hrvatske autoceste d.o.o. sirolina 4, zagreb - hac.hrhac.hr/sites/default/files/revizorski 2017....

HRVATSKE AUTOCESTE d.o.o. Sirolina 4, Zagreb

Annual Financial Statements and Independent Auditor's Report

for 2017

CONTENT

Page

Responsibility for the annual financial statements 1

Independent Auditor's Report 2-7

Income statement 8

Statement of other comprehensive income 8

Statement of Financial Position/Balance sheet 9

Statement of changes in equity 10

Cash flows Statement 11-12

Notes to the financial statements 13-59

APPENDIX - Financial statements of company Hrvatske autoceste d.o.o.and Public Good 60-63

RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS

The Management Board of Hrvatske autoceste d.o.o., Zagreb, Sirolina 4 („the Company") is responsible for ensuring that the annual financial statements for the year 2016, are prepared in accordance with the Accounting Act (Official Gazette No. 78/15, 134/15 and 120/16) and International Financial Reporting Standards, to give a true and fair view of the financial position, the results of operations, the changes in equity and the cash flows of the Company for that period.

After making enquiries, the Management Board reasonably expects the Company to have adequate resources to continue to operate in the foreseeable future. Accordingly, the Management Board prepared the annual financial statements using the going concern basis of accounting.

In preparing the annual financial statements, the Management Board 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;• the annual financial statements are prepared on the going concern basis

unless it is inappropriate to presume that the Company will continue to operate as a going concern.

The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position, the results of operations, the changes in equity and the cash flows of the Company and their compliance with the Accounting Act and the International Financial Reporting Standards. The Management is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Signed for and on behalf of the Management Board,

HRVATSKE AUTOCESTE d.o.o. Sirolina 4 10 000 Zagreb The Republic of Croatia

30 May 2018

1

Tel: +385 1 2395 741 BDO Croatia d.o.o.Fax: +385 1 2303 691 10000 ZagrebE-mail: bdo-croatia.hr Trg J. F. Kennedy 6b

INDEPENDENT AUDITOR’S REPORT

To the Owner of Hrvatske autoceste d.o.o., Zagreb

Report on the audit of the annual financial statements

Opinion

We have audited the annual financial statements of HRVATSKE AUTOCESTE d.o.o., Zagreb, Sirolina 4 (the „Company”) for the year ended 31 December 2017 which comprise the Statement of financial position (Balance Sheet) as at 31 December 2017 the Income Statement, the Statement of Other Comprehensive Income, the Statement of Changes in Equity, the Cash Flows Statement for the year then ended and the accompanying 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 for the year then ended in accordance with the Accounting Act and the International Financial Reporting Standards (IFRS) as adopted by European Committee and published in official gazette of European Union and the Roads Act.

Basis for Opinion

We conducted our audit in accordance with the Accounting Act, Auditing Act and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the annual financial statements section of our Independent Auditor’s report. 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

We draw attention to Notes 14. and 17. to the financial statements which explain certain deviations from the IFRSs required under the Roads Act. Our opinion has not been modified regarding this matter.

I BDO

Registrirano kod Trgovackog suda u Zagrebu pod brojem 080044149 OIB 76394522236

2

BDO Croatia d.o.o.I BDOKey Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual financial statements of the current period and include identified most significant risks of material misstatement due to error or fraud with the highest impact on our audit strategy, on our resources available and the time spent by the engaged audit team. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.We have determined the matters described below to be the key audit matters to be communicated in our Independent Auditor's report.

Key audit matter How we addressed key audit matter

Court Disputes and Contingent liabilities

As of 31 December 2017, the Company had provisions for legal disputes and contingent liabilities. During the company’s regular business, potential exposure to court disputes may arise. Any liabilities disclosed or disclosed contingent liabilities, or non-disclosures in the financial statements, are inherently uncertain and depend on a number of significant assumptions and judgments. These are potentially significant amounts in which the determination of the amount for disclosure in the financial statements, if applicable, is subject to a subjective assessment. Because of all this, we regard this area as a key auditor's issue.

Related Disclosures in Related Annual Financial StatementsSee Notes 2.14 (Accounting Policies) and Notes 28 and 40.

Our audit procedures related to this area, among other things, included:

- Receiving and analyzing the lawyer'sresponse to our written inquiries addressed to lawyers andconsidering certain issues with them;

- Critical review of the assumptions used and estimates pertaining to the claims. This includes assessing the likelihood of unfavorable outcome of court proceedings and the reliability of the assessment of the related amount of liability;

- Assessing the adequacy of thedisclosure in the financialstatements, taking into account sensitivity and possible prejudice in the disclosure of detailedinformation.

The results of our auditing procedures were satisfactory and we agree that the assumptions used in the estimation model are appropriate.

Merger of HAC-ONC d.o.o. into the Company

Pursuant to the Merger Agreement of 13 November 2017 and the Decision of the General Assembly of the Company and the General Assembly of HAC-ONC d.o.o. from the 13 November 2017, on 1 December 2017, the Commercial Court in Zagreb recorded the merger in the court register.

Related Disclosures in Related Annual Financial StatementsSee notes 1.4, 4, 5 and 18.

Audit procedures related to this issue included:

- review and analysis of the documentation related to the merger;

- review and analysis of the recording of the effects of the merger;

- insight into the auditor's report of the merged company; and

- assessing the adequacy of disclosure in the financial statements.

The results of our auditing procedures were satisfactory.

3

IBDOOther Information in the Annual Report

The Management Board of the Company is responsible for other information. Other information include 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 kind of conclusion with assurance on them.

In connection with our audit of the annual financial statements, it is our responsibility to read the other information and consider whether other information have significant contradictions to annual financial statements or our knowledge gained while performing the audit, or otherwise appear to be materially misstated. If, based on the work we have performed, we conclude that there is material misstatement of other information we are required to report this fact. In this sense, we do not have anything to report.

Responsibilities of the Management and Those Charged with Governance for the annual financial statements

The Management is responsible for the preparation of annual financial statements that give a true and fair view in accordance with the IFRS, and for such internal control as the Management Board determines is necessary to enable the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the annual financial statements, the Management Board is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

4

BDO Croatia d.o.o.I BDOAuditor’s Responsibilities for the audit of the annual financial statements

Our objectives are to obtain reasonable assurance about whether the annual financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Independent Auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the annual financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board.

• Conclude on the appropriateness of the Management’s Board use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Independent Auditor’s report to the related disclosures in the annual financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Independent Auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the annual financial statements, including the disclosures, and whether the annual financial statements represent the underlying transactions and events in a manger that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

5

BDO Croatia d.o.o.

Report on Other Legal RequirementsReport based on the requirements of Regulation (EU) No. 537/2014

On 20 September 2017, the General Assembly of the Company appointed us, based on the proposal of the Company's Supervisory Board, to audit the annual financial statements for 2017.

On the date of this report we have been continuously engaged in carrying out the statutory audits of the Company' from the audit of the annual financial statements for the year 2008 to the audit of the annual financial statements for the year 2017, which amounts to a total of 10 years.

In addition to the matters we have included in our Independent Auditor’s Report as Key Audit Matters, we have nothing to report in relation to point (c) of article 10 of Regulation (EU) No 537/2014.

By our statutory audit of the annual financial statements of the Company for 2017, we are able to detect irregularities, including fraud in accordance with Section 225. Respondir\$ to Noncompliance with law of the IESBA Code of Conduct, which requires to assess, while performing our audit engagement, whether the Company and Group has respected laws and regulations that are generally recognized to have a direct impact on the determination of the material amounts and disclosures in their annual financial statements, as well as other laws and regulations that do not have a direct effect on the determination of significant amounts and disclosures in its annual financial statements but compliance with which may to be the key to the operational aspects of the Company's and Group's business, its ability to continue to operate as a going concern or to avoid significant penalties.

Unless we encounter, or find out about, non-compliance with any of the aforementioned laws or regulations that are apparently insignificant, according to our judgment of its content and its influence, financially or otherwise, for the Company, its shareholders and the wider public, we are obliged to inform the Company thereof and request to investigate this case and take appropriate measures to resolve the irregularity and to prevent the reappearance of these irregularities in the future. If the Company, on the balance sheet date, does not correct irregularities based on which incorrect disclosures in the audited annual separate and consolidated financial statements arise that are cumulatively equal to or greater than the amount of materiality to the annual separate and consolidated financial statements as a whole, we are required to modify our opinion in the independent auditor's report.

In the audit of the Company's annual financial statements for 2017, we have determined materiality level for the financial statements as a whole of HRK 28,165 thousand, representing approximately 1.5% of the sales income for 2017. We chose sales income as the materiality benchmark because we consider it to be the most appropriate benchmark considering the significant fluctuations in profit before taxes in current and prior periods.

Our audit opinion is consistent with the additional audit report prepared for the Company's Audit Committee in accordance with the provisions of article 11 of Regulation (EU) No. 537/2014.

We have not provided, to the Company and companies under its control and its parent company within the EU, prohibited non-audit services during the period between the initial date of the Company's audited annual financial statements for the year 2017 and the date of this report. And we have not provided services for the design and implementation of internal control procedures or risk management related to the preparation and / or control of financial information or the design and implementation of technological systems for financial information in the preceding year. And therefore, we have remained independent of the Company in the performance of the audit.

I BDO

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BDO Croatia d.o.o.

Report based on the requirements of the Accounting Act

The Management is responsible for the preparation of the Management report as part of the Annual report of the Company. We are obliged to express an opinion on the compliance of the Management report as part of the Annual report of the Company with the annual financial statements of the Company. In our opinion, based on our audit of the annual financial statements of the Company, information in the Management report as part of the Annual report of the Company for the year ended 31 December 2017, are in accordance with the financial information stated in the annual financial statements of the Company set out on pages 8 to 59 on which we expressed our opinion as stated in the Opinion section above.

In our opinion, based on the work that we performed during the audit, the Company's management report for 2017, which is an integral part of the Annual report for 2017 is prepared in accordance with the Accounting act.

Based on the knowledge and understanding of the Company and its environment obtained while performing the audit, we have not found that there are material misstatements in the Company's Management report for 2017, which is an integral part of the Company’s Annual report for 2017.

In our opinion, based on the work that we performed during the audit, the Statement that code of corporate governance is applied, included in the Annual Report for 2017, is in accordance with the requirements of article 22, paragraph 1, points 3 and 4 of the Accounting act.

The Statement that code of corporate governance is applied, included in the Annual Report for 2017, includes information from article 22, paragraph 1, points 2, 5 and 6 of the Accounting act.

The Company's non-financial report on corporate social responsibility for 2017 is compiled in accordance with the provisions of the Accounting Act (Official Gazette 78/15, 134/15 and 120/16) and forms an integral part of the Company's Annual Report for 2017. The non-financial report will be published as an integral part of the Annual Report accordingly.

The Management is responsible for the preparation of annual financial statements for the year ended 31 December 2017 in prescribed form based on the Statute of structure and content of annual financial statements (Official Gazette 95/16) and in accordance with other regulations governing the operations of the Company (“Standard annual financial statements”). Financial information presented in Company’s standard annual financial statements are in accordance with the information presented in the Company’s annual financial statements given on pages 8 to 59 on which we expressed our opinion as stated in the Opinion section above.

The engagement partner on the audit of the annual financial statements of the Company for the year 2017 resulting in this Independent Auditor’s report is Ivan Cajko.

I BDO

Zagreb, 30 May 2018

BDO Croatia d.o.o. Trg J. F. Kennedy 6b 10 000 Zagreb BDO Croatia d.o.o. . ^

za pni/unje iv\ i/orskih.konzalting i racunoNodsiNcnih usluga Zagreb, J. 1. Kennedy 6/b

ClrjkoIvan Cajkof Member of the Management Board

OIvan Cajko, Ce^ffed Auditor

7

Hrvatske autoceste d.o.o., ZagrebINCOME STATEMENT AND STATEMENT OF OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2017

The Company The CompanyDESCRIPTION Note 2017 2016

HRK '000 HRK 000OPERATING INCOME Sales income Other operating income

Total operating income

OPERATING EXPENSES Material costs Staff costs Depreciation Other costsImpairments, excluding financial assets ProvisionsOther operating costs Total operating expenses

PROFIT (LOSS) FROM OPERATING ACTIVITIES

FINANCIAL INCOME FINANCIAL EXPENSES

PROFIT/(LOSS) FROM FINANCIAL ACTIVITIES

TOTAL INCOME TOTAL EXPENSES

DIFFERENCE BETWEEN TOTAL INCOME AND EXPENSE

3 1,882,141 1,655,9673 36,220 26,064

1,918,361 1,682,031

4 (547,916) (568,606)5 (96,217) (54,159)

6,13 (1,048,091) (1,029,260)7 (24,959) (4,152)8 (3,807) (10,694)9 (12,941) (4,060)10 (14,198) (11,947)

(1,748,129) (1,682,878)

170,232 (847)

11 5,854 7,22912 (5,550) (4,631)

304 2,598

1,924,215 1,689,260(1,753,679) (1,687,509)

170,536 1,751

PROFIT BEFORE TAXATION 170,536 1,751Corporate income tax 14 (30,869) (1,751)

PROFIT FOR THE YEAR 139,667 0

Other comprehensive income/loss before taxation 0 0

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 139,667 0

The accompanying notes from 1 to 42, set out below, form an inseparable part of thesefinancial statements.

