Adris Grupa d.d. Consolidated financial statements as at 31 December 2014 and the authorized auditor's report

Transcription

1 Adris Grupa d.d. Consolidated financial statements as at 31 December 2014 and the authorized auditor's report Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

2 CONTENTS Page MANAGEMENT REPORT ON THE FINANCIAL STATEMENT 1-6 INDEPENDENT AUDITOR'S REPORT non consolidated annual report of ADRIS GRUPA d.d. 7 8 NON CONSOLIDATED ANNUAL REPORT OF ADRIS GRUPA d.d 9 13 INDEPENDENT AUDITOR'S REPORT consolidated annual report of ADRIS GRUPA d.d. 14 CONSOLIDATED ANNUAL REPORT OF ADRIS GRUPA d.d Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

3 Management Report Indication of significant developments which occurred during the report period and effects of such developments on a set of financial statements On the key markets the cigarette business deals with numerous negative trends, the first being constant rise in exercise taxes. For example, in the period from 2008 to 2014, the excise tax burden imposed on Ronhill has increased by 89 percent in Croatia, 133 percent in Serbia and no less than 203 percent in Bosnia and Herzegovina. Consequently, due to the increase in excise taxes the retailers are forced to raise retail prices. Constant increase in retail prices, under the conditions of a long-time economic decline and/or stagnation of the Croatian and the key regional markets, is a reason for the cigarette market decline, a shift in demand towards lower price segments and a boom in consumption of fine-cut tobacco. In the period from 2008 to 2014, the Croatian market dropped by 38 percent. The market of Bosnia and Herzegovina recorded a 43 percent decline and Serbia a 41 percent decline. The share of the lowest or low price segment within the decreased cigarette market rose twofold in Croatia in the period from 2008 to 2014, and almost fourfold in the neighbouring Bosnia and Herzegovina. Four years ago the fine-cut tobacco market was almost non-existent in Croatia and in the neighbouring countries. Today, this share is significantly above 10 percent. The big problem is the fact that more than three quarters of fine-cut tobacco is the so called untaxed consumption. The government budget has suffered the heaviest losses as it has been deprived of more than HRK 500 million a year. Despite a strongly competitive environment in Croatia and in the Region, TDR shows signs of recovery on the key markets. In Croatia the market share decline was alleviated and amounted to 57 percent in In Bosnia and Herzegovina, the stable market position was maintained at the previous year s 30 percent. In Serbia the share significantly increased to 11 percent, i.e. by 3 percentage points. The reason is a successful redesign, repositioning of the brand MC and the launch of the Ronhill Wave extension - an innovation which significantly strengthened the position of Ronhill throughout the Region. On other regional markets, TDR showed a growth trend in the year 2014 ranging from 1 to 3 percentage points. The Iranian Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

4 market is the area where TDR can achieve a long-term growth in sales of its brands. In 2014 York was launched which - together with the existing Ronhill represents the base of sales volume growth. Significant expansion of sales organization, an increase in distribution index and investment in marketing are the presumptions for successful development of the market position. The progress was made in respect of the market and in respect of the cost schedule which resulted in significant savings and positive effects on operating profit. Istragrafika continues to be the leading manufacturer of commercial cardboard packages. In 2014, the company generated sales revenue in the amount of 111 million kunas. Formerly, Istragrafika used to generate three quarters of its revenue from TDR, in 2014 however - half of its revenue was generated outside the Group. The company recorded a 12 percent increase in exports, mostly in food, pharmaceutical and crystal industries. The whole industry is under strong pressure due to stagnating demand and increased prices of cardboard as a key raw material. In 2014 Hrvatski duhani (Croatian Tobaccos) generated net profit of 9.1 million kunas and after many years they managed to cover losses from previous periods. The company reported that tobacco buyout was about 20 percent lower in 2014 than normally. Lower tobacco farming production was mainly a consequence of adverse weather conditions. In 2014 TDR s total sales amounted to 8.7 billion cigarettes, 67 per cent of which was generated by exports. If compared to the previous year s sales of cigarettes, 2014 sales were down 9 per cent. The Group s Retail Business is under strong pressure of negative economic trends and consequently, changes in consumer spending habits. Optimization of the sales network, introduction of new services and cost optimization have been vital for achieving positive financial results in Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

