ADRIS GRUPA d.d., ROVINJ INDEPENDENT AUDITOR S REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2012

Transcription

1 INDEPENDENT AUDITOR S REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2012

2 Independent Auditor s Report To the Shareholders and Management of Adris grupa d.d. We have audited the accompanying financial statements of Adris grupa d.d. (the Company ), which comprise the statement of financial position as of 31 December 2012, the statements of comprehensive income, changes in equity and cash flow for the year then ended and notes comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of thesee financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Bases for Qualified Opinion In accordance with International Accounting Standard 27, and as explained in Notes 2.2. and 18 to these financial statements, investments in subsidiaries should be recorded at cost. Prior to the current IAS 27 becoming effective, the Company recorded investments in subsidiaries under the equity method and did not perform any value adjustments of investments and retained earnings as required by IAS 27. In our opinion, this represents a deviation from the requirements of International Financial Reporting Standards. As a result, investments in subsidiaries and retained earnings at 31 December 2012 were overstated by the amount of HRK 435,679 thousand. PricewaterhouseCoopers d.o.o., Ulica kneza Ljudevita Posavskog 31, Zagreb, Croatia T: +385 (1) , F:+385 (1) , Commercial Court in Zagreb, Tt-99/7257-2, Reg. No.: ; Company ID No.: ; Founding capital: HRK 1,810,000.00, paid in full; Management Board: F. Mattelaer, President, I. Bijelic, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, giro account no.:

3 Qualified Opinion In our opinion, except for the effects of the matter set out in the Bases for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of Company as of 31 December 2012 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers d.o.o Zagreb, 29 March 2013 Our report has been prepared in Croatian and in English languages. In all matters of interpretation of information, views or opinions, the Croatian language version of our report takes precedence over the English language version.

4 STATEMENT OF COMPREHENSIVE INCOME (all amounts in thousands of HRK) Note Service revenues 5 44,768 49,556 Dividend received from subsidiaries 6 290, ,000 Other revenues Cost of materials and services 7 (21,670) (17,499) Staff costs 8 (41,336) (42,314) Depreciation, amortisation and impairment 14, 15, 16 (6,189) (4,609) Other operating expenses 9 (67,545) (16,874) Other gains/(losses) net 10 41,578 (4,908) Operating profit 239, ,410 Finance income 256, ,929 Finance costs (23,620) (31,118) Finance income net , ,811 Profit before taxation 472, ,221 Income tax expense 12 (24,131) (46,827) Net profit for the year 448, ,394 Other comprehensive income - - Total comprehensive income 448, ,394 Earnings per share basic and diluted (in HRK) These financial statements set out on pages 3 to 38 were approved by the Management Board of the Company on 29 March President of the Management Board mr. Ante Vlahović The accompanying notes form an integral part of these financial statements. 3

5 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER December (all amounts in thousands of HRK) Note ASSETS Non-current assets Property, plant and equipment , ,754 Investment property 15 8,718 9,657 Intangible assets 16 2,946 4,337 Investments in subsidiaries 18 2,694,984 2,138,806 Investments in associates 19 61,722 61,722 Deferred tax assets 12 24,564 12,355 Trade and other receivables 20 1,846 1,989 2,909,686 2,340,620 Current assets Trade and other receivables 20 1,830,552 1,652,733 Income tax prepayments 1,471 - Deposits 21 1,721,684 2,198,016 Financial assets at fair value through profit or loss , ,909 Cash and cash equivalents 248 2,127 3,900,238 4,133,785 Total assets 6,809,924 6,474,405 EQUITY AND LIABILITIES Capital and reserves Share capital 164, ,000 Share premium 16,922 16,922 Treasury shares (41,459) (41,459) Legal reserves 12,448 12,448 Reserves 5,464,741 5,068,347 Retained earnings 563, , ,180,332 5,845,381 Non-current liabilities Provisions for other liabilities and charges 25 51,431 51,431 51,431 51,431 Current liabilities Trade and other payables 26 63,096 63,289 Borrowings , ,336 Provisions for other liabilities and charges - 35, , ,593 Total liabilities 629, ,024 Total equity and liabilities 6,809,924 6,474,405 The accompanying notes form an integral part of these financial statements. 4