8

Hrvatske autoceste d.o.o., ZagrebSTATEMENT OF FINANCIAL POSITION/ BALANCE SHEETAs at 31 December 2017 - continued

DESCRIPTION

ASSETSNon-current assetsIntangible assets Property, plant and equipment Non-current financial assets ReceivablesTotal non-current assets

Current assetsInventoriesReceivables from related companies Trade receivablesReceivables from employees and company membersReceivables from State and other institutionsOther receivablesCurrent financial assetsCash and cash equivalentsTotal current assets

Prepayments and accrued income

TOTAL ASSETS

EQUITY AND LIABILITIES EquitySubscribed capital Public capital

- Public capital on management- Public capital from fuel fee- Public capital from other sources

Legal reservesRetained earningsOther comprehensive profit for the year (Public Good)Total equity

Provisions

Non-current liabilities

Current liabilitiesLiabilities to related companiesLoans, deposits and similarLiabilities to banks and other financial institutionsPrepaymentsTrade payablesLiabilities to employeesTaxes, contributions and similarOther current liabilitiesTotal current liabilities

Accrued expenses and deferred income

TOTAL EQUITY AND LIABILITIES

TOTAL TOTALNote 31 Dec 2017 31 Dec 2016

HRK '000 HRK '000

16 8,005 7,93417 40,768,384 41,644,75818. 153,562 318,238

2,956 8440,932,907 41,971,014

19 43,015 1,78520 943 2,16721 96,523 87,186

774 7922 31,336 63,82623 1,329 71424. 5,339 458,66525 449,211 211,947

628,470 826,369

26. 107,109 625

41,668,486 42,798,008

27.131,140 131,140

19,582,71218,796,084

(19,998,377)568

15,362139,667

19,582,71218,310,445

(19,254,870)568

15,3620

18,667,156 18,785,357

28 194,198 157,067

29 19,533,693 18,488,955

30 0 98,05731 14,118 18,72332. 2,565,763 4,795,744

213 18033 209,883 124,68934 47,960 3,69935 106,449 52,969

169 972,944,555 5,094,158

36 328,884 272,471

41,668,486 42,798,008


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Hrvatske autoceste d.o.o., ZagrebSTATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2017

DESCRIPTION

Subscribedstock

capital

Public capital under

management

Public capital from gas reimburs

Public cap from other fm sources

Legalreserves

Retainedearnings

Profit for the year TOTAL

HRK '000 HRK '000 HRK '000 HRK ‘000 HRK ‘000 HRK '000 HRK '000 HRK '000

Balance as at 1 January 2015 - restated 131,140 19,582,712 17,836,040 (17,792,694) 568 15,362 0 19,773,128

Public capital from gas reimbursement 0 0 474,405 0 0 0 0 474,405Public capital - collection of guarantees 0 0 0 205 0 0 0 205Public capital - deposit interests 0 0 0 512 0 0 0 512Public capital - income from share portion m investment funds 0 0 0 697 0 0 0 697Public capital - foreign exchange gams 0 0 0 423,004 0 0 0 423,004Public capital - foreign exchange losses 0 0 0 (200,325) 0 0 0 (200,325)Public capital - financing costs 0 0 0 (837,189) 0 0 0 (837,189)Public capital - -financing water management objects and ZUC 0 0 0 (20) 0 0 0 (20)Public capital - impairment of the public property under concession 0 0 0 (105,433) 0 0 0 (105,433)Public capital - impairment of the public property out of use 0 0 0 (61,486) 0 0 0 (61,486)Public capital - covering a part of depreciation 0 0 0 (79,299) 0 0 0 (79,299)Public capital - transfer to HC d o.o 0 0 0 (602,842) 0 0 0 (602,842)Balance as at 31 December 2016 131,140 19,582,712 18,310,445 (19,254,870) 568 15,362 0 18,785,357

Allocation of profit 0 0 0 0 139,667 139,667Public capital from gas reimbursement 0 0 485,639 0 0 0 0 485,639

Public capital - deposit interests 0 0 0 81 0 0 0 81Public capital - income from share portion in investment funds 0 0 0 942 0 0 0 942Public capital - foreign exchange gams 0 0 0 701,590 0 0 0 701,590Public capital - foreign exchange losses 0 0 0 (549,582) 0 0 0 (549,582)Public capital - financing costs 0 0 0 (769,384) 0 0 0 (769,384)Public capital - suspended projects of public good 0 0 0 (572) 0 0 0 (572)Public capital - impairment of the public property under concession 0 0 0 (103,079) 0 0 0 (103,079)

Public capital - equity of merged company 0 0 0 (23,511) 0 0 0 (23,511)

Income from conversion of investment in progress to public good 0 0 0 8 0 0 0 8

Balance as at 31 December 2017 131,140 19,582,712 18,796,084 (19,998,377) 568 15,362 139,667 18,667,156

The accompanying notes from 1 to 42, set out below, form an inseparable part of these financial statements.

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Hrvatske autoceste d.o.o., ZagrebCASH FLOWS STATEMENTFor the year ended 31 December 2017

DESCRIPTION 2017 2016

HRK '000 HRK '000

Cash flows from operating activities

Profit before tax 170,536 0

Depreciation and impairments of public goods 1,048,091 1,029,260

Other changes on public goods (257,868) (246,219)

Net foreign exchange differences (3,789) (4,825)

Expenditures from provisions 12,941 4,060

Impairments of current asset 3,807 10,694

Income from the sale of assets (1,616) (123)

Interest income (1,123) (8,215)

Interest expenses 5,550 4,631

Income from dividends and profit shares (943) (710)

Increase/decrease in inventories (41,230) 1,520

Increase/decrease in trade receivables (9,336) (45,940)

Increase/decrease m receivables from related companies 1,224 (1,177)

Increase/decrease m receivables from employees and company members (695) (3)

Increase/decrease in receivables from the State and other institutions 32,490 6,197

Increase/decrease in other receivables (615) (133)

Increase/decrease in prepayments and accrued income (106,483) 671

Provisions 37,131 (5,659)

Increase/decrease in prepayment liabilities 33 115

Decrease / increase in liabilities to related companies (98,057) 15,528

Increase/decrease m trade payables 85,194 17,444

Increase/decrease m liabilities to employees 44,261 (1,321)

Increase/decrease in liabilities for taxes, contributions and similar 53,480 (37,651)

Increase/decrease in other current liabilities 71 25

Increase/decrease in accrued expenses and deferred income 56,413 (51,201)

Interest paid (5,550) (4,631)

interest collected 1,123 8,215

Inflows from dividends and profit shares 943 710

Profit tax (30,869) 0

Cash flows from operating activities 995,114 691,262

Cash flows from investing activities

Inflows

Inflows from the sale of non-current assets 7,255 123

Inflows from the collection of non-current receivables 0 10

Inflows from the sale of financial assets 472,462 8,467

Outflows

Outflows for financial assets (44,776) (454,317)

Expenses for non-current receivables (2,872) 0

Purchase of non-current tangible and intangible assets (71) (366,945)

Cash flows from investing activities 431,998 (812,662)

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Hrvatske autoceste d.o.o., ZagrebCASH FLOWS STATEMENTFor the year ended 31 December 2017 - continued

Cash flows from financial activities Inflows

Increase in current and non-current financial liabilities

Outflows

Payments of non-current and current financial liabilities

Cash flows from financial activities

1,044,738

(2,234,586)(1,189,848)

1,373,709

(1,227,727)145,982

Net cash flow

CASH AND CASH EQUIVALENTS AT THE BEGINING OF THE YEAR

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

237,264 211,947 449,211

24,582187,365211,947


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Hrvatske autoceste d.o.o., ZagrebNOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2017

1. GENERAL1.1. Legal framework and activities

The company Hrvatske autoceste d.o.o. Zagreb, Sirolina 4 was registered at the Commercial Court in Zagreb based on the Decision No. Tt-01/2180-2 dated 11 April 2001. The Company was founded based on the Decision reached by the Republic of Croatia, on Division and Transformation of the company Hrvatska uprave za ceste (HUC) into Hrvatske autoceste d.o.o. Zagreb and Hrvatske ceste d.o.o. and based on the Founder’s Statement on the Establishment of the Company dated 9 April 2001.

Subscribed capital amounts to HRK 102,071 thousand. The Republic of Croatia is the sole founder of the Company. Since the subscribed capital was determined based on the partition balance sheet as at 11 April 2001, the Company made corrections of the opening balance during 2001 and 2003, which increased subscribed capital by HRK 29,069 thousand. The difference in the amount of HRK 29,069 thousand was registered at the Commercial Court in Zagreb pursuant to Decision Tt-04/7025-3 dated 16 July 2004. After the increase, the subscribed capital amounts to HRK 131,140 thousand.

Operating subject - activities:

• Designing and procuring of Location and Building Permits and certificate of occupancy for motorways,

• Construction of motorways and road facilities with collection of road tolls on state roads,

• Maintenance of motorways and road facilities with collection of road tolls on other state roads,

• Other tasks of maintenance of motorways and road facilities with road toll collection on other state roads and other.

1.2. Transfer of business on HAC-ONC d.o.oOn 12 April 2013 the Company and its subsidiary Company, HAC ONC, concluded an

agreement on the transfer of the business units of Toll collection service and Regular maintenance, and entering assets and rights m share capital by increasing an existing share.

Based on the contract, the Company transferred to the subsidiary company HAC ONC the right of ownership over the assets that were in the Company's books registered as fixed assets associated with the Sector of toll collection and Maintenance sector as well as the common services that provide support to the sector in carrying out their activities.

The company’s decision from 12 April 2013 increased the share capital of the subsidiary HAC ONC inputting assets and rights for an amount of HRK 67,086 thousand.

Employment contracts for 2,264 workers employed in the toll collection and Maintenance sector as well as workers in the common services of the Company related to the business units that are subject to transfer, are transferred by force of law with all the rights and obligations arising from employment in unaltered form to the company HAC - ONC as the new employer on the day of 15 April 2013.

1.3. Service contract routine maintenance of motorways and toll collectionOn 21 November 2012, company Hrvatske autoceste odrzavanje l naplata cestanne

d.o.o., Zagreb (hereinafter: the "HAC ONC") was founded with the aim to take over the responsibility of maintaining motorways and toll collection.

13

On 15 April 2013, the Company signed the contract with company HAC ONC to provide services of regular maintenance of motorways and toll collection that HAC ONC entrusts providing services of toll collection and regular maintenance works. The agreed fee for services rendered in 2013 in the period from 16 April to 31 December amounted to HRK 46,756 thousand per month, or a total of HRK 397,428 thousand. Annex III to the contract on providing services of regular maintenance of motorways and toll collection from 14 June 2014, the contracted service fee for 2014, was agreed in the amount of 546,000 thousand HRK.

On 15 September 2014, the contracting parties have concluded a new service contract of routine maintenance of highways and toll collection that regulated the annual fee for 2014 in the same amount of 546,000 thousand HRK; it also regulates the possibility of reducing the annual fee amount by the value of the non-implemented Regular Maintenance Operative Plan for 2014 Pursuant to the aforementioned, in December 2014, the Company and HAC-ONC d.o.o. signed the Contract and reduced the contracted fee amount by HRK 16,700 thousand.

On 3 November 2015, the Company and HAC-ONC d.o.o. signed Annex I to the Contract of routine maintenance of highways and toll collection that regulated the fee on the level of HRK 541,000 thousand. Annex 2 signed on 3 June 2016 stipulated fee for the period from 1 January to 31 December 2016 in the amount of HRK 549,555 thousand. On 30 December 2016 Contract was signed which reduces the annual amount of regular maintenance fee for the year 2016 in the amount of HRK 14,552 thousand for the maintenance part which was planned but not executed.

1.4. Operating and financial restructuring of the road sector

In early 2017, the Croatian Government adopted a Decision on the Business and Financial Restructuring of the Roads Sector. This decision aims to enable the road sector reform, strengthen the supervision and planning for the sector, increase operational efficiency and improve the finances of the sector.

The main restructuring elements are:

- managing the road sector- planning, financing and investments implementation in the road sector- managing companies and their operating

The planned measures of managing roads sector refer to the merger of Hrvatske autoceste odrzavanje l naplata cestanne d.o.o. and the Company.

Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done.

Pursuant to the Merger Agreement of 13 November 2017 and the Decision of the General Assembly of the Company and the General Assembly of HAC-ONC d.o.o. from the 13 November 2017, on 1 December 2017, the Commercial Court in Zagreb recorded the merger in the court register.

14

The merged company incurred following income and expense in the period until the merger was recorded in the court register:

P OZ I C I J Al-XI 2017

HRK 000

OPERATING INCOMESales i ncome 649,132

Other operating income 4,020

Total operating income 653,152

OPERATING EXPENSESMaterial costs (95,935)

Services costs (92,044)

Staff costs (437,728)

Depreciation (17,062)

Impairments (1,218)

Provisions (2,685)

Other operating costs (4,090)Total operating expenses (650,762)

PROFIT (LOSS) FROM OPERATING ACTIVITIES 2,390

FINANCIAL INCOME 510

FINANCIAL EXPENSES (2)

PROFIT FROM FINANCIAL ACTIVITIES 508

TOTAL INCOME 653,662TOTAL EXPENSES (650,762)

PROFIT BEFORE TAXATION 2,898Corporate income tax (299)

PROFIT FOR THE YEAR 2,599

15

Statement on financial position of the merged company as of the day of the merger was as

follows:

POSITION

ASSETS

Long term assets

Intangible assets

Property, plant and equipment

Long term receivables from related parties

Long term receivables from other

Total long term assets

Short term assets

Inventories

Receivables from related parties

Receivables from customers and other receivables

Short term financial assets

Cash at bank and cash register

Total short term assets

TOTAL ASSETS

EQUITY AND LIABILITIES

Equity

Subscnbed capital

Capital reserves

Profit for the period

Total equity

Provisions

Short term liabilities

Liabilities to related parties

Liabilities for loans, deposits and similar

Liabilities to suppliers and other liabilities

Total short term liabilities

TOTAL EQUITY AND LIABILITIES

30 Nov 2017

HRK '000

2,076

40,736

11,762

3,172

57,746

39,842

113,646

36,951

99

66,384

256,922314,668

92,286

72,144

2,599

167,02939,202

430

2,758

105,249

108,437314,668

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1.5. Employees

On 31 December 2017, the Company employed 3,035 persons (31 December 2016: 203). The employee qualification structure is the following:

Structure 31 Dec 2017 31 Dec 2016Doctor's/Master's degree

16 7University degree

330 118Two-year post-secondary diploma

334 26Secondary school certificate

1,936 46Skilled workers

313 5Unskilled workers

106 1

TOTAL 3,035 203

1.6. Company BodiesThe Company Bodies are the Assembly, Supervisory Board and Management Board.

The Republic of Croatia, as the founder, exercises its rights through the Government of the Republic of Croatia. Pursuant to the decision on representing the Croatian Government in the Assembly of Hrvatske autoceste d.o.o. dated 8 November 2004, the Minister of the Sea, Tourism, Transport and Development (Ministry of Maritime, Transport and Infrastructure) represents the Croatian Government in the Company’s Assembly.

