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METRONET TELEKOMUNIKACIJE d.d.

INDEPENDENT AUDITOR’S REPORT AND

FINANCIAL STATEMENTS

31 DECEMBER 2015

Contents

Responsibility for the financial statements 2

Independent auditor's report 3

Statement of comprehensive income 5

Balance sheet 6

Statement of changes in shareholders' equity 7

Statement of cash flows 8

Notes to the financial statements 9

PricewaterhouseCoopers d.o.o., Ulica kneza Ljudevita Posavskog 31, 10000 Zagreb, Croatia T: +385 (1) 6328 888, F:+385 (1) 6111 556, www.pwc.hr Commercial Court in Zagreb, no. Tt-99/7257-2, Reg. No.: 080238978; Company ID No.: 81744835353; Founding capital: HRK 1,810,000.00, paid in full; Management Board: Hrvoje Zgombic, President; J. M. Gasparac, Member; S. Dusic, Member; T. Macasovic, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR8124840081105514875.

Independent Auditor’s Report

To the Shareholders and Management Board of Metronet telekomunikacije d.d.

We have audited the accompanying financial statements of Metronet telekomunikacije d.d. and its subsidiary (the “Group”) and of Metronet telekomunikacije d.d. (the “Company”), which comprise the balance sheet as at 31 December 2015 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information.

Management Board’s Responsibility for the Financial Statements

The Management Board is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted in the European Union, and for internal controls that the Management Board determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group and the Company as at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the European Union.

Other Legal and Regulatory Requirements

We have read the accompanying Annual Report of the Group and the Company for the year ended 31 December 2015 set out on pages 46 to 52. We have verified that the information included in the Annual Report which describes matters that are also presented in the financial statements is consistent, in all material respects, with the financial statements referred to above.

PricewaterhouseCoopers d.o.o. Zagreb, 15 March 2016


BALANCE SHEET

AS AT 31 DECEMBER 2015

The notes on pages 10 to 45 are an integral part of these financial statements.

6

Group Company

(all amounts are expressed in

thousands of HRK) Note 2015 2014 2015 2014

ASSETS

Non-current assets

Plant & equipment 11 254,542 243,686 254,542 243,663

Intangible assets 12 14,795 11,055 14,795 11,055

Investments in subsidiaries 13 - - 52 109

Prepaid expenses 15 5,511 2,108 5,511 2,108

Deposits 15 461 4,330 461 4,330

275,309 261,179 275,361 261,265

Current assets

Trade and other receivables 15 58,509 52,885 58,623 53,621

Cash and cash equivalents 16 7,686 10,217 7,401 9,658

66.195 63,102 66,024 63,279

Total assets 341,504 324,281 341,385 324,544

SHAREHOLDERS’ EQUITY

AND LIABILITIES

Shareholders’ equity

Share capital 17 225,251 225,251 225,251 225,251

Capital reserves 17 70,241 70,241 70,241 70,241

Capital loss

17 (11,732) (11,732) (11,732) (11,732)

Accumulated losses (269,735) (297,096) (269,789) (297,008)

14,025 (13,336) 13,971 (13,248)

Non-current liabilities

Borrowings 18 241,527 256,512 241,527 256,512

Finance lease liabilities 19 11,183 12,698 11,183 12,698

Deferred revenue 21 5,198 3,435 5,198 3,435

257,908 272,645 257,908 272,645

Current liabilities

Borrowings 18 14,621 19,816 14,621 19,816

Finance lease liabilities 19 5,550 5,198 5,550 5,198

Trade payables 20 27,618 26,449 28,175 26,947

Accrued and other liabilities 21 19,514 13,509 18,896 13,186

Liability for income tax 21 2,268 - 2,264 -

69,571 64,972 69,506 65,147

Total liabilities 327,479 337,617 327,414 337,792

Total shareholders’ equity and

liabilities 341,504 324,281 341,385 324,544


STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015


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Group (all amounts are expressed in thousands of

HRK) Note Share

capital

Treasury

shares

Capital

reserves

Capital loss Accumulated

losses

Total

equity

As at 1 January 2014 75,063 (6,146) 76,387 - (426,534) (281,230)

Transactions with owners:

Capital increase 4a 150,188 - - - - 150,188

Assignment of treasury shares 17 - 6,146 (6,146) - - -

Capital loss 17 - - - (11,732) - (11,732)

Total transactions with owners 150,188 6,146 (6,146) (11,732) - 138,456

Total comprehensive income - - - - 129,438 129,438

As at 31 December 2014 225,251 - 70,241 (11,732) (297,096) (13,336)

As at 1 January 2015 225,251 - 70,241 (11,732) (297,096) (13,336)


Other movements - - - - 116 116


As at 31 December 2015 225,251 - 70,241 (11,732) (269,735) 14,025


STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY



8

Company

(all amounts are expressed in thousands

of HRK) Note

Share

capital

Treasury

shares

Capital

reserves Capital loss

Accumulated

losses

Total

equity

As at 1 January 2014 75,063 (6,146) 76,387 - (426,446) (281,142)


Capital increase 4a 150,188 - - - - 150,188

Assignment of treasury shares 17 - 6,146 (6,146) - - -

Capital loss 17 - - - (11,732) - (11,732)

Total transactions with owners 150,188 6,146 (6,146) (11,732) - 138,456


As at 31 December 2014 225,251 - 70,241 (11,732) (297,008) (13,248)

As at 1 January 2015 225,251 - 70,241 (11,732) (297,008) (13,248)


As at 31 December 2015 225,251 - 70,241 (11,732) (269,789) 13,971


STATEMENT OF CASH FLOWS



9

Group Company



Cash generated from operations 22 91,374 61,455 61,673 61,442

Interest paid (15.681) (11,968) (15,679) (11,965)

Net cash from operating activities 75,693 49,487 75,995 49,477

Cash flows from investing

activities

Purchase of intangible assets 12 (8,064) (5,367) (8,064) (5,367)

Purchase of property, plant and

equipment (39,014) (40,381) (39,014) (40,381)

Proceeds from sale of tangible

assets 290 364 290 364

Interest received 1,831 1,371 1,804 988

Net cash used in investing

activities (44,957) (44,013) (44,984) (44,396)

Cash flows from financing

activities

Proceeds from borrowings - 1,600 - 1,600

Repayments of borrowings (26,122) (6,111) (26,122) (6,110)

Repayments of finance lease (7,145) (5,502) (7,145) (5,502)

Net cash used in financing

activities (33,267) (10,013) (33,267) (10,012)

Net increase in cash (2,531) (4,539) (2,257) (4,931)

Cash at beginning of period 10,217 14,756 9,658 14,589

Cash at end of period 16 7,686 10,217 7,401 9,658


NOTES TO THE FINANCIAL STATEMENTS


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NOTE 1 – GENERAL INFORMATION

The Metronet Group (the Group) is a wire line network telecommunications service provider and the

first in Croatia to have developed an all-IP network for the provision of the following services: local and

long distance telephone services with enhanced communication features, broadband services which

include high speed internet and high capacity data transmission. The Group is an emerging provider of

advanced and innovative telecommunication services targeted to business customers. The Group’s

proprietary service network (voice, data and Internet) is currently offered in all of the major cities located

throughout 21 counties in the Republic of Croatia.

The parent of the Group is Metronet Telekomunikacije d.d. (the ”Company” or ”Metronet”), a joint

stock company registered under the laws of the Republic of Croatia. The Company was established on

13 May 2005 and started operations in June 2005. The registered address of the Company is Ulica

grada Vukovara 269d, Zagreb.

The Metronet Group includes the Company and its subsidiary. The business activity of the subsidiary

is telecommunication services. The Group’s subsidiary is presented in Note 13.

General authorization for the provision of electronic communications networks and services

In June 2005, Metronet obtained the necessary licences to provide services in the Republic of Croatia

from the Croatian Telecommunications Agency as prescribed by the Telecommunications Act.

In July 2008, the Electronic Communications Act (ECA) became effective, under which operators

under general authorization can perform all electronic communications network activities and services

after sending the notice to the relevant regulatory body - the Croatian Agency for Post and Electronic

Communications Agency (HAKOM) - on activities carried out, and a special permit is no longer

needed. (In line with the 2014 amendments to ECA, the relevant regulatory body changed its name to

Croatian Regulatory Agency for Network Industries.)

According to the verification of HAKOM on receiving the notice for the provision of electronic

communications network activities and services, Metronet provides the following electronic

communications services:

- Publicly available telephone services in fixed electronic communications network,

- Provision of electronic communications networks and/or lines,

- Services of image transfer, voice and sound transfer through electronic communications

networks (which excludes broadcasting services),

- Value added services,

- Internet access services,

- Voice over IP,

- Providing access to and sharing of the electronic communications infrastructure and associated

facilities.

The annual fee paid to HAKOM is 0.20% of the total annual gross revenues realized in the provision

of electronic communications network activities and services in the market.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out

below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

2.1 Basis of preparation

The Group’s consolidated financial statements, as well as the Company’s separate financial statements

have been prepared in accordance with International Financial Reporting Standards as adopted in the

EU (IFRS). Accordingly, the financial statements also comply with the Croatian Accounting Act, which

refers to IFRSs as adopted in the EU.

