Annual Report (ESEF) • Apr 24, 2024
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Texts, parts of texts and graphic images are protected by copyrights. Use of this data is possible only with prior consent. 3 Contact person Megi Drezga Janković Head of the Corporate Social Responsibility Committee Matoševa 8, 21 210 Solin [email protected] Publisher AD Plastik d.d. Matoševa 8, 21210 Solin For publisher Josip Divić Management Board Member for Finance, Controlling, Accounting and IT Editor Lori Vitaljić Graphic design Gingola d.o.o. Edition 10 IMPRESUM This pdf document is not the official format for publication of Annual report. All data in the report refer to December 31, 2023 GRI 2-3 4 Content ................................................. 4 ❶ A BRIEF OVERVIEW ............................... 5 In numbers ............................................ 6 Letter from the President of the Management Board ............................... 8 About the Integrated Report ................. 10 The most important events of the year .. 11 ❷ COMPANY PROFILE ............................. 14 About us .............................................. 15 Mission, Vision, Key values ................... 16 Company history .................................. 18 Production sites ................................... 19 Corporate matrix .................................. 20 Ownership structure ............................. 21 Overview of markets and customers ...... 24 Technologies ........................................ 26 Key products ........................................ 28 Research and development ................... 30 Production and sales ............................ 32 Quality ................................................. 34 ❸ CORPORATE GOVERNANCE ................. 37 Ethics and integrity ............................... 38 Governance structure ........................... 42 Supervisory Board ................................ 43 Management Board .............................. 48 Corporate functions .............................. 52 Management of subsidiaries ................. 54 ❹ MATERIALITY AND STAKEHOLDERS ..... 59 Identification of material topics ............ 60 Stakeholder involvement ...................... 64 ❺ SUSTAINABLE DEVELOPMENT ............. 67 Employees ............................................ 68 Environment ......................................... 92 Supply chain ...................................... 116 Community ......................................... 121 Economic impacts .............................. 127 ❻ RISKS AND OPPORTUNITIES .............................................. 132 Business risk ...................................................................... 134 Financial risks .................................................................... 138 Operational risks ................................................................ 141 Legislative risks .................................................................. 142 Opportunities ..................................................................... 142 ❼ FINANCIAL INDICATORS ..................................................... 143 ADPL share ........................................................................ 144 Financial results 2023 ........................................................ 147 EU Taxonomy ..................................................................... 156 Business plan for 2024 ....................................................... 165 ❽ GRI CONTENT INDEX .......................................................... 166 ❾ ESG INDICATORS INDEX ..................................................... 171 ❿ OPINION BY HR BCSD ......................................................... 178 ⓫ ANNUAL FINANCIAL STATEMENT ....................................... 181 AD Plastik d.d., Solin and its subsidiaries ........................... 182 183 Responsibility of The Management Board for the consolidated financial statements 184 Independent Auditor´s Report 192 Consolidated statement of comprehensive income 194 Consolidated statement of financial position 196 Consolidated statement of changes in shareholders’ equity 198 Consolidated statement of cash flows 200 Notes to the consolidated financial statements AD Plastik d.d., Solin .......................................................... 244 245 Responsibility of the Management Board for the separate financial statements 246 Independent Auditor´s Report 254 Separate statement of comprehensive income 257 Separate statement of changes in shareholders’ equity 258 Separate statement of cash flow 260 Notes to the separate financial statements 5 ❶ A BRIEF OVERVIEW 11 6 A BRIEF OVERVIEW 1882V 964V 5 8 COUNTRIESPRODUCTION SITES 1,860 AS OF DECEMBER 31, 2023 EMPLOYEES IN NUMBERS COMPARED TO 2022 COMPARED TO 2022 129.31 7.21-1.27 OPERATING REVENUE NET LOSS EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION) million EUR EUR EUR millionmillion +17.4% +1,142.6% 7624V 8713V 8911V 88.64 RATES 7A BRIEF OVERVIEW IN NUMBERS EUR 112 million NEW SEALED DEALS ALL EUROPEAN PRODUCTION SITES ESG score 2023 87% 76 552 points 8 A BRIEF OVERVIEW LETTER FROM THE PRESIDENT OF THE MANAGEMENT BOARD The automotive industry has been undoubtedly and unstoppably changing, and the external influences we have witnessed in recent years have further accelerated the transformation towards connected, sustainable, and safe mobility. After several years of uncertainty, we can finally say that there is a noticeable positive turn in the automotive market. This is also confirmed by the numbers of newly registered vehicles, which, compared to the previous year, have increased by 13.9 percent in the Euro- pean market. Accordingly, the orders of our customers have been growing, and the production of new vehicle models is also starting. In the past year, we had 30 active projects, six of which have started, and the start of serial production of another 21 projects is expected in 2024. The cycles of prepa- ration for the production of a large number of projects, the so-called project year as the 2023 year was, are particularly reflected in the dynamics of our development and industrialization activities. However, the start of serial pro- duction of new projects has had a positive effect on the company’s revenue and profitability, which we expect in the coming period. In the same way, our sales activities are maximally focused on better capacity utilization of the facto- ries and sealing new deals. During 2023 we sealed new deals worth another EUR 112 million, which is a total of EUR 317 million of new sealed deals in the last two years. This is the path we will certainly continue to follow in the coming periods. The financial business results of AD Plastik Group for 2023 confirm progress and the much-desired recovery of the market. The operating revenue of the Group in the reporting period increased by 17.4 percent compared to the previous year and amounted to EUR 129.31 million. Transformation of the automotive industry towards connected, sustainable, and safe mobility 21 2024 PROJECTS SERIAL PRODUCTION GRI 2-22 9LETTER FROM THE PRESIDENT OF THE MANAGEMENT BOARD increasing the utilization of renewable energy sources in order to reduce the impact on climate change. A motivating, healthy and safe business environment as well as constant improvement of internal processes are important guide- lines for our growth and development. The awards we receive from the professional public are an additional motivation in the reali- zation of strategy, and they were present in the observed period. I would like to particularly highlight the HRIO award in the category of sustainable corporate governance, the Ford Q1 quality certificate and the award for the best supplier for Eastern Europe awarded in Hungary. We are members of the founding assembly of UN Global Compact Croatia, and I am personally a member of the Manage- ment Committee, because in this way we want to further contribute to the promotion of sustainability and social responsibility. A year of realization of a large number of projects and the start of their serial production is ahead of us and our primary goal is to launch production cycles successfully, to the satisfaction of all stakeholders. At the same time, we pay special attention to the re- search and development of new products in order to reach a higher level of their complexity, improve our competitiveness, and main- tain the status of a reliable and quality partner. The new year has started with a quite dynamics, ambitiously and optimistically, and I believe that the good foundations laid in the previous period are a prerequisite for further strengthening our po- sition in the global market. We are determined in our promise to be leaders in sustainable development and responsible business, and accordingly we will continue to invest efforts and find innovative solutions to realize this. We are ready to take a leading role in the transformation of the industry towards a more sustainable future because we believe that caring for the environment is not only a prerequisite for success, but also a moral obligation of every organ- ization in today’s society. Marinko Došen President of the Management Board At the same time, our business expenses increased by only 3.4 percent, which confirms our focus on effective cost manage- ment. Revenue in the EU and Serbian markets was 20.6 per- cent higher, and its share in the Group’s total revenue grows, as planned, amounting to 88.3 percent. EBITDA at the Group lev- el was EUR 7.21 million, which is a significant increase com- pared to EUR 0.58 million achieved the year before. Progress in achieving financial results compared to the comparative period is evident, and the net loss of EUR 1. 27 million at the Group lev- el is many times lower than a year earlier. Unlike the net loss in 2022, the parent company ended 2023 with a net profit of EUR 1.04 million. Sales growth is evidence of the success of our strategy, but we also recognize the importance of balancing the influence of strategic customers in total sales. Through the conquest of new markets in Europe, our goal is to become one of the leading suppliers in the development and production of injection-mold- ed and painted exterior and interior components with added val- ue. We want to position ourselves as a tier one supplier of high reliability, cost and technical competitiveness, as well as market and development flexibility, with an emphasis on product design development in accordance with customer specifications and market requirements. Our mission is to be a desirable and tech- nologically modern employer, with a motivating reward system that ensures employee satisfaction and long-term business. Re- ducing the carbon footprint is indispensable part of our strate- gy in which we have clearly indicated sustainable business as a part of the strategic approach in all segments. The priority of the automotive industry is to reduce the weight of the vehicle, which is why polymer materials are used more and more. This is an opportunity we recognize to expand our product range and customer portfolio. We work intensively on materials research, including fully or partially recycled and plant-based raw materials, in order to find high-quality, sustainable and safe solutions for the vehicles of the future. Our strategy is based on the well-being of employees and stake- holders and transparent and responsible business with clear goals in the areas of environmental protection, corporate gov- ernance and social responsibility. We have been working in- tensively on reducing our carbon footprint and emissions and 10 A BRIEF OVERVIEW ABOUT THE INTEGRATED REPORT This is the seventh Integrated Annual Report of AD Plastik Group in a row and it contains all important information about the business in the report- ing period. All financial and non-financial indicators are presented in the period from January 1 to December 31, 2023, i.e. on December 31, 2023, and data from all business entities of the Group have been included. Serial production operations in Kaluga have been stopped, so its sustain- ability indicators are not included in this report, but are presented in com- parative periods in accordance with reports published in previous years. At the same time, the financial indicators are included in the audited con- solidated financial statements of the Group. Financial results of the affil- iated company in Romania have also been included in the financial state- ments using the equity method, but their sustainability indicators are not shown and are highlighted as an affiliated company in the communica- tion. AD Plastik Group consists of 100% owned companies shown in the corporate matrix on page 20 of this report. Reports on business operations and sustainability as well as annual finan- cial statements form an integral part of the integrated report so that all in- terested stakeholders can learn more about the social and environmental aspects important for the company and its business operations, as well as its management and influence. Sustainable business has been report- ed on since 2012, and this is the eleventh sustainability report prepared in accordance with GRI (Global Reporting Initiative) standards (General Disclosures 2021). The Integrated Annual Report of the Group is published on the website of the company, the Zagreb Stock Exchange and the UN Global Compact, and all interested stakeholders can obtain it on request in electronic or printed form. Business and calendar year coincide, and reporting is done in annual cycles. The Integrated Annual Report of the Group for 2022 was published on April 21, 2023, while the publication of this report is planned for April 24, 2024, as announced in the Events Calendar published at the end of 2023 on the website of the company and the Zagreb Stock Ex- change (page 146). The Sustainability Report is verified by the Croatian Business Council for Sustainable Development, an expert and independent body whose opinion can be found on page 179 of this report. AD Plastik Group is a member of HR BCSD, and the President of the Management Board is also the Presi- dent of their Assembly. The report details business and sustainability risks to provide a better understanding of business and the industry as a whole. All key indicators of sustainabil- ity are presented, and significant progress has been made in the internal understanding of sustainable business as the only possible way towards a success- ful future. By continuously raising awareness of the importance of sustainable business and certain ma- terial topics at all levels within the company, results are achieved that generate added value to society, the environment and the economy. The business re- sults achieved in the observed period have grown, and despite the challenging market environment, the im- provement of sustainable business continues in all segments. GRI 2-3 GRI 2-2 11A BRIEF OVERVIEW THE MOST IMPORTANT EVENTS OF THE YEAR HRIO IN THE CATEGORY OF SUSTAINABLE CORPORATE GOVERNANCE This year, AD Plastik is the winner of the HRIO award in the category of sus- tainable corporate governance. “Sus- tainable corporate governance is the basis of the development of the com- pany’s sustainability, because with sus- tainable management we contribute to the development of all other aspects, social, environmental and economic, and achieve their balance to the satis- faction of all our stakeholders. In this way, we increase transparency, eth- ics and responsibility, but above all we maintain credibility and trust. All our employees apply high principles of sustainability in their daily work and without their dedication and effort our success would not be possible. And for that, I thank them very much. Awards are always an additional incentive for us and we believe that by our example we contribute to the creation of positive changes in society and a better future”, said the President of the Management Board Marinko Došen when receiving the award. 12 THE MOST IMPORTANT EVENTS OF THE YEAR PRESTIGIOUS FORD Q1 QUALITY CERTIFICATE AWARDED TO THE ZAGREB FACTORY THE BEST SUPPLIER FOR EASTERN EUROPE The Zagreb factory of AD Plastik Group in Jankomir received one of the most prestigious quality certificates in the automotive industry - Ford Q1. Ford representative ceremoniously present- ed it to the President of the Manage- ment Board, Marinko Došen, and with the traditional raising of the Ford Q1 flag, the Zagreb factory was ranked among the highest quality suppliers of this global car manufacturer. “This is a great recognition for us that confirms the quality of delivered prod- ucts and the repeatability of our pro- cesses in the global market, which further strengthens our position as a desirable and reliable supplier and partner. Our focus on meeting the re- quirements of our customers, above all by delivering high-quality and per- formance products while meeting pre- cisely set deadlines, has shone in all its glory. We have been basing partnership relations with our customers on quality and trust for years, and this is another indicator of how successful we are in this regard. In these very demanding times when we all lack more good news, this certificate has a special value for all our employees. Even during this very demanding procedure, they have shown exceptional knowledge, quali- ty, and passion, and I am exceptionally thankful to them for that,” said Marinko Došen while receiving the certificate. As part of the ceremonial annual gathering organized by Samvardhana Motherson Peguform (SMP) for its most important suppliers in Hungary, an award ceremo- ny took place for the best partners. Among the many eminent names of the automotive industry, AD Plastik was declared the best supplier of SMP for Eastern Eu- rope, and assessment was based on product and ser- vice quality, development, communication, handling, accuracy and precision. “We are very proud of the award because it is a result of a lot of effort and work. Estab- lishing a good and professional relationship with the customer is extremely important and not always easy, but we succeeded in doing so. We al- ways try our best to meet the deadlines, be available, ensure clear communica- tion and represent customer’s interests. SMP has repeatedly expressed its sat- isfaction with cooperation with us, they see us as their strategic partner also in the future, and this is certainly an ad- ditional incentive for us to continue to achieve successful results with our customers,” said Marianna Bársonyné Agócs when receiving the award. The Ford Q1 certificate is an indicator of the exceptional quality of suppli- ers and is awarded to those who have achieved excellence according to differ- ent and extremely strict criteria. Certi- fication is conducted according to the one of the most demanding methodolo- gies in the automotive industry. 13THE MOST IMPORTANT EVENTS OF THE YEAR INVESTMENT THAT CONTRIBUTED THE MOST TO EXPORTS As part of the Lider Invest award cer- emony for the best production invest- ments in Croatia, at which the best small, medium and large production investments were awarded, AD Plastik was recognized for a special contribu- tion, namely for the investment that contributed the most to exports. „Our company’s strategic goals are the development and production of auto- motive components with added value, which the Ford project certainly is. It is one of the largest packages of exterior products, and its complexity is best il- lustrated by the fact that the production capacities of the factories in Solin and Zagreb have been engaged“, said Katija Klepo, Relations with State Institutions and Funds Consultant of the Manage- ment Board, when receiving the award. FOUNDING ASSEMBLY OF THE UN GLOBAL COMPACT NETWORK OF CROATIA The Founding Assembly of the Glob- al Compact Network of Croatia was held in the Croatian Employers’ Asso- ciation, and one of its founders is AD Plastik. The Charter of the Global Com- pact Network of Croatia was adopted, and a decision was made on the estab- lishment and submission of an appli- cation for registration of the Associa- tion. The Management Committee of the UN Global Compact of Croatia was also elected and given a mandate for further management and leadership of the network, and President of the Man- agement Board, Marinko Došen, is the member of the Management Commit- tee. The UN Global Compact’s local net- works, which include Croatia, promote corporate sustainability at the nation- al and regional level, helping compa- nies to understand local opportunities, challenges, and expectations. NEW DEALS New deals for the European mar- ket were sealed with the customer Stellantis during 2023 for various projects, i.e. vehicle models. The expected revenue from the afore- mentioned deals is EUR 112 million during the next five to eight years, which is the expected duration of these projects. 14 ❶ COMPANY PROFILE 22 15COMPANY PROFILE Quality, reliability and competitiveness are the fundamental values of long- term success and survival in the chal- lenging automotive market. The ex- pertise, knowledge and passion of the employees are woven into every prod- uct and process of the company. The ability to adapt to new materials, technologies, safety standards, as well as digitalization and robotization of processes enable successful coping with challenges. AD Plastik Grupa, as a multinational company, bases its busi- ness operations on close cooperation with the world’s leading car manufac- turers during the entire process, from the early stages of development to the final product. Over ten million car components are produced annually and exported to more than twenty countries on five con- tinents. Commitment to sustainable development in all business segments and high standards of quality and safe- ty are the basic premises of AD Plastik Group’s success in the upcoming evolu- tion of mobility. ABOUT US More than 35 years of experience in the development and production of automotive components puts AD Plastik Group in a leading position in Croatia and one of the most prominent positions in the supply chain of the Eastern European automotive industry. GRI 2-6 16 COMPANY PROFILE MISSION, VISION, KEY VALUES ADP MISSION Dedication to the development and delivery of the highest qual- ity automotive components, thereby contributing to the positive changes in safe, customized and sustainable mobility. Creating innovative solutions by understanding the needs of its customers and end users and operating in harmony with its environment. ADP VISION Recognisability for excellence in the development and production of automotive components and business relationships based on trust and partnership. Creating added value in the automotive market, taking care of safe and sustainable mobility, the satisfaction of all stakeholders and the preservation of the planet. 17MISSION, VISION, KEY VALUES KEY VALUES TOGETHERNESS Close cooperation and support at all levels are based on trust and taking responsibility. By sharing ideas and knowledge, respecting mul- ticulturalism, diversity and equality a better environment is created every day. INTEGRITY To be an example that others will gladly follow, doing what is being promoted and informing about what is being done. Relationship with all stakeholders is based on trust, open and honest communica- tion. RESPECT Long-term business and partnership rela- tions with all stake- holders are based on fairness and respect. EXCELLENCE The highest standards of quality, safety and sustainability are the premise for the vision realization. Through constant training and the possibility of personal and business development as well as growth of each individu- al, the aim is to strive for the best way of working. Constant exploring of areas of growth and innovation is the best response to challenges, and the passion invested in products makes them better and better. RESPONSIBILITY Responsibility for the quality and safety of our prod- ucts, for which dedication and thoroughness are basic standards. Showing our dedication by committing to the successful realization of results and creation of the added value, through a positive impact on society. Taking care about the sustainable future of the company, employees, community and the planet. 18 COMPANY PROFILE 1992 1995 2012 2017 1952 1994 2002 2014 2018 continued operations under the name Autodijelovi production sites in Zagreb and Vintai, Russia production sites in Mladenovac, Serbia and Kaluga, Russia new robotized interior painting line in Zagreb establishment of Jugoplastika an original predecessor official name change into AD Plastik production site in Romania - JV company Euro APS new robotized painting line in Zagreb production site in Tiszaújváros, Hungary COMPANY HISTORY 19COMPANY PROFILE AD Plastik d.d. Matoševa 8, Solin, Croatia AD Plastik, Zagreb I, Hrvatska AD Plastik, Zagreb II, Croatia AD Plastik Tisza Kft. Tiszaújváros, Hungary AD Plastik d.o.o. Novo Mesto, Slovenia Euro Auto Plastic Systems S.R.L. Mioveni, Romania ADP d.o.o. Mladenovac, Republic of Serbia ZAO AD Plastik Kaluga * Kaluga, Russian Federation * AD Plastik Kaluga has stopped production operations AO AD Plastik Togliatti Vintai, Samara, Russian Federation AFFILIATED COMPANY PRODUCTION SITES HEADQUARTERS AD PLASTIK GROUP PRODUCTION GRI 2-1 GRI 2-2 20 COMPANY PROFILE CORPORATE MATRIX AD PLASTIK d.d. Solin, Croatia 50% 100% 100% 100% 100% Euro Auto Plastic Systems S.R.L. Mioveni, Romania AD Plastik d.o.o. Novo Mesto, Slovenia AD Plastik Tisza Kft. Tiszaújváros, Hungary ZAO AD Plastik Kaluga Kaluga, Russian Federation AO AD Plastik Togliatti Vintai, Samara, Russian Federation 100% ADP d.o.o. Mladenovac, Republic of Serbia GRI 2-1 21COMPANY PROFILE 3030+2828+2323+1313+55+11+TT OWNERSHIP STRUCTURE 30.00% AO HAK 13.17% Management, employees and ex-employees 30.05% Small shareholders 4.35% Other institutional investors 21.51% Pension funds 0.92% Treasury shares As of December 31, 2023, the company owned 38,428 shares, i.e. 0.9 percent of the share capital. GRI 2-1 22 OWNERSHIP STRUCTURE Shareholder Number of shares Share 1 AO Holding Avtokomponenty 1,259,875 30.0% 2 Privredna banka Zagreb d.d. / Raiffeisen MPF category B 454,939 10.8% 3 Raiffeisenbank Austria d.d. / Raiffeisen voluntary pension fund 205,458 4.9% 4 Erste & Steiermarkische bank d.d. / PBZ CO MPF - category B 115,199 2.7% 5 Katija Klepo 67,633 1.6% 6 OTP banka d.d. / OTP Index fund - Open investment fund with a public offering 51,256 1.2% 7 Privredna banka Zagreb d.d. / Raiffeisen MPF category A 43,538 1.0% 8 Ivica Tolić 40,881 1.0% 9 Josip Boban 40,000 1.0% 10 AD Plastik d.d. 38,428 0.9% 2,317,207 55.2% 10 LARGEST SHAREHOLDERS The ten largest shareholders own 55.2 percent of the com- pany’s shares, and compared to the year before, the identical composition was maintained, with minor changes in the or- der. PBZ CO MPF category B reduced the number of its shares by 6,781, while OTP index fund - OIF with public offering in- creased its position by 9,248 shares. AD Plastik d.d. disposed of 2,220 shares as employee excellence awards. 23 “You are what you do, not what you say you‘ll do.“ Carl Gustav Jung 24 COMPANY PROFILE Mexico India OVERVIEW OF MARKETS AND CUSTOMERS Brazil Argentina Morocco Belgium Czech Rep. France Italy Hungary Germany Poland Romania Russia Serbia Slovakia Slovenia Spain Sweden Great Britain Taiwan Turkey South Korea GRI 2-6 25OVERVIEW OF MARKETS AND CUSTOMERS Turkey Euro APS, JV Romania Slovenia Hungary Slovakia Poland Czech Rep. Italia Sweden Belgium Russia Spain Great Britain Germany France Serbia Romania 26 COMPANY PROFILE TECHNOLOGIES THERMOFORMING BLOW MOULDING Croatia Zagreb I INJECTION MOULDING EXTRUSION PAINTING Technological improvements, digitalization, robotization, new materials, processes and possibilities that contribute to product safety and quality are the fundamental guide- lines for the development of the automotive industry and AD Plastik Group. The development and improvement of production processes, their supervision and increase in efficiency are constant activities, and the representation of individual technologies is adapted to the needs of the markets and customers and to the overall technological development of the automotive industry. The key technologies are injection moulding (all production sites) and painting (Zagreb), and the Group’s portfolio also includes extrusion (Solin), blow-moulding (Mladenovac, Tiszaújváros) and thermoforming (Mladenovac, Vintai). Although the production of automotive components is the main activity of the company, a number of additional servic- es are provided during the process that bring added value. One of the most important and increasingly common servic- es is the assembly of car parts, which means that custom- ers receive products completely prepared for further use. Assembly involves very complex processes that require knowledge and experience, and often the automation of the process itself, therefore it has been assessed as a service that will be specially improved in the coming periods. Ultrasonic and vibration welding, hot stamping, automatic gluing, finallaserprocessingand automatic product control also represent added value to the Group’s production pro- cesses. Croatia Solin, Zagreb 1, Zagreb 2 Hungary Tiszaújváros Serbia Mladenovac Russia Vintai, Kaluga GRI 2-6 27 “If you really want to do something, you‘ll find a way. If you don‘t, you‘ll find an excuse.“ 28 COMPANY PROFILE KEY PRODUCTS EXTERIOR COMPONENTS • Front and Rear Bumpers • Front Grille and Air Ducts • Fender Protectors and Rocker Claddings • Spoilers • Rear Door Trim (tailgate) • License Plate Light Holders • Underbody Covers and Battery Covers • Deflectors, Cooling Fan Motor Brackets • Air Distribution Ducts GRI 2-6 29KEY PRODUCTS INTERIOR COMPONENTS • Door Panels • Central Console • Instrument Panel and related parts • Grab Handles • Glass Run Channels • Small injection-moulded components 30 COMPANY PROFILE RESEARCH AND DEVELOPMENT The company’s research and development activities are focused on the implementation of existing projects, but at the same time on the development of new materials and components which follow the trends and development of the automotive industry. Realization of development activities is the basic premise of the compa- ny’s growth and development, and the year 2023 was very intensive in terms of research and development. The preparation of new projects required a great deal of involvement in the real- ization, validation and establishment of production processes for a whole range of exterior and interior compo- nents and modules for different vehi- cle models. As a development suppli- er, the company is responsible for the development of products, process- es, tools and process equipment and their validation, and in the reporting period, work was carried out on front and rear bumpers, their components, roof spoilers, rocker claddings, door panels, wheel arch liners and parts of the instrument panel. More com- plex modules and components are increasingly common in AD Plastik Group’s product portfolio, as well as vehicles from completely different segments, from small ones to sports, off-road and luxury vehicles. GRI 2-6 31RESEARCH AND DEVELOPMENT The so-called carry over practice is in- creasingly applied, i.e. the multiple use of the same or similar product on differ- ent vehicle models, with the use of ex- isting production tools or devices where possible. This reduces the consumption of materials and energy when making tools, and consequently the production costs. Raising competences through research activities is necessary for the growth of competitiveness and the expansion of the company’s product portfolio, so that sector was also quite dynamic in the past period. There has been inten- sive and interactive work on gathering the knowledge necessary for the de- velopment of an all-plastic module for the rear door trim, the development of high-gloss products for exterior com- ponents, and the development of recy- clable ecological materials that can be applied to components of the bumper. The transformation of the automotive industry is unstoppable, safe and sus- tainable mobility and additional servic- es that enable connection with the vehi- cle, the environment and the world for end users are at the center of events. Taking into account the reduced range of electric vehicles on a single charge of the battery, activities within the in- dustry are focused on increasing the capacity and utilization of batteries and on reducing the weight of the vehicle. Thus, more and more metal parts in cars are replaced by plastic ones, which reduces their weight and carbon foot- print, and at the same time increases the driving range of electric versions. Reducing the carbon footprint has no alternative and sustainability is un- doubtedly the top priority in the auto- motive industry, which is confirmed by the historically greatest activity within the research and development teams. AD Plastik Group is actively planning to expand its production portfolio in or- der to support the goals of sustainable development, strategically oriented to- wards the circular economy and encour- agement of the use of recycled materi- als. Intensive work has been done with customers and suppliers to find quality and environmentally friendly solutions. Many years of experience and knowl- edge are used to develop new solutions aimed at reducing vehicle weight, while meeting functional, safety and aesthet- ic requirements. In cooperation with the development centers of suppliers and customers, knowledge and capa- bilities for the development of complex products are confirmed and improved. Competencies focused on the design of products, processes, tools and equip- ment, as well as production capabilities, are key elements of the company’s fur- ther growth and development. since 2012 17% average CO 2 emissions from new cars have decreased by 8317V CO 2 32 COMPANY PROFILE PRODUCTION AND SALES The automotive industry is one of the European Union’s economic jewels, which has significantly been contributing to economic growth, prosperity and development of innovative technologies for the past 50 years. Almost 13 million Europeans are employed in the automotive sector, which accounts for more than seven percent of the European Union’s GDP. The automotive industry has been facing significant transfor- mations, and external influences in recent years have further accelerated this process. New regulations, i.e. environmental, social and management initiatives for the achievement of sus- tainability goals, were also a major driver of changes within the industry. It requires changes to the entire business mod- els because compliance and risk management are no longer enough to achieve desired goals. Although in recent years the electrification of vehicles has been one of the most important topics, it seems to have come under little scrutiny in terms of the speed of consumer accept- ance. Price competitiveness and driving range are some of the most important obstacles to overcome. At the same time, some new players from China and India are appearing on the global automotive stage, which is a serious challenge to estab- lished and globally well-known car manufacturers. Although at the moment it is almost impossible to compete in price with asian vehicles, solutions at the European Union lev- el will certainly be found in cooperation with the stakeholders. Achieving price competitiveness requires time, but also a sig- nificant increase in production, i.e. sales of electric vehicles. Although they are undoubtedly more energy efficient, their production has almost twice the carbon footprint due to the battery itself, whose disposal and replacement cost are also a serious challenge. Therefore, it is not surprising that there are more and more discussions about new sources of clean ener- gy such as the development and implementation of renewable diesel, hydrogen fuel cells, ammonia-based fuels and liquefied natural gas (LNG). The introduction of 5G vehicle-to-vehicle (V2V) communica- tion is also expected to be a revolution that will keep improv- ing efficiency, safety and the overall data-driven driving expe- rience, which is key to the advancement of smart cities and GRI 2-6 33PRODUCTION AND SALES Despite all the pressures coming down on the automotive industry, car ma- nufacturers confidently move forward towards the future, and 2024 is already considered a year of mild optimism. Data source: acea.be 3535+2626+1515+13138833QQ 35.3% Petrol 25.8% Hybrids (HEV) 14.6% Battery (BEV) 13.6% Diesel 7.7% Electric hybrids (PHEV) 3.0% The others autonomous driving. Despite all the promises and excitement of futuristic mobility, the industry has also been facing the challenge of maximizing re- turns to investors. In order to be more efficient and to face the challenges of labor shortage more easily, the consolidation of the industry continues and new strategic partnerships which will ensure more secure access to re- sources and capacities are announced. The European automotive industry is a leader in sustainability and decar- bonization, and 31 percent of total European investments in research and development refer precisely to this sector. This laid the foundations for a secure future despite the daily challenges of the market. The crisis of the lack of semiconductors has finally stabilized, but the ge- opolitical and macroeconomic situation continues to affect business. AD Plastik Group has completely focused its sales activities on the European market, for which it has sealed new deals worth EUR 317 million in the past two years. Sales activities have been intensified and directed towards seal- ing new deals and raising the level of capacity utilization of all the Group’s European factories. The number of newly registered vehicles in the EU market in the reporting period increased by 13.9 percent compared to the previous year, so a total of 10.5 million new passenger vehicles were registered. This is a signifi- cant growth that confirms the recovery of the automotive industry, although the pre-pandemic figures will be very difficult to reach. Growth in sales of new vehicles was recorded in all EU markets, except Hungarian. Thus, Italy recorded growth of 18.9 percent, Spain 16.7 percent, France 16.1 percent, and Germany, despite a significant drop in sales in December, recorded growth of 7.3 percent. The Volkswagen Group continues to hold the largest share in sales in the EU market with a 26.1 percent share and it recorded a sales growth of 18 percent, followed by Stellantis with a share of 17.8 percent and sales growth of 2.9 percent, and the Renault Group, holding a share of 10.9 percent, and a sales growth of 16.9 percent. The share of electric vehicles in total EU sales has also been growing, reaching 14.6 percent in 2023, which is an increase of 37 percent com- pared to the previous year. Although in Decem- ber 2023, for the first time in almost three years, a serious drop in sales of electric vehicles was recorded, as expected, they overtook the share of diesel vehicles, which took third place in terms of market representation, with a stable 13.6 per- cent share. The largest market share is still held by gasoline vehicles with 35.3 percent, which is a slightly smaller share than the year before, although their sales increased by 10.6 percent. In second place are hybrids with a share of 25.8 percent and sales growth of 29.5 percent com- pared to 2022. 34 COMPANY PROFILE QUALITY Despite the circumstances and challenges, the high level of commitment to quality and customer satisfaction has no alternative in AD Plastik Group’s business operations. Continuous monitoring and analysis of external and inter- nal indicators and events, impact on business and expec- tations of various interested parties, primarily customers, suppliers and employees, ensure timely recognition of op- portunities and risks and the effectiveness of the qual- ity management system. Compliance with international norms and standards additionally confirms commitment to quality, environmental protection, health, occupational safety, energy efficiency and information protection. Given the importance of quality within the automotive in- dustry, the senior management of the company actively participates in setting goals and business plans, ensures the efficiency of business processes and supervises the implementation of defined plans and programs. At the same time, activities and ideas for improving the quali- ty management system are encouraged, guidelines for achieving the satisfaction of all stakeholders are adopt- ed and the necessary resources to achieve the planned results are provided. The regular monitoring of the processes by customers continued in 2023, so during the year 22 customer checks were successfully carried out, of which 19 were at produc- tion sites in Croatia, two in Serbia and one in Hungary. In 2024, certification of the Hungarian site according to the Tisax standard is planned, and the standards have been withdrawn at the Russian sites due to sanctions. Many years of experience, capitalized knowledge, experienced employees and the constant introduction of new tools and engineering solutions ensure the quality of delivered products and customer satisfaction. 35QUALITY IATF 16949 ISO 14001 ISO 45001 ISO 50001 ISO 27001 Tisax label Ford Q1 Solin Croatia Zagreb Croatia Mladenovac Serbia Tiszaujvaros Hungary Thesupervisionovercertificatesiscarriedout once a year by Bureau Veritas Certification (BVC) at all production sites, except for the AD Plastik Tisza production site where it is carried out by Det Norske Veritas (DNV). GLOSSARY • IATF 16949 Automotive Quality Management System • ISO 14001 Environmental Management System • ISO 45001 Occupational Health and Safety Management System • ISO 50001 Energy Management System • ISO 27001 Information Security Management System • TISAX ® Information security system for the automotive industry CERTIFICATES 36 “Where hands are needed, words are useless.“ Ezop 37 ❶ CORPORATE GOVERNANCE 33 38 CORPORATE GOVERNANCE ETHICS AND INTEGRITY In accordance with its mission and vision, AD Plastik Group continuously strives for development, progress and improvement of business to the satisfaction of all stakeholders. Corporate social responsibility and high standards of corporate governance are the basis of all business activities. The company’s corporate culture is based on high ethical standards, protection of human rights, transparency, fair- ness and security, all with the aim of long-term growth and development as well as sustainable business at all levels. Standards of ethical business are defined by the Code of Business Conduct of AD Plastik Group, with which all em- ployees are acquainted, and which can be found on the company’s internet and intranet websites. At all sites of the Group, each new employee receives a printed copy of the Code, which also contains the company’s policies, and it pre- scribes how to report behavior that is not in line with the company’s values. The Code of Business Conduct contains the following policies: • Diversity and Equal Opportunities Policy • Anti-Corruption Policy • Antimonopoly Policy, • Energy Management Policy • Sustainable Supplier Management Policy • Quality Policy • Environmental Protection Policy • Occupational Health and Safety Policy • Human Rights Protection Policy • Corporate Security Policy GRI 412-1 GRI 205-2 GRI 2-23 GRI 2-23 39ETHICS AND INTEGRITY The stated policies represent a clear de- termination of the company and further implementation of the prescribed princi- ples is incorporated into the processes of individual departments and the Group as a whole. They are applied in all business processes and are an integral part of in- ternal rules of procedure, procedures and regulations. They are covered in more de- tail in the description of the management of each individual material topic. Continu- ous improvements of the effectiveness of the system in various areas of sustaina- bility are also carried out through internal analyses, in accordance with regulations in the field of sustainability. By applying the Corporate Governance Code of the Zagreb Stock Exchange and HANFA, the transparency of corporate governance is promoted, which is also confirmed by questionnaires on compli- ance and management practices that are filled out regularly. The inadmissibility of donations that do not meet the Group’s integrity standards and do not comply with local regulations is regulated, among other things, by the Anti-Corruption Policy. The entire pro- cedure is described in the Rulebook on Donations and Sponsorships. The prin- ciple of free market competition is con- sistently respected and, according to the Antimonopoly Policy, agreements that may threaten these principles are strict- ly prohibited. As a confirmation of our orientation and implementation of diversity and non-dis- crimination policies, the company is one of the first to sign the Diversity Charter in cooperation with HR BCSD, and the Pres- ident of the Management Board, Marinko Došen, is also an ambassador of diver- sity. AD Plastik Group deeply promotes diversity, because the creativity, skills and personalities of individuals create an innovative business environment and the basis of the company’s long-term success. No form of harassment or dis- crimination in the workplace is tolerated, and there was not a single reported case of discrimination or violation of human rights during the reporting period. All of the above is the company’s compass when planning and implementing activ- ities, and the Main Strategy 2023-2030 adopted by the Management Board and then approved by the Supervisory Board is based on that. The aforementioned strat- egy undoubtedly emphasizes sustainable business as a key component of business guidelines for the coming period. During 2023, the Corporate Social Re- sponsibility Committee, established eight years ago, considered the creation of a new independent strategy on sus- tainability, with clearly defined goals, deadlines and action plans, in accord- ance with the above-mentioned Com- pany’s Main Strategy. Considering the new regulatory obligations and Europe- an standards for sustainability report- ing, the priority of the work in the re- porting period was still the education of the members of the Committee and a thorough analysis of the new require- ments and standards. All activities of the Committee are regularly reported at the Management Board meetings, and they report directly to the President of the Management Board. The fact that the member of the Management Board for finance, accounting, controlling and IT is also a member of the Committee greatly contributes to communication with the Management Board. GRI 205-2 GRI 2-17 GRI 406-1 GRI 412-1 GRI 2-12 GRI 2-13 GRI 2-24 40 ETHICS AND INTEGRITY Separate communication channels have been established in the company for the most important groups of stakeholders in order to establish focused and effective communication on all important topics and issues of special concern. Investors, for example, regularly and directly address the person in charge of investor relations, whose contact information is also pub- lished on the company’s website, and they can ensure greater involvement by joining the Association of Small Shareholders. Customers and suppliers express their concerns through spe- cialized portals or regular communication channels with the company’s professional staff. Most communication tools are provided to employees who can express their concern directly or anonymously. In addition to various communication tools, which are described in more de- tail in the rest of the report, there is also a separate e-mail ad- dress for employee questions of special concern. All incoming inquiries are processed regularly and most of them are pub- lished in the internal newsletter, if they are about topics im- portant to larger groups of employees. In the observed period, there were no inquiries expressing concern, and communica- tion with employees and their representatives was regular. Separate processes of remediation of negative impacts are not specially structured, except for employees, which is de- fined by a separate rulebook. Two persons of different genders have been appointed to receive complaints and protect the dignity of employees, and the complaints process and meth- ods of resolution are confidential. The company advocates transparent public advocacy of the interests of industry, economy and sustainable development through business and interest organizations and opposes any material support of political parties. During the reporting period, there were no cases of non-com- pliance with laws and regulations, nor non-compliance or ir- regularities related to the prescribed code and policies, so no monetary or other sanctions were imposed accordingly. EMPLOYEES CUSTOMERS SHAREHOLDERS SUPPLIERS Trade unions and workers’ council Academic community Investors and analysts Creditors Local community State institutions and local administration bodies KEY STAKEHOLDERS secondary stakeholders GRI 2-16 GRI 2-26 GRI 2-25 GRI 415-1 GRI 2-27 GRI 205-3 GRI 206-1 41 “If you have a goal, you will find a way.