6 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (all amounts in thousands of HRK) Note Share capital Share premium Treasury shares Legal reserves Statutory reserves Retained earnings Total At 1 January ,000 16,922 (41,459) 12,448 4,594, ,303 5,372,362 Total comprehensive income , , , ,394 Transaction with owners Distribution of retained earnings as per decision of General Assembly 23/iii/ ,199 (474,199) - Dividends declared as per decision of General Assembly 23/iv/ (114,800) (114,800) Transfer of profit for treasury shares ,425 1,425 Total transaction with owners ,199 (587,574) (113,375) At 31 December ,000 16,922 (41,459) 12,448 5,068, ,123 5,845,381 Total comprehensive income , , , ,327 Transaction with owners Distribution of retained earnings as per decision of General Assembly 23/iii/ ,394 (586,394) - Transfer of profit from statutory reserves to retained earnings as per decision of General (190,000) 190,000 - Assembly Dividends declared as per decision of General Assembly 23/iv/ (114,800) (114,800) Transfer of profit for treasury shares ,424 1,424 Total transaction with owners ,394 (509,770) (113,376) At 31 December ,000 16,922 (41,459) 12,448 5,464, ,680 6,180,332 The accompanying notes form an integral part of these financial statements. 5

7 STATEMENT OF CASH FLOWS (all amounts in thousands of HRK) Note Cash flows from operating activities: Cash generated from operations 27 87, ,265 Tax paid (73,779) (16,407) Interest paid (23,442) (22,033) Cash flows from operating activities (9,863) 111,825 Cash flows from investing activities: Dividend received 290, ,119 Purchase of share in subsidiaries/associate 18 (556,178) (34,010) Purchase of financial assets at fair value through profit or loss (32,470) - Proceeds from sale of financial assets at fair value through profit or loss 8,273 10,781 Purchase of tangible and intangible assets 14, 16 (7,050) (11,496) Term deposits - (161,279) Collection of deposit 476,332 - Loans given (225,928) (369,135) Interest received 130, ,288 Loan repayments received Cash flows from investing activities 83,992 (19,487) Cash flows from financing activities Borrowings 36,418 20,693 Dividends paid (112,426) (111,760) Cash flows from financing activities (76,008) (91,067) Net (decrease)/increase in cash and cash equivalents (1,879) 1,271 Cash and cash equivalents at beginning of year 2, Cash and cash equivalents at end of year 248 2,127 The accompanying notes form an integral part of these financial statements. 6

8 NOTE 1 GENERAL INFORMATION Adris Grupa d.d., Rovinj (the Company ) is a joint-stock company registered in Croatia. The Company is domiciled in Rovinj. The address of its registered office is Obala Vladimira Nazora 1, Rovinj. The Company s primary activity is management of investments in subsidiaries and other investments. As at 31 December 2012 and 2011, the Company s shares were listed on the public joint stock company listing on the Zagreb Stock Exchange. The Company is the parent company of the Adris Group Rovinj which consists of the following entities: Ownership % Name of subsidiary TDR d.o.o., Rovinj, Croatia Tvornica duhana Zagreb d.d., Croatia Hrvatski duhani d.d. Virovitica, Croatia Inovine d.d., Zagreb, Croatia Istragrafika d.d., Rovinj, Croatia Abilia d.o.o., Rovinj, Croatia Rovita d.o.o. Rovinj, Croatia TDR Rovita Ljubljana d.o.o., Slovenia Rovita Tuzla d.o.o., Bosnia and Herzegovina TDR Blažuj d.o.o., Bosnia and Herzegovina TDR Sarajevo d.o.o., Bosnia and Herzegovina TDR Beograd d.o.o., Serbia TDR Skopje d.o.o.e.l., Macedonia TDR Sh.p.k., Priština, Kosovo TDR Podgorica d.o.o., Montenegro Rovita Sofija, Bulgaria TDR Germany, Hamburg, Germany Adista d.o.o., Rovinj, Croatia Adria Resorts d.o.o., Rovinj, Croatia Maistra d.d., Rovinj, Croatia Cromaris d.d., Zadar Slobodna Katarina d.o.o. Rovinj, Croatia Cenmar Export Import d.o.o. Kali, Croatia Cenmar Tkon d.o.o. Zadar, Croatia Cenmar Košara d.o.o. Zadar, Croatia Opresa d.d., Sarajevo, Bosnia and Herzegovina TDR Parsian Company, Iran Adria tisak d.o.o., Zagreb, Croatia E.distribucija d.o.o., Rovinj, Croatia