The financial statements have been prepared under the historical cost convention. The financial

statements have been prepared in Croatian kuna (HRK). All amounts disclosed in the financial

statements are expressed in thousands of HRK, unless otherwise stated. Reported accounting policies

apply equally to the Group and the Company, unless otherwise stated.

The Management Board is also required to exercise its judgment in the process of applying the

Group’s accounting policies. The areas where assumptions and estimates are significant to the

financial statements are disclosed in Note 4.

2.1.2 Changes in accounting policies and disclosures

(a) New and amended standards adopted by the Group

The Group has adopted the following new and amended standards for their annual reporting period

commencing 1 January 2015 which were endorsed by the European Union and which are relevant for

the Group's financial statements:

Annual Improvements to IFRSs – 2010 – 2012 Cycle comprising changes to seven standards

(IFRS 1, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24).

Annual Improvements to IFRSs – 2011 – 2013 Cycle comprising changes to four standards (IFRS

2, IFRS 3, IFRS 13 and IAS 40).

Defined Benefit Plans: Employee Contributions - Amendments to IAS 19

The adoption of these improvements did not have any significant impact on the current period or any

prior period and is not likely to have a significant effect on future periods.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1.2. Changes in accounting policies and disclosures (continued)

(b) New standards and interpretations not yet adopted

Certain new standards and interpretations have been published that are not mandatory for 31

December 2015 reporting periods and have not been early adopted by the group. None of these is

expected to have a significant effect on the Group's financial statements, except for the following

standards:

IFRS 9 Financial instruments and associated amendments to various other standards (effective for

annual periods beginning on or after 1 January 2018)

IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial

liabilities and introduces new rules for hedge accounting. In December 2014, IASB made further

changes to the classification and measurement rules and also introduced a new impairment model.

With these amendments, IFRS 9 is now complete.

The Management Board of the Group assessed the impact of the new standard IFRS 9 on its financial

statements as follows:

Following the changes approved by IASB in July 2014, the Group no longer expects any impact

from the new classification, measurement and derecognition rules on the Group’s financial assets

and financial liabilities.

While the Group has yet to undertake a detailed assessment of the debt instruments currently

classified as available-for-sale financial assets, it would appear that they would satisfy the

conditions for classification as at fair value through other comprehensive income (FVOCI) based

on their current business model for these assets. Hence there will be no change to the accounting

for these assets.

There will also be no impact on the Group’s accounting for financial liabilities, as the new

requirements only affect the accounting for financial liabilities that are designated at fair value

through profit or loss and the Group does not have any such liabilities.

The new hedging rules align hedge accounting more closely with the Group’s risk management

practices. As a general rule it will be easier to apply hedge accounting going forward as the

standard introduces a more principles-based approach. The new standard also introduces expanded

disclosure requirements and changes in presentation.

The new impairment model is an expected credit loss (ECL) model which may result in the earlier

recognition of credit losses.

The Group has not yet assessed how its own hedging arrangements and impairment provisions

would be affected by the new rules.

The Management Board plans to adopt the standard on its effective date and when endorsed by the

European Union.

IFRS 15 Revenue from contracts with customers and associated amendments to various other

standards (effective for annual periods beginning on or after 1 January 2018)

IASB issued a new standard for the recognition of revenue. This will replace IAS 18 which covers

contracts for goods and services and IAS 11 which covers construction contracts.




13



(b) New standards and interpretations not yet adopted (continued)

The new standard is based on the principle that revenue is recognised when control of a good or

service transfers to a customer – so the notion of control replaces the existing notion of risks and

rewards.

Key changes to current practice are:

Any bundled goods or services that are distinct must be separately recognised, and any discounts

or rebates on the contract price must generally be allocated to the separate elements.

Revenue may be recognised earlier than under current standards if the consideration varies for any

reason (such as for incentives, rebates, performance fees, royalties, success of an outcome etc).

The point at which revenue is able to be recognised may shift: some revenue which is currently

recognised at a point in time at the end of a contract may have to be recognised over the contract

term and vice versa.

There are new specific rules on licenses, warranties, non-refundable upfront fees and consignment

arrangements; and

There are also increased disclosures.

Entities will have a choice of full retrospective application, or prospective application with additional

disclosures.

The Group’s Management Board is currently assessing the impact of the new rules of IFRS 15 and has

identified the following areas that are likely to be affected:

Extended warranties, which will need to be accounted for as separate performance obligations,

which will delay the recognition of a portion of the revenue;

Consignment sales where recognition of revenue will depend on the passing of control rather than

the passing of risks and rewards;

IT consulting services where the new guidance may result in the identification of separate

performance obligations which could again affect the timing of the recognition of revenue; and

The balance sheet presentation of rights of return, which will have to be grossed up in the future

(separate recognition of the right to recover the goods from the customer and the refund

obligation).

At this stage, the Group is not able to estimate the impact of the new rules on its financial statements;

it will make more detailed assessments of the impact over the next twelve months. The Management

Board plans to adopt the standard on its effective date and when endorsed by the European Union.




14



(b) New standards and interpretations not yet adopted (continued)

IFRS 16 “Leases” (issued in January 2016 and effective for annual periods beginning on or after 1

January 2019)

The new standard sets out the principles for the recognition, measurement, presentation and disclosure

of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if

lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the

classification of leases as either operating leases of finance leases as is required by IAS 17 and,

instead, introduces a single lessee accounting model. Lessees will be required to recognize: a) assets

and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low

value, and b) depreciation of lease assets separately from interest on lease liabilities. IFRS 16

substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor

continues to classify its leases as operating leases or finance leases, and to account for those two types

of leases differently. The Group is currently assessing the impact of the amendments on its financial

statements.

2.2 Consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating

policies generally accompanying a shareholding of more than one half of the voting rights. The

existence and effect of potential voting rights that are currently exercisable or convertible are

considered when assessing whether the Group controls another entity. Subsidiaries are fully

consolidated from the date on which control is transferred to the Group and are de-consolidated from

the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The

consideration carried forward for the acquisition of a subsidiary is the fair value of the assets carried

forward, the liabilities incurred and the equity interests issued by the Group. The consideration

transferred includes the fair value of any asset or liability resulting from a contingent consideration

arrangement. Acquisition related costs are expensed as incurred in the statement of comprehensive

income. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business

combination are measured initially at their fair values at the acquisition date. On an acquisition-by-

acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value

or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition

basis at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s

identifiable net assets.

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect

changes in consideration arising from contingent consideration amendments. Cost also includes direct

attributable costs of investment.




15


2.2. Consolidation (continued)

The excess of consideration carried forward, the amount of any non-controlling interest in the acquiree

and acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the

Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair

value of the net assets of the subsidiary acquired in the case of bargain purchase, the difference is

recognised directly in the statement of comprehensive income. Inter-Group transactions, balances and unrealised gains on transactions between Group companies are

eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been

changed where necessary to ensure consistency with the policies adopted by the Group.

2.3 Investments in subsidiaries

Investments in subsidiaries in which the Company has an interest of more than one half of the voting

rights or otherwise has power to exercise control over the operations are recorded at cost less impairment

losses, if any in the separate financial statements. Impairment is tested annually whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. Dividend income is

recorded in the statement of comprehensive income when the Company decides to declare it.

2.4 Foreign currencies

(a) Functional and presentation currency

Items included in the financial statements are presented in Croatian Kuna (HRK), which is the currency of

the primary economic environment in which the Group and the Company operate (the “functional

currency”).

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the

settlement of such transactions and from the translation at year-end exchange rates of monetary assets

and liabilities denominated in foreign currencies are recognised in the statement of comprehensive

income.

2.5 Plant and equipment

Plant and equipment are stated at historical cost less accumulated depreciation and accumulated

impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of

the items. The initial estimate of the costs of dismantling and removing an asset and restoring the site

on which it is located is also included in the cost of the asset if a related obligation exists.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow

to the Group and the Company and the cost of the item can be measured reliably. All other repairs and

maintenance costs are charged to the statement of comprehensive income during the financial period

in which they are incurred.




16


2.5 Plant and equipment

Assets under construction are not depreciated. Depreciation of other assets is calculated using the

straight-line method to allocate their cost over their estimate useful lives. Depreciation is calculated for

each asset until the asset is fully depreciated or to its residual values.

Annual depreciation rates are as follows:

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance

sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s

carrying amount is greater than its estimated recoverable amount (Note 2.7).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are

included in the statement of comprehensive income.

2.6 Intangible assets

(a) Computer software

Acquired computer software, licences and rights are carried at cost less accumulated amortisation.

Computer software is capitalised on the basis of the costs incurred to acquire and bring to use the specific

software. Amortisation is calculated using the straight-line method over the estimated useful life (4 to

5 years) starting from the point when the asset is available for use.

