Integrated Company Annual Report and Corporate Social Responsibility

Integrated Company annual report and Corporate SoCIal reSponSIbIlIty 2015 Integrated Company annual report and Corporate SoCIal reSponSIbIlIty 2015 2 foreword foreword 3

Message from the Chairman

It is with great pleasure that I present result we were able to pay out and and campsites, but also, and equally the successful implementation of herein the first Valamar riviera commit to a sustainable dividend for important, in the training and our strategy is of course subject Integrated Company Annual our shareholders. development of our management to many factors beyond our Report and Corporate Social and employees. We are convinced control: only a stable and investor Responsibility 2015 . driven by last year has also been a year of that only satisfied employees can friendly environment will allow us Valamar riviera’s firm commitment change in management. We have provide the quality of service that to invest as planned, and thus to transparency and open appointed a new Ceo who is the makes for a great hospitality support employment and growth communication, the main aim of right choice for successfully leading experience. ultimately, in our not only for Valamar riviera, but this report is to present a and growing our company. the industry, the quality of service is the for the tourism sector and the comprehensive, strategic and management board has introduced best guarantee that our investments economy in general. as long-term view of the Company to a new corporate structure, which will will have strong returns and representative of the largest all relevant stakeholders, including further improve our efficiency and contribute to the bottom line. shareholder and Chairman of the our shareholders, employees, put greater authority on the Supervisory board I can only Gustav partners, guests, and the community management levels below the the presently favorable market pledge my commitment and Wurmböck, at large. management board. I would like to conditions and low financing costs support to the strategy of Valamar chairman take this opportunity to thank our together with our strong balance riviera as the right path to the year 2015 was a very successful long-term management board sheet and moderate debt level creating superb guest year of change and growth for leaders edi Černjul and niko Koncul present a very solid springboard for experiences, high employee Valamar riviera. It was the first year for building the foundation that Valamar’s growth strategy and allow satisfaction and great shareholder as an integrated company with a enabled Valamar to get to the level of us not only to accelerate returns. new organizational structure, after all success we are seeing today. investments in our owned portfolio, related group companies were but also to make new acquisitions, I look forward to successfully brought into one entity in 2014. the looking ahead, we recognize that both in Croatia and abroad, with the meeting our strategic goals as well integration process greatly improved Valamar is ready to set its sight on ultimate aim to continue to grow as our commitments to all our our efficiency and cost structure. at new horizons of growth in the market capitalization. stakeholders. the same time our growth in sales european hospitality sector, which and revpar was strong and driven motivated the formulation of our Valamar’s development strategy also Sincerely, by a HrK 1 bn investment cycle in Corporate Strategy by 2020 as elaborates our commitment to Gustav Wurmböck, the portfolio since 2012. overall this presented in this Integrated report sustainability as a key principle of Chairman led to a strong increase in ebItda for the first time. good governance. In this integrated and record net profit. report the company reports widely our corporate strategy is based on on our numerous efforts to preserve 2015 was also the first year Valamar our first and overall priority: the natural resources, reduce our impact riviera was listed on the official guest. We are acutely aware that the on the environment and develop the quotation of the Zagreb Stock quality of guest experience is a key destinations where we work and live, exchange, during which our market driver of future growth. We therefore making Valamar a leader in capitalization increased by 21%. I plan to invest further in upgrading sustainability and corporate social am especially pleased that as a our asset portfolio of hotels, resorts responsibility in Croatia. 4 foreword foreword 5

Message from the CEO

last year we completed the For Valamar riviera, 2015 was truly a time increasing the number of overnights employment rate, improving salaries and ownership and business restructuring dynamic year. at the start of the by 10.9% and the average daily rate by working conditions and educating our of all the companies in Valamar tourist season, we presented our 6.9%. In addition, the company’s employees. We intend to continue with group. as a combined company, largest investment in tourism, Valamar commitment to continued improvement those efforts because we are convinced Valamar riviera nowadays has an Isabella Island resort 4*/5* on the of service quality and excellent work by that managing human resources will be exceptional future perspective. We island of Sveti nikola – worth nearly the operating management led to an our biggest challenge in the coming have strengthened the organisation HrK 300 million. only a few days increase in customer satisfaction rate to period. this is why one of our key and the key positions with new later, we completed our first 84%, as well as an extremely high strategic initiatives is focused on our people and new responsibilities. acquisition on the adriatic coast, percentage of recommendation by our employees, along with our guests. the today, we are the leading Croatian worth HrK 372 million. apart from guests of 97% and a high likelihood of 2015 average gross salary at Valamar tourism company operating in influencing the growth of financial return to Valamar of 83%. the indicators riviera amounted to HrK 7,887, which is attractive tourist destinations, results, the two business events have of growth of sales and customer 13% higher than the industry average. including poreč, rabac, island of Krk confirmed our strategy and satisfaction point to the fact that we were We will continue to adequately Željko and dubrovnik, employing over 4,100 determination to maintain a leading right to focus on guests and service compensate our employees’ work and kukurin, people, accommodating more than position in the Croatian tourism sector. excellence. harmonise the growth of the salaries with ceo 800,000 guests annualy and Furthermore, with the acquisition of the growth of the company. Furthermore, managing around 10% of the Hoteli baška, we became Croatia’s as Croatia’s leading tourism company, it is important to underline that 75% of categorised Croatian accommodation biggest tourism company with more we carry a huge responsibility – towards our employees live in tourist destinations capacity in 25 hotels and resorts and than 48,000 beds. Continuing our shareholders, employees, where they also work, which we believe is 13 campsites. over the years, investments in upscaling the portfolio management, partners and investors, and a differentiating value that makes our Valamar riviera has invested HrK 2.6 and possible acquisitions in the in particular to the local communities hospitality authentic. that is why we have billion in its portfolio, which makes it coming period are key strategic where we operate. the cooperation launched a number of initiatives to one of the larger investors in the initiatives for future growth. thus, the between a tourism company such as maintain a high percentage of local Croatian tourism. moreover, our level of success in our business Valamar riviera and its stakeholders is employees and increase employee loyalty investments have considerably raised activities in 2015 demonstrates the vital for success in tourism. based on our to the company. the repositioning of our the quality of our products and capability of the management and the conviction that growth and development, portfolio towards upscale and premium services towards 4*/5* level, which is organisation to manage the process as well as long-term business service requires staff with greater also the company’s future ambition – of development and acquisitions. sustainability and social responsibility, are hospitality knowledge; therefore, in the to target premium guests by the key preconditions for continued coming period we intend to educate our improving the quality of our offer. last year was a record-breaking year. creation of added value, we have drawn employees even more intensely to our total revenues amounted to HrK up a strategy of Valamar riviera’s achieve the goal of increasing service all that has not been accomplished in 1.29 billion, up by 19% y-o-y, while development until the year 2020. last quality further. the space of a single year; it is the operating profit increased by 49% to year’s results, organizational restructuring result of the work carried out by all HrK 423 million as compared to achieving a high level of operating I am confident that with the support from those who used to be a part of babin 2014. as a result of consolidation and efficiency, favourable situation on the our investors and all other stakeholders, kuk, Zlatni otok, Hoteli baška, rabac restructuring, as well as positive capital market, and the currently positive we will continue to drive a paradigm shift d.d., riviera poreč, Valamar returns on investments from the trend of tourist demand have resulted in in regional tourism develpment. Valamar management company, Valamar previous period, we increased our our need to redefine the company’s goals riviera’s business model, based on the group and all other companies that operating efficiency and our ebItda and strategy for the coming period. our idea of symbiotically managing assets, are today consolidated into Valamar margin grew by 6.8 percentage points business strategy is based on our work hospitality services and destinations with riviera. In some way, this year we to 32.7% (25.9% in 2014). that kind and success so far but also proposes a the aim of developing the local economy turned a new page and started a new of business growth coupled with a new company vision and mission. In an through tourism, is sustainable in the chapter, which is why I would like to stable net debt and a favourable effort to improve our communication with long-term. Such a business model use this opportunity to thank all of you average cost of financing of 2.5% investors and all other stakeholders, we increases the added value for both who have built, developed and clearly demonstrates the potential for have outlined our new strategy in this guests and employees, results and integrated these companies over the further investments as well as growth integrated report. profitability, and, consequently, value for past more than 60 years of successful in the value of the company. shareholders. tourism history. Furthermore, a special Valamar riviera is the biggest employer in thank you goes out to the thanks to our excellent sales team and the Croatian tourism sector and for a Yours sincerely, shareholders who knew how to positive trends during the tourist number of years now it has been Željko Kukurin, recognise opportunities and wisely season, we increased our sales recognised as employer partner. We President of the Management Board guide the company in the past. revenues by 18% y-o-y, at the same continually work on increasing the of Valamar riviera 6 Content Content 7

CONTENT

1. IntroduCtIon 9 About this Integrated report 9

2. about Valamar 11 Valamar at a Glance 11 History of Valamar 14 Valamar’s Business Model 16

3. tHe HoSpItalIty InduStry 20 Trends in the Hospitality Industry 20 Croatian Market Development 22

4. Valamar’S Corporate Strategy 25 Vision, Mission, Core Values 26 What we aim for: Strategic Goals 27 Our Strategic Initiatives 28

4.1. FoCuS on tHe gueSt 30

4.2. employeeS and organIZatIon 36

4.3. groWtH Strategy 44

4.4. InnoVatIon and dIgItalIZatIon 50

4.5. reSponSIble deVelopment oF tourISm and deStInatIonS 54

5. InVeStor relatIonS 65

6. aWardS & reCognItIonS 69

7. Corporate goVernanCe 75

8. rISKS and rISK management 87

9. buSIneSS reSultS & Key IndICatorS 2015 95

HRPSOR Opinion on this Integrated report 109 8 IntrodUCtIon IntrodUCtIon 9 1. INTRODUCTION

About this integrated report

this integrated In this report, Valamar has integrated number of awards and acknowledgements report for sustainability reporting with business Valamar has received as a company, as valamar riviera reporting and has for the first time well as individual properties, our employees d.d., refers to the applied G4 Global Reporting Initiative and teams. (GRI) guidelines 2. The objective of this reporting period report is to comprehensively present the throughout this report Valamar riviera also from 1st january development strategy of Valamar sets out strategic business objectives and 2015 to 31st Riviera, business results, company sustainable development goals for the December 2015, culture and our approach to corporate forthcoming reporting period. our specific and is based on social responsibility to our key objectives include long-term profitability, the consolidated stakeholder groups. employee empowerment and skills company annual enhancement, destination development, the first part of the report summarises local communities and tourism report 2015 company information, as well as our programmes and a wide array of objectives published on renewed vision, mission and core values. in the areas of environmental protection, 15th march Within the presentation of our corporate efficient energy use and renewable 2016. 1 strategy, our strategic initiatives and our resources. performance in 2015 are elaborated concurrently with economic, human, the report is available at the Valamar environmental and social impact riviera website www.valamar-riviera.com . and risk management. We reported comprehensively the areas of employment, We invite all stakeholders to submit environmental protection and community their comments and suggestions at the involvement, of which we are particularly following email address: proud. In addition, we presented the large [email protected] .

1 group Valamar riviera (also in the text: company, group, Valamar, Valamar riviera), includes the following entities: Valamar riviera d.d, Valamar hoteli i ljetovališta d.o.o., Valamar Hotels and resorts gmbH, puntižela d.o.o., bastion upravljanje d.o.o., Citatis d.o.o., elafiti babin kuk d.o.o, magične stijene d.o.o., palme turizam d.o.o., bugenvilia d.o.o., pogača babin kuk d.o.o., while the business data and financial results for newly acquired companies in baška destination are included from July 1 2015. 2 Valamar plans to prepare its 2016 Integrated report in full compliance with the core g4 version of grI guidelines, as prescribed by the eu directive for non-financial reporting for all companies with over 500 employees. 10 ABoUt VALAMAr ABoUt VALAMAr 11 2. ABOUT VALAMAR

valamar can accommodate more Valamar at a than 48,000 guests on a given day in our 25 hotels and resorts, and 13 Glance campsite resorts which are situated in prime tourist destinations on the croatian adriatic - from istria and kvarner valamar riviera is the leading to Dubrovnik. valamar operates tourism company in croatia and one about 10 percent of croatia’s of the most active investors in categorized accommodation croatian tourism with investments capacity, making it croatia's totaling 2,6 billion Hrk over the past largest tourism group. 12 year period. Valamar’s facilities set the benchmarks of quality in poreč, rabac, Island of Krk, and dubrovnik. Valamar owns Valamar Hotels & resorts, and Camping adriatic by Valamar brands. Knowledge, professionalism and hard work of our 4.100 employees are the foundation of service excellence, sustainability, and future development.

the Company’s strategy is guided by a principle that investment in improving the quality of our hospitality portfolio, MICROFACTS talent development, innovative services Valamar properties and destination development are the host over 800,000 key drivers of growth and future guests each year success. 12 ABoUt VALAMAr ABoUt VALAMAr 13

OuR BRANdS KEy FACTS 2015 pORTFOlIO OVERVIEw 2016 4

total revenues [m HrK] 1,333

ebItda [m HrK] 423 poreČ , Istria 9,972 net debt/ebItda 2.6 Zagreb

employees [high season, #] 4,112

Investments [m HrK] 310 rabaC, ISland oF KrK guests [#] 810,000 pula, Istria Istria 1,913 3,318 beds [#] 48,019 620

overnights [#] 4,750,823

long-term asset book value [bn HrK] 3.2

25 Hotels and Resorts market capitalization 2 [bn HrK] 3.1 Zadar

13 Camping resorts Shareholders [#] 21,243 PReMIuM 9% 1,548 keys

Split VAlAMAR SOuRCE MARKETS 1 uPSCAle 32% 5,859 keys dubroVnIK 29% 14% 9% 8% 6% 5% 4% 26% 1,961

MIDSCAle 36% 6,488 keys

eCOnOMy 23% total of Germany austria italy slovenia netherlands croatia uk others 4,166 keys 18,061 keys

ACCOMOdATION KEyS [#] NET OpERATING REVENuES [M HRK] dISTRIBuTION CHANNElS 5

20 % 15 % 38 % camping otas Direct bookings 56 % 44 % 78 % resorts (251) camping Hotels and Hotels and 1 By overnights 2015 resorts resorts resorts 2 As of April 2016 (9,891) (7,893) (993) 3 Incl. rental, sport, laundry and other operating revenues 2% 26 % 21 % 4 By keys/pitches others 3 (32) mice & Groups allotments 5 By revenue 14 ABoUt VALAMAr ABoUt VALAMAr 15

History of Valamar 2011 - 2015 consoliDation anD listinG on ZaGreb stock excHanGe the company valamar riviera as it stands today has been Zlatni otok d.d. , rabac d.d. and dubrovnik – Babin kuk d.d. were merged developing and growing on the croatian market for over 60 to riviera Adria d.d. , which was later years. its development has comprised of several phases, intensive on merged with Valamar grupa d.d. against the backdrop of social and political changes, tourism construction and Valamar Adria holding d.d. development and continuous evolution of its business strategy to address global trends in the hotel industry. 1967 the consolidated company started operating Hotels and apartments Luna under the name Valamar riviera d.d. and was listed on the official market of the ZSe 1968 Hotel neptun and the tourist village Lanterna 2012–2015 beGinninGs of upscalinG of tHe asset portfolio tourism in poreČ 1971 Hotels Crystal and rubin First 5-star hotel - 1895 Valamar dubrovnik President First public bathing area on Sv. birtH of tHe company 1976 manaGement company nikola island , Bagno Parentino Hotels diamant and Zagreb , Completion of Valamar’s largest investment 1953 1999 valamar Hotels & and the pavilion Solaris project – Valamar Isabella Island resort 4/5* 1910 Founding of riviera Poreč , founDinG of tHe resorts beGins to Hotel riviera in poreč opens after a predecessor of 1979 Dom fonD manaGe Hospitality which the company is named Valamar riviera d.d. Hotel Pical , first hotel of the operations 2015 establishment of the highest category in Poreč recorD business result anD 1913 i 1923 management of hotels, largest privatization Introduction of the first GroWtH Hotels Venezia and Parentino bungalows and restaurants 1986 investment fund during tourism brands Valamar opened, owned by the in Poreč and on the Hotel fortuna , on the voucher privatization Hotels & resorts and reorganization of the company and growth company to this day Sv. nikola island the Sv. nikola island period in Croatia Camping on the Adriatic of financial results

1895-1950 1950-1965 1965-1990 1990-2000 2000-2010 2010-2015

CROATIAN RIVIERA pOREč: CROATIAN TOuRISM pRIVATIzATION ANd BuSINESS ANd NEW STAGE OF GROWTH TOuRISM HISTORy: Start of organized tourism dEVElOpMENT: OwNERSHIp pORTFOlIO AND LEADERSHIP: 120 years of tourism in Croatia Dynamic growth of tourism TRANSFORMATION: dEVElOpMENT: Consolidation of activity and building of a Post-war economic Investments to raise management strength great majority of assets transformation and the quality of facilities privatization processes and services

MERGERS & ACQUISITIONS 2011 Zlatni otok d.d. (est. 1956), rabac d.d. (est. 1961) 2013 dubrovnik-Babin kuk d.d. (est. 1971) 2014 Valamar Adria holding d.d. (est. 2003) and Valamar grupa d.d. (est. 2005) 2015 Valamar hoteli i ljetovalista (est. 2000) 2015 acquisition of the majority stake in Hoteli Baška d.d. (est. 1949) 16 ABoUt VALAMAr ABoUt VALAMAr 17

Valamar Riviera’s Business Model: ASSET MANAGEMENT ANd OwNERSHIp OF 3.2. BN HRK OF BOOK VAluE

Asset, Hospitality and destination owing to more than 60 years of seaside. our asset position is a major company history we have a truly strength and an excellent opportunity for Management Company enviable tradition in hospitality and a future development. Furthermore, over unique asset portfolio structure. our years, we have developed the organization asset portfolio, accounting for a and knowledge to develop tourism MICROFACTS book value of Hrk 3.2 bn, represents products and efﬁciently maintain the value our policy is to a key aspect of our success. of our assets. our policy is to annually valamar riviera’s business annually invest invest minimum 5% of total revenues in minimum 5% in model includes We manage assets on more than 520 ha of capital expenditures aimed at maintenance investment f D development and e o land on prime locations along the adriatic and FF&e in order to enhance the value of maintenance t s e s t maintenance of our n c t i p coast and operate more than 34 km long the products. and FF&e e m n n e r touristic assets, operating s a m a a o p s n t n i v management of hotels, o a a o i e D l G n t c i 1 resorts and campsites, e i e n n t s ASSETS lANd v i m G e a s e and providing other i e r BOOK VAluE SuRFACE D r m n v u i hospitality services in our D t c n o VAlAMAR destinations. this t e 3.19 bn HRK 520 a RIVIERA s approach enables valamar hectars of land to manage the complete other 1 15 % guest experience, and to serve as an important stakeholder in our 47 % destinations. our operatinG manaGement 14 % ownership experience in property of Hotels, campinG 71 % anD resorts camping development and Hotels and resorts resorts technical maintenance optimizes investments 53 % and returns. our portfolio under asset management concession 2 approach ultimately raises MARITIME the quality of service dOMAIN provided and revenue achieved per guest. complete Guest experience manaGement in Destination INVESTMENT MAINTATENANCE proDuct portfolio manaGement ANd FF&E

increaseD profitability Due to HoriZontal anD vertical inteGration at Destination level

GroWinG per-Guest revenue Due to km active value cHain manaGement 34 5% of revenues MICROFACTS Valamar riviera has more than doubled its optimal investment anD return on assets 1 Incl. HQ building and non-core assets ebItda since 2010 2 Applications for priority concessions on touristic land were made in 2011 according to the Law on touristic land, to be granted 18 ABoUt VALAMAr ABoUt VALAMAr 19