9 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4. The Company has issued these non-consolidated financial statements in accordance with Croatian regulations. The Company has also prepared consolidated financial statements in accordance with IFRS for the Company and its subsidiaries (the Group), which were approved by the Management Board on 29 March In the consolidated financial statements, subsidiary undertakings (listed in Note 1) - which are those companies in which the Group, directly or indirectly, has an interest of more than half of the voting rights or otherwise has power to exercise control over the operations - have been fully consolidated. Users of these non-consolidated financial statements should read them together with the Group's consolidated financial statements as at and for the year ended 31 December 2012 in order to obtain full information on the financial position, results of operations and changes in the financial position of the Group as a whole. The consolidated financial statements as at and for the year ended 31 December 2012 are available together with these separate financial statements directly at the registered address of the Company stated above. (a) New and amended standards adopted by the Company There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012 that would be expected to have a material impact on the Group and the Company. (b) Standards and interpretations issued but not yet effective A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements. The following standards will have an impact on the Group s and Company s financial statements: - IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013). The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entity (an entity that controls one or more other entities) to present consolidated financial statements. It defines the principle of control, and establishes controls as the basis for consolidation. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. It sets out the accounting requirements for the preparation of consolidated financial statements. The Company is currently assessing the impact that IFRS10 will have on financial statements. The Company plans to adopt this new standard on its effective date. 8

10 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) (b) Standards and interpretations issued but not yet effective (continued) - IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013). IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Company is currently assessing the impact of IFRS 13 on the financial statements. The Company plans to adopt this new standard on its effective date. - IAS 27 (revised 2011) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013). IAS 27 (revised 2011) includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The Company is currently assessing the impact of IAS 27 on financial statements. The Company plans to adopt this new standard on its effective date. - Amendment to IFRSs 10, 11 and 12 on transition guidance (effective for annual periods beginning on or after 1 January 2013). These amendments provide additional transition relief to IFRSs 10, 11 and 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. For disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before IFRS 12 is first applied. The Company is considering the implications of the amendments and the impact on the Company. - IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015). IFRS 9 is the first standard issued as part of a wider project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. The Company does not expect IFRS 9 to have an impact on the financial statements. The Company plans to adopt this new standard on its effective date. Annual improvements 2011 (effective for annual periods beginning on or after 1 January 2013). These annual improvements, address six issues in the reporting cycle. It includes changes to: IFRS 1, First time adoption IAS 1, Financial statement presentation IAS 16, Property plant and equipment IAS 32, Financial instruments; Presentation IAS 34, Interim financial reporting The Company is considering the implications of the improvements. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. 9

11 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Investments in subsidiaries and associates (a) Subsidiaries Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. In 2005, the Company adopted International Accounting Standard 27 Consolidated Financial Statements and Investments in Subsidiaries and ceased to apply the equity method. However, no retrospective changes in shareholders equity and restatement of investments in subsidiaries to cost have been made as required by the adopted standard (Note 8). (b) Associates Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. In the financial statements of the Company, investments in associates are accounted for using the cost method. The Company s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. 2.3 Foreign currencies (a) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Croatian kuna (HRK), which is the Company s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the other comprehensive income. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. 2.4 Intangible assets Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of 5 years. 10

12 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.5 Property, plant and equipment Property, plant and equipment is included in the balance sheet at historical cost less accumulated depreciation and provision for impairment, where required. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land, assets under construction and advances are not depreciated. Depreciation of other items of property, plant and equipment is calculated using the straight-line method to allocate their cost over their residual values over their estimated useful lives as follows: Useful lives in years Buildings Plant and equipment 2 to 5 2 to 20 Other The residual value of an asset is the estimated amount that the Company would currently obtain from disposal of the asset less the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil if the Company expects to use the asset until the end of its physical life. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (Note 2.7). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in Other gains/(losses) net in the statement of comprehensive income. 2.6 Investment properties Investment property, principally comprising office buildings and warehouses, is held for long-term rental yields or appreciation and is not occupied by the Company. Investment property is treated as a long-term investment unless it is intended to be sold in the next year and a buyer has been identified in which case it is classified within current assets. Investment property is carried at historical cost less accumulated depreciation. Depreciation for buildings is calculated using the straight-line method to allocate cost over the estimated useful life of 40 years. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (Note 2.7). Subsequent expenditure is capitalised only when it is probable that future economic benefits associated with it will flow to the Company and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred. If an investment property becomes owner-occupied, it is reclassified to property, plant and equipment, and its carrying amount at the date of reclassification becomes its deemed cost to be subsequently depreciated. 11