The Supervisory Board consists of 5 members, 4 of which are elected by the Assembly, one at the proposal of the Ministry of Maritime Affairs, Transport and Infrastructure; Ministry of Environmental and Nature Protection, Ministry of Construction and Physical Planning; Ministry of Finance and Ministry of Economy, Labour and Entrepreneurship, while the fifth member is elected by the employees. Members’ mandate is 4 years long.

Supervisory Board

Brammir Jerneic Nino Vela Darko Kasap Ladislav Turcinovic Karlo Rukavina 2017, Representative

Member since 31 May 2017, President since 2 June 2017 Member since 31 May 2016, Deputy President since 3 June 2017 Member since 31 May 2016 Member since 31 May 2016(Member since 9 Apnl 2014, Deputy since 3 June 2016 to 13 April

of employees

Management Board

Boris Huzjan Director (since 4 December 2017)

Josip Drazenovic Director (from 31 May 2016 to 4 December 2017)

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESSummary of significant accounting policies is set out below.

2.1. Statement of compliance and basis of presentation

Financial statements of the Company for 2017 are prepared m accordance with the Accounting Act (Official Gazette No 78/15, 134/15, 120/16), International financial reporting standards ("IFRS") and in Regulations on the structure and content of the annual financial statements (OG No 95/16).

Financial statements have been prepared using the basic accounting assumption of the transaction in which the effects of transactions are recognized when they occur and reported in financial statements for the period to which they relate and with the application of fundamental accounting assumption of going concern.

The Company’s financial statements are prepared in HRK as the company’s measuring and reporting currency. As on 31 December 2017 the exchange rate of 1 USD and 1 EUR amounted to HRK 6,30 HRK and HRK 7.51 (31 December 2016: HRK 7,17 and HRK 7.56).

On 8 July 2011 new Roads Act came to power (Official Gazette 84/11,22/13, 54/13, 148/13) in which Articles 94, 95 and 96 define roads as assets belonging to the Republic of Croatia which is kept in separate business records of the company which manages roads. These assets of the republic of Croatia are presented in these financial statements as public capital, as prescribed by law; the accounting approach to the recognition of certain operating events is the following: the application of the capital approach as defined by enacting clause. The capital approach includes keeping records of certain operating events in the following way:

• Funds from the annual fees for the use of public roads, user charges and fees to finance the construction and maintenance of public roads by which the Republic of Croatia finances the construction, maintenance and other management services of public roads and public roads, make the Croatian property (public capital), which is recorded separately in the ledgers of legal entity that manage public road.

• A legal entity that manages public road includes depreciation of public roads managed in its operating expenses. Part of the depreciation that is not covered by own income is accounted at the expense of public capital.

• Public capital also include income based on foreign exchange differences, interest and other income generated on the basis of money management that makes the public capital and public capital is reduced by interest and other fees associated with financing the construction and maintenance of public roads and for foreign exchange losses.

• The difference between own income and expenditures realized in fiscal year shall be compensated at the expense of public capital in accordance with the approved business plan of the Company.

• The fee to finance the construction and maintenance of public roads, paid by manufacturers and importers of petroleum products and the competent government authority for the department stores, is paid on the account of the Company and represent the capital by which the Republic of Croatia finances the construction and maintenance of public roads, recovery of loans which financed the construction of state roads and the recapitalization of the Company, in accordance with the program.

• Public capital is increased by the profit realized by the Company and the Republic of Croatia is the only member of the Company.

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* Funds collected from fees to fund construction and maintenance of public roads, paid by manufacturers and importers of petroleum products and the competent government authority for the department stores, are used for the purposes in accordance with annual plans for construction and maintenance of motorways, which with the consent of the Government brings the Company.

2.2. Changes in accounting policies

Adoption of new and revised International Financial Reporting Standards

Standards and Interpretations effective in the current period

The following new standards and amendments to the existing standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee and adopted by the European Union are effective for the current period:

• IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments)The Amendments became effective for annual periods beginning on or after 1 January 2017 with earlier application permitted. The objective of the Amendments is to clarify the requirements of deferred tax assets for unrealized losses in order to address diversity in practice in the application of IAS 12 Income Taxes. The specific issues where diversity in practice existed relate to the existence of a deductible temporary difference upon a decrease in fair value, to recovering an asset for more than its carrying amount, to probable future taxable profit and to combined versus separate assessment.

• IAS 7: Disclosure Initiative (Amendments)The Amendments are effective for annual periods beginning on or after 1 January 2017 with earlier application permitted. The objective of the Amendments is to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes. The Amendments specify that one way to fulfil the disclosure requirement is by providing a tabular reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including changes from financing cash flows, changes ansing from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes.

The adoption of these Amendments and Standards had no material impact on the financial statements of the Company.

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Adoption of new and revised International Financial Reporting Standards(continued)

Standards and Interpretations issued by IASB issued but not yet effective and notearly adopted by the Company or by the Group

At the date of authorization of these financial statements the following standards, revisions and interpretations adopted by the EU were in issue but not yet effective:

• IFRS 9 Financial Instruments: Classification and MeasurementThe standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Management of the Company plans to adopt it once it becomes effective in EU and is currently assessing its impact.

• IFRS 15 Revenue from Contracts with CustomersThe standard is effective for annual periods beginning on or after 1 January 2018. IFRS15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. Management of the Company is currently assessing the impact of the introduction of this new standard.

• IFRS 15: Revenue from Contracts with Customers (Clarifications)The Clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted. The objective of the Clarifications is to clarify the lASB’s intentions when developing the requirements in IFRS 15 Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amending the wording of the “separately identifiable” principle, of principal versus agent considerations including the assessment of whether an entity is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for accounting of intellectual property and royalties. The Clarifications also provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. Management of the Company is currently assessing the impact of the introduction of these clarifications.

• IFRS 16: LeasesThe standard is effective for annual periods beginning on or after 1 January 2019. IFRS16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. Management of the Company is currently assessing the impact of the introduction of this new standard.

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1. Adoption of new and revised International Financial Reporting Standards(continued)

2.Standards and Interpretations issued by IASB issued but not yet effective and not

early adopted by the Company or by the Group (continued)

• IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance ConsiderationThe Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non-monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the nonmonetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation has not yet been endorsed by the EU.

• IFRIC 23: Uncertainty over Income Tax TreatmentsThe Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier application permitted .The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers: whether tax treatments should be considered collectively; assumptions for taxation authorities' examinations; the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and the effect of changes in facts and circumstances. This Interpretation has not yet been endorsed by the EU.

• IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments)The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. These Amendments have not yet been endorsed by the EU.

• IAS 40: Transfers to Investment Property (Amendments)The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. These Amendments have not yet been endorsed by the EU.

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Hrvatske autoceste d.o.o., ZagrebNOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2017 - continued


2.Standards and Interpretations issued by IASB issued but not yet effective and not


• The IASB has issued the Annual Improvements to IFRSs 2014 - 2016 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2017 for IFRS 12 Disclosure of Interests in Other Entities and on or after 1 January 2018 for IFRS 1 First-time Adoption of International Financial Reporting Standards and for IAS 28 Investments in Associates and Joint Ventures. Earlier application is permitted for IAS 28 Investments in Associates and Joint Ventures. These annual improvements have not yet been endorsed by the EU. The overview of IASB has issued the Annual Improvements to IFRSs 2014 - 2016 Cycle is presented below:

o IFRS 1 First-time Adoption of International Financial Reporting Standards: This improvement deletes the short-term exemptions regarding disclosures about financial instruments, employee benefits and investment entities, applicable for first time adopters.

o IAS 28 Investments in Associates and Joint Ventures: The amendments clarify that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

o IFRS 12 Disclosure of Interests in Other Entities: The amendments clarify that the disclosure requirements in IFRS 12, other than those of summarized financial information for subsidiaries, joint ventures and associates, apply to an entity’s interest in a subsidiary, a joint venture or an associate that is classified as held for sale, as held for distribution, or as discontinued operations in accordance with IFRS 5.

• Prepayment Features with Negative Compensation (Amendments to IFRS 9)The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. These Amendments have not yet been endorsed by the EU.

• Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted.Clarifies that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. These Amendments have not yet been endorsed by the EU.

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4.Standards and Interpretations issued by IASB issued but not vet effective and not


• The IASB has issued the Annual Improvements to IFRS Standards 2015-2017 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2019.These annual improvements have not yet been endorsed by the EU. The overview of the Annual Improvements to IFRSs 2015 - 2017 Cycle issued by the IASB is presented below:

o IFRS 3 and IFRS 11: The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.

o IAS 12: The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises.

o (AS 23: The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.

2.3. The key estimates and uncertainty of estimates

In preparing financial statements, it is necessary to apply certain estimates which have an influence on the Company and related companies’ assets and liabilities, revenues and expenses as well as disclosure of the Company s contingent liabilities.

Future events and their effects can't be predicted with certainty; therefore actual results could differ from those estimated. The estimates used in preparing the financial statements are subject to change as new events occur, additional experience, obtaining additional information and insights and changes in the environment in which the company operates.

The key estimates used in applying accounting policies in preparing the financial statements relate to the depreciation of non-current tangible and intangible assets, assets impairments, impairment of inventories, impairment of inventories, receivables and provisions and disclosure of contingent liabilities.

Besides making separate financial statements, the Company also makes consolidated financial statements. These separate financial statements were made since the Company is legally bound to do this. However, for more detailed understanding of Company's operating, these separate financial statements need to be read together with consolidated financial statements which the Company makes and publicly issues.


2.4. Reporting currencyFinancial statements of the Company are stated in Croatian Kuna as measuring and

reporting currency.

Financial statements are presented in the thousands of HRK.

2.5. Recognition of income

a) Operating incomeIncome from operating activities and other income is stated at the invoiced value of

the compensation received or the resulting receivable.

Revenue is recognized on the date of its realization, i.e. in the moment of using the motorway. At the same moment, the moment of the realization of income is considered to be the period in which the user has left the motorway, regardless of the moment of began of its use. Income from tolls represents Company's own revenue, paid by users of public goods.

Revenue from services other than toll revenues, are recognized by their degree of completion. Degree of completion is measured by the ratio of costs incurred to total expected costs required to deliver the service. Exceptionally, where a physical inspection of contracted work performed is agreed in various stages of completion, the degree of completion is measured by physical completion of contracted services. If the final outcome is difficult to evaluate (e.g. due to the uncertainty of collection), revenue is recognized to the extent that the expected charge, but not more than the total costs incurred by such agreement.

Date of delivery of products and goods is the day when the buyer takes the greater part of the risks and rewards of ownership, and there is no uncertainty regarding the billing, claims and related costs of products and goods.

Revenue is recognized only when it is probable that the economic benefits associated with the transaction will flow to the Company. When the outcome of the transaction, which includes the provision of services, cannot be estimated reliably, revenue will be recognized only in the amount of recognized recoverable expenses.

In case of uncertainty of collection of an amount included in income, the uncollectible amount is recognized as an expense, and the amount of revenue originally recognized is not corrected.

b) Financial incomeWithin financial income interest income is also stated, resulting from financial

assets. Interest income is considered realized on the day of contractually acquiring the right to interest and is stated as accruals until the balance sheet date. Default interest is charged on overdue receivables, are recognized in income when the payment becomes certain, which is often associated with their actual charge.

The conversion of monetary items (cash and receivables and liabilities) denominated in foreign currencies in HRK is done at the spot rate on balance sheet date, which corresponds to the agreed rate of certain activities (mostly middle rate of Croatian National Bank).

Foreign exchange differences are recorded separately as positive and negative in the general ledger, and because of their significance are presented separately in the profit and loss.

Dividend income is recognized on the date of the Decision made by the Assembly of the company that distributes income from operations.

24


2.6. Recognition of expenses

a) Operating expensesExpenses are recognized based on the direct connection between occurred

expenses and certain realized items of income (principle of confrontation). Based on the mentioned, operating expenses represent all expenses in relation to invoiced income from providing services.

Recognition of expenses is deferred to further accounting periods if it is expected realization of revenues in the next several accounting periods.

Operating expenses include the costs of materials, small tools and services, maintenance services, the costs of gross wages and salaries, depreciation of own assets, depreciation of public goods (roads) and other operating expenses covered directly by operating income.

b) Maintenance costsExpenses for repairs or maintenance of property, plant and equipment, results due

to recovery or maintenance of future economic benefits that can be expected from the originally estimated useful life of assets. These costs are recognized as an expense when occurred.

c) Gross salaries and wagesEmployee benefits include wages, salaries and social security contributions, fees for

use of annual leave and sick leave, participation in profits and bonuses and monetary benefits of current employees, and benefits after termination of employment, such as severance and life insurance, and are recorded as expenses as incurred regardless of whether the current obligation is settled.

All pertaining tax levies directly connected to accrued salaries and compensations are included in employees’ expenses and represent their constituent part.

Reimbursement to employees in accordance with collective contracts, are included in employees expenses and are their constituent. If the period of certain right is different than the payment period and longer than one year (non-current), liabilities are discounted by the average interest rate on government bonds of similar maturities.

d) DepreciationIntangible assets, property, plant and equipment with indefinite life are

depreciated.The amount of investment in non-current assets shall be compensated by the

depreciation according to agreed or appropriate period of use of individual right, respectively property, plant and equipment.

