standard is included in endorsement process within EU, and it is expected to be endorsed in EU before its effective date. The Group plans to adopt the new standard on the required effective date and when endorsed by EU. Performed high-level assessment of the new standard, and Group expects no significant impact on its financial statements. Preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information being made available to the Group in the future.

Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception Amendments to IFRS 10, IFRS 12 and IAS 28 introduce clarifications to the requirements when accounting for investment entities. The amendments also provide relief in particular circumstances, which will reduce the costs of applying the Standards. The amendments can be applied immediately and become mandatory for annual periods beginning on or after 1 January 2016 and when endorsed by EU, which is expected to be after IASB effective date. These amendments are not relevant to the Group, since none of the entities in the Group qualify to be an investment entity under IFRS 10.

23 Agrokor Group

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be effective for annual periods beginning on or after 1 January 2016 and when endorsed by EU. Since the endorsement process of those amendments in EU is indefinitely postponed, The Group decided to postpone the impact assessment of the changes until EU continues the endorsement process of those amendments.

Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, being the same as the date of endorsement in EU. It is not expected that application of these amendments will have any impact to the Group.

IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires additional disclosures. IFRS 14 is effective for annual periods beginning on or after 1 January 2016 and when endorsed by EU. The European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard. Since the Group is an existing IFRS preparer, this standard would not apply.

IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018 and when endorsed by EU. It is expected that endorsement in EU will be final prior to its effective date of application, as defined by IASB. The Group performed a preliminary assessment of IFRS 15, which is subject to changes arising from more detailed ongoing analysis.

Amendments to IAS 16 and IAS 41: Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plats will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation modes (after maturity). The amendments also require that produce that grows on bearer plans will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016, which is the EU effective date as well. The Group is currently assessing the impact of these amendments and plans to adopt them on theirs effective date.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, which is the EU effective date as well. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets. 24 Agrokor Group

Amendments to IAS 27: Equity Method in Separate Financial Statements The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, which is the EU effective date as well. These amendments will not have any impact on the Group’s consolidated financial statements.

Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: the materiality requirements in IAS 1, that specific line items in the statements of profit or loss and OCI and the statement of financial position may be disaggregated, that entities have flexibility as to the order in which they present the notes to financial statements, that the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss. Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statements of profit or loss and other comprehensive income. These amendments are effective for annual periods beginning on or after 1 January 2016, which is the EU effective date as well, with early adoption permitted. These amendments are not expected to have any impact on the Group.

IFRS 16 Leases IFRS 16 Leases sets out principles for the recognition, measurement, presentation and disclosure of leases. Previous accounting model for leases required lessees and lessors to classify their leases as either finance leases or operating leases and account for those two types of leases differently. This accounting model was criticised due to the fact that it did not require lessees to recognise assets and liabilities arising from operating leases. IASB and FASB initiated joint project to develop a new approach to lease accounting that requires a lessee to recognise assets and liabilities for the rights and obligations created by leases. This approach will result in a more faithful representation of a lessee’s assets and liabilities, and together with enhanced disclosure, will provide greater transparency of a lessee’s financial leverage and capital employed. This standard is effective for annual periods beginning on or after 1 January 2019, with early application permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The Group is currently preliminary assessing the impact of this new standard to its financial statements, which will be subject to changes arising from more detailed ongoing analysis. The Group plans to adopt this new standard on its effective date, and when adopted by EU.

Amendments to IAS 12: Recognition of Deferred Tax Assets In January 2016 the IASB amended IAS 12 Income taxes by issuing Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12). Amendments clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. Amendments are effective for annual periods beginning on or after 1 January 2017 with permitted earlier application. The Group is currently assessing the impact of these amendments to its financial statements. The Group plans to adopt these amendments on its effective date, and when adopted by EU.

Amendments to IAS 7: Disclosure Initiative In January 2016 the IASB amended IAS 7 Statement of Cash Flows by issuing Disclosure Initiative (Amendments to IAS 7). The amendments require additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The entities shall disclose the following changes in liabilities arising from financial activities: changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. Amendments are effective for annual periods beginning on or after 1 January 2017, with permitted earlier application. When the entity first applies those amendments it is not required to provide comparative information for preceding periods. Impact of these amendments is disclosure only. The Group plans to adopt these amendments on its effective date, and when adopted by EU.

Annual Improvements In September 2014 the IASB issued additional cycle of Annual Improvements to IFRSs the Cycle 2012-2014. This cycle contains changes to four standards: IFRS 5 Non-current Assets Held for Sale and Discontinuing Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting. These 25 Agrokor Group improvements are effective for annual periods beginning on or after 1 January 2016, which is the EU effective date as well. The Group is currently assessing the impact of these amendments to its financial statements. The Group plans to adopt these amendments on its effective date.

The Group has not early adopted any IFRS standards where adoption is not mandatory at the balance sheet date. Where transition provisions in IFRS adopted give an entity a choice whether to apply the new standards prospectively or retrospectively the Group has elected to apply the standard prospectively from the date of transition.

26 Agrokor Group NOTE 2 GROUP STRUCTURE

2.1 Acquisition of subsidiaries

Projektgradnja d.o.o.

During 2015, the Group acquired management control of Projektgradnja d.o.o., through the purchase of 80.86% ownership of Projektgradnja d.o.o. by Agrokor d.d. for HRK 122,518 thousand, paid entirely in cash. The main business activity of Projektgradnja d.o.o. is design and construction of buildings. Non-controlling interest in acquisition of Projektgradnja d.o.o. is recognised at the non-controlling interest’s proportional share of the acquiree’s net assets.

Assets and liabilities of Projektgradnja d.o.o. as of 1 January 2015 (acquisition date) are summarised below (thousands of HRK): Recognised on Carrying value acquisition (Projektgradnja d.o.o.)

Tangible and intangible assets 47,009 52,072 Non-current financial assets 96 96 Inventories 82,029 82,029 Accounts receivable 46,557 46,923 Other current assets 9,061 9,061 Cash and cash equivalents 1,259 1,259 Total assets 186,011 191,440

Long-term liabilities 177,114 177,114 Provisions for employee benefits 2,078 2,078 Taxes 1,105 1,105 Borrowings 5,333 5,333 Accounts payable 65,606 65,606 Other current liabilities 19,936 19,936 Total liabilities 271,172 271,172

Fair value of net assets (85,161) (79,732)

Acquired (68,862)

Goodwill 191,380

Consideration paid 122,518

Net cash acquired with the subsidiary 1,259

Net cash outflow on acquisition 121,259 Total payment on acquisitions of the subsidiaries, net of cash acquired 121,259

From the date of acquisition, Projektgradnja d.o.o. in 2015 contributed to the results of the Group with HRK 16,008 thousand.

27 Agrokor Group INIT d.d.

During 2015, the Group acquired management control of INIT d.d., through the purchase of 67.00% ownership of INIT d.d. by Agrokor d.d. for HRK 1,323 thousand, paid entirely in cash. The main business activity of INIT d.d. is data processing, hosting and related services. Non-controlling interest in acquisition of INIT d.d. is recognised at the non-controlling interest’s proportional share of the acquiree’s net assets.

Assets and liabilities of INIT d.d. as of 1 January 2015 (acquisition date) are summarised below (thousands of HRK): Recognised on Carrying value acquisition (INIT d.d.)

Tangible and intangible assets 12,197 11,048 Accounts receivable 449 449 Cash and cash equivalents 343 343 Total assets 12,989 11,840

Deferred tax liability 115 - Taxation 53 53 Loans and borrowings 4,788 4,788 Accounts payable 9 9 Other current liabilities 271 271 Total liabilities 5,236 5,121

Fair value of net assets 7,753 6,719

Acquired 5,195

Excess of fair value of net assets over the cost of acquisition (3,872)

Consideration paid 1,323

Net cash acquired with the subsidiary 343

Net cash outflow on acquisition 980 Total payment on acquisitions of the subsidiaries, net of cash acquired 980

From the date of acquisition, INIT d.d. in 2015 contributed to the results of the Group with HRK 102 thousand.

28 Agrokor Group Ambalažni servis d.o.o.

During 2015, the Group acquired management control of Ambalažni servis d.o.o., through the purchase of 96.93% ownership of Ambalažni servis d.o.o. by Konzum d.d. for HRK 4,118 thousand, paid entirely in cash. The main business activity of Ambalažni servis d.o.o. is production and sales of wavy paper, cardboard and cardboard and paper packaging. Non-controlling interest in acquisition of Ambalažni servis d.o.o. is recognised at the non-controlling interest’s proportional share of the acquiree’s net assets.

Assets and liabilities of Ambalažni servis d.o.o. as of 1 July 2015 (acquisition date) are summarised below (thousands of HRK): Recognised on Carrying value acquisition (Ambalažni servis d.o.o.)

Tangible assets 15,480 17,061 Non-current financial assets and receivables 31,854 31,854 Inventory 1,002 1,909 Accounts receivable 13,756 12,976 Other current assets 486 486 Cash and cash equivalents 548 548 Total assets 63,126 64,834

Non-current liabilities 27,681 27,681 Provisions for employee benefits 174 - Taxes 361 276 Loans and borrowings 16,151 16,151 Accounts payable 625 625 Other current liabilities 147 140 Total liabilities 45,139 44,873

Fair value of net assets 17,987 19,961

Acquired 17,436

Excess of fair value of net assets over the cost of acquisition (13,318)

Consideration paid 4,118

Net cash acquired with the subsidiary 548

Net cash outflow on acquisition 3,570 Total payment on acquisitions of the subsidiaries, net of cash acquired 3,570

From the date of acquisition, Ambalažni servis d.o.o. in 2015 contributed to the results of the Group with HRK (5,895) thousand.

29 Agrokor Group Kozmo d.o.o.

During 2015, the Group acquired management control of Kozmo d.o.o., through the purchase of 100.00% ownership of Kozmo d.o.o. by Konzum d.d. for HRK 57,700 thousand, paid entirely in cash. The main business activity of Kozmo d.o.o. is retail of cosmetics and similar products in specialty shops.

Assets and liabilities of Kozmo d.o.o. as of 14 October 2015 (acquisition date) are summarised below (thousands of HRK): Recognised on Carrying value acquisition (Kozmo d.o.o.)

Intangible assets 156,871 3,071 Non-current financial assets 658 658 Accounts receivable 35,987 35,987 Cash and cash equivalents 226 226 Total assets 193,742 39,942

Non-current liabilities 959 959 Deferred tax liability 30,760 - Loans and borrowings 76,321 76,321 Accounts payable 176,131 176,131 Other current liabilities 35,861 35,861 Total liabilities 320,032 289,272

Fair value of net assets (126,290) (249,330)

Acquired (126,290)

Goodwill 183,990

Consideration paid 57,700

Net cash acquired with the subsidiary 226

Net cash outflow on acquisition 57,474 Total payment on acquisitions of the subsidiaries, net of cash acquired 57,474

The company was merged with Konzum d.d. immediately after acquisition, and with merger it ceased to exist as a separate subject.