5 In September 2014 Maistra signed a contract to purchase 81.6 percent interest in the Hilton Imperial hotel in Dubrovnik. The previous owner was a company from Dubrovnik Atlantska plovidba. This acquisition is a continuation of the growth and development strategy in the highest segment of hotel offering and represents a step forward from Rovinj to a prestigious Croatian tourism destination. The hotel is a well-established and growing business and is managed by the successful international Hilton hotel chain under the same brand. In 2014 Maistra invested in reconstruction and higher quality of the existing products. The most significant investment has been made in reconstruction of the Lone Bay promenade and beach. The investments in reconstruction and service quality improvement at the camping sites of Polari and Valkanala have been finalized by setting up mobile homes and reconstruction of the superior parcels. Also, the reconstruction of common facilities in the apartment villages Villas Rubin and Amarin was completed. The total investment in 2014 amounted to 150 million kunas. Maistra does not only make investments to improve quality of its facilities, but is also focused on an increase in the recognisability and offering of the entire destination which, for example, resulted in organisation of the second race of the Red Bull Air Race World Championship 2014 held on 12 and 13 April 2014 and hosted by Maistra. In two days the race drew about eighty thousand viewers watching the race from the grandstands, and about 500 million people could see Rovinj on TV. The race was pronounced the Tourism Event of the Year at the manifestation the Days of the Croatian Tourism which was held in Opatija in October The Group's Tourism Business recorded 2.97 million bed nights, which is at the previous year s level. The bed night prices have increased by 5 per cent. This is a result of the new and recognizable offering in the higher price segment which has contributed to the recognisability and desirability of the destination, and has made a direct impact on the prices. Also, investments in the camping sites facilitated price repositioning of specific products. In 2014 the Tourism SBU generated operating revenue in the amount of 803 million kunas, which was twelve percent more than a year before. Sales revenue increased by 8 percent. The organisation of the Red Bull Air Race event caused marketing costs to increase which represent a long-term investment in the recognisability of the destination. Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

6 Cromaris is the leading Croatian company in mariculture. In the last six years the sales increased almost sixfold and the production almost eightfold. The average annual rate of growth in sales in the period from 2008 to 2014 was 31 percent. In ,629 tons was sold or 49 percent more than a year before, 69 percent of which was exported. Great efforts have been employed in development of the brand and already today the Cromaris brand recognisability in Croatia is higher than 50 percent. The next step is to increase recognisability on the international market, especially in Italy. The marketing differentiation and premiumisation and/or positioning into the highest offering segment are the ways of competing on the challenging European market. For example, in the last four years Cromaris managed to increase average sales price of fresh fish by about 34 percent, and by about 41 percent in exports. Today, Cromaris is among top ten producers of farm gilthead and sea bass. Investment in a new fish hatchery and pre-growing system worth almost 150 million kunas is currently underway which will ensure stable supply. Besides, the production cycle time is going to be reduced and survival rate increased which has a direct impact on lower production costs. The investment is going to be completed in In this way Cromaris becomes a hightechnology and vertically integrated company. In 2014 Cromaris generated the net profit of 1.2 million kunas. In April 2014 Adris has formally taken over the company Croatia osiguranje, the oldest insurance undertaking in Croatia, established in Croatia osiguranje is the leading company on the Croatian insurance market with 29 percent market share. The company is also present on the neighbouring regional markets in Bosnia and Herzegovina, Serbia, Kosovo and Macedonia. After the acquisition of 29 percent of shares and the General Assembly meeting held in April 2014, Adris invested additional capital in Croatia osiguranje in the amount of 840 million kunas and so increased its ownership share to 66 percent. After entering into the ownership structure and taking over the lead of the company, some facts which had been already known were confirmed. A loss of market shares and fall in premiums, a lack of transparency in business operations, a high rate of insurance pay-outs and an inefficient sales structure. For instance, only 23 percent of all employees actually worked in sales. In successful companies in this business branch three quarters of employees work in Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