When assessing the depreciable amount, the expected residual value at the end of useful life is determined. If this is insignificant compared to the total value of assets, it is not respected when calculating depreciation. The expected residual value of assets related to the road is usually zero.

Estimated useful life is estimated for each asset item separately, and is dependent on the technical characteristics of the assets, the speed of its economic obsolescence, as well as the expected use.


Typically, the expected useful lives of assets are:USEFUL LIFE

2017 2016

DESCRIPTION (year) (year)

Buildings 40 40Semi-motorways and motorways - upper layer 33 33

Equipment 4-10 4-10Intangible assets 5 5

Depreciation is calculated using a method which corresponds to the realization of economic benefits from assets. For road and the property it is expected to be equally used throughout the year, therefore, applies a linear method of depreciation of these assets. Depreciation is calculated individually for all assets.

During the year depreciation is calculated on an annual temporary calculation corrected for the change during the year. Depreciation begins to accrue after the month in which it commenced use of assets.

Depreciation of public good (roads) and accompanying equipment, in part which may be covered by own income, is credited to the expenses of the period, while the difference of the part of depreciation that is not covered will be covered by debiting public capital.

e) Financial expensesInterest expenses resulted from business relations payables are stated within

financial expenses. Interest is recognized as expense in the period in which they occurred, and are stated as accruals until the balance sheet date.

The conversion of monetary items (cash and receivables and liabilities) denominated in foreign currencies in HRK is done at the spot rate on balance sheet date, which corresponds to the agreed rate of certain activities (mostly middle rate of Croatian National Bank).

Foreign exchange differences are recorded separately as positive and negative in the general ledger, and because of their significance are presented separately in the profit and loss.

2.7. Recognition of assetsa) InventoriesInventories are measured at cost. Value adjustment of inventories due to the

damage, decrease in value or other justified reasons is performed once a year at the suggestion of persons responsible for inventories, as to be measured at the balance sheet date, at cost or net realizable value, whichever is lower.

Inventory of raw material and material, spare parts, small inventory, packaging and car-tires are stated at the actual cost that comprise invoicing value of the supplier increased by all attached acquisition costs (customs fees, taxes, transportation costs and all other costs that may be attributed to procurement). Commercial discounts and similar items are deducted when determining the purchase expenses.

Items are recorded as small inventory provided their duration of use is shorter than one year, and their individual value does not exceed HRK 3,500 HRK. When putting small inventory, packaging and car-tires in use, they are written off at one-time.

Inventories are measured by the weighted average cost method.

26


b) Financial assetsThe Company classifies its financial assets in the following categories:

a) at fair value through profit or loss, loans and receivables with separate review of:(1) financial assets recognized as such by initial recognition, and (n) financial assets held for trading

b) investments held to maturityc) loans and receivablesd) financial assets available for sale

The classification depends on the purpose for which the financial asset is acquired. Management Board determines the classification of its financial assets at initial recognition.

Financial assets at fair value

Financial assets at fair value through profit or loss include financial assets held for trading. Financial assets are classified into this category if they are acquired for the purpose of selling in the near term. Assets in this category are classified as current assets.

Financial assets at fair value through profit and loss are initially carried at fair value, and transaction cost is stated in the income statement. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” are presented in the income statement within financial income or financial losses in the period in which they arise.

Financial assets available for sale

Available-for-sale financial investments include non-derivative assets stated in this category or which is not classified in other category. It is included in non-current assets unless management intends to sell the investment within 12 months from the balance sheet date. Financial assets available for sale are measured at fair value unless fair value cannot be reliably measured, then the investment is carried at cost.

Gains or losses arising from changes in fair value of investments available for sale are recognized directly in reserves in equity. Upon sale or impairment the cumulative gain or loss - which is the difference between the acquisition cost and current fair value is removed from equity and reported in the statement of comprehensive income.

Purchases of investments are recognized on the transaction date, the date on which the Company commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for financial assets not carried at fair value in the statement of comprehensive income. Investments are derecognized when expired or the right to receive cash flows from investments has been transferred or when the Company has transferred substantially all risks and rewards of ownership.

Investments in Associates and joint venturesInvestments in joint ventures (measured at share portion, method) refer to the

share portion in HAC ONC d.o.o. In separate statements, these investments are measured at cost.

Investments in Associates in which the Company has significant influence, and has no control, are reported in separate statements at cost less impairment losses.

The Company annually reviews the existence of possible impairment cost of investment when an event or changes in circumstances indicate that the carrying amount may not be recoverable.

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c) Property, plant and equipment

Non-current assets are:• Land• Buildings• Plant and equipment

Under the concept of property, plant and equipment, it is considered buildings with all purposes, plant and equipment (machines, helicopters)) and tools, plant and office inventory, furniture and transport equipment (assets), as defined in the Accounting Act.

Equipment and inventory are recorded as property, plant and equipment, respectively non-current tangible assets, according to legal regulations, if their lifetime is longer than one year, and their individual value greater than HRK 3,500 on the day of purchase.

Purchase of property, plant and equipment during the year is recorded at cost. Cost represent invoiced value of acquired assets plus any costs incurred by putting the assets into use (import duties, delivery and transmission costs, installation, fees, costs of borrowing) and by the time of use of property.

Subsequent expenditure relating to the already recognized assets is added to the carrying amount of that asset when it is probable that future economic benefits will inflow into the Company in a higher amount than originally agreed. Any other subsequent expenditure is recognized as an expense in the period in which it was incurred. Increase in property value is causing an extended lifetime of assets, increased use capacity and increased quality of products. Assets for which replacement of individual parts is expected and which have different useful lives are separated for financial reporting purposes to the appropriate depreciation units for which it is determined useful life in accordance with the characteristics of these assets.

Non-current assets are measured at cost less accumulated depreciation and accumulated impairment losses.

Book value of an item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of property, plant and equipment included in the

Statement of comprehensive income for the period in which they are derocogmzed, and are classified as a gain or loss equal to the difference between the net amount receivable from the disposal and the carrying value of assets, and are recognized separately from operating income.

Internally-generated non-current tangible assets are stated at cost (actual value), if the cost doesn't exceed market value.

Roads, as public property that may not become an object of ownership, and which was given to the Company for managing, are recorded within the Company's non-current tangible assets and they are stated as public capital. Costs of designing, expropriation, construction, supervision and other costs related to construction of new roads, as well as investment and improvement maintenance costs, which relate to renovation and replacement of part of the road of limited duration of use, are all included in the value of the public property (roads).

Construction and renovation of public property (roads) is financed from the fees included in the oil derivatives, excess of own income, depreciation of public property (roads), loans and allotted donations.

28


d) Intangible assetsIntangible assets meet recognition conditions if acquired separately and if they

arise from contractual or other legal rights. Intangible assets consist of rights, which use will produce economic benefits to the Company in a period longer than one year, and whose individual cost value can be reliably measured.

Deprecation of intangible assets is calculated according to the estimated useful life or the contractual term rights to use certain assets. In the case of intangible assets with indefinite useful life, special attention is paid to the impairment test to be conducted for any property before drawing up the annual financial statements.

Intangible assets are measured at cost less accumulated depreciation and accumulated impairment losses.

Carrying value of intangible assets is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of intangible assets included in the statement of comprehensive income for the period in which they are derecognized, and are classified as revenue in the amount of the difference between the net amount receivable from the disposal and the carrying value of assets.

2.8. LiabilitiesFinancial liabilities are measured at depreciated cost which includes all fees,

premiums, discounts, etc. that are included in the calculation of effective interest rates through which these costs are included in the profit or loss for the period.

2.9. Capital

a) Stock capitalStock capital represents part of the Company's total capital. Stock capital is

registered with the competent commercial court.

b) Public capitalPublic capital represents the value of assets - motorways, a semi-motorways,

bridges, tunnels and other facilities on the motorways, which are given to the Company under management and reported in the ledgers of the Company, but are not registered in the stock capital.

Fees for financing construction and maintenance of public roads from the state budget must be paid in accordance with the provisions of the Roads Act to the accounts of the Company and represents the capital (hereinafter: public capital) of the Republic of Croatia, which financed the construction and maintenance of public roads, the loan repayment for financing construction of motorways and state roads, and recapitalization of the Company in accordance with the program from the article of the Roads Act.

The difference between own revenues and expenses realized in fiscal year shall be compensated at the expense of public capital based on the approved plan of the Company.

Public capital also includes income based on exchange rate differences, interests and other revenue from the cash management that make the public capital, while public capital is reduced by the interests and other fees associated with financing the construction and maintenance of public roads, and for exchange rate losses.

Profit realized by the Company, while the Republic of Croatia is the sole Company’s member, increases public capital.

29


Public capital is reduced by impairment (depreciation) of public goods (roads) by the difference of the amount of depreciation uncovered by own revenues of the Company.

c) Other reservesThe classified part of the capital - company's principal, which refers to the

formation of reserves under the law or regulations due to provision of additional hedging measures from the effects of losses, is reported as other reserves. Other reserves might include a dedicated portion of retained earnings provided for hedge of capital.

2.10. Corporate income taxTaxable income is the profit for the period specified in accordance with tax

regulations, and according to which there is a duty of paying taxes on profits. The tax loss is loss for the period determined in accordance with tax regulations, according to which there is no obligation to pay corporate income tax. Corporate income tax expense is the cumulative amount of current and deferred tax included in the determination of net profit or loss for the period.

Deferred tax liabilities are the amounts of corporate income tax payable in future periods relating to taxable temporary differences. Deferred tax assets are amounts of corporate income tax recovery in future periods, and relate to:

(a) Temporary deductible differences(b) Unused tax losses carried forward and(c) Unused tax reliefs carried forward.The tax liability is measured at the current tax rate, according to reported income

tax.Deferred tax assets and liabilities are measured at the corporate income tax rates

that are expected to apply in period of cancellation of the differences.

2.11. LeasesLeases are classified as finance leases whenever all the risk and rewards of

ownership are transferred to the lessee. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Finance leases are recognized at the beginning of the lease period as the assets and liabilities by an amount equal to the fair value of the leased property, plant or equipment, or the present value of minimum payments, determined at the beginning of the lease, whichever value is lower.

All initial direct costs of lessee are added to the amount that is recognized as anasset.

The assets under finance leases are depreciated in the same manner as defined for intangible assets, i.e. property, plant and equipment. However, if there is uncertainty as to the lessee to acquire ownership at the end of the lease, the assets are fully depreciated in a period shorter than the lease period.

Operating leases are recognized as expense on straight-line basis during the leaseperiod.

2.12. Government Grants and Disclosure of Government AssistanceDue to the specific role of the Company, and the specific methods of evaluation,

billing and finance the core activities of the company Hrvatske autoceste d.o.o., established under the Act on public roads with the aim of construction and maintaining public roads, some of the inflows needed to finance the activities, is provided from the proceeds of fees from oil products from which it finances primarily construction of public roads, and the return of borrowed funds.

30

Road as a public good over which one cannot acquire ownership rights, which are given to the management of the Company, are recorded in the non-current assets of the Company and recorded as public capital.

Construction and renovation of public goods (roads) are funded by fees from oil products, the surplus of own income, assets depreciation of public goods (roads), loans and dedicated grants.

Public capital is increased by the proceeds of fees from oil derivatives. According to the Roads Act, receipts from fees from oil products are paying producers and importers of oil products, and the competent government authority for commodity stocks per litre delivered, and imported refined oil products at the expense of the Company. Proceeds from the fees for oil derivatives are used to cover part or the total depreciation of public goods (roads), if the Company's own resources are not available for their coverage, and to finance road construction in a broader sense.

Public capital is increased by other income and receipts that are directly attributable to public capital, such as donations and dedicated grants for the construction of public goods, foreign exchange gains related to public goods and interest on dedicated deposits formed by public capital funds.

Public capital is reduced by the impairment (depreciation) of public goods (roads) for difference of the amount of depreciation uncovered by the Company's own revenues.

Public capital is reduced by amounts that are directly attributable to public capital, such as financial expenses (cost of loan processing, credit fees and guarantees, foreign exchange differences, interest expenses in the period of repayment, the interest expense up to the beginning of the repayment penod, default interest, etc.), which is not included in the purchase value of the public good.


2.13. Non-current assets held for sale and discontinued operationsNon-current assets can be classified as held for sale if their carrying value can be

compensated primarily through sale rather than through continuing use.Non-current assets held for sale are measured at carrying and fair value less costs

to sell, depending which is lower.

2.14. ProvisionsA provision is recognized only when the Company has a present obligation as a

result of a past event and it is probable, that the obligation will require an outflow of resources with economic benefits and a reliable estimate can determine the amount of the obligation.

Provisions are reviewed at each Balance sheet date and adjusted to reflect current best estimates.

Provisions are established for litigation costs, severance payment costs, reimbursements to employees for non-current employment and retirement (regular jubilee awards and severance payments) and cost of stimulating severance payments based on the Company's personnel restructuring plan.

Provisions for expenses related to employee benefits are based on expected earnings in accordance with the applicable collective agreement and the Rulebook and are measured at the projected unit credit method.

Provisions for reimbursements to employees for non-current employment and retirement (regular jubilee awards and severance payments) are determined as the current value of future cash outflow using the discount rate which corresponds to the interest rate on state bonds.

2.15. Contingent liabilities and assetsContingent liabilities are not recognized in the financial statements but are

disclosed only in the notes to the financial statements.

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Contingent assets are not recognized in the financial statements, but are recognized when an inflow of economic benefits becomes probable.

2.16. Subsequent eventsSubsequent events that provide additional information about the Company’s

position on the balance sheet date (events that have the effect of adjustments) are recognized in the financial statements prior to the adoption of the financial statements by the Assembly (Adoption of the report for publication). Those events that are not adjusting events are disclosed in the notes to the financial statements when of material importance as an explanation of the circumstances occurred at the expiration of the fiscal year.

