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PROSPECTUS
ZAGREBAČKI HOLDING D.O.O. (incorporated with limited liability in the Republic of Croatia) €300,000,000 5.50 per cent. Notes due 2017 Issue price: 99.317 per cent. The €300,000,000 5.50 per cent. Notes due 2017 (the Notes) are issued by Zagrebački Holding d.o.o. (the Issuer and ZCH). The Issuer may, at its option, redeem all, but not some only, of the Notes at any time at par plus accrued interest, in the event of certain tax changes as described under “Conditions of the Notes –Redemption and Purchase”. The Notes mature on 10 July 2017. On the occurrence of a Put Event (as defined in the Conditions), each Noteholder shall have the option to give notice requiring the Issuer to redeem or, at the Issuer’s option, purchase (or procure the purchase of) each Note held by the relevant Noteholder on the Put Settlement Date (as defined in the Conditions), at its principal amount together with accrued interest (if any). See “Conditions of the Notes – Redemption at the Option of the Noteholders upon a Put Event”. Application has been made to the Commission de Surveillance du Secteur Financier (the CSSF) in its capacity as competent authority under the Luxembourg Act dated 10 July 2005 (the Luxembourg Act) on prospectuses for securities to approve this document as a prospectus and to the Luxembourg Stock Exchange for the listing of the Notes on the Official List of the Luxembourg Stock Exchange and admission to trading on the Luxembourg Stock Exchange’s regulated market. The Notes will be rated Baa2 by Moody’s Investors Service Limited (Moody’s) and BBB by Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. (S&P). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. The Notes will initially be represented by a temporary global note (the Temporary Global Note), without interest coupons, which will be deposited on or about 10 July 2007 (the Closing Date) with a common depositary for Euroclear Bank S.A./N.V. (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg). Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the Permanent Global Note and, together with the Temporary Global Note, the Global Notes), without interest coupons, on or after 22 August 2007 (the Exchange Date), upon certification as to non-U.S. beneficial ownership. Interests in the Permanent Global Note will be exchangeable for definitive Notes only in certain limited circumstances. See “Summary of Provisions relating to the Notes while represented by the Global Notes”. An investment in Notes involves certain risks. Prospective investors should have regard to the factors described under the heading “Risk Factors” on pages 5 to 11. Lead Manager Deutsche Bank Senior Co-Lead Manager RZB-Austria Raiffeisen Zentralbank Österreich AG Co-Lead Manager Hypo Alpe Adria Group
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This Prospectus comprises a prospectus for the purposes of Article 5 of Directive 2003/71/EC (the Prospectus Directive) and for the purposes of the Luxembourg Act.
The Issuer accepts responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
Neither the Managers (as described under “Subscription and Sale”, below) nor the Trustee have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Managers or the Trustee as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuer in connection with the offering of the Notes. No Manager or the Trustee accepts any liability in relation to the information contained in this Prospectus or any other information provided by the Issuer in connection with the offering of the Notes or their distribution.
No person is or has been authorised by the Issuer or the Trustee to give any information or to make any representation not contained in or not consistent with this Prospectus or any other information supplied in connection with the offering of the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, any of the Managers or the Trustee.
Neither this Prospectus nor any other information supplied in connection with the offering of the Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer, any of the Managers or the Trustee that any recipient of this Prospectus or any other information supplied in connection with the offering of the Notes should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an offer or invitation by or on behalf of the Issuer, any of the Managers or the Trustee to any person to subscribe for or to purchase any Notes.
Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall in any circumstances imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the offering of the Notes is correct as of any time subsequent to the date indicated in the document containing the same. The Managers and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Notes or to advise any investor in the Notes of any information coming to their attention. The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended, (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered, sold or delivered within the United States or to U.S. persons. For a further description of certain restrictions on the offering and sale of the Notes and on distribution of this document, see “Subscription and Sale” below.
This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Managers and the Trustee do not represent that this Prospectus may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Managers or the Trustee which is intended to permit a public offering of the Notes or the distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering
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material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Prospectus and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Prospectus and the offer or sale of Notes in the United States, the United Kingdom and the Republic of Croatia; see “Subscription and Sale”.
IN CONNECTION WITH THE ISSUE OF THE NOTES, DEUTSCHE BANK AG, LONDON BRANCH AS STABILISING MANAGER OR ANY PERSON ACTING ON BEHALF OF IT AS STABILISING MANAGER MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER THERE IS NO ASSURANCE THAT DEUTSCHE BANK AG, LONDON BRANCH AS STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF DEUTSCHE BANK AG, LONDON BRANCH AS STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER-ALLOTMENT SHALL BE CONDUCTED IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
All references in this document to U.S. dollars, U.S.$ and $ refer to the currency of the United States of America, to euro and € refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended, and to HRK and Kuna refer to the currency of the Republic of Croatia.
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CONTENTS
Page
Risk Factors...... 5
Conditions of the Notes ...... 12
Summary of Provisions relating to the Notes while represented by the Global Notes ...... 28
Use of Proceeds ...... 31
Exchange Rate Information ...... 32
Description of the Issuer...... 33
Taxation ...... 55
Subscription and Sale ...... 56
General Information...... 58
Index to the Consolidated Financial Statements of the Issuer ...... F-1
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RISK FACTORS
The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes. Most of these factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring.
In addition, factors which are material for the purpose of assessing the market risks associated with the Notes are described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with the Notes may occur for other reasons which may not be considered significant risks by the Issuer based on information currently available to it or which it may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision.
Factors that may affect the Issuer’s ability to fulfil its obligations under the Notes
Risks relating to The Republic of Croatia
General
Since gaining its independence in 1992, Croatia’s political, legal, judicial and regulatory structures have undergone extensive changes with a view to Croatia joining the European Union (the EU) and the North Atlantic Treaty Organisation (the NATO). To the extent that such structures have been changed, they have not been fully tested. As a consequence, investment in Croatia carries risks which are not typically associated with investing in more mature markets.
Political Considerations
Since 1993, Croatia has been pursuing a programme of economic structural reform which has resulted in the establishment of a free market economy through privatisation of state enterprises and deregulation of the economy. Croatia’s stable political scene has been facilitated by the European Union and the commencement of EU accession negotiations, which commenced in November 2006. The Government has reaffirmed its intention to continue the strategy in favour of a pro-European, mainstream conservative orientation that is committed to democracy, the rule of law, human rights and minority rights. Although this stability is expected to continue as EU commitments encourage the development of stronger national institutions and as Croatia intends to place emphasis on harmonising its activities with the acquis communautaire (the body of EU legislation which candidate countries must adopt to become EU members) of the EU, there can be no assurance that the target date for EU accession (presently the end of the decade) will be met. Any accession by the Republic of Croatia to the EU will depend on the pace and success of negotiations with the relevant EU bodies and on the level of Croatia’s harmonisation with the acquis communautaire.
Economic Considerations
Croatia has made the transition to a functioning market economy and has enjoyed sustained growth since the mid-1990s. Inflation averages 2.5 per cent. per annum and economic growth is expected to continue in 2007. During the last decade, the Croatian National Bank (CNB) monitored the movement of the Croatian Kuna against the Euro, which exchange rate varied by approximately 7 per cent. from the average exchange rate. The rebuilding of Croatia’s infrastructure to a Western European standard requires further investment and may take some years to complete. The unemployment rate has been gradually reducing year on year since 2000 and it is expected that this trend will continue. As a general policy, the Croatian Government has emphasised the promotion of growth of small and medium-sized enterprises in order to meet its goal of
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maintaining strong growth rates and fostering sustainable development within the framework of a market-oriented and stable business environment.
The Croatian Central Bureau of Statistics (CBS), the Ministry of Finance and CNB regularly publish statistics on Croatia and its economy. There can be no assurance that the statistics are as accurate as those compiled by statistics bureaux in developed countries, but in recent years major adjustments have been made in line with international methodologies. As a member of the International Monetary Fund (IMF), Croatia is also a subscriber to the Special Data Dissemination Standard established by the IMF. Although subscription is voluntary, it carries a commitment by a subscribing member to observe the standard and to provide certain information to the IMF about its practices, for the purpose of disseminating economic and financial data.
The average annual growth of gross domestic product (GDP) in the period 2000 to 2005 was at the level of 4.4 per cent.. This growth was determined by the increase in domestic demand based on greater personal consumption and investments in fixed capital. In 2004, GDP grew by 3.8 per cent. in real terms, which reflected a slowdown in economic growth in comparison with the GDP real growth rate for 2003 (5.3 per cent.). According to CNB data, real GDP growth rate in 2005 stood at 4.3 per cent. As Croatia’s external debt amounted to more than EUR 35 billion as at 31 December 2005 and reached a ratio of foreign debt against GDP of 80 per cent., the CNB conducted a review of this economic circumstance and its impact on living standards. GDP growth for 2007 and 2008 is projected at 4.7 per cent. and 4.5 per cent., respectively (source: IMF website). The CNB has indicated that it will continue to implement measures to reduce foreign borrowing by commercial banks in Croatia, as this is perceived to be a significant constituent in the high levels of foreign borrowing, however, there can be no assurance that such policies will be effective. If foreign debt persists at high levels, or if the Croatian economy becomes subject to high inflation or reduced GDP, this could have a material adverse effect on the Issuer’s business and financial condition.
Croatia’s Legal System
Croatia has taken, and continues to take steps towards a mature legal system which is comparable to the legal systems of the EU countries. New laws have been introduced and revisions have been made with respect to company, property, competition, securities, labour, taxation, etc. in order to harmonise with equivalent EU laws. Such new laws and revisions remain untested in the courts and do not have a long history of interpretation. In some circumstances, therefore, it may not be possible to obtain swift enforcements of judgments in Croatia or predict the outcome of legal proceedings subject to these new laws.
The Notes are governed by English law and the Issuer has submitted to the non-exclusive jurisdiction of the courts of England to settle any disputes that may arise out of or in connection with any Note. In respect of any obligatory proceedings between the Issuer and a Croatian/non- Croatian natural or legal person, a Croatian court will recognise and give effect to the choice of English law as the law governing the Notes if the proceedings in question have an international element. In respect of recognition and/or enforcement of an English/foreign court judgement, Croatian courts may refuse to recognize such judgements only in certain cases according to the provisions of the Croatian Law on Resolving Conflicts of Law with Other Countries Laws and Regulations in Certain Matters (Official Gazette No. 51/1991). Once recognized, the foreign judgement is equal to the judgment of a Croatian court and is fit for enforcement.
Risks relating to the Issuer
Status of Issuer
Risks specific to the Issuer are closely linked to the general risks faced by investors in Croatia. Among other risks, ZCH is the City of Zagreb owned entity responsible for providing many public services, and as such it depends on the structural soundness of fiscal policy in Zagreb, and more generally, in Croatia. It is possible that amendments to certain laws could be passed by the
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Parliament of the Republic of Croatia that could affect the status of the Issuer. So far as the Issuer is aware, there are presently no plans to alter this status nor are there any plans to change the current ownership structure of the Issuer.
Competition: Antitrust and State Aid
ZCH currently operates through its branches and subsidiaries in a number of markets. Some of the Issuer’s markets are open to competition, whilst other markets have been foreclosed to competition as a result of long term contracts concluded between the City and ZCH. Whilst ZCH is not aware of any intentions on behalf of the City to do so, there can be no assurance that the City will not decide to open them up. In addition there are some markets which are technically open to competition, but the Issuer is the only operator present to date. In most of the markets where the Issuer operates, it currently holds a strong or a very strong position or is the sole operator.
Furthermore the operations of the Issuer benefit from the long-term nature of its contracts with the City and by other significant financial and other direct or indirect support by the City, its sole shareholder. The majority of the Issuer’s activities however could qualify as services of general economic interest, which are absolutely essential to the City and its citizens.
It is possible that the EU accession of Croatia to the EU (expected to occur within the next five years) could impact the way in which ZCH operates its business. For example, ZCH, a wholly owned subsidiary of the City of Zagreb, operates many public services (such as trams, waste disposal units and pharmacies) through the assistance (in certain cases) of subsidies provided by the City of Zagreb; it cannot be excluded that such subsidies or other matters could be challenged in the context of EU accession, if found not to be consistent with the EC Treaty rules on state subsidies. This could result in restrictions being imposed on the operations of the Issuer if the conduct of the Issuer is found to be incompatible with antitrust rules or where the support of the City cannot be justified under private market economy principles or the rules on the provision of public services, and could consequently have an adverse effect on the Issuer’s business.
Environmental Matters
As a provider of certain public services, some of ZCH’s activities include collecting, treating and disposing of waste. Its operations are subject to various laws and regulations relating to human health, safety and the protection of the environment including, for example, those relating to waste treatment and disposal and clean-up. In addition, ZCH is required to obtain and comply with licences for any of its operations which cause emissions or a discharge of pollutants, and for water extraction, waste treatment and disposal. While ZCH believes that it is currently in material compliance with those laws, regulations and specific licences and within the deadlines set by legislative authorities, there can be no assurance that ZCH will not incur significant costs to remedy any future violations of these laws, regulations or specific licences or to comply with changes in existing laws and regulations or their enforcement, including any new EU laws upon accession to the EU.
Control of ZCH
The City of Zagreb owns 100 per cent. of the shares of ZCH. Consequently, the City of Zagreb has the ability to vote at the shareholders meetings regarding matters such as, the control of ZCH’s management (including the appointment of the 7 members of ZCH’s management board), policies and financing decisions. The City of Zagreb can also request a dividend (although this is unlikely since ZCH requires continuous investment) and has the power to determine any other matters coming before the City of Zagreb as the sole shareholder. The City of Zagreb supervises the activities of ZCH through the ZCH Assembly, (the sole member of which is the Mayor of the City) which determines issues such as the distribution of the profits of ZCH, and has established a Supervisory Committee (comprising elected members of the City Assembly of Zagreb) to
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supervise the activities of the Management Board of ZCH. A number of separate contracts between the City of Zagreb and ZCH govern their relationship, and in certain service sectors, for example public transport, ZCH is reliant on subsidies provided by the City of Zagreb in order to effectively operate in such spheres of business.
There is no assurance that the ownership, control or management structure of ZCH will not be subject to reorganisation or remodelling in a way which could have a material adverse effect on the business of the Issuer.
Given the importance of ZCH in providing essential services to the City of Zagreb’s residents, and the influence of the City on the ownership, control and supervision of ZCH, the ability of ZCH to profit-maximise in each of its activities, and accordingly its financial condition, may be adversely affected.
Financial Relationship with the City
Due to the nature of its business, ZCH is dependant on the revenue received from the City pursuant to contracts for the provision of services with certain branches and subsidiaries of ZCH. As a result, certain branches and subsidiaries (such as ZET) will not be able to fund large capital expenditures without the support of the City, as the revenue raised from independent sources would not be sufficient to cover such expenditure. For example, the current plans of Vodoopskrba I Odvodnja (VIO) for the improvement of the water and sewage systems (as more fully described in the section of the business description relating to VIO) are dependant in part on the financial support of the City, and in the event that such financial support were not forthcoming then VIO would not be able to fully realise its improvement plans in the timescale intended. As such, to the extent that the funding of certain branches and/or subsidiaries of ZCH is reduced, whether upon the decision of the City, or due to a shortfall in the budget of the City, then it may not be possible for ZCH to achieve its strategic and capital expenditure plans. This may adversely affect the ability of ZCH to continue to provide the same level of services to the residents of Zagreb.
Government Regulation
As a provider of many public and private services, ZCH is subject to certain governmental regulation, such as for example, Croatian regulation with respect to the health, safety and working conditions of its employees and its competitive and marketplace conduct. From time to time, additional legislative initiatives may be introduced which may affect its operations and the conduct of its businesses, and there can be no assurance that in the future the cost of complying with such initiatives or the effects of such initiatives will not have a material adverse effect on ZCH’s business or financial condition.
Internal Controls
Whilst the auditors of ZCH have provided an unqualified audit report with respect to the most recent audited financial statements of ZCH, including with respect to the contingent liabilities of ZCH as set out in note 42 thereto, ZCH's internal controls are such that it is not able to satisfy the auditors of ZCH as to its current contingent liabilities. There can be no guarantee that the contingent liabilities of ZCH are not such that they may result in a material adverse effect on ZCH's business or financial condition.
Factors which are material for the purpose of assessing the market risks associated with the Notes
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
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(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency;
(iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
The Notes may be redeemed prior to maturity
If, as a result of any change in, or amendment to, the laws or regulations of the Republic of Croatia or any other relevant jurisdiction (including, in each case, any political subdivision or any authority of or in such jurisdiction) having power to tax, which change or amendment becomes effective after 10 July 2007, the Issuer would be required to make a withholding or deduction (in respect of which the Issuer will be required to pay additional amounts under Condition 7 in order that the net amounts received by Noteholders are the same as would have been receivable in the absence of the withholding or deduction) on the next Interest Payment Date, and the requirement to pay such additional amounts cannot be avoided by the Issuer taking reasonable measures available to it, then the Issuer may, at its option, redeem all of the Notes in accordance with the Conditions. See “Conditions of the Notes – Redemption and Purchase – Redemption for Taxation Reasons” and “Conditions of the Notes – Taxation”. On any such redemption of the Notes, it may not be possible for a Noteholder to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes and this may only be possible at a significantly lower rate.
Risks related to the Notes generally
Set out below is a brief description of certain risks relating to the Notes generally:
Modification, waivers and substitution
The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Conditions 13 and 14 of the conditions of the Notes.
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest
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(or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from 1 July 2005.
If, following implementation of this Directive, a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent following implementation of this Directive, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive.
Change of law
The conditions of the Notes are based on English law in effect as at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of this Prospectus.
Risks related to the market generally
Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:
The secondary market generally
The Notes may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. Therefore, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of Notes.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes in euro. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the Investor’s Currency) other than euro. These include the risk that exchange rates may significantly change (including changes due to devaluation of the euro or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’s Currency equivalent value of the principal payable on the Notes and (3) the Investor’s Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
Interest rate risks
Investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of them.
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Credit ratings may not reflect all risks
Moody‘s and S&P have assigned credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) the Notes are legal investments for it, (2) the Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of the Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.
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CONDITIONS OF THE NOTES
The following is the text of the Conditions of the Notes which (subject to modification) will be endorsed on each Note in definitive form (if issued):
The €300,000,000 5.50 per cent. Notes due 2017 (the Notes, which expression shall in these Conditions, unless the context otherwise requires, include any further notes issued pursuant to Condition 16 and forming a single series with the Notes) of Zagrebački Holding d.o.o. (the Issuer) are constituted by a Trust Deed dated 10 July 2007 (the Trust Deed) made between the Issuer and Deutsche Trustee Company Limited (the Trustee, which expression shall include its successor(s)) as trustee for the holders of the Notes (the Noteholders) and the holders of the interest coupons appertaining to the Notes (the Couponholders and the Coupons respectively).
The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and the Agency Agreement dated 10 July 2007 (the Agency Agreement) made between the Issuer, the initial Paying Agents and the Trustee are available for inspection during normal business hours by the Noteholders and the Couponholders at the registered office for the time being of the Trustee, being at the date of issue of the Notes at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom, and at the specified office of each of the Paying Agents. The Noteholders and the Couponholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement applicable to them.
1. FORM, DENOMINATION AND TITLE
1.1 Form and Denomination
The Notes are in bearer form, serially numbered, in the denomination of €50,000, each with Coupons attached on issue.
1.2 Title
Title to the Notes and to the Coupons will pass by delivery.
1.3 Holder Absolute Owner
The Issuer, any Paying Agent and the Trustee may (to the fullest extent permitted by applicable laws) deem and treat the bearer of any Note or Coupon as the absolute owner for all purposes (whether or not the Note or Coupon shall be overdue and notwithstanding any notice of ownership or writing on the Note or Coupon or any notice of previous loss or theft of the Note or Coupon or of any trust or interest therein) and shall not be required to obtain any proof thereof or as to the identity of such bearer.
2. STATUS
The Notes and the Coupons are direct, unconditional and (subject to the provisions of Condition 3.1) unsecured obligations of the Issuer and (subject as provided above) rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.
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3. ISSUER COVENANTS
3.1 Negative Pledge
For so long as any of the Notes remains outstanding (as defined in the Trust Deed), the Issuer will ensure that no Relevant Indebtedness of the Issuer or any of its Material Subsidiaries will be secured by any Security Interest upon, or with respect to, any of the present or future business, undertaking, assets or revenues (including any uncalled capital) of the Issuer or any of its Material Subsidiaries unless the Issuer, in the case of the creation of the Security Interest, before or at the same time and, in any other case, promptly, takes any and all action necessary to ensure that:
(a) all amounts payable by it under the Notes, the Coupons and the Trust Deed are secured by the Security Interest equally and rateably with the Relevant Indebtedness to the satisfaction of the Trustee; or
(b) such other Security Interest or guarantee or other arrangement (whether or not it includes the giving of a Security Interest) is provided either (A) as the Trustee in its absolute discretion deems not materially less beneficial to the interests of the Noteholders or (B) as is approved by an Extraordinary Resolution of the Noteholders.
3.2 Restricted Payments
The Issuer shall not, and shall procure and ensure that each of its Subsidiaries will not, directly or indirectly:
(a) declare or pay any dividend, in cash or otherwise, or make any other distribution (whether by way of redemption, acquisition or otherwise) in respect of its share capital (other than a dividend or other distribution payable to the Issuer or a Subsidiary of the Issuer); or
(b) voluntarily purchase, redeem or otherwise retire for value any Capital Stock or debt of the Issuer which is subordinated by its terms to the Notes (other than Capital Stock or such subordinated debt held by the Issuer or a Subsidiary of the Issuer),
(any such action, a Restricted Payment) if (i) at the time of the Restricted Payment, an Event of Default has occurred or would result therefrom, or (ii) the amount of such Restricted Payment when aggregated with the amount of all other Restricted Payments previously made in respect of the relevant financial year of the Issuer exceeds 50 per cent. of the consolidated net profit of the Issuer and its consolidated Subsidiaries (calculated in accordance with IFRS on the basis of the Issuer’s audited consolidated financial statements) for such financial year.
3.3 Maintenance of Rating
For so long as any of the Notes remains outstanding, the Issuer shall ensure that the long- term foreign currency debt or deposit ratings of the Issuer or the Notes are rated by at least one Rating Agency.
3.4 Certificate of Directors
The Issuer shall send to the Trustee, within 14 days (or such longer period as the Trustee in its absolute discretion may allow) of its annual audited financial statements (which are to be prepared in accordance with IFRS) and its interim financial statements being made available to its members, and also within 14 days (or such longer period as the Trustee in its absolute discretion may allow) of any request by the Trustee, a certificate of the Issuer signed by any two of its directors stating, (i) that, having made all reasonable enquiries, to the best of the knowledge, information and belief of the Issuer as at a date (the Certification Date) not
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more than five days before the date of the certificate, no Event of Default or Potential Event of Default or other breach of the Trust Deed had occurred since the Certification Date of the last such certificate or (if none) the date on which the Trust Deed was first executed by the Issuer or, if such an event has occurred, giving details of it, (ii) that, as at the Certification Date, the Issuer has not made any Restricted Payment which would breach Condition 3.2 since the Certification Date of the last such certificate or (if none) the date on which the Trust Deed was first executed by the Issuer or, if such an event has occurred, giving details of it, and, (iii) that the Issuer is in compliance with Conditions 3.1, 3.3, 3.5, 3.6 and 3.7, such certificate to be in the form or substantially in the form set out in Schedule 4 to the Trust Deed.
The Trustee shall be entitled to rely on any such certificate and shall not be required to obtain any further evidence of the compliance by the Issuer with the provisions of this Condition 3 and the provisions of the Trust Deed and the Trustee shall not be responsible or liable to Noteholders or Couponholders for any loss arising from so doing.
3.5 Maintenance of Legal Validity
For so long as any of the Notes remains outstanding, the Issuer shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents and make or cause to be made all registrations, recordings and filings required in or by the laws and regulations of Croatia to enable it lawfully to enter into and perform its obligations under the Notes and the Trust Deed and to ensure the legality, validity, enforceability and admissibility in evidence in Croatia of the Notes and the Trust Deed.
3.6 Payment of Taxes
For so long as any of the Notes remains outstanding, the Issuer shall, and shall ensure that its Material Subsidiaries will, pay or discharge or cause to be paid or discharged, before the same shall become overdue all Tax, assessments and governmental charges or claims levied or imposed upon, or upon the income, profits or property of, the Issuer and/or its Material Subsidiaries, provided that, neither the Issuer nor any of its Material Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such Tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with IFRS, where required, have been made.
3.7 Maintenance of Insurance
For so long as any of the Notes remains outstanding, the Issuer shall, and shall procure that its Subsidiaries will, keep those of their assets and properties that are of an insurable nature insured with insurers believed by the Issuer or such Subsidiary to be of good standing, against loss or damage, except where failure to do so would not have a material adverse effect on (a) the business, financial condition or results of operations of the Issuer or (b) the Issuer’s ability to perform its obligations under the Notes and/or the Trust Deed.
3.8 Interpretation
For the purposes of these Conditions:
(a) Capital Stock means, with respect to any Person, any and all shares, interests, participations, rights to purchase, warrants, options or other equivalents (however designated) of capital stock of a corporation and any and all equivalent ownership interests in a Person other than a corporation, in each case whether outstanding at the date of issue or issued after the date of issue of the Notes;
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(b) IFRS means International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time);
(c) Indebtedness Guarantee means in relation to any Indebtedness of any Person, any obligation of another Person to pay such Indebtedness including (without limitation) (A) any obligation to purchase such Indebtedness, (B) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness, (C) any indemnity against the consequences of a default in the payment of such Indebtedness and (D) any other agreement to be responsible for repayment of such Indebtedness, including bonds, standby letters of credit or other similar instruments issued in connection with the performance of contracts;
(d) Indebtedness means any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(e) Indebtedness for Borrowed Money means any Indebtedness of any Person for or in respect of (A) moneys borrowed, (B) amounts raised by acceptance under any acceptance credit facility, (C) amounts raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or similar instruments, (D) the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with generally accepted accounting standards in the jurisdiction of incorporation of the lessee, be treated as finance or capital leases, (E) the amount of any liability in respect of any purchase price for assets or services the payment of which is deferred primarily as a means of raising finance or financing the acquisition of the relevant asset or service and (F) amounts raised under any other transaction (including any forward sale or purchase agreement and the sale of receivables or other assets on a “with recourse” basis) having the commercial effect of a borrowing;
(f) a Material Subsidiary means at any time a Subsidiary of the Issuer:
(i) whose operating income (consolidated in the case of a Subsidiary which itself has Subsidiaries) or whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) represent in each case (or, in the case of a Subsidiary acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, are equal to) not less than 5 per cent. of the consolidated operating income of the Issuer, or, as the case may be, consolidated total assets, of the Issuer and its Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited consolidated accounts of the Issuer and its Subsidiaries, provided that in the case of a Subsidiary of the Issuer acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, the reference to the then latest audited consolidated accounts of the Issuer and its Subsidiaries for the purposes of the calculation above shall, until consolidated accounts for the financial period in which the acquisition is made have been prepared and audited as aforesaid, be deemed to be a reference to such first-mentioned accounts as if such Subsidiary had been shown in such accounts by reference to its then latest relevant audited accounts, adjusted as deemed appropriate by the Issuer;
(ii) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of the Issuer which immediately prior to such transfer is a Material Subsidiary, provided that the transferor Subsidiary shall upon such
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transfer forthwith cease to be a Material Subsidiary and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this subparagraph (f)(ii) on the date on which the consolidated accounts of the Issuer and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited as aforesaid but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (f)(i) above or, prior to or after such date, by virtue of any other applicable provision of this definition; or
(iii) to which is transferred an undertaking or assets which, taken together with the undertaking or assets of the transferee Subsidiary, generated (or, in the case of the transferee Subsidiary being acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, generate operating income equal to) not less than 5 per cent. of the consolidated operating income of the Issuer, or represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the consolidated total assets of the Issuer and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (f)(i) above, provided that the transferor Subsidiary (if a Material Subsidiary) shall upon such transfer forthwith cease to be a Material Subsidiary unless immediately following such transfer its undertaking and assets generate (or, in the case aforesaid, generate operating income equal to) not less than 5 per cent. of the consolidated operating income of the Issuer, or its assets represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the consolidated total assets of the Issuer and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (f)(i) above, and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this subparagraph (f)(iii) on the date on which the consolidated accounts of the Issuer and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (f)(i) above or, prior to or after such date, by virtue of any other applicable provision of this definition,
all as more particularly defined in the Trust Deed;
(g) Person means any individual, company, corporation, firm, partnership, joint venture, association, unincorporated organisation, trust or other judicial entity, including, without limitation, any state or agency of a state or other entity, whether or not having separate legal personality; and
(h) Potential Event of Default has the meaning given to such term in the Trust Deed;
(i) Rating Agency means Moody’s Investors Service Limited or Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies, Inc. and their respective successors;
(j) Relevant Indebtedness means (i) any present or future indebtedness (whether being principal, premium, interest or other amounts) for or in respect of any notes, bonds, debentures, debenture stock, loan stock or other securities which are for the time being, or are capable of being, quoted, listed or ordinarily dealt in on any stock exchange, over-the-counter or other securities market, and (ii) any guarantee or indemnity in respect of any such indebtedness;
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(k) Security Interest means any mortgage, charge, pledge, lien, security interest or other encumbrance securing any obligation of any Person or any other type of preferential arrangement having similar effect over any assets or revenues of such Person;
(l) Subsidiary means, in relation to the Issuer, any company (i) in which the Issuer holds a majority of the voting rights or (ii) of which the Issuer is a member and has the right to appoint or remove a majority of the board of directors or (iii) of which the Issuer is a member and controls a majority of the voting rights, and includes any company which is a Subsidiary of a Subsidiary of the Issuer; and
(m) Tax means any tax, levy, duty, impost or other charge or withholding of a similar nature, no matter where arising (including interest and penalties on and any other additions to any such charge or withholding) and no matter how levied or determined.
