HZ INFRASTRUKTURA d.o.o., Zagreb Annual consolidated financial statements and Independent Auditor's Report for the year 2015 CONTENT Page Responsibility for the Consolidated Financial Statements 1 Independent Auditor's Report 2-4 Consolidated Statement of Comprehensive Income 5 Consolidated Balance sheet / Consolidated Statement of financial position 6-7 Consolidated Statement of Changes in Equity 8 Consolidated Statement of Cash Flows 9 Notes to the Consolidated Financial Statements 10 - 50 RESPONSIBILITY FOR THE CONSOLIDATED FINAHCIAL 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 2015, are prepared in accordance with the Accounting Act (Official Gazette No. 109/07, 54/13 and 121/14) and international Financial Reporting Standards as adopted by the European Union, to give a true and fair view of the consolidated financial position, the consolidated results of operations, consolidated changes in equity and consolidated cash flows of the Company for that period. After making enquiries, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board has adopted the going concern basis in preparing the consolidated financial statements of the Company. In preparing these consolidated financial statements, the Board is responsible that: * suitable accounting policies are selected and then applied consistently; * judgments and estimates are reasonable and prudent; * applicable financial reporting standards are followed, subject to any material departures disclosed and explained in the consolidated financial statements; and * the consolidated financial statements are prepared on the going concern basis unless such assumption is not appropriate. The Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the consolidated financial position and the consolidated results of operations of the Company and their compliance with the Accounting Act (Official Gazette No 109/07, 54/13 and 121/14) and the International Financial Reporting Standards. The Management Board is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Signed on behalf of th anagement Board: Ivan Krgi6, Member of the Management Board HZ INFRASTRUKTURA d.o.o. Mihanoviteva 12 10 000 Zagreb The Republic of Croatia 20 September 2016 1 Tel: +385 1 Z395 741 EDO Croatia d.o.o. FaY: +385 1 2303 691 10000 Zagreb E-rnail. bdo-croatia.hr Trg J. F, Kennedy 6b INDEPENDENT AUDITOR'S REPORT To the Owner of company Hi INFRASTRUKTURA d.o.o., Zagreb 1. We audited the accompanying annual consolidated financial statements of H2 INFRASTRUKTURA d.o.o., Zagreb, Mihanovi6eva 12, (hereinafter "the Company") for the year ended 31 December 2015, which comprise of the consolidated Balance sheet / consolidated Statement of financial position as at 31 December 2015, consolidated Statement of comprehensive income, consolidated Statement of changes in equity, consolidated Statement of cash flows for the year then ended, and the accompanying Notes to the consolidated financial statements which concisely set out the significant accounting policies and other explanatory notes. The Management's Responsibility 2. The Management is responsible for the preparation and a fair presentation of the enclosed consolidated financial statements according to the International Financial Reporting Standards adopted by the European Union and also for those internal controls which are determined by the Company's management as necessary to enable preparation of the consolidated financial statements free from material misstatements whether due to fraud or error. Auditor's Responsibility 3. Our responsibility is to express an opinion on the enclosed consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatements. The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement in the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. The audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, as well as evaluating the overall presentation of the consoLidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2 IB D O BDO Croatia d.oo. Basis for qualified opinion 4. As disclosed in Note 39 to the consolidated financial statements, receivables from related parties as at 31 December 2015 of HRK 108,070 thousand and transactions with related parties of HRK 44,674 thousand are not reconciled with the received confirmation letters from related parties. Consequently, compared with the obtained confirmation letters, receivables from related parties are overstated by HRK 30,676 thousand, and transactions with related parties are understated by HRK 19,453 thousand. Pursuant to the above, we are unable to determine the effects of potential corrections of consolidated financial statements for 2015, if any. 5. As explained in Note 20 to the consolidated financial statements, in the consolidated Balance Sheet / consolidated Statement of financial position as at 31 December 2015 inventories without turnover in 2015 of HRK 270,127 thousand were subject of examination with the purpose of assessing the potential impairment, as a result impairment of HRK 8,991 thousand was debited to the consolidated Comprehensive income statement. Estimate made by the Company to assess the impairment was not based on the net setting price of the inventories. We were unable to extend our audit procedures to determine the amount of impairment of inventories, and due to this to determine the effects of possible corrections, if any, on the consolidated financial statements of the Company for 2015. 6. As explained in Note 16 to the consolidated financial statements, in the consolidated Balance Sheet / consolidated Statement of financial position as at 31 December 2015, the Company does not hold a registered title on the properties in the land register over a significant number of properties. Registering of the title on properties is in progress. As a result, we are unable to determine the effects of possible corrections, if any, on the consolidated financial statements of the Company for 2015. 7. As explained in Note 16 to the consolidated financial statements, in the consolidated Balance Sheet / consolidated Statement of financial position as at 31 December 2015 assets under construction include investments in progress older than 5 years of HRK 824,055 thousand, of which the project related to Lika railway line amounts to HRK 654,752 thousand. The Company has not made the assessment of recoverability of the stated assets as at 31 December 2015. As a result, we are unable to determine the effects of possible corrections, if any, on the consolidated financial statements of the Company for 2015. Qualified opinion 8. In our opinion, except for the effects of possible corrections which may arise from the stated in paragraphs 4 to 7 above, the enclosed consolidated financial statements, in all material aspects, give a true and fair view of the consolidated financial position of the Company as at 31 December 2015, and its consolidated financial performance and consolidated cash flows for 2015 in accordance with the Accounting Act and International Financial Reporting Standards as adopted by the European Union. 3 IB D O B00 Croatia d,o.o. Opinion on compliance with other legal or regulatory requirements 9. The Management Board is responsible for the preparation of the annual consolidated financial statements for the year ended 31 December 2015 in the prescribed form based on the Statute of structure and content of the annual consolidated financial statements (Official Gazette 38/08, 12/09, 130/10) and in accordance with other regulations governing the Company's operations ("Standard annual consolidated financial statements"). Financial information presented in the Company's standard annual consolidated financial statements are in accordance with the information presented in the Company's annual consolidated financial statements presented on pages 5 to 50 on which we have expressed our opinion as presented in the paragraph Qualified Opinion above. Opinion on compliance with the Annual Report 10. The Management Board is responsible for the preparation of the Company's Annual Report. Pursuant to the Article 17 of the Accounting Act, we are obliged to give our opinion on the compliance of the Company's Annual Report with the Company's annual consolidated financial statements. In our opinion, pursuant to the conducted audit of the Company's annual consolidated financial statements and comparison with the Company's Annual Report for the year ended 31 December 2015, the financial information presented in the Company's Annual Report are in compliance with the financial information presented in the Company's annual consolidated financial statements presented on pages 5 to 50 on which we have expressed our opinion as presented in the paragraph Qualified Opinion above. In Zagreb, 20 September 2016 BDO Croatia d.o.o. Trg J. F. Kennedy 6b 10000 Zagreb IBDO 7 911C14 TV keiimarv 6/d b z: ;tilith*iih tiil,rskiikging Ines Roi6, certified auditor Zdenko Balen, Management Board member 4 HZ INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2015 POSITION Note 2015 2014 HRK'000 HRKOO restated Sales revenue 3 409,111 628,047 Other operating revenues 4 1,150,395 1,131,894 Operating revenues 1,559,506 1,759,941 Changes in value of inventories of production in progress and finished products 0 2,489 Raw material and material costs 5 (191,809) (217,806) Costs of goods sold 6 (13,571) (12,239) Costs of services 7 (163,892) (212,991) Staff costs 8 (835,041) (895,571) Depreciation 9 (70,896) (75,522) Impairment 11 (30,928) (47,174) Provisions 12 (45,080) (47,264) Other costs 10 (220,288) (301,226) Operating expenses (1,571,505) (1,807,304) Finance income 13 4,906 9,989 Finance expense 13 (22,844) (60,716) TOTAL INCOME 1,564,412 1,769,930 TOTAL EXPENSE (1,594,349) (1,868,020) LOSS BEFORE TAX (29,937) (98.090) Income tax 14 6,973 (21,284) LOSS FOR THE PERIOD 17 (22,964) (119,374) COMPREHENSIVE LOSS FOR THE PERIOD (22,964) (119, 374) The accompanying notes from 1 to 44, set out below, form an inseparable part of these consolidated financial statements. 