13 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Impairment of non-financial assets Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 2.8 Leases When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis and is included in revenue. 2.9 Financial assets Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss Financial asset at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. 12

14 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.9 Financial assets (continued) Recognition and measurement Regular purchases and sales of financial assets are recognised on trade date the date on which the Company commits to purchase or sell the asset. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the other comprehensive income. Loans and receivables are carried at amortised cost using the effective interest method. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. The fair value of quoted investments is based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm s length transactions and references to other instruments that are substantially the same. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the other comprehensive income Other gains/(losses) net in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised within the same other comprehensive income line item when dividend is received. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of loans and receivables is described in Note Trade and loan receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and loan receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision for trade receivables and recovery of bad debts written-off are recorded in the statement of comprehensive income net within other operating expenses Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid instruments with original maturities of three months or less. 13

15 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.12 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of the consideration received over the par value of the shares issued is presented in the notes as a share premium. Where the Company purchases its equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company s equity holders Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the other comprehensive income over the period of the borrowings using the effective interest method. Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date Deposits Deposits with banks have defined maturities. Deposits with the original maturity more than 3 months are measured at amortised cost, classified to the loans and receivables category and disclosed separately as deposits on the balance sheet Employee benefits (a) Pension obligations and post-employment benefits In the normal course of business through salary deductions, the Company makes payments to mandatory pension funds on behalf of its employees as required by law. All contributions made to the mandatory pension funds are recorded as salary expense when incurred. The Company does not have any other pension scheme and consequently, has no other obligations in respect of employee pensions. In addition, the Company is not obliged to provide any other post-employment benefits. (b) Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result if an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value. 14

16 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.15 Employee benefits (continued) (c) Long-term employee benefits The Company has post-employment benefits to be paid to the employees at the end of their employment with the Company (either upon retirement, termination or voluntary departure). The Company recognises a liability for these long-term employee benefits evenly over the period the benefit is earned based on actual years of service. The long-term employee benefit liability is determined using assumptions regarding the likely number of staff to whom the benefit will be payable, estimated benefit cost and the discount rate. (d) Short-term employee benefits The Company recognises a provision for employee bonuses and unused vacation days as a provision for expenses when, based on past experience of Management or key employees, the payment of bonuses is likely to be expected and when the bonus amount can be reliably estimated Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts. Revenue is recognised as follows: (a) Sales of services The Company provides management services to subsidiaries. These services are provided as a fixed-price contract with contract terms for a period of 12 months. This revenue is recognised in the period the services are provided, using a straight-line basis over the terms of the contract. (b) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (c) Dividend income Dividend income is recognised when the right to receive payment is established. 15

17 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.17 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated according to the tax laws effective in the Republic of Croatia at the balance sheet date for individual Group companies. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and consider establishing provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised Segment reporting The Company s primary operating activity is managing the shares in subsidiaries and managing the Company s liquidity. The Company s Management manages the Company s operations as one operating segment, and internal reporting used for managing the Company s operations is based on one segment. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Management Board of the Adris Group that makes strategic decisions Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the Company s shareholders Earnings per share Preference shares are not redeemable and are considered to be participating shares. Earnings per share is determined by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of participating shares outstanding during the reporting year Value added tax The Tax Authorities require the settlement of VAT on a net basis. VAT related to sales and purchases is recognised and disclosed in the balance sheet on a net basis. Where a provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. 16

18 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.22 Provisions Provisions for legal claims are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. NOTE 3 FINANCIAL RISK MANAGEMENT 3.1 Financial risk factors The Company s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Overall risk management is carried out by the parent Company's treasury department. (a) (i) Market risk Foreign exchange risk The Company is exposed to foreign exchange risk arising from movements in the EURO exchange rate. Foreign exchange risk arises primarily from recognised assets and liabilities. At 31 December 2012, if the EURO had weakened/strengthened by 1.00% against the HRK, with all other variables held constant, profit after tax for the reporting period would have been HRK thousand lower/higher, mainly as a result of foreign exchange gains/(losses) on translation of EURO denominated financial assets, foreign cash funds and loan receivables. At 31 December 2011, if the EURO had weakened/strengthened by 1.35% against the HRK, with all other variables held constant, profit after tax for the reporting period would have been HRK 12,365 thousand lower/higher, mainly as a result of foreign exchange gains/(losses) on translation of EURO denominated financial assets, foreign cash funds and loan receivables. 17

