HZ INFRASTRUKTURA d.o.o., Zagreb Annual consolidated financial statements and Independent Auditor's report for the year 2018 CONTENT Page Responsibility for the Annual Financial Statements 1 Independent Auditor's Report 2-7 Consolidated Income Statement and Statement of Other 8 Comprehensive Income Consolidated Balance sheet/Consolidated Statement of 9 - 10 financial position Consolidated Statement of Changes in Equity 11 Consolidated Statement of Cash Flow 12-13 Notes to the Consolidated Financial Statements 14 - 73 RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS The Management Board of H2 INFRASTRUKTURA d.o.o., Zagreb (hereinafter: "the Company") is responsible for ensuring that the annual consolidated financial statements for the year 2018, are prepared in accordance with the Accounting Act (Official Gazette No. 78/15, 134/15, 120/16 and 116/18) and International Financial Reporting Standards, to give a true and fair view of consolidated financial position, the consolidated results of operations, the consolidated changes in equity and consolidated cash flows of the Company for that period. After making enquiries, the Board has reasonable expectations that the Company has adequate resources to continue to operate for the foreseeable future. Accordingly, the Board has prepared the consolidated financial statements of the Company using the going concern basis of accounting. In preparing the consolidated financial statements, the Board is responsible for: * Selection and consistent application of suitable accounting policies in accordance with the applicable financial reporting standards * Giving reasonable and prudent judgements and estimates * Application of valid financial reporting standards, disclosure and explanations in the consolidated financial statements of any deviation of material nature; and * For the preparation of consolidated financial statements using the going concern basis, unless it is inappropriate to presume so. The Board is responsible for keeping proper accounting records, which at any time with reasonable certainty present the consolidated financial position, the consolidated results of operations, as their compliance with the Accounting Act (Official Gazette No 78/15, 134/15, 120/16 i 116/18) and International Financial Reporting Standards. The Management Board is also responsible for safe keeping the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. For and on behalf of th aragemnent 6ard: Ivan Kriic, Darko Bari ic President of the anagement Member of the Management Board Board Nikola Ljuban Marko Z. Zubrinic Memr oft eMnagement Member of the Management Board Board Krunoslav Pa c Member of the M agement Board H2 INFRASTRUKTURA d.o.o. Mihanoviceva 12 10 000 Zagreb Republika Hrvatska 23 September 2019 INDEPENDENT AUDITOR'S REPORT To the Owner of company HZ INFRASTRUKTURA d.o.o., Zagreb Report on the Audit of Annual Consolidated Financial Statements Qualified Opinion We have audited the enclosed annual consolidated financial statements HZ INFRASTRUKTURA d.o.o., Zagreb, Mihanoviceva 12 (hereinafter: "the Company"), for the year ended 31 December 2018, which comprise of the consolidated Statement of financial position (Balance Sheet) as at 31 December 2018, consolidated Income Statement, consolidated Statement of other comprehensive income, the consolidated Statement of Changes in Equity and consolidated Statement of cash flows for the year than ended, and Notes to the Consolidated Financial statements including a summary of significant accounting policies and other explanations. In our opinion, except for the possible effect of the matter described in the Basis for the qualified opinion, the accompanying annual consolidated financial statements, give a fair and true view of the consolidated financial position of the Company at as 31 December 2018, and of the consolidated financial performance and the consolidated cash flows of the Company for the year then ended in accordance with the Accounting Act and the International Financial Reporting Standards as adopted by European Committee and published in official gazette of European Union (,,IFRS). Basis for qualified opinion In the consolidated Statement of Financial Position (Balance sheet) at 31 December 2018., the Company, over significant number of real estates registered in business books, does not have regulated property ownership in land registers. Settlement of property rights is pending. On those grounds, we are not able to determine the effects of impairment to the Company's financial statements for 2018. We conducted our audit in accordance with Accounting Act, Auditing Act and International Standards on Auditing (ISAs). Our responsibilities under these standards are further described in the Auditor's responsibilities for the audit of the annual consolidated financial statement section of our Independent Auditor's Report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidences we have obtained sufficient and appropriate to provide a basis for our qualified opinion. Emphasis of matter 1. We draw attention to Note 45 of the Annual financial statements due to the uncertainty related to legal proceedings that have been initiated against the Company. Our opinion has not been modified in this regard. 2 Re isao kod Trgi ko ;uda uj Zag,rebu pod bmiojom 080041491 IL F i Key audit matters Key audit issues are those matters that, in our professional judgment, were of most significance in our audit of the annual consolidated financial statements of the current period and include the recognized, most significant risks of significant misstatement due to error or fraud with the greatest impact on our audit strategy, the disposition of our available resources and the time spent by the engaged audit team. These matters were addressed in the context of our audit of the annual consolidated financial statements as a whole and in forming our opinion about them, and we do not provide a separate opinion on these matters. We have identified that the matters listed below are the key audit issues to be disclosed in our Independent Auditor's Report. Key audit matters How we addressed the key audit matte Impairment of Assets pursuant to 1AS 36. . Our audit procedures included the In its annual financial statements, as at 31 folloidng; December 2018, the Company has recorded 1,693,175 thousand HRK in the position of - We have reviewed the Company's the assets in preparation. valuation methodology for As at 31 December 2018, assets in impairment of assets; preparation include investments in progress - We have checked for the indicators older than three and more years in the for additional impairment in the amount of HRK 641,491 thousand. This remaining part of the assets in amount also contains the project of the Lika preparation. Railway which the Company had value adjusted on 31 December 2017. Related disclosures in annual financial statements. Please see note 16. 3 Other information in the Annual Report The Management Board is responsible for other information. Other information includes information included in the Annual Report, but do not include the annual consolidated financial statements and our Independent Auditor's Report on them. Our opinion on annual consolidated financial statements does not include other information, except to the extent explicitly stated in the part of our Independent Auditor's Report, entitled Report on compliance with other legal or regulatory requirements, and we do not express any other kind of conclusion with assurance on them. In connection with our audit of the annual consolidated financial statements, it is our responsibility to read the other information and consider whether other information have significant contradiction to annual financial statements or our knowledge gained while performing the audit, or otherwise appear to be materially misstated. If, based on the work we have performed, we conclude that there is material misstatement of these other information, we are required to report this fact. In this sense, except notified in sections Basis for qualified opinion, we do not have anything to report. Responsibilities of the Management Board and Those Charged with Governance for the Annual Consolidated Financial Statements The Management Board is responsible for the preparation of annual consolidated financial statements that give true and fair view in accordance with IFRSs, as adopted by European Committee and published in official gazette of European Union and for such internal controls that the Management Board determines are necessary to enable the preparation of annual consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual consolidated financial statements, the Management Board is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Annual Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the annual consolidated financial statements are free from material misstatement, whether due to fraud or error, and to issue an Independent Auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered significant if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken based on these annual consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. 4 Auditor's Responsibilities for the Audit of the Annual Financial Statements (continued) We also: * Identify and assess the risks of material misstatement of the annual consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal controls relevant for the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on effectiveness of the Company's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. * Conclude on the appropriateness of the Management's Board use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or circumstances that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Independent Auditor's Report to the related disclosures in the annual consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Independent Auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the annual consolidated financial statements, including disclosures, as well as whether the annual consolidated financial statements represents underlying transactions and events in a manner that achieves fair presentation. * We collect sufficient audit evidences related to financial information for entities or business activities within the Group, to express an opinion on the annual consolidated financial statements. We are responsible for organization, supervision and implementation of the Group's audit. We are solely responsible for expressing our opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and the timing of the audit, and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. 5 Report on other legal requirements Report based on the requirements of Regulation (EU) No. 537/2014 On 27 September 2018. the Company's General Assembly appointed us based on the proposal of the Company's Management Board to audit the annual consolidated financial statements for the year 2018. At the date of this Report, we have been continuously engaged in carrying out the Company's legal audits of the Company's annual consolidated financial statements for 2010, up to the Company's annual consolidated financial statements for 2018, totalling 8 years. In addition to the issues we have set out as a key auditing issue in our independent auditor's report as outlined in the fundamentals section, we do not have any information regarding point (c), paragraph 2 of Article 10 of Regulation (EU) No. 537/2014. With our statutory audit of the Company's annual consolidated financial statements for 2018 we are able to detect irregularities, including fraud under Section 225, Response to Non- compliance with the IESBA Code and the Rules of the IESBA Code, which requires us to audit our engagement to see if the Company complied with laws and regulations for which are generally recognized to have a direct impact on the determination of significant amounts and disclosures in their annual consolidated financial statements, as well as other laws and regulations that do not have a direct effect on the determination of significant amounts and disclosures in its annual financial statements, but the respect of which may be crucial to operational aspects of the Company's business, its ability to continue with unlimited business time or to avoid significant penalties. Except in case we encounter, or find out about, disrespect of any of the foregoing the aforementioned laws or regulations that are apparently insignificant, according to our judgment of its content and its influence, financially or otherwise, for the Company, its shareholders and the wider public, we are obliged to inform the Company thereof and request to investigate this case and take appropriate measures to resolve the irregularity and to prevent the reappearance of these irregularities in the future. If the Company does not correct any irregularities arising from incorrect disclosures in the audited annual financial statements that are cumulatively equal to or greater than the amount of significance to the financial statements as a whole, we are required to modify our opinion in an independent auditor's report. In the audit of the Company's annual consolidated financial statements for the year 2018 we determined the significance for the consolidated financial statements as a whole in the amount of HRK 20,936 thousand, representing approximately 1.8% of sales income and other operating income. As a measure of significance, sales revenues and other operating income were taken as we consider it to be the most appropriate benchmark for the Company's activities. Our audit opinion is consistent with the additional audit report prepared for the Company's Audit Board in accordance with the provisions of Article 11 of Regulation (EU) No. 537/2014. During the period between the initial date of the audited annual financial statements of the Company for the year 2018 and the date of this report we did not provide the Company with prohibited non-scheduled services and in the business year prior to the aforementioned period we did not provide services for the design and implementation of internal control procedures or risk management related to preparation and / or control of financial information or the design and implementation of technological systems for financial information, and we have maintained independence in the performance of the audit in relation to the Company. 