4. INTEREST
4.1 Interest Rate and Interest Payment Dates
The Notes bear interest on their outstanding principal amount from and including 10 July 2007 at the rate of 5.50 per cent. per annum, payable annually in arrear on 10 July (each an Interest Payment Date). The first payment (representing a full year’s interest) shall be made on 10 July 2008.
4.2 Interest Accrual
Each Note will cease to bear interest from and including its due date for redemption unless, upon due presentation, payment of the principal in respect of the Note is improperly withheld or refused or unless default is otherwise made in respect of payment, in which event interest shall continue to accrue as provided in the Trust Deed.
4.3 Calculation of Broken Interest
When interest is required to be calculated in respect of a period of less than a full year, it shall be calculated on the basis of (a) the actual number of days in the period from and including the date from which interest begins to accrue (the Accrual Date) to but excluding the date on which it falls due divided by (b) the actual number of days from and including the Accrual Date to but excluding the next following Interest Payment Date.
5. PAYMENTS
5.1 Payments in respect of Notes
Payments of principal and interest in respect of each Note will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the Note, except that payments of interest due on an Interest Payment Date will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Coupon, in each case at the specified office outside the United States of any of the Paying Agents.
5.2 Method of Payment
Payments will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by euro cheque.
5.3 Missing Unmatured Coupons
Each Note should be presented for payment together with all relative unmatured Coupons, failing which the full amount of any relative missing unmatured Coupon (or, in the case of
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payment not being made in full, that proportion of the full amount of the missing unmatured Coupon which the amount so paid bears to the total amount due) will be deducted from the amount due for payment. Each amount so deducted will be paid in the manner mentioned above against presentation and surrender (or, in the case of part payment only, endorsement) of the relative missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 7) in respect of the relevant Note (whether or not the Coupon would otherwise have become void pursuant to Condition 8) or, if later, five years after the date on which the Coupon would have become due, but not thereafter.
5.4 Payments subject to Applicable Laws
Payments in respect of principal and interest on the Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 7.
5.5 Payment only on a Presentation Date
A holder shall be entitled to present a Note or Coupon for payment only on a Presentation Date and shall not, except as provided in Condition 4, be entitled to any further interest or other payment if a Presentation Date is after the due date.
Presentation Date means a day which (subject to Condition 8):
(a) is or falls after the relevant due date;
(b) is a Business Day in the place of the specified office of the Paying Agent at which the Note or Coupon is presented for payment; and
(c) in the case of payment by credit or transfer to a euro account as referred to above, is a TARGET Settlement Day.
In this Condition, Business Day means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place and TARGET Settlement Day means any day on which the Trans-European Automated Real- Time Gross Settlement Express Transfer (TARGET) System is open.
5.6 Initial Paying Agents
The names of the initial Paying Agents and their initial specified offices are set out at the end of these Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Paying Agent and to appoint additional or other Paying Agents provided that:
(a) there will at all times be a Principal Paying Agent;
(b) there will at all times be at least one Paying Agent (which may be the Principal Paying Agent) having its specified office in a European city which, so long as the Notes are listed on the Luxembourg Stock Exchange, shall be Luxembourg;
(c) the Issuer undertakes that it will ensure that it maintains a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; and
(d) there will at all times be a Paying Agent in a jurisdiction within continental Europe, other than the jurisdiction in which the Issuer is incorporated.
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Notice of any termination or appointment and of any changes in specified offices will be given to the Noteholders promptly by the Issuer in accordance with Condition 12.
6. REDEMPTION AND PURCHASE
6.1 Redemption at Maturity
Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on 10 July 2017.
6.2 Redemption for Taxation Reasons
If the Issuer satisfies the Trustee immediately before the giving of the notice referred to below that:
(a) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction (as defined in Condition 7), or any change in the application or official interpretation of the laws or regulations of a Relevant Jurisdiction, which change or amendment becomes effective after 10 July 2007, on the next Interest Payment Date the Issuer would be required to pay additional amounts as provided or referred to in Condition 7; and
(b) the requirement cannot be avoided by the Issuer taking reasonable measures available to it,
the Issuer may, at its option, having given not less than 30 nor more than 60 days’ notice to the Noteholders in accordance with Condition 12 (which notice shall be irrevocable), redeem all the Notes, but not some only, at any time at their principal amount together with interest accrued to but excluding the date of redemption, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be required to pay such additional amounts, were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee a certificate signed by two Directors of the Issuer stating that the requirement referred to in (a) above will apply on the next Interest Payment Date and cannot be avoided by the Issuer taking reasonable measures available to it, and the Trustee shall be entitled to accept the certificate as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders.
6.3 Redemption at the Option of the Noteholders upon a Put Event
If a Put Event (as defined below) occurs, each Noteholder shall have the option (unless, prior to the giving of the Put Event Notice (as defined below), the Issuer shall have given notice under Condition 6.2 (if applicable)) to require the Issuer to redeem or, at the Issuer’s option, purchase (or procure the purchase of) that Noteholder’s Notes at their principal amount together with interest accrued to but excluding the Put Settlement Date (as defined below). Such option shall operate as set out below.
If a Put Event occurs then, within 21 days of the occurrence of such Put Event, the Issuer shall, and upon the Trustee becoming so aware (the Issuer having failed to do so) the Trustee may, and, if so requested by the holders of at least one-quarter in principal amount of the Notes then outstanding, shall, (subject in each case to being indemnified and/or secured to its satisfaction) give notice (a Put Event Notice) to the Noteholders in accordance with Condition 12 specifying the nature of the Put Event and the procedure for exercising the option contained in this Condition 6.3.
To exercise the right to require the redemption or purchase of any Notes under this Condition 6.3, the holder of the Notes must deliver at the specified office of any Paying
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Agent on any Business Day (as defined in Condition 5.5) at the place of such specified office falling within the period of 45 days after the Put Event Notice is given by the Issuer or the Trustee, as applicable, (the Put Period), a duly signed and completed notice of exercise in the form (for the time being current and which may, if this Note is held through Euroclear Banking S.A./N.V. (Euroclear) or Clearstream Banking, société anonyme (Clearstream, Luxembourg), be any form acceptable to Euroclear and Clearstream, Luxembourg delivered in a manner acceptable to Euroclear and Clearstream, Luxembourg) obtainable from any specified office of any Paying Agent (a Put Option Exercise Notice) and in which the holder must specify a bank account (or, if payment is to be made by cheque, an address) to which payment is to be made under this paragraph accompanied by such Notes or evidence satisfactory to the Paying Agent concerned that such Notes will, following the delivery of the Put Option Exercise Notice, be held to its order or under its control. A Put Option Exercise Notice given by a holder of any Note shall be irrevocable except where, prior to the due date of redemption, an Event of Default has occurred and is continuing, in which event such holder, at its option, may elect by notice to the Issuer to withdraw the Put Option Exercise Notice.
Any Note which is the subject of a Put Option Exercise Notice which has been delivered to a Paying Agent prior to the expiry of the Put Period shall be redeemed or, as the case may be, purchased by the Issuer on the date which is the 15th Put Business Day immediately following the last day of the Put Period (the Put Settlement Date). In this Condition, Put Business Day means a day which is both a Business Day in London and a TARGET Settlement Day (each as defined in Condition 5.5).
In this Condition 6.3, Put Event means the City of Zagreb ceasing to own directly or indirectly 100 per cent. of the subscribed capital of the Issuer or ceasing to control directly or indirectly the Issuer. For the purposes of this definition, control of the Issuer means the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to cast, or control the casting of, 100 per cent. of the maximum number of votes that might be cast at a general meeting of the Issuer.
The Trustee shall not be required to take any steps to ascertain whether a Put Event or any event which could lead to the occurrence of a Put Event has occurred and will not be responsible or liable to Noteholders or Couponholders for any loss arising from any failure by it to do so.
6.4 Purchases
The Issuer or any of its Subsidiaries (as defined above) may at any time purchase Notes (provided that all unmatured Coupons appertaining to the Notes are purchased with the Notes) in any manner and at any price.
6.5 Cancellations
All Notes which are (a) redeemed or (b) purchased by or on behalf of the Issuer or any of its Subsidiaries will forthwith be cancelled, together with all relative unmatured Coupons attached to the Notes or surrendered with the Notes, and accordingly may not be held, reissued or resold.
6.6 Notices Final
Upon the expiry of any notice as is referred to in paragraph 6.2 or 6.3 above the Issuer shall be bound to redeem the Notes to which the notice refers in accordance with the terms of such paragraph (in the case of paragraph 6.3 above, save as otherwise provided therein).
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7. TAXATION
7.1 Payment without Withholding
All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (Ta x e s ) imposed or levied by or on behalf of the Relevant Jurisdiction, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer will pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes or, as the case may be, Coupons in the absence of the withholding or deduction; except that no additional amounts shall be payable in relation to any payment in respect of any Note or Coupon:
(a) presented for payment by or on behalf of, a holder who is liable to the Taxes in respect of the Note or Coupon by reason of his having some connection with the Relevant Jurisdiction other than the mere holding of the Note or Coupon; or
(b) presented for payment in the Republic of Croatia; or
(c) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(d) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union; or
(e) presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of the period of 30 days assuming, whether or not such is in fact the case, that day to have been a Presentation Date (as defined in Condition 5.
7.2 Interpretation
In these Conditions:
(a) Relevant Date means the date on which the payment first becomes due but, if the full amount of the money payable has not been received by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect has been duly given to the Noteholders by the Issuer in accordance with Condition 12; and
(b) Relevant Jurisdiction means the Republic of Croatia or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes and Coupons.
7.3 Additional Amounts
Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition or under any undertakings given in addition to, or in substitution for, this Condition pursuant to the Trust Deed.
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8. PRESCRIPTION
Notes and Coupons will become void unless presented for payment within periods of 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date in respect of the Notes or, as the case may be, the Coupons, subject to the provisions of Condition 5.
9. EVENTS OF DEFAULT
The Trustee at its discretion may, and if so requested in writing by the holders of at least one- quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution of the Noteholders shall (subject in each case to being indemnified and/or secured to its satisfaction), (but, in the case of the happening of any of the events described in subparagraphs (b) (other than any failure by the Issuer to perform or observe any obligation under Condition 3), (c), (d) (other than the winding up or dissolution of the Issuer), and (e) to (h) inclusive below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the Noteholders) give notice to the Issuer that the Notes are, and they shall accordingly forthwith become, immediately due and repayable at their principal amount, together with accrued interest as provided in the Trust Deed, in any of the following events (Events of Default):
(a) if default is made in the payment of any principal (including any purchase price payable under Condition 6.3) or interest due in respect of the Notes or any of them and the default continues for a period of 14 days; or
(b) if the Issuer fails to perform or observe any of its other obligations under these Conditions or the Trust Deed and (except in any case where the Trustee considers the failure to be incapable of remedy, when no continuation or notice as is hereinafter mentioned will be required) the failure continues for the period of 30 days (or such longer period as the Trustee may permit) following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or
(c) if (i) any Indebtedness for Borrowed Money of the Issuer or any of its Material Subsidiaries becomes (or becomes capable of being declared) due and repayable prematurely by reason of an event of default (however described); (ii) the Issuer or any of its Material Subsidiaries fails to make any payment in respect of any Indebtedness for Borrowed Money on the due date for payment or within any originally applicable grace period; (iii) any security given by the Issuer or any of its Material Subsidiaries for any Indebtedness for Borrowed Money becomes enforceable; or (iv) default is made by the Issuer or any of its Material Subsidiaries in making any payment declared to be due under any Indebtedness Guarantee in respect of any Indebtedness for Borrowed Money of any other Person provided that no event described in this subparagraph 9(c) shall constitute an Event of Default unless the relevant amount of Indebtedness for Borrowed Money or other relative liability due and unpaid, either alone or when aggregated (without duplication) with other amounts of Indebtedness for Borrowed Money and/or other liabilities due and unpaid relative to all (if any) other events specified in (i) to (iv) above, amounts to at least €10,000,000 (or its equivalent in any other currency); or
(d) if any order is made by any competent court or resolution is passed for the winding up or dissolution of the Issuer or any of its Material Subsidiaries, save in the case of a Material Subsidiary for any solvent reorganisation, and save also for the purposes of reorganisation on terms approved in writing by the Trustee or by an Extraordinary Resolution of the Noteholders; or
(e) if the Issuer or any of its Material Subsidiaries ceases or threatens to cease to carry on the whole or a substantial part of its business, save in the case of a Material Subsidiary for any solvent reorganisation, and save also for the purposes of reorganisation on terms approved in writing by the Trustee or by an Extraordinary Resolution of the Noteholders, or the Issuer
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or any of its Material Subsidiaries stops or threatens to stop payment of, or is unable to, or admits its inability to, pay, its debts (or any class of its debts) as they fall due or is deemed unable to pay its debts pursuant to or for the purposes of any applicable law, or is adjudicated or found bankrupt or insolvent; or
(f) if (i) proceedings are initiated against the Issuer or any of its Material Subsidiaries under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official, or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer or any of its Material Subsidiaries or, as the case may be, in relation to the whole or any part of the undertaking or assets of any of them or an encumbrancer takes possession of the whole or any part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or any part of the undertaking or assets of any of them, and (ii) in any such case (other than the appointment of an administrator or an administrative receiver appointed following presentation of a petition for an administration order) unless initiated by the relevant company, is not discharged within 30 days; or
(g) if the Issuer or any of its Material Subsidiaries (or their respective directors or shareholders) initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors); or
(h) if any event occurs which, under the laws of any Relevant Jurisdiction, has or may have, in the Trustee’s opinion (on the basis of legal advice), an analogous effect to any of the events referred to in subparagraphs (d) to (g) above.
10. ENFORCEMENT
10.1 Enforcement by the Trustee
The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer as it may think fit to enforce the provisions of the Trust Deed, the Notes and the Coupons, but it shall not be bound to take any such proceedings or any other action in relation to the Trust Deed, the Notes or the Coupons unless (a) it has been so directed by an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of at least one-quarter in principal amount of the Notes then outstanding and (b) it has been indemnified and/or secured to its satisfaction.
10.2 Enforcement by the Noteholders
No Noteholder or Couponholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing.
11. REPLACEMENT OF NOTES AND COUPONS
Should any Note or Coupon be lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Principal Paying Agent or the Paying Agent in Luxembourg upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.
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12. NOTICES
12.1 Notices to the Noteholders
All notices to the Noteholders will be valid if published in a leading English language daily newspaper published in London or such other English language daily newspaper with general circulation in Europe as the Trustee may approve and, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, in one daily newspaper published in Luxembourg approved by the Trustee and/or on the website of the Luxembourg Stock Exchange, www.bourse.lu. It is expected that publication will normally be made in the Financial Times and the d’Wort or the Tageblatt. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange or the relevant authority on which the Notes are for the time being listed. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may approve. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this paragraph.
12.2 Notices from the Noteholders
Notices to be given by any Noteholder shall be in writing and given by lodging the same, together with the relative Note or Notes, with the Principal Paying Agent or, if the Notes are held in a clearing system, may be given through the clearing system in accordance with its standard rules and procedures.
13. SUBSTITUTION
The Trustee may, without the consent of the Noteholders or Couponholders, agree with the Issuer to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Notes, the Coupons and the Trust Deed, of any other company being a subsidiary of the Issuer, subject to:
(a) the Notes being unconditionally and irrevocably guaranteed by the Issuer;
(b) the Trustee being satisfied that the interests of the Noteholders will not be materially prejudiced by the substitution; and
(c) certain other conditions set out in the Trust Deed being complied with.
14. MEETINGS OF NOTEHOLDERS, MODIFICATION,WAIVER, AUTHORISATION AND DETERMINATION
14.1 Meetings of Noteholders
The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than 50 per cent. in principal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Notes held or represented by him or them, except that, at any meeting the business of which includes the modification or abrogation of certain of the provisions of these Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one
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third, of the principal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting, and on all Couponholders.
14.2 Modification, Waiver, Authorisation and Determination
The Trustee may agree, without the consent of the Noteholders or Couponholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed, or determine, without any such consent as aforesaid, that any Event of Default or Potential Event of Default shall not be treated as such (provided that, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders) or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest error or an error which, in the opinion of the Trustee, is proven.
14.3 Trustee to have Regard to Interests of Noteholders as a Class
In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders or Couponholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders except to the extent already provided for in Condition 7 and/or any undertaking given in addition to, or in substitution for, Condition 7 pursuant to the Trust Deed.
14.4 Notification to the Noteholders
Any modification, abrogation, waiver, authorisation, determination or substitution shall be binding on the Noteholders and the Couponholders and, unless the Trustee agrees otherwise, any modification or substitution shall be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 12.
15. INDEMNIFICATION OF THE TRUSTEE AND ITS CONTRACTING WITH THE ISSUER
15.1 Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured to its satisfaction.
15.2 Trustee Contracting with the Issuer
The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (a) to enter into business transactions with the Issuer and/or any of the Issuer’s Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer and/or any of the Issuer’s Subsidiaries, (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of,
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or consequences for, the Noteholders or Couponholders, and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.
16. FURTHER ISSUES
The Issuer is at liberty from time to time without the consent of the Noteholders or Couponholders to create and issue further notes or bonds (whether in bearer or registered form) either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding notes or bonds of any series (including the Notes) constituted by the Trust Deed or any supplemental deed or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further notes or bonds which are to form a single series with the outstanding notes or bonds of any series (including the Notes) constituted by the Trust Deed or any supplemental deed shall, and any other further notes or bonds may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of notes or bonds of other series in certain circumstances where the Trustee so decides.
17. GOVERNING LAW AND SUBMISSION TO JURISDICTION
17.1 Governing Law
The Trust Deed, the Notes and the Coupons are governed by, and will be construed in accordance with, English law.
17.2 Jurisdiction of English Courts
The Issuer has, in the Trust Deed, irrevocably agreed for the benefit of the Trustee, the Noteholders and the Couponholders that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed, the Notes or the Coupons and accordingly has submitted to the exclusive jurisdiction of the English courts.
The Issuer has, in the Trust Deed, waived any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum. The Trustee, the Noteholders and the Couponholders may take any suit, action or proceeding arising out of or in connection with the Trust Deed, the Notes or the Coupons respectively (together referred to as Proceedings) against the Issuer in any other court of competent jurisdiction and concurrent Proceedings in any number of jurisdictions.
17.3 Appointment of Process Agent
The Issuer has, in the Trust Deed, irrevocably and unconditionally appointed Clifford Chance Secretaries Limited at the latter’s registered office for the time being as its agent for service of process in England in respect of any Proceedings and has undertaken that in the event of such agent ceasing so to act it will appoint such other person as the Trustee may approve as its agent for that purpose.
17.4 Sovereign Immunity
The Issuer has in the Trust Deed to the extent permitted by law irrevocably and unconditionally waived and agreed not to raise with respect to the Trust Deed, the Notes and the Coupons any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence, and has irrevocably and unconditionally consented to the giving of any relief or the issue of any process, including, without limitation, the making, enforcement
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or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings.
18. RIGHTS OF THIRD PARTIES
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.
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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE REPRESENTED BY THE GLOBAL NOTES
The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Global Notes which will apply to, and in some cases modify, the Conditions of the Notes while the Notes are represented by the Global Notes.
1. Exchange
The Permanent Global Note will be exchangeable in whole but not in part (free of charge to the holder) for definitive Notes only:
(a) upon the happening of any of the events defined in the Trust Deed as “Events of Default”;
(b) if either Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so and no alternative clearing system satisfactory to the Trustee is available; or
(c) if the Issuer would suffer a disadvantage as a result of a change in laws or regulations (taxation or otherwise) or as a result of a change in the practice of Euroclear and/or Clearstream, Luxembourg which would not be suffered were the Notes in definitive form and a certificate to such effect signed by two Directors of the Issuer is given to the Trustee.
Thereupon (in the case of (a) and (b) above) the holder of the Permanent Global Note (acting on the instructions of one or more of the Accountholders (as defined below)) or the Trustee may give notice to the Issuer and (in the case of (c) above) the Issuer may give notice to the Trustee and the Noteholders, of its intention to exchange the Permanent Global Note for definitive Notes on or after the Exchange Date (as defined below).
On or after the Exchange Date the holder of the Permanent Global Note may or, in the case of (c) above, shall surrender the Permanent Global Note to or to the order of the Principal Paying Agent. In exchange for the Permanent Global Note the Issuer will deliver, or procure the delivery of, an equal aggregate principal amount of definitive Notes (having attached to them all Coupons in respect of interest which has not already been paid on the Permanent Global Note), security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in the Trust Deed. On exchange of the Permanent Global Note, the Issuer will procure that it is cancelled and, if the holder so requests, returned to the holder together with any relevant definitive Notes.
For these purposes, Exchange Date means a day specified in the notice requiring exchange falling not less than 60 days after that on which such notice is given and being a day on which banks are open for general business in the place in which the specified office of the Principal Paying Agent is located and, except in the case of exchange pursuant to (b) above, in the place in which the relevant clearing system is located.
2. Payments
On and after 22 August 2007, no payment will be made on the Temporary Global Note unless exchange for an interest in the Permanent Global Note is improperly withheld or refused. Payments of principal and interest in respect of Notes represented by a Global Note will, subject as set out below, be made against presentation for endorsement and, if no further payment falls to be made in respect of the Notes, against surrender of such Global Note to the order of the Principal Paying Agent or such other Paying Agent as shall have been notified to the Noteholders for such purposes. A record of each payment made will be endorsed on the appropriate part of the schedule to the relevant Global Note by or on behalf of the Principal Paying Agent, which endorsement shall be prima facie evidence that such payment has been made in respect of the
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Notes. Payments of interest on the Temporary Global Note (if permitted by the first sentence of this paragraph) will be made only upon certification as to non-U.S. beneficial ownership unless such certification has already been made.
3. Notices
For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg (as the case may be) for communication to the relative Accountholders rather than by publication as required by Condition 12, provided that, so long as the Notes are listed on the Luxembourg Stock Exchange, notice will also be given by publication in a daily newspaper published in Luxembourg if and to the extent that the rules of the Luxembourg Stock Exchange so require. Any such notice shall be deemed to have been given to the Noteholders on the second day after the day on which such notice is delivered to Euroclear and/or Clearstream, Luxembourg (as the case may be) as aforesaid.
4. Accountholders
For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of such Notes (each an Accountholder) (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such Notes standing to the account of any person shall, in the absence of manifest error, be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Notes for all purposes (including but not limited to, for the purposes of any quorum requirements of, or the right to demand a poll at, meetings of the Noteholders and giving notice to the Issuer pursuant to Condition 6.3) other than with respect to the payment of principal and interest on such principal amount of such Notes, the right to which shall be vested, as against the Issuer and the Trustee, solely in the bearer of the relevant Global Note in accordance with and subject to its terms and the terms of the Trust Deed. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the bearer of the relevant Global Note.
5. Prescription
Claims against the Issuer in respect of principal and interest on the Notes represented by a Global Note will be prescribed after 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date (as defined in Condition 7).
6. Cancellation
Cancellation of any Note represented by a Global Note and required by the Conditions of the Notes to be cancelled following its redemption or purchase will be effected by endorsement by or on behalf of the Principal Paying Agent of the reduction in the principal amount of the relevant Global Note on the relevant part of the schedule thereto.
7. Put Option
For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, the option of the Noteholders provided for in Condition 6.3 may be exercised by an Accountholder giving notice to the Principal Paying Agent in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg (which may include notice being given on his instructions by Euroclear or Clearstream, Luxembourg or any common depositary for them to the Principal Paying Agent by
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electronic means) of the principal amount of the Notes in respect of which such option is exercised and at the same time presenting or procuring the presentation of the relevant Global Note to the Principal Paying Agent for notation accordingly within the time limits set forth in that Condition.
8. Euroclear and Clearstream, Luxembourg
References in the Global Notes and this summary to Euroclear and/or Clearstream, Luxembourg shall be deemed to include references to any other clearing system approved by the Trustee.
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USE OF PROCEEDS
The net proceeds of the issue of the Notes, amounting to approximately €296,451,000 (before deduction of expenses), will be applied by the Issuer for its general corporate purposes.
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EXCHANGE RATE INFORMATION
The following table sets forth, for the periods and dates indicated, certain information regarding the Midpoint Rate for Kuna, expressed in euros per Kuna. The term Midpoint Rate means the rate fixed by the Croatian National Bank on the relevant date. The inclusion of such translations is not intended to suggest that the Kuna amounts actually represent such euro amounts or that such amounts could have been converted into euro at such rate or any other rate.
111111111111111311111For Year Ended 31 December 1 11112004 1111 2005 1111 2006 1111 2007 Exchange rate at end of period ...... 7.6712 7.3756 7.3451 7.3728 Average exchange rate during period2...... 7.4957 7.4000 7.3228 7.3962 Highest exchange rate during period3 ...... 7.6712 7.5511 7.3818 7.3825 Lowest exchange rate during period3 ...... 7.3658 7.2967 7.2570 7.3453
1. To 31 April 2007. 2. The average of the Midpoint Rate as published by the Croatian National Bank on the last business day of each month during the applicable period. 3. Highest/lowest monthly average exchange rate during the period.
The Midpoint Rate on 22 June 2007 was euro l.00 = 7.3317 Kuna.
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DESCRIPTION OF THE ISSUER
INTRODUCTION
On 27 December 2005, the City of Zagreb (the City) transferred its equity shares in various subsidiary companies to Gradsko Komunalno Gospodarstvo d.o.o. (GKG), establishing it as a holding company of subsidiaries for the provision of public services to the City. GKG started operations on 1 January 2006 as a limited liability company of unlimited duration, with its registered office at Savska cesta 1, Zagreb, Croatia, registration number 080042653. On 3 July 2006, various subsidiary companies were merged into GKG. On 2 January 2007 GKG changed its name to Zagrebački Holding d.o.o., the English translation of which is Zagreb City Holding Limited (ZCH). ZCH currently has a fully paid up share capital of HRK 4,358,524,100 and in 2006 had an operating income of HRK 4.6 bn, assets of HRK 15.6 bn as at 31 December 2006, and an average of 13,409 employees during 2006.
ZCH’s overarching purpose is to provide continuous utility services to the citizens of the City that are efficient, timely and affordable. ZCH currently comprises 22 branches and holds 2 subsidiary companies and 1 public institution (Gradska Ljekarna Zagreb) (together with ZCH, the Group), each of which performs a different function for the purpose of maintaining the City’s operations, such as water and gas supply, public transport services, waste collection and recycling, maintenance and cleaning of public areas and the management and maintenance of public roadways. For a full description of the various functions of the branches and subsidiaries please see the “Description Of The Branches and Subsidiaries Of ZCH” section below. ZCH is currently the only provider of municipal public services to the City.
THE RELATIONSHIP OF ZCH WITH THE CITY
ZCH is wholly owned by the City and there are no immediate or medium term plans to privatise any of the core activities of the Group. The City is run by the City Assembly, which comprises 51 members elected through public municipal elections. The City Assembly in turn appoints the ZCH Assembly, the sole member of which is currently the Mayor of the City, Milan Bandić. ZCH itself is run by the Management Board of seven members.
The approval of the ZCH Assembly is required for the strategic decisions of the Management Board of ZCH and the ZCH Assembly determines the distribution of any profits of ZCH. Whilst the City, as sole shareholder, may request dividends, it has not to date done so, and considering the ZCH Group’s constant need for investment and funding, ZCH believes that it is unlikely the City will request dividends.
A number of the relationships between the City and ZCH are regulated by separate contracts, such as the contract for the provision of municipal services, the long-term contracts for the procurement of public transport services between Zagrebački Elektricni Tramvaj (ZET) and the City, or the contracts in place for the cleaning and maintenance of the City’s parks. In some areas ZCH receives payments from the City as a significant part of its revenue, for example, ZET receives payments from the City in order to enable ZET to provide public transport at a reduced rate for all citizens of Zagreb and free public transport for all pensioners and students.
As a result of the strong ties with the City, ZCH continues to enjoy strong support from the City, a strong bargaining position with regard to external companies. The City has in the past provided guarantees for loans and liabilities of branches of the ZCH Group. Such guarantees are provided on a case-by-case basis, and there is no specific rule or policy governing the granting of such guarantees – please see at the end of this section a table of the outstanding debt of ZCH, including details of outstanding debt which is guaranteed by the City.