19 NOTE 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (ii) Price risk The Company is exposed to price risk arising from investments in equity instruments that are classified in the balance sheet as financial assets at fair value through profit or loss. Price risk arising from investments in equity instruments is managed by diversifying investments according to the limits determined by Management. The Company's investments in equity instruments that are publicly traded are included in the CROBEX index. At 31 December 2012, if the value of investment portfolio had increased/decreased by 10.00%, with all other variables held constant, profit after tax for the reporting period would have been HRK 27,697 thousand (2011: 4.59% and HRK 10,630 thousand) higher/lower, mainly as a result of gains/losses on equity and debt instruments classified at fair value through profit or loss. (iii) Cash flow and fair value interest rate risk As the Company has significant interest-bearing assets that as at 31 December 2012 were mainly at fixed rates (as well as borrowings), the Company s income and operating cash flows are substantially dependent of changes in market interest rates. At 31 December 2011, interest rates on deposits and borrowings was variable and had the interest rate increased/decreased by 0.36% on an annual level, the profit after tax for that period would have been approximately HRK 6,330 thousand higher/(lower). Assets with fixed rates expose the Company to fair value interest rate risk. The Company does not use derivative instruments to actively hedge cash flow and fair value interest rate risk exposure. (b) Credit risk The Company keeps its cash and deposits mainly in one bank, which exposes the Company to credit risk. Management considers this bank to be stable, with a BB + credit rating by Standard & Poor's. The credit risk is constantly being analysed, which reduces the exposure to the stated risk. Trade and loan receivables mainly relate to receivables from related parties. Receivables from external customers are from previous years and are fully written-off. Therefore, no specific monitoring activities exist. 18

20 NOTE 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (c) Liquidity risk Cash flow forecasting is performed in the Company and in the Group s subsidiaries and aggregated by Company finance. Company finance monitors rolling forecasts of the Company s and the Group subsidiaries liquidity requirements to ensure they have sufficient cash to meet operational needs, so that the Company or Group companies do not breach borrowing limits or covenants on any of its borrowing facilities. Surplus cash over and above balance required for working capital management is invested in interest bearing current accounts, term deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. At the reporting date, the Company held deposits of HRK 1,721,684 thousand (2011: HRK 2,198,015 thousand), and other liquid assets of HRK 2,178,554 thousand (2011: HRK 1,935,769 thousand) that are expected to readily generate cash inflows for managing liquidity risk. The table below analyses financial liabilities and assets of the Company according to contracted maturities. The amounts stated below represent undiscounted cash flows. Trade and other payables do not include taxes, payables to employees and advances. Less than 1 year 31 December 2012 Assets Financial assets at fair value through profit or loss 346,283 Liabilities Borrowings 538,243 Interest payable 1,992 Trade and other payables 34,546 Net (228,498) 31 December 2011 Assets Financial assets at fair value through profit or loss 280,909 Liabilities Borrowings 499,862 Interest payable 2,125 Trade and other payables 40,444 Net (261,522) (d) Capital risk management The Company monitors capital on the basis of Croatian laws and regulations which require minimum paid in capital of HRK 200 thousand for joint-stock companies. There are no specific measures required by the owners in managing capital. The Company is not subject to externally imposed capital requirements. In addition, there are no internally monitored capital objectives. 19

21 NOTE 3 FINANCIAL RISK MANAGEMENT (continued) 3.2 Fair value estimation Effective 1 January 2009, the Company adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset, either directly or indirectly (level 2) Inputs for the asset that are not based on observable market data (level 3) The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily equity investments in bonds, cash funds and commercial papers classified as trading securities. The following table presents the Company s assets measured at fair value at 31 December 2012, grouped according to the way of calculating fair value: Level 1 Level 2 Level 3 Total balance Assets Financial assets at fair value through profit or loss - Trading securities 217, , ,283 Total assets 217, , ,283 The Company does not have financial assets which could be included in Level 3. NOTE 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. a) Legal claims and disputes Provisions for legal claims and disputes are recorded based on management's estimate of probable losses after consultation with legal counsel. Based on existing knowledge, it is reasonably possible that future litigation outcomes will be different from management assumptions of probable losses. 20