6 Report on Compliance with Other Legal or Regulatory Requirements The Management Board of the Company is responsible for compiling the Management Report as an integral part of the Company's Annual Report and we are required to express an opinion on the compliance of the Company's Management Report as an integral part of the Company's Annual Report with the Company's annual consolidated financial statements. In our opinion, based on the work we performed during the audit, the information contained in the Management Report for the year 2018, which is an integral part of the Company's Annual Report for 2018, has been aligned with the information provided in the Company's annual consolidated financial statements presented on pages 8 to 73 on which we have expressed our opinion as outlined in the Qualified Opinion section above. In our opinion, based on the activities we conducted during the audit, the 2018 Management Report of the Company, which is an integral part of the Company's Annual Report for 2018, is drawn up in accordance with the Accounting Act. Based on the knowledge and understanding of the Company's business and its environment within the scope of the audit, apart from the sections in the Qualified Opinion and Emphasis of Matter sections, we have not found that there are significant misstatements in the Management Report for 2018, which is an integral part of the Company's Annual Report for 2018. The Management Board of the Company is responsible for compiling the annual consolidated financial statements of the Company for the year ended 31 December 2018 in the prescribed form on the basis of the Ordinance on the structure and contents of the annual consolidated financial statements (Official Gazette 95/16), and in accordance with other regulations governing the Company's business ("Standard annual consolidated financial statements"). The financial information presented in the Company's standard annual financial statements is in accordance with the information contained in the Company's annual financial statements presented on pages 8 to 73 for which we have expressed the opinion as set forth in the Qualified Opinion section above. Zagreb, 23 September 2019 BDO Croatia d.o.o. Trg J. F. Kennedy 6b 10000 Zagreb BD CROATIA BDO Croatia d.o.o. za pruanje revizorskih, konzalting i radunovodstvenih usluga Ivan Cajko, Member of the Ivan Cajko, cer ed auditor Management Board 7 H2 INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED INCOME STATEMENT AND STATEMENT OF OTHER COMPREHENSIVE INCOME for the year ended 31 December 2018 . _..... POSITION Note 2018 2017 HRK'000 HRK'000 Sales revenue 3 407,310 239,069 Other operating revenues 4 1,029,011 1,041,013 Operating revenues 1,436,321 1,280,082 Raw material and material costs 5 (164,587) (121,072) Costs of goods sold 6 (11,173) (7,532) Costs of services 7 (153,834) (90,167) Staff costs 8 (793,497) (772,640) Depreciation 9 (54,750) (62,984) Value adjustment 10 (123,254) (44,797) Other costs 11 (141,455) (151,282) Provisions 12 (92,802) (53,989) Operating income (1,535,352) (1,304,462) Financial income 13 10,239 5,702 Financial expenses 13 (17,187) (16,144) TOTAL INCOME 1,446,560 1,285,785 TOTAL EXPENSES (1,552,539) (1,320,606) LOSS BEFORE TAXATION (105,979) (34,822) Corporate income tax 14 0 0 LOS FOR THE PERIOD (105,979) 34,822) Other comprehensive income 0 0 COMPREHENSIVE LOSS FOR THE PERIOD (105,979) (34,822) The accompanying notes from 1 to 48, set out below, form an integral part of these consolidated financial statements. 8 HZ INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED STATEMENT OF FINANCIAL POSITION/BALANCE SHEET AS AT 31 December 2018 31 31 31 December December December POSITION Note 2018 2017 2016 HRK'000 HRK'000 HRK'000 restated restated ASSETS Intangible assets 15 45,317 57,994 61,208 Property, plant and equipment 16 11,667,909 11,321,150 11,306,678 Financial assets 17 1,046 1,229 1,223 Long term receivables 18 5,074 11,177 18,227 Prepayments 26 7,677 5,774 9,595 LONG TERM ASSETS 11,727,023 11,397,324 11,396,931 Inventories 19 156,769 172,620 199,026 Receivables from the related parties 20 169,319 185,068 150,421 Trade receivables 21 19,976 15,778 23,620 Receivables from employees 6,910 6,324 6,469 Receivables from the state and other institutions 22 12,661 5,215 6,660 Other receivables 23 16,229 13,876 14,014 Financial assets 24 4,809 5,901 6,314 Cash and cash equivalents 25 529,447 674,305 496,200 Prepayments and accrued income 26 3,568 1,864 1,148 SHORT TERM ASSETS 919,688 1,080,951 903,872 UKUPNO IMOVINA 12,646,711 12,478,275 12,300,803 The accompanying notes from 1 to 45, set out below, form an integral part of these consolidated financial statements. 9 HZ INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED STATEMENT OF FINANCIAL POSITION/BALANCE SHEET AS AT 31 December 2018 - continued 31 31 31 December December December POSITION Note 2018 2017 2016 HRK'000 HRK'000 HRK'000 restated restated CAPITAL AND RESERVES 27 Share (subscribed) capital 224,188 224,188 224,188 Capital reserves 8,361,521 8,479,731 8,596,429 Accumulated loss (323,753) (285,966) (246,925) (Loss) of the period (105,979) (34,822) (38,893) Capital and reserves 8,155,977 8,383,131 8,534,799 Provisions 28 201,168 146,079 156,436 Long-term liabilities 29 794,497 722,846 839,201 Deferred expenses and accrued income 38 1,904,977 1,760,005 1,774,103 Liabilities to related parties 30 39,706 40,555 43,456 Liabilities for loans, deposit etc. 31 195,851 192,946 193,779 Borrowings from banks and other financial institutions 32 236,256 248,927 212,279 Prepayments received 33 3,300 7,642 9,596 Trade payables 34 205,720 171,724 96,480 Liabilities due to employees 35 39,080 37,553 41,208 Liabilities for taxes, contributions and similar fees 36 25,797 27,558 29,795 Other liabilities 37 799,655 587,738 372,805 Deferred expenses and accrued income 38 44,727 151,571 (3,134) SHORT TERM LIABILITIES 1,590,092 1,466,214 996,266 TOTAL CAPITAL AND LIABILITIES 12.646.711 12.478.275 12.300.803 The accompanying notes from 1 to 45, set out below, form an integral part of these consolidated financial statements. 10 � nз rз а г�л "`' `� � со й с ч м о�'"' �`о + О W � И � r о � ~ о й Ш т_ С `л О и L' R й О а � W � � � � � и � у � N с � � г� N � Гf1 � �� о v Ш гб Ш � 3 у ��j � О � Fd- N � .LE� о о-о �- пs с �� .б� г. о'' �� .[Е1 г�а L о -а Q� У иQ С � ��О �> � � v.� � о� й � а i � L � w N 0 чо- � д' � о 0 V �� т � � Й�- о v 0 F- � а� М,О Й д й � ? Ш � м,О `"- � � Ш U1 U1 М Г� .� и � ОЛ О � .ь, j� С �.ь-+ а.+ .о С.�"С-+ С � J о V � � й � ) i .ь.+ о V � с.ы+ � гб i О � � О � и.и +� о� i N � � � � а� L о N г�� С гб й й � �! Ш й'' N чо- С пS й � Ш v й i.ь., � _ �j и Q1 'v- '- 'N О О гO о с� к� v к° пs о го о� v ш v к� � го = V li т J F- i.� о а w а> � т J n. о а w О а т Hi INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED STATEMENT OF CASH FLOWS As at 31 December 2018 - indirect method POSITION - - - - - --------------------- - ---- 2018 2017 HRK'000 1-1 R K'000 Cash flow from operating activities Profit((Loss) before tax (105,979) (34,822) Depreciation 54,750 62,984 Value adjustment 123,254 44,797 Interest income (3,879) (2,434) I nterest expense 6,734 12,279 Dividend income 6 0 Income from depreciation according to IAS 20-State Aid 34,426 34,426 Gain from sale of tangible assets 0 (45) Income from reversal of provisions (37,706) (21,052) Change in inventories 14,963 898 Changein receivables from related parties (102,227) (34,647) Changein trade receivables (4,198) (11,447) Changein receivables from the employees (586) 145 Changein receivables from the state and other institutions (7,446) 1,445 Change in other receivables (2,353) (1,018) Change in prepayments and accrued income (3,608) 0 Use of provisions 92,795 10,696 Changein liabilities to related parties (832) (2,902) Change in prepayments received (4,342) (1,955) Changein trade payables 33,979 75,245 Changein liabilities to the employees 1,527 (3,655) Changein liabilities for taxes and contributions (1,761) (2,237) Change in other liabilities 211,918 517,973 Change in accrued expenses and deferred income (117,473) (259,281) Interests received 3,879 2,434 Interests paid (6,734) (12,279) Dividend receipts (6) 0 Net cash flow from operating activities 179,100 375,548 Cash flow from investing activities Proceeds from sale of long-term assets 0 45 Proceeds from sale of financial assets 1,274 413 Purchase of tangible and intangible assets (393,221) (348,624) Expenses for purchase of financial assets 0 0 Net cash flows from investing activities (391,946) (348,166) Net cash flows from financing activities Proceeds from loans 61,885 143,672 Proceeds from collection of long-term receivables 6,103 7,050 Repayment of loans 0 0 Net cash flows from financing activities 67,988 150,722 12 Hi INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED STATEMENT OF CASH FLOWS As at 31 December 2018 - indirect method (continued) NET DECREASE IN CASH AND CASH EQUIVALENTS (144,859)_ 178,105 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 674,305 496,200 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 529,447 674, 305 The accompanying notes from 1 to 45, set out below, form an integral part of these consolidated financial statements 13 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2018 1. GENERAL 1. 1. Legal framework, activity and employees H2 INFRASTRUKTURA d.o.o., Zagreb, Mihanoviceva 12, ("the Company") is engaged in managing, maintenance and building of railroad infrastructure as its basic activity. 1.2. Employees The number of staff employed by the Company at 31 December 2018 was 6,323 employees (31 December 2017: 6,067 employees). The structure of the staff by qualification level is presented below: 31 December 31 December POSITION 2018 2017 Doctor's degree 2 2 Master's degree 23 23 University's degree 772 755 Two-year post- secondary diploma 501 503 Secondary school leaving certificate 3.309 3.152 Skilled workers 155 156 Unskilled workers 385 330 High skilled workers 119 116 Low-skilled qualification 230 196 Semi-skilled workers 827 834 Total 6,323 6,067 1.3. The Supervisory and Management Board of the Company Members of the Supervisory Board of the Company are as follows: Ivan Milo President of the Supervisory Board Tomislav Jukic Member of the Supervisory Board Slavko Proleta Member of the Supervisory Board Members of the Management Board are as follows: Ivan Krlic President of the Management Board Darko Bariiic Member of the Management Board Nikola Ljuban Member of the Management Board Marko Z. Zubrinic Member of the Management Board Krunoslav Papi6 Member of the Management Board The amount of compensation to members of the Management Board of the Company is stated in Note 8 of the consolidated financial statements. 14 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies are set out below. 2.1. Statement of compliance and basis of presentation 3. The consolidated financial statements of the Company for 2018 are prepared in accordance with the Accounting Act (Official gazette No 78/15, 134/15, 120/16 and 116/18) and the International Financial Reporting Standards ("IFRS"), and in accordance with the Regulation on the Structure and Content of Annual financial statements (Official gazette No 95/16). Consolidated financial statements are prepared with the application of the basic accounting assumption of the occurrence of a business event upon which the effects of operations are recognized when arisen and are shown in the consolidated financial statements for the period to which they relate and with the application of the basic accounting assumption of the concept of going concern. The Company's consolidated financial statements are prepared in Croatian Kuna as functional or reporting currency of the Company. Company's consolidated financial statements are presented in thousands of Croatian Kuna ('000 HRK). At 31 December 2018, the exchange rate of the Croatia Kuna was as followed; 31 December 2018 EUR 1 = HRK 7,417575 USD 1 = HRK 6,469192 31 December 2017 EUR 1 = HRK 7,513648 USD 1 = HRK 6,269733 On 18 July 2013 new Law on railway came into force, in which the railway infrastructure is defined as the asset owned by the Republic of Croatia which is accounted for separately in the business records of the company which operates the railway infrastructure. This asset owned by the Republic of Croatia is disclosed in these consolidated financial statements as the public good, or the public capital. In accordance with the Law on railway it is regulated that the accumulated losses and the difference between the income and expenses in the current year are covered from the public capital. 15 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.2. Adopting of new accounting policies The Company first applied the following standards and amendments for annual reporting period beginning on 1 January 2018: * IFRS 9 Financial Instruments * IFRS 15 Revenue from Contracts with Customers * Classification and Measurement of Share based Payment Transactions - Amendments IFRS 2 * Annual Improvements to IFRSs 2014 to 2016 Cycle * Transfers to Investment Property - Amendments lAS 40 * IFRIC INTERPRETATION 22: Foreign Currency Transactions and Advance Consideration Application of the above standards and amendments did not have significant impact on the Company's financial statements. 2.3. Adoption of new and revised international financial reporting standards (lFRS) Standards and Interpretations effective for the current period * IFRS 9 Financial Instruments: Classification and Measurement The Standard is effective for annual periods beginning on or after January 1, 2018, with earlier application being allowed. Final version of IFRS 9 Financial Instruments refers to all phases of a financial instruments project and modifies IAS 39 Financial Instruments: Recognition and Measurement as well as all prior versions of IFRS 9. The Standard introduces new classification and measurement requirements, impairment and hedge accounting. Management of the Company has adopted the standard with the effective date and its effects are visible in Note 2.14. 16 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.3. 1. Adoption of new and revised international financial reporting standards (W,FRS) - continued At the date of initial application on 1 January 2018, financial instruments were as follows: Measurement category Carrying amount Original New Original New Difference (in thousands of (IAS 39) (IFRS 9) (IAS 39) (IFRS 9) HRK) Long - term assets Equity instruments Available for Fair value 665 665 sale through OCI Receivables from flats Amortized Amortized 11,177 11,177 sold cost cost Short - term assets Trade receivables and Amortized cost Amortized 226,261 226,261 other receivables cost Short - term financial Amortized cost Amortized 5,901 5,901 assets cost Cash and cash Amortized cost Amortized 674,305 674,305 equivalents cost Total The Standard is effective for annual periods beginning on or after 1 January 2018, with earlier application being allowed. Final version of IFRS 9 Financial Instruments refers to all phases of a financial instruments project and modifies IAS 39 Financial Instruments: Recognition and Measurement as well as all prior versions of IFRS 9. The Standard introduces new classification and measurement requirements, impairment and hedge accounting. Management of the Company has adopted the standard with the effective date and its application did not have any significant impact on the financial statements. * IFRS 15 Revenue from Contracts with Customers The Standard is effective for annual periods beginning on or after 1 January 2018. The standard introduces a 5-step model applicable to customer-based revenue (with limited exceptions), regardless of the type of revenue transaction or industry. Standard requirements will also apply to the recognition and measurement of profits and losses from sales of some non-financial assets which is not a part of the Company's regular activities (for example, the sale of property, plant and equipment or intangible assets). Management of the Company has adopted the standard with the effective date. 17 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.3.1. Adoption of new and revised international financial reporting standards ("IFRS") - continued * IFRS 15 Revenue from Contracts with Customers (Clarification) The Clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted. The objective of the Clarifications is to clarify the IASB's intentions when developing the requirements in IFRS 15 Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amending the wording of the "separately identifiable" principle, of principal versus agent considerations including the assessment of whether an entity is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for accounting of intellectual property and royalties. The Clarifications also provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. This Clarifications are not adopted by European Union yet. The Management Board of the Company H2 Infrastruktura d.o.o. has adopted the above- mentioned Standard with the effective date. * IAS 40: Transfers to Investment Property (Amendments) The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. Management of the Company has adopted the standard with the effective date and its application did not have any significant impact on the financial statements. * IFRIC INTERPRETATION 22: Foreign Currency Transactions and Advance Consideration The Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non- monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. Management of the Company has adopted the standard with the effective date 18 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.3. 