2.17. Operating segmentsThe Company is not organized according to the production segments, but the

Company uses capital approach, which implies the existence of two parallel records of public goods and own revenues and expenditures, as well as assets, liabilities and equity arising from these changes.

2.18. ComparativesComparatives have been reclassified as necessary to make them consistent with the

current year.

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NOTES TO THE INCOME STATEMENT

Below given is the overview of the Income Statement for the Company. Income Statement of the public good is stated within the capital.

3. OPERATING INCOME

2017 2016DESCRIPTION HRK ‘000 HRK 000

Income from fees for use of land 42,302 42,902Tolls income 1,825,076 1,600,833Rent income 3,648 3,926Income from sales of goods 7,115 5,739Other sales income 4,000 2,567

Total sales income 1,882,141 1,655,967

Income from surpluses 208 191Income from sale of assets 2 123Income from liabilities wnte-offs 6,503 1,026Income from claims, penalties and similar 15,739 1,542Collected wntten-off receivables 2,229 4,184Income from earlier years 115 93Other operating income 11,424 18,905

Total other operating income 36,220 26,064

Total 1,918,361 1,682,031

hi Income from fees for use of land originated from entrusting use of road land and the performance of supporting activities on land in accordance with Article 73 of the Roads Act (O.G. 84/11, 22/13, 54/13, 148/13, 92/14).

Conditions and way of use of the road land, conditions and procedures of delegating use of road land to legal and physical person and rights and obligations of performing accompanying activities on the road land are prescribed by the Ordinance on Measures for Calculation of Fees for Usage of Road Land and Fees for Performing Accompanying Activities (O.G. 78/14), as well as measures for calculating amount of fee for their usage.

Pursuant to Article 25 of the Road Act, which entered into force on 8 July 2011, what is prescribed is the foundation of the easement and the right to build on the public road for construction of utility, energy and water management structures and buildings of electronic communication subject to the execution of the agreement with the public road manager. For this type of installations that were performed before entry into force of the Roads Act, the contracts were signed on the use of road land.

The Roads Act, Article 86, paragraph 2 and 3, provides the exemption from payment of fees for right of way / construction of installations that are exclusively or predominantly owned by the Republic of Croatia or local and territorial (regional) government or owned by the authorized easement / right of construction, which are predominantly owned by the Republic of Croatia or local and regional (regional) governments. For other authorized persons of construction easement stipulates the obligation to pay compensation for the right of use of construction according to the Decision on the establishment of fees for the right of way and rights to build on the public road (O.G. 87/14).

33

/n/ Toll income represents Company’s own income collected from the users of public roads, increased by the value added tax, and it serves to cover the costs of maintenance in broader sense, i.e. to cover operating, financial and extraordinary expenses of the Company, and depreciation of public roads up to the amount of total income of the Company. Tolls are charged pursuant to the Decision on the toll amount and system of toll collection for using motorways and Tunnel St. Ilija from 14 October and pursuant to the Decision on stimulation models of toll collection and prepaid toll collection dated 27 January 2015 which was approved by the Minister of Traffic in Article 87, Paragraph 2 of the Roads Act.

4. MATERIAL EXPENSES


DESCRIPTION

2017

HRK '000

2016

HRK '000

Raw material and material 15,978 7,051

Sold goods 2,021 1,961

Other external costs 529,917 559,594

Total 547,916 568,606

!M Raw material and material costs are shown as follows:

DESCRIPTION

2017

HRK '000

2016

HRK 000

Used raw material and material 11,333 5,189

Used energy 4,154 1,776

Used reserved parts for maintaining material assets 288 0

Small inventory and car-tires write-offs 190 84

Other material expenses 12 2

Total 15,978 7,051

/ii / Other external costs are shown as follows:

DESCRI PTION

2017

HRK '000

2016

HRK '000

Transport services 199 104

PTT services 1,163 710

Maintenance services 500,410 536,299

Rental services 502 333

Advertising and propaganda 354 269

Research and development services 695 1,063

Utility services 876 506

Intellectual and agency services 14,240 11,592

Medical services 8 3

Bank services and payment transaction services 893 1,388

Assets insurance premiums 4,478 3,752

Staff insurance premiums 48 50

Reimbursement of usage intellectual ownership rights 478 455

Utility fees 1,293 780

Data processing and software maintenance 3,737 1,724

Road fees and technical inspection of vehicles 235 63

Other services 308 503

Total 529,917 559,594

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Maintenance services in the amount of HRK 500,410 thousand mainly relate to services provided by the associate company HAC-ONC with which the Company on 15 April 2013 entered into service contract maintenance of motorways and toll collection by which HAC ONC- is entrusted to provide toll collection services and performing routine maintenance. The company and society HAC - ONC on 15 September 2014 entered into a new service contract highways maintenance and toll collection.

On 3 November 2015, The Company and company HAC-ONC d.o.o. signed Annex I. to the Contract on providing the service of regular maintenance of motorways and toll collection pursuant to which the fee for this service was determined in the amount of HRK 541,000 thousand HRK. Annex II. to the Contract was signed on 3 June 2016 and regulated the fee for the period from 1 January do 31 December 2016 in the amount of HRK 549,555 thousand. On 30 December 2016, the new contract fee for the services of regular maintenance of motorways and toll was reduced by HRK 14,552 thousand on behalf of unrealized Operational maintenance plan for 2016.


Within intellectual and mediation services, The Company included audit cost the fee which amounted to HRK 380 thousand in 2017.

5. STAFF COSTS

DESCRIPTION

2017

HRK '000

2016

HRK '000

Net salanes 54,668 29,405Taxes and contributions from salanes 27,248 16,788Contributions on salaries 14,301 7,966

Total 96,217 54,159

Pursuant to the Decision of the Government of the Republic of Croatia on the Acceptance of Business and Financial Restructuring of the Road Sector Idas: 022-03 / 17-04 / 77 Ur.No .: 50301-25 / 25-17-4 of 16 March 2017, point a) Management of the road sector section iv) Reorganization of the companies in the motorway sector and Decision of the General Assembly of Hrvatske autoceste d.o.o. No. 4/17 of 12 April 2017, the procedure of merging the company HAC ONC d.o.o into the Company has been done. Because of merger, 2,842 workers were transferred from HAC ONC d.o.o. into the Company.

6. DEPRECIATION

DESCRIPTION

2017

HRK '000

2016

HRK 000

Depreciation of intangible assets 1,047 2,993Depreciation of tangible assets 5,043 2,811Depreciation of public good 1,042,001 1,023,456Total 1,048,091 1,029,260


7. OTHER COSTS

2017 2016

DESCRIPTION HRK '000 HRK '000

Other material rights of employees 22,894 2,474Professional education 170 155Representation 73 57Memberships 309 365Woods contribution 508 499Court costs 598 267Professional literature and newspapers 57 69

Fees for non-permanent work contracts 258 254Taxes independent of the business result and other fees 92 12

TOTAL 24,959 4,152

8. IMPAIRMENT

2017 2016


Assets impairment (except financial assets) 3,807 10,694

TOTAL 3,807 10,694

9. PROVISIONS

2017 2016


Jubilee awards, retirements, etc, 452 467

Provisions for restructuring costs 11,273 0Provisions for legal proceedings 1,216 3,593

TOTAL 12,941 4,060

10. OTHER OPERATING COSTS

2017 2016


Non-wntten-off value of written-off and disposed assets 2,437 1,776

Donations, gifts in kind 10,602 8,991

Shortages 1 5

Fines, penalties and damages 0 103

Subsequently identified expenses from earlier years 881 1,072

Other operating costs 277 0

Total 14,198 11,947

By the Decision of the Board, Company made the donation of toll for using the motorway services provided in 2017 for public service vehicles with nght-of-passage, or entities performing fire, health, humanitarian and other activities for public benefit.

36


11. FINANCIAL INCOME

2017 2016


Dividends and share portion 943 710

Interests, exchange rate differences, dividends and other income from related companies 943 710

Interest income 1,123 1,695Exchange rate gains 3,788 4,824

Interests, exchange rate differences, dividends and other income from related companies 4,911 6,519Total 5,854 7,229

12. FINANCIAL EXPENSES

2017 2016


Interest expenses 5,550 4,631

Interests, exchange rate differences and other expenses with unrelated companies and other entities 5,550 4,631

Total 5,550 4,631

Interest expense primarily relate to accrued penalty interest on late payments.

13. DEPRECIATION AND IMPAIRMENT OF PUBLIC GOOD

The Company prepares reports and reports profit in accordance with the International Financial Reporting Standards, with the exception determined by applying the Roads Act (Official Gazette 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit. The stated Act stipulates that a negative operating result of the period is transferred to the public capital, and impairment (depreciation of public roads) in the part that is not covered by the Company's own revenue, is transferred to the public capital.

The impairment of public roads in the concession is recognized directly to the public capital on the basis of impairment calculation carried out in accordance with the rates prescribed for the depreciation of motorway.

In 2017, the depreciation costs of the public good are covered by the Company's total income as a result of reduced depreciation due to the expiry of useful life, toll revenue growth and business rationalization.

14. CORPORATE INCOME TAXh! In accordance with the legislation, income tax is calculated at the rate of 18%

(2016: 20%) on the base which comprises the difference of income over expenses realized in the accounting period for which the tax base is determined.

In 2017, the tax liability amounts HRK 30,869 thousand while in 2016 tax liability was HRK 1,751.

/n/ The Company prepares reports and reports profit in accordance with International Financial Reporting Standards with variations determined by applying the

37


Roads Act (OG 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit and capitalizing interests for financing investments in building and maintaining motorways.

Application of Article 95 and 96 of the Roads Act on the Company provides a consistent application of the law without any change in the reporting manner and data comparability with data on the level of the Company.

The reconciliation of accounting profit to taxable profit of the Company was conducted as follows:

2017 2016


Income 1,924,215 1,689,260

Expenses (1,753,679) (1,687,509)

Profit/(loss) for the year 170,536 1,751

Tax non-deductible expenses 2,543 8,247

Tax benefits (1,585) (843)

Profit/(loss) after increase and decrease 171,494 9,155

Tax loss carried forward 0 (398)

Tax base 171,494 8,757

Tax liability 30,869 1,751

Tax loss available for transfer 0 0

/in/ The Company prepares reports and states profit in accordance with the International Financial Reporting Standards with variations determined by applying the Roads Act (OG 84/11, 22/13, 54/13, 148/13). The application of this Act conditions deviations when stating profit and capitalizing interests for financing investments in building and maintaining motorways.

38


15. STATEMENT OF OTHER COMPREHENSIVE INCOME - PUBLIC GOOD

Statement of other comprehensive income - Public Good, is shown in Appendix - Financial Statement of Hrvatske autoceste d.o.o. and public good.

NOTES TO THE STATEMENT OF FINANCIAL POSITION/BALANCE SHEET

16. INTANGIBLE ASSETS

DESCRIPTION Development

Concessions, patents, licenses,

trademarks and service marks, software and other rights

Intangible assets under construction

Total intangible assets

HRK '000 HRK '000 HRK '000 HRK 000

COST

Balance as at 1 January 2016 192 95,843 0 96,035

Direct additions 0 0 2,307 2,307Transfer to use 0 2,307 (2,307) 0Transfer to other assets position 0 (1,888) 0 (1,888)Disposals, write-off and shortages 192 96,262 0 96,454

Balance as at 31 December 2016 0 0 1,773 1,773

Direct additions 0 1,773 (1,773) 0Transfer to use 0 4,235 0 4,235Disposals, wnte-off and shortages 0 (433) 0 (433)

Balance as at 31 December 2017 192 101,837 0 102,029

ACCUMULATED DEPRECIATION


Depreciation dunng the year 0 2,993 0 2,993Disposals, wnte-off and shortages 0 (1,888) 0 (1,888)


Depreciation dunng the year 0 3,778 0 3,778Taking over assets m use HAC-ONC 0 2,159 0 2,159

Disposals, write-off and shortages 0 (433) 0 (433)


CARRYING VALUE




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17. PROPERTY, PLANT AND EQUIPMENT

Descnption LandNatural

resources BuildingsPlant and

equipment

Tools,furniture

andtransportvehicles

Prepayments for tangible

assets

Tangible assets under construction

Othertangibleassets TOTAL

HRK '000 HRK '000 HRK '000 HRK '000 HRK '000 HRK 000 HRK '000 HRK '000 HRK 000COSTBalance as at 1 January 2016 1,682,310 15,716,973 32,493,418 9,020,474 15,622 26,044 2,231,155 182 61,186,178Direct acquisition 0 0 0 0 0 6,151 335,226 0 341,377Transfer to use 16,245 3,129 657,074 19,989 264 0 (696,701) 0 0Transfer to the public capital 0 0 0 0 0 0 (61,506) 0 (61,506)Asset transfer to HC d.o.o. 0 0 (602,841) 0 0 0 0 0 (602,841)Transfer to other assets positions 0 0 0 0 (996) 0 (32,240) 0 (33,236)Disposals, write-off and shortages 0 0 (2,655) (10,957) (949) 0 (454) 0 (15,015)Balance as at 31 December 2016 1,698,555 15,720,102 32,544,996 9,029,506 13,940 32,196 1,775,479 182 60,814,956Direct acquisition 0 0 0 0 0 (8,148) 241,435 0 233,287Transfer to use 7,235 8,700 92,786 36,498 467 0 (145,686) 0 0Return to use 0 0 0 195 9 0 0 0 204Transfer to the public capital 0 0 0 0 0 0 (572) 0 (572)Transfer to other assets positions 0 0 0 0 0 0 (20,795) 0 (20,795)Taking over assets in use HAC-ONC 0 0 1,312 56,015 91,856 0 0 0 149,183Disposals, write-off and shortages 0 0 0 (2,253) (113) 0 (229) 0 (2,595)Balance as at 31 December 2017 1,705,790 15,728,802 32,639,094 9,119,961 106,159 24,048 1,849,632 182 61,173,668

40


ACCUMULATED DEPRECIATIONBalance as at 1 January 2016 0 0 10,031,844 7,926,226 15,174 0 0 0 17,973,244Depreciation during the year 0 0 936,150 274,147 222 0 0 0 1,210,519Depreciation correction 0 0 480 0 0 0 0 0 480Assets in use take-over 0 0 0 143 (996) 0 0 0 (853)Disposals, write-off and shortages 0 0 (1,282) (10,961) (949) 0 0 0 (13,192)

Balance as at 31 December 2016 0 0 10,967,192 8,189,555 13,451 0 0 0 19,170,198Depreciation during the year 0 0 926,887 218,775 483 0 0 0 1,146,145Depreciation correction 0 0 1,244 0 0 0 0 0 1,244Assets in use take-over 0 0 0 195 44 0 0 0 239Assets in use take-over HAC-ONC 0 0 582 25,317 82,549 0 0 0 108,447Disposals, write-off and shortages 0 0 (14,895) (5,968) (127) 0 0 0 (20,990)

Balance as at 31 December 2017 0 0 11,881,010 8,427,874 96,400 0 0 0 20,405,284

NET CARRYING AMOUNT

Balance as at 1 January 2016 1,682,310 15,716,973 22,461,574 1,094,247 448 26,044 2,231,155 182 43,212,933Balance as at 31 December 2016 1,698,555 15,720,102 21,577,804 839,951 489 32,196 1,775,479 182 41,644,758Balance as at 31 December 2017 1,705,790 15,728,802 20,758,084 692,087 9,759 24,048 1,849,632 182 40,768,384

The Company prepares reports and states profit in accordance with the International Financial Reporting Standards with deviations determined by applying the Roads Act (OG 84/11, 22/13, 54/13, 148/13). Deviations required under this Act refer to the capitalization of interest (the value increase of investments in building and maintaining motorways for the amount of interest).