2.2 Acquisitions during 2014 During 2014, the Group acquired management control over the following companies:  Poslovni sistem Mercator d.d. through the purchase of 80.75% ownership of Poslovni sistem Mercator d.d. by Agrokor d.d. for HRK 2,159,354 thousand, paid entirely in cash. The main business activity of Poslovni sistem Mercator d.d. is retail. According to the provisions of IFRS 3 outlined in paragraphs 45 and 49, additional adjustments to the acquisition accounting for Poslovni Sistem Mercator d.d. were made as at 30 September 2015, whereby the valuation of intangible assets was accounted for in the amount of HRK 1,589,899 thousand. The brand valuation was prepared by a reputable independent valuation specialist. The final amount of excess of fair value of net assets over the cost of acquisition was recognized in the amount of HRK 1,798,629 thousand. The previously recognized amount of excess of fair value of net assets amounted to HRK 514,757 thousand, and the additional adjustment recognized resulted in the difference of HRK 1,283,872 thousand.  Eko Biograd d.o.o. through the purchase of 100.00% ownership of Eko Biograd d.o.o. by PIK Vinkovci d.d. for HRK 30,658 thousand, paid entirely in cash. The main business activity of Eko Biograd d.o.o. is real estate management.

30 Agrokor Group 2.3 Investments in Subsidiaries

31.12.2015. Country Ownership Ownership Group Interest of Interest of Voting Group Agrokor Subsidiary Rights Ownership Agkor d.o.o. Serbia 100.00%6) 100.00% 55.30% Agrokor AG Switzerland 100.00% 100.00% 100.00% Agrokor-Energija d.o.o. Croatia 100.00%8) 100.00% 100.00% Agrokor kft. Hungary 100.00% 100.00% 100.00% Agrokor-trgovina d.o.o. Croatia 100.00% 100.00% 100.00% Agrokor-Zagreb d.o.o. Bosnia and Herzegovina 100.00%10) 100.00% 80.34% Agrolaguna d.d. Croatia 85.22% 85.22% 85.22% Ambalažni servis d.o.o. HR Croatia 100.00%4) 100.00% 96.93% Ambalažni servis d.o.o. BiH Bosnia and Herzegovina 100.00%11) 100.00% 100.00% Ambalažni servis d.o.o. Serbia Serbia 100.00%7) 100.00% 96.93% Angropromet d.o.o. Serbia 100.00%7) 100.00% 96.93% Belje d.d. Croatia 94.23% 94.23% 94.23% Dijamant a.d. Serbia 96.14% 96.14% 96.14% Euroviba d.o.o. Croatia 94.47%4) 94.47% 91.57% Frikom d.o.o. Serbia 100.00%2) 100.00% 55.30% Frikom Beograd d.o.o.e.l. Macedonia 100.00%6) 100.00% 55.30% Fonyodi kft. Hungary 100.00%1) 100.00% 80.44% Idea d.o.o. Serbia 100.00%4) 100.00% 96.93% INIT d.d. Bosnia and Herzegovina 67.00% 67.00% 67.00% Irida d.o.o. Croatia 100.00%2) 100.00% 55.30% Jamnica d.d. Croatia 80.44% 80.44% 80.44% Jamnica d.o.o. Beograd Serbia 100.00%1) 100.00% 80.44% Jamnica d.o.o. Maribor Slovenia 100.00%1) 100.00% 80.44% 72.28%5) Kikindski mlin a.d. Serbia 96.25% 82.74% 23.97%6) Konzum d.d. Croatia 88.01% 11.10% 1) 99.11% 96.93% Konzum d.o.o. Sarajevo Bosnia and Herzegovina 100.00% 100.00% 100.00% Kor Broker d.o.o. Croatia 100.00% 100.00% 100.00% Kron d.o.o. Serbia 100.00% 100.00% 100.00% Krka d.o.o. Croatia 82.41%4) 82.41% 79.88% Ledo d.d. Croatia 55.30% 55.30% 55.30% Ledo d.o.o. Čitluk Bosnia and Herzegovina 100.00%2) 100.00% 55.30% Ledo d.o.o. Kosovo 100.00%2) 100.00% 55.30% Ledo kft. Hungary 100.00%2) 100.00% 55.30% Ledo d.o.o. Slovenia 100.00%2) 100.00% 55.30% Ledo d.o.o. Podgorica Montenegro 100.00%2) 100.00% 55.30% Lovno gospodarstvo Moslavina Croatia 100.00% 100.00% 100.00% d.o.o. Poslovni sistem Mercator d.d. Slovenia 59.47% 59.47% 59.47% M-profil SPV d.o.o. Serbia 100.00% 100.00% 100.00% Mladina d.d. Croatia 60.89%1) 60.89% 48.98% mStart d.o.o. Croatia 100.00% 100.00% 100.00% Multiplus card d.o.o. Croatia 75.00%4) 75.00% 72.70% Nova Sloga d.o.o. Serbia 100.00% 100.00% 100.00% PIK BH d.o.o. Laktaši Bosnia and Herzegovina 100.00%9) 100.00% 96.93%

31 Agrokor Group

31.12.2015. Country Ownership Ownership Group Interest of Interest of of Voting Group Agrokor Subsidiary Rights Ownership

PIK Vinkovci d.d. Croatia 70.87% 70.87% 70.87% PIK Vrbovec d.d. Croatia 100.00%4) 100.00% 96.93% Projektgradnja d.o.o. Croatia 73.72% 7.37%4) 81.09% 80.86% Roto dinamic d.o.o. Croatia 100.00%1) 100.00% 80.44% Roto ulaganja d.o.o. Croatia 100.00% 100.00% 100.00% Sarajevski kiseljak d.d. Bosnia and Herzegovina 99.86%1) 99.86% 80.34% Sojara d.o.o. Croatia 100.00% 3) 100.00% 51.84% Solana Pag d.d. Croatia 96.93% 96.93% 96.93% Super Kartica d.o.o Bosnia and Herzegovina 100.00%11) 100.00% 100.00% Super Kartica d.o.o. Serbia 67.00%7) 67.00% 64.95% Tisak d.d. Croatia 67.35% 67.35% 67.35% TPDC Sarajevo d.d. Bosnia and Herzegovina 51.00% 51.00% 51.00% Velpro-centar d.o.o. Croatia 100.00%4) 100.00% 96.93% Vupik d.d. Croatia 88.34% 88.34% 88.34% Zvijezda d.d. Croatia 51.84% 51.84% 51.84% Zvijezda d.o.o. Ljubljana Slovenia 100.00%3) 100.00% 51.84% Zvijezda d.o.o. Sarajevo Bosnia and Herzegovina 100.00%3) 100.00% 51.84% Žitnjak d.d. Croatia 89.43%4) 89.43% 86.68%

1) held by Jamnica d.d.; 2) held by Ledo d.d.; 3) held by Zvijezda d.d.; 4) held by Konzum d.d.; 5) held by Dijamant a.d.; 6) held by Frikom d.o.o.; 7) held by Idea d.o.o.; 8) held by Agrokor-trgovina d.d.; 9) held by PIK Vrbovcec d.d; 10) held by Sarajevski kiseljak d.d.; 11) held by Konzum d.o.o. Sarajevo

* Management control is excercised by the Group.

Parent company merged during 2015 the company Media d.o.o. which whas in 2014 included in Assets held for sale in total amount of HRK 61,871 thousand.

32 Agrokor Group

31 December 2014 Country Ownership Ownership Group Interest of Interest of Voting Group Agrokor d.d. Subsidiary Rights Ownership Agrokor AG Switzerland 100.00% 100.00% 100.00% Agrokor-Energija d.o.o. Croatia 100.00%9) 100.00% 100.00% Agrokor kft. Hungary 100.00% 100.00% 100.00% Agrokor-trgovina d.o.o. Croatia 100.00% 100.00% 100.00% Agrokor-Zagreb d.o.o. Bosnia and Herzegovina 100.00% 100.00% 100.00% Agrolaguna d.d. Croatia 85.22% 85.22% 85.22% Angropromet d.o.o. Serbia 100.00%8) 100.00% 96.92% Belje d.d. Croatia 67.92% 67.92% 67.92% Dijamant a.d. Serbia 73.08% 73.08% 73.08% eLog d.o.o. Croatia 100.00%4) 100.00% 96.92% eLog plus d.o.o. Serbia 100.00%11) 100.00% 96.92% Euroviba d.o.o. Croatia 94.47%4) 94.47% 91.56% Frikom d.o.o. Serbia 100.00%2) 100.00% 55.30% Frikom Beograd dooel Macedonia 100.00%7) 100.00% 55.30% Fonyodi kft. Hungary 100.00%1) 100.00% 80.44% Idea d.o.o. Serbia 100.00%4) 100.00% 96.92% Irida d.o.o. Croatia 100.00%2) 100.00% 55.30% Jamnica d.d. Croatia 80.44% 80.44% 80.44% Jamnica d.o.o. Beograd Serbia 100.00%1) 100.00% 80.44% Jamnica d.o.o. Maribor Slovenia 100.00%1) 100.00% 80.44% 72.28%6) Kikindski mlin a.d. Serbia 96.25% 66.07% 23.97%7) Konzum d.d. Croatia 87.99% 11.10% 1) 99.09% 96.92% Konzum d.o.o. Sarajevo Bosnia and Herzegovina 100.00%4) 100.00% 96.92% Kor Broker d.o.o. Croatia 100.00% 100.00% 100.00% Kor Neretva d.o.o. Croatia 100.00%4) 100.00% 96.92% Kron d.o.o. Serbia 100.00% 100.00% 100.00% Krka d.o.o. Croatia 82.41%4) 82.41% 79.87% Ledo d.d. Croatia 55.30% 55.30% 55.30% Ledo d.o.o. Čitluk Bosnia and Herzegovina 100.00%2) 100.00% 55.30% Ledo d.o.o. Kosovo 100.00%2) 100.00% 55.30% Ledo kft. Hungary 100.00%2) 100.00% 55.30% Ledo d.o.o. Slovenia 100.00%2) 100.00% 55.30% Ledo d.o.o. Podgorica Montenegro 100.00%2) 100.00% 55.30% Lovno gospodarstvo Moslavina Croatia 100.00% 100.00% 100.00% d.o.o. Poslovni sistem Mercator d.d. Slovenia 49.92% 50.27% 49.92% M-profil SPV d.o.o. Serbia 100.00% 100.00% 100.00% Mladina d.d. Croatia 60.89%1) 60.89% 48.98% mStart d.o.o. Croatia 100.00% 100.00% 100.00% Multiplus card d.o.o. Croatia 75.00%4) 75.00% 72.69% Nova Sloga d.o.o. Serbia 100.00% 100.00% 100.00% PIK BH d.o.o. Laktaši Bosnia and Herzegovina 100.00%10) 100.00% 96.92% PIK Vinkovci d.d. Croatia 70.87% 70.87% 70.87% PIK Vrbovec d.d. Croatia 99.99%4) 99.99% 96.92% Roto dinamic d.o.o. Croatia 100.00%1) 100.00% 80.44%