1. Adoption of new and revised international financial reporting standards (fFRS) - continued Standards and Interpretations issued by IASB but not yet effective and not early adopted by the Company * IFRS 16 Leases The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. The Management Board of the Group envisages that the application of the above standards will not materially affect the Group's financial statements. * Prepayment Features with Negative Compensation (Amendments to IFRS 9) The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. Management of the Company estimated that the application of new standard will not have significant impact on the Consolidated Financial Statements of the Company. * Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. Clarifies that the entity applies IFRS 9 Financial instrument on the long-term shares in Associate or in Joint Venture which form part of net investments into Associate or Joint Venture, but on those not affected by the share method. Management of the Company estimated that the application of new standard will not have significant impact on the Consolidated Financial Statements of the Company. 2.4. Key estimates and uncertainty estimates Certain estimates are used during the preparation of the financial statements which have inflow to the statement of property and liabilities of the Company, income and expenses of the Company and the disclosure of potential liabilities of the Company. Certain estimates are used during the preparation of the financial statements which have inflow to the statement of property and liabilities of the Company, income and expenses of the Company and the disclosure of potential liabilities of the Company. The estimates made during the preparation of the financial statements are subject to changes from the occurrence of new events, by gaining additional experience, obtaining additional information and comprehensions and by the change in the environment in which the Company operates. 19 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.4. Key estimates and uncertainty estimates - continued Key estimates used by the application of accounting policies during the preparation of the financial statements relate to the calculation of depreciation of the long-term intangible and tangible assets, impairment provision of assets, impairment provision of inventories, impairment provision of receivables, provisions and the disclosure of potential liabilities. The Company's Consolidated Financial Statements are comprised of the Company's Financial Statements and financial statements of the companies under the Company's control(subsidiaries). The Company has the control over those companies in which it has the authority to conduct company's financial and business policies in which the investment was performed in order to realise the benefit from the business. Expected credit loss model With IFRS 9, the expected credit loss model is introduced (ECL). The measurement of the expected loss is based on reasonable and supporting information that is available without excessive expense and effort and which includes information on past events, current and foreseeable future conditions and circumstances. When estimating expected future impairment requirements, historical probabilities of non- fulfilment and future parameters relevant to credit risk are used. The most important part of the financial assets are trade receivables and cash. Trade receivables are largely related to receivables from legal entities i. Trade receivables are stated at invoiced amount. Impairment of bad and doubtful receivables is based on the best estimate of the Management Board of bad debt. All receivables in bankruptcy and sued receivables are fully written off. ii. Management of the Company carries out impairment of bad and doubtful receivables based on the aging of all receivables and a specific review of significant individual amounts included in receivables. (see Note 2.15). 20 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.5. Reporting currency The consolidated financial statements are prepared in the Croatian Kuna ("HRK"), which is a measuring and reporting currency of the Company rounded to the closest thousand. 2.6. Foreign currency transactions Transactions in currencies other than Croatian Kuna are recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities that are denominated in foreign currencies at the date of preparation of the Consolidated Balance Sheet are retranslated at the rates prevailing at the day of preparation of the Consolidated Balance Sheet. Foreign currency exchange gains and losses which occur on settlement of such transactions, and on conversion of monetary assets and liabilities are included in profit or loss. Non-monetary items that are measured at historical cost in a foreign currency are translated at the rate valid on the date of the transaction. Non-monetary items and liabilities carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. 2.7. Revenue recognition Revenues from the sale of goods and services are recognized at the time of delivery of goods and services and transfer of control over the goods. Significant revenues of the Company are revenues from fees for access to railway infrastructure, revenues from informatics services, revenues from services of formation and dismantling of the train composition, rental revenues (open and closed), revenues from sale of goods and materials and revenues from the budget for maintenance and regulation of traffic and revenues from excise. In accordance with the new IFRS 15, relating to the recognition of contracts with customers, the Company applies the model of five steps: 1) Identify the contract with the customer 2) Establish the obligation of delivery in the contract 3) Determine the price of transaction 4) Allocate the transaction price in the contract delivery obligations 5) Recognize revenue when a subject fulfils the obligation of delivery Revenue is recognized as transaction price for each delivery obligation in the contract. Transaction price is the amount of compensation in the contract in which the Group expects to be entitled in exchange for transferring promised goods to the customer. Revenues are stated in the amounts deducted for value added tax. 21 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.7. Revenue recognition - continued Changes in Accounting policies in accordance with the new Type of products -Fulfilment of obligations standard The customer takes control over the Revenue is recognized when the product, completely has the same and products are delivered to the there is no unfulfilled obligation that customer Sales of goods could affect its acceptance IFRS 15 had no impact on the Agreed maturity of payment in most Accounting policies of the cases is 30 days Company According to the above, revenue recognition takes place at the same time as when IAS 18 - Revenue was effective and no significant impact of IFRS 15 is determined. Sales of services Provided that the amount of revenue can be measured reliably and if the Company is likely to receive a fee, the service revenues are recognized in the period in which they are provided. Interest income Interest income is accrued based on outstanding and at the applicable effective interest rate. Interest income is recognized as a financial income in the statement of profit or loss. Dividend income Income from dividends and profit shares is recognized at the time the rights to receive the dividend or the profit share have been established. 2.8. Operating expenses Operating expenses comprise of material cost, small inventory and service cost, maintenance cost, staff cost, depreciation of property, plant and equipment, depreciation of the public good (railway infrastructure) and other operating expenses covered directly by the operating income. 2.9. Borrowing costs Borrowing costs related to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Other borrowing costs are recognized as expense. Borrowing costs include interest on bank overdrafts, short-term and long-term borrowings, and foreign exchange effects of borrowings in foreign currency, in the amount which is considered as adjustment of the interest expense. 22 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.10. Incometax The income tax liability for the current year is determined based on the accounting profit adjusted for the prescribed alignment items. Income tax is calculated using tax rates that were valid on the date of the consolidated Balance Sheet. Deferred tax assets and deferred tax liability arise from temporary differences between the value of assets and liabilities stated in the consolidated financial statements and the values used for the income tax calculation. Deferred tax assets and deferred tax liabilities are calculated using the income tax rates applicable to the future period when temporary differences are expected to be recovered or settled; usually income tax rates used are those prevailing on the consolidated Balance Sheet dates. Deferred tax assets are recognized up to the amount for which it is probable that in the future there would be a sufficient net taxable income against which deferred tax assets could be recovered. Deferred tax assets are assessed for the recoverability at each consolidated Balance sheet date, reduced for the amount for which is not probable anymore that the taxable assets will be recovered. 2.11. Long-term intangible and tangible assets Long-term intangible and tangible assets are carried at historic acquisition cost which comprises purchase price, import duties and non-refundable sales taxes, after the deduction of commercial discounts and rebates, as well as all other costs directly attributable to bringing the asset to its working condition for its intended use. Long-term intangible and tangible assets are recognized if it is likely that future economic benefits attributable to the assets will inflow to the Group, and if the cost of the acquisition of an asset can be reliably measured, and if a single purchase value of property exceeds HRK 3,500. After the first recognition, the property is carried at historic acquisition cost minus the accumulated depreciation and any accumulated impairment losses. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Where it is obvious that the expenses incurred resulted in an increase of the expected future economic benefits to be derived from the use of an item of long-term intangible or tangible property in excess of the originally assessed standard performance of the asset, they are added to the carrying amount of the asset. Gains or losses on the retirement or disposal of long-term intangible and tangible asset are included in the Comprehensive Income Statement in the period in which they occur. Depreciation is charged as the write-off the cost or valuation of each asset, other than land and long-term intangible and tangible property under construction, over their estimated useful lives, using the straight-line method, on the following basis: 2018 2017 Concessions, patents, licenses, trade and service Brands, software and other rights 5 years 5 years Buildings 10 - 100 years 10 - 100 years Plant and equipment 2 - 14 years 2 - 14 years Tools, plant inventories and transportation assets 4 - 20 years 4 - 20 years Other material assets 10 - 50 years 10 - 50 years 23 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.12 Financial assets The Company has adopted IFRS 9 Financial Instruments as at 1 January 2018 and its implementation did not have a significant impact on the financial statements. The Company recognizes financial assets in its financial statements when it becomes party to the contractual provisions of the instrument. Depending on the business model for asset management and contractual features cash flows for the said asset, the Company measures financial assets at amortized cost, fair value through other comprehensive income or fair value through statement of profit and loss. Asset items are classified and measured as follows: DESCRIPTION Classification and measurement Non-current asset Financial assets through other comprehensive Equity instruments / fair value through other income comprehensive income Long-term receivables Hold to collect / amortized cost Current asset Given loans Hold to collect / amortized cost Cash and cash equivalents Hold to collect / amortized cost Trade receivables and other receivables Hold to collect / amortized cost i) Financial assets through other comprehensive income Financial assets carried at fair value through fair value changes in profit or loss are stated at fair value, with each gain or loss being recognized in profit or loss. Net income and net loss recognized in profit or loss also includes dividends and interest earned on financial assets and are included in other income and other losses. Initial recognition The Company recognizes a financial asset or liability when and only when it becomes a party to the contractual provisions of the instrument. The Company initially recognizes financial assets at fair value plus transaction costs that can be attributed directly to the acquisition or issue of a financial asset. 