22 NOTE 5 REVENUES Management fee (Note 29) 38,250 42,789 Rental income (Note 29) /i/ 2,290 2,247 Sale of services to non-related parties 173 1,082 Other operating revenues related parties (Note 29) 2,760 1,131 Other operating revenues non-related parties 1,295 2,307 44,768 49,556 /i/ Operating lease income relates to the lease of business premises to related companies. Lease agreements have been concluded for a period of 1 year with an option of being extended. NOTE 6 DIVIDEND RECEIVED FROM SUBSIDIARIES During 2012, the Company recorded dividend income from the subsidiary TDR d.o.o., Rovinj in the amount of HRK 290,000 thousand (2011: HRK 400,000 thousand). NOTE 7 COSTS OF MATERIALS AND SERVICES Raw materials and supplies Raw materials and supplies Energy cost 1,414 1,257 1,807 1,580 External services Transport, telephone, postage Repairs and maintenance 1,169 1,162 Rental expense 2,021 2,072 Marketing and advertising 11,678 7,923 Municipal utility services 1,163 1,100 Intellectual services 1,158 1,093 Administrative expenses (Note 29) Security services Other ,863 15,919 21,670 17,499 21

23 NOTE 8 STAFF COSTS Salaries 20,401 21,055 Taxes and contributions from and on salaries 20,935 21,259 41,336 42,314 As at 31 December 2012, the number of staff employed by the Company was 25 (2011: 44). Pension contributions amounted to HRK 2,073 thousand (2011: HRK 2,378 thousand). NOTE 9 OTHER OPERATING EXPENSES Fees, contributions and other levies 1,298 1,369 License fees - 28 Insurance Bank charges Travel and entertainment 2,406 2,406 Donations, humanitarian aid 4,029 4,555 Net provision for trade and other receivables (Note 20) 57,045 (1,708) Provisions (Note 25) - 7,082 Other 2,122 2,051 67,545 16,874 22

24 NOTE 10 OTHER GAINS/(LOSSES) NET Financial assets at fair value through profit or loss (Note 22) - gains/(losses) from changes in fair value of financial assets at fair value through profit or loss 40,118 (9,039) - gains from sale of bonds, investments in funds and associates 987 1,514 - dividends 419 2,119 - net foreign exchange differences (6) gains from sale of tangible assets ,578 (4,908) NOTE 11 FINANCE INCOME AND COSTS Finance income Interest income from deposits given 56,315 44,147 Interest income from loans given related parties (Note 29) 54,810 62,554 Interest income from bonds and commercial papers 18,924 19,297 Interest income from loans given 15,774 10,795 Net foreign exchange differences from loans given 110, , , ,929 Finance costs Interest expense related parties (Note 29) (23,309) (21,636) Interest expense unrelated parties - (20) Net foreign exchange differences from borrowings (311) (9,462) (23,620) (31,118) 232, ,811 23

25 NOTE 12 INCOME TAX Current income tax 36,340 50,209 Deferred tax (12,209) (3,382) Tax expense 24,131 46,827 Movement in deferred tax assets during the year was as follows: Provisions Impairment Impairment Total Provisions losses losses Total At 1 January 7,631 4,724 12,355 5,983 2,990 8,973 Charged to the other comprehensive income ,409 12,209 1,648 1,734 3,382 At 31 December 8,431 16,133 24,564 7,631 4,724 12,355 A reconciliation of the effective tax expense per the other comprehensive income and taxation at the statutory rate is detailed in the table below: Profit before tax 472, ,221 Tax calculated at a rate of 20% 94, ,644 Effect of income not subject to tax /i/ (70,900) (85,620) Effect of expenses not deductible for tax purposes /i/ 540 5,803 Income tax 24,131 46,827 Effective tax rate /i/ The decrease of the tax base mainly relates to dividend income which does not represent taxable income, and the increase relates to losses from the translation of financial assets at fair value and provisions that are not tax deductible. In 2011, the Tax Authority performed a review of income tax returns and VAT for 2010 and no irregularities were identified. In accordance with local regulations, the Tax Authority may at any time inspect the Company's books and records within 3 years following the year in which the tax liability is reported and may impose additional tax assessments and penalties. The Company's management is not aware of any circumstances, which may give rise to a potential material liability in this respect. 24