5 Hi INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED BALANCE SHEET / CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2015 P0 S I T I10 N Note 31 December 2015 31 December 2014 1 January 2014 HRK'000 HRK'000 HRK'000 ASSETS restated restated Intangible assets 15 75,206 55,371 62,301 Property, plant and equipment 16 12,050,012 11,844,731 11,114,340 Financial assets 17 1,184 1,478 1,299 Long term receivables 18 31,303 38,575 47,927 Deferred tax assets 19 5,813 1,615 1,077 LONG-TERM ASSETS 12,163,518 11,941,770 11,226,944 Inventories 20 502,445 587,820 569,757 Receivables from related parties 39 108,070 218,841 257,842 Trade receivables 21 26,507 24,336 37,091 Receivables from employees 22 6,171 6,225 6,682 Receivables f rom the state and other institutions 23 41,123 37,179 47,169 Other receivabLes 24 84,107 87,541 90,166 Financial assets 25 10,316 3,264 2,477 Cash and cash equivalents 26 395,057 288,651 209,797 Prepayments and accrued income 27 10,220 16,372 7,223 SHORT-TERM ASSETS 1,184,016 1,270,229 1,228,204 TOTAL ASSETS 13,347,534 13,211,999 2,455,148 The accompanying notes from I to 44, set out below, form an inseparable part of these consolidated financial statements. 6 H± INFRASTRUKTURA d.o.o., ZAGREB CONSOLIDATED BALANCE SHEET / CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2015 - continued P0 S I T 10 N Note 31 December 2015 31 December 2014 1 January 2014 HRK'000 HRK'000 HRK'000 restated restated CAPITAL AND RESERVES 28 Share (subscribed) capital 224,188 224,188 224,188 Capital reserves 9,032,200 8,312,334 7,899,597 Retained earnings 109,918 121,091 132,310 Accumulated Loss (156,774) (69,025) (83,695) Profit/(Loss) for the period (22,964) (119,374) 813,958) Capital and reserves 9,186,568 8,469,214 7,358,442 Provisions 29 126,449 123,531 135,145 Borrowings 30 1,894,449 2,211,424 1,110,894 Long-term liabilities 2,020,898 2,334,955 1,246,039 PayabLes to related parties 39 44,674 69,758 126,554 Liabilities for loans, deposits, etc. 31 133,298 142,539 141,405 Borrowings from banks and other financial institutions 32 318,694 287,284 258,643 Prepayments received 33 12,408 11,240 1,787 Trade payables 34 120,358 337,579 508,780 Liabilities for securities 0 110 127 Liabilities due to employees 35 56,453 44,995 46,314 Liabilities for taxes, contributions and similar fees 36 27,513 48,144 39,729 Other liabilities 37 339,113 228,385 88,312 Accrued expenses and deferred income 38 1,087,558 1,237,796 2,639,016 Short-term liabilities 2,140,068 2,407,830 3,850,667 TOTAL CAPITAL AND LIABILITIES 13,347,534 13,211,999 12,455,148 The accompanying notes from 1 to 44, set out below, form an inseparable part of these consolidated financial statements 7 "i O in L0 n cr 6 6 o ~ - - o -- -.. in CO r rz. rZ z Q% 0 C> C I.. c > 8 S izi c c, c, £ 0t -: W -. 414 w elg CN faO fn n GN mN C L f n ED Gi 0 *L , <' -t r 40- 3. N~'- rn -5- O LCL Èm 8 - 8 4 - M0 C D . | W 0 E . - - CQ 0 r- N 3 30 ' a 0' 4-i D LD 0x ø wc - - '0 - Z I_Ue LL 0 n. øwl c- 04 E '4- CL: 0a z0 c; E -o CL4- C- 0 CE 0 -D -. w m, o -ci &rl ci orC E > > E &~' øl UNo Z u.n U v ru ~ ~ ~ ~ ~ C z: L00~~.2. i HZ INFRASTRUKTURA d.o.o. , ZAGREB CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2015 POSIT ION 2015 2014 HRK'000 HRK'000 Cash flow from operating activities Profit((Loss) before tax (29,937) (98,090) Depreciation 70,896 75,522 Impairment provision 30,928 47,174 Interest income (2,659) (9,960) Interest expense 21,871 45,994 Dividend income (6) (29) Gain on disposal of fixed assets (30,717) 0 Income from reversal of provisions (29,940) (58,845) Change in inventories 84,627 (18,063) Change in receivables from related companies 110,771 39,001 Change in trade receivables (32,351) 12,756 Change in receivables from the employees 54 457 Change in receivables from the state and other institutions (3,944) 9,990 Change in other receivables 3,434 2,626 Change in prepayments and accrued income 6,152 (9,149) Use of provisions 32,858 47,231 Change in payable to related companies (25,084) (56,796) Change in prepayments received 1,168 9,453 Change in trade payables (217,221) (171,201) Change in Liabilities to the employees 11,458 (1,319) Change in liabilities for taxes and contributions (20,631) (12,869) Change in other Liabilities 110,727 140,071 Change in accrued expenses and deferred income 389,660 127,545 Interests received 2,659 9,960 Interests paid (21,871) (45,994) Dividend receipts 6 29 Net cash flow from operating activities 462,908 85,494 Cash flow from Investing activities Proceeds from sale of Long term assets 30,931 39,257 Proceeds from sale of financial assets 1,315 17,152 Purchase of tangible and intangible assets (732,093) (1,214,211) Investments in financial assets (7,053) (2,108) Net cash flows from Investing activities (706,900) (1,159,910) Cash flow from financing activities Proceeds from loans 887,491 1,219,502 Proceeds from collection of long term receivables 7,274 9,351 Repayment of loans (544,366) (75,583) Net cash flows from financing activities 350,399 1,153,270 NET INCREASE IN CASH AND CASH EQUIVALENTS 106,406 78,854 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 288,651 209,797 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 395,057 288,651 The accompanying notes from 1 to 44, set out below, form an inseparable part of these consolidated financial statements 9 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015 1. GENERAL 1.1. Activity H2 INFRASTRUKTURA d.o.o., Zagreb, Mihanovieeva 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 Group at 31 December 2015 was 6,254 employees (31 December 2014: 7,253 employees). The structure of the staff by qualification level is presented below: 31 December 31 December POSITION 2015 2014 Doctor's degree 2 2 Master's degree 59 60 University degree 706 703 Two-year post secondary diploma 536 566 Secondary school certificate 3,243 3,831 Skilled workers 127 155 Unskilled workers 350 1,060 High skilled workers 153 244 Low-skilled qualification 205 323 Semi-skilled workers 873 309 Total 6,254 7,253 1.3. The Supervisory and Management Board of the Company Members of the Supervisory Board of the Company are as follows: Ivan Miloi president Nikolina Brnjac vice president Tatjana Gotojuh Luketa member Tomislav Jukic member Slavko Prieta member Members of the Management Board are as follows: member of the Management Board - Ivan Krit director The amount of compensation to members of the Management Board of the Company is stated in Note 8 to the consolidated financial statements. 10 H! INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Set out below are the principal accounting policies. 2.1. Statement of compliance and basis of presentation The consolidated financial statements of the Company for 2015 are prepared in accordance with the Accounting Act (Official gazette No 109/07, 54/13 and 121/14) and the International Financial Reporting Standards ("IFRS") effective in the European Union, and in accordance with the Regulation on the Structure and Content of Annual financial statements (Official gazette No 38/08, 12/09, 130/10). 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 consolidated financial statements of the Company are prepared in the Croatian kuna ('HRK') as functional and reporting currency of the Company. The consolidated financial statements are presented in thousands of Croatian kuna (HRK '000). On 31 December 2015 the official exchange rate was 7.64 HRK for 1 EUR (31 December 2014: 7.66 HRK), HRK 6.99 for 1 USD (31 December 2014: HRK 6.30). On 18 July 2013 new Law on railway came into force, in which the railway infrastructure is defined as the assets 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. 