24 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.12. Financial assets - continued Subsequent measurement After initial recognition, the Company measures financial assets at fair value through other comprehensive income. ii) Trade receivables Trade receivables that do not have a significant financial component at initial recognition have been measured in accordance with IFRS 15 at their transaction price. iii) Impairment The Company based on expected credit losses, recognizes impairment of financial assets. At each reporting date, the Company measures the expected credit losses and recognizes the same in the financial statements. Expected credit losses from financial instruments are measured in a manner that reflects: Impartial and weighted amount of probability which is determined by assessing the range of possible outcomes, * The time value of money, * Reasonable and acceptable data about past events, current conditions and predictions of future economic conditions. For trade receivables, the Company applies a simplified approach of IFRS 9 measurement of expected credit losses using the expected provision for credit losses of account receivables, detailed described in Note 2.14. of consolidated financial statements. The Company derecognises financial assets when; * Contractual rights to cash flows from financial assets expire, * Financial assets are transferred, and the transfer fulfils conditions for termination of recognition. The Company transfers financial assets if, and only if, either: (a) Transfers contractual rights to receive cash flows from financial assets, or (b) Retains contractual rights to receive cash flows from a financial asset but assumes a contractual obligation to pay cash flows to one or more recipients in the arrangement. 25 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.12. Financial assets - continued When the Company transfers financial assets, it is required to estimate the extent to which it retains the risks and rewards of ownership of the financial asset. In this case, when all risks and rewards of ownership are transferred, the Company ceases to recognize financial assets and recognizes separately, as assets or liabilities, all rights and obligations that have arisen or are retained in the transfer. If almost all the risks and rewards of ownership of financial assets are retained, the Company continues to recognize financial assets. If the Company neither transfers nor retains almost all the risks and rewards of ownership of financial assets, the Company determines whether it has retained control of the financial asset. If no control over financial assets is retained, the Company derecognises financial assets and recognizes separately as assets or liabilities and all rights and obligations that have arisen or are retained in the transfer. If control is retained, the Company continues to recognize financial assets to the extent that it continues to participate in that financial asset. 2.13. Equity (shares) in related companies Subsidiaries are companies in which the Company has control over the adoption and implementation of financial and business policies. Associated companies are companies in which the Company has significant influence but not control over the adoption and implementation of financial and business policies. Investments in subsidiaries and associated companies are reported in unconsolidated statements by using cost method. 2.14. Inventories Inventories are stated at the lower of cost and net realizable value. They include the following: Cost of raw material and material inventory include purchase price, import customs and other expenses which can be directly ascribed to supply of raw material and material; commercial discounts and similar items are subtracted when determining purchase expenses. * Cost of inventories of merchandise is recognized at the weighted average cost method. * Small inventory includes tools, operative and office inventory as similar working assets with intended use up to one year and assets that are not considered long-term. * By putting small inventories and car-tires in use as well as spare parts, they are included in expenses through a one-time write off. * After the sale, the Group recognizes the carrying value of inventories as an expense in the period in which respective income is recognized. Also, the amount of any write- off of inventories up to the net marketable value, and all shortages of inventories are recognized as an expense in the period of write-off or the occurrence of the shortage. The amount of any cancellation of inventory write-off as a result of the increase in net marketable value is recognized as the increase in value of inventories in a period in which the cancellation occurred. 26 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.15. Receivables Trade receivables that do not have a significant financial component at initial recognition have been measured in accordance with IFRS 15 at their transaction price. i) Impairment The Company, based on expected credit tosses, recognizes impairment of customer receivables by applying a simplified approach. At each reporting date, the Company measures expected credit losses and recognizes them in the financial statements. On the analysis of the aging structure, the Company carried out impairment of customer receivables for all receivables older than one year. For those receivables that were not due and up to one year, the Company conducted an analysis as described below. Based on historical data for the last three years, the share of value adjustments was compared with the reported turnover of customers. The analysis provided the percentage of expected credit losses of 1.38%, which is adjusted with the future macroeconomic trends, and the percentage of total impairment is 1.63% Expected loan losses were estimated at HRK 3,133 thousand. Expected loan losses are recorded in the profit and loss account in the stated amount. 2.16. Cash and cash equivalents Cash includes sight deposits in banks, cash in hand, and deposits and securities receivable on a call or at the latest within three months. 2.17. Impairments At each balance sheet / statement of financial position date, the Company checks the carrying amounts of its assets to determine whether there are any indications that impairment losses have been incurred. If there are such indications, the recoverable amount of the asset is estimated in order to determine any loss incurred by impairment. If the recoverable amount of an asset is estimated to be less than the carrying amount, the carrying amount of the asset is reduced to the recoverable amount. Impairment loss is recognized as an expense in the statement of comprehensive income. 27 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.18. Leases The Company classifies each own lease as operating or financial lease. Leases are classified as financial leases if all the risks and economic benefits associated with ownership are transferred from the lessor to the lessee. Financial lease is recognized in the Balance sheet of the lessee as an asset and liability for financial lease. Leases are classified as business leases if there is a contract on which the lessor transfers the right to the lessee to use a property (lease) in the agreed period in exchange for countervailing. The new standard which is in effect on 1 January 2019 established the obligation to recognize a business lease in the consolidated financial statements as a property with the right of use under the lease. The Company is defined exception of application of this standard on: * Short-term leases (up to one year) * Leases whose object of lease is low value In that case, business / operating lease is recognized as an expense in the lessee's profit and loss account on a straight- line basis over the lease term. Initial measurement From the first day of the lease, the Company is measured asset with the right of use at cost, whereas the obligation based on this lease is measured at the current value of all payments in connection with leases which have not been made on that day. The payments are discounted at an interest rate which is contained in the lease or per incremental borrowing rate in cases when this rate cannot be determined. Subsequent measurement After initial recognition, the Company is measured asset with the right of use by cost model. The company increases lease liability for the amount of interest based on lease and reduces for payments made. Also, the Company remeasured the established obligation for lease for all possible changes. 2.19. Provisions Provision is then recognized only if the Company has a present obligation as a result of the past event and if it is probable that settling the obligation will require the outflow of resources with economic benefits and if a reliable estimate can determine the amount of the liability. Provisions are reviewed at each balance sheet / statement of financial position date and adjusted to the latest best estimates. The Group recognizes provisions based on court disputes and restructuring in the part related to employee severance payments. 28 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.20. Employee benefits The Group has no defined post-retirement benefits, except related to the Republic of Croatia pension fund. Obligations of the Group relate to payment of contributions in accordance with the laws in force. These contributions are disclosed within staff costs in the Consolidated Statement of Comprehensive Income. The Group pays employees jubilee awards and one-time severance payments upon retirement. The liabilities and expenses for these payments are determined with the application of the projected unit credit method. By using projected unit credit method, each period of seniority is observed as the basis for additional units of eligibility to allowances and each unit is measured separately until the realization of final liabilities. This liability is determined at the present value of projected future cash flows with the application of the discount rate which is similar to the interest rate of State bonds in Croatia. 2.21. Contingent liabilities and potential assets Contingent liabilities are not recognized in the consolidated financial statements but disclosed in the notes to the consolidated financial statements. Potential assets are not recognized in the consolidated financial statements but are recognized at a time when an inflow of economic benefits becomes probable. 2.22. Events after the Balance sheet date Events which occur after the Consolidated Balance Sheet date are those favourable and adverse events that occurred between the date of the Consolidated Balance Sheet and the date on which the report was approved. The Company adjusts the amounts recognized in its consolidated financial statements for events after the balance sheet date that requires adjustment. 29 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.23. Correction of errors of previous periods The financial statements of the Company for 2017 are restated as follows: Income statement Initial balance Correction Restated balance I-XII 2017 I-XII 2017 HRK'000 HRK 000 HRK'000 Other external expenses 90,310 (142) 90,167 Other operating expenses 151,265 17 151,282 Foreign exchange differences and other financial income 5,228 474 5,702 Interest expenses and similar expenses 16,702 (558) 16,144 Total i,158 LOSS BEFORE TAXATION (35,980) (1,158) (34,822) Income tax 2,590 (2,590) 0 LOSS FOR THE PERIOD (33,390) - (34,822) Other comprehensive income 0 - 0 COMPREHENSIVE LOSS FOR THE YEAR (33,390) - (34,822) Balance sheet Initial balance Correction Restated balance 31 31 December December 2017 2017 HRK'000 HRK'000 HRK'000 Long-term tangible assets 11,508,424 (187,273) 11,321,150 Receivables from related parties 184,794 274 185,068 Trade receivables 16,052 (274) 15,778 Receivables from State and other institutions 5,232 (17) 5,215 Capital reserves 9,397,931 (918,200) 8,479,731 Profit / loss for the period before tax (35,980) 1,158 (34,822) Loss for the period (comprehensive income) (33,390) (1,432) (34,822) Deferred losses (230,728) (55,238) (285,966) Revaluation reserve 88,199 (88,199) 0 Deferred tax liabilities 19,361 (19,361) 0 Liabilities to related companies 37,547 3,008 40,555 Liabilities for loans, deposits, etc 132,135 60,811 192,946 Liabilities to banks and other financial institutions 253,636 (4,709) 248,927 30 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 Trade payables 171,742 (18) 171,724 Liabilities for taxes, contributions and similar fees 4,084 680 4,764 Other liabilities 588,278 (540) 587,738 Accrued expenses and deferred income -tong term 923,418 836,587 1,760,005 Balance sheet Initial balance Correction Restated balance 1 January 2017 1 January 2017 HRK'000 HRK'000 HRK'000 Long-term tangible assets 11,493,933 (187,254) 11,306,679 Capital reserve 9,293,337 (696,908) 8,596,429 Loss for the period (comprehensive income) (30,205) (8,688) (38,893) Deferred toss (212,174) (34,751) (246,925) Revaluation reserve 99,998 (99,998) 0 Deferred tax liabilities 21,951 (21,951) 0 Liabilities to related companies 40,448 3,008 43,456 Liabilities for loans, deposits, etc. 132,969 60,811 193,779 Liabilities to banks and other financial institutions 214,819 (2,540) 212,279 Accrued expenses and deferred income -tong term 1,160,341 613,762 1,774,103 In the consolidated financial statements for 2017 the position of tangible assets is restated for the amount of depreciation in 2018 for assets which were put into use in previous years, but it was not activated in the business books of the Company, and for the same was not conducted the transfer of assets under construction at assets in use in that year when it really started its use. Impairment on 31 December 2017 in the amount of HRK 14,862 thousand (2016: HRK 14,843 thousand, difference of HRK 19 thousand represents depreciation in 2017) refers to the buildings and plant and equipment. Impairment of tangible assets (buildings and plant and equipment) on 1 January 2017 amounted to HRK 14,843 thousand. Both implemented changes are related to the property of the public good so that they had no impact on the income statement from the previous period but were carried out at the expense of capital public good. On 31 December 2017 was conducted impairment of assets under construction in the amount of HRK 7,024 thousand and stated business changes had an effect on the correction of the position of long - term tangible assets in the financial statements as at 31 December 2016 and as at 1 January 2016. Later was determined that the value of completed investments in the amount of HRK 7,024 thousand by the investment decision Ul-94-5/13 (demining the railway line Ostarije, Sunja - Blinjska road, bridge Sava Greda - Novska) refers to ongoing maintenance rather than on investment. 