Costs associated with developing or maintaining computer software programmes are recognised as an

expense as incurred. Costs that are directly associated with the production of identifiable and unique

software products controlled by the Group, and that will probably generate economic benefits

exceeding costs beyond one year, are recognised as intangible assets.

(b) Other intangibles

Separately acquired licences and other rights are shown at historical cost. Other intangibles are

acquired in a business combination and are recognised at fair value at the acquisition date. They have a

finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using

the straight-line method to allocate the cost of other intangibles over their estimated useful lives of 3 to

5 years.

Assets under construction are not amortised.

Telecom network 30 years

Indefeasible rights of use (IRU) 7 – 20 years

Telecom equipment 5 years

Tools, vehicles, IT and office equipment 3 – 5 years




17


2.7 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for

impairment. Assets that are subject to amortisation and depreciation are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs

to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest

levels for which there are separately identifiable cash flows (cash-generating units). Non-financial

assets other than goodwill that suffered impairment are reviewed for possible reversal of the

impairment at each reporting date.

2.8 Leases

Leases of vehicles and equipment, including the right to use a specific network equipment (IRU)

where the Group has substantially all the risks and rewards of ownership, are classified as finance

leases. Finance leases are capitalized at the lease’s commencement at the lower of fair value of the

leased property or the present value of minimum lease payments. Each lease payment is allocated

between the liability and finance charges so as to achieve a constant rate on the finance balance

outstanding. The corresponding rental obligations, net of finance charges, are included in liabilities.

The interest element of the finance costs is charged to the statement of comprehensive income over the

lease period so as to produce a constant periodic rate of interest on the remaining balance of the

liability for each period. Assets acquired under finance leases are depreciated over the shorter of the

useful life or the lease term.

Leases in which a significant portion of risks and rewards of ownership are not retained by the Group

and Company are classified as operating leases. Payments made under operating leases are charged to

the statement of comprehensive income on a straight-line basis over the period of the lease.

2.9 Trade and loan receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the

ordinary course of business. If collection is expected in one year or less (or in the normal operating

cycle of the business if longer), they are classified as current assets. If not, they are presented as non-

current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost

using the effective interest method, less impairment. Receivables are impaired when there is objective

evidence that the Group will not be able to collect all amounts due according to the original terms of

the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter

bankruptcy, and default or delinquency in payments are considered indicators that the trade receivable

is impaired.

The impairment amount is the difference between the asset’s carrying amount and the receivables’

recoverable amount. The impairment is recognised in the statement of comprehensive income within

“other operating expenses”, net of collected receivables previously written off.




18


2.10 Cash and cash equivalents

Cash includes cash in hand, deposits held at call with banks and deposits held with banks with original

maturities of three months or less and investment in high liquidity cash investment funds. Overdrafts

of bank accounts are included as part of cash and cash equivalents for purposes of the statement of

cash flows and are shown within borrowings in the balance sheet.

2.11 Share capital

Ordinary shares are classified as equity. Gains directly attributable to the issue of new shares are

shown in equity net of transaction costs and income tax. Preference shares, which are convertible to

ordinary shares, are classified as equity.

Where any Group company purchases the Company’s equity share capital (treasury shares), the

consideration paid, including any directly attributable transaction costs (net of income tax) is deducted

from equity attributable to the Company’s equity holders until the shares are cancelled or reissued.

Where such shares are subsequently reissued, any consideration received, net of any directly

attributable transaction costs and the related income tax effects, is included in equity attributable to the

Company’s equity holders.

2.12 Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using

the effective interest method.

2.13 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs)

and the redemption value is recognised in the statement of comprehensive income over the period of

the borrowings using the effective interest method.

Borrowing costs that are directly attributable to purchase or construction of assets are capitalised

during the period necessary for bringing the asset to working condition. Other borrowing costs are

charged to the statement of comprehensive income.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer

settlement of the liability for at least 12 months after the balance sheet date.




19


2.14 Current and deferred income tax

The current income tax charge is calculated on the basis of the tax law enacted at the balance sheet

date in the Republic of Croatia. The Management Board periodically evaluates positions taken in tax

returns with respect to situations in which applicable tax regulations are subject to interpretation and

consider establishing provisions where appropriate on the basis of amounts expected to be paid to the

Tax Administration.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the

tax bases of assets and liabilities and their carrying amounts in the financial statements.

However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a

transaction other than a business combination that at the time of the transaction affects neither

accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that

have been enacted or substantially enacted by the balance sheet date and are expected to apply when the

related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investment in subsidiaries and

associates, except where the timing of the reversal of the temporary difference is controlled by the

Group and it is probable that the temporary difference will not reverse in foreseeable future.

2.15 Value added tax (VAT)

The Tax Administration requires the settlement of VAT on a net basis. VAT related to sales and

purchases is recognised and disclosed in the balance sheet on a net basis. Where receivables have been

impaired for adjustment, impairment loss is recorded in the gross amount of the receivables, including

VAT.

2.16 Employee benefits

(a) Pension obligations and post-employment benefits

In the normal course of business through salary deductions, the Group makes payments to mandatory

pension funds on behalf of its employees as required by law. All contributions made to the mandatory

pension funds are recorded as salary expense when incurred. The Group does not have any other

pension scheme and consequently, has no other obligations in respect of employee pensions. In

addition, the Group is not obliged to provide any other post-employment benefits.

(b) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal

retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits.

The Group recognises termination benefits when it is demonstrably committed to either: terminating

the employment of current employees according to a detailed formal plan without possibility of

withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary

redundancy.

(c) Short-term employee benefits

Short-term employee benefits are recognised as a current expense in the period when employees

render their services. These benefits include wages, social security contributions, bonuses, annual

vacations, other benefits and related taxes thereon.




20


2.17 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the

Management Board, who is responsible for allocating resources and assessing performance of the

operating segments.

2.18 Revenue recognition

Revenue is primarily derived from data, internet and voice services provided to the Group’s customers

and other third parties using the Group’s telecommunications network. Revenue is shown, net of

value-added tax and discounts, and recognised when the amount of revenue can be reliably measured

and it is probable that future economic benefits will flow to the Group.

The customer arrangements typically include a monthly fixed fee and monthly charge for the actual

usage.

(a) Monthly fees

Monthly fees consist of a fixed fee for data, internet and voice services. Monthly fees are recognised

as revenue in the period the service is provided, in accordance with contractual terms and conditions.

(b) Traffic and interconnection revenue

Revenue from internal, incoming and outgoing calls is recognised in the period of the related usage.

Interconnection revenues include income earned on incoming traffic originating outside the Group’s

network that has been transmitted through or terminated in the Group’s network.

Interconnection expenses include expenses from outgoing traffic that is routed externally from the

Group’s network.

The revenue and expenses of transit traffic is stated gross in the financial statements as the Group is

acting as the principal. The Group enters into bilateral agreements with other operators, bears credit

risk, and has full discretion in determining the routing of the call.

(c) Value added-services (VAS)

Value added-services consist of telecommunication services rendered in conjunction with other

content. Contracts signed with other content providers include revenue share arrangements. Revenue is

recognised in the same manner as traffic and interconnection services. Revenue from value-added

services is presented on a gross basis in the financial statements.

(d) Sale of goods

Sales of equipment and optical cable are recognised when the goods are delivered to the customer, risk

of loss has transferred to the customer, and the customers have accepted the delivery of the goods.




21

NOTE 3 – FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk,

fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group

does not have a written risk management programme, but overall risk management in respect of these

risks is carried out by the Company’s Management Board. The Management Board focuses mainly on

liquidity and credit risk, and acts on a case basis to mitigate all financial risks.

(a) Market risk

(i) Foreign exchange risk

Some of the Group’s borrowings and payables are agreed with a currency clause, i.e. they are mainly

linked to the EUR. Any movement in exchange rates between the EURO and Croatian kuna will have

an impact on the Group’s operating results and future cash flow.

As at 31 December 2015, if the EUR had weakened/strengthened by 1% (2014: 1%) against the HRK,

with all other variables held constant, the net profit of the Group for the reporting period would have

been HRK 281 thousand (2014: HRK 359 thousand) higher/lower, mainly as a result of foreign

exchange gains/(losses) on translation of EUR-denominated trade receivables, trade payables, foreign

cash funds, deposits and borrowings.

(ii) Cash flow and fair value interest rate risk

The Group has no significant interest-bearing assets. The Group’s interest rate risk arises from long-

term liabilities. Finance lease liabilities stated at variable rates expose the Group to cash flow interest

rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Finance

Department monitors cash flow on a daily basis, while realised results are compared to planned results

on a monthly basis.

As at 31 December 2015, if the interest rate on borrowings and finance lease had increased/decreased

by 1% (2014: 1 percentage point) on an annual level, with all other variables held constant, the change

in interest rate would not have significant impact on the Group’s net profit.

(b) Credit risk

The Group has concentrations of credit risk related to key customers. As at 31 December 2015, the top

five customers comprise 21% (2014: 14%) of trade receivables. The Group has policies in place to

monitor the credit quality of customers taking in account the customer’s financial position and past

experience. The Group uses a system of reminders leading to discontinuance of its service as the main

tool to collect overdue receivables. For more details on credit risk see Note 14b and Note 15.