“ 42 CORPORATE GOVERNANCE AUDIT COMMITTEE REMUNERATION COMMITTEE APPOINTMENT COMMITTEE GOVERNANCE STRUCTURE GENERAL ASSEMBLY The corporate governance structure is based on a dualist system consisting of a Management Board and a Supervisory Board, which, together with the General Assembly and the Audit Committee, make the four key functions of the company. The company’s shareholders exercise their rights at the General Assembly, where decisions are made on key issues such as the election and removing from the office of members of the Super- visory Board, appropriation of profit, granting clearance to Man- agement Board and Supervisory Board members, appointment of auditors, amendments to the Charter, increase or decrease of share capital and other important issues provided by law. On July 20, 2023, the regular General Assembly of AD Plastik d.d. was held at the company headquarters in Solin, at which 2,600,946 votes were present or represented, which is 61.9 per- cent of the total number of shares and share capital of the com- pany. In accordance with the law and the Charter, the Assembly con- sidered the Annual Report on the status of the Group for the year 2022, as well as the report of the Supervisory Board on the per- formed supervision. Decisions were adopted on covering losses, granting clearance to the members of the Management Board and the Supervisory Board for 2022, appointing the Auditor for 2023, and approving the Remuneration Report of the members of the Management Board and the Supervisory Board for 2022. Also, decisions were adopted on the adjustment of the share capital and the nominal amount of shares, the amendment of the Charter for the adjustment with the euro, the amendments to the Rules of Procedure of the General Assembly and the elec- tion of a member of the Supervisory Board. GENERAL ASSEMBLY MANAGEMENT BOARD SUPERVISORY BOARD GRI 2-9 43CORPORATE GOVERNANCE SUPERVISORY BOARD The General Assembly appoints the majority of members of the Supervisory Board who perform a supervisory and strategic role. The Supervisory Board protects the interests of shareholders through various activities and mechanisms, approving certain op- erations according to the Charter. It also participates in strategic action through the authorization of decisions, evaluation of previ- ous strategies and advisory support to the Management in realiz- ing the company’s vision. The Supervisory Board consists of seven members, four of whom are appointed by the General Assembly, one by the Workers’ Council and two by the shareholder - Holding Avtokomponenty Joint Stock Company. Their term of office lasts four years and they can be reappointed. In 2021, the Profile of the Supervisory Board 2021 was adopt- ed, which ensures diversity in the expertise, education, skills and experience of the members in order to adequately supervise the business, taking into account the business model and strategy of AD Plastik Group and the markets in which they operate. In 2023, four regular and one extraordinary meeting of the Super- visory Board were held, in accordance with the Events Calendar. All members of the Supervisory Board took part in decision-mak- ing at the meetings, respecting the Rules of Procedure of the Su- pervisory Board, which are available on the company’s website. In the dualistic model of corporate governance, the Supervisory Board assumes the function of controlling, supervising and monitoring the business. GRI 2-9 GRI 2-10 44 SUPERVISORY BOARD Sergey Dmitrievich Bodrunov President IvicaTolić Vice President Igor Anatolyevich Solomatin member Ivka Bogdan member Alina Viktorovna Koretskaya member AndjelkaČulo member BožePlazibat member • term of office from July 20, 2020 to July 20, 2024 • appointed by the shareholder – AO Holding Avtokomponenty • term of office from August 24, 2020 to August 24, 2024 • appointed by the General Assembly • 40,881 ADPL shares • independent member - in accordance with the Zagreb Stock Exchange Code • term of office from July 25, 2023 to July 25, 2027 • appointed by the General Assembly • term of office from February 1, 2023 to February 1, 2027 • appointed by the General Assembly • 20,000 ADPL shares • independent member - in accordance with the Zagreb Stock Exchange Code • term of office from July 20, 2020 to July 20, 2024 • appointed by the shareholder – Holding Avtokomponenty • term of office from May 14, 2020 to May 14, 2024 • appointed by the Workers’ Council • employee representative • term of office from February 1, 2023 to February 1, 2027 • appointed by the General Assembly • independent member - in accordance with the Zagreb Stock Exchange Code MEMBERS OF THE SUPERVISORY BOARD Curriculum vitae of Supervisory Board candidates are published as part of the materials for the General Assembly when selecting new members, and relevant individual competencies are detailed in them. GRI 2-9 45SUPERVISORY BOARD EVALUATION REPORT OF THE SUPERVISORY BOARD In accordance with the Company’s Charter, the Supervisory Board operates in its full composi- tion of seven members (three female members and four male members), elected or appointed in accordance with the Act, internal acts and Diver- sity Policy, which is assessed as the optimal num- ber for the effective performance of duties. Mem- bers of the Supervisory Board have high moral standards, different knowledge, skills and profes- sional and practical experience required to prop- erly perform their tasks, while meeting also the special requirement that at least one member of the Supervisory Board is an expert in accounting and/or audit of financial statements. Most mem- bers also have international experience, which is of particular importance given that AD Plas- tik Group operates in the international market. In the described way, the necessary balance was established in the composition of the Superviso- ry Board not only in terms of skills, experience and competencies, but also in terms of age and gender. The appropriate level of representation of women is supported (over 40 percent in the current composition), which meets the goals and guidelines set out in the Profile of the Supervisory Board, which was adopted at the meeting held on December 16, 2021. During 2023, the Supervisory Board and its com- mittees regularly held their meetings with the participation of all members who function well, have a balanced composition and the necessary expertise, in line with the company’s business re- quirements, performing thereby their roles and re- sponsibilities appropriately and efficiently. Consequently, the Supervisory Board assesses that all its individual members and members of its committees are competent to perform tasks that fall within the competence of the Superviso- ry Board and its committees according to the law, and that each member in 2023 significantly con- tributed to their work. The Supervisory Board also assesses that the joint work and cooperation of all members of the Supervisory Board and its committees in 2023 was satisfactory and that their work was overall successful. The Executive Director of Legal Affairs, who also performs the duties of the company’s secretary, provided administrative support in an efficient and timely manner in the preparation of the meet- ings of the Supervisory Board and its committees. The Supervisory Board supports the compa- ny’s commitment to pay significant attention to the aspect of diversity and, in addition to the much-needed expertise and experience of candi- dates, and it will be taken into account in future proposals for election and appointment to the Su- pervisory Board. The Management Board and the Supervisory Board work closely together for the benefit of the company. During 2023, the Management Board regularly submitted reports to the Superviso- ry Board prescribed by law and kept it informed of all important business events, business flow, revenue and expenses, all deviations of business events from the original plans and the general condition of the company. Consequently, the Su- pervisory Board assesses that their relationship with the Management Board in 2023 was correct. This Evaluation report of the Supervisory Board and its committees was discussed and approved at the meeting of the Supervisory Board held on March 7, 2024, and no external evaluators were engaged in the evaluation process. GRI 2-18 46 SUPERVISORY BOARD SUPERVISORY BOARD COMMITTEES At their meetings, the committees make recommendations to the Supervisory Board, thus enabling it to deal more effective- ly with a larger number of more complex issues. Supervisory Board of the company has formed three committees, which act as its advisory and subsidiary bodies. The company meets the re- quirement of Article 104 of the Zagreb Stock Exchange Rules, pursuant to which at least one member of the Au- dit Committee must be in- dependent. AUDIT COMMITTEE The Audit Committee monitors the process of financial report- ing, the correctness of accounting policies and makes recom- mendations on the engagement of an external auditor. It also considers the effectiveness of the external auditor and the ac- tions of the Management Board and the Supervisory Board ac- cording to the external auditor’s recommendations. In 2023, five meetings of the Audit Committee were held, and all members participated in all meetings, either physically or in writing. At the meetings, the reports on the implementation of the Annual Internal Audit Plan for 2022, the implementation of the policy on the provision of non-audit services in 2022, and the supervision of the implementation of the statutory audit of consolidated and non-consolidated annual financial state- ments for 2022 were discussed. The Audit Committee made recommendations to the Supervisory Board on the adoption of those reports, the draft decision on loss coverage, the ap- pointment of auditor for the year 2023, and the adoption of the Annual Internal Audit Work Plan. President Members IvicaTolić BožePlazibat Alina Viktorovna Koretskaya Igor Anatolyevich Solomatin 47SUPERVISORY BOARD REMUNERATION COMMITTEE The Remuneration Committee proposes the remuneration policy of the Man- agement Board, awards for members of the Supervisory Board approved by the General Assembly and the appropriate form and content of contracts with members of the Management Board to the Supervisory Board. In 2023, two meetings of the Remuneration Committee were held, and all members of the committee participated, either physically or in writing. At the meetings, draft changes to managerial contracts with the president and members of the Management Board, as well as the conclusion of additional agreements to those contracts were discussed. It was proposed to the Su- pervisory Board to adopt a decision accepting the above-mentioned drafts, in order to comply with the goals set out in the Company’s Main Strategy and the Management Board Members’ Remuneration Policy. In addition, the draft decision on non-payment of awards to the president and members of the Management Board due to negative business results in 2022 as well as the draft Remuneration Report of members of the Management Board and the Supervisory Board for 2022 were discussed. President Members Ana Luketin Igor Anatolyevich Solomatin IvicaTolić APPOINTMENT COMMITTEE The Appointment Committee proposes can- didates for members of the Management Board and the Supervisory Board and as- sesses the quality of their work. When pro- posing candidates, it takes into account the goals of the Diversity Policy, which refers to the selection of members of the Superviso- ry Board and the Management Board. In 2023, one meeting of the Appointment Committee was held, in which all members participated, either physically or in writing. At the meeting, a decision was made on the proposals of candidates for members of the Supervisory Board, and a member of the Appointment Committee itself. President Members IvicaTolić Nenad Škomrlj Igor Anatolyevich Solomatin STATEMENT ON THE REMUNERATION POLICY FOR SUPERVISORY BOARD MEMBERS In 2021 the General Assembly adopted a Decision on the re- muneration of Supervisory Board members for a four-year pe- riod, which was applied also in 2023. Decision is based on the principles of ensuring quality and professional members of the Supervisory Board, in order to achieve the company’s mission and long-term strategy, and for the benefit of all its stakeholders. This ensures the trans- parency of the remuneration of the Supervisory Board mem- bers, taking into account various external and internal ele- ments, economic conditions, employee remuneration and best practices. Members of the Supervisory Board are entitled to remunera- tion for their work and for the participation in the work of the committees of the Supervisory Board, in order to ensure inde- pendence and avoid conflicts of interest. Remuneration does not depend on the company’s results, but is determined in a fixed amount. The amount of remuneration depends on the function of each member of the Supervisory Board and remu- neration is paid once a quarter. For those members who are also members of the Supervisory Board’s committees, remu- neration payments for the work in committees are made after the individual meetings. GRI 2-10 48 CORPORATE GOVERNANCE MANAGEMENT BOARD The Management Board regularly sub- mits reports on operations to the Super- visory Board and once a year submits a report on the state of the company to the General Assembly. The Management Board is responsible for convening regu- lar meetings of the General Assembly and defining corporate functions and their tasks, for quality management of busi- ness risks and economic, environmental and social impacts of the company. The Supervisory Board regularly as- sesses the performance of the Manage- ment Board according to business per- formance indicators and maintaining a positive image of the company, and the Management Board also independently conducted a self-assessment of its work for the year 2023. According to the Charter, the Management Board can consist of three to eight mem- bers, and currently there are four members in the Management Board. The term of of- fice of the members of the Management Board lasts up to five years, with the pos- sibility of re-appointment without limita- tion of the number of terms of office. Each member of the Management Board repre- sents the company individually and inde- pendently, and they are chosen according to their expertise and experience. When choosing candidates, the focus is to select people with experience and knowledge in the field of industry, who are aware of the size of the company and all the tasks set by the mission and vision. Also, the person- al qualities and integrity of the candidate are extremely important. The company implements the Succes- sion Plan in accordance with the Diversi- ty Policy of the Management Board and the Supervisory Board members, which is published on the company’s website. The target percentage of at least 25 per- cent of female members in the Super- visory Board has been realized, while in the Management Board that share will be realized in a defined five-year peri- od. During 2023, no new members of the Management Board were appointed, so accordingly the progress of the target percentage of women in its composition was not achieved either. In 2023, there were no external trainings of the Management Board on sustainabili- ty, as it is estimated that regular participa- tion in conferences, round tables and the- matic meetings on sustainability, as well as participation in work of professional bodies are a sufficient basis for improving the collective knowledge of the Manage- ment Board on this topic. Established in- ternal processes and regular reporting to the Corporate Social Responsibility Com- mittee also contribute to this. The growing interest of stakeholders in information about the green transition and the reduction of the carbon footprint is evident, so one of the most important topics for the Management Board’s as- sessment in 2023 was energy efficiency. An internal evaluation of the existing pro- cedures and processes was carried out, and despite the satisfactory results, ad- ditional activities were planned and clear goals were set, including the purchase of new, more energy efficient equipment and the implementation of internal workshops and trainings. In the reporting period, the emphasis was on improving energy effi- ciency and timely analysis of the current situation in relation to new corporate re- quirements on sustainability. The Management Board also cooper- ates with external stakeholders in order to monitor the processes of recognition and management of the company’s im- pacts on the economy, environment and people, especially when defining and ap- proving material topics. Feedback from stakeholders is taken into account when making decisions, which are then adopt- ed by the Supervisory Board. Management Board is the leading body of the company that conducts its entire business on its own responsibility. Its basic tasks include representing the company, adopting the financial statements and the integrated annual report and submitting them to the Supervisory Board for approval, together with the decision on the appropriation of profit. GRI 2-17 GRI 2-18 GRI 2-10 GRI 2-14 GRI 2-17 GRI 2-12 GRI 2-14 49MANAGEMENT BOARD MANAGEMENT BOARD MEMBERS MARINKO DOŠEN President of the Management Board • Management Board President since February 6, 2015 • the current term of office from July 21, 2020 to July 21, 2025 • 28,324 ADPL shares MLADEN PEROŠ Management Board Member for Sales, Projects, Research and Development • Management Board member since November 9, 2011 • the current term of office from July 21, 2020 to July 21, 2025 • 25,613 ADPL shares JOSIPDIVIĆ Management Board Member for Finance, Controlling, Accounting and IT • Management Board member since September 15, 2022 • current term of office from September 15, 2022 to July 21, 2025 • 645 ADPL shares ZLATKO BOGADI Management Board Member for Production, Logistics, Quality, Occupational Safety and General Affairs • Management Board member since September 15, 2022 • current term of office from September 15, 2022 to July 21, 2025 • 3,233 ADPL shares GRI 2-11 50 MANAGEMENT BOARD Based on the Rules of Procedure of the Manage- ment Board, members of the Management Board are obliged to avoid making decisions that would arise from personal interests or the interests of related persons and may not participate in de- cisions that would lead to a conflict of interest. In the event that a member of the Management Board notices an existing or potential conflict of interest in connection with a specific issue of any member of the Management Board, they are obliged to immediately inform the other mem- bers of the Management Board and the Presi- dent of the Supervisory Board. If there is a sus- picion that a member of the Management Board has not reported a conflict of interest, the Presi- dent of the Supervisory Board should be notified about it. In order to avoid potential conflicts of interest, managerial contracts contain provisions on the prohibition of competition during and after the termination of employment in the company, as well as the obligation to keep trade secrets. According to the Rules of Procedure of the Supervisory Board, a member of the Supervi- sory Board who notices an existing or poten- tial conflict of interest in connection with a decision-making on a certain issue is obliged to immediately inform the other members of the Supervisory Board. In case of suspicion of reporting a conflict of interest by anoth- er member, the President of the Supervisory Board must also be informed of this. If there is a suspicion of a conflict of interest of the President of the Supervisory Board, the depu- ty president should be informed about it. The Supervisory Board keeps records of all notifications about conflicts of interest, and during 2023 there were no reports of con- flicts of interest among the members of the Management Board and the Supervisory Board. GRI 2-15 51MANAGEMENT BOARD STATEMENT ON THE REMUNERATION POLICY FOR THE MANAGEMENT BOARD MEMBERS The company has been implementing the Management Board Members’ Re- muneration Policy from 2021 and all members of the Supervisory Board par- ticipated in adoption according to the proposal of the Remuneration Com- mittee, after which the Policy was ap- proved at the General Assembly meet- ing and then publicly announced. This Policy establishes a system of re- muneration for members of the Manage- ment Board that promotes transparency, long-term interests, and the successful and ethical implementation of the busi- ness strategy and development of the company and the entire group. The Remuneration Policy ensures a bal- ance between fixed and variable remu- neration of the members of the Man- agement Board, which contributes to transparent and efficient management. According to the aforementioned Pol- icy, managerial contracts define the rights and obligations of the members of the Management Board in accord- ance with their function: • monthly salary • the annual bonus (award) can be paid in accordance with the achieved result in the business year, depending on the degree of fulfillment of certain key business indicators determined by individual managerial contracts. The decision on bonus payment is made by the Supervisory Board, having in mind the degree and scope of achieving the objectives. The bonus is paid in company shares or cash. • life insurance policy • right to use an official vehicle 24 hours a day • severance payment in the event of the termination of the term of office, unless the member was repealed prior to the expiry of the term of office caused by their fault or they resigned themselves The Remuneration Policy foresees also non-financial objectives as a condition for bonus achievement, and the objec- tives, on the achievement of which the payment and amount of variable re- muneration depend, are determined in more detail by the managerial contract, taking into account financial and non-fi- nancial indicators of the Group’s busi- ness operations. The total annual ratio of the remuner- ation of the best-paid individual to the average annual remuneration of all employees of the Group is 14.1, and the calculation includes all employees who were employed on December 31, 2023, according to the publication on page 70. In the observed period, there was no increase in the total annual re- muneration for the highest paid indi- vidual, in this case the President of the Management Board, nor the payment of variable remuneration. Considering the above and the increase in wages and material rights of employees dur- ing 2023, the presented annual ratio is significantly lower than the year before. Realized wages were used in the cal- culation, not full-time equivalent (FTE) calculations for each part-time employ- ee, and transportation and food allow- ances, jubilee awards, bonuses, and the like were included. GRI 2-19 GRI 2-20 GRI 2-21 52 CORPORATE GOVERNANCE CORPORATE FUNCTIONS MIRAPAVIĆ Executive Director of Human Resources and Corporate Architecture KREŠIMIR JURUN Executive Director of Controlling and Accounting KATIJA KLEPO Relations with State Institutions and Funds Consultant ANA LUKETIN Executive Director of Legal Affairs EDO BACCI Technical Director of the Production site Solin STIPANBODROŽIĆ Products Development Director BRANKO DURDOV Production Operations Consultant LIDIJA ŠKARICA Executive Director of Strategic Purchasing Eachcorporatefunctionhasaclearlydefinedgovernancelevelthatreportsdirectlytothehighestgoverningbody.Im- provement of common knowledge about all relevant business issues of the company and its sustainable development are integral elements of regular business. The management regularly holds consultations with individual stakeholders and is obliged to regularly report on this to the Management Board. If necessary or at the request of individual stakeholders, consultations with the Management Board are organized from time to time. 53CORPORATE FUNCTIONS MARKO CAMBJ Director of Projects TOMISLAVČEPIĆ Manufacturing Director of the Production site Zagreb MATEGOJSALIĆ Process Development Director MIRANDAJERKOVIĆ Director of Internal Audit MARINA NOVAK Quality Director JADRANKA KONTA Director of Occupational Safety and General Affairs DENISMILETIĆ Director of Logistics ANTICAPERKOVIĆ Director of Strategic Purchasing of Materials JOSIP SUZAN Tools Development Director TONI ŠTAMBUK Sales Director for EU and other markets JOSIPVULIĆ Director of the Production site Solin JOSIP ŠKORO Director of the Production site Zagreb 54 CORPORATE GOVERNANCE ADP d.o.o. Mladenovac, Republic of Serbia SUPERVISORY BOARD President Mladen Peroš Members Denis Miletić Ana Luketin Other representatives Josip Divić Marin Lončar ANDRIJAKALAJŽIĆ Managing Director MANAGEMENT OF SUBSIDIARIES SUPERVISORY BOARD President Zlatko Bogadi Members Danijel Kovač Josip Divić TAMÁSGYŐR Managing Director AD Plastik Tisza Kft. Tiszaújváros, Republic of Hungary AD Plastik d.o.o. Novo Mesto, Republic of Slovenia JOSIP ŠKORO Managing Director AO AD Plastik Togliatti Russian Federation SUPERVISORY BOARD President Krešimir Jurun Members Denis Miletić Branko Durdov Jakov Bartulović Josip Divić ALEXANDR VLADIMIROVICH LEBED Managing Director SUPERVISORY BOARD President Denis Miletić Members Branko Durdov Josip Vulić Jakov Bartulović Krešimir Jurun ZAO AD Plastik Kaluga Russian Federation DENIS BORISKIN Managing Director 55 “If you can dream it, you can do it.“ Walt Disney 56 CORPORATE GOVERNANCE CORPORATE GOVERNANCE CODE STATEMENT 1. In the reporting period, the company applied the Corporate Governance Code (hereinafter: the Code) published on the official website of the Zagreb Stock Exchange (www.zse.hr). 2. The company operates in accordance with good corporate governance practice and for the most part according to the recommendations of the Code. Explanations for deviations from individual recommendations and additional adjustments can be found in the Annual Compliance Questionnaire of the Corporate Governance Code approved by the Supervisory Board, which is published on the web- site of the Zagreb Stock Exchange and the company at the same time as the Integrated Annual Report. 3. Internal control is performed by Controlling and Internal Audit Departments. Controlling Department informs the Management Board of conducted control and the Inter- nal Audit Department informs the Audit Committee and Management Board. Internal Audit is an independent function that provides support to management in meeting the company’s ob- jectives through a systematic and professionally based approach to supervision and assessing the effective- ness of risk management, control and corporate gov- ernance. The conclusions and recommendations of Internal Audit are aimed at enabling management to improve the pro- cesses, proactively respond to risks or reduce them to an acceptable level. 4. Ten significant indirect and direct shareholders are list- ed on page 24 of this report. The company has no hold- ers of securities with special control rights, nor holders of securities with limitations on voting rights of a cer- tain percentage or number of votes. The company has no specific rules on the appointment and revocation of the appointment of Management Board members, nor specific rules on the authority of Management Board members. The Company Charter prescribes that two members of the Supervisory Board are appointed by the shareholder, Joint Stock Company Holding Avtokompo- nenty from St. Petersburg, Russia. On July 14, 2022, the General Assembly gave authoriza- tion to the Management Board to acquire its own shares on behalf of the company for a period of five years. On December 31, 2023, the company owned 38,428 own shares. 5. Shareholders exercise their rights via the General As- sembly which is competent for making decisions on the following issues: electing and removing from the office of Supervisory Board members, appropriation of profit, granting clearance to Management Board members, appointing auditors, amending the Charter, increasing or reducing share capital and on other is- sues under its responsibility as regulated by the law. Activities of the General Assembly are regulated by the Companies Act and the Rules of Procedure of the General Assembly published on the company’s web- site (www.adplastik.hr). 57STATEMENT OF IMPLEMENTATION CODE OF CORPORATE GOVERNANCE 6. Data on members of the Management Board and Supervisory Board is listed on pages 44 and 49 of this report. In accordance with the Companies Act and the Company Charter, the Management Board makes decisions at the meetings of the Management Board. In 2023, 49 meetings of the Management Board were held, in line with good corporate practices. In accordance with the Act and the Rules of Pro- cedure of the Supervisory Board, the company has three committees whose activities assist the work of the Supervisory Board by preparing decisions that shall later be taken by the Supervisory Board, and su- pervising their implementation. The Committees are as follows: Audit Committee, Remuneration Committee and Appointment Committee. 7. The diversity policy of AD Plastik Group applied to the company managing bodies establishes necessary standards ensuring the di- versity of the Management and Supervisory Boards members. Their structure should be reflected in skills and experience, professional competencies, but also in aspects of age, gender, education and other diversities that contribute to more quality and better deci- sion-making. The average age of the members of the Supervisory Board is 62 years, and the range of their ages is from 34 to 72. Their composi- tion is also diverse according to gender, so the Supervisory Board consists of three female members and four male members. The list of the Supervisory Board members can be found on page 44 of this report. In the reporting period the Management Board of the company con- sists of the President of the Management Board and three members. Balance has been established on the criteria of skills, experience and competencies, as can be seen from the CV of the members of the Management Board. AD Plastik d.d. Matoševa 8, 21210 Solin Republic of Croatia Marinko Došen President of the Management Board Mladen Peroš Member of the Management Board Zlatko Bogadi Member of the Management Board JosipDivić Member of the Management Board GRI 2-10 58 “All that is valuable in human society depends upon the opportunity for development accorded the individual.” Albert Einstein 59 ❶ MATERIALITY AND STAKEHOLDERS 44 60 MATERIALITY AND SHAREHOLDERS IDENTIFICATION OF MATERIAL TOPICS Based on the consultations during the year, before beginning of the preparation of the Integrated Annual Report, material topics were identified and defined according to the importance of the impact. They were adapted to the business conditions in the observed period, guided primarily by the results of conducted consultations and own choice of the company. were occasionally held with other stakeholders as well, such as academic community, primarily universities with which there is more intensive cooperation, banks with which the company cooperates, and independent professional associations whose member it is. Consultations on the identification and importance of busi- ness impact on the environment, society and economy were conducted regularly with the most important groups of stake- holders, namely employees, customers, shareholders and sup- pliers. Given the importance of process itself, consultations GRI 3-1 61IDENTIFICATION OF MATERIAL TOPICS In the process of involving stakeholders, a comprehensive sur- vey was conducted using forms available on the company’s website, but their analysis showed insufficient understanding of certain topics. At the same time, the structure of the surveyed stakeholders unrealistically affects the overall identification of materiality, while the key stakeholders make up little or no part in completing the surveys. The Corporate Social Responsibili- ty Committee concluded that the results of individual consulta- tions with stakeholders are significantly more relevant because they are more effective and concrete. Therefore, when identify- ing material topics, the results of consultations and organized focus groups had an advantage, while the results of surveys were not neglected either. The existing way of surveying stake- holders on the company’s website will be discontinued in the next reporting period, and more attention will be paid to involv- ing stakeholders in direct consultations, using different tools. Guided by experiences in reporting and the conclusions of con- sultation with stakeholders, the approach to identification will be further improved in the coming periods in order for the anal- ysis of the impact of individual stakeholders to be more system- atic, thorough and concrete. The significance of the influence is assessed first of all in ac- cordance with the market circumstances in the observed period, i.e. the company’s impacts on the economy, environment and people in the specified circumstances. Negative and positive impacts, potential and actual impacts were observed, and based on that, the material topics listed below were defined. In cases where negative impacts were identified, all necessary measures were taken during the year, i. e. at the time of occurrence to re- duce or completely eliminate them. The Corporate Social Re- sponsibility Committee is obliged to inform the Management Board about it without delay and propose improvement activi- ties. In the further text of the report, the impacts and manage- ment in each identified material topic will be listed individually. The Corporate Social Responsibility Committee has defined the material topics and their significance through its own assess- ment and the assessment of stakeholders, taking into account the results of surveys on the website and regular consultations with stakeholders. Then, the selection of material topics accord- ing to importance was confirmed by the Management Board, as the highest management body of the company. Considering the business circumstances and the impact on the economy, the environment and people, in the reporting period the number of material topics was slightly lower than a year earlier. The first nine topics remained unchanged, but customer health and safety, training and education, and diver- sity and equal opportunity were not identified as material top- ics. Stakeholders’ interests indicate that the mentioned topics are largely standardized within the company’s processes and thus do not have a significant impact. This information is nev- ertheless presented in the report, confirming their representa- tion within the standardized processes, but also the interests of the stakeholders. GRI 3-3 62 IDENTIFICATION OF MATERIAL TOPICS ⓬ ⓫ ❿ ❾ ❽ ❼ ❻ ❺ ❹ ❸ ❷ ❶ Supplier Social Assessment Supplier Environmental Assessment Market presence Employment Water and effluents Waste Occupational health and safety Emissions Energy Materials Procurement practices Economic impact GRI 414 GRI 308 GRI 202 GRI 401 GRI 303 GRI 306 GRI 403 GRI 305 GRI 302 GRI 301 GRI 204 GRI 201 MATERIAL TOPICS ACCORDING TO THE IMPORTANCE GRI 3-2 63 „We live in a society exquisitely dependent on science and technology, in which hardly anyone knows anything about science and technology.“ Carl Sagan 64 MATERIALITY AND SHAREHOLDERS EMPLOYEES CUSTOMERS SHAREHOLDERS SUPPLIERS Trade unions and workers’ council Academic community Investors and analysts Creditors Local community State institutions and local administration bodies KEY STAKEHOLDERS secondary stakeholders STAKEHOLDER INVOLVEMENT GRI 2-29 65STAKEHOLDER INVOLVEMENT With the feedback from stakeholders, the aim is to present all information of common importance and interest as clearly and simply as possible. With the improvements in their involvement methodology, the aim is to provide a complete picture of business in various segments, but also to enable simple tracking of achievements and realization of company goals. In this way, a contribution is made to the better understanding and improvement of the whole reporting process, as well as the business as a whole. AD Plastik Group regularly involves and informs its stakeholders in order to provide them with a better understanding of the busi- ness and development strategy, and at the same time to gain insight into their interests. Communication with stakeholders is adapted to their needs and identified groups, so accordingly dif- ferent communication tools and channels are used. Intensive communication is maintained with suppliers and cus- tomers at all levels, emphasizing the importance of sustaina- bility and research into more environmentally friendly materials and technologies in order to reduce emissions and impact on climate change. Regular evaluations and audits of customers and external agencies are carried out, as well as assessment through specialized portals, while suppliers are assessed ac- cording to the questionaries on standards of corporate social responsibility, their sustainability reports and evaluations of ex- ternal agencies are monitored if they are involved. Communication with employees is the most intensive and it is carried out at different levels, including direct consultation and participation in business impact assessment. Various commu- nication tools such as internal workshops, questionnaires, inter- nal thematic meetings and the possibility of anonymous expres- sion of opinion through ADP Mailbox are used. Organizational climate and employee satisfaction surveys are conducted reg- ularly, as well as surveys on specific topics from time to time. Employees are regularly informed about the company’s activi- ties through the internal newsletter, bulletin boards, intranet and other digital communication channels. Shareholders are regularly informed about all activities and plans, and reports and news are regularly published on the com- pany’s website and other digital platforms. At the same time, individual queries of shareholders are regularly answered, and they are additionally informed by participating in the General Assembly. The company cooperates with external experts to improve pro- cesses, especially in the field of sustainable business. Coopera- tion with the academic community has also been strengthened, especially in the field of sustainable development and techno- logical improvements. Regular consultations with individual stakeholders are carried out by the management, which is obliged to convey feedback to the Management Board, and the Management Board is oc- casionally directly involved in consultations with stakeholders, in accordance with their requests and needs. Transparent com- munication is the basic premise for successful business, in ac- cordance with the interests of the company, stakeholders and environment. Feedback from stakeholders in certain areas can be extremely important, so their opinion must be highlighted and explained to the highest level of management when making certain de- cisions. Based on that, they are reviewed and adjusted, that is, their implementation is potentially accelerated if it matches the opinion of the stakeholders. GRI 2-29 66 STAKEHOLDER INVOLVEMENT TRADE UNIONS AND WORKERS’ COUNCIL In the reporting period, the positive so- cial dialogue within the company con- tinued as well as timely and regular reporting of employees on all relevant topics, with special emphasis on chang- es and plans in business. Employee rep- resentatives actively participated and were involved in making decisions that affected their social and material rights, and the representative of the Workers’ Council is a member of the company’s Supervisory Board. Collective agreements cover all em- ployees in Croatia, Hungary and Rus- sia, which makes up 89 percent of the Group’s employees. The rights and ob- ligations of other employees are reg- ulated by different regulations in ac- cordance with the legal provisions, thus maintaining a high level of social and material rights of employees. In Croatia, in 2023, collective negotia- tions with trade unions were success- fully conducted, and a new Collective Agreement was concluded for a one- year period. In Hungary, the rights from the Collective Agreement signed in 2023 were also applied, while in Russia the existing Collective Agreement is in force until December 31, 2025. In Ser- bia, a trade union was also established in the reporting period and collective negotiations were initiated. GRI 2-30 67 ❶ SUSTAINABLE DEVELOPMENT 55 68 SUSTAINABLE DEVELOPMENT EMPLOYEES Through regular group and individu- al discussions and research, insight is gained about the needs and references of employees and room for improvement is identified. Based on this knowledge, activity plans are developed, creating a stimulating working atmosphere, pro- moting the physical and psychological well-being of employees, and providing equal opportunities for all employees. Guidelines for individual professional and personal development are provided regularly so that employees can realize their full potential with their knowledge and skills. Through investments in en- hancing infrastructure, improving the working environment and working con- ditions, and adjusting annual plans to market conditions, we strive to main- tain business satisfaction and sustain- ability, as well as quality management of costs and the number of employees. The aim is to create a gender-balanced, diverse and inclusive working envi- ronment in which every employee has equal opportunities and a harmonious work and personal life. A family-con- scious policy of business strongly af- fects also the interests of children and their rights. Therefore, policies and practices have been adopted that support the balance be- tween work and family life, providing parents and caregivers with the necessary time, financial support and services to provide quality care for their children and families. The gender balance within the company is constantly monitored and the recruitment strategy is adjusted to this so that all employees have equal opportunities, regardless of parental status. Dedication to the well-being of its employees and their families creates added value and advantages in the labor market, and consequently increases employee satisfaction and productivity. Employee satisfaction and creation of favorable working conditions are key factors for increasing efficiency and engagement, and at the same time they are the main guidelines of AD Plastik Group’s human resources development strategy. GRI 202 GRI 2-7 69EMPLOYEES The company’s activities at the strategic and operational lev- el are directed towards the application of open and inclusive relationships and the creation of a working environment in which every employee feels like an equal member. With the aim of including and integrating young people with disabilities into the working environment, the company has been partic- ipating in the project Experience is Worth its Weight in Gold for almost ten years to enable professional practice and po- tential employment for students with disabilities. Transparent processes of management, employment and promotion have a positive impact on the community in which business is con- ducted. AD Plastik Group employs 41 people with disabilities and continuously works to improve working conditions and adapt workplaces, taking into account the individual needs and capabilities of each employee. For a number of years, suc- cessful cooperation has been achieved with institutions that employ people with disabilities and their services are used to further encourage their inclusion. Timely and efficient consultation with employees and oth- er relevant parties is essential for managing the impact of business changes on employees and related communities. Employees are continuously, regularly and on time informed about all important changes in business and are included in the decision-making process more often than prescribed by legal deadlines. The period of notifying employees about im- portant changes in business in advance varies depending on the legal provisions of the country in which the business is conducted, and can last from a minimum of eight days to a maximum of three months. Trends in the labor market such as inflation and the increase in the cost of living are continuously monitored and, in accord- ance with the possibilities, additional benefits for employees that become an integral part of collective agreements and reg- ulations are considered and implemented. For example, in Croatia, this includes an allowance per year of service, the right to severance pay upon retirement, and ju- bilee awards for continuous employment. Depending on the length of service, employees get extended annual leave from one to six days. Employees in Hungary have the right to jubi- lee awards for continuous employment within the company, while in Serbia they have an allowance per year of service within the company. In accordance with the regulations of individual countries of operation and the company’s internal policies, all employees of the Group are registered and included in pension funds. Pension contributions are paid in the name and at the expense of the employee, and the contribution rate varies, depending on the country in which the business is operated. In Croatia, the pension contribution rate is 20 percent of the contribution base, in Russia it is 30 percent up to the amount of 1,917,000.00 RUB, after which an additional 15.1 percent is paid, while in Hungary the contribution rate is 10 percent, and in Serbia 14 percent at the expense of the employee and 10 percent at the expense of the employer. The local population makes up the largest share of the Group’s employees, including senior management. At the same time, mobility and the development of own experts and managers are encouraged, and through internal employment, the devel- opment of an international career within the Group is enabled. In this way, the company’s knowledge is preserved and the ap- plication of best practices is enabled. One dispute related to labor relations was initiated during the reporting period, and the dispute initiated before the begin- ning of the reporting period was resolved. GRI 402-1 GRI 201-3 70 EMPLOYEES State Site Employees with indefinitetermcontract Employees with definitetermcontract Total employed Total Men Women Total Men Women Croatia Solin 536 227 309 14 6 8 550 Zagreb 460 256 204 110 79 31 570 Hungary Tiszaújváros 304 120 184 3 - 3 307 Serbia Mladenovac 165 89 76 37 16 21 202 Russia Vintai 229 87 142 - - - 229 Slovenia Novo Mesto 2 1 1 - - - 2 Total 1,696 780 916 164 101 63 1,860 SHARE OF EMPLOYEES BY REGION AND TYPE OF EMPLOYMENT CONTRACT GRI 2-7 Gender as declared by the employees themselves 5757+1616+1515++1111++11RR 60.22% Croatia 16.51% Hungary 12.31% Russia 10.86% Serbia 0.11% Slovenia 928V 8.82% Definite term contract 91.18% Indefinite term contract 71EMPLOYEES State Site Non guaranteed working hours Full time Part time Total Men Women Total Men Women Croatia Solin - 549 233 316 1 - 1 Zagreb - 568 333 235 2 2 - Hungary Tiszaújváros - 306 120 186 1 - 1 Serbia Mladenovac - 201 105 96 1 - 1 Russia Vintai - 229 87 142 - - - Slovenia Novo Mesto - 2 1 1 - - - Total - 1,855 879 976 5 2 3 SHARE OF EMPLOYEES BY TYPE OF WORKING HOURS Employees who have an employment contract for a definite term or work part-time have the same privileges and rights as employees who work full-time, and the num- ber of part-time employees decreased at the end of the reporting period. There was no significant change in the number of temporary employees in the reporting period. Gender as declared by the employees themselves GRI 2-7 GRI 401-2 991V 0.27% Part time 99.73% Full time 72 EMPLOYEES State Site Total employed Croatia Solin 21 Zagreb 35 Hungary Tiszaújváros 3 Serbia Mladenovac 4 Russia Vintai 22 Total 85 SHARE OF EMPLOYEES BY TYPE OF WORK On the basis of the type of work they per- form, AD Plastik Group’s employees are divid- ed into management (the Management Board and senior management – executive directors and directors), indirect workers (administra- tion employees and production administration employees), and direct workers (workers in production). The number of direct workers is slightly lower than a year earlier due to reduced production and the stoppage of production ac- tivities of the factory in Russia. 5050+4848+22RR 53.55% Direct workers 44.57% Indirect workers 1.88% Management GRI 2-7 WORKERS WHO ARE NOT EMPLOYEES Workers who are not employees are those who perform tasks for the company but are not em- ployed, and the largest share of such workers is in Croatia. This group most often includes oc- casional student jobs in various departments, service contracts for individual projects, occa- sional additional security, firefighting servic- es, cleaning and restaurant services, and out- sourcing of workers. GRI 2-8 6565+2626+66++33RR 65.88% Croatia 25.88% Russia 3.53% Hungary 4.71% Serbia 73EMPLOYEES GRI 2-7 GRI 2-7 EMPLOYEE GENDER STRUCTURE Gender as declared by the employees themselves EMPLOYEE AGE STRUCTURE The largest share of employees, 65.7 percent, is between the ages of 31 and 50, while the smallest share is in the age group of 18 to 20 years. Compared to the previous period, there is a decrease in the number of employees aged 41 to 45. The aver- age age of all employees is 44 years, while the average age of women is 45 and men 43. It is important to note that AD Plastik Group consistently sup- ports the prohibition of child labor, and the above data addi- tionally confirm that there were no employees under the age of 18 in the reporting period. 0 Men Women 50% 100% Men Women Total 2023 2022 2021 51.49%48.51% 47.50% 47.37% 52.50% 52.63% 350 300 250 200 150 100 50 0 18-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 >60<18 0.00% 13.60% 10.97% 9.62% 3.23% 0.97% 13.82% 16.13% 12.53% 13.01% 6.13% By continuously promoting gender equality, diversity and equal opportunities, AD Plastik Group already achieved one of its strategic diversity goals in 2020, when the share of employed women exceeded 50 percent. 42 52 20232012 PERCENT OF WOMEN 74 EMPLOYEES causes are regularly identified and plans for fluctuation man- agement are defined. In addition to regular research on em- ployee motivation and satisfaction, employee interviews are conducted upon resignation in order to identify the reasons as precisely as possible and take appropriate and timely actions. Although the total number of employees is slightly lower than in the comparative period, there is a noticeable decrease in resignations at the end of the reporting period. The labor mar- ket in Croatia has recovered significantly, but there is a clear shortage of labor force, so in the reporting period, activities were initiated to recruit foreign employees and prepare for their integration. In order to maintain the necessary competi- tiveness in the dynamic labor market, cooperation with educa- tional institutions has been intensified in order to familiarize young people with deficient occupations and skills. There is a regular participation in regional job fairs, presentations at col- leges and various promotional activities are carried out. Resilience, flexibility and adaptability of human resources to changing business circumstances are key development guide- lines. The goal is to position ourselves as a desirable employer, with the intention of attracting high-quality staff, diversifying recruitment channels that ensure a diverse selection of com- petent candidates, and strengthening more flexible forms of employment. Through daily activities and consultations with relevant stake- holders in order to manage this topic more effectively, employ- ment was identified as an important material topic by own choice also. Accordingly, assessments are actively carried out and potential and actual impacts on employment are regular- ly reviewed in order to monitor their emergence, development and potential risks. In accordance with the conventions of the ILO (International Labor Organization) № 29 and 105 on forced labor, the com- pany is obliged to use the freedom of choice in employment, simultaneously enforcing the prohibition of forced and com- pulsory labor. The employment of children within the company is strictly prohibited, and the application of that principle at all production sites is monitored by specially prescribed mecha- nisms that reduce the risks of employment of minors. Laws and national regulations related to minimum wages, overtime work and other legal rights of employees are respected and the employment of local residents is promoted. The number of employees is determined by annual and medi- um-term plans and is an integral part of the Group’s business plans, which enables flexibility and speed of reaction to chang- es in business and the labor market. Fluctuation is also an ex- tremely important indicator that is carefully monitored, and EMPLOYMENT Within the framework of the Main Strategy, strategic guidelines for the development of human resources andcorporatesocial responsibilityaredefined,from which the goals and activities in the annual and medi- um-term plans derive. GRI 401-1 75EMPLOYEES THE TREND IN THE NUMBER OF EMPLOYEES EMPLOYEES WHO JOINED OR LEFT THE COMPANY BY MONTHS 1 2 3 4 5 6 7 8 9 10 11 12 60 50 40 30 20 10 0 -10 -20 -30 -40 -50 -60 Joined Left GRI 401-1 GRI 401-1 The decrease of the employees in the past periods is the re- sult of adaptation to the market circumstances and active management of this topic with the aim of long-term busi- ness sustainability. 3,000 2,500 2,000 1,500 1,000 500 0 20222021 2023 2,544 1,938 1,860 30 27 36 40 46 36 24 27 38 49 41 19 -41 -19 -34 -49 -48 -36 -54 -53 -45 -38 -30 -35 76 EMPLOYEES The average monthly turnover rate in 2023 was 2.1 percent and was significantly lower compared to the year before when it was 3.5 percent. Also, the total turnover rate was significantly lower and amounted to 25.5 percent, while the year before it was 41.1 percent. TURNOVER RATE BY MONTHS RESIGNATIONS BY TYPE OF CONTRACT Turnover Gender as declared by the employees themselves Total resignations Indefinite term contract Definite term contract RESIGNATIONS BY GENDER Men Women Women had a slightly lower turnover rate than men, and employees with contracts for indefinite term had a higher turnover rate. 2.15 0.99 1.77 2.57 2.52 1.84 1.90 2.87 2.85 2.41 2.03 1.61 0.50 1.00 1.50 2.00 2.50 3.00 3.50 1 2 3 4 5 6 7 8 9 10 11 12 11 10 21 15 24 8 14 21 25 14 13 15 30 9 13 34 24 27 22 33 28 31 25 15 0 10 20 30 40 1 2 3 4 5 6 7 8 9 10 11 12 30 13 24 27 23 19 23 40 28 31 22 12 11 6 10 22 25 16 13 14 25 14 16 18 41 19 34 49 48 35 36 54 53 45 38 30 0 10 20 30 40 50 60 1 2 3 4 5 6 7 8 9 10 11 12 GRI 401-1 GRI 401-1 GRI 401-1 77EMPLOYEES TURNOVER RATE BY REGION Croatia Hungary Serbia Russia EMPLOYMENT BY REGION GRI 401-1 GRI 401-1 60.53% Croatia 25.91% Hungary 7.02% Serbia 6.54% Russia 6060+2626+88+66+RR EMPLOYMENT BY GENDER 40.92% 59.08% MENWOMEN In 2023, the largest share of new employees was recorded in Croatia, namely 60 percent, followed by Hungary with a share of 26 per- cent. Although there is a noticeable small- er increase in the share of newly employed men, the structure of employees has not changed significantly due to a slightly higher turnover of men. GRI 401-1 5.71% 0.43% 0% 1% 2% 3% 4% 5% 6% 1 2 3 4 5 6 7 8 9 10 11 12 78 EMPLOYEES All employees of AD Plastik Group have the right to maternity and parental leave in accordance with the regulations of the country of operation. Given that the data are presented at the Group level, it is important to note that the duration of mater- nity and parental leave depends on the country of operation and can last from one to three years. In accordance with pol- icies promoting equal rights for all employees, special atten- tion is paid to encouraging fathers to use their right to parental leave, which is confirmed by the figures in 2023. Total number of employees Right to maternity and parental leave Returning to work after the end of maternity leave Remaining employed one year after return- ing to work after the end of maternity leave AD Plastik d.d. men 568 16 17 2 women 552 35 20 17 AD Plastik Tisza men 120 6 - - women 187 17 6 5 ADP, Mladenovac men 105 - - - women 97 3 - - AD Plastik Togliatti men 87 - - - women 142 26 16 6 AD Plastik, Novo Mesto men 1 - - - women 1 - - - AD Plastik Group men 881 22 17 2 women 979 81 42 28 total 1,860 88 59 30 MATERNITY AND PARENTAL LEAVE GRI 401-3 Gender as declared by the employees themselves 79EMPLOYEES GRI 202-2 DIVERSITY AND EQUAL OPPORTUNITIES In the observed period, 35 people were employed in senior management, of which 33 were from the local community, and thus local population accounts for 94.3 percent of the employees in the highest management structure. Senior management includes members of the Management Board, executive directors and directors, and local employment is defined for people who live within the counties, districts or regions where certain members of the Group operate. 