31 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.23. Correction of errors of previous periods - continued Accordingly, and because it is the posting investments from previous years (2013-2015), for the said amount, are corrected the position of the balance sheet, reduction of assets - assets under construction (long - term tangible assets) and capital and liabilities - capital reserves as at 31 December 2017 and as at 1 January 2017. The parent Company has in its accounting policies issued cost method as the policy of the subsequent evaluation of the long-term assets, whereas the subsidiary, the daughter company Pruzne gradevine has the revaluation method. Therefore, as at 1 January 2017 and the 31 December 2017 corrections are conducted by elimination of the revaluation reserves, the revaluated part of assets and the relevant deferred tax liability. The above-mentioned is visible in positions of capital. As at 31 December 2017 an impairment of assets in the amount of HRK 165,387 thousand was conducted, revaluation reserves in the amount of HRK 88,199 thousand, accumulated loss is increased by HRK 55,238 thousand, loss for the period is increased by HRK 2,590 thousand and deferred tax liabilities by HRK 19,361 thousand. As at 1 of January 2017 assets were impaired for the amount of HRK 165,387 thousand, revaluation reserves for the amount of HRK 99,998 thousand, accumulated loss is increased by HRK 34,751 thousand, loss for the period is increased by HRK 8,688 thousand and deferred tax liability by HRK 21,951 thousand. In accordance with above-mentioned, in the consolidated financial statements on the day of 31 December 2017 the correction of consolidated results of the Company in the amount of HRK 2,590 thousand was conducted due to the reversal of the deferred tax liability. After the correction was conducted, the previously outlined results for the period (loss) for 2017 in the amount of HRK 33,390 thousand is amounted to HRK 34,822 thousand. The loss for the period for 2016 is corrected by the amount of HRK 8,688 thousand due to the reversal of the deferred tax liability and after the performed correction is amounted to HRK 38,893 thousand. By adjusting the difference between the calculated supplied electrical energy for the traction power and the consumed in terms of the tariff arrangement under supplier's conditions for the period from 13 December 2015 to 9 December 2017. In 2018, the correction of trade receivables based on the electrical energy for the traction power was performed. Accordingly, it is additionally invoiced to the Company in the amount of HRK 1,257 thousand, while other railroad companies are authorised for the consumed electrical energy for traction power in the same amount. Net effect of the position correcting in the financial statements, Balance sheet - short term receivables is zero. 32 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 2.23. Correction of errors of previous periods - continued The receivables from the state and other institutions are reduced on the 31 December 2017 for the amount of 17 thousand and posted on the expense, i.e. on the accumulated toss on the 31 December 2018 which has influenced on the reduction of the position short term receivables and capital reserves on the day of 31 December 2019. On the 31 December 2017 the short-term receivables are reduced, and the financial result is corrected. Consequently, the other operating expenses for 2017 are increased in that amount. As at 31 December 2017, the position of capital and liabilities in the consolidated financial statements were restated for the following amounts: * calculated depreciation in 2018 for assets that were put into use in previous years, but it was not activated in the Company, respectively for the same was not conducted the transfer of assets under construction to the assets in use in that year when it actually began its use - HRK 14,862 thousand Kuna (charged to capital reserves) * EU capital transferred from the position of capital reserves to long-term accruals - accrued expenses and deferred income in the amount of HRK 832,957 thousand to equalize treatment with sources of assets of the public good * accrued foreign exchange differences for 2016 for loans - current maturity (Privredna banka Zagreb d.d., Istarska Kreditna Banka Umag d.d. and OTP Bank d.d.) in the amount of HRK 462,000 thousand (charged to capital reserves) * Impairment of assets under construction in the amount of HRK 7,024 thousand for completed investments in period between 2013-2015 signed by the investment decision UI-94-5/13 (demining the railway line Ostarije, Sunja - Blinjska road, bridge Sava Greda - Novska, etc.), and the same in 2018 was reposted at the cost of ongoing maintenance (charged to capital reserves) * in accordance to the Croatian Government's decision Class: 022-03/13-04/266, Reg. No. 50301-05/20-13-2 from 13 June 2013, the existing debt to CERP was increased by 20% or for HRK 60,811 thousand, for the same amount were increased short-term liabilities for loans, deposits, etc. (liabilities) and reduced capital reserves * in 2018 refund of the more paid net profit was to Pruine gradevine d.o.o. realized in 2013 in the amount of HRK 3,008 thousand, for the said amount was increased position of capital and liabilities - liabilities to related companies and reduced capital reserves * Position of liabilities was restated - current liabilities for taxes, contributions and similar expenses for the following amounts: I v / In 2017, the Group was obliged to correct the tax return for 2013 based on incorrect tax losses. Therefore, the obligation to pay the related penalty interest in the amount of HRK 101,000 thousand calculated until 31 December 2017 was determined. /ii/ In 2017, the Company booked the invoices from previous years. The abovementioned expenses are related to the lease of office space which calculation of lease price the Company denied and did not recorded expenses for the period they related and it didn't charge the costs of the period. As at 1 January 2017, the position of capital and liabilities - capital reserves were restated for the following amounts: 33 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 * calculated depreciation in 2018 for assets in previous years were put into use, but it was not activated in the Company, respectively for the same was not conducted the transfer of assets under construction to the assets in use in that year when it actually began its use - HRK 14,843 thousand Kuna (charged to capital reserves) * EU capital transferred from the position of capital reserves to long-term accruals - accrued expenses and deferred income in the amount of HRK 611,683 thousand to equalize treatment with sources of assets of the public good * accrued foreign exchange differences for 2016 for loans - current maturity (Privredna banka Zagreb d.d., Istarska Kreditna Banka Umag d.d. and OTP Bank d.d.) in the amount of HRK 462,000 thousand (charged to capital reserves). Impairment of assets under construction in the amount of HRK 7,024 thousand for completed investments in period between 2013-2015 signed by the investment decision Ul-94-5/13 (demining the railway line Ostarije, Sunja - Blinjska road, bridge Sava Greda - Novska, etc.), and the same in 2018 was reposted at the cost of ongoing maintenance (charged to capital reserves) * in accordance to the Croatian Government's decision Class No.: 022-03/13-04/266, No. 50301-05/20-13-2 from 13 June 2013, the existing debt to CERP was increased by 20% or for HRK 60,811 thousand, for the same amount were increased short-term liabilities for loans, deposits, etc. (liabilities) and reduced capital reserves * in 2018 was conducted refund of the more paid net profit to Pruzne gradevine d.o.o. realized in 2013 in the amount of HRK 3,008 thousand, for the said amount was increased position of capital and liabilities - liabilities to related companies and reduced capital reserves The calculation of exchange rate differences on loans - current maturity in 2016 and 2017 resulted in the correction of position of capital and liabilities - liabilities to banks and other financial institutions amount to: * HRK 4,709 thousand as at 31 December 2017 on loans of Privredna banka Zagreb d.d., Istarska Kreditna Banka Umag d.d. and OTP banka (HRK 825 thousand), the European Bank for Reconstruction and Development - EBRD (HRK 111 thousand) and ErsteftSteiermaerkische Bank, SG - Splitska banka d.d. and OTP banka d.d. (HRK 3,773 thousand) * HRK 2,540 thousand as at 1 January 2017 on loans of Privredna banka Zagreb d.d., Istarska kreditna banka Umag d.d. and OTP banka d.d. (HRK 462 thousand) and ErsteEt Steiermaerkische Bank d.d., SG - Splitska banka d.d. and OTP banka d.d. (HRK 2,078 thousand) The financial statements on the position of long-term accruals (accrued expenses and deferred income) are restated for: * Increased by HRK 832,957 thousand as at 31 December 2017 to equalize the treatment of EU capital (sources of assets financed by EU funds) with sources of assets of public good and HRK 3,773 thousand relating to accrued foreign exchange differences on loans - short-term maturity in 2016 and 2017 and reduced by the calculated costs of ongoing maintenance from 2017 in the amount of HRK 143,000 thousand 34 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For_the_year_ended_31_December_2018_______ Increased by HRK 611,683 thousand as at 1 January 2017 to equalize the treatment of EU capital (sources of assets financed by EU funds) with sources of assets of public good and HRK 2,078,025 relating to accrued foreign exchange differences on loans - short-term maturity for 2016 (ErsteEtSteiermaerkische Bank, SG - Splitska banka d.d. and OTP banka d.d) The financial statement for 2017, the statement of comprehensive income is revised for the amount of HRK 540,000 thousand which refer to the obligation for paid interest on the loan of Privredna banka Zagreb d.d., Istarska Kreditna Banka Umag d.d. and OTP Bank d.d., in the above amount, interest costs are more posted on 31 December 2017. Correction of postings in 2018 were reduced liabilities to banks and retained earnings resulting in a correction of the business results of the Company on 31 December 2017. The impact on the correction of the business results of the Company for 2017 in addition to the above had: * Accrued foreign exchange differences on loans - short-term maturity for 2017 in the amount of HRK 474 thousand for loan of Privredna banka Zagreb d.d., Istarska kreditna banka Umag d.d. and OTP banka d.d. (in favour of business results) * Cancellation of accrued cost for 2017 in 2018 in the amount of HRK 143,000 thousand (at the expense of operating results) * Cancellation of suppliers' invoices for the calculation of interest for 2017 in the amount of HRK 18 thousand (in favour of business results) * Decrease of receivables from the Ministry of the Sea, Transport and Infrastructure in the amount of HRK 17,000 thousand, subsequently determined that these receivables recognize the cost of the Company (at the expense of operating results) Previously profit for 2017 in the amount of HRK 35,890 thousand was corrected for the above transactions in the total amount of HRK 1,158 thousand and restated business result of the Company for 2017 represents a loss for the period in the amount of HRK 34,822 thousand. 35 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 NOTES TO THE CONSOLIDATED COMPREHENSIVE INCOME STATEMENT 3. SALES REVENUE 2018 2017 POSITION - HRK'000 HRK'000 Income from fees for access to railway infrastructure 98,052 102,414 Income from the construction and maintaining of the railway infrastructure 217,480 55,373 Income from formation and deformation of the train composition 14,525 5,970 Income from the use of passenger terminals 9,705 16,301 Income from IT services 5,614 9,730 Income from rent 2,083 3,436 Income from sate of tickets 1,047 1,546 Income from using the garage track 1,841 1,779 Revenue from other services and works 645 530 Optical Equipment rent income 1,108 2,054 Income from fee for capacity booking 667 441 Income from secondary activities 125 117 Revenue from the sale of material 73 0 Other sale revenues 346 230 Revenue from sales made with railway companies 353,311 199,921 Revenue from rent 17,251 12,829 Income from fees for access to railway infrastructure 16,856 11,250 Revenue from the sale of material 7,807 4,727 Revenue from rent - the rest 2 4,149 Revenue from other services and works 7,418 2,241 Income from formation and deformation of the train composition 3,514 1,993 Income from secondary activities 666 939 Optical Equipment rent income 161 822 Income from using the garage track 199 120 Income from fee for capacity booking 125 78 Income from sales in the country 53,999 39,148 TOTAL 407,310 239,069 36 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 4. OTHER OPERATING INCOME 2018 2017 HRK'000 I'1RK'000 POSITION Restated Income from telecommunication services 916 1,179 Income from cost reversal 315 329 Income from reimbursement of damages 1,086 575 Income from cassa sconto (1,374) 81 Other income 234 621 Other revenues realized with railway companies 1,177 2,785 Depreciated value of goods sold (176) 0 Income from the Budget of the Republic of Croatia for the railroad infrastructure 442,900 450,000 Income from the Budget of the Republic of Croatia for the railroad infrastructure - excise 456,006 508,317 Income from the Budget of the Republic of Croatia at the level of proportional part of depreciation 34,426 34,426 Revenue from auxiliary and non-industrial activities 3,815 2,076 Income from cassation 5,967 7,829 Income from rent of official flats 2,685 2,707 Income from the sale of flats (35%) 2,924 3,227 Income from cost reversal 0 148 Income from reimbursement of damages 819 594 Surplus of fixed assets 435 260 Impairment of non-current inventories 8,064 0 Income from co-financing 1,597 1,021 Income from release of provisions 31,831 21,052 Income from received payment of value adjusted receivables 21,118 2,522 Income from sale of property 0 45 Penalty income 3,304 14 Other income 12,119 3,990 Other business income in the country 1,027,834 1,038,228 Total 1,029,011 1,041,013 5. COST OF RAW MATERIAL AND SUPPLIES 2018 2017 POSITI ON HRK'000 HRK'000 Cost of raw material and supplies 94,897 62,625 Cost of spare parts 11,947 9,504 Cost of small inventory 5,535 8,554 Energy cost 52,208 40,388 Total 164,587 121,072 6. COSTS OF GOODS SOLD Costs of goods sold in the amount of HRK 11,173 thousand (2017: HRK 7,532 thousand) relate to the purchase value of goods sold. 37 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 7. OTHER EXTERNAL CHARGES 2018 2017 HRK'000 HRK'000 POSITION Restated Telephone, postal services and transport costs 18,000 9,937 External charges of making and selling goods and services 60,090 4,298 Maintenance 36,029 39,887 Registration costs 12 21 Rental costs 20,349 16,162 Intellectual and personal services 660 1,113 Advertising services 1 3 Municipal services 4,340 53 Cleaning services 9,123 9,393 Other external costs 5,230 9,301 Total 153,834 90,167 8. STAFF COSTS 2018 2017 HRK'000 HRK'000 POSITION Restated Net salaries and wages 491,220 480,591 Taxes and contributions from salaries 179,276 172,047 Contributions on salaries 123,001 120,002 Total 793,497 772,640 Net salaries include receiving of the Management Board in the amount of HRK 2,582 thousand (2017: HRK 1,705 thousand) and are an integral part of staff costs. 