2.2. Key estimates and uncertainty of estimates Certain estimates are used during the preparation of the consolidated financial statements which have inflow to the statement of property and liabilities of the Group, income and expenses of the Group and the disclosure of potential liabilities of the Group. Future events and their effects cannot be predicted with certainty, thus the real results may differ from those estimated. The estimates made during the preparation of the consolidated 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 Group operates. Key estimates used by the application of accounting policies during the preparation of the consolidated 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. Consolidated financial statements include financial statements of the Company and financial statements of companies controlled by the Company (subsidiary companies). The Company has the control in those companies in which it has the power to manage financial and operating policies of the company in which the investment was made in order to make profit from the operating of this very company. 11 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.3. Adoption of new and revised international financial reporting standards (IFRS) Standards and Interpretations effective in the current period * Annual Improvements from 2011 to 2013 Cycle have been applied in the EU for accounting periods beginning on or after 1 January 2015, also with earlier application permitted. They include: - IFRS 3 Business Combinations, - IFRS 13 Fair Value Measurement, - IAS 40 Investment Property; * IFRIC 21 Levies (Effective in the EU for accounting periods beginning on or after 17 June 2014, with earlier application permitted). Application of the above mentioned Standards did not have effect on the consolidated financial statements for the period ended 31 December 2015. New and revised IFRSs adopted by the EU in issue but not yet effective * Changes and amendments to IAS 19 Defined Benefit Plans: Employee Contributions - IAS 19 requires subjects to consider employee or third party contributions when accounting their earnings. This amendment is effective in the EU for accounting periods beginning on or after 1 February 2015, with earlier application permitted. The Company does not expect this amendment to be relevant to the Group. * Annual Improvements from the 2010 to 2012 Cycle, as changes and amendments, are effective in the EU for accounting periods beginning on or after 1 February 2015, with earlier application permitted. It is not expected that they will have any significant impact on the Group. They include: - IFRS 2 Share-based Payment, - IFRS 3 Business Combinations, - IFRS 8 Operating Segments, - IFRS 13 Fair Value Measurement - IAS 16 Property, Plant and Equipment and ]AS 38 intangible assets - IAS 24 Related Party Disclosures New and revised IFRSs issued by the IASB but not yet adopted by the EU The following standards and amendments to the existing standards have not been adopted for use in the EU yet: * IFRS 9 Financial Instruments - in July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which contains complete project of the financial instruments replacing IAS 39 Financial Instruments: Recognition and measurement, and all other preceding versions of IFRS 9. IFRS 9 is effective for the annual period beginning on or after 1 January 2018; earlier applications is permitted. The application of this standard will not have a significant impact on the Group due to the fact that its most significant financial assets are receivables. 12 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.3. Adoption of new and revised international financial reporting standards (IFRS) (continued) * IFRS 14 Regulatory Deferral Accounts - this standard relates to subjects that operate on regulated markets and are applying the IFRS for the first time. IFRS 14 is effective for the annual period beginning on or after 1 January 2016. The Company prepares its consolidated financial statements in accordance with the IFRS and therefore this standard is not applicable. * IFRS 15 Revenue from Contracts with Customers - IFRS 15 was issued in May 2014 and represents a new model in five steps that relate to revenues from contracts with customers. The Management Board is performing a detailed analysis regarding possible effects of the mentioned standard on the Company's consolidated financial statements. * Annual Improvements to [FRSs 2012-2014 Cycle - IFRS 5 Long-term Assets Held for Sale and Discontinued Operations - IFRS 7 Financial Instruments: Disclosures (with consequential amendments to IFRS 1) - IAS 19 Employee Benefits - IAS 34 interim Financial Reporting The effective date of the amendments is 1 January 2016. Earlier application is allowed. * Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued in September 2014) * Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception (issued in December 2014) * Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations (issued in May 2014) * Amendments to IAS 1 Disclosure Initiative (issued in December 2014) * Amendments to IAS 16 and [AS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (issued in May 2014) * Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants (issued in June 2014) * Amendments to IAS 27 Equity Method in Separate financial statements (issued in August 2014) The Management Board expects that the application of the mentioned standards, amendments and interpretations will not have materially significant impact on the consolidated financial statements in the period of their initial application. 2.4. 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. 13 H! INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.5. Foreign currency transactions Transactions in currencies other than Croatian Kuna are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the statement of financial position date. Foreign currency exchange gains and losses which occur on settlement of such transactions, and on conversion of monetary assets and liabilities are included in the consolidated Comprehensive Income Statement for the current year. 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. 2.6. Revenue recognition Revenue is recognized at the fair value of the compensation received or receivables for products and services sold during Group's regular activities. Revenue is reduced for value added tax, estimated customer returns, rebates and discounts. The Group recognizes revenue when it can be reliably measured, and if the Group will have the economic benefits and when specific criteria for the entire Group's activities are met. a) Revenue from sale of services Revenue from the sales of services is recognized on that date it incurred, i.e. in the moment railway has been used. The moment when revenue have been incurred is the period in which the user has left the railway managed by the Company, without taking into account the moment in which the user started to use the railway. Revenue from these services represents the revenue which is being charged to the user of the public good. Revenue from rendering services, except revenue from the usage of the railway, is recognised in accordance with the percentage of completion of the services. Percentage of completion is measured by the proportion of the incurred expenses in total estimated expenses needed for the completion of the service. If it is difficult to estimate the final outcome (e.g. due to uncertainty of collection) the revenue is recognised up to the amount which is expected to be collected, but not more than total incurred expenses per such agreement. Percentage of transaction completion of the service of maintaining railway infrastructure is determined based on the level of its physical completion at the end of the period. b) Revenue from sale of goods Revenue from sale of goods is recognised when the Group has transferred significant risks and benefits of the ownership of the goods to the buyer and if it is probable that the Group will receive the previously agreed payments. These criteria are considered to be met when the goods are delivered to the buyer, respectively when the adequate invoices are issued. Where the buyer has a right for the return, the Group defers recognition of revenue until the right to return has lapsed. However, where the Group retains only insignificant risks of ownership due to the right of return, revenue is not deferred. c) Interest income Interest income is accrued on a time basis, based on outstanding principal and at the applicable effective interest rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or to the net carrying amount of the financial asset. Interest income is included in finance income in the consolidated Statement of comprehensive income. 14 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 d) State subsidies State subsidies for maintenance of the railway infrastructure are recognised in the consolidated Statement of comprehensive income on the consistent basis in the period recognises expenses for whose coverage subsidies are being given. Receivables for state subsidies for recovery of expenses or losses which have already incurred, or for the purpose of immediate financial support with no future related expenses, are recognised as income in the period in which receivable was initially recognised. 2.7. Operating expenses Operating expenses comprise of material cost, 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. Recognition of expenses is postponed for future periods if recognition of revenues is expected in future periods. 