22

NOTE 3 – FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(c) Liquidity risk

As part of the liquidity risk management procedures, the Finance Department regularly monitors

available cash resources and prepares monthly and annual liquidity projections on the basis of the

expected cash flow.

Trade and other payables, and liabilities for short-term borrowings mature within 12 months after the

balance sheet date, while the maturity of long-term borrowings is set out in Notes 18 and 19.

The table below analyses the Group’s and Company’s financial liabilities into relevant maturity

groupings based on the remaining period at the balance sheet date according to the contractual

maturity date:

Group

(in thousands of HRK) Up to 1 year Between 1-2

years

Between 2-5

years

Over 5

years

31 December 2015

Borrowings 28,477 41,001 123,436 132,399

Finance lease 6,049 5,706 4,776 1,012

Trade and other payables 27,618 - - -

62,144 46,707 128,212 133,411


years

Between 2-5

years

Over 5

years

31 December 2014

Borrowings 33,727 21,146 131,006 173,318

Finance lease 5,952 5,448 8,061 -


66,128 26,594 139,067 173,318

Company


years

Between 2-5

years

Over 5

years

31 December 2015

Borrowings 28,477 41,001 123,436 132,399

Finance lease 6,049 5,706 4,776 1,012


62,701 46,707 128,212 133,411


years

Between 2-5

years

Over 5

years

31 December 2014

Borrowings 33,727 21,146 131,006 173,318

Finance lease 5,952 5,448 8,061 -


66,626 26,594 139,067 173,318




23

NOTE 3 – FINANCIAL RISK MANAGEMENT (continued)

3.2 Capital risk management

The Company monitors capital only on the basis of Croatian laws and regulations that require a

minimum subscribed capital of HRK 200 thousand for public limited liability companies. There are no

specific objectives required by the owners in managing capital. In addition, there are no internally or

externally monitored capital objectives, other than the long-term plan of keeping the capital positive.

The total capital for 2015 is HRK 283,760 thousand; the share capital of HRK 225,251 thousand,

HRK 70,241 thousand of capital reserves and HRK 11,732 thousand of capital loss (2014: HRK

283,760 thousand). The law forbids the payment of dividend before accumulated losses are settled.

The Company incurred an accumulated loss of HRK 269,789 thousand (2014: HRK 297,008

thousand).

3.3 Fair value estimation

The carrying value of trade receivables less impairment and of trade payables is assumed to

approximate their fair values.

The fair value of financial liabilities for disclosure purposes is estimated by discounting future

contractual cash flows at the current market interest rate that is available to the Group for similar

financial instruments.

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES

Estimates are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances. The Group

makes estimates and assumptions concerning the future. The resulting accounting estimates will, by

definition, seldom equal the related actual results. The estimates and assumptions that have a

significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within

the next financial year are discussed below.

(a) Going concern

In 2014, in accordance with the pre-bankruptcy settlement, the Company conducted the operational

and financial restructuring, which had a positive impact on its liquidity and solvency, and allowed the

Company to regularly settle all its arrears.

The total effects from the pre-bankruptcy settlement in 2014 are as follows:

1) founding capital increased by HRK 150,188 thousand

2) capital loss in the amount of HRK 11,732 thousand

3) profit in the amount of HRK 16,824 thousand arising from the write-off of interest

payables

4) one-off gain from the difference at the recognition of new liabilities where repayment

terms have been substantially altered in the amount of HRK 78,234 thousand.




24

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES (continued)

Pursuant to the Plan, in June 2014 the Company’s capital contribution process was completed and an

amount of HRK 150,188 thousand of debt incurred from bonds, commercial papers and a large

supplier was converted into equity by issuing ordinary shares. Thereby, the share capital increased

from HRK 75,063 thousand to HRK 225,251 thousand. The debt was rescheduled for a longer period of

time at a more favourable interest rate, while interest payables in the amount of HRK 16,824 thousand

were written-off. The decrease in debt and changes in maturity while reducing the cost of financing had a

beneficial effect on liquidity and solvency and contributed to the stabilization of the business.

The consolidated financial statements and the Company’s separate financial statements have been

prepared under the going concern assumption for both the Group and the Company. As at 31

December 2015, the accumulated losses of the Group amount to HRK 269,735 thousand (2014: HRK

297,096 thousand), and current liabilities exceed current assets by HRK 3,376 thousand (2014: 1,870

thousand).

After completing the pre-bankruptcy settlement, the Company is able to properly and timely service its

obligations to creditors and suppliers.

Accordingly, the Management Board considers the liquidity risk and the related uncertainty to be

significantly reduced. As a result, these financial statements have been prepared on a going concern

basis.

(b) Useful lives of property and equipment

The Group determined the useful lives of telecom plant and machinery (primarily related to the

network) based on industry experience and market practice in regards to similar assets and anticipated

technological development. The Group believes that the accounting estimate related to the

determination of the useful lives of these assets is a critical accounting estimate since it involves

assumptions about the technological development in an innovative industry. Due to the significant

weight of non-current assets in the balance sheet, the impact of any changes in these assumptions

could be material to the financial statements. For example, if the Group would shorten the average

useful life by 10%, this would result in an additional depreciation expense of approximately HRK

3,306 thousand for 2015 (2014: HRK 3,163 thousand).

(c) Legal claims and disputes

In respect of the regulatory uncertainty regarding the lease of underground network ducts (Note 23),

the Management Board concluded, after consultations with a legal counsel, that this matter will not

result in future losses. However, it is reasonably possible that the future outcome of this matter will be

different from the Management Board’s assumptions of probable future losses.




25

NOTE 5 – REVENUE

Group Company

(in thousands of HRK) 2015 2014 2015 2014

Monthly subscription fee 164,787 154,563 163,546 153,065

Traffic revenues 34,704 41,373 34,514 41,001

Interconnection revenues 10,004 9,791 10,127 10,023

VAS revenues 2,900 4,609 2,904 4,633

Other services /i/ 3,306 2,453 3,294 2,424

215,701 212,789 214,385 211,146

/i/ Other services relate to income from rent of fibre, rent of IP phones and other equipment,

integration and consulting services revenue, maintenance revenue, fee for early termination of

contract, income from telephone packages and other similar services.

Segment information

Metronet is a telecommunications service provider focused on providing business solutions mainly to

business customers in the Republic of Croatia. The Group’s investments and expenditures do not

relate to a certain geographical area or to a particular customer group or particular services.

Sales are provided to business customers who do not have specific and identifiable risks and benefits.

Similarly, expenditures and investments cannot be reasonably allocated, except through arbitrary

allocations which would not improve reporting, considering the telecommunications sector as a whole.

From a geographical perspective, Metronet operates exclusively on the Croatian market.

Operating segments are reported in a manner consistent with the internal reporting provided to the

chief operating decision-maker. It has been determined that the chief operating decision-maker, who is

responsible for allocating resources and assessing performance of the operating segments, is the

Management Board that makes strategic decisions. Key performance indicators are total revenue and

EBITDA. In 2015, the Company’s EBITDA amounts to HRK 88,714 thousand, which is 1,1% higher

compared to 2014 (2014: HRK 87,745 thousand). The Group’s EBITDA in 2015 amounts to HRK

88,723 thousand, which is 1,5% higher compared to 2014 (2014: HRK 87,394 thousand).

Group Company


Business customers 199,438 193,884 197,995 191,985

Residential customers 3,359 4,505 3,359 4,505

Interconnection and VAS revenue 12,904 14,400 13,031 14,656

215,701 212,789 214,385 211,146




26

NOTE 5 – REVENUE (continued)

The Management Board of the Group does not monitor assets and liabilities by segments and therefore

this information has not been disclosed.

In 2015, the Company realised revenues from residential customers of HRK 3,359 thousand (2014: HRK

4,505 thousand) and these revenues decreased by 25% compared to 2014 as a consequence of

abandoning the residential business and the Company’s focus to improve profit margins.

NOTE 6 – OTHER OPERATING REVENUE

Group Company


Revenue from late payment fees 512 678 512 678

(Loss) / gain on disposals of equipment (100) 61 (100) 60

Revenue from liabilities write-off 184 43 184 43

Revenue from technical support and

technical solutions implementation 343 436 343

436

Other revenue 133 112 228 211

1,072 1,330 1,167 1,428

NOTE 7 – STAFF COSTS Group Company


Net salaries /i/ 25,186 22,106 23,707 20,869

Taxes and contributions /ii/ 18,364 17,600 17,416 16,766

Other employee benefits /iii/ (118) 420 (118) 403

Termination benefits /iv/ - 23 - 23

43,432 40,149 41,005 38,061

/i/ As at 31 December 2015, the Company had 230 employees (2014: 230), and the Group had 248

employees (2014: 248).