7 sales. Significant write-offs for "cleaning up" the balance sheet and the anticipated high costs of restructuring were needed in Consequently, a loss of Grupa Croatia osiguranje in 2014 amounted to 466 million kunas, 138 million kunas of which was attributed by Adris. In 2015 the company will continue with its restructuring and in this respect three goals were set. The first goal is to establish an efficient, flexible, marketing- and sales-oriented organisation. The second, financial goal is to improve operational profitability. The third one is to strengthen the leading position in the Republic of Croatia. Adris strives to become the regional leader in all business activities it is involved in, including the insurance industry. After the revitalisation of the parent company s business operations, a strong step forward into the Region is expected, with the aim of achieving sustainable operations of Croatia osiguranje. Description of most significant risks and uncertainties for the next report period Further decrease in purchasing power and rise in unemployment on the key markets may result in lower demand for cigarettes and shift of consumers' demand toward lower price segments. Increase in tax burden as a part of the harmonization process with the EU regulations in the Republic of Croatia, and harmonization of taxes in the process of accession to the EU in the countries within the Region, may produce an additional increase in retail prices and consequently a decline in taxed consumption. Besides, government budget deficits may have effects on uncontrolled rise in tax burden which directly generates increase in retail prices of cigarettes. This would additionally intensify the described decline in taxed consumption, down-trading and increase in fine-cut tobacco segment. Bad economic situation of major tourism competitors, e.g. Italy, Greece, Spain and Portugal, may affect further policy of damping prices on the Mediterranean. Political instability in Ukraine and the rouble s decline will most certainly have effect on declining demand on the mentioned source markets. In the insurance business, a further price war, especially in the segment of automobile liability insurance may have effect on instability of business results. Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

8 Information on significant transactions between related parties produced in accordance with the financial reporting framework In the current report period, goods and services transactions between members of the Group were conducted in the ordinary and usual way. Adris Grupa d.d. / Obala Vladimira Nazora 1 / Rovinj, Hrvatska tel.: +385 (0) , ; fax: +385 (0) / adris@adris.hr /

9 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 at 31 December 2014 and 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 these financial statements in accordance with International Financial Reporting Standards as adopted in the European Union, 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. Basis 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 2014 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: Hrvoje Zgombić, President; J. M. Gasparac, Member; S. Dušić, Member; T. Maćašović, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR

10 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 the Company as at 31 December 2014, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the European Union. PricewaterhouseCoopers d.o.o. Zagreb, 16 April 2015

11 INDEPENDENT AUDITOR'S REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014

12 STATEMENT OF COMPREHENSIVE INCOME (all amounts in thousands of HRK) Note Service revenues 5 36,180 42,345 Dividend income 6 501, ,217 Other income Cost of materials and services 7 (34,135) (25,811) Staff costs 8 (41,935) (43,437) Depreciation, amortisation and impairment 14, 15, 16 (5,713) (5,702) Other operating expenses 9 (87,429) (59,553) Other gains net 10 99,417 4,623 Operating profit 468, ,716 Finance income , ,295 Finance costs 11 (27,092) (31,253) Finance income net , ,042 Profit before tax 677, ,758 Income tax 12 (2,638) (35,337) Net profit for the year 675, ,421 Total comprehensive income Change in fair value of available-for-sale financial assets - net of deferred income tax 42,859 - Total comprehensive income 717, ,421 Basic and diluted earnings per share (in HRK) These financial statements set out on pages 3 to 40 were approved by the Management Board of the Company on 8 April President of the Management Board mr. Ante Vlahović The accompanying notes form an integral part of these financial statements. 3