41


Review of investments in progress is shown as follows:

31 Dec 2016 Increase Decrease 31 Dec 2017

DESCRIPTION HRK '000 HRK '000 HRK '000 HRK '000Investments in progress for lands - dispossession 72,985 9,550 (7,231) 75,304Investments in progress for lands - conclusions 7,498 704 (224) 7,978Investments in progress for lands - works 46,238 165 d) 46,402Investments - incomplete dispossession 1,257 137 (12) 1,382a) Total investment in land 127,978 10,556 (7,468) 131,066

Construction objects - Motorways under construction - changes of installation 21,750 1,366 (108) 23,008

Construction objects - Motorways under construction - clearing of mines 14,373 0 0 14,373

Construction objects - Motorways under construction - projects 174,285 4,521 (7,666) 171,140

Construction objects - Motorways under construction - construction 1,334,156 151,282 (78,257) 1,407,181

Construction objects - Motorways under construction - supervision 36,782 5,568 (1,936) 40,414

b) Total investments in construction objects 1,581,346 162,737 (87,967) 1,656,1 16

c) Construction objects - Motorways under construction - toll payment system and equipment 44 8,174 (8,165) 53

d) Investments in investment and improvement maintenance 66,112 59,315 (63,029) 62,398

Total (a + b + c + d) 1,775,480 240,782 (166,629) 1,849,633

42


Investments in land are shown as follows:31 Dec 2016 Increase Decrease 31 Dec 2017

Description HRK '000 HRK '000 HRK '000 HRK '000

Istarski Ipsilon 32,344 4,977 (3,595) 33,726

Motorway Zagreb - Goncan 0 15 (15) 0

Motorway Zagreb - Macelj 0 469 (2) 467

Bosiljevo - Junction Sveti Rok 0 295 (295) 0

Junction Sveti Rok - Tunnel Sveti Rok - Split 0 357 (357) 0

Split - Metkovic - Ploce 0 370 (370) 0

Ploce - Dubrovnik 715 0 0 715

Motorway Zagreb - Lipovac 63 407 (410) 60

Motorway Rupe - Rijeka - Zuta Lokva 0 3 (3) 0

Motorway Bell Manastir - Osijek - B.and H.- Ploce 51,710 172 100 51,982

Krk bridge 0 204 0 204

Junction Vrbovec - Koprivmca - Border crossing 368 423 0 791

Junction Vrbovec - Bjelovar - Border crossing 26,579 263 0 26,842

Motorway Zagreb - Sisak 16,199 2,601 (2,521) 16,279

Total 127,978 10,556 (7,468) 131,066

Investments in construction objects are shown as follows:31 Dec 31 Dec2016 Increase Decrease 2017

Descnption HRK '000 HRK '000 HRK '000 HRK '000

Istarski Ipsilon 6,736 1,272 0 8,008

Motorway Zagreb - Goncan 1,204 2,027 (2,475) 756

Motorway Zagreb - Macelj 0 0 0 0

Bosiljevo - Junction Sveti Rok 437 1,128 (1,353) 212

Junction Sveti Rok - Tunnel Sveti Rok - Split 600 346 (133) 813

Split - Metkovic - Ploce 17,566 5,381 (9,730) 13,217

Entry into the Port of Ploce, EU Project 55,619 701 (56,320) 0

Ploce - Dubrovnik 1,331 0 0 1,331Junction Metkovic - Border crossing with Bosnia and Herzegovina 4 0 0 4

Motorway Zagreb - Lipovac 25,815 30,018 (3,170) 52,663

Motorway Bell Manastir - Osijek - Svilaj 1,167,059 66,467 (365) 1,233,161

Zagreb detour 1,370 25 0 1,395

Junction Vrbovec - Koprivmca - Border crossing 20,731 3,703 0 24,434

Junction Vrbovec - Bjelovar - Border crossing 268,363 37,099 0 305,462

Motorway Zagreb - Sisak 14,511 14,570 (14,421) 14,660

Total 1,581,346 162,737 (87,967) 1,656,116

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18. NON-CURRENT FINANCIAL ASSETS

31 Dec 2017 31 Dec 2016


Share in joint venture HAC-ONC d.o.o.Share in principal of BINA FINCOM d.d.

053,085

145,50053,085

IV investments into financial assets (33,459) (46,000)

Share in principal of BINA ISTRA d.d. 3,790 3,790

a) Shares (stakes) in related companies 23,416 156,415Receivables for loans given to related companiesValue adjustment of receivables for loans given to related companies

19,186(12,541)

21,3180

b) Loans to related companies 6,645 21,318Receivables for deposits in abroad 123,501 140,505

c) Loans, deposits and similar 123,501 140,505

Total (a + b + c) 153,562 318,238

t\i Share in the principal of BINA-FINCOM d.d. Zagreb relates to 758,361 shares in the nominal value of HRK 70, i.e. 44.00%.

/n/ Share in the principal of BINA-ISTRA d.d. Zagreb relates to 378,985 shares in the nominal value of 10 HRK, i.e. 14.78%. Shares of the company BINA-ISTRA d.d. were given as fiduciary to Deutsche Trustee Company Limited from London.

/in/ On 21 November 2012, company Hrvatske autoceste-odrzavanje l naplata cestanne d.o.o., Zagreb (“the Subsidiary) was founded on the basis of the Statement on founding a limited liability company. During 2013, ARZ ON was merged to the Company and an Agreement signed between the two based on which HAC ONC provides services of toll collection and roads maintenance for both.


/iv/ Based on the agreement on subordinated debt signed on 14 December 2010, the shareholders reduced the share capital of the Concessionaire (BINA-ISTRA d.d.) from the amount of HRK 256,417 thousand by the amount of HRK 230,775 thousand to the amount of HRK 25,642 thousand, which represents a decrease of the share capital of the Concessionaire by 90%, by the conversion of the amount of HRK 230,775 thousand to interest-free subordinated debt. The concessionaire will pay to the Company subordinated debt in the amount of HRK 31,901 thousand in equal annual instalments in the period from 2012 to 2027.

/v/ Receivables for deposits in abroad relate to receivables for deposit given according to the Loan agreement dated 6 July 2004, which the Company signed with Overseas Private Investment Corporation, and company BNY Mellon, as the agent.

44


19. INVENTORIES

DESCRIPTION

31 Dec 2017

HRK 000

31 Dec 2016

HRK '000

Raw matenal and material 31,548 1,723

Impairment of inventory (28) (28)Spare parts 9,652 0Impairment of spare parts (592) 0Small inventory 2,113 31

Car-tires 181 0

Small inventory in use 13,751 783

Impairment of small inventory in use (13,751) (783)

Car-tires in use 2,924 401

Impairment of car-tires in use (2,924) (401)

a) Raw material and material 42,874 1,726

b) Finished products 141 59

Total (a+b) 43,015 1,785

20. RECEIVABLES FROM RELATED COMPANIES31 Dec 2017 31 Dec 2016


Receivables from associated companies for dividends 943 709

Receivables from associated companies within the Group 0 1,458

Total 943 2,167

21. TRADE RECEIVABLES

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK 000

Domestic trade receivables 96,523 87,186

Doubtful and disputable trade receivables 25,733 26,830Impairment of doubtful and disputable receivables (25,733) (26,830)

Total 96,523 87,186

22. RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS

31 Dec 2017 31 Dec 2016


Receivables for gas reimbursement 29,739 53,417

Receivables for sick leaves 837 28

Other receivables from the State and other institutions 760 10,381

Total 31,336 63,826

Receivables for gas fee relates to receivables for accrued fee from oil derivatives for December 2017 According to the Law on Excise Tax (O.G. 83/09) and the Regulation on Excise Duties (O.G. 1/10), there was a change in reporting in the calculation of excise taxes on petroleum products. The Company records mentioned receivables based on monthly reports of the Ministry of Finance, respectively Customs Administration, which receives up to 20th day of the month for the previous month.

45


23. OTHER RECEIVABLES

DESCRIPTION

31 Dec 2017

HRK 000

31 Dec 2016

HRK '000

Prepayment receivables 5 0

Receivables of insurance companies 204 179

Other receivables 4,094 2,019Impairment of other receivables (2,974) (1,484)

Total 1,329 714

24. CURRENT FINANCIAL ASSETS31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK '000Current portion of loans granted to associated companies (Note 17) 9,713 9,713

Impairment of loans to associated companies (7,581) (7,581)

Receivables for domestic deposits 3,207 456,533

Total 5,339 458,665

25. CASH AND CASH EQUIVALENTS

31 Dec 2017 31 Dec 2016


Giro account 11,589 11,084

Treasury 5,085 4,241

Foreign currency account 209,053 50,623

Foreign currency treasury 3,316 2,381

Overnight term assets - HRK 220,168 143,618

Total 449,211 211,947

26. PREPAID EXPENSES AND ACCRUED INCOME

31 Dec 2017 31 Dec 2016


Prepaid expenses 192 136

Accrued undue interests 654 489

Financing expenses of public good construction 106,263 0

Total 107,109 625

46


27. CAPITALhi Subscribed capital stated in the Balance sheet as at 31 December 2017 in the

amount of HRK 131,140 thousand (31 December 2016 in the same amount) represents own permanent sources for the Company’s operations and include stock principal registered at the Commercial court in Zagreb.

/u/ Public capital under management is shown as follows:

31 Dec 2017 31 Dec 2016DESCRIPTION HRK '000 HRK '000

Public capital under management - transfer under demerger balance sheet 19,582,712 19,582,712Public capital from gas fee - total revenue 18,796,084 18,310,445Public capital from other financing sources - net expenditure (19,998,377) (19,254,870)Total 18,380,419 18,638,287

/i 11/ Public capital from other financing sources is shown as follows:

2017 2016DESCRIPTION HRK '000 HRK '000

Balance as at 1 January 2017 (19,254,870) (17,792,694)Public capital - co-financing construction of motorways 0 205Public capital - deposit interests 81 512Public capital - yield from portion in investment funds 942 697Public capital - from other financing sources 0 0Public capital - exchange rate gains 701,589 423,004Public capital - exchange rate loss (549,582) (200,325)Public capital - financing expense (769,384) (837,189)Public capital - financing water management objects and ZUC 0 (20)Public capital - suspended projects (572) 0

Public capital - impairment of public good under concession (103,079) (105,433)Public capital - part of depreciation coverage 0 (79,299)Income from conversion of investment m progress to public good 9 0Public capital - impairment of public good out of use 0 (61,486)Public capital - transfer to HC d.o.o. 0 (602,842)Public capital - capital of merged company (23,511) 0Balance as at 31 December 2017 (19,998,377) (19,254,870)

/in-a/ Receipts or increase of public capital

Receipts such as net foreign exchange differences from loans for construction ofpublic roads, prepayments for construction of public roads and other obligations related to the construction of public roads and interest on term deposits from public capital arestated within public capital. Increases in public capital are shown as follows:

2017 2016DESCRIPTION HRK '000 HRK 000

Public capital - financing the construction of motorways 0 205Public capital - deposit interests 81 512Public capital - income from portions in investment funds 942 697Public capital - foreign exchange gams 701,589 423,004Public capital - from other financing sources 0 0Total 702,612 424,418

47


/in-b/ Expenditures or decrease of public capital

Expenditures such as interest for non-current loans, bank fees for granting loans, fees for issued state guarantees, costs of co-financing other public property and impairment (depreciation) of public roads (in part that is not covered by own income of the Company), which decrease public capital are stated within public capital from other financing sources.

Decrease in public capital is shown as follows:

2017 2016


Public capital - foreign exchange losses (549,582) (200,325)Public capital - financing costs (769,384) (837,189)Public capital - financing water management objects and ZUC 0 (20)Public capital - suspended projects (572)Public capital - cover of part of depreciation 0 (79,299)Public capital - impairment of public good out of use 0 (61,486)Public capital - impairment of public good under concession (103,079) (105,433)Public capital - transfer to HC d.o.o. 0 (602,842)Public capital - capital of merged company (23,511) 0

Total (1,446,128) (1,886,594)

/iv/ Legal reserves stated in as at 31 December 2017 in the amount of HRK 568thousand (31 December 2016: in the same amount) occurred due to the distribution of apart of generated income for 2001 in the amount of 5% of income after taxation , pursuantto Article 222 of the Company Act.