33 Agrokor Group 31 December 2014 Country Ownership Ownership Group Interest of Interest of Voting Group Agrokor d.d. Subsidiary Rights Ownership

Roto ulaganja d.o.o. Croatia 100.00% 100.00% 100.00% 96.56%1) Sarajevski kiseljak d.d. Bosnia and Herzegovina 99.86% 80.98% 3.30%5) Sojara d.o.o. Croatia 100.00% 3) 100.00% 51.84% Solana Pag d.d. Croatia 96.68% 96.68% 96.68% Super Kartica d.o.o. Serbia 67.00%8) 67.00% 64.94% Tisak d.d. Croatia 67.35% 67.35% 67.35% TPDC Sarajevo d.d. Bosnia and Herzegovina 51.00% 51.00% 51.00% Vupik d.d. Croatia 86.27% 86.27% 86.27% Zvijezda d.d. Croatia 51.84% 51.84% 51.84% Zvijezda d.o.o. Ljubljana Slovenia 100.00%3) 100.00% 51.84% Zvijezda d.o.o. Sarajevo Bosnia and Herzegovina 100.00%3) 100.00% 51.84% Žitnjak d.d. Croatia 89.43%4) 89.43% 86.67%

1) held by Jamnica d.d.; 2) held by Ledo d.d.; 3) held by Zvijezda d.d.; 4) held by Konzum d.d.; 5) held by Agrokor-Zagreb d.o.o. Grude; 6) held by Dijamant a.d.; 7) held by Frikom d.o.o.; 8) held by Idea d.o.o.; 9) held by Agrokor-trgovina d.d.; 10) held by PIK Vrbovec d.d.; 11) held by eLog d.o.o.

* Management control is excercised by the Group.

The ownership of the Group represents the shares of the parent company in the capital stock of a subsidiary, while the voting rights of the Group represents the number of votes at the disposition of the parent company represented at the General Assembly of a subsidiary.

Under International Financial Reporting Standards, subsequent acquisitions of non-controlling interests in subsidiaries do not represent business combinations. Consequently, the assets and liabilities of the subsidiary are not remeasured to reflect their fair values at the date of the transaction. The Group accounts for subsequent acquisitions of non-controlling interest using entity concept method of accounting whereby any difference between acquisition cost of additional share and book value of non-controlling interest acquired is recognised directly in equity.

34 Agrokor Group NOTE 3 MATERIAL PARTLY-OWNED SUBSIDIARIES

Financial information of subsidiaries that have material non-controlling interests is provided below:

Proportion of equity interest held by non-controlling interest: Name Country 2015 2014 Jamnica d.d. Croatia 19.57% 19.57% Ledo d.d. Croatia 44.70% 44.70% Poslovni sistem Mercator d.d. Slovenia 40.53% 50.08% Zvijezda d.d. Croatia 48.16% 48.16%

Accumulated balances of material non-controlling interest: (in thousands of HRK) 2015 2014 Jamnica d.d. 357,377 313,126 Ledo d.d. 884,570 843,570 Poslovni sistem Mercator d.d. 2,607,937 2,385,291 Zvijezda d.d. 536,829 532,567

Profit/ (loss) allocated to material non-controlling interest: (in thousands of HRK) 2015 2014 Jamnica d.d. 24,440 26,544 Ledo d.d. 51,942 42,199 Poslovni sistem Mercator d.d. (consolidated) 62,166 (20,176) Zvijezda d.d. 18,192 17,511

The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss for 2015 expressed in thousands of HRK:

Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Revenue 1,551,296 1,255,817 20,530,219 807,963 Other income 1,096 478 41,697 902 Operating expenses (1,374,982) (1,123,092) (20,113,219) (769,020) Financial income 143,059 87,607 38,854 18,288 Financial expenses (14,204) (21,547) (293,637) (8,388) Profit before tax 266,265 199,263 203,914 49,745 Tax (34,755) (31,128) (50,551) (10,585) Net result 231,510 168,135 153,363 39,160 Total comprehensive income 268,877 159,173 153,363 10,234

Non-controlling interests 24,440 51,942 62,166 18,192 Dividends paid to non-controlling interests 7,823 30,146 - -

35 Agrokor Group Summarised statement of profit or loss for 2014 expressed in thousands of HRK: Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Revenue 1,384,448 1,077,297 5,198,766 862,385 Other income 4,450 1,689 31,787 2,441 Operating expenses (1,259,513) (972,982) (5,213,166) (828,518) Financial income 114,897 78,334 28,514 18,092 Financial expenses (14,856) (13,525) (132,376) (7,319) Profit before tax 229,426 170,813 (86,475) 47,081 Tax (37,778) (24,904) 46,186 (9,434) Net result 191,648 145,909 (40,289) 37,647 Total comprehensive income 191,364 146,099 (40,289) 37,647

Non-controlling interests 26,544 42,199 (20,176) 17,511 Dividends paid to non-controlling interests 13,691 41,691 - -

Summarised statement of financial position as at 31 December 2015 expressed in thousands of HRK:

Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Non-current assets 1,048,627 1,433,733 11,021,038 774,303 Current assets 1,100,535 970,351 5,972,458 520,880 Non-current liabilities (48,202) (167,233) (6,508,309) (66,624) Current liabilities (405,744) (257,831) (5,641,263) (167,876) Total equity 1,695,216 1,979,019 4,843,924 1,060,683 Attributable to: Equity holder of parent 1,337,839 1,094,449 2,255,987 523,854 Non-controlling interests 357,377 884,570 2,607,937 536,829

Summarised statement of financial position as at 31 December 2014 expressed in thousands of HRK:

Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Non-current assets 966,539 1,440,046 12,929,435 812,878 Current assets 921,594 776,511 4,212,135 490,262 Non-current liabilities (33,861) (169,985) (6,623,365) (73,671) Current liabilities (387,929) (159,280) (5,755,243) (179,019) Total equity 1,466,343 1,887,292 4,762,962 1,050,450 Attributable to: Equity holder of parent 1,153,217 1,043,722 2,377,671 517,883 Non-controlling interests 313,126 843,570 2,385,291 532,567

36 Agrokor Group Summarised cash flow information for year ending 31 December 2015 expressed in thousands of HRK:

Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Operating cash flow 249,013 190.396 (153,288) 173.419 Investing cash flow (196,924) (186.079) (437,631) (156.769) Financing cash flow (55,458) (6.524) 537,594 (16,438)

Net increase/(decrease) in cash and cash equivalents (3,369) (2.208) (53,325) 213

Summarised cash flow information for year ending 31 December 2014 expressed in thousands of HRK:

Poslovni sistem Jamnica d.d. Ledo d.d. Mercator d.d. Zvijezda d.d. Operating cash flow 171,943 181,336 - (42,222) Investing cash flow (90,780) (86,420) - 34,371 Financing cash flow (81,801) (98,781) - 1,945

Net increase/(decrease) in cash and cash equivalents (638) (3,865) - (5,906)

37 Agrokor Group

NOTE 4 SEGMENT INFORMATION Business segments Food, Retailing (in thousands of HRK) Agrokor Manufacturing and Other Intersegment Consolidated and 2015 Holding Distribution Wholesale Businesses eliminations REVENUE Revenue to external customers 309,124 5,818,064 41,265,123 1,621,336 Inter-segment revenues 311,541 5,176,699 2,025,718 1,049,032 (8,562,990) Total revenues 620,665 10,994,763 43,290,841 2,670,368 (8,562,990) 49,013,647

OPERATING PROFIT 25,913 1,047,270 1,397,312 124,995 2,595,490 Excess of fair value of net assets over the cost of acquisition, net of written off goodwill 1,129,916 Sale of properties, net (53,247) Financial expenses (2,769,039) Share if gain/loss of associates (3,957) Costs not associated to segments (Note 7) (20,668) Financial income 753,694 Income before taxation 1,632,189 Taxation (336,165) Net loss for the year from continuing operations 1,296,024 Net loss from discontinuing operations (118,373) Total net result 1,177,651

Other information Segment assets 9,022,787 12,629,372 29,580,087 1,412,609 52,644,855 Investments in associates 167,587 - 7,234 - 174,821 Total segment assets 9,190,374 12,629,372 29,587,321 1,412,609 52,819,676 Total segment liabilities (19,174,162) (3,599,978) (21,619,681) (906,757) (45,300,578) Capital expenditures 905 270,363 1,201,885 17,544 1,490,697 Depreciation and amortisation 8,675 432,697 1,157,556 21,781 1,620,709

Business segments (in thousands of HRK)

2014 REVENUE Revenue to external customers 69,126 5,897,078 27,588,825 1,414,030 Inter-segment revenues 312,015 5,197,169 1,583,015 1,128,517 (8,220,716) Total revenues 381,141 11,094,247 29,171,840 2,542,547 (8,220,716) 34,969,059

OPERATING PROFIT (135.790) 989,423 932,216 210,384 1,996,233 Excess of fair value of net assets over the cost of acquisition, net of written off goodwill 411,767 Sale of properties, net (79,114) Financial expenses (2,502,361) Share if gain/loss of associates (7,189) Costs not associated to segments (Note 7) (306,808) Financial income 576.980 Income before taxation 89,508 Taxation (225,196) Net loss for the year from continuing operations (135,688) Net loss from discontinuing operations (89,859) Total net result (225,547)

Other information Segment assets 7,146,189 13,205,855 28,523,574 1,472,134 50,347,752 Investments in associates 55,863 - - - 55,863 Total segment assets 7,202,052 13,205,855 28,523,574 1,472,134 50,403,615 Total segment liabilities (16,366,151) (3,641,036) (22,004,101) (1,199,890) (43,211,178) Capital expenditures 36,589 333,834 1,071,670 21,403 1,463,496 Depreciation and amortisation 7,825 434,356 703,758 22,403 1,168,342 38 Agrokor Group

(in thousands of HRK) Geographic information Revenues from external customers Capital 201 5 Revenue Assets Expenditure Croatia 22,931,871 29,394,653 766,865 Other countries 26,081,776 23,425,023 723,832 Total 49,013,647 52,819,676 1,490,697

(in thousands of HRK) Capital 2014 Revenue Assets Expenditure Croatia 21,191,372 28,299,989 1,065,049 Other countries 13,777,687 22,103,626 398,447 Total 34,969,059 50,403,615 1,463,496

NOTE 5 OTHER INCOME (in thousands of HRK) 2015 2014 Gain on sale of securities 14,542 91,591 Government grants 185,893 120,932 Reversal of provisions 108,678 67,035 Collected receivables written off 18,020 21,458 Other revenues 21,735 7,439 Inventory surplus 40,263 43,613 Total 389,131 352,068

NOTE 6 STAFF COSTS (in thousands of HRK) 2015 2014 Wages and salaries 2,979,669 2,030,442 Taxes, social insurance and pension costs 1,725,329 1,255,877 4,704,998 3,286,319

Management Board compensation: (in thousands of HRK) 2015 2014 Salaries 30,096 27,118 Taxes, social insurance and pension costs 32,842 28,771 Severance pay 273 3,285 63,211 59,174

Information presented relates to key management personnel of entire Group.