2.8. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time 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. 2.9. Income tax The tax currently payable is based on the result for the year, adjusted by non- taxable and tax non-deductible 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. 15 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.10. 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 consolidated Comprehensive Income Statement in the period in which they occur. Depreciation is charged so as to write-off the cost or valuation of each asset, other than land and tong-term intangible and tangible property under construction, over their estimated useful lives, using the straight-line method, on the following basis: 2015 2014 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 Z - 14 years 10 - 20 years Tools, plant inventories and transportation assets 4 - 20 years 4 - 20 years Other material assets 10 - 50 years 10 - 50 years 2.11. Financial assets Financial assets represents the cash, the investments in cash, objects and the cession of rights with an intention of securing income and is classified on the date of the consolidated Balance Sheet, as follows: - financial assets intended for trade whose change in the fair value is recognized in the Comprehensive Income Statement; - investments held to the maturity date; - loans and receivables. 16 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.12. Investments in related parties Subsidiary companies are the companies where the Company has a control over making and implementing financial and business policies. Associated companies are the companies where the Company has significant influence, but not a control over making and implementing financial and business policies. Investments in subsidiary and associated companies are stated at cost method. 2.13. 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 include 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 method. 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. 2.14. Receivables Receivables are initially measured at fair value. At each consolidated Balance Sheet date, receivables, whose collection is expected in a period longer than a year, are stated at depreciated cost by the application of the effective interest rate method less impairment provision. Short-term receivables are stated at the initially recognized amount less the corresponding amount of impairment provision for the estimated uncollectable amounts. The value of receivables is impaired and impairment losses arise if objective evidence exists in respect of a value decrease resulted from one or more events which occurred after the initial recognition of property, when such an event has the impact on the estimated future cash flows from receivables which can be reliably determined. On each Balance Sheet date, it is estimated whether there is an objective evidence of the impairment of a single receivable. If objective evidence of the impairment of the receivable exists, then the amount of loss is measured as a difference between the net book value and the estimated future cash flows. The amount of a loss is recognized by charging the consolidated Comprehensive Income Statement for the current year. 17 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.15. Cash and cash equivalents Cash consists of consolidated balances with banks and cash in hand, demand deposits and securities payable at call or with maturities of up to three months. 2.16. Impairment On each consolidated Balance Sheet date, the Company reviews the carrying amounts of its assets to determine whether there are any indications that these assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Loss from the impairment in value of the assets is recognized as an expense. 2.17. Financial instruments Financial instruments are classified as assets, liabilities or equity instruments in accordance with the substance of underlying contracts. Interest, gains and losses on financial instruments classified as financial assets or liabilities are recognized as income or expense when they arise. Investments are recognized on the date of trading. Liabilities are initially recognised at fair value plus transaction cost, and subsequently measured at amortised cost. Interest-bearing bank borrowings and overdrafts are disclosed in the amount of funds received and to the extent of approved overdrafts facility. 2.18. Leases Leases are classified as business/operating leases if almost of the risks and economic benefits connected with ownership are not transferred from the lessor to the lessee. A business/operative tease is recognized as an expense in the consolidated Comprehensive Income Statement of the Lessee on the straight-line basis during the period of lease. Leases of property, plant and in which the Group bears all the risks and economic benefits are classified as financial Leases. Finance leases are initially recognised at the Lower of the fair value of the leased assets or the present value of the minimum lease payments. Lease payments are split on interest cost and repayment of the finance lease. 2.19. Provisions A provision is recognized only when the Group has a present obligation as a result of a past event and if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and if a reliable estimate can be made as to the amount of the obligation. Provisions are reviewed on each consolidated Balance Sheet date and adjusted to reflect the current best estimate. Provisions are determined for costs of legal proceedings and costs of jubilee awards to employees and retirement costs (regular jubilee awards and severance pays). 18 HZ INFRASTRLJKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 2.20. Employee benefits The Group has no defined post-retirement benefits for its employees or the Management, 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 outflow with the application of the discount rate which is similar to the interest rate of State bonds in Croatia. 2.21. Contingent liabilities and assets Contingent liabilities are not recognized in the consolidated financial statements but disclosed in the notes to the consolidated financial statements. A contingent asset is not recognized in the consolidated financial statements but disclosed in the moment when an inflow of economic benefits is probable. 2.22. Events after the consolidated Balance Sheet Events which occur after the consolidated Balance Sheet date that provide additional information about the Group's position on the date of the consolidated Balance Sheet (adjusting events) are reflected in the consolidated financial statements. Post-year-end events that are not adjustable are disclosed in the Notes to the consolidated financial statements when material. 2.23. Comparative data Comparative information was restated due to correction of an error, as described in the following paragraph. Adjustments referring to earlier years - restatement of the consolidated financial statements for 2014 and 2013 In 2015, the Company adjusted certain positions of consolidated financial statements referring to earlier years. Adjustments were made retroactively by restating the consolidated financial statements for earlier comparative periods and their effects are stated below. The consolidated financial statements for 2014 were restated due to the fact that the provision for litigation as at 31 December 2014 of HRK 8,986 thousand was subsequently identified which also affected net result for 2014. Profit for the period before restatement amounted to HRK 157 thousand and it was decreased by the above mentioned adjustment. After the restatement the Company made a loss for the period of HRK 9,303 thousand. In the consolidated financial statements for 2014 retained earnings were also restated for HRK 45,387 thousand. Stated amount relates to the following: 19 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 - Netting-off of assets and liabilities to CERP of HRK 45,296 thousand in accordance with the compensation agreement dated 24 September 2014 by transferring properties owned by Republic of Croatia in land registry of Vinkoyci, Kozata and Koprivnica - Reversal of provision for litigation closed in prior years of Zeljezni&og ugostiteljstva of HRK 30 thousand, and - Storno of invoice from supplier Velkom d.o.o. for contract penalty of HRK 62 thousand. In the consolidated financial statements for 2014 additional minor corrections were made which increased the net result: - Correction of tariffs in 2014 of HRK 89 thousand, - Correction of exchange differences related to repayment of the first instalment for borrowing from ErsteEtSteiermarkische bank d.d. of HRK 161 thousand. and corrections which decreased the net result for 2014; - Correction of material shortage which was noted subsequently (PloEe-Mahizno) of HRK 19 thousand - Correction of foreign exchange differences related to borrowing from Privredna banka Zagreb d.d., Istarska kreditna banka Umag d.d., OTP banka d.d. and EBRD of HRK 704 thousand. Staff costs