/ii/ Taxes and contributions include defined pension contributions paid into obligatory pension funds

in the amount of HRK 7,140 thousand by the Group and HRK 6,727 thousand by the Company

(2014: HRK 6,599 thousand by the Group and HRK 6,244 thousand by the Company).

/iii/ Other employee benefits comprise rewards and liabilities arising from accumulated unused

vacation days or the reversal of the related accruals for unused amounts.

/iv/ Termination benefits of those employees who left the Company are based on their employment

contracts.




27

NOTE 8 – OTHER OPERATING EXPENSES

Group Company


Rental expense /i/ 33,904 34,606 33,904 34,388

Marketing and advertising 4,011 3,911 4,011 3,911

Provisions for court decisions 3,523 500 3,523 500

Municipal and energy costs 2,739 2,741 2,739 2,741

Maintenance costs 2,387 2,753 2,373 2,732

Travel and other costs reimbursed to employees 2,261 2,138 2,120 2,002

Communication expenses 2,184 2,322 2,184 2,318

Representation 2,122 2,468 2,117 2,462

Interconnection & VAS costs 2,121 2,272 2,121 3,047

Memberships, licences and permits 1,832 1,672 1,827 1,664

Provision for impairment of trade receivables

– net (Note 15) 1,777 511 1,777 511

Local Loop services (LLU) 1,547 1,834 1,547 1,834

Intellectual services 1,218 1,349 1,218 1,213

Education costs 770 324 770 324

Office materials and supplies 682 883 663 872

Insurance 612 864 612 864

Bank charges 371 485 368 478

External customer connection costs 264 676 1,704 676

Other operating expenses 2,965 3,348 2,928 3,233

67,290 65,657 68,506 65,770

/i/ Rental expense comprises operating lease agreements for the rental of locations for network

equipment, the rental of office premises and vehicles. Operating lease agreements for vehicles are

generally non-cancellable 5-year agreements that can be terminated only with the consent of the

leasing company.

NOTE 9 – FINANCE (COSTS) / REVENUE – NET

Note Group Company


Interest revenue 1,831 1,371 1,804 988

Foreign exchange gains 3,117 3,770 3,117 3,769

Other finance revenue /i/ 488 1,851 488 1,851

Revenue from interest write-off

/ii/

- 16,824

- 16,824

Profit from debt rescheduling /ii/ - 78,234 - 78,234

5,436 102,050

5,409 101,666

Interest expense (17,226) (13,404) (17,224) (13,399)

Foreign exchange losses (2,954) (2,843) (2,954) (2,843)

Correction of depreciable

liabilities (6,872) (7,178)

(6,872) (7,178)

Other finance costs (206) (1,920) (206) (1,920)

(27,258) (25,345)

(28,556) (25,340)

Finance revenue / (costs) – net (21,822) 76,705 (21,847) 76,326




28

NOTE 9 – FINANCE REVENUE / (COSTS) – NET (continued)

/i/ Other finance revenue is mostly related to gains from the purchase of own bonds.

/ii/ Revenue from interest write-off and profit from debt rescheduling are one-off revenues resulting from

the pre-bankruptcy settlement. The discount from the debt rescheduling will be amortized over the debt

repayment period and will be reported in line “Correction of depreciable liabilities”.

NOTE 10 – INCOME TAX

A reconciliation of the tax expense per the income statement and taxation at the statutory rate is

detailed in the table below:

Group Company


Current income tax 2,272 6 2,264 -

Deferred income tax - - - -

2,272 6 2,264 -

Group Company


Profit before tax 29,517 129,444 29,483 129,438

Tax calculated at a rate of 20% 5,904 25,889 5,897 25,888

Effect of non-deductible expenses 814 919 813 914

Effect of non-taxable revenues (93) (81) (93) (81)

Effect of utilisation of previously

unrecognized tax losses available for

carry forward

(4,353) (26,721) (4,353) (26,721)

Income tax 2,272 6 2,264 -

As at 31 December 2015, the Company has no transferable tax losses for which it would be possible to

recognize deferred tax assets (2014: HRK 4,353 thousand of unrecognised tax assets). The Company,

after the utilization of accumulated tax losses, has an obligation to pay income tax in the amount of

HRK 2,264 thousand.

Accumulated tax losses can be carried forward as follows:

(in thousands of HRK) 2015 2014

2016 - 21,765

- 21,765

In accordance with regulations of the Republic of Croatia, the Tax Administration may at any time

inspect the Company’s books and records within 3 years following the year in which the tax liability is

reported, may impose additional tax liabilities and penalties. The Company’s Management Board is

not aware of any circumstances, which may give rise to a potential material liability in this respect.




29

NOTE 11 – PLANT AND EQUIPMENT

The carrying value of plant & equipment under finance leases is as follows:

Group and Company


Cost 91,204 95,192

Accumulated depreciation (90,066) (87,996)

Net carrying value 1,138 7,196

Group

(in thousands of HRK) Telecom

network IRU

Telecom

equipment

Tools,

vehicles, IT

and office

equipment

Assets under

construction Total

As at 1 January 2014

Cost 201,519 23,343 305,519 20,929 14,875 566,185

Accumulated depreciation (53,050) (7,663) (252,557) (17,673) - (330,943)

Net carrying amount 148,469 15,680 52,962 3,256 14,875 235,242

Year ended 31 December

2014

Opening balance 148,469 15,680 52,962 3,256 14,875 235,242

Additions - - - - 40,381 40,381

Transfers 6,532 4,187 23,472 1,493 (35,684) -

Reclassification 283 - (283) - - -

Disposals - - (247) (56) - (303)

Depreciation (6,896) (1,911) (21,019) (1,808) - (31,634)

As at 31 December 2014 148,388 17,956 54,885 2,885 19,572 243,686

As at 31 December 2014

Cost 210,830 27,531 325,448 22,329 19,572 605,710



Year ended 31 December

2015

Opening balance 148,388 17,956 54,885 2,885 19,572 243,686

Additions - - - - 44,329 44,329

Transfers 12,338 4,814 20,904 1,364 (39,420) -

Disposals (150) - (200) (63) - (413)

Depreciation (7,325) (2,709) (21,389) (1,637) - (33,060)

As at 31 December 2015 153,251 20,061 54,200 2,549 24,481 254,542


Cost 223,012 32,345 345,996 23,362 24,481 649,196






30

NOTE 11 – PLANT AND EQUIPMENT (continued)

Company

(in thousands of HRK)

Telecom

plant

network

IRU Telecom

equipment

Tools,

vehicles, IT

and office

equipment

Assets under

construction Total


Cost 201,518 23,342 305,519 20,762 14,875 566,016



Year ended 31 December 2014

Opening balance 148,468 15,679 52,962 3,214 14,875 235,198

Additions - - - - 40,380 40,380

Transfers 6,533 4,188 23,472 1,490 (35,683) -

Reclassification 283 - (283) - - -

Disposals - - (247) (56) - (303)

Depreciation (6,895) (1,911) (21,019) (1,787) - (31,612)

As at 31 December 2014 148,389 17,956 54,885 2,861 19,572 243,663


Cost 210,831 27,531 325,448 22,159 19,572 605,541




Opening balance 148,389 17,956 54,885 2,861 19,572 243,663

Additions - - - - 44,329 44,329

Transfers 12,338 4,814 20,904 1,364 (39,420) -

Disposals (151) - (176) (63) - (390)

Depreciation (7,325) (2,709) (21,389) (1,637) - (33,060)

As at 31 December 2015 153,251 20,061 54,224 2,525 24,481 254,542


Cost 223,012 32,345 345,996 23,362 24,481 649,196



In 2015, assets under construction at the Group and the Company included telecom equipment of HRK

21,715 thousand (2014: HRK 12,884 thousand). As at 31 December 2015, the net carrying value of

pledged equipment amounted to HRK 1,138 thousand (2014: HRK 7,196 thousand).




31

NOTE 12 – INTANGIBLE ASSETS

Group and Company

(in thousands of HRK) Computer

software

Other

intangibles

Investment in

progress Total


Cost 34,318 6,731 1,302 42,351

Accumulated amortisation (28,421) (5,221) - (33,642)

Net carrying amount 5,897 1,510 1,302 8,709


Opening net carrying amount 5,897 1,510 1,302 8,709

Additions - - 5,367 5,367

Transfer 5,560 1,109 (6,669) -

Amortization (2,071) (950) - (3,021)

Closing net carrying amount 9,386 1,669 - 11,055


Cost 39,878 6,781 - 46,659


Net carrying amount 9,386 1,669 - 11,055


Opening net carrying amount 9,386 1,669 - 11,055

Additions - - 8,064 8,064

Transfer 5,457 2,607 (8,064) -

Amortisation (2,986) (1,338) - (4,324)

Closing net carrying amount 11,857 2,938 - 14,795


Cost 45,335 9,143 - 54,478


Net carrying amount 11,857 2,938 - 14,795

Other intangible assets mainly consist of acquired rights for carrier pre-selection and interconnection

services.