In the future, ZCH intends to encourage its branches and subsidiary companies to arrange finance independently through collateralised bank loans and leasing financing. Although ZCH has not to date experienced liquidity needs that have required support from the City, ZCH believes that such
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support would be readily available to ZCH due to the importance of ZCH to the City. In particular, the functions provided by ZCH of supplying water, gas, public transport and cleaning and waste disposal services are of prime importance to the City.
The City has made a significant portion of its assets available to individual Group entities for their use; for example, according to the Group financial statements for the year ending 2006, the value of buildings owned by the Group was HRK 6,934,494,000 as at 31 December 2006, compared with a value of HRK 66,546,000 owned by the City, similarly land owned by the Group amounted to HRK 2,782,814,000 as at 31 December 2006, compared with HRK 705,920,000 owned by the City. The only major external activity of the City that is not operated through ZCH is Zagreb airport; this is 35 per cent. owned by the City and 65 per cent. by the government of Croatia.
ZCH MANAGEMENT
ZCH adopts a centralised approach to management of the Group, with the Group being managed by the Management Board of seven members and the management personnel of the individual branches and subsidiaries being responsible for day-to-day operations and implementation strategies determined by the centralised management. Appointments to the Management Board are advertised by public tender, with the final determination on appointment being taken by the Mayor in his role as the ZCH Assembly. Each Management Board member is appointed for a 4- year term, with annual reviews of the planned and actual performance. There is no automatic reappointment but each member may stand again. Each member of the Management Board must be a Croatian national holding a university degree and having at least three years of working experience. The Management Board meets once a week to determine issues of: strategic management and planning; the analysis of capital expenditure; liquidity management; annual report analysis; the proposals to the ZCH Assembly for the development of contracts with the City and external companies; and the distribution of retained earnings. Any payments by a member of the Group over HRK 5m must be authorised by at least two members of the Management Board and the ZCH Assembly must approve any strategic decisions. The Management Board also reports to the Supervisory Board every three months.
The Management Board of ZCH currently comprises the following members:
Name Position on the Management Board Slobodan Ljubičić Chairman Dragan Kovačević Member – Finance Jadranko Husarić Member – Investments Vlasta Pavić Member – Legal Ivan Tolić Member – Human Resources and ZET Lidija Tomić Member – Procurement Vladimir Tomičić Member – Technical operations and Gradska Plinara
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In addition, a Supervisory Board has been established to supervise the activities of ZCH’s Management Board, prepare annual supervisory reports, approve certain Management Board decisions, and to control and analyse the Group’s results. The Supervisory Board is made up of eleven members, ten representing the political parties of the City Assembly and one member representing the employees of ZCH. Each member is appointed by the Mayor (in his role as the ZCH Assembly) for a 4-year term, which may be renewed, and cannot also sit on the Management Board. The current members of the Supervisory Board are as follows:
Name Function Political Party Ivan Šikić Chairman Social Democratic Party of Croatia (SDP) Miroslav Šafer Deputy Chairman United Independent Lists (SNL) Bojan Kodrić Deputy Chairman Croatian Peasant Party (HSS) Igor Dragovan Member Social Democratic Party of Croatia (SDP) Vesna Majher Member Social Democratic Party of Croatia (SDP) Petar Kuzele Member Croatian Party of Pensioners (HSU) Dragutin Štiglić Member Croatian Party of Pensioners (HSU) Ivan Friščić Member Croatian Party of Rights (HSP) Katarina Fuček Member Croatian Democratic Union (HDZ) Zorka Virag Member Croatian People’s Party – Liberal Democrats (HNS) Nada Čanić Member Representative of Employees
Whilst the make-up of the ZCH Assembly and the Supervisory Board are by nature politically oriented, ZCH does not believe that the role and direction of ZCH would be significantly impacted by the outcome of municipal elections given the overall importance of ZCH’s role to the City.
There are no potential conflicts of interest between the private interests of other duties of the members of ZCH’s Management and Supervisory Boards and the duties of such persons to ZCH.
EFFICIENCIES OF THE HOLDING STRUCTURE
The placing of ZCH as an operating and holding company between the City and the various branches and subsidiaries of the Group was undertaken to realise operational and cost efficiencies through a centralised organisational framework. This structure has resulted in cost savings through a more efficient use of employees and resources, as well as a more efficient administration, finance and procurement through centralised decision-making. In addition, the liquidity of the Group has been improved by the centralised cash accounts and a more efficient allocation of funds. The operations of ZCH are focused on certain core activities as further described below and ZCH may in the future reduce its activities in certain non-core areas although there are currently no plans to do so.
The process of centralisation is still in progress and there are plans to realise further efficiencies. The more efficient use of employees has already enabled the reduction in employees of the Group motivated by a high severance pay; to date, all redundancies have been voluntary. ZCH expects to realise cost savings by future staff reductions in the medium term through natural outflow, pensions related incentives and the reduction in overlap of staff duties and responsibilities. So far in 2007, 530 employees have left the Group in this way and there is a plan to reduce the number of employees by 2,000-3,000 more over the next 3-5 years, with the estimated annual saving from planned staff reductions being HRK 75m as compared to current levels and the cost of pension incentives expected to be recuperated within a year. Support functions that are common to the various branches and subsidiaries of the Group, such as vehicle maintenance, security, cleaning and finance will be centralised and operated directly by ZCH. This should reduce the number of employees taken up in these roles by as much as two thirds. Furthermore, once this process has
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been completed, ZCH will look at the cost efficiency of outsourcing these activities. To date, matters such as insurance have been dealt with by the individual subsidiaries, but ZCH now plans to provide long-term insurance at the holding company level to cover the property of the various branches and subsidiaries. In addition, ZCH is looking to shift from ownership to leasing of its vehicles, in part to reduce costs and in part to reduce the average age of the vehicles in use by the Group. Operational efficiencies are also in progress; ZCH will move to a common IT platform across the Group within the next 2 years, the provision of which is currently out to tender, and there are plans to relocate the management of the various branches and companies held by the Group to a single building.
BUDGETING The Group’s financials are not consolidated into the City’s budget, however, the City’s budget will reflect expenditure for the activities to be undertaken by the Group subsidiaries, such as for example the purchase of new trams for ZET. Following approval by the ZCH Assembly, ZCH submits an annual investment proposal to the City for approval prior to the disclosure of the City’s budget. If additional funds are required by ZCH during the course of the year, then the City budget will need to be amended. Due to public procurement regulations, the purchase of any major supplies over an HRK 200,000 threshold must be put to public tender. The majority of the financing paid by the City to ZCH is in consideration for services provided by the branches and subsidiaries of ZCH to the citizens of Zagreb on behalf of the City. These relationships are governed by long-term contracts for the provision of services under which each Group branch and subsidiary submits an annual capital expenditure plan and request for funding to the Management Board. In addition, the branches and subsidiaries can request funding grants from the City outside of such contracts to cover expenditure on additional items necessary for the provision of municipal services, such as new vehicles or equipment. All submissions are considered and prioritised by the Management Board, with input from the Supervisory Board, according to the strategy of ZCH, before being submitted to the ZCH Assembly for approval. Where expenditure relates to the communal infrastructure of Zagreb, then the funding will be paid directly by the City, however, the Group branches and subsidiaries are otherwise encouraged to raise finance independently where possible. Details of the financing to be given by the City to the various branches and subsidiaries during 2007 are set out below (all amounts in HRK): Payments to be made Additional pursuant to Payments contracts for to be made the provision by the City 111111of services 111111 in 2007 111111 Total ZET ...... 505,000,000 57,079,519 562,079,519 Zagrebačke Ceste ...... 230,819,000 94,546,104 325,365,104 Zrinjevac ...... 103,280,000 42,000,000 145,280,000 Čistoća ...... 95,082,000 3,500,000 98,582,000 Društvo. za upravlj. Spor. Objekt...... 54,972,493 3,650,000 58,622,493 Gradsko Stambeno Komun...... 20,983,606 20,983,606 Vodoopskrba i Odvodnja ...... 16,400,000 1,550,000 17,950,000 Zoološki vrt...... 17,000,000 17,000,000 Vladimir Nazor ...... 6,140,000 400,000 6,540,000 Gradska Groblja ...... 5,940,000 5,940,000 Tehnološki park ...... 2,960,000 2,960,000 Zagrebparking ...... 950,000 950,000 Zagreb film ...... 590,000 590,000 AGM...... 111111 111111 190,000 111111 190,000 Total...... 1,056,207,099 206,825,623 1,263,032,722 aaaaaa111111 aaaaaa111111 aaaaaa111111
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ENVIRONMENTAL POLICY
Environmental policy is of primary concern to the City and to ZCH. To date three initiatives have been planned as part of the environmental development of ZCH: • USD 100m has been invested in the rehabilitation of the landfill site at Jakusevec as further described below in relation to ZGOS; • The City has granted a concession for the construction and management of a waste waters treatment facility, the first phase of which was opened in 2004 with the second phase scheduled to open in 2008. EUR 245m is being invested through Zagrebacke otpadne vode d.o.o.; and • The City is planning to invest approximately EUR 170m on the construction of a waste incinerator.
In addition, ZCH has commissioned a study by the University of Zagreb Faculty of Electrical Engineering and Computing to reduce the cost of energy across the Group and ZCH has begun implementation of its recommendations.
Environmental initiatives come from both the Environmental Committee of the City and from EU standards. ZCH considers it important to set environmental standards across the Group at the ZCH level and, in March 2007, established a general strategy for environmental protection including the planned establishment of a centralised department in charge of environmental issues.
ZET is in the process of converting the bus network to natural fuels, such as biodiesel, and currently has 10 buses running on natural fuels on an experimental basis, with the aim (if this experiment is successful) to have 10 per cent. of all buses running on either biodiesel or natural gas by the end of 2007.
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ORGANISATIONAL STRUCTURE
The organisational structure of ZCH and each of its subsidiaries is set out below: Zagrebački holding d.o.o.
111111111Public Institution: 11111 Branches: 11111111111Subsidiary Companies: Gradska Ljekarna Zagreb 1. AGM 1. Gradska Plinara 2. Autobusni kolodvor Zagreb d.o.o. 3. Čistoća 2. Zagreb Plakat 4. Društvo za upravljanje športskim d.o.o. objektima Zagreb 5. Gradska Groblja 6. Gradsko Stambeno Komunalo Gospodarstvo 7. Robni Terminali Zagreb 8. Stanogradnja 9. Tehnološki Park Zagreb 10. Tržnice Zagreb 11. Vladimir Nazor 12. Vodoopskrba i Odvodnja 13. Zagrebparking 14. Zagreb Film 15. Zagrebačka Veletržnica 16. Zagrebačke Ceste 17. Zagrebački Digitalni Grad 18. Zagrebački Električni Tramvaj 19. Zagrebački Velesajam 20. ZGOS 21. Zoološki vrt Grada Zagreba 22. Zrinjevac
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DESCRIPTION OF THE BRANCHES AND SUBSIDIARIES OF ZCH
The activities of ZCH are organised into branches and subsidiaries according to the various functions undertaken. ZCH itself is a limited liability company comprising the following 22 branches, 2 subsidiary companies and 1 public institution as outlined above. The majority of the activity of ZCH is focused in 9 core branches and subsidiaries, with the revenue for each being as follows:
Percentage Revenue of total as at Group 11111131 Dec 2006 111111 Revenue (HRK ‘000) Zagrebački Elektricni Tramvaj (ZET)...... 959.3 21% Gradska Plinara...... 898.6 20% Vodoopskrba i Odvodnja (VIO) ...... 454.0 10% Zagrebačke Ceste...... 432.0 9% Čistoća ...... 351.6 8% Gradska Ljekarna Zagreb ...... 302.5 7% Zagrebparking...... 147.5 3% Robni Terminali Zagreb (RTZ) ...... 116.5 3% ZGOS ...... 111111 80.4 111111 2% TOTAL for the above 9 Branches/Subsidiaries ...... 1111113,742.4 111111 83% Total for the Group...... 4,557.2 100% aaaaaa111111 aaaaaa111111
A description of each of the above is as follows (in alphabetical order):
Čistoća
Čistoća was founded in 1923 to collect and dispose of all kinds of domestic and industrial waste except hazardous industrial waste.
Čistoća distributes hazardous waste to specialised certified companies. Čistoća also operates the cleaning of Zagreb’s public roads and the primary recycling and separation of domestic waste and dangerous substances from domestic sources. Čistoća holds the ISO 14001 certificate relating to environmental protection. In addition, Čistoća maintains the 250 vehicles necessary to undertake these activities, although this is a supplementary activity that will be centralised to the ZCH level and could be outsourced.
Čistoća is currently managed in four sectors, namely finance, legal, operative and maintenance of motor vehicles, although it is intended that the finance and general legal functions of Čistoća will be centralised to ZCH within the next two years.
Čistoća has three strategic aims: to equip the City with large specialised containers for waste collection; to enable citizens to separate out waste more clearly and therefore increase recycling; and to reduce the number of times waste is collected each week (to be effected through the new containers to be provided and a cleaning scheme for these containers).
Čistoća has a loan for the modernisation of its vehicles, which is guaranteed by the City, and there are plans to invest in new vehicles during 2007 and to reduce over time the average age of Čistoća’s vehicles to seven years.
All companies that produce waste must pay into a fund for the protection of the environment, with part of that revenue being paid to Čistoća. Čistoća pays ZGOS to store the waste that is not recycled.
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Recycling is motivated by the environmental policy of the Croatian government, with the materials for recycling being delivered directly to private industry. To date, the costs of recycling are generally higher than the revenue collected, only the sale of paper for recycling covers the cost of collection. As a result there is currently no viable competition for recycling services in Zagreb.
Čistoća does not operate for profit, but does need to cover its costs. Two thirds of the revenue of Čistoća is collected directly by charging a monthly utility bill to households of Zagreb. The price of the utility bills is approved by the City following an opinion from an independent committee of the citizens of Zagreb, as regulated by municipal law. The monthly bill is currently calculated on the basis of the square metres of domestic and industrial space occupied although one of the strategic aims of Čistoća is to change this to a system that charges according to the number of containers provided in order to reduce costs. The remaining third of the revenue of Čistoća is paid by the City under Čistoća’s contract with the City to clean the public roads of Zagreb; this contract is renewed annually.
Whilst Čistoća made a loss last year this was due to the Republic of Croatia (the “State”) refusing a tariff for the collection of large items of waste from dedicated collection sites in the City. For 2007, this increase in cost will now be covered by an increase in the monthly bill.
In 2006, Čistoća reported revenues of HRK 351.6m, EBITDA of HRK 65.4m and, as at 31 December 2006, held assets of HRK 224.7m.
In 2006 Čistoća reported capital expenditure of HRK 11m.
The average number of employees during 2006 was 1,629 and is currently approximately 1,650.
Gradska Ljekarna Zagreb
Gradska Ljekarna Zagreb (GLZ) is organised as a public institution that operates pharmacies in Zagreb. Since 1995, other pharmacies have been operating in the market. 80 per cent. of products are prescription medicines, the price of which is determined by the State, although the price set does allow a margin for profit to be obtained. The remaining 20 per cent. of products may be sold at a set profit margin, being 35 per cent. in most cases. Where customers have obtained a prescription from a public doctor the cost of such prescription will be paid for by the Croatian Health Insurance Fund (HZZO). Where customers have obtained a prescription from a private doctor this will be paid for by the customer in cash or through private medical insurance.
GLZ operates the Galenski Laboratory, which develops and produces 80 different products for sale in its own and other pharmacies. 45 per cent. of goods sold by GLZ are produced by the Galenski Laboratory. The main priority of GLZ is to secure a regular supply of pharmaceutical products to Zagreb. Whilst GLZ operates its own laboratory for the production of pharmaceutical products, in all other respects it operates as a normal commercial chain of pharmacies.
The current laboratory does not comply with GMP international standards for the conditions for pharmaceutical production, therefore, GLZ plans to use HRK 20m of retained earnings to modernise the Galenski Laboratory to comply with GMP standards and to expand the range of products it produces. This amount will cover the equipment and modernisation of the new site and it is expected that the City will assist in locating and providing the site for the new laboratory. GLZ expects the new laboratory to be operational by the end of 2008. GLZ also aims to modernise between two and four pharmacies each year, at an average cost of HRK 1m per pharmacy; such modernisation being to effect cosmetic changes and extend floor space.
GLZ has a competitive advantage due to the economies of scale presented by operating a large number of pharmacies, with the majority of the competition being by sole traders. Some competitors do have small chains of up to 10 pharmacies, however, these are usually in the suburbs rather than the city centre locations of GLZ. As GLZ is the longest running pharmacy in Zagreb (with other pharmacies operating only since 1995), GLZ also has an advantage as it employs the most experienced staff in Zagreb including 3 of the 10 professors who conduct the
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pharmacy exams for Croatia under the Ministry of Health. GLZ trains the largest number of pharmacists in Zagreb and can offer work experience with the most experienced pharmacists in Zagreb. GLZ uses this position to identify and retain the highest quality employees. GLZ employs 170 pharmacists out of a total of 320 employees.
GLZ approves capital expenditure proposals through its governing council comprising two representatives from the City Assembly, one member of the ZCH Management Board and two representatives from GLZ. GLZ currently has 34 pharmacies; one is owned by GLZ, five are leased from private companies, and 28 are owned by the City with GLZ having the right to use these premises free of charge.
Due to the nature of GLZ’s business there can be long cashflow delays due to long collection periods and large amounts receivable from the HZZO where the average collection period is 260 days (despite the contracted collection period being 120 days). 60 per cent. of all revenue is from private prescription sales in cash, which cover 100 per cent. of the costs of GLZ.
The right to use the City’s premises (as detailed above) without payment of rent amounts to a benefit equivalent to HRK 12m p.a.. Other than the free use of land, GLZ does not receive any subsidies from the City. GLZ employs the maintenance services of ZCH.
In 2006, Gradska Ljekarna Zagreb reported revenues of HRK 302.5m, EBITDA of HRK -12.9m and, as at 31 December 2006, held assets of HRK 201.2m with no external debt.
In 2006, Gradska Ljekarna Zagreb reported capital expenditure of HRK 8.3m.
The average number of employees during 2006 was 332.
Gradska Plinara
Gradska Plinara is a limited liability company engaged in the distribution and sale of natural gas.
The management of Gradska Plinara consists of the CEO, 2 directors dealing with finance and technical matters, and 12 operational managers.
Gradska Plinara will be affected by the scheduled deregulation of the gas market in Croatia. In July 2001, reform of the Croatian power supply system was launched and promulgated inter alia through the Energy Act, Gas Market Act and the Act on Regulation of Energy Activities. Pursuant to these Acts, Gradska Plinara, as the only gas distributor in Croatia will, by the end of 2007, split its core activity of gas distribution from its gas sales activities. In addition, a tariff system for natural gas supply and natural gas distribution is expected to be finalised and adopted by the end of 2007, with their application scheduled for 1 January 2008. The Gas Market Act integrates all of the requirements of EU Directive 2003/55/EC concerning common rules for the internal market in natural gas, as follows: market creation (by separating the gas supply from gas distribution); market opening (by enabling gas buyers to chose their supplier); and ensuring indiscriminate access to the gas supply network and avoiding any conflict of interest. The separation of the distribution and sale functions will be in terms of accounting, operational functionality and legal separation. The Croatian Energy Regulation Agency will be responsible for the supervision, enforcement and regulation of the changes outlined above.
The aim of these reforms is to de-monopolise the energy infrastructure. Furthermore, Gradska Plinara is classified as a large buyer of natural gas, and is able to purchase gas at a rate that is preferential to the market rate. The de-regulation of the market will negatively affect Gradska Plinara’s current advantages in the market, although the ability to purchase from suppliers other than INA may also have a positive impact by reducing costs.
The strategic goals of Gradska Plinara are: to increase the safety of the distribution network through the replacement and reconstruction of the gas pipelines (including the replacement of existing steel pipes with a new polyethylene system); to reconstruct and expand the existing gas
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networks; and to further expand the gas network within the Zagreb county. In addition Gradska Plinara aims to improve efficiency through measures such as a stronger focus on remote measurement of gas meters.
Gradska Plinara currently supplies gas to 98 per cent. of Zagreb and 38 per cent. of the Zagreb county region, including the cities of Zapresic and Velika Gorica and plans to supply to the remaining 62 per cent. of the county. Gradska Plinara currently supplies to 38 per cent. of the total Croatian national market, including the counties of Brdovec, Pusca, Marija Gorica, with the remaining 62 per cent. of the Croatian market being supplied by 37 separate companies.
Construction operations for the gas distribution network are currently outsourced to companies in Zagreb, and maintenance and cleaning operations are centralised within ZCH.
Gradska Plinara is maintained as a separate entity for regulatory reasons. Gradska Plinara’s revenue comes exclusively from the sale of gas as charged through a monthly utility bill, the price of which is approved by the Croatian Regulatory Agency (HERA), with the City playing no role in gas pricing. At present Gradska Plinara can only purchase gas from INA (the former state monopoly, which is now the incumbent supplier and 25 per cent. owned by the state) although deregulation of the gas market would open up the possibility of contracting with new suppliers.
Gradska Plinara currently receives prompt payment for approximately 98 per cent. of bills with only 2 per cent. defaulting on payment. Gradska Plinara has the ability to cut off supply to a given individual customer if payment is not received.
Approximately HRK 90-100m (representing approximately 10 per cent. of revenue) is allocated annually for upgrading of the gas network. Half of this amount is used to reconstruct and maintain the existing network, and half for the extension of the gas network in accordance with a 5-year plan. Following investment in the distribution network only 2 per cent. of gas is lost through leakages, compared to 6 per cent. prior to 2000.
In 2006, Gradska Plinara reported revenues of HRK 898.6m, EBITDA of HRK 101.0m and, as at 31 December 2006, held assets of HRK 1,739.7m and external debt of HRK 1.3m.
In 2006, Gradska Plinara reported capital expenditure of HRK 216.9m.
The average number of employees during 2006 was 569 and currently is approximately 561.
Robni Terminali Zagreb (RTZ)
RTZ was founded on 21 April 1953 to provide commercial goods storage services.
The management of RTZ comprises five members, who deal with: human resources; finance; research and development; investment and maintenance; legal; and security matters respectively.
RTZ has two storage locations, Žitnjak in the east and Jankomir in the west of Zagreb, comprising 470,000 m2 of land, with 160,000 m2 of closed space within 40 facilities. RTZ provides a full range of services including unloading, receiving goods, customs, road transfer and rail transfer. Both the Žitnjak and Jankomir locations are used for warehousing a wide range of non-hazardous consumer goods. Both locations are well connected by rail and road and have container storage, but not a container terminal as such. Space in both locations is rented for business operations. In addition, RTZ runs a free zone with tax-free incentives where neither VAT nor income tax is payable. Demand for such business space is high and RTZ must approve each application to ensure that the applicant company is fully registered, is solvent with a bank guarantee, and has a viable business plan which does not infringe any of the environmental protection policies of ZCH. RTZ also operates a very small wholesale flower market.
RTZ provides all of the security to the sites, with 80-100 security guards on site at any given time, and CCTV surveillance being one of the largest expenses.
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A significant cost of RTZ is the maintenance of machinery, which will be centralised within ZCH by the end of 2007. RTZ currently has no plans to outsource any of its activities. Any plans to do so would be initiated by ZCH.
There are requests both from ZCH and customers to expand the storage capacity available, and there are plans over the next 5 years to add 8-12,000 m2 of new space, and to modernise 2-3,000 m2 of existing space each year to be financed through revenue generated by RTZ in its ordinary course of business. RTZ also aims to develop and promote environmentally friendly industries by using environmentally friendly energy sources.
RTZ’s only direct competitor at present is Intereuropa, which operates facilities within the Zagreb region representing approximately 30 per cent. of the size of the facilities of RTZ. The construction of facilities is also currently underway by a second competitor. However, demand is much higher than supply at present, and RTZ has a competitive advantage in the location of the sites in conjunction with the Customs houses.
RTZ is completely self-sufficient financially and is primarily motivated to make profit. The performance of RTZ is measured against profit, and against the internal objectives as submitted to ZCH; for each of the last 5 years RTZ has exceeded its own objectives. Provisions for litigation against RTZ have been made amounting to approximately 1 per cent. of the revenue of RTZ.
The majority of the clients of RTZ are private customers, although there are some public entity customers too. There is no preferential treatment between public and private customers. As demand exceeds supply for space, particularly in the free zone, sales are made by public tender to the highest bidder under a set procedure.
In 2006, RTZ reported revenues of HRK 116.5m, EBITDA of HRK 26.5m and, as at 31 December 2006, held assets of HRK 1,164m and external debt of HRK 84.3m.
In 2006, RTZ reported capital expenditure of HRK 111.5m.
The average number of employees during 2006 was 378 and is currently approximately 400, the majority of whom are employed in warehouse loading. To date there has been no industrial action amongst the workers.
Vodoopskrba i Odvodnja (VIO)
VIO has been maintaining Zagreb’s water supply since 1882 and the sewage system since 1892.
VI0 is currently managed through four sectors, namely; development, water supply, sewerage and finance/legal department. VI0 has 3 categories of buyers being (i) households (billed every two months) and buildings (billed every month), (ii) industrial buyers (billed every 15 days) and (iii) others, such as hospitals. The main objectives of VIO are to ensure the continuous supply of drinkable water and a safe high quality sewage system.
According to the current strategic development plan of VIO, in the period from 2004 to 2015 a total of HRK 5.65bn is scheduled to be invested in the water supply and sewage systems. Approximately HRK 2.9bn is needed for the sewage system (consisting of HRK 1.2bn for the reconstruction and rehabilitation of the existing system and HRK 1.7bn for the construction and development of the system), and HRK 2.7bn is required in the same timeframe to maintain the water system.
The improvements to the water supply will have the following goals: to reconstruct 18 per cent. of the existing water supply network and to decrease the loss from the water system from 45 per cent. to 18 per cent. by 2015, and to 15 per cent. thereafter; to reduce the consumption of electric power; to ensure the water and sewage systems meet EU regulations; to increase the water mains conduits by 50km (an increase of 25 per cent.); to increase the water supply network by constructing approximately 300km of piping to connect to an additional 5 per cent. of inhabitants
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and raise the coverage to inhabitants to 98 per cent.; to increase the capacity of water reservoirs by 37 per cent.; and to increase the pumping capacity by 40 per cent. to 2,000 litres per second (the existing water pumps are working at approximately 99 per cent. capacity which represents a potential risk to the system). The improvements to the sewage system will have the following goals: to construct approximately 570km of sewage networks (an increase of 32 per cent.) to connect to a further 15 per cent. of inhabitants and to increase coverage to 98 per cent. of inhabitants; to establish a centre to monitor and control the sewage system in real time; and to prioritise the improvement of the canal network in order to protect the underground water supply. The water network currently consists of 2,600 km of water pipes, and 1,900 km of sewage drains. Approximately 150 km of the water pipes are through canals made with asbestos concrete; these are in the process of being replaced and VIO expect for them to be replaced entirely by 2009. Similarly there are approximately 90 km of PVC pipes, which VIO aims to replace entirely by 2015. VIO plans to reduce costs by decreasing the water pressure (currently at 8.5 bar) in order to lower the cost of electricity used, and to reduce the number of pipes breaking.
An issue of particular concern to VIO has been the incidence of pollution of the underground water supplies for the region by agricultural and industrial waste and sewage leakage. Potential environmental issues may arise from the sewage system, which is in need of significant investment, hence the plans to construct a waste waters treatment facility as described under Environmental Policy above. In addition, VIO is in the process of renewing the sewage network, and regulation is expected to come into force next year to deal with the issue of agricultural and industrial pollution. Currently VIO has in place 150 machines to measure the level of pollution in the water and to prevent any further water being pumped if the pollution level is too high. Zagreb currently has a surplus of water available and there is no shortage of drinking water.
There is no competition for the supply of water to the City.
Pricing of the utilities bills (as mentioned below) is managed through the City who approve any increases prepared by the Management Board, however the national element of the bill (being the national fee for the protection of the water supply and the national fee for the consumption of water) is determined at a national level.
The main source of funding for the VIO is through utilities bills which charge users separately for 8 categories: water consumed; sewage disposed; the City of Zagreb network fee for the maintenance of the water network; the City of Zagreb network fee for the maintenance of the sewage network; the Croatian Waters national fee for the protection of the water supply; the Croatian Waters national fee for the consumption of water; a waste water treatment fee; and VAT. Revenue from the first two elements of the utility fee goes directly to VIO, with the other fee going to the State or the City, as appropriate. In addition, those constructing a new site will be charged a communal fee to cover connection costs.
The funding for the planned investments (as mentioned under Strategy) will be requested from the following sources: HRK 2.5bn from the budget of the City (this has not yet been approved); HRK 250m from the state and county budget (this has not yet been approved); HRK 700m from the Croatian Waters company (funded through customer payments of monthly utility bills); HRK 700m from the utility rates for the construction of the water and sewage networks; HRK 800m from retained earnings; and HRK 700m from bank loans. VIO currently has 6 outstanding bank loans, each of which is guaranteed by the City.