In its consolidated financial statements for earlier years, the Company did not make provisions for jubilee awards and severance pays in line with provisions of the Collective Agreement. In its consolidated financial statements for earlier years, provisions for jubilee awards and severance pays were implemented in line with provisions of the Collective Agreement by retroactively adjusting the amounts of provisions and expenses which had the effect on retained profit. The consequence of this error in the amount of HRK 5,385 thousand refers to years prior to 2014; the consolidated Balance Sheet as at 1 January 2014 was adjusted by recognizing provisions in the amount of HRK 5,385 thousand and decreasing the retained profit in the amount of HRK 4,308 thousand and deferred tax assets in the amount of HRK 1,077 thousand. In 2014, by correcting the aforementioned error, the expense of work costs was reduced by HRK 122 thousand. As at 31 December 2014, provisions amounted to HRK 5,983 thousand. Costs from earlier years Moreover, the Company did not record costs from earlier years. The consequence that the error correction had on the consolidated Comprehensive Income Statement for 2014 was costs higher by HRK 5,891 thousand and the liabilities in the consolidated Balance Sheet in this same amount. Income tax Based on previously stated adjustments, in its consolidated financial statements, the Company recognized deferred tax assets not recorded in earlier years. The amount of HRK 1,077 thousand refers to years earlier than 2014 (prior to adjustments, deferred tax assets on the base of non-recognized expenses of long-term employees costs was not recognized). 20 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3. SALES REVENUES 2015 2014 POSITION HRK000 HRKO0 Income from fees for access to railway infrastructure 110,559 124,291 Income from the construction and maintaining of the railway infrastructure 197,908 35Z,478 Revenue from informatics services - related companies 7,736 11,871 Revenue from the formation and composition of the train - others 33,102 27,503 Income from sale of tickets 1,770 2,133 Income from rent 19,306 22,618 Income from rent - other 7,292 3,215 Income from secondary activities 1,341 1,430 Revenue from the sale of material 12,400 16,538 Revenue from other services and works 17,697 65,970 TOTAL 409,111 628,047 4. OTHER OPERATING INCOME 2015 2014 POSITION HRK'000 FIRKOW Iricome from the Budget of the Republic of Cr a for the railroad infrastructure 516,010 516,000 Income from the Budget of the Republic of Croatia for the railroad infrastructure - excise 440,000 436,401 Income from the Budget of the Republic of Croatia at the level of proportional part of depreciation 34,518 33,857 Income from consumption of own products 4,600 12,204 Income from cassation 28,430 27,515 Income from rent of official flats 2,873 1,500 Income from the sale of flats (35%) 3,620 3,695 Income from recalculation of costs - related companies 1,155 1,281 Income from reimbursement of damages 2,046 20,766 Surpluses of fixed assets 597 3,951 Income from ca-financing 1,619 1,451 Income from release of provisions Z9,940 98,845 Income from collection of value adjusted receivables 42,248 6,803 Income from sale of property 30,717 265 Other income 12,032 7,360 Total 1,150,395 1,131,894 21 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 5. COST OF RAW MATERIAL AND SUPPLIES 2015 2014 POSITION HRK'00 HRK'00 Cost of raw material and supplies 110,482 124,548 Spare parts 21,702 25,508 Cost of small inventory 10,841 10,966 Energy 48,784 56,784 Total 191,809 217,806 6. COSTS OF GOODS SOLD Costs of goods sold in the amount of HRK 13,571 thousand (2014: 12,239 thousand HRK) relate to the purchase value of goods sold. 7. OTHER EXTERNAL CHARGES 2015 2014 POS I TIO N HRK'000 HRK'000 Telephone, postal services and transport costs 7,611 8,641 External charges of making and selling goods and services 18,327 77,391 Maintenance 89,650 67,438 Rental costs and Lease 17,911 0 Cleaning services - related companies 11,075 13,086 Other externa L costs 19,318 46,435 Total 163,892 212,991 8. STAFF COSTS 2015 2014 POSITION HRK000 HRK)OO Net salaries and wages 512,266 544,306 Taxes and contributions from salaries 192,401 215,432 Contributions on salaries 130,374 135,833 Total1 835,041 895,571 Total staff costs also include compensations for employee expenses as wel as their material rights (Note 10) and for 2015 amount [HRK 971,906 thousand (2014: HRK 1,080,310 thousand). Compensations for employee expenses cover commuting expenses, allowances and travelling expense, while employee's material rights imply occasion help, awards, presents and expenses for unused vacation days. Net salaries also include Directors' and executives' remuneration in the amount of HRK 1,278 thousand (2014: HRK 2,180 thousand.) 22 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 9. DEPRECIATION 2015 2014 POSITION HRK00 HRK00 Depreciation of intangible assets 19,212 17,562 Depreciation of property, plant and equipment 51,684 57,960 Total 70,896 75,522 10. OTHER COSTS 2015 2014 P 0 ITION HRK'000 HRK000 Compensation of costs to employees, grants and subventions 119,023 144,643 Compensation of costs to employees (transportation) 8,530 53,300 Intellectual services 4,039 2,439 Contributions, memberships and similar fees 42,437 39,541 Other costs 20,917 21,929 Net book value of written-off assets 233 0 Deficit 2,068 19,525 Value adjustment of obsolete inventories 8,243 621 Value adjustment of abolished material and inventories write-off 2,895 0 Damages, court expenses and similar 7,237 7,131 Other operating costs 4,666 12,097 Tata 1 220,288 301,226 11. IMPAIRMENT 2015 2014 PO 5 ITION HRK'000 HRK'000 Value adjustments of short-term receivables 30,180 45,082 Value adjustments of inventories 748 2,092 Total 30,928 47,174 12. PROVISIONS 2015 2014 POSITION HRK'000 HRK'000 Provisions for incentive severance pays and jubilee awards 12,726 36,943 Provisions for Legal proceedings 32,354 10,321 Total 45,080 47,264 23 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 13. FINANCIAL INCOME AND EXPENSES lil Financial income is shown in the table below: 2015 2014 POSIT ION HRK000 HRK000 From related parties Income from share in the profit Pru2ne gradevine d.o.o. 0 24 Interest income 177 7,492 177 7,516 From non- related parties and other entities Interest income 2,482 2,467 Foreign exchange gains 2,241 0 Dividend income and a share in the profit 6 6 4,729 2,473 Total 4,906 9,989 /ii/ Financial expenses are shown in the table below: 2015 2014 P OSI T ION HRK'000 HRK'000 From related parties Interest expenses 2,088 2,840 2,088 2,840 From non-related parties and other entities Interest expenses 19,783 43,154 Foreign exchange losses 0 1,736 19,783 44,890 Other financial expenses Other financial expenses 973 12,986 973 12,986 Total 22,844 60,716 24 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 14. CORPORATE INCOME TAX Corporate income tax is calculated according to legal regulations of the Law and Regulations on Corporate Income Tax. The tax consolidated balance for 2015 and 2014 was 20%. The reconciliation of accounting profit to taxable profit was made as follows: 2015 POSITION HRK000 Accounting profitf(Loss) (29,937) Profit increase / Loss decrease 91,622 Profit decrease / Loss increase (33, 276) Tax toss 28,409 Tax losses to carry forward (1,151,436) Tax losses to be carried forward for the purpose of reducing taxable profit are available for the Company in the period of next five (5) years. As at 31 December 2015, total net accumulated losses are determined in the amount of HRK 1,151,436 thousand. The net amount of tax Losses of HRK 1,151,436 thousand available for transfer may be utilized as folLows, until: Description HRK'000 31 December 2016 3,606 31 December 2011 208,467 31 December 2018 783,555 31 December 2019 133,918 31 December 2020 21,890 The benefits of tax losses carried forward have not been recognized in these consolidated financial statements because of uncertainty as to whether the conditions to utilize them will exist in the future periods. 25 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 NOTES TO THE CONSOLIDATED BALANCE SHEET / CONSOLIDATED STATEMENT OF FINANCIAL POSITION 15. INTANGIBLE ASSETS Licenses, software Description and other rights HRK000 Cost 1 January 2014 169,294 Increase 185,525 Disposals or retirements (174,894) 31 December 2014 179,925 Increase 39,048 Disposals or retirements (3) 31 December 2015 218,970 Accumulated depreciation 1 January 2014 106,993 Depreciation for 2014 17,561 31 December 2014 124,554 Depreciation for 2015 19,213 Disposals or retirements (3) 31 December 2015 143,764 Net carrying amount 1 January 2014 62,301 31 December 2014 55,371 31 December 2015 75,206 26 -;/！