80 EMPLOYEES A significant place of business is the head- quarters of each individual member of the Group. By employing local people and with their presence in the company’s senior man- agement, a positive presence on the market that contributes economically to the local community is confirmed, and the ability to understand the local needs of the community in which the company operates is increased. The basic wage of AD Plastik Group employ- ees is determined according to the job posi- tion and is the same for all employees in the same job position, regardless of gender or other personal characteristics. The wage for a specific position is determined in accord- ance with legal regulations and internal acts of individual companies that define wages according to the specifics of job positions and other wage supplements, benefits and incentives. Additional rewards for employ- ees are regulated by internal rules of individ- ual companies, rules on rewarding proposals for improvement and excellence according to predefined criteria. AD Plastik Group reports according to the methodology of the number of employees at the end of the reporting period, i.e. on De- cember 31, 2023. Men Women 0 10 20 30 40 50 60 70 80 90 100% MANAGEMENT GENDER STRUCTURE Compared to the previous reporting period, the share of women in management categories increased to 40.4 percent, which is more than the set strategic goal of 40 percent of women in management structures by 2025. Line Management Middle Management Senior Management Gender as declared by the employees themselves 68.57% 55.07% 64.76% 31.43% 44.93% 35.24% GRI 405-1 GRI 202-1 81EMPLOYEES The management structure is dominated by employees aged 30 to 50, as in the previous reporting period, and their rep- resentation at the Group level is 67.3 percent. The share of 29.8 percent is made up of employees over the age of 50, which is slightly less than a year earlier. Gender as declared by the employees themselves MANAGEMENT AGE STRUCTURE 18-30 30-50 >50 Women Line Management Women Women Middle ManagementSenior Management Men Men Men 50 40 30 20 10 0 6565+2121+1414RR 65% Secondary education, Qualifiedworkers, Highlyqualifiedworkers 21% Higher education, University degree, Master´s degree 13% Unqualifiedworker, Semi-qualifiedworker The trend of increasing the share of employees with a secondary edu- cation continues, which is one percent higher also this year as com- pared to the previous year. EMPLOYEE EDUCATIONAL STRUCTURE GRI 405-1 GRI 405-1 82 EMPLOYEES 7525V 7525V Gender as declared by the employees themselves In the reporting period, there were no women employed in the Management Board, and the share of women in the Audit Com- mittee was 25 percent. MANAGEMENT BOARD STRUCTURE BY AGE AND GENDER AUDIT COMMITTEE STRUCTURE BY AGE AND GENDER 3 (75%) Men (>50) 3 (75%) Men (>50) 1 (25%) Men (30-50) 1 (25%) Women (30-50) Goal: 25% of women in the Management Board by 2025 GRI 405-1 GRI 405-1 83EMPLOYEES EQUALITY IN WAGES Minimum wage Entry-level wage COMPARISON OF ENTRY-LEVEL AND MINIMUM WAGE BY COUNTRY The minimum wage amount is the same for men and women at all sites. Due to changes in the labor market, in- flationary pressures and price increas- es, as well as the introduction of a new currency in Croatia, the dialogue with social partners gained additional impor- tance. In the reporting period, regular consultations were held with employ- ees and their representatives because changing circumstances potentially af- fected their social and material rights, as well as customers, suppliers and ex- ternal experts and consultants. Through own assessment and consul- tation with various stakeholders, the Corporate Social Responsibility Com- mittee determined the materiality of market presence as a topic of particular importance for the company. The eco- nomic sustainability of the company affects the economic conditions of its stakeholders, primarily employees, and contributes to economic development in business communities. In order to manage this topic even bet- ter and more efficiently, a project was started in the reporting period to com- pare wages in the countries of oper- ation in cooperation with specialized consultants, taking the factory in Ser- bia as a reference point. Wages were compared with peers within the indus- try and with the average and minimum consumer basket, and based on this, an activity plan to improve the material rights of employees was drawn up. By analyzing the entry-level wages of AD Plastik Group in relation to the min- imum prescribed ones, one gets an in- sight into the competitiveness of the company’s wages and its impact on the local labor market. It is important to point out that the level of the entry-level wage can directly affect the well-being of the employees, while the fair distri- bution of wages is essential in the fight against inequality, which is one of the most important postulates in the com- pany’s sustainability strategy. The minimum entry-level wages are equal to or higher than the prescribed minimum wages in significant places where business is conducted, which means the locations of the Group’s fac- tories. Given that there is no difference in wages by gender, nor does the com- pany operate in countries where the prescribed minimum wage differs by gender, a comparison of the entry-lev- el and minimum wages according to the countries of operation is presented. Minimum gross wage Entry-level gross wage Ratio Croatia 700 EUR 811.5 EUR 115.93 Hungary 232,000.00 HUF 232,000.00 HUF 100.00 Serbia 53,992.58 DIN 54,430.63 DIN 100.81 Russia (Vintai) 16,242 RUB 17,720 RUB 109.10 Croatia 100 Russia (Vintai) Serbia Hungary 115.93 109.10 100.81 100.00 GRI 202-1 GRI 405-2 84 EMPLOYEES OCCUPATIONAL HEALTH AND SAFETY A safe working environment and the protection of the health of employees are an extremely important segment in the business of AD Plastik Group, because caring for the well-being of employees is an ethical and moral obligation, but also an important strategic determinant of the company. One of the most im- portant goals is commitment to creating a work environment without injuries and risks to employe health, especially in production processes. Through con- stant investment in the safety and health of employees and the implementa- tion of positive practices and education in the aforementioned areas, clear criteria have been set in internal processes and regulations, aligned with the legislation of the countries in which business is conducted. This topic was assessed material primarily by own choice, taking into ac- count the analysis of legal requirements and consultations with different groups of company stakeholders and the results of conducted surveys. It is covered also by collective agreements, it manifests itself through the work of the Workers’ Council and the professional assistance and supervision of the occupational health and safety departments at each production site. An Occupational Health and Safety Committee was appointed, which has an advisory role and proposes measures for more effective implementation and organization of safety and health with the aim of prevention. The safety and health of employees directly affect productivity and efficien- cy, but also the working atmosphere and motivation of employees. There- fore, investing in this segment is strategically important because it contrib- utes to the financial and operational efficiency of the company in the long term, and it is also ethically correct. Work-related injuries represent a real and potential negative impact, therefore constant work is done to improve working conditions and improve safety within the group. Caring for employ- ees and ensuring working conditions without negative consequences can have a positive impact on employees, people and society as a whole. Education and training on safety practices and procedures are regularly conducted in order for all employees to be trained to work safely. The safety policy covers all aspects of the work environment, from the use of equip- ment to handling emergency situations. Continuous investments are made in improvements and implementation of security standards to minimize risks and ensure required employee protection. Active work is being done on the identification and elimination of potential hazards and unfavorable working conditions, and by properly classifying job positions according to risks, appropriate protection measures are applied. Special protection measures at individual job positions are regular medical examinations, test- ing of equipment and the working environment, regular training of employ- ees, fire safety and evacuation drills, as well as first aid. Despite regular training, the report on work-related in- juries in 2023 indicates an increase in the number of injuries that were primarily caused by the carelessness of employees and non-observance of prescribed safety measures. Having observed the situation, the occupa- tional health and safety departments hastily introduced additional education on safety and protection meas- ures for existing and new employees. Activities and initiatives for the health and safety of em- ployees include the provision of recreation and healthy nutrition, cooperation with insurance companies and health institutions, as well as the organization of evacu- ation and rescue exercises. In the reporting period, additional fire drills and evacu- ation and rescue drills were carried out at the Solin and Zagreb sites, in cooperation with the voluntary fire bri- gades Vranjic and Kučilovina. GRI 403-1(1-8) 85EMPLOYEES GRI 403-9 INJURY RATES 2021 2022 2023 Site Injuries Occupational diseases Lost days Deaths Injuries Occupational diseases Lost days Deaths Injuries Occupational diseases Lost days Deaths Solin 5 - 275 - 2 - - - 6 - 346 - Zagreb 16 - 319 - 9 - 10 - 11 - 233 - Tiszaújváros 13 - 52 - 16 - 34 - 21 - 55 - Mladenovac 5 - 119 - 3 - 51 - 8 - 70 - Vintai - - - - - - - - - - - - Kaluga 1 - 41 - - - - - - - - - TOTAL 40 - 806 - 30 - 95 - 46 - 704 - NUMBER OF INJURIES ACCORDING TO SEVERITY OF INJURY NUMBER OF INJURIES ACCORDING TO PLACE OF INJURY NUMBER OF LOST WORKING DAYS ACCORDING TO THE SEVERITY OF INJURY 9393+77+QQ 9393+77+QQ 6060+4040+QQ 43 Minor injuries 43 Injuries at the workplace 422 Working days due to a minor injury 3 Severe injuries 3 Injuries coming/going to work 282 Working days due to a severe injury 86 EMPLOYEES GRI 403-9 Parameter 2021 2022 2023 IR (injury rate) 1.58 1.48 2.53 ODR (occupational disease rate) - - - LDR (lost days rate) 0.14 0.04 0.17 IR (rate of lost working hours per 200,000 hours worked) 1.71 2.39 2.78 AR (absentee rate due to death case) - - - INJURY RATES BY GENDER (%) Gender as declared by the employees themselves Men Women 42 80 56 58 20 44 0 10 20 30 40 50 60 70 80 90 2021 2022 2023 GRI 403-10 87EMPLOYEES TRAINING AND EDUCATION In a dynamic business environment, continuous investment in education and the development of employee knowl- edge and skills is essential for the suc- cess of individuals and companies as a whole. Through systematic investment in education and various learning mod- els, AD Plastik Group ensures the neces- sary levels of knowledge and skills of its employees for future opportunities and challenges, as well as the achievement of set goals. The importance of devel- oping adequate employee competencies has long been recognized, and over the years it has been adapted to industry trends and market demands. Managing risks, such as an increased number of complaints or the loss of key employees, requires constant invest- ment in education. This reduces possi- ble negative impacts on the company and individuals and supports many as- pects of business, including socially re- sponsible practices. Education is a platform for the person- al and professional development of employees, and at the same time the potential positive impacts on society are recognized. By strengthening the competences of women, their share in management indirectly increases, and through education, the competences of members of vulnerable groups are also developed, and awareness of the impor- tance of sustainable business is contin- uously raised. The potential impacts of education and training during the report- ing period were discussed with various internal and external experts as well as customers and suppliers. In the past year, employees were trained on 178 different topics relevant to their work areas. Specialized trainings, in- ternal trainings were organized and the continuation of formal education was made possible for employees who stood GRI 404-2 88 EMPLOYEES out for their excellence. Also, education systems within the company are contin- uously monitored and improved, taking into account feedback from employees and management. Investments in employee education in- creased in the reporting period, which resulted in a significant increase in the average number of training hours per employee compared to the previ- ous year. Thus, the average number of hours of training per employee is 25.10, which was also contributed by the implementation of periodic aware- ness raising of employees from dif- ferent areas. Regular examination of the quality of delivered educational content confirmed the satisfaction of necessary educational needs and provided guidelines for future reporting periods. INTERNAL TRAINING ESG EDUCATION In 2023, the organization of internal trainings in various fields continued, ad- hering to good practices and encouraging employees to share knowledge. Con- tinuous work is being done to develop the skills of internal trainers in order to make the workshops as dynamic and useful as possible. According to the employee’s initiative, digital access to certain educational content was made possible at the individual’s request, and various video ma- terials and presentations proved to be very effective. In future periods, digiti- zation will be increasingly represented also in the implementation of internal trainings, and acquired knowledge can be verified by conducting tests if nec- essary. In the observed period, 18 employees actively participated in various ESG trainings such as the Circular Plastics Alliance and the ESG Academy, within which the topics of sustainability re- porting, green transition, waste man- agement and ensuring environmental safety were discussed. By participating in UNICEF’s CSR Academy, employees are introduced to tools that help them better understand business impact on children, integrate children’s rights into daily operations, and identify and man- age risks arising from this impact. GRI 412-2 89EMPLOYEES Employees who received feedback on their work performance in 2023 in relation to the total number of employees in certain categories: • Engineers and highly professional staff (28.1 percent men and 26.4 percent women) • Other machine setters and staff (17.8 percent men and 46.3 percent women) • Production workers (15.4 percent men and 18.0 percent women) ANNUAL INTERVIEWS Annual interviews and employee feedback are a direct motivation and opportunity to provide praise for the previous period and identify areas for development in the future. In this reporting period, the focus was on em- ployees who stood up with their knowledge, work and dedication, which resulted in the growth of certain groups of employees. How- ever, due to the importance of feedback in fu- ture reporting periods, growth is expected in all categories. Recognizing the importance of the knowledge, competence and engagement of its em- ployees, the company has been implementing the AD5 rewarding model for many years. In the observed period, selected employees were rewarded for the first time with shares owned by the company, 110 of them received packages of 20 company shares each for their excellence and achieved results. This initiative is not only a form of recognition for excellence, but also a means of building a positive working atmosphere and strengthen- ing the ties between employees and the company. Only two ideas for improvement were implemented and rewarded, which is less than in the previous period, but the practice of such rewards continues. REWARDING EXCELLENCE 90 EMPLOYEES Men Women 0 5 10 15 20 25 30 35 40 45 50 19.77811 811 294 6,195 205 5,524 347 15,457 545 545 261 3,112 50 544 657 15,074 19.45 21.07 11.92 26.94 10.88 44.54 22.94 Gender as declared by the employees themselves Machine setters and other staff Engineers and highly professional staff Management (senior and middle) hours of training per employeenumber of employees total training hours Production workers AVERAGE NUMBER OF TRAINING HOURS PER EMPLOYEE GENDER AND CATEGORY EMPLOYEE DEVELOPMENT IN NUMBERS GRI 404-1 3939+1717+1515+99+66+44+33+33+22+11+1+TT 3.07% Foreign languages 2.85% Quality standards 2.22% Development of personal competencies 0.68% Corporate social responsibility 8.87% Customerspecificrequirements 15.36% Methods and tools of the automotive industry 6.05% IT knowledge 3.70% Professional knowledge 16.87% Installed technologies and means of work 1.41% Occupational health and safety 38.91% Expert knowledge SHARE OF DIFFERENT PROGRAMSGRI 404-3 91EMPLOYEES Fruit day In Croatia, at all production sites, a fruit meal is provided to all employees once a month. Cooperation with smaller local producers is achieved in the procure- ment of fruit and thus contribution is made to their development. Sport activities Employees in Croatia use the services of the Multisport card for access to sports and recreational facilities. Sports gath- erings and training sessions are being organized internally, and the company helps in the organization of matches and competitions. ADP Day ADP Day was traditionally celebrated on April 22, on Earth Day. Open day was or- ganized for employees’ families on that occasion, and the youngest enjoyed pup- pet shows and a tour of the production facilities. Social gatherings were organ- ized at sites in Solin, Zagreb and Mlade- novac, as well as team building for com- pany management. Workshops on the importance of a healthy lifestyle were also organized in Zagreb, while in Ser- bia the ADP day was marked by planting trees in the factory district. Friend-of-Health company By renewing the certificates in the re- porting period, the company received confirmation for the successful imple- mentation of the project, promoting health and healthy habits, taking care of the health of employees, and creating a work environment that encourages the adoption of a healthy lifestyle. B2Run The traditional participation in the B2Run races in Split and Zagreb, which contribute to the togetherness, connec- tion and motivation of employees, con- tinued. Volunteering The factory in Vintai has traditionally participated in the “Good Deeds” cam- paign by collecting funds for donations to sick children. Holiday environment Various holiday get-togethers, corporate receptions and activities were organized within the factories themselves at all production sites of the Group. Be humane The humanitarian association “Be hu- mane” from Serbia collects money for the treatment of sick children, and the campaign “Be humane - Humanitarian auctions” was launched on social net- works. Big humanitarians from the fac- tory in Mladenovac joined the campaign by bidding on production waste of head- liners that artists like to use for the re- alization of their projects. They bid with cardboard tubes and achieved excep- tional interest, thus helping those who need it the most. ADP ACTIVITIES AD Plastik Group builds its or- ganizational culture by promo- ting and respecting the com- pany’s values and creating a sense of belonging. 92 SUSTAINABLE DEVELOPMENT An integrated strategy covers all phases of the business cy- cle, starting from planning to product delivery. Cooperation with customers and suppliers is essential for finding more environmentally friendly solutions, technologies and materi- als that contribute to reducing vehicle weight, emissions and preserving the environment. By increasing the efficiency of production processes and ac- tively managing their impact on the environment, the amount of waste, energy used and emissions are reduced. By con- stantly monitoring the impact, improving processes and planning activities, potential risks and threats are avoided. In order to avoid possible risks of applying new technologies, before fully understanding their impact on the environment and human health, the precautionary principle is applied. A strong focus on environmental protection and sustaina- bility are daily motivations in implementing the company’s responsible practices. Coherence and compliance with all laws and regulations related to environmental protection are long-standing practice, which continued also in the reporting period. Caring for the environment is not only necessary for long-term success, but is a moral imperative for every mod- ern company. ENVIRONMENT Sustainable management of resources is an important element of the company’s business philosophy, and the understanding of the importance of environmental protection permeates all business segments. Through the implementation of the circular economy, the adoption of green production processes and the focus on energy efficiency, continuous work is being done to reduce the carbon footprint. GRI 307-1 93ENVIRONMENT GRI 301-1 GRI 301-2 MATERIALS The basic raw materials used for the production of components in the AD Plastik Group are thermoplastic organ- ic polymers, which are shaped into the final product using the company’s key technologies. These materials are al- most irreplaceable in everyday life, and basic raw material for their obtaining is oil, a non-renewable natural resource. Due to the perception of polymers as environmentally unacceptable materi- als, while often ignoring their positive properties and impact on the overall carbon footprint, consultation with the community on the possibilities of re- cycling and utilization in the circular economy is extremely important. Actual and potential negative im- pacts include lack of resources, limit- ed reserves and the impact of climate change as key impacts. The conse- quences are material shortages and potentially significant price increases, which also have a potentially negative impact. That’s why intensive work is be- ing done to find new ways of recycling and disposal, including repurposing ma- terials that can become raw materials for other manufacturers from waste. The Group’s product development de- partment, in cooperation with custom- ers, continuously investigates the pos- sibilities of using bioplastics obtained from renewable plant materials. Actual and potential positive impacts on the economy, the environment and people include a greater representation of polymer components in the automo- tive industry to reduce vehicle weight, consequently emissions and the over- all carbon footprint, and their recycla- bility and vehicle end-of-life disposal. Material management is defined in al- most all business processes of the group, especially in the most impor- tant ones, such as the preparation of offers and sealing new deals, product and process development, contracting and implementation of purchasing and serial production. It is based on cor- porate policies of quality, environmen- tal protection and sustainable supplier management. The procedures and ac- tivities carried out are described in in- ternal procedures and work instructions and are part of daily business activities. Final products are made according to technical specifications and specific customer requirements, using the best available technologies and techniques with as little impact on the environment as possible. Between the development phase and the start of serial production of individual products, a whole series of tests and controls specific to the au- tomotive industry is carried out, in ac- cordance with customer requirements The identification of materials as a material topic results from the company’s own selection, but also from regular consulta- tions with experts in the field of sustainability and material development, customers, su- ppliers, the community, as well as employees and management. 94 ENVIRONMENT and the IATF 16949 standard. Input materials are regularly controlled in ac- cordance with plans, and the achieved results are taken into account also in the regular annual supplier assess- ment. The materials used in production pro- cesses have a significant share in the total costs of the company, but are a very important component of sustain- ability and cooperation with customers and suppliers. In the production pro- cess, recycled input raw materials ob- tained by grinding used products from thermoplastic organic polymers are in- creasingly used. Since 2018, permanent cooperation has been established with a supplier to whom the organically pol- luted solvent is handed over for recy- cling, after which it is returned purified to the technological painting process. In the reporting period, 292.29 tons of regenerated solvent from the men- tioned recycling process were used. The company’s long-term goals are constant cooperation with customers and suppliers on the development and application of more environmentally friendly materials and biomaterials and an increase in the share of recycling. At the same time, constant work is being done on improving cooperation with waste disposal companies that recycle waste and suppliers of input raw mate- rials in order to improve and expand the circular economy model. Material Site 2021 2022 2023 PP/PE/PES (t) Solin 2,953 2,834 2,714 Zagreb 3,995 3,336 3,158 Tiszaújváros 1,977 1,908 1,732 Mladenovac 410 584 652 Vintai 1,873 946 1,115 Kaluga 2,967 516 - TOTAL 14,175 10,124 9,371 Paint, varnish, solvents (t) Solin - - - Zagreb 620 582 768 Tiszaújváros - - - Mladenovac 1 - 1 Vintai 13 9 23 Kaluga - - - TOTAL 634 591 791 MATERIAL USED BY WEIGHT OR QUANTITY (t) RECYCLED INPUT MATERIAL (t) Material Site 2021 2022 2023 PP/PE/PES paint, varnish, solvents (t) Solin 247 778 940 Zagreb 408 239 464 Tiszaújváros 880 985 - Mladenovac - - 13 Vintai 272 117 115 Kaluga 350 45 - TOTAL 2,157 2,160 1,532 GRI 301-1 95ENVIRONMENT SHARE OF MATERIAL USED THAT IS RECYCLED INPUT MATERIAL (%) Material Site 2021 2022 2023 PP/PE/ PES paint, varnish, solvents (t) Solin 8.35 27.31 34.64 Zagreb 8.83 6.11 11.82 Tiszaújváros 44.53 51.60 - Mladenovac 0.00 0.00 1.95 Vintai 14.43 12.23 9.32 Kaluga 11.80 8.76 - TOTAL 14.66 17.69 11.55 MATERIAL USED FOR THE PACKAGING OF THE FINAL PRODUCT (t) PAPER USED FOR OFFICE OPERATIONS PURPOSES (t) 2021 2022 2022 Site cardboard plastic foil wooden pallets cardboard plastic foil wooden pallets cardboard plastic foil wooden pallets Solin 55.35 6.53 60.75 40.23 4.01 41.40 34.59 3.77 36.16 Zagreb 67.65 7.975 74.25 49.17 4.895 50.6 52.41 5.72 54.79 Tiszaújváros - - - 42.88 12.67 109.36 95.47 25.63 81.66 Mladenovac 82.20 6.90 71.00 70.00 7.00 69.00 77.70 5.89 78.70 Vintai - - - 211.60 6.55 - 186.55 5.54 - Kaluga 156.60 9.20 - 81.00 4.00 - - - - TOTAL 361.80 30.60 206.00 431.88 39.12 270.36 446.72 46.55 251.31 Site 2021 2022 2023 Solin 4.30 4.30 4.93 Zagreb 8.26 4.90 4.89 Tiszaújváros 5.70 4.40 2.20 Mladenovac 1.02 0.90 0.90 Vintai 5.06 1.80 1.66 Kaluga 6.03 1.37 - TOTAL 48.04 17.67 14.58 The DMS document management platform used in Croatia, in addition to improving the office business process, also aims to reduce the consumption of office paper. In the reporting period, no recycled paper was used for the needs of office op- erations. GRI 301-1 GRI 301-2 96 ENVIRONMENT ENERGY Consultations on this topic were carried out with management, employees, suppliers, customers and the academic communi- ty, and the results of a survey made among various stakehold- ers were also used. Since electricity is the main energy source in the company’s production facilities and premises, it is not surprising that this topic was chosen as an important material topic by own choice and based on the results of the survey and consultations with stakeholders. The actual and potential negative impacts on the economy, the environment and people are the overexploitation of natu- ral resources, which affects climate change, but also the lack of energy sources and the consequent increase in prices. At the same time, there are actual and potential positive impacts such as the improvement of technological processes, more energy efficient equipment and the use of energy sources from renewable sources. Aware of the importance of sustainable energy consumption, which directly affects the improvement of energy efficiency, but also financial and energy savings, energy management is a permanent obligation of the company that requires a system- atic approach and commitment. In Solin, Zagreb and Mlade- novac, energy efficiency management systems have been implemented according to the ISO 50001 standard to ensure responsible use of energy and reduction of negative impact on the environment. Energy consumption is regularly moni tored, energy audits are conducted and opportunities for improve- ment are identified. Direct and indirect energy is used in business processes. While electricity is indirect, direct energy means natural gas, LPG gas, heating oil and fuel for vehicles, and energy consumption is directly related to the amount of production. Natural gas is used for flaming and combustion of volatile organic com- pounds in facilities, liquefied petroleum gas for forklift opera- tion, gasoline and diesel are used for official vehicles. In 2023, the energy intensity was reduced, as the result of the improvement of the technological production processes. A new cooling water tower was installed in Solin, resulting in savings in electricity consumption of 400,000 kWh/g, and the value of the savings is monitored on the installed device for monitoring electricity consumption according to the cooling energy achieved. In Zagreb, the decentralization of part of the compressor for compressed air was carried out in order to make better use of waste heat, which resulted in a saving of electricity consumption in the reporting period of 276,140 kWh. The savings were estimated and the technical data of the installed equipment and estimated factors were used. The goals of the Group in the coming periods are purchase of more energy-efficient equipment, the use of electricity from renewable sources, the installation of solar panels, the use of electric vehicles and biofuels. More intensive cooperation with the academic community is also planned in order to explore new technologies and approaches that can contribute to a more sustainable use of energy in business processes. Determining materiality is a complex and demanding pro- cess that requires a thorough analysis of various factors. It includes an assessment of legislation related to energy use and its impact on climate change, but also consultati- on with various stakeholders inside and outside the com- pany to understand their perspectives and needs. GRI 302-4 97ENVIRONMENT Energy source 2021 2022 2023 Electric energy (GJ) 136,189 107,974 107,712 Natural gas (GJ) 33,214 25,670 23,653 Liquefied petroleum gas (GJ) 2,565 463 379 Heating oil (GJ) 104 173 207 TOTAL 172,072 134,280 131,951 ENERGY CONSUMPTION BY ENERGY SOURCES 8080+1616+33+11QQ 17.93% Natural gas 0.29% Liquefiedpetroleumgas 0.16% Heating oil 81.63% Electric energy 32,912 33,731 33,939 72,476 59,766 62,472 17,137 16,386 16,133 10,297 10,563 10,343 22,268 10,181 9,064 16,981 3,653 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 2021 2022 2023 ENERGY CONSUMPTION BY PRODUCTION SITES (GJ) TOTAL 2021 172,072 2022 134,280 2023 131,951 172,072 134,280 131,951 120,000 140,000 160,000 180,000 2021 2022 2023 Solin Kaluga Zagreb Vintai Mladenovac Tiszaújváros In 2023, no electricity from renewable sources was used. GRI 302-1 98 ENVIRONMENT Site 2021 2022 2023 Solin 3.05 3.10 3.15 Zagreb 3.58 3.76 2.59 Tiszaújváros 4.06 4.23 3.14 Mladenovac 3.36 2.76 2.12 Vintai 1.76 2.61 2.55 Kaluga 1.37 1.51 - TOTAL 2.86 3.00 2.71 Site 2021 2022 2023 Solin 1,544 1,356 1,308 Zagreb 245 322 351 Tiszaújváros 542 622 603 Mladenovac 36 45 26 Vintai 2,849 1,990 1,959 Kaluga 35 4 - TOTAL 5,250 4,340 4,247 5,250 4,340 4,247 4,000 4,500 5,000 5,500 2021 2022 2023 ENERGY INTENSITY ENERGY CONSUMPTION OUTSIDE THE ORGANIZATION (GJ) Energy consumption outside the organization shows fuel consumption during business trips for vehicles owned by the company or leasing companies with which the coopera- tion has been agreed. Energy intensity is measured by the ratio of total electricity consumption (kWh) and total weight of delivered products (kg). 2.86 3.00 2.71 2.00 2.50 3.00 3.50 4.00 2021 2022 2023 GRI 302-3 GRI 302-2 99ENVIRONMENT WATER AND EFFLUENTS Water consumption is monitored daily and the quality and quantity of water discharged into the public drainage system at all production sites is monitored in accordance with reg- ulations and sustainability goals. At the same time, the cost impact of this materially significant topic on the company’s business operations is also taken into account. The process of determining the materiality of this topic included analysis and consultation with management and employees, but above all with suppliers and customers, as well as the academic com- munity and sustainability expert groups. The lack of drinking water and the resulting climate change, but also a significant increase in prices that will affect the economy and society as a whole, represent a potential negative impact on the environ- ment and society. The company’s potential positive impact is realized through the continuous improvement of technologies and processes, but above all through the care and preservation of water as a precious natural resource. Water is a key resource needed for the operation of techno- logical facilities, and the Group’s water consumption does not negatively affect the water and water ecosystem of the are- as where it operates. Local connections of the public water supply system are used, and consumption does not threaten the capacity of local water wells. The amount of water con- sumed is monitored daily on local water meters, it is distrib- uted among production facilities and premises and is used for technological and sanitary purposes. Technological water is not discharged into the drainage sys- tem because it circulates in a closed circuit, and is replenished with a new amount of fresh water as needed. It is used for cooling machines and tools in a closed recirculation system, for cooling products, as a water curtain in the process of ap- plying paints and varnishes in the paint shop, in a closed re- circulation system, for humidifying the air that is introduced into the paint shop and for heating units for the preparation of warm air for heating work rooms. AD Plastik Group does not independently divert water sources from surface water sources, and water supply is not provided from recycled water, water collected in large tanks, nor water sources obtained by desalination of sea water, nor water ob- tained by collecting rainwater. In 2023, water consumption was in accordance with the plan, with no significant deviation compared to the previ- ous period. The goals are constant improvement of tech- nological processes in order to reduce water consumption in production, regular monitoring of consumption in order to promptly repair infrastructure damage and avoid possi- ble losses, and continuous education and awareness of em- ployees about the economical use of water and the impor- tance of resources. The Group’s production sites are not located in protected are- as or in their immediate vicinity, nor in areas of high biodiversi- ty value outside protected areas or in their vicinity. Considering the scarcity and limitation of natural resour- ces, the care and preservation of the environment is an obligation for all employees. Through regular monitoring, supervisionandoptimizationofbusinessprocesses,defi- ning improvement measures and development of produ- cts and technologies, the environment is taken care of on a daily basis. Each investment is viewed from the aspect of possible impact on the environment, while achieving an optimal harmony of economic and environmental topics. GRI 304-1 GRI 303-1 100 ENVIRONMENT Public water supply (m³) Private well (m³) Total consumption (m³) Site 2021 2022 2023 2021 2022 2023 2021 2022 2023 Solin 23,400 26,550 23,000 - - - 23,400 26,550 23,000 Zagreb 9,535 7,546 8,549 6,941 4,935 4,809 16,476 12,481 13,358 Tiszaújváros 9,590 2,477 2,470 - - - 9,590 2,477 2,470 Mladenovac 2,548 1,951 1,717 - - - 2,548 1,951 1,717 Vintai 6,597 3,390 3,601 - - - 6,597 3,390 3,601 Kaluga 3,575 1,122 - - - - 3,575 1,122 - TOTAL 55,245 43,036 39,337 6,941 4,935 4,809 62,186 47,971 44,146 Site 2021 2022 2023 Solin 1,437 2,657 2,986 Zagreb 8,726 6,961 8,296 Tiszaújváros 40 10 10 Mladenovac 5 5 5 Vintai 1,319 678 670 Kaluga 1,588 426 - TOTALTOTAL 13,115 10,737 11,967 Site 2021 2022 2023 Solin 0,48 0,88 1,00 Zagreb 1,55 1,58 1,84 Tiszaújváros 0,03 0,01 0,01 Mladenovac 0,01 - - Vintai 0,37 0,64 0,70 Kaluga 0,46 0,63 0,00 TOTALTOTAL 0,48 0,62 0,71 The reason for the increase in water consumption in Solin is the increased evaporation of water due to a greater share of the work of the old water tower and the commissioning of the new water tower, and the pipeline was repaired during the re- porting period. In Zagreb, a general cleaning of the total technological water, which accepts particles of sprayed paint in paint shops, was carried out in the reporting period, and it was replaced with clean technological water. Wastewater is not recycled through internal processes to be reused for technological purposes. WATER CONSUMPTION BY SOURCE (m 3 ) WATER CONSUMPTION IN THE TECHNOLOGICAL PROCESSES OF PRODUCTION (m 3 ) WATER CONSUMPTION PER kg OF PRODUCT (l/kg of the product) GRI 303-3 GRI 303-3 GRI 303-5 GRI 303-5 GRI 303-3 GRI 303-5 101ENVIRONMENT 2021 2022 2023 Destination Solin 12,963 15,253 11,392 Adriatic Sea and Mediterranean Sea Zagreb 7,750 7,402 7,159 Sava River and Danube River/Black Sea Tiszaújváros 959 959 980 Tisza River and Danube River/Black Sea Mladenovac 2,548 1,951 1,717 Veliki Lug River and Danube River/Black Sea Vintai 6,597 3,390 3,601 Volga River/Caspian Sea Kaluga 3,575 1,122 - Oka River and Volga River/Caspian Sea TOTAL 34,392 30,077 24,849 AMOUNT OF DISCHARGED WATER AND ITS DESTINATION (m³) Effluents drainage systems were in- stalled separately to ensure adequate effluents management at all produc- tion sites of AD Plastik Group. Effluents from the production sites are drained through the internal drainage system, which is connected to the public drain- age system via a control and measuring shaft. Production sites generate three types of effluents: sanitary, technolog- ical water and rainwater. Rainwater effluents pass through sedi- mentation tanks and grease and oil sep- arators before being led to the internal drainage system. Hazardous waste re- sulting from the cleaning of these sep- arators is processed in accordance with waste management regulations. Technological effluents are not dis- charged into the public drainage sys- tem, but are kept in a closed circulating control system that is supplemented with clean water due to evaporation, while solid residues become special hazardous waste. Sanitary and rainwater effluents pass through city drainage systems before being discharged into local effluents drainage systems. Before discharge, these waters are purified through sed- imentation tanks, grease catchers and separators, and the sediment is re- moved according to current regulations on waste management. The quality of effluents from the plants is regularly controlled by authorized companies, and in 2023 it was con- firmed that the effluents complied with legal parameters. Reports on water quality are regularly submitted to the competent state bodies for environ- mental protection. In the reporting pe- riod, there were no significant spills of hazardous substances that could have negative consequences for the environ- ment or human health. The primary goal of the company is to prevent any uncontrolled leakage of dangerous substances into the water and to continuously monitor the quality of effluents at the discharges. Solin Zagreb Tiszaújváros Mladenovac Vintai TOTAL Chemical oxygen demand (COD) 2.413 2.999 - - - 5.41 Biochemical oxygen demand (BOD) 1.159 1.570 - - - 2.73 EFFLUENTS ANALYSIS (t) GRI 303-2 GRI 303-4 GRI 303-4 102 ENVIRONMENT EMISSIONS The process of determining the materiality of emissions in- cludes analysis of legislation, consultation with various stake- holders, employees, suppliers, customers and the academic community, and survey results to identify actual and potential negative and positive impacts on the economy, environment and people. In addition to the already mentioned negative impacts, actual and potential positive impacts are represented by the reduc- tion of the negative impact of emissions by improving techno- logical processes and more energy-efficient equipment, reduc- ing energy consumption and preserving natural resources, as well as using energy from renewable sources. In order to manage emissions as well as possible, environ- mental and energy management systems ISO 14001 and ISO 50001 have been implemented, and binding internal docu- ments are applied to monitor emissions and carry out regular monitoring. Air emissions weights are determined directly by measure- ment or indirectly by calculation based on fuel consumption or emitted substances. Regular maintenance of the energy distribution and production system, as well as the system for the regenerative combustion of volatile organic compounds, reduces emissions into the environment. Their automatic reg- ulation monitors consumption parameters and contributes to more efficient use of resources with lower emissions. Emissions into the atmosphere are caused by the combus- tion of energy sources necessary for the operation of boiler rooms, regenerative incinerators, forklifts and the production of electricity necessary for the operation of the plant. Cooling and fire protection systems use refrigerants that can damage the ozone layer with their chemical composition. In accord- ance with legal regulations, the systems are regularly serviced and maintained in cooperation with authorized service techni- cians, and records of this are kept on service cards. In order to reduce the negative impacts caused by volatile or- ganic compounds, 304.75 tons of volatile organic compounds were burned in the reporting period on the regenerative incin- erators of painting line exhaust vents in Zagreb. Additional measures that have been implemented are directly related to the management of the energy material topic. Goals for the future include the further acquisition of energy-ef- ficient equipment, the use of renewable energy sources such as solar panels, and the use of electric vehicles and biofuels. This will ensure sustainable business and a constant reduction of the company’s carbon footprint in the coming period. Emissions represent the release of gases into the atmosphere as a result of various processes, such as fuel combustion or chemical reactions. Con- sequently, they affect climate change, but also the company’s economic performance. Despite the fact that the company’s emissions are not signi- ficant,thistopicwasassessedasmaterialbyown choice and consultation with stakeholders. GRI 305 103ENVIRONMENT DIRECT GREENHOUSE GAS EMISSIONS (t CO 2 ) * t CO 2 - Emission data calculated according to national standard Site Heating oil Natural gas Liquid petrole- um gas TOTAL Solin 15 - - 15 Zagreb - 1,120 22 1,142 Tiszaújváros - 108 - 108 Mladenovac - 79 1 79 Vintai - 13 - 13 TOTAL 15 1,319 23 1,358 9595+44+11QQ 97.19% Natural gas 1.68% Liquid petroleum gas 1.12% Heating oil DIRECT GREENHOUSE GAS EMISSIONS ACCORDING TO ENERGY SOURCES (t CO 2 ) TOTAL 2021 1,998 2022 1,473 2023 1,358 GRI 305-1 GRI 305-1 Vintai Zagreb Solin Mladenovac Tiszaújváros 11 16 15 1,573 1,145 1,142 202 173 108 145 117 79 67 22 13 5 50 500 2021 2022 2,023 104 ENVIRONMENT Site CH 4 CH 4 expressed in CO 2 eq N 2 O N 2 O expressed in CO 2 eq CH 4 and N 2 O expressed in CO 2 eq Solin - 0.02 - 0.03 0.05 Zagreb 0.02 0.57 - 0.54 1.11 Tiszaújváros - 0.05 - 0.05 0.10 Mladenovac - 0.04 - 0.04 0.08 Vintai - 0.01 - 0.01 0.01 TOTAL 0.02 0.69 - 0.67 1.35 The share of direct emissions of CH 4 and N 2 O expressed in CO 2 eq in 2023 was 0.1 percent, as well as in the comparative period. INDIRECT GREENHOUSE GAS EMISSIONS (t CO 2 ) * t CO 2 - Emission data calculated according to national standard TOTAL 2021 10,321 2022 8,521 2023 8,388 1,920 2,290 2,305 2,601 2,683 2,873 791 820 876 1,164 1,370 1,442 2,178 989 892 1,667 369 0 500 1,000 1,500 2,000 2,500 3,000 2021 2022 2023 * t - Emission data calculated according to national standard DIRECT CH 4 AND N 2 O GREENHOUSE GAS EMISSIONS ACCORDING TO MASS (t) GRI 305-5 GRI 305-2 GRI 305-1 Solin Kaluga Zagreb Vintai Mladenovac Tiszaújváros 105ENVIRONMENT TOTAL 2021 0.69 2022 0.81 2023 0.85 0.64 0.76 0.78 0.46 0.61 0.64 0.93 0.70 0.99 1.29 1.23 0.62 0.91 0.93 0.48 0.55 0.40 0.60 0.80 1.00 1.20 1.40 2021 2022 2023 GHG EMISSIONS INTENSITY (kg CO 2 eq / kg of the product) The GHG emissions intensity shows the ratio of total direct and indirect greenhouse gas emissions per kilogram of delivered prod- uct. 6464+2727+66+22QQ 5454+3636+66+44QQ 27.24% Arrival to work / departure 35.87% Arrival to work / departure 5.87% Business trips by vehicles 6.46% Business trips by vehicles 2.16% Business trips by plane 3.56% Business trips by plane 64.73% Transport of finalproducts to the end customer 54.10% Transport of finalproducts to the end customer OTHER INDIRECT GREENHOUSE GAS EMISSIONS (t CO 2 ) 2022 2023 GRI 305-3 GRI 305-4 Solin Kaluga Vintai Zagreb Mladenovac Tiszaújváros 106 ENVIRONMENT Site Transport of final products to the end customer Arrival to work / departure Business trips by vehicles Business trips by plane TOTAL 2021 Solin 1,018.00 566.37 110.79 98.52 1,793.68 Zagreb 1,609.59 669.91 17.54 - 2,297.04 Tiszaújváros 327.41 141.44 37.73 - 506.58 Mladenovac 264.70 90.63 2.55 - 357.88 Vintai 177.47 535.07 195.96 - 908.50 Kaluga 142.12 69.30 2.40 - 213.82 TOTAL 3,539.29 2,072.72 366.97 98.52 6,077.50 2022 Solin 1,140.79 515.47 97.63 111.73 1,865.62 Zagreb 1,293.78 421.14 22.96 - 1,737.88 Tiszaújváros 297.92 151.49 43.49 - 492.90 Mladenovac 497.42 129.55 3.30 - 630.27 Vintai 95.69 163.87 136.88 - 396.44 Kaluga 27.77 29.70 0.31 - 57.78 TOTAL 3,353.37 1,411.22 304.57 111.73 5,180.89 2023 Solin 952.97 426.15 94.07 140.85 1,614.04 Zagreb 805.40 587.07 24.96 23.16 1,440.59 Tiszaújváros 239.07 225.76 41.89 - 506.72 Mladenovac 459.81 126.79 1.84 - 588.44 Vintai 32.55 285.12 134.71 - 452.38 Kaluga - - - - - TOTAL 2,489.80 1,650.89 297.47 164.01 4,602.17 OTHER INDIRECT GREENHOUSE GAS EMISSIONS (t CO 2 ) * t CO 2 - Emission data calcu- lated according to national standard * Business vehicle trips refer to those carried out by vehicles owned by AD Plastik Group The increase in emissions per employee at individual produc- tion sites occurred due to an in- crease in the average distance of the employee’s place of residence compared to the previous period. Also, due to activities related to the preparation of new projects, the emissions of official air travel have increased. GRI 305-3 107ENVIRONMENT Site R22 R32 R407C R404A R410A R410C R449A HCFC- 22 R134A 227ea 2021 Solin 123 - 3 4 250 - 9 - 125 40 Zagreb - - 940 - 202 - - - - - Tiszaújváros - - - - 84 - - 61 - - Mladenovac 9 3 81 - - 3 - - - 164 Vintai - - 40 - - - - - - - Kaluga - - 340 - - - - - - - TOTAL 132 3 1,404 4 536 3 9 61 125 204 2022 Solin 34 - 93 4 250 - 9 - 65 40 Zagreb - - 940 - 202 - - - - - Tiszaújváros - - 33 - 196 - - 150 - - Mladenovac 9 4 74 - 4 - - - - 68 Vintai - - 40 - - - - - - - Kaluga - - 340 - - - - - - - TOTAL 43 4 1,520 4 652 - 9 150 65 108 2023 Solin 34 - 33 4 250 - 9 - 65 40 Zagreb - - 940 - 202 - - - - - Tiszaújváros - - 33 - 196 - - 150 - - Mladenovac 9 4 74 - 4 - - - - 68 Vintai - - 40 - - - - - - - Kaluga - - 340 - - - - - - - TOTAL 43 4 1,460 4 652 - 9 150 65 108 Due to the rupture of the seals on the compressor of the cooling unit, 60 kilograms of refrigerant R 407C were lost in Solin during the reporting period, and the cooling unit was permanently put out of use. REFRIGERANT QUANTITY IN EQUIPMENT (kg) GRI 305-6 108 ENVIRONMENT Site NOx SO 2 CO VOC PM (10) 2021 Solin 0.01 0.02 - - - Zagreb 1.06 - 0.09 9.64 0.05 Tiszaújváros - - - - - Mladenovac 0.42 - 0.20 - - Vintai 6.13 0.03 - 15.18 0.10 Kaluga - - - - - TOTAL 7.62 0.05 0.29 24.82 0.15 2022 Solin 0.01 0.03 - - - Zagreb 0.84 - 0.51 10.22 - Tiszaújváros - - - - - Mladenovac 0.34 - 0.06 - - Vintai 3.68 0.02 - 9.11 0.06 Kaluga - - - - - TOTAL 4.87 0.05 0.57 19.33 0.06 2023 Solin 0.01 0.04 - - - Zagreb 0.74 - 0.06 12.58 - Tiszaújváros - - - - - Mladenovac 0.20 - 0.11 - - Vintai 4.90 0.02 - 1.21 0.08 Kaluga - - - - - TOTAL 5.85 0.06 0.17 13.80 0.08 NOx,SOx AND OTHER RELEVANT AIR EMISSIONS ACCORDING TO TYPE AND MASS (t) Emission data calculated according to national standard Emissions of NO 2 , SO 2 , CO and PM (10) are produced in boiler rooms by obtaining thermal energy, while emissions of volatile organ- ic compounds (VOC) are regularly measured at the painting line ex- haust vent. The measured values of emissions into the atmosphere are in accordance with legal pro- visions. GRI 305-7 109ENVIRONMENT WASTE The Group’s production sites are located in ecologically sen- sitive and historically significant areas, which makes respon- sibility towards the environment even more important. The actual and potential negative impacts of the company in this domain are the excess waste generation, inadequate separa- tion and selection, and untimely disposal, which can have a negative impact on climate change. The actual and potential positive impacts are increased recy- clability of waste and the application of the circular economy, improvement of technological processes and consequent en- vironmental preservation and reduction of negative impact. Waste management is clearly defined by internal procedures, and the implementation of the environmental management system according to the ISO 14001 standard facilitates the design of the Environmental Protection Policy and the setting of goals, taking into account legal and other binding require- ments. Some of the procedures that are regularly implement- ed in waste management are the selection and collection of waste at the point of origin, recycling and reuse, distillation of hazardous organic solvents for reuse, and circular economy models with waste recycling partners. The management of waste generated in production processes represents the daily responsibility and obligation of all em- ployees, because the reduction and prevention of its generation and adequate disposal are clear goals of the sustainability strategy and the main strategy of AD Plastik Group. The materiality of this topic is unquestionable due to the potential and actual impacts on the environment, and in addition to following regulations in the domain of waste management, regular consultations within the company, but also with customers, suppliers and professional associations enable better-quality understanding and management of this topic. GRI 306-1 GRI 306-2 GRI 306-3 GRI 306-4 GRI 306-5 110 ENVIRONMENT Waste management in an environmen- tally acceptable manner is the priority of all employees in order to ensure the protection of the environment and fu- ture generations. Regular monitoring, selection and disposal of waste are key elements of business process, and the efficiency is analyzed once a year also by the Management Board. Thermoplastic organic polymers are not considered hazardous materi- als and are the main raw materials of technological processes of injection moulding, extrusion and thermoform- ing, during which they are formed into a final product that is further refined. In order to prevent the creation of waste, all low-quality products are separated and taken to an internal plant for grind- ing scrapped products. The ground sec- ondary raw material that is obtained is returned to the production process where it is mixed with the original input raw material to obtain the final prod- uct. In case of impossibility of grinding, low-quality products are disposed of in waste containers. In paint shops, plastic parts are coat- ed with organic solvent-based agents that contain substances which are haz- ardous materials, whereby paints and varnishes can contain 50 to 70 percent of these substances. In the distillation area in Zagreb, the hazardous organi- cally contaminated solvent is distilled, and the clean solvent is reused in the painting process. During 2023, 123.33 tons of solvents were purified by inter- nal distillation. Compared to previous periods, during 2023, the amounts of non-hazardous waste were reduced in Zagreb and So- lin, due to the improvement of techno- logical processes, especially plastic waste. An important contribution to the reduction was also made by the improved waste management system, constant education of employees on the proper selection and separation of plastics and processing in the scrap grinding facility. In Solin, the amount of hazardous waste was reduced as a re- sult of the reduced disposal of hydraulic oil due to improved maintenance of pro- duction machines. At the same time, in Zagreb, the amount of hazardous waste significantly increased in the observed period as a result of general cleaning and replacement of technological water in paint shops, due to which the dispos- al of paints and varnishes waste sludge and aqueous liquid waste increased. The reduced amount of waste in Vintai is a consequence of the reduced vol- ume of production. In the reporting period, 45.1 percent of the total waste was handed over to authorized disposal companies for re- cycling, of which 463.20 tons were non-hazardous and 328.16 tons were hazardous waste. The goals for the following periods are the improvement of technological pro- cesses in order to reduce the genera- tion of waste, more intensive cooper- ation with waste disposal companies that use recycling, constant education of employees and the improvement and expansion of the circular economy model. GRI 306-2 111ENVIRONMENT 2021 2022 2023 Site non-hazardous hazardous non-hazardous hazardous non-hazardous hazardous Solin 259.60 16.89 296.068 30.820 238.52 15.55 Zagreb 373.69 501.75 390.288 523.529 245.60 793.54 Tiszaújváros 238.41 8.36 226.119 10.623 231.40 7.90 Mladenovac 123.06 4.20 130.280 4.370 122.07 5.73 Vintai 498.12 38.36 175.740 2.020 93.25 1.10 Kaluga 650.30 8.01 77.300 - - - TOTALTOTAL 2,143.182,143.18 577.57577.57 1.295.801.295.80 571.36571.36 930.84930.84 823.82823.82 Disposal methods Solin Zagreb Tiszaújváros Mladenovac Vintai TOTAL Recycling 184.10 195.82 25.43 - 57.85 463.20 Waste storage before disposal 0.29 49.78 - 97.71 - 147.78 Using waste as a fuel or other method for generating energy - - - - - - Physico-chemical treatment of waste - - - - - - Waste incineration on land - - - - - - Waste disposal at spe- cially prepared landfills 54.13 - 205.97 24.36 35.40 319.86 TOTAL 238.52 245.60 231.40 122.07 93.25 930.84 WASTE BY TYPE DIRECTED TO DISPOSAL (t) NON-HAZARDOUS WASTE DIRECTED TO DISPOSAL (t) GRI 306-3 GRI 306-4 112 ENVIRONMENT Name of waste quantity (t) Mixed packaging 37.98 Plastic waste 26.06 Paper and cardboard packaging 24.63 Waste scrap metal 24.57 Wooden packaging 16.82 Plastics 6.90 Waste packaging film 2.85 Bulky waste 3.38 Paper and cardboard 2.78 Inorganic waste 1.52 A mixture of grease and oil from the separator 0.19 Styrofoam 0.10 TOTAL 147.78 Name of waste quantity (t) Paper and cardboard packaging 174.69 Plastic waste 160.05 Remnants of mixed fabrics 40.78 Waste packaging film 38.01 Waste scrap metal 19.73 Wooden packaging 15.07 Polyurethane foam waste, uncontaminated 5.90 Plastic particles and sawdust 2.81 Mixed metals 2.28 Polyurethane waste 1.16 Fiberglass waste 1.04 Paper and cardboard 0.86 Plastics and rubber 0.83 TOTAL 463.21 RECYCLED NON-HAZARDOUS WASTE GRI 306-4 GRI 306-4 STORED NON-HAZARDOUS WASTE BEFORE DISPOSAL 113ENVIRONMENT Name of waste quantity (t) Waste solvent 308.55 Sludges or solid waste contained in other solvents 15.81 Mineral oils 2.70 Material contaminated with oil or oil derivatives 0.30 Sand contaminated with oil or oil derivatives 0.25 Work shoes 0.35 Work clothes contaminated with oil derivatives 0.20 TOTAL 328.16 Name of waste quantity (t) Plastic waste 143.43 Municipal waste 50.31 Bulky waste 41.58 Low-hazard waste and cleaning of industrial premises 35.40 Mixed material waste 24.36 Scrap metal 11.36 Plastic particles and sawdust 12.55 Mixed packaging 0.88 TOTAL 319.86 NON-HAZARDOUS WASTE AT THE LANDFILL Disposal methods Solin Zagreb Tiszaújváros Mladenovac Vintai TOTAL Recycling - 324.36 2.70 - 1.10 328.16 Waste storage before disposal 13.37 444.92 1.33 5.73 - 465.35 Using waste as a fuel or other method for generating energy 1.00 24.25 - - - 25.25 Physico-chemical treatment of waste - - - - - - Waste incineration on land - - 3.61 - - 3.61 Waste disposal at a specially prepared landfill 1.18 0.01 0.26 - - 1.46 TOTAL 15.55 793.54 7.90 5.73 1.10 823.82 HAZARDOUS WASTE DIRECTED TO DISPOSAL (t) GRI 306-5 GRI 306-4 GRI 306-4 RECYCLED HAZARDOUS WASTE 114 ENVIRONMENT Name of waste quantity (t) Paints and varnishes waste sludge 204.00 Aqueous liquid waste 109.10 Waste packaging tainted with hazardous substances 62.68 Oily rags, gloves, filters 34.85 Oily water from the oil/water separator 30.88 Waste from containers containing oil 11.34 Sludge from the oil/water separator 3.15 Waste paints and varnishes 2.76 Waste halogen compounds 2.02 Liquid waste from washing machines 2.00 Waste adhesives and solvents 1.02 Inorganic waste containing hazardous substances 0.80 Packaging under pressure 0.50 Oil filters 0.23 Waste toners 0.03 TOTAL 465.35 Name of waste quantity (t) Other hydraulic oils 25.25 TOTAL 25.25 Name of waste quantity (t) Mineral oils 2.30 Waste packaging contaminated with dangerous substances 1.31 TOTAL 3.61 Name of waste quantity (t) Electronic equipment 0.62 Waste cartridges 0.31 Fluorescent tubes 0.27 Hazardous substances replaced on equipment 0.26 TOTAL 1.46 HAZARDOUS WASTE INCINERATED ON LAND HAZARDOUS WASTE STORED BEFORE DISPOSAL HAZARDOUS WASTE USED AS FUEL OR OTHER MEANS OF GENERATING ENERGY HAZARDOUS WASTE AT THE LANDFILL GRI 306-5GRI 306-5 GRI 306-5 GRI 306-5 115ENVIRONMENT Disposal methods 2021 2022 2023 Recycling 1,584.29 936.66 791.36 Waste storage before disposal 524.65 569.97 613.13 Using waste as a fuel or other method for generating energy 30.25 39.78 25.25 Physico-chemical treatment of waste 11.29 - - Waste incineration on land 0.43 - 3.61 Waste disposal at a specially prepared landfill 569.83 320.74 321.32 TOTAL 2,720.74 1,867.16 1,754.67 4545+3535+16163311RR 45.10% Recycling 0.21% Waste incineration on land 34.94% Waste storage before applying any disposal procedures 18.31% Waste disposal ataspeciallypreparedlandfill 1.44% Using waste as a fuel or other method for generating energy HAZARDOUS AND NON-HAZARDOUS WASTE DIRECTED TO DISPOSAL (t) GRI 306-5 116 SUSTAINABLE DEVELOPMENT The system is based on available reference documents, inter- nal procedures and instructions for continuous monitoring of supplier performance. Suppliers are familiar with the selection criteria, which are aligned with the standards and specific re- quirements of customers in the automotive industry and are an integral part of the company’s internal regulations and pol- icies. Sustainable Supplier Management Policy, General Terms and Conditions of Purchase, Supplier Quality Manual and Compli- ance Questionnaire according to the guidelines of corporate social responsibility are published on the company’s website. AD Plastik Group has a very wide base of different types of suppliers, from the ones for basic and auxiliary materials, to packaging, tools, equipment and services. Basic and auxiliary materials are purchased from world-renowned manufacturers, with the consent of customers, while respecting high stand- ards of quality and sustainability. In accordance with the clear direction of the company, suppliers are encouraged to use re- cycled materials more and create assumptions for internal re- cycling and recovery of materials with the aim of transition towards sustainable business practices and circular economy. All suppliers whose products or services affect the quality of the company’s products are subject to strict monitoring pro- cesses according to the demanding standards of the automo- tive industry, including annual monitoring according to sus- tainability criteria. Despite the large number of suppliers, most of the purchas- ing value refers to suppliers of basic and auxiliary materials, equipment and tools, transport and maintenance services, and energy sources. It is precisely such suppliers that are part of the strategic direction, that is, the set goals in terms of constant improvements and verification of sustainable busi- ness. Given that each link in the entire value chain has a seri- ous impact on the achievement of sustainability goals, setting clear criteria already at the beginning of the chain is crucial for achieving the desired quality and results. The negative influence of the supplier in any segment of sus- tainability negatively affects the company’s sustainability re- sults, but also the final product, while the positive influence of the supplier is also transferred to the final product and the end user, positively affecting the carbon footprint of the final product. Clear and unequivocal conditions have been set that SUPPLY CHAIN Supplier management is a key business process in the automotive industry, and AD Plastik Group has a robust system for managing this group of stakeholders. GRI 2-6 GRI 2-24 117SUPPLY CHAIN Solin and Zagreb Tiszaújváros Mladenovac Vintai TOTAL Total number of suppliers 1,583 477 392 175 2,627 Assessed suppliers 517 87 64 14 682 Assessed suppliers in % 33% 18% 16% 8% 25.96% The purchasing value of assessed suppliers in kEUR 72,904 9,490 9,000 2,985 94,379 The purchasing value of assessed suppliers in % 95% 80% 90% 46% 90% The total purchasing value in kEUR 76,492 11,880 9,965 6,455 104,792 The geographical location of most suppliers EU, HR, TR EU EU, SRB RU, TR, CHN EU, RU, HR, SRB, TR, CHN suppliers must fulfill at the beginning of cooperation, but also during the entire duration. In the case of their non-compli- ance, measures are taken to urgently remove the irregularities, which may ultimately result in the termination of cooperation. During 2023, the calculation of CO 2 emissions for new projects began, by reporting to customers the amount of CO 2 emitted by each product. This enables the management of the impact on the environment already at the stage of inquiry from the customer and the selection of adequate materials. Prepara- tions have also been made for a more detailed assessment of suppliers based on standardized customer sustainabil- ity questionnaires, the start of implementation of which is planned for 2024. In the past few years, significant progress has been made in the scope of assessed suppliers and crite- ria, and the requirements for compliance with sustainability guidelines that are applied during selection of new suppliers have been formalized. SUPPLIER ASSESSMENTS The supplier social assessment was carried out through a questionnaire for corporate social responsibility in Croatia and Serbia, while in other companies there was no verification in this area. A total of 517 suppliers were evaluated, i.e. 29 per- cent of them, including all new suppliers of materials, equip- ment and services that affect product quality. By accepting and signing the Sustainable Supplier Management Policy, all new suppliers confirm their dedication to the fight for human rights, the right to work, the prohibition of child labor, and the fight against discrimination and corruption. In the re- porting period, no suppliers were recognized where there is a risk of forced, compulsory or child labor. In Croatia, long-term cooperation agreements were also signed with suppliers of cer- tain services that employ vulnerable groups of employees. The sustainable business of suppliers is a basic prerequisite for cooperation due to their importance in the value chain of the automotive industry. Therefore, the supplier environmen- tal assessment is an indispensable material topic, and the conditions are also defined in the Sustainable Supplier Man- agement Policy. By prescribing the aforementioned Policy, but also by regular evaluation according to the ISO14001 stand- ard or by filling out a customized questionnaire, the company manages the potential positive influence of suppliers, that is, reduces their possible negative influence. All new suppliers of different types of materials are evaluat- ed before the start of cooperation, which was also done in the observed period. At the same time, an assessment