9. DEPRECIATION 2018 2017 POSITION HRK'000 HRK'000 Depreciation of intangible assets 24,436 24,677 Depreciation of property, plant and equipment 30,313 38,307 Total 54,750 62,984 38 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 10. VALUE ADJUSTMENT 2018 2017 POSITION HRK'000 HRK'000 Value adjustment (loss from impairment) of long-term assets 4,390 0 Value adjustments of short-term receivables 117,976 19,289 Value adjustments of inventories 888 25,508 Total 123,254 44,797 11. OTHER COSTS 2018 2017 HRK'000 HRK'000 POSITION Restated Compensation of costs to employees, grants and subventions 38,620 54,137 Contributions, memberships and similar fees 43,112 43,127 Damages, court expenses and similar 6,868 9,269 Field addition 14,489 12,088 Compensation of costs to employees (transportation) 11,628 10,621 Daily allowances and traveling costs 5,603 5,849 Costs of training and education 2,829 2,473 Intellectual services 1,824 1,869 Insurance premiums 1,017 1,123 Taxes that do not depend on the result 835 566 Banking services and payment transaction costs 538 512 Supervisory Board fees and other income 417 367 Inventory shortages 3,218 351 Occupational safety costs 87 130 Entertainment cost 203 107 Other costs 10,167 8,693 Total 141,455 151,282 12. PROVISIONS 2018 2017 POSITION HRK'000 HRK'000 Provisions for incentive severance payments 1,408 2,069 Provisions for jubilee awards 1,634 1,276 Provisions for legal proceedings 45,777 25,343 Provisions for tax liabilities 18,684 0 Costs of calculated annual holidays 25,300 25,300 Total 92,802 53,989 39 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 13. FINANCIAL INCOME AND EXPENSES li/ Financial income is shown in the table below: 2018 2017 HRK000 HRK000 POSITI ON Restated From related parties Interest income 113 861 113 861 From non-related parties and other entities Interest income 3,765 1,572 Foreign exchange gains 6,354 3,263 Dividend income and a share in the profit 6 6 10,126 4,841 Total 10,239 5,702 /ii/ Financial expenses are shown in the table below: 2018 2017 HRK'000 HRK'000 POSITI ON Restated From related parties Interest expense 299 242 299 242 From non-related parties and other entities Interest expense 6,431 12,037 Foreign exchange losses 9,615 1,873 16,046 13,910 Other financial expenses Other financial expenses 842 1,992 842 1,992 Total 17,187 16,144 40 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 14. CORPORATE INCOME TAX The Company is a taxpayer, in accordance with the tax laws and regulations of the Republic of Croatia. The tax base is determined as the difference between the income and the expense of the period and is increased for expenditures that are not tax deductible. The profit tax rate is 18% (2017: 20%). Adjustments to the income statement and profit and loss account presented in the Consolidated Income Statement are as follows: 2018 2017 HRK'000 HRK'O00 POSITION Restated Accounting profit/(loss) (105,979) (34,822) Profit increase / Loss decrease 27,840 68,449 Profit decrease / Loss increase (4,647) (13,334) Tax base (82,606) 20,292 Tax losses to carry forward (1,218,664) (1,136,058) The Company is able to convey tax tosses in future periods for the purpose of impairing taxable profits over the next five years. At 31 December 2017, the total transferred tax losses were determined in the amount of HRK 1,218,664 thousand. The amount of tax losses in the amount of HRK 1,218,664 thousand available for transfer can be utilized as follows: Position HRK'000 31 December 2018 0 31 December 2019 500,604 31 December 2020 584,346 31 December 2021 35,749 31 December 2022 50,721 31 December 2023 47,244 TOTAL 1,218,664 Deferred tax assets on the basis of transferred tax losses are not recognized in the consolidated financial statements due to the uncertainty of achieving the conditions for their future use. 41 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 NOTES TO CONSOLIDATED BALANCE SHEET / CONSOLIDATED STATEMENT OF FINANCIAL POSITION 15. INTANGIBLE ASSETS TOTAL HRK'000 Intangible assets PURCHASE VALUE Balance at 1 January 2017- restated 228,213 New purchases and investments 16,608 Correction (wrong postings) (1,497) Disposals or write offs (223) Balance at 1 December 2017- restated 243,101 New purchases and investments 5,836 Balance at 1 December 2018 248,937 TOTAL HRK'000 DEPRECIATION Balance at 1 January 2017- restated 167,005 Depreciation during year 18,974 Correction (wrong postings) (751) Disposals or write offs (121) Balance at 31 December 2017- restated 185,107 Depreciation during year 18,513 Balance at 31 December 2018 203,620 NET CARRYING AMOUNT Balance at 31 December 2018 45,317 Balance at 31 December 2017- restated 57,994 Balance at 1 January 2017 61,208 42 � .- .- "' -� ,- `" .` h ° ао N и оо О °д �_ О°+ Р � N � � � '"- N Ш �г, �" h � "^ ш N '�,� N М ^� оо со гч N °� о ,,, w о ^ r. �д оо и� � �,,,, � о ,b; <- •- �р^ tl' и ° �д Q- N ^' N f Ш ао ®`с? т М ° О [ч �, N�О М J in и "_- .. .р ,г-, �.- .. �j .е�• г0 rJ ч гЧ � N '� гч l� г � И г. и �n о о о о -- b- и о о о о о -- м С рр N рр ul п ^ 1�' �О �у Q1 и у и � N N � рр М Е �- �- `O �" v' °� о; м rn � гй г� гv �' N `- N а v а с м .- о - о о о о .n м v о v о о и с О V N N � и I� г� N N о0 n ._ у ° N° р о� � ир �о � О гv у� р0 � � � �^ �..� М р 1`� � М N N М ,_„ М N И� N N � М М ^ �' �р И Q �. а г.. и о о .л о о - и � о м С ,� ; > о с �о � м ш = n. г� � а й ; о = а � а> о � � ^ ^ И И J Ё v � v �� �у Ё � � о v .� г� з О � И � N N° й � с .й .ч С1 й n' С �-7�+ � � N ~ С.) � а О j С � П1 Ш ч-- д j •С й Ш 'С 01 чИ- 'Л � Ш � J ~ � '° '� ' °' о ° ° у '� ' °' °� ш а ° Е � о о v � Z у,,, � � с с � й С с- n' +' С1 С й С д. й д +�+ Q/ � �"' J Ф i6 г0 г0 О N И �С 0 г0 г0 О N ro Ш � б И � N г а � � v Е з v � � `- v Е з °/ о ч°'�- 3 м Q и LL r Q й N N U 4= с � � П1 N й 4= С U С � � i0 LL � � Q N � G7 о г0 (0 у о (Сд � г0 г W� = U � U а ч�- U и +� й U а ,� V ,п � .ч � Ч � V R{ +' iV с � Ш V О С и Q� .го С >N Q L' � го v м ш `� `о к ш а п ш 'С�° о � n. w о- го = Z li cD n. т � т г Е- v ш о о т г I- v ш Е о о т � �д ^ м и м ^ ^ о ыэ о гч � о оо сТ м о N и � N еР h. а' N N О и t�. � � � � ~ и и М ..�. 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У U й �- N г' L �` р N �° д' Г м V' м а р � �О � �О �О '-� �О а.+ J с ` � О О > а О с и � � с N i�+ и и о о -- о о о -- � о-- о о � о -- о n с у °:. � `r' �г' � N °°. ° � Г � '° � го Е �м � ri °� V N м N v tv ь, cv гv � с,а м �^ г� с� г� С !а � :ы °- ш С О и rn rn w �^ о ео -- � - оо rn о--- м о � о о � и О� N N М V' � N д' м � М � �- и р� С �о а, Г �. � �о '^ �. �. м с Г ,д � Z � h i� м �--' `� N •д _ � � � � W � � � W � Q .О О� О О О О О О О р. О О О О О О О О О р. 00 ^ М м м й � о �' о о о _I J о о о о а й� � wao -о а� � ' N -� .� , W � ++ -о а � л v О F � р -о о°л о°n т а ы, а� V � и и Й Е и О � � � ;° о .д д� � а v л� о '� О r и '.ч = = Ш � '.ч Ш = N ++ � и v го n. а> n т _с а> го с оо И м I- �' т ° ° ш +-� '� о'ш �о ш Z't7 W г� г� ш ш й л л ш °н v v � ° л v v ,> о � О Ш И о о � о. с_' м го >, � � а°с" о м >, а � � У и С Q N N и . ь' Е Е *' ци- 21 N С +-' t�iл Ё '� .с `- и 1l � LtJ 'С' г' с и о о о а"- Е с и о � о а и а � Е Ш Ш о �о го • +., °- � � о ° ш • ,., о. . � о v о q ш � Г ` J О р с С С й С L L а .�ч U1 'С � О=1э '� � а й с- .�ч U1 и � т '.� J � � N i0 О а� .ь� Ш р г0 ro О n. а� Пl � U7 � р 4 � � � > � .- й Е � Е Е � 3 м й Е 3 Е Е °1 о °' 3'" L�yG И Q1 Z >- й т р п � ч= о w �: � гсо т V ч= с ч= ,F v с � �с " Z W ,ы Lа а а ш �, v � `ш ', � `ш `ш т � v � `ш '° ш `ш �о Е т � у �� Г� д U С G/ С � й v й й й р С с- й � й й й � и С � nt � т с с с аз п с с с �'т й о � и П1 П1 г0 U и �= Z LL `� и� n=. т й т г �` v� Н ш о т z �` � Е= � и'S � о о т � и г�ч � rn .д д` м й � о�о м �д h, .о ш h о � _ et � h о О r и w � и � h ^ м м h а .р и г� а� гд F- и и �л �-� ^ - W с0 о �О м `n W �О о' О м СЛ 1`� Z й N `� гч м ст � а а г�a •- �- � с �о о и о о о о о .о о о о о .р i., ао v v v о о о о -- ,л г� � и О� О� СТ О� tl' М �О � ,U � й N м О '�'3 и N N N v го го 1.. У n. с о о о о о о о о о о о о о 01 с_ о о .~о м и -� и т <У и rn �р� +-� в- о0 м N с � го �О м N а го И го � N L � � � а ао и r. гч м о о сч м о N м � о гV О м со о � � О С .� > � .... �� � Н � � �� о О rn � о�о ао� w �п � О � V с� � ^ � р. 1�. � � �р о0 V' h� 11'1 � а0 �t � Е й о � г� ' N `о V �,i м_ о� � С.с' N � N N N N 7 7 а � С го а:+ � с� оо о о г� ,- о� � ^ о м со о• оо О N �' ^ ''"� t� 'л t� � Г rn V О О и и V yi N о0 О `� О ^ V' �' О� О И •О tn � ц1 о0 �л о � д" �О С' 1� N � с о0 О� -- О � �- V и оо И �р tv н м м .- .- � г т ш Ш F о о о о о о о о о о о о о о о о� �т Q 1� м м � о о о И � � о N о а й � -v тг�' ш ш а р � �г с а ,� � +' N ш � О � о V а � ш ш о а � , v о J � � v о р_ 0 и � � д v � го V � � G1 � n И О� Ш � „ о Г � оо оо 1� � � И м И � h го ., о л ° � -- > N ° N ^ И v и с v и 'рЛ = р N '�С г°� ° ш.с' $ а `ш v.с �л, `ш h `ш v го,i в-+ и .L� +-� и .П Z ,р � У V С J 'L' �' � о �' о о Е � о а о Е � Е Е г` = W го Ф ол о- • V ш ап о- о т Ф ш и N �р р � � с � д v и с � v и � и и � � i' о N N � с � t Г о 7 с � у О а 0 � N I- ♦- гС С7 У � � -о о а,� 3 .- � � й 3 � � � И(� Ф Z = !- � ч Г с 3 о о � м с 3 ч= -а м ? м м � � i- �' Q у. ш т v м'� о ч= ч- т � � о� т м � й п й LL И� i- г � ar Е v га .у `ш ш т ш го .� т го v � ш v ш .� 4 �' U � и � и „- ц- и и и U +.� и U а V U U г�++ �О � ,Q � •� с аэ v и и о с ш � � о с и с с с го с с п га I- го п го >N Q � � О � го £ го ш о ro го � п N о ш � го Ш го п го = Z LL. � _ т _ т о v �- F`- о т о и о о т г т т т HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued ___For the year ended 3Decernber 2018 17. LONG - TERM FINANCIAL ASSETS . ....... . ..... - - - - - - - - - - ------------------------ ------ ---- 31 Dec 2018 31 Dec Z01 7 P 0 S I T 10 N HRK'000 HRK'000 Associated compame Proizvodnja-regeneracija d.o.o, Zagreb 4,522 4,522 Less: Value adjustment (4,522) _(4,522) 0 0 Investment in securities Industrogradnja d.d., Zagreb 95 95 Industrogradrija grupa d.d., Zagreb 133 133 Kon6r-Elektroindustrija d.d., Zagreb 248 332 OT-Optima telekom 63 101 Other investments in securities 33 55 Duro Dakovk d.d., Stavonski Brod 3 4 2e[jezara Sisak d.d., Sisak 31 31 Satonit Vranjic, Vranjic 3,866 3,866 Less: Value adjustment (3,898) (3,898) 575 720 Other long-term financial assets Receivables for given guarantees 471 477 Assets invested for the composition of conceptual design 0 32 TOTAL 1,046 1,229 18. LONG - TERM RECEIVABLES 31 Dec 2018 31 Dec 2017 P 0 S I T 1 0 N HRK'000 HRK'000 Receivables for the flats sold 9,361 15,251 Minus: Current portion (see Note 23) (7,614) .(8,171) 1,747 7,080 Other receivables Housing loans to employees 3,328 4,097 3,328 4,097 Total 5,074 11,177 50 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 19. INVENTORIES 31 Dec 2018 31 Dec 2017 POSITION HRK'000 HRK'000 Raw material and supplies 177,339 122,122 Spare parts 312,980 350,544 Small inventory and packing 32,080 70,695 Less: Value adjustment of raw material and supplies, spare parts and small inventory and packing (366,589) (374,322) Less: Value adjustment of obsolete inventories and raw materials (3,917) (510) Finished products 1,555 800 Production in progress 926 1,294 Advances given in the country 2,395 526 Long-term assets held for sale 0 1,472 Total 156,769 172,620 Inventories without a turnover in 2018 in the amount of HRK 252,343 thousand were subject to review, with the aim of their possible provision being charged to the income statement. Following the judgment on their useability, the value adjustment in the amount of HRK 8,952 thousand was carried out and in benefit to the statement of comprehensive income. The total value of the investment stock without turnover was HRK 225,974 thousand. Value of HRK 220,118 thousand relates to inventories for the modernization of the O tarije-Knin- Split line, which represents 79% of the total project stock value of HRK 280,966 thousand. In order to show the real value of the inventories in the financial statements in 2017, the Group carried out, on 1 January 2016, the value adjustment of the investment stock purchased for the purpose of modernizing the Otarije-Knin-Split line in the amount of HRK 280,966 thousand. (note 2.23). 51 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the year ended 31 December 2018 20. RECEIVABLES FROM THE RELATED PARTIES 31 Dec 2018 31 Dec 2017 HRK'000 HRK'000 POSITION Restated Associated companies Proizvodnja i regeneracija d.o.o., Zagreb 8,851 8,851 Less: Value adjustment (8,851) (8,851) 0 0 Other state-owned railway companes H2 PutniEki prijevoz d.o.o., Zagreb 29,237 24,183 Minus: Value adjustment (3,349) (2,074) H2 Cargo d.o.o., Zagreb 293,218 214,759 Minus: Value adjustment (153,956) (57,046) Tvornica 2eljezni kih vozila Gredetj d.o.o. u steEaju, Zagreb 193 157 Minus: Value adjustment (147) (147) Odr2avanje vagona d.o.o., Zagreb 5,881 4,215 Minus: Value adjustment (2,727) (864) Remont i proizvodnja ieljeznikih vozila St. Brod d.o.o., Slavonski Brod 3 17 Tehniki servisi 2eljezniEkih vozila d.o.o., Zagreb 1,501 1,668 Minus: Value adjustment (1,238) (1,238) 168,616 183,630 Other state-owned companies Hrvatski operator prijenosnog sustava d.o.o., Zagreb 15 76 Minus: Value adjustment 0 (7) OdaliljaEi i veze d.o.o., Zagreb 672 1,369 Hrvatske ume d.o.o., Zagreb 19 4 Minus: Value adjustment (3) (3) 703 1,439 Total 169,319 185,068 21. TRADE RECEIVABLES 31 Dec 2018 31 Dec 2017 HRK'000 HRK'000 POSITION Restated Domestic customers 44,225 46,731 Minus: Value adjustment (27,766) (31,516) 16,458 15,215 Foreign customers 3,565 563 Minus: Value adjustment (47) 0 3,517 563 Total 19,976 15,778 52 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 21. TRADE RECEIVABLES - continued Trade receivables doubtful for collection were subject to review, with the aim of their possible provision charged to profit or loss. Consequently, a value adjustment of the value of trade receivables in the amount of HRK 98,687 thousand was made. 22. RECEIVABLES FROM STATE AND OTHER INSTITUTIONS 31 Dec 2018 31 Dec 2017 POSITION HRK'000 H RK'000 Restated Receivables from the state on the remission of debt to related 300,923 300,923 Receivables for VAT 2,691 2,299 Receivables from the budget for unpaid excise taxes 0 2,246 Other receivables 9,970 670 Minus: value adjustment - receivables from the state (300,923) (300,923) TOTAL 12,661 5,215 23. OTHER REVEIVABLES 31 Dec 2018 31 Dec 2017 POSITION HRK'000 HRK'000 Prepayments made to related companies 300 299 Domestic prepayments 2,701 2,520 Value adjustments of prepayments (994) (994) Receivable from Croatia Institute for Health Care I 646 439 Other short-term receivables 5,962 3,442 Plus: Current portion (see Note 18) 7,614 8,171 Total 16,229 13,876 24. SHORT - TERM FINANCIAL ASSETS 31 Dec 2018 31 Dec 2017 POSITION HRK'000 HRK'000 Loans given to related parties Proizvodnja-regeneracija d.o.o., Zagreb 14,234 14,234 Less: Value adjustment (14,234) (14,234) 0 0 Given loans, deposits, etc. Deposits 4,669 5,761 Other 140 140 4,809 5,901 Total 4,809 5,901 53 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 25. CASH AND CASH IN HAND 31 Dec 2018 31 Dec 2017 POSI T ION HRK'000 HRK'000 Gyro account Balance 96,004 240,520 Foreign currency account Balance 69,168 61,705 Money in the cash register 47 25 Tied foreign currency assets 364,227 345,442 Other cash assets 0 268 Foreign currency letter of credit 0 26,346 Total 529,447 674,305 26. PREPAID EXPENSES AND ACCRUED INCOME 31 Dec 2018 31 Dec 2017 HRK'000 HRK'000 Prepaid expenses and accrued income (long-term) Charges for railway accidents 5,246 4,994 Other accruals 2,431 780 7,677 5,774 Prepaid expenses and accrued income (short-term) Recalculated costs 1 733 Expenditures of MMPI - Loan IBRD 8500 3,293 1,098 Accrued income 274 33 3,568 1,864 27. CAPITAL /il The subscribed capital of the Company amounts to HRK 224,188 thousand and represents permanent own sources for Company's operating and the share principal registered at the Commercial Court in Zagreb. The only member of the Company is the Republic of Croatia. /ii/ Capital reserves in the amount of HRK 8,361,521 thousand (31 December 2017: HRK 8,479,731 thousand) refer to Public good equity for the Public good assets in common use in the ownership of the Republic of Croatia in the amount of HRK 8,358,447 thousand (31 December 2017: HRK 8,476,657 thousand) and to the reserves of the Company in the amount of HRK 3,074 thousand (31 December 2017: HRK 3,074 thousand). 