13 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER December (all amounts in thousands of HRK) Note ASSETS Non-current assets Property, plant and equipment , ,892 Investment property 15 6,840 7,779 Intangible assets 16 2,490 2,546 Investments in subsidiaries 18 4,798,340 2,696,097 Investments in associates 19 61,722 61,722 Available-for-sale financial assets ,622 - Deferred tax assets 12 49,201 34,643 Trade and other receivables ,647 5,134,977 2,920,326 Current assets Trade and other receivables 21 2,615,670 2,118,311 Deposits 22-1,784,534 Financial assets at fair value through profit or loss 23 68, ,141 Income tax receivable 22,202 - Cash and cash equivalents 70 2,668 2,706,337 4,209,654 Total assets 7,841,314 7,129,980 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 Statutory reserves 6,068,268 5,793,068 Retained earnings 798, ,398 Reserves from translation of available-for-sale financial assets 42, ,061,990 6,457,377 Non-current liabilities Deferred tax liability 12 10,715 - Provisions for other liabilities and expenses 26 51,431 51,431 62,146 51,431 Current liabilities Trade and other payables 27 57,918 75,668 Borrowings , ,880 Provisions 26 4,838 - Income tax payable - 8, , ,172 Total liabilities 779, ,603 Total equity and liabilities 7,841,314 7,129,980 The accompanying notes form an integral part of these financial statements. 4

14 STATEMENT OF CHANGES IN EQUITY (all amounts in thousands of HRK) Note Share capital Share Treasury premium shares Legal reserves Statutory reserves Revaluation reserves - available-for-sale financial assets Retained earnings Total At 1 January ,000 16,922 (41,459) 12,448 5,464, ,680 6,180,332 Total comprehensive income , , , ,421 Transactions with owners Distribution of retained earnings as per decision of General Assembly 24/iii/ ,327 - (448,327) - Transfer of profit from statutory reserves to retained earnings as per decision of General Assembly (120,000) - 120,000 - Dividends declared as per decision of General Assembly 24/iv/ (114,800) (114,800) Transfer of profit for treasury shares ,424 1,424 Total transactions with owners ,327 - (441,703) (113,376) At 31 December ,000 16,922 (41,459) 12,448 5,793, ,398 6,457,377 At 1 January ,000 16,922 (41,459) 12,448 5,793, ,398 6,457,377 Total comprehensive income , , , , , ,987 Transactions with owners Distribution of retained earnings as per decision of General Assembly 24/iii/ ,421 - (390,421) - Transfer of profit from statutory reserves to retained earnings as per decision of General Assembly (114,800) - 114,800 - Dividends declared as per decision of General Assembly 24/iv/ (114,800) (114,800) Transfer of profit for treasury shares ,426 1,426 Total transactions with owners ,621 (388,995) (113,374) At 31 December ,000 16,922 (41,459) 12,448 6,068,689 42, ,531 7,061,990 The accompanying notes form an integral part of these financial statements. 5

15 CASH FLOW STATEMENT (all amounts in thousands of HRK) Note Cash flows from operating activities: Cash generated from operations 28 (76,985) 27,566 Tax paid (30,826) (35,321) Interest paid (25,223) (24,090) Cash flows from operating activities (133,034) (31,845) Cash flows from investing activities: Dividend received 501, ,217 Purchase of share in subsidiaries/associate 18 (1,958,445) (1,173) Purchase of shares in subsidiaries/associate Purchase of financial assets at fair value through profit or loss (14,582) (42,398) Proceeds from sale of financial assets at fair value through profit or loss 158,062 88,865 Purchase of tangible and intangible assets 14, 16 (2,096) (5,374) Proceeds from/(investment in) deposits 1,779,195 (62,851) Loans given (1,507,157) (302,121) Proceeds from loans given 963, Interest received 207, ,796 Cash flows from investing activities 128, ,220 Cash flows from financing activities Borrowings 235,495 14,710 Repayment of borrowings (119,732) - Dividends paid (113,375) (100,665) Cash flows from financing activities (2,388) (85,955) Net (decrease)/increase in cash and cash equivalents (2,598) 2,420 Cash and cash equivalents at beginning of year 2, Cash and cash equivalents at end of year 70 2,668 The accompanying notes form an integral part of these financial statements. 6