32

NOTE 13 – INVESTMENTS IN SUBSIDIARIES

As at 31 December, the investments in the Company’s subsidiaries were as follows:


Opening balance 109 117

Liquidation of subsidiary (57) (8)

As at 31 December 52 109

In 2007, the Group established two wholly owned subsidiaries: Metronet telekomunikacije d.o.o. for telecommunication services Mostar and Metronet telekomunikacije d.o.o. Ljubljana. The subsidiary Mostar was liquidated on 20 May 2014 in line with the decision of the Municipal Court in Mostar. The subsidiary in Ljubljana was liquidated on 10 September 2015 in line with the decision of the District Court in Ljubljana. To date, these entities had no business activities. In 2009, the Group established a wholly owned subsidiary Metronet d.o.o. which provides telecom services to customers. As at 31 December 201,5 the Group consists of the parent company Metronet telekomunikacije d.d. and the subsidiary Metronet d.o.o. NOTE 14a – FINANCIAL INSTRUMENTS BY CATEGORY

The reconciliation of classes of financial instruments with measurement categories defined in IAS 39,

Financial Instruments: Recognition and Measurement, is as follows:

Group Company


Loans and receivables

Trade receivables 47,774 45,924 47,571 47,006

Deposits 5,004 5,652 4,971 5,573

Loan receivables 3,538 3,659 4,008 3,513

Interest receivables 11 25 11 25

Cash 7,686 10,217 7,401 9,658

64,013 65,477 63,962 65,775

Other financial liabilities

Borrowings 256,148 276,328 256,148 276,328

Financial lease liabilities 16,733 17,896 16,733 17,896

Trade payables 27,618 26,449 28,175 26,947

300,499 320,673 301,056 321,171




33

NOTE 14 b – CREDIT QUALITY OF FINANCIAL ASSETS

The credit quality of financial assets that are neither past due nor impaired can be assessed by

reference to historical information.

Group Company


New customers 595 1,904 595 1,904

Existing customers – some defaults in the

past 8,528

9,843

8,528

9,843

Existing customers – within maturity

period 16,407 14,860 15,674 14,105

Interconnection – telecom operators 6,243 774 6,825 1,297

31,773 27,381 31,622 27,149

The Group mainly deposits its cash at local banks that are members of banking groups with the

following credit ratings by Standard & Poor’s:

Group Company


A - 19 - 19

AA+ - 4 - 4

BBB+ 30 9 30 9

BBB 17 - 17 -

BBB- 3,604 4,851 3,326 4,296

Without rating 4,035 5,334 4,028 5,330

7,686 10,217 7,401 9,658




34

NOTE 15 – TRADE AND OTHER RECEIVABLES

Group Company


Trade receivables 55,437 54,925 55,234 56,007

Impairment of trade receivables (7,663) (9,001) (7,663) (9,001)

47,774 45.924 47,571 47.006

Prepaid expenses 7,614 3,661 7,614 3,662

Deposits /i/ 5,004 5,652 4,971 5,573

Loans 3,538 3,659 1,032 2,653

Prepayments 72 205 72 205

Interest receivables 11 25 11 25

Receivables from the state 119 13 118 5

Loans to related parties - - 2,976 860

Other receivables 349 184 230 70

Less:

Non-current portion of deposits (461) (4,330) (461) (4,330)

Non-current portion of prepaid expenses (5,511) (2,108) (5,511) (2,108)

58,509 52,885 58,623 53,621

/i/ The short-term deposit of HRK 3,200 thousand bears a fixed interest rate of 4% and matures in

2016 and the remaining long-term deposits are interest-free (2014: long-term deposit of HRK 3,200

thousand with a fixed interest rate of 4%, and the remaining long-term deposits with no interest).

Deposits are generally given for participating in tenders and most of them are due in the second half of

2016. Deposits, with the exception of one short-term deposit, bear no interest.

As at 31 December 2015, trade receivables of HRK 16,001 thousand (2014: HRK 18,543 thousand)

were past due but not impaired. These relate to a number of smaller slower paying customers with no

recent history of default. The ageing structure of these receivables is as follows:

Group Company


Up to one month 5,817 6,983 5,765 6,955

One to two months 2,392 3,376 2,392 3,376

Two to three months 1,671 1,604 1,671 1,604

Over three months 6,121 6,580 6,121 7,922

16,001 18,543 15,949 19,857

As at 31 December 2015, the Group’s and the Company’s trade receivables in the amount of HRK

7,663 thousand (2014: HRK 9,001 thousand) were impaired. The individually impaired receivables

mainly related to customers who were in difficult economic situations and collection was not

expected.




35

NOTE 15 – TRADE AND OTHER RECEIVABLES (continued)

The carrying amounts of the Group’s and Company’s financial assets are denominated in the

following currencies:

Group Company


HRK 52,135 50,851 52,369 51,639

EUR 4,192 4,408 4,192 4,478

56,327 55,259 56,561 56,117

Balances and movements of the impairment of receivables are as follows:

Group Company


At beginning of year 9,001 9,181 9,001 9,181

Written-off during the year as

uncollectible (3,115) (691) (3,115) (691)

Provision for impairment of trade

receivables (Note 8) 2,671 1,412 2,671 1,412

Collected receivables previously written

off (Note 8) (894) (901) (894) (901)

At end of year 7,663 9,001 7,663 9,001

The provision for impairment of receivables and the collection of receivables previously written off is

included in the statement of comprehensive income within “Other operating expenses” (Note 8). The

maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable

mentioned above. The Group does not hold any collateral as security.

NOTE 16 – CASH AND CASH EQUIVALENTS

Group Company


Investment in cash investment fund 3,009 5,141 3,010 5,141

Cash with banks in HRK 4,481 4,858 4,203 4,303

Foreign currency account 167 180 167 180

Cash on hand 29 38 21 34

7,686 10,217 7,401 9,658




36

NOTE 16 – CASH AND CASH EQUIVALENTS (continued)

The carrying amounts of cash are denominated in the following currencies:

Group Company


HRK 7,519 10,037 7,234 9,478

EUR 158 178 158 178

Other 9 2 9 2

7,686 10,217 7,401 9,658

NOTE 17 – SHAREHOLDERS’ EQUITY

An overview of issued shares is presented in the table below:

Ordinary Treasury

shares Preference

Series R-A Series R-A Series P-A Series P-B

As at 1 January 2014 743,128 (22,650) 6,600 900

Capital contribution 1,501,880 - - -

Abolition of preference

shares 7,500 - (6,600) (900)

Assignment of treasury

shares - 22,650 - -

As at 31 December 2014 2,252,508 - - -

As at 1 January 2015 2,252,508 -

- -

As at 31 December 2015 2,252,508 - - -

In 2014, all of the Company’s preference shares became ordinary shares. All ordinary shares have a

nominal value of HRK 100 per share. All issued shares are fully paid.

The Company has assigned the treasury shares to the members of the Company’s Management Board.

Capital reserves as at 31 December 2015 amount to HRK 70,241 thousand and the capital loss

amounts to HRK 11,732 thousand. The capital loss was incurred due to the pre-bankruptcy settlement

(Note 4a) and the fair valuation of bonds whose nominal value at the time of conversion into equity

was reduced by a discount of HRK 11,732 thousand.




37

NOTE 17 – SHAREHOLDERS’ EQUITY (continued)

The ownership structure of the Company as at 31 December 2015 is as follows:

2015 2014

Quaestus Private Equity Capital 21% 21%

King ICT d.o.o. 15% 10%

Hita-vrijednosnice d.d. – custodian account 23% 10%

Quaestus private equity d.o.o. 5% 8%

Slavonski zatvoreni investicijski fond s javnom ponudom

d.d. 8% 8%

Christian Panjol-Tuflija - 6%

Zlatko Dodić - 5%

Quaestus Partneri d.o.o. - 2%

Stipo Matić - 5%

Small shareholders 28% 24%

100% 100%

Quaestus Private Equity Kapital (“Quaestus”), an open-ended venture capital investment fund with a

private offering, is a Croatian private equity fund managed by Quaestus Private Equity d.o.o.




38

NOTE 18 – BORROWINGS

Effective interest rate Group Company

(in thousands of HRK) 2015 2015 2014 2015 2014

Non-current portion

Bonds 4.50% 38,396 42,294 38,396 42,294

Bank borrowings 0% - 4.50% 192,864 189,106 192,864 189,106

Borrowing from

suppliers

-

8,441

13,472

8,441

13,472

Related party borrowing - - 8,440 - 8,440

Liabilities to the state 4.50% 1,826 3,200 1,826 3,200

241,527 256,512 241,527 256,512

Current portion

Bonds 4.50% - 183 - 183

Borrowing from

suppliers

- 5,006 8,834 5,006 8,834

Bank borrowings 0% - 4.50 % 8,241 1,234 8,241 1,234

Related party borrowing - - 6,664 - 6,664

Short-term borrowing 3.00% - 1,600 - 1,600

Liabilities to the state 4.50 % 1,374 1,301 1,374 1,301

14,621 19,816 14,621 19,816

256,148 276,328 256,148 276,328

Bonds

According to the Decision on pre-bankruptcy settlement of March 2014, in June 2014 50% of the

principal on bonds was converted into the Company’s share capital, and the remaining 50% in the

amount of EUR 9.9 million will be paid within a period of 8 years with a grace period of 3 years at an

interest rate of 4.5%. Interest payables of HRK 4,437 thousand were written off. The conversion of

bonds into equity was measured at fair value, which resulted in the formation of capital loss in the

amount of HRK 11,732 thousand. The Management Board estimated that the market interest rate for

the Company is 10% which led to the difference between the nominal and fair value of bonds in the

amount of HRK 17,037 thousand and therefore HRK 5,208 thousand was recognized as gains from

bonds revaluation.