39 Agrokor Group

NOTE 7 OTHER COSTS (in thousands of HRK) 2015 2014 Other material rights of employees 308,677 317,783 Contributions, membership fees and other charges 221,003 137,066 Bank charges 218,970 134,051 Shortages 208,558 44,742 Insurance costs 115,086 84,501 Value adjustments of assets 108,558 101,717 Lawyer and auditor charges 58,692 34,165 Travel expenses 51,789 37,240 Entertainment costs 48,552 44,361 Sponsorships, helps and donations 39,165 17,330 Impairment of financial assets (Note 4) 20,668 7,769 Supervisory board members compensation 10,399 8,154 Provisions 8,675 24,658 Cost of early bond redemption (Note 4) - 275,212 Mandatory litigation expenses (Note 4) - 23,827 Other expenses 317,644 270,986 1,736,436 1,563,562

NOTE 8 EXCESS OF FAIR VALUE OF NET ASSETS OVER THE COST OF ACQUISITION NET OF WRITTEN OF GOODWILL (in thousands of HRK) 2015 2014 Excess of fair value of net assets over the cost of acquisition 1,287,744 514,757 Written off goodwill (157,828) (102,990) 1,129,916 411,767

Excess of fair value of net assets over the cost of acquisition is related to acquisition of shares in Poslovni sistemi Mercator d.d. and INIT d.d. Written off goodwill relates to partial impairment of goodwill for Konzum d.d., Ambalažni servis and Super Kartica d.o.o. Bosnia and Herzegovina. Goodwill was impaired due to future plans and expectations that remaining goodwill will not be recoverable in future periods.

NOTE 9 FINANCIAL INCOME (in thousands of HRK) 2015 2014 Interest income 374,906 269,684 Foreign exchange gains 186,140 79,488 Dividends received 567 382 Other financial income – swap and forward 192,081 227,426 753,694 576,980

NOTE 10 FINANCIAL EXPENSES (in thousands of HRK) 2015 2014 Interest expense 2,361,128 1,994,316 Foreign exchange losses 407,911 508,045 2,769,039 2,502,361

40 Agrokor Group

NOTE 11 PROFIT/ (LOSS) AFTER TAX FOR THE YEAR FROM DISCONTINUING OPERATIONS AND SALE OF SUBSIDIARY (in thousands of HRK) 2015 2014 Sale of subsidiary 118,373 56,627 Profit/(loss) after tax for the year from discontinuing operations - 33,232 118,373 89,859

Sale of subsidiary relates to sales of control package of shares in Dijamant -Agrar a.d. and 49% of shares in Ambalažni servis d.o.o.

NOTE 12 COMPONENTS OF OTHER COMPREHENSIVE INCOME (in thousands of HRK) 2015 2014 Cash flow hedge: Gains/(losses) arising during the year: Reclassification during the year to profit or loss 26,517 9,359 Net gain/(loss) during the year - - 26,517 9,359

Available for sale financial assets Gains/(losses) arising during the year 5,074 10,282 5,074 10,282

41 Agrokor Group NOTE 13 INTANGIBLE ASSETS (in thousands of HRK) Goodwill Concession Software and Brand Assets Total At 31 December 2013 rights other rightsand names constructionunder Cost 1,321,548 20,613 971,626 - 23,721 2,337,499 Accumulated amortization - (17,922) (469,258) - - (487,180) Net book amount 1,321,548 2,691 502,368 - 23,721 1,850,319

At 01 January 2014 Opening net book amount 1,321,548 2,691 502,368 - 23,721 1,850,319 Acquisition (new subsidiaries) 55,730 - 126,777 - 322 182,829 Additions - - - - 135,070 135,070 Transfer - - 125,119 - (125,119) - Disposals (46,564) - (8,690) - (1,216) (56,470) Write-off (144,704) - - - - (144,704) Transfer from other category - - 12 - (4,109) (4,097) Amortization - (212) (106,713) - - (106,925) Advance payments for intangible assets - - (583) - - (583) Foreign exchange differences - 8 (1,303) - (8) (1,303) Net book amount 1,186,010 2,487 636,987 - 28,652 1,854,136

At 31 December 2014 Cost 1,186,010 20,626 1,530,652 - 28,652 2,765,940 Accumulated amortization - (18,139) (893,665) - - (911,804) Net book amount 1,186,010 2,487 636,987 - 28,652 1,854,136

At 01 January 2015 Opening net book amount 1,186,010 2,487 636,987 - 28,652 1,854,136 Acquisition (new subsidiaries) 211,368 - 97 1,589,899 - 1,801,364 Additions - - - - 272,191 272,191 Transfer - - 281,975 - (281,975) - Increase/decrease (22,939) - 1,515,871 - - 1,492,932 Mergers 14,493 - 156,871 - - 171,364 Write-off (157,828) - - - - (157,828) Transfer from other category - - (14,790) - (1,902) (16,692) Amortization - (212) (147,508) - - (147,720) Advance payments for intangible assets - - (583) - - (583) Foreign exchange differences - (9) (1,375) - - (1,384) Net book amount 1,231,104 2,266 2,427,545 1,589,899 16,966 5,267,780

At 31 December 2015 Cost 1,231,104 20,611 3,572,528 1,589,899 16,966 6,431,108 Accumulated amortization - (18,345) (1,144,983) - - (1,163,328) Net book amount 1,231,104 2,266 2,427,545 1,589,899 16,966 5,267,780

Concession rights relate to the concession for extraction of the mineral water granted to Jamnica d.d. and Sarajevski kiseljak d.d. The concession is amortised according to the accounting policy (Note 1.8).

Other intangible assets relates to software and similar intangible assets, as well as investments in intangibles and advances for purchase of intangible assets, as well as brands and trade marks.

Software and other rights In line with the development plan from 2011 to 2015, Konzum d.d., Zagreb made planned investments in Konzum d.o.o, Sarajevo, strengthening it to take a leading position on the retail and wholesale markets of Bosnia and Herzegovina, through its own potentials and acquisitions, providing it complete logistical support for all aspects of sales, marketing, IT, development of own brands and other. By merging operations of Mercator BIH to Konzum d.o.o., Sarajevo, the estimated value of Konzum d.o.o., Sarajevo is HRK 1.900.000 thousand. Long-term investment created great intangible value in the of form brands, market shares, customer lists, marketing space, market size etc. The value of this project amounts HRK 1.515.506 thousand and is reflected in other intangible assets on the Agrokor Group level and will be depreciated during the useful life of 10 years. Value of the share is recorded in the parent Agrokor d.d. at market value. 42 Agrokor Group

As at 31 December 2015 the goodwill relates to the following companies: Frikom d.o.o. in the amount of HRK 85,921 thousand - acquired in 2003, Sarajevski kiseljak d.d. in the amount of HRK 12,002 thousand - acquired in 2001, Dijamant a.d. in the amount of HRK 140,366 thousand and Idea d.o.o. in the amount of HRK 5,673 thousand - acquired in 2005, Euroviba d.o.o. in the amount of HRK 31,219 thousand, Krka d.o.o. in the amount of HRK 27,551 thousand and Tisak d.d. in the amount of HRK 246,871 thousand - acquired in 2007, PIK Vinkovci d.d. in the amount of HRK 31,078 thousand, Angropromet d.o.o. in the amount of HRK 121,959 thousand, Konzum d.d. in the amount of HRK 37,322 thousand and Nova Sloga d.o.o. in the amount of HRK 27,756 thousand - acquired in 2009, Roto dinamic d.o.o. in the amount of HRK 155,545 thousand and Roto ulaganja d.o.o. in the amount of HRK 79,662 thousand - acquired in 2012, M-profil SPV d.o.o. in the amount of HRK 24,096 thousand - acquired in 2013, Mercator Group in the amount of HRK 12,703 thousand – acquired in 2014, and Projektgradnja d.o.o. in the amount of HRK 191,380 thousand – acquired in 2015.

As all the entities represent single cash generating units, goodwill impairment testing was performed on an entity basis.

The recoverable amounts of cash generating units have been determined based on a value in use calculation using cash flow projections based on financial plans covering a five-year period. The discount rate applied to cash flow projections ranges from 9.7 to 12.4 percent, while the cash flows beyond the 5-year period were extrapolated using a minimal inflation rate. The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year, increased for expected any applicable efficiency improvements.

NOTE 14 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (in thousands of HRK) 2015 2014 Investments in associates Balance at 1 January 55,863 42,820 Sale/transfer of shares (19,242) (9,632) Acquisitions 142,157 29,864 Share of gain/loss of associates (3,957) (7,189) Balance at 31 December 174,821 55,863

Acquisition in the amount of HRK 142,157 thousand relates to the investment in Karisma Hotels Adriatic d.o.o. in the amount of HRK 7,650 thousand, investment in Zagreb plakat d.o.o. in the amount of HRK 112.115 thousand, investment in KHA četiri d.o.o. in the amount of HRK 15.000 thousand, investment in Tisak Inpost d.o.o. in the amount of HRK 3,642 and investment in Photo Boutique d.o.o. in the amount of HRK 3,750 thousand. The Group has 50 % ownership of Jana North America, Inc., 30% ownership of Gulliver travel d.o.o., 33% ownership in Karisma Hotels Adriatic d.o.o., 35% ownership in A.N.P. Energija d.o.o., 49% ownership in Zagreb plakat d.o.o., 25% ownership in KHA četiri d.o.o., 34% ownership in Tisak Inpost d.o.o. and 33% ownership in Photo Boutique d.o.o.