16 Independent Auditor s Report To the Shareholders and Management of Adris grupa d.d. We have audited the accompanying consolidated financial statements of Adris grupa d.d. and its subsidiaries (the Group ), which comprise the consolidated statement of financial position as at 31 December 2014 and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended and notes comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted in the European Union, and for such internal control as management determines is necessary to enable the preparation of consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the European Union. PricewaterhouseCoopers d.o.o. Zagreb, 16 April 2015 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: Hrvoje Zgombić, President; J. M. Gasparac, Member; S. Dušić, Member; T. Maćašović, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR

17 INDEPENDENT AUDITOR S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2014

18 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Note Operating revenues 5 4,483,645 2,747,758 Other revenues 6 262,972 76,599 Change in value of work in progress and finished goods 39, ,212 Insurance claims incurred, net of reinsurance 8 (1,168,508) - Cost of materials and services 7 (1,995,544) (1,717,901) Staff costs 9 (1,139,969) (502,147) Depreciation and amortisation and impairment 16, 17, 18 (316,773) (361,073) Other operating expenses 10 (292,308) (241,962) Other gains net ,667 22,047 Operating profit 32, ,533 Finance income , ,041 Finance costs 12 (15,490) (23,961) Finance income net , ,080 Share in profit of associates 19 19,497 23,183 Profit before taxation 402, ,796 Income tax 13 (50,926) (99,145) Net profit for the year 351, ,651 Other comprehensive income Foreign exchange differences 7,726 7,993 Change in fair value of available-for-sale financial assets - net of deferred income tax 102,424 - Total other comprehensive income 110,150 7,993 Total comprehensive income for the year 461, ,644 Net profit attributable to: Company s shareholders 384, ,215 Non-controlling interests (33,668) 8, , ,651 Comprehensive income attributable to: Company s shareholders 474, ,224 Non-controlling interests (13,459) 8, , ,644 Basic/diluted earnings per share attributable to the Company s shareholders (in HRK) These consolidated financial statements set out on pages 2 to 86 were approved by the Management Board of the Company on 16 April President of the Management Board mr. Ante Vlahović The accompanying notes form an integral part of these consolidated financial statements. 2

19 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER December Note ASSETS Non-current assets Property, plant and equipment 16 4,531,895 3,414,844 Investment property ,739 76,969 Intangible assets , ,713 Held-to-maturity investments 20 2,304,822 - Available-for-sale financial assets 21 1,355,393 - Deferred tax assets , ,072 Investments in associates and joint ventures , ,654 Trade and other receivables 23 94,954 4,505 Deposits 26 1,457,970-11,921,276 3,957,757 Current assets Inventories , ,211 Trade and other receivables 23 3,508,311 2,449,460 Held-to-maturity investments ,892 - Available-for-sale financial assets 21 15,776 - Financial assets at fair value through profit or loss , ,292 Deposits ,376 1,887,039 Cash and cash equivalents ,007 76,138 5,844,302 5,554,140 Total assets 17,765,578 9,511,897 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 Other reserves 7,463,322 7,186,276 Fair value reserves 82,215 - Retained earnings 393, , ,091,213 7,729,622 Non-controlling interests 1,008, ,273 Total equity 9,100,208 7,897,895 LIABILITIES Non-current liabilities Borrowings ,102 77,668 Provisions , ,733 Technical provisions 32 4,142,262 - Deferred tax liability ,787 17,014 4,632, ,415 Current liabilities Trade and other payables 30 1,153, ,778 Income tax payable 31,076 18,086 Borrowings , ,451 Provisions ,052 21,272 Technical provisions 32 2,348,187-4,032,435 1,283,587 Total liabilities 8,665,370 1,614,002 Total equity and liabilities 17,765,578 9,511,897 The accompanying notes form an integral part of these consolidated financial statements. 3