In 2006, VIO reported revenues of HRK 454.0m, EBITDA of HRK 118.8m and as at 31 December 2006 held assets of HRK 4,524.5m and external debt of HRK 293.2m.
In 2006, VIO reported capital expenditure of HRK 335.2m.
The average number of employees during 2006 was 1,399 and is currently approximately 1,328.
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Zagrebačke Ceste
Zagrebačke Ceste was founded in 1947 and maintains the public roadways of Zagreb.
The construction of public roads is undertaken externally by public tender. Zagrebačke Ceste is divided into the following 4 divisions: asphalt production; mechanisation; traffic light maintenance; and traffic sign production and maintenance. Each project of Zagrebačke Ceste is independently monitored by a specialised firm, which is appointed by public tender.
Zagrebačke Ceste has two asphalt production sites, the main one in Zagreb, and a secondary production site in the town of Kutina. Zagrebačke Ceste currently produces 350,000 tonnes of asphalt each year and has the capacity to produce more than enough asphalt than is demanded within the Zagreb region.
One of the main investments over the next 2 years will be in a common IT platform to maintain the traffic light system for Zagreb. The aim is to introduce the hardware and software required to control the traffic in Zagreb from a central position. Zagrebačke Ceste expects to have this system in place within one year. It has been agreed that financing for the system is to come directly from the City. Zagrebačke Ceste will also need to address the age demographic of its work force, the average age of which is over 50, as a younger workforce is required to perform certain roles.
Zagrebačke Ceste plans to sell and lease back its vehicles where possible to avoid maintenance costs, otherwise vehicle maintenance will be centralised under ZCH. Over the last 4 years, HRK 40m has been invested in 15-20 new vehicles, with the aim to reduce the average age of vehicles to 7 years and therefore reduce the cost of maintenance. Snow clearance in Zagreb is outsourced each year to external sub-contractors.
There are no other major producers of asphalt in the Zagreb region. Zagrebačke Ceste has all of the licenses required for the production of asphalt from the Ministry of Environmental Protection. Currently 80 per cent. of asphalt sales are within Zagreb and one of the strategic aims of Zagrebačke Ceste will therefore be to increase supply of asphalt to purchasers outside of Zagreb.
Zagrebačke Ceste has two contracts with the City, one for the regular and extraordinary maintenance of public roads and the other for the regular and extraordinary maintenance of other roads.
Zagrebačke Ceste raises approximately 30 per cent. of its revenue from market services such as the sale of asphalt and repairing private roads, and 70 per cent. from public services (40 per cent. of which is funded by the City budget and 60 per cent. of which is funded by State vehicle taxation).
Zagrebačke Ceste maintains approximately 2,000km of road on behalf of the City, 1,300km of which is located within the City itself and 700km in Zagreb county. The City funds the maintenance of the roads within the City and the State funds the maintenance of the county roads through road tax.
In 2006, Zagrebačke Ceste reported revenues of HRK 432m, EBITDA of HRK 13.9m and, as at 31 December 2006, held assets of HRK 346.9m and external debt of HRK 8.7m.
In 2006, Zagrebačke Ceste reported capital expenditure of HRK 5.8m.
The average number of employees during 2006 was 707.
Zagrebački Elektricni Tramvaj (ZET)
ZET was founded in 1891, and has been operating the electrical tram system since 1910. ZET now provides public transport services including tram and bus networks and the cable and funicular railway systems. In addition ZET maintains the vehicles, equipment and buildings associated with
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the provision of such services and provides the associated services of security, cleaning, marketing, a cafeteria and operates a certified service of fire-fighting machines.
For the building of new tram lines, construction and procurement will be put out to public tender. However, an internal maintenance team of ZET will assemble and install all tram lines and electrics. Maintenance and repairs will also be conducted internally although large projects may be outsourced on a case-by-case basis.
The purchase of tram vehicles must, due to national procurement laws, be put to international tender. ZET will co-operate in the first phase of design of the tram vehicles to ensure compatibility/conformity, and for certain elements of production of the tram vehicles local producers may be preferred to maintain ease of maintenance. The purchase of new buses follows a similar system, with procurement subject to international tender. ZET currently owns 307 buses and 440 tram carriages.
On 28 February 2007 ZET acquired the limited liability company Autobusna Radionica, which provides bus maintenance and repair services. Autobusna Radionica was previously a wholly owned subsidiary of ZCH but is now a branch of ZET. All maintenance and cleaning services will be consolidated to ZCH and ZET plans to reduce maintenance costs by investing in new vehicles.
Since October 2006, ZET has been introducing buses powered by biodiesel and natural fuels for environmental reasons. The Ministry of Environmental Production is funding this project, and aims to reduce emissions by 5 per cent. by 2010. At present ZET is running 10 buses on natural fuels on an experimental basis, and this number should rise to 30 by the end of 2007. This project is currently in its experimental phase. However, if successful the goal will be for buses in Zagreb to be powered 50 per cent. by biodiesel and 50 per cent. by natural gas fuelled engines by 2009.
From 2007 to 2010, ZET plans to invest a total of HRK 3.2bn, including HRK 1.9bn in vehicles, HRK 931m in buildings, HRK 234m expanding the existing traffic infrastructure, and HRK 58m in power plants.
There is no competition in Zagreb for tram services, and the small amount of competition for bus services is from minor companies concentrated in the suburbs. There is no regulation preventing the entry of further bus services, although competitors would not benefit from the subsidies from the City.
The City does request the building of new tramlines, although in the majority of cases the initiative for new tramlines has come from ZET. In such cases, the City must approve such development to ensure that it is in line with the City’s urbanisation plans.
ZET receives a large proportion of its finances from the City; in 2007 the City will provide HRK 631.2m in funding to ZCH, of which HRK 550m will be made to ZET. The City currently provides a subsidy to all citizens of Zagreb in the form of reducing the price of all public transport, particularly for students and pensioners who receive free transportation. This is provided for in the contract for the provision of municipal services between ZCH and the City, which regulates the financing of new vehicles and provides for the City to reimburse ZET for the difference between the actual cost of providing public transport and the revenue received from ticket sales. This contract is valid for the next 10 years. If the City policy determines that subsidised travel should be extended to more people, then this will be achieved through an adjustment to the City budget.
ZET also receives a small amount of revenue from advertising on its bus and tram network. This has only been in operation since the end of 2005 and revenues from advertising in 2007 are expected to reach only HRK 1m.
ZET receives direct funding from the City to finance the purchase of new trams and buses, including the current plans to procure 70 new tramcars to be delivered in 2008 and a further 70 to be delivered in the next 2 years. The financing is arranged under the contract on provision of municipal services between the City and ZCH, whereby the City will guarantee and pay the
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instalments for the loan to cover the purchase of new vehicles. New trams will be financed through sale and leaseback arrangements with Zagrebacka Bank. From 2007 to 2010, ZET intends to invest HRK 1.9 bn from bank loans in this way.
In 2006, ZET reported revenues of HRK 959.3m (50 per cent. of which is supplied by the City on behalf of the citizens), EBITDA of HRK 67.8m and, as at 31 December 2006 held assets of HRK 3,260.4m and external debt of HRK 856.6m.
In 2006, Autobusna Radionica reported revenues of HRK 23.4m, EBITDA of HRK -2.6m and as at 31 December 2006 held assets of HRK 15.9m and external debt of HRK 1.7m.
In 2006, ZET reported capital expenditure of HRK 577.5m. In 2006, Autobusna Radionica reported capital expenditure of HRK 0.2m.
The average number of employees of ZET during 2006 was 4,359. The average number of employees of Autobusna Radionica during 2006 was 70.
Zagrebparking
Zagrebparking was founded in 1965 and, from 1993, was operated by the City prior to its incorporation under ZCH.
Zagrebparking aims to reduce the intensity of traffic in Zagreb and to maintain a high turnover of vehicles in the parking spaces. Progress is internally monitored through IT systems. All initiatives to increase parking capacity are initiated by Zagrebparking. Zagrebparking operates the open parking areas (which represents 60-70 per cent. of its revenue), closed parking garages (15-25 per cent. of revenue), organises the towing and relocation of illegally parked and damaged vehicles (approximately 15 per cent. of revenue – Zagrebparking currently has a 62 per cent. recovery rate in respect of this revenue source due to the current court process) and runs a scrap yard for the sale of used spare parts (less than 1 per cent. of revenue). From 2008 onwards Zagrebparking will fine illegally parked cars in place of the police.
Currently Zagrebparking owns 20 towing vehicles and is the process of buying 4 new vehicles; there are plans to purchase 3 new vehicles each year over the next 4-5 years and to maintain an optimum level of 25 vehicles. Other than the centralisation of vehicle maintenance to the ZCH level, there are no plans to outsource any part of the Zagrebparking operations.
Zagrebparking plans to open two new public car parks in 2007: the site at Kvaternikov will have 353 spaces, will be financed by a HRK 45m loan and is due for completion in November 2007, the site at Tuskanac will have 466 spaces, will be financed by a HRK 47m loan and is due for completion in December 2007. Feasibility studies were conducted to ensure that each site could meet its own costs for the next 10-11 years including funding its own refinancing. It is estimated that there is demand for an additional five to six thousand spaces in Zagreb. Additional projects will be planned for completion in 2008.
Zagrebparking is also considering integrating commercial services into new car parks, such as shops or sports facilities. Zagrebparking also aims to continuously improve the technology it uses to ensure the most efficient use of resources, for example 63 per cent. of all parking payments are currently realised through the ‘m parking’ mobile phone operated payment system.
Zagrebparking currently enjoys a monopoly position in relation to parking in Zagreb, with the exception of parking spaces attached to shopping centres, although there are no regulations to prevent new entrants to the market.
Parking prices are proposed by Zagrebparking and approved by the City and the price charged for towing vehicles is approved by the Ministry for Internal Affairs.
Zagrebparking is entirely funded by its own activities. Pricing is calculated internally to match approximately twice the cost of public transport and to increase closer to the centre of town.
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Zagrebparking currently has one long-term loan that was used for the financing of a public garage and for general purposes and vehicle maintenance. This loan was not guaranteed but was collateralised by the facility it was used to construct.
All projects are financed entirely through private loans which are guaranteed by the City, Zagrebparking receives no direct subsidies.
In 2006, Zagrebparking reported revenues of HRK 147.5m, EBITDA of HRK 41.9m and, as at 31 December 2006, held assets of HRK 113.8m with external debt of HRK 26.7m.
In 2006, Zagrebparking reported capital expenditure of HRK 35.3m.
Zagrebparking is run by the CEO, with 3 assistant managers dealing with finance, legal and operational/technical matters, and currently has approximately 290 employees. In addition, the average number of employees during 2006 was 265 and is currently 290.
ZGOS
ZGOS was founded in 1998 to rehabilitate the 800,000m2 landfill site at Jakusevec, with funding coming from a loan from the EBRD. Through this rehabilitation process, the emissions of dangerous substances in the air have been reduced and the emissions from Jakusevec are now in compliance with all Croatian and EU guidelines.
ZGOS complies with all national and EU regulations for environmental protection and holds the ISO9001 certificate for quality and ISO 14001 certificate for environmental protection. Hazardous waste is not disposed of at Jakusevec.
ZGOS plans to undertake the following environmental action plan in 2007 in respect of the landfill site at Jakusevec: continuous monitoring of air quality, meteorological indicators, waste gases and pumping systems, the implementation of procedures for safety at work, quarterly testing and analysis of underground waters, quarterly testing of filtered waters in the river Sava, and semi- annual analysis of waste samples. From 2004 onwards, ZGOS has produced electricity from the gases emitted from the waste and sold this to the national grid. Currently this raises approximately HRK 2m per annum as this can only be sold to the Croatian national grid at a fixed price, although this revenue may increase if electricity could be sold more profitably to countries in the EU.
There is no competition in the Zagreb region for the provision of landfill services.
The site at Jakusevec is scheduled to run out of capacity in 2015 and the City and ZGOS are in the process of locating another suitable site. ZGOS will conduct the maintenance of the site at Jakusevec for the next 20 to 30 years at an estimated cost of HRK 70m. There are also plans for an incinerator to be built to dispose of waste from the City, although this may not be operated by ZGOS.
ZGOS charges HRK 325 per tonne to dispose of waste at Jakusevec. This price is calculated on the basis of the operational costs of ZGOS plus a margin. HRK 50 of that money is used to compensate those living in the vicinity, and the remaining HRK 275 is retained by ZGOS. The margin is used in part to cover the cost of the servicing of the loan. The same rates are charged to Čistoća and to private customers, with 77 per cent. of ZGOS’s revenue coming from Čistoća.
ZGOS has recorded a provision in respect of future costs of supervision and maintenance of Jakusevec of HRK 35,165,000 in accordance with IAS 37 provisions.
In 2006, ZGOS reported revenues of HRK 80.4m, EBITDA of HRK 32.6m and, as at 31 December 2006, held assets of HRK 261.5m and external debt of HRK 126.8m.
In 2006, ZGOS reported capital expenditure of HRK 6.1m.
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The management of ZGOS comprises 3 managers, representing the finance, technical/engineering and legal departments. ZGOS has approximately 40 employees.
The remaining branches and subsidiaries play a comparatively minor role in the functions of ZCH:
AGM
AGM is a limited liability company responsible for cultural, artistic, informative and publishing activities and gallery exhibitions. In 2006 AGM reported revenues of HRK 18.4m, EBITDA of HRK 0.8m, no capital expenditure and as at 31 December 2006 held assets of HRK 13.7m with no external debt. The average number of employees during 2006 was 39.
Autobusni Kolodvor (Zagreb Bus Station)
Autobusni Kolodvor operates the City’s bus passenger transport station, including the information and reservation systems, a cargo service, the ticket delivery service, locker and parking. In 2006 Autobusni Kolodvor reported revenues of HRK 35.6m, EBITDA of HRK 5.7m, capital expenditure of HRK 1.4m and as at 31 December 2006 held assets of HRK 118.8m with no external debt. The average number of employees during 2006 was 133.
Društvo za upravljanje sportskim objektima Zagreb
Društvo za upravljanje sportskim objektima Zagreb is a limited liability company established for the development and maintenance of recreational and sporting facilities. In 2006 Društvo za upravljanje sportskim objektima Zagreb reported revenues of HRK 140.5m EBITDA of HRK 22.2m, capital expenditure of HRK 22.8m And as at 31 December 2006 held assets of HRK 194.2 m and External debt of HRK 32.0m. The average number of employees during 2006 was 101. Društvo za upravljanje sportskim objektima Zagreb itself comprises the following 7 branches:
(i) Hipodrom Zagreb
Hipodrom Zagreb operates the Hipodrom horse racetrack. In 2006 Hipodrom Zagreb reported revenues of HRK 5.2m, EBITDA of HRK 0.5m, capital expenditure of HRK 0.4m and as at 31 December 2006 held assets of HRK 4.8m with no external debt. The average number of employees during 2006 was 16.
(ii) Jarun
Jarun operates the maintenance of sports and recreational facilities alongside lake Jarun. In 2006 Jarun reported revenues of HRK 29.7m, EBITDA of HRK 1.2m, capital expenditure of HRK 3.3m and as at 31 December 2006 held assets of HRK 20.1m with no external debt. The average number of employees during 2006 was 127.
(iii) Maksimir
This branch operates the Maksimir sport and recreational centre in Zagreb. In 2006 Maksimir reported revenues of HRK 5.1m, EBITDA of HRK 0.2m, capital expenditure of HRK 0.1m and as at 31 December 2006 held assets of HRK 1.5 m with no external debt. The average number of employees during 2006 was 83.
(iv) Mladost
This branch operates the Mladost sport and recreational centre in Zagreb. In 2006 Mladost reported revenues of HRK 24.1m, EBITDA of HRK 0.3m, capital expenditure of HRK 0.5m and as at 31 December 2006 held assets of HRK 10.8 m with no external debt. The average number of employees during 2006 was 25.
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(v) Šalata
This branch operates the Šalata sport and recreational centre in Zagreb. In 2006 Šalata reported revenues of HRK 7.5m, EBITDA of HRK 0.2m, capital expenditure of HRK 0.1m and as at 31 December 2006 held assets of HRK 1.2 m with no external debt. The average number of employees during 2006 was 42.
(vi) Sljeme Medvednica
Sljeme Medvednica operates sports, tourism and catering on the Medvednica mountain including managing the ski lifts and pistes, cross-country ski runs, the scouts’ hall, the Tomislavov hotel and the Medvednica guest house.
In 2006 Sljeme Medvednica reported revenues of HRK 46.4m, EBITDA of HRK 20.0m, capital expenditure of HRK 18.3m and as at 31 December 2006 held assets of HRK 148.2m and external debt of HRK 32m. The average number of employees during 2006 was 120.
(vii) Športske dvorane Zagreb
Športske dvorane Zagreb maintains 6 sports halls within Zagreb. In 2006 Športske dvorane Zagreb reported revenues of HRK 22.5m, EBITDA of HRK -0.2m, capital expenditure of HRK 0.2m and as at 31 December 2006 held assets of HRK 7.8m with no external debt.
Gradska Groblja
Gradska Groblja provides funeral and related services, including the cutting and shaping of stones, and the maintenance of cemeteries, mortuaries and the crematorium. In 2006 Gradska Groblja reported revenues of HRK 61.2m, EBITDA of HRK 6.8m, capital expenditure of HRK 6.2m and as at 31 December 2006 held assets of HRK 387.3m and no external debt. The average number of employees during 2006 was 350.
GSKG
Gradsko Stambeno Komunalo Gospodarstvo (GSKG) is concerned with the management and maintenance of residual public buildings and the maintenance of other public assets such as pedestrian underpasses, passages, toilets and fountains. In 2006 GSKG reported revenues of HRK 80.5m, EBITDA of HRK -4.9m, capital expenditure of HRK 317.8m and as at 31 December 2006 held assets of HRK 4,400.9m with no external debt.
Stanogradnja
Stanogradnja organises the construction and sale of apartment buildings. In 2006 Stanogradnja reported no revenues, capital expenditure, assets or external debt. The average number of employees during 2006 was 41.
Tržnice Zagreb
Tržnice Zagreb conducts the sale/lease of commercial premises from 28 different market places. In 2006 Tržnice Zagreb reported revenues of HRK 63.3m, EBITDA of HRK 5.5m, capital expenditure of HRK 10.8m and as at 31 December 2006 held assets of HRK 108.0m with no external debt. The average number of employees during 2006 was 83.
Tehnološki Park
Tehnološki Park is a limited liability company established as an operational and management consultancy company to stimulate and develop entrepreneurship and private initiative in high-tech areas. As part of its programme Tehnološki Park also provides free production capacity office
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facilities and makes available sources of financing. In 2006 Tehnološki Park reported revenues of HRK 2.5m, EBITDA of HRK 0.1m, and as at 31 December 2006 held assets of HRK 1m with no external debt. The average number of employees during 2006 was 5.
Vladimir Nazor
Vladimir Nazor is a limited liability company providing travel agency and tour operator services particularly for organised vacations of children and young people to hostels and camps etc. Vladimir Nazor currently holds 1,000,000 m2 of land situated on the Adriatic coast, which will be invested in a public private partnership for development into a tourist site to raise funds and to raise the asset value of the land.
In 2006 Vladimir Nazor reported revenues of HRK 31.4m, EBITDA of HRK 2.8m, capital expenditure of HRK 2.6m and as at 31 December 2006 held assets of HRK 1,129.5m with no external debt. The average number of employees during 2006 was 90.
Zagreb Film
Zagreb Film is a limited liability company operating analogue and digital film and video recording specialising in the production of animated film, documentaries and educational films along with the distribution of films produced by Zagreb Film and imported educational films. In addition Zagreb Film organises the Little School of Animated Film in cooperation with the Animation Section of the Academy of Fine Arts.
In 2006 Zagreb Film reported revenues of HRK 4.8m, EBITDA of HRK -0.1m, no capital expenditure and as at 31 December 2006 held assets of HRK 32.0 m with no external debt. The average number of employees during 2006 was 14.
Zagreb Plakat
The planned activity for Zagreb Plakat is the provision of marketing activities such as billboards, posters and so forth. In 2006 Zagreb Plakat reported no revenues, capital expenditure, assets or external debt.
Zagrebačka Veletržnica
Zagrebačka Veletržnica is a limited liability company operating a wholesale market (of fruit, vegetables, meat, fish, flowers etc.) on 2 locations in Zagreb and is primarily engaged in renting, maintenance, warehousing and cold storage services. In 2006 Zagrebačka Veletržnica reported revenues of HRK 36.1m, EBITDA of HRK 3.7m, capital expenditure of HRK 0.4m and as at 31 December 2006 held assets of HRK 86.9m and external debt of HRK 0.4m. The average number of employees during 2006 was 172.
Zagrebački Digitalni Grad
Zagrebački Digitalni Grad was established to conduct IT related activities including the planned construction, maintenance and management of an underground telecommunications infrastructure. This branch does not currently have any operating revenue but the planned activity for this branch in the future will be to lease its underground telecommunications structure to other branches and subsidiaries in the Group.
Zagrebački Velesajam
Zagrebački Velesajam manages land covering approximately 505,000 m2, which is used for the organisation of fairs, congresses, symposia and workshops. Zagrebački Velesajam primarily organises the rental of the space and stand construction.
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In 2006 Zagrebački Velesajam reported revenues of HRK 136.6m, EBITDA of HRK 13.0m, capital expenditure of HRK 26.6m and as at 31 December 2006 held assets of HRK 1,281.6m with no external debt. The average number of employees during 2006 was 302.
Zoološki vrt Grada Zagreb
Zoološki vrt Grada Zagreb is a limited liability company that runs the Botanical Garden, Zoo and Nature Reserve. In 2006 Zoološki vrt Grada Zagreb reported revenues of HRK 21.4m, EBITDA of HRK 0.9m, capital expenditure of HRK 1.2m and as at 31 December 2006 held assets of HRK 18.4 m with no external debt. The average number of employees during 2006 was 70.
Zrinjevac
Zrinjevac arranges and maintains the green areas of the City including landscaping, running nursery gardens for the production of plants and maintaining the equipment for the running of the parks. In 2006 Zrinjevac reported revenues of HRK 204.4m, EBITDA of HRK 18.3m, capital expenditure of HRK 14.9m and as at 31 December 2006 held assets of HRK 128.3m with no external debt. The average number of employees during 2006 was 901.
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Please see below a table showing the outstanding external debt of ZCH as at 31 December 2006:
Outstanding Debt Amount as Percentage at 31.12.2006 of Total 11111111Branch Creditor111111 2112 Maturity 21111 in HK’000 Collateral111111111111312 1111 Group Debt Zagrebački ZABA 2010 994 22 bills of exchange and 22 payment orders. Electricni ZABA 2007 2,929 10 bills of exchange and the City’s guarantee. Tramvaj ZABA 2008 18,079 20 payment orders and 3 bills of exchange. (ZET) HBOR 2016 681,986 20 bills of exchange and 20 of the City’s promissory notes. ZABA 2009 24,941 Pledge on 26 buses, 10 bills of exchange and 1 promissory note. 57.1% ZABA 2017 38,416 13 bills of exchange, promissory notes and the City’s guarantee. KOMMUNALI 2017 38,416 13 bills of exchange, promissory notes and the City’s guarantee. others 2011 50,870 Pledge on 26 buses. Autobusna ZABA 2007 753 Bills of exchange, debentures and lieu on equipment. Radionica (now 11111111part of ZET) 111111ZABA 2112 2008 21111 934 111111111111312Bills of exchange and debentures. 1111 11111111 111111Total 2112 21111 858,318 111111111111312 1111 Vodoopskrba i ZABA 2007 2,441 The City’s guarantee. Odvodnja ZABA 2007 1,333 The City’s guarantee. (VIO) HBOR 2015 43,203 5 bills of exchange. 19.5% ZABA 2021 79,421 The City’s guarantee. HBOR 2020 82,863 Pledge on asset. 11111111 111111PBZ 2112 2020 21111 83,921 111111111111312The City’s guarantee. 1111 11111111 111111Total 2112 21111 293,182 111111111111312 1111 ZGOS EBRD 2010 126,847 Promissory note and pledge on movable 11111111 111111 2112 21111assets. 111111111111312 1111 8.4% 11111111 111111Total 2112 21111 126,847 111111111111312 1111 Robni Terminali CROATIA BANKA 2009 14,690 The City’s guarantee, 5 bills of exchange and 5 pledges on account. Zagreb (RTZ) PRIVREDNA BANKA 2010 17,022 The City’s guarantee, 5 bills of exchange, 5 pledges on account. ZABA 2016 17,481 10 bills of exchange and cession. 5.6% CROATIA BANKA 2012 15,109 5 bills of exchange, 2 insurance policies and mortgages. PRIVREDNA BANKA 2012 20,000 5 bills of exchange, 1 promissory note and 11111111 111111 2112 21111mortgages. 111111111111312 1111 11111111 111111Total 2112 21111 84,302 111111111111312 1111 Zabrebparking ESB 2020 24,716 Lien on property, motor hull insurance policy with restricted transferability. HYPOLEASING 2007 459 Motor hull insurance policy with restricted transferability. 1.8% HYPOLEASING 2011 1,510 Motor hull insurance policy with restricted 11111111 111111 2112 21111transferability. 111111111111312 1111 11111111 111111Total 2112 21111 26,685 111111111111312 1111 Zagrebačke Ceste ZABA 2008 1,366 The City’s guarantee. HYPO ALPE ADRIA 2007 5,635 The City’s guarantee. 0.6% HYPO LEASING 2007 231 Bills of exchange and promissory notes. 11111111 111111ROBNI KREDIT 2112 21111 1,513 111111111111312 1111 11111111 111111Total 2112 21111 8,745 111111111111312 1111 Gradska Plinara LONDONSKI PORAZUM 2010 169 n/a 0.1% 11111111 111111PARIŠK KLUB 2112 2009 21111 1,108 n/a111111111111312 1111 11111111 111111Total 2112 21111 1,277 111111111111312 1111 Sub-total of outstanding debt of the 9 core branches and 11111111subsidiaries 111111 2112 211111,399,356 111111111111312 111193.1% 11111111Sljeme Medveduica ZABA111111 2112 2016 21111 31,958 The111111111111312 City’s Guarantee. 1111 2.1% 11111111 111111Total 2112 21111 31,958 111111111111312 1111 11111111Zagreb Veletrznica 111111LIT 2112 2008 21111 416 111111111111312The City’s Guarantee. 1111 0.03% 11111111 111111Total 2112 21111 416 111111111111312 1111 11111111Others 111111 2112 2111160% 111111111111312 1111 11111111Total long-term debt 111111 2112 21111 1,434,359 111111111111312 1111 95.5% 11111111Short-term debt 111111 2112 21111 68,082 111111111111312Mainly promissory notes. 1111 4.5% 11111111Total Group Debt 111111 2112 21111 1,502,441 111111111111312 1111100%
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LITIGATION
There is no material outstanding litigation. In any case the maximum compensation which may be awarded to a claimant under Croatian Law is the equivalent of approximately EUR 50,000. There is no litigation outstanding against the Directors, there is no outstanding fraud litigation or claims relating to taxation.
RECENT DEVELOPMENTS
Until 5 June 2007 Vodoprivreda was a wholly-owned subsidiary of ZCH. Vodoprivreda is a limited liability company established to construct water treatment and supply facilities including hydraulic works and waterworks (dams, embankments, dikes, water conduits and so forth). In addition, Vodopriveda has a horticultural role to arrange and maintain associated green spaces. In 2006 Vodoprivreda reported revenues of HRK 87.7m, EBITDA of HRK -14.4m, capital expenditure of HRK 1.3m and as at 31 December 2006 held assets of HRK 45.2m and external debt of HRK 2.6m. The average number of employees during 2006 was 388.
On 15 December 2006 the Croatian Parliament adopted amendments to the Law on Waters and the Law on Financing the Water Management. As a result Vodopriveda is now to be privatised, with the current employees to receive 51 per cent. of the shares, and the City to retain 49 per cent. The sale of Vodoprivreda from ZCH to the City on 5 June 2007 was the first part in that process. ZCH believes that the sale of Vodopriveda has not had a material impact on the operations of the Group.
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TAXATION
Republic of Croatia
There are no taxes or other governmental charges payable under the laws of the Republic of Croatia or any authority of, or in, the Republic of Croatia in respect of the principal or interest on the Notes by a holder who is not a resident of the Republic of Croatia and there are no estate or inheritance taxes, succession duties, gift taxes or capital gains taxes imposed by the Republic of Croatia or any authority of, or in, the Republic of Croatia in respect of the Notes if, at the time of the death of the holder or the transfer of the Notes, such holder or transferor is not a resident of the Republic of Croatia.
The Issuer is not required by the existing laws of the Republic of Croatia to make any deductions or withholding from any payment of principal or interest due or to become due under the Notes or from any amount payable under the Subscription Agreement, the Trust Deed or the Agency Agreement.
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from 1 July 2005.