OpERATING MANAGEMENT OF 25 HOTElS ANd RESORTS, ANd 13 CAMpING RESORTS HOTElS ANd RESORTS 2 Keys valamar riviera consolidated its asset portfolio segment. In the coming period we plan to increase the Valamar Dubrovnik President Hotel ★★★★★ dubrovnik 292 premium in recent years with an aim to more clearly number of premium and upscale properties targeting Valamar Isabella Island Resort ★★★★★ (4&5) poreč 344 premium differentiate, develop and reposition hospitality guests with higher purchasing power. a precise Valamar lacroma Dubrovnik Hotel ★★★★ + dubrovnik 401 premium properties in our portfolio. deﬁnition of market segments, innovative service Valamar Club Tamaris ★★★★ poreč 507 upscale concept development, brand management, proﬁtability Valamar Riviera Hotel & Residence ★★★★ poreč 135 upscale Valamar riviera today manages 25 hotels and resorts, growth and optimization of investment return represent Valamar Zagreb Hotel ★★★★ poreč 230 upscale and 13 camping resorts - 41% of which are premium some key drivers of performance guiding our asset Hotel & Casa Valamar Sanifor ★★★★ rabac 242 upscale and upscale, 36% midscale and 23% in the economy portfolio management strategy. Valamar Argosy Hotel ★★★★ dubrovnik 308 upscale Valamar diamant Hotel & residence ★★★★ poreč 372 midscale Valamar Crystal Hotel ★★★★ poreč 223 midscale VAlAMAR RIVIERA pORTFOlIO 2016 Valamar Pinia Hotel & residence ★★★ poreč 266 midscale Valamar rubin Hotel ★★★ poreč 258 midscale Valamar Bellevue Hotel & residence Albona ★★★★ rabac 350 midscale Allegro Hotel ★★★ rabac 245 midscale Miramar Hotel ★★★ rabac 178 midscale Hotels anD resorts campinG resorts Hotel Corinthia ★★★ Island Krk 480 midscale Zvonimir Hotel, Atrium & Villa Adria ★★★★★ (4&5) Island Krk 177 midscale Valamar Koralj romantic Hotel ★★★ Island Krk 226 midscale Valamar Club dubrovnik ★★★ dubrovnik 338 midscale naturist resort Solaris ★★★ poreč 284 economy Pical Hotel ★★★ poreč 359 economy tirena Hotel ★★★ dubrovnik 208 economy 1 assets keys beds assets keys beds Girandella tourist Village ★★ rabac 377 economy Lanterna Apartments ★★ poreč 910 economy Marina Hotel & Mediteran residence ★★ rabac 218 economy

PReMIuM 9% 3 1,037 2,163 1 511 1,533 CAMpING RESORTS 2 Keys Camping Krk ★★★★★ Krk 511 premium Camping Jezevac ★★★★ Krk 738 upscale Camping lanterna ★★★★ poreč 2,993 upscale uPSCAle 32% 5 1,422 3,243 4 4,437 13,562 Camping Marina ★★★★ rabac 306 upscale naturist Camping Bunculuka ★★★★ Island Krk 400 upscale Camping orsera ★★★ poreč 594 midscale naturist resort Solaris ★★★ poreč 1,485 midscale Camping Zablaće ★★★ Island Krk 534 midscale MIDSCAle 36% 11 3,113 6,496 5 3,375 9,537 Camping Škrila ★★★ Island Krk 348 midscale Camping Solitudo ★★★ dubrovnik 414 midscale naturist Camping Istra ★★ poreč 1,006 economy Camping Brioni ★★ pula - puntižela 654 economy Camping tunarica ★★ rabac 150 economy eCOnOMy 23% 6 2,356 6,359 3 1,810 5,586

dESTINATION SERVICES MANAGEMENT TOTAl 25 7,928 18,261 13 10,133 30,218

other than operating and managing our own excursions, sport facilities, catering etc. In that regard, Valamar riviera portfolio of hospitality properties, facilities and serves as a professional destination management company possessing services, Valamar riviera manages over 300 extensive local knowledge, expertise and resources, specializing in design restaurants and retail outlets in operation or in and management of events, activities, transportation and program logistics 1 Camping pitches partnership, as well as a whole range of other to its clients. Valamar riviera provides an excellent localized service based 2 April 2016 tourist services such as beaches, transportation, on deep knowledge of the destinations where we operate. 20 tHe HoSPItALItY IndUStrY tHe HoSPItALItY IndUStrY 21 3. THE HOSPITALITY INDUSTRY

On an international level the uNIquE ANd dEdICATEd INduSTRy SECuRITy Trends in the hospitality industry is experiencing AuTHENTIC GuEST pROduCT FORMATS dIGITIzATION a shift in market trends. A strong ExpERIENCE In light of recent war and Hospitality demand for authentic guest new emerging traveler the hospitality industry is terrorism threats, security experiences requires custom- guests are more than ever segments and the increasing already highly digitized. has become increasingly Industry tailored product formats that looking for a unique and guest demand require Share of online bookings important over the past address and meet specific needs authentic experience they dedicated product formats. and, especially, share of years only to become a of each targeted guest segment. can share with their friends Whereas families in the high mobile bookings have been crucial decision factor for The hospitality industry is also and retell all year long. In season look for excellent growing rapidly over the past guests and tour operators the hospitality industry is strongly influenced by recent addition to that, guests are properties and animation years and are expected to when choosing their travel experiencing significant growth political events in europe and becoming more deman ding program for their children, in grow even stronger in the destination. Croatia is which is expected to continue over northern Africa that have made and expect cus to mi zed and addition to relaxation upcoming years. guest perceived as a highly stable the next years. this growth is destinations' security a key individua lized product facilities and activities for demand for additional and secure country, which is accompanied by four key trends decision criterion when choosing a offering that corresponds to adults, Silver-Haired, convenience and confirmed by the "global that are of high relevance for holiday destination. Being their demographic millennial or mICe travelers transparency throughout the terrorism Index 2015", that valamar’s business model. perceived as a highly secure characteristics and interest in the low season require entire guest journey is and classified Croatia among destination, Croatia is benefiting areas. For example, completely different formats. will remain a key driver of countries with the lowest from these developments. millennials (generation born In order to participate in the digitization in the hospitality impact of terrorism. between 1980 and 2000) growing segments, high industry. apart from its huge and Silver-Haired (above 60 innovation efforts are potential to improve the years of age) are becoming needed to tailor product customer journey, digitization the two largest travel formats to the attractive offers significant levers in segments with very guest segments' needs. operational efficiency: smart particular interest areas and data for better understanding needs. In order to create of the guest, self-check-in unique experien ces across and check-out to accelerate different segments it is the process and many more. essential to, first of all, as an enabler of these understand unique needs of processes, widespread and different guest segments reliable wifi broadband has MICROFACTS and, ultimately, tailor already become a given and the hospitality industry is strongly influenced by recent political events that have services and offering to basic need that customers made security a key decision criterion when choosing a holiday destination those groups accordingly. take for granted. 22 tHe HoSPItALItY IndUStrY tHe HoSPItALItY IndUStrY 23

STRuCTuRE OF BEdS IN CROATIA, 2014 2 CAGR pER SEASON Croatian Market (CAGR '09-'14) (2 011 3-2014) development 53 % 26 % 2.4 % High season private camping resorts accomodation (0.8%) over the past years the croatia as a tourist destination has been growing strongly. croatia has a (2.0%) geographically favorable position as it is within driving distance from key central european 26 % source markets, such as austria, northern italy, slovenia, Germany and the czech republic. ★★★★★ 18 % x1.96 Hotels (1.5%) While overnights in competitor uplifted product and service offers. the 3% 38 % mediterranean destinations such as italy, Croatian government forecasts an average others (-2.9%) cyprus, Greece and spain, grew by 1. 7% on annual increase in tourism spending of ★★★★ average between 2009 and 2014, croatia's 8.1% until 2020. In the same period the overnights soared by 3.9% in the same number of overnights is expected to period. this growth was over-proportionally increase on average by 4.4% annually. driven by strategies for shoulder season Increased spending is therefore primarily 40 % prolongation. a future outlook for croatia's driven by an increase in average spending ★★★ tourism looks bright. the croatian tourism owing to higher quality offering and the 13 % STRuCTuRE board predicts an annual average growth in prolonged season. ★★ OF HOTEl BEdS 4, 4.7 % overnights of 4.4% until 2020, whereas traditionally, Croatia has been a summer 2014 shoulder season spending is expected to grow by 8.1%. leisure destination which is reﬂected in a rather short high season during June, July Croatian hospitality industry is still highly domi - and august and relatively low utilization nated by private accommodation, accounting rates in the shoulder season. Hospitality KEy CROATIAN MARKET INdICATORS, SEASON pROlONGATION INITIATIVES for roughly 50% of all beds. the other half is industry along with destination 2014-2020 5 By dESTINATIONS primarily split in Hotels and Camping resorts. management has been successfully In the hotel market 3* and 4* hotels account for developing events and infrastructure for roughly 80% of the beds. However, there is an tailored offers in the shoulder season: Wine MICROFACTS evident trend of asset uplifting towards 4* and & Food initiatives, Cycling tourism, Croatian 5* over the past years, with Valamar among the business tourism or Cultural tourism have hospitality leaders. being a market leader in the hotel and been strongly promoted over the last years Overnights Spending number of Investments industry is still camping market in Croatia, Valamar has and are already showing signiﬁcant effects. [#000] [HRK bn] beds [#] [HRK bn] Wine & food business highly dominated actively been taking part in market develop - overnights in the shoulder season have tourism tourism by private ment. by 2020 tourism in Croatia is predicted been growing at almost double the pace caGr caGr caGr accommodation to invest around HrK 52.5 bn in new and compared to high season. 4.4% 8.1% 1.7% 0 5 0 0 5 2 0 0 . . 0 0 6 2 7 , , 9 5 0 5 CAGR OVERNIGHTS SElECTEd lEISuRE dESTINATIONS, TOp SOuRCE MARKETS IN 6 4 1 9 8 , 9

1 2 7 2009-2014 OVERNIGHT-SHARE 8 6 9

3 cycling cultural 8 , 1 6 tourism toursim italy cyprus Greece spain croatia Germany 24% 1 6 3 .

slovenia 10% 7 0.4% 1.1% 2.4% 3.0% 3.9% 6 austria 9% czech republic 8% OVERNIGHTS CROATIA, 2009-2014 italy 7% ['000] 2014 2020 2014 2020 2014 2020 2014-2020 7 6 6 9

1 poland 7% 9 3 0 , 6 0 8 1 , 5 6 , 1 1 4 9 , 6

0 the netherlands 4% 2 6 7 0 , 6 , 1 6 6 eurostat 4 5 5 slovakia 4% 2 national Bureau of Statistics uk 3% 3 2009 not available 4 refers to hotel only. excl. tourist apartment and apartment hotels 2009 2010 2011 2012 2013 2014 other countries 24% 5 Strategy of tourism development in republic of Croatia by 2020 Jan feb Mar Apr May Jun Jul Aug Sep oct nov dec 24 VALAMAr’S CorPorAte StrAteGY VALAMAr’S CorPorAte StrAteGY 25 4. VALAMAR’S CORPORATE STRATEGY

Valamar aims to provide inspiring hospitality to our what we guests by offering life-enriching experiences and emotions which form an unforgettable travel Stand For experience. yet, we also aim to inspire our employees, partners and destinations and the entire tourism sector to join this vision. Valamar’s mission is to create authentic hospitality experiences that enrich life while valamar riviera manages hospitality delivering exceptional and sustainable value to our properties that represent about ten stakeholders. percent of categorized tourist accommodation in croatia, thus our core values reflect the strength of our corporate culture exercising significant influence over which has evolved together with the company over the last the total experience of tourists in decades and form the foundation of Valamar’s past and croatia at the national level as well future leadership, development and sustainability as in individual destinations. achievements. Valamar as a company is aware of the responsibility of leadership, the opportunity of future growth and the obligation to fulfill our ambitions. our hospitality culture is to love our guests, to innovate continuously and to create a tangible and engaging service value. Valamar’s corporate strategy rests on five key pillars or strategic initatives that prioritize and define our key areas of focus and our approach to reaching both our strategic goals and our vision and mission as an organization. In our strategic initiatives we have also made a firm commitment to corporate social responsibility in all areas of business activity including investment in the portfolio, renewable energy and preservation of natural resources, guest involvement, employee development, as well as active support in the economic, cultural and social development of our destinations and society as a whole. 26 VALAMAr’S CorPorAte StrAteGY VALAMAr’S CorPorAte StrAteGY 27

Vision, Mission, Core Values what we Aim For (Strategic Goals)* We own, develop and manage resorts and destination services by 2020, we want to...

To drive a paradigm shift in regional tourism development. GROw SIGNIFICANTly BE RECOGNIzEd AS THE MOST by retaining market leadership in dESIRABlE EMplOyER IN TOuRISM OuR To harness a symbiotic relationship the Croatian market with two digit ebItda-Cagr by paying above-average wages for Croatia, VISION between hospitality and destination over the next 5 years and through acquisitions or achieving 70% seasonal worker return rate and management that develops local strategic partnership in selected destinations in developing more than 80% of our management economies, builds sustainable futures and the leisure hospitality sector in europe internally creates a more enriching guest experience.

INVEST 1.5 - 2.0 BN HRK IN THE STEER SuSTAINABlE ANd pORTFOlIO OVER THE COMING pERIOd SOCIAlly RESpONSIBlE while maintaining a solid balance sheet dEVElOpMENT OF dESTINATIONS by → to proudly express Valamar’s culture through and generate premium returns by steadily investing at least 2.5% of revenues in corporate inspiring hospitality and destination experiences. growing ebItda margin to 35-38% with a social responsibility, education, tourism and sustainable net debt/ebItda ratio destination projects OuR → to form a seamless integration of local discovery MISSION and authentic hospitality that enriches lives. → to grow and deliver exceptional and sustainable value.

STRENGTHEN dIRECT RElATIONSHIpS CREATE SuBSTANTIAl VAluE FOR wITH GuESTS SHAREHOldERS by achieving 50% of revenue from direct by signiﬁcantly increasing our market bookings and 30% of returning guests capitalization

1. GuEST-lOVING We make our guests feel very welcome and highly appreciated OuR 2. AMBITIOuS BROAdEN ANd OpTIMIzE BuSINESS OFFER ATTRACTIVE We set ourselves challenging targets and strive CORE THROuGH STRATEGIC pARTNERSHIpS ANd SuSTAINABlE dIVIdENdS for excellence in everything we do VAluES with internationally recognized players in order to to our shareholders 3. RESpONSIBlE prolong the season and diversify the customer base We are responsible in our business partnerships, caring for our employees, supportive towards society and committed to the environment 4. INNOVATIVE We engage in collaborative innovation to improve our performance, stay alerta nd always remain open to change 5. pROud We take pride in our destinations and in being part of the Valamar family *Strategic goals are subject to a disclaimer on the last page of this report. 28 VALAMAr’S CorPorAte StrAteGY VALAMAr’S CorPorAte StrAteGY 29

Our Strategic Initiatives

in order to realize our strategic goals valamar has deﬁned ﬁve key strategic initiatives:

FOCuS ON THE GuEST provide superb quality to create positive moments and 1 lasting memories for every guest each day and address him individually throughout the entire year

EMpOwER EMplOyEES & ORGANIzATION develop, empower and reward employees to become the 2 heart of a guest-centric service organization and create long-term and trusting relationships with employees

GROwTH STRATEGy Focus on strong growth in both revenues and profits by 3 utilizing internal capabilities, enhancing guest focus and development through strategic partnerships and m&a

STRIVE FOR ExCEllENCE IN INNOVATION ANd dIGITIzATION be a leading innovator in leisure hospitality 4 industry in europe and leverage opportunities provided by digitization to fully meet our guests' needs

plAy A lEAdING ROlE in the development of Croatian tourism, 5 our destinations and corporate social responsibility 30 foCUS on tHe GUeSt foCUS on tHe GUeSt 31

4.1 FOCUS ON THE GUEST

Guest focus is reflected in our commitment to create authentic experiences and positive memories for every guest each day and address him individually throughout the entire year. We are convinced that a key to success is being guest-centric at the core of our business model and our organization. To further strengthen our focus on the guest we have defined five key elements of our strategy.

Tailored products and services to fully meet and exceed target guest groups’ needs and expectations

Guests, especially in the premium segments, are becoming more demanding. We are responding to this VAlAMAR MARKET SEGMENTS 2015 By NuMBER OF GuESTS prevailing trend by constantly evolving fooD & and developing tailored products and business beveraGe concepts service models. Better meeting the concepts needs of target groups such as: Hotels & resorts campinG resorts families, adults, seniors, active lifestyle guests, MICe, leisure groups & tours, luxury camping and camping extensive premium short stay not only increases guest family service 5% 7% concepts concepts satisfaction, but also ensures new 5% leisure groups & tours 8% camping short stay revenue sources. mice seniors We are continuously innovating and 12 % % active guests 35 % 8 developing our service concepts sopHisticateD special active guests ranging from our highly acclaimed food DiGital proGrams families 45 % & beverages offer to our recognized experience & events families children club maro. as a next step 13 % 13 % we are elaborating premium services, Day & niGHt seniors luxury day & night entertainment, destination entertainment camping concierge and other new concepts which will help us to even further differentiate 30 % 22 % Valamar from its competition. adults and couples adults and couples 32 foCUS on tHe GUeSt foCUS on tHe GUeSt 33

Service uplifting approach that makes the Strive to manage the entire guest guest feel “unbelievable” experience in the destination

Service uplifting is an approach at across the entire organization which To round the guest experience and offer Valamar that was implemented in 2013 empowers employees to customize their a truly comprehensive offering, Valamar in order to consistently deliver service delivery to a particular situation. launched a Perfect experience Creator excellent services and, in turn, Service uplifting is also carried out by program that serves as information, achieve guest satisfaction and loyalty. aligning employee selection, training and service and sales platform. compensation systems to the desired We understand that great service is not hospitality vision and service excellence the program offers information and simply about delivering expected service, goals. as a result our guests rate Valamar advice on various services and amenities but rather about striving to provide services and guest orientation very in the destination (such as destination unexpected value by recognizing guest´s highly, and are especially complimentary attractions, gourmet offer, events, speciﬁc situation, needs and wishes. the of our hospitality. outdoor activities, transportation, and key enabling factor of this approach is 97% of our guests would recommend us, other) and even enables guests to easily the creation of a service-focused culture and 83% are likely to return to Valamar. make bookings and purchases.

experiences in tHe Destination

information GettinG on tHe to tHe 97 % 96 % Destination Destination of our guests would of malfunctions resolved recommend us to their friends to satisfaction

tailor transportation maDe in tHe services Destination

crm & loyalty mercHanDisinG

information on tHe properties

MICROFACTS the perfect experience Creator program enables guests to valamar easily make bookings maro branD and purchases 34 foCUS on tHe GUeSt foCUS on tHe GUeSt 35

Gain exceptional guest knowledge and establish we continuously measure guest satisfaction individual contact points throughout the year to and on-line reputation in order to improve increase guest loyalty and satisfaction our service

Knowing our guests is a prerequisite to programs, Valamar plus Club for hotels By using different tools to evaluate In our two-way, personalised customer offer best-in-class tailored services. We and resorts and Camping adriatic plus guest experiences and their perceptions relations management model, managing believe we can further strengthen our Club for our camping resorts. the of the quality of our services, Valamar feedback is a key point. With this in mind, guest centricity by systematically programs are designed to be an attractive gets to understand its guests better and Valamar Quality department manages collecting and analysing our guests' platform from the very ﬁrst day of thus can provide excellent customer complaints, comments and suggestions preferences through our CRM approach. membership. owing to our efforts we care. that its customers make while in property increased our guest return rate to 25% in in direct communication with staff, over our know-how enables us to target 2015. We believe that with further Valamar is measuring guest satisfaction tablets, through in-room feedback forms, individual guests before, during and after upgrades of our loyalty programs we will during guest stay via paper and tablet via post-stay questionnaires or social their stay throughout the entire year. the be able to improve guest knowledge and questionnaire, and through post stay on- networks. this model allows Valamar to Crm approach is supported by our loyalty reach the aimed 30% guest return rate. line questionnaire. manage service quality across operational areas with agility, providing responses Furthermore, Valamar is using trustyou on- within a maximum period of 48 hours from line reputation management tool in order to receipt thus further building strong efﬁciently incorporate key data and customer relationships and elevating trust information and improve management of in the company. its online reputation. Valamar is highly present on the Internet, on social networks and opinion sites which is an excellent CRM channel for maintaining a two-way relationship with guests.