39

NOTE 18 – BORROWINGS (continued)

Bank borrowings

In accordance with the adopted restructuring plan, the syndicated loan was replaced by individual

loans to participating banks and every bank loan was rescheduled to be paid within 11 years with a

grace period of 3 years and an interest rate of 4.5%. Interest payables in the amount of HRK 5,265

thousand were written off.

This change of conditions resulted in the revaluation of the liability under the assumption that the

Company's market interest rate is 10% and a one-time gain was recognised in the amount of HRK

48,701 thousand.

The loan debt with a commercial bank in the amount of HRK 55,500 thousand was rescheduled with

the same repayment terms as a syndicated loan, and a one-time gain was recognised of HRK 13,912

thousand. On the basis of this loan, interest payables of HRK 1,129 thousand were written off.

Borrowings from suppliers

Borrowings from suppliers from 2014 are rescheduled to be paid within a period of 2 to 5 years

without interest. The adjustment to fair value, assuming a market interest rate of 9%, resulted in a one-

time gain in the amount of HRK 4,147 thousand.

Related party borrowing

The decrease in the borrowing from a related party in the financial statements as at 31 December 2015

is a result of transfer to bank borrowing, based on the factoring contract, in the amount of HRK 9,516

thousand (2014: HRK 17,129 thousand).

Liabilities to the state

In accordance with the adopted restructuring plan, liabilities to the state were rescheduled to be paid

within a period of 4 years with an interest rate of 4.5%. The recognition of the new liability at fair

value resulted in a gain in the amount of HRK 415 thousand at the day of settlement.

The exposure of the Group’s and Company’s borrowings to interest rate changes at the balance sheet date is as follows:

Group Company


Fixed interest rate

Up to one year 14,621 19,816 14,621 19,816

1-5 years 122,903 256,512 122,903 256,512

Over 5 years 118,624 - 118,624 -

Total fixed interest rate 256,148 276,328 256,148 276,328

Variable rate

Up to 3 months - - - -

256,148 276,328 256,148 276,328




40

NOTE 18 – BORROWINGS (continued)

The maturity of long-term borrowings is as follows:

Group Company


Between 1 and 2 years 27,853 7,372 27,853 7,372


Over 5 years 118,624 152,045 118,624 152,045

241,527 256,512 241,527 256,512

The carrying amount of the Group’s and Company’s liabilities is denominated in the following

currencies: Group Company


HRK 214,484 229,337 214,484 229,337

EUR 41,664 46,991 41,664 46,991

256,148 276,328 256,148 276,328

Borrowings with currency clauses in EUR are stated in EUR-denominated borrowings.

As at 31 December 2015, the fair value of borrowings approximates the carrying value since its fair

value was determined at the pre-bankruptcy settlement date and, in the following period, there were

no significant changes that would affect the market interest rate determined in the pre-bankruptcy

settlement.

NOTE 19 – FINANCE LEASE LIABILITIES

The Group leases equipment under finance leases for a period of 2 to 5 years. In 2015, the effective

interest rate on the finance lease is 3.5% (2014: 4.5%).

Lease liabilities are effectively secured as the rights to the lease asset revert to the lessor in the event

of default.

In accordance with the adopted financial restructuring plan, a portion of finance lease liabilities was

rescheduled to be paid within a period of 4 years with an interest rate of 4.5%. The recognition of the

new liability at fair value, assuming a market rate of 9%, resulted in a gain in the amount of HRK

1,885 thousand.

The present value of the finance lease liabilities is as follows:

Group Company


Current portion (up to 1 year) 5,550 5,198 5,550 5,198


Over 5 years 1,012 - 1,012 -

16,733 17,896 16,733 17,896




41

NOTE 19 – FINANCE LEASE LIABILITIES (continued)

The minimum lease payments under finance lease agreements are as follows:

Group Company


Up to 1 year 6,049 5,951 6,049 5,951


Over 5 years 1,012 - 1,012 -

17,543 19,460 17,543 19,460

Future finance costs on finance lease (810) (1,564) (810) (1,564)

Present value of finance lease

liabilities 16,733 17,896 16,733 17,896

As at 31 December 2015, finance lease liabilities in the amount of HRK 12,393 thousand are in HRK

and the remaining finance lease liabilities are in EUR. As at 31 December 2014, finance lease

liabilities in the amount of HRK 11,268 thousand were in EUR and the remaining finance lease

liabilities were in HRK.

NOTE 20 – TRADE PAYABLES

Group Company


Trade payables – domestic suppliers 22,958 25,801 23,515 26,299

Trade payables – foreign suppliers 4,660 648 4,660 648

27,618 26,449 28,175 26,947

The carrying values of the Group’s and the Company’s trade payables are denominated in the

following currencies:

Group Company


HRK 22,958 25,801 23,515 26,299

EUR 4,654 486 4,654 486

USD 6 162 6 162

27,618 26,449 28,175 26,947




42

NOTE 21 – ACCRUED AND OTHER PAYABLES

Group Company


Salaries and wages 2,136 1,997 2,018 1,886

Taxes and contributions on salaries 1,644 1,475 1,570 1,403

Accrual for unused vacation days 583 722 583 722

Accrued expenses /i/ 10,589 5,695 10,589 5,695

VAT liability 3,005 2,265 2,567 2,130

Deferred revenue /ii/ 5,606 3,879 5,606 3,879

Liabilities for received prepayments 18 24 18 24

Liabilities for income tax 2,268 - 2,264 -

Other current liabilities 1,131 887 1,143 882

Less: Non-current portion of deferred

revenue (5,198) (3,435) (5,198) (3,435)

21,782 13,509 21,160 13,186

/i/ Accrued expenses refer to expenses whose maturity is not determined yet.

/ii/ Deferred revenue refers to the contracted annual service fees which the Company invoiced to

customers.




43

NOTE 22 – CASH GENERATED FROM OPERATIONS

Group Company



Cash flow from operating

activities 29,517 129,444 29,483 129,438

Profit before tax

Adjustments for:

Depreciation and amortisation 11, 12 37,384 34,655 37,384 34,633

Loss/gain on sale of plant and

equipment 6 100 (61) 100 (61)

Interest income 9 (1,831) (1,371) (1,804) (988)

Interest expense 9 17,226 13,404 17,224 13,399

Provision for impairment of trade

receivables - net 8 1,777 511 1,777 511

Foreign exchange differences -

net (163) (926) (163) (926)

Gain from bonds refinancing 9 - (78,234) - (78,234)

Correction of depreciable

liabilities 9 6,872 7,178 6,872 7,178

Gain/loss from own bonds (428) (1,697) (428) (1,697)

Gain on liabilities write-off 9 - (16,824) - (16,824)

Loss from subsidiary liquidation 139 - 57 -

Changes in working capital:

Trade and other receivables (44,261) (44,284) (43,639) (45,355)

Trade and other payables 37,301 19,106 37,360 19,618

Accrued and other payables 7,741 554 7,450 750

Cash generated from operations 91,374 61,455 91,673 61,442




44

NOTE 23 – CONTINGENCIES AND COMMITMENTS

Rental of ducts

One regulatory uncertainty relevant to the Group is the leasing of underground network ducts

(“ducts”). Although diligent efforts have been made by government authorities in seeking a solution

for this uncertainty, the manner of usage and ultimate ownership of the ducts is still outstanding and

unresolved. Several legal disputes involving the Company exist in respect of this uncertainty. Based

on recommendations of a legal counsel, the Management Board believes that this uncertainty will be

resolved in the future, but will not result in any retrospective liabilities for the Group. As a result, no

payments or provisions have been made in this respect.

Other legal claims

In the ordinary course of operations, the Group was a plaintiff and defendant in several other legal

disputes. The Company’s Management Board and its external legal counsel believe that these legal

disputes will not result in significant losses.

Contractual commitments

As at 31 December 2015 and 2014, the Group has no contractual commitments.

NOTE 24 – RELATED PARTY TRANSACTIONS

Related parties of the Group include Quaestus Private Equity Kapital Fund (“Quaestus Fund”),

companies owned by the Quaestus Fund, KING ICT and companies owned by the Company’s

Management Board. The ultimate parent and controlling party is the investment fund Quaestus Private

Equity Kapital.