of all suppliers of materials, equipment and key service suppliers is GRI 308-1 GRI 414-1 GRI 414-2 GRI 412-3 GRI 408-1 GRI 409-1 118 SUPPLY CHAIN carried out once a year, so in 2023, 682 suppliers at the Group level were assessed, which is 90 percent of the total purchas- ing value. This is a significant increase compared to previous periods, and the company’s goal is to regularly evaluate all suppliers who have a potential impact on the final product, which means primarily suppliers of materials, tools, transport and energy sources. In the observed period, there were no suppliers with whom business relations were terminated due to a negative impact on the environment. It is important to point out that there is a large number of one-off suppliers that have not been thor- oughly analyzed or verified for sustainability. SOLIN and ZAGREB 56.57%155 274 40.37%130 322 33.85%175 517 2021 2022 2023 ISO 14001 Assessed in total MLADENOVAC 67.74%21 31 35.96%32 89 64 2021 2022 2023 ISO 14001 Assessed in total 48.44% 31 TISZAÚJVÁROS 40.00%36 90 44.57%41 92 87 2021 2022 2023 ISO 14001 Assessed in total 48.28%42 VINTAI 27.63% 21 76 46 14 2021 2022 2023 ISO 14001 Assessed in total 2.17% 7.14% 1 1 GRI 308-2 GRI 308-2 GRI 308-2 GRI 308-2 119SUPPLY CHAIN PROCUREMENT PRACTICES The share of local suppliers in the total purchasing value is an extremely important topic and a key aspect of the Group’s business planning and management. Through its annual and mid-term business plans, the total purchasing value and its share belonging to local suppliers are actively influenced. Although each plant has its own base of local suppliers, as well as a shared base of global ones, the specifics of materi- als and components in the automotive industry can limit the choice of local suppliers in certain locations. However, by ac- tively managing the selection of materials and through plan- ning improvements during serial production, the share of local suppliers is sought to be increased. The selection of local suppliers in the segments of services and procurement of equipment parts has a positive impact on the development of small suppliers and the improvement of economic activities in local communities. The purchasing value in Croatia increased in the reporting pe- riod due to investments in tools and equipment for new pro- jects as well a the start of serial production of a smaller part of the projects. New projects bring new materials and changes in the structure of raw materials, and their impact will be more significant in the coming years when annual production vol- umes are expected to increase. As the local material market in Croatia is not sufficiently developed, local suppliers cover only 29 percent of the purchasing value, mainly in the service and investment segments. At the same time, the purchasing value in Serbia dropped by 20 percent compared to the previous year due to reduced cus- tomer orders and the shutdown of the Smart project, but the share of local suppliers is thus slightly higher. Due to the insuf- ficiently developed local material market, no major changes in the purchasing structure are expected in the coming periods. By far the best share of local suppliers is in Hungary, which has a developed automotive industry, so local suppliers ac- count for 76 percent of the purchasing value of that factory. In Russia, due to the geopolitical situation, significant changes have taken place, including production shutdowns and chang- es in the supplier structure. The share of local suppliers has been greatly reduced, and the structure of foreign suppliers has changed. Changes in the supply chain require a thorough renovation and adjustment of the supply chain, which is ham- pered in the current circumstances in this market. All changes in the supply chain require constant monitoring and adjustment of the purchase strategy in order to ensure the stability and sustainability of the business. GRI 204-1 120 SUPPLY CHAIN 33.78% 34.35% 29.00% THE SHARE OF LOCAL SUPPLIERS IN THE TOTAL PURCHASING VALUE SOLIN and ZAGREB 80,000 60,000 40,000 20,000 0 2021 2022 2023 Local Import TISZAÚJVÁROS 48.64% VINTAI 32.73% 67.23% 20,000 15,000 10,000 5,000 0 2021 2022 2023 Local Import MLADENOVAC 16,000 12,000 8,000 4,000 0 29.07% 26.87% 37.38% 2021 2022 2023 Local Import 12,000 9,000 6,000 3,000 0 57.96% 75.96% 76.43% 2021 2022 2023 Local Import GRI 204-1 121SUSTAINABLE DEVELOPMENT COMMUNITY AD Plastik Group recognizes the im- portance of active participation in var- ious professional initiatives, associa- tions and conferences with the aim of strengthening the influence of busi- nessmen and promoting the strategic interests of the economy and sustain- able development. Participation in the work of various associations and organ- izations is an opportunity to exchange knowledge, experiences and best prac- tices with other stakeholders in the in- dustry at the national and internation- al level. It is also a training ground for strengthening the network of business contacts, identifying new business op- portunities and developing innovative solutions and technologies. By participating in expert meetings and conferences, AD Plastik Group has the opportunity to share its expertise and perspectives with relevant stakehold- ers, promote its values and approach to sustainable business, and stimulate discussions on key sustainability topics and potential cooperation between the public, private and academic sectors in solving global challenges. With the aforementioned engage- ment, the company fulfills its social obligations, directly contributes to the development of the community and creates a positive impact on the environment, while also improving its competitiveness in sustainable de- velopment. By actively strengthening ties with the local community, it con- tributes to its progress and develop- ment through participation in various projects, initiatives and activities, by providing support through donations and sponsorships, and above all by employing local residents. In cooperation with UNICEF, aware- ness is raised about the impact of the business sector on children and the inclusion of childcare in all aspects of business is promoted. Also, successful cooperation with numerous educational institutions continued, with the aim of integrating theory and practice into the GRI 413-1 GRI 413-2 122 COMMUNITY educational system in order to achieve better application of acquired knowl- edge and improve employment oppor- tunities. In addition to providing opportunities for student internships and employ- ment, students are regularly support- ed in the preparation of diploma theses and guest lectures are organized. Thus, during the reporting period, 24 students successfully completed professional practice in the Group and two bachelor theses were written. Visits of pupils and students from seven different schools and colleges were organized, and the Group’s experts held several lectures at universities in Croatia. Cooperation between scientific institu- tions and businessmen is increasingly intensive in other areas as well as it significantly encourages innovation in modern society. AD Plastik Group par- ticipated in the project of creating a new internationally accredited gradu- ate study on the topic of sustainable management of organizations, which is being developed in cooperation with the Split Faculty of Economics and five partner universities in the alliance of European maritime universities. Cooperation with Faculty of Electrical Engineering, Mechanical Engineering and Naval Architecture and the Facul- ty of Chemistry and Technology in Split was also intensified, and a develop- ment project focused on experimental research of a completely new product, with the aim of later commercialization, was submitted together by invitation. The company is the project holder, and Faculty of Electrical Engineering, Me- chanical Engineering and Naval Archi- tecture provides support in terms of the technical properties of products and tools, while the Faculty of Chemis- try and Technology focuses on research into new materials and the durability of product quality. Considering the results and quality of cooperation, it is expect- ed that such activities will continue on other projects as well. AD Plastik Group publicly advocates changes that positively affect the com- munity and the economy, promoting the interests of industry, exporters and sus- tainable business, and encouraging fur- ther development of the economy and the community as a whole. GRI 413-1 123COMMUNITY MEMBERSHIPS IN ASSOCIATIONS • HR BCSD Assembly of the Croatian Business Council for Sustainable Development (HR BCSD), President of the Management Board Marinko Došen, President of the Assembly • UN Global Compact Croatia President of the Management Board Marinko Došen, member of the Management Committee • Assembly of the Croatian Chamber of the Economy President of the Management Board Marinko Došen, member of the Assembly • Economic Council of the Croatian Chamber of Economy - County Chamber Split member of the Management Board Mladen Peroš, Vice President • Croatian Exporters President of the Management Board Marinko Došen, Vice President • Plastic and Rubber Industry Association member of the Management Board Mladen Peroš, member of the Council • Vocational Plastics and Rubber Manufacturing Group of the County Chamber Split Josip Suzan, President • Economic Council of the Faculty of Economics in Split consultant Katija Klepo, member • Vocational Group for Environmental Protection in the Economy of the CCE - County Chamber Split Jadranka Konta, member • HR center - vocational association of employees in human resources management Megi Drezga Janković • Croatian Psychological Chamber Katarina Perkušić and Megi Drezga Janković • CIPD – the professional body for HR and people development Krešimir Mikulandra • Association of metal processing industry of the CCE • Community for the improvement of human resources and adult education, CCE Megi Drezga Janković • Community for environmental protection in the economy CCE • Lider’s Club of Exporters • Automotive Cluster Russia • Serbian Automotive Cluster • Chamber of Commerce and Industry of Serbia • National Association of Entrepreneurs and Employers Hungary • Hungarian Plastics Association • Association of Hungarian Automotive Component Manufacturers • Hungarian Chamber of Commerce and Industry GRI 2-28 124 COMMUNITY CONFERENCES • Panel: Dalmatia - the economic strength of Croatia organizer Croatian Employers’ Association Dalmatia, participant Marinko Došen • Croatian Security Days panel: Corporations in the era of multiple crises organizer Croatian Association of Security Managers, participant Marinko Došen • Smart Industry conference panel: New generation of factories - creating a competitive advantage with smart factory solutions organizer Poslovni dnevnik, participant Jozo Kekez • ESG – Sustainable future panel: Social criteria in non-financial reporting organizer Lider, participant Mladen Peroš • Policymaking in Choppy Waters: Fostering Resilience in Central Eastern and Southeastern Europe (CESEE) Dubrovnik, organized by HNB and Vice Governor Faulend • 18th Convention of Croatian Exporters and 16th “Golden Key” Awards ceremony Zagreb • Global transformations of the 21st century: Future of human, market and capital Bodrum, Turkey • Lider Invest investment conference Leader • Challenge of Change conference Zagreb Stock Exchange and the Association of Pension Fund Management Companies and Pension Insurance Companies • Corporate management and sustainable business conference Jutarnji list • 38th meeting of the Liders’ Club of Exporters Lider • 15th conference on sustainable development and the 16th award ceremony, Croatian Sustainability Index - HRIO HR BCSD • BusinessmeetingSustainablefinancing Croatian Chamber of Commerce • Annual conference of the Croatian Institute of Internal Auditors 2023 • Conference of the Croatian Association of Corporate Treasurers in 2023 • Days of Regional Development and EU Funds Conference 2023 • Big plans day conference • Support Sustainability 2023 conference GRI 413-1 125COMMUNITY HEALTH AND SAFETY OF END USERS In the phase of product research and development in the automotive indus- try, the requirements of regulations and safety standards that the product must meet are identified and defined, and confirmed with customers in accord- ance with the regulations of the auto- motive industry. Special characteristics of products and processes are indicat- ed on entire documentation to ensure compliance with customer require- ments and regulations of the market where the product is placed. Laboratory tests of characteristics are carried out according to the validation plan for prototypes and initial samples and the plan of laboratory tests in se- rial production. All test results are stored in accordance with the require- ments of the automotive industry. If products procured from sub-suppliers have specific regulatory and safety re- quirements, these are passed on to the suppliers to ensure full traceability throughout the entire product life cycle. The quality of making of the product, the materials used, technologies and pro- cesses affect the end users during the use of the product itself, i.e. the vehicle, which must be of impeccable quality and safety. The analysis of potential errors that can affect quality, safety and the environment is carried out taking into account contracts with customers, their quality requirements or specific require- ments, regulations, internal regulations and market risk analyses. Already in the preparation of offers, optimal industrial scenarios that have a smaller carbon footprint are sought, and where possible, common devic- es or tools are also optimized in order to reduce the consumption of materi- als and energy. During the preparation of projects, the focus is on fast cycles of operation of devices and machines, with optimal technological and eco- nomic parameters, all with the aim of GRI 416-1 126 COMMUNITY reducing energy consumption. When planning the use of new products, pro- cesses and technologies, potential im- pacts on the environment, safety and health are analyzed and final decisions are made accordingly. In the reporting period, there was not a single case of non-compliance with regu- lations related to the impact of products on the health and safety of customers. Products are labeled in accordance with the requirements of the automo- tive industry and customers to ensure full traceability and availability of all product information. Product mark- ings include information on the meth- od of production, specifications of materials and built-in components, as well as time of production and delivery. They are always available and include production process parameters, LOT of materials and prescribed controls that the product has undergone. Information on the origin of materials and each individual product component is available for all products. All suppliers in the automotive industry are required to provide information on the materials used in their products, and the IMDS database contains information on the composition of materials used in all au- tomotive parts, including details of the chemicals, substances and materials used in their production. This ensures product compliance with legal require- ments and environmental regulations, improves product sustainability and promotes transparency and traceability within the supply chain. It also ensures compliance with environmental regula- tions such as the EU directives on waste vehicles and the restriction of hazardous substances (RoHS). All of the company’s products are sub- ject to a labeling compliance assess- ment to ensure their safety and regula- tory compliance. AD Plastik Group’s advertising code additionally regulates the company’s responsible communication in adver- tising, marketing and informing in or- der to protect the interests of all stake- holders. Accordingly, not a single case of non-compliance with regulations and voluntary codes was recorded. GRI 416-2 GRI 417-1 GRI 417-2 GRI 417-3 127SUSTAINABLE DEVELOPMENT ECONOMIC IMPACTS The recovery of the automotive market in Eu- rope is evident in the reporting period, the sup- ply of semiconductors and disruptions in supply chains have stabilized. This had a positive ef- fect on the sale of cars, and thus on the orders of car manufacturers and the revenue of AD Plastik Group. Therefore, direct economic val- ue generated in 2023 increased by 17.4 percent and amounted to EUR 129.3 million. At the same time, the economic value distributed grew by 7.7 percent, which resulted also in an increase in economic value retained, which amounted to EUR 4.6 million. Lower growth of operating costs compared to growth of revenue due to better capacity utilization, normalization of prices of raw materials and energy sources, as well as better internal efficiency led to growth of economic value retained. Given that there was no dividend payment in 2023, payments to capital pro- viders remain at low levels despite noticeable growth in this category due to the strong rise in interest rates that marked the observed year. In the com- ing period, the company will be focused on increasing the direct economic value generated due to the initiation of new projects, which, along with work on improving internal efficiency and better capacity utilization, will have a positive impact on the economic value retained. With optimum management of economic resources, compliance with tax laws and the use of available grants the aim is to create as much economic value as possible, which will be properly distributed to stakeholders, and primarily to ensure financial stability and thus the ability to continue as a going concern. By managing economic influences, the company primarily strives to achieve as significant contribution as possible to all stakeholders and generate profit, because meeting profitability goals is a prerequisite for achieving almost all other non-economic goals. DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED GRI 201-1 128 ECONOMIC IMPACTS DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED IN EUR 000 2021 2022 2023 Direct economic value generated 149,466 110,186 129,308 Sales revenue 146,315 108,186 123,832 Other revenue 3,150 2,000 5,476 Economic value distributed 144,992 115,844 124,745 Operating costs 99,222 85,742 90,638 Wages and benefits to employees 33,819 30,334 31,980 Payments to capital providers 9,501 443 859 Payments to the state 2,230 -830 1,054 Community investments 220 155 214 Economic value retained 4,474 -5,658 4,563 SPONSORSHIPS AND DONATIONS Rulebook on Donations and Sponsorships of AD Plastik Group is published on the company’s website, and the management of sponsorships and donations is based on recognizing the needs and social responsi- bility of the company as a desirable part- ner of the community in which it operates. In this reporting period too, the funds planned for the production of holiday ma- terials and gifts were redirected to the Split Clinical Hospital Center, as a dona- tion for the arrangement of the X-ray lung diagnostics workshop at the Clinical In- stitute for Diagnostic and Interventional Radiology. GRI 413-1 129ECONOMIC IMPACTS Humanitarian Action and Health County league against cancer - Split • help in the organization of the race THINK PINK - race for the cure 2023 Association of persons with cerebral palsy and polio Rijeka • help with the purchase of a standing frame Embassy of the Republic of Turkey in Zagreb • financial support for victims of the earthquake in Turkey SportsassociationofpeoplewithDownsyndrome“Bilitići” • financial support for the activities of the Association Education, culture, and sport Computer donation • elementary schools Manuš and Split 3, kindergardens Dugi Rat, Cvrčak, Mala Sirena and Cvit Mediterana, basketball club Brač, Association of Persons with Disabilities and Association Zagrljaj, Sports Nautical Fishing Association Marjan and 1st Gymnasium Split Faculty of Mechanical Engineering and Naval Architecture, University of Zagreb • financial support for the printing of the monograph Ivo Alfirević - History of technical and applied mechanics Faculty of Electrical Engineering, Mechanical Engineering and Naval Architecture, University of Split • financial support for the organization of STEM Games BocceclubSućidar • financial support for holding a humanitarian tournament Association of Croatian War Veterans • financial support for the organization of events to honor the Croatian War of Independence Lucija Smetiško - natural person • financial support for achieving better sports results European Medical Students’ Association Split • financial support for the realization of the twinning project with EMSA Lisbon III. Gymnasium Split • financial support for the purchase of prizes for the organization of the graduation party DONATIONS 130 ECONOMIC IMPACTS St.IlijaMetkovićBoatmen’sAssociation Conference “Challenges of Change 2023“ Conference on Sustainable Development HR BCSD Support Sustainability 2023 conference Water polo club Jadran • functioning of the entire sports facility Financial club Split • Association’s activities Kwizard – quality education for all • platform for easier learning Process design • university textbook of the Faculty of Chemical Technology in Split Experience is worth its weight in gold • student internships for people with disabilities SPONSORSHIPS 131ECONOMIC IMPACTS FINANCIAL ASSISTANCE AD Plastik Group did not use financial assistance in the form of tax reliefs or subsidies in 2023 because there were no sub- sidies available that could be used. Given the achieved results, it was also not possible to use the tax reliefs resulting from the previously reported loss. Grant tenders are actively monitored and investment plans are planned or adjusted, as far as possible, in accordance with them. GRI 201-4 SIGNIFICANT INDIRECT ECONOMIC IMPACTS AD Plastik Group’s impact on the environment in which it operates is significant, although the intensity and type of in- direct economic impacts of individual members depend on the specifics of the environment in which they operate and the activities they engage in. The crises in the past periods caused a reduced volume of production, which also affect- ed the reduction of the number of employees, and indirectly also the reduction of the number of vacancies in the sup- ply chain. With the growth of production and revenue, and therefore purchase and operations, in the coming periods this impact will certainly be positive. The creation of vacancies specific to the automotive industry is another of the indirect economic impacts that the compa- ny has in its environment and that affect the improvement of social conditions. The Group’s research and development de- partment is located at the company’s headquarters, and the most complex and advanced technologies are used in Solin and Zagreb, so in Croatia there is a significant impact also on the improvement of skills and knowledge within the frame- work of the professional community. It is achieved through cooperation and partnership relations with educational insti- tutions, which are also an excellent channel for recruiting tal- ents with the necessary prior knowledge. TAXES There is no formally adopted tax strategy, but the attitude and tax principles of all Group members are the same - to respect the legislative framework and good tax practices of the countries where business is conducted, and to cor- rectly calculate and timely settle all tax liabilities. Tax ha- vens or profit transfers within the Group are not used for the purpose of paying lower tax liabilities. When possible, by using available tax reliefs, which are usually related to capital investments and increments in the number of vacan- cies, tax planning is performed in order to optimize them. Since 2018, the parent company has been a signatory to the Agreement on the Acquisition of the Special Status of Taxpayers, which raises transparency in tax management to the highest level. Thus, tax risks are reduced and partner- ship is maintained with the Tax Administration which has a comprehensive insight into all relevant facts and circum- stances from which tax liabilities or tax risks arise. More detailed information on accounting policies related to taxes and notes is available through the annual financial state- ments which are an integral part of the integrated report. GRI 203-2 GRI 207-1 GRI 207-2 GRI 207-3 132 ❶ RISKS AND OPPORTUNITIES 66 133RISKS AND OPPORTUNITIES BUSINESS ENVIRONMENTAL RISK EXTREME WEATHER CONDITIONS AND NATURAL DISASTERS INFECTIOUS DISEASES REPUTATION RISK RISK OF NON-PERFORMANCE OF CONTRACTUAL OBLIGATIONS COMPETITIVE RISK RISK OF RELYING ON ONE CUSTOMER TECHNOLOGY RISK LABOR SHORTAGE RISK FINANCIAL MARKET RISK CURRENCY RISK INTEREST RATE RISK PRICE RISK CREDIT RISK LIQUIDITY RISK OPERATIONAL INFORMATION SECURITY AND CYBER RISKS LEGISLATIVE Other risks Risks and opportunities associated with climate change Physical risks Continuous improvement in the field of risk and opportunity man- agement is the basis of successful management of the entire busi- ness. While the company’s influence on external factors is limited, internal ones are influenced by the constant development of busi- ness policies and procedures. Risks related to climate change are integrated into the business risk management process, although a system for assessing the fi- nancial consequences is not defined for each individual risk. The risks and opportunities that AD Plastik Group recognizes in its business are influenced by external and internal factors. Timely identification, monitoring and management of risks and opportunities are key to achieving successful business results, as well as reducing the impact on the environment and climate change. GRI 201-2 134 RISKS AND OPPORTUNITIES BUSINESS ENVIRONMENTAL RISK EXTREME WEATHER CONDITIONS AND NATURAL DISASTERS Business risks arise from the business environment and the specifics of the industry and directly affect the stability and maintenance of the company’s competitive advantage. BUSINESS RISK ENVIRONMENTAL RISK AD Plastik Group operates in the global market, with pro- duction sites in five countries, which exposes it to various business environmental risks that it cannot directly influ- ence. The dispersion of business operations in several dif- ferent countries reduces this risk to a certain extent. Macroeconomic, political and social stability in the coun- tries where business is conducted are important for a com- pany’s business and can directly affect its competitiveness and business results. Instabilities in that areas can lead to undesirable trade effects, disrupt the realization of strate- gic plans, and the regular business. We have recently wit- nessed geopolitical instability that significantly affected the global economy, the automotive industry and the busi- ness operations of AD Plastik Group. In order to reduce such risks, the company has focused its sales and develop- ment activities on the European market. This is confirmed by new sealed deals in that market, whose serial production begins in 2024. Macroeconomic and long-term market in- dicators are regularly monitored and activity scenarios are developed, with a focus on opening new markets in Europe. The production sites are not located in risky areas, therefore this company’s risk is reduced. However, extreme weather conditions or natural disasters can directly or indirectly af- fect the company’s business operations if they occur in the countries where business is conducted or the wider supply chain. Therefore, there are internal procedures with instruc- tions for dealing with such situations, which are updated and evaluated twice a year according to frequency and pos- sible impact on safety and business. These risks are managed by insuring assets from the con- sequences of climate change and natural disasters and with constant investment in quality equipment and infrastruc- ture in order to reduce the potential consequences. EXTREME WEATHER CONDITIONS AND NATURAL DISASTERS GRI 201-2 135BUSINESS RISKS BUSINESS ENVIRONMENTAL RISK INFECTIOUS DISEASES BUSINESS REPUTATION RISK INFECTIOUS DISEASES The coronavirus pandemic has demonstrated how the rapid spread of infectious diseases can have a devastating im- pact on the economy and humanity. Its influences and con- sequences have strongly marked the past years in the econ- omy, industry and in the business operations of AD Plastik Group. Disruptions in supply chains and supply of semicon- ductors were finally significantly reduced during 2023 and did not have a negative material impact on the company’s business. In case of the occurrence of infectious diseases, the prima- ry goal is to preserve and protect the health of employees and the sustainability of the business. The lack of employ- ees represents the greatest threat to business in that case, and actions to be taken in such circumstances are defined by internal documents and rules of procedure, which also include cases of interruptions in supply chains. REPUTATION RISK The growing awareness of the impact of human activities on climate change encourages end consumers and inves- tors to pay more and more attention to the reputation of producers in the field of sustainable development and their ESG indicators. The impact of an individual product on cli- mate change is becoming increasingly important, as well as the production process in which it is created. One of the key criteria when choosing a supplier in the au- tomotive industry, apart from quality and reliability, is the fulfillment of sustainable business standard in accordance with the most recent knowledge and regulations. AD Plastik Group actively promotes sustainable business as one of its fundamental development policies. Compa- ny representatives regularly advocate sustainability and responsible business at various panels and conferences, while the positive results of independent audits confirm compliance with the company’s policies and strategy. By recognizing reputational risk as an important factor, the company deals with its management through quality co- operation with all stakeholders and continuous improve- ments in communication. 136 BUSINESS RISKS BUSINESS RISK OF NON-PERFORMANCE OF CONTRACTUAL OBLIGATIONS COMPETITIVE RISK RISK OF RELYING ON ONE CUSTOMER RISK OF NON-PERFORMANCE OF CONTRACTUAL OBLIGATIONS Contractual relations with customers define quality stand- ards and individual product delivery deadlines, exposing the company to the risks of potential non-performance of con- tractual obligations to the customer. These risks may primar- ily arise due to non-performance of contractual obligations of suppliers or due to delays in production and deliveries as a re- sult of unforeseen circumstances. Breach of contractual obli- gations may consequently lead to the termination of the con- tract with the customers and affect the business adversely. Management of this risk includes continuous evaluation of suppliers, through monitoring the quality and stability of de- liveries as well as securing supplies if necessary. At the same time customers continuously audit all processes at the pro- duction sites of the Group and in the reporting period, 22 cus- tomer audits were successfully conducted. Despite the chal- lenges in supply chains, AD Plastik Group successfully fulfills its contractual obligations to its customers. COMPETITIVE RISK AD Plastik Group has positioned itself as a reliable sup- plier on the demanding automotive market, emphasizing high reliability, cost competitiveness and technological ad- vancement. Competitiveness in the automotive industry is mostly influenced by price, product quality and reliability, and the distance between the production sites of custom- ers and suppliers has a significant impact on price compet- itiveness. Most of the Group’s factories are located near the main customers, which further boosts competitiveness. The entry of new suppliers to the customer panel is a gradu- al and limited process, but long-term cooperation is ensured for those who prove to be reliable partners. Partnership re- lations with customers are based on quality and reliability, which ensures long-term and successful cooperation. RISK OF RELYING ON ONE CUSTOMER Aware of the risk of relying on one customer, for many years active work has been done on diversifying the customer port- folio in accordance with the company’s strategy. The goal of reducing exposure to the Renault Group has been achieved through sealing new deals with Stellantis, Ford and Suzuki, and was further accelerated by Renault’s exit from AvtoVaz ownership and the reduction of production at the Revoz fac- tory in Novo Mesto. Although the continuing trend of the association of different car manufacturers may reduce the possibilities of diversifying the customer’s portfolio, at the same time new markets are opening up and providing opportunities for expanding cooper- ation with individual groups. 137BUSINESS RISKS BUSINESS TECHNOLOGY RISK LABOR SHORTAGE RISK GRI 201-2 LABOR SHORTAGE RISK AD Plastik Group bases its business on a long-standing tradition, expertise and the dedicated work of its employ- ees. Their knowledge and adaptation to technological and market trends are the key factors that ensure the quality and successful business of the company. In times of rapid change, constant development of employees is extremely important to keep up with new trends. The company reduces the labor shortage risk through high-quality analyses and detailed planning of needs for specific job positions, hiring the best candidates and con- tinuous education of existing employees. Through the de- velopment of employees, detailed prescribed processes, the continuity of business is ensured and the necessary compe- tencies are maintained. The labor shortage in Croatia, which is present in all labor-in- tensive industries, was also felt in AD Plastik. Therefore, at the end of last year, the employment of foreign employees started, and they have integrated well into the system and achieve good production results, so it is planned to continue this practice in the future. In case of crises or the need for larger and sudden employ- ment, the company can meet the needs of the labor force in cooperation with employment agencies, with which it has signed contracts. This further reduces the labor shortage risk. TECHNOLOGY RISK Technology is of extremely great importance in determining the quality, added value and product price, but when choos- ing it, its impact on the carbon footprint and sustainability also needs to be taken into consideration. The lag in tech- nological development can reduce competitiveness, weak- en the position in the market, reduce possibilities for new deals and negatively affect the company’s business results. The automotive industry has been undergoing a signifi- cant and dynamic transformation, and the key challenges include meeting increasingly rigorous environmental and safety standards. AD Plastik Group has therefore system- atically been investing in new technologies and product de- velopment in order to improve its competitiveness, while taking special care of their impact on the environment. The key technologies of AD Plastik Group are not direct pol- luters of the environment and thus the risk of compliance with increasingly demanding environmental regulations is minimized. Following the latest technological trends and market demands, the company regularly invests in new and more modern machines, in order to contribute to the reduc- tion of the carbon footprint. Information technology and security are extremely impor- tant in the automotive industry to ensure the necessary electronic communication with customers and suppliers without time delay. Continuous improvements and invest- ments in equipment and IT infrastructure reduce the pos- sibility of disruptions in operation and product deliveries. 138 RISKS AND OPPORTUNITIES FINANCIAL MARKET RISK CURRENCY RISK INTEREST RATE RISK PRICE RISK FINANCIAL RISKS MARKET RISK Market risk is the risk of fluctuation of fair value or future cash flows of a finan- cial instrument because of changes in market prices. These changes often refer to move- ments in interest rates or exchange rates, but can also include changes in the prices of basic products that are im- portant for business. Financial risks include all risks that may impair the financial stability of the company, for example, significant changes in exchange rates, rising interest rates, delays in the collection of receivables and others. The management of these risks is centralized and implemented through Finance Department within the parent company. The Finance Department also manages activities in the domestic and international financial markets and consolidates the cash flows of Group members. 139FINANCIAL RISKS CURRENCY RISK Currency risk occurs during the exposure to unexpected changes in the exchange rate between two currencies and it includes transaction and balance risk. The transaction risk represents the risk of negative impact on cash flow, while balance risk occurs as a change in the value of balance sheet items, expressed in foreign currencies as a result of changes in currency rates. At the beginning of 2023, Croatia switched to the euro, thus eliminating the previously present currency risk associated with conducting business in Croatia. However, the currency risk of business operations in other home member states of the Group remained, with exposure to changes in the EUR/ HUF, EUR/RSD and EUR/LEI exchange rates. The weakening of the Russian ruble in 2023 had a negative impact on the achieved net financial result of the Group, but significant changes in the ruble exchange rate in Russia are regularly adjusted with customers through changes in sales prices, using natural hedging. Balance risk is tried to be reduced by balancing open for- eign exchange positions by individual currency within bal- ance sheet items. One of the basic measures for balancing the foreign exchange sub-balance is borrowing in the cur- rency in which revenue is generated per individual company. Additional information on the management of this risk can be found in the notes to the financial statements on pages 239 and 299. INTEREST RATE RISK PRICE RISK This type of risk includes possible losses arising from the changes in market interest rates. Although in earlier peri- ods of low interest rates, long-term credit arrangements were concluded with fixed interest rates, in the past year of strong interest rate growth, new arrangements were con- cluded with variable interest rates. This means that financ- ing costs will be higher in the future, although they will be mitigated to a certain extent by fixed interest rates from earlier borrowings. The market situation and interest rate projections are con- stantly monitored and, if necessary, refinancing of existing loans is carried out in order to ensure the fair value of the in- terest rates being paid, in accordance with the most favora- ble interest rates in the market at the time of refinancing. A company may be exposed to price risks of various kinds, such as risks of price, quantity, cost and political risks. Those risks arise from unfavorable trends in the price of goods in the market, their availability and demand, costs that increase due to unfavorable trends in raw material pric- es, and input data from the market as well as changes in regulations and laws that directly affect the price of goods and their availability. Price risk is directly related to the business environment risks that determine it. Although strong inflationary pressures continued in the re- porting period, especially on services and labor costs, the normalization of the prices of key raw materials, materials and energy sources can be observed compared to the previ- ous year. The risk of price increment is reduced by open cal- culations of product prices with customers, where changes in the prices of raw materials, materials and other costs are coordinated with most customers on a monthly, quarterly or half-yearly basis. 140 FINANCIAL RISKS FINANCIAL CREDIT RISK LIQUIDITY RISK LIQUIDITY RISK This risk represents the risk of the company not being able to convert assets into liquid assets in a short time, ie the inability to fulfill its obligations to creditors. Therefore, AD Plastik Group maintains optimal amounts of funds on the account with secured available credit lines. Cash flow management is of key importance for liquidity risk management. Each company within the Group, based on op- erational business plans, financial liabilities and investment needs, plans its future cash needs on a monthly, quarter- ly and annual basis. Based on that data, the parent compa- ny’s Finance Department prepares a consolidated cash flow plan of the Group, and makes decisions on timely provision of credit lines for capital investments and project financing, as well as placing surplus funds in deposits or covering the lack of funds from short-term financing sources. The parent company issued corporate guarantees to the subsidiaries in the following amounts: EUR 7,700 thousand to banks, EUR 3,000 thousand to customers and EUR 1.377 thousand to suppliers. Additional information on the management of this risk can be found in the notes to the financial statements on pages 240 and 300. CREDIT RISK This risk arises when one contracting party fails to meet its financial obligations on time, which can jeopardize the mar- ket position of the other party. The company’s credit risk may arise from the inability to collect receivables from its customers and the loans granted. AD Plastik Group coop- erates with reputable customers that are financially stable companies, which is also the company’s business policy. This minimizes the risk of collection and receivables are re- alized within the agreed deadlines. Due to the potential de- terioration of the financial stability of individual customers, most of them have the support of their home countries in maintaining business and liquidity as very important fac- tors for their economy. Credit risk related to loans granted is under the control of the company as these are loans granted to subsidiaries in which the parent company is the sole owner. 141RISKS AND OPPORTUNITIES GRI 201-2 Operational risk management is based on a process quality system whereby preventive systems of early detection of op- erational risks and prevention of errors and weaknesses in processes, procedures, human errors, system errors or unpre- dictable external events are developed. The Internal Audit De- partment assesses the effectiveness of the organization’s risk management, investigates, examines, and evaluates the effec- tiveness of the internal control system, reports on the results identified, and proposes solutions to the management. With efficient operational risk management, better security is achieved, awareness is raised on the importance of existing procedures and creating new ones, on control of key indicators which need to be introduced and systematically monitored, which significantly improves the operational quality, efficien- cy, and transparency. An important factor in managing these risks are also reliable IT solutions as well as cyber security of business, so there have been continuous works on improv- ing, further developing and implementing new technologies in everyday business. AD Plastik Group has taken significant steps in improving in- formation security through a series of key technical and organ- izational initiatives. Systems were implemented within critical network segments for better detection and analysis of security threats, and a number of technical measures were introduced to reduce the causes of potential incidents. Perimeter testing activ- ities were conducted to identify and mitigate security vulnerabili- ties and review technical security mechanisms to accurately map existing security capabilities. The impact of security risks on key business processes was ana- lyzed and the response strategy to crisis situations was adapted to ensure business continuity. A new concept of security aware- ness for employees was developed and mechanisms for sharing knowledge about security requirements were improved. Achiev- ing the status of AEO Authorized Economic Operator achieved in 2023 demonstrates the company’s commitment to high stand- ards of security in the supply chain. During the reporting period, the implementation of the Tisax standard in the Hungarian facto- ry began, which will be completed in 2024, which is a significant step forward in creating a high level of security in all segments of production. The listed activities are aimed at significantly im- proving the ability to manage security risks, protect key business processes, and maintain a high level of protection of information resources and operations. OPERATIONAL RISKS INFORMATION SECURITY AND CYBER RISKS Operational risks are caused by inadequate procedures, failed internal processes, human factor, system or external events. 142 RISKS AND OPPORTUNITIES With regard to conducting business in different countries, the company adheres to different regulatory frameworks, in line with the company’s core policies and values. In the reporting period, the Group’s most significant legislative risks were related to business operations in the Russian Feder- ation, i.e. sanctions and counter-sanctions in Russia and their possible consequences, and related to the fact that two com- panies within the Group are present in that market. Although so far they have not significantly affected the change in the Group’s business model, these sanctions have completely transformed the automotive industry in Russia and hampered business for our subsidiaries. Based on the Law on the Introduction of the Euro and the deci- sion of the Government, the euro was introduced as the official currency in Croatia from January 1, 2023, which significantly reduced the currency risk of the parent company. LEGISLATIVE RISKS These risks arise from changes in fiscal and other regulations which can directly, positively or negatively, affect the company’s results and competitiveness. In order to address greenhouse gas emissions, new vehicle models are being introduced that are significantly lighter, thus achieving the desired goal. This trend encourages the replace- ment of metal car parts with polymer components, which is an opportunity for AD Plastik Group. By researching and developing materials adapted to the needs of the cars of the future, opportunities are created to expand the product, customer, and market portfolio. As automated and autonomous driving, electrification, connectivity, and the design of lighter vehicles are considered the key aspects in the future of the automotive industry, demand for polymer compo- nents is expected to increase in the coming periods. New technology and materials have a positive impact on cli- mate change, along with ubiquitous digitization and robotiza- tion, raising safety and quality standards. OPPORTUNITIES The development and production of automotive polymer components are recognized as an activity that can significantly affect the carbon footprint reduction. 143 ❶ FINANCIAL INDICATORS 77 144 FINANCIAL INDICATORS ADPL 31 DEC 2022 31 DEC 2023 Index Final price (EUR) 10.5 13.7 130 Average price (EUR) 13.5 14.2 105.1 The highest price (EUR) 23.9 17.2 72 The lowest price (EUR) 9.6 10.5 109.9 Volume 614,017 346,352 56.4 Turnover (EUR) 8,310,695 4,927,042 59.3 Market capitalization (EUR) * 44,256,018 57,534,301 130 EPS (EUR) * -2.3 -0.3 - ADPL SHARE After a regular revision of the stock indices, in March 2023 the share was excluded from the composition of the Crobex10 and Crobex10tr indices. The free float of the share is slightly less than 70 percent, and Interkapital vrijednosni papiri carries out the ac- tivities of a market maker, with the support of Erste&Steiermärk- ische banka and Zagrebačka banka in ADPL share analyses. With the aim of increasing visibility in the capital market, the com- pany regu larly participates in domestic and foreign investment conferences and is dedicated to meeting the highest standards of transpar ency and reporting while constantly improving corporate man agement practices. InadditiontothemeasuresdefinedbyInternationalFinancialReportingStandards(IFRS),ADPlastikGroupalsousesalternative performancemeasuresinitsreports.AnoverviewanddefinitionofthemeasuresusedinthisdocumentareprovidedinAddendum1. The ADPL share has been listed on the Zagreb Stock Exchange since 2003, and since 2018 it has been listed in the Prime Market, the most demanding market segment of the Zagreb Stock Exchange. The share is included in the five indices of the Zagreb Stock Exchange, namely: Crobex, Crobextr, CrobexPrime, CrobexPlus and Crobexindustry, as well as the regional index AdriaPrime. 145SHARE ADPL + 30 % ADPL + 28 % CROBEX 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 1,200.00 1,400.00 1,600.00 1,800.00 2,000.00 2,200.00 2,400.00 2,600.00 2,800.00 ADPL share turnover in 2023 amounted to EUR 4.9 million, which accounts for 1.8 percent of the total share turnover on the Zagreb Stock Exchange, making the ADPL share the thirteenth most liq- uid issue in the domestic capital market. The ADPL share price increased by 30 percent compared to the end of 2022, reaching EUR 13.7 on December 31, 2023. The highest achieved price in that period was EUR 17.2, while the lowest was EUR 10.5. At the same time, Crobex recorded an increase in value of 28 per- cent, with a turnover of EUR 216.8 million, which represents an in- crease in turnover of 13.8 percent compared to the previous year. After a turbulent 2022, marked by geopolitical disturbances and instabilities that had a significant impact on the capital markets, in 2023 there was recovery and growth in share pric- es of the most important European and world indices. For ex- ample, the S&P 500 grew by 24.2 percent, and the Dow Jones Industrial Average by 13.7 percent. Although geopolitical in- stability is still present, and new problems occasionally ap- pear after the initial shocks, a certain optimism is noticeable in the market. The interest rates of the central banks remain high, but they are expected to be lowered in the coming peri- ods, which also affects the movements in the capital markets. SHARE TREND 146 SHARE ADPL Date 26 Feb 2024 Unaudited Annual Financial Report 2023 7 Mar 2024 Supervisory Board meeting 24 Apr 2024 Audited Integrated Annual Report 2023 29 Apr 2024 Financial Statement for the first quarter of 2024 30 Apr 2024 Presentation of the Integrated Annual Report 2023 and Financial Statement for the first three months of 2024 to interested financial analysts and public representatives 29 May 2024 Supervisory Board meeting 18 July 2024 General Assembly 26 July 2024 Financial Statement for the second quarter of 2024 and Semi-Annual Financial Statement 2024 13 Sep 2024 Supervisory Board meeting 28 Oct 2024 Financial Statement for the third quarter of 2024 and Financial Statement for the nine months of 2024 12 Dec 2024 Supervisory Board meeting EVENTS CALENDAR The company’s strategy regarding dividend payment remains unchanged. The goal is to continue with the policy of paying attractive dividends, taking into account the achieved results, business plans and other relevant facts. According to the pro- posal, after fulfilling the legal and statutory conditions, it is planned to pay a dividend in the amount of at least fifty percent of the available amount. The stated amount is defined by the Charter, which is available on the company’s website together with the Dividend Payment Policy. When making a decision on the appropriation of profit, the company takes into account the business circumstances and ensures the sustainability of the business and the achievement of development goals. DIVIDEND In accordance with the Zagreb Stock Exchange Rules, AD Plastik Group published the 2024 Events Calendar at the end of 2023. It contains all the relevant events and any change or update of the calendar shall be published as soon as it is made and not later than one week before the event itself. 147FINANCIAL INDICATORS FINANCIAL RESULTS 2023 In the reporting period, AD Plastik Group achieved significantly better fi- nancial results than a year earlier, so operating revenue increased by 17.4 percent and amounted to EUR 129.31 million. The revenue of the parent com- pany increased by 15.4 percent and amounted to EUR 94.45 million, and the primary reason for this was the in- crease in customer orders due to the normalization of supply chains and the purchase of semiconductors, as well as deliveries for new vehicle models. Earnings before Interest, Taxes, Deprecia- tion and Amortization (EBITDA) was EUR 7.21 million at the Group level and was significantly higher than the one achieved a year earlier when EBITDA was normal- ized for the value adjustment of invest- ments in Russia. EBITDA at the level of the parent company was also significant- ly better and amounted to EUR 3.44 mil- lion, which is four times more compared to the comparative period. The previously mentioned increase in customer orders also had a positive ef- fect on capacity utilization, and along with the harmonization of sales prices and the normalization of energy source and material prices, a positive impact was also evident on the movement of margins and profitability, despite the in- flationary pressures of rising wage costs and service prices. The value adjustment of inventories in the Group in the amount of EUR 2.8 million, specifically tools for projects in Russia that will not be real- ized, had a one-time negative impact. At the Group level, a net loss of EUR 1.27 million was realized, which is an improvement in comparison with the loss of EUR 9.7 million realized the year before. The parent company also re- corded a better result than in 2022, be- cause, after a net loss of EUR 13.7 mil- lion, it achieved a net profit of EUR 1.0 million in the reporting period. The affiliated company from Romania achieved a revenue growth of 3.8 per- cent and a high net profit of EUR 8.72 148 FINANCIAL RESULTS 2023 Indicators (in EUR 000) AD Plastik Group AD Plastik d.d. 2022 2023 Index 2022 2023 Index Operating revenue 108.186 123.832 114,46 80.000 89.388 111,74 Sales revenue 1.935 5.476 283,00 1.870 5.060 270,59 Operating expenses 127.973 132.371 103,44 99.226 98.301 99,07 EBITDA 580 7.210 1.242,60 949 3.440 362,49 Net profit/loss -9.732 -1.273 - -13.743 1.040 - NFD 37.801 45.884 121,38 33.623 43.928 130,65 EBITDA margin ** 0,53% 5,58% 504 bps 1,16% 3,64% 248 bps Net profit margin * -8,84% -0,98% - -16,79% 1,10% - ROE -9,04% -1,26% - -14,19% 1,15% - Capex 6.918 8.860 128,06 4.602 7.349 159,69 InadditiontothemeasuresdefinedbyInternationalFinan- cialReportingStandards(IFRS),ADPlastikGroupalsouses alternative performance measures in its reports. An overview and definitionofthemeasures usedinthisdocumentare provided on pages 154 and 155. ** Data related to EBITDA and EBITDA margin in 2022 have been normalized in terms of value adjustments related to Russia KEY PERFORMANCE INDICATORS million, which is still lower than the one achieved the year before when certain extraordinary revenue was realized. Such results of the affiliated company had a slightly smaller positive impact on the Group’s net result, while at the same time, their voted dividend had a significant impact on the net profit of the parent company. In addition to the successful realization of increased customer demands, better capacity utilization, and cost efficiency, in the reporting period the company was for the most part focused on the successful realization of development and industrial- ization activities. Namely, it was a year of preparation for the serial production of a large number of new projects, the start of production of which is planned for 2024, which will be reflected in the further growth of revenue and profitability in the future. Preparation for new projects requires investments in specific equipment and temporary financing for the production of tools, which is why indebtedness is ex- pected to increase in the reporting period. The cycle of deleveraging usually begins with the start of serial production of new projects, which is planned in the coming period. In the coming period, the company’s pri- mary goals are the successful launch of serial production of new projects, growth in capacity utilization and profitability, better cost efficiency, and maintenance of financial stability. 