Summarized financial information of associates

Jana North America, Inc. (in thousands of HRK) 2015 2014 Current assets 1,971 4,104 Non-current assets 66 59 Current liabilities (51,663) (34,451) Non-current liabilities - - Net assets (49,627) (30,288)

Revenue 9,950 10,676 Loss (16,949) (11,379)

43 Agrokor Group

Gulliver travel d.o.o. (in thousands of HRK) 2015 2014 Current assets 46,378 44,708 Non-current assets 5,058 5,312 Current liabilities (29,446) (45,420) Non-current liabilities - (46) Net assets 21,989 4,554

Revenue 108,863 87,881 Profit 2,823 1,212

A.N.P. Energija d.o.o. (consolidated) (in thousands of HRK) 2015 2014 Current assets 144,890 154,889 Non-current assets 174,318 89,029 Current liabilities (49,218) (45,816) Non-current liabilities (244,475) (136,325) Net assets 25,514 61,777

Revenue 54,762 46,392 Loss (36,261) (8,586)

Karisma Hotels Adriatic d.o.o. (in thousands of HRK) 2015 2014 Current assets 19,260 70,643 Non-current assets 136,881 36,559 Current liabilities (71,984) (48,402) Non-current liabilities (9) - Net assets 84,149 58,800

Revenue 15,508 4,254 Profit / (Loss) 293 (4,734)

KHA četiri d.o.o. (in thousands of HRK) 2015 Current assets 11,809 Non-current assets 118,000 Current liabilities (32) Non-current liabilities - Net assets 129,777

Revenue 344 Loss (492)

Zagreb plakat d.o.o. (in thousands of HRK) 2015 Current assets 15,728 Non-current assets 1,108 Current liabilities (2,615) Non-current liabilities (10) Net assets 14,212

Revenue 30,831 Loss 7,634

44 Agrokor Group

Tisak Inpost d.o.o. (in thousands of HRK) 2015 Current assets 3,422 Non-current assets 3,680 Current liabilities (59) Non-current liabilities - Net assets 7,043

Revenue 129 Loss (242)

Photo boutique d.o.o. (in thousands of HRK) 2015 Current assets 138 Non-current assets 4,710 Current liabilities (1,632) Non-current liabilities - Net assets 3,216

Revenue 1,798 Loss (75)

NOTE 15 OTHER NON-CURRENT FINANCIAL ASSETS

(in thousands of HRK) 2015 2014

Investment securities available for sale 1,665,463 548,662 Held-to-maturity investments 87,220 95,723 Loans 1,169,387 1,576,053 Long-term deposits 397,673 638,921 Other assets 281,599 266,009 Other financial instruments - swap - 59,464 Balance at 31 December 3,601,342 3,184,832

Long term deposits mainly relate to deposits per leasing which bear no interest and are due at the day of repayment of contractual liabilities. Other long term deposits bear an interest of 2% to 6.5% and are due from 2 to 10 years.

(in thousands of HRK) Available for sale investments 2015 2014 Unquoted equity investments measured at cost 1,528,079 414,969 Quoted equity investments 137,384 133,693 1,665,463 548,662

Investments in available for sale equity investments that are not quoted on an active market are measured at cost. During 2015 there was no impairment of available for sale investments.

Held to maturity investments include investments in debt securities which the Group acquired in previous periods and intends to hold to maturity. Those investments are valued at amortised cost.

45 Agrokor Group (in thousands of HRK) Loans given 2015 Maturity Interest Housing employee loans 326,780 3-20 years 4.5-6% Loans given for real estate development 385,060 2-15 years 2.5-9% Loans given for investments 85,379 2 years 4-9% Loans given for business support 231,974 2-4 years 7-10% Other 140,194 within 3 years 7-9% Total 1,169,387

(in thousands of HRK) Loans given 2014 Maturity Interest Housing employee loans 207,065 3-20 years 4.5-6% Loans given for real estate development 531,694 2-15 years 2.5-9% Loans given for investments 392,787 2 years 4-9% Loans given for business support 328,897 2-4 years 7-10% Other 115,610 within 3 years 7-9% Total 1,576,053

46 Agrokor Group

NOTE 16 PROPERTY, PLANT AND EQUIPMENT (in thousands of HRK) Land and Plant, Leasehold Other Fixed Items in Total Buildings Machinery improvements Assets course of and construction Equipment At 31 December 2013 Cost 12,742,617 6,757,277 1,988,250 32,678 536,397 22,057,219 Accumulated depreciation (3,003,383) (4,342,152) (789,766) - - (8,135,301) Net book amount 9,739,234 2,415,125 1,198,484 32,678 536,397 13,921,918

At 01 January 2014

Opening net book amount 9,739,234 2,415,125 1,198,484 32,678 536,397 13,921,918 Acquisition (new subsidiaries) 10,958,579 1,087,924 403,636 - 131,946 12,582,085 Additions - - - - 1,305,885 1,305,885 Transfer 258,922 638,188 388,575 - (1,285,685) - Disposals (299,081) (227,062) (226,858) - (88,429) (841,430) Transfer to other category (68) 67 - - 4,097 4,096 Depreciation (301,017) (504,354) (216,502) - - (1,021,873) Advance payments for tangible assets - - - (7,762) - (7,762) Transfer to assets held for sale (151,614) (22,931) - (120) (5,774) (180,439) Foreign exchange differences (50,512) (17,456) (10,790) (547) (3,927) (83,232) Other 17,009 25,128 (5,843) - (105,943) (69,649) Net book amount 20,171,452 3,394,629 1,530,702 24,249 488,567 25,609,599

At 31 December 2014 Cost 27,428,093 10,004,648 2,532,165 24,249 488,567 40,477,722 Accumulated depreciation (7,256,641) (6,610,019) (1,001,463) - - (14,868,123) Net book amount 20,171,452 3,394,629 1,530,702 24,249 488,567 25,609,599

Net balance at 31 December 2014 at historical cost 15,963,663 3,394,629 1,530,702 24,249 488,567 21,401,810 at revalued amounts 4,207,789 - - - - 4,207,789 20,171,452 3,394,629 1,530,702 24,249 488,567 25,609,599

At 01 January 2015 Opening net book amount 20,171,452 3,394,629 1,530,702 24,249 488,567 25,609,599 Acquisition (new subsidiaries) 59,020 15,580 35 87 - 74,722 Additions - - - - 1,199,957 1,199,957 Transfer 259,573 717,014 216,877 - (1,193,464) - Disposals (237,709) (134,689) (2,008) - (11,360) (385,766) Transfer to other category 15,222 (654) (589) - 2,713 16,692 Revaluation (235,224) - - - - (235,224) Depreciation (502,934) (647,031) (281,654) - - (1,431,619) Advance payments for tangible assets - - - 9,619 - 9,619 Transfer to assets held for sale (1,676,955) (3,056) (204,463) - (120) (1,884,594) Foreign exchange differences (49,645) (4,128) (3,003) (126) (1,267) (58,169) Other 29,110 8,790 17,325 (141) (3,873) 51,211 Net book amount 17,831,910 3,346,455 1,273,222 33,688 481,153 22,966,428

At 31 December 2015 Cost 24,633,880 10,007,098 2,502,291 33,688 482,672 37,659,629 Accumulated depreciation (6,801,970) (6,660,643) (1,229,069) - (1,519) (14,693,201) Net book amount 17,831,910 3,346,455 1,273,222 33,688 481,153 22,966,428

Net balance at 31 December 2015 at historical cost 13,966,030 3,346,455 1,273,222 33,688 481,153 19,100,548 at revalued amounts 3,865,880 - - - - 3,865,880 17,831,910 3,346,455 1,273,222 33,688 481,153 22,966,428

47 Agrokor Group As at 31 December 2015 the Group share of revaluation surplus in respect of revalued assets amounts to HRK 862,265 thousand.

Property, plant and equipment with a book value of HRK 5,435,527 thousand (31 December 2014: HRK 5,710,427 thousand) has been pledged as collateral.

Revaluation surplus included in the equity with respect to this revaluation is not distributable until realized.

Leased assets included in property, plant and equipment are as follows: (in thousands of HRK) 2015 2014 Cost At 1 January 2,467,440 26,919 Acquisitions 3,407 2,500,984 Additions 48,298 2,296 Disposal (6,837) (62,759) Cost at 31 December 2,513,308 2,467,440

Accumulated depreciation at 1 January 497,202 20,440 Acquisitions 2,461 478,154 Charge for the year 52,664 14,586 Disposal (3,300) (15,978) Accumulated depreciation at 31 December 549,027 497,202 Net balance at 31 December 1,963,281 1,970,238

Total net book value of property, plant and equipment includes investment property in total amount of HRK 25,589 thousand. Investments in property are valued at cost and depreciated using linear depreciation method.

NOTE 17 (in thousands of HRK) INVENTORIES 2015 2014 Raw materials 614,117 616,074 Work in progress 1,198,246 983,252 Merchandise 4,844,062 4,554,380 Finished goods 925,898 934,060 7,582,323 7,087,766

NOTE 18 BIOLOGICAL ASSETS

Agricultural production of Agrokor Group is divided into crop husbandry, pig farming, cattle fattening, dairy farming, vineyards, apple orchards and olive groves.

Biological assets at fair value a) Current biological assets (in thousands of HRK) 2015 2014 Livestock 289,112 274,837 289,112 274,837 b) Non-current biological assets (in thousands of HRK) 2015 2014 Biological assets as at 1 January 257,060 243,958 Increase due to purchases 10,797 27,561 Gains arising from changes in fair value less estimated point of sale costs 53,079 47,458 Decreases due to sales (64,196) (61,917) Biological assets as at 31 December 256,740 257,060

48 Agrokor Group

Biological assets at cost Cost as an approximation of the fair value is used for crop husbandry, vineyards, apple orchards and olive groves valuation, due to the fact no active market for those biological assets in its present condition exists and no reliable estimate of future cash flows is available.

a) Current biological assets (in thousands of HRK) 2015 2014 Crops 404,134 367,402 404,134 367,402

b) Non-current biological assets (in thousands of HRK) Movement of biological assets during the year 2015 2014 Gross book value as at 1 January 271,513 280,509 Increase due to purchases 14,070 10,949 Decreases due to sales (15,008) (19,926) Foreign exchange differences (3) (19) Gross book value as at 31 December 270,572 271,513

Depreciation as at 1 January 84,146 74,778 Additions 13,588 17,892 Disposals (4,803) (8,505) Foreign exchange differences (3) (19) Depreciation as at 31 December 92,928 84,146

Net book value of biological assets as at 1 January 187,367 205,731

Net book value of biological assets as at 31 December 177,644 187,367

The fair value of livestock is determined based on market prices of livestock of similar age, breed, and genetic merit. The fair value of crops is determined based on market prices in regional area. Revenues related to biological assets are included in Sales and costs are included in other expenses.