2015

67,776 84 % 97% 83% MARKETING dIRECT lOyAlTy RECOGNITION ANAlyTICS dATABASE COMMuNICATION pROGRAM OF GuESTS 850.000 guests newsletter & 32.000 Customization data analysis for in marketing Customer loyalty program and decision making database relationship members* personalization support Guest Overall Guest Recommendation of guests are likely to campaigns of services Surveys Satisfaction Rate return to Valamar

premium & upscale Data collection Segmentation Hotels & Resorts Reservation 83 % center Hotels & resorts online reputation index

Guest marketing Camping Communication Web 4.1 88 % proﬁle Resorts tripadvisor average rating Guest satisfaction

Cleansing / * Perfect experience *Loyalty program Metrics 8.5 9.0 Merging Creator was launched in May 2015 booking.com average rating booking.com average rating 36 eMPLoYeeS And orGAnIZAtIon eMPLoYeeS And orGAnIZAtIon 37

4.2 EMPLOYEES AND ORGANIZATION

Our goal is to develop, empower and reward employees who are the heart of a guest-centric service organization. Service excellence as deﬁned by Valamar can be consistently achieved only by highly motivated, experienced, skilled and loyal employees. The key to the Valamar Riviera human resource strategy is to create competitive working conditions, gain the loyalty of employees, increase local employment and develop professional talents. A smile from the heart of our employees is what we ultimately aim to achieve in our human resource management.

AVERAGE SAlARy 2015 [HRK]* GROwTH IN AVERAGE SAlARy [HRK]

8,055 7,887 2012 7,086 Valamar Riviera is one of the largest and course of the year. each year Valamar -2% 6,991 most desirable employers in Croatia. In riviera engages a large number of seasonal +13% 2015, the average number of employees employees totaling more than 60 percent of increased 9 percent over 2014 and Valamar’s workforce without students and 2013 4% growth 7,340 totaled 2,581 full time equivalents pupils. almost 65 percent of seasonal (+18% '15/'12). workers return to Valamar annually. the key objectives of Valamar’s human during the high season on august 31, 2015, resource strategy are being recognized 2014 2% growth 7,464 total employment in all Valamar riviera as the most desirable employer in tourism destinations was 4,112 persons, including by offering compensation above the Croatia Valamar Hospitality full time, temporary, seasonal and contract Croatian average, having at least 70% industry employees. Consistent with the nature of of the seasonal workforce return each * Gross I salary as reported by 2015 6% growth 7,887 tourism business the number of employees year and developing 80% of the national Bureau of Statistics in 2016 shows signiﬁcant oscillations during the management internally.

TOTAl NO. OF EMplOyEES ANd STudENTS NO. OF EMplOyEES By TypE OF ON AuGuST 31 EMplOyMENT 2015 GROwTH OF SAlARIES ANd NuMBER OF EMplOyEES 2015 vs 2012

Type of employment 2012 3,463 Growth in average salary Full time permanent 1,078 +18 % 2013 3,618 Seasonal and temporary 2,160 permanent seasonal 359 +11 % 2014 3,778 Growth in no. of Students & pupils 515 employees 2015 4,112 Total 4,112 38 eMPLoYeeS And orGAnIZAtIon eMPLoYeeS And orGAnIZAtIon 39

develop employees across the entire organization through over the last ten years 139 employees who are currently in junior, middle or top MICROFACTS a systematic and institutionalized educational framework management roles at Valamar have Valamar academy not only results in higher successfully completed our Valamar satisfaction with corporate climate and academy program. culture but it also significantly increases employee loyalty to the company Valamar academy not only successfully Our award-winning Valamar academy training programs for operational staff will develops our employees but it also education program has successfully be strategically managed and aligned results in increased satisfaction with developed a large share of our with our human resource strategy under corporate climate and culture and management team. A prime example the umbrella of the Valamar academy. significantly affects their loyalty to the is the development of our property company. It has also had a very positive General Managers. Currently over this will enable us to further uplift and influence on the image of Valamar as an 60% of our property General standardize training programs and employer which has resulted in growing Managers and General Manager consequently uplift the performance of number of open job and internship assistants have been developed our employees who are an instrumental applications. internally by our Academy. and indispensable backbone of a service organization. as a leading company in In house talent development has been tourism we are also planning to further primarily focused on general managers, develop strong partnerships with sales & marketing managers and heads educational institutions, such as high VAlAMAR ACAdEMy of departments in operations. as a next schools and universities, in order to offer step we are planning to extend the new academic programs and be an academy programs to include talent, initiator of educational change in Croatia. skills and knowledge development in pARTNERSHIpS other corporate functions. our numerous wITH EduCATIONAl INSTITuTIONS

TOTAl NuMBER OF EduCATION ANd …pER EMplOyEE BASEd ON AVERAGE TRAINING HOuRS IN 2015 (est. ) NuMBER OF EMplOyEES (est. ) VAlAMAR ACAdEMy universities

Hotel S&M Head of Dpt. GM Managers Operation Professional 140 schools and managers graduated high schools 139 since 2007 of Hotel Gm 45,410 17.6 60% attended the Hours Hours academy 3 million OpERATIONAl STAFF CORpORATE STAFF MICROFACTS kuna as a leading company in tourism we are planning to further annually invested in develop strong various education, Outlet managers Chefs Finance Controlling partnerships with development and educational institutions training to be an initiator of 2012: programs educational change Best HR-practice in Croatia Wellness staff Sport instructors in Croatia HR Purchasing 40 eMPLoYeeS And orGAnIZAtIon eMPLoYeeS And orGAnIZAtIon 41

Motivate and develop the organization to ideally support the strategic initiatives in terms of the right level of empowerment, skills and corporate culture

Valamar has been growing We are especially focused on strengthening our signiﬁcantly over the past years. We organization to support our future investment, understand that, with the increasing developement. Key elements are the empowerment of on- size and complexity, new management site managers and employees, training and development of models, a strong corporate culture staff. our guest-centric uplifting Service program is and high involvement of the entire designed to develop a corporate culture which motivates organization in change initiatives and employees to understand customers, go beyond processes are a priority. expectations and deliver unbelievable service. the program is fully aligned with our compensation and rewards programs and activities.

In 2013 Valamar began implementing “uplifting Service” as a service management approach with the goal of Offer highly competitive working conditions to ensure transforming our hospitality culture and becoming the most best and the most recognized hospitality service provider on high motivation and satisfaction of our employees and the adriatic. uplifting Service is a systematic approach to service excellence which aligns communication, motivation, become the most desirable employer in Croatia’s tourism 93% 49% education and every day tools for employees in order to great create an environment and culture which is fully oriented towards the guest. We are fully aware that Valamar's through variety of channels. Valamar riviera 44% success depends on its employees. To confirms our commitment to employees unbelievable In 2015 we have designed a new complaint management realize our strategic goals, and achieve through a collective agreement which of our guests system and our entire management team in properties has service excellence we rely on guarantees our employees base rated our staff as either gone through a variety of custom-designed uplifting service exceptionally educated, highly motivated compensation levels and other benefits unbelievable or Great training programs. uplifting as an approach to service and satisfied employees. such as compensation for sick-leave or in 67,776 surveys excellence, quality management and employee engagement other disability, retirement package, received in 2015 has been awarded as the best Hr practice in Croatia. therefore, our aim is to become the most Christmas bonus, financial support for desirable employer in Croatia. For this children and various others. purpose we are developing tailored packages for our seasonal and full-year Valamar measures the satisfaction of employees, including a comprehensive employees on various dimensions AwARdS ANd RECOGNITION pROGRAMS compensation policy, improved working through an annual Corporate Culture conditions, special education programs and and Climate survey which collects individualized career planning programs. employee feedback in the following seven areas: organization of tasks and In 2015, the Company was awarded an processes, leadership, education, employer - partner Certificate for the tenth attitude towards the employer, career 17 3, 040 consecutive year. Valamar is also the only opportunities, compensation and life- tourism company among the top 5 work balance. the level of satisfaction employer partners in Croatia. top 5 has been stable and high at 3,9 out of 5 employer partners include companies who for several years. all key areas of different employees took part have successfully integrated a strategic Corporate Climate and Culture achieve programs in various awards approach to human resource management, employee satisfaction over 3,3, and the of rewarding and recognitions including transparent employee placement following areas rate very highly (over 4): MICROFACTS employees programs process, setting clear goals, measuring organization of tasks and processes, the level of employee in 2015* employee’s output, awarding results, leadership, education and attitude satisfaction has been supporting career advancement, investing towards the employer. In 2015 3,099 stable and high at in employee career development, and employees submitted the Corporate 3,9 out of 5 for *without management who are motivated through annual bonus programs encouraging two way communication Culture and Climate Survey several years 42 eMPLoYeeS And orGAnIZAtIon eMPLoYeeS And orGAnIZAtIon 43

Increase employment with a special focus on local employment

In order to improve the authenticity of our service and to support the local economies Valamar especially promotes employment in destinations, with average share of local workers in a destination of 75%.

SHARE OF lOCAl EMplOyEES IN 2015 By dESTINATION local employees

out of destination POREČ employees 25 % KRK

33 %

75 % 67 % BAŠKA

41 % 59 %

DUBROVNIK 27 % 94 % RABAC

73 % 25 %

TOTAL

75 % 44 GrowtH StrAteGY GrowtH StrAteGY 45

Address target groups in a better way through clear 4.3 portfolio repositioning, differentiation and GROWTH branding/service concepts

We have extensive experience in STRATEGY uplifting our assets with a clear guest focus. A key component of our guest-centric initiative is a clear portfolio positioning that efﬁciently addresses our target groups.

Valamar has an excellent track record of growth in both revenues and profit which we aim to translating it into our organization carry on in the future. means having not only the optimal portfolio differentiation, but also clear We currently recognize a huge potential in the market on one side and affordable financing cost branding and service concepts designed on the other side. Therefore, we are convinced of our strong internal capability to continue down to fulfil specific market segment needs our strong growth path in the years to come. We identified eight key elements that will support and desires. by enhancing our our growth initiative in both revenues and profits. positioning, we expect to increase occupancy and average daily rates, which will in turn, boost our revenues and ebItda.

Increase direct bookings and the share Invest CApEx to upgrade the portfolio with optimal ROI of loyal return guests

Since 2012 we have invested yearly investment and construction processes, the Creating loyal and returning REpEATING GuESTS average of 255 mn HRK in order to upgrade right level of CapeX is crucial for optimal guests not only boosts our the portfolio whereby we increased our returns. We believe our successful track revenues, but also provides us share of premium and upscale keys from record best proves our ability to further with an opportunity to increase the 29% to 42%. upgrade the portfolio in order to bring the share of direct bookings. In 2015 portfolio to an optimal state. therefore, we Valamar Riviera generated 46,5% most of the upgraded projects exceeded plan to intensify our investment activity in the of roomnights or 372.5 mn HRK expectations and are providing an excellent next period by investing 1.5-2.0 bn of HrK in through Valamar direct distribution return on investment. besides high efﬁciency in upgrading and repositioning of the portfolio system: call center, direct reservation through web or mobile platform and loyalty program. 2015 25 % aim 2020 30 % INVESTMENT CyClE (CApITAlIzEd INVESTMENTS, m HRK ) total of Hrk 2,6bn We will continue to develop our loyalty strategy to further create 382 added value to our customers. In dIRECT BOOKING (By REVENuES) 318 310 addition, we will continue to develop our websites, e-marketing and 262 260 technology in order to boost trafﬁc to 213 227 our websites and increase: website unique visitors (2015: 3.6 mn), 158 159 phone&email requests (2015: 115 91 98 242.000) and number of reservations 49 (2015: 50.600). by 2020 we aim to reach 50% of total reservations through direct bookings and 30% of 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p loyal returning guests. 2015 38 % aim 2020 50 % 46 GrowtH StrAteGY GrowtH StrAteGY 47

leverage our market leadership for strategic prolong the season by introducing new programs partnerships with other markets and knowledge and deﬁning tailored actions in a joint effort leaders along the entire value-chain with destinations and partners

We see strategic partnerships as an term business relations with a large number Over the past years we have built travel agencies and we aim to establish important initiative to improve of partners and suppliers, primarily focusing trustworthy relationships with our similar cooperations in the future with profitability, optimize revenue streams on excellence of products and services in strategic partners and the destinations partners that can help to increase and generate know-how. Thus, we are compliance with international standards and we operate in. occupancy by bringing new fly markets and particularly proud of our strategic sustainability principles. Supply and delivery specialized groups. We also aim to further partnerships with tour operators and of goods and services is primarily For years now, we have been working intensify our event management activities to travel agencies, which we aim to contracted with local suppliers (over 95%), with important tour operators such are create additional business in shoulder strengthen even further by exploring which directly strengthens the local market tuI and rewe group, tennis specialists season. to round up our efforts we aim to new cooperation areas. economy. the involvement of local suppliers Zicshka and Wagner, as well with continue developing special programs for encourages healthy competition, Croatian specialist Id riva and camping specific target markets in order to create We managed to intensify our strategic strengthens supply and demand, specialist gebetsroither. all of the products that can increase the business out partnership with tuI by extending our offer contributes to cost efficiency, encourages mentioned are successful examples of of the sun&sea season such are: tennis, to tuI's Family life Hotel concept in 2016. long-term partner relations and raises guest cooperation with tour operators and bike, gourmet, short-break and similar. We are developing our new F&b and satisfaction through the experience of local outlets strategy, which will further involve and authentic products and services. our operating partners in joint improvement adhering to high standards of quality of OuR STRATEGIC pARTNERSHIpS of services in the next years. products and services, maintenance of ethical and correct business relationships, We establish and maintain good long-term meeting deadlines and maintenance of relations with our partners. Valamar long-term business co-operation are co-operates with a vast array of reputable imperative for joint business success and Hotels & resorts companies. Valamar riviera builds long- growth of Valamar riviera and our partners.

campinG resorts

MICROFACTS We aim to continue developing special programs for speciﬁc target markets in order to create products that can increase the business out of the sun&sea season 48 GrowtH StrAteGY GrowtH StrAteGY 49

Increase revenues by optimizing pricing, occupancy and distribution channels

Valamar Riviera has for years INCREASE REVENuES By OpTIMIzING pRICING had a clear focus on revenues. ANd OCCupANCy We implemented revenue management in the organization years ago and property 1 property 2 trained specialists in revenue management. occupancy occupancy We deﬁne excellence in revenue   management as selling the right room price room price room to the right client at the right moment at the right price in the right distribution channel with the best commission efﬁciency. revenue manaGement

the achieved continuous growth in property 4 occupancy property 3 revenues per available unit over the last five years as well as the booking Acquire strategic targets to grow in the resort occupancy development occupancy increase in revpar of 5,1% in 2015 per hospitality market in the Alpe-Adria region was achieved largely through an channel increase of average price per unit room price room price (adr), which amounted to +6,9% (‘15/’14). We believe in the potential of growth of companies and property portfolios in Croatian tourism and we are actively Croatia that have not been seriously looking for further enlargement of our invested in over the last years and/or they portfolio to reinforce our leadership in have a need for destination development the Croatian leisure market. or professional operational management, Further improve operational efficiency which are the competitive advantages of our corporate structure and business the Valamar riviera model. due to similar model of being at once an asset, source markets and potential operational Over the past years we have invested OpERATIONAl EFFICIENCy* ebItda hospitality and destination management synergies we are also considering significant efforts in optimizing our cost ebItda margin company provides a competitive expansion to other markets in the alpe- structure and streamlining our advantage for expansion due to the adria region with the goal of acquiring a processes. Since 2009 we improved our 32.7 % destination-based structure of the tourism cluster of keys in known leisure eBITDA margin from 15.4% to 32.7%. 30.7 % sector in Croatia. there are still many destinations. 28,.0 % 423 our business model of operating a cluster 24.5 % of properties in one destination helps to 22.2 % 25.9 % KEy FACTS ON OuR ACquISITION OF BAšKA HOTElS IN 2015 [ m HRK ]* centralize operational services such as laundry, horticulture, maintenance or 307 301 energy management and to increase 284 efficiency. In addition, due to our size on the Croatian market we are able to utilize 15.4 % 223 economies of scale in operations and 179 realize purchasing advantages. a high acquisition company income ebitDa standard of professionalism helps us to 119 value value increase increase efficiently implement best practices across the organization. We aim to continue to 188 372 76 35 use these strengths in order to reach our profitability targets. 2009 2010 2011 2012 2013 2014 2015

* note: Financial information until 2014 refers to Valamar grupa d.d. consolidated statements; *Consolidated in Valamar riviera's p&l as of July 1st, 2015 thereafter refers to Valamar riviera d.d. consolidated statements 50 InnoVAtIon And dIGItALIZAtIon InnoVAtIon And dIGItALIZAtIon 51

4.4

INNOVATION NEw SERVICE CONCEpTS pERFECT GuEST AND DIGITALIZATION ExpERIENCE INNOVATIVE dESIGN, SuSTAINABIlITy OpERATIONAl EFFICIENCy EduCATION CRM

By using the opportunities provided by digitization to fully meet our guests' needs and to become a leader in innovation of products and services in the european leisure hospitality market.

dIGITAlIzATION & INNOVATION

Foster continuous generation of innovation throughout the company

Creating innovative products and Innovation has always been a part of services is a prerequisite for meeting Valamar’s identity, and one of the key Simplify processes and rely on digital to increase future guest demand. Therefore, at ways Valamar is recognized by our Valamar we continuously innovate and guests and partners. Innovation at operational efficiency improve our products, services, Valamar can be found in all areas of processes and capabilities to business activity, from daily operations to achieving superior customer large investment projects. examples of Smart usage of digital and information We have also invested considerably experiences and operational innovation include our family service technology not only boosts the and successfully in our websites as a efficiency. concepts, food & beverages offer, company´s efficiency but also allows key driver of direct sales. With the entertainment programs, property design our employees to focus on more implementation of our highly and services in camping resorts. by value-adding activities. automatized revenue management focusing on innovative ideas and system we are able to manage and initiatives we seek to fulfill the needs and Valamar has invested heavily in optimize exceptional circumstances exceed the expectations of our guests developing best-in-class It systems and and add value. In addition, information and, ultimately, become a leader in infrastructure that can drive our business technology tools allow our corporate innovation in the european leisure performance and enable us to grow and functions to fully manage human hospitality market. scale our revenues and services. all our resources, accounting, finance and properties are operating on micros Fidelio controlling functions in all our opera pmS (property management destinations centrally. system). our revenue management, loyalty and Crm databases are enabled for smart data management and fully integrated with our pmS, reservations and booking systems. 52 InnoVAtIon And dIGItALIZAtIon InnoVAtIon And dIGItALIZAtIon 53

Create unique guest experience through digital innovation

Various parts of the guest journey digitalization both for the guest became digital during the last years. experience and from a process and cost We believe we need to continue perspective having positive impact on digitalizing our services to ensure effectiveness and efﬁciency. For example, high guest satisfaction. A perfect with our pilot of the housekeeping app planning and booking experience on we immediately know when the room is our website via desktop and mobile is ready for check-in and can ensure that essential, but it is only the beginning needed maintenance and mini-bar of the guest journey. replenishment is performed.

as we continue to upgrade our portfolio We see a very high potential in digitizing and our services, we also plan to destination services to better manage upgrade the guests’ digital experience in the complete customer experience. a highly tailored way in key service areas managing the customer destination MICROFACTS to enable a better guest experience and experience will be the focus of further We see a very high ensure the right balance between digitalization and innovation initiatives potential in digitizing personal touch and digital excellence. going forward. digitalization should destination services to Standard guest services such as check- enable an individual, guest tailored better manage the in, check-out, housekeeping, technical approach with the aim of adding value to complete customer maintenance, F&b and other in-property both the guest as a consumer and experience services can reap beneﬁts from Valamar as a provider of services. 54 reSPonSIBLe deVeLoPMent reSPonSIBLe deVeLoPMent 55

efforts across organizational units and functions into eight important VAlAMAR’S EIGHT OVERARCHING CORpORATE 4.5 umbrella programs and have SOCIAl RESpONSIBIlITy pROGRAMS committed 2.5% of our annual Through our CSR programs we support socially responsible revenues to projects and projects with more than HRK 37 m in 2016 RESPONSIBLE activities in these CSr programs.