28. PROVISIONS

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK 000 HRK '000

Provisions for severance payments and similar liabilities 33,946 2,828Provisions for restructunng costs 0 378Provisions for costs in guarantee period 49 49Provisions for costs of initiated court disputes 160,203 153,812

Total 194,198 157,067

Movements of provisions in 2016 are shown as follows:

New Used31 Dec 2016 provisions provisions 31 Dec 2017

DESCRIPTION HRK '000 HRK 000 HRK '000 HRK 000

Provisions for severance payments and similar liabilities 2,828 31,118 0 33,946

Provisions for restructunng costs 378 0 (378) 0

Provisions for costs in guarantee period 49 0 0 49

Provisions for costs of initiated court disputes 153,812 9,264 (2,873) 160,203

Total 157,067 40,382 (3,251) 194,198

48


29. NON-CURRENT LIABILITIES

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK '000Liabilities to related companies for provisions 0 12,690Liabilities to related companies 0 12,690

Liabilites to the Ministry of Finance for bond funds 5,054,363 0

Current portion of liabilities to the Ministry of Finance 0 0

Liabilities for loans, deposits etc. 5,054,363 0

Liabilities to domestic banks and other financial institutions 14,479,274 10,657,746

Liabilities to foreign banks and other financial institutions 2,565,763 12,614,197Current portion (Note 32) (2,565,763) (4,795,744)Liabilities to banks and other financial institutions 14,479,274 18,476,199Liabilities for the sale of social housing to tenants' rights 56 66Other non-current liabilities 56 66

Total 19,533,693 18,488,955

hi Movements in liabilities to banks and other financial institutions are shown as follows:

2017

DESCRIPTION HRK '000

1 January 2017 23,271,942

Loan repayments (8,163,254)

New loans 7,164,396

Foreign exchange differences (173,684)

31 December 2017 22,099,400

Current portion of principal (2,565,763)

31 December 2017 19,533,637

Maturity of non-current liabilities, except other non-current liabilities, is shown as follows:

Maturity Amount

HRK '000

2018 (current portion) 2,565,763

2019 5,238,143

2020 2,258,168

2021 2,193,3252022 1,431,007

After 2022 8,412,994

Total 22,099,400

On 31 December 2017, the Company did not meet all contracted operating indicators pursuant to the Loan Contracts approved by the EBRD. In December 2017, prior to the date of the financial statements, the EBRD issued a document („waiver“) in which they renounce their right based on unmet contracted requirements at the end of 2017.

49


/n/ Liabilities to domestic banks:

Domestic banks Maturity Currency

Amount in currency

’000 Repayment

Interest

rate31 Dec 2017

HRK '000

Current portion

HRK '000

Non-current portion

HRK '000

Pbz/Zaba/Rba/05 2019 EUR 150,000 Semi-annually 2-4% 161,007 107,338 53,669

Pbz/Zaba/05 2020 EUR 100,000 Semi-annually 2-4% 196,008 65,336 130,672

Pbz/Zaba/06 2021 EUR 70,000 Semi-annually 2-4% 160,073 45,735 114,338Pbz/Zaba/Rba/06 2021 EUR 80,000 Semi-annually 2-4% 182,941 52,269 130,672

Pbz/Zaba/Bawag/12 2019 EUR 120,000 Semi-annually 4-6% 245,901 163,934 81,967Pbz/Zaba/SoC/12 2017 EUR 130,000 One-off 4-6% 0 0 0Pbz/Zaba/06 2021 EUR 50,000 Semi-annually 2-4% 130,672 32,668 98,004Pbz/Zaba/06 2021 EUR 100,000 Semi-annually 2-4% 261,344 65,336 196,008

P bz /Croatia / H pb /15 2022 EUR 150,000 Semi-annually 2-4% 922,130 204,918 717,212Zaba/Pbz/SoC/15 2022 EUR 100,000 Semi-annually 2-4% 683,059 136,612 546,447

Zaba/Erste/Pbz/16 2024 EUR 100,000 Semi-annually 2-4% 751,365 0 751,365

Zaba/HPB/Pbz/16 2024 EUR 100,000 Semi-annually 2-4% 751,365 0 751,365

Zaba/BISS/Bawag/10 2017 EUR 100,000 Semi-annually 4-6% 0 0 0

Zaba/11 2021 EUR 220,000 Semi-annually 2-4% 881,601 220,400 661,201

Zaba/Erste/Pbz/11 2018 EUR 270,000 One-off 4-6% 0 0 0Zaba/Pbz/Croatia/14 2021 EUR 150,000 Semi-annually 4-6% 819,671 204,918 614,753

Hpb/14 2017 EUR 120,000 Quarterly 3-6% 0 0 0

PBZ/CB/HPB/OTP/ZB/GR 1/17 2017 EUR 100,000 Semi-annually 2-4% 751,365 0 751,365

PBZ/CB/HPB/OTP/ZB/GR 2/17 2017 EUR 100,000 Semi-annually 2-4% 751,365 0 751,365

Eurobonds of MF 2017 EUR 672,690 Semi-annually - 5,054,363 0 5,054,363

Total liabilities to domestic banks 12,704,230 1,299,464 11,404,766

50


/in/ Liabilities to banks abroad:

Foreign Bank Maturity CurrencyAmount in currency

’000 Repayment

Interest

rate31 Dec 2017

HRK ‘000

Current portion

HRK '000

Non-current portion

HRK '000

KFW/11 2026 EUR 130,000 Semi-annually 2-4% 726,619 85,485 641,135

Ebrd/16 2030 EUR 250,000 Semi-annually <2% 1,506,486 115,884 1,390,603

EIB/03 2021 EUR 50,000 Semi-annually 2-4% 106,424 35,386 71,038



Depfa/07 2022 EUR 150,000 Semi-annually <2% 440,675 98,053 342,622

Depfa/07 2023 EUR 125,000 Semi-annually <2% 490,021 81,670 408,350

WB/03 2018 EUR 8,700 Semi-annually <2% 2,986 2,986 0

DB/14 2019 EUR 400,000 One-off 4-6% 3,005,459 0 3,005,459

Ebrd/03 2021 EUR 45,000 Semi-annually <2% 90,306 22,576 67,729

DB/15 2022 EUR 100,000 Semi-annually 4-6% 683,059 136,612 546,447

Ebrd/11 2025 EUR 60,630 Semi-annually <2% 295,802 38,320 257,482

Pefco 2018 USD 250,000 Semi-annually <2% 78,372 78,372 0

Zaba/Cs/Soc/Pbz/13 2020 EUR 250,000 Semi-annually 4-6% 853,824 341,529 512,294

Dexia/13 2023 EUR 150,000 Semi-annually <2% 539,023 98,004 441,018

Cs/11 2018 EUR 160,000 Semi-annually 4-6% 109,289 109,289 0

Total liabilities to banks abroad 9,395,170 1,266,299 8,128,871

51


30. LIABILITIES TO RELATED COMPANIES31 Dec 2017 31 Dec 2016

DESCRIPTION HRK 000 HRK ‘000

Liabilities to related companies 0 98,057

Total 0 98,057

31. LIABILITIES FOR LOANS AND DEPOSITS

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK '000Liabilities for received deposits 14,118 18,723

Total 14,118 18,723

32. LIABILITIES TO BANKS AND OTHER FINANCIAL INSTITUTIONS

31 Dec 2017 31 Dec 2016DESCRIPTION HRK 000 HRK '000

Current portion of non-current loans 2,565,763 4,795,744

Total 2,565,763 4,795,744

33. TRADE PAYABLES

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK '000Domestic trade payables 59,038 21,581Trade payables for investments 72,999 31,552Trade payables for non-current tangible assets 990 185Trade payables for expropriation 26,987 28,448Cessions 654 634Trade payables - subcontractors 3,667 1,650Trade payables - physical persons 43,672 37,538Foreign trade payables 199 0Liabilities for non-invoiced works and services 1,677 3,101

Total 209,883 124,689

34. LIABILITIES TO EMPLOYEES

31 Dec 2017 31 Dec 2016

DESCRIPTION HRK '000 HRK '000Net salaries and wages 30,015 3,575Severance payments liabilities 15,689 0Liabilities to employees for accrued contributions 0 0Other liabilities to employees 2,256 124

Total 47,960 3,699

52


35. LIABILITIES FOR TAXES AND CONTRIBUTIONS31 Dec 2017 31 Dec 2016

DESCRiPTION HRK '000 HRK '000Contributions on salaries 7,920 997Contributions from salaries 9,001 1,177Taxes and surtaxes from salaries 5,988 1,134Corporate income tax 30,226 1,720Honorariums and temporary working contracts 12 37VAT 52,950 47,760Contributions independent of the result 352 137Liabilities for buying company apartments, 65% 0 7

Total 106,449 52,969

36. ACCRUED EXPENSES AND DEFERRED INCOME31 Dec 2017 31 Dec 2016

DESCRIPTION HRK 000 HRK '000Accrued interests by granted loans 109,714 112,204Accrued legal default interests and unpaid fees 1,997 6,109Accrued agreed interests 15,414 15,414Accrued unused vacation costs 32,470 4,990a) Accrued expenses 159,595 138,717Unrealized sales receipts to the balance sheet date 81,095 72,133Deferred income from state for expropriation 612 0Deferred income - EU Project 69,368 56,008Deferred income - motorways, for using motorway land

3,278 3,532Other deferred income 14,936 2,081b) Income for the future period 169,289 133,754

Total (a + b) 328,884 272,471

37. PAYMENTS TO THE MANAGEMENT BOARD2017 2016


Gross salary 801 1,236

TOTAL 801 1,236

38. TRANSACTIONS WITH RELATED PARTIES31 Dec 2017 31 Dec 2016


Non-current assetsShare in principle BINA FINCOM d.d. 53,085 53,085Share in principle- HAC ONC d.o.o. 0 145,540Share in principle BINA ISTRA d.d. 3,790 3,790Fair value adjustment of financial assets (33,459) (46,000)

a) Total (Note 18.) 23,416 156,415

Receivables for loans given to related parties (Note 18.) 19,186 21,318Impairment of subordinated debt - BINA ISTRA d.d. (12,541) 0Due portion (Note 24.) 2,132 (9,713)

b) Loans given to related companies 8,777 11,605

Hrvatske autoceste d.o.o., Zagreb NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2017 - continued

Total (a + b) 32,193 168,020

a) The most significant transactions with other companies owned by the government:2017 2016

Descnption HRK '000 HRK '000

Current receivables

Hrvatske ceste d.o.o. 110 16,652

Motorway Rijeka - Zagreb d.o.o. 34,811 9,857

Odasiljaci l veze d.o.o. 200 228

Ministry of the Sea, Transport and Infrastructure 0 427

Ministry of Finance of the Republic of Croatia 36 375

Hrvatska posta d.d., Zagreb 0 682

HAC-ONC d.o.o. 0 1,458

35,157 29,679

Income

Hrvatske ceste d.o.o. 154 142

Motorway Rijeka - Zagreb d.o.o. 271,322 221,282

Odasiljaci i veze d.o.o. 1,211 2,056Ministry of the Sea, Transport and Infrastructure 258 5,217

Ministry of finance of the Republic of Croatia 12 1,800

Hrvatska posta d.d., Zagreb 11,297 9,185

HAC-ONC d.o.o. 2,997 3,879

Ministry of Interior 1,367 1,277

Total 289,618 244,838

Current liabilities

HAC-ONC d.o.o. 0 97,657Motorway Rijeka -Zagreb d.o.o. 17,922 18,347

Total 17,922 116,004

Expenses

Motorway Rijeka - Zagreb d.o.o. 163 222,515

Hrvatska Postanska Banka d.d. 8 11,226HEP ODS d.o.o. 21 300

Hrvatske ceste d.o.o. 0 30

HZ Infrastruktura d.o.o. 0 0

Narodne novine d.d 171 139

HAC-ONC d.o.o. 495,747 535,769

Hrvatska Posta d.o.o. 185 83

Total 496,295 770,062

54


39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Capital risk management

The Company manages its capital so as to ensure business continuity, maximizing the return to shareholders through the optimization of the balances of debt and equity.

The Company's capital structure consists of cash and cash equivalents and equity, which includes the subscribed capital, reserves and retained earnings and public capital.

Financing ratio

The Company's management reviews the capital structure. As part of the review, the Board considered the costs and risks associated with each class of capital. The actual ratio of financing the Company is 1.16 annually for the year ending 31 December 2017 (1.22 or the year ended 31 December 2016).

31 Dec 2017 31 Dec 2016


Liabilities for credits 22,099,456 23,271,942

Financial liabilities 22,099,456 23,271,942

Less: cash and cash equivalents (449,211) (211,946)

Net debt 21,650,245 23,059,996

Principal* 18,667,156 18,831,356

Debt to equity ratio 1.16 1.22

* The principal includes overall Company's capital

Financial instrument categories

31 Dec 2017 31 Dec 2016


Non-current financial assets 153,562 318,238Non-current receivables 2,956 84Current receivables 130,904 153,904Current financial assets 5,339 458,665

Cash and cash equivalents 449,211 211,946

Financial assets 741,972 1,042,837

Liabilities for loans and deposits 14,118 18,723

Liabilities for credits 22,099,456 23,271,942

Current liabilities 364,674 279,691

Financial liabilities 22,478,248 23,570,356

35


On the reporting date, the Company has the most significant concentration of the loan risk in for of trade receivables, receivables from the State (the owner) and warranty deposits places with a foreign business bank (Note 21., 22. and 23. to the financial statements). The carrying amount of stated financial assets represents maximum exposure of the Company to the loan risk.

The objectives of the financial risk managementManagement of the Company controls and manages the financial risk which could

have an influence on the Company’s operations through internal reporting in which exposure to risks are analysed on the base of stage and significance.