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SUBSCRIPTION AND SALE
Deutsche Bank AG, London Branch (the Lead Manager), Raiffeisen Zentralbank Österreich Aktiengesellschaft and Hypo Alpe-Adria-Bank d.d. (together with the Lead Manager, the Managers) have, pursuant to a Subscription Agreement (the Subscription Agreement) dated 6 July 2007, jointly and severally agreed to subscribe or procure subscribers for the Notes at the issue price of 99.317 per cent. of the principal amount of Notes, less a combined selling concession and management and underwriting commission of 0.50 per cent. of the principal amount of the Notes. The Issuer will also reimburse the Managers in respect of certain of their expenses, and has agreed to indemnify the Managers against certain liabilities, incurred in connection with the issue of the Notes. The Subscription Agreement may be terminated in certain circumstances prior to payment of the Issuer.
United States
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and regulations thereunder.
Each Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes (a) as part of their distribution at any time or (b) otherwise until 40 days after the later of the commencement of the offering and the Closing Date within the United States or to, or for the account or benefit of, U.S. persons and that it will have sent to each dealer to which it sells any Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United States by any dealer that is not participating in the offering may violate the registration requirements of the Securities Act.
United Kingdom
Each Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Republic of Croatia
Each Manager has represented and agreed that it will not, as part of its initial distribution, offer or sell Notes to persons in the Republic of Croatia except to banks and broker companies authorised or licensed under Croatian law to acquire the Notes.
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General
No action has been taken by the Issuer or any of the Managers that would, or is intended to, permit a public offer of the Notes in any country or jurisdiction where any such action for that purpose is required. Accordingly, each Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any offering circular, prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms.
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GENERAL INFORMATION
Authorisation
1. The issue of the Notes was duly authorised by a resolution of the Board of Directors of the Issuer dated 11 December 2006.
Listing and admission to trading
2. Application has been made to the CSSF to approve this document as a prospectus. Application has also been made to the Luxembourg Stock Exchange for the to be admitted to trading on the Luxembourg Stock Exchange’s regulated market and to be listed on the Official List of the Luxembourg Stock Exchange. The Luxembourg Stock Exchange’s regulated market is a regulated market for the purposes of Directive 93/22/EEC (the Investment Services Directive) and, after its coming into force and implementation, Directive 2004/39/EC (the Markets in Financial Instruments Directive).
The total expenses related to the admission to trading of the Notes are approximately €8,100.
Clearing Systems
3. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The ISIN for this issue is XS0309688918 and the Common Code is 030968891.
The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brusssels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg.
No significant change
4. There has been no significant change in the financial or trading position of the Issuer since 31 March 2007 and there has been no material adverse change in the financial position or prospects of the Issuer since 31 December 2006.
Litigation
5. Neither the Issuer nor any other member of the Issuer’s group is involved in any governmental, legal or arbitration proceedings (including any proceedings which are pending or threatened of which the Issuer is aware) in the 12 months preceding the date of this document which may have, or have in such period had, a significant effect on the financial position or profitability of the Issuer or the Issuer’s group.
Auditors
6. The auditors of the Issuer are Deloitte d.o.o., who have audited the Issuer’s accounts, without qualification, in accordance with IFRS for each of the financial years ended on 31 December 2004, 31 December 2005 and 31 December 2006. The auditors of the Issuer have no material interest in the Issuer. Deloitte d.o.o. is a member of the Croatian Chamber of Auditors.
U.S. Tax
7. The Notes and Coupons will contain the following legend: “Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.”
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Documents Available
8. For the period of 12 months following the date of this Prospectus, copies of the following documents will be available for inspection from the specified offices of the Paying Agents for the time being in London and Luxembourg so long as any of the Notes remains outstanding:
(a) the constitutional documents (with an English translation thereof) of the Issuer;
(b) the consolidated and non-consolidated audited financial statements of the Issuer in respect of the financial years ended 31 December 2005 and 31 December 2006 (with English translations thereof), in each case together with the audit reports in connection therewith. The Issuer currently prepares audited consolidated and non- consolidated accounts on an annual basis;
(c) the most recently published audited annual financial statements of the Issuer and the most recently published unaudited interim financial statements (if any) of the Issuer (in each case with an English translation thereof). The Issuer currently prepares unaudited consolidated and non-consolidated interim accounts on a quarterly basis; and
(d) the Subscription Agreement, the Trust Deed and the Agency Agreement.
In addition, copies of this Prospectus are available on the Luxembourg Stock Exchange’s website at www.bourse.lu.
Managers transacting with the Issuer
9. Certain of the Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer and its affiliates in the ordinary course of business.
Trustee’s Action
10. The Notes provide for the Trustee to take action on behalf of the Noteholders in certain circumstances, but only if the Trustee is indemnified to its satisfaction. It may not be possible for the Trustee to take certain actions and accordingly in such circumstances the Trustee will be unable to take such actions, notwithstanding the provisions of an indemnity to it, and it will be for Noteholders to take such action directly.
Yield
11. On the basis of the issue price of the Notes of 99.317 per cent. of their principal amount, the yield on the Notes is 5.591 per cent. on an annual basis.
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER
Consolidated Financial Statements for the years ended 31 December 2004, 31 December 2005 and 31 December 2006...... F-2
Responsibility for the financial statements ...... F-3
Independent Auditor’s Report ...... F-4
Consolidated Income Statement of the Group ...... F-6
Consolidated Balance Sheet of the Group ...... F-7
Consolidated Statement of Changes in Shareholders’ Equity of the Group...... F-9
Consolidated Cash Flow Statement of the Group ...... F-10
Notes to the financial statements...... F-12
Appendix 1: Consolidated Income Statement of the Group, converted to Euros (unaudited) ...... F-74
Appendix 2: Consolidated Balance Sheet of the Group, converted to Euros (unaudited) F-75
Consolidated Financial Statements for the three months ended 31 March 2007
Consolidated Income Statement of the Group ...... F-77
Consolidated Balance Sheet of the Group ...... F-79
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CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER FOR THE THREE YEARS ENDED 31 DECEMBER 2004, 31 DECEMBER 2005 AND 31 DECEMBER 2006
Set out below are the audited consolidated financial statements of the Issuer for the three years ended 31 December 2004, 31 December 2005 and 31 December 2006.
F-2 Responsibility for the group financial statements
Pursuant to the Croatian Accounting Law, the Management Board is responsible for ensuring that the group financial statements are prepared for each financial year in accordance with International Financial Reporting Standards (‘IFRS’) as published by the International Accounting Standards Board which give a true and fair view of the state of affairs and results of Zagrebaþki Holding d.o.o., Zagreb (the "Group") for that period.
After making enquiries, the Management Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the group financial statements.
In preparing these group financial statements, the responsibilities of the Management Board include ensuring that:
suitable accounting policies are selected and then applied consistently;
judgements and estimates are reasonable and prudent;
the applicable accounting standards are followed, subject to any material departures disclosed and explained in the financial statements; and
the Group financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Group and must also ensure that the Group financial statements comply with the Croatian Accounting Law. The Management Board is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Signed on behalf of the Management Board:
Slobodan Ljubiþiü
Zagrebaþki Holding d.o.o., Zagreb Avenija Dubrovnik 15/V 10000 Zagreb Republic of Croatia
23 March 2007
Zagrebaþki Holding d.o.o., Zagreb 1
F-3 Independent Auditor's Report
To the Shareholder of Zagrebaþki Holding d.o.o. (formerly Gradsko Komunalno Gospodarstvo d.o.o. – Holding), Zagreb
We have audited the accompanying group financial statements of Zagrebaþki Holding d.o.o., Zagreb (“the Group”), set out on pages 4 to 71, which comprise the consolidated balance sheets as at 31 December 2006, 2005 and 2004 and the consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements for the years then ended, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these group financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these group financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the preparation and fair presentation of the group financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the group financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the group financial statements give a true and fair view of the financial position of Zagrebaþki Holding d.o.o. as of 31 December 2006, 2005 and 2004 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
2
F-4 Independent Auditor's Report (continued)
Emphasis of matters
Without qualifying our opinion, we draw your attention to the following:
Legal framework
As stated in Note 39 c), the operations of the Group, including prices of services are regulated and subject to approval by the ultimate shareholder of the Group – the City of Zagreb. This fact has a significant influence on the overall profitability and liquidity of the Group.
Deregulation of the gas market
As stated in Note 39 a), in July 2001, a reform of the Croatian energy sector was launched which includes the restructuring of energy entities and the creation of a new legal and institutional framework defining the market rules, public services and segregation of energy activities into public and private sectors. Gradska plinara d.o.o. (a member of the Group) is classified as a large buyer of natural gas, at prices that are preferential versus the market prices. Changes in preferential pricing could have a significant impact on the performance of the Group.
Title to Tangible assets
As discussed in Note 15, certain municipal land registers have not been fully updated. The registration of the Group's title to land and buildings in appropriate registers, serving as evidence of ownership, is in progress. Although the Group is in possession of certain documents serving as evidence of title, the final status of those assets remains uncertain.
Deloitte d.o.o.
Branislav Vrtaþnik, Certified Auditor
Zagreb, 23 March 2007
3
F-5 Consolidated Income Statements of Zagrebaþki Holding d.o.o., Zagreb For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004 Notes HRK'000 HRK'000 HRK'000 OPERATING INCOME Sales 3 3,498,6363,199,986 3,049,596
Other operating income 4 1,058,534 971,997 927,082 ______4,557,170 4,171,983 3,976,678 ______
OPERATING EXPENSES Cost of material and services 5 (1,883,985) (1,855,787) (1,716,271) Staff costs 6 (1,669,948) (1,535,508) (1,437,196) Depreciation and amortisation 7 (416,372) (389,279) (346,231) Value adjustments of current and non-current assets 8 (111,982) (64,659) (60,633) Provisions for risks and charges 9 (76,192) (31,371) (14,571) Other operating expenses 10 (301,791) (257,762) (226,299) ______(4,460,270) (4,134,366) (3,801,201) ______
FINANCIAL INCOME 11 125,334 109,677 88,257 FINANCIAL EXPENSES 12 (121,841) (77,134) (73,292)
______TOTAL INCOME 4,682,504 4,281,660 4,064,935 ______
______TOTAL EXPENSES (4,582,111) (4,211,500) (3,874,493) ______
PROFIT BEFORE TAXATION 100,393 70,160 190,442 Income tax expense 13 (17,915) (8,619) (9,321) ______NET PROFIT FOR THE YEAR 82,478 61,541 181,121 ______
The accompanying notes form an integral part of these consolidated financial statements.
Zagrebaþki Holding d.o.o., Zagreb 4
F-6 Consolidated Balance Sheets of Zagrebaþki Holding d.o.o., Zagreb As of 31 December 2006, 31 December 2005 and 31 December 2004
20062005 2004 ASSETS Notes HRK'000 HRK'000 HRK'000
Non-current assets
Intangible assets 14 62,187 71,647 77,584 Tangible assets 15 12,460,784 11,247,321 10,649,932 Prepayments for tangible assets 16 79,450 219,280 120,792 Investment property 851 - - Other financial assets 18 29,925 21,957 35,360 Loans and receivables 19 73,845 74,742 91,891 ______Total non-current assets 12,707,042 11,634,947 10,975,559 ______Current assets
Assets available for sale 17 103,808 - - Inventories 20 172,250 165,861 178,817 Trade receivables 21 1,135,877 920,705 783,632 Receivables from the state and other institutions 22 851,552 434,820 231,606 Other receivables 23 13,093 14,594 12,338 Financial assets 24 164,704 140,114 77,379 Prepaid expenses and accrued income 26 112,524 27,529 20,876 Cash and cash equivalents 25 298,484 335,973 405,258 ______Total current assets 2,852.292 2,039,596 1,709,906 ______TOTAL ASSETS 15,559,334 13,674,543 12,685,465 ______
The accompanying notes form an integral part of these consolidated financial statements.
Zagrebaþki Holding d.o.o., Zagreb 5
F-7 Consolidated Balance Sheets of Zagrebaþki Holding d.o.o., Zagreb As of 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004 EQUITY AND LIABILITIES Notes HRK'000 HRK'000 HRK'000 Equity Subscribed capital 27 4,292,987 4,098,317 4,099,942 Revaluation reserves 2,588,295 2,571,670 2,592,533 Retained earnings 324,226 254,145 186,236 ______Total equity 7,205,508 6,924,132 6,878,711 ______
Long-term provisions 28 234,335 172,401 146,304 Deferred tax liability 13 630,455 632,925 636,315 Other non-current liabilities 29 1,371,155 895,113 654,453 ______Total non-current liabilities and provisions 2,235,945 1,700,439 1,437,072 ______
Current liabilities
Liabilities for issued securities 30 20,929 14,825 7,500 Borrowings 31 203,514183,160 164,732 Liabilities for prepayments, deposits and 32 82,390 78,728 109,606 guarantees Trade payables 33 974,503 753,062 547,953 Other current liabilities 34 613,305 488,800 442,320 Accrued expenses and deferred income 35 4,223,240 3,531,397 3,097,571 ______Total short-term liabilities 6,117,881 5,049,972 4,369,682 ______TOTAL EQUITY AND LIABILITIES 15,559,334 13,674,543 12,685,465 ______
The accompanying notes form an integral part of these consolidated financial statements.
Zagrebaþki Holding d.o.o., Zagreb 6
F-8 Consolidated Statements of Changes in Shareholders' Equity of Zagrebaþki Holding d.o.o., Zagreb For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
(HRK'000) Subscribed Revaluation Retained Total capital reserves earnings
Balance at 31 December 2003 ______4,082,789 ______2,606,836 ______29,062 ______6,718,687 Increase in Subscribed capital 12,128 - - 12,128 Deconsolidation of investment - (10,743) (15,550) (26,293) Transfer from Revaluation reserves to Retained - (3,566) 3,566 - earnings on realisation of revalued depreciation Capitalisation of Retained earnings 5,025 6 (5,031) - Dividends paid - - (6,932) (6,932) Net profit for the year ______- ______- ______181,121 ______181,121 Balance at 31 December 2004 4,099,942 2,592,533 186,236 6,878,711 ______Transfer from Revaluation reserves to Retained earnings on realisation of revalued depreciation - (20,740) 20,740 - Deconsolidation of investment (1,625) (123) (1,128) (2,876) Dividends paid - - (13,244) (13,244) Net profit for the year ______- ______- ______61,541 ______61,541
Balance at 31 December 2005 ______4,098,317 ______2,571,670 ______254,145 ______6,924,132 Increase in Subscribed capital (Note 27) 190,774 - - 190,774 Capitalisation of Retained earnings 3,896 (3,896) - Assets available for sale adjusted to fair value - 16,625 - 16,625 Dividends paid - - (8,500) (8,500) Net profit for the year ______- ______- ______82,478 ______82,478 Balance at 31 December 2006 4,292,987 2,588,295 324,226 7,205,508 ______
The accompanying notes form an integral part of these consolidated financial statements.
.
Zagrebaþki Holding d.o.o., Zagreb 7
F-9 Consolidated Cash Flow Statements of Zagrebaþki Holding d.o.o., Zagreb As of 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004
Cash flows from operating activities HRK'000 HRK'000 HRK'000
Net profit for the year 82,478 61,541 181,121 ______Adjustments for: Increase / (decrease) in fair value adjustments 9,000 4,120 (4,646) (Decrease) / increase in deferred tax liability (2,470) (3,390) 8,702 Depreciation and amortisation 416,372 389,279 346,231 Decrease in value of financial assets 3,032 13,403 25,275 Increase / (decrease) in long-term provisions 61,934 14,307 (27,216) ______Operating profit before working capital changes 570,346 479,260 529,467
(Increase) / decrease in inventories (6,389) 12,956 (1,212) (Increase) in trade receivables (215,172) (137,073) (123,745) Decrease / (increase) in receivables from employees 1,910 51 (54) (Increase) in receivables from the state and other institutions (416,732) (203,214) (118,699) (Increase) / decrease in other receivables (409) (2,307) 2,521 (Increase) / decrease in prepaid expenses and accrued income (84,995) (6,653) 1,590 Increase in trade payables 221,441 205,109 57,370 Increase / (decrease) in advances received 3,662 (30,878) 29,382 Increase in taxes and contributions payable 41 20,268 10,537 Increase / (decrease) in amounts due to employees 19,421 6,757 (3,117) Increase / (decrease) in other short-term liabilities 81,009 19,455 (64,866) Increase in accrued expenses and deferred income 691,843 433,826 320,613 ______Net cash from operating activities 865,976 797,557 639,787 ______
The accompanying notes form an integral part of these consolidated financial statements
Zagrebaþki Holding d.o.o., Zagreb 8
F-10 Consolidated Cash Flow Statements of Zagrebaþki Holding d.o.o., Zagreb (continued) As of 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004
HRK ‘000 HRK ‘000 HRK ‘000 Cash flows from investing activities Purchases of tangible and intangible assets (1,614,822) (1,000,394) (980,912) Decrease / (increase) in prepayments for tangible assets 139,830 (98,488) (97,067) Increase in non-current assets available for sale (114,808) - - Increase in investment property (851) - - Decrease in loans and receivables 897 15,301 29,230 (Increase) / decrease in current financial assets (24,590) (62,735) 52,287 Net book value of disposed and retired assets 18,480 22,443 92,790 ______(1,595,864) (1,123,873) (903,672) Net cash from investing activities ______Cash flows from financing activities Increase / (decrease) in Subscribed capital 198,399 3,025 (17,731) Dividends paid (8,500) (13,244) (6,932) Increase in liabilities for issued securities 6,104 7,325 7,500 Increase in non-current liabilities 476,042 255,645 154,676 Increase in short-term borrowings 20,354 4,280 135,753 ______Net cash from financing activities 692,399 257,031 273,266 ______Net (decrease) / increase in cash (37,489) (69,285) 9,381 ______
Cash at 1 January 335,973 405,258 395,877 ______Cash at 31 December 298,484 335,973 405,258 ______
The accompanying notes form an integral part of these consolidated financial statements.
Zagrebaþki Holding d.o.o., Zagreb 9
F-11 Notes to the group financial statements For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL
On 1 January 2007 the parent company changed its name from Gradsko Komunalno Gospodarstvo d.o.o. to Zagrebaþki Holding d.o.o.
History and incorporation
On 27 December 2005, The City of Zagreb and the company Gradsko Komunalno Gospodarstvo d.o.o. (hereinafter "GKG") concluded various share transfer agreements involving 22 companies. Based on these agreements, the ownership interests of these companies were transferred in full from the City of Zagreb to GKG, for a consideration of the nominal value of the subscribed capital of each company concerned. The transferred equity interests of HRK 4,036,590 thousand represent underlying assets of the company GKG, that are at the free disposal of the Company. In addition, pursuant to these agreements, the City of Zagreb increased the subscribed capital of GKG, by converting the receivables under the Share Transfer Agreement by a total of HRK 4,036,590 thousand in equity. The equity shares of GKG are held by the City of Zagreb as its sole member and founder.
In 2006, an additional 11 companies were merged into GKG as acquirer, which was entered in the register of the Commercial Court as of 3 July 2006. The merged companies are listed below:
1. Vodoopskrba i odvodnja d.o.o.
2. ýistoüa d.o.o.
3. Zagrebaþke ceste d.o.o.
4. Zrinjevac d.o.o.
5. Gradska groblja d.o.o.
6. Zagrebparking d.o.o.
7. Tržnice Zagreb d.o.o.
8. Autobusni kolodvor d.o.o.
9. ZGOS d.o.o.
10. Zagrebaþki digitalni grad d.o.o.
11. Zagrebaþki elektriþni tramvaj d.o.o.
Zagrebaþki Holding d.o.o., Zagreb 10
F-12 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
As part of the mergers, the merged entities transferred all their respective assets and liabilities to Gradsko Stambeno Gospodarstvo d.o.o. as the acquirer. In accordance with the Merger Agreement and the provisions of the Companies Act, the subscribed capital of GKG was not increased by the initial capital contributions of the merged entities, since the acquirer was at the same time the holder of 100 % of equity shares in the merged companies.
Furthermore, another change in the status took place in 2006, based on the decision by the ultimate shareholder as described in the Merger Agreement, which involved the further merger of the following companies into the company Jarun d.o.o., a fully owned subsidiary of GKG:
1. Mladost d.o.o., a sports facility management company
2. Šalata d.o.o., a sports and recreational facility management company
3. Hipodrom Zagreb d.o.o., a sports facility management company
4. Sljeme Medvednica d.o.o.
5. Maksimir d.o.o., a sports facility management company
6. Zagreb d.o.o., a sports facility management company.
As part of the merger, the merged entities transferred all their respective assets and liabilities to Jarun d.o.o., the acquiror. In accordance with the Merger Agreement and the provisions of the Companies Act, the subscribed capital of Jarun d.o.o. was not increased by the initial capital contributions of the merged entities, as the acquiror was at the same time the holder of 100 % of the equity shares in the merged companies. In addition, Jarun d.o.o. was renamed to Društvo za upravljanje športskim objektima Zagreb d.o.o., a sports and recreational facility management company. All the changes were entered in the register of the Commercial Court in Zagreb on 3 July 2006.
Pursuant to the decision of the Commercial Court in 2006, the following 13 branches of GKG was entered in the court register: Gradsko-komunalno gospodarstvo, Vodoopskrba i odvodnja, ýistoüa, Zagrebaþke ceste, Zrinjevac, Gradska groblja, Zagrebparking, Tržnice Zagreb, Autobusni kolodvor, ZGOS, Zagrebaþki digitalni grad, Zagrebaþki elektriþni tramvaj and Stanogradnja.
In addition, in the same decision by the Commercial Court, as noted above, 7 new branches of Društvo za upravljanje športskim objektima Zagreb d.o.o. was entered in the court register: Jarun, Maksimir, Mladost, Sljeme Medvednica, Hipodrom Zagreb, Šalata, Športske dvorane Zagreb.
Zagrebaþki Holding d.o.o., Zagreb 11
F-13 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
Principal activities
The Group Zagrebaþki Holding d.o.o. , Zagreb (hereinafter "the Group") comprises the following companies:
Name of the Headquarters Legal form Principal activity Ownership interest and company share in the voting rights 2006 2005 2004 1. Zagrebaþki Savska cesta 1 Limited Property management 100 % 100 % 100 % Holding (GKG) liability City of City of City of company Zagreb Zagreb Zagreb - GSKG Savska cesta 1 GKG Property management 100% 100% 100 % Branch GKG GKG City of Zagreb - Gradska groblja Mirogoj 10 GKG Funeral and related 100% 100% 100 % Branch services GKG GKG City of Zagreb - Vodoopskrba i Folnegoviüeva GKG Water collection, 100% 100% 100 % odvodnja 1 Branch treatment and GKG GKG City of distribution Zagreb - ýistoüa Radniþka 82 GKG Public area cleaning 100% 100% 100 % Branch services, waste removal GKG GKG City of and other municipal Zagreb utility activities - Zagrebaþki Ozaljska 105 GKG Public transport in City 100% 100% 100 % elektriþni tramvaj Branch proper and GKG GKG City of (ZET) surroundings Zagreb - Zrinjevac Remetineþka GKG Landscaping and plant 100% 100% 100 % 82 Branch production GKG GKG City of Zagreb - Zagreb parking Bakaþeva 5 GKG Other auxiliary activities 100% 100% 100 % Branch in road transport GKG GKG City of Zagreb - Zagrebaþke Donje Svetice GKG City of Zagreb road 100% 100% 100 % ceste 48 Branch management, GKG GKG City of maintenance and Zagreb protection - Autobusni Avenija GKG Bus passenger 100% 100% 100 % kolodvor M. Držiüa 4 Branch transport GKG GKG City of Zagreb
Zagrebaþki Holding d.o.o., Zagreb 12
F-14 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
Name of the Headquarters Legal form Principal activity Ownership interest and share company in the voting rights 2006 2005 2004 - Tržnice Zagreb Šubiüeva 40 GKG Branch Lease of own property 100% 100% 100 % GKG GKG City of Zagreb - ZGOS Zeleni trg 3 GKG Branch Waste collection and 100% 100% 100 % removal GKG GKG City of Zagreb - Zagrebaþki Slavonska avenija GKG Branch Other IT related 100% 100% 100 % digitalni grad bb activities GKG GKG City of Zagreb - Stanogradnja Bukovaþka 4 GKG Branch Apartment construction 100% 100% 100 % and sale GKG GKG City of Zagreb 2. Društvo za Jarun bb Limited Sports facility 100% 100% 100 % upravlj.športskim liability management GKG GKG City of objektima d.o.o., company Zagreb Zagreb (Zagreb d.o.o.) - Jarun Jarun bb Branch Maintenance of sports 100 % 100 % 100 % and recreational Zagreb Zagreb City of facilities d.o.o. d.o.o. Zagreb - Maksimir A. Augustinþiüa 8 Branch Sports facility 100 % 100 % 100 % management Zagreb City of City of d.o.o. Zagreb Zagreb - Mladost Jarunska 5 Branch Sports facility 100 % 100 % 100 % management Zagreb City of City of d.o.o. Zagreb Zagreb - Sljeme Hotel Tomislavov Branch Sports, tourist trade 100 % 100 % 100 % Medvednica dom and hospitality industry Zagreb GKG City of d.o.o. Zagreb - Hipodrom Zagreb R. Cimermana 5 Branch Sports facility 100 % 100 % 100 % management Zagreb City of City of d.o.o. Zagreb Zagreb - Šalata Schlosserove Branch Sports facility 100 % 100 % 100 % stube 2 management Zagreb City of City of d.o.o. Zagreb Zagreb - Športske dvorane Veprineþka 16 Branch Maintenance of sports 100 % 100 % 100 % Zagreb and recreational Zagreb City of City of facilities d.o.o. Zagreb Zagreb 3. AGM Mihanoviüeva 28 Limited Activity of other 100 % 100 % 100 % liability member organisations GKG GKG City of company Zagreb 4. Gradska plinara Radniþka 1 Limited Gas supply 100 % 100 % 100 % Zagreb liability GKG GKG City of company Zagreb 5. Robni terminali Jankomir 25 Limited Storage of goods 100 % 100 % 100 % Zagreb liability GKG GKG City of company Zagreb 6. Vladimir Nazor Maksimir 51 Limited Travel agency and 100 % 100 % 100 % liability organisation and tour GKG GKG City of company operator activities Zagreb
Zagrebaþki Holding d.o.o., Zagreb 13
F-15 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
Name of the Headquarters Legal form Principal activity Ownership interest and share company in the voting rights 2006 2005 2004 7. Vodoprivreda Petrovaradinska Limited Construction of water 100 % 100 % 100 % 110 liability treatment and supply GKG GKG City of company facilities Zagreb 8. Zagreb film Vlaška 70 Limited Film and video recording 100 % 100 % 100 % liability GKG GKG City of company Zagreb 9. Zagrebaþki Avenija Dubrovnik Limited Other business activities 100 % 100 % 100 % velesajam 15 liability GKG GrKG City of company Zagreb 10. Zagrebaþka Slavonska avenija Limited Storage of goods 100 % 100 % 100 % veletržnica bb liability GKG GKG City of company Zagreb 11. Zoološki vrt Maksimirski Limited Botanical Garden, Zoo 100 % 100 % 100 % Grada Zagreba perivoj bb liability and Natural Reserve GKG GKG City of company activities Zagreb 12. Autobusna Puljska bb Limited Motor vehicle 100 % 100 % 100 % radionica Zagreb liability maintenance and repair ZET ZET City of company Zagreb 13. Tehnološki park Drvinje 63 Limited Operational and 100 % 100 % 100 % liability management consulting GKG GKG City of company Zagreb 14. Gradska Kralja Držislava 6 Limited Drugstore activities 100 % 100 % 100 % ljekarna Zagreb liability GKG City of City of company Zagreb Zagreb
Zagrebaþki Holding d.o.o., Zagreb 15
F-16 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
Principal activities
The principal activities of the Group comprise communal activities and real estate management, more specifically:
a. Gas supply and sale b. Public passenger transport services in city property and surroundings c. Collection, treatment and distribution services d. Public area cleaning and maintenance, waste removal and other municipal utility activities e. Management, maintenance and protection of public and non-classified roads of the City of Zagreb f. Other services
The Group is headquartered in Zagreb, Republic of Croatia. During the year, the Group operated only in Croatia.
Staff
During 2006, the average number of persons employed by the Group was 13,409 (2005: 13,346; 2004: 13,327 employees).
Zagrebaþki Holding d.o.o., Zagreb 16
F-17 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
Governance and management During the years 2004 and 2005 each company within GKG group had its own Management board, Supervisory board and General assembly. The only shareholder of each company of GKG Group was City of Zagreb. The Management board of each company had one member (Director of the company) that was appointed and withdrawn by a General Assembly decision. The General assembly of the company was comprised of a joint body that was empowered by the City of Zagreb Assembly. The Supervisory board had five to seven members for each company, appointed by the General Assembly.
In 2006, members of the Management Board of GKG were as follows:
1. Slobodan Ljubiþiü, President 2. Dragan Kovaþeviü, Member 3. Jadranko Husariü, Member 4. Vlasta Paviü, Member 5. Ivan Toliü, Member
During 2006, the operations of individual group companies of GKG were managed by the GKG Management Board and the managing directors of the companies, who represented their respective companies jointly with another Management Board Member. Each Branch is represented by the GKG Management Board and the respective branch manager.