149FINANCIAL RESULTS 2023 OPERATING REVENUE AND MARKET TRENDS 8812V 11.7% Russia 88.3% EU and Serbia EUR 114.17 MILLIONEUR 15.14 MILLION In 2023, the revenue of AD Plastik Group in the EU and Serbian markets amounted to EUR 114.17 million, which was by 20.6 percent higher than the previous year. The reason for this is the already mentioned in- crease in customer orders and deliveries for new vehicle models. Accordingly, the share of revenue generated in these mar- kets has been growing, making up 88.3 per- cent of the Group’s total revenue. Compared to the comparative period, rev- enue from the Russian market was lower by 2.4 percent and amounted to EUR 15.14 million. Russian companies, viewed as a whole, are still self-sustaining and finan- cially independent of the parent company. The factory in Kaluga stopped its serial production operations and optimized the organization, while the factory in Togli- atti continues to produce components at somewhat lower levels of capacity utiliza- tion. More information about market trends can be found on the pages 32 and 33. 150 FINANCIAL RESULTS 2023 Operating expenses (in EUR 000) AD Plastik Group AD Plastik d.d. 2022 2023 Index 2022 2023 Index Increase/(decrease)in the value of work in progress and finished products -440 227 - -12 85 - Cost of raw material and supplies 64.108 66.677 104,01 40.550 45.059 111,12 Cost of goods sold 2.734 7.223 264,19 10.156 11.922 117,39 Service costs 11.620 12.122 104,32 8.175 8.900 108,87 Staff costs 30.334 31.980 105,43 19.932 22.708 113,93 Depreciation and amortisation 12.207 10.273 84,16 8.828 7.293 82,61 Other operating expenses 6.868 3.767 54,85 9.022 2.278 25,25 Provisions for risks and charges, (net) 145 -136 - 210 -136 - Impairment of loands and trade receiva- bles, (net) 397 238 59,95 2.365 192 8,12 Netfinancialresult (in EUR 000) AD Plastik Group AD Plastik d.d. 2022 2023 Index 2022 2023 Index FINANCIAL REVENUE 1.991 199 9,99 2.471 5.337 215,98 Positive exchange differences 1.833 0 - 30 0 - Interest revenue 158 199 125,87 411 377 91,75 Dividends 0 0 - 2.030 4.960 244,32 Other revenue 0 0 - 0 0 - FINANCIAL EXPENSES 498 2.349 471,48 361 672 185,88 Negative exchange differences 0 1.451 - 0 20 - Interest expenses 498 898 180,24 383 652 170,13 Other 0 0 - -22 0 - FINANCIAL RESULT 1.493 -2.150 - 2.110 4.665 221,14 OPERATING EXPENSES Negative exchange rate differences, caused primarily by the weakening of the Russian ruble, had a negative impact on the Group’s net financial result. A positive effect of the dividend payment of the affiliated Romanian company is evident at the parent company. A significant increase in reference interest rates affected the financial results of the Group and the parent company, due to the increase in variable interest rates and the higher cost of new indebtedness. NET FINANCIAL RESULT 151FINANCIAL RESULTS 2023 Abbreviated balance sheet (in 000 EUR) AD Plastik Group AD Plastik d.d. 31 DEC 2022 31 DEC 2023 Index 31 DEC 2022 31 DEC 2023 Index ASSETS 181.350 189.136 104,27 149.429 163.528 109,44 Noncurrent assets 127.117 124.083 97,27 114.405 116.522 101,85 Current assets 53.784 65.019 120,89 35.024 47.006 134,21 LIABILITIES 77.552 90.672 116,87 59.385 72.413 121,94 Noncurrent liabilities 26.073 33.501 128,36 22.740 29.668 130,47 Current liabilities 51.479 57.171 111,06 36.645 42.745 116,65 CAPITAL 103.798 98.464 94,86 90.044 91.115 101,19 INVESTMENTS IN 2023 In the reporting period, investments grew by 28 percent at the Group level, compared to the previous year, and their total value was EUR 8.86 million. Of the total amount of in- vestments, EUR 5.43 million refer to tangible assets, and EUR 3.42 million relate to intangible assets. The majority of investments in tangible assets are focused on specific in- vestments and returnable packaging for new projects, while investments in intangible assets mostly relate to the capi- talized costs of developing new projects. FINANCIAL POSITION As a result of investments in new projects and tempo- rary financing of their tools, indebtedness in the parent company continues to grow in the fourth quarter of 2023. Since the start of serial production of most projects is planned during 2024, after that the company’s indebted- ness will be gradually reduced. The Group’s net financial debt amounted to EUR 45.88 million, which is an increase of EUR 8.08 million com- pared to December 31, 2022. The net financial debt of the parent company increased by EUR 10.31 million and amounted to EUR 43.92 million. The NFD/EBITDA indica- tors for the Group and the parent company are more fa- vorable than at the end of 2022, but they are still at high levels and their normalization is expected in the coming periods. The indebtedness ratio also consequently in- creased and on December 31, 2023 it amounted 0.48 at the Group level or 0.44 at the parent company, respec- tively. Return on equity (ROE) was -1.3 percent at the Group level, or 1.2 percent at the parent company. 152 FINANCIAL RESULTS 2023 Positions (in EUR 000) 2022 2023 Index OPERATING REVENUE 157.255 177.885 113,1 OPERATING EXPENSES 168.462 175.817 104,4 Material costs 102.481 101.969 99,5 Staff costs 35.501 39.091 110,1 Amortization 13.261 11.173 84,3 Other costs 17.218 23.584 137,0 FINANCIAL REVENUE 2.352 237 10,1 FINANCIAL EXPENSES 943 2.335 247,7 TOTAL REVENUE 159.607 178.122 111,6 TOTAL EXPENSES 169.405 178.152 105,2 Profit/loss before taxation -9.797 -30 0,3 Profit tax -66 1.244 - PROFIT/LOSS OF THE PERIOD -9.731 -1.273 - EBITDA 12.009 13.241 110,3 In order to present a clearer picture of the business, a compa- rable, shortened, consolidated profit and loss account of AD Plastik Group for 2022 and 2023 has been created, with the profit and loss account of the affiliated company Euro Auto Plastic Systems s.r.l. Mioveni, Romania (50 percent of owner- ship of AD Plastik d.d.). The operating revenue of AD Plastik Group with the consoli- dated corresponding ownership part in the affiliated company amounted to EUR 177.89 million, recording an increase of 13,1 percent compared to the previous year. EBITDA amounted to EUR 13.24 million, representing an increase of 10.3 percent. AD PLASTIK GROUP WITH THE CONSOLIDATION OF THE CORRESPONDING OWNERSHIP PART IN THE AFFILIATED COMPANY AFFILIATED COMPANY EAPS 153FINANCIAL RESULTS 2023 Positions (in EUR 000) 2022 2023 Index Operating revenue 96.497 100.190 103,8 Operating expenses -83.207 -89.928 108,1 Net financial result -168 105 - Profit before taxation 13.122 10.367 79,0 Profit tax -2.041 -1.649 - Profit of the period 11.081 8.718 78,7 Positions (in EUR 000) 2022 2023 Index Noncurrent assets 12.249 19.478 159,0 Current assets 39.297 38.767 98,7 TOTAL ASSETS 51.546 58.245 113,0 Capital + provisions 22.358 21.015 94,0 Long-term liabilities and provisions 1.023 1.271 124,2 Short-term liabilities 28.165 35.959 127,7 TOTAL LIABILITIES 51.546 58.245 113,0 ABBREVIATED P/L AND THE BALANCE SHEET OF THE AFFILIATED COMPANY EAPS EAPS results have been included in the results of AD Plastik Group by the equity method. Generated operating revenue increased by 3.8 percent, amounting to EUR 100.19 million, while net profit amounted to EUR 8.72 million. Net profit was lower than the one achieved in 2022 due to the extraordinary revenue generated in the comparative period. That’s why the achieved net margin of 8.7 percent is more than satisfactory and is above the industry average. The investments amounted to EUR 9.1 million, and they are primarily focused on the acceptance of new projects whose serial production will begin in 2024 and the renewal of the ma- chine park. EAPS has no financial liabilities towards AD Plastik d.d., nor liabilities towards external entities. As of December 31, 2023, its cash on account amounted to EUR 11.25 million. EAPS primarily generates its revenue in the Romanian market from the Dacia customer and, to a lesser extent, it supplies its products to the markets of South Africa, Brazil, Colombia, Ar- gentina, and Morocco. 100% realization shown 154 FINANCIAL RESULTS 2023 AD Plastik Group (in EUR 000) 31 DEC 2022 31 DEC 2023 Non-bank loans 3,459 3,128 Long-term liabilities to banks 23,238 30,367 Short-term liabilities to banks 15,152 16,431 Cash -4,048 -4,042 NET FINANCIAL DEBT 37,801 45,884 AD Plastik d.d. (in EUR 000) 31 DEC 2022 31 DEC 2023 Non-bank loans 2,508 2,508 Long-term liabilities to banks 21,226 27,899 Short-term liabilities to banks 12,267 14,546 Cash -2,378 -1,025 NET FINANCIAL DEBT 33,623 43,928 InadditiontothefinancialperformancemeasuresdefinedbyInternationalFinancialReportingStandards(IFRS),AD Plastik Group also uses certain alternative performance measures in its reports, considering them useful for business performance analysis for investors. Alternative performance measures show comparative periods so that the company’s results can be compared over different periods. EBITDA AND EBITDA MARGIN EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) represents the operating profit (op- erating revenue minus operating expenses) increased by amortization of tangible and intangible assets. The company also presents an EBITDA margin that repre- sents a percentage of EBITDA relative to operating rev- enue. Net debt represents the sum of short-term and long-term li- abilities to banks and short-term and long-term loans to non-banking companies, minus cash and cash equivalents. AD Plastik Group uses the ratio of net debt to EBITDA as an indicator of financial stability and the company’s ability to re- pay its financial obligations. When calculating the indicators on a quarterly basis, the EBITDA realized in the last four quar- ters is taken into account. NET DEBT AND NET DEBT TO EBITDA NET PROFIT MARGIN It is calculated by the ratio of realized net profit and operating revenue. The company uses this measure to track its profitability relative to operating revenue. ALTERNATIVE PERFORMANCE MEASURES 155FINANCIAL RESULTS 2023 31 DEC 2022 31 DEC 2023 Last price in the period (EUR) 10.5 13.7 Number of shares (000) 4,200 4,200 Market capitalization (in EUR 000) 44,256 57,534 31 DEC 2022 31 DEC 2023 Net profit /loss of the period (in 000 EUR) -9,732 -1,271 Average weighted number of shares (000) 4,152 4,159 EPS (EUR) -2.34 -0.31 ROE This measure is used to monitor the realized return on equity. It is calculated on an annual and quarterly basis. When calculating the indi- cators on an annual basis, the ratio is the net profit of the current period and the average val- ue of equity (the average value of equity at the end of the reporting period and equity at the beginning of the reporting period of the previ- ous year). At the quarterly level, it is calculated by the ratio of net profit for the last four quar- ters and the average value of equity (average value of equity at the end of the reporting peri- od and equity at the end of the same period of the previous year). CAPEX Capital investments are indirect cash flow position and they are related to payments for tangible and intangible assets. This measure is used as an indicator of the use of funds to achieve future economic flows and ensure the distribution of funds in accordance with the Group’s strategy. INDEBTEDNESS RATIO The indebtedness ratio is the ratio of total lia- bilities to total assets. This measure is used to monitor the company’s financial risk in terms of growth of liabilities in relation to assets. EPS and P/E These measures are used so that investors can analyze the value of the share. Earnings per share (EPS) are calculated by dividing net profit by the weighted average number of shares. The quarterly calculation uses the net profit realized in the last four quarters. MARKET CAPITALIZATION Market capitalization is the total market value of the compa- ny, and it is calculated as the product of the total number of shares and the last share price on the day of the reporting pe- riod. P/E is the ratio of price to earnings per share (EPS). The price represents the share price on the last day of the reporting pe- riod, and in the quarterly calculation, net profit represents the realized profit in the last four quarters. 156 FINANCIAL INDICATORS EU TAXONOMY With the Paris Agreement and the Eu- ropean Green Deal, the EU undertook to become climate neutral by 2050 and to reduce greenhouse gas emissions by 55 percent by 2030, compared to 1990. Sustainable business will be at the center of events in the coming period, that’s why a number of proposals, acts and policies from different areas have been adopted that should contribute to the achievement of ambitious goals. One of the measures of the action plan is the Taxonomy Regulation, which aims to encourage investments in sus- tainable projects and business oper- ations and establish a framework, i.e. a unique classification system for as- sessing economic activities that can be considered environmentally sustain- able. One of the most important of the goals of the EU Taxonomy is to reduce greenwashing and encourage the fi- nancing of sustainable business. The Taxonomy Regulation, togeth- er with the delegated regulations, is a legal framework that provides com- panies, their investors and legislative bodies with criteria for determining economic activities that are environ- mentally sustainable and have a sig- nificant contribution to environmental objectives. If the economic activities are described in the delegated taxonomic acts, they can be qualified as taxonomy-eligible. The term ineligible economic activity does not mean ecologically good or bad activities, but those that are not recog- nized as activities that can significantly contribute to environmental objectives according to the Taxonomy Regulation and the European Commission. 157EU TAXONOMY Climate Change Mitigation Climate Change Adaptation Transition to a Circular Economy Protection and Restoration of Biodiversity and Ecosystems Pollution Prevention and Control Sustainable Use and Protection of Water and Marine Resources THE TAXONOMY REGULATION PRESCRIBES SIX ENVIRONMENTAL OBJECTIVES Economic activities qualify as taxono- my-aligned if they meet four basic cri- teria: • they significantly contribute to at least one of the six environmental objectives defined in Article 9 of the Taxonomy Regulation • they do not significantly harm any of the other environmental obje- ctives • they are carried out in accordance with minimum protective mea- sures • they are aligned with technical ve- rification criteria, that is, scientifi- cally based technical verification criteria Those obliged to report are obliged to include the technical criteria for all six environmental objectives in the calcu- lations and report for 2023, in accord- ance with the amendments adopted during the year. Pursuant to Article 8 of the Taxonomy Regulation, from 2021 the company has been obliged to report on the ap- propriate share of turnover, capital in- vestments and operating expenses that originate from assets or processes from taxonomy-eligible economic activities. By amending the delegated regulation during 2023, manufacture of compo- nents for motor vehicles and mobility was recognized as an activity that can significantly contribute to climate change mitigation, i.e. the first environmental ob- jective of the Taxonomy Regulation. Al- though the activity of AD Plastik Group has thus completely changed its signifi- cance, for 2023 only the share of taxon- omy-eligible activity is reported, while alignment will be reported in the following reporting periods. 158 EU TAXONOMY METHODOLOGY The assessment of eligibility and alignment with the EU Tax- onomy was carried out by multidisciplinary teams, composed of experts from various fields and management of all Group production sites. Workshops, interviews, and working meetings were held at which economic activities were assessed, recognized as tax- onomy-eligible and ineligible, and aligned. Share in revenue, capital expenditure, and operating expenses was calculated. For the calculation of key performance indicators (revenue, capital investments and operating costs), data related to the Group’s reporting were taken into account and they were ex- pressed in EUR. Applying International Financial Reporting Standards eliminates the double counting of the same num- bers when calculating KPIs, which is in line with the delegat- ed regulations on disclosures. A summary of the most impor- tant accounting policies is presented in the Annual Financial Report chapter within the notes to the consolidated financial statements. Below is an overview of the approach applied with respect to each individual KPI and the results. MINIMUM PROTECTIVE MEASURES Minimum protective measures are one of the four key criteria for alignment with the EU taxonomy that companies are re- quired to implement in terms of human rights (including labor rights and consumer rights), bribery and corruption, taxation and fair market competition. By analyzing and including the persons responsible for the mentioned areas, it was conclud- ed that the company meets the criteria, which is evident in the complete report. CHALLENGES The EU Taxonomy Regulation and dele- gated acts contain a handful of compre- hensive and general wording according to which companies are obliged to re- port. Although currently available inter- pretations, estimates and assumptions were used during the calculation of tax- onomic indicators in the reporting and comparative periods, there is a possi- bility that additional information will be available in future periods. The best example is the amendment of the del- egated regulation during 2023, accord- ing to which the activity of AD Plastik Group was recognized as one that can significantly contribute to the first envi- ronmental objective, which will certain- ly affect future reports and publications on taxonomy. 159EU TAXONOMY REVENUE RECOGNIZED ELIGIBLE ECONOMIC ACTIVITIES Revenue share is calculated as the portion of net revenue as- sociated with taxonomy-aligned economic activities divided by total revenue shown in the statement of comprehensive income. Within AD Plastik Group, the majority of revenue de- rives from the core activity, which is taxonomy-eligible, but the taxonomy alignment will be shown in the next year. Revenue from taxonomy-eligible activities was not shown in 2022 because it amounted to only 0.01 percent of total rev- enue. In the meantime, it was established that only activities from operating costs can be exempted from the presentation, if their share is considered to be insignificant. The share of 87.4 percent of taxonomy-eligible activities represents a sig- nificant change compared to the last reporting period. It is clear that in future reporting periods, the alignment of the ac- tivity “Manufacture of automotive and mobility compo nents” will have the largest share in taxonomic reporting, while in this reporting period it was assessed only by eligibility. A signifi- cant increase in the total share of taxonomy-eligible activities in revenue was due to the changes in the regulation that de- scribed the main activity of AD Plastik Group and recognized it as one that can significantly contribute to the first environ- mental objective. It should be noted that no internal or exter- nal factors of the business affected the significant growth of the share, except for the aforementioned change. No Activity Activity code 1 Manufacture of automotive and mobility compo- nents 3.18 2 Collection and transport of non-hazardous waste in source segregated fractions 5.5 * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported 22+8484+1414+QQ 0.29% Alignment 87.12% Eligibility 12.59% Non-eligibility 160 EU TAXONOMY RECOGNIZED ELIGIBLE ECONOMIC ACTIVITIES The share of 91.1 percent of eligible economic activities in the Group’s capital expenditure clearly indicates an increase in the share of eligible activities compared to the previous reporting period. With regard to the primary activity, most of the costs relate to activities that can significantly contribute to the achievement of the climate change mitigation objectives. A significant share of eligible economic activities is the result of the investments in machines, equipment and the production process itself, reconstruction of non-residential build- ings in Zagreb and Vintai. Taxonomy-eligible activities in the share of 1.9 percent meet four basic criteria and thus are harmonized with the Regulation. Regardless of the fact that individual activities do not significantly harm other environmental objectives and are carried out in accordance with minimum protective measures, non-alignment most often results from failure to meet the criterion of significant contribution. As much as 76.8 percent of capital expenditure fall on the manufacture of automotive and mobility components, and upon assessment of the alignment of the mentioned activity in the next year, the real foundations for future reporting periods will be laid. The other 12.4 percent of eligible activities indicate space for investments that will significantly contribute to at least one environmental objec- tive in the future. A significant increase in the total share of taxonomy-eligible activities in capital expenditure is also a consequence of the amendment of the regulation which recognized AD Plastik Group’s main activity as one that can significantly contribute to the first environmental objective. Apart from the mentioned change, no internal or external factors of the business affected the growth of the share. The majority of cap- ital expenditure relate to the implementation of the company’s core activities. No Activity Activity code 1 Manufacture of automotive and mobility compo- nents 3.18 2 Renovation of water collection, treatment and supply system 5.2 3 Renewal of wastewater collection and treatment 5.4 4 Transport by motorbikes, passenger cars, and light commercial vehicles 6.5 5 Renovation of existing buildings 7.2 6 Installation, maintenance and repair of energy efficiency equipment 7.3 7 Acquisition and ownership of buildings 7.7 22+1111+79+79+88+QQ 8.94% Non-eligibility 12.38% Non-alignment 76.77% Eligibility * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported 1.92% Alignment The share of capital expenditure (Capex) is shown in relation to capital investments in the cash flow statement (purchase of property, plant, and equipment, investments in real estate and intangible assets). The numerator is equal to the part of capital expenditure, included in the denominator, that relate to assets related to taxonomy-aligned economic activities. The denominator includes increases in tangible and intangi- ble assets in the financial year, before their amortization and remeasurement, including increases resulting from revalua- tions and impairments, for the relevant financial year and ex- cluding changes in fair value. The denominator includes also increases in tangible and intangible assets that are the result of business mergers. CAPITAL EXPENDITURE (CAPEX) 161EU TAXONOMY The indicator of operating expenses (Opex) is shown in relation to to- tal operating costs in the statement of comprehensive income, mi- nus depreciation. According to the EU Taxonomy Regulation, the de- nominator includes direct non-capitalized costs related to research and development, building renovation measures, short-term leases related to right-of-use assets according to IFRS 16, maintenance and repair, and all other direct expenditure for the day-to-day servicing of property, plant, and equipment performed by the company or a third party entrusted with these tasks, which are necessary for the proper functioning of these assets. The numerator in operating costs is re- lated to the above-mentioned costs, but only those costs that were incurred due to taxonomy-eligible activities. OPERATING EXPENSES (OPEX) RECOGNIZED ELIGIBLE ECONOMIC ACTIVITIES Eligible economic activities represent 15.6 percent of total operat- ing expenses, of which as much as 10.7 percent goes to the manu- facture of automotive and mobility components. It is clear that the most significant share of non-aligned activities stems from the fact that activities such as freight road transport services or passenger road transport do not meet the criteria of a significant contribu- tion, which are partly beyond the influence of the Group. Despite the share of eligible economic activities in the total operating ex- penses, the share of 0.7 percent of aligned economic activities in the operating expenses leaves room for greater allocation of funds in activities that will ensure a significant contribution. For exam- ple, implementation and maintenance of systems or equipment that will reduce energy consumption by more than 30 percent, transportation with vehicles that do not emit emissions, prepara- tion of studies and third-party audits on the impact of certain eco- nomic activities on the environment, and the like. We can also attribute the significant growth of the total share of taxonomy-eligible activities in operating expenses to the amend- ment of the regulation in the reporting period. The main activity of the company was thereby recognized as the one that can signifi- cantly contribute to the first environmental objective, which influ- enced the aforementioned growth, while at the same time there was no influence of any internal or external business factor. The majority of operating expenses relate to the performance of the company’s core activities. No Activity Activity code 1 Manufacture of automotive and mobility compo- nents 3.18 2 Renovation of water collection, treatment and supply system 5.2 3 Collection and transport of non-hazardous waste in source segregated fractions 5.5 4 Urban and suburban transport, road passenger transport 6.3 5 Transport by motorbikes, passenger cars, and light commercial vehicles 6.5 6 Freight transport services by road 6.6 7 Renovation of existing buildings 7.2 8 Installation, maintenance and repair of energy efficiency equipment 7.3 9 Acquisition and ownership of buildings 7.7 10 Professional services related to energy performance of buildings 9.3 22+55+11+11+8282+QQ 84.43% Non-eligibility 4.18% Non-alignment 10.65% Eligibility 0.73% Alignment * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported 162 EU TAXONOMY SCOPE REVENUE FROM ECONOMIC ACTIVITIES All AD Plastik Group’s production sites AD Plastik d.d., Croatia AD Plastik Tisza Kft., Hungary ADP d.o.o., Serbia AD Plastik d.o.o., Slovenia AO AD Plastik Togliatti, Russia ZAO AD Plastik Kaluga, Russia (itisnotassessedduetocessationofoperatingactivities) * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported Substantial contribution criteria DNSH criteria ("Does not s i g n i fi c a n t l y h a r m " ) Economic activities (1) Code(s) (2) Absolute revenue (3) Proportion of revenue (4) Climate Change Mitigation (5) Climate Change Adaptation (5) Climate Change Mitigation (7) Climate Change Adaptation (8) Water and Marine Resources (9) Circular Economy (10) Pollution (11) Biodiversity and Ecosystems (12) Minimum safeguards (13) Taxonomy-aligned proportion of reve- nue, year N (14) Taxonomy-aligned proportion of reve- nue, year N-1 (15) Category (enabling activity) (16) Category (transitional activity) (17) Currency % % % % % O P A. TAXONOMY-ELIGIBLE ACTIVITIES A.1. Environmentally sustainable activities (taxonomy-aligned) Collection and transport of non-hazardous waste in source segregated fractions 5.5 372 0.29% 100.00% YES YES YES YES 0.29% N/A Revenue of environmentally sustainable activities (taxonomy-aligned) (A.1) 372 0.29% 0.29% 0.75% A.2.Taxonomy-eligible (alignment in 2024) Manufacture of automotive and mobility components 3.18 112,832 87.12% * * * * * * * * YES Not assessed N/A O Revenue of taxonomy-eligible (alignment in 2024) (A.3) 112,832 87.12% Total (A.1+A.2) 113,204 87% B. TAXONOMY-INELIGIBLE ACTIVITIES Revenue from taxonomy-ineligible activities (B) 16,304 12.59% Total (A + B) 129,507 100.00% 163EU TAXONOMY CAPITAL EXPENDITURE FROM ECONOMIC ACTIVITIES * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported Substantial contribution criteria DNSH criteria ("Does not s i g n i fi c a n t l y h a r m " ) Economic activities (1) Code(s) (2) Absolute capital expenditure (3) Proportion of capital expenditure (4) Climate Change Mitigation (5) Climate Change Adaptation (5) Climate Change Mitigation (7) Climate Change Adaptation (8) Water and Marine Resources (9) Circular Economy (10) Pollution (11) Biodiversity and Ecosystems (12) Minimum safeguards (13) Taxonomy-aligned proportion of capital expenditure, year N (14) Taxonomy-aligned proportion of capital expenditure, year N (15) Category (enabling activity) (16) Category (transitional activity) (17) Currency % % % % % O P A. TAXONOMY-ELIGIBLE ACTIVITIES A.1.Environmentally sustainable activities (taxonomy-aligned ) Installation, maintenance and repair of energy efficiency equipment 7.3 104 1.92% 100.00% YES YES YES YES 1.92% 0.75 O Capital expenditure of environmentally sustainable activities (taxonomy-aligned) (A.1) 104 1.92% 1.92% 0.75% A.2.Taxonomy-eligible, but environmentally unsustainable activities (non-aligned with taxonomy) Renovation of water collection, treatment and supply system 5.2 48 0.89% N/A Renewal of wastewater collection and treatment 5.4 7 0.14% N/A Transport by motorbikes, passenger cars, and light commercial vehicles 6.5 17 0.31% N/A P Renovation of existing buildings 7.2 576 10.60% N/A P Installation, maintenance and repair of energy efficiency equipment 7.3 18 0.33% N/A O Acquisition and ownership of buildings 7.7 6 0.12% N/A Capital expenditure of taxonomy-eligible, but environ- mentally unsustainable activities (non-aligned with taxonomy) (A.2) 673 12.38% A.3.Taxonomy-eligible (alignment in 2024) Manufacture of automotive and mobility components 3.18 4,174 76,77% * * * * * * * * YES Not assessed N/A O Capital expenditure of taxonomy-eligible, (alignment in 2024) (A.3) 4,174 77% Total (A.1.+A.2.+A.3.) 4,951 91,06% B. TAXONOMY-INELIGIBLE ACTIVITIES Capital expenditure from taxonomy-ineligible activities (B) 0 486 8.94% Total (A + B) 5,437 100% 164 EU TAXONOMY Substantial contribution criteria DNSH criteria ("Does not s i g n i fi c a n t l y h a r m " ) Economic activities (1) Code(s) (2) Absolute operating expenses (3) Proportion of operating expenses (4) Climate Change Mitigation (5) Climate Change Adaptation (5) Climate Change Mitigation (7) Climate Change Adaptation (8) Water and Marine Resources (9) Circular Economy (10) Pollution (11) Biodiversity and Ecosystems (12) Minimum safeguards (13) Taxonomy-aligned proportion of operat- ing expenses, year N (14) Taxonomy-aligned proportion of operat- ing expenses, year N (15) Category (enabling activity) (16) Category (transitional activity) (17) Valuta % % % % % O P A. TAXONOMY-ELIGIBLE ACTIVITIES A.1.Environmentally sustainable activities (taxonomy-aligned ) Collection and transport of non-hazardous waste in source segregated fractions 5.5 39 0.21% 100.00% YES YES YES YES 0.21% 0.07% Transport by motorbikes, passenger cars, and light commercial vehicles 6.5 16 0.09% 100.00% YES YES YES YES YES 0.09% 0.36% P Installation, maintenance and repair of energy efficiency equipment 7.3 74 0.41% 100.00% YES YES YES YES 0.41% 0.05% O Professional services related to energy performance of buildings 9.3 4 0.02% 100.00% YES 0.02% 0.03% O Operating expenses of environmentally sustainable activi- ties (taxonomy-aligned) (A.1) 132 0.73% 0.73% 0.43% A.2.Taxonomy-eligible, but environmentally unsustainable activities (non-aligned with taxonomy) Renovation of water collection, treatment and supply system 5.2 20 0.11% YES N/A Urban and suburban transport, road passenger transport 6.3 303 1.68% YES N/A P Transport by motorbikes, passenger cars, and light commercial vehicles 6.5 158 0.88% YES N/A P Freight transport services by road 6.6 59 0.33% YES N/A P Renovation of existing buildings 7.2 139 0.77% YES N/A P Acquisition and ownership of buildings 7.7 76 0.42% YES N/A Operating expenses of taxonomy-eligible, but environ- mentally unsustainable activities (non-aligned with taxonomy) (A.2) 755 4.18% A.3.Taxonomy-eligible (alignment in 2024) Manufacture of automotive and mobility components 3.18 1,924 10.65% * * * * * * * * YES Not assessed N/A O Operating expenses of taxonomy-eligible (alignment in 2024) (A.3.) 1,924 10.65% Total (A.1.+A.2.+A.3.) 2,811 15.57% B. TAXONOMY-INELIGIBLE ACTIVITIES Operating expenses from taxonomy-ineligible activities (B) 15,250 84.43% Total (A + B) 18,061 100.00% OPERATING EXPENSES FROM ECONOMIC ACTIVITIES * part of the amendment to the delegated regulation on climate; currently only the eligibility of the mentioned activity is reported, while in the next reporting period the alignment will also be reported 165FINANCIAL INDICATORS 1090V 1090V >10% >10% AVERAGE ANNUAL REVENUE GROWTH IN THREE YEARS AVERAGE EBITDA MARGIN AVERAGE ANNUAL INVESTMENTS 10 m€ After three years of consecutive decline in the sales of new cars in the EU market, in 2023 a growth of newly registered vehicles has been finally recorded, namely 13.9 percent. Al- though volumes are still significantly lower than pre-pandem- ic levels, the stated increase in demand for new cars is an indicator of market recovery after a series of unwanted ex- ternal influences and the negative consequences they have caused. AD Plastik Group’s revenue growth in 2023 is higher than the growth of the EU market itself, and expectations for the coming period, based on the start of production of a large number of new projects, indicate that this trend will contin- ue. In the next three years, average revenue growth of over 10 percent per year at the Group level is expected, and the increase in production will be also reflected in better capac- ity utilization. With the further stabilization of the prices of energy sources and raw materials and the harmonization of sales prices with customers, a further increase in profitabil- ity is expected despite the present pressures on the growth of wage and service costs. Therefore, the expected average EBITDA margin in the next three years exceeds 10 percent. Significant investments in specific equipment and packaging for new projects will have been completed during the year, and most future investments will relate to the development of new production modules, investment maintenance and en- ergy improvements. The value of investments in the three- year period will be lower than depreciation, and the average planned annual investments will be up to EUR 10 million. In- creasing capacity utilization, efficiency and profitability, while maintaining financial stability, are the main goals of the com- pany in the coming period. BUSINESS PLAN 166 ❶ GRI CONTENT INDEX 88 167GRI CONTENT INDEX GENERAL DISCLOSURES SDG PAGE GRI 2: General Disclosures 2021 OrganizationalProfile 2-1 Organizational details 19-21 2-2 Entities included in the organization's sustainability reporting 10, 19 2-3 Reporting period, frequency and contact point 3, 10 2-4 Restatements of information Reasons for omission: There were no restatements of information. 2-5 External assurance 180 Activities and workers 2-6 Activities, value chain and other business relationships 8, 12 15, 24, 26, 28, 30, 32, 116 2-7 Employees 8 68, 70-73 2-8 Workers who are not employees 8 72 Governance 2-6 Governance structure and composition 42-44 2-7 Nomination and selection of the highest governance body 43, 47, 48, 57 2-8 Chair of the highest governance body 49 2-12 Role of the highest governance body in overseeing the management of impacts 16 39, 48 2-13 Delegation of responsibility for managing impacts 39 2-14 Role of the highest governance body in sustainability reporting 48 2-15 Conflicts of interest 16 50 2-16 Communication of critical concerns 40 2-17 Collective knowledge of the highest governance body 17 39, 48 2-18 Evaluation of the performance of the highest governance body 17 45, 48 2-19 Remuneration policies 17 51 2-20 Process to determine remuneration 17 51 2-21 Annual total compensation ratio 51 Strategy, policies and practices 2-22 Statement on sustainable development strategy 8, 9 2-23 Policy commitments 38 2-24 Embedding policy commitments 39, 116 2-25 Processes to remediate negative impacts 40 2-26 Mechanisms for seeking advice and raising concerns 40 2-27 Compliance with laws and regulations 40 2-28 Membership associations 17 123 Stakeholder engagement 2-29 Approach to stakeholder engagement 8 64, 65 2-30 Collective bargaining agreements 8 66 Statement of use AD Plastik Group reported in accordance with GRI Standards for the period January 1, 2023 - December 31, 2023 Used GRI 1 GRI 1: Foundation 2021 168 GRI CONTENT INDEX MATERIAL TOPICS SDG PAGE GRI 3: Material topics 2021 3-1 Process to determine material topics all 60 3-2 List of material topics all 62 3-3 Management of material topics all 61 GRI 201: Economic performance 2016 201-1 Direct economic value generated and distributed 8, 9 127 201-2 Financial implications and other risks and opportunities due to climate change 13 133, 134, 137, 141 201-3 Defined benefit plan obligations and other retirement plans 8 69 201-4 Financial assistance received from government 9 131 GRI 202: Market Presence 2016 202-1 Ratios of standard entry level wage by gender compared to local minimum wage 5, 8, 10 80, 83 202-2 Proportion of senior management hired from the local community 8, 10 79 GRI 204: Procurement Practices 2016 204-1 Proportion of spending on local suppliers 8, 9 119, 120 GRI 301: Materials 2016 301-1 Materials used by weight or volume 6, 9, 12, 13, 14, 15 93-95 301-2 Recycled input materials used 6, 9, 12, 13, 14, 15 93, 95 301-3 Reclaimed products and their packaging materials Reasons for omission: Non applicable. Explanation: AD Plastik Group does not take back manufactured products delivered to the customer and does not process or reuse them as input material. GRI 302: Energy 2016 302-1 Energy consumption within the organization 7, 9, 12, 13, 14, 15 97 302-2 Energy consumption outside of the organization 7, 9, 12, 13, 14, 15 98 302-3 Energy intensity 7, 9, 12, 13, 14, 15 98 302-4 Reduction of energy consumption 7, 9, 12, 13, 14, 15 96 302-5 Reductions in energy requirements of sold pro- ducts and services Reasons for omission: Non applicable. Explanation: The data is not available because this data is collected by car manufacturers for each vehicle as a whole. GRI 303: Water and Effluents 2016 303-1 Interactions with water as a shared resource 6, 9, 12, 14, 15 99 303-2 Management of water discharge-related impacts 6, 9, 12, 14, 15 101 303-3 Water withdrawal 6, 9, 12, 14, 15 100 303-4 Water discharge 6, 9, 12, 14, 15 101 303-5 Water consumption 6, 9, 12, 14, 15 100 GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions 7, 9, 12, 13, 14, 15 103, 104 305-2 Energy indirect (Scope 2) GHG emissions 7, 9, 12, 13, 14, 15 104 305-3 Other indirect (Scope 3) GHG emissions 7, 9, 12, 13, 14, 15 105, 106 305-4 GHG emissions intensity 7, 9, 12, 13, 14, 15 105 305-5 Reduction of GHG emissions 7, 9, 12, 13, 14, 15 104 305-6 Emissions of ozone-depleting substances (ODS) 7, 9, 12, 13, 14, 15 107 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions 7, 9, 12, 13, 14, 15 108 169GRI CONTENT INDEX MATERIAL TOPICS SDG PAGE GRI 306: Waste 2020 306-1 Waste generation and significant waste-related impacts 9, 12, 13, 14, 15 109 306-2 Management of significant waste-related impacts 9, 12, 13, 14, 15 109, 110 306-3 Waste generated 9, 12, 13, 14, 15 109, 111 306-4 Waste diverted from disposal 9, 12, 13, 14, 15 109, 111-113 306-5 Waste directed to disposal 9, 12, 13, 14, 15 109, 113-115 GRI 308: Supplier Environmental Assessment 2016 308-1 New suppliers that were screened using environmental criteria 6, 7, 12, 13, 14, 15 118 308-2 Negative environmental impacts in the supply chain and actions taken 6, 7, 12, 13, 14, 15 118 GRI 401: Employment 2016 401-1 New employee hires and employee turnover 8 75-77 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time em- ployees 8 71 401-3 Parental leave 5 78 GRI 403: Occupational Health and Safety 2018 403-1 Occupational health and safety management system 3 84 403-2 Hazard identification, risk assessment, and incident investigation 3 84 403-3 Occupational health services 3 84 403-4 Worker participation, consultation, and communication on occupational health and safety 3 84 403-5 Worker training on occupational health and safety 3 84 403-6 Promotion of worker health 3 84 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 3 84 403-8 Workers covered by an occupational health and safety management system 3 84 403-9 Work-related injuries 3 85, 86 403-10 Work-related ill health 3 86 NON-MATERIAL TOPICS SDG PAGE GRI 203: Indirect Economic Impacts 2016 203-2 Significant indirect economic impacts 8, 9 131 GRI 205: Anti-corruption 2016 205-2 Communication and training about anti-corruption policies and procedures 4, 5 38, 39 205-3 Confirmed incidents of corruption and actions taken 16 40 GRI 206: Anti-competitive Behavior 2016 206-1 Legal actions for anti-competitive behavior, anti-trust, and monopoly practices 16 40 GRI 207: Taxes 2019 207-1 Approach to tax 17 131 170 GRI CONTENT INDEX NON-MATERIAL TOPICS SDG PAGE GRI 304: Biodiversity 2016 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas 6, 12, 13, 14, 15 99 GRI 307: Environmental Compliance 2016 307-1 Non-compliance with environmental laws and regulations 9, 13, 14, 15 92 GRI 402: Labor/Management Relations 2016 402-1 Minimum notice periods regarding operational changes 8 69 GRI 404: Training and Education 2016 404-1 Average hours of training per year per employee 4 90 404-2 Programs for upgrading employee skills and transition assistance programs 4 87 404-3 Percentage of employees receiving regular performance and career development reviews 4 90 GRI 405: Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees 5 80-82 405-2 Ratio of basic salary and remuneration of women to men 5, 8 83 GRI 406: Non-discrimination 2016 406-1 Incidents of discrimination and corrective actions taken 5, 8 39 GRI 408: Child Labor 2016 408-1 Operations and suppliers at significant risk for incidents of child labor 4, 8 117 GRI 409: Forced or Compulsory Labor 2016 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labor 8 117 GRI 412: Human Rights Assessment 2016 412-2 Employee training on human rights policies or procedures 4, 5 88 GRI 413: Local Communities 2016 413-2 Percentage of operations with implemented local community engagement, impact assessments, and/or development programs 4, 8, 9, 17 121 GRI 414: Supplier Social Assessment 2016 414-1 New suppliers that were screened using social criteria 5, 8, 10, 16 117 414-2 Negative social impacts in the supply chain and actions taken 5, 8, 10, 16 117 GRI 415: Public Policy 2016 415-1 Political contributions 40 GRI 416: Customer Health and Safety 2016 416-1 Assessment of the health and safety impacts of product and service categories 3 125 416-2 Incidents of non-compliance concerning the health and safety impacts of products and services 3 126 GRI 417: Marketing and Labeling 2016 417-2 Product and service information/labeling incidents of non-compliance with voluntary codes 126 417-3 Incidents of non-compliance concerning marketing communications 126 171 ❶ ESG INDICATORS INDEX 99 172 ESG INDICATORS INDEX GHG Scope 1 & 2 Location-Based Thousand Metric Tonnes CO 2 e 9.77 9.75 GHG Scope 1 Thousand Metric Tonnes CO 2 e 1.47 1.36 GHG Scope 2 Location-Based Thousand Metric Tonnes CO 2 e 8.30 8.39 GHG Scope 3 Thousand Metric Tonnes CO 2 e 5.18 4.60 Scope 3 Business Travel Emissions Thousand Metric Tonnes 0.42 0.46 Scope 3 Employee Commuting Emissions Thousand Metric Tonnes CO 2 e 1.41 1.65 Scope 3 Downstream Transport and Distribution Emission Thousand Metric Tonnes CO 2 e 3.35 2.49 Scope 3 Emissions Other Thousand Metric Tonnes CO 2 e 4.76 4.14 CO 2 Scope 1 & 2 Location-Based Thousand Metric Tonnes 9.77 9.75 CO 2 Scope 1 Thousand Metric Tonnes 1.47 1.36 CO 2 Scope 2 Location-Based Thousand Metric Tonnes 8.30 8.39 Carbon per Unit of Production Metric Tonnes/Unit of Production 0 0 Methane (CH 4 ) Scope 1 Thousand Metric Tonnes CO 2 e 0 0 ODS Emissions Thousand Metric Tonnes 0 0 Nitrous Oxide (N 2 O) Scope 1 Thousand Metric Tonnes 0 0 Sulfur Hexafluoride (SF 6 ) Scope 1 Thousand Metric Tonnes 0 0 Methane (CH 4 ) Scope 1 in CO 2 Equivalent Thousand Metric Tonnes CO 2 e 0 0 Nitrous Oxide (N 2 O) Scope 1 in CO 2 Equivalent Thousand Metric Tonnes CO 2 e 0 0 Hydrofluorocarbon (HFC)Scope 1 in CO 2 Equivalent Thousand Metric Tonnes CO 2 e 0 0 Perfluorocarbon (PFC)Scope 1 in CO 2 Equivalent Thousand Metric Tonnes CO 2 e 0 0 Sulfur Hexafluoride (SF 6 ) Scope 1 CO 2 Equivalent Thousand Metric Tonnes CO 2 e 0 0 Emissions Reduction Initiatives Y/N Y Y Climate Change Policy (1) Y/N Y Y Risks of Climate Change Discussed Y/N Y Y Total Energy Consumption Thousand Megawatt Hours 37.30 36.66 Renewable Energy Use Thousand Megawatt Hours 0 0 Energy Efficiency Policy (1) Y/N Y Y Electricity Used Thousand Megawatt Hours 29.99 29.92 Fuel Used - Coal/Lignite Thousand Metric Tonnes 0 0 Fuel Used - Natural Gas Thousand Cubic Meters 769.98 651.64 Fuel Used - Crude Oil/Diesel Thousand Cubic Meters 0.04 0.04 Self Generated Renewable Electricity Thousand Megawatt Hours 0 0 Energy Per Unit of Production Megawatt Hours/Unit of Production 0 0 Electricity of Total Energy Consumed Percentage 80.41 81.63 ISO 14001 Certified Sites Count 5 4 Environmental Quality Management Policy (1) Y/N Y Y Investments in Operational Sustainability Million EUR GRI Criteria Compliance Y/N Y Y Verification Type Y/N Y Y Number of Sites Count 8 8 Pct Sites Certified Percentage 85.71 Nitrogen Oxide Emissions Thousand Metric Tonnes 0 0 Sulphur Dioxide Emissions Thousand Metric Tonnes 0 0 VOC Emissions Thousand Metric Tonnes 0.02 0.01 Environmental Unit 2022 2023 173ESG INDICATORS INDEX Carbon Monoxide Emissions Thousand Metric Tonnes 0 0 Particulate Emissions Thousand Metric Tonnes 0 0 Sulphur Oxide Emissions Thousand Metric Tonnes 0 0 Total Water Use Thousand Cubic Meters 47.97 44.15 Discharges to Water Thousand Metric Tonnes 27.86 24.85 Hazardous Waste Thousand Metric Tonnes 0.57 0.82 Total Waste Thousand Metric Tonnes 1.83 1.75 Waste Recycled Thousand Metric Tonnes 0.94 0.79 Paper Consumption Thousand Metric Tonnes 0.02 0.01 Raw Materials Used Thousand Metric Tonnes 10.72 10.16 Environmental Fines Count 0 0 Amount of Environmental Fines Million EUR 0 0 Waste Reduction Policy (1) Y/N Y Y Total Water Discharged Thousand Cubic Meters 27.86 24.85 Water per Unit of Production Liters/Unit of Production 0.62 0.71 Environmental Accounting Cost Million EUR Biodiversity Policy (1) Y/N Y Y Waste Sent to Landfills Thousand Metric Tonnes 0.28 0.32 Technological Water Thousand Cubic Meters 10.74 11.97 Groundwater Withdrawals Thousand Cubic Meters 4.94 4.81 Municipal Water Thousand Cubic Meters 43.04 39.34 Chemical Oxygen Demand of Discharges Metric Tonnes 0 0 Biological Oxygen Demand of Discharges Metric Tonnes 0 0 Cooling Water Inflow Thousand Cubic Meters 10.74 11.97 Water Policy (1) Y/N Y Y Total Water Withdrawal Thousand Cubic Meters 47.97 44.15 Water Stress Exposure Percentage Percentage 0 0 Percentage of Hazardous Waste Percentage 31.30 46.95 Environmental Incidents Count 0 0 Hazardous Waste Recycled Thousand Metric Tonnes 0.24 0.33 Percentage of Hazardous Waste Recycled Percentage 42.45 39.83 Percentage of Waste Recycled Percentage 51.32 45.10 Hazardous Waste Management Policy (1) Y/N Y Y Wastewater Management Policy (1) Y/N Y Y Amount of Waste Incinerated Thousand Metric Tonnes 0 0 Waste Used for Energy Thousand Metric Tonnes 0.04 0.03 Significant Spills Count 0 0 Significant Environmental Fines Count 0 0 Amount of Significant Environmental Fines Million EUR 0 0 Water Consumption Thousand Cubic Meters 47.97 44.15 Pct Recycled Materials Percentage 17.69 11.55 Environmental Supply Chain Management (2) Y/N Y Y Sustainable Packaging Y/N Y Y Environmental Unit 2022 2023 174 ESG INDICATORS INDEX Political Donations Million EUR 0 0 Business Ethics Policy (1) Y/N Y Y Anti-Bribery Ethics Policy (1) Y/N Y Y Intellectual Property Rights Protection Policy (1) Y/N Y Y Corruption Legal Cases Count 0 0 Amount of Anti - Competition Fines Million EUR 0 0 Political Involvement Policy (1) Y/N Y Y Fines for Anti - Competition Count 0 0 Anti - Competition Policy (1) Y/N Y Y Fines For Bribery And Corruption Count 0 0 Amount Of Fines For Bribery And Corruption Million EUR 0 0 Percentage of Company Facilities Non-Compliance Percentage 0 0 Cybersecurity Risk Management Y/N Y Y Fines for Marketing and Labeling Count 0 0 Amount of Fines for Marketing and Labeling Million EUR 0 0 Community Spending Million EUR 0.16 0.11 Human Rights Policy (1) Y/N Y Y Quality Assurance and Recall Policy (1) Y/N Y Y Consumer Data Protection Policy (1) Y/N Y Y Critical Materials Policy (1) Y/N Y Y Product Data Security Policy (1) Y/N Y Y Data Security Risks Discussed Y/N Y Y Executive with Responsibility for Data Security Y/N Y Y Human Rights Remediation Process Y/N Y Y Customer Satisfaction Survey Conducted Y/N Y Y UN Global Compact Signatory Y/N Y Y Number of Employees - CSR Count 1,983 1,860 Employee Turnover Percentage 41.10 25.50 Share of employees covered by collective agreements Percentage 85.98 89.03 Pct Women in Management Percentage 36.44 40.38 Pct Women in Workforce Percentage 52.50 52.63 Workforce Accidents - Employees Count 30 46 Lost Time from Accidents Hours 760 5.632 Fatalities - Contractors Count 0 0 Fatalities - Employees Count 0 0 Fatalities - Total Count 0 0 Health and Safety Policy (1) Y/N Y Y Equal Opportunity Policy (1) Y/N Y Y Training Policy (1) Y/N Y Y Employee Average Age Years 43 44 Pct Disabled in Workforce Percentage 2.20 2.20 Lost Time Incident Rate - Employees Lost Time Incidents/200,000 Hours Worked or 100 Full Time Employees 2.39 2.78 Employee CSR Training Y/N Y Y Social Unit 2022 2023 175ESG INDICATORS INDEX Employee Training Cost Million EUR 0.52 0.10 Fatalities - Third Party Count 0 0 Total Recordable Incident Rate - Employees Recordable Incidents/200,000 Hours Worked or 100 Full Time Employees 2.39 2.78 Employee Protection / Whistle Blower Policy (1) Y/N Y Y Total Hours Spent by the company on Employee Training Hours 29,570 47,261 Part-Time Employees Count 7 5 Temporary Employees Count 163 164 Workers who are not employees Count 91 85 Total Accidents - Workers who are not employees Count 0 0 Lost Time Incident Rate - Workers who are not employees Lost Time Incidents Contractors/200,000 Hours Worked or 100 Contractors 0 0 Total Recordable Incident Rate - Workers who are not employees Recordable Incidents Contractors/200,000 Hours Worked or 100 Contractors 0 0 Policy Against Child Labor (1) Y/N Y Y Employee Voluntary Turnover Percentage Percentage 22.10 17.10 Employee Involuntary Turnover Percentage Percentage 14.40 6.40 Pct Women in Middle and or Other Management Percentage 41.56 44.93 Average Employee Training Hours Hours 14.93 25.10 Percentage of Workers who are not employees in Total Workforce Percentage 4.39 4.37 Total Workforce Count 2,074 1,945 Total Recordable Incident Rate - Workforce Recordable Incidents/200,000 Hours Worked or 100 Employees & Contractors 1.48 2.53 Lost Time Incident Rate - Workforce Lost Time Incidents/200,000 Hours Worked or Em- ployees & Contractors 2.39 2.78 Company Diversity Target Indicator Y/N Y Y Suppliers Audited Count 609 682 Supplier Audits Conducted Count 609 682 Social Supply Chain Management (2) Y/N Y Y Supplier Facilities Audited Count 5 4 Sustain Sup Guidelines Encomp ESG Area Pub Disclsd Y/N Y Y Percentage of Suppliers in Non-Compliance Percentage 0 0 Percentage Suppliers Audited Percentage 24.39 25.96 Suppliers in Non-Compliance Count 0 0 Suppliers Count 2,497 2,627 Critical Suppliers Count 0 0 Social Unit 2022 2023 176 ESG INDICATORS INDEX Auditor Ratification Y/N Y y Auditor Employed Duration Years 3 4 Auditor Ratification Number of Votes - FOR Millions of votes 2.73 2.60 Auditor Ratification Number of Votes - AGAINST Millions of votes 0 0 Auditor Ratification Support Level Percentage 100.00 100.00 Supervisory Board Size Count 7 7 Supervisory Board Independent Members Count 2 3 Pct of Supervisory Board Independent Members Percentage 28.57 42.85 Term of Office Duration in the Supervisory Board Years 4 4 Supervisory Board Meetings for the Year Count 4 4 Supervisory Board Meeting Attendance Percentage Percentage 100.00 100.00 Share of Women in the Supervisory Board Percentage 42.86 42.86 Supervisory Board Average Age Years 61 62 Supervisory Board Age Limit Years N N CEO Duality Y/N N N Audit Committee Meetings Count 4 4 Classified Management System Y/N Y Y Unitary or Two Tier Board System Nominal (1-2) 2 2 Members of the Management Board Count 4 4 Former Management Board President in the Supervisory Board Y/N N N Female President or Equivalent Y/N N N Non-executive members of the Supervisory Board Count 7 7 Percentage of Non-Executive Members in the Supervisory Board Percentage 100.00 100.00 Term of Office Duration of the Management Board Members Years 5 5 Supervisory Board Members Attending Less than 75% of the Meetings Count 0 0 Women in the Supervisory Board Count 3 3 Employee Representative in the Supervisory Board Count 1 1 Age of the Youngest Supervisory Board Member Years 33 34 Age of the Oldest Supervisory Board Member Years 71 72 Management Board Members Age Range Years 49 50 Independent Members Attendance at the Supervisory Board Meetings Percentage 100.00 100.00 Size of Audit Committee Count 4 4 Independent Members in the Audit Committee Count 2 2 Pct of Independent Members in the Audit Committee Percentage 50.00 50.00 Independent Audit Committee President Y/N Y Y Supervisory Board Members in the Audit Committee Count 4 4 Audit Committee Meeting Attendance Percentage 100.00 100.00 Size of Remuneration Committee Count 3 3 Independent Members in the Remuneration Committee Count 1 1 Pct of Independent Members in the Remuneration Committee Percentage 33.33 33.33 Independent Remuneration Committee President Y/N N N Supervisory Board Members in the Remuneration Committee Count 2 2 Remuneration Committee Meetings Count 2 2 Governance Unit 2022 2023 177ESG INDICATORS INDEX Remuneration Committee Meeting Attendance Percentage 100.00 100.00 Size of Appointment Committee Count 3 3 Independent Members in the Appointment Committee Count 1 1 Pct of Independent Members in the Appointment Committee Percentage 33.33 33.33 Independent Appointment Committee President Y/N Y Y Supervisory Board Members in the Appointment Committee Count 2 2 Appointment Committee Meetings Count 3 1 Appointment Committee Meeting Attendance Percentage 100.00 100.00 Executive Director with Responsibility for CSR Y/N Y Y Audit Financial Expert Y/N Y Y Company conducts Supervisory Board evaluations Y/N Y Y Management Board Compensation Linked to ESG Y/N Y Y Say On Pay Provision Y/N Y Y Frequency of Say on Pay Votes Years 4 4 Chg of Ctrl Benefits/Golden Parachute Agreements Y/N N N Say on Pay Number of Votes FOR Millions of votes 2.57 2.58 Say on Pay Number of Votes AGAINST Millions of votes 0.06 0.03 Say on Pay Support Level Percentage 97.41 99.02 Company Has Executive Share Ownership Guidelines Y/N N N Management Share Ownership Guidelines Y/N N N Comp Discloses Management Board President or Equivalent Pay Ratio Flg Y/N Y Y Management Board President Pay Ratio Average Employee Compensation EUR 23.74 14.08 Management Board President or Equivalent Appointed from Within Y/N Y Y Female Management Board Member or Equivalent Y/N N N Women Management Board Members Count 0 0 Unequal Voting Rights Y/N N N Unequal Voting Rights Shares Issued Y/N N N Controlled Company Y/N N N Governance Unit 2022 2023 (1)Policiesareavailableatthefollowinglink: https://www.adplastik.hr/wp-content/uploads/2019/11/191023-Kodeks-i-politike-EN-web.pdf (2)Detailsareavailableatthefollowinglink: https://www.adplastik.hr/en/about-us/purchasing 178 ❶OPINIONBYHRBCSD CROATIAN BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT 1010 179OPINION BY HR BCSD This is the 11th Sustainability Report of AD Plastik Group, pre- pared according to GRI Standards, with reporting elements ac- cording to ESRS. The report represents the publication of a sublimated overview of the financial and material topics of the company’s sustainability. We confirm that the report complies with the Global Reporting Initiative Standards (GRI) 2021 and that it also meets the requirements of the legislation of the Republic of Croatia, which prescribes the scope, content and deadlines of annual reporting on sustainability. The automotive industry in Europe has been going through a pro- cess of significant investments for research and development to- wards more sustainable solutions, which is the result of pressure from the manufacturers themselves, as well as regulators. The Management Board’s letter indicates AD Plastik Group’s focus on research and development of new materials and production techniques that will ensure greater use of secondary materials, as well as bioeconomy-based materials, without impairing prod- uct quality, but at the same time contributing to sustainability. At the same time, new materials put less strain on the final product due to their weight, which further reduces the impact on the en- vironment. AD Plastik has adopted the Code of Business Conduct, policy of diversity and equal opportunities, occupational health and safety, protection of human rights and environmental protection. Ensur- ing the quality and efficiency of business processes is confirmed by a series of certificates as well as regular customer satisfaction checks. The quality of management is supported also by the fact that during the reporting period there were no cases of non-com- pliance with laws and regulations and no monetary or other sanc- tions were imposed. The company described in detail the mode of operation, the composition and competences of the Manage- ment Board and the Supervisory Board. The report recognizes and clearly communicates the lack of representation of women in the Management Board. Energy efficiency indicators are included in the criteria for the success of the Management Board’s work, which represents a shift towards a reward system that includes the achievement of ESG performance indicators Among the environmental topics, energy stands out, since sus- tainable energy is one of the imperatives of sustainable business. AD Plastik reduced the energy intensity in 2023 as a result of im- proving technological production processes, but there is room for improvement, which is evident in the fact that in 2023 no electric- ity from renewable sources was used. There is a noticeable trend of increasing the generation of hazardous waste in the observed period, while the trend for non-hazardous waste has significantly decreased, which is ex- plained in detail in the report, shown by categories of waste and how it is handled. The Management Board also evaluates the efficiency of waste management once a year, and waste dispos- al plans are drawn up with reduction and recycling procedures. The taxonomy report is very detailed and includes the minimum protective measures for which the company has assessed that it implements them and is in compliance with them. In terms of revenue, the company has already reported on eligibility based on technical criteria for the Manufacture of automotive and mo- bility components, although these criteria are part of the dele- gated regulation that shall come into force only next year. AD Plastik evaluates suppliers based on the Sustainable Suppli- er Management Policy, and in 2023, 682 suppliers at the Group level were evaluated, which is 90 percent of the total purchasing value, in order to reduce the company’s potential negative im- pacts on society and the environment, as well as on customer satisfaction. The Management Board of AD Plastik recognized employee sat- isfaction as the main factor in the success and productivity of the company, and the activities, practices and policies of bal- ancing business and family life stand out. The company has re- ported that in the reporting period there was not a single case of reports of discrimination or violation of human rights. Consider- ing the size of the company, efforts should be made to promote open communication, so that complaint reporting systems are actually accepted and used. An exhaustive presentation of co- operation and impact on the community, with a description of the activities, is well covered in the report and gives a picture of a company that cares about the community in which it op- erates, with donations, sponsorships and financial assistance during the observed period. Overall, the report is informative and plentiful with material in- dicators in all three observed areas - economic, environmental and social. Considering the amount and structure of data that give a clear picture of the effects in the area of sustainability and plans for future goals, it can be an exemplary example of quality reporting on sustainability. 