Total biological assets (in thousands of HRK) 2015 2014 Non-current biological assets 434,384 444,427 Livestock and crops 693,246 642,239

(in thousands of HRK) c) GOVERNMENT GRANTS 2015 2014 Fattening of livestock 59,985 49,209 Agricultural production (sowing, orchards and vineyards) 125,908 71,723

TOTAL 185,893 120,932

Government grants are unconditional and relate to biological assets measured at its fair value less estimated point-of-sale costs. Income is recognised (Note 5) when the government grant becomes receivable.

NOTE 19 ASSETS HELD FOR SALE

At 31 December 2015 assets held for sale in the total amount of HRK 1,806,756 thousand (31 December 2014 in the total amount of HRK 308,902 thousand) relate to buildings and land in the amount of HRK 1,689,209 thousand and securities in the amount of HRK 117,547 thousand. A disposal is due to be completed in the one year period and as at 31 December 2015 final negotiations for the sale were in progress.

49 Agrokor Group

NOTE 20 LOANS AND DEPOSITS (in thousands of HRK) 2015 2014 Loans granted 1,086,461 1,482,209 Deposits 68,743 182,075 1,155,204 1,664,284

(in thousands of HRK) Loans granted 2015 Maturity Interest Commercial loans to farmers 115,398 up to 12 months 4-8% Other loans 971,063 up to 12 months 4-10% 1,086,461

(in thousands of HRK) Loans granted 2014 Maturity Interest Commercial loans to farmers 267,055 up to 12 months 4-8% Other loans 1,215,154 up to 12 months 4-10% 1,482,209

Deposits relate to bank and other short term placements in the normal course of business which bear interest at annual rate of 2-4%, with maturity from 3 to 12 months.

NOTE 21 ACCOUNTS RECEIVABLE (in thousands of HRK) 2015 2014 Trade accounts receivable 5,228,832 5,425,421 Other receivables 1,439,571 1,706,814 Value adjustment of trade receivables (811,749) (873,503) 5,856,654 6,258,732

As at 31 December, the ageing analysis of trade receivables is as follows expressed in thousands of HRK: Due Neither past due Total nor impaired < 90 days 90-180 days 180-270 days >270 days 2015 4,417,083 2,892,243 830,014 378,833 77,674 238,319 2014 4,551,918 3,013,485 905,138 210,953 115,548 306,794 Value adjustment is made for all outstanding domestic receivables older than 360 days and based on individual assessments.

Movements in the provision for impairment of trade receivables were as follows: (in thousands of HRK) 2015 2014 At 1 January 873,503 531,963 Acquisitions during the year 3,204 294,350 Charge for the year 96,682 157,618 Amounts written off (161,640) (110,428) At 31 December 811,749 873,503

NOTE 22 OTHER CURRENT ASSETS (in thousands of HRK) 2015 2014 Prepaid expenses 604,748 476,585 Other advance payments 67,372 134,936

672,120 611,521

50 Agrokor Group

NOTE 23 CASH AND CASH EQUIVALENTS (in thousands of HRK) 2015 2014 Cash in bank and cash on hand 845,517 973,671 Short term deposits 1,763,101 1,707,643 2,608,618 2,681,314 Short term deposits bear interest up to 4%.

NOTE 24 SHARE CAPITAL AND RESERVES

Number Nominal Value of shares value in 000 HRK AGKR-R-A 360,246 500 HRK 180,123

360,246323.182 180,123161.591

The Company’s share capital amounts to HRK 180,123,000.00 and is divided in 360,246 regular registered shares, designated AGKR-R-A, each in the nominal value of HRK 500.00. Share capital is paid in full.

Retained earnings include legal reserves and foreign currency translation reserve. Legal reserves are not distributable in the amount of HRK 221,713 thousand.

The decision of paying dividends is brought at the General Assembly. After the balance sheet reporting date until the date of signing of this report such a decision was not made.

NOTE 25 NON-CONTROLLING INTERESTS (in thousands of HRK) 2015 2014 Balance at 1 January 5,177,485 2,938,713 Acquisitions (97,630) 2,318,723 Dividends paid (44,868) (58,214) Result for the year 237,784 17,463 Revalorization (33,661) - Treasury shares - (489) Provisions (10,348) (10,284) Foreign exchange (10,649) (28,427) Balance at 31 December 5,218,113 5,177,485

51 Agrokor Group NOTE 26 LEASE LIABILITIES AND COMMITMENTS

FINANCE LEASE LIABILITIES

Assets acquired under finance leases are real estate and transportation equipment. (in thousands of HRK) 2015 2014 Payable over 5 years 366,674 556,429 Payable in 4 to 5 years 189,211 332,644 Payable in 3 to 4 years 168,391 141,117 Payable in 2 to 3 years 120,392 141,372 Payable in 1 to 2 years 121,575 167,358 Payable within 1 year 371,400 132,341 Less future finance charges (82,552) (120,706) Included in borrowings (Note 27) 1,255,091 1,350,555 Less current portion of obligation (371,400) (132,341) Total long-term obligation 883,691 1,218,214

OPERATING LEASE COMMITMENTS

Operating lease commitments relate primarily to buildings (including leased retail shops), equipment and motor vehicles. (in thousands of HRK) 2015 2014 Payable over 5 years 1,722,947 2,362,645 Payable in 2 to 5 years 1,677,273 1,774,991 Payable in 1 to 2 years 765,887 815,248 Payable within 1 year 952,847 901,544 5,118,954 5,854,428

Average cancellation period in operating lease agreements is between 6 - 9 months.

Operating lease commitments are not provided for in the financial statements in accordance with accounting conventions.

CAPITAL COMMITMENTS Capital commitments at the balance sheet date amount to HRK 152,546 thousand (31 December 2014: HRK 117,767 thousand).

52 Agrokor Group

NOTE 27 BORROWINGS (in thousands of HRK) Long-term borrowings 2015 2014

Bank loans 16,319,771 13,487,028 Bonds 6,808,484 6,603,515 Non-bank loans 30,362 34 Finance leases (Note 26) 1,255,091 1,350,555 Total long-term borrowings 24,413,708 21,441,132

Current portion of long-term borrowings Bank loans (4,347,871) (481,048) Non-bank loans (12,791) (34) Finance leases (Note 26) (371,400) (132,341)

Total current portion of long-term borrowings (4,732,062) (613,423)

Long-term debt 19,681,646 20,827,709

Short-term borrowings Bank loans 1,126,860 2,217,660 Non-bank loans 303,440 29,367 Total short-term borrowings 1,430,300 2,247,027

TOTAL BORROWINGS 25,844,008 23,688,159

Maturity of long term bank loans and bonds can be analysed as follows: (in thousands of HRK) Maturity Bank loans and bonds 2017 3,459,097 2018 841,494 2019 3,376,253 2020 5,941,003 2021 5,150,147 2022 and later 12,390 18,780,384

Currency linkage of long term bank loans can be analysed as follows: (in thousands of HRK) Maturity EUR USD CHF HRK 2017 3,444,915 - 7,770 6,412 2018 826,838 - 3,860 10,796 2019 3,355,470 - 4,566 16,216 2020 2,833,330 3,012,190 6,849 88,634 2021 5,106,322 - 43,825 - 2022 and later 12,390 - - - 15,579,265 3,012,190 66,870 122,059

The Group finances itself via a combination of fixed income instruments and variable rate loans. Variable interest rates are predominantly linked to EURIBOR and Belibor. The coupons/interest rates range between 3% and 10% p.a.

Agrokor’s debt consists primarily of two Senior Notes and other bilateral facilities with banks and financial institutions. The 2019 Senior Notes were issued at par in an aggregate principal amount of €300 million. The 2019 Senior Notes are scheduled to mature on May 1, 2019 and accrue interest at a rate of 9.875% per annum. The euro-denominated 2020 Notes were issued at par in an aggregate principal amount of €325 million. The euro-denominated 2020 Notes are scheduled to mature on February 1, 2020 and accrue interest at a rate of 9.125% per annum. The dollar-denominated 2020 Notes were issued at par in an aggregate principal amount of $300 million. The dollar-denominated 2020 Notes are scheduled to mature on February 1, 2020 and accrue interest at a rate of 8.875% per annum. Bilateral facilities consist, amongst others, of the €150 million VTB Facility scheduled to mature on December 23, 2016 and accrues interest at a rate of EURIBOR plus a margin of 5.10%, €210 million consisting of three term loan facilities of €90 million, €60 million and €60 million. The three facilities under the VTB 2014 Facility are scheduled to mature on June 21, 2017, June 21, 2017 and June 21, 2020 and accrue interest at rates of EURIBOR plus a margin 53 Agrokor Group of 5.00%, EURIBOR plus a margin of 3.62% and EURIBOR plus a margin of 5.00% respectively. The €600 million Sberbank Facility is scheduled to mature on March 14, 2021 and accrues interest at a rate of EURIBOR plus a margin of 5.30%.

The covenants of Agrokor’s debt facilities are in line with the 2019 and 2020 Senior Notes and are guaranteed by the following companies: Agrokor-trgovina d.d., Jamnica d.d., Konzum d.d., Ledo d.d., Ledo d.o.o. Čitluk, PIK Vinkovci d.d., Sarajevski kiseljak d.d., Zvijezda d.d.

Mercator’s debt consists of the “wider group” deal and the Serbian deal and comprise of several tranches. The various tranches have a range of maturities falling between 2019 and 2021. The blended yearly weighted average interest rate for the period from the signing of the facilities in June 2014 to the maturity of the final tranche in June 2021 is 3.2%. The wider group transaction comprises the restructured Mercator debt in the Federation of Bosnia and Herzegovina, Republic of Srpska, Croatia, Montenegro and Slovenia. Borrowers under the wider group transaction are Mercator and its subsidiaries including Mercator - BH, d.o.o., Mercator - H, d.o.o., Mercator - CG, d.o.o., Mercator - Emba, d.d., Intersport ISI, d.o.o. and Mercator - BL, d.o.o. These entities are also guarantors for the wider group transaction together with Mercator subsidiaries Mercator IP, d.o.o. and M - Energija, d.o.o. The Borrower under the Serbian deal is Mercator S and the obligations under the Serbian Facility are secured over material assets of Mercator S.