As of 31 December 2006, managing directors and managers of the GKG Group companies and branches were as follows:
Company/Branch Managing Director/Branch Manager 1. Gradsko komunalno gospodarstvo d.o.o. Slobodan Ljubiþiü - branch Gradsko stambeno komunalno gospodarstvo Joško Jakeliü - branch Gradska groblja Ljerka ýosiü - branch Vodoopskrba i odvodnja Jadranko Robiü - branch ýistoüa Joso Biþaniü - branch Zagrebaþki elektriþni tramvaj Ivan Toliü - branch Zrinjevac Igor Toljan - branch Zagrebparking Mate Kraljeviü - branch Zagrebaþke ceste Ivan Kolariü - branch Autobusni kolodvor Franji Žulj - branch Tržnice Zagreb Filip Borac - branch ZGOS Zdravko Vac - branch Zagrebaþki digitalni grad Zdravko Frleta - branch Stanogradnja Ljiljana Mrÿa
Zagrebaþki Holding d.o.o., Zagreb 17
F-18 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued) Governance and management
Company/Branch Managing Director/Branch Manager 2. Društvo za upravljanje športskim objektima Zagreb d.o.o. Josip ûorak - branch Jarun Aleksa Kocijan - branch Maksimir Gordana Pokrajþiü - branch Mladost Ante Krce - branch Sljeme Medvednica Dragutin Žiljak - branch Hipodrom Zagreb Marijan Antiü - branch Šalata Ivica Kneževiü - branch Športske dvorane Zagreb Boro Stipiü 3. AGM d.o.o. Janislav Šaban 4. Gradska plinara Zagreb d.o.o. Vladimir Tomiþiü 5. Robni terminali Zagreb Slobodan Ljubiþiü 6. Vladimir Nazor Anka Troha Draksler 7. Vodoprivreda Zagreb Slobodan Jeliþiü 8. Zagreb film Vinko Brešan 9. Zagrebaþki velesajam Katica Luka Kovaþiü 10. Zagrebaþka veletržnica Ante Iliþiü 11. Zoološki vrt Grada Zagreba Mladen Aniü 12. Autobusna radionica Zagreb Branimir Valašek 13. Tehnološki park Marijan Ožaniü 14. Gradska ljekarna Zagreb Mila Bucaliü
Members of the Supervisory Board of GKG are as follows:
1. Jasmina Havranek President of the Supervisory Board 2. Mišo Zoreniü Deputy President of the Supervisory Board 3. Nada ýaniü Member 4.Tomislav Babiü Member 5. Miroslav Šafer Member 6. Petar Kuzele Member 7. Ivan Frišþiü Member
Zagrebaþki Holding d.o.o., Zagreb 18
F-19 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
1. GENERAL (continued)
The Assembly
In 2004 members of the assembly of companies were as follows:
1. Milan Bandiü 2. Nenad Crniü 3. Krešimir Franjiü 4. Nenad Ivankoviü 5. Tomislav Jeliü 6. Ladislav Prežigalo 7. Marko Pušiü 8. Ivan Šikiü 9. Stjepan Tojþiü 10. Mislav Žagar 11. Ivo Jeulušiü 12. Davor Jelaviü 13. Slavko Kojiü 14. Vlasta Paviü 15. Miroslav Rožiü
In 2005 and 2006, Mr. Milan Bandiü, the Mayor of City of Zagreb was the only member of the General Assembly as a representative of City Council.
Zagrebaþki Holding d.o.o., Zagreb 19
F-20 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Set out below are the principal accounting policies consistently applied in the preparation of the Group financial statements for the years 2006, 2005 and 2004.
a) Basis of accounting
The Group maintains its accounting records in the Croatian language, in Croatian Kuna and in accordance with Croatian law, the accounting principles and practices observed by enterprises in Croatia.
b) Adoption of new and revised International Financial Reporting Standards
The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the applicable accounting periods. The adoption of these new and revised Standards and Interpretations has not resulted in material changes to the Group’s accounting policies and did not materially affect the amounts reported for the current or prior years:
At the date of authorisation of these group financial statements, the following Standards and Interpretations were in issue but not yet effective:
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (effective date annual periods beginning on or after 1 March 2006)
IFRIC 8 Scope of IFRS 2 (effective date annual periods beginning on or after 1 May 2006)
IFRIC 9 Reassessment of Embedded Derivatives (effective date annual periods beginning on or after 1 June 2006)
IFRIC 10 Interim Financial Reporting and Impairment (effective date annual periods beginning on or after 1 November 2006)
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the Group financial statements.
Zagrebaþki Holding d.o.o., Zagreb 20
F-21 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c) Basis of consolidation
The consolidated financial statements of the Group include the financial statements of the company Zagrebaþki Holding d.o.o., Zagreb (GKG) and its subsidiaries, listed in Note 1 (jointly 'the Group'). The consolidated financial statements were prepared for the first time in 2006.
All the subsidiaries of the Group were directly or indirectly owned by the City of Zagreb prior to becoming subsidiaries of GKG as a result of the reorganisation of the ownership of the companies as described in Note 1.
Comparative consolidated financial statements of the Group have also been prepared and presented for 2004 and 2005 as if the reorganisation of ownership of the companies had occurred prior to 2004. d) Basis of preparation
The Group’s financial statements are prepared under the cost convention. On 27 December 2005, various entities (as described more fully in note 1) were merged into GKG. On merger, it was established that the carrying value of certain tangible fixed assets would not be relevant to the readers of this report. Accordingly, a one time adjustment to the carrying value of these assets based on independent appraisals of value was done to establish a new “cost basis”, with the resulting adjustment being made to the revaluation reserves. This adjustment was done with the effect from the beginning of 2004. e) Adjustments to the consolidated financial statements for the year 2005 and 2004
The comparative consolidated financial statements for 2005 and 2004 include adjustments to fully comply with International Financial Reporting Standards, to conform the accounting policies of all members of the Group, to correct errors and to recognise the formation of the Group. The adjustments to the amounts previously reported by the individual companies are summarised as follows:
HRK'000 Adjustments:
- adjustment to carrying value of assets (as noted in 2 d above) 3,109,360 - deferred tax liability (621,872) - provision for legal cases (41,879) - provision for jubilee and retirement benefits (41,888) - provision for impairment of long term receivables (18,299) 327 - other adjustments ______Total accumulated adjustments to consolidated equity as at 31 December 2006 2,385,749 ______
Zagrebaþki Holding d.o.o., Zagreb 21
F-22 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f) Reporting currency
The financial statements of the Group have been prepared in Croatian Kuna. As at 31 December 2006, the official exchange rate for EUR 1 and USD 1 was HRK 7.345081 and HRK 5.578401, respectively (31 December 2005: HRK 7.375626 and HRK 6.233626, respectively; 31 December 2004: HRK 7.671234 and HRK 5.636883, respectively). The Group's income statements for the years ended 31 December 2006, 2005 and 2004 were converted into Euros by applying the average rate, details of which are set out in Appendix 1 and Appendix 2 to these group financial statements. The Group’s Balance sheets as of 31 December 2006, 2005 and 2004 were converted into Euros at the year-end exchange rates, details of which are set out in Appendix 1 and Appendix 2. g) Intangible assets
Intangible fixed assets include investments in software licences, and are carried at cost less accumulated amortisation. Amortisation is provided on a straight-line basis over a period of five years. h) Tangible assets
Tangible assets are carried at cost less accumulated depreciation are depreciated annually on a straight line basis at the rates ranging from 1.25 % to 25 %:
2006 2005 2004 Buildings 20 - 80 years 10 - 65 years 10 - 65 years Vehicles 4 - 20 years 4 - 20 years 4 - 20 years Plant and equipment 4 - 10 years 4 - 20 years 4 - 20 years Office equipment 4 - 5 years 2 - 20 years 2 - 20 years
Changes in rates: depreciation rates in 2006 changed compared to those applied in 2005 because of the adoption of a uniform depreciation policy for all Group companies. The impact of the changes in the accounting policy has been accounted for since 1 January 2006. As a result of this change, the depreciation is HRK 24,033 thousand lower then it would have been if the Group continued to apply the original depreciation rates.
Residual value is determined by reference to prices valid at the date of purchase or valuation.
Assets under construction include all costs directly attributable to purchase or construction of a fixed assets, increased by a corresponding portion of variable and fixed overheads incurred in the course of purchase or construction. Depreciation of those assets commences when they are ready for their intended use. Costs incurred in replacing major portions of the company’s facilities that increase their productive capacity or substantially extend their useful life are capitalised. Maintenance, replacement or partial replacement costs are recognized as expense when incurred.
Zagrebaþki Holding d.o.o., Zagreb 22
F-23 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Impairment of assets
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The testing of cash flows relative to the value of assets (key operating assets) has indicated that there is no basis for impairment of the Group's assets.
Zagrebaþki Holding d.o.o., Zagreb 23
F-24 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) j) Long-term financial assets
The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans and receivables, and financial assets available for sale.
Financial assets at fair value through profit or loss: these assets are classified into two portfolios: financial assets held for trading and financial assets designated on initial recognition at fair value through profit or loss.
Receivables and loans: Loans and receivables represent non-derivative financial assets with fixed or determinable payments that are not quoted on an active market and are presented within fixed assets, considering that they mature in a period longer than one year from the balance sheet date.
Financial assets available for sale are those non-derivative assets designated as available for sale or not classified into another category. They are included in non-current assets, unless the management intends to sell them within 12 months from the balance sheet date. Changes in the fair value of monetary and non-monetary assets classified as available for sale are recognised in equity. On disposal or impairment, cumulative fair value adjustments recognised in equity are included in the profit or loss for the period within gains and losses on financial assets available for sale.
All purchases and sales of investments are recognised on the transaction date. For all financial assets, investments are recognised initially at fair value increased by transaction costs, except for assets carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and the related transaction cost is recognised in the income statement. Loans and receivables are carried at amortised cost using the effective interest rate method.
Investments are derecognised when the right to cash receipts on investments are expired or surrendered, or when the Group has transferred all significant risks and benefits of ownership.
At each balance sheet date, the Group assesses whether there is any evidence that a financial asset might be impaired. Loans and receivables are reviewed for impairment when the Group will not be able to collect all amounts due in accordance with the underlying contract terms and conditions. An allowance is determined as the difference between the carrying amount of the receivable and its recoverable amount, and represents the present value of the expected future cash flows discounted at the financial instrument’s original effective interest rate.
Zagrebaþki Holding d.o.o., Zagreb 24
F-25 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k) Cash and cash equivalents
Cash and cash equivalents comprise cash with bank and on hand. Cash equivalents comprise demand deposits and term deposits with maturities of up to three months. l) Long-term loans and receivables
Long-term deposits are receivables originated by the Group. They have fixed maturities and are measured at amortised cost using the effective interest rate method. Impairment of deposits is determined using the applicable effective interest rate on inception. m) Trade receivables and prepayments
Trade receivables are carried at invoiced amounts, in accordance with underlying contract, order, delivery note or other document, less any allowance for irrecoverable amounts.
Management provides for doubtful receivables based on a review of the overall ageing of all receivables and a specific review of significant individual amounts receivable. n) Inventories
Inventories comprise mainly spare parts, material and office supplies and are stated at the lower of cost and net realisable value. Cost is determined as the lower of the weighted average price reduced by an allowance for obsolete and excessive inventories and net realisable value. Management provides an allowance for inventories based on a review of the overall ageing of all receivables and a specific review of significant individual amounts included in inventories.
Zagrebaþki Holding d.o.o., Zagreb 25
F-26 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) o) Foreign currencies
The individual financial statements of each Company and the Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period as finance cost except for differences arising on the retranslation of non-monetary assets available for sale, in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. p) Retirement benefits and jubilee awards
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
The Company provides employees with jubilee and one-off retirement awards. The obligation and costs of these benefits are determined using the 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. Obligation for this benefit 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 benefit obligation.
Zagrebaþki Holding d.o.o., Zagreb 26
F-27 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q) Income tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.
Zagrebaþki Holding d.o.o., Zagreb 27
F-28 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of discounting is material, the amount of the provision is the present value of the expenditures expected to be required to settle the obligation, determined using the estimated risk free interest rate as the discount rate. Where discounting is used, the reversal of such discounting in each year is recognized as a financial expense and the carrying amount of the provision increases in each year to reflect the passage of time.
Provisions for restructuring costs are recognized when the Group has a detailed formal plan for the restructuring that has been communicated to parties concerned. s) Borrowings
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Short-term borrowings and credits from suppliers are carried at original amounts reduced by any repayments. Interest expense is charged to the statement of income in the period to which the interest relates.
Zagrebaþki Holding d.o.o., Zagreb 28
F-29 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) t) Use of estimates in the preparation of the financial statements
The preparation of financial statements in conformity with International Reporting Financial Standards, as published by the International Accounting Standards Board requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies. The significant areas of estimation used in the preparation of the accompanying financial statements relate to value adjustment of assets and determination of fair value of assets and liabilities. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded in the financial statements, when determinable. u) Financial instruments
Financial assets and financial liabilities presented in accompanying financial statements consist of cash and cash equivalents, trading securities, trade and other receivables, trade and other payables, long-term receivables, loans, borrowings and investments. Further information about recognition and measurement of these items is disclosed in the corresponding accounting policies.
Financial instruments are classified as assets, liabilities or equity instruments in accordance with applicable contracts. Interest, dividends, gains and losses on financial instruments classified as financial liabilities are recognized as income or expense when they arise. Financial instruments are offset when the Group and the Company have a legally enforceable right to set off the net amounts reported, or realize the asset and settle the liability simultaneously.
Based on IAS 39 Financial Instruments: Recognition and Measurement, receivables originated by the Company are carried at amortised cost, and all derivative financial instruments are recognised as assets or liabilities. The value of deposits amounted to HRK 164,704 thousand at 31 December 2006 (HRK 140,114 thousand at 31 December 2005; HRK 77,379 thousand at 31 December 2004). v) Segmental disclosures
The Group monitors and presents specifically the results of the major operating business units. The business units are the basis upon which the Group reports its primary segment information. Certain financial information by business and geographic segment is disclosed in Note 38.
Zagrebaþki Holding d.o.o., Zagreb 29
F-30 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) w) Contingent liabilities
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. x) Subsequent events
Post-year-end events that provide additional information about the Group’s position at the balance sheet 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. y) Revenue recognition
Revenue is recognised when it is probable that economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably. Sales are recognised net of sales taxes and discounts. Revenue from provision of services is recognised by actual working days spent. Invoices are issued based on an authorised underlying evidence of the ordering party of the actual services performed by the last day in a month.
a) Income from sale of products and goods is recognised upon delivery of the products by the Group and their acceptance by the buyer, and when the collectability of the related receivables is reasonably assured.
b) Revenue from services are recognised in the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
c) Income from government grants comprises the following:
a grant related to assets, including non-monetary grants at fair value, are presented in the balance sheet as deferred income, and are recognised as income over the period necessary to match them with the related costs (depreciation);
A grant receivable as compensation for costs already incurred or for immediate financial support, with no future related costs, is recognised as income in the period in which it is receivable.
d) Interest income is accrued on a time basis, by reference to the actual yield on the underlying asset.
e) Dividend income is recognised when the rights to receive payment have been established. z) Comparative figures
Where necessary, comparative information has been reclassified to conform with the current year's presentation.
Zagrebaþki Holding d.o.o., Zagreb 30
F-31 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
3. SALES
Sales represent amounts receivable (excluding excise and similar duties) for goods sold and services rendered.
Analysis by geographic segment:
2006 2005 2004 HRK'000 HRK'000 HRK'000 Republic of Croatia 3,484,533 3,184,053 3,033,595 14,103 15,933 16,001 European Union ______3,498,636 3,199,986 3,049,596 ______
4. OTHER OPERATING INCOME
2006 2005 2004 HRK'000 HRK'000 HRK'000
Income from subsidies 838,327 759,477 693,651 Income from consumption of own products and services 69,381 52,407 30,236 Income from reversal of long-term provisions 13,883 2,255 72,447 Income from subsequent collection of written-off 48,003 31,928 43,324 receivables Income from sale of tangible assets 6,656 28,784 12,595 82,284 97,146 74,829 Other income ______1,058,534 971,997 927,082 ______
Income from subsidies represent principally the subsidies from the City of Zagreb, comprising the following:
financial support from the City Budget for purposes approved by the Assembly;
financial support for the repayment of loans (principal, interest, fees);
income from reversal of deferred income to the extent of depreciation charged on capital investments (investments in communal infrastructure facilities and equipment) funded out of the Zagreb City Budget and other foreign sources (IAS 20 Accounting for Government Grants and Disclosure of Government Assistance). There are no not fulfilled conditions and other unforeseen events related to recognised government grants.
Income from consumption of own products and services relates predominantly to income from self-constructed assets, which are recognised to the extent of the costs incurred.
Other income comprises subsequently identified income from prior years, surpluses, damages and other income.
Zagrebaþki Holding d.o.o., Zagreb 31
F-32 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
5. COST OF MATERIAL AND SERVICES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Cost of material
Raw material and supplies 312,352 340,979 309,637 Energy 224,235 212,235 192,649 Spare parts 79,147 27,436 30,219 Write-off of small inventory 25,295 22,209 20,425 Cost of goods sold 810,260 807,890 751,057 Decrease of inventories 3,081 9,117 1,155
External services
Transport, postage and telecommunications 44,209 45,204 42,213 Maintenance services 170,000 125,944 125,019 Rental costs 12,763 6,426 5,897 202,643 258,347 238,000 Other services ______1,883,985 1,855,787 1,716,271 ______
6. STAFF COSTS
2006 2005 2004 HRK'000 HRK'000 HRK'000
Net salaries 916,954 848,920 796,263 Taxes and contributions 638,106 573,587 544,479 Reimbursement of costs to employees 70,132 77,278 69,547 44,756 35,723 26,907 Other employment benefits ______1,669,948 1,535,508 1,437,196 ______
Number of staff at 31 December 13,409 13,346 13,327
Costs reimbursed to employees comprise daily allowances, overnight accommodation and transport related to business travels, commutation allowance, reimbursement of costs for the use of personal cars for business purposes and similar.
Other employee benefits comprise benefits payable under the Collective Agreements, such as vacation bonus, jubilee awards, Christmas bonus, various supports, and similar.
Zagrebaþki Holding d.o.o., Zagreb 32
F-33 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
7. DEPRECIATION AND AMORTISATION
2006 2005 2004 HRK'000 HRK'000 HRK'000
Depreciation 396,508 375,195 330,646 19,864 14,084 15,585 Amortisation ______416,372 389,279 346,231 ______
8. VALUE ADJUSTMENTS OF CURRENT AND NON-CURRENT ASSETS
Allowances for current and non-current assets: 2006 2005 2004 HRK'000 HRK'000 HRK'000
Value adjustment of trade receivables 111,012 63,759 58,749 Value adjustment of financial assets 468 581 66 Value adjustment of inventories 326 235 1,728 176 84 90 Value adjustment of other receivables ______111,982 64,659 60,633 ______
9. PROVISIONS FOR RISKS AND CHARGES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Litigation provision 22,285 26,168 10,991 Provisions for retirement bonuses and jubilee awards 4,763 4,763 3,563 Provision for staff restructuring programme 48,891 - - Provisions for other costs 253 440 17 ______76,192 31,371 14,571 ______
Zagrebaþki Holding d.o.o., Zagreb 33
F-34 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
10. OTHER OPERATING EXPENSES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Non-manufacturing services 108,029 60,334 56,293 Entertainment 5,971 6,392 6,755 Insurance premium 35,546 32,935 29,646 Taxes and contributions irrespective of the result 23,689 39,560 36,141 Bank charges 11,332 14,379 17,917 Net book value of disposed assets 6,666 25,430 12,988 Subsequently identified expenses 22,121 6,249 21,824 Other expenses 88,437 72,483 44,735 ______301,791 257,762 226,299 ______
11. FINANCIAL INCOME
2006 2005 2004 HRK'000 HRK'000 HRK'000
Interest income 48,721 32,820 32,711 Foreign exchange gains 21,998 42,245 30,811 Other financial income 54,615 34,612 24,735 ______125,334 109,677 88,257 ______
12. FINANCIAL EXPENSES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Interest expense 93,704 47,080 36,005 Foreign exchange losses 27,535 27,877 34,376 602 2,177 2,911 Other financial expenses ______121,841 77,134 73,292 ______
Zagrebaþki Holding d.o.o., Zagreb 34
F-35 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
13. TAXATION
The Group and its subsidiaries are subject to income tax separately, according to the tax laws and regulations of the Republic of Croatia. Corporate income tax is charged by applying the rate of 20% to taxable income of the individual companies that have taxable income.
The relationship between the Profit before tax and Income tax expense as shown in the Income statement is as follows:
2006 2005 2004 HRK'000 HRK'000 HRK'000
Profit before tax 100,393 70,160 190,442
Adjustments: Non deductible expenses 26,327 42,258 15,797
Non taxable revenue ______(17,837) ______(18,597) ______(13,460) 108,883 93,821 192,779
Assessed losses carried forward ______(46,255) ______(55,375) ______(146,175) Taxable income 62,628 38,446 46,604
Current year’s tax liability (at current year’s tax rate) 12,526 7,689 9,321
Prior year tax return adjustments (at current year’s tax rate) ______5,390 ______930 ______-
Income tax expense ______17,915 ______8,619 ______9,321
Zagrebaþki Holding d.o.o., Zagreb 35
F-36 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
13. TAXATION (continued)
Tax losses available for carry forward expire as follows:
Amount Cumulative HRK'000 HRK'000 2007 25,122 25,122 2008 24,229 49,351 2009 4,993 54,344 2010 6,608 60,952 2011 5,092 66,044
Tax losses may be carried forward to reduce taxable profits for a period of five years. As at 31 December 2006, total net losses available for carry forward amount to HRK 66,044 thousand.
Tax losses are available for carry forward and offsetting against the tax base in future taxation periods until their expiration as prescribed by Tax law, which is 5 years following the year in which the tax losses were incurred. As of 31 December 2006 the Group did not recognise a deferred tax asset arising from tax losses carried forward at certain subsidiaries, because the availability of future taxable profit against which the unused tax losses can be utilized is not probable.
Deferred tax liability
At 31 December 2006 deferred tax liability of the Company amounts to HRK 630,455 thousand (2005: HRK 632,925 thousand; 2004: HRK 636,315 thousand). This is in respect to the value adjustment of certain assets at the date of merger.
Zagrebaþki Holding d.o.o., Zagreb 36
F-37 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
13. TAXATION (continued)
Deferred tax liability (continued)
A deferred tax charge of HRK 630,455 million in 2006 (2005: 632,925 and 2004: HRK 636,315 million) has been recognised in equity in respect to the value adjustment of certain assets. The movements in the deferred tax liability were as follows:
HRK'000 Total Balance as at 31 December 2004 636,315 (3,390) Reversal of temporary differences ______Balance as at 31 December 2005 632,925 (2,470) Reversal of temporary differences ______630,455 Balance as at 31 December 2006 ______
Zagrebaþki Holding d.o.o., Zagreb 37
F-38 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
14. INTANGIBLE ASSETS
(HRK'000) Leasehold Patents and Assets in Total intangible improvements licences progress assets
COST At 31 December 2003 ______10,848______94,043______573 ______105,464
Additions 38,406 14,790 1,791 54,987 Disposals and retirements ______(69) ______(95) ______- ______(164) At 31 December 2004 49,185 108,738 2,364 160,287 ______Additions 32,858 7,561 9,201 49,620 Transfer from assets in progress 14 8,076 (5,814) 2,276 Transfers from/to (43,706) 199 - (43,507) Disposals and retirements ______(39) ______(807) ______- ______(846) At 31 December 2005 38,312 123,767 5,751 167,830 ______Additions 6,057 8,526 3,982 18,565 Transfer from assets in progress 4,455 (311) (4,144) - Transfers from/to 7,456 (24,183) 1,378 (15,349) Disposals and retirements ______(25) ______(2,942) ______- ______(2,967)
At 31 December 2006 ______56,255______104,857______6,967 ______168,079 ACCUMULATED AMORTISATION At 31 December 2003 ______5,467 ______65,440 ______- ______70,907 Charge for the year 817 14,768 - 15,585 Cancellation of accelerated depreciation - (3,644) - (3,644) Disposals and retirements ______(50) ______(95) ______- ______(145)
At 31 December 2004 ______6,234______76,469______- ______82,703 Charge for the year 1,849 12,235 - 14,084 Transfers from assets in progress (4) 100 - 96 Transfers from/to ______(39) ______(661) ______- ______(700) At 31 December 2005 8,040 88,143 - 96,183 ______Charge for the year 9,297 10,567 - 19,864 Transfers from/to 7,949 (16,195) - (8,246) Disposals and retirements ______(11) ______(1,898) ______- ______(1,909) At 31 December 2006 25,275 80,617 - 105,892 ______NET BOOK VALUE
At 31 December 2004 42,951 32,269 2,364 77,584 ______
At 31 December 2005 30,272 35,624 5,751 71,647 ______
At 31 December 2006 30,980 24,240 6,967 62,187 ______
Zagrebaþki Holding d.o.o., Zagreb 38
F-39 39 Total ______construction ______Flats Assets under Flats Assets _ _ _ _ _ equipment ______Land Buildings Plant and ______ki Holding d.o.o., Zagreb þ ______At 31 December 2006 At 4,263,307 9,710,067 3,169,306 8,906 906,098 18,057,684 Additions 14,355 73,008 76,411 1,233 774,757939,764 491,741936,934Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 1,233 (HRK'000) 353 76,4111,251,8581,704,632 Additions 14,355Transfer from assets in progress Transfers from/to 51,102Disposals and retirements 73,008 31 December 2004 At 1,895 2,486Additions 1,582Transfer from assets in progress 333,803 392,156 3,949,66759,382 - 1,896 31 December 2005 At - 128,051Additions 320,783 8,634,909Transfer from assets in progress (12,918) Transfers from/to 275,148 Contributed assets (198) 2,266,011 70,714 Disposals and retirements 3,950,415 366 (85,894) 1,985 167,332 (464,706) 9,276,287 8,136 198 (1,049) 535,140 (181) 2,465,726 86 (9,692) (3) 764,865Zagreba (64,634) 615,122 - (446,738) - (4,389) 15,623,588 (205,529) 7,116 37,844 (164,495) (2,276) (86,858) - 115,934 813,430 - - (1,152,247) 16,512,974 (741) 636 - (5,821) - - (1,122) (97,990) (90,084) - 28,152 Revaluation - - 13,721 - -13,721COST 31 December 2003 (restated) At - 3,932,826 8,241,21413,721 2,147,245Transfer from intangible assets Revaluation -Disposals and retirements 7,586 - - 519,448 (2,730) 14,848,319 1,946 (27,872) 37,053 (69,493) (1,459) - (946) 4,508 (102,500) 43,507 15. TANGIBLE ASSETS ASSETS 15. TANGIBLE
F-40 40 Total ______construction ______Flats Assets under Flats Assets ______equipment ______Land Buildings Plant and ______ki Holding d.o.o., Zagreb þ Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 15. TANGIBLE ASSETS (continued) Zagreba (HRK'000) ______Charge for the year Transfer from assets in progress Revaluation - ______Disposals and retirements ______-- 31 December 2005 At Charge for the year ______Change in accounting policies -Transfers from/to - ______Contributed assets ______Disposals and retirements ______- 31 December 2006 At (2,899) - NET BOOK VALUE ______469 31 December 2004 At (2,899) - 227,626 - 31 December 2005 At ______(15,070) 31 December 2006 At - (565) 3,643,608 147,066 (7,786) - (65,049) - - 204,524 1,619,758 3,949,667 - 3,950,415 (16,247) (3,211) (28,202) - 28 4,263,307 (84) 30,918 191,526 5,204,326 3,839,851 1,101 5,632,679 (75,736) 5,870,216 36,419 1,755,720 724,806 - 475 - 57 845,968 1,186 - - 1,413,586 (34) 375,195 205 1,329 6,979 5,265,653 (80,203) 6,015 (96) - 401 7,577 (1,587) - 764,154 812,244 (24,033) - - 396,508 906,098 10,649,932 (80,568) 11,247,321 12,460,784 5,596,900 - 8,422 30,918 ______DEPRECIATION ACCUMULATED At 31 December 2003 Charge for the year Cancellation of accelerated depreciation ______Disposals and retirements ______31 December 2004 At ______- ______- (460) - - 3,254,897 - 180,373 (4,108) (4,227) 1,462,895 3,430,583 149,826 (67,408) 1,212 1,541,205 - 35 (90) 1,157 299 - 4,719,303 412 711 - (4,568) 330,646 4,973,656 (71,725)
F-41 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
15. TANGIBLE ASSETS (continued) Title to land and buildings
Due to political developments in Croatia prevailing since 1990, certain land registers have not been fully updated. The registration of the Group's title to land and buildings in appropriate registers, serving as evidence of ownership, is in progress. In addition, the City of Zagreb, the ultimate owner of the Group, has made a significant portion of assets available to individual Group entities for their use. The status of such assets has not been fully defined, and the Group expects that the status of the assets presented in the Group financial statements will be resolved as the restructuring progresses. An overview of the fixed assets ownership issues is presented below: Buildings (cost) At 31 December 2006 HRK'000 Owned by the Group 6,934,494 Rights to use property 2,264,002 Under litigation 239,881 In the process of registration 91,605 Owned by the City of Zagreb 66,546 Obtained for management purposes 47,522 No evidence of the underlying cadastral parcel 20,667 Application for registration submitted 16,750 The underlying parcel cannot be determined 15,358 No application for registration submitted 8,718 Unregistered title 2,598 Other 1,926 ______
______9,710,067
Land (cost) At 31 December 2006 HRK'000 Owned by the Group 2,782,814 Owned by the City of Zagreb 705,920 Rights to use property 277,261 In the process of registration 222,251 Social ownership with usufruct 146,696 In possession 72,600 National property 29,571 Under litigation 13,327 Private property 9,576 Public property 3,113 Sales agreement not implemented 107 Under mortgage 53 Unidentified 18 ______
______4,263,307
Zagrebaþki Holding d.o.o., Zagreb 41
F-42 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
15. TANGIBLE ASSETS (continued)
Property ownership
Included in the financial statements are certain assets the Group's title to which cannot be confirmed with certainty. In addition, there are certain properties that are owned by the Group but have not been presented in the group financial statements. The Management Board of the Group are weighing the facts presented above and taking certain steps to resolve this matter.