180 “We do not inherit the earth from our ancestors; we borrow it from our children“ Native American proverb 181 1111 ❶ ANNUALFINANCIAL STATEMENT The Supervisory Board has not yet considered and adopted the financial statements, but shall decide on that at the meeting scheduled in May 2024. 182 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP AD PLASTIK D.D., SOLIN AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 Responsibility of The Management Board for the consolidated financial statements ................................................................... 183 Independent Auditor´s Report .................................................... 184 Consolidated statement of comprehensive income .................... 192 Consolidated statement of financial position ............................. 194 Consolidated statement of changes in shareholders’ equity ...... 196 Consolidated statement of cash flows ........................................ 198 Notes to the consolidated financial statements ......................... 200 183CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP RESPONSIBILITY OF THE MANAGEMENT BOARD FOR THE CONSOLIDATED FINANCIAL STATEMENTS Pursuant to the Accounting Act of the Republic of Croatia, the Management Board is responsible for ensuring that consolidated financial statements are prepared for each financial year in accordance with International Financial Reporting Standards (“the IF- RSs”), as adopted in the European Union, which give a true and fair view of the financial position and results of operations of AD Plastik d.d., Solin and its subsidiaries (“the Group”) for that period. After making enquiries, the Management Board has a reason- able expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the financial statements. In preparing those financial statements, the Management Board is responsible for: • selecting and then consistently applying suitable accounting policies; • making reasonable and prudent judgements and estimates; • following applicable accounting standards and disclosing and explaining any material departure in the consolidated finan- cial statements; • preparing the financial statements on the going concern basis unless it is inappropriate to presume that the Group will con- tinue in business. The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time, the financial position of the Group and its’ compliance with the Croatian Accounting Act. The above stated responsibility includes the responsibility for accuracy of the Management Report, which is an integral part of consolidated financial statements and submission of financial statements in unique XBRL electronic reporting format (ESEF) prescribed by regulatory technical standards developed by ESMA (European Securities and Markets Authority) and adopted by the European Commission. The Man- agement Board is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the preven- tion and detection of embezzlement and other irregularities. Signed on behalf of the Management Board For AD Plastik d.d., Solin by: AD Plastik d.d. Matoševa 8, 21210 Solin Republic of Croatia 24 April 2024 Marinko Došen President of the Management Board Mladen Peroš Member of Management Board Zlatko Bogadi Member of Management Board JosipDivić Member of Management Board Independent Auditors’ Report to the shareholders of AD Plastik d.d. Report on the Audit of the Financial Statements Opinion We have audited the consolidated financial statements of AD Plastik d.d. (“the Company”) and its subsidiaries (together referred to as “the Group”), which comprise the consolidated statement of financial position of the Group as at 31 December 2023, and its consolidated statements of comprehensive income, cash flows and changes in equity for the year then ended, and notes, comprising material accounting policies and other explanatory information (further referred to as “the financial statements”). In our opinion, the accompanying financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Croatia and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. Report on the Audit of the Financial Statements Opinion We have audited the consolidated financial statements of AD Plastik d.d. (“the Company”) and its subsidiaries (together referred to as “the Group”), which comprise the consolidated statement of financial position of the Group as at 31 December 2023, and its consolidated statements of comprehensive income, cash flows and changes in equity for the year then ended, and notes, comprising material accounting policies and other explanatory information (further referred to as “the financial statements”). In our opinion, the accompanying financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Croatia and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. REVENUE RECOGNITION Revenue in 2023: EUR 123,832 thousand (2022: EUR 108,186 thousand). As at 31 December 2023, trade receivables: EUR 21,534 thousand; accrued revenue: EUR 403 thousand (31 December 2022: trade receivables: EUR 14,974 thousand; accrued revenue: EUR 954 thousand). Please refer to the Note 2.4 Revenue recognition of Significant accounting policies and Note 4 Segment information in the financial statements. Key audit matter How our audit addressed the matter Revenue is an important metric used to evaluate the financial performance of the Group. In the year ended 31 December 2023, its principal revenue streams included sales of car parts and of customized tools developed by the Group. As discussed in Note 2.4, revenue is recognized when control over the goods is transferred to the customer. Application of the revenue recognition principles of the relevant financial reporting standard, IFRS 15 Revenue from Contracts with Customers (“the Standard”), is complex and requires making significant assumptions and judgment. In the Group’s case, particular complexity is associated with the following aspects: — Determination of whether a customer contract exists requires the Group to assess whether one document or a combination of documents, including general terms of business, nomination letter, agreement with customer and purchase orders, create enforceable rights and obligations of the parties to the arrangement. — Goods with different revenue recognition patterns, such as spare parts and tooling, may be sold as part of one contract or several contracts accounted for as one arrangement. The Group applies significant judgment in identifying contracts which require to be combined and accounted for as one arrangement, and in identifying performance obligations therein. Our audit procedures in this area included among others: — Assessing the accounting policy for recognition of revenue and its compliance with the requirements of the Standard; — Updating our understanding of the Group’s revenue recognition process, and testing the design and implementation of selected internal controls within. This also included testing selected general IT controls supporting revenue-related IT application controls; — For a sample of sales transactions in the current year, inspecting underlying contractual provisions and making inquiries of relevant sales and finance personnel, in order to challenge: o The existence of a customer contract, by reference to the relevant criteria of the Standard, including, among other things, those relating to the parties’ commitment to their obligations and probability of collecting the consideration due; o Identification of the contracts which require to be accounted for on a combined basis and of performance obligations within those contracts, by among other things, assessment of whether the goods and services in the arrangements are distinct and also whether any subsequent changes to the contract price arising from the learning curve result in the reduced price representing the parts’ stand- alone selling price; o Inspecting underlying contracts with customers for tooling sales transactions to identify any lease component embedded within those contracts, mainly by evaluating ownership rights, the party directing the use of the tool and whether there is a separate performance obligation in relation to the sale of car parts. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) REVENUE RECOGNITION (continued) Key audit matter (continued) How our audit addressed the matter (continued) — Many contracts with customers entitle customers to price reductions after a certain period of purchase orders (as a result of expected reduction in the Group’s costs along its learning curve). Judgement is required to determine whether such ‘efficiency savings’ provide customers with material rights to be accounted for as separate performance obligations. — Tooling arrangements are typically contracts or framework agreements between the Group and its customers for the sale of tools to be used in the production of customized parts for a given customer. Since such tooling arrangements may vary with respect to transfer of development activities and ownership, careful assessment to determine whether, among other things, an arrangement is a sale, a lease or development of its own equipment, whether it contains a lease and whether it is a separate performance obligation from the sale of car parts. In the wake of the above factors, we considered revenue recognition to be associated with a significant risk of material misstatement in the consolidated financial statements. Therefore, the area required our increased attention in the audit and as such was determined to be a key audit matter. — For a sample of sales transactions selected as part of the preceding procedure, challenging the timing of the transfer of control, the resulting pattern of revenue recognition and revenue amounts, by reference to sales invoices, inventory and shipping documents, customer acceptance forms and other documents as appropriate; — For a sample of customers, obtaining confirmations of the amounts receivable outstanding as at the reporting date, and evaluating any differences between the amounts confirmed and the Group’s records by inspecting the underlying documentation such as contracts, invoices, shipping documents, customer acceptance forms and payments made by customers; — Inspecting journal entries posted to revenue accounts focusing on unusual and irregular items; — Examining whether the Group’s revenue recognition- related disclosures in the financial statements appropriately address the relevant quantitative and qualitative requirements of the applicable financial reporting framework. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) REVENUE RECOGNITION (continued) Key audit matter (continued) How our audit addressed the matter (continued) — Many contracts with customers entitle customers to price reductions after a certain period of purchase orders (as a result of expected reduction in the Group’s costs along its learning curve). Judgement is required to determine whether such ‘efficiency savings’ provide customers with material rights to be accounted for as separate performance obligations. — Tooling arrangements are typically contracts or framework agreements between the Group and its customers for the sale of tools to be used in the production of customized parts for a given customer. Since such tooling arrangements may vary with respect to transfer of development activities and ownership, careful assessment to determine whether, among other things, an arrangement is a sale, a lease or development of its own equipment, whether it contains a lease and whether it is a separate performance obligation from the sale of car parts. In the wake of the above factors, we considered revenue recognition to be associated with a significant risk of material misstatement in the consolidated financial statements. Therefore, the area required our increased attention in the audit and as such was determined to be a key audit matter. — For a sample of sales transactions selected as part of the preceding procedure, challenging the timing of the transfer of control, the resulting pattern of revenue recognition and revenue amounts, by reference to sales invoices, inventory and shipping documents, customer acceptance forms and other documents as appropriate; — For a sample of customers, obtaining confirmations of the amounts receivable outstanding as at the reporting date, and evaluating any differences between the amounts confirmed and the Group’s records by inspecting the underlying documentation such as contracts, invoices, shipping documents, customer acceptance forms and payments made by customers; — Inspecting journal entries posted to revenue accounts focusing on unusual and irregular items; — Examining whether the Group’s revenue recognition- related disclosures in the financial statements appropriately address the relevant quantitative and qualitative requirements of the applicable financial reporting framework. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Other Information Management is responsible for the other information. The other information comprises the Management Report and Corporate Governance Statement included in the Annual Report of the Group, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the Management Report and Corporate Governance Statement, we also performed procedures required by the Accounting Act in Croatia (“Accounting Act”). Those procedures include considering whether: • the Management Report has been prepared in accordance with the requirements of Articles 21 and 24 of the Accounting Act, • the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act. Based solely on the work required to be undertaken in the course of the audit of the financial statements and procedures above, in our opinion: • the information given in the Management Report and Corporate Governance Statement for the financial year for which the financial statements are prepared, is consistent, in all material respects, with the financial statements; • the Management Report has been prepared, in all material respects, in accordance with the requirements of Articles 21 and 24 of the Accounting Act, respectively; • the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act. In addition, in light of the knowledge and understanding of the entity and its environment obtained in the course of the audit, we are also required to report if we have identified material misstatements in the Management Report and Corporate Governance Statement. We have nothing to report in this respect. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with EU IFRS, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal controls. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with EU IFRS, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal controls. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Auditors’ Responsibilities for the Audit of the Financial Statements (continued) • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements We were appointed by those charged with governance on 20 July 2023 to audit the consolidated financial statements of AD Plastik d.d. for the year ended 31 December 2023. Our total uninterrupted period of engagement is four years, covering the years ended from 31 December 2020 to 31 December 2023. We confirm that: • our audit opinion is consistent with the additional report presented to the Audit Committee of the Company dated 24 April 2024; • we have not provided any prohibited non-audit services (NASs) referred to in Article 44 of the Audit Act. We also remained independent of the audited entity in conducting the audit. The engagement partner on the audit resulting in this independent auditors’ report is Domagoj Hrkać. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation In accordance with the requirements of Article 462 paragraph 5 of Capital Market Act, we are required to express an opinion on compliance of the consolidated financial statements of the Group as at and for the year ended 31 December 2023, as included in the attached electronic file adplastik-grupa-2023-12-31-en.zip, with the requirements of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “RTS on ESEF”). Responsibilities of Management and Those Charged with Governance Management is responsible for the preparation of the consolidated financial statements in a digital format that complies with the RTS on ESEF. This responsibility includes: • the preparation of the consolidated financial statements in the applicable xHTML format and their publication; • the selection and application of appropriate iXBRL tags, using judgment where necessary; • ensuring consistency between digitised information and the consolidated financial statements presented in human- readable format; and • the design, implementation and maintenance of internal control relevant to the application of the RTS on ESEF. Those charged with governance are responsible for overseeing the Group’s ESEF reporting, as a part of the financial reporting process. Auditors' Responsibilities Our responsibility is to express an opinion on whether the consolidated financial statements comply, in all material respects, with the RTS on ESEF, based on the evidence we have obtained We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. A reasonable assurance engagement in accordance with ISAE 3000 involves performing procedures to obtain evidence about compliance with the RTS on ESEF. The nature, timing and extent of procedures selected depend on the auditor’s judgment, including the assessment of the risks of material departures from the requirements of set out in the RTS on ESEF, whether due to fraud or error. Reasonable assurance is a high degree of assurance. However, it does not guarantee that the scope of procedures will identify all significant (material) non-compliance with the RTS on ESEF. In respect of the subject matter, we have performed the following procedures: • obtaining an understanding of the tagging process; • evaluating the design and implementation of relevant controls over the tagging process; • tracing the tagged data to the consolidated financial statements of the Group presented in human-readable format; • evaluating the completeness of the Group’s tagging of the consolidated financial statements; • evaluating the appropriateness of the use of iXBRL elements selected from the ESEF taxonomy used and creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • evaluating the use of anchoring in relation to the extension elements; and • evaluating the appropriateness of the format of the consolidated financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation In accordance with the requirements of Article 462 paragraph 5 of Capital Market Act, we are required to express an opinion on compliance of the consolidated financial statements of the Group as at and for the year ended 31 December 2023, as included in the attached electronic file adplastik-grupa-2023-12-31-en.zip, with the requirements of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “RTS on ESEF”). Responsibilities of Management and Those Charged with Governance Management is responsible for the preparation of the consolidated financial statements in a digital format that complies with the RTS on ESEF. This responsibility includes: • the preparation of the consolidated financial statements in the applicable xHTML format and their publication; • the selection and application of appropriate iXBRL tags, using judgment where necessary; • ensuring consistency between digitised information and the consolidated financial statements presented in human- readable format; and • the design, implementation and maintenance of internal control relevant to the application of the RTS on ESEF. Those charged with governance are responsible for overseeing the Group’s ESEF reporting, as a part of the financial reporting process. Auditors' Responsibilities Our responsibility is to express an opinion on whether the consolidated financial statements comply, in all material respects, with the RTS on ESEF, based on the evidence we have obtained We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. A reasonable assurance engagement in accordance with ISAE 3000 involves performing procedures to obtain evidence about compliance with the RTS on ESEF. The nature, timing and extent of procedures selected depend on the auditor’s judgment, including the assessment of the risks of material departures from the requirements of set out in the RTS on ESEF, whether due to fraud or error. Reasonable assurance is a high degree of assurance. However, it does not guarantee that the scope of procedures will identify all significant (material) non-compliance with the RTS on ESEF. In respect of the subject matter, we have performed the following procedures: • obtaining an understanding of the tagging process; • evaluating the design and implementation of relevant controls over the tagging process; • tracing the tagged data to the consolidated financial statements of the Group presented in human-readable format; • evaluating the completeness of the Group’s tagging of the consolidated financial statements; • evaluating the appropriateness of the use of iXBRL elements selected from the ESEF taxonomy used and creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • evaluating the use of anchoring in relation to the extension elements; and • evaluating the appropriateness of the format of the consolidated financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation (continued) Opinion In our opinion, based on the procedures performed and evidence obtained, the consolidated financial statements of the Group as at and for the year ended 31 December 2023 presented in ESEF format and contained in the aforementioned attached electronic file, have been prepared, in all material respects, in accordance with the requirements of the RTS on ESEF. Our opinion does not represent an opinion on the true and fair view of the financial statements as this is included in our Report on the Audit of the Financial Statements. Furthermore, we do not express any assurance with respect to other information included in documents in the ESEF format. KPMG Croatia d.o.o. za reviziju 24 April 2024 Croatian Certified Auditors Eurotower, 17th floor Ivana Lučića 2a 10000 Zagreb Croatia 192 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Notes 2023 2022 Sales 4 123,832 108,186 Other income 5 5,476 1,935 Total income 129,308 110,121 Increase/(decrease)in the value of work in progress and finished products 23 (227) 440 Cost of raw material and supplies 6 (66,677) (64,108) Cost of goods sold 7 (7,223) (2,734) Service costs 8 (12,122) (11,620) Staff costs 9 (31,980) (30,334) Depreciation and amortisation 10 (10,273) (12,207) Other operating expenses 11 (3,767) (6,868) Provisions for risks and charges, (net) 12 136 (145) Impairment of trade receivables, (net) (238) (397) Total operating expenses (132,371) (127,973) (Loss)/Profitfromoperations (3,063) (17,852) Finance income 13 199 1,991 Finance costs 14 (2,349) (498) Profit/(Loss)fromfinancingactivities (2,150) 1,493 Share in the profit of associates 22 4,359 5,540 (Loss)/Profitbeforetaxation (854) (10,819) Income tax expense 15 (419) 1,087 (Loss)/Profitfortheyear (1,273) (9,731) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) 193CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) The accompanying policies and notes form an integral part of these of these financial statements. Itemsthatmaybereclassifiedsubsequentlytoprofitorloss: Notes 2023 2022 Exchange differences on translation of a foreign operation,items for reclassifica- tion in P&L 16 (1,476) 1,037 Accruals of foreign exchange differences from the current year, net of tax 16 (2,743) 1,003 Other comprehensive income for the year, net of income tax (4,219) 2,040 Total comprehensive (loss)/income for the year (5,492) (7,692) Loss/Profitattributableto: Equity holders of the Company (1,273) (9,731) Non-controlling interests - - Total comprehensive loss/income attributable to: Equity holders of the Company (5,492) (7,692) Non-controlling interests - - Basic and diluted (loss)/earnings per share (in euros and cents) 17 (0.31) (2.34) 194 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) ASSETS Note 31.12.2023 31.12.2022 Non-current assets Intangible assets 18 9,572 8,626 Goodwill 36 2,391 2,391 Property, plant and equipment 19 91,507 96,553 Right-of-use assets 20 2,483 2,241 Investment property 21 3,256 2,961 Investments in associates 22 11,872 12,473 Deferred tax assets 3,036 2,321 Total non-current assets 124,117 127,566 Current assets Inventories 23 32,288 29,246 Trade receivables 24 21,534 14,974 Other receivables 25 6,092 4,102 Cash and cash equivalents 26 4,042 4,048 Prepaid expenses 660 460 Accrued income 403 954 Total current assets 65,019 53,784 TOTAL ASSETS 189,136 181,350 The accompanying policies and notes form an integral part of these of these financial statements. 195CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) The accompanying policies and notes form an integral part of these of these financial statements. Note 31.12.2023 31.12.2022 Capital and reserves Share capital 27 54,595 55,738 Capital and other reserves 25,201 28,829 Retained earnings 18,668 19,231 Total shareholders' equity 98,464 103,798 Long-term provisions 28 461 474 Long-term borrowings 29 30,566 23,857 Deferred revenue 30 37 75 Lease liabilities 31 1,581 1,290 Deffered tax liability 856 377 Total non-current liabilities 33,501 26,073 Advances received 32 10,339 10,508 Trade payables 33 20,977 17,453 Short-term borrowings 34 19,359 17,992 Other current liabilities 35 4,570 3,305 Lease liabilities 31 936 1,002 Short-term provisions 28 990 1,219 Total current liabilities 57,171 51,479 Total liabilities 90,672 77,552 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 189,136 181,350 196 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) The accompanying policies and notes form an integral part of these financial statements Share capital Capital reserves Legal, statutory and general reserves Reserves from accruals of foreign exchange differences Reserves for own shares Own shares Retained earnings Exchange differ- ences on translation of a foreign operation Total equity attribut- able to the equity holders of the parent Non-con- trolling interests Total Balance at 31 Decem- ber 2022 55,738 25,456 7,783 (1,103) 2,772 (921) 19,231 (5,159) 103,798 - 103,798 Loss for the year - - - - - - (1,273) - (1,273) - (1,273) Other comprehensive income for the year - - - (2,743) - - (8) (1,469) (4,219) - (4,219) Total comprehensive income for the year - - - (2,743) - - (1,281) (1,469) (5,491) - (5,492) Dividends paid - - - - - - - - - - - Disposal of own (treasury) shares - (20) - - - 50 - - 30 - 30 Transactions with owners recognized directly in equity - (20) - - - 50 - - 30 - 30 Realization of recognised exchange differences - - - 51 - - (51) 1 1 - 1 Coverage Of the previ- ous year's loss - (642) - - - - 642 - - - - Correction of the Share capital due to EUR conversion (1,143) 1,143 - - - - - - - - - Abolition of the dividend obligation in ADP Tisza - - - - - - 125 - 125 - 125 Balance at 31 Decem- ber 2023 54,595 25,938 7,783 (3,795) 2,772 (871) 18,668 (6,627) 98,464 - 98,464 197CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) The accompanying policies and notes form an integral part of these financial statements Share capital Capital reserves Legal, statutory and general reserves Reserves from accruals of foreign exchange differences Reserves for own shares Own shares Retained earnings Exchange differ- ences on translation of a foreign operation Total equity attribut- able to the equity holders of the parent Non-con- trolling interests Total Balance at 31 Decem- ber 2021 55,738 25,574 9,953 (2,105) 2,772 (1,141) 26,792 (6,196) 111,387 - 111,387 Loss for the year - - - - - - (9,731) - (9,731) - (9,731) Other comprehensive income for the year - - - 1,002 - - - 1,037 2,040 - 2,040 Total comprehensive income for the year - - - 1,002 - - (9,731) 1,037 (7,692) - (7,692) Dividends paid - - - - - - - - - - - Disposal of own (treasury) shares - (118) - - - 220 - - 102 - 102 Transactions with owners recognized directly in equity - (118) - - - 220 - - 102 - 102 Reversal of reserves for not written off costs of development - - (2,170) - - - 2,170 - - - - Balance at 31 Decem- ber 2022 55,738 25,456 7,783 (1,103) 2,772 (921) 19,231 (5,159) 103,798 - 103,798 198 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) Cash flows from operating activities Notes 2023 2022 (Loss)/Profitfortheyear (1,273) (9,731) Adjusted for: Income tax 15 419 (1,087) Depreciation and amortisation 10 10,273 12,207 Tangible assets assets write-off 19 146 28 Intangible assets write-off 18 45 - Impairment of capitalised development cost 18 - 2,441 Impairment of tangible assets 19 - 251 Impairment of Goodwill 37 - 1,095 Interest expense and exchange rates recognised in profit or loss 795 774 Share in profit of associates 22 (4,359) (5,540) Gain from sale of property, plant and equipment and intangible assets 5 (2,819) (137) Interest income 13 (199) (158) Decrease in long-term and short-term provisions, (net) (159) (600) Value adjustment of investment in property 5 (329) - Loss allowance for trade receivables, (net) 205 (397) Write down and write off of inventories 6 2,658 2,481 Profitfromoperationsbeforeworkingcapitalchanges 5,403 1,627 Increase in inventories 23 (6,397) (6,055) (Increase)/decrease in trade receivables (6,299) 16,502 Increase in other receivables 25 (1,990) (750) Increase in trade payables 3,311 418 (Decrease)/increase of advances received 33 (169) 5,389 Increase/(decrease) in other current liabilities 823 (889) (Increase)/decrease of accrued income and prepaid expenses 27 351 (414) Interest paid (827) (558) Income tax paid (33) (88) Cash flows from operating activities (5,827) 15,182 199CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) The accompanying policies and notes form an integral part of these financial statements CASH FLOWS FROM INVESTING ACTIVITIES Notes 2023 2022 Interest received 179 156 Purchase of property, plant and equipment (5,437) (4,266) Purchase of intangible assets 18 (3,423) (2,653) Proceeds from sale of property, plant and equipment and intangible assets 3,380 264 Dividends received 4,341 2,030 Cash (used) investing activities (960) (4,469) CASH FLOWS FROM FINANCING ACTIVITIES Notes 2023 2022 Proceeds from borrowings 35 35,308 7,695 Repayment of borrowings 35 (28,175) (17,262) Repayment of lease liabilities 32 (1,150) (1,162) Cash(used)in/fromfinancingactivities 5,983 (10,729) Unrealised exchange rate differences in respect of cash and cash equivalents 5 62 Increase/(decrease) in cash and cash equivalents, net (799) 46 Cash and cash equivalents at the beginning of the year 26 4,048 4,002 Cash and cash equivalents at the end of the year 26 3,249 4,048 200 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Set out below are the principal accounting policies consist- ently applied in the preparation of the financial statements for the current and prior year. 2.1 STATEMENT OF COMPLIANCE The separate financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. 2.2 BASIS OF PREPARATION The Group maintains its accounting records in the Croatian language, in euro and in accordance with Croatian laws and the accounting principles and practices observed by enterpris- es in Croatia. The preparation of the consolidated financial statements re- quires from the Management Board to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on the information available as at the date of preparation of the financial statements, and actual re- sults could differ from those estimates. The consolidated financial statements of the Group represent aggregate amounts of assets, liabilities, capital and reserves of the Group as of 31 December 2023, and the results of op- erations for the year that ended. Financial statements are pre- sented in euro (“EUR”), which is the Group’s functional curren- cy. Since the Republic of Croatia introduced the euro as the official currency on January 1, 2023, in accordance with the Law on the introduction of the euro as the official currency in the Republic of Croatia, the Group changed the presentation currency for the purposes of preparing financial statements for the year ended December 31, 2023. from kuna to euro, and the financial statements for the year ended December 31, 2023 were prepared for the first time in euro, rounded to the nearest thousand. From January 1, 2023, the euro is also the functional currency of the Group (until January 1, 2023, it was HRK). In this regard, the exchange rate of HRK 7.53450 to the euro was used for the conversion of comparative data. 1. NEW STANDARDS AND AMANDMENTS TO EXISTING NOT YET ADOPTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES 201CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.2 BASIS OF PREPARATION (CONTINUED) Although the change in the presentation currency in the finan- cial statements represents a change in accounting policy that requires retroactive application, the Group did not present the third balance sheet in the financial statements for the year ended December 31, 2023 in accordance with International Accounting Standard 8 (IAS) Accounting Policies, Changes in Accounting Estimates and Errors, given that it has determined that the change in the presentation currency has no significant impact on the Group’s financial statements, due to the stable HRK/EUR exchange rate over the past few years. Comparativeinformationandreclassifications Where necessary, comparative data has been reclassified to achieve consistency in presentation of data with current finan- cial year data and other data. The Group has reclassified the write-off of obsolete stock in- ventory and value adjustment of inventory in amount of EUR 2,481 thousand from “Other operating expenses” to the cate- gory “Cost of raw materials and supplies”. In addition, Income from reversal of provisions in amount of EUR 65 thousand was reclassified from “Other income” to “Provisions for risks and charges”. The category “Prepaid expenses and accrued income is sepa- rated into two lines. 2.3 BASIS OF CONSOLIDATION Accompanying consolidated financial statements comprise of the Companys financial statements and the entities under its control. The control principle sets out the following three ele- ments of control: • power over the investee; • exposure, or rights, to variable returns from involvement with the investee; and • the ability to use power over the investee to affect the amount of those returns. The Company re-evaluates the existence of its control when the facts and circumstances indicate that one or more of the above-mentioned control elements have occurred. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. AD Plastik Group in the reporting period consists of compa- nies: • AD Plastik d.d., Croatia • AO AD Plastik Togliatti, Russian Federation • ZAO AD Plastik Kaluga, Russian Federation • AD Plastik Tisza Kft. Hungary • ADP d.o.o., Serbia • AD Plastik d.o.o., Slovenia 2.4 REVENUE RECOGNITION Revenue is measured based on the consideration specified in a contract with a customer. The contract exists only if it is legally enforceable and meets all of the following criteria: • the contract is approved, and the parties are committed to their obligations, • the rights to goods and services and payment terms can be identified, • the contract has commercial substance, and • collection of consideration is probable. The definition of contract as stated above is by combining the clauses of following documentation: the Buyer’s Gener- al Terms and conditions, the Nomination letter, the Purchase agreement and Purchase order. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 202 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.4 REVENUE RECOGNITION (CONTINUED) The Group has contracts with Buyers (OEM) as Tier 1, with Buyer’s suppliers as Tier 2, with subsidiaries and associates. The contracts exist for sales of following goods and services: • Product sale, • Tooling sale, • R&D activities • Royalty services, • Technical support services Contracts do not commit the customer to a specified quan- tity of products; however, the Group is generally required to fulfil its customer’s purchasing requirements for the produc- tion life of the vehicle. Contracts do not typically become a performance obligation until the Group receives either a pur- chase order for a specific number of parts at a specified price. The long-term agreements with customers for specific prod- uct may range from five to seven years, contracts may be ter- minated by customers at any time, while occurred very rarely. The Group’s customers pay for products received in accord- ance with payment terms that are customary in the industry, typically 60 to 120 days. The Group’s contracts with its cus- tomers do not have significant financing components. Tooling and product sales may be contracted in separate agreements, or concluded at different points in time, or may be contracted in one agreement. In either case, any binding obligation for the customer with respect to parts is created only upon issuance of purchase orders. Revenue from tooling sale and product sale is recognised at point in time when the control is passed on the buyer. The Group has determined that royalty and technical support services, tooling and the delivery of product parts are separate and distinct for the customer and therefore constitute sepa- rate performance obligations under IFRS 15, when the owner- ship is transferred. The prices agreed in the contracts for the single performance obligations are considered to be the stand-alone. Revenue from sale of products Product sales are recognized when the products are delivered to, and accepted by the customer and when the control of a product is transferred to the customer. Sales to customers with whom self- invoicing has been arranged are recognised upon receiving from such a customer the confirmation of de- livery, i.e. when control is transferred to the customer. Each delivery is considered as performance obligation that is sat- isfied at point in time. Some of the Group’s contracts include variable consideration which take a form of year-to-year price reductions („productivity“), but Group has concluded that those discounts do not give rise to a material right as those decreases are consistent with the pricing pattern in the auto- motive industry which takes into consideration learning curve effect. Some contracts with customers include warranty clauses for repair of faulty goods during a specified long-term period and cover only a product’s compliance with agreed specifications. Such warranties granted by the Group are in most cases as- surance type warranties recognised in accordance with IAS 37 when the control of product transfers to customers. Revenue from the manufacture of tools Revenues from tools are matched with contracts that are spe- cifically concluded for developing an asset, or a group of as- sets, closely linked and interdependent on the design, technol- ogy and function or their final use or application. The Group estimates that the transfer of control of tools, gauges and oth- er devices is met at the time of „SOP“ (Start Of Production), i.e. start of the mass production on them. At that point the Group recognizes revenue from the sale of tools. Costs of modifica- tion, completion and similar tool costs are recognised by the Group as an increase in inventory value. 203CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.4 REVENUE RECOGNITION (CONTINUED) Revenue from royalty and technical services The Group generates revenues from royalty fees by concluding contracts with affiliates to whom it sells the right to use in- tellectual property calculated on the amount of products pro- duced by these companies, and for which products the Group has carried out development activities. The Group generates revenues from technical services on the basis of contracts it has with affiliated companies to which it provides technical consulting services for the needs of devel- opment and industrialization. Revenue from royalty is recognised over time based on the generated sales of customers while revenue for technical sup- port and consultancy services is recognised at point in time when the service is rendered. 2.5 BORROWING COSTS Borrowing costs directly attributable to the acquisition, con- struction 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. Borrowing costs that cannot be directly attributable to acqui- sition, construction or production of qualifying asset, are cap- italised applying a capitalisation rate. Capitalisation rate is weighted average of borrowing costs applicable to the general borrowings, excluding borrowing costs that are directly attrib- utable for acquisition of qualifying asset, until substantially all the activities necessary to prepare that asset for its intended use or sale are completed. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for cap- italisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 2.6 FOREIGN-CURRENCY TRANSACTIONS Transactions in foreign currencies are translated into the re- spective functional currencies of Group companies at the ex- change rates at the dates of the transactions. Functional currency for Group is Euro. Functional currencies for companies included in Group are as follows: • AD Plastik d.d., Croatia ...............................................Euro • AO AD Plastik Togliatti, Russian Federation ..Russ. rouble • ZAO AD Plastik Kaluga, Russian Federation ..Russ. rouble • AD Plastik Tisza Kft. Hungary .................. Hungarian forint • ADP d.o.o., Serbia .........................................Serbian dinar • AD Plastik d.o.o., Slovenia ..........................................Euro Monetary assets and liabilities denominated in foreign cur- rencies are translated into the functional currency at the ex- change rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign curren- cy are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within fi- nance costs. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 204 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.7 FOREIGN OPERATIONS The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into euro at the exchange rates at the report- ing date. The income and expenses of foreign operations are translated into euro at the exchange rates at the dates of the transactions. When a foreign operation is disposed of in its entirety or par- tially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the rel- evant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint con- trol, the relevant proportion of the cumulative amount is re- classified to profit or loss. The Group may have a monetary item as an amount receivable from, or payable to a foreign entity. An item neither planned to be settled nor likely to arise in the foreseeable future is es- sentially part of the entity’s net investment in a foreign opera- tion and accounted for in accordance with IAS 21. The Group recognizes foreign exchange differences arising from mone- tary items that are part of the net foreign investment initially in other comprehensive income and accumulates them under a separate component of equity – Reserves from accruals of foreign exchange differences. On disposal of a net investment in a foreign operation, the en- tire balance of exchange differences is transferred from equity to profit or loss. 2.8 INCOME TAX Current tax Income tax expense is based on taxable profit for the year and represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the statement of comprehen- sive income, except where it relates to items recognised di- rectly in equity, in which case it is also recognised in equity. Current tax represents tax expected to be paid on the basis of taxable profit for the year, using the tax rates enacted at the date of the statement of financial position, adjusted by appro- priate prior-period tax liabilities. According to the Croatian tax laws. Groups subsidiaries are not taxable at the consolidation level nor can tax losses be transferred among the group mem- bers. Subsidiaries are subject to the tax laws of their countries of registration. Deferred tax Deferred tax is provided using the balance sheet liability meth- od, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting pur- poses and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rate expected to apply to taxable profit in the period in which the liability is expected to be settled or the asset realised, based on the tax rates in effect at the date of the statement of financial posi- tion. The measurement of deferred tax liabilities and assets reflects the amount that the Group expects, at the date of the state- ment of financial position, to recover or settle the carrying amounts of its assets and liabilities. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 205CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.8 INCOME TAX (CONTINUED) Deferred tax assets and liabilities are not discounted and are classified in the statement of financial position as non-current assets and/or non-current liabilities. Deferred tax assets are recognised only to the extent that it is probable that the relat- ed tax benefit will be realised. At each date of the statement of financial position, the Group reviews the unrecognised po- tential tax assets and the carrying amount of the recognised tax assets. 2.9 PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS Property, plant and equipment as well as intangible assets are recognised at purchase cost and subsequently reduced by ac- cumulated depreciation/amortisation. Intangible asset repre- sents capitalized development costs of all Group’s projects. Intangible assets – Projects are depreciated according to its useful life which varies from 3 to 7 years. The purchase cost comprises the purchase price, import duties and non-refund- able sales taxes (for property, plant and equipment) and any directly attributable costs of bringing an asset to its working condition and location for its intended use, such as employ- ee remuneration, professional fees directly arising from put- ting an asset into its working condition, test costs (for intan- gible assets), as well as all other costs directly attributable to bringing an asset to a condition for its intended use. Mainte- nance and repairs, replacements and improvements of minor importance are expensed as incurred. Where it is obvious that expenses incurred resulted in an increase of expected future economic benefits to be derived from the use of an item of property, plant and equipment or intangible assets in excess of the originally assessed standard performance of the as- set, they are added to the carrying amount of the asset. Gains or losses on the retirement or disposal of property, plant and equipment or intangible assets are included in the statement of comprehensive income in the period in which they occur. Depreciation commences on putting an asset into use. Depre- ciation is provided so as to write down the cost or revalued amount of an asset other than land, property, plant and equip- ment and intangible assets under development over the esti- mated useful life of the asset using the straight-line method as follows: PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS Depreciation rates in 2023 (%) Depreciation rates in 2022 (%) Buildings 1.50 1.50 Machinery 7.00 - 10.00 7.00 - 10.00 Tools, furniture, office and laboratory equipment, measuring and control instruments 7.00 – 50.00 7.00 – 50.00 Vehicles 20.00 20.00 IT equipment 10.00 - 20.00 10.00 - 20.00 Others 10.00 10.00 Intangible assets - Projects 14.29 – 33.33 14.29 – 33.33 Software 20.00 – 50.00 20.00 – 50.00 206 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.9 PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS (CONTINUED) Intangible assets based on contracts with customers occurred during the allocation of the purchase price by the acquisition of AD Tisza in Hungary, and these intangible assets are amor- tized at rates ranging from 16.67% to 25.00%. 2.10 GOODWILL Goodwill represents the excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net as- sets of a business at the acquisition date. Goodwill generat- ed by acquisition of a subsidiary is presented as an intangible asset. Goodwill is tested for impairment annually or more often if the events and circumstances that indicate potential impair- ment occur. Goodwill is measured as cost of acquisition less accumulated losses due to impairment. Impairment losses on goodwill are not reversed. Gains and losses from the sale of a business include the net book value of goodwill, which relates to the sold business. For the purposes of impairment testing, goodwill is allocat- ed to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. 2.11 IMPAIRMENT OF PROPERTY, PLANT AND EQUIP- MENT, AND INTANGIBLE ASSETS At each reporting date the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is an indication that the assets have suffered an impairment loss. If any such indica- tion exists, the recoverable amount of the asset is estimat- ed in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the re- coverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, the Group’s assets are also allo- cated to individual cash-generating units or, if this is not pos- sible, they are allocated to the smallest group of cash-gener- ating units for which a reasonable and consistent allocation basis can be identified. 2.12 INVESTMENTS IN ASSOCIATES An associate is an entity over which the Group has significant influence but no control over the entity. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it is not control or joint control over those policies. The results of operations of associates are incorporated in these financial statements using the equity method of ac- counting. Under this method, the Group’s share in the profit or loss of associates is recognised in profit and loss from the date of acquisition of significant influence until the date on which significant influence is lost. Investments are recognised initially at cost and are subse- quently adjusted by the changes in the acquirer’s share of the net profit of the investee. Where the Group’s share of losses in an associate is equal to or higher than the equity investment in the associate, no further losses are recognised, except where the Group has assumed an obligation or committed to make a payment on behalf of the associate. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 207CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.13 INVENTORIES Inventories of raw material and spare parts are stated at the lower of cost and net realisable value, whichever is lower. Cost is determined using the weighted-average cost method. Net realisable value represents the estimated selling price in the ordinary course of business less all variable selling costs. Small inventory is written off when put in use. The cost of product inventories i.e. the production price is based on direct material used, the cost of which is determined using the weighted average cost method, then direct labour costs and fixed overheads at the actual level of production which approximates the normal capacities, as well as variable overheads that are based on the actual use of the production capacities. Merchandise on stock is recognised at purchase cost. 2.14 OTHER TRADE RECEIVABLES AND PREPAYMENTS Other receivables and prepayments represent receivables and prepayments that are not included in financial instruments, and they are carried at nominal amounts less an appropri- ate allowance for impairment for estimated irrecoverable amounts. Impairment is recognised whenever there is objective evidence that the Group will not be able to collect all amounts due ac- cording to the originally agreed terms. Significant financial dif- ficulties of the debtor, the probability of bankruptcy proceed- ings at the debtor, or default or delinquency in payment are considered objective evidence of impairment. The amount of the impairment loss is determined as the difference between the assets carrying amount and the present value of estimat- ed future cash flows, discounted at the effective interest rate. Management determines the level of impairment allowance for doubtful receivables. The allowance for amounts doubtful of collection is charged to the statement of comprehensive in- come for the year. 2.15 CASH AND CASH EQUIVALENTS Cash comprises account balances with banks, cash in hand, deposits and securities at call or with maturities of less than three months. 2.16 PROVISIONS Provisions are recognized when the Group has a present ob- ligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of re- sources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each date of the statement of finan- cial position and adjusted to reflect the current best estimate. Where the effect of discounting is material, the amount of the provision is the present value of the expenditures expected to be required to settle the obligation, determined using the es- timated risk free interest rate as the discount rate. Where dis- counting is used, the reversal of such discounting in each year is recognised as a financial expense and the carrying amount of the provision increases in each year to reflect the passage of time. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the date of the statement of financial position, taking into ac- count the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimat- ed to settle the present obligation, its carrying amount is the present value of those cash flows. 