쟈 「 為” 〕抑尖 k"> %Q N CN Q% 4CIN Ln Ln OD CD 0 0 4-4 CD CL IL c 0 0 CD 0 cl w CL 15% aj C2 en E E z w 41 (D C2 >N o LL. ：麟、 Ln Ln kn 41 s2 ý0 00 No Ln in ØD 1,1ý cý E Ln T- >% x (D CN CD m CL 2 ko CD 0ý -ý f,ý, CD f-. D cý se WD 0 qý m C4 90 q Ln -42 rd m -i m Ln < LLJ c; C) en C> UM LU c V- C3 0 E in o CU m E E LL- vi o 4W tS :r Z LL- Z m HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 17. LONG-TERM FINANCIAL ASSETS 31 December 2015 31 December 2014 31 December 2013 P_0 I TI 0 N H RI000 HRK'000 H RKCO Subsidiary companies Proizvodnja-regeneradja d.o.o, Zagreb 4,522 4,522 4,522 Less: value adjustment (4,522) (4,522) (4,522) 0 0 0 Investments in securities Industrogradnja d.d., Zagreb 95 95 88 Industrogradnja grupa d.d., Zagreb 133 133 0 KonEar-Etektroindustrija d.d., Zagreb 310 320 309 OT-Optima tetekom 76 373 0 Other investments in securities 56 0 0 DaLekovod d.d., Zagreb 0 42 0 Duro Dakovie d.d., Slavonski Brod 6 7 15 Ze[jezara Sisak d.d., Sisak 31 31 31 Salonit Vranjic, Vranjic 3,866 3,866 3,866 Less: value adjustment (3,898) (3,898) 3,898) 675 968 411 Other Long-term financial assets Receivables for given guarantees 477 477 856 Assets invested for the composition of conceptual design 32 32 32 Total 1,184 1,478 1,299 18. LONG-TERM RECEIVABLES 31 December 2015 31 December 2014 31 December 2013 P 0 5 IT ION HRKOOO HRK'000 HRK000 Receivables for the flats sold 27,900 34,801 41,679 Minus: Current portion (see Note 26) (8,889) (10,572) (11,166) 19,012 24,229 30,513 Other receivables Housing Loans to employees 6,529 8,584 11,652 Bonds of the Republic of Croatia 5,762 5,762 5,762 12,291 14,346 17,414 Total 31,303 38,575 47,927 33 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 19. DEFERRED TAX ASSETS Deferred tax assets in the amount of HRK 5,813 thousand (2014: HRK 1,615 thousand) resulted based on temporarily non-recognized costs of long-term employees costs which refer to jubilee awards, retirement benefits, temporarily non-recognized expense of inventories impairment and tax losses. 20. INVENTORIES 31 December 2015 31 December 2014 31 December 2013 P 051T 1ON HRK000 HRK000 HRK'OO0 Raw material and supplies 142,352 201,901 171,829 Spare parts 363,145 378,866 393,829 Small inventory and packing 75,381 80,084 70,214 Minus: Value adjustment of raw material and supplies, spare parts and small inventory and packing (82,177) (78,104) (73,829) Finished products 2,088 3,763 1,750 Production in progress 839 0 0 Advances given in the country 817 1,310 5,964 Total 502,445 587,820 569,757 Inventories without turnover in 2015 in the amount of HRK 270,127 thousand were subject of examination with the purpose of potential adjustments debited to the consolidated Comprehensive income statement. Subsequently, in accordance with the assessment of their usability, value adjustment of inventories was made in the amount of HRK 8,991 thousand (Note 10 and 11). 21.TRADE RECEIVABLES 31 December 2015 31 December 2014 31 December 2013 PO S I TI 0 N HRKOW0 HRK000 HRK000 Domestic trade receivables 49,730 94,971 57,618 Foreign trade receivables 514 860 42 Less: value adjustment (23,737) (71,495) (20,569) Total 26,507 24,336 37,091 Trade receivables which are doubtful for collection in the amount of HRK 1,059 thousand were the object of re-examination, with a goal of making their possible adjustments by charging the consolidated Comprehensive Income Statement. As a result, the value adjustment of trade receivables was made on the basis of estimates upon their collection in the amount of HRK 1,059 thousand. Age analysis (structure) of trade receivables is as follows: Due 60-90 90-120 >120 Undue <30 days 30-60 days days days days Total HRK 000 HRK '000 HRK '000 HRK 000 HRK '000 HRK 000 HRK '000 31 December 2015 9,195 8,118 663 1,955 1,906 4,670 26,507 31 December 2014 13,220 4,555 2,723 1,177 254 2,407 24,336 34 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 22. RECEIVABLES FROM EMPLOYEES 31 December 2015 31 December 2014 31 December 2013 POSITION H RK000 H RK000 HRK'O00 Receivables for the deficit made 5,960 5,960 5,960 Other receivables from employees 211 265 722 Total 6,171 6,225 6,682 23. RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS 31 December 2015 31 December 2014 31 December 2013 P051 T 0 N HRK000 HRK'000 HRK'O00 Receivables from the state on the remission of debt to related companies 300,923 300,923 300,923 Receivables for VAT Receivables from the budget for unpaid excise taxes 2,246 2,246 0 Receivables for prepaid profit tax 3,950 0 0 Other receivables 29,581 24 1 Less: value adjustment - receivables from the state (300,923) (300,923) 1300,923) Total 41,123 37,179 47,169 24. OTHER RECEIVABLES 31 December 2015 31 December 2014 31 December 2013 POSITION HRKDOO HRW000 HRK'00 Receivables from the Republic of Croatia for the flats sold for the foreign currency savings 68,078 68,078 68,078 Prepayments made to related companies 299 330 0 Domestic prepayments made 3,015 3,756 7,100 Value adjustments of prepayments (994) (994) (994) Other short-term receivables 4,820 5,799 4,815 Plus: Current portion (see Note 20) 8,889 10,572 11,167 Total 84,107 87,541 90,166 25.SHORT-TERM FINANCIAL ASSETS 31 December 2015 31 December 2014 31 December 2013 P 5 ITON HRK'000 HRK'000 HRK000 Loans given to related parties Proizvodnja-regeneracija d.o.o., Zagreb 14,234 14,234 14,234 Less: value adjustment (14,234) (14,234) (14,234) 0 0 0 Given loans, deposits, etc. Deposits 10,005 2,344 1,450 Guarantees given 0 266 266 Other 311 654 761 10,316 3,264 2,477 Total 10,316 3,264 2,477 35 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 26. CASH AND CASH EQUIVALENTS 31 December 2015 31 December 2014 31 December 2013 PO S I TIO N -fHRK000 HRK'000 HRK'ODO Gyro account Balance 349,097 281,344 209,386 Foreign currency account Balance 9,024 7,284 391 Cash in hand 5 23 20 Tied foreign currency assets 36,931 0 0 Total 395,057 288,651 209,797 27. PREPAID EXPENSES AND ACCRUED INCOME 31 December 2015 31 December 2014 31 December 2013 POSIT 10 N HRK'000 HRK'000 HRK000 Prepaid expenses for the future period 9,179 16,372 7,223 Accrued income for the future period 1,041 0 0 Total 10,220 16,372 7,223 28. SUBSCRIBED CAPITAL li/ 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. fii/ Capital reserves in the amount of HRK 9,032,200 thousand (31 December 2014: HRK 8,312,334 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 8,621,439 thousand (31 December 2014: HRK 7,921,217 thousand) and to the reserves of the Company in the amount of HRK 410,762 thousand (31 December 2014: HRK 391,118 thousand). Movements in capital reserves are as follows: Public Domain HRK'000 Consolidated Balance on 1 January 2015 7,921,216 Activated fixed assets from the Budget of the Republic of Croatia 768,756 The correction of 15EV (assets impairment) (2,302) The correction of IPA (change in the guarantee period) 7,388 Depreciation of the Public good assets (322,111) Net book value of the written-off Public good assets (16,429) Surplus of fixed assets 7,528 The coverage of accumulated Loss from 2013 (20,623) Increase of public capital for the profit from 2014 157 Transfer of retained profit to public capital. from 2013 1,678 Loan and interest write-off (Decree of the Croatian Government) - OTP and Erste 612,875 Write-off of paid loan instalment rates and interest (Decree of the CG) 278,407 Financial investments from the loan for which the public good capital was increased (601,372) Transfer from the Public Domain to Infrastruktura (16,670) Transfer from Infrastruktura to the Public Domain 2,941 Balance on 31 December 2015 8,621,439 lnfrastruktura Consolidated Balance on 1 January 2015 391,118 ESF funds' increase 19,644 Bfalance on 31 December 2015 410,762 36 H! INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 liiil On 31 December 2015, revaluation reserves are stated in the amount of HRK 109,918 thousand HRK (31 December 2014: HRK 121,091 thousand). /iv/ Retained profit stated on 31 December 2015 in the amount of HRK 156,774 thousand HRK (31 December 2014: HRK 69,025 thousand, while on 1 January 2014, the stated amount was HRK 83,695 thousand resulting from adjustments of the financial statements). /v/ Current year Loss was stated on 31 December 2015 in the amount of HRK 22,964 thousand (31 December 2014, loss in the amount of HRK 119,374 thousand). 