Review of the residual value
In accordance with the revised IAS 16 – Property, Plant and Equipment, effective for the current accounting period, the Group has reviewed the residual values for depreciation purposes in line with the revised definition of the residual value as specified in the Standard. No adjustment to the residual values for either the current or prior periods has been identified. In accordance with the new requirements, residual values will be revalued and reviewed once a year.
Impairment of assets
IAS 36 provides guidelines for the recognition and measurement of impairment of assets compared to their carrying amounts. As provided by IAS 36, whenever there is an indication of impairment, the carrying amount should be compared to the recoverable amount of an asset and written down to the recoverable amount. The recoverable amount is the higher of (i) the net selling price for a marketable asset and (ii) value in use. Value in use is the present value of the future cash flows expected to be derived from an asset, based on reasonable and supportable assumptions that represent management's best estimate of the range of future economic conditions. The management believes that the carrying amounts of tangible assets are recoverable through future operations.
Collateralisation of certain properties
As of 31 December 2006, property, plant and equipment with restricted ownership as a result of collateralisation amounts to HRK 187,664 thousand (see Note 31). Financial commitments with respect to purchases of property, plant and equipment amount to HRK 522,987 thousand (see note 41).
Zagrebaþki Holding d.o.o., Zagreb 42
F-43 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
16. PREPAYMENTS FOR TANGIBLE ASSETS
At 31 December 2006, prepayments for property, plan and equipment amounted to HRK 79,450 thousand (2005: HRK 219,280 thousand; 2004: HRK 120,792 thousand).
17. ASSETS AVAILABLE FOR SALE
At 31 December 2006, long-term assets available for sale were stated in the amount of HRK 103,808 thousand (2005: HRK 0, 2004: HRK 0) and relate to the investment properties at fair value, in accordance with the provisions of IFRS 3.
18. OTHER FINANCIAL ASSETS
2006 2005 2004 HRK'000 HRK'000 HRK'000 Investments in related companies 59 32 9,762 Receivables for Croatian Government bonds 7,047 6,645 7,428 Investments in shares 2,785 3,086 3,044 Given loans, deposits and down payments 9,034 12,190 15,122 Participating interests -4 4 11,000 - - Investments in assets available for sale ______
______29,925______21,957 ______35,360
Receivables for Croatian Government bonds have arisen on purchase of tenancy rights owned by the GKG Group companies using frozen foreign currency savings. The bonds are placed on the account of the Ministry of Finance, and the related transactions are done by commercial banks.
Given loans and deposits comprise the following: 2006 2005 2004 HRK'000 HRK'000 HRK'000 Receivables for loans to legal entities 2,128 4,842 7,774 Receivables for loans to individuals 1,518 1,522 1,452 Deposits with banks 5,228 5,058 4,913 160 768 983 Other ______9,034 12,190 15,122 ______
Zagrebaþki Holding d.o.o., Zagreb 43
F-44 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
19. LOANS AND RECEIVABLES
2006 2005 2004 HRK'000 HRK'000 HRK'000 Receivables from the City of Zagreb 10,122 10,790 17,527 Receivables from insurance companies 9,236 8,701 8,472 Receivables in respect of credit sales and loans to employees 52,260 51,329 59,264 2,227 3,922 6,628 Other receivables ______73,845 74,742 91,891 ______
20. INVENTORIES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Material and spare parts 125,014 120,907 125,578 Work in progress 7,566 10,401 20,755 Trade goods 27,564 19,614 17,508 Finished products 11,462 14,020 13,886 644 919 1,090 Prepayments for inventories ______172,250 165,861 178,817 ______
The difference between the carrying amounts of inventories and their replacement cost is insignificant.
21. TRADE RECEIVABLES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Domestic trade receivables 1,479,826 1,200,639 1,054,469 Foreign trade receivables 5,177 6,080 5,913 (349,126) (286,014) (276,750) Allowance ______1,135,877 920,705 783,632 ______
Zagrebaþki Holding d.o.o., Zagreb 44
F-45 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
22. RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS
2006 2005 2004 HRK'000 HRK'000 HRK'000
Amounts due from the City of Zagreb 814,496 366,009 191,786 Value Added Tax (VAT) refund 19,570 53,052 27,361 Receivables for sick allowances and salaries 12,005 8,726 7,964 Receivables for overpaid taxes and contributions 3,150 4,104 2,893 2,331 2,929 1,602 Other receivables ______851,552 434,820 231,606 ______
23. OTHER RECEIVABLES
2006 2005 2004 HRK'000 HRK'000 HRK'000
Amounts due from employees 2,535 4,445 4,496 Prepayments made for services 1,978 973 565 Interest receivable 5,901 5,689 3,378 Other receivables 3,545 3,487 4,765 (866) - (866) Allowance ______13,093 14,594 12,338 ______
Zagrebaþki Holding d.o.o., Zagreb 45
F-46 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
24. FINANCIAL ASSETS
Current financial assets consist mainly of loans and deposits. The carrying amounts of cash items do not differ significantly from their market values.
2006 2005 2004 HRK'000 HRK'000 HRK'000
Securities 2,271 2,198 4,214 Loans, deposits and down payments 162,418 137,916 73,064 Other short-term investments 15 - 101 ______164,704 140,114 77,379 ______
Loans, deposits and down payments comprise the following:
2006 2005 2004 HRK'000 HRK'000 HRK'000
Loans to corporate entities 25,712 28,531 23,383 136,706 109,385 49,681 Deposits with banks ______162,418 137,916 73,064 ______
25. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand, current account balances and other balances with banks:
2006 2005 2004 HRK'000 HRK'000 HRK'000
Bank count balances 266,689 273,662 301,942 Foreign account balance 12,337 10,444 83,958 Cash in hand 1,365 1,653 2,377 18,093 50,214 16,981 Other cash ______298,484 335,973 405,258 ______
Zagrebaþki Holding d.o.o., Zagreb 46
F-47 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
26. PREPAID EXPENSES AND ACCRUED INCOME
2006 2005 2004 HRK'000 HRK'000 HRK'000
Prepaid expenses 19,594 20,183 16,536 92,930 7,346 4,340 Accrued income ______112,524 27,529 20,876 ______
27. SUBSCRIBED CAPITAL
The ultimate shareholder of the Group is the City of Zagreb. The Group companies have been registered with the Commercial Court in Zagreb as limited liability companies.
As of 31 December 2006 the subscribed capital of the Company amounts to HRK 4,292,987 thousand (2005: HRK 4,098,317 thousand; 2004: HRK 4,099,942 thousand). The movements in Subscribed capital are as follows:
In 2004 Subscribed capital increased by HRK 17,153 thousand. This increase is as result of additional Share capital contributed HRK 12,128 thousand and the capitalisation from Retained earnings of HRK 5,025 thousand.
In 2005 Subscribed capital decreased by HRK 1,625 thousand as a result of certain assets being removed from the Group.
In 2006 Subscribed capital increased by HRK 194,670 thousand. This increase is as result of additional Share capital contributed of HRK 190,774 thousand and the capitalisation from Retained earnings of HRK 3,896 thousand.
Zagrebaþki Holding d.o.o., Zagreb 47
F-48 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
28. LONG-TERM PROVISIONS
2006 2005 2004 HRK'000 HRK'000 HRK'000
Litigation provision 103,048 92,369 77,944 Provisions for the landfill rehabilitation 35,165 32,495 31,096 Provisions for retirement bonuses and jubilee awards 46,651 41,888 37,125 Provision for staff restructuring program (Note 9) 49,471 5,209 - Other provisions - 440 139 ______234,335 172,401 146,304 ______
The landfill rehabilitation provision relates to the cost of maintenance and surveillance over the Jakuševac Landfill following its wind-up for the following 30 years for environmental protection purposes in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. The provisions are discounted.
Litigation provision relates to provisions allocated for legal actions initiated against the Group. They are made as soon as a legal action has been launched and on the basis of the estimated final outcome of the litigation. In the opinion of the management, some of the legal actions are likely to be lost. Provisions have been made for those legal actions that are likely to be lost.
Provisions for retirement bonuses and jubilee awards arises from the collective union agreement. Provisions for retirement bonuses and jubilee awards have been determined in accordance with IAS 19 Employee Benefits. Provisions are measured at the present value of costs expected to be incurred to settle the obligation, using a discount rate of 6.75 %.
Zagrebaþki Holding d.o.o., Zagreb 48
F-49 ______49 ______Other provisionsOther Total ______provision provision Legal cases ______landfill Provision for for Provision rehabilitation rehabilitation ______programme restructuring -- - - 29,757 58,267 - (24,826) 121 - 88,145 (24,826) -- - (2,212) - (5,135) - (11,606) (139) (440) (5,274) (14,258) ______4,7634,763 5,209 46,474 1,399 19,560 2,670 22,285 440 31,371 - 76,192 37,12537,12541,888 - -46,651 5,209 44,503 1,339 31,096 77,944 49,471 32,495 92,369 18 139 35,165 103,048 440 82,985 146,304 172,401 - 234,335 ______IAS 19 provisions staff for Provision ki Holding d.o.o., Zagreb þ 28. LONG-TERM PROVISIONS (continued) Movement in provisions for period from 2004 to 2006: in provisions Movement (HRK '000) 31 December 2003 Provisions cancellation provisions Creation of new Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 31 December 2004 Provisions cancellation provisions Creation of new 31 December 2005 Provisions cancellation provisions Creation of new 31 December 2006 Zagreba
F-50 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
29. OTHER NON-CURRENT LIABILITIES
2006 2005 2004 HRK'000 HRK'000 HRK'000 Liabilities to credit institutions 1,298,927 842,797 605,866 Liabilities to the state 27,393 22,962 26,815 Trade payables 26,407 13,016 6,399 18,428 16,338 15,373 Other long-term liabilities ______1,371,155 895,113 654,453 ______
Long-term liabilities relate to bank borrowings, with movements as presented below: 2006 2005 2004 HRK'000 HRK'000 HRK'000 Balance at 1 January 969,858 718,779 443,208 New borrowings 586,742 377,409 368,053 Repayments of long-term borrowings (120,313) (101,900) (99,371) (1,928) (24,430) 6,889 Exchange differences ______Balance at 31 December 1,434,359 969,858 718,779 ______
Current portion (135,432) (127,061) (112,913) ______Long-term portion 1,298,927 842,797 605,866 ______
Analysis by currency:
2006 2005 2004 HRK'000 HRK'000 HRK'000
GBP 1,108 1,368 1,622 USD 1,163 2,013 2,465 HRK 44,947 35,118 45,966 EUR 1,387,141 931,359 668,726 ______1,434,359 969,858 718,779 ______
Less: current portion of long-term borrowings (135,432) (127,061) (112,913) ______Long-term portion (over 1 year) 1,298,927 842,797 (605,866) ______
Zagrebaþki Holding d.o.o., Zagreb 50
F-51 51 Bills of exchange, debentures, City Bills of exchange, guarantee debentures, City Bills of exchange, guarantee City guarantee City guarantee Bills of exchange City guarantee Lien on movables City guarantee Bills of exchange, debentures, lien on vehicles 5,538 HRK'000 2005 2004 Security instrument Security 2005 2004 1,277 1,658 1,974 856,631 393,008 208,484 293,182 285,497 231,055 HRK'000 HRK'000 % % Annual Annual interest rate Due in 2006 Loan Loan amount amount HRK'000
Original currency currency ki Holding d.o.o., Zagreb þ
Bank
Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 29. OTHER NON-CURRENT LIABILITIES (continued) is provided below: An analysis of non-current borrowings 59,495 83,2197,354 83,921 4,018 17,766 83,20879,421 2,441 20,4151,333 48,203 86,554 82,863 2020 12,747 2007 50,870 2021 43,203 56,889 2007 6,964 KOMMUNALI 2020 9 50,135 Others EUR 6 2015 libor+2.4 Total ZET euribor+1.2 24,468 - EUR 7 euribor+2 13,473 ZABA DEM 48,433 ZABA EUR 85,000 122,740 HBOR DEM 84,327 85,000 ZABA EUR HBOR EUR 5 PBZ EUR Total VIO London 2017 Agreement USD 2010 169 6.6875 210 38,416 20,016 256 Zagreba 5,538 ZABA ZABA ZABA ZABA ZABA HBOR USD USD EUR EUR 2,762 EUR EUR 2,201 30,593 25,413 7 47,205 858,641 7 6 8 4 2010 4 2006 2007 2005 2008 2016 994 2,929 - 681,986 18,079 - 1,388 8,824 263,713 23,238 335 1,506 15,297 Bills of exchange 86,509 guarantee + City Bills of exchange 37,762 - debenture + City Bills of exchange Bills of exchange 607 Bills of exchange 9,883 Bills of exchange + debenture London Agreement USD 2006 6.6875 Paris Club - Total Grad. Plinara 80 GBP 96 7.5 2009 1,108 1,368 1,622 ZABA HRK 50,937 9 2009 24,941 35,06320,016 24,941 45,844 38,416 2009 2017 9 5 50,937 245,479 ZABA HRK ZABA EUR
F-52 52 Lien on movables Bills of exchange, mortgage Bills of exchange, debentures, insurance policies restr. with Motor hull insurance policy transferability restr. with Motor hull insurance policy transferability restr. with Motor hull insurance policy transferability
1,214 2,623 2,790 3,996 84,302 41,854 24,902 26,685 28,998 32,209 31,958 31,875 20,790 126,847 163,767 165,486 HRK'000 HRK'000 HRK'000 % % 3M- 3M- rate Due in 2006 2005 2004 instrument Security EURIBOR+3.5 2020 24,716 EURIBOR+3.5 2005 27,378 29,028 - Lien on property - 1,214 Annual interest Annual Loan amount HRK'000
Original currency currency ki Holding d.o.o., Zagreb
þ Bank
- - 2,441 1,555 - - 21,977 1,809 981 Notes to the group financial statements (continued) - For the years ended 31 December 2006, 2005 and 2004 17,481 17,022 2016 2010 20,000 419 4.59 3.55 1,217 2012 2007 24,621 4.85 2008 17,422 CROATIA BANKA PRIVREDNA BANKA EUR 20,000 ZABA EUR EUR CROATIA BANKA 2,812 PRIVREDNA 2,990 BANKA HRK 25,108 Total RTZ EUR PBZ EUR 6.5 PBZ EUR 14,939 RBA LEASING 3,874 2009 6.5 Total Vodoprivreda 1,323 1,858 EUR ESB EUR 14,690 2012 177 EUR HYPOLEASING 425 1,195 11 1,094 2006 249 EUR HYPOLEASING - 11 2007 15,109 - 19,877 7,000 210 459 EUR HYPOLEASING - Total Zg.parking 2011 1,510 24,902 guarantee Bills of exchange, debentures, City PBZ EUR Total V. Nazor - 2011 EBRD Total ZGOS - 987 Zagreba EUR 250,800 - 1.6 - 2010 126,847 163,767 165,486 Debenture, pledge ZABA EUR 4,890,000 5.12 2016 31,958 31,875 20,790 City guarantee City 20,790 31,875 31,958 2016 5.12 4,890,000 ZABA EUR Total Sljeme M. 29. OTHER NON-CURRENT LIABILITIES (continued)
F-53 53 Bills of exchange, debentures, lien on equipment Bill of exchange, debenture, ZET as codebtor City guarantee City 2005 2004 Security instrument Security 2005 2004
6 55 122 416 416 514 644 514 644 8,745 17,158 26,020 1,687 2,684 1,883 135,432 127,061 112,913 1,434,359 969,858 718,779 1,298,927 842,797 605,866 1,434,353 969,803 1,434,359 718.657 969,858 718,779 Annual Annual interest rate Due in 2006
Loan Loan amount amount HRK'000 % HRK'000 HRK'000 HRK'000 HRK'000 HRK'000 HRK'000 %
LIT 937 2 2008 Original currency currency
ki Holding d.o.o., Zagreb þ
Bank ZABA EUR 4,666 5.88 2008 1,366 2,286 3,329 City guarantee City guarantee 3,329 City 2,286 20,231 12,798 1,366 2008 5.88 4,666 1,580 5,635 2007 ZABA EUR 1,519 8 47,115 HYPO ALPE ADRIA EUR HYPO LEASING Commodity 1,513 credit EUR Total Zg.ceste EUR 1,440 8 2007 231 555 880 Bills of exchange, debentures ZABA EUR 3,026 7.4 2007 753 1,210 1,883 - 1,210 1,474 753 2007 7.4 934 2008 3,026 4.9 ZABA EUR 1,590 ZABA EUR Total Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 ARZ Total Nacion. Veletržnica Total Zg.veletržnica Total specified above Current portion Long-term portion Zagreba Others Others Total 29. OTHER NON-CURRENT LIABILITIES (continued)
F-54 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
29. OTHER NON-CURRENT LIABILITIES (continued)
Long-term liabilities to the State represent amounts payable in respect of sale of flats to employees under the state programme. Under the legal regulations effective during that period, 65 % of income from the sale of flats to employees was paid to the state upon receipt of the related funds. Under the law, the Group has no obligation to remit the funds before they are collected from the employees.
Trade payables represent payables under lease arrangements and municipal contributions due by 2010.
Other long-term liabilities comprise mainly amounts payable into the Central Government Budget in respect of the concession fee for public water supply and distribution network.
30. LIABILITIES FOR ISSUED SECURITIES
Liabilities for issued securities in the amount of HRK 20,929 thousand (2005: HRK 14,825 thousand; 2004: HRK 7,500 thousand) represent liabilities under issued own bills of exchange in favour of vendors.
31. BORROWINGS
2006 2005 2004 HRK'000 HRK'000 HRK'000
Borrowings 23,413 7,178 5,541 44,669 48,921 46,278 Short-term bank borrowings ______Total short-term borrowings 68,082 56,099 51,819 ______Current portion of long-term borrowings 135,432 127,061 112,913 ______203,514 183,160 164,732 ______
Zagrebaþki Holding d.o.o., Zagreb 54
F-55 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
31. BORROWINGS (continued)
Bank Original Loan Annual Due in 2006 2005 2004 currency amount interest rate HRK'000 in % HRK'000 HRK'000 HRK'000 CROATIA OSIGURANJE HRK 10,000 8 2006 10,000 10,000 10.000 CROATIA OSIGURANJE HRK 5,000 8 2006 3,000 3,000 3.000 ZABA EUR 17,000 4 2006 9,549 9,37516.688 ZABA EUR 9,588 6 REVOLVING - 9,588 - ZABA EUR 35,000 5 2007 14,679 - - RBA LEASING EUR 1,41 2010 2,039 - - HYPO LEASING EUR 1,607 2010 2,050 - - Total ZET 41,317 31,963 29.688
CITY OF ZAGREB 4,955 ESHNB 2007 5,150 5,050 - Total VIO 5,150 5,050 -
PBZ HRK 10,000 5.96 2006 - 10,000 - ZABA HRK 7,000 5.30-5.85 2006 6,916 1,029 - ZABA HRK 4,891 5.96 2005 - - 4,986 PBZ HRK 10,000 10,000 - - Total RTZ 16,916 11,029 4,986
ZABA EUR 605 7.16 2006 588 590614 ZABA EUR 1,190 7.09 2005 - - 614 ZABA EUR 221 7.75 2005 - - 230 ZABA EUR 1,484 8 2005 - - 767 ZABA EUR 369 7.75 2005 - - 384 ZABA EUR 2,709 7.09 2005 - - 1,380 ZABA EUR 368 5.88 2007 367 369 - ZABA EUR 368 5.68 2007 367 369 - ZABA EUR 1,465 4.88 2007 1,469 1,106 - ZABA EUR 364 5.11 2008 367 369 - ZABA EUR 366 5.11 2008 367 221 - AUTO HRVATSKA HRK 2,340 7 2007 937 1,600 - Total ARZ 4,462 5,514 3,989
CITY HRK 1,650 4 2006 - 1,651622 Total Zg.veletržnica -1,651622
Zagrebaþka banka EUR 3,507 6.46 2006 - 18 3,393 Croatia osiguranje HRK 9,000 8 2005 - - 3,600 Total Zrinjevac -186,993
City of Zagreb HRK 4,000 ESHNB 2005 - - 4,000 Other - 646609 Total Vodoprivreda - 646 4,609
Total borrowings 67,845 55,871 50,887 Other not specified above 237 228 932 a) Total 68,082 56,099 51,819 b) Current portion of long-term borrowings 135,432 127,061 112,913 Total (a+b) 203,514 183,160 164,732
Zagrebaþki Holding d.o.o., Zagreb 55
F-56 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
32. LIABILITIES FOR PREPAYMENTS, DEPOSITS AND GUARANTEES
Liabilities for prepayments in the amount of HRK 82,390 thousand (2005: HRK 78,728 thousand; 2004: HRK 109,606 thousand) relate to advances received from domestic suppliers.
33. TRADE PAYABLES
2006 2005 2004 HRK'000 HRK'000 HRK'000 Domestic trade payables 955,345 742,422 531,365 Foreign trade payables 17,639 8,790 14,774 1,519 1,850 1,814 Invoice accrual ______974,503 753,062 547,953 ______
34. OTHER CURRENT LIABILITIES
2006 2005 2004 HRK'000 HRK'000 HRK'000 Due to employees 89,521 71,600 66,843 Taxes and contributions on salaries 56,065 50,231 42,196 VAT payable 10,344 23,636 22,367 Other taxes payable 31,301 18,412 11,908 Liabilities for communal infrastructure 278,892 246,987 183,440 Other payables 143,117 75,369 115,001 4,065 2,565 565 Liabilities in respect of profit share ______613,305 488,800 442,320 ______
Other current liabilities represented in balance sheet as of 31 December 2006 comprise the following:
HRK 42,723 thousand due to Hrvatske vode;
HRK 57,012 thousand due to Zagrebaþke otpadne vode;
HRK 14,094 thousand due to the City and local government;
HRK 25,485 thousand in respect of interest on borrowings;
HRK 3,803 thousand of other liabilities.
Zagrebaþki Holding d.o.o., Zagreb 56
F-57 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
35. ACCRUED EXPENSES AND DEFERRED INCOME
2006 2005 2004 HRK'000 HRK'000 HRK'000
Deferred income 4,145,493 3,494,214 3,060,981 77,747 37,183 36,590 Accrued expenses ______4,223,240 3,531,397 3,097,571 ______
Zagrebaþki Holding d.o.o., Zagreb 57
F-58 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
36. RELATED PARTY TRANSACTIONS
Parties are considered as related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. The City of Zagreb, being the sole owner of the Group, has the ability to control the operations of the Group companies.
Receivables and payables and income and expenses from related party transactions are provided in the table below: 2006 2005 2004 HRK'000 HRK'000 HRK'000 Receivables Receivables from the ultimate shareholder 1,113,516 576,091 267,045
Payables Amounts due to the ultimate shareholder 312,178 146,947 107,289
Income Income from transactions with the ultimate shareholder 1,355,137 1,281,429 1,124,759
Expenses Expenses from transactions with the ultimate shareholder 6,844 25,229 31,980
The operations and financial results of the Group are significantly influenced by its ultimate shareholder, the City of Zagreb, which, inter alia, determines the parameters and forming of sales prices for communal services.
Within receivables from the owner included are receivables from ZET from City of Zagreb in amount of HRK 814 thousand as of 31 December 2006 for overtaken loan liability from which is financed purchase of equipment (trams and other equipment) – see note 23. Receivables from state and other institutions. Other related parties of the Group, in addition to the City of Zagreb, are the Management Board and members of the Supervisory Board. In 2006, total compensation paid to the members of the Management Board (for the Group companies) and Supervisory Board (each Group company had five Supervisory Board Members on average) amounted to HRK 16,950 thousand (2005: HRK 15,984 thousand; 2004: HRK 15,243 thousand).
Compensations paid to all Management Board members and division managers (management and cabinet): 2006 2005 2004 HRK'000 HRK'000 HRK'000
Short-term employee benefits 9,090 7,743 7,334 ______
9,090 7,743 7,334 ______Members of key management have signed the Statement of Independence, confirming that neither they nor their close family members have any equity interests in any of the companies.
Zagrebaþki Holding d.o.o., Zagreb 58
F-59 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
37. EMPLOYEE BENEFITS
Provisions for retirement bonuses and jubilee awards as of 31 December 2006 amounted to HRK 46,651 thousand (2005: HRK 41,888 thousand and 2004: HRK 37,125 thousand).
Jubilee awards and retirement bonuses Defined benefit plan According to the Collective Agreement the Group has obligation to pay jubilee awards, retirement and other benefits to employees. The Group operates defined benefit schemes for qualifying employees. Under the schemes, the employees are entitled to retirement benefits of a fixed amount of HRK 8,000 upon retirement. No other post-retirement benefits are provided. Jubilee awards are paid out according to the following fixed amounts and anniversary dates:
HRK 1,500 for 10 years of service HRK 2,000 for 15 years of service HRK 2,500 for 20 years of service HRK 3,000 for 25 years of service HRK 3,500 for 30 years of service HRK 4,000 for 35 years of service HRK 5,000 for 40 years of service
The actuarial valuations of the present value of the defined benefit obligation were carried out at 31 December 2006 by actuaries of the company Sanjkoviü.
The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected credit unit method.
Key assumptions: 2006
Discount rate 6.75 Fluctuation rate 4.00 Mortality table 3.90 Average expected remaining working lives (years) 20
Zagrebaþki Holding d.o.o., Zagreb 59
F-60 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
38. SEGMENTAL INFORMATION
Revenue analysis per business segments:
2006 2005 2004 HRK'000 HRK'000 HRK'000 Revenue from sales and distribution of gas 766,397 795,618 736,689 Revenue from collecting, filtering and water distribution 371,702 294,612 309,931 Revenue from transportation of passengers in city proper and surroundings 308,286 307,974 306,438 Revenue from public area cleaning services 326,839 298,194 287,085 Revenue from road management, maintenance and 392,371 390,825 359,701 protection Revenue from drugstore activities 302,145 288,816 282,343 Revenue from parking and other auxiliary activities 138,696 54,530 51,114 Revenue from storage of goods and lease 109,387 104,290 102,229 Revenue from waste collection and removal 20,385 29,002 108,514 Other 762,428 636,125 505,552 ______
3,498,636 3,199,986 3,049,596 ______
Revenue analysis per geographical area:
2006 2005 2004 HRK'000 HRK'000 HRK'000 Within Republic of Croatia 3,484,533 3,184,053 3,033,595 Within European Union 14,103 15,933 16,001 ______
3,498,636 3,199,986 3,049,596 ______
Zagrebaþki Holding d.o.o., Zagreb 60
F-61 6 77 (9,321) 190,442 181,121 61
Waste Waste collection Other Elimination Total activities activities services and lease and removal Road maintenance management Drugstore management Drugstore Parking Storage
of gas of water transportation services and (724,880) (322,458) (262,813) (278,995) (355,393) (266,836) (46,257) (2,874,119) (89,045) (79,597) (618,086) 170,241 Distribution Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Business result per business segments: Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Zagreba (HRK ‘000) (HRK Income form sales to third parties Inter-segment sales sales from income Total 736,689 309,931 306,438 743,082 6,393 319,195 287,350 9,264 359,701 311,670 282,343 292,424 5,232 51,114 384,063 5,074 102,229 282,368 51,817 24,362 11,642 102,243 602,159 25 108,514 - 626,314 703 3,049,59 (172,094) 3,049,596 14 96,872 24,155 (172,094) - Net financial result result taxation 14,965 financial Other business expense, net other income from core business before tax Result income from operating activities Profit/(loss) Net Profit Income 18,202 Net (3,263) (48,857) 13,429 28,670 15,532 5,560 13,198 28,917 8,228 (1,853) 175,4 31.12.2004.