208 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.17 TERMINATION, LONG-SERVICE AND OTHER EM- PLOYEE BENEFITS (a) Pension-related obligations andpost-employmentbenefits In the normal course of business, the Group makes payments, through salary deductions, to mandatory pension funds on be- half of its employees, as required by law. The contributions paid to the mandatory pension funds are recognised as salary expense when accrued. The Group does not have any other retirement benefit plan and, consequently, has no other obli- gations in respect of the retirement benefits for its employ- ees. In addition, the Group is not obliged to provide any other post-employment benefits. (b)Long-termemployeebenefits Long-term employee benefits represent jubilee awards and post employment benefit obligations. Post employment ben- efit obligations falling due more than 12 months after the reporting date are discounted to their present value. Jubilee awards are paid in intervals according to time that employee was working for company. 2.18 FINANCIAL INSTRUMENTS Financial assets Trade receivables are initially recognised when they are origi- nated. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a sig- nificant financing component) is initially measured at fair val- ue plus transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. On initial recognition, a financial asset is classified as meas- ured at amortised cost. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting pe- riod following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 209CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.18 FINANCIAL INSTRUMENTS (CONTINUED) Business model assessment The Group makes an assessment of the objective of the busi- ness model in which a financial asset is held at a portfolio lev- el because this best reflects the way the business is managed and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning con- tractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Group’s management; • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Trade receiva- bles are held in the business model of holding for the purpose of collection. Assessment whether contractual cash flows are solely pay- ments of principal and interest For the purposes of this assessment, relevant for the purpose of classifying financial assets at amortised cost, ‘principal’ is defined as the fair value of the financial asset on initial recog- nition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and ad- ministrative costs), as well as a profit margin. In assessing the main criterion, i.e. whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a con- tractual term that could change the timing or amount of con- tractual cash flows such that it would not meet this condition. The structure of the Group’s financial assets is simple and pri- marily relates to trade receivables without a significant finan- cial component, loans given and short-term deposits in banks at fixed interest rates, while forward contracts are of insignif- icant amount. Subsequent measurement and gains and losses These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign ex- change gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 210 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.18 FINANCIAL INSTRUMENTS (CONTINUED) Financial liabilities Debt securities are initially recognised when they are originat- ed. All other financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial liability is initially measured at fair value plus trans- action costs that are directly attributable to its acquisition or issue, if this is an instrument which is not stated at fair value through profit or loss. Financial liabilities are classified as measured at amortised cost. A financial liability is classified as as measured at am- ortised cost using the effective interest method. Interest ex- pense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also rec- ognised in profit or loss. The Group derecognises a financial liability when its contrac- tual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities as- sumed) is recognised in profit or loss. Impairmentofnon-derivativefinancialassets The Group recognises loss allowances for expected credit loss (ECLs) on financial assets measured at amortised cost. Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. The Group measures loss allowances at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and support- able information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical ex- perience and informed credit assessment and including for- ward-looking information. The Group assumes that the credit risk on a financial asset has increased significantly if early warning indicators have been activated in accordance with the Group’s policy or contractual terms of the instrument. The Group considers a financial asset to be fully or partially in default if: • the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or • the financial asset is more than 360 days past due based on historical experience of average market participant. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the report- ing date (or a shorter period if the expected life of the instru- ment is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 211CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.18 FINANCIAL INSTRUMENTS (CONTINUED) Expected credit losses measurement In accordance with IFRS 9, assets that are carried at amor- tised cost must have attributed excepted credit losses (ECL)- the formula for calculating the annual ECL is the following: Probability of default (PD) x Loss given default (LGD) x Expo- sure at default (EAD) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset or liability, and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial asset or liability, or, where appropriate, a shorter period. Impairmentoffinancialassets Financial assets are assessed for indications of impairment at each date of the statement of financial position. A financial asset is impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial as- sets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the expected credit losses. Impairment loss on a financial asset is recognised by reducing the carrying amount of the asset through the use of an allow- ance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recov- eries of amounts previously written off are credited against the allowance account. Derecognitionoffinancialassets The Group derecognises a financial asset only when the con- tractual rights to the cash flows from the asset have expired, when the asset is transferred and when substantially all the risks and rewards of ownership of the asset are passed onto an- other entity. If the Group neither transfers nor retains substan- tially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also rec- ognises a collateralised borrowing for the proceeds received. Classificationasdebtorequity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the underlying contractual arrangement. Interest income Interest income is recognised on a pro rata temporis basis, us- ing the effective interest method. Interest earned on balances with commercial banks (demand and term deposits) is cred- ited to income for the period as it accrues. Interest on trade receivables is recognised as income when accrued. 2.19 CONTINGENCIES Contingent liabilities have not been recognised in these con- solidated financial statements. They are disclosed if the pos- sibility of outflow of resources embodying economic benefits is possible. A contingent asset is not recognised in financial statements, but it is disclosed when the inflow of economic benefits becomes probable. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 212 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.20 EVENTS SUBSEQUENT TO THE DATE OF THE STATEMENT OF FINANCIAL POSITION Events after the date of the statement of financial position that provide additional information about the Group’s position at that date (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events are disclosed in the notes to the consolidated financial state- ments when material. 2.21 SEGMENT REPORTING In the consolidated financial statements, the Group disclos- es sales revenues grouped by country. When assessing busi- ness performance and making decisions on the allocation of resources in accordance with IFRS 8, the Group’s Management Board uses the division into two business segments: the EU and Serbia and Russia. In the consolidated financial state- ments, the Group’s operating results, assets and liabilities are presented for above mentioned business segments. The divi- sion into segments is based on the Group’s presence in the different markets. Transactions between segments relate to sales of materials, revenues from engineering services and royalty revenues. 2.22 LEASES At inception of a contract, Group assesses whether a contract is, or contains lease. A contract is, or contains a lease, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, Group uses the definition of a lease in IFRS 16. Leases are recognised by the present value of the lease pay- ments and showed either as right-of-use assets or together with property, plant and equipment. Group also recognises a financial liability representing its obligation to make future lease payments. Lessees are recognised separately interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees are also required to re-measure lease liability due to certain events (e.g. a change in lease term, a change in future lease payments, resulting from a change in an index or dis- counting rate). The standard includes two recognition exemp- tions for lessees: “low-value“ leases (e.g. tablets and personal computers) and „short-term“ leases (leases which ends within 12 months). Low-value leases are assets with value lower than EUR 4,000. Right-of-use assets and lease liabilities will be reported sepa- rately in the statement of financial position. The Group has elected not to apply the requirements of IFRS 16 for low-value leases (e.g. printers) and short-term leases (e.g. apartments). Detailed movement of right of use assets are presented in Note 20 and movements of lease liability in Note 34. 2.23 GRANTS The Group recognizes grants as income over the period nec- essary to match them with related costs, for which they are intended to compensate on a systematic basis. A grant receiv- able as compensation for costs already incurred is derecog- nised as income in the period in which it is receivable. A grant related to income is reported as deduction from the related expense. 2.24 INVESTMENT PROPERTY Investment property is property held by the Group to earn rent- als or for capital appreciation or for both, but not for sale in the ordinary course of business or for administrative purposes. Investment property is measured initially at its cost, including transaction costs. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 213CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 2.24 INVESTMENT PROPERTY (CONTINUED) Subsequently, investment property is stated at cost less accu- mulated depreciation and any impairment loss. Investment property is depreciated on a straight-line basis at the rate of 1.5%. Investment property is derecognised when either it has been disposed of or permanently withdrawn from use or no future economic benefits are expected from its disposal. Any gains or losses on the retirement or disposal of investment property are recognised in the income statement in the year of retire- ment or disposal. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in Note 2, the Management Board is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assump- tions are based on past experience and other factors that are considered to be relevant. Actual results may differ from those estimates. The estimates and underlying assumptions are con- tinually reviewed. Revisions to accounting estimates are recog- nised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods. The key areas of estimation in applying the Group’s accounting policies that had a most significant impact on the amounts rec- ognized in the financial statements were as follows. Revenue from the sale of tools Tools are custom made for the customer and cannot be used for other purposes. In accordance with the automotive prac- tice, those contracts may differ with respect to the develop- ment of tools and transfer of the title to the customer. In such cases, the Group determines whether tool arrangements are sale, lease or development of own equipment, whether this is a lease arrangement and whether it is separate from the sale of car parts. The Group has assessed that the sale of car parts is a sepa- rate performance obligation from the sale of tools since the customer has the control over the use of tool and uncondi- tional right for payment upon the transfer of control of tool to the customer. Additionally, the development of the tool is not integrated with the production of parts to produce a combined output and those two are not interrelated as tool can be sold without affecting the sale of car parts. In addition, although in production of parts the Group may continue to use tools that it sold to customers, the Group has concluded that its arrangements do not contain a lease be- cause customers control the use of the asset. In particular, customers, by placing orders, determine whether to produce parts using those tools, in what quantity and also the location of parts’ production. 214 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Measurement of fair values Certain Group’s accounting policies and disclosures require the measurement of fair values for non-financial assets. The Group has an established control framework with respect to fair value measurement which assumes the overall respon- sibility of the Management Board and finance department in relation to the monitoring of all significant fair value measure- ments and consultation with external experts. Fair values are measured using information collected from third parties in which case the Board and the finance depart- ment assess whether the evidence collected from third parties support the conclusion that such valuations meet the require- ments of IFRSs, including the level in the fair value hierarchy where such valuations should be classified. Fair values are categorised into different level in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 - inputs other than quoted prices included in level 1, that are observable for the asset or liability either dire- ctly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 - input variables for assets or liabilities that are not based on observable market data (unobservable in- puts). The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an in- strument are observable, the instrument is included in level 2. If one or more significant inputs are not based on observable market data, the fair value estimate is included in level 3. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 215CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP The Group has adopted IFRS 8 Operating Segments with ef- fect from 1 January 2009. IFRS 8 requires operating seg- ments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. Year ended 31 December 2023 Year ended 31 December 2022 4. SEGMENT INFORMATION EU and Serbia Russia Total External income 114,173 15,135 129,308 Intra segment income 1,037 - 1,037 Total income 115,210 15,135 130,345 EBITDA 4,730 2,481 7,211 Profit/(loss) of the year 99 (1,371) (1,272) EU and Serbia Russia Total External income 94,612 15,509 110,121 Intra segment income 1,266 - 1,266 Total income 95,878 15,509 111,387 EBITDA 802 (220) 581 Loss of the year (5,354) (4,377) (9,731) EU and Serbia Russia Intra-seg- ment effect Total Total assets 185,031 26,291 (23,043) 188,279 Capital and reserves 105,192 2,147 (8,877) 98,462 Liabilities 79,839 24,144 (14,166) 89,817 Total equity and liabilities 185,031 26,291 (23,043) 188,279 EU and Serbia Russia Intra-seg- ment effect Total Total assets 173,225 32,830 (25,082) 180,973 Capital and reserves 104,895 7,833 (8,929) 103,798 Liabilities 68,330 24,997 (16,153) 77,175 Total equity and liabilities 173,225 32,830 (25,082) 180,973 216 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP EBITDA represents profit before income taxes, finance in- come/costs and depreciation and amortisation. Sales revenue based on geographical location of the cus- tomer: Sales segmentation by type of the product is shown below: 6. COST OF RAW MATERIAL AND SUPPLIES 5. OTHER INCOME 4. SEGMENT INFORMATION (CONTINUED) 7. COST OF GOODS SOLD 2023 2022 Slovenia 20,845 24,813 Romania 18,723 15,904 France 18,243 12,753 Hungary 15,875 10,975 Russia 14,271 15,509 Italy 7,193 7,512 Germany 6,213 4,722 Poland 5,645 1,150 United Kingdom 5,502 4,730 Spain 4,845 4,156 Slovakia 2,425 2,346 Croatia 1,358 1,310 Czech Republic 1,118 1,137 Other 1,576 1,169 123,832 108,186 2023 2022 Car parts sales 112,760 103,424 Revenue from tools 4,952 2,062 Merchandise 4,886 1,503 Engineering services revenue 1,000 1,016 Royalty revenue 234 181 123,832 108,186 2023 2022 Gain from sale of property, plant and equipment and intangible assets 2,818 138 Rental income and income from the sale of services to tenants 581 458 Income from sales of waste and secondary raw material 372 311 Gain from value adjustments of Investment property 329 - Income from damages and insurance 78 444 Income from consumption of own products and services 78 238 Income from product development, validation, quality control and labora- tory testing 72 53 Other operating income 1,148 293 5,476 1,935 2023 2022 Direct materials 55,513 54,581 Electricity 4,748 4,391 Other raw material and supplies 3,758 2,655 Cost of unusable inventories and inventory shortage costs 2,658 2,481 66,677 64,108 2023 2022 Cost of tools sold 4,142 1,501 Cost of trade goods and spare parts sold 3,081 1,233 7,223 2,734 217CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 8. SERVICE COSTS Auditors of the Company’s financial statements provided services worth EUR 196,461 in 2023 (2022: EUR 145,793). Services in 2023 mainly relate to the costs of audits and re- views of financial statements, and audits of financial state- ments prepared for regulatory needs as well as permitted non-audit services related to financial advice. 9. STAFF COSTS Other staff costs comprise jubilee awards, bonuses, ter- mination benefits, commuting costs, cost of student ser- vice and other business-related costs. The Group includ- ed income from reversal of provision for jubilee awards in amount of EUR 22 thousand. Also, within “Other staff cost” provision for termination benefits in amount of EUR 21 thousand and provision for unused vacation days in amount of EUR 176 thousand are shown. In the prior period, reversal of provision for employees’ bo- nuses in amount of EUR 544 thousand, reversal of provi- sion for jubilee awards in amount of EUR 71 thousand and reversal of provision for termination benefits in amount EUR 76 thousand were included in cost reduction within “Other staff cost”. Also, within “Other staff costs” provi- sion for unused vacation days in amount of EUR 113 thou- sand was shown. 10. DEPRECIATION AND AMORTISATION 2023 2022 Transport 4,755 4,340 Intellectual services 1,856 2,005 Maintenance costs 1,631 1,487 Software licenses 1,038 909 Security and fire services 538 372 Logistic services at distribution warehouses 477 665 Municipal utility fees 424 363 Rental costs 359 282 Marketing 157 72 Telecommunication and informa- tion system costs 122 146 Water supply 120 120 Licence fees 36 149 Forwarding and shipping costs 26 139 Other service costs 583 571 12,122 11,620 2023 2022 Net wages and salaries 18,201 18,055 Taxes and contributions 10,884 10,148 Other staff costs 2,895 2,131 31,980 30,334 2023 2022 Depreciation of property, plant, and equipment (Note 19) 7,361 8,313 Amortisation of intangible assets (Note 18) 1,726 2,655 Depreciation of right of use asset (Note 20) 1,153 1,168 Depreciation of investment property (Note 21) 33 71 10,273 12,207 218 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 11. OTHER OPERATING EXPENSES 12. PROVISIONS FOR RISKS AND CHARGES 13. FINANCIAL INCOME 14. FINANCIAL COSTS 15. INCOME TAX Income tax comprises the following: 2023 2022 Taxes 635 443 Business trips 451 472 Insurance premiums 439 438 Cost of goods provided free of charge 372 233 Membership fees, contributions, municipal utility fees 345 310 Gifts, donations and sponsorships 214 155 Entertainment 177 132 Customer complaints 172 298 Non-current tangible assets write off 145 28 Bank fees and commissions 118 137 Professional training costs 104 96 Supervisory Board fees 89 71 Safety at work and health services 81 101 Impairment and write off of capi- talised development cost 43 2.442 Impairment of Goodwill - 1.095 Impairment of tangible assets - 251 Other expenses 382 166 3,767 6,868 2023 2022 Provision for legal cases, net (Note 28) (4) 145 Provision for warranties, net (Note 28) (132) - (136) 145 2023 2022 Interest income 199 158 Foreign exchange gains, net - 1,833 199 1,991 2023 2022 Foreign exchange losses, net 1,451 - Interest expense 859 443 Interest expense on lease liabilities 39 55 2,349 498 2023 2022 Current tax (591) - Deferred tax 172 1,087 (419) 1,087 219CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Deferred tax assets arise from the following: 15. INCOME TAX (CONTINUED) 2023 2022 Deffered tax assets Deferred tax liabilities Deffered tax assets Deferred tax liabilities Balance at 1 January 2,321 377 1,214 210 Increase 1,368 497 1,122 187 Usage (59) - - - Reversal (594) (18) (15) (20) Balance at 31 December 3,036 856 2,321 377 2023 Opening balance Charged to statement of compr. income Charged to other compr. income Closing balance Temporary differences: Provisions for jubilee awards and termination benefits 86 - - 86 Impairment of inventory - 66 - 66 Impairment/reversal receivables/loans - 66 - 66 Deferred tax liabilities from allocation of purchase price on fair value of Tisza Automotive Kft. (47) 18 - (29) Deferred tax assets from carried-over tax losses (330) (142) 58 (414) Differences between tax depreciation rates and accounting depreciation rates 1,848 217 6 2,070 Impairment of Investment property 387 (59) - 329 Lease liabilities - 419 - 419 Right of use assets - (413) - (413) Balance at 31 December 1,944 172 64 2,180 Deferred tax assets arise from the following: 220 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 15. INCOME TAX (CONTINUED) 2022 Opening balance Charged to statement of compr. income Charged to other compr. income Closing balance Temporary differences: Provisions for jubilee awards and termination benefits 101 (15) - 86 Deferred tax liabilities from allocation of purchase price on fair value of Tisza automotive Kft. (67) 20 - (47) Deferred tax assets from carried-over tax losses 726 1,280 (158) 1,848 Differences between tax depreciation rates and accounting depreciation rates (143) (198) 11 (330) Impairment of Investment property 387 - - 387 Balance at 31 December 1,004 1,087 (147) 1,944 2023 2022 Profit/lossbeforetax (853) (10,818) Tax using the Company’s domestic tax rate (18%) (153) (1,947) Effect of tax rates in foreign jurisdictions 120 (40) Tax effect of: Share of profit of equity-accounted investees reported, net of tax 108 (632) Non-deductible expenses 967 926 Tax exempt revenue (1,292) (709) Current-year losses for which no deferred tax asset is recognised 76 621 Changes in estimates from previous years 594 694 Profittaxexpense 419 (1,087) Effective tax rate (49.11%) 10.05% Reconciliation between the accounting and tax results is shown as follows: 221CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 15. INCOME TAX (CONTINUED) The amount of EUR 2,180 thousand was recognized as deferred tax assets in 2023. The Group is planning to achieve taxable profit in the period from 2024 to 2028, for which aforementioned de- ferred tax asset is planned to be used. In 2022, the parent company AD Plastik d.d. made an impairment on the basis of investments in subsidiaries, loans given and cap- italized development costs for subsidiaries in the Russian Feder- ation in the amount of EUR 9,476 thousand and did not recognize deferred tax assets for the aforementioned. Deferred tax assets are also not recognized for the reduction in the value of invest- ments in the company ZAO AD Plastik Kaluga carried out in previ- ous years in the amount of EUR 3,253 thousand. The total amount of unrecognized deferred assets at 31.12.2023 amounts to EUR 2,291 thousand (at 31.12.2022 EUR 2,291). As of the reporting date, it is unlikely that the aforementioned im- pairments will generate deferred tax assets that can be used to reduce tax liability in future years. The tax losses available for carry-forward to the follow- ing tax periods are as follows: 2023 2022 Tax losses from 2022 - expire in 2027 17,518 17,939 Tax losses from 2023 - expire in 2028 4,905 - 22,423 17,939 Reserves from accruals of foreign exchange differences – transactions with subsidiaries Exchange differences from the translation of foreign operations 2023 2022 2023 2022 Balance at beginning of the year (1,103) (2,105) (5,159) (6,196) Exchange differences from translation of foreign operations - - (1,469) 1,037 Accruals of foreign exchange differ- ences from the current year (3,429) 1,252 - - Income tax 686 (250) - - Exchange differences from translation of foreign operations, net (2,743) 1,002 (1,469) 1,037 Realization of exchange differences 51 - 1 - Balance at end of year (3,795) (1,103) (6,627) (5,159) 16. EXCHANGE DIFFERENCES FROM TRANSLATION OF FOREIGN OPERATIONS AND RESERVES FROM ACCRUALS OF FOREIGN EXCHANGE DIFFERENCES – TRANSACTIONS WITH SUBSIDIARIES 222 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Basic earnings per share are determined by dividing the Group’s net profit by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares redeemed and held by the Group as treasury shares. The basic earnings per share equal the diluted earn- ings per share, as there are currently no share options that would potentially increase the number of issued shares. Projects comprise investments in the development of new products that are expected to generate economic benefits in future periods. Consequently, the costs are amortised over the period in which the related economic benefits flow into the Group. Intangible assets under development mostly consists of capi- talised development cost of new products. In 2023, the cost of net salaries and wages of EUR 366 thousand, the cost of tax- es and contributions from salaries of EUR 151 thousand and the cost of contributions to salaries of EUR 79 thousand were capitalized in intagible assets. In the previous 2022, the cap- italized cost of net salaries and wages amounted to EUR 323 thousand, the cost of taxes and contributions from salaries amounted to EUR 123 thousand, and the cost of contributions to salaries amounted to EUR 68 thousand. In 2023, capitalized interest expense in the amount of EUR 19 thousand (2022: EUR 6 thousand) was recognized on intangible assets. 17. EARNINGS PER SHARE 18. INTANGIBLE ASSETS 2023 2022 Net loss (in EUR '000) (1,271) (9,732) Weighted average number of shares 4,159,022 4,151,975 Basic and diluted (loss)/earnings per share (in euros and cents) (0.31) (2.34) 2023 2022 Issued ordinary shares at 1 January 4,199,584 4,199,584 Effect of treasury shares held (38,428) (40,628) Effect of treasury shares disposed of (2,134) (6,981) Weighted-average number of ordinary shares at 31 December 4,159,022 4,151,975 223CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 18. INTANGIBLE ASSETS (CONTINUED) Licences and Soft- ware Projects Other intangible assets Customer contracts Intangible assets under de- velopment Prepay- ments for intangible assets Total Cost Balance at 31 December 2021 2,147 25,093 827 1,357 3,802 - 33,226 Additions - - - - 2,653 - 2,653 Assets put into use 236 1,488 5 - (1,729) - - Write off (18) (5,086) - - - - (5,104) Impairment (Value adjustment) - (2,505) - - (1,333) - (3,838) Effect of exchange differences (55) 21 1 - - - (33) Balance at 31 December 2022 2,310 19,011 833 1,357 3,393 - 26,904 Additions - - - - 3,423 - 3,423 Assets put into use 8 1,060 3 - (1,072) - - Disposals (1) (1,113) - - - - (1,114) Write off (64) (383) - - - - (447) Effect of exchange differences 5 (350) (2) - - - (347) Balance at 31 December 2023 2,257 18,226 835 1,357 5,744 - 28,419 Accumulated amortisation Balance at 31 December 2021 1,914 19,034 380 814 - - 22,142 Charge for the year (Note 10) 128 2,150 152 226 - - 2,656 Write off (18) (5,086) - - - - (5,104) Impairment (Value adjustment) - (1,397) - - - - (1,397) Effect of exchange differences (48) 26 2 - - - (20) Balance at 31 December 2022 1,976 14,727 534 1,040 - - 18,277 Charge for the year (Note 10) 101 1,271 151 203 - - 1,726 Disposals - (545) - - - - (545) Write off (64) (338) - - - - (402) Effect of exchange differences 1 (208) (2) - - - (209) Balance at 31 December 2023 2,014 14,907 683 1,243 - - 18,847 Net book value Balance at 31 December 2022 334 4,284 299 317 3,393 - 8,627 Balance at 31 December 2023 244 3,319 151 114 5,744 - 9,572 224 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 19. PROPERTY, PLANT AND EQUIPMENT Land Buildings Plant and equipment Other tangi- ble assets Assets under devel- opment Prepay- ments for tangible assets Total Cost Balance at 31 December 2021 18,313 50,271 112,727 352 1,343 1,555 184,561 Additions - - - - 5,576 (1,311) 4,265 Assets put into use 11 201 828 74 (1,019) (95) - Disposals - - (638) (1) - - (639) Write off and retirements - - (938) (15) (4) - (957) Transferred from investment property (Note 21) 13 550 - - - - 563 Effect of exchange differences 39 766 1,383 (11) (71) 194 2,300 Balance at 31 December 2022 18,376 51,788 113,362 399 5,825 343 190,093 Additions - - - - 6,222 (89) 6,134 Assets put into use 5 1,979 2,930 16 (4,930) - - Disposals - (48) (3,622) (5) - - (3,675) Write off and retirements - (220) (428) (1) - - (649) Effect of exchange differences (106) (2,498) (4,157) (25) (747) (7) (7,540) Balance at 31 December 2023 18,276 51,000 108,085 384 6,370 247 184,362 Accumulated depreciation Balance at 31 December 2021 - 14,252 70,670 271 - - 85,193 Charge for the year (Note 9) - 987 7,297 29 - - 8,313 Disposals - - (512) (1) - - (513) Write off and retirements - - (914) (15) - - (929) Impairment - 251 - - - - 251 Transferred from investment property (Note 21) - 271 - - - - 271 Effect of exchange differences - 256 709 (13) - - 952 Balance at 31 December 2022 - 16,017 77,250 271 - - 93,538 Charge for the year (Note 9) - 1,075 6,248 38 - - 7,361 Disposals - (32) (3,646) (4) - - (3,683) Write off and retirements - (82) (420) (1) - - (503) Effect of exchange differences - (936) (2,916) (5) - - (3,857) Balance at 31 December 2023 - 16,041 76,516 299 - - 92,855 Net book value At 31 December 2022 18,376 35,771 36,112 128 5,825 343 96,555 At 31 December 2023 18,276 34,959 31,569 86 6,370 247 91,507 225CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 19. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 20. RIGHT OF USE ASSET From assets mentioned in Note 19 Property, plant and equip- ment and in Note 21 Investment property, pledged assets are lands with the book value on the date of 31.12.2023 of (all in EUR thousand) 14,200 (31.12.2022 18,944), buildings 39,535 (31.12.2022 29,267). Plants and equipment are no longer pledged (31.12.2022. the amount of plant and equipment pledged 2,597). The listed items as of December 31, 2023, in- clude investments in land with a net book value of EUR 1,479 thousand, and investments in buildings with a net book value of EUR 1,777 thousand. Land Buildings Plant and equipment Total Cost Balance at 31 December 2021 31 3,278 1,956 5,265 Additions - 238 - 238 Lease modification, net 2 86 (44) 44 Effect of exchange differences 3 7 (52) (42) Balance at 31 December 2022 36 3,609 1,860 5,505 Additions 2 - 74 76 Lease modification, net - 1,269 34 1.303 Effect of exchange differences (9) (14) 30 7 Balance at 31 December 2023 29 4,864 1,998 6,891 Accumulated depreciation Balance at 31 December 2021 5 1,455 653 2,113 Charge for the year (Note 10) 3 689 477 1,169 Lease modification (2) (3) - (5) Effect of exchange differences 1 6 (20) (12) Balance at 31 December 2022 7 2,147 1,110 3,264 Charge for the year (Note 10) 1 699 453 1,153 Lease modification - - (10) (10) Effect of exchange differences (2) (14) 17 1 Balance at 31 December 2022 6 2,832 1,570 4,408 Net book value At 31 December 2022 29 1,462 750 2,241 At 31 December 2023 23 2,032 428 2,483 226 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 20. RIGHT OF USE ASSET (CONTINUED) In accordance with IFRS 16, Group has classified leases for land, buildings and plant and equipment as “Right-of-use as- set”. Within the category “Buildings”, apartments and the leas- es of office buildings and warehouses used by the Group in business are located in. The “Plant and equipment” catego- ry includes concluded machines, car and forklift rental agree- ments. Amountsrecognisedinprofitandloss 2023 2022 Depreciation expense on right of use assets 1,153 1,169 Interest expense on lease liabilities 39 55 Expense relating to leases of low value 184 217 Expenses relating to variable lease payments not included in the measurement of lease liability 109 31 Expense relating to short-term leases 67 34 1,552 1,506 227CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Income from the rental of the building in 2023 amounts to EUR 266 thousand (2022: EUR 265 thousand), and the depreciation charge for the year 2023 amounts to EUR 33 thousand (2022: EUR 71 thousand). At December 31 2023 the carrying amount of investment prop- erty approximates fair value, that has been internally deter- mined by the company based on the income capitalisation method which assumes sustainable annual lease income which investment property generates or is able to generate during its ordinary course of business. 21. INVESTMENT PROPERTY Land Buildings Total Cost Balance at 31 December 2021 1,492 2,684 4,176 Reclassification on investment property (13) (550) (563) Effect of exchange differences - 77 77 Balance at 31 December 2022 1,479 2,211 3,690 Value increase of investment property 408 408 Balance at 31 December 2023 1,479 2,619 4,098 Accumulated depreciation Balance at 31 December 2021 - 896 896 Charge for the year (Note 10) - 71 71 Transferred from investment property - (271) (271) Effect of exchange differences - 33 33 Balance at 31 December 2022 - 729 729 Charge for the year (Note 10) - 33 33 Value increase of investment property - 79 79 Balance at 31 December 2023 - 841 841 Net book value Balance at 31 December 2022 1,479 1,482 2,961 Balance at 31 December 2023 1,479 1,778 3,257 228 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 22. INVESTMENTS IN ASSOCIATES Name of associate Principal activity Country of incorporation and business Ownership interest in % Amount of equity investment, EUR'000 2022. 2023. 2022. EURO Auto Plastic Systems Manufacture of other vehicle spare parts and accessories Mioveni, Romania 50.00% 50.00% 11,872 12,473 11,872 12,473 Name of associate Amount of equity investment Share in the result for the year 2022 Dividend paid Amount of equity investment 31.12.2021 31.12.2022 EURO Auto Plastic Systems 8,963 5.540 (2,030) 12,473 Total 8,963 5,540 (2,030) (12,473) Name of associate Amount of equity investment Share in the result for the year 2023 Dividend paid Amount of equity investment 31.12.2022 31.12.2023 EURO Auto Plastic Systems 12,473 4,359 (4,960) 11,872 Total 12,473 4,359 (4,960) 11,872 31.12.2023 31.12.2022 Current assets 38,767 39,297 Fixed assets 19,478 12,249 Total assets 58,245 51,546 Short-term liabilities 35,959 28,165 Long-term liabilities and provisions 1,271 1,023 Total Liabilities 37,230 29,188 Neto imovina 21,015 22,358 Euro Auto Plastic Systems s.r.l. is considered to be associate since the management of its operations is under the control of Faurecia Automotive Holdings s.a.s. Set out below is a summary of financial information about the associates: 229CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 23. INVENTORIES The amount of inventories recognised as an expense during the 2023 was EUR 99,341 thousand (in the 2022 the ex- pense was EUR 95,119 thousand). Total write-down of damaged and ob- solete inventories in 2023 was EUR 2,658 thousand (in 2022 it was EUR 27 thousand) and inventories were not im- paired (Note 11) in 2023 (in 2022 EUR 2,454 thousand). 24. TRADE RECEIVABLES The average debtors’ days were 61 days in 2023 (2022: 62 days). The movements in allowance loss in respect of trade receiva- bles are presented as follows: Ageing analysis of receivables is shown as follows: At December 31 2023, the carrying amount of the receivables from companies in the same group which make more than 15% of the total receivables was EUR 5,252 thousand (31.12.2022.: EUR 3,227 thousand) while sales income of this group in 2023 amounted to EUR 28,630 thousand (in 2022: EUR 21,703 thousand). 31.12.2023 31.12.2022 Tools 11,700 6,971 Raw material and supplies on stock 9,990 12,792 Prepayments for inventories 5,074 3,167 Finished products 3,203 3,804 Work in progress 1,836 1,754 Merchandise on stock 485 758 32,288 29,246 31.12.2023 31.12.2022 Foreign trade receivables 20,844 14,749 Foreign trade receivables from the associate 1,123 514 Domestic trade receivables 553 557 Impairment loss allowance (986) (846) 21,534 14,974 2023 2022 Balance at beginning of the year 846 507 Movements based on expect- ed credit gains/losses 71 422 Collected during the year (11) (64) Trade receivables impairement 178 - Exchange differences (98) (19) Total impairement loss allowance 986 846 31.12.2023 31.12.2022 0-90 days past due 2,539 1,163 91-180 days past due 168 120 181-365 days past due 272 108 Over 365 days past due 20 136 Not due 18,535 13,447 21,534 14,974 230 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 25. OTHER RECEIVABLES 26. CASH AND CASH EQUIVALENTS 27. SHARE CAPITAL As at 31 December 2023 the amount of EUR 2,369 thou- sand (31 December 2022 EUR 529 thousand) includes short term deposits which bear interest rate ranging from 7.00% to 16.00%. 31.12.2023 31.12.2022 Receivables from the State and State institutions 4,811 3,518 Prepayments made 1,165 560 Due from employees 110 16 Other receivables 6 8 6,092 4,102 31.12.2023 31.12.2022 Current account balance 1,668 3,516 Foreign account balance 2,369 529 Cash in hand 5 3 Cash and cash equivalents instatementoffinancial position 4,042 4,048 Bank overdrafts (793) - Cash and cash equivalents in statement of cash flows 3,249 4,048 Subscribed capital amounts to EUR 54,595 thousand and consists of 4,199,584 shares, with a nominal value of EUR 13 per share (2022: EUR 55,738 thousand; 4,199,584 shares, with a nominal value of EUR 13.27 each). Capital reserves are the differences between the nominal and sale value of shares. Statutory and general reserves consist of legal and statuto- ry reserves and reserves for unwritten development costs. Reserves were made by transferring from retained earnings to the position of legal and general reserves in the Group’s capital in accordance with the local legislation. The trans- fer of capitalized development costs to intangible assets is made on the basis of net book value. The treasury share item refers to 38,428 treasury shares as at 31.12.2023 while on 31.12.2022 treasury shares amount- ed 40,628. Reserves for own shares are created based on Board decisions for future purchases of own shares. Retained earnings consists of retained earnings, profit for the year and all the transfers from retained earnings (divi- dend payments, transfer to reserves). On the basis of mother company long-term investment in the subsidiary company, in the group statement, have been formed reserves from the accrual of exchange rate differ- ences. 231CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 28. LONG-TERM AND SHORT-TERM PROVISIONS Short-term Long-term 31.12.2023 31.12.2022 31.12.2023 31.12.2022 Vacation accrual 772 636 - - Employee bonuses 16 20 - - Termination benefits 36 30 316 302 Jubilee awards (long-service benefits) 41 34 144 172 Legal cases 126 367 - - Risks within the warranty period - 132 - - 991 1,219 460 474 Jubilee Awards Retirement/ termination benefits Legal Cases Vacation Accrual Employee Bonuses Risks within the warranty period Total Balance at 1 January 2023 206 332 367 636 20 132 1,693 Increase/(decrease) in provi- sions,net (21) 20 (241) 136 (4) (132) (242) Balance at 31 December 2023 185 352 126 772 16 - 1,451 Balance at 1 January 2022 275 575 228 476 560 132 2,246 Increase/(decrease) in provi- sions,net (69) (243) 139 160 (540) - (553) Balance at 31 December 2022 206 332 367 636 20 132 1,693 Movement in provisions was as follows: The part of the provision included in other staff costs is shown in Note 9. 232 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 28. LONG-TERM AND SHORT-TERM PROVISIONS (CONTINUED) JUBILEE AWARDS AND TERMINATION BENEFITS According to the Union (Collective) Agreement, the Group has the obligation to pay long-service (jubilee awards), re- tirement-related and other benefits to employees. Benefits payable upon retirement and long-service benefits are de- fined in the Collective Agreement and employment agree- ments. No other post-retirement benefits are provided. Long-service benefits are paid for full years of service in the month of the current year in which the service is determined as completed. The present value of defined benefit obligations arising from long-service benefits and benefits payable upon retirement is determined us- ing the Projected Credit Unit method and serves as the basis for arriving at the past and current service costs, the interest expense and the actuarial gain or loss. For employees of the Group, legal contributions for pension insurance are paid. Legal contributions form the basis for pensions paid by the Pension Funds to Group’s em- ployees upon their retirement. Provisions for litigation losses represents provisions relating to litigation against the Company from regular commercial operations and from disputes with former employees. During 2023, the Group settled the liability for the court case in the amount of 235 thousand eu- ros, 12 thousand euros were additionally reserved and 17 thousand euros were released as a result of the favorable outcome of the court case. Provisions for unused vacation days are calculated on the basis of the remaining days of the vacation days that employees have made in the current year, multiplied by amount of gross daily wage. Employees bonuses represents rewards that were planned to be paid out in the coming year based on re- sults from the current year. Provisions for risks within the warranty period are es- timated costs of complaints that we expect in future years, calculated on the basis of delivered pieces in cur- rent and previous years. All companies within the Group use a discount rate (in range 1,85% - 6.50%), fluctuation rate (in range 11% - 15,50%) and mortality data that are in line with the com- pany’s country of residence when calculating provisions. 29. LONG-TERM BORROWINGS By the day of issuance of the Balance Sheet, Group has received bank certificate report which claims that it re- nounces from sustaining net debt and EBITDA ratio clause, related to long term credit. Net carrying amount of credit is EUR 4,243 thousand. Long-term borrowings are used to finance capital invest- ments and development projects. Instruments of collater- al provided for the for long-term loans include mortgage on real estate and equipment (Note 19), HBOR portfolio insurance and payment instruments. The majority of exist- ing long-term loans are paid monthly. In 2023, the weight- ed average interest rate on the long-term loans was 1.45% (2022: 0.79 %). 31.12.2023 31.12.2022 Long-term borrowings 40,797 33,293 Long-term commodity loans provided by sup- pliers 199 392 40,996 33,685 Current portion of long- term borrowings (Note 34) (10,430) (9,828) Total long-term borrow- ings 30,566 23,857 233CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP Deferred revenue arose as a result of borrowing from a finan- cial institution at an interest rate lower than the market rate. 30. DEFERRED REVENUE 31.12.2023 31.12.2022 Deferred revenue 37 75 Total deferred revenue 37 75 31. LEASE LIABILITIES 32. ADVANCES RECEIVED Advances received from foreign customers represent cash advanced ordered tools. 31.12.2023 31.12.2022 Foreign customers 10,338 10,508 Domestic customers 1 - 10,339 10,508 2023 2022 Balance at 1 January 2,292 3,206 Additions 74 238 Lease modifications, net 1,293 40 Interest expense on lease liabilities 39 55 Principal paid (1,150) (1,162) Interest paid (39) (55) Effect of exchange differ- ences 8 (30) 2,517 2,292 Long-term liabilities 1,581 1,290 Short-term liabilities 936 1,002 31.12.2023 31.12.2022 Foreign trade payables 13,391 11,300 Domestic trade payables 4,966 4,514 Accrued expenses 2,620 1,639 20,977 17,453 33. TRADE PAYABLES Average payment period for trade payables during 2023 equaled to 68 days (2022: 66 days). 234 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 35. OTHER CURRENT LIABILITIES Obligations for state aid shown within deferred revenue arose as a result of borrowing from a financial institution at an inter- est rate lower than the market rate. 31.12.2023 31.12.2022 Due to the State and State institutions 2,771 1,469 Amounts due to employees 1,671 1,557 Deferred revenue 101 124 Other current liabilities 27 155 4,570 3,305 2023 2022 Balance at 1 January 41,849 51,298 New short-term loans raised 18,000 6,418 New long-term loans raised 17,308 1,277 Change in bank overdraft 793 - Invoiced interest 627 349 Exchange differences (1) 24 Interest paid (537) (393) Repayments of received loans (28,175) (17,262) Reclassification to liabilities for grants 61 138 Balance at 31 December 49,925 41,849 34. SHORT-TERM BORROWINGS 31.12.2023 31.12.2022 Current portion of long-term borrowings (Note 30) 10,430 9,828 Short-term loans – principal payable 8,591 7,900 Short-term commodity loans provided by suppliers 182 209 Short-term borrowings – inter- est payable 156 55 19,359 17,992 The short-term borrowings were used to finance development projects and for working capital purposes. Instruments of col- lateral provided for the short-term borrowings are payment instruments (bills of exchange, promissory notes and corpo- rate guarantee by AD Plastik d.d.) The short-term borrowings represent loans provided by the commercial banks, with an weighted average interest rate of 2.69% (2022: 1.32 %). Movements in payables for borrowings (long-term and short- term)during the year: 235CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 36. GOODWILL Recognized goodwill in amount of 2,391 EUR thousand relates to the differ- ence between fair value of the net assets of AD Plastik Tisza Kft. and the value paid for the purchase of AD Plastik Tisza Kft. by AD Plastik d.d. Solin. Movement of goodwill: 31.12.2023 31.12.2022 Goodwill resulting from acquisition of Tisza Automotive Kft. 2,391 2,391 2,391 2,391 In 2022 and 2023 the Group tested impairment of goodwill resulted from acquisition of Tisza Automotive Kft. It is estimated that the compa- ny AD Plastik Tisza constitutes one cash gen- erating unit. In 2022 recoverable amount of cash generating unit was determined under fair value less cost of sales. The calculations used cash flow projections based on financial budg- ets covering a three-year period. Cash flows beyond the three- year period are extrapolat- ed using the estimated growth rates which is determined for each cash generating unit sep- arately. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources. The cash flow projections included specific es- timates for three years, considering WACC rate of 9.77 percent (in 2022 9.27 percent) and a terminal growth rate thereafter. The terminal growth rate of 2.46 percent was determined based on the estimate of the long-term GDP growth rate, consistent with the assumptions that a market participant would make. Budgeted EBITDA was estimated taking into ac- count past experience, adjusted as follows. • new projects with customers either con- tracted with, announced by or subject to the negotiations with customers. By performing the impairment test of goodwill, the Group has concluded that no impairment should be recognised on goodwill resulted from acquisition of Tisza Automotive Kft. 2023 2022 At 1 January 2,391 3,334 Effect of exchange differences - 152 Impairment of Goodwill in ZAO AD Plastik Kaluga - (1,095) At 31 December 2,391 2,391 236 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 37. RELATED PARTY TRANSACTIONS Transakcije sa povezanim društvima bile su kako slijedi: Receivables and payables for goods,services and interest Receivables Payables 31.12.2023 31.12.2022 31.12.2023 31.12.2022 EURO APS, Romania 507 514 5 - Sankt-Peterburgskaya investicionnaya kompaniya - - 8 8 507 514 13 8 Purchase transactions Operatingandfinancingincomeandexpenses Prihodi Nabavke 2023 2022 2023 2022 EURO APS, Romania 1,518 1,181 703 697 Sankt-Peterburgskaya investicionnaya kompaniya - - 30 40 1,518 1,181 733 737 The total remuneration provided to the members of the Su- pervisory Board of AD Plastik d.d. and subsidiaries, The Pres- ident and members of Management Board, Board Assistants and General directors of subsidiaries in 2022 amounts to EUR 1,749 thousand (in 2022 EUR 1,673 thousand). Sankt-Peterburgskaya investicionnaya kompaniya is member of Group in which is also company AO Holding Autokompo- nenti, which holds 30% of shares in Company. Receivables and payables for loans Receivables Payables 31.12.2023 31.12.2022 31.12.2023 31.12.2022 Sankt-Peterburgskaya investicionnaya kompaniya - - 2,500 2,500 - - 2,500 2,500 Receivables Receivables for dividends 31.12.2023 31.12.2022 EURO APS, Romania 619 - 619 - 237CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Commodity loans at 31 December 2023 amounted EUR 381 thousand (31 December 2022: EUR 601 thousand) (Note 30 and Note 35). Above referred amounts are included in the Groups net debt. Equity consists of share capital, reserves, reserves for own shares, own shares, retained earnings and profit/loss for the year. The Group strives to have a debt to equity ratio of less than 50%. 38.1. GEARING RATIO The Group’s gearing ratio, expressed as the ratio of net debt to equity, is as follows: 31.12.2023 31.12.2022 Long-term borrowings (Note 30) 30,566 23,857 Short-term borrowings (Note 35) 19,359 17,992 Cash and cash equivalents (Note 26) (4,042) (4,048) Net debt 45,883 37,801 Equity 98,464 103,798 Net debt-to-equity ratio 46.60% 36.42% Accrued income and other receivables include accrued in- come, other receivables less receivables from the State and advances given. Trade and other payables includes: trade and other payables less payables to the State and grants. Details of concentration of credit risk are included in Note 24 Trade receivables. Detailed information on credit risk management is stated un- der chapter Risks and opportunities in business of the Inte- grated annual report which integral part are those financial statements. 38.2 CATEGORIES OF FINANCIAL INSTRUMENTS 31.12.2023 31.12.2022 Financial assets 26,094 20,000 Trade receivables (Note 24) 21,534 14,974 Cash and cash equivalents and deposits (Note 26) 4,042 4,048 Accrued income and other receivables 518 978 Financial liabilities 75,031 63,236 Loans received (Notes 29, 34) 49,925 41,849 Trade and other payables 22,589 19,095 Lease liabilities (Note 31) 2,517 2,292 238 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 38.3. RISK OF RELYING ON ONE CUSTOMER Aware of the risk of relying on one customer, for many years ac- tive work has been done on diversifying the customer portfolio in accordance with the company’s strategy. The goal of reduc- ing exposure to the Renault Group has been achieved through sealing new deals with Stellantis, Ford and Suzuki, and was fur- ther accelerated by Renault’s exit from AvtoVaz ownership and the reduction of production at the Revoz factory in Novo Mesto. Although the continuing trend of the association of different car manufacturers may reduce the possibilities of diversifying the customer’s portfolio, at the same time new markets are opening up and providing opportunities for expanding cooperation with individual groups. 38.4. MARKET RISK Market risk is the risk of fluctuation of fair value or future cash flows of a financial instrument because of changes in market prices. These changes often refer to movements in interest rates or exchange rates, but can also include changes in the prices of basic products that are important for business. 38.5. INTEREST RATE RISK This type of risk includes possible losses arising from the changes in market interest rates. Although in earlier periods of low interest rates, long-term credit arrangements were con- cluded with fixed interest rates, in the past year of strong in- terest rate growth, new arrangements were concluded with variable interest rates. This means that financing costs will be higher in the future, although they will be mitigated to a certain extent by fixed interest rates from earlier borrowings. The market situation and interest rate projections are con- stantly monitored and, if necessary, refinancing of existing loans is carried out in order to ensure the fair value of the in- terest rates being paid, in accordance with the most favorable interest rates in the market at the time of refinancing. Interest-bearing loans are contracted with variable and fixed interest rates. Loans with variable rates expose the Company to cash flow interest rate risk. As of December 31, 2023, loans contracted with variable interest rates amount to EUR 19,625 thousand (2022: EUR 2,766 thousand). Interest rates on bank loans are linked to one-month and three-month EURIBOR. On December 31, 2023, if interest rates on loans with a vari- able interest rate were 1% lower/higher, assuming that other variables remain unchanged, the Company’s net profit would be EUR 105 thousand lower/higher (2022: EUR 28 thousand). 38.6. CREDIT RISK This risk arises when one contracting party fails to meet its finan- cial obligations on time, which can jeopardize the market position of the other party. The company’s credit risk may arise from the inability to collect receivables from its customers and the loans granted. AD Plastik Group cooperates with reputable customers that are finan- cially stable companies, which is also the company’s business poli- cy. This minimizes the risk of collection and receivables are realized within the agreed deadlines. Due to the potential deterioration of the financial stability of individual customers, most of them have the sup- port of their home countries in maintaining business and liquidity as very important factors for their economy. 38.7. FOREIGN CURRENCY RISK MANAGEMENT The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The carrying amounts of the Group’s foreign-currency denominated monetary assets and monetary liabilities at the reporting date are provided in the table below. Also, in 2023. compared to 2022. the exposure of Parent Company in EUR is excluded, given that the euro is the domestic curreny of Parent Company from January 1,2023. The amounts are converted into euros: 239CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 38.7. FOREIGN CURRENCY RISK MANAGEMENT (CONTINUED) 38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) In EUR 4,811 thousand of EUR assets and EUR 34,229 thousand of EUR liabilities of subsidiaries (in 2022 EUR 43,332 thousand od EUR assets and EUR 67,945 thousand of EUR liabilities of Group) is included exposure on EUR intra Group receivables and loans in amount of EUR 1,545 thousand, i.e EUR 26,910 thou- sand (in 2022 EUR 27,805 thousand). In addition, the reminder of EUR 49,111 thousand of assets and EUR 69,364 thousand of liabilities as at 31 December 2023 (31 December 2022: EUR 4,464 thousand of assets and EUR 23,283 thousand of liabili- ties) relates to exposure in domestic currencies. Foreign currency sensitivity analysis Foreign currency risk note includes exchange rate exposure of all monetary positions in all companies of the Group, which gen- erate foreign exchange differences in separate reports of those companies. On 31 December 2023, if RUB were to depreciate/appreciate by 1% compared to EUR, assuming all other variables remain unchanged, net profit of the Group for 2023 would be EUR 53 thousand (2022: EUR 66 thousand) (lower)/higher, because of (negative)/positive foreign exchange differences generated by conversion of trade receivables, cash and cash equivalents, trade payables and loans received originally denominated in euros. 