20 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Note Share capital Share premium Equity attributable to the Company s shareholders Treasury shares Legal reserves Fair value reserves Other reserves Retained earnings Noncontrolling interests Total At 1 January ,000 16,922 (41,459) 12,448-6,770, , ,060 7,669,308 Profit for ,215 8, ,651 Other comprehensive income - Foreign exchange differences on translation of foreign operations ,009 (16) 7,993 Total comprehensive income ,224 8, ,644 Transactions with owners Purchase from non-controlling interests (2,475) - (49,207) (51,682) Transfer of retained earnings ,132 (418,132) - - Dividends declared (113,375) - (113,375) Total transactions with owners 415,657 (531,507) (49,207) (165,057) At 31 December ,000 16,922 (41,459) 12,448-7,186, , ,273 7,897,895 Profit for ,975 (33,668) 351,307 Other comprehensive income Change in fair value of available-forsale financial assets ,215-20, ,424 Foreign exchange differences on translation of foreign operations ,726-7,726 Total comprehensive income , ,701 (13,459) 461,457 Transactions with owners Acquisition of subsidiaries , ,867 Purchase from non-controlling interests (686) (636) Transfer of retained earnings ,421 (390,421) - - Transfer from reserves to retained earnings (113,375) 113, Dividends declared (113,375) - (113,375) Total transactions with owners ,046 (390,371) 854, ,856 At 31 December ,000 16,922 (41,459) 12,448 82,215 7,463, ,765 1,008,995 9,100,208 The accompanying notes form an integral part of these consolidated financial statements. 4

21 CONSOLIDATED CASH FLOW STATEMENT Note Cash flows from operating activities: Cash generated from operations , ,968 Tax paid (88,382) (90,256) Interest paid (15,317) (23,136) Cash flows from operating activities 540, ,576 Cash flows from investing activities: Acquisition of subsidiaries, net of cash acquired 33 (2,052,183) - Purchase of share in associate - (14,838) Proceeds from shares in associates 19 18,349 21,491 Purchase of shares from non-controlling interests 34 (636) (50,653) Investment in held-to-maturity financial assets 20 (194,847) - Proceeds on sale of held-to-maturity financial assets ,699 - Investment in available-for-sale financial assets 21 (653,306) - Investment/withdrawal of deposits - net 2,047,632 (57,518) Proceeds from sale of investments in securities and bonds at fair value through profit or loss 376,135 44,989 Purchase of tangible and intangible assets 16, 17, 18 (359,158) (423,396) Loans given - net 5,312 (311,067) Interest collected 367, ,813 Proceeds on sale of tangible assets 11 6,574 2,768 Dividend received 10 4, Cash flows used in investing activities (158,324) (574,052) Cash flows from financing activities: Dividends paid (113,375) (100,666) Repayment of borrowings (156,514) (54,268) Proceeds from borrowings 45,560 72,833 Net cash used in financing activities (224,329) (82,101) Net increase/(decrease) in cash and cash equivalents 157,869 (17,577) Cash and cash equivalents at beginning of year 76,138 93,715 Cash and cash equivalents at end of year ,007 76,138 The accompanying notes form an integral part of these consolidated financial statements. 5

22 NOTE 1 GENERAL INFORMATION Adris grupa Rovinj (the Group) consists of the parent company Adris grupa d.d., Rovinj (the Company) and the subsidiaries listed below. The parent company is registered in Rovinj, Obala Vladimira Nazora 1, Croatia and is engaged in the management of investments in subsidiaries and other investments. Through a number of subsidiaries the Group performs tobacco manufacturing and processing activities and trade of tobacco products, as well as tourism, trade and mariculture activities. After acquiring the subsidiary Croatia osiguranje d.d., since 2014 the Group is also engaged in the insurance business. As at 31 December 2014 and 2013, the shares of Adris grupa d.d., Maistra d.d. and Tvornica duhana Zagreb d.d. were listed on the public joint stock company listing on the Zagreb Stock Exchange. Adris grupa d.d. owns the following companies comprising the Adris group (the Group). Ownership % Name of subsidiary TDR d.o.o., Rovinj, Croatia: Hrvatski duhani d.d. Virovitica, Croatia Istragrafika d.d., Rovinj, Croatia TDR Parsian Company, Iran Rovita d.o.o. Rovinj, Croatia merged TDR Rovita Ljubljana d.o.o., Slovenia 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 Adista BH, Sarajevo, Bosnia and Herzegovina Adria Resorts d.o.o., Rovinj, Croatia: Maistra d.d., Rovinj, Croatia Grand hotel Imperial d.d Slobodna Katarina d.o.o. Rovinj, Croatia Cromaris d.d., Zadar Cenmar Export Import d.o.o. Kali, Croatia Cenmar Tkon d.o.o. Zadar, Croatia merged Cenmar Košara d.o.o. Zadar, Croatia merged Cromaris Italia s.r.l., Treviso, Italy Inovine d.d., Zagreb, Croatia: Adria tisak d.o.o., Zagreb, Croatia merged E.distribucija d.o.o., Rovinj, Croatia merged 100 Opresa d.d., Sarajevo, Bosnia and Herzegovina: Inovine BH, Sarajevo, Bosnia and Herzegovina Abilia d.o.o., Rovinj, Croatia Tvornica duhana Zagreb d.d., Croatia