For results achieved in DEVELOPMENT OF TOURISM responsible corporate practices in 2015 Valamar riviera has won 8 1 the CSr Index award for the area Supporting Taking AND DESTINATIONS of responsible policies and Our Care of practices in managing its Retired Those in environmental impact. the award Colleagues need is bestowed by the Croatian business Council for Sustainable development and the Croatian 7 2 Chamber of Commerce. Teaching enriching Play a leading role in advancing Croatian tourism, developing our destinations Children about the Tourism Tourism Offering and preserving the environment as key principles of sustainability and social VAlAMAR’S responsibility at Valamar. CSR 6 pROGRAMS 3 Promoting Developing Knowledge Culture to excel in and Arts Tourism 5 4 Preserving Promoting We will continue to be a leader and a Corporate social responsibility natural Beauty Sports catalyst in developing destinations, (CSR) at Valamar Riviera has and the promoting local culture and protecting been a part of the company’s six environment We the environment decade long tradition in tourism live and activities and is rooted in the Work in belief that sustainability of business performance is a strategic goal and a key driver of growth and development of tourism as such.

Corporate and social responsibility at Valamar riviera underscores protect, promote and develop our destinations' touristic and guides all strategic initiatives at offer, heritage, culture, traditions, learning and innovation the company including the 2.5 % development and education of of annual employees, destination revenues development, investment in the We are aware that success of therefore, we take an active role fostering the destinations' for csr local community and care for those our hotels and resorts largely in developing destinations tradition, learning and innovation in need, a systematic approach to depends on further through various strategic we can not only actively preserving the environment and development of destinations projects and long-term contribute to social the quality of the adriatic sea as we operate in. cooperation with our development but also offer well as the transparency of the municipalities and public heightened and more authentic Company to its stakeholders with authorities, tourist boards, experiences to our guests. emphasis on transparent and open events and service providers, communication to investors and associations, sports clubs and shareholders. non-proﬁt organizations. our destinations are extremely We have structured all our current rich in heritage and culture. We corporate social responsibility believe that by promoting and → 56 reSPonSIBLe deVeLoPMent reSPonSIBLe deVeLoPMent 57

→ “ENRICHING THE TOuRISM approximately HrK 200,000 to underwrite “pROMOTING SpORTS” as a major contribution to the development pROduCT” CSR pROGRAM projects in culture and the arts. the driver of CSR pROGRAM of knowledge, expertise and education and supports cultural, culinary, educational and Valamar’s cultural program is the “artist on Valamar riviera directly organizes or the promotion of vocations in tourism. In entertainment events, projects and Vacation” project in cooperation with art sponsors numerous sporting events with a 2015, cooperation with educational initiatives which enhance the attractiveness collector marinko Sudac and the Institute for value of almost HrK 2 million annually. institutions continued with the organization and competitiveness of a given destination. research into the avant-garde. the project Sporting events are organized at virtually all of open doors day, in which the company at the annual level, the company allocates has created an artistic platform with global of Valamar’s destinations with the objective brings its operations closer to the local over HrK 10 million on average for various significance. In 2015, in a relaxed of developing these destinations and community, especially to pupils in events that enrich the overall tourism summertime atmosphere, poreč hosted the promoting sports and the active lifestyle. In vocational schools and potential product and contribute to an extension of most prolific version of this cultural event, 2015, Valamar riviera supported the employees. We support the development the tourist season while also nurturing the featuring a series of respected international organization of the Swatch beach Volleyball of various educational programs for pre- local community’s cultural identity and names in the neo-avant-garde, such as the major international tournament. It organized school and elementary school institutions values. thus, in 2015 we supported a renowned artist ewa partum. In the past the Valamar terra magica bicycle race, the and associations in order to familiarize series of destination projects such as four years, the project has hosted over 50 of Valamar trail race and the Super Surfers even the youngest generations with the giostra, the labin republic, the carnival in the best known artists in the world, and Challenge poreč, and sponsored the fundamentals of tourism. thus, beginning labin and so forth, and we also elevate the exhibitions of their works have been dubrovnik Half-marathon – the first this year, as part of Valamar's “teaching quality of the tourism product through organized in the museum of Contemporary international sporting event of this type children about tourism” CSr program, infrastructure projects such as construction art in Zagreb. a part of the project included which, besides the healthy lifestyle, also visits were planned so that groups of and landscaping of beaches, promenades an exclusive exhibition of the best-known promotes dubrovnik as an ideal destination. children from kindergartens at the and cycling trails, in which we plan to invest Croatian neo-avant-garde group, gorgona, We were also sponsors of the offshore destinations where Valamar operates can approximately HrK 12 million in 2016. For which after poreč was presented in the World Challenge – a tuna fishing competition learn about occupations in tourism and the three years in a row we have organized renowned moma in new york. For 33 – which promoted poreč as a big game hotel industry through games and oktoberfest in poreč which has already years, Valamar has organized the painters’ destination of international significance and entertainment. become a tradition. Colony, which has produced over 200 also contributed to the popularity of this artworks by numerous artists with the aim of attractive and – in Croatia – still insufficiently “SuppORTING OuR RETIREd “dEVElOpING CulTuRE ANd promoting culture and linguistic diversity. known sport, and to education on the COllEAGuES” CSR pROGRAM THE ARTS” CSR pROGRAM the Street art Festival was held in poreč in protection of the sea and marine resources. secured support for our former employees provides continuous support to the creativity august 2015 with the support and in 2015 by assisting the work and activities of Croatian and international artists and participation of Valamar riviera. the Festival “KNOwlEdGE TO ExCEl of the local branch of the rivieraš retired many cultural initiatives and projects that gathered some notable personalities from IN TOuRISM” CSR pROGRAM employee association at the poreč have generated numerous artistic works. at the world of free cultural expression and focuses on continual cooperation with destination, and support for their activities the annual level, Valamar directs truly invigorated the old urban core of poreč. vocational schools and colleges and serves will continue in 2016. → 58 reSPonSIBLe deVeLoPMent reSPonSIBLe deVeLoPMent 59

Be a role model for environmental protection in Croatia

As a leading „pRESERVE THE NATuRAl BEAuTy per overnight. In subsequent years, we hospitality ANd THE ENVIRONMENT wHERE wE expect even greater progress, because company in wORK ANd lIVE” CSR pROGRAM was since the beginning of this year, we have Croatia we born from our conviction that a preserved been purchasing electricity generated assume great and attractive environment is the basic exclusively using renewable sources responsibility for resource for tourism. So Valamar through the green energy project environmental continuously works to improve conducted by Croatia’s national electric protection. Thus, environmental protection and sustainable utility, Hep. We will thereby reduce we will pursue a development. the company recognizes all greenhouse emissions by as much as 60% systematic aspects of environmental impact at the annual level. We had already begun approach to management, and dedicates particular investing in green technologies back in the protect the attention to compliance with legal and 1980s by installing the first solar collectors environment and other standards, prevention of pollution as in the camps at lanterna, which today the Adriatic coast a fundamental approach to environmental extend over 2,800 m2 with a constant by implementing management, rational use of resources, growth tendency. all of our investments are the highest reduction and proper management of geared toward sustainable operations: we standards of waste and staff training to handle any install high energy efficiency machinery and environmental potential hazards. appliances, light fixtures are being replaced protection and with environmentally-acceptable lighting sustainability in VAlAMAR CONTINuOuSly elements (energy-saving fluorescent and our operations IMpROVES ENERGy EFFICIENCy led lights), etc. Solar energy is being used and investment ANd RENEwABlE ENERGy uSE to heat water in residence and camping VAlAMAR INSpIRES OuR GuESTS CARE FOR THE ENVIRONMENT practices. over the past three years, the company resorts. Valamar riviera has a total of 43 GuESTS, EMplOyEES ANd In 2015 a survey of 1.700 guests was conducted has invested over HrK 12 million in energy electrical vehicles at its destinations worth dESTINATIONS TO pRESERVE at 17 Valamar properties efficiency projects. In 2015, we reduced over HrK 2.5 million, and we have also THE ENVIRONMENT greenhouse gas emissions by almost 500 invested in two electric vehicle charging Valamar riviera continually encourages tons, which is a reduction of over 9 percent stations in poreč its guests and employees to behave in a manner that contributes to environmental protection. OuR CONTRIBuTION TO an example of our approach to THE ENVIRONMENT environmental protection is the agreement with the municipality of % poreč to become the biggest buyer 100 of recycled grey water in the area. of electricity coming this supported the municipality in from renewable energy sources - Aim 2016 planning the county's new water purification plant. For us it was not 80 % 83 % only a significant contribution to the do not expect the of guests noticed 2% environment, but also a means to frequent changing of and supported the reduction of our carbon reduce the watering costs of our towels, nor bedding environmentally-friendly footprint per overnight green areas. approach in our hotels in 2015 compared to 2014 Valamar riviera has been supporting the work of the blue World Institute for marine research and protection. new electric cars – 49 Since the beginning, the dolphin enlargement of our protection project has become a vehicle park over the last global best practice example five years (incl. 2016) successful integration of scientific 3 research and practical preservation 65,000 m of an endangered species. → use of of grey water instead of clean for 62 % watering – est. 2016 are prepared to pay more for eco-products 60 reSPonSIBLe deVeLoPMent reSPonSIBLe deVeLoPMent 61

→ SuSTAINABIlITy & quAlITy certification. this is a global symbol of TRAVElIFE GOld AwARd measures aimed at saving resources and CERTIFICATIONS & AwARdS quality for a preserved environment, clean In 2015, 16 of our hotels received or reducing the quantity of waste and the efforts which Valamar dedicates to water and beaches, well-managed extended the travelife gold award caring for the employees and local environmental protection and sustainable beaches and high-quality services. certificate. travelife is an international communities. operations have been acknowledged by certification system which promotes the strategic objective of the certification respected professional organizations, and High environmental protection standards sustainability in the tourism sector. project is to introduce green business they have conferred important honours to are also confirmed by numerous the Sustainable Hotel and travelife gold practices and to strike a balance us, so that our hotels proudly bear seals certifications. award certificates were preceded by between economic progress, care for and certificates such as Sustainable systematic field work that encompassed the environment in the broadest sense Hotel, travelife gold award and tuI the compilation of detailed reports on and social inclusion in the wider environmental Champions, and as many energy and water consumption and community. → as 11 of our beaches hold the blue Flag waste management, with specific

HOTElS wITH TRAVElIFE GOld AwARd CERTIFICATE As measured by keys, 80% of our campsite resorts and 63% of our hotel & resort keys are iso 14001 certified, and 58% of hotel and resort keys also boast a travelife certificate Allegro Hotel ★★★ rabac confirming our committment to managing quality and processes to the highest international Hotel & Casa Valamar Sanifor ★★★★ rabac standards, as well as managing our environmental impact and preserving natural resources Miramar Hotel ★★★ rabac Valamar Argosy Hotel ★★★★ dubrovnik Valamar Bellevue Hotel & residence Albona ★★★★ rabac Valamar Club tamaris ★★★★ poreč Valamar Crystal Hotel ★★★★ poreč SuSTAINABlE HOTEl CERTIFICATES all hotels must meet the rigorous criteria Valamar diamant Hotel & residence ★★★★ poreč thanks to their application of global trends for “green, sustainable hotels,” which Valamar dubrovnik President Hotel dubrovnik and best management practices for include preservation of the environment ★★★★★ sustainable operations, in may 2015 the and care for employees and the Valamar Isabella Island resort ★★★★★ poreč hotels Valamar dubrovnik president 5*, surrounding community. the second Valamar Koralj romantic Hotel ★★★ Island Krk Valamar Zagreb 4* and Valamar bellevue 4* generation of hotels was awarded in 2015, Valamar Lacroma dubrovnik Hotel ★★★★ + dubrovnik were granted the Sustainable Hotel while in 2014 the first certificates for green Valamar Pinia Hotel & residence ★★★ poreč certificate. the Valamar dubrovnik operations were conferred to the Hotel & president received the superior certificate, Casa Valamar Sanfior 4* and Valamar Valamar riviera Hotel & residence ★★★★ poreč while Valamar Zagreb and Valamar Koralj 3* Valamar rubin Hotel ★★★ poreč bellevue received basic certificates. Valamar Zagreb Hotel ★★★★ poreč 62 reSPonSIBLe deVeLoPMent reSPonSIBLe deVeLoPMent 63

→ GREENOVATION thrifty, green and competitive economy Involvement and Support in the Community the Valamar lanterna camp in poreč which the company has been won the first Croatian award for implementing on the entire peninsula development of the green economy, over the past 30 years. called greenovation, which was The spirit of caring for “BIG HEART” CSR pROGRAM associations throughout Croatia conferred in 2013 in the overall those in need and continually supports associations and experienced their first summer efficient resource use in tourism supporting them with initiatives in the local community vacation on the sea. Facilities category. this award is a a big heart has which care for the most threatened as part of the “Valamar’s big Heart” confirmation of Camp lanterna’s always been part of and needy people in the community. program, we also support numerous many years of efforts to develop a Valamar's identity and guests at all of Valamar’s destinations associations, organizations, role in the actively participate in these projects, institutions and projects at all of our communities of our and their donations contribute to the destinations which engage in a very employees, guests cultivation of a culture of mutuality, broad range of activities but are and partners. while many of Valamar’s employees characterized by recognized support humanitarian initiatives on a programs to help needy groups or voluntary basis. one of these unquestionably valuable and projects, which has been ongoing for necessary work in society and the three years now, is called “a wider community. thousand days on the adriatic Sea,” which supports the work of institutions, associations and schools that work with children who lack adequate parental care, children from low-income families or children with specific health problems who would benefit from stays on the sea and special needs children. as part of this project in 2015, over 1,400 free overnight stays in our hotels were granted free of charge, and last year alone about 380 children from 17 64 InVeStor reLAtIonS InVeStor reLAtIonS 65 5. INVESTOR RELATIONS

valamar riviera is committed to Furthermore, we strive to contribute directly to continuously improve the increasing the transparency of Valamar Riviera as transparency and quality of business a company as well as the quality of and financial communication with communication with analysts and investors through regular corporate presentations both in investors. in this manner we aim to Croatia and abroad, group and individual provide active support to liquidity, meetings, conference calls and by providing share value growth and especially comprehensive content and in all publically investor involvement as one of the available financial and business reports. contributors to increasing the value of valamar riviera shares to all the objectives of Investor relations: stakeholders. the purpose of all our → Increasing investor demand; Facilitating investment decisions efforts is to ensure that valamar → → expanding opportunities for growth and profitability; riviera share is recognised as the → Increasing share value; leading tourism share in croatia. → reducing the cost of capital; → boosting the potential for growth and/or acquisition financing.

after integrating management, tourism portoflio and the shareholder structure of Valamar riviera in 2014 we created a leading and unique share on the Croatian capital markets which offers a significant exposure to the growing sector of tourism industry. In november 2014, Valamar riviera general assembly reached a decision to list the Valamar riviera shares on the official market of the Zagreb Stock exchange, with the first day of trading on 17th december 2014. the quotation on the demanding official listing of the Zagreb Stock exchange and an increased level of transparency were aimed at attracting institutional → 66 InVeStor reLAtIonS InVeStor reLAtIonS 67

→ investors who, until then, had limited respectively. due to the average daily VAlAMAR RIVIERA SHARE access to the growing Croatian tourism trading volume of over HrK 813 thousand sector. growing investor interest, especially and the largest free-float of over 50%, by foreign investors, has confirmed the Valamar riviera shares rank amongst the name of the Stock exchange Zagreb Stock exchange (ZSe) = RIVP-R-A justifiability and the success of this three most liquid Croatian shares listed on bloomberg = RIVPRA CZ approach. the Zagreb Stock exchange. Valamar reuters = RIVP.PAp riviera shares also rank amongs the top during the period 1st January 2015 to 31st ten shares by market capitalisation. market ISIn code: HRRIVPRA0000 december 2015 the highest share price capitalisation in excess of HrK 3 billion number of issued shares: 126,027,542 achieved on the regulated market was accounts for 2.5% of the total market HrK 24.94, and the lowest HrK 18.55. capitalisation of shares traded on the number of votes per share: 1 during the respective period, Valamar Zagreb Stock exchange. In addition to the date of listing (Zagreb Stock exchange): 15 december 2014 (126,027,542 shares) riviera share price increased by 21.1% Zagreb Stock exchange indices, shares thereby exceeding the CrobeX and are also listed on the Vienna Stock Zagreb Stock exchange indices CrobeX CrobeX 10 indices performance, which exchange (CroX and SetX indices). in which Valamar riviera share is included: CrobeXtr recorded a drop of 2.9% and 1.1% CrobeX10 CrobeXplus CrobeXturist Vienna Stock exchange indices SetX in which Valamar riviera share is included: CroX INVESTMENT pROpOSITION

VAlAMAR RIVIERA Valamar riviera is the most followed Croatian share by financial analysts. AwARdS RECEIVEd IN 2015 the largest major Financial analysts establish its target value croatian tourism 10% tourist based on their assessment of future → Valamar riviera was presented with the award of croatian company and the destinations categorised performance of the company using various for best Investor relations by poslovni dnevnik first croatian (istria, krk and accommodation financial models (discounted cash flow, in co-operation with the Zagreb Stock exchange; hotel brand Dubrovnik) capacity peer group and comparables approach, market valuation...). the crucial prerequisite → Valamar riviera was declared the best managed Hospitality for a high quality assessment of future Company in the Cee region by euromoney, the leading business performance is the high level of specialist financial magazine; transparency and open business communication provided by the → Valamar riviera Share was declared the Share of the year in management. 2015 by the investing public for the fourth consecutive year; increasing High share profitability liquidity, large sustainable analyst coverage of Valamar riviera is → Valamar riviera share won the Share with the Highest Increase and further free-float and dividend provided by: in trading in 2015 by the Zagreb Stock exchange; growth excellent ir potential 1) alta invest d.d., ljubljana; potential standards 2) erSte bank d.d., Zagreb; → marko Čižmek, best CFo in 2015 as selected by banka.hr 3) Hypo alpe-adria-bank d.d., Zagreb; portal and deloitte company. 4) Interkapital vrijednosni papiri d.o.o., Zagreb; 5) raiffeisenbank austria d.d., Zagreb; 6) uniCredit group - CROATIAN TOuRISM Zagrebačka banka d.d., Zagreb .

continuous low share stable attractive increase in of high quality increase geographic overnights and accommodation in hospitality position in the arrivals in capacities sector mediterranean croatia (4* and 5*) revenues MICROFACTS Valamar riviera is the most followed Croatian share by ﬁnancial analysts 68 AwArdS & reCoGnItIonS AwArdS & reCoGnItIonS 69 6. AWARDS & RECOGNITIONS

valamar riviera continually In 2015, Valamar Riviera invests in enhancing the quality received over 100 awards and of its products, services and , certiﬁcates that were conferred and these efforts are recognized to the company, its employees, and individual hotels, resorts every day by the broader and camping resorts in the community, hospitality destinations where we operate. professionals, institutions, and our partners. Valamar riviera’s hotels, resorts and campsites operate at the highest quality standards for services and accommodation, which is regularly recognized by both hospitality professionals and our guests. the awards, honours and ratings that rank our properties among the best at respected global travel portals and organizations place Valamar at the very top echelon of Croatian tourism.