54 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For theyear ended 31 December 2018 27. CAPITAL - continued Movements in capital reserves are as follows: 2018 HRK'000 Public good Restated Balance at 1 January 2017 - restated 8,476,657 Loss allocation for 2017 2,965 Financial investments from the loan (147,853) Activated fixed assets from the Budget of the Republic of Croatia 392,446 Depreciation of the fixed assets (356,036) Net book value of the written-off Public good assets (11,524) Surplus 1,788 Other changes 4 Balance at 31 December 2018 8,358,447 /iv/ Accumulated loss on 31 December 2018 in the amount of HRK 323,753 thousand (31 December 2017: HRK 212,174 thousand) Iv/ Current year loss was stated on 31 December 2018 in the amount of HRK 105,979 thousand (31 December 2017: loss in the amount of HRK 34,822 thousand). 28. PROVISIONS 31 Dec 2018 31 Dec 2017 POSITIONS HRK'000 HRK'000 Provisions for jubilee awards and retirement benefits 40,154 38,170 Restructuring expenses - incentive severance payments 18,684 0 Provisions for court litigations 142,330 107,910 Total 201,168 146,079 Movements in provisions are shown in the table below: New Use of 31.12.2017. provisions provisions 31.12.2018. 0 P I S HRK'000 HRK'000 HRK'000 HRK'000 Provisions for jubilee awards and retirement benefits 38,169 2,347 (362) 40,154 Restructuring expenses - incentive severance payments 0 18,684 0 18,684 Provisions for court litigations 107,910 45,583 (11,163) 142,330 TOTAL 146,079 66,614 (11,525) 201,168 55 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 29. LONG - TERM LIABILITIES 31 Dec 2018 31 Dec Z017 HRK'000 HRK'000 POSITION Restated Liabilities to banks and other financial institutions European Bank for Reconstruction and Development (EBRD) 134,949 151,197 International Bank (IBRD) 182,573 187,246 Erste Et Steiermarkische Bank d.d., ZagrebaEka banka d.d., Privredna banka Zagreb d.d., HBOR, Splitska banka d.d. i Hrvatska 348,626 67,623 Privredna banka Zagreb d.d., Istarska banka Umag d.d. i OTP banka d.d. 33,078 67,838 Erste Et SteiermArkische Bank d.d., SG-Splitska banka d.d. i OTP banka d.d. 314,410 473,122 Hypo Alpe Adria Bank d.d. Zagreb 0 6,368 1,013,636 953,394 Less: Current portion (see Note 32) (228,495) (241,132) Foreign exchange differences on current maturity from 0 (4,709) previous periods 785,141 707,553 Liabilities for financial leasing 0 445 Less: Current portion 0 (398) 0 47 Other long-term liabilities Liabilities for sold flats 9,356 15,246 Total 794,497 722,846 i/ In accordance with the Railways Act, Republic of Croatia took over the repayment of long- term loan and related interests liabilities concluded until 1 January 2006 and the liabilities for loans are removed from the records in favour of state aid. The capital of the Public Property will be increased by the activation of the fixed assets of the public property acquired from the loan. Depreciation of public good fixed assets is not recognized as an expense and it is charged to Public good equity. /ii/ Foreign exchange differences and interest upon long-term loan liabilities are stated by charging / crediting state subsidies. /iii/ Long-term liabilities by domestic loans were determined at the interest rate of EUR 6m EURIBOR + for all domestic loans except the EUR 48 million loan with Zagreb Bank dd, Erste ft Steiermerkische Bank dd, Privredna banka Zagreb dd, HBOR, Splitska banka d.d. and the Croatian Postal Bank d.d. where the fixed interest rate is 2.92% /iv/ Other long-term liabilities relate to long-term loans to employees for the purchase of HZ flats. Pursuant to the Law on Sale of Flats with Tenancy Right (Official Gazette 43/1992), the flats sold were removed from the assets and capital of HZ, posted as claims on employees and at the same time an obligation towards the seller of the apartment was created. 56 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 29. Long - term liabilities - continued The movements in liabilities to banks and other financial institutions during the year may be summarized as follows: 31 December 2018 POSITI ON HRK'000 Balance at 1 January 2018 953,394 New borrowings 303,697 Payment (226,251) Foreign exchange differences (17,204) 1,013,636 Less: Current portion (228,495) Balance at 31 December 2018 785,141 The repayment schedule of long-term liabilities to banks and other financial institutions become due for the repayment: 31 December 2018 POSITION HRK'000 Due in one to two years 192,862 Due in two to three years 60,457 Due in three to four years 93,727 Due in four to five years 93,727 Due in more than five years 344,368 TOTAL 785,141 57 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 30. LIABILITIES TO RELATED PARTIES 31 December 2018 31 December 2017 HRK'000 HRK'000 POSITION Restated Liabilities to related parties Subsidiaries 0 2,269 Pruine gradevine d.o.o. Associated companies Proizvodnja-regeneracija d.o.o., Zagreb 3,109 3,366 Other state-owned railroad companies H2 PutniEki prijevoz d.o.o., Zagreb 3,767 3,224 H2 Cargo d.o.o., Zagreb 3,058 1,364 T2V Gredelj d.o.o., Zagreb 156 1,178 TehniEki servisi ieljeznikih vozila d.o.o., Zagreb 1,091 821 Odr2avanje vagona d.o.o., Zagreb 418 2 Radionica ieljezniEkih vozila Cakovec d.o.o., Cakovec 32 325 Remont i odriavanje ieljeznikih vozila Slavonski Brod d.o.o., Slavonski Brod 609 1,999 9,131 8,913 Other state-owned companies Hrvatski operator prijenosnog sustava d.o.o., Zagreb 1,830 1,710 HEP Opskrba d.o.o., Zagreb 24,668 21,903 HEP ODS d.o.o., Zagreb 272 1,343 Hrvatske vode, Zagreb 70 233 HEP Toplinarstvo d.o.o., Zagreb 411 757 HP - Hrvatska poita d.d., Zagreb 109 36 Narodne Novine d.d., Zagreb 46 25 27,466 26,007 Total 39,706 40,555 58 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 31. SHORT - TERM BORROWINGS AND DEPOSITS 31 December 2018. 31 December Z01 7 HRK'000 HRK*000 POSITION Restated Liabilities for deposits 3,892 2,792 Liabilities for financial lease 99 99 Current portion of loan from H2 Infrastruktura 1,170 0 Interests 36 0 5,797 2,892 Public good Liabilities toward CERP 190,054 1 9 0 , 0 5 4 Total 195,851 192,946 32. LIABILITIES TO BANKS AND OTHER FINANCIAL INSTITUTIONS 31 December 2018 31 December Z01 7 HRK'000 HRK'000 PORTION Restated Other liabilities 136 12 Bank overdraft 1,579 4,256 Plus: Current portion (leasing) 46 398 Plus: Current portion (see Note 29) 228,495 241,132 Due to unpaid obligations on the Addiko Bank loan 0 3,129 Total 236,256 248,927 33. LIABILITIES FOR RECEIVED PREPAYMENTS 31 31 December December 2018 2017 POSITION HRK'000 HRK'000 Domestic customers 850 7,509 Foreign customers 2,450 133 Total 3,300 7,642 34. TRADE PAYABLES 31 December 2018 31 December 2017 HRK'000 HRK;000 POSITION Restated Domestic suppliers 188,436 165,266 Foreign suppliers 16,939 6,212 Obligations by court settlements and judgments 118 176 Other liabilities 227 70 Total 205,720 171,724 59 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 35. LIABILITIES TO EMPLOYEES 31 December 2018 31 December 2017 POSITION HRK'000 HRK000 Liabilities for net wages and salaries 36,918 35,666 Other liabilities 2,162 1,887 Total 39,080 37,553 36. LIABILITIES FOR TAXES, CONTRIBUTIONS AND SIMILAR FEES 31 December 2018 31 December 2017 POSITION HRK'000 HRK'000 Contributions from salaries 11,358 11,660 Contributes to salaries, taxes and surtax 13,264 13,845 Liability for VAT 1,140 1,16 Liabilities for income tax 0 Other liabilities 35 119 Total 25,797 27,558 37. OTHER LIABILITIES 31 December 2018 31 December 2017 HRK'000 HRK'000 POSITION Restated Liability for un - invoiced goods 459 366 Liabilities toward the Ministrn of finance 791,984 582,478 Other deductions from wages and salaries 1,251 4,793 Other liabilities 5,961 101 Total 799,655 587,738 i) Liabilities to the Ministry of Finance relate to interest and principal liabilities of the Company, which have been settled by the Ministry of Finance. Liabilities to the Ministry of Finance for credit obligations HRK'000 Borrowing at Erste E Steiermaerkische Bank d.d., SG - Splitska banka d.d. i OTP banka d.d. 643,154 - principal 526,151 - overdue interest 113,569 - fee 3,434 Borrowing at Privredna banka Zagreb d.d., Istarska kreditna banka Umag d.d. i OTP banka d.d. 143,978 - principal 116,846 - overdue interest 27,087 -fee 45 Borrowing at Erste a Steiermaerkische Bank d.d., ZagrebaEka banka d.d., Privredna banka Zagreb d.d., HBOR, Splitska banka d.d. i Hrvatska pogtanska banka d.d. 4,852 - overdue interest 4,639 -fee 213 Total 791,984 60 H. INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the year ended 31 December 2018 38.ACCRUED EXPENSES AND DEFERRED INCOME 31 31 December December 2018 2017 HRK'000 HRK'000 POSITION Restated State subventions related to modernization of railways /il 301,071 330,332 State and EU subventions related to modernization of railways (EU projects) li/ 891,038 832,957 Accrued income 4,125 4,125 Dividends from assets available for sale 954 954 Accounted liabilities for the flats sold /ii/ 134,462 129,031 Exchange gains/losses on loans 17,769 7,858 Deferred payment of costs - IPA 48,935 46,590 Grants - CEF / iii / 495,756 397,332 Other 10,867 10,826 Total long - term - restated 1,904,977 1,760,005 Interest and expenses for public good loan (1,388) (6,047) Non-repayable loans - CEF 0 (5) Non-repayable loans - EU (ESF) /iv/ 16,542 129,004 Other /v/ 29,573 28,619 Total short - term 44,727 151,571 li/ State subventions related to the modernization of the public good and loan repayments relate to the funds of the Republic of Croatia for the purchase of fixed assets. The capital of the public good is increased by activating the funds. Amount of amortization of fixed assets of the public good is charged to the capital of the public good. State subventions related to the modernization of the public good (EU projects) as at 31 December 2019 amounted to HRK 891,038 thousand, as at 31 December 2017 amounted to 832,957 thousand. The capital of the public good is increased by activating the funds. Amount of amortization of fixed assets of the public good is charged to the capital of the public good. /ii! Until 31 December 2000 the Company retained 35% of the funds paid from employees and paid 65% to the State Budget in accordance with the Law on Sale of Apartments. From 1 January 2001 the Company retains the total assets and the liability is stated at a special liability position as at 31 December 2018, amounting to HRK 134,462 thousand (as at 1 January 2018 amounted to HRK 129,031 thousand). /iii/ In the amount of HRK 495,756 thousand, grants for projects funded from the CEF - Connecting Europe Facility were reported as follows: * Grant Agreement for the Project "Development of Project and Other Documentation for Construction of Another Track, Modernization and Renovation of Railway Section Skrljevo - Rijeka - Jurdani" (Contract No. INEA / CEF / TRAN / M2014 / 1044654 - Signed in November 2015) - Grants received on 31 December 2018 amounted to HRK 18,236 thousand; 61 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 38.ACCRUED EXPENSES AND DEFERRED INCOME - continued * Grant Agreement for the Project "Multimodal Platform for the Development of the Port of Rijeka and Interconnection with the Container Terminal of the Adriatic Gate", works on the reconstruction of the railway station Rijeka - Brajdica and the construction of the intermodal container terminal Brajdica (Contract INEA / CEF / TRAN / M2014 / 1044613 - signed in November 2015) - Grants received on 31 December 2018 amounted to HRK 21,391 thousand; * Grant Agreement for the Project "Technical Assistance to Improve the Capacity Building of Railway Infrastructure Manager in Croatia" (Contract MOVE / B4 / SUB / 2014-705 / CEF / PSA2 / 2 / S12.714460 - signed in December 2015) - Grants received on 31 December 2018 amounted to HRK 753 thousand; * Grant Agreement for the project "Reconstruction of the existing and construction II. railroad track at the Kriievci-Koprivnica-State border" (contract No. INEA / CEF / TRAN / M2015 / 1126931 - signed in October 2016) - Grant received on 31 December 2018 amounted to HRK 390,083 thousand; * Grant Agreement on the Project "Feasibility Study and Economic Financial Analysis of the Modernization of the Railway Line M104 Novska-Tovarnik-DG, Oku ani-Novska" - Receipt of Grants as of 31 December 2018 amounted to HRK 6,758 thousand; * Grant Agreement on the Project "Modernization of the Railway Line M202 Zagreb GK - Rijeka on the part of Oftarije-§krljevo" - Received grants on 31 December 2018 amounted to HRK 3,753 thousand; * Grant Agreement for the Project "Development of the Railway Junction Development Study Zagreb" and the Project "Development of a Study on the Introduction of the European Rail Traffic Management System (ERTMS)" - Grants received on 31 December 2018 amounted to HRK 3,596 thousand; * Grant Agreement for the Project ,,Reconstructions of the cargo section of the railway station Rijeka and construction of the terminal for rail intermodal transport on container terminal Zagrebaka obala" - Grants received on 31 December 2018 amounted to HRK 51,184 thousand. /iv/ In the position postponed payment of expenses and income of the future period (short-term), the non-refundable funds received for OPKK projects in total amounted to HRK 16,542 thousand: * project for the construction of the new suburban railway section Gradec - Sveti Ivan 2abno in the amount of HRK 0,122 thousand * project Reconstruction of the existing and construction of 2nd railway track section Dugo Selo - Kriievci in the amount of HRK 8 thousand; 62 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For_the_year_ended_31 December 2018 38.ACCRUED EXPENSES AND DEFERRED INCOME - continued * project of Modernisation arid electrification of the railway line Zapresic - Cakovec on the section Zaprelic (exclusively) - Zabok(inclusive) in the amount of HRK 1 5,881 thousand; * project Upgrading and electrification of the existing railway line of importance for the international traffic M601 Vinkovci - Vukovar in the amount of HRK 653 thousand Iv/ In the position of long-term deferred paid costs and income for the future period, the employer's obligation for an unused vacation days to employees is recorded on 31 December 2018 in the amount of HRK 25,300 thousand. 39. OFF BALANCE SHEET ITEMS Off-balance sheet items are stated at 31 December 2018 in the amount of HRK 6,825,427 thousand (31 December 2017 in the amount of HRK 6,643,653 thousand). 31 December 2018 31 December 2017 POSITI ON HRK'000 HRK'000 Received Guarantees 1,021,831 1,978,665 Guarantees given 12,341 135,127 Claims for funds destroyed in the war 269 269 Assets at the unavailable area 369,836 369,836 EU - guarantee letters 355,035 355,035 EU agreements 5,023,086 3,763,783 EU - Request for NF Payment 34,214 34,214 Basic assets received on leasing 8,815 6,724 Total 6,825,427 6,643,653 63 ��� � с `� О О� ш oN о а и�-о г�.