23 NOTE 1 GENERAL INFORMATION (continued) Ownership % Name of subsidiary Croatia osiguranje d.d., Zagreb: CROATIA Lloyd d.d., Zagreb CROATIA mirovni dom d.o.o., Zagreb Histria Construct d.o.o Razne Usluge d.o.o. currently being wound up, Zagreb CROATIA-Tehnički pregledi d.o.o., Zagreb STP Pitomača, Pitomača STP Blato, Blato Herz d.d., Požega CROATIA osiguranje mirovinsko društvo d.o.o., Zagreb CROATIA zdravstveno osiguranje d.d., Zagreb Poliklinika Ars Medica, Pula Poliklinika CROATIA zdravstveno osiguranje, Zagreb Slavonijatrans-Tehnički pregledi d.o.o., Sl. Brod CROATIA Sigurimi sh.a., Pristina Milenijum osiguranje a.d., Belgrade CROATIA osiguranje d.d., Ljubuški Crotehna d.o.o., Ljubuški CROATIA remont d.d., Čapljina Croauto d.o.o., Mostar CROATIA Vitez d.o.o., Vitez Hotel Hum d.o.o., Ljubuški Ponte d.o.o., Mostar CROATIA osiguranje a.d., društvo za osiguranje života, Skopje (life insurance company) CROATIA osiguranje a.d. društvo za osiguranje neživota, Skopje (non-life insurance company) 100-7

24 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated 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 consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss and available-for-sale financial assets. 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 Group 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. (a) New and amended standards adopted by the Group The Group has adopted the following new and amended IFRSs and IFRIC interpretations during the year which were endorsed by the EU. When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Group, its impact is described below. Below is a list of standards/interpretations that have been issued and are effective for periods beginning on or after 1 January IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2014) 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 and sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. It also sets out the accounting requirements for the preparation of consolidated financial statements. This standard was applied to the 2014 Group financial statements. IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2014) IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and therefore accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and therefore equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. This standard was applied to the 2014 Group financial statements. 8

25 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) (a) New and amended standards adopted by the Group (continued) IFRS 12 Disclosures of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2014) IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special-purpose vehicles and other off-balance sheet vehicles. The Group recorded shares in other entities and other disclosures required by this standard. IAS 27 (revised 2011) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2014) 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. IAS 28 (revised 2011) Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2014) IAS 28 (revised 2011) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. Amendment to IFRSs 10, 11 and 12 on Transition Guidance (effective for annual periods beginning on or after 1 January 2014) 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. This amendment did not have a significant impact on the Group s financial position or performance. Amendments to IFRS 10, 12 and IAS 27 on consolidation for investment entities (effective for annual periods beginning on or after 1 January 2014) These amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through comprehensive income. The amendments give an exception to entities that meet an investment entity definition and which display particular characteristics. Changes have also been made IFRS 12 to introduce disclosures that an investment entity needs to make. This amendment did not have a significant impact on the Group s financial position or performance. Amendment to IAS 32, Financial Instruments: Presentation on asset and liability offsetting (effective for annual periods beginning on or after 1 January 2014) These amendments are to the application guidance in IAS 32, 'Financial instruments: Presentation', and clarify some of the requirements for offsetting financial assets and financial liabilities at the balance sheet date. This amendment did not have a significant impact on the Group s financial position or performance. Amendment to IAS 36, Impairment of assets on recoverable amount disclosures (effective for annual periods beginning on or after 1 January 2014) This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. This amendment did not have a significant impact on the Group s financial position or performance. 9