→ 70 AwArdS & reCoGnItIonS AwArdS & reCoGnItIonS 71

INTERNATIONAl AwARdS ANd ACKNOwlEdGEMENTS

luxurytravelGuide Global awards 2016 Casa Valamar Sanﬁor thomas Cook proven Quality 2015 albona

World travel awards leading summer resort in croatia Valamar Club tamaris Crystal

leading boutique Hotel Hotel Valamar riviera diamant

leading Hotel Valamar lacroma dubrovnik Koralj

leading business Hotel Valamar lacroma dubrovnik miramar

Hotels.com Guest review score Hotel Valamar riviera pical

Hotel & Casa Valamar Sanﬁor rubin

HolidayCheck 2015 award Hotel & Casa Valamar Sanﬁor riviera travelife travelife Gold award Valamar diamant Hotel & residence Sanﬁor

Valamar Crystal Valamar Club tamaris

Valamar rubin Zagreb

Valamar Isabella Island resort FIt reisen premium Quality Hotel - Wellbeing Valamar diamant

Valamar Zagreb Zoover kids Holidaytip! Quality mark 2015 Valamar Club tamaris

Valamar Club tamaris & Valamar tamaris residence Valamar Zagreb

Valamar riviera Hotel & Valamar Villa parentino Zoover award Gold 2015 Krk Camping

Hotel & Casa Valamar Sanﬁor Zoover award bronze 2015 Ježevac Camping

Valamar bellevue Hotel & residence lanterna apartments

allegro Camping2be.com camping2be 2015 award marina Camping

miramar adaC/anWb best camping 2015 lanterna Camping

Valamar Koralj romantic Krk Camping

Valamar dubrovnik president the european business awards 2014/2015 Valamar riviera d.d.

Valamar lacroma dubrovnik leading campings of europe for 2015 lanterna Camping

Valamar argosy Krk Camping

Valamar pinia Hotel&pinia residence tripadvisor 2015 travellers' choice award Valamar bellevue Hotel & residence

2015 certiﬁcate of excellence miramar Hotel tuI deutschland tui environmental champion 2015 Valamar Club tamaris &

Valamar tamaris residence

Valamar dubrovnik president

Valamar lacroma dubrovnik 72 AwArdS & reCoGnItIonS AwArdS & reCoGnItIonS 73

NATIONAl AwARdS ANd ACKNOwlEdGEMENTS CERTIFICATES ANd quAlITy lABElS simply the best 2015 lanterna Camping Haccp iso 14001 codex alimentarius Valamar diamant Hotel and residence association of Croatian travel agencies and Way to Croatia travel magazine Valamar diamant Hotel and residence Valamar Crystal top 10 premium resort meeting Hotels Valamar lacroma dubrovnik Valamar Crystal Valamar rubin Kongres magazin (Kongres magazine) Valamar rubin Valamar pinia Hotel & pinia residence Valamar pinia Hotel & pinia residence Valamar Club tamaris & Valamar tamaris residence cfo of the year marko Čižmek Valamar Club tamaris & Valamar tamaris residence Valamar riviera Hotel & Villa parentino portal banka.hr and company deloitte pical/CK naturist resort Solaris employee of the year dubravka brkljač, Valamar riviera Hotel & Villa parentino lanterna Camping naturist resort Solaris naturist Camping Istra Kvarner tourist board Corinthia Hotel, baška Hotel&Casa Valamar Sanfior orsera Camping Golden Goat award Valamar Isabella Island resort 4/5* Valamar bellevue Hotel&Casa Valamar Sanfior Istria County tourist board Valamar Koralj romantic Valamar bellevue Valmar lacroma dubrovnik Valamar Koralj romantic sustainable Hotel Valamar dubrovnik president Valamar dubrovnik president Krk Camping association of employers in Croatian Hospitality Valamar Zagreb Valamar Zagreb Ježevac Camping Valamar bellevue Valamar Isabella Island resort Valamar lacroma dubrovnik Valamar dubrovnik president Croatian national tourist board employee of the year in the category "Waiter" Jozo Krešić iso 9001 Solitudo Camping employee of the year in sales and marketing in tourism lucija erhardt Valamar diamant Hotel and residence Valamar Zagreb "receptionist of the year" Smiljana lovrić Valamar Crystal Valamar argosy Valamar rubin Valamar Isabella Island resort beach of the year Cava beach, dubrovnik Valamar pinia Hotel & pinia residence praonica Sjever csr index award for responsible environmental practice and policies Valamar riviera d.d. Valamar Club tamaris & Valamar tamaris residence marina Camping Croatian business Council for Sustainable development and Croatian Chamber of Commerce Valamar riviera Hotel & Villa parentino tirena Hotel&Casa Valamar Sanfior Valamar Club dubrovnik poslodavac partner certificate Valamar riviera d.d. Valamar bellevue praonica Jug Selectio allegro best investor relations Valamar riviera d.d. miramar MInISTRy OF TOuRISM Valamar Koralj romantic Q label poslovni dnevnik newspaper and Zagreb Stock exchange Valamar lacroma dubrovnik Valamar riviera Hotel & Villa parentino Zagreb Stock exchange stock of the year 2015. Valamar riviera d.d. Valamar dubrovnik president stock with the Highest increase in trading volume Valamar riviera d.d. Valamar Zagreb Fee (Foundation for environmental education) Valamar argosy Blue Flag second prize dean gluhak Valamar Isabella Island resort brulo national Championship of Chefs and pastry Chefs praonica Sjever oliva first and third prize Ivan ergović & marija Franjić tirena galeb Valamar Club dubrovnik Valeta 10th Competition in Confectionery – Italian minority association (novigrad) (Valamar Club tamaris) praonica Jug Istra ambassador of croatian congress tourism gorazd Surla, Vala 4th Croatian meeting Industry Forum mICe specijalist (dubrovnik) Crnika Krk Camping best 4-star Hotel of the adriatic Valamar Club tamaris 4* Ježevac Camping association of employers in Croatian Hospitality Valamar dubrovnik president 74 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 75 7. CORPORATE GOVERNANCE

as a joint-stock Corporate structure company owned by more than A well-deﬁned and clear corporate board led by the president of the structure is the foundation for effective management board or Ceo of Valamar 21,000 strategic and operational management riviera. shareholders of the Company. the speciﬁc governance authorities and valamar responsibilities of these governing bodies riviera d.d. Valamar riviera d.d. key governing bodies are regulated by the applicable Croatian is committed are the general Shareholder assembly, the legislation, Company Statute and other to the Supervisory board with its corresponding corporate governance codes, regulations highest delegate committees and the management or prescribed procedures. principles of good corporate General sHareHolDers assembly governance and regulatory compliance. Presidium of the supervisory boarD Supervisory Board

Audit Committee

manaGement boarD Investment Committee

vice presiDents anD manaGement team 76 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 77

The Supervisory Board Senior Management Team

Supervisory Board consists of 7 decisions through corresponding delegate Strategic corporate business functions through business Committees that are members, of whom 2 are independent committees which meet more often are organized in 4 divisions focused on those strategic activities in the and one is an employee to manage key strategic initiatives which are led by four Vice Presidents: Company that require a high degree of representative. and support Supervisory board → Sales & marketing, Vp davor brenko cross-functional involvement: decision-making process. → operations, Vp david poropat → CapeX Committee

the Supervisory board meets at least four → presidium of the Supervisory board d → asset development, maintenance & (capital investment projects) r a times per year. the Supervisory board is audit Committee e technical Services, Vp alen benković project Committee (steering the → o → h t

B actively engaged in key management → Investment Committee f → business development and Corporate project management organization) y y o t r

r e e n o o affairs, Vp Ivana budin arhanić business experience Committee e e → m e t t s s t t i i u i i i

m (loyalty and Crm, Quality v v t r r d d m m t i s r i e e

s the senior management team or division management & service excellence, e m m a d p p

Mandate e v o o o u r u u vice presidents are responsible for corporate social responsibility) n I C C A P S B until S managing speciﬁc functional business → purchasing Committee areas and activities. In addition, the (strategic partnerships and Gustav Wurmboeck Chairman 07/2017 proprietary n n n n senior management team is tasked purchasing agreements) with cross-functional steering and Franz lanschuetzer deputy Chairman 07/2017 proprietary n n n n leadership, implementing the corporate

strategy and providing management e

Mladen Markoč deputy Chairman 07/2017 Independent n n n c

support to the Ceo. n e i Hence, the senior management team is r Georg eltz Vukovarski member 07/2017 proprietary n n n e working closely with the management p x g e e e e e

n e e e board and relevant corporate functions e i

Vicko Ferić member 07/2017 proprietary s t t t n n n t t t t t s s i i i i t a X e c m m m m h e n e i j c P m m m m

Hans Turnovsky member 07/2017 Independent s n n r o A o o o o u r u C C P C B C P Position C Mariza Jugovac member 07/2017 employee representative n Željko Kukurin Ceo n n n n Annuall meeting frequency 4x 10x 4x 4x Marko Čižmek board member n

Alen Benković Vice president n n n n

The Management Board David Poropat Vice president n n n n

Davor Brenko Vice president n n n

The management Board consists of two leading the following areas: hotel Ivana Budin Arhanić Vice president n n n members, operations, marketing & sales, human → president of the management board resources, destination management, Sebastian Palma director of Strategic planning and Controlling Sector n Željko Kukurin purchasing, investment and asset → member of the management board development, external affairs and public Andrea Štifanić director of asset management and general affairs n marko Čižmek. relations, quality management, controlling, legal and general affairs. Marko Vusić director of Internal audit and pm n the president of the management board is primarily responsible for formulating member of the board marko Čižmek is Dragan Vlahović director of purchasing Sector n and managing the company’s strategic, primarily and individually responsible for operational and ﬁnancial activites. In ﬁnance, accounting, treasury, It and addition, the president is individually institutional investor relations 78 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 79

Valamar Riviera Organizational Structure

The organizational structure of Valamar Riviera is functional,efﬁcient and transparent enabling effective management of key processes and business objectives manaGement boarD

CAPeX Committee

Project Committee

Business experience Committee

Purchasing Committee

Division Division asset asset strategic business it & finance Division Development, Division Dubrovnik Human management planning Development, application & purchasing sales & maintenance operations resources & General and & corporate region support accounting marketing & technical affairs controlling affairs services

Destination Destination Destination Destination puntižela poreč rabac krk Dubrovnik d.d. MICROFACTS destination dubrovnik, is organized into a regional organization due to its location and destination characteristics 80 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 81

Supervisory Board

GuSTAV FRANz MlAdEN GEORG ElTz wuRMBöCK, lANSCHüTzER, MARKOč, VuKOVARSKI, chairman deputy chairman deputy chairman member

Gustav Wurmböck Franz lanschützer Mladen Markoč graduated Georg eltz Vukovarski graduated from the earned his MBA from the from the faculty of Law of was educated in Universities of Vienna and Vienna University of the University of Zagreb. Switzerland and Germany Innsbruck and is an economics and his dBA He specialises in company where he majored in acknowledged expert in from the University of law, securities law, and economics, history, and the field of corporate Budapest. He has gained commercial law. Mr. philosophy. He graduated finance. Mr. wurmböck extensive experience in Markoč has been a from the University of St. has held various positions the areas of corporate consultant in numerous Gallen with a degree in in prestigious companies such as IfC (International finance and asset management in Central and important transactions in the Croatian and foreign business administration. Before moving to Croatia finance Corporation), deG (deutsche Investitions eastern europe. He is a partner in the company capital markets and has been a regular speaker at in 1994, he was senior VP marketing and member und entwicklungsgesellschaft), and the Austrian ePIC Goldscheider und wurmböck conferences organised by the Zagreb Stock of the management board of a major Swiss bank Länderbank, currently known as Bank Unternehmensberatungsgesellschaft m.b.H. with exchange Academy and the Judicial Academy. He corporation, and Ceo of its Canadian subsidiary. Austria. He has been a long-time member of headquarters in Vienna. He has been working in started his career in law in 1998 as a legal He co-founded Valamar Adria holding d.d. (as PIf Supervisory Boards of companies from Austria, mergers, acquisitions and corporate finance and apprentice with attorney Zvonimir raić. He was the dom fond d.d.) in 1998 and served as president of Hungary, and Croatia. He has gained extensive has provided consulting services in Poland, the Corporate Secretary of pharmaceutical company its management board before the merger into its experience and know-how in the areas of Czech republic, Croatia, and countries of the PLIVA d.d. from 1990 to 1997, a partner at the law subsidiary Valamar riviera d.d. in 2014. energetics, telecommunications, privatisation, former Yugoslavia and has also set up and run firm Bogdanović, dolički & Partners from 1997 to banking, and construction and has participated in investment privatisation funds in the Czech 2007, and was a Board Member of ICf Group In the years between, he served as president and privatisation procedures in eastern europe. republic and Croatia. d.o.o. in 2008. member of management boards and supervisory boards of a large number of affiliated companies. He is one of the co-owners and members of the He held executive positions at large financial He was an attorney at the law office of Mladen He is member of the management boards of both Management Board of the company ePIC, consulting and auditing companies such as Markoč from 2010 to 2013 and has been working the German-Croatian Chamber of Industry & Goldscheider und wurmböck ernst&Young and Price waterhouse before as an attorney at law for the joint law office of Commerce and the Croatian-Austrian Chamber of Unternehmensberatungsgesellschaft m.b.H. with becoming an employee of ePIC. He has also held Mladen Markoč and Ivan-Krešimir tomić since Commerce. Currently, he is managing director of headquarters in Vienna, which is involved in executive positions at Valamar Group since 1999, 2013. He is the vice president of the Association of SAtIS d.o.o. and its parent company eladco Invest making different types of investments throughout including President of the Management Board and Business Lawyers of Zagreb. He was also a GmbH, and a member of the supervisory board of europe. Mr. wurmböck was also a Member of the Cfo of Valamar Group d.d. and has also been a member of the Supervisory Board of Valamar Adria Valamar riviera d.d. Management Board of Valamar poslovni razvoj Member of the Supervisory Board of Valamar Adria holding d.d. (2011 – 2014), and is currently a d.o.o. (2005 – 2011) and the President of the holding d.d. and riviera Adria d.d. (currently member of the Supervisory Board of Valamar Management Board of Valamar Group d.d. (2005 – Valamar riviera d.d.) respectively. He was riviera d.d., Proficio d.d., and Hotel Laguna d.d 2010). He has held several positions in supervisory President of the Management Board of Valamar respectively. boards of Valamar Adria holding d.d., Valamar riviera d.d in 2014. for the past five years, Mr. Group d.d., Puntižela d.o.o., and Valamar turistički Lanschützer has also been a Member of the projekti d.o.o., while he continues to act as Management Board of Valamar poslovni razvoj President of the Supervisory Board of Valamar d.o.o. (2005 - 2011) and Vela Kluda d.o.o. (1997 - riviera d.d. 2013) respectively.

→ 82 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 83

Management Board

VICKO HANS dOMINIK žElJKO MARKO FERIć, TuRNOVSzKy, KuKuRIN, EMBA čIžMEK, member member President and CeO Member of the Board

Vicko Ferić graduated Hans Dominik Turnovszky Željko Kukurin Marko Čižmek from the faculty of was educated in Austria and graduated from graduated from the economics and Business Germany and has a degree theuniversity of Zagreb’s Faculty of economics of the University of Zagreb from the renowned Cornell School of economics and business in Zagreb. in 1974. He started his School of Hotel and business, where he He passed the exams professional career Administration. He has built also received his master for broker and working for the organic a long and successful career of Science degree in investment advisor. He Petrochemical Company as a manager in the hotel marketing. In 2010 he began his career in 1996 (currently dioki d.d.), followed by becoming an industry with more than forty years of experience in the obtained his emba degree from milan’s bocconi at Croatian national bank. He spent few years employee of InA d.d. where he held executive operational, development, and administrative sectors. He university. working in corporate finance at Investmentbank positions in the finance department and held the has gained basic professional knowledge and austria and ICF. From the years 2001 to 2004 he position as Assistant of financial director until experience in his home country as well as Great Britain, He began his career as an intern at riviera poreč, was the member of the management board in 1998. Since the end of 1998 he has joined Ireland, Africa, Asia, and the United States. He has held a Valamar group company, working as assistant euro Invest, the company company epic. from 2003 until 2005 he was executive positions in various companies, such as manager on island Sv. nikola and later in Sales & for investment fund management. appointed as the President of the Management Kempinski, regent, rafael Hotels, Mandarin oriental, marketing. In 2004, he joined Valamar Hotels & Board of company Sn holding d.d. from 2005 until Austria Hotels International, AnA Grand Hotel in Vienna, resorts where he developed and managed direct Within Valamar group mr. Čižmek has held 2011 he held the position as the President of the the Lodge at Vail in Colorado and the Phoenician resort Sales and marketing. numerous managing functions in companies that Management Board of Valamar Adria holding d.d. in Scottsdale Arizona. have been merged to present Valamar riviera: he (former dom holding d.d.), as well as the director of From 2010 to 2014 he was management board was management board member of rabac d.d. company epic Zagreb d.o.o. Mr. turnovszky was a member of the Management president of Istraturist d.d., one of the biggest (2004-2011), management board member of Board and several committees of the Austrian Hotel Croatian tourism companies, which was then dubrovnik babin kuk d.d. (2009-2013) and from 2011 until 2014 he holds the position as the Association. He currently serves as Chairman of the owned by Zaba-unicredit group and was in close management board member of Valamar adria Member of the Management Board of Valamar Hotel Classification Commission in Vienna and is a partnership with meliá. mr. Kukurin worked closely holding d.d. (2008-2014). He is the member of group d.d. He has also been involved in the member of the five-star Certification Committee of the with meliá Hotels International, Spain's leading management board of Croatian association of realisation of important investment projects in the Austrian federal Chamber of Commerce. He was a hotel company and one of the largest hospitality Financial analysts and Croatian association of oil and tourism industries, the gasification process Member of the Supervisory Boards of the Valamar Group companies in the world. He restructured and Corporate treasurers. in Croatia, privatisations of Croatian telecom d.d., d.d. and Valamar Adria holding d.d. and is currently a increased the value of Istraturist, and ultimately, in Croatia osiguranje d.d., dresdner Bank Croatia Member of the Supervisory Board of Valamar riviera d.d. cooperation with unicredit group, successfully d.d., and the restructuring and sale of several sold the company in the biggest tourism companies from the dom fond d.d portfolio. He transaction in Croatia. has been involved with numerous companies, such MARIzA as Petrokemija d.d., Poljoopskrba d.d., Svetice JuGOVAC, In 2015 he joined the executive team of the građenje d.d., Instrumentaria d.d., rabac d.d., member leading Croatian tourism group Valamar riviera Vrboska d.d., Koestlin d.d., Belvedere d.d., and was appointed to the position of president of Brodospas d.d., etc., either as a Member or the Mariza Jugovac finished the management board in June of the same year. President of the Supervisory Board and is also a secondary vocational He holds a number of important positions in member of the Croatian Association of Certified school in Pula in 1975. She Croatian tourism and national trade associations, Members of Supervisory and Management Boards. has been an employee of such as Croatian national tourist board Council He is currently a Member of the Supervisory Boards Valamar riviera d.d since member and County of Istria tourist board Council of Končar - elektroindustrija d.d. and Valamar April 20th, 1979. She member. riviera d.d respectively became an employee of the hotel and tourist enterprise “riviera” in Poreč, where she spent her first two years working in the It department. She became a payroll accountant in 1981 and has been the company's Senior Payroll Accountant since 2002. As an active union member, she was elected as the employee representative to the Supervisory Board of Valamar riviera d.d. 84 CorPorAte GoVernAnCe CorPorAte GoVernAnCe 85