F-62 6 7 70,160 61,541 (8,619) 62
Waste Waste collection Other Elimination Total activities activities services and lease and removal Road maintenance management Drugstore management Drugstore Parking Storage
of gas of water transportation services and (786,681) (304,770) (297,073) (332,959) (412,069) (299,598) (3,162,369) (51,451) (106,918) (79,828) (673,660) 182,638 Distribution Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Business result per business segments (continued): Zagreba Income form sales to third parties Inter-segment sales sales from income Total 795,618 294,612 802,640 307,974 7,022 304,827 298,194 10,215 390,825 313,104 288,816 304,992 5,130 54,530 418,914 6,798 104,290 288,859 28,089 55,310 29,002 104,290 636,125 43 129,798 780 - 662,897 3,199,98 (185,645) 3,199,986 100,796 26,772 (185,645) - (HRK ‘000) (HRK 31.12.2005. Other business expense, net other income from core business Result from operating activities Profit/(loss) financial result Net before taxation Profit Income tax 15,959 Net income 57 16,031 (27,967) 6,845 (10,739) 3,859 (2,628) 49,970 (10,763) (3,007) 37,61 32,543
F-63 08,016) - (208,016) 3,498,636 63
2,677 (33,564) (5,335) 96,900 20,385 762,428 - 3,498,636 Waste Waste collection Other Elimination Total activities activities services and lease and removal Road Road maintenance management Drugstore management Drugstore Parking Storage -
of gas of water transportation services and (760,672) (354,913) (327,410) (284,582) (419,022) (294,505) (103,575) (98,440) (129,690) (831,608) 202,681 (3,401,736) Distribution Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Business result per business segments (continued): Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Zagreba Inter-segment sales 7,375 9,735 4,940 7,051 27,150 - 1,133 3,034 111,982 35,616 (2 (HRK ‘000) (HRK Income form sales to third parties 766,397 371,702 308,286 326,839 392,371 302,145 138,696 109,387 31.12.2006. sales from income Total net expense, business Other business core from income other Result income from operating activities Profit/(loss) 773,772 Net financial result 381,437 before taxation Profit 313,226 Income tax 13,100 Net 26,524 333,890 82,478 (14,184) 419,521 49,308 302,145 139,829 112,421 499 7,640 132,367 36,254 798,044 13,981 3,493 100,393 (17,915)
F-64 4,751 0,649,932 12,685,465 12,685,465 64
,590,077 (3,752) 12,137,512 ,590,077 (3,752) 50,605 - 178,817 187,272 (3,752) 995,500 62,810 (36,374) 547,953 292 87,876 - 939,764 45 58,465 - 77,584 12,844 64,823 (36,374) 783,632 6 47,361 - 54,987 Waste Waste collection Other Elimination Total 17,839 2,896 50,817 - 346,231 4,681 45,834 1,889,160 133,238 2,291,722 1 activities activities services and lease and removal ,104 4,427 4,080 58,205 98, 52,499 10,015 1,828 4,986 17,379 64,166 28,517 5,281 7,499 100,844 Road maintenance management Drugstore Parking Storage 34 81,979 13,031 19,145 1,361 4,455
of gas of water transportation services and 1,477,125 3,928,343 1,888,485 168,885 239,232 158,466 56,991 1,907,233 247,944 2,652,887 (40,126) 1,477,125 3,928,343 1,888,485 168,885 239,232 158,466 56,991 1,907,233 247,944 2,652,887 (40,126) 207,361 364,066 68,374 34,799 15,231 7,375 5,801 58,209 98,298 135,237 - 99 Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Balance sheet per business segments: Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Zagreba Tangible assets 206,845 362,143 68,159 34,633 15 Intangible assets 516 1,923 215 166 127 2,948 1,721 4 Trade payables liabilities and equity Total 31.12.2004 Other segment information Capital expenditure 106,506 225,522 89,298 13,484 Equity and other liabilities and other liabilities Equity 1,370,619 3,702,821 1,799,187 155,401 186,733 148,451 55,163 1,902,247 230,565 2 Total Assets Total Assets Assets and liabilities 31.12.2004 Assets Tangible assets Intangible assets Inventory net Trade receivables, Other assets 1,096,306 579 3,620,143 8,141 215,377 235,803 1,413 7,977 1,426,898 23,972 31,492 83,940 300 156,886 49,321 46,850 40,284 58,010 8,653 381,832 92,115 86 106,628 5,437 Depreciation and impairment of assets 26,671 24,855 2,055 13,203 2,936 66,774 9,548 182 87,9 885 844 973
F-65 4 13,674,543 ) 11,247,321 42) 13.674.543 65
4,271,120 (4,098,078) 1,269,841 43,039 - 165,861 47,908 (57,455) 753,062 5 56,226 - 936,934 5 56,226 - 34 50,518 - 71,647 9 41,826 - 49,620 23,051 17,706 - 920,705 253.100 6.666.869 (4.042.287) 12.921.481 Waste Waste collection Other Elimination Total 18,806 26,892 52,250 - 389,279 5 55.095 1.978.915 257.446 6.714.777 (4.099.7 677 2,933 107,178 4,954 98,052 - 986,55 4,165 43,954 1,962,436 111,218 2,332,394 (832 637 2,515 106,531 4,94 25,192 2,247 9,288 4,346 activities activities services and lease and removal 14,686 525 872 973 10 40,046 5,352 5,384 122,170 Road maintenance management Drugstore Parking Storage 19 146,037 104,036 2,760 9,197 91 81,979 12,595 15,736 1,739 5,015
of gas of water transportation services and 1,601,769 4,263,769 2,303,698 161,389 269,602 167,825 55,095 1,978,915 257,446 6,714,777 (4,098,910) 1.601.769 4.263.769 2.303.698 161.389 269.602 167.82 172,190 376,181 199,618 14,851 9,920 Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Balance sheet per business segments (continued): Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Zagreba Intangible assets 797 2,846 2,237 - 800 40 418 647 Tangible assets 171,393 373,335 197,381 14,851 9,120 Depreciation and impairment of assets Depreciation and impairment of assets 87,576 86,6 Assets and liabilities 31.12.2005 Assets Tangible assets Intangible assets Inventory net Trade receivables, 1,179,519 1,066 3,909,496 268,766 7,079 264,650 8,124 3,164 1,554,786 37,183 24,033 85,640 786 47,3 44,023 64,545 8,454 578 4,892 21,132 2,504 1,026 Other assets 144,294 58,511 664,542 19,190 37,3 Total Assets Total Assets Trade payables and other liabilities Equity 1.482.671 119,098 3.901.759 362,010 2.162.997 140,701 134.453 26,936 196.811 142.633 72,791 52.848 1.969.627 Total equity and liabilities liabilities and equity Total 31.12.2005 Other segment information Capital expenditure
F-66 18,565 59,334 ,460,784 1,135,877 239,151) 14,584,831 (4,239,151) 15,559,334 66
66,467 416,372 - Waste Waste collection Other Elimination Total activities activities services and lease and removal 0 8,152 33,968 107,013 6,103 403,813 - 1,704,632 54 125 1,371 4,461 18 11,660 - Road Road maintenance management Drugstore Parking Storage 666 61,984 38,186 18,009 108,289 165,092 4,231,823 (4,245,094) 1,728,236 610 130,819 25,192 14,662 16,548 10,437 91,996 - 974,503 ,838 24,457 20,042 550 941 974 39,716 - 172,250 744 942 465 3,850 2,862 5,202 35 40,426 - 62,187 45,559 63,505 216,378 128,079 18,134 12,770 6,811 105,562 - 81,979 16,129 13,385 2,442 5,649 12,464 33,580
216,938 335,249 577,529 10,973 5,824 8,277 35,339 111,474 6,121 415,473 - 1,723,197 of gas of water transportation services and Distribution Distribution Distribution Passenger Cleaning ki Holding d.o.o., Zagreb þ 38. SEGMENTAL INFORMATION (continued) Balance sheet per business segments (continued): Notes to the group financial statements (continued) For the years ended 31 December 2006, 2005 and 2004 Zagreba Tangible assets 216,620 335,249 577,421 10,523 5,77 Intangible assets 318 - 108 450 31.12.2006 Other segment information Capital expenditure Total Assets Total Assets 1,739,719 4,524,498 3,260,380 224,693 346,901 201,195 113,774 1,163,956 261,509 7,961,860 (4,239,151) 15,5 Total equity and liabilities Total equity 1,739,719 4,524,498 3,260,380 224,693 346,901 201,195 113,774 1,163,956 261,509 7,961,860 Other assets 173,949 61,811 1,048,521 65, Equity and other liabilities Equity 1,612,968 4,131,612 3,104,778 215,083 216,082 176,003 99,112 1,147,408 251,072 7,869,864 (4, Trade receivables, net Trade receivables, Trade payables 254,205 284,874 126,751 392,886 155,602 9, Inventory Inventory 7,977 24,680 42,075 10 Intangible assets 1,063 4,598 2, Assets and liabilities 31.12.2006 Assets Tangible assets 1,302,525 4,148,535 2,121,481 83,742 43,617 11,038 Depreciation and impairment of assets 74,219 1,036,754 88,597 92,026 3,544,333 92,251 5,943 12
F-67 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
38. SEGMENTAL INFORMATION (continued)
Asset analysis per geographical segment:
Republic of European Assets 31 December 2004 Croatia union Total Tangible assets 10.649.932 - 10.649.932 Intangible assets 77.584 - 77.584 Inventory 178.817 - 178.817 Trade receivables 777.719 5.913 783.632
Other assets 995.500 - 995.500 ______Total assets 12.679.552 5.913 12.685.465 ______
Republic of European Assets 31 December 2005 Croatia union Total
Tangible assets 11.247.321 - 11.247.321 Intangible assets 71.647 - 71.647 Inventory 165.861 - 165.861 Trade receivables 914.625 6.080 920.705
Other assets 1.269.009 - 1.269.009 ______Total assets 13.668.463 6.080 13.674.543 ______
Republic of European Assets 31 December 2006 Croatia union Total
Tangible assets 12,460,784 - 12,460,784 Intangible assets 62,187 - 62,187 Inventory 172,250 - 172,250 Trade receivables 1,130,760 5,117 1,135,877
Other assets 1,728,236 - 1,728,236 ______Total assets 15,554,217 5,117 15,559,334 ______
Zagrebaþki Holding d.o.o., Zagreb 67
F-68 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
39. LEGAL AND REGULATORY ENVIRONMENT a) Deregulation of the gas market
In July 2001, a reform of the Croatian energy system was launched which included the restructuring of energy entities and the creation of a new legal and institutional framework, defining the market rules, public services and segregation of energy activities into the public and private sectors. Based on the established concept, the Croatian Parliament promulgated the Energy Law (NN 68/01, NN 177/04), the Market Gas Law (NN 68/01, NN 87/05) and the Law on Regulation of Energy Activities (NN 68/01, 109/01, 177/04), along with several other acts from the energy sector. The 2006 National Programme of Accession of the Republic of Croatia to European Union foresees the adoption of a new gas market law, as a final stage of the the reconciliation of the Croatian legal framework for energy activities with the acquis communitaire, pending its adoption by the Croatian Parliament.
Gradska plinara d.o.o., a subsidiary of Zagrebaþki holding d.o.o. which is engaged in gas activities, will be subject to all provisions of the Energy Law and the Gas Market Law. As the only gas distributor in Croatia, it will have to split its core activity - gas distribution from other non-core activities. The obligation to develop a tariff system for natural gas supply has been specified by the Energy Law, except for eligible buyers, as well as a tariff system for natural gas distribution. The preparation of the both systems is in progress, and the first drafts have been presented for consideration. They are expected to be finalised and adopted by the end of 2007, with their application scheduled for 1 January 2008. The adoption of new energy laws and all related regulations during 2007 would fully regulate gas trade, with the aim to commercialise the energy infrastructure, i.e. its exploitation, and to establish a gas market on which equal market rules will prevail.
Gradska plinara d.o.o. is classified as a large buyer of natural gas, at prices that are preferential versus the market prices. changes in preferential pricing could have a significant impact on the performance of the Group. b) Water Treatment
During 2004, waste water treatment service was introduced, performed by Zagrebaþke otpadne vode d.o.o. (ZOV - concessionaire), for a concession period of 28 years and pursuant to the memorandum on concession for communal waste water treatment services in the territory of Zagreb. It has been agreed that the concessionaire issues invoices for treated water to the beneficiary Vodoopskrba i odvodnja (a Group branch), previously verified by the City of Zagreb, with the beneficiary recharging the waste water treatment services to end consumers for the account of the concessionaire. The issue of billing and settling the difference between the treated water and the quantity delivered to end consumers, which is the basis for collection of water treatment service fee, has not been fully regulated, which affects the presented liabilities to the concessionaire and the liquidity of the Company. The Management board is in the process of measuring the effects of mentioned issue on Group financial statements.
Zagrebaþki Holding d.o.o., Zagreb 68
F-69 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
39. LEGAL AND REGULATORY ENVIRONMENT (continued) c) Legal framework
The operations of the Group, including pricing of services are subject to the several laws, the most relevant being:
Communal Activities Act;
Local Self-Government Act
Waste Act
Gas Market Act
Energy Law
Act on Institutions
Act on Waters
Act on Cemeteries
Building Maintenance Act
Free Zones Act.
Any changes in the prices of communal services are subject to prior approval by the ultimate owner of the Group – the City of Zagreb. This fact has a significant influence on the profitability and liquidity of the Group.
Zagrebaþki Holding d.o.o., Zagreb 69
F-70 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
40. FINANCIAL INSTRUMENTS
During the period, the Group used most of its financial instruments to finance its operations. Financial instruments include loans, bills of exchange, cash and liquid assets, and other various instruments, such as trade receivables and trade payables, arising directly from the ordinary activities.
Market risk The Group operates in the Croatian markets, The City of Zagreb (for communal services) and The Management Board (for market activities) determine the prices of its services by reference to the market prices.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in exchange rates, The Group's major exposures relate to long-term borrowings denominated in foreign currencies and translated to Croatian kunas at the rates of exchange effective on the balance sheet date, Gains and losses resulting from translation are credited and charged to the income statement but do not affect the cash flows, In 2006, total translation losses exceeded translation gains by HRK 5,537 thousand, whereas exchange differences exceeded translation gains in 2005 by approximately 14,368 thousand, compared to 2004 when translation losses exceeded translation gains by HRK 3,565 thousand.
Interest rate risk
Interest rate cash flow risk is the risk that the interest cost of an instrument will fluctuate over time, The Group has no significant long-term borrowings at variable rates that would expose it to the cash flow risk (details of interest rates on the Group's borrowings are provided in Notes 29 and 31).
Liquidity risk
The management uses a combination of short-term and long-term loans to maintain permanent liquidity, including significant lending arrangements. Where necessary, short-term flexibility is achieved using short-term borrowings.
Credit risk
Financial assets that potentially expose the Group to credit risk consist mainly of cash, loans and trade receivables, Trade receivables have been adjusted for the allowance for bad and doubtful accounts, The Group's cash is held with respectable commercial banks (Zagrebaþka banka, Privredna banka Zagreb, Erste & Steiermaerkische Bank, etc,). The Group has no other significant concentrations of credit risk.
Zagrebaþki Holding d.o.o., Zagreb 70
F-71 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
41. COMITMENTS
The Group has contracts that are concluded but are still in progress. Costs to be incurred under those contracts have been estimated at HRK 393,982 thousand (2005: HRK 92,278 thousand; 2004: HRK 54,757 thousand), whereas the estimated value of investments amounts to HRK 522,987 thousand (2005: HRK 917,329 thousand; 2004: HRK 1,151,510 thousand).
42. CONTINGENT LIABILITIES
Environmental protection Included in the Group is the company ZGOS d.o.o., whose principal business is communal and other waste disposal and the rehabilitation of the Jakuševac Landfill, as well as to assist the City in establishing a long-term communcal waste management development strategy for the City of Zagreb. The effects of the activities are monitored by local authorities and state bodies in charge of environmental protection. In respect of future costs of maintenance and supervision of the landfill the Group (i.e. ZGOS) recorded a provision of HRK 35,165 thousand, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Taxes The Group companies are subject to corporate income tax in respect of profits earned in Croatia and abroad. Certain Group companies were subject to a review by the tax authorities in respect of corporate income tax for the year 2006 and VAT for the year 2006. The management of the Group is not aware of any circumstances that could give rise to any significant liabilities in this respect.
Restructuring The Executive Board is of the opinion that the restructuring of the Group is very likely to continue in the future periods. Therefore, a restructuring provision has been included in the balance sheet in the amount of HRK 49,471 thousand.
Concession rights Water supply company Vodoopskrba i odvodnja d.o.o. (member of the Group) is paying concession fee for water supply in amount of HRK 0.077 per 1 m3 sold.
43. RETIREMENT BENEFITS
The Group has no defined post-retirement benefit plans for its employees or management in Croatia or abroad, Accordingly, no provision for these costs has been included.
Legal pension insurance contributions are paid on behalf of the Group's employees in the Republic of Croatia. They represent the basis for pensions paid by the Croatian Pension Fund to Croatian employees after their retirement, At present, the Group has no outstanding liabilities for pensions, either for its present or former employees.
Zagrebaþki Holding d.o.o., Zagreb 71
F-72 Notes to the group financial statements (continued) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
44. APPROVAL OF FINANCIAL STATEMENTS
The financial statements on pages from 1 to 70 were approved by the board of directors and authorised for issue on 23 March 2007.
Slobodan Ljubiþiü Dragan Kovaþeviü
President of the Management Bord Chief Financial Officer
Zagrebaþki Holding d.o.o., Zagreb 72
F-73 Appendix 1 Consolidated Income Statements of Zagrebaþki Holding d.o.o., Zagreb, converted to Euros (unaudited) For the years ended 31 December 2006, 31 December 2005 and 31 December 2004
20062005 2004 EUR'000 EUR'000 EUR'000 OPERATING INCOME Sales 477,770 432,428 406,847 144,552 131,350 123,682 Other operating income ______622,322 563,778 530,529 ______
OPERATING EXPENSES Cost of material and services (257,275) (250,780) (228,968) Staff costs (228,046) (207,500) (191,737) Depreciation and amortisation (56,859) (52,605) (46,191) Value adjustments of current assets (15,292) (8,738) (8,089) Provisions for risks and charges (10,405) (4,239) (1,944) (41,212) (34,832) (30,191) Other operating expenses ______(609,089) (558,695) (507,120) ______
FINANCIAL INCOME 17,115 14,821 11,774 FINANCIAL EXPENSES (16,638) (10,423) (9,778)
______TOTAL INCOME 639,437 578,599 542,303 ______
______TOTAL EXPENSES (625,727) (569,118) (516,898) ______
PROFIT BEFORE TAXATION 13,710 9,481 25,405 (2,447) (1,165) (1,243) Income tax expense ______NET PROFIT FOR THE YEAR 11,263 8,316 24,163 ______
Average annual exchange rate for 1 EURO HRK 7.322849 HRK 7.400047 HRK 7.495680 ______
The unaudited EURO basis consolidated Income statements were prepared for additional information using the average annual EURO exchange rate applied to the primary Croatian kuna consolidated income statements.
Zagrebaþki Holding d.o.o., Zagreb 73
F-74 Appendix 2 Consolidated Balance Sheets of Zagrebaþki Holding d.o.o., Zagreb, converted to Euros (unaudited) As at ended 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004 ASSETS EUR'000 EUR'000 EUR'000
NON-CURRENT ASSETS Intangible assets 8,466 9,714 10,114 Tangible assets 1,696,480 1,524,931 1,388,295 Prepayments for tangible assets 10,817 29,730 15,746 Investment property 116 - - Assets available for sale 14,133 - - Financial assets at fair value through profit or loss 4,074 2,977 4,609 Loans and receivables 10,053 10,134 11,979 ______1,744,139 1,577,486 1,430,743 ______
CURRENT ASSETS Inventories 23,451 22,488 23,310 Trade receivables 154,645 124,831 102,152 Receivables from the state and other institutions 115,935 58,954 30,191 Other receivables 1,783 1,979 1,608 Financial assets 22,424 18,997 10,087 Prepaid expenses and accrued income 15,320 3,732 2,721 40,637 45,552 52,828 Cash with banks and in hand ______374,195 276,533 222,897 ______
______TOTAL ASSETS 2,118,334 1,854,019 1,653,640 ______
Year end exchange rate for 1 EURO HRK 7.345081 HRK 7.375626 HRK 7.671234 ______
Zagrebaþki Holding d.o.o., Zagreb 74
F-75 Appendix 2 Consolidated Balance Sheets of Zagrebaþki Holding d.o.o., Zagreb, converted to Euros (unaudited) (continued) As at 31 December 2006, 31 December 2005 and 31 December 2004
2006 2005 2004 EQUITY AND LIABILITIES EUR'000 EUR'000 EUR'000
CAPITAL AND RESERVES Subscribed capital 584,470 555,657 534,457 Reserves 352,385 348,671 337,955 44,143 34,458 24,277 Retained earnings ______980,998 938,786 896,689 ______
Long-term provisions for risks and charges 31,904 23,374 19,072 Deferred tax liability 85,834 85,813 82,948 Non-current liabilities 186,676 121,361 85,313 ______NON-CURRENT LIABILITIES AND 187,333 PROVISIONS ______304,414 ______230,548 ______
CURRENT LIABILITIES Liabilities for issued securities 2,849 2,010 978 27,708 24,833 21,474 Borrowings Liabilities for prepayments, deposits and guarantees 11,217 10,674 14,288 Trade payables 132,674 102,101 71,430 Other short-term liabilities 83,499 66,274 57,658 Accrued expenses and deferred income 574,975 478,793 403,790 ______832,922 684,685 569,618 ______TOTAL EQUITY AND LIABILITIES 2,118,334 1,854,019 1,653,640 ______
Year end exchange rate for 1 EURO HRK 7.345081 HRK 7.375626 HRK 7.671234 ______
The unaudited EURO basis consolidated Balance sheets were prepared for additional information using the year end EURO exchange rate applied to the primary Croatian kuna consolidated balance sheet.
Zagrebaþki Holding d.o.o., Zagreb 75
F-76 CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER AS AT AND FOR THE THREE MONTHS ENDED 31 MARCH 2007
Set out below are the unaudited consolidated financial statements of the Issuer as at and for the three months ended 31 March 2007.
Consolidated Income Statement of the Group (Unaudited)
1111111111Consolidated 1121131.03.07 11211 31.03.06 HRK 000 HRK 000 OPERATING INCOME Sales- Republic of Croatia ...... 838,326 866,235 Sales - European Union ...... 2,882 2,878 Income from subsidies ...... 189,401 156,720 Income from consumption of own products and services ...... 7,953 4,168 Other income ...... 11211 63,487 11211 50,688 1,102,049 1,080,689 aaaas11211 aaaas11211 OPERATING EXPENSES Decrease of inventories ...... (1,499) 455 Cost of material and services ...... 490,440 532,515 Staff costs ...... 367,704 361,874 Depreciation and amortisation ...... 120,084 112,602 Value adjustments of current and non-current assets ...... 9,443 360 Provisions for risk and charges ...... 0 482 Other operating expenses ...... 11211 66,495 11211 55,571 1,052,667 1,063,859 aaaas11211 aaaas11211 FINANCIAL INCOME Financial income ...... 23,939 16,847 00 00 1121100 11211 23,939 16,847 aaaas11211 aaaas11211 FINANCIAL EXPENSES Financial expenses...... 37,621 14,711 00 00 00 1121137,621 11211 14,711 TOTAL INCOME ...... 112111,125,988 11211 1,097,536 TOTAL EXPENSES ...... 112111,090,288 112111,078,570 Profit before taxation ...... 11211 35,700 11211 18,966 Income tax expense...... 11211 (7,140) 11211 (4,479) Net profit for the year/period ...... 28,560 14,487 aaaas11211 aaaas11211
F-77 1121131.03.2007 1121131.03.2006 1121131.03.2007 1121131.03.2006 HRK 000 HRK 000 EUR 000* EUR 000** OPERATING INCOME Sales ...... 841,208 869,113 113,946 118,673 Other operating income ...... 11211 260,841 11211 211,576 11211 35,333 11211 28,890 112111,102,049 11211 1,080,689 11211 149,279 11211 147,563 OPERATING EXPENSES Cost of material and services ...... (488,941) (532,970) (66,230) (72,775) Staff costs ...... (367,704) (361,874) (49,808) (49,412) Depreciation and amortisation ...... (120,084) (112,602) (16,266) (15,375) Value adjustments of current and non-current assets (9,443) (360) (1,279) (49) Provisions for risk and charges ...... 0 (482) 0 (66) Other operating expenses...... 11211 (66,495) 11211 (55,571) 11211 (9,007) 11211 (7,588) 11211(1,052,667) 11211 (1,063,859) 11211 (142,590) 11211 (145,265) FINANCIAL INCOME ...... 1121123,939 11211 16,847 11211 3,243 11211 2,300 FINANCIAL EXPENSES ...... 11211(37,621) 11211 (14,711) 11211 (5,096) 11211 (2,009) TOTAL INCOME ...... 112111,125,988 11211 1,097,536 11211 152,522 11211 149,864 TOTAL EXPENSES ...... (1,090,288) (1,078,570) (147,686) (147,274) aaaas11211 aaaas11211 aaaas11211 aaaas11211 Profit before taxation...... 35,700 18,966 4,836 2,590 Income tax expense ...... (7,140) (4,479) (967) (612) Net profit for the year/period...... 28,560 14,487 3,869 1,978 aaaas11211 aaaas11211 aaaas11211 aaaas11211
* Figures converted into euro at €1 = HRK 7.3825 ** Figures converted into euro at €1 = HRK 7.3236
F-78 Consolidated Balance Sheet of the Group (Unaudited)
1121131.03.2007 1121131.03.2007 HRK 000 EUR 000* NON-CURRENT ASSETS Intangible assets ...... 67,561 9,152 Tangible assets...... 12,709,190 1,721,537 Prepayments for tangible assets ...... 39,558 5,358 Financial assets ...... 98,242 13,307 Loans and receivables ...... 11211 46,969 11211 6,363 Total non-current assets ...... 12,961,520 1,755,717 aaaas11211 aaaas11211 CURRENT ASSETS Inventories ...... 232,946 31,554 Receivables...... 2,116,237 286,657 Trade receivables ...... 1,089,346 147,559 Receivables from the employees...... 3,797 514 Receivables from the state and other institutions ...... 990,228 134,132 Other receivables ...... 32,866 4,452 Financial assets ...... 64,744 8,770 Cash and cash equivalents ...... 11211 444,262 11211 60,178 Total current assets ...... 2,858,189 387,159 qqqqw11211 qqqqw11211 PREPAID EXPENSES AND ACCRUED INCOME ...... 11211242,806 11211 32,890 TOTAL ASSETS ...... 16,062,515 2,175,766 qqqqw11211 qqqqw11211
EQUITY Subscribed capital ...... 4,292,968 581,509 Revaluation reserves ...... 2,600,363 352,235 Retained earnings ...... 371,359 50,303 Net profit for the year/period ...... 11211 28,560 11211 3,869 Total equity ...... 7,293,250 987,916 aaasss11211 aaasss11211 LONG TERM PROVISIONS ...... 223,378 30,258 OTHER NON-CURRENT LIABILITIES...... 1,779,155 240,997 DEFERRED TAX LIABILITY ...... 630,455 85,399 CURRENT LIABILITIES ...... 1,777,889 240,826 Borrowings ...... 157,420 21,323 Liabilities for prepayments, deposits and guarantees ...... 126,312 17,110 Trade payables ...... 754,246 102,167 Due to employees ...... 63,008 8,535 Tax and contributions ...... 164,147 22,235 Liabilities in respect of profit share ...... 4,961 672 Other current liabilities ...... 507,795 68,784 ...... 011211 11211 ACCRUED EXPENSES AND DEFERRED INCOME ...... 112114,358,388 11211 590,370 TOTAL EQUITY AND LIABILITIES ...... 16,062,515 2,175,766 aaaas11211 aaaas11211
* Figures converted into euro at €1 = HRK 7.3826
F-79 THE ISSUER Zagrebački Holding d.o.o. Av. Dubrovnik 15/V Zagreb Republic of Croatia
TRUSTEE Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom
PRINCIPAL PAYING AGENT Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom
OTHER PAYING AGENT AND LISTING AGENT Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg Grand Duchy of Luxembourg
LEGAL ADVISERS To the Issuer as to Croatian law as to English law Rubesa Bilobrk Clifford Chance Limited Liability Partnership Kralja Zvonimira 63 10 Upper Bank Street 10000 Zagreb London E14 5JJ Republic of Croatia United Kingdom
To the Managers and the Trustee as to English law Allen & Overy LLP One Bishops Square London E1 6AO United Kingdom
AUDITORS TO THE ISSUER Deloitte d.o.o. Heinzelova 33 10 000 Zagreb Republic of Croatia printed by eprintfinancial.com tel: + 44 (0) 20 7613 1800 document number 3764