26 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) (a) New and amended standards adopted by the Group (continued) Amendment to IAS 39, Financial instruments: recognition and measurement on novation of derivatives (effective for annual periods beginning on or after 1 January 2014) This amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counter party meets specified criteria. This amendment did not have a significant impact on the Group s financial position or performance. (b) Standards and interpretations issued but not yet effective Below is a list of standards/interpretations that have been issued and are not effective for periods starting on 1 January 2014, but will be effective for later periods IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018) Earlier application is permitted. If an entity elects to early apply it must apply all of the requirements at the same time with the following exception: Entities with a date of initial application before 1 February 2015 continue to have the option to apply the standard in phases. The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value, through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The Group plans to adopt this new standard on the effective date as of and when endorsed by EU. The Group is still assessing the impact of this standard, but it is not expected to have a significant impact on the Group s financial statements. 10

27 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 14, Regulatory deferral accounts (effective for annual periods beginning on or after 1 January 2016) This standard permits first-time adopters of IFRS to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. The Group plans to adopt this new standard on the effective date as of and when endorsed by EU. The Group is still assessing the impact of this standard, but it is not expected to have a significant impact on the Group s financial statements. IFRS 15, Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2017) This is the converged standard on revenue recognition. It replaces IAS 11, Construction contracts, IAS 18, Revenue and related interpretations. Revenue is recognised when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation IFRS 15 also includes a cohesive set of disclosure requirements that will result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity s contracts with customers. The Group s operations are complex, and the Group has already started the necessary efforts to develop and implement new accounting policies, estimates and processes to comply with this new standard. Such effort is expected to continue until As a result, at this time, it is not possible to make a reasonable quantitative estimate of the effects of this new standard on the Group s financial statements. 11

28 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) (b) Standards and interpretations issued but not yet effective (continued) IFRIC 21, Levies (effective in the EU for annual periods beginning on or after 17 June 2014) This is an interpretation of IAS 37 Provisions, contingent liabilities and contingent assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The interpretation addresses what the obligating event is that gives rise to the payment of a levy and when a liability should be recognised. The Group is still assessing the impact of this interpretation, but it is not expected to have a significant impact on the Group s financial statements. Amendments to IFRS 10 and IAS 28 regarding the sale or contribution of assets between an investor and its associate or joint venture (effective for annual periods beginning on or after 1 January 2016) These amendments address an inconsistency between IFRS 10 and IAS 28 in the sale or contribution of assets between an investor and its associate or joint venture. A full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. The Group plans to adopt this amendment on the effective date as of and when endorsed by EU. The Group is still assessing the impact of this standard, but it is not expected to have a significant impact on the Group s financial statements. Amendment to IFRS 11, Joint arrangements regarding acquisition of an interest in a joint operation (effective for annual periods beginning on or after 1 July 2016) This amendment provides new guidance on how to account for the acquisition of an interest in a joint venture operation that constitutes a business. The amendments require an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business. The amendments are applicable to both the acquisition of the initial interest in a joint operation and the acquisition of additional interest in the same joint operation. However, a previously held interest is not re-measured when the acquisition of an additional interest in the same joint operation results in retaining joint control. The Group plans to adopt this amendment on the effective date as of and when endorsed by EU. The Group is still assessing the impact of this standard, but it is not expected to have a significant impact on the Group s financial statements. Amendment to IAS 16, Property, plant and equipment and IAS 38, Intangible assets regarding depreciation and amortisation (effective for annual periods beginning on or after 1 January 2016) This amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. This has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. 12