division Vice presidents in Valamar Riviera dAVOR dAVId AlEN IVANA BudIN BRENKO, pOROpAT, BENKOVIć, ARHANIć, Vice President of Sales Vice President of Vice President of Vice President of and Marketing Operations Development, Facilities Business Development Maintenance and and Corporate Affairs Davor Brenko graduated David Poropat , Ph.d., Technical Services from the faculty of graduated from the Ivana Budin Arhanić economics in rijeka, and University of rijeka Hotel After graduating from the graduated economics he began his professional Management faculty in faculty of economics in from Middleburry College career in 2000 in Valamar opatija in 1993. In 2007 he Pula, Alen Benković in the USA in 1999. After Hotels and resorts in the completed his graduate began his career in 1999 finishing her studies, she sales and marketing study at the faculty of as an intern in today’s spent three years as a sector. In 2002 he became Project Manager for tourism and Hotel Management in opatija, where riviera, where he worked at several important strategy management consultant in Boston and in guest satisfaction research and guest relations he successfully completed a doctoral course in positions as assistant director of the camping new York. In 2003, she joined the company Lura management program, while in 2004 he assumed 2013. His career began in 1993 as an intern in the funtana, assistant director of the camping Lanterna d.d., where she was in charge of acquisition and responsibility for direct sales, which quickly sales and marketing sector of the former Jadran and director of the Hotel neptun – today’s Hotel restructuring of company Somboled d.d. into Lura became the strongest sales channel in Valamar. In turist d.d. in rovinj, where he continued his career Valamar riviera 4* in Poreč. group, where in 2004 she became Vice President of 2009, davor Brenko was promoted to the position first leading the western market department in the Supervisory Board. of Valamar’s director of direct Sales and Marketing, Sales, and then as planner and analyst in the He continued his career as the director of the and while at this position he participated in the controlling department. from 1996 to 2002 he was Lanterna cluster, and then in the municipal company In 2007 she graduated from two-year MBA program creation of numerous developmental projects which director of the Hotel Sol Park in the same hotel Parentium, which handles investments for the town at Harvard Business School and joined Valamar, resulted in improved sales, marketing and company, then under the management of the of Poreč. In 2011 he joined Istraturist in Umag, as where in January 2009 she was appointed to the operational growth. At the beginning of 2010, he Spanish company Sol Melia. In March 2002, he director for development, facilities Maintenance and position of Member of the Management Board in joined Istraturist Umag d.d., where he implemented joined former company riviera Holding d.d., technical Services. In 2015 he came to Valamar Valamar group d.d. and Valamar Adria holding d.d., a series of successful projects aimed at raising the Poreč, to the position of director of operations and riviera d.d. as Vice President for development, and from 2014 to 2015 a Member of the quality and competitiveness of the company and its thereafter, until 2006 he obtained the job of facilities Management and technical Services, Management Board of Valamar riviera d.d., destination. As director of Business development, director of operations for all Valamar facilities. where he oversees major investment projects and respectively. he worked on projects pertaining to strategic from 2007 to 2011, he held a position as a Board the planning of the company’s further growth. marketing and destination management and the Member of the company Valamar hoteli i Since June 2015 she has assumed the position of development of successful tourism products such ljetovališta d.o.o. and from 2012 to 2014 as a Vice President of Business development and as the Umag tennis Academy and Istria member of the Management Board of the Corporate Affairs and is in charge of business experience. company Valamar poslovni razvoj d.o.o. development through acquisitions, partnerships, strategic projects and corporate responsibility As from 2015 davor Brenko holds the position of At the end of 2014, he was appointed as the Vice programs, quality management and corporate Vice President of Sales and Marketing in Valamar President of operations of the leading Croatian communication. riviera d.d., where he is working intensively on tourism company, Valamar riviera d.d. except his development and growth of the company within the professional career, he also held a number of mentioned business segment and number of positions in the professional associations. during projects aiming at strengthening the tourism offer, his career, he actively participated in dozens of destination management and creating recognisable business projects which exceptionally enriched his and attractive company's destinations. business experience. Also, he is the author of several professional and scientific works. 86 rISK MAnAGeMent rISK MAnAGeMent 87 8. RISKS AND RISK MANAGEMENT

valamar riviera actively formulates and manages the risk management policy in all aspects of operations, seeing risk as any potential event which may have a negative impact on the achievement of objectives and the strategy deﬁned by valamar riviera.

THE RISK MANAGEMENT pROCESS CONSISTS OF THE FOllOwING STEpS:

1 2 3 4 5

iDentification analysis anD DefininG monitorinG excHanGe of assessment activities anD oversiGHt information identification of analysis and defining activities oversight and exchange of potential assessment of and assigning monitoring of information/com operating risks identified risks responsibilities in initiatives munication on order to facilitate undertaken with the results of risk an effective the aim of management contribution to risk avoiding the conducted by the management occurrence of risk management events board → 88 rISKS And rISK MAnAGeMent rISKS And rISK MAnAGeMent 89

THE dIFFERENT TypES OF RISKS ENCOuNTEREd By VAlAMAR RIVIERA IN ITS OpERATIONS MAy BE ClASSIFIEd INTO THE FOllOwING GROupS OF RISK: Macro-economic development risk

Bearing in mind the fact that almost also impacted 95% of Valamar Riviera's guests are by a number of other national foreign guests who carefully choose macro-economic indicators, such as their vacation destination in the employment/unemployment, domestic competitive Mediterranean gross product increase/decrease, industrial FInAnCIAl BuSIneSS OPeRATIOnAl environment, the stability of a country’s product increase/decrease, as well as RISKS RISKS RISKS macro-economic indicators is very other indicators having a direct impact on important, with special emphasis being the purchasing power of the Croatian given to the exchange rate and prices of citizens and, consequently, on their goods and services with a direct impact decision at which of the adriatic on guests’ purchasing power. destinations to spend their summer linked to financial variables, characteristic of the company’s which may arise due to failure vacation. which lead to difficulties in the operations, such as supply to observe internal procedures; although smaller in share, the number of service of financial and demand, competition, the human factor – arrivals of domestic guests to Valamar commitments of constant adaptation to needs employees, It system riviera's facilities is important as well, and Valamar riviera, liquidity, debt dictated by the market, management, and exchange investment, growth of rate risk Valamar riviera, etc. Risk related to the change of tax and other regulations

The risk related to the change of tax business policy and the budget for the GlOBAl ReGulATORy GeneRAl and other regulations is another following year and agreed on commercial RISKS RISKS AWAReneSS significant risk for Valamar Riviera and terms and conditions with their business one of the more demanding segments partners, materially distort the financial of risk management with only limited position of the Valamar riviera and possibilities for Valamar Riviera. jeopardise further investment plans, and thus the trust of investors. those caused by natural risks which may arise as a risks linked to events which during previous years, frequent changes hazards and disasters, result of failure to comply with may ensue as a result of of tax regulations had a negative impact Valamar riviera is also exposed to the pandemics, food shortages, effective regulation enacted by insufficient and inadequate on the profitability of Valamar riviera, the risks of potential change of regulations civic unrest, wars, etc., thus the state and local exchange of information inside most significant being: concerning concessions and concession events over which governments; or risks related Valamar riviera → Increase of the general value added tax approvals, i.e. concession fees for the Valamar riviera has no control to the change in tax or other (hereinafter: Vat) rate from 23% to 25% use of maritime domain, but also nor influence regulation (march 2012) decrease of the concession fees for the use of touristic intermediate value added tax rate from land, the area which has not been 25% to 10% (January 2013) followed, regulated until the present day. namely, within a period of one year, by the in view of the core business of the increase of the intermediate value Valamar riviera, the right of use of added tax rate in the hospitality and maritime domain and touristic land is one tourism industry from 10% to 13% of the significant conditions of further (January 2014); business operations, particularly in → decrease of the health contribution rate campsites. from 15% to 13% (may 2012), followed after two years by the increase from 13% to 15% (april 2014); → Frequent increases of various charges for water etc.

Such frequent changes of regulations related to tax levies imposed on the economy, which often take place after Valamar riviera has already adopted its 90 rISKS And rISK MAnAGeMent rISKS And rISK MAnAGeMent 91

Financial risks

In their day-to-day operations and Valamar riviera hedges interest rate and activities undertaken, Valamar Riviera is foreign exchange risks by applying exposed to a number of ﬁnancial risks, instruments available in the market in order in particular to the following ones: to mitigate these risks. Internal risk 1) Foreign exchange risk; management objectives and policies refer 2) Interest rate risk; to the protection of foreign exchange 3) Price risk; inﬂows during seasonal activity and to the 4) Credit risk; and partial interest hedge of loan principal. 5) liquidity risk.

1) FOREIGN ExCHANGE RISK 2) INTEREST RATE RISK its credit standing, obtains security 6) SHARE-RElATEd RISK Valamar riviera operates internationally bank debentures committed at variable instruments (bills of exchange, as an asset class with the highest risk, and is exposed to foreign exchange risk rates exposes Valamar riviera to cash promissory notes) and thus lowering bad the market value of shares can be arising from various currency exposures, flow interest rate risk. Valamar riviera debt risk with regard to services exceptionally volatile, as it is affected by primarily with respect to the euro and periodically uses derivative instruments to provided. the volatility of the whole capital market, Swiss franc. Foreign exchange risk arises actively hedge cash flow and fair value macro-economic movements on the from future commercial transactions, interest rate risk exposure by applying markets in which Valamar riviera recognised assets and liabilities. the interest rate swap from a variable rate to 4) pRICE RISK operates, discrepancies with regard to majority of international sale revenues are a fixed one. the economic effect of such Valamar riviera is a holder of equity and financial analysts’ expectations in relation denominated in euro, with long-term interest rate swap is the conversion of debt securities and are exposed to price to the performance, changes in dividend debt being denominated in euro and credits at a variable rate into credits at a risk of listed equity securities. Valamar policy, activities concerning mergers, Swiss franc. accordingly, movements in fixed rate for pre-committed part of the riviera does not actively participate in acquisitions and entering into strategic exchange rates between the euro, Swiss loan principal protected in this way. the capital market in terms of partnerships, instability of the Valamar franc and Croatian kuna may have an investments in equity and debt riviera's business model, as well as impact on the results of future operations Valamar riviera has interest-bearing securities, so that the price risk of equity fluctuations in the financial results of the and future cash flow. Valamar riviera assets (cash assets and deposits), securities in their possession is not Valamar riviera's business operations. If makes use of derivative instruments in resulting in the income and operating significant. the given factors have a negative accordance with operating estimates cash flows being influenced by changes connotation, there is a significant risk of and expected market developments. in market interest rates. this becomes share market value drop. Furthermore, given that the inflow is to a large particularly evident during the season 5) lIquIdITy RISK there is a significant risk of investors not extent denominated in euro, as well when Valamar riviera has significant prudent liquidity risk management being able to sell their shares at any time as the majority of credit liabilities, excess funds at its disposal. exercised by Valamar riviera implies at a fair market value. Valamar riviera is to the largest extent maintaining at all times sufficient cash to naturally hedged. settle all its liabilities by developing cash 3) CREdIT RISK flow projections at a monthly, annual and as for the part of credit liabilities Credit risk arises from cash, time deposits long-term basis. on top of currently committed in Swiss franc, Valamar and trade receivables, where Valamar available cash, Valamar riviera aims to riviera contracts available instruments riviera has no significant concentration of maintain flexibility in funding by keeping to hedge against cash flow interest credit risk. Following the sales policies, committed credit lines available. rate and foreign exchange risks. Valamar riviera commits to collaboration In view of exceptional volatility and with customers with an appropriate credit excess funds above the amount required unpredictability of Swiss franc history, i.e. its commitment is made for working capital management are exchange rate developments, Valamar conditional upon advance payments, invested in interest-bearing deposits, time riviera is actively continuing activities payment of bank securities or by major deposits, money market deposits and related to further debt conversion credit cards (individual customers). marketable securities, thereby choosing from Swiss franc to euro (in significant With a view to reducing its credit risk, instruments with appropriate maturities or part already converted), where it is Valamar riviera continuously monitors its sufficient liquidity in accordance with the naturally hedged. exposure to parties it operates with and projected needs for liquid funds. 92 rISKS And rISK MAnAGeMent rISKS And rISK MAnAGeMent 93

Business risk Risk related to the tourism branch of the economy

On a daily basis, Valamar Riviera faces the demanding mediterranean market and In the Republic of Croatia, tourism has despite the improved security and political business risks potentially leading the thus improved the performance and the been one of few growing branches of circumstance, which gave rise to the weakening of competitive strength, and efficiency of its business operations, which the economy during the last several launching of investment cycles in tourism, thus jeopardising its further stability. gave rise to the expectation of continued years marked by the global financial the Croatian tourism, as one of the positive trends in the future as well, subject crisis and economic downturn, which strategic branches of the Croatian In the previous period, Valamar riviera to prudent long-term strategic have had a significant impact on the economy, is still faced with a number of made business decisions contributing to management. Croatian economy as well. challenges and risks, such as: the increase of its competitive strength on upon joining the european union, the → Failing competitiveness in relation the republic of Croatia’s market has become a environment as a result of frequent part of the large european market, while fiscal and parafiscal regulations over Technological risk the membership of the republic of Croatia which Valamar riviera exercises no in nato has reduced safety risks. the influence; tourism development Strategy of the → global financial crises affecting Cognizant of the risks pertaining particular emphasis has been placed on republic of Croatia until 2020 (official adversely the purchase power of the to the reliability of IT operating securing sufficient funding for the gazette no. 55/13) provides answers to population prone to travelling; solutions and the cyber-security of development and implementation of new the question what kind of tourism the → Security and political risks related to operations, Valamar Riviera continually information technologies, new technologies republic of Croatia wants and needs to increasing terrorism threats in the world works toward further development and in the field of energy efficiency projects and develop by using its comparative and in the country; implementation of new technologies in data security projects, and the advantages as well as knowledge and skills → Security and political instability in the everyday operations. development and implementation of with a view to strengthening the immediate environment of the cutting-edge operating systems. competitive capacity of the Croatian neighbouring countries; tourism. It is important that the achieved → Strong seasonality of tourism as a growth rates of the Croatian tourism are branch of the economy causing an maintained over the following years, an insufficient utilisation of available Human capital risk objective to be accomplished only through capacities and resources of Valamar further strategic considerations in riviera. developing tourism products and by investing in the creation of additional The development of Valamar Riviera desirable employers. Valamar riviera values, which will differentiate Croatian would not be possible without actively manages potential human tourism from its competitive environment effective human resource capital risks by means of offering by pointing out its uniqueness, management, and the opening of the competitive working conditions, attractiveness and quality. labour market increases the risk of clear career development opportunities, human capital flight. compensation and awards systems, and active focus on employee Valamar riviera is one of the largest development and investment in Environmental risks employers in the tourism branch in education and ongoing vocational Croatia, and also one of the most training. The performance of Valamar Riviera's of waste water management and business operations can also be sewage along the Croatian coast of the affected by environmental risks, adriatic Sea. primarily with regard to customer satisfaction with the whole experience likewise, climate changes, such as long of staying in Valamar’s facilities, drought periods or, on the other hand, long reflecting as a result in a reduced rain periods, can also have a direct impact number of arrivals. on how long guests stay in hotels and campsites of Valamar riviera, or can also Such risks include, for example, sea lead to increased operating costs. this water pollution (e.g. as a result of tanker also includes various other natural breakage or discharge of chemicals into disasters and adverse climatic events the sea), but also less intense (such as earthquakes, fires, floods), air deterioration of sea quality and shoreline pollution caused by toxic gas emissions pollution arising from insufficient quality from e.g. industrial plants, etc. 94 BUSIneSS reSULtS & KeY IndICAtorS 2015 BUSIneSS reSULtS & KeY IndICAtorS 2015 95 9. BUSINESS RESULTS AND KEY INDICATORS 2015

Presented here is a structured summary of key indicators and initiatives that we have elaborated throughout the report as related to our key stakeholders, areas of focus and strategic initiatives, as well as a summary of our consolidated Valamar Riviera group-level ﬁnancial results in 2015, as reported in our consolidated audited Annual Report for 2015 published in March of this year.

Key performance indicators are also reported here on the basis of the new portfolio segmentation presented for the ﬁrst time in this report, structuring our asset portfolio in premium, upscale, midscale and economy segment.

