Public Disclosure Authorized HRVATSKE CESTE d.o.o. Vončinina 3, Zagreb The Annual Financial Statements and Independent Auditor's Report for the year ended 31 December 2017 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized HRVATSKE CESTE d.o.o. Vončinina 3, Zagreb C O N T E N T S Page Responsibility for the Annual Financial Statements 1 Independent Auditor's Report 2 – 7 Income statement 8 Statement of financial position / Balance sheet 9 – 10 Statement of Changes in Equity 11 Statement of Cash Flows 12 Notes to the Financial Statements 13 – 56 Financial Statements of Public Good 57 - 59 RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS The Management Board of the company HRVATSKE CESTE d.o.o., Zagreb, Vončinina 3 (“the Company’’) is responsible for ensuring that the annual financial statements for the year 2017, are prepared in accordance with the Accounting Act (National Gazette No. 78/15, 134/15, 120/16), the International Financial Reporting Standards and in accordance with the Roads Act (National Gazette No. 84/11, 22/13, 54/13, 148/13, 92/14) to give a true and fair view of the financial position, the results of operations, changes in equity and cash flows of the Company for that period. After making enquiries, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board has adopted the going concern basis in preparing the annual financial statements of the Company. In preparing the annual financial statements, the Management is responsible for: selection and consistent application of suitable accounting policies in accordance with the applicable financial reporting framework; giving reasonable and prudent judgments and estimates; and using the going concern basis of accounting, unless it is inappropriate to presume so. The Management is responsible for keeping the proper accounting records, which at any time with reasonable certainty present the financial position, the results of operations, changes in equity and cash flows of the Company, and also their compliance with the Accounting Act (NN 78/15, 134/15 i 120/16), the International Financial Reporting Standards and in accordance with the Roads Act (National Gazette No. 84/11, 22/13, 54/13, 148/13, 92/14). The Management is also responsible for safe keeping the assets of the Company and also for taking reasonable steps for prevention and detection of fraud and other irregularities. Signed for and on behalf of the Management Board: . Josip Škorić, Chairman of the Board Alen Leverić, Board member Nikša Konjevod, Board member HRVATSKE CESTE d.o.o. Vončinina 3 10 000 Zagreb 30 April 2018 1 Tel: +385 1 2395 741 BDO Croatia d.o.o. Fax: +385 1 2303 691 10000 Zagreb E-mail: bdo-croatia.hr Trg J. F. Kennedy 6b INDEPENDENT AUDITOR'S REPORT To the Owner of the company Hrvatske ceste d.o.o., Zagreb Report on the audit of the annual financial statements Opinion We have audited the annual financial statements of the company Hrvatske ceste d.o.o., Zagreb, Vončinina 3 (the “Company") for the year ended 31 December 2017, which comprise the Statement of financial position (Balance Sheet) as at 31 December 2017, Income Statement, Statement of other comprehensive income, Statement of changes in equity and Statement of cash flows for the year then ended, and Notes to the financial statements, including a summary of significant accounting policies and other explanations. In our opinion, the accompanying annual financial statements, give a true and fair view of the financial position of the Company as at 31 December 2017, and of its financial performance and cash flows of the Company for the year then ended in accordance with the Accounting Act, the International Financial Reporting Standards (the “IFRS") and the Roads Act. Basis for Opinion We conducted our audit in accordance with Accounting Act, Audit Act and International Auditing Standards (ISAs). Our responsibilities under those standards are further described in our Independent Auditor’s report under section Auditor’s responsibilities for the audit of the annual financial statements. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter /i/ We draw attention to Notes 2.9.b) and c) and 14 to the financial statements which explain that financial statements are prepared in accordance with the International Financial Reporting Standards with some exceptions determined by the Roads Act. Our opinion has not been modified in this respect. /ii/ We draw attention to Note 16 to the financial statements which explain that the Company has not completely regulated proprietary-legal relations, i.e. ownership over real estate. Procedures of clearing up and recording of ownership over the real estate are in progress. Our opinion has not been modified in this respect. /iii/ We draw attention to Note 40 to the financial statements where it is determined that a significant number of court disputes are initiated against the Company. Our opinion has not been modified in this respect. 2 Registrirano kod Trgovačkog suda u Zagrebu pod brojem 080044149 OIB 76394522236 BDO Croatia d.o.o. Key Audit Matters Key audit matters are those issues that were, by our professional judgment, of the utmost importance in our audit of the annual financial statements of the current period and include the recognized most significant risks of significant misstatement due to error or fraud with the greatest impact on our audit strategy, the disposition of our available resources and the time spent by the engaging audit team. We have dealt with these issues in the context of our audit of the annual financial statements as a whole and in forming our opinion about them, and we do not give a separate opinion on these issues. We have identified that the issues listed below are the key audit matters to be disclosed in our Independent Auditor's Report. Key Audit Issues How We Addressed Key Audit Issues Investment maintenance and reconstruction of real estate, plant and equipment In the 2017 annual financial statements, the In the audit, we focused on: Company realized real estate, plant and • verifying whether the transactions were equipment enhancements and decreases in recorded in 2017 in accordance with the 2017 as set out in Note 16. accounting policies of the Company, i Investment maintenance and reconstruction of • check whether for all road reconstructions real estate, plant and equipment is defined as an estimate of the share of reconstruction in a key audit matter because it involves the investment project has been made and significant estimates. whether this estimate is reasonable, Additionally, we have considered whether the Related Disclosures in Related Annual accounting policies are in accordance with Financial Statements International Financial Reporting Standards Please see Notes 2.7 (c) (Accounting Policies) and whether changes in accounting policies and Note 16. are disclosed in the notes to the financial statements. The results of our auditing procedures were satisfactory. The risk of non-fulfillment of the contractual During our audit, we reviewed the loan provisions of the contract with the lender agreement and the contracted business related to the business indicators indicators. Then we checked the calculation of business Contracts with the lenders include contractual indicators that were defined by contract with provisions based on the business indicators. In the lender and concluded that the Company case of non-fulfillment of these contractual did not meet the contracted business provisions by the Company, the loan obligation indicators. becomes due. However, on 21 December 2017, the Company Related Disclosures in Related Annual received a written statement from the lender Financial Statements that it will not use the right of early payment Please see note 28. of loans irrespective of unfulfilled contractual provisions. The results of our auditing procedures were satisfactory. 3 BDO Croatia d.o.o. Other Information in the Annual Report The Management is responsible for other information. Other information includes information included in the Annual report, but do not include the annual financial statements and our Independent auditor's report on them. Our opinion on the annual financial statements does not include other information, except to the extent explicitly stated in the part of our Independent auditor's report, entitled Report on compliance with other legal or regulatory requirements, and we do not express any form of assurance conclusion thereon. In connection with our audit of the annual financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the annual financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this sense, except as stated in the Section Emphasis of matters, we do not have anything to report. Responsibilities of the Management and Those Charged with Governance for the annual financial statements