29. PROVISIONS 31 December 31 December 31 December 2015 2014 2013 POSI T I0 N HRKIOO HRK000 HRK'000 Provisions for jubilee awards and retirement benefits 33,255 35,505 40,029 Restructuring expenses - incentive severance payments 26,590 35,624 53,002 Cost of repairs within guarantee periods 0 33 Provisions for court litigations 66,604 52,402 42,081 Total 126,449 123 531 135,145 Movements in provisions are shown in the table below: New Used 31 December 2014 provisions provisions 31 December 2015 P 0 S I T I0 N HRK'000 HRKOOD HRK'(00 HRK'00 Provisions for jubilee awards and retirement benefits 35,505 128 (2,378) 33,255 Restructuring expenses - incentive severance payments 35,624 12,597 (21,631) 26,590 Provisions for court Litigations 52,402 32,354 (18,152) 66,604 Total 123,531 45,079 (42,161) 126,449 37 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 30. LONG-TERM LIABILITIES 31 December 2015 31 December 2014 31 December 2013 POSITION HRK000 HRK'000 HRK'000 Liabilities to banks and other financiaL institutions Europska banka za obnovu i razvoj (EBRD) 114,526 114,922 0 Svjetska banka (IBRD) 138,544 0 0 Privredna banka Zagreb d.d., Istarska banka Umag d.d. i OTP banka d.. 136,192 249,94 0 Erste Et Steiermdrkische Bank d.d., SG-SpLitska banka d.d. 1 OTP banka d.d. 783,542 249,867 0 Erste Et SteiermArkische Bank d.d., Rijeka 0 590,463 661,925 Erste ft Steiermirkische Bank d.d., Rijeka I Sberbank d.d., Zagreb 951,351 1,010,660 400,235 Hypo Alpe Adria Bank d.d. Zagreb 32,169 45,192 57,922 Z,156,324 2,261,088 1,120,082 Less: Current portion (see Note 37) - (318,694) (117,445) (86,419) 1,837,630 2,143,643 1,033,663 Liabilities for financial [easing 2,627 3,989 3,413 Less: Current portion (1, 183 (1,457) (81,655) 1,445 2,532 1,758 Other long-term liabilities Liabilities for sold flats 27,895 34796 41,674 Liabilities to the Tax Authority 0 180 721 Deferred tax liability 27,479 30,273 33,078 Total 1,894,449 2,211,424 1,110,894 /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 obligations for loans are removed from the records in favour of state aid. After activation of fixes assets of public purchased from the loan will be increased in capital of Public good. Depreciation of public good long-term assets is not recognized as an expense and it is charged to Public good equity. liil On 27 December 2013, the Government of the Republic of Croatia gave consent to the Ministry of finances to take over loan and interest liabilities to Privredna banka Zagreb d.d., Zagreb and ZagrebaEka banka d.d., Zagreb from the Company by increasing the public good equity. According to the stated, the Company wrote off the loan liabilities to foreign banks by increasing the Public good equity, given that the Company is no Longer obligated to monitor these loan debts. 38 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 /iii/ Foreign exchange differences and interest upon long-term loan liabilities are stated by charging / crediting state subventions. /iv/ Domestic long-term borrowings are ascertained with an interest rate of 6 M EURIBOR + margin. /v/ On 23 December 2014, the Croatian Government brought a Decision on the approval of the take-over of Company's debt on the basis of given and unpaid mandatory payments of debtors with the increase of public good capital and to reduce indebtedness and financial consolidation of the railway infrastructure managers in the amount of HRK 1,915,791 thousand ( HRK 1,770,963 thousand as principal, HRK 63,902 thousand as regular interest, HRK 73,386 thousand paid principal and HRK 7,540 thousand as accrued interest on arrears). The given approval refers to the long-term loan take-over at Erste Et Steirmarkische bank d.d, Erste ft Steirmarkische bank d.d. and Sberbank d.d. and short- term loan at OTP Bank d.d. Upon signing the Contract on debt take-over between the Republic of Croatia, the Company and the banks, the Company wrote-off from its operating records long-term loan liabilities with Erste t Steiermarkische Bank d.d. (December 2015) short-term loan liability with the OTP bank d.d. (March 2015). The remaining loans with the Erste Et Steiermarkische Bank d.d. and Sberbank d.d. will be written off immediately upon signing the Contract. The movements in liabilities to banks and other financial institutions during the year may be summarized as follows: 2015 POSITION HRK'000 1 January 2,143,643 New borrowings 887,492 Amounts repaid (425,559) Debt take-over(Decree of the CG) (429,368) Foreign exchange differences (19,884) Current portion (318,694) 31 December 1,837,630 The repayment schedule of long-term Liabilities to banks and other financial institutions become due for the repayment: 31 December 2015 P 0 SI TI 0 N HIRK '000 Due in one to two years 327,973 Due in two to three years 338,960 Due in three to four years 333,281 Due in four to five years 300,065 Due in more than five years 537,351 Total 1,837,630 Deferred tax liability in the amount of HRK 27,479 thousand (31 December 2014: HRK 30,272 thousand) was recorded in the process of revaluating the Company's assets. 39 H2 INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 31. SHORT-TERM BORROWINGS AND DEPOSITS 31 December 2015 31 December 2014 31 December 2013 POSITION HRK'000 HRK000 HRKOOD Liabilities for deposits 3,956 1,907 768 Liabilties for financial lease 99 99 104 4,055 2,006 872 Public Domain Restructuring and Sale Center (CERP) 129,243 140,533 140,533 Total 133,298 142,539 141,405 32. LIABILITIES TO BANKS AND OTHER FINANCIAL INSTITUTIONS 31 December 2015 31 December 2014 31 December 2013 PO S fION HRKOHK000 HRKOO0 HRKOOO ZagrebaEka banka d.d., Zagreb 0 0 2,134 OTP banka Hrvatska d.d., Zadar 0 170,000 170,000 Erste at Steiermarkische Bank d.d., Rijeka 0 (161) 90 Plus: Current portion (see Note 35) 318,694 117,445 86,419 Total 318,694 287,284 258,643 Movements in liabilities to banks and other financial institutions during the year can be summarized as follows: 2015 PO S ITION H-RK 000 1 January 169,839 Debt take-over (Decree of the CG) 170,000 Foreign exchange differences (161) Current portion 318,694 31 December 318,694 33.LIABILITIES FOR RECEIVED PREPAYMENTS 31 December 2015 31 December 2014 31 December 2013 POSITI 0 N HRK000 HRK000 IRK000 Domestic customers 1 ,236 11,026 1,782 Foreign customers 172 214 5 Total 12,408 11,240 1,787 40 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 34. TRADE PAYABLES 31 December 2015 31 December 2014 31 December 2013 POSITION HRK000 HRK000 HRK'000 Domestic suppliers 113,946 322,792 474,678 Foreign suppliers 6,412 14,787 34,102 Total 120,358 337,579 508,780 35. LIABILITIES TO EMPLOYEES 31 December 2015 31 December 2014 31 December 2013 PO IT ION HRKf000 HRK000 HRK000 Liabilities for net wages and salaries 36,516 40,146 40,855 Other Liabilities 19,937 4,849 5,459 Total 56,453 44,995 46,314 36. LIABILITIES FOR TAXES, CONTRIBUTIONS AND SIMILAR FEES 31 December 2015 31 December 2014 31 December 2013 POSITION HRK'000 IIRK'000 HRK'00 Liabilities for taxes from and on salaries 23,471 29,173 30,005 Liabilities for VAT 0 338 1,571 Contribution for profit tax 31 December 2015 31 December 2014 31 December 2013 PO S I TIO N HRK*000 HRKOO FIRK000 iailities onthe ,basis of ,repurchase of flats 73,4 73,840 73,840 Liabilities for un-invoiced goods 646 932 469 Liabilities toward the Ministry of finance 227,570 144,828 5,955 Liabilities to infrastructure- IPA projects 29,265 0 0 Other deductions from wages and salaries 6,540 7,212 5,329 Current portion (Note 30) 1,183 1,457 1,656 Other Liabilities 69 116 1,063 Total 339,113 228,385 88,312 41 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 38. ACCRUED EXPENSES AND DEFERRED INCOME 31 December 2015 31 December 2014 31 December 2013 PO S ITION HRK'000 HRK'000 HRK'000 State subventions related to modernization of railways 875,097 1,112,238 2,471,323 Income for the future period 4,125 4,125 55,357 Dividends from assets available for sale 954 954 954 Accounted liabilities for the flats soLd 116,732 110,009 103,147 Exchange gains/Losses on Loans (13,024) (30,560) (23,642) Co-financing of Level crossings 400 0 0 Deterred payment of costs - PA 4,522 17,60 18,177 Deferred payment of costs 5,723 0 Interest and expenses for public good loan (12,801) 0 0 Non-repayable loans - CEF 23,818 0 0 Non-repayable loans - NAPA 2,274 0 0 Non-repayable loans - EU (ESF) 47,177 0 0 Other 32,561 23,670 13,700 Total 1,087,558 1,237,796 2,639,016 39. RELATED PARTY TRANSACTIONS The party is related to the subject when directly or indirectly, through one or more mediators' controls, is controlled by or is under a joint control over the subject, has a share portion in the subject that gives it a significant influence over the subject and has a joint control over the subject. The total transaction amounts with related parties, receivables and liabilities at the end of the year as well as the related expenses and income for 2015 and 2014 are shown below: 42 .-,-．큐 & 。！／큐 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 40. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Capital risk management The Company manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimization of the debt and equity consolidated Balance. The capital structure of the Company consists of debt, which includes credits, cash and cash equivalents and equity attributable to equity holders of the parent, comprising is5ued capital, legal and other reserves and retained earnings. Gearing ratio The Management Board reviews the capital structure on a semi-annuat ba5is. As part of this review, Management considers the cost of capital and the risks associated with each class of sources of funding, The gearing ratio at the year's end is presented as follows: 31 December 2015 31 December 2014 P 0 5 1 T 10 N HRK *000 HRK '000 Debt 2,213,143 2,498,708 Cash and ica5h equivatents (395,057) (288,651) Net debt 1,818,086 2,210,057 Equity 9,186,568 8,469,214 Net debt to equity ratio 20% 26% Categories of financial instruments 31 December Z015 31 December 2014 P 0 S I T 1 0 N HRK'000 HRK'000 Financial assets Loans and receivables (inc uding cash and cash equivalents) 671,350 666,036 Financial liabilities Depreciated cost 2,946,958 3,381,458 Managing financial risk objectives The Company controls and manages financial risks which could have the influence on the operations of the Group 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. 