We are emphasizing that the consolidated income statement of Valamar riviera group for the period from 1 January 2015 to 31 december 2015 comprises the data for the following companies: Valamar hoteli i ljetovališta d.o.o., Valamar Hotels and resorts gmbH, puntižela d.o.o., bastion upravljanje d.o.o., Citatis d.o.o., elaﬁti babin kuk d.o.o, magične stijene d.o.o., palme turizam d.o.o., bugenvilia d.o.o., and pogača babin kuk d.o.o., while the data for the newly acquired companies in destination baška are included as of 1 July 2015. Furthermore, the data for 2015 are not fully comparable to the data for the previous period, as the latter do not comprise the data for the newly acquired companies in destination baška. 96 KeY IndICAtorS KeY IndICAtorS 97

Key indicators

pORTFOlIO, SAlES & MARKETING

VAlAMAR SOuRCE MARKETS total: 4,750,823

FINANCIAl INdICATORS

OpERATING INCOME, EBITdA ANd EBITdA MARGIN operating income (m HRK ) eBItdA eBItdA margin Germany austria italy slovenia netherlands croatia Great britain other 1,294 29% 14% 9% 8% 6% 5% 4% 26% 1,361,182 642,344 405,093 385,021 287,369 231,947 200,067 1,237,800 1,073 1,097 1,001 910 33% 773 806 31% 28% SHARE OF pREMIuM ANd upSCAlE ACCOMMOdATION uNITS NuMBER OF OVERNIGHTS (‘000)

24% 26% 2012 2013 2014 2015 4,751 15% 22% 423 4,179 4,285 +2.5 % +1 0.9 % 307 301 284 number of 223 accommodation units 14,763 15,342 16,056 17,783 119 179 2009 2010 2011 2012 2013 2014 2015 number of Premium and Upscale accommodation units 4,324 4,997 6,317 7,383 note: Financial information until 2014 relates to the consolidated ﬁnancial reports of Valamar grupa d.d., and as of 2014 to the consolidated ﬁnancial reports of Valamar riviera d.d. Share of Premium and Upscale accommodation units 29% 33% 39% 41% 2013 2014 2015

CApITAlIzEd INVESTMENTS 382 (m HRK ) 310 AVERAGE dAIly RATE (ADR In HRK) dISTRIBuTION CHANNEl* 262 461 461 493 direct bookings 38% 227 otAs 15%

115 Alotments 21% 98 Groups & MICe 26% 49

2009 2010 2011 2012 2013 2014 2015 2013 2014 2015 * classified according to revenues 98 KeY IndICAtorS KeY IndICAtorS 99

EMplOyEES ANd ORGANIzATION dIRECT SAlES & MARKETING

2013 2014 2015 AVERAGE NuMBER OF EMplOyEES AVERAGE GROSS SAlARy (HRK) number of loyalty program members* //32,637 number of guests in marketing database 705,000 770,000 850,000 2,574 number of website unique sessions 4,648,000 5,635,000 6,230,268 8000 7,887 2500 number of website unique users 2,560,000 3,400,000 3,495,241 +9,0% 7,464 2,361 7,340 +5,7% number of phone & email requests 220,000 240,000 246,564 2,283 7,086 +1,7% 7000 +3,6% number of reservations** / 48,903 58,100 2,184 +3,4% +4,5% Guests return rate; Valamar overall*** 22.3% 23.5% 24.9%

* loyality program was launched in may 2015 2000 6000 ** not available for 2013 2012 2013 2014 2015 2012 2013 2014 2015 *** deﬁnition: guest with stay in 2015 and at least one stay within last 5 years (2010 – 2014)

AVERAGE GROSS SAlARy IN 2015 (HRK) 1 VAlAMAR ACAdEMy GuEST SATISFACTION 8,055 7,887 6,991 PROGRAM FOR FuTuRe GeneRAl MAnAGeRS AS OF 2007 -2 % 2 yearS taIlored made program +13 % GuEST SATISFACTION pERFORMANCE 2015 no. of participants Graduated Promoted Still in program 40 36 28 3 Hotels and resorts campings overall valamar 90% 78% premium midscale & premium midscale & & upscale economy & upscale economy Hrvatska Valamar Industry PROGRAM FOR FuTuRe HeAD OF Guest satisfaction index 88% 81% 84% 83% 84% riviera DePARTMenTS In OPeRATIOnS AS OF 2007 1 year taIlored made program Uplifted Guests (Staff) 95% 93% 90% 90% 93% no. of participants Graduated Promoted Still in program recommendation rate 98% 97% 96% 96% 97% CORpORATE CulTuRE ANd ClIMATE 108 100 81 27 online reputation index 89% 79% 85% 77% 83% 2015 employee Satisfaction Survey Results 93% 81% tripAdvisor (average) 4.3 3.8 4.2 4.0 4.1 2014 2015 Booking.com (average) 9.0 8.0 8.5 8.3 8.5 PROGRAM FOR FuTuRe MAnAGeRS In SAleS & no. of participants 2,909 3,099 MARKeTInG AnD ReVenue MAnAGeMenT AS OF 2012 1,5 yearS taIlored made program return rate % 87% 85% no. of participants Graduated Promoted Still in program ENERGy EFFICIENCy ANd RENEwABlE ENERGy Areas & critera 6 66 5 education 4.2 4.3 100% 100%

Leadership 4.3 4.2 EMISSIONS OF GREENHOuSE GASES pER OVERNIGHT (KG) all proGrams participants overvieW 2007 - 2016 organization of work 4.2 4.2 no. of participants Graduated 2 Promoted Still in program Attitude towards employer 4,0 4,0 154 142 115 36 2014 2015 Increase 2014 4.1 Life- work balance 3.8 3.8 92% 81% emissions of greenhouse gases (t) 17,620 18,511 5% Career opportunities 3.7 3.6 overnights 4,284,979 4,750,823 8% 2015 3.9 -2 % Salary 3.2 3.3 1 gross I salary as reported by emissions of greenhouse gases State bureau of Statistics in 2016, republic of Croatia per overnight (kg) 4.1 3.9 -2% 3.8 3.9 4.0 4.1 total 3.9 3.9 2 139 as of 2015 100 BUSIneSS reSULtS 2015 BUSIneSS reSULtS 2015 101

1,162.7 million. other operating income of profitability inDicators 14 Business results 2015 Valamar riviera, amounting to HrK 25.3 2014 2015 2015/2014 million, accounts for 1.9% (1.8% in 2014) of total revenues, indicating a 28.6% growth EBITDA margin 25.9% 32.7% 680 bp 1 In 2015 Valamar Riviera posted a high key financial inDicators [m Hrk] and resulting mainly from the one-off income Adjusted EBITDA margin 28.9% 33.9% 500 bp 18% operating income growth rate and a from the reversal of provisions for termination 2014 2015 2015/2014 49.1% eBITDA growth rate, resulting in a benefits paid and, to a lesser extent, from the EBIT margin 7.2% 13.3% 610 bp 32.7% eBITDA margin. Total revenues 1,117.6 1,333.5 19.3% consolidation of other income generated by Adjusted EBIT margin 10.3% 14.4% 410 bp Sales revenues 1,077.7 1,268.7 17.7% the companies in destination baška. Such growth rates are attributed to good- Financial income in the reporting period went EBT margin 5.4% 10.3% 490 bp quality management, successful performance Board revenues (accommodation up by HrK 19.3 million, primarily because of 2 Net profit margin 4.7% 8.1% 340 bp in the key markets and distribution channels, and board revenues) 895.9 1,043.3 16.5% foreign exchange gains. the result is a 19.3% ROA 1.7% 3.0% 130 bp favourable weather conditions and the effects Operating expenses 3 767.9 838.4 9.2% increase in total revenues to HrK 1,333.5 of four key strategy drivers: million. → ROE 2.7% 5.5% 280 bp i) continued enhancement of the EBITDA4 283.9 423.4 49.1% Adjusted ROCE 4.4% 6.3% 190 bp competitive strength and the EBITDA margin 25.9% 32.7% 680 bp improvement of services and facilities Extraordinary operations quality; result and one-off items 5 33.5 15.1 -54.8% ii) focusing on sales, marketing, and operating excellence with a view to Adjusted EBITDA 6 317.4 438.5 38.2% achieving profitability and sustainable Adjusted EBITDA margin 6 28.9% 33.9% 500 bp growth; iii) strategic acquisitions aimed at expanding EBIT 79.5 171.8 116.0% our product portfolio and ensuring further Adjusted EBIT 6 113.0 186.9 65.4% growth of Valamar riviera; iv) development of destinations, products, EBT 59.1 132.9 125.1% and value added services. EBT margin 5.4% 10.3% 490 bp Net profit 51.4 105.5 105.2% despite an increase in operating volume, wider consolidation scope, and acquisition of the baška companies, operating expenses 3 31/12/2014 31/12/2015 2015/2014 1 Classified according to the Annual Business financial Statement (GfI Pod-rdG). eBIt and eBItdA are recorded on the basis grew by nearly half as much as the sales Net debt 7 [m HRK] 687.6 1.082,5 57.4% of operating income. revenues, recording a 9.2% growth. 2 In compliance with the classification under the USALI international standard for reporting in hotel industry (Uniform System of excluding the business operations of the Net debt / EBITDA 2.4 2.6 5.6% Accounts for the Lodging Industry). baška companies, operating expenses were Net debt / Adjusted EBITDA 2.2 2.5 14.0% 3 operating expenses include material costs, staff costs, other expenditures, and other operating expenses reduced by up by modest 3.7%, building on a positive extraordinary expenses and one-off items. Cash and cash equivalents [m HRK] 195.2 318.8 63.3% cost efficiency trend after the consolidation of 4 eBItdA (eng. earnings before interest, taxes, depreciation and amortization) is calculated as: operating income - total management and organizational and Capital investments [m HRK] 381.7 310.5 -18.7% operating expenses + amortisation + value adjustments. shareholding structure, as well as the ROE 8 2.7% 5.5% 280 bp 5 the adjustment includes extraordinary income and expenses in accordance with the USALI standard classification and one-off restructuring of Valamar riviera. termination benefit costs and administrative expenses related to the process of merger and business reorganisation. 9 Adjusted ROCE 4.4% 6.3% 190 bp Adjustments have been made for: (i) the effect of extraordinary result (net income to the amount of HrK 7.8 million in 2015, i.e. revenue volume increase and streamlined income to the amount of HrK 13.3 million in the comparative period of last year); (ii) the effect of one-off revenues and cost management have resulted in an expenses for termination benefits in 2015 (income from the reversal of provisions for termination benefits paid to the amount of increase of ebItda of HrK 139.5 million, i.e. HrK 8.5 million and termination benefit costs to the amount of HrK 15.3 million); (iii) the effect of one-off termination benefit of adjusted ebItda by 38.2% to HrK 438.5 costs and administrative expenses related to the, merger and restructuring process in 2014 (to the amount of HrK 20.2 million 5. profit before tax and net profit follow million), and the effect of one-off costs related to the acquisition of new interests in the Baška companies in 2015 to the the exceptional growth rates with an increase valuation amount of HrK 0.5 million. of 125.1%, respectively 105.2% to HrK 31/12/2014 31/12/2015 2015/2014 6 Adjusted by the result of extraordinary operations and one-off items. 132.9 million, respectively HrK 105.5 million, Average share price per 31 December [HRK] 19.82 23.92 20.7% 7 net debt: non-current and current liabilities to banks and other financial institutions + liabilities for loans, deposits and other– with a 10.3% ebt margin (5.4% in 2014). cash and cash equivalents – long-term and short-term investments in securities – current loans given, deposits, etc. 10 Market capitalization [m HRK] 2,480 2,971 19.8% 8 roe refers to return on equity; calculated as: profit for the period / (capital and reserves). Compared to 2014, there is a strong 17.7% EV 11 [m HRK] 3,167 4,053 28.0% 9 Adjusted roCe refers to return on capital employed; calculated as: adjusted eBIt / (capital and reserves at the end of the increase in sales revenues to HrK 1,268.7 EPS 12 [HRK] 0.47 0.84 78.7% period + non-current and current liabilities to banks and other financial institutions - cash and cash equivalents - long-term and million, resulting mainly from the increased short-term investments in securities - loans given, deposits, etc.). volume of physical indicators and average 13 DPS [HRK] 0.50 0.55 10.0% 10 the number of shares as at 31 december 2015 net of treasury shares (includes 432,942 treasury shares of the subsidiary daily rate, as well as the increased sale of à la company Bastion upravljanje d.o.o.) amounts to 124,190,206, while per 31 december 2014 amounts to 125,113,784. carte food and beverages by 35%. national EV / Sales revenues 2.9x 3.2x 10.3% 11 eV refers to enterprise value; calculated as market capitalization + net debt. sales revenues amount to HrK 106.0 million, EV / EBITDA 11.2x 9.6x -14.3% and are 16.7% above the previous 12 ePS refers to earnings per share calculated on the basis of net profit. weighted average number of shares as at 31 december comparable period. EV / Adjusted EBITDA 10.0x 9.2x -8.0% 2015: 124,784,807. weighted average number of shares as at 31 december 2014: 108,769,757. EV / EBIT 39.8x 23.6x -40.7% 13 dPS refers to dividends per share. Sales revenues generated on international 14 Classified according to the Annual Business financial Statement (GfI Pod-rdG). the margins are stated on the basis of EV / Adjusted EBIT 28.0x 21.7x -22.5% markets are 17.8% up and amount to HrK operating income. 102 BUSIneSS reSULtS 2015 BUSIneSS reSULtS 2015 103

Compared to the last year, in 2015, total total operatinG expenses 14 [m Hrk] as at 31 december 2015, compared to 31 assets anD liabilities operating expenses were up by 10.3%, december 2014, the total value of Valamar 2014 2015 2015/2014 mainly from increased operating volume and riviera's assets is 18.3% higher. the Amount the acquisition of the baška companies. Operating expenses 767.9 838.4 9.2% reason for such an increase in assets value (‘000 HRK) excluding the effects of consolidation of the Total operating expenses 1,017.8 1,122.2 10.3% and other balance sheet items is to be baška companies, operating expenses are considered in the context of disclosing the 4,000,000 up by modest 5.1%. the modest growth is a Material costs 374.0 398.2 6.4% fair value of assets and liabilities of the continuation of the positive trend of Staff costs 302.1 327.9 8.5% newly acquired baška companies in 21,247 103,423 management consolidation and restructuring compliance with the provisions of IFrS 3 on Depreciation and amortisation 203.0 232.9 14.8% 3,500,000 355,363 at all company levels. the day of acquisition. the total share 229,557 Other expenditures 105.5 124.8 18.3% capital and reserves have increased from 25,415 83,631 accounting for 35.5% (36.7% in 2014) of HrK 1,884 million to HrK 1,902 million, Provisions 10.4 5.4 -48.7% 3,000,000 238,601 219,471 total operating expenses, material costs have mostly as a result of the generated profit increased by 6.4% to HrK 398.2 million; Value adjustments 1.4 18.7 1,229.3% adjusted for distributed dividend and the 1,311,861 4.1% of the respective growth is a result of Other operating expenses 21.4 14.5 -32.3% purchase of treasury shares. total long- 2,500,000 828,399 baška companies consolidation and the rest term liabilities are 60.8% higher, amounting primarily of higher raw materials and materials to HrK 1,331.9 million as at 31 december 2,000,000 266 87 costs, the most significant being the increase 2015, primarily driven by i) inflow of loans of 3,190,008 of direct food and beverage costs (increased higher, whereby we point to the amended the newly acquired baška companies operating volume and higher à la carte policy for accounting for unrealised foreign amounting to HrK 138.6 million, ii) 2,751,488 spending) and, to a lesser extent, the exchange differences and their recording in utilisation of credit lines for financing the 1,500,000 increase of water and electricity consumption the quarterly dynamics. revenues from 2014/15 investment cycle (a total of HrK (increased operating volume, new interest income on deposits are HrK 4.7 265.8 million was drawn in 2015, and HrK 1,883,737 1,000,000 1,901,691 investments, and replacement of fuel oil with million lower due to the lower amount of 190,2 million for refinancing the acquisition environmentally friendlier energy products). available cash funds (as a consequence of of Hoteli baška d.d.), iii) deferred tax dividend distribution to shareholders of liabilities disclosed for the difference in fair 500,000 Staff costs amount to HrK 327.9 million, Valamar riviera and the acquisition of Hoteli value of material assets of the acquired accounting for 29.2% of total operating baška d.d. carried out in the second half of baška companies as established on the expenses (29.7% in 2014). an 8.5% increase the year to the amount of HrK 188.2 million) acquisition date to the amount of HrK 20.4 0 31/12/2014 31/12/2015 in staff costs in 2015 comes from the and the general decrease in market interest million, and iv) foreign exchange rate takeover of employees from the newly rates. other financial income is HrK 2.7 differences on existing loan portfolio (HrK Total long-term asset acquired baška companies and partially from million higher, resulting mainly (to the amount 19.9 million). total short-term liabilities an increase in employees’ salaries on two of HrK 2.3 million) from the valuation and amount to HrK 229.6 million and are 4.6% occasions (1.5% in november 2014 and reversal of unrealised derivatives positions higher compared to 31 december 2014, Total short-term asset 1.5% in June 2015). during their realisation in the current year primarily due to higher short-term liabilities (forward transactions contracted for 2015 to banks (increase of 34.7% to HrK 139.8 Prepayments and accrued income accounting for 20.8% (19.9% in 2014) of and interest swap). million coming from the payment of the operating expenses, depreciation amounts to current instalment of the long-term debt). Capital and reserves HrK 232.9 million (HrK 203.0 million in Financial costs in the reporting period amount 2014). Its 14.8% increase being a result of an to HrK 78.3 million, accounting for 6.5% of Cash and cash equivalents as at 31 Provisions intensive 2014/15 investment cycle and, to a total expenses (3.6% in 2014), and are HrK december 2015 amount to HrK 318.8 lesser extent, the wider consolidation scope. 37.6 million higher compared to the same million, where this year’s impact of the Long-term liabilities period last year. Interest expenses and consolidation of the baška companies other operating expenses amount to HrK foreign exchange differences record a HrK amounts to HrK 12.5 million, indicating an Short-term liabilities 14.5 million, indicating a 32.3% decrease, 35.1 million increase, while the valuation of exceptionally strong cash potential from mainly as a result of lower compensations for contracted IrSs and forwards during the operating activities, which, together with Accrued expenses and deferred income damages coming from disputes and lower year, including the reversal of their positions external debt, provides for a smooth carrying value of disposals. Value during realisation, has resulted in HrK 2.7 continuation of future investing activities. → adjustments are up by HrK 17.2 million over million additional expenses. Foreign a write-off of receivable for given advance to exchange rate losses on existing loan glavice d.o.o. Costs provisions, amounting to portfolio, which recorded a HrK 29.2 million HrK 5.4 million, are down HrK 5.1 million increase (resulting mainly from the and mostly refer to provisions related to appreciation of the Swiss franc exchange rate initiated disputes. other expenditures are up in the first quarter), are the biggest single item 18.3%, i.e. HrK 19.3 million, as a result of of financial costs. please note the changed the baška companies consolidation and (quarterly) dynamics in recoding unrealised termination benefits paid. foreign exchange differences. the increase in interest expenses in the amount of HrK 6.0 Valamar riviera's financial income in the million is a result of an increase in non-current reporting period amounts to HrK 39.5 million liabilities driven by drawing funds from and is HrK 19.3 million, i.e. 95.4% higher granted credit lines for financing the 2014/15 compared to the same period last year. total investment cycle and the consolidation of the foreign exchange gains are HrK 21.3 million baška companies since July 2015. 104 BUSIneSS reSULtS 2015 BUSIneSS reSULtS 2015 105