оо оо �t о�до о о N с•� � `- `- м �+ � i 'о ® 4- х fU С и '.� О Q С � С� О О О О О о о о о о О О О О О О о р С о > о � v v � ы V й ® � S � � U С� ы - � tC3 и (б �� � � ,� О о о о О о О О О О О о о о о О о О N � .Q1 С v N ° � � � а с � N � � i� ro С й � �' ���"� � О О о О О О О О О О О О О О О О о о Е � � � L. +, -р > ° � С t�i Ш -С � v С а'' � � О i- С ��� v о°Oо о� п^i й� v о о � о й й v rn о� о �� и r.иг� и им t� мйrnг�rn� <.,� � Ш Q1 ° гт .о �- м v � r` ьл � �^ Ш � � х '- и CL � � Ш И G 4- � �.�� оо� м �� о�о �^ ooNOOO о о о о � у,� � � � ct О � � с- р, С �+ и а--� fб гб U1 ° W iг � Г ^' � и С- *� с � � � ч= -Q �> - Ш • •� С С С � ОЛ гб � й и O� �� а` �� О О о со N О О� �О N.р ++ L, � � и О�U и О и.- О� м.р 1�. t� 1� О+ и� � � м м м �- � N о� , .�=, 4J >_ � � гn i и I- � � � � J г ���' � и� � и о�� м �� �^.о иооооо о о о� Ш ^ v ео с� � г� �о Г Г м С � а"' О � и о• м � F и �.G1 гб � N Г .�д V И J �W-, �i й � � а � +-�'+ � +L-+ г� а � С ^ ^ ^ ^ т а � � а� � v�� о о о о N � � � � � � д д � -о �о � а � а и� v � г� N`р � W � �+�.+ � •о '� �г го М � � � � и � iл N � > �i о й �i 3 ^ � с,� ° �� 0 1_ �� ц- � ° га � � ол г° � � v ш гУа '0 J � � � о 0 ° г� 'с � пs У v � � � � � 'и � � � и и ч- � ^ ^ �N Н ,° � v и � � о и^'� �й ��.+ и го о о °�° ,�, ол � v r�.� '" о°1Lл Z � � оИ ^ с ra :� о � v ° ^ ^ N ш � ^ � ° � � � iц � cр � � -v v '� r °. 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N ^� N рп и v N N L �� � Г� ° � -D v>° 'и � °�й о ^!� N v � �� N 1 U с �-' о с N � -� 'с � �° •v, о о '� .. ы, � о �° ° � w Ш lJ � ш � ^! � -n 'и с v -о о°' о г.гаi га �° >й � 1- 1- i' и v с ш�, •� ° �с о'^' ш-о о о .. г� о O �° •� i' О N � N �•й N а Ш и р N г � � ш � о- о .v, о о •°', > '� > � � � о � � У '> � Е- � � а � cLa с � о N о-т` �й •� й .� >й �- У � >° � � г° Z w,ы ~ v � ш о.� L" � ш � с.� .д > v_д •�, й й� а о � о'� с � i s �>й .� а i� о о о о с v,� � v;й �� v О О+ 1- _-о 'N 0 О ш о �°>r.i ,rv ш гУо v � о ол �' _с о„ га ы, а а га � �°;° = Z lL О У г� а n. = z У�и � и 1у г� О� г� О== Н = s г== г Н H! INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 41. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Capital risk management The Company manages its capital to ensure that it will. be able to continue as a going concern while maximising the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of debt, which inctudes credits, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, legal and other reserves and retained earnings/ transferred loss. Debt ratio The Management board reviews the capital structure on a quarterly basis. As part of this review, Management considers the cost of capital and the risks associated with each class of sources of funding. The debt ratio at the year's end is presented as follows: 31 December 2018 31 December 2017 P 0 S I T 10 N HRK'000 HRK '000 Debt 1,030,753 971,774 Cash and cash equivalents (529,447) (674,305) Net debt 501,307 297,468 Equity 8,155,977 8,383,131 Net debt and equity ratio 6,15% 3,55% Categories of financial instruments 31 December 2018 31 December 2017 P 0 S I T 10 N HRK'000 H RK '000 Financial assets Loans and receivables (including cash and cash equivalents) 762,918 908,331 Financial liabilities Depreciated cost 4,490,734 4,095,144 Managing financial risk objectives The Company controls and manages financial risks which coutd have the influence on the operations of the Company by internal reports on risks where the exposures to risks are analysed on the basis of the degree and character of market risk, interest risk, credit risk, currency risk and solvency risk. Market risk The Group operates on the Croatian and international markets. The Company's Management determines the prices of its products and services separately for domestic and foreign markets. There were no significant changes to the influence of market risks to the operations of the Group. 66 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 41. FINANCIAL INSRUMENTS AND RISK MANAGEMENT - continued Interest rate risk The interest rate risk is a risk that the value of a financial instrument will fluctuate due to changes in market rates relative to the interest rate applicable to the financial instrument. Interest rate cash flow risk is the risk that the interest cost of an instrument will fluctuate over time. Due to the fact that The Company uses loans with changeable interest rates, it is exposed to the interest rate risk. Sensitivity analysis on interest rates Sensitivity analysis was performed only for the financial instruments with variable interest rates based on the exposure to interest rates at the end of the reporting period assuming that the outstanding amount at the end of the reporting period was unsettled during whole year. If interest rates were 50 basis points higher, the balance of loan indebtedness as at 31 December 2018 would be influenced by the increase of the interest rate expense in the amount of HRK 5,068 thousand (31 December 2017: HRK 4,735 thousand) based on exposure to the interest rate risk. This is mainly attributable to the Company's exposure to interest rates on loans with variable interest rates. Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. Financial assets that potentially expose the Company to credit risk consist mainly of cash, money equivalents and trade receivables. Trade receivables have been adjusted to allow for bad and doubtful accounts. There were no significant changes to the influence of credit risks to the Company's operations. Currency risk The official currency of the Company is the Croatian Kuna ("HRK"). However, certain transactions denominated in foreign currencies are calculated in the Croatian Kuna by applying the exchange rates in effect at the date of the Consolidated Balance Sheet / Statement of Financial Position, and consequently, the Company is potentially exposed to risks of changes in currency rates. As the Company has a significant number of loans contracted with a currency clause (generally related to EUR), the Company is significantly exposed to this risk. Net carrying amount of cash and cash equivalents and liabilities of the Company denominated in foreign currencies on the Balance Sheet date is shown in the table below: Liabilities Assets 2018 2017 2018 2017 Balance at 31 December Restated Restated HRK 000 HRK 000 HRK '000 HRK 000 EUR 1,029,641 948,317 434,719 431,974 67 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 41. FNANCIAL INSTRUMENTS AND RISK MANAGEMENT - continued Analysis of sensitivity to forein currency The Company is primarily exposed to the countries whose currency is EUR. The following table analyses the foreign currency risk of the Company in the event of a 1% increase in the value of Kuna against Euro. The 1% sensitivity rate is used in internal foreign currency risk reports to key managers and represents the Management's assessment of predictable changes in the exchange rates. The sensitivity analysis includes only open monetary items in foreign currency, and their translation at the end of the period is adjusted based on the 1-percent change in exchange rates. The influence of changes in the exchange rate is given in the following table: EUR Influence Decrease by 1% Increase by 1% 2018 2017 2018 2017 POSITION HRK'000 HRK'000 HRK'000 HRK'000 Influence on the profit/loss for the period 1,004 938 1,024 957 Liquidity risk A liquidity risk is a risk that the Group would not be able to fulfil its financial liabilities to the other contractual party. The Group manages liquidity risk in a way that observes continuously, and analyses expected and actual cash flow on the basis of maturity of financial assets and liabilities. 42. POTENTIAL LIABILITIES AND DISPUTES Judicial disputes are ongoing against the Group and are subject to contingent liabilities, which include the claims without interest and dispute settlement. At 31 December 2017 the Company determined a provision for contingent liabilities in the amount of principal and potential court and attorneys' costs of HRK 142,330 thousand. The court dispute in which the Company is a party to a claim on 31 December 2017 is as follows: /il The Company as a defendant together with companies H2 Cargo d.o.o., Zagreb and HZ PutniEki prijevoz d.o.o., Zagreb takes part in numerous legal proceedings in the total amount of HRK 31,618 thousand whose outcome is uncertain. According to the Division Plan of the trade company HZ Hrvatske ieljeznice d.o.o., Zagreb, newly established companies bear possible liabilities arising out of these conflicts on the basis of their participation in the capital. The Company, as a defendant, participates in court proceedings initiated in 2007, 2008, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 in the amount of HRK 135,088 thousand and EUR 643 thousand. 68 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 42. POTENTIAL LIABILITIES AND DISPUTES - continued /ii/ The Company is burdened with guarantees for certain subsidiaries in Croatia in the amount of HRK 12,341 thousand. /iii/ According to the adopted business plan of the Company for the period from 2019 to 2023, the costs of future severance payments amount to HRK 43,3 million, per year as follows: * 2019 HRK 10,1 million * 2020 HRK 20,5 million * 2021 HRK 6,7 million * 2022 HRK 3,0 million * 2023 HRK 3,0 million 43. EVENTS AFTER THE CONSOLIDATED BALANCE SHEET/CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATE On 28 March 2019, the Assembly Board of Croatia express putniEka agencija d.o.o. issued the Decision No. UI-S-74-1/19 on initiating activities related to the bankruptcy of Croatia express putniEka agencija d.o.o. The Management Board of the Company on 7 May 2019, issued the Decision about credit indebtedness for financing the reconstruction of the railway infrastructure in the amount from HRK 350,000,000 in euro equivalent at OTP bank d.d. Apart from the above, there were no events after the balance sheet date that would have a significant impact on the Group's annual consolidated financial statements for 2017, which should subsequently be disclosed 44. FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD As the Railway Act requires the existence of separate records of public goods and own revenues and expenditures as well as assets, liabilities and capital resulting from these changes, the Company's financial statements and the financial statements of the public property are presented below. 69 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 44. FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD - continued 31 December 2018 POSITION Company Public good Total HRK'000 HRK'000 HRK ASSETS Intangible assets 45,317 0 45,317 Tangible assets 2,338,579 9,329,330 11,667,909 Financial assets 1,046 0 1,046 Long - term receivables 5,074 0 5,074 LONG - TERM ASSETS 2,390,016 9,329,330 11,719,346 Inventories 156,769 0 156,769 Receivables from the related parties 169,319 0 169,319 Trade receivables 19,976 0 19,976 Receivables from employees 6,910 0 6,910 Receivables from the State and other institutions 12,661 0 12,661 Other receivables 16,229 0 16,229 Financial assets 4,809 0 4,809 Cash and cash equivalents 529,447 0 529,447 Prepaid expenses and accrued income 4,653,680 3,866,359 8,520,039 SHORT - TERM ASSETS 5,569,799 3,866,359 9,436,159 TOTAL ASSETS 7,959,816 13,195,689 21,155,505 70 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 ___ 44. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD - continued 31 December 2018 P0SITI0N Company Public good Total HRK'000 HRK'000 HRK CAPITAL AND LIABILITIES Share (subscribed) capital 224,188 224,188 Capital reserves 3,074 8,358,447 8,361,521 Accumulated loss (323,753) 0 (323,753) Profit/(Loss) for the current year (105,979) 0 (105,979) TOTAL CAPITAL (202,470) 8,358,447 8,155,977 Provisions 201,168 0 201,168 Long-term liabilities 794,497 0 794,497 Liabilities to related parties 39,706 0 39,706 Liabilities for loans, deposits, etc. 5,797 190,054 195,851 Liabilities to banks and other financial institutions 236,256 0 236,256 Liabilities for received prepayments 3,300 0 3,300 Trade payables 205,720 0 205,720 Liabilities for securities 0 0 Liabilities due to employees 39,080 0 39,080 Liabilities for taxes, contributions and similar fees 25,797 0 25,797 Other liabilities 799,655 0 799,655 Accrued expenses and deferred income 5,811,310 4,647,188 10,458,497 Short - term liabilities 7,166,620 4,837,242 12,003,862 TOTAL CAPITAL AND LIABILITIES 7,959,816 13,195,689 21,155,505 71 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018 44. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD - continued Pursuant to the provisions of Art. 21 st.2 of the Railway Act, the Company, on the expense of public good equity, compensates the retained losses or the same increases retained earnings. Pursuant to the Decision of the Government of the Republic of Croatia in 2013 and 2014 on granting approval for the Company's debt take over, the Company repaid long-term liabilities on loans and interest and exchange rate differences by increasing the capital of the public good. The total effect of these activities is changes in the capital of the public good (capital increase for HRK 3,866,359 thousand and capital decrease of HRK 3,011,802 thousand), which are stated in individual balances of the Company and public good under the item "Prepaid expenses" and "Accrued expenses and deferred income" while in the Company's total balance sheet, these changes were consolidated in the amount of HRK 6,878,161 thousand. Within the positions "Prepaid expenses" and "Accrued expenses and deferred income" are reported investments financed from loans for which the capital of the public good increased and at 31 December 2018 they amount to HRK 1,639,038 thousand. In 2013 and 2014, the Government of the Republic of Croatia adopted the Decision on granting approval for the debt takeover of the Company on the basis of the given guarantees and unpaid mandatory debts of the Debtors by increasing the capital of the public good to reduce the indebtedness and financial consolidation of the railway infrastructure operator in the total amount of HRK 3,334,166 thousand (HRK 1,418,375 thousand in 2013 and HRK 1,915,791 thousand in 2014). This approval relates to the takeover of long-term borrowing at Erste Et Steiermerkische Bank d.d., and Sberbank d.d., Privredna banka Zagreb d.d., Zagreba ka banka d.d. and short-term debt with OTP banka d.d. These loans are funded by the public good. Upon the takeover of the loan, the Company increased the capital of the public good for the above-mentioned amount, and for the amount of capitalized investments it was necessary to make a correction of the capital. 72 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2018- 45. PREPARATION AND APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS Financial statements set out on previous pages were prepared by the Management Board of the Company and authorised their issuance on 23 September 2019. Signed on behalf of the Management Board: Ivan Krsic, Darko Bariii President of t Management member of the Management Board Board Nikola Ljuban Marko Z. 2ubrinic member of the Management member of the Management Board Board Krunostav Pap c member of th Management Board HZ INFRASTRUKTURA d.o.o. Mihanoviceva 12 10 000 Zagreb Republika Hrvatska 73