Financial risk includes market risk (including also foreign exchange risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Company seeks to minimize the impact of these risks. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Foreign currency risk

The official currency of the Company is Croatian Kuna (HRK), However, certain transactions in foreign currencies are translated into Croatian Kuna by applying the exchange rates valid on the balance sheet date, and, consequently, the Company is potentially exposed to risks of changes in exchange rates, As the Company has a significant number of loans in foreign currency (usually related to the EUR), the Company has significant exposure to this risk, The carrying amounts of monetary assets and monetary liabilities of the Company denominated in foreign currencies at the reporting date are summarized as follows:

Assets Liabilities

Balance as at 31 December 2017 2016 2017 2016

HRK '000 HRK 000 HRK '000 HRK '000

EUR 0 0 22,021,028 23,002,122

USD 123,501 140,505 78,372 268,820

Analysis of sensitivity to foreign currency risk

The Company is primarily exposed to the countries, whose currency is EUR. The following table analyses the foreign currency risk of the Company in the event of a 1% increase in the value of Kuna against Euro. The 1% sensitivity rate is used in internal foreign currency risk reports to key managers and represents the Management's assessment of predictable changes in the exchange rates. The sensitivity analysis includes only open monetary items in foreign currency, and their translation at the end of the period is adjusted based on the 1-percent change in exchange rates. The influence of changes in the exchange rate is given in the following table:

EUR influence

Decrease by 1 p.p. Decrease by 1 p.p.

2017 2016 2017 2016

DESCRIPTION HRK'000 HRK'000 HRK'000 HRK'000

Influence on the profit/loss for the period (220,994) (232,719) 220,994 232,719

56


Price risk managementThe Croatian market is the largest market on which the Company provides its

services. The Management Board determines the prices of its services with the approval of the Government of the Republic of Croatia.

Interest rate riskInterest rate risk is the risk that the value of financial instruments will change due

to changes in market interest rates in relation to interest rates applicable to financial instruments. Interest rate cash flow risk is the risk that interest costs on financial instruments will fluctuate over time.

The Company is exposed to interest rate risk as the Company uses loans with vanable interest rates.

Sensitivity analysis of interest rates

Sensitivity analysis was performed only for the financial instruments with variable interest rates based on the exposure of the Company to interest rates at the end of the reporting period assuming that the outstanding amount at the end of the reporting period was unsettled during whole year.

If interest rates were 50 basis points higher, the balance of loan indebtedness as at 31 December 2017 would be influenced by the increase of the interest rate expense in the amount of HRK 110,000 thousand HRK on exposure to the interest rate risk. This is mainly attributable to the Company's exposure to interest rates on loans with variable interest rates.

Credit risk managementCredit risk refers to the risk that counterparty will default on its contractual

obligations resulting in financial loss to the Company. Financial assets that potentially expose the Company to credit risk consist mainly of cash, money equivalents and trade receivables, Trade receivables have been adjusted to allow for bad and doubtful accounts.

Liquidity Risk ManagementLiquidity risk is the risk that the Company will not be able to settle its financial

obligations to the other contracting party.

The ultimate responsibility for managing the credit risk lies with the management, who set up a quality framework for managing liquidity risk by the short, medium and long positions of the Company and define the requirements related to liquidity management.

The Company has, during the reporting period, settled its obligations to creditors, suppliers, employees and the country within the statutory deadlines. Although the Company receives substantial funds from gas derivatives and toll, in subsequent periods the Company's Management Board is planning additional debts in order to continue the smooth operations of the Company.

The Company manages its liquidity through continued monitoring of anticipated and actual cash flows and by adjusting maturity of financial assets and liabilities.

57


Analysis of liquidity risk

The following table details the remaining period to contractual maturity of financial liabilities of the Company. The table is prepared on the basis of undiscounted cash flows of financial liabilities at the earliest date on which the Company may be requested to make the payment.

The remaining period to the contractual maturity of financial liabilities of the Company is shown as follows:

LIABILITIESUp to 1 month 1-3 months 3 months-1

yearOver 1 year

Total

HRK '000 HRK '000 HRK '000 HRK 000 HRK 000

31 Dec 2017 Non-interest beanng 144,701 98,154 29,300 39,015 311,170

Interest beanng 211,413 127,092 2,227,257 19,533,637 22,099,400

31 Dec 2016 Non-interest beanng 144,701 98,154 29,300 39,015 311,170

Interest bearing 144,999 298,556 4,352,188 18,476,199 23,271,942

The following table details the remaining period to contractual maturity of financial assets of the Company. The table is prepared on the basis of undiscounted cash flows of financial assets at the earliest date on which the Company may be requested to make the payment.

The remaining period to Company is shown as follows:

the contractual maturity of financial ;assets of the

ASSETS Up to 1 month3 months-1

1 -3 months year Over 1 year Total

HRK '000 HRK '000 HRK '000 HRK '000 HRK '000

31 Dec 2017 Non-interest beanng 0 0 2,156 223,733 225,889

Interest beanng 91,355 210,198 123,501 140,505 597,014

31 Dec 2016 Non-interest beanng 0 0 2,156 223,733 225,889

Interest beanng 91,355 210,198 154,956 140,505 597,014

40. COURT DISPUTES AND CONTINGENT LIABILITIESThe Company keep systematic records of court disputes in which the Company acts

both and the plaintiff and the defendant. The operating of the Sector for Legal, Personnel and General Affairs is assisted by external lawyers but the records that the lawyers keep on the disputes are kept in the Company's premises.

58


As at 31 December 2017 the following disputes were initiated against the Company:

31 Dec 2017

Litigation value

DESCRI PTIONHRK '000

Economy and other disputes with contractors 316,247

Disputes resulting from construction works 24,664

Disputes resulting from expropriation 16,290

Disputes for reimbursement of damages resulting from traffic 16,425

Labour disputes 6,967

Other disputes (enforcements, offence proceedings...)81,012

TOTAL461,605

Court disputes and other potential benefits and liabilities are not stated in the statement of financial position (balance Sheet) since the outcomes, as well as the inflow and outflow of assets on this base are uncertain. In the moment when the outcome of potential benefits and liabilities becomes certain, they are included as extraordinary income, i.e. as expense provisions in case of damages.

As described in Note 28. to the financial statement, as at 31 December 2017 in line with the professional legal advice, the Company formed pertaining provisions in the amount of HRK 160,204 thousand.

41. EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION/BALANCE SHEET

During the month of April 2018, the Company signed a long-term loan agreement with the purpose of refinancing the existing loan debt, which included early repayment of 17 existing loans. The loan was signed for a period of 12 years. The maturity date of the loan is 31 March 2030.

Until the date of adoption of the report for 2017, the Company paid severance payments and other related rights of 207 employees with whom a contract of termination of employment was concluded.For the aforementioned purposes, funds under the Subsidiary Agreement signed between the Ministry of Finance, the Ministry of the Sea, Transport and Infrastructure and the Company have been allocated funds in the amount of EUR 4,770 thousand in non- refundable terms.

Besides the afore mentioned, after the Balance Sheet date, there were no subsequent events which would significantly influence Company's annual financial statements for 2017 which would consequently have to be published or which would result in changes in the financial statements.

42. PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements, set out on the previous pages, were prepared by* " ^ li 7V?*5x

Board bf the Company, and authorized for issue on 30 May 2018.the

Managem

Boris Huzja

HRVATSKE

Sirolina 4

d.o.o.

10 000 Zagreb

The Republic of Croatia

59


STATEMENT OF COMPREHENSIVE INCOME

P 0 Z I C I J AThe Company

2017Public good

2017Total2017

The Company2016

Public good2016

Total2016

OPERATING INCOMEHRK’000 HRK’000 HRK’000 HRK’000 HRK’000 HRK’000

Sates income 1,882,141 0 1,882,141 1,655,967 0 1,655,967

Other income 36,220 485,639 521,859 26,064 474,405 500,469

Total operating incomeOPERATING EXPENSES

1,918,361 485,639 2,403,999 1,682,031 474,405 2,156,435

Material expenses (547,916) 0 (547,916) (568,606) 0 (568,606)

Staff costs (96,217) 0 (96,217) (54,159) 0 (54,159)

Depreciation (4,049) 0 (4,049) (3,307) 0 (3,307)

Other expenses (24,959) 0 (24,959) (4,152) 0 (4,152)

Value adjustment (3,807) 0 (3,807) (10,694) 0 (10,694)

Provisions (12,941) 0 (12,941) (4,060) 0 (4,060)

Other operating expenses (14,198) 0 (14,198) (11,947) (602,861) (614,809)

Total operating expenses (704,087) 0 (704,087) (656,925) (602,861) (1,259,786)PROFIT / (LOSS) FROM OPERATING ACTIVITES 1,214,273 485,639 1,699,912 1,025,106 (128,457) 896,649

FINANCIAL INCOME 5,854 702,611 708,466 7,230 424,418 431,648

FINANCIAL EXPENSES (5,550) (1,319,535) (1,325,085) (4,631) (1,037,514) (1,042,145)

PROFIT / (LOSS) FROM FINANCIAL ACTIVITES 304 (616,924) (616,620) 2,599 (613,095) (610,497)

TOTAL INCOME 1,924,215 1,188,250 3,112,465 1,689,260 898,823 2,588,083

TOTAL EXPENSES (709,637) (1,319,535) (2,029,173) (661,556) (1,640,375) (2,301,931)

DIFFERENCE OF TOTAL INCOME AND TOTAL EXPENSES 1,214,578 (131,285) 1,083,292 1,027,704 (741,552) 286,152

DEPRECIATION AND IMPAIRMENT OF PUBLIC GOOD (1,044,042) (103,079) (1,147,121) (1,025,953) (246,219) (1,272,172)

PROFIT / LOSS BEFORE TAXATION 170,536 (234,365) (63,829) 1,751 (987,771) (986,019)

Profit tax (30,869) 0 (30,869) (1,751) 0 (1,751)

PROFIT / LOSS FOR THE YEAR 139,667 (234,365) (94,698) 0 (987,771) (987,771)Other comprehensive income / loss before taxation 0 0 0 0 0 0

COMPREHENSIVE INCOME / LOSS FOR THE YEAR 139,667 (234,365) (94,698) 0 (987,771) (987,771)

61


BALANCE SHEET AS AT 31 DECEMBER 2017

P 0 Z I C I J AThe Company31 Dec 2017

Public good31 Dec 2017

Total31 Dec 2017

The Company31 Dec 2016


Total31 Dec 2016

ASSETSNon-current assets

HRK ‘000 HRK '000 HRK '000 HRK '000 HRK '000 HRK '000

Intangible assets 3,199 4,806 8,005 560 7,374 7,934Tangible assets 93,408 40,674,976 40,768,384 55,091 41,589,667 41,644,758Non-current financial assets 30,061 123,501 153,562 177,733 140,505 318,238Receivables 2,956 0 2,956 84 0 84

Total non-current assets 129,624 40,803,283 40,932,907 233,468 41,737,546 41,971,014

Current assetsInventones 42,173 842 43,015 943 842 1,785Receivables from related companies within the Group 943 0 943 2,167 0 2,167Trade payables 96,521 2 96,523 62,399 24,787 87,186Receivables from employees and member entrepreneurs 774 0 774 79 0 79

Receivables from the State and other institutions 1,597 29,739 31,336 531 63,295 63,826Other receivables 1,329 0 1,329 714 0 714Current financial assets 2,254 3,085 5,339 152,361 306,304 458,665Cash and cash equivalents 574,673 (125,462) 449,211 83,825 128,122 211,947

Total current assets 720,264 (91,794) 628,470 303,019 523,350 826,369

Prepaid expenses and accrued income 212 106,896 107,108 297 328 625

TOTAL ASSETS 850,100 40,818,385 41,668,485 536,784 42,261,224 42,798,008

62


P 0 Z I C I J AThe Company31 Dec 2017


Total31 Dec 2017

The Company31 Dec 2016


Total31 Dec 2016

CAPITAL AND RESERVESCapital

HRK ‘000 HRK '000 FRK '000 HRK '000 HRK '000 FRK ‘000

Subscnbed capitalPublic capital

131,140 0 131,140 131,140 0 131,140

- Public capital on management 0 19,582,712 19,582,712 0 19,582,712 19,582,712- Public capital from fuel fee 0 18,796,084 18,796,084 0 18,310,445 18,310,445- Public capital from other sources 0 (19,998,377) (19,998,377) (19,254,870) (19,254,870)

Capital reserves 568 0 568 568 0 568Retained profit 0 15,362 15,362 (46,000) 61,362 15,362Profit for the current year 0 139,667 116,156 0 0 0

Total capital 131,708 18,535,448 18,667,156 85,708 18,699,649 18,785,357

Provisions 194,198 0 194,198 157,067 0 157,067

Non-current liabilities 56 19,533,637 19,533,693 12,756 18,476,199 18,488,955

Current liabilitiesLiabilities to related companies 0 0 0 98,057 0 98,057

Liabilities for loans and deposits 3,014 11,104 14,118 0 18,723 18,723

Liabilities to banks and other financial institutions 0 2,565,763 2,565,763 0 4,795,744 4,795,744Liabilities for received prepayments 213 0 213 180 0 180

Trade payables 60,961 148,922 209,883 21,947 102,742 124,689

Liabilities due to employees 47,960 0 47,960 3,699 0 3,699Liabilities for taxes, contributions and similar fees 106,449 0 106,449 52,969 0 52,969

Other current liabilities 169 0 169 97 0 97

Total current liabilities 218,766 2,725,789 2,944,555 176,949 4,917,209 5,094,1583Accrued expenses and deferred income 328,884 0 328,884 104,304 168,167 272,471

TOTAL CAPITAL AND LIABILITIES 850,101 40,818,385 41,668,486 536,784 42,261,224 42,798,008

63

hrvatske autoceste d.o.o. sirolina 4, zagreb - hac.hrhac.hr/sites/default/files/revizorski 2017....

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