the acquisition of the baška companies, total 15 board revenues for premium segment hotels Hotels anD resorts investments in combination with a good 2014 2015 2015/2014 and resorts are at HrK 184.8 million with a segment: premium 2014 2015 2015/2014 response to marketing and sales activities, with HrK 66 million, and are the biggest the focus on the earlier mentioned changed Number of accommodation units (capacity) 16,056 17,783 10.8% contributor to total board revenue growth. a Number of accommodation units (capacity) 693 1,037 49.6% marketing mix and price optimisation, have Number of beds 42,957 48,019 11.8% 55.7% increase in overnights and a 12.3% Number of beds 1,386 2,153 55.3% resulted in an increase in the number of Overnights ['000] 4,285 4,751 10.9% increase in average daily rates are a result of Overnights ['000] 221 344 55.7% overnights by 466 thousand (reaching in total excellent business of Valamar Isabella Island 4,750 thousand), supported by a 6.9% rise of Operating days 193 183 -5.2% resort 4* and Valamar dubrovnik president Operating days 267 227 -15.0% the average daily rate (6.7% excluding the Full occupancy days 121 119 -1.7% Hotel 5*. It is in these invested products and Full occupancy days 180 166 -7.8% business operations of Hoteli baška d.d. in ADR [HRK] 16 461 493 6.9% high-end facilities that a positive contribution ADR [HRK] 16 953 1,070 12.3% 2015 for comparability purposes 15 ). board is expected in the coming years, because revenues thus went up by 16.5% to HrK RevPAR ['000 HRK] 17 55.8 58.7 5.2% they allow for better marketing and sales RevPAR ['000 HRK] 17 171.4 178.2 4.0% 1,043.3 million. good response to marketing Board revenues [m HRK] 895.9 1,043.3 16.5% channel management due to increased Board revenues [m HRK] 118.8 184.8 55.6% and sales activities (particularly first-minute 18 demand. 18 offers) and growth in segments which are Adjusted EBITDA [m HRK] 504.5 628.4 24.6% Adjusted EBITDA [m HRK] 59.0 107.8 82.7% generating a higher average daily rate (individuals and m.I.C.e.) during the pre-season total Hotels anD resorts 15 the upscale segment of hotels and resorts Hotels anD resorts and at the beginning of the season have 2014 2015 2015/2014 marked an increase of HrK 11.5 million in Segment: Upscale 2014 2015 2015/2014 resulted in stronger initial booking, thus creating board revenues to a total of HrK 206.9 Number of accommodation units (capacity) 7,078 7,855 11.0% a good base for pricing policy management million. the primary reason of board revenue Number of accommodation units (capacity) 1,422 1,422 0.0% during the season. Creating a high-quality Number of beds 16,499 18,251 10.6% increase is 20 thousand overnights more Number of beds 3,235 3,243 0.2% contractual basis with partners has also Overnights ['000] 2,262 2,503 10.7% compared to the previous period. the Overnights ['000] 468 488 4.3% increased the quality in managing distribution, biggest growth influence came from Valamar sales channels, optimum prices, and marketing Operating days 194 189 -2.6% argosy Hotel 4* and Valamar Club tamaris Operating days 189 196 3.7% and sales activities in high season. Full occupancy days 150 147 -2.0% 4*, which recorded stable sales results owing Full occupancy days 151 157 4.0% 16 to high-quality distribution of allotments and Hotels and resorts 15 together have posted board ADR [HRK] 668 718 7.5% ADR [HRK] 16 913 928 1.6% groups in the pre-season, further providing revenues of HrK 826.8 million, up by HrK 118.1 17 17 RevPAR ['000 HRK] 100.1 105.3 5.2% has provided for a stable base used to RevPAR ['000 HRK] 137.4 145.5 5.9% million year-over-year. the 10.7% increase in Board revenues [m HRK] 708.7 826.8 16.7% develop activities in the individual channel. overnights and the 7.5% increase in the average Board revenues [m HRK] 195.4 206.9 5.9% daily rate have primarily been contributed to by Adjusted EBITDA [m HRK] 18 380.6 476.5 25.2% Adjusted EBITDA [m HRK] 18 109.2 123.0 12.6% the newly invested and upscale facilities. the increased board revenues have partly been 15 total campinGs 15 15 affected by the consolidation of Hoteli baška the midscale segment of hotels and resorts Hotels anD resorts d.d.; excluding the effect of the respective 2014 2015 2015/2014 recorded HrK 305.1 million in board Segment: Midscale 2014 2015 2015/2014 revenues. the 20.1% increase in board consolidation, hotels and resorts have posted a Number of accommodation units (capacity) 8,977 9,929 10.6% Number of accommodation units (capacity) 2,438 3,047 25.0% 10.3% increase in board revenues. revenues was mostly driven by the Number of beds 26,458 29,768 12.5% consolidation of Hoteli baška d.d., and the Number of beds 5,135 6,496 26.5% HrK 29.5 million higher board revenues Overnights ['000] 2,023 2,248 11.1% rest is ascribed to the stable growth at Overnights ['000] 836 971 16.1% generated by campsites 15 are a result of an Valamar pinia Hotel & residence 3*, Valamar Operating days 192 177 -7.8% Operating days 207 189 -8.7% increase in the number of overnights by 225 bellevue Hotel 4* & residence albona 3* and thousand and a HrK 12 higher average daily Full occupancy days 98 97 -1.0% the hotel allegro 3*. Full occupancy days 161 148 -8.1% 16 rate. Higher board revenues are mostly driven ADR [HRK] 213 225 5.6% ADR [HRK] 16 646 678 5.0% by the consolidation of Hoteli baška d.d.; RevPAR ['000 HRK] 17 20.8 21.8 4.8% 17 excluding the effect of the said consolidation, RevPAR ['000 HRK] 104.2 100.1 -3.9% the campsites have generated 6.3% higher Board revenues [m HRK] 187.1 216.5 15.7% Board revenues [m HRK] 254.1 305.1 20.1% 18 the 7.5% decrease of board revenues in the board revenues, mainly coming from the Adjusted EBITDA [m HRK] 123.9 151.8 22.5% Adjusted EBITDA [m HRK] 18 136.4 170.8 25.2% increase of the average daily rate. as to economy segment of hotels and resorts is the campsites, noteworthy are particularly invested result of quality upgrade at Valamar Isabella campsites, i.e. Krk campsite and while poreč otHer seGments 19 Island resort 4*, which operated in the Hotels anD resorts premium segment in 2015. by eliminating the campsites indicate a stable increase in board 2014 2015 2015/2014 Segment: Economy 2014 2015 2015/2014 revenues, with the lanterna campsite having business of Valamar Isabella Island resort 4* in Adjusted EBITDA [m HRK] -187.1 -189.9 28.6% the largest impact on board revenues growth. 2014, the economy segment marked an Number of accommodation units (capacity) 2,525 2,349 -7.0% increase in board revenues of 3.3% owing to Number of beds 6,743 6,359 -5.7% stable business at Hotel pical, girandella Overnights ['000] 736 701 -4.8% tourist Village 2* resort and marina Hotel & 15 In the 2015, the consolidation of the business operations of Baška companies for the period July – december 2015 is included, while the Baška companies are not included in the overview of 2014. note: this has led to lower revPAr and occupancy days values. mediteran residence 2*. lanterna apartments Operating days 166 170 2.4% 16 Average daily rate of accommodation unit sold is recorded on the basis of cumulative board revenues (accommodation and board’s food maintained an optimal combination of Full occupancy days 130 130 0.0% and beverage revenues). marketing segments with the purpose of ADR [HRK] 16 427 424 -0.7% 17 revenue per accommodation unit is recorded on the basis of cumulative board revenues (accommodation and board’s food and beverage securing stable revenue continuity. apartments revenues). note: In 2015, revPAr was impacted by the consolidation of Baška companies’ business operations solely for the period RevPAR ['000 HRK] 17 55.6 55.3 -0.5% July – december 2015, which, in combination with the increased number of accommodation units led to somewhat lower revPAr value. will still find a challenge in the growing online 18 when calculating adjusted eBItdA, internal allocation of revenues and expenses as well as inter-segment revenues and expenses are presence of private accommodation across all Board revenues [m HRK] 140.5 130.0 -7.5% excluded from the calculation. sales channels, whose low prices affect the Adjusted EBITDA [m HRK] 18 76.0 74.9 -1.4% 19 other segments include business of central operations, laundry, sport, central kitchen, strategic rentals, etc. economy segment. 106 BUSIneSS reSULtS 2015 BUSIneSS reSULtS 2015 107

the campsite premium segment numbers a campinGs board revenues in poreč and puntižela Destination single campsite, Krk 4*, with its business segment: premium 2014 2015 2015/2014 destination are up by HrK 45.1 million, as a poreč and puntižela 2014 2015 2015/2014 affected in 2015 by increased marketing result of a 1.8% increase of overnights and an activity and improved pricing policy. this Number of accommodation units (capacity) 452 475 5.1% 8.3% growth of the average daily rate per Number of accommodation units (capacity) 10,390 10,592 1.9% yielded high board revenue growth rates of Number of beds 1,275 1,533 20.2% accommodation unit. newly invested hotels Number of beds 29,332 30,054 2.5% 21.4% to the level of HrK 18.7 million, a Overnights ['000] 170 186 9.4% (Valamar Isabella Island resort 4* and Valamar Overnights ['000] 2,669 2,717 1.8% result of a 14.3% average price increase and Zagreb 4*) have a significant impact on hotel a 9.4% overnight increase. Operating days 500 169 -66.2% operations growth. Individual sales channels Operating days 191 184 -3.7% Full occupancy days 136 137 0.7% have recorded the highest revenue growth per Full occupancy days 114 113 -0.9% ADR [HRK] 16 252 288 14.3% sales channels in poreč hotels, followed by ADR [HRK] 16 397 430 8.3% groups and allotment. Certain lower category RevPAR ['000 HRK] 17 34.2 39.4 15.2% facilities have recorded lower growth, resulting in RevPAR ['000 HRK] 17 45.1 48.5 7.5% Board revenues [m HRK] 15.4 18.7 21.4% more attention being paid to high-quality Board revenues [m HRK] 469.0 514.1 9.6% distribution through fixed allotment and group Adjusted EBITDA [m HRK] 18 10.5 13.7 30.5% Adjusted EBITDA [m HRK] 18 271.2 303.8 12.0% segment, as well as to high-quality scheduling of events and placement of pre-seasonal activities the campsite upscale segment 15 recorded a campinGs 15 promoting longer stays instead of increasing 5.2% increase in average daily rates and a Segment: Upscale 2014 2015 2015/2014 prices, with a view to maintaining board 16.3% increase in overnights. the increase revenues. apart from the usually good placement resulted in HrK 20.2 million more in board Number of accommodation units (capacity) 3,750 4,449 18.6% of groups in october, in post-season, poreč saw revenues in 2015. the consolidation of Hotel Number of beds 11,322 13,562 19.8% an excellent response of sports groups as part of baška d.d. contributed with 8.7% in growth, Overnights ['000] 922 1,072 16.3% the Christmas tournament, as well as of while the investment in marina 3* campsite individuals during the new year holidays, and its upgrade to the upscale segment Operating days 218 159 -27.1% resulting in four open and excellently booked boosted a 10.3% growth. the rest of the Full occupancy days 102 101 -1.0% hotels (Valamar diamant 4*, Valamar Crystal 4*, growth is the effect of the stable operation at Valamar Zagreb 4*, and Valamar riviera 4*). ADR [HRK] 16 231 243 5.2% lanterna 3* campsite. RevPAR ['000 HRK] 17 23.6 24.5 3.8% the rabac destination has recorded a HrK Destination Board revenues [m HRK] 88.7 108.9 22.8% 12.4 million growth in board revenues to HrK rabac 2014 2015 2015/2014 Adjusted EBITDA [m HRK] 18 60.8 80.9 33.1% 143.6 million, driven by an 8.3% increase in overnights and a 1.3% growth of the average Number of accommodation units (capacity) 1,913 1,913 0.0% daily rate per accommodation unit. Higher Number of beds 4,485 4,552 1.5% Campsites in the midscale segment 15 campinGs 15 category facilities (Valamar Sanfior 4* and Overnights ['000] 552 598 8.3% recorded HrK 62.7 million in board revenues, Segment: Midscale 2014 2015 2015/2014 Valamar bellevue 4*) and certain lower which is a HrK 4.6 million increase. If, for category facilities are particularly worth Operating days 175 183 4.6% like-to-like comparison, we excluded the Number of accommodation units (capacity) 3,152 3,378 7.2% mentioning. namely, a successful replacement Full occupancy days 127 138 8.7% business of marina campsite in 2014 (it was Number of beds 8,875 9,537 7.5% of the sales mix and carefully planned ADR [HRK] 16 539 546 1.3% upgraded to the upscale segment in 2015), Overnights ['000] 605 669 10.6% marketing activities and promotions in lower and the consolidation of the Hotel baška d.d. category facilities have helped to maintain RevPAR ['000 HRK] 17 68.6 75.1 9.5% in 2015, midscale segment campsites Operating days 182 197 8.2% continuous booking entries and, as a Board revenues [m HRK] 131.2 143.6 9.5% recorded a stable growth of 4.3%. Full occupancy days 94 91 -3.2% consequence, high board revenue growth Adjusted EBITDA [m HRK] 18 71.9 79.8 11.0% ADR [HRK] 16 197 203 3.0% rates. the growth of board revenues and RevPAR ['000 HRK] 17 18.4 18.5 0.5% accommodation units sold has been mostly driven by good group segment performance in Board revenues [m HRK] 58.1 62.7 7.9% the pre-season in 3* facilities and the increase Adjusted EBITDA [m HRK] 18 34.9 38.7 10.9% of the individual segment during the season. In the post-season, more accommodation units were sold as a result of a better response of the campsite economy segment recorded a campinGs the group segment and a good response to stable increase in board revenues of 4.8%, Segment: Economy 2014 2015 2015/2014 the new year’s offering, while the following primarily the result of a 4.0% higher average Number of accommodation units (capacity) 1,623 1,626 0.2% hotels were open: Valamar Casa & Sanfior 4*, rate per unit. this yielded board revenues of miramar 3* and allegro 3*. HrK 26.2 million. the growth was for the Number of beds 4,986 5,136 3.0% most part the result of operation at brioni 2* Overnights ['000] 326 321 -1.5% campsite in puntižela. Operating days 203 189 -6.9% Full occupancy days 87 87 0.0% ADR [HRK] 16 177 184 4.0% RevPAR ['000 HRK] 17 15.4 16.1 4.5% Board revenues [m HRK] 25.0 26.2 4.8% Adjusted EBITDA [m HRK] 18 17.6 18.6 5.7% 108 BUSIneSS reSULtS 2015 Afterword 109

a 370 thousand, i.e. 75.1% increase in the Destination 15 15 number of overnights at the Krk krk 2014 2015 2015/2014 Opinion on the Integrated Report of destination and a 27.0% growth of the average daily rate to HrK 376 have resulted Number of accommodation units (capacity) 1,800 3,318 84.3% Valamar Riviera for the year 2015 in a 107.1% increase in board revenues. Number of beds 5,154 9,411 82.6% Such high growth rates are driven by the Overnights ['000] 493 863 75.1% consolidation of the Hoteli baška d.d. company. excluding the impact of the Operating days 185 150 -18.9% consolidation of Hoteli baška d.d., the Krk Full occupancy days 122 107 -12.3% the report in front of us is a very thorough along with investments in local programs, destination has achieved a high 9.6% ADR [HRK] 16 296 376 27.0% company report of Valamar for the year indicators measuring resource consumption growth in board revenues. In the Koralj 3* 2015. It presents a detailed overview of the are presented: energy and water, as the hotel, the individuals segment has recorded RevPAR ['000 HRK] 17 36.0 40.4 12.2% historical development, business results, most important natural resources used by the highest board revenue growth. Board revenues [m HRK] 64.7 134.0 107.1% Intensified marketing activities and an and figures for Valamar, as well as strategic Valamar, and figures on employment and Adjusted EBITDA [m HRK] 18 40.3 89.0 120.8% improved pricing policy in earlier invested goals, vision and mission, initiatives, working environment that portray the facilities on the island of Krk, Krk campsite corporate culture and, most importantly, approach to employee management as and Stara baška campsite, have led to high corporate responsibility. another important resource and a key growth rates of average daily rates and success factor for Valamar. In this area In the report for 2015, Valamar has for the board revenues. Valamar stresses its goal to become the first time included some of the indicators most preferred employer in Croatia’s from the g4 reporting guidelines by the mirjana tourism sector by the year 2020. recent investments in higher category Destination global reporting Initiative, as a matešić, facilities at the dubrovnik destination Dubrovnik 2014 2015 2015/2014 representation of its willingness to align its although the report includes a number of Director (Valamar dubrovnik president 5*, Valamar reporting over the coming years with the g4 guideline indicators, it is still not in Hrpsor argosy 4*) have resulted in HrK 251.5 Number of accommodation units (capacity) 1,953 1,961 0.4% million board revenues, i.e. a 8.9% increase Number of beds 3,986 4,002 0.4% requirements of the european directive on accordance with the g4 core option. In non-Financial reporting, which prescribes order to increase quality in that regard, compared to the same period last year, Overnights ['000] 571 572 0.2% particularly driven by a 8.4% increase of the reporting information on key non-financial Valamar’s report should include an analysis average daily rate. particularly noteworthy Operating days 230 229 -0.4% impacts as well as the management of non-financial effects that Valamar are the Valamar argosy Full occupancy days 153 153 0.0% approach company uses to manage these identifies as key, as well as associated risks. 4* hotel, accounting for high board revenues ADR [HRK] 16 773 838 8.4% impacts. along this analysis, information should be growth rates, and the Valamar dubrovnik included on Valamar’s approach to RevPAR ['000 HRK] 17 118.2 128.3 8.5% the report presents information on initiatives president 5* hotel, generating an managing these non-financial impacts, in to improve the impact on the environment exceptional growth in board revenues Board revenues [m HRK] 230.9 251.5 8.9% order to reduce risks to the environment coming from its further focusing on high-end and activities related to the local Adjusted EBITDA [m HRK] 18 121.1 155.8 28.7% and society as much as possible. also, segment (individual segment) and m.I.C.e. community, cooperation and support to the there should be a more detailed explanation and from an increase in the number of days development of the community where of the management approach and the during which it is open (46 in relation to the Valamar is especially active. there is a decisions-making process on economic, previous year as a result of investment in strong emphasis on support projects for environmental and social impacts. raising the quality to 5*). Comparing the development and preservation of marketing and sales channels, the board cultural and natural resources in We are very pleased with the fact that revenues growth at the dubrovnik destination has been driven by the destinations where Valamar operates. this Valamar riviera, member of the Croatian replacement of allotment and groups with is an indication of Valamar’s awareness of business Council on Sustainable the individuals channel. In the post-season, the need to preserve the environment and development (HrpSor) since 2016, and Valamar lacroma 4* recorded a good culture of local communities that are at the winner of the CSr Index award for best response in the m.I.C.e. and group segment same time a valuable resource in the practice in environmental protection, has from the american and Far east markets. foundation of Valamar’s offer. started a responsible and systematic Consequently, by 2020 Valamar plans to communication of its goals and activities invest 2.5% of its revenues into social for sustainability and social corporate corporate responsibility programs, including responsibility, thus affirming its ambition to destination development, investments become a leading example of sustainability into environmental protection, investments and responsible development in the into employees and philanthropy. tourism sector. Sincerely Mirjana Matešić director 110 dISCLAIMer

dISClAIMER

Strategic goals presented in this report → development of the number of represent the intention of the management overnights, booking trend, and board and are based on currently available development of average daily rates of information, current assumptions, and accommodations units in Valamar forward-looking expectations and riviera’s facilities; projections. Strategic goals are not a → development of the Croatian kuna guarantee of future results and are subject exchange rate in relation to world to future events, risks, and uncertainties, currencies (primarily euro and Swiss many of which are beyond the control of or franc), change in market interest rates, currently unknown to Valamar riviera, as change in the price of equity securities, well as to potentially incorrect assumptions and other financial risks to which Valamar that could cause the actual results to riviera is exposed; materially differ from strategic goals. also, → labour force availability, mobility and the level of capital investments in any given costs, transport, energy, and utilities year is subject to specific proposals of the costs, selling prices of fuel and other management board to the Supervisory goods and services, as well as supply board, each board may elect to deviate chain disruptions; from this policy if appropriate under the then → Changes in accounting policies and prevailing circumstances. findings of financial report audits, as well as findings of tax and other business risks and uncertainties include, without controls; being limited to the ones described in the → outcomes and costs of judicial chapter “risks and risk management“. proceedings to which Valamar riviera is a materially significant deviations from the party; strategic goals may arise from changes in → loss of competitive strength and reduced circumstances, assumptions not being demand for products and services of the realized, as well as other risks, uncertainties, Croatian tourism and Valamar riviera and factors, including: under the impact of weather conditions → macro-economic developments in the and seasonal movements; republic of Croatia and in the emitting → development of new technologies, markets, including currency exchange reliability of It business solutions and rates fluctuations and prices of goods cyber security of Valamar riviera’s and services, deflation and inflation, business operations, as well as related unemployment, developments of the costs; gross domestic product and industrial → Issues with construction companies, sub- production, as well as other contractors, permits and permissions, developments having a direct or indirect weather, prices of goods and services in impact on the purchasing power of the course of realizing investments in Valamar riviera’s guests; Valamar's hospitality asset portfolio → economic conditions, security and → Changes of tax and other regulations and political conditions, and developments laws, trade restrictions, and rates of and events in the capital markets of the customs duty; republic of Croatia and in the emitting → adverse climatic events and markets of Valamar riviera; environmental risks. → Spending level and disposable income of guests, as well as guests’ preferences, Strategic goals presented herein are not an trust in and satisfaction with Valamar outright recommendation to buy, hold or sell riviera’s products and services; Valamar riviera’s shares.