The end-year balances resulting from related party transactions are as follows:, Group Company


Balance sheet

Trade payables 902 1,105 1,484 1,628

Borrowings - 17,129 - 17,129

Plant & equipment 4,278 4,362 4,278 4,362

Intangible assets 3,002 2,705 3,002 2,705

Trade and other receivables 971 955 3,947 3,157

Statement of comprehensive income

Traffic revenues 429 815 429 815

Monthly subscription fee 876 940 1,076 1,386

Interconnection and VAS revenues - - 127 256

Other services 141 147 141 147

Other finance income - 1,318 - 1,318

Other operating income 66 13 165 117

Interest revenue 1 - 1 -

Interconnection expenses - - 7 87

Other finance costs - - - 59

Other operating expenses 137 75 1,576 551




45

NOTE 24 – RELATED PARTY TRANSACTIONS (continued)

In 2015, the salaries of key management personnel amounted to of HRK 2,964 thousand (2014: HRK

2,953 thousand). Pension contributions paid into obligatory pension funds amounted to HRK 350

thousand (2014: HRK 294 thousand). Key management consists of 4 members of the Management

Board (2014: 4).

ANNUAL REPORT for 2015

(consolidated, audited)

Zagreb, 15 March 2016

47

1. Metronet telekomunikacije d.d. – About us

Date of incorporation: 3 May 2005

Date of registration: 13 May 2005

Commercial Court: Commercial Court in Zagreb;

Registered office of the Company: Zagreb, Ulica grada Vukovara 269/d;

Registration number: 080523351

VAT number: 23269006802

Telephone number: 01 6327 000

Summary of business activities

Metronet operates in the fixed telephony market, where, in addition to public voice services offered

via the fixed telecommunications network, it offers data transmission services, broadband services,

ISP services, data center services and IT services on demand as well as cloud computing services.

Metronet offers these services both to business and residential customers, with a focus on sales of

services to business customers. Metronet also operates in the wholesale market, offering services to

other telecommunications operators.

Metronet sales activities are the Company’s leading activities, from building networks and connecting

users to marketing activities and customer operations.

In the first 3 years of operations, Metronet completed its large capital investments in the construction

and setting up of its network. In the following years, most of the investments are the result of new

customer connections and the development of new services. Metronet will mostly focus on its

operating margins and profitability.

Market description

The most important segment for Metronet is business customers, while the wholesale and residential

markets are perceived as secondary markets.

Business market – Metronet ranks second on the market by revenue and number of customers,

immediately after T-Com. Metronet has achieved significant results in the segment of large and

medium-sized companies, while with small companies, on which Metronet has been less focused, the

market share is still somewhat lower. In the coming period, Metronet will continue its strategy, which

is strongly focused on the business customer segment, with special emphasis on the growth of its

market share in the segment of medium-sized and small companies.

Residential market - In April 2007, Metronet started offering broadband Internet access services and

fixed telephony services to residential customers. Initially, Metronet offered services through 30 T-

Com colocation switches, and was available in 235,000 households, representing 13% of the total

number of households in Croatia.

Given the strategic focus on providing services to business customers and gradually exiting the

residential market segment, in July 2013 Metronet sold Vipnet a part of its residential customer base

and fiber infrastructure (FTTH) intended to provide services to residential customers.

48

Wholesale market – Metronet provides telco services to large entities, other local and international

telecoms, mainly data/voice transit, data connectivity, and Internet. Metronet cooperates with

international telecom operators and sells capacities to them. The wholesale business is complementary

with the core focus of Metronet – provision of services to the business customer segment. Given its

high volume and low margin, Metronet is not strategically focused on the wholesale segment.

Other than Metronet telekomunikacije d.d., a member of the Metronet Group is the following

subsidiary:

Metronet d.o.o. with the registered office in Zagreb, Croatia, founded and registered at the

Commercial Court in Zagreb on 13 May 2009, wholly owned by Metronet telekomunikacije d.d.

Metronet telekomunikacije, družba za telekomunikacijske storitve d.o.o. – with the registeref office in

Ljubljana, Slovenia, founded and registered at the District Court in Ljubljana on 26 October 2007, was

liquidated on 10 September 2015 pursuant to the Decision of the above Court. This subsidiary had no

significant business activity.

In 2015, Metronet d.o.o. achieved an operating income of HRK 3,1 million.

In 2015, the Management Board was as follows:

Željko Lukač Chief Executive Officer

Dennis Allan Rukavina Chief Financial Officer

Sanjin Katinić Chief Marketing & Sales Officer

Zdenko Vrdoljak Chief Technical Officer

The Supervisory Board was as follows:

Borislav Škegro President

Plamenko Barišić Member

Ante Lučić Member

Tanja Rukavina Member

Vjenceslav Terzić Member

49

Metronet throughout history

From its foundation until the end of 2015, the most significant achievements by the Company

are as follows:

50

2. Key business features in 2015

Decrease of debt and changes in maturity while reducing the cost of financing had a beneficial effect on

liquidity and solvency and contributed to the stabilization of business. After completing the pre-

bankruptcy settlement, the Group is able to properly and timely service its liabilities to creditors and

suppliers.

The Group continuously works on the further optimization of all its work processes in order to reduce

costs and increase margins.

As a result of negative macroeconomic indicators and switching to new technologies, in 2015 the

declining trend in fixed telephone services continued, while the broadband Internet access and data

services revenues continued to grow. Despite unfavourable circumstances, Metronet in these markets

achieved positive results. In 2015, the Group’s key business features are:

- Growth in income from business customers by 3% compared to 2014

- Growth in operating results by HRK 1,330 thousand compared to the same period last year

and EBITDA at HRK 88,723 thousand (2014: HRK 87,394 thousand)

- In 2015, the net profit amounts to HRK 27,245 thousand (2014: HRK 129,438 thousand).

High profits of the previous period are a result of one-off revenues from liability revaluation and

interest write-offs due to the pre-bankruptcy settlement.

- First-time positive net equity in the amount of HRK 14,025 thousand (2014: negative net equity

in the amount of HRK 13,336 thousand)

51

Income statement

Metronet’s core focus of providing services to business customers enjoyed growth by 2% compared to

2014 and revenues amounted to HRK 193,805 thousand. The Group’s audited financial statements

state that the amount of revenue from business customers is HRK 199,438 thousand, including

revenues from wholesale customers.

Due to the fact that the Group's strategy is focused on increasing the market share in the business

segment and gradually leaving the residential segment, revenues from residential customers decreased

by 25% compared to 2014.

VAS revenues decreased by 37% and wholesale revenues from voice services increased by 40%. This

has not affected the operating result, considering that these services are accompanied by significant

costs and thus low margins.

Total operating revenues rose by HRK 2,655 thousand or 1% compared to the same period of last

year.

Operating expenses in the reporting period increased by HRK 1,325 thousand compared to the same

period of last year.

The operating profit increased in 2015 by 2% compared to last year and amounts to HRK 88,723

thousand (2014: HRK 87,394 thousand), which is the result of the continuing focus on the business

segment and profitability increase. Metronet’s strategy to be dependent on its own infrastructure is the

key success factor to future profitability.

The depreciation costs increased by 8% compared to the same period of last year.

Finance income decreased by 96,614 thousand HRK compared to the previous period considering that

in 2014 a one-off revenue in the amount of HRK 78,234 was incurred from the revaluation of financial

liablities and interest write-offs carried out as part of the pre-bankruptcy settlement.

Finance costs in 2015 are by HRK 1,913 thousand higher than in the same period of 2014 considering

that interest expense in 2014 began to accrue after the completion of the pre-bankruptcy settlement,

i.e. after 19 March 2014.

Balance sheet

The total assets as at 31 December 2015 amounted to HRK 341,504 thousand and are by HRK 17,223

thousand higher than as at 31 December 2014, whereby non-current assets increased by 6% and

current assets by 4%.

Non-current assets comprise 81% of the Group’s assets, which increased by 5% or by HRK 14,129

thousand compared to the same period of last year.

Investments in 2015 increased by 15% compared to last year and amount to HRK 52,393 thousand or

24% of operating income.

Current assets comprise 19% of the Group’s assets and amount to HRK 66,195 thousand, which is by

5% or HRK 3,093 thousand higher compared to 2014.

Total non-current and current liabilities decreased by 3% or HRK 10,139 thousand.

52

3. Corporate governance code

The Group accepts and seeks to comply with the recommendations of the Corporate Governance Code

published on the Zagreb Stock Exchange website taking into account all the circumstances and

specifics of its business organisation. The Company has fulfilled and published the Annual corporate

governance code questionnaire on the Zagreb Stock Exchange website, the Company’s website and

the Official register of prescribed information.

4. Financial instruments and financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk,

fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group

does not have a written risk management programme, but overall risk management in respect of these

risks is carried out by the Company’s Management Board. The Management Board focuses mainly on

liquidity and credit risk, and acts on a case-by-case basis to mitigate all financial risks.

The Group does not use financial instruments which would be significant for assessing the

financial position and business performance.

Documents

METRONET TELEKOMUNIKACIJE d.d. - Zagrebačka · PDF filethroughout 21 counties in the Republic of Croatia. The parent of the Group is Metronet Telekomunikacije d.d. ... Agency as prescribed