Property, plant and equipment with a book value of HRK 5,435,527 thousand (31 December 2014: HRK 5,710,427 thousand) has been pledged as collateral for HRK 5,280,080 thousands of borrowings.

NOTE 28 EMPLOYEE BENEFIT OBLIGATIONS

All employees are covered by the State pension fund. Provisions are established for other employee benefits payable in respect of retirement and jubilee (length of service) as well as scholarships for children of employees that died at work. Retirement benefits are dependent on the employees fulfilling the required conditions to enter retirement from the Group and jubilee benefits are dependent on the number of years of service. The amount of all benefit entitlements is determined by the respective employee’s monthly remuneration. The movement in the liability for employee benefits is recognised in the balance sheet as follows: (in thousands of HRK) 2015 2014 Net liability, beginning of year 206,069 67,693 Acquisitions 2,248 106,057 Net change recognised in the income statement 59,303 53,629 Payments made during the year (22,262) (21,310) Net liability, end of year 245,358 206,069

The principal actuarial assumptions used to determine retirement benefit obligations as of 31 December were as follows: 2015 2014 Discount rate (annually) 2.00%-4.50% 4.00% Wage and salary increases (annually) 0.50%-4.00% 0.50%-1.50%

Other long-term employee benefits are determined by using a method of predictable employer liability per employee. Gains and losses which arise from changes in actuarial assumptions are recognized as revenue/cost in the period in which they have occurred.

NOTE 29 ACCOUNTS PAYABLE (in thousands of HRK) 2015 2014 Accounts payable - domestic 8,101,032 7,741,377 Accounts payable - foreign 1,104,375 1,277,016 Accruals for goods received and not invoiced 239,083 601,826 Bills of exchange 6,497,047 6,326,160

15,941,537 15,946,379

Bills of exchange relate to the liabilities toward suppliers for goods delivered and services provided for which the bill of exchange was created.

54 Agrokor Group NOTE 30 OTHER CURRENT LIABILITIES (in thousands of HRK) 2015 2014 Sales and employment taxes 308,403 399,851 Amounts due to employees 255,835 295,374 Advance payments 598,616 701,379 Other current liabilities 311,630 293,308 Accrued expenses and deferred income 619,237 623,997 2,093,721 2,313,909

NOTE 31 TAXATION, (in thousands of HRK) Tax charge for the year 2015 2014 Croatian corporate taxation 247,076 239,707 Foreign corporate taxation 89,089 (14,511) Deferred taxation - - 336,165 225,196

Income taxes paid during 2015 amounted to HRK 219,052 thousand (2014: HRK 224,632 thousand).

In accordance with Croatian tax law, every company within the Group in the Republic of Croatia is independently liable for corporate tax at a rate of 20% (31 December 2014 - 20%). Several subsidiaries have tax losses amounting to HRK 2,000,826 thousand (31 December 2014: HRK 2,012,768 thousand) which are available to be carried forward against their future taxable income. Due to the uncertainty as to whether these assets could be utilised in the short to medium term no deferred tax asset has been recognised. Unutilised tax losses of HRK 468,763 thousand will expire in 2016 and, if not utilised, will be forfeited by the subsidiaries. The tax losses carried forward utilised in 2015, amounted to HRK 292,180 thousand (31 December 2014: HRK 444,754 thousand).

The deferred tax liability consists of: (in thousands of HRK) 2015 2014 Deferred tax liability related to land revaluation 752,574 786,411 Deferred tax liability related to accelerated depreciation for the tax purposes 46,329 47,305 Total 798,903 833,716

Movements of deferred tax liability are as follows: (in thousands of HRK) 2015 2014 Deferred tax liability at 1 January 833,716 612,401 Deferred tax arising land revaluation and on acquisition (28,974) 199,625 Deferred tax arising on valuation of available for sale investments (4,043) 2,984 Deferred tax (1,796) 18,706 Deferred tax liability at 31 December 798,903 833,716

Deferred taxation obligations for revalued land occurred due to the fact that according to the present applicable regulations revaluation surplus is taxable in the year of realisation, and not in the year of conducting the revaluation. The remaining deferred taxation obligations were created due to adjusting the depreciation charge of some of the subsidiaries to the group policies.

NOTE 32 CONTINGENCIES

The Group is involved in commercial litigation relating to the collection of outstanding amounts from debtors of HRK 637,522 thousand and disputes with creditors over amounts of HRK 122,277 thousand. In addition, proceedings are ongoing in relation to other short-term receivables of HRK 232,636 thousand and other short-term liabilities of HRK 252,988 thousand.

55 Agrokor Group NOTE 33 RELATED PARTY TRANSACTIONS

The volumes of related party transactions (Jana North America, Inc., Gulliver travel d.o.o., Karisma Hotels Adriatic d.o.o., A.N.P. Energija d.o.o., KHA četiri d.o.o., Zagreb plakat d.o.o., Tisak Inpost d.o.o. and Photo boutique d.o.o.) outstanding balances at the year-end and relating income for the year are as follows: (in thousands of HRK) ACCOUNTS RECEIVABLE 2015 2014 Accounts receivable 50,351 62,254 Other receivables 42,426 94,368 92,777 156,622

(in thousands of HRK) LIABILITIES 2015 2014 Accounts payable 583 9,663 Other 49 - 632 9,663

(in thousands of HRK) INCOME 2015 2014 Sales revenue 116,195 124,180 Other revenue 2,232 3,678 118,427 127,858

NOTE 34 FAIR VALUE MEASUREMENT

Based on the calculation of their fair value, financial instruments are divided into three levels:  Level 1: quoted (stock) prices for assets or liabilities  Level 2: assets or liabilities not included in Level 1, the value of which is determined directly or indirectly based on comparable market data  Level 3: assets or liabilities, the value of which is not based on active market basis.

Fair value measurement hierarchy for assets as at 31 December 2015: (in thousands of HRK)

Level 1 Level 2 Level 3 Total Investment securities available for sale 137,384 - - 137,384 Held to maturity investments - - 87,220 87,220 Loans and deposits - - 3,003,863 3,003,863 Accounts receivable - - 5,856,654 5,856,654 Derivative financial instruments - assets - - - - Derivative financial instruments – liabilities - - - Financial liabilities - - (25,844,008) (25,844,008) Accounts payable - - (15,941,537) (15,941,537)

Fair value measurement hierarchy for assets as at 31 December 2014: (in thousands of HRK)

Level 1 Level 2 Level 3 Total Investment securities available for sale 133,693 - - 133,693 Held to maturity investments - - 95,723 95,723 Loans and deposits - - 4,145,267 4,145,267 Accounts receivable - - 6,258,732 6,258,732 Derivative financial instruments - assets - 59,464 - 59,464 Derivative financial instruments – liabilities - - - - Financial liabilities - - (23,688,159) (23,688,159) Accounts payable - - (15,946,379) (15,946,379)

Available-for-sale financial assets also include investments valued at historical cost in the amount of HRK 1,528,079 thousand.

56 Agrokor Group NOTE 35 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES a) FINANCIAL INSTRUMENTS

Existing derivative financial instruments or any financial instruments do not expose the Group to concentration of credit risk. It is the Group’s policy to enter into financial instruments with a diversity of creditworthy counterparties. Therefore, the Group does not expect to incur material credit losses on its risk management or other financial instruments.

Fair values of financial assets and liabilities Fair value represents the amount for which an asset could be exchanged or a liability settled on an arm’s length basis. As market prices are not available for a portion of the Group’s financial assets and liabilities, fair values have been based on management assumptions according to the profile of the respective assets and liabilities. The Management Board believes that the fair values of assets and liabilities (unless otherwise disclosed in this note) are not significantly different from book values.

The Group has used the following methods and assumptions when assessing the fair value of financial instruments:

Amounts Due from Banks For assets maturing within three months, the carrying amount approximates fair value due to the relatively short term maturity of these financial instruments. For longer term deposits, the interest rates applicable approximate market rates and, consequently, the fair value approximate the carrying amounts.

Loans granted As practically all loans are short term, the Management Board believes that their fair values are not significantly different from book values.

Investment securities Securities available for sale are included in the balance sheet at their fair values. Securities whose fair value cannot be reliably measured as they are not actively traded are included at acquisition cost. The Management believes that their fair values approximate their carrying amounts.

Loan liabilities For balances maturing within one year the carrying amount approximates fair value due to the relatively short term maturity of these financial instruments. Nominal value of our Senior Notes issued amounted to HRK 6,808.5 million, while their fair value as at 31 December 2015, based on closing prices on the Stock Exchange, amounted to HRK 7,295.3 million. The 2019 Senior Notes traded at 107.4% of nominal value. The EUR and USD tranche of the 2020 Senior Notes traded at 107.2% and 106.8%, respectively. As a portion of other longer term funds received is contracted with variable interest rates, their fair value approximates the carrying amounts. For longer term funds with fixed interest rates, the average interest rates applicable approximate market rates and, consequently, the fair value approximate the carrying amounts.

Biological assets The Group is exposed to financial risks arising from changes in livestock and crops prices. The Group does not anticipate that livestock or crops prices will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in livestock or crops prices. The Group reviews its outlook for livestock and crops prices regularly in considering the need for active financial risk management.

b) RISK MANAGEMENT OBJECTIVES AND POLICIES

The main risks arising from the Group’s financial instruments are credit risk, foreign currency risk and interest rate risk. The Management reviews and agrees policies for managing each of these risks and they are summarised below. The Group is exposed to international markets. As a result, it can be affected by changes in foreign exchange rates. The Group also extends credit terms to its customers and is exposed to a risk of default. The significant risks, together with the methods used to manage these risks, are described below. The Group does use derivative instruments to manage risk especially foreign exchange risk related to USD.

Credit risk The Group is exposed to credit risk representing risk that the debtor will not be able to repay its liabilities to the Group as they fall due. The Group manages this risk by setting limits of exposure towards one debtor or group of debtors. As there is no significant concentration of credit exposure, the Group does not consider to be excessively exposed to credit risk.

The Group does not guarantee for obligations of other parties.

Group considers that its maximum exposure is reflected by the amount of debtors net of provisions for impairment recognised

57 Agrokor Group at the balance sheet date.

Liquidity risk Liquidity risk, also referred to as financing risk, is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Group has a strong focus on its cash flow with short-term inflows and outflows forecasts. Surplus of funds is placed in short term deposits and available for sale investments.

Maturity of long term bank loans is presented in Note 27.