45 HZ INFRASTRUKTURA d.,o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 40. FINANCIAL INSTRUMENTS 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 Group 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 consolidated Balance of loan indebtedness as at 31 December 2015 would be influenced by the increase of the interest rate expense in the amount of HRK 10,621 thousand HRK (31 December 2014: HRK 11,079 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 management Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets that potentially expose the Group 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 Group'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, and consequently, the Group is significantly exposed to the risks of changes in currency rates due to numerous loans containing a currency clause (mostly related to EUR). Net carrying amount of cash and cash equivalents and liabilities of the Group denominated in foreign currencies on the consolidated Consolidated Balance Sheet date is shown in the Table below: Liabilities Assets Balance on 31 December 2015 2014 2015 2014 HRK 000 HRK '000 HRK 000 HRK '000 EUR 2,130,481 2,210,626 30,944 8,016 46 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 40. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) Analysis of sensitivity to foreign currency risk The Group is primarily exposed to the countries whose currency is EUR. The following table analyses the foreign currency risk 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% Decrease by 1% 2015 2014 2015 2014 P 0S IOT I N HRK'000 HRK00 HRK'000 HRK000 Influence on the profit/Loss for the period (21,242) (22,159) 21,242 22,159 Solvency risk A solvency risk is a risk that the Group would not be able to fulfil its financial liabilities to the other contractual party. The Group manages solvency risk in a way that observes continuously and analyses expected and actual cash flow on the basis of maturity of financial assets and liabilities. 41. POTENTIAL LIABILITIES AND DISPUTES /i/Court disputes were initiated against the Company which makes the Company exposed to potential liabilities in the amount of HRK 25,243 thousand and includes law suits without accrued interests and court expenses. As at 31 December 2015, the Company made provisions for potential liabilities for court disputes in the amount of the principal and potential court expenses on the level of HRK 9,875 thousand. lii/On 14 February 2013, the Croatian Ministry of Finances - Financial Police, Precinct Zagreb, based on the Decision having Register number: 07-01-13-6 and Class: UP/I-215-02/13-01/1, determined the existence of a tax liability in the total amount of HRK 24,373 thousand, out of which the amount of HRK 17,076 thousand refers to the principal of this liability and the amount of HRK 7,297 thousand to interests. The Company filed a law suit on the subject decision as on 25 March 2013. On 31 December 2013, the Company determined the provision for potential liabilities in the amount of HRK 24,373 thousand. /iii/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 109,173 thousand whose outcome is uncertain. According to the Division Plan of the trade company Ht 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 participates as a defendant in legal proceedings initiated in 2007, 2008, 2012, 2013, 2014 and 2015 in the amount of HRK 109,730 thousand. As at 31 December 2015 provisions for legal proceedings for potential liabilities were made in the amount of HRK 56,671 thousand (see Note 28). 47 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 liv/The Company has issued guarantees for certain subsidiaries in Croatia in the amount of HRK 127,933 thousand. lv/ Pursuant to the adopted business plan of the Company until 2019, the cost of future severance payments to the employees is determined in the amount of HRK 70,000,000. 42. EVENTS AFTER THE DATE OF THE CONSOLIDATED BALANCE SHEET/ CONSOLIDATED STATEMENT OF FINANCIAL POSITION On 31 May 2016, a change occurred in the Management of the Company, Ivan Kr9id being its only and sole member, representing the Company individually and independently. 43. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE PUBLIC GOOD As capital approach implies existence of two parallel records of public goods and own income and expenses, as well as assets, liabilities and capital emerging from these changes, we present below consolidated financial statements of the Company and consolidated financial statements of Public good. 31 December 2015 PO5 TION The Company Public Domain Total HRICK000 HRK000 HRIC00 ASSETS Intangible assets 75,206 0 75,206 Tangible assets 3,574,836 8,633,997 12,208,833 Financial assets 1,184 0 1,184 Long-term receivables 31,302 0 31,302 Deferred tax assets 5,813 0 5,813 LONG-TERM ASSETS 3,688,341 8,633,997 12,322,338 Inventories 502,445 0 502,445 Receivables due from related parties 10070 0 108,070 Trade receivables 26,501 0 26,507 Receivables from employees 6,171 0 6,171 Receivables from the State and other institutions 41,123 0 41,123 Other receivables 84,107 0 84,107 Financial assets 10,316 0 10,316 Cash and cash equivalents 395,057 0 395,057 Prepaid expenses and accrued income 2,619,412 2,782,461 5,401,873 SHORT-TERM ASSETS 3,793,208 2,782,461 6,575,669 TOTAL ASSETS 7,481,549 11,416,458 18,898,007 48 Hi INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 31 December 2015 POSITION The Company Public Domain Total HRK'000 HRK*O00 HRK'000 CAPITAL AND LIABIITIES Share (subscribed) capital 224,188 0 224,188 Capital reserves 411,640 8,621,439 9,033,079 Revaluation reserves 109,918 0 109,918 Accumulated loss 4,173 0 4,173 Profit/(Loss) for the current year (82,555) 56,586 (25,969) TOTAL CAPITAL 667,364 8,678,025 9,345,389 Provisions 126,449 0 126,449 Long-term liabilities 1,894,449 0 1,894,449 Liabilities to related parties 44,674 0 44,674 Liabilities for loans, deposits, etc. 4,055 129,243 133,298 Liabilities to banks and other financial institutions 319,876 0 319,876 Liabilities for received prepayments 12,408 0 12,408 Trade payables 120,358 0 120,358 Liabilities due to employees 56,453 0 56,453 Liabilities for taxes, contributions and similar fees 27,513 0 27,513 Other liabilities 337,930 0 337,930 Accrued expenses and deferred income 3,870,020 2,609,190 6,479,210 Short-term liabilities 4,793,287 2,738,433 7,531,720 TOTAL CAPITAL AND LIABILITIES 7,481,549 11,416,458 18,898,007 Pursuant to the provisions of the Art.21, Paragraph 2 of the Railway Act, the Company charges the accumulated losses to the public good equity. Following the Decision of the Government of Republic of Croatia on granting consent for taking over the debt of the Company, the Company wrote off long term loan liabilities, interests and foreign exchange differences by increasing the Public good equity. The total effect of the aforementioned activities are changes to Public good equity (increase of capital in the amount of HRK 2,782,461 thousand and decrease of capital in the amount of HRK 2,007,818 thousand) which are reported in individual consolidated Balance sheets of the Company and of the Public good within the positions "Prepaid expenses" and "Accrued expenses and deferred income", while those changes were consolidated in the Total Consolidated Balance Sheet of the Company in the amount of HRK 4,790,280 thousand HRK. 49 HZ INFRASTRUKTURA d.o.o., ZAGREB NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the year ended 31 December 2015 The positions "Prepaid expenses" and "Accrued expenses and deferred income" also include investments financed from the loan for which the capital of the public good was increased, which as at 31 December 2015 amount HRK 601,372 thousand. In 2013 iand 2014, the Croatian Government brought a Decision on the approval to take-over Company's debt on the basis of given and unpaid mandatory payments of debtors with capital increase of the public good with the objective to reduce indebtedness and financial consolidation of the railway infrastructure managers in the total amount of HRK 3,334 thousand (2013: HRK 1,418,375 thousand and in 2014: HRK 1,915,791 thousand). Given approval refers to the long-term loan take-over at Erste Et Steirmarkische bank d.d, Erste & Steirmarkische bank d.d. and Sberbank d.d. and short-term loan at OTP Bank d.d. the mentioned loans were used to finance public good investments. Upon taking over the loans, the Company increased the public good capital for the previously stated amount; thus, the capital needed to be adjusted by the amount of activated investments 44. PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements, set out on the previous pages, were prepared by the Management Board of the CqMpany, and authorized for issue on 20 September 2016. Ivan Krsic, member of the Management Board H2 INFRASTRUKTURA d.o.o. Mihanovi6eva 12 The Republic of Croatia 50