The table below summarizes the maturity profile of the Group’s account payables, liabilities for bills of exchange and other liabilities at 31 December 2015 and 2014. (in thousands of HRK) < 90 days 90-180 days 180-270 days >270 days Total Trade payables Year ended 31 December 2015 8,704,041 420,634 222,966 96,849 9,444,490 Year ended 31 December 2014 9,235,601 321,483 44,206 18,929 9,620,219 Bills of exchange Year ended 31 December 2015 3,373,661 2,901,028 222,108 250 6,497,047 Year ended 31 December 2014 3,508,334 2,814,620 2,956 250 6,326,160 Other liabilities Year ended 31 December 2015 1,916,042 57,773 15,178 104,728 2,093,721 Year ended 31 December 2014 2,200,122 60,054 4,058 49,674 2,313,908

The table below summarizes the maturity profile of the Group’s contractual bank loan and bond related liabilities at 31 December 2015 including the interest thereof:

(in thousands of HRK)

Maturity Total

2016 7,027,058 2017 4,661,042 2018 1,822,056

2019 4,302,960

2020 6,651,630

2021 5,480,549

2022 and after 13,183

29,958,478

Interest rate risk As majority of long term debt bears variable interest, the Group considers itself to be exposed to risk of adverse change in interest rates on acceptable level. Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates relative to the interest rate which applies to the financial instrument. Interest rate risk related to cash flow is the risk that the interest cost of an instrument will fluctuate over time.

58 Agrokor Group The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings): (in thousands of HRK) Increase/decrease in Effect on profit before base points tax 2015 EUR +/- 50 63,856 RSD +/- 50 600 BAM +/- 50 109 HRK +/- 50 309 2014 EUR +/- 50 79,129 RSD +/- 50 387 BAM +/- 50 249 HRK +/- 50 686

Foreign currency risk Most of the assets of the Group are denominated in Croatian Kuna. A significant portion of loan liabilities is linked to foreign currency (predominantly EUR). Accordingly, the group is exposed to risk of changes in foreign exchange rates. Considering long term policy of the Republic of Croatia related to maintenance of exchange rate to EUR, the Group does not consider this risk to be significant.

The following table demonstrates the sensitivity to a reasonably possible change in the exchange rate, with all other variables held constant, of the Group’s profit before tax due to changes in the fair value of monetary assets and liabilities, except for the influence of cross currency swap: (in thousands of HRK) Increase/decrease in Effect on profit before rate tax 2015 EUR +/- 5% 870,884 USD +/- 5% 100,677 CHF +/- 5% 70 GBP +/- 5% 534 2014 EUR +/- 5% 731,749 USD +/- 5% 91,835 CHF +/- 5% 110 GBP +/- 5% 38

Capital management The primary objective of the Group’s capital management is to ensure that it support its business and maximise shareholder value. The capital structure of the Group consists of equity attributable to shareholders, comprising issued capital, reserves and retained earnings. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2015 and 31 December 2014.

59 Agrokor Group

ADDITIONAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS – RECTRICTED AND UNRESTRICTED SUBSIDIARIES

The following consolidated financial statements present, on a supplemental basis, the financial position, results of operations, and statements of cash flow for those subsidiaries of Agrokor which have been designated unrestricted subsidiaries for purposes of the Senior Secured Note Indentures. As of December 31st, 2015, the unrestricted subsidiaries were Mercator and its respective subsidiaries. In this section unrestricted subsidiaries are excluded from the Agrokor’s financial results to determine whether the Company is in compliance with the financial covenants governing the Senior Secured Notes and other financial arrangements. Accordingly, management believes that the following presentation is helpful to current and potential investors in the Senior Secured Notes as well as others.

C O N S O L I D A T E D S T A T E M E N T O F I N C O M E For the year ended 31 December 2015 (in thousands of HRK) Agrokor Group “Restricted” “Unrestricted”

consolidated subsidiaries subsidiaries

CONTINUING OPERATIONS: Revenue 47,163,595 28,784,549 19,106,300 Sale of services 1,850,052 824,808 1,423,919 Other income 389,131 347,439 41,697 49,402,778 29,956,796 20,571,916

Changes in inventories of finished goods and work in 256,955 256,369 586 progress Cost of materials and goods sold (34,924,403) (20,130,495) (15,519,567) Cost of services (4,098,365) (2,904,988) (1,542,796) Staff costs (4,704,998) (2,750,486) (1,954,512) Depreciation and amortization (1,620,709) (1,029,978) (599,732) Other costs (1,736,436) (1,236,309) (501,727) Excess of fair value of net assets over the cost of 1,129,916 (153,956) - acquisition, net of written off goodwill Sale of properties, net (53,247) (57,776) 4,529 (45,751,287) (28,007,619) (20,113,219)

Financial income 753,694 729,098 38,854 Financial expenses (2,769,039) (2,489,660) (293,637) (2,015,345) (1,760,562) (254,783)

Share loss of associates (3,957) (3,957) -

PROFIT /(LOSS) BEFORE TAX FROM 1,632,189 184,658 203,914 CONTINUING OPERATIONS:

Taxation (336,165) (285,613) (50,551)

PROFIT FOR THE YEAR FROM CONTINUING 1,296,024 (100,955) 153,363 OPERATIONS

DISCONTINUED OPERATIONS: Loss after tax for the year from discontinued (118,373) (118,373) - operations

PROFIT FOR THE YEAR 1,177,651 (219,328) 153,363

ATTRIBUTABLE TO: Equity holders of the parent 939,867 (394,947) 154,060 Non-controlling interests 237,784 175,619 (697)

60 Agrokor Group

C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N As at 31 December 2015 (in thousands of HRK) Agrokor Group “Restricted” “Unrestricted” consolidated subsidiaries subsidiaries

ASSETS NON-CURRENT ASSETS Property, plant and equipment 22,966,428 12,510,352 10,496,333 Intangible assets 5,267,780 3,528,711 149,170 Biological assets 434,384 434,384 - Investments accounted for using the equity method 174,821 174,821 - Other non-current financial assets 3,601,342 6,041,547 375,535

TOTAL NON-CURRENT ASSETS 32,444,755 22,689,815 11,021,038

CURRENT ASSETS Inventories 7,582,323 5,469.845 2,112,478 Live-stock and crops 693,246 693,246 - Other assets held for sale 1,806,756 146,273 1,660,483 Loans and deposits 1,155,204 1,156,625 47,071 Accounts receivable 5,856,654 4,862,402 1,623,408 Other current assets 672,120 398,299 273,821 Cash and cash equivalents 2,608,618 2,353,421 255,197

TOTAL CURRENT ASSETS 20,374,921 15,080,111 5,972,458

TOTAL ASSETS 52,819,676 37,769,926 16,993,496

EQUITY AND LIABILITIES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital 180,123 180,123 1,926,815 Reserves 2,120,862 879,871 2,915,365 2,300,985 1,059,994 4,842,180

NON-CONTROLLING INTERESTS 5,218,113 2,610,176 1,744

TOTAL EQUITY 7,519,098 3,670,170 4,843,924

LIABILITIES NON-CURRENT LIABILITIES Borrowings 19,681,646 14,048,551 5,907,741 Provision for employee benefits 245,358 72,319 173,039 Deferred tax liability related to land revaluation 752,574 523,924 228,650 Other deferred taxation 46,329 46,329 - Other non-current liabilities 247,520 48,641 198,879

TOTAL NON-CURRENT LIABILITIES 20,973,427 14,739,764 6,508,309

CURRENT LIABILITIES Accounts payable 15,941,537 12,733,426 3,841,145 Income tax payable 129,531 117,895 11,636 Current portion of long-term borrowings 4,732,062 4,221,975 511,383 Bank borrowings 1,126,860 798,537 328,323 Non-bank borrowings 303,440 3,818 299,623 Other current liabilities 2,093,721 1,484,341 649,153

TOTAL CURRENT LIABILITIES 24,327,151 19,359,992 5,641,263

TOTAL LIABILITIES 45,300,578 34,099,756 12,149,572

TOTAL EQUITY AND LIABILITIES 52,819,676 37,769,926 16,993,496

61 Agrokor Group C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S For the year ended 31 December 2015 (in thousands of HRK) Agrokor Group “Restricted” “Unrestricted”

consolidated subsidiaries subsidiaries CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax from continuing operations 1,632,189 184,658 203,914 Loss before tax from discontinued operations (118,373) (118,373) - Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortisation of property plant and equipment 1,620,709 1,029,978 599,732 and intangible assets Excess of fair value of net assets over the cost of acquisition, (1,129,916) 153,956 - net of written off goodwill Financial income (753,694) (729,098) (38,854) Impairment of financial assets 20,668 22,096 (1,428) Loss on sale of properties 53,247 57,776 (4,529) Gain on sale of financial assets 103,832 112,994 (9,163) Value adjustment of receivables 108,558 94,153 14,405 Group share of profit of associates 3,957 3,957 - Financial expenses 2,769,039 2,489,660 293,637 Net cash flows from operating activities before changes in 4,310,216 3,301,757 1,057,714 working capital Change in receivables 258,777 768,454 96,128 Change in inventories (545,564) (400,405) (145,159) Change of liabilities towards creditors (4,842) 239,020 (833,543) Change of other current assets (65,236) 10,198 (75,434) Change in other current liabilities (303,330) (148,150) (100,147) Net cash inflow from operating activities before interest and 3,650,021 3,770,874 (441) taxes Income tax paid (219,052) (210,463) (8,589) Interest paid (2.201,739) (2,057,543) (144,258) Net cash provided from operating activities 1,229,230 1,502,868 (153,288)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries, net of cash acquired (589,959) (204,675) - Additions to properties and intangible assets (1,490,697) (987,113) (580,454) Increase in non-current financial investments (2,550,591) (3,051,178) (2,569) Increase in current investments 509,080 505,823 (40,287) Proceeds from sale of properties 336,472 179,633 157,740 Proceeds from sale of financial assets 113,087 99,259 13,828 Interest received 409,649 395,978 13,733 Dividends received 567 189 378 Net cash used in investing activities (3,262,392) (3,062,084) (437,631)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from non-current debt 3,585,999 3,465,329 239,077 Repayments of non-current debt (613,423) (464,591) (150,267) Proceeds/(repayments) of current debt (1,090,800) (1,263,013) 172,214 (Repayments) of current non-bank debt 274,074 (2,496) 276,570 Dividends paid (190,939) (190,939) - Purchased treasury shares (4,445) (4,445) - Increase of share capital - - - Net cash from financing activities 1,960,466 1,539,845 537,594

NET INCREASE IN CASH AND CASH EQUIVALENTS (72,696) (19,371) (53,325)

CASH AND CASH EQUIVALENTS, BEGINNING OF 2,681,314 2,372,792 308,522 THE YEAR

CASH AND CASH EQUIVALENTS, END OF THE YEAR 2,608,618 2,353,421 255,197