38.8. LIQUIDITY RISK MANAGEMENT This risk represents the risk of the company not being able to convert assets into liquid assets in a short time, ie the ina- bility to fulfill its obligations to creditors. Therefore, AD Plas- tik Group maintains optimal amounts of funds on the account with secured available credit lines. Cash flow management is of key importance for liquidity risk management. Each company within the Group, based on op- erational business plans, financial liabilities and investment needs, plans its future cash needs on a monthly, quarterly and annual basis. Based on that data, the parent company’s Fi- nance Department prepares a consolidated cash flow plan of the Group, and makes decisions on timely provision of credit lines for capital investments and project financing, as well as placing surplus funds in deposits or covering the lack of funds from short-term financing sources. In 2023, the parent company issued corporate guarantees to the subsidiaries in the following amounts: EUR 7,700 thou- sand to banks, EUR 1,377 thousand to suppliers and EUR 3,000 thousand to buyers (in 2022: EUR 9,700 thousand to banks and EUR 1,667 thousand to suppliers). At 31 December Assets Liabilities Net FX position 2023 2022 2023 2022 2023 2022 EUR 4,811 43,332 34,229 67,945 (29,418) (24,613) RON 618 - - - 618 - USD 5 6 2 2 3 4 GBP 4 3 6 - (2) 3 CNY - - 24 10 (24) (10) 5,438 43,341 34,261 67,957 (28,823) (24,616) 240 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 38.8. LIQUIDITY RISK MANAGEMENT (CONTINUED) The following tables detail the Group’s remaining contractual maturity for its non-derivative financial assets and liabilities. The tables have been drawn up based on the undiscounted cash flows of financial assets and liabilities based on the ear- liest date on which the Group can require payment i.e. can be required to pay. 2023 Weighted average interest rate Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total Carrying amount Assets Non-interest bearing - 10,973 10,312 2,440 - - 23,725 23,725 Interest bearing 11.31% 2,392 - - - - 2,392 2,369 13,365 10,312 2,440 - - 26,117 26,094 Liabilities Non-interest bearing - 12,081 8,164 2,344 - - 22,589 22,589 Interest bearing 1.67% 1,241 1,910 17,523 31,664 771 53,109 49,925 Lease liability 2.13% 117 174 685 1,627 - 2,603 2,517 13,439 10,248 20,552 33,291 771 78,301 75,031 2022 Weighted average interest rate Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total Carrying amount Assets Non-interest bearing - 13,323 5,471 678 - - 19,472 19,472 Interest bearing 10.91% 534 - - - - 534 529 13,857 5,471 678 - - 20,006 20,001 Liabilities Non-interest bearing - 11,433 6,213 1,449 - - 19,095 19,095 Interest bearing 0.89% 3,212 3,959 11,284 24,282 - 42,737 41,849 Lease liability 2.13% 100 199 741 1,327 - 2,367 2,292 14,745 10,371 13,474 25,609 - 64,199 63,236 38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 241CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 39. EVENTS AFTER THE REPORTING PERIOD 38.9. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be generated from the sales of some item of an asset or paid for transferring some liability in a fair transaction between market participants at the meas- urement date, regardless of whether it would be directly visi- ble or evaluated by applying some other valuation technique. At 31 December 2023 and 31 December 2022, the carrying amounts of cash, receivables, long-term and short-term liabil- ities, accrued expenses, short-term borrowings and other fi- nancial instruments approximate their fair values due to the short-term maturity of these assets and liabilities. 38.8. LIQUIDITY RISK MANAGEMENT (CONTINUED) Total interest bearing liabilities in amount of EUR 49,925 thou- sand at 31.12.2023 refers to liabilities denominated in EUR. From total interest bearing liabilities in amount of EUR 41,849 thousand at 31.12.2022, EUR 12,519 thousand refers to liabili- ties denominated in HRK currency, while EUR 29,330 thousand refers to liabilities denominated in EUR. After 31 December 2023, there were no events that would have a significant impact on the financial statements for the year 2023, respectively they are not of such signifi- cance to the Group to require disclosure in the notes to the financial statements. 38. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 242 CONSOLIDATED FINANCIAL STATEMENTS OF AD PLASTIK GROUP 40. CONTIGENT LIABILITIES 42. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS Based on the Management’s estimate, the Group had no ma- terial contingent liabilities at 31 December 2023 and 31 De- cember 2022 which would require to be disclosed in the notes to the consolidated financial statements. The Group had no capital expenditure commitments contracted at 31 December 2022 which would require to be disclosed in the notes to the financial statements. As at 31 December 2023 and 31 Decem- ber 2022 there were no material legal actions with a potential negative outcome for the Group other than those reflected in these consolidated financial statements. These consolidated financial statements were ap- proved by the Management Board of AD Plastik d.d. and authorised for issue on 24 April 2024. 24 April 2024 Marinko Došen President of the Management Board Mladen Peroš Member of Management Board Zlatko Bogadi Member of Management Board JosipDivić Member of Management Board For AD Plastik d.d., Solin by: 243 244 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. AD PLASTIK D.D., SOLIN SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 Responsibility of the Management Board for the separate financial statements . 245 Independent Auditor´s Report .............................................................................. 246 Separate statement of comprehensive income .................................................... 254 Separate statement of changes in shareholders’ equity ....................................... 257 Separate statement of cash flow .......................................................................... 258 Notes to the separate financial statements .......................................................... 260 245FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Pursuant to the Accounting Act of the Republic of Croatia, the Management Board is responsible for ensuring that separate fi- nancial statements are prepared for each financial year in accordance with International Financial Reporting Standards (IFRSs), as adopted in the European union, which give a true and fair view of the financial position and results of operations of AD Plastik d.d. Solin (the “Company”) for that period. After making enquiries, the Management Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the separate financial statements. In preparing those separate financial statements, the Management Board is responsible for: • selecting suitable accounting policies and then applying them consistently; • making reasonable and prudent judgements and estimates; • following applicable accounting standards and disclosing and explaining any material departure in the separate financial statements; • preparing the separate financial statements under the going concern principle unless it is inappropriate to presume that the Company will continue in business. The Management Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time, the financial position of the Company and their compliance with the Croatian Accounting Act. The above stated responsibility includes the responsibility for accuracy of the Management Report, which is an integral part of separate financial statements and submission of financial statements in electronic reporting format (ESEF) prescribed by regulatory technical standards developed by ESMA (European Securities and Markets Authority) and adopted by the European Commission. 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 the Management Board For AD Plastik d.d., Solin by: RESPONSIBILITY OF THE MANAGEMENT BOARD FOR THE SEPARATE FINANCIAL STATEMENTS AD Plastik d.d. Matoševa 8, 21210 Solin Republic of Croatia 24 April 2024 Marinko Došen President of the Management Board Mladen Peroš Member of Management Board Zlatko Bogadi Member of Management Board JosipDivić Member of Management Board Independent Auditors’ Report to the shareholders of AD Plastik d.d. Report on the Audit of the Financial Statements Opinion We have audited the separate financial statements of AD Plastik d.d. (“the Company”), which comprise the separate statement of financial position of the Company as at 31 December 2023, and its separate statements of comprehensive income, cash flows and changes in equity for the year then ended, and notes, comprising material accounting policies and other explanatory information (further referred to as “the financial statements”). In our opinion, the accompanying financial statements give a true and fair view of the unconsolidated financial position of the Company as at 31 December 2023 and of its unconsolidated financial performance and its unconsolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Croatia and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. Report on the Audit of the Financial Statements Opinion We have audited the separate financial statements of AD Plastik d.d. (“the Company”), which comprise the separate statement of financial position of the Company as at 31 December 2023, and its separate statements of comprehensive income, cash flows and changes in equity for the year then ended, and notes, comprising material accounting policies and other explanatory information (further referred to as “the financial statements”). In our opinion, the accompanying financial statements give a true and fair view of the unconsolidated financial position of the Company as at 31 December 2023 and of its unconsolidated financial performance and its unconsolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Croatia and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. REVENUE RECOGNITION Revenue in 2023: EUR 89,388 thousand (2022: EUR 79,999 thousand). As at 31 December 2023, trade receivables: EUR 17,029 thousand; accrued revenue: EUR 343 thousand (31 December 2022, trade receivables: EUR 13,749 thousand; accrued revenue: EUR 771 thousand). Please refer to the Note 2.3 Revenue recognition of Significant accounting policies and Note 4 Sales in the financial statements. Key audit matter How our audit addressed the matter Revenue is an important metric used to evaluate the financial performance of the Company. In the year ended 31 December 2023, its principal revenue streams included sales of car parts and of customized tools developed by the Company. As discussed in Note 2.3, revenue is recognized when control over the goods is transferred to the customer. Application of the revenue recognition principles of the relevant financial reporting standard, IFRS 15 Revenue from Contracts with Customers (“the Standard”), is complex and requires making significant assumptions and judgment. In the Company’s case, particular complexity is associated with the following aspects: — Determination of whether a customer contract exists requires the Company to assess whether one document or a combination of documents, including general terms of business, nomination letter, agreement with customer and purchase orders, create enforceable rights and obligations of the parties to the arrangement. — Goods with different revenue recognition patterns, such as spare parts and tooling, may be sold as part of one contract or several contracts accounted for as one arrangement. The Company applies significant judgment in identifying contracts which require to be combined and accounted for as one arrangement, and in identifying performance obligations therein. Our audit procedures in this area included, among others: — Assessing the accounting policy for recognition of revenue and its compliance with the requirements of the Standard; — Updating our understanding of the Company’s revenue recognition process, and testing the design and implementation of selected related internal controls within. This also included testing selected general IT controls supporting revenue-related IT application controls; — For a sample of sales transactions in the current year, inspecting underlying contractual provisions and making inquiries of relevant sales and finance personnel, in order to challenge: o The existence of a customer contract, by reference to the relevant criteria of the Standard, including, among other things, those relating to the parties’ commitment to their obligations and probability of collecting the consideration due; o Identification of the contracts which require to be accounted for on a combined basis and of performance obligations within those contracts, by among other things, assessment of whether the goods and services in the arrangements are distinct and also whether any subsequent changes to the contract price arising from the learning curve result in the reduced price representing the parts’ stand- alone selling price; o Inspecting underlying contracts with customers for tooling sales transactions to identify any lease component embedded within those contracts, mainly by evaluating ownership rights, the party directing the use of the tool and whether there is a separate performance obligation in relation to the sale of car parts. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matters (continued) REVENUE RECOGNITION (CONTINUED) Key audit matter (continued) How our audit addressed the matter (continued) — Many contracts with customers entitle customers to price reductions after a certain period of purchase orders (as a result of expected reduction in the Company’s costs along its learning curve). Judgement is required to determine whether such ‘efficiency savings’ provide customers with material rights to be accounted for as separate performance obligations. — Tooling arrangements are typically contracts or framework agreements between the Company and its customers for the sale of tools to be used in the production of customized parts for a given customer. Since such tooling arrangements may vary with respect to transfer of development activities and ownership, careful assessment to determine whether, among other things, an arrangement is a sale, a lease or development of its own equipment, whether it contains a lease and whether it is a separate performance obligation from the sale of car parts. In the wake of the above factors, we considered revenue recognition to be associated with a significant risk of material misstatement in the financial statements. Therefore, the area required our increased attention in the audit and as such was determined to be a key audit matter. — For a sample of sales transactions selected as part of the preceding procedure, challenging the timing of the transfer of control, the resulting pattern of revenue recognition and revenue amounts, by reference to sales invoices, inventory and shipping documents, customer acceptance forms and other documents as appropriate; — For a sample of customers, obtaining confirmations of the amounts receivable outstanding as at the reporting date, and evaluating any differences between the amounts confirmed and the Company’s records, by inspecting the underlying documentation such as contracts, invoices, shipping documents, customer acceptance forms and payments made by customers; — Inspecting journal entries posted to revenue accounts focusing on unusual and irregular items; — Examining whether the Company’s revenue recognition- related disclosures in the financial statements appropriately address the relevant quantitative and qualitative requirements of the applicable financial reporting framework. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Key Audit Matters (continued) REVENUE RECOGNITION (CONTINUED) Key audit matter (continued) How our audit addressed the matter (continued) — Many contracts with customers entitle customers to price reductions after a certain period of purchase orders (as a result of expected reduction in the Company’s costs along its learning curve). Judgement is required to determine whether such ‘efficiency savings’ provide customers with material rights to be accounted for as separate performance obligations. — Tooling arrangements are typically contracts or framework agreements between the Company and its customers for the sale of tools to be used in the production of customized parts for a given customer. Since such tooling arrangements may vary with respect to transfer of development activities and ownership, careful assessment to determine whether, among other things, an arrangement is a sale, a lease or development of its own equipment, whether it contains a lease and whether it is a separate performance obligation from the sale of car parts. In the wake of the above factors, we considered revenue recognition to be associated with a significant risk of material misstatement in the financial statements. Therefore, the area required our increased attention in the audit and as such was determined to be a key audit matter. — For a sample of sales transactions selected as part of the preceding procedure, challenging the timing of the transfer of control, the resulting pattern of revenue recognition and revenue amounts, by reference to sales invoices, inventory and shipping documents, customer acceptance forms and other documents as appropriate; — For a sample of customers, obtaining confirmations of the amounts receivable outstanding as at the reporting date, and evaluating any differences between the amounts confirmed and the Company’s records, by inspecting the underlying documentation such as contracts, invoices, shipping documents, customer acceptance forms and payments made by customers; — Inspecting journal entries posted to revenue accounts focusing on unusual and irregular items; — Examining whether the Company’s revenue recognition- related disclosures in the financial statements appropriately address the relevant quantitative and qualitative requirements of the applicable financial reporting framework. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Other Information Management is responsible for the other information. The other information comprises the Management Report and Corporate Governance Statement included in the Annual Report of the Company, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the Management Report and Corporate Governance Statement, we also performed procedures required by the Accounting Act in Croatia (“Accounting Act”). Those procedures include considering whether: • the Management Report has been prepared in accordance with the requirements of Articles 21 and 24 of the Accounting Act, • the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act. Based solely on the work required to be undertaken in the course of the audit of the financial statements and procedures above, in our opinion: • the information given in the Management Report and Corporate Governance Statement for the financial year for which the financial statements are prepared, is consistent, in all material respects, with the financial statements; • the Management Report has been prepared, in all material respects, in accordance with the requirements of Articles 21 and 24 of the Accounting Act, respectively; • the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act. In addition, in light of the knowledge and understanding of the entity and its environment obtained in the course of the audit, we are also required to report if we have identified material misstatements in the Management Report and Corporate Governance Statement. We have nothing to report in this respect. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with EU IFRS, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • Obtain an understanding of internal control relevant to the audit 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 Company’s internal controls. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • Obtain an understanding of internal control relevant to the audit 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 Company’s internal controls. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on the Audit of the Financial Statements (continued) Auditors’ Responsibilities for the Audit of the Financial Statements (continued) We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements We were appointed by those charged with governance on 20 July 2023 to audit the separate financial statements of AD Plastik d.d. for the year ended 31 December 2023. Our total uninterrupted period of engagement is four years, covering the years ended from 31 December 2020 to 31 December 2023. We confirm that: • our audit opinion is consistent with the additional report presented to the Audit Committee of the Company dated 24 April 2024; • we have not provided any prohibited non-audit services (NASs) referred to in Article 44 of the Audit Act. We also remained independent of the audited entity in conducting the audit. The engagement partner on the audit resulting in this independent auditors’ report is Domagoj Hrkać. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation In accordance with the requirements of Article 462 paragraph 5 of the Capital Market Act, we are required to express an opinion on compliance of the separate financial statements of the Company as at and for the year ended 31 December 2023, as included in the attached electronic file adplastik-drustvo-2023-12-31-en.zip, with the requirements of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “RTS on ESEF”). Responsibilities of Management and Those Charged with Governance Management is responsible for the preparation of the separate financial statements in a digital format that complies with the RTS on ESEF. This responsibility includes: • the preparation of the separate financial statements in the applicable xHTML format and their publication; • the selection and application of appropriate iXBRL tags, using judgment where necessary; • ensuring consistency between digitised information and the separate financial statements presented in human-readable format; and • the design, implementation and maintenance of internal control relevant to the application of the RTS on ESEF. Those charged with governance are responsible for overseeing the Company’s ESEF reporting, as a part of the financial reporting process. Auditors' Responsibilities Our responsibility is to express an opinion on whether the separate financial statements comply, in all material respects, with the RTS on ESEF, based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation In accordance with the requirements of Article 462 paragraph 5 of the Capital Market Act, we are required to express an opinion on compliance of the separate financial statements of the Company as at and for the year ended 31 December 2023, as included in the attached electronic file adplastik-drustvo-2023-12-31-en.zip, with the requirements of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “RTS on ESEF”). Responsibilities of Management and Those Charged with Governance Management is responsible for the preparation of the separate financial statements in a digital format that complies with the RTS on ESEF. This responsibility includes: • the preparation of the separate financial statements in the applicable xHTML format and their publication; • the selection and application of appropriate iXBRL tags, using judgment where necessary; • ensuring consistency between digitised information and the separate financial statements presented in human-readable format; and • the design, implementation and maintenance of internal control relevant to the application of the RTS on ESEF. Those charged with governance are responsible for overseeing the Company’s ESEF reporting, as a part of the financial reporting process. Auditors' Responsibilities Our responsibility is to express an opinion on whether the separate financial statements comply, in all material respects, with the RTS on ESEF, based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. Independent Auditors’ Report to the shareholders of AD Plastik d.d. (continued) Report on Compliance with the ESEF Regulation (continued) Auditors' Responsibilities (continued) A reasonable assurance engagement in accordance with ISAE 3000 involves performing procedures to obtain evidence about compliance with the RTS on ESEF. The nature, timing and extent of procedures selected depend on the auditor’s judgment, including the assessment of the risks of material departures from the requirements of set out in the RTS on ESEF, whether due to fraud or error. Reasonable assurance is a high degree of assurance. However, it does not guarantee that the scope of procedures will identify all significant (material) non-compliance with the RTS on ESEF. Our procedures included, among other things: • obtaining an understanding of the tagging process; • evaluating the design and implementation of relevant controls over the tagging process; • tracing the tagged data to the separate financial statements of the Company presented in human-readable format; • evaluating the completeness of the Company’s tagging of the separate financial statements; • evaluating the appropriateness of the use of iXBRL elements selected from the ESEF taxonomy used and creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • evaluating the use of anchoring in relation to the extension elements; and • evaluating the appropriateness of the format of the separate financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, based on the procedures performed and evidence obtained, the separate financial statements of the Company as at and for the year ended 31 December 2023, presented in ESEF format and contained in the aforementioned attached electronic file, have been prepared, in all material respects, in accordance with the requirements of the RTS on ESEF. Our opinion does not represent an opinion on the true and fair view of the financial statements as this is included in our Report on the Audit of the Financial Statements. Furthermore, we do not express any assurance with respect to other information included in documents in the ESEF format. KPMG Croatia d.o.o. za reviziju 24 April 2024 Croatian Certified Auditors Eurotower, 17th floor Ivana Lučića 2a 10000 Zagreb Croatia 254 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 The accompanying accounting policies and notes form an integral part of these separate financial statements. Notes 2023 2022 Sales 4 89,388 79,999 Other income 5 5,060 1,871 Total income 94,448 81,870 Increase/(decrease) in the value of work in progress and finished products (85) 12 Cost of raw material and supplies 6 (45,059) (40,550) Cost of goods sold 7 (11,922) (10,156) Service costs 8 (8,900) (8,175) Staff costs 9 (22,708) (19,932) Depreciation and amortisation 10 (7,293) (8,828) Other operating expenses 11 (2,278) (9,022) Provisions for risks and charges, net 12 136 (210) Impairment of loans and trade receivables (192) (2,365) Total operating expenses (98,301) (99,226) (Loss)/profitfromoperations (3,853) (17,356) Financial income 13 5,337 2,471 Financial expenses 14 (672) (361) Profitfromfinancingactivities 4,665 2,110 (Loss)/profitbeforetaxation 812 (15,246) Income tax expense 15 228 1,503 (Loss)/profitfortheyear 1,040 (13,743) Other comprehensive income - - Total comprehensive (loss)/income for the year 1,040 (13,743) Basic and diluted earnings per share (in euros and cents) 16 0.25 (3.31) (All amounts are expressed in thousands of euros) 255FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) ASSETS Note 31.12.2023 31.12.2022 Non-current assets Intangible assets 17 8,788 7,380 Property, plant and equipment 18 66,491 67,473 Right-of-use assets 19 2,113 1,861 Investment property 20 3,256 2,961 Investments in subsidiaries and associates 21 14,980 14,980 Given long-term loans 22 16,353 13,039 Long-term receivables 23 2,318 4,715 Deferred tax assets 15 2,223 1,996 Total non-current assets 116,522 114,405 Current assets Inventories 24 21,660 13,730 Trade receivables 25 17,029 13,749 Other receivables 26 4,092 2,003 Given short-term loans 27 2,354 2,105 Cash and cash equivalents 28 1,025 2,378 Prepaid expenses 503 288 Accrued income 343 771 Total current assets 47,006 35,024 TOTAL ASSETS 163,528 149,429 256 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) Note 31.12.2023. 31.12.2022. Share capital 29 54,595 55,738 Capital and other reserves 35,480 34,948 Retained earnings/(loss brought forward) 1,040 (642) Total shareholders’ equity 91,115 90,044 Long-term provisions 30 385 409 Long-term borrowings 31 27,899 21,226 Deferred revenue 32 38 76 Lease liabilities 33 1,346 1,029 Total non current liabilities 29,668 22,740 Advances received 34 5,339 3,381 Trade payables 35 16,906 14,779 Short-term borrowings 36 17,053 14,774 Other current liabilities 37 1,936 1,904 Lease liabilities 33 793 876 Short-term provisions 30 718 931 Total current liabilities 42,745 36,645 Total liabilities 72,413 59,385 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 163,528 149,429 The accompanying accounting policies and notes form an integral part of these separate financial statements. 257FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) Reserves Retained Share Capital General for own Own (treas- earnings capital reserves and legal (treasury) ury) shares (loss Total reserves shares brought forward) Balance at 31 December 2021 55,738 25,520 9,864 2,773 (1,141) 10,931 103,685 Loss for the year - - - - - (13,743) (13,743) Total comprehensive (loss) for the year - - - - - (13,743) (13,743) Disposal of own (treasury) shares - (118) - - 220 - 102 Transactions with the owners of the Company - (118) - - 220 - 102 Reversal of reserves for not written - - (2,170) - - 2,170 - off costs of development Balance at 31 December 2022 55,738 25,402 7,694 2,773 (921) (642) 90,044 Reserves Retained Share Capital General for own Own (treas- earnings capital reserves and legal (treasury) ury) shares (loss Total reserves shares brought forward) Balance at 31 December 2022 55,738 25,402 7,694 2,773 (921) (642) 90,044 Profit for the year - - - - - 1,040 1,040 Total comprehensive (loss) for the year - - - - - 1,040 1,040 Coverage Of the previous year's loss - (642) - - 642 - Disposal of own (treasury) shares - (19) - - 50 31 Correction of the Share capital due to EUR conversion (1,143) 1,143 - - - - Transactions with the owners of the Company (1,143) 482 - - 50 642 31 Balance at 31 December 2023 54,595 25,884 7,694 2,773 (871) 1,040 91,115 The accompanying accounting policies and notes form an integral part of these separate financial statements. 258 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts are expressed in thousands of euros) CASH FLOWS FROM OPERATING ACTIVITIES Notes 2023 2022 Loss/profitfortheyear 1,040 (13,743) Adjusted for: Income tax 15 (228) (1,503) Depreciation and amortisation 10 7,293 8,828 Tangible assets write-off 18 138 15 Intangible assets impairment/write-off 17 43 2,441 Interest expense and exchange rates recognised in profit or loss 652 312 Dividend income 13 (4,960) (2,030) Gain from sale of property, plant and equipment and intangible assets 5 (3,455) (104) Value adjustments of investment in property 5 (329) - Interest income 13 (377) (411) Decrease in long-term and short-term provisions, (net) (201) (342) Impairment of loans given 164 2,169 Impairment of trade receivables 27 175 Obsolete stock write-off 24 364 27 Impairment of related parties investment 11 - 4,845 Profitfromoperationsbeforeworkingcapitalchanges 171 679 (Increase) in inventories 24 (8,991) (2,119) (Increase)/decrease in current trade receivables (5,549) 11,470 (Increase) in other receivables 26 (2,090) (179) Increase in trade payables 2,913 1,887 Increase of advances received 34 1,958 2,580 Increase/(decrease) in other current liabilities 85 (398) Decrease/(increase) of accrued income and prepaid expenses 213 (295) Interest paid (563) (404) Cash flows from operating activities (11,853) 13,221 259FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. SEPARATE STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2023 (CONTINUED) (All amounts are expressed in thousands of euros) Cash flows from investing activities Notes 2023 2022 Interest received 121 - Cash receipts from repayment of loans 1,125 - Purchase of property, plant and equipment 18 (3,937) (2,366) Purchase of intangible assets 17 (3,412) (2,236) Proceeds from sale of property, plant and equipment and intangible assets 4,492 419 Dividends received 4,341 2,030 Loan given - (600) Cash from/(used) from investing activities 2,730 (2,753) Cashflowsfromfinancingactivities Notes 2023 2022 Proceeds from borrowings 36 34,051 5,497 Repayment of borrowings 36 (25,874) (13,891) Repayment of lease principal 33 (1,015) (1,000) Cashfrom/(used)infinancingactivities 7,162 (9,394) Unrealised exchange rate differences in respect of cash and cash equivalents - 4 Increase/(decrease) in cash and cash equivalents 28 (1,961) 1,078 Cash and cash equivalents at the beginning of the year 28 2,378 1,300 Cash and cash equivalents at the end of the year 28 417 2,378 The accompanying accounting policies and notes form an integral part of these separate financial statements. 260 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 report- ing periods and have not been early adopted by the Company. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Set out below are the principal accounting policies consist- ently applied in the preparation of the financial statements for the current and prior year. 2.1. STATEMENT OF COMPLIANCE The separate financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European union. 2.2 BASIS OF PREPARATION The Company maintains its accounting records in the Croatian lan- guage, in Croatian kunas and in accordance with Croatian laws and the accounting principles and practices observed by enterprises in Croatia. The preparation of the separate financial statements requires from the Management Board to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial state- ments and the reported amounts of revenues and expenses during the reporting period. These estimates are based on the informa- tion available as at the date of preparation of the separate financial statements, and actual results could differ from those estimates. The separate financial statements of the Company represent ag- gregate amounts of assets, liabilities, capital and reserves of the Company as of 31 December 2023, and the results of operations for the year then ended. The Company also prepares its consolidated financial state- ments in accordance with International Financial Reporting Standards, which include the financial statements of the Com- pany, as the parent, and the financial statements of the subsid- iaries controlled by the Company. In these financial statements, investments in entities controlled by the Company or in which the Company has significant influence are carried at cost less impairment, if any. For a full understanding of the financial po- sitions of the Company and its subsidiaries, as a group, and of the results of their operations and their cash flows for the year, users are advised to read the consolidated financial statements of the Group AD Plastik d.d. Details of the investments in sub- sidiaries and associates are presented in Note 21. Financial statements are presented in euro (“EUR”), which is the Company’s functional currency. Since the Republic of Cro- atia introduced the euro as the official currency on January 1, 2023, in accordance with the Law on the introduction of the euro as the official currency in the Republic of Croatia, the Compa- ny changed the presentation currency for the purposes of pre- paring financial statements for the year ended December 31, 2023. from kuna to euro, and the financial statements for the year ended December 31, 2023 were prepared for the first time in euro, rounded to the nearest thousand. From January 1, 2023, the euro is also the functional currency of the Company (until January 1, 2023, it was HRK). In this regard, the exchange rate of HRK 7.53450 to the euro was used for the conversion of com- parative data. 1. NEW STANDARDS AND AMANDMENTS TO EXISTING NOT YET ADOPTED NOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES 261FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.2 BASIS OF PREPARATION (CONTINUED) Although the change in the presentation currency in the financial statements represents a change in accounting policy that requires retroactive application, the Compa- ny did not present the third balance sheet in the financial statements for the year ended December 31, 2023 in ac- cordance with International Accounting Standard 8 (IAS) Accounting Policies, Changes in Accounting Estimates and Errors, given that it has determined that the change in the presentation currency has no significant impact on the Company’s financial statements, due to the stable HRK/EUR exchange rate over the past few years. 2.3 REVENUE RECOGNITION Revenue is measured based on the consideration speci- fied in a contract with a customer. Contract exists only if it is legally enforeable and meets all of the following criteria: • the contract is approved and the parties are comitted to their obligations, • the rights to goods and services and payment terms can be identified, • the contract has commercial substance, and • collection of consideration is probable. Definition of contract as stated above is by combining the clauses of following documentation: Buyer’s General Terms and conditions, Nomination letter, Purchase agree- ment and Purchase order. The Company has contracts with Buyers (OEM) as Tier 1, with buyer’s suppliers as Tier 2, with subsidiaries and associates. Contracts exists for sales of following goods and services: • product sale, • tooling sale, • R&D activities • royalty services, • technical and engineering services Contracts do not commit the customer to a specified quantity of products; however, the Company is generally required to fulfill its customers’ purchasing requirements for the production life of the vehicle. Contracts do not typ- ically become a performance obligation until the Compa- ny receives either a purchase order for a specific num- ber of parts at a specified price. Long-term agreements with customers for specific product may range from five to seven years, contracts may be terminated by customers at any time, while occurred very rarely. The Company’s customers pay for products received in ac- cordance with payment terms that are customary in the industry, typically 60 to 120 days. The Company’s con- tracts with its customers do not have significant financ- ing components. Tooling and product sales may be contracted in separate agreements, or concluded at different points in time, or may be contracted in one agreement. In either case any binding obligation for the customer with respect to parts is created only upon issuance of purchase orders. Reve- nue from tooling sale and product sale is recognised at point in time when the control is passed on Buyer. The Company has determined that royalty and technical support services, tooling and the delivery of product parts are separate and distinct for the customer and therefore constitute separate performance obligations under IFRS 15, when the ownership is transferred. The prices agreed in the contracts for the single perfor- mance obligations are considered to be the stand-alone. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 262 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.3 REVENUE RECOGNITION (CONTINUED) Revenue from sale of products Product sales are recognized when the products are de- livered to, and accepted by the customer and when the control of a product is transferred to the customer. Sales to customers with whom self- invoicing has been arranged are recognised upon receiving from such a customer the confirmation of delivery, i.e. when control is transferred to the customer. Each delivery is considered as performance obligation that is satisfied at point in time. Some of the Company’s contracts include variable consideration which take a form of year-to-year price reductions („productivi- ty“), but Company has concluded that those discounts do not give rise to a material right as those decreases are consistent with pricing pattern in automotive industry which takes into consideration learning curve effect. Some contracts with customers include warranty clauses for repair of faulty goods during a specified long term pe- riod and cover of only a product’s compliance with agreed specifications. Such warranties granted by the Company are in most cases assurance type warranties recognised in accordance with IAS 37 when the control of product transfers to customers. Revenue from the manufacture of tools Revenues from tools are matched with contracts that are specifically concluded for developing an asset, or a group of assets, closely linked and interdependent on the de- sign, technology and function or their final use or applica- tion. The company estimates that the transfer of control of tools, gauges and other devices is met at the time of „SOP“ (Start Of Production), i.e. start of the mass produc- tion on them. At that point Company recognizes revenue from the sale of tools. Costs of modification, completion and similar tool costs Company recognizes as an increase in inventory value. Revenue from royalty and technical services Company generates revenues from licenses by concluding contracts with affiliates to whom it sells the right to use intellectual property calculated on the amount of prod- ucts produced by these companies, and for which prod- ucts the Company has carried out development activities. Revenue from licensesis recognised over time, according to the quantities of products produced by the customer. Company generates revenues from technical services on the basis of contracts it has with affiliated companies to which it provides technical-administrative consulting ser- vices. Revenue from royalty is recognised over time based on the generated sales of customers while revenue for tech- nical-administrative support and consultancy services is recognised at point in time when the service is rendered. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 263FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.4 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. Borrowing costs that cannot be directly attributable to ac- quisition, construction or production of qualifying asset, are capitalised applying a capitalisation rate. Capitalisa- tion rate is weighted average of borrowing costs applica- ble to the general borrowings, excluding borrowing costs that are directly attributable for acquisition of qualifying asset, until substantially all the activities necessary to prepare that asset for its intended use or sale are com- pleted. Investment income earned on the temporary investment of specific borrowings pending their expenditure on quali- fying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 2.5 FOREIGN-CURRENCY TRANSACTIONS Transactions in foreign currencies are translated into Cro- atian kunas at the rates of exchange in effect at the dates of the transactions. Cash, receivables and payables de- nominated in foreign currencies are retranslated at the rates of exchange in effect at the date of the statement of financial position. Gains and losses arising on translation are included in the statement of comprehensive income for the year. 2.6 INCOME TAX Current tax Income tax expense is based on taxable profit for the year and represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the statement of comprehensive income, except where it relates to items recognised directly in equity, in which case it is also rec- ognised in equity. Current tax represents tax expected to be paid on the basis of taxable profit for the year, using the tax rates enacted at the date of the statement of fi- nancial position, adjusted by appropriate prior-period tax liabilities. The income tax rate for year 2022 and 2023 amounts to 18%. Deferred tax Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial re- porting purposes and the amounts used for taxation pur- poses. Deferred tax assets and liabilities are measured at the tax rate expected to apply to taxable profit in the pe- riod in which the liability is expected to be settled or the asset realised, based on the tax rates in effect at the date of the statement of financial position. The income tax rate applicable to deferred tax assets is 18 %. The measurement of deferred tax liabilities and assets re- flects the amount that the Company expects, at the date of the statement of financial position, to recover or settle the carrying amounts of its assets and liabilities. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 264 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.6 INCOME TAX (CONTINUED) Deferred tax assets and liabilities are not discounted and are classified in the statement of financial position as non-current assets and/or non-current liabilities. Deferred tax assets are recognised only to the extent that it is prob- able that the related tax benefit will be realised. At each date of the statement of financial position, the Company reviews the unrecognised potential tax assets and the car- rying amount of the recognised tax assets. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company in- tends to settle its current tax assets and liabilities. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determin- ing the excess of the acquirer’s interest in the net fair val- ue of the acquiree’s identifiable assets, liabilities and con- tingent liabilities over cost. 2.7 PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS Property, plant and equipment as well as intangible as- sets are recognised at purchase cost and subsequently reduced by accumulated depreciation. Intangible asset represent capitalized development costs of all Company’s projects. Intangible assets – Projects is depreciated ac- cording to its useful life which varies from 3 to 7 years. The purchase cost comprises the purchase price, im- port duties and non-refundable sales taxes (for property, plant and equipment) and any directly attributable costs of bringing an asset to its working condition and location for its intended use, such as employee remuneration, pro- fessional fees directly arising from putting an asset into its working condition, test costs (for intangible assets), as well as all other costs directly attributable to bringing an asset to a condition for its intended use. Maintenance and repairs, replacements and improvements of minor im- portance are expensed as incurred. Where it is obvious that expenses incurred resulted in an increase of expect- ed future economic benefits to be derived from the use of an item of property, plant and equipment or intangible as- sets in excess of the originally assessed standard perfor- mance of the asset, they are added to the carrying amount of the asset. Gains or losses on the retirement or disposal of property, plant and equipment or intangible assets are included in the statement of comprehensive income in the period in which they occur. Depreciation commences on putting an asset into use. Depreciation is provided so as to write down the cost or revalued amount of an asset other than land, property, plant and equipment and intangible assets under develop- ment over the estimated useful life of the asset using the straight-line method as follows : 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 265FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.8 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS At each reporting date the Company reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is an indication that the as- sets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in or- der to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recovera- ble amount of the cash-generating unit to which the asset be- longs. Where a reasonable and consistent basis of allocation can be identified, The Company’s assets are also allocated to individual cash-generating units or, if this is not possible, they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. 2.9 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES A subsidiary is an entity over which the Company has effec- tive control over financial and operating policy decisions of the Company. The results, assets and liabilities of subsidiaries are incorporated in these separate financial statements using the cost method of accounting. An associate is an entity over which the Company has signifi- cant influence and usually an ownership interest from 20 to 50 percent, but no control over the entity. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it is not control or joint control over those policies. The results of operations of associates are incorporated in these financial statements using the cost method of accounting. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) Property, plant and equipment, and intangible assets Depreciation rates in 2023 (%) Depreciation rates in 2022 (%) Buildings 1.50 1.50 Machinery 7.00 – 10.00 7.00 – 10.00 Tools, furniture, office and laboratory equipment, measuring and control instruments 7.00 – 50.00 7.00 – 50.00 Vehicles 20.00 20.00 IT equipment 10.00 – 20.00 10.00 – 20.00 Others 10.00 10.00 Intangible assets - Projects 14.29 – 33.33 14.29 – 33.33 Software 20.00 – 50.00 20.00 – 50.00 2.7 PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS (CONTINUED) 266 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.10 INVENTORIES Inventories of raw material and spare parts are stated at the lower of cost and net realisable value, whichever is lower. Cost is determined using the weighted-average cost method. Net realisable value represents the estimated sell- ing price in the ordinary course of business less all variable selling costs. Small inventory is written off when put in use. The cost of product inventories i.e. the production price is based on direct material used, the cost of which is determined us- ing the weighted average cost method, then direct labour costs and fixed overheads at the actual level of production which approximates the normal capacities, as well as vari- able overheads that are based on the actual use of the pro- duction capacities. Merchandise on stock is recognised at purchase cost. 2.11 OTHER TRADE RECEIVABLES AND PREPAYMENTS Other trade receivables and prepayments represent receiv- ables and prepayments that are not included in financial instruments, and they are carried at nominal amounts less an appropriate allowance for impairment for estimated irre- coverable amounts. Impairment is recognised whenever there is objective ev- idence that the Company will not be able to collect all amounts due according to the originally agreed terms. Sig- nificant financial difficulties of the debtor, the probability of bankruptcy proceedings at the debtor, or default or delin- quency in payment are considered objective evidence of im- pairment. The amount of the impairment loss is determined as the difference between the assets carrying amount and the present value of estimated future cash flows, discount- ed at the effective interest rate. Management determines the level of impairment allowance for doubtful receivables based on receivables collection es- timation.The allowance for amounts doubtful of collection is charged to the statement of comprehensive income for the year. 2.12 CASH AND CASH EQUIVALENTS Cash comprises account balances with banks, cash in hand, deposits and securities at call or with maturities of less than three months. 2.13 PROVISIONS Provisions are recognized when the Company has a pres- ent obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obliga- tion, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each date of the statement of financial position and adjusted to reflect the current best estimate. Where the effect of discounting is material, the amount of the provision is the present value of the expendi- tures expected to be required to settle the obligation, de- termined using the estimated risk free interest rate as the discount rate. Where discounting is used, the reversal of such discounting in each year is recognised as a financial expense and the carrying amount of the provision increases in each year to reflect the passage of time. The amount recognised as a provision is the best estimate of the consideration required to settle the present obliga- tion at the date of the statement of financial position, tak- ing into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 267FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.14 TERMINATION, LONG-SERVICE AND OTHER EMPLOYEE BENEFITS (a) Pension-related obligations and post-employment benefits In the normal course of business, the Company makes pay- ments, through salary deductions, to mandatory pension funds on behalf of its employees, as required by law. The contributions paid to the mandatory pension funds are rec- ognised as salary expense when accrued. The Company does not have any other retirement benefit plan and, consequently, has no other obligations in respect of the retirement benefits for its employees. In addition, the Company is not obliged to provide any other post-employment benefits. (b) Long-term employee benefits Long-term employee benefits represent jubilee awards and and post employment benefit obligations. Post employ- ment benefit obligations falling due more than 12 months after the reporting date are discounted to their present val- ue. Jubilee awards are paid in intervals according to time that employee was working for Company. The cost of providing benefits is determined using the Pro- jected Unit Credit Method, with actuarial valuations being carried out at each reporting date. Actuarial gains and loss- es are recognised in the period in which they arise. Past service cost is recognized immediately to the extent that entitlement to benefits has already been acquired. Oth- erwise, it is amortized proportionately over a period of time until the right to receive benefits is acquired. 2.15 FINANCIAL INSTRUMENTS Financial assets Trade receivables are initially recognised when they are originated. All other financial assets are initially recognised when the Company becomes a party to the contractual pro- visions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. On initial recognition, a financial asset is classified as measured at amortised cost. Financial assets are not reclassified subsequent to their in- itial recognition unless the Company changes its business model for managing financial assets, in which case all af- fected financial assets are reclassified on the first day of the first reporting period following the change in the busi- ness model. A financial assets is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 268 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.15 FINANCIAL INSTRUMENTS (CONTINUED) Business model assessment The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is man- aged and information is provided to management. The infor- mation considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning con- tractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and re- ported to the Company’s management; • the risks that affect the performance of the business mo- del (and the financial assets held within that business mo- del) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; • the frequency, volume and timing of sales of financial as- sets in prior periods, the reasons for such sales and expe- ctations about future sales activity. Accounts receivable are held in the business model of holding for collection. Assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, relevant for the pur- pose of classifying financial assets at amortised cost, ‘prin- cipal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing the main criterion, i.e. whether the contractu- al cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instru- ment. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. The structure of the Company’s financial assets is simple and primarily relates to trade receivables without a signifi- cant financial component and loans given. Subsequent measurement and gains and losses Financial assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, for- eign exchange gains and losses and impairment are recog- nised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 269FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.15 FINANCIAL INSTRUMENTS (CONTINUED) Financial liabilities Debt securities are initially recognised when they are orig- inated. All other financial liabilities are initially recog- nised when the Company becomes a party to the contrac- tual provisions of the instrument. A financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are di- rectly attributable to its acquisition or issue. Financial liabilities are measured at amortized cost. A financial liability is classified as measured at amortized cost using the effective interest method. Interest expens- es and exchange differences are recognized within profit or loss. Any gain or loss on derecognition is also recog- nized within profit or loss. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognises a financial liabil- ity when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference be- tween the carrying amount extinguished and the consid- eration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. Impairment of non-derivative financial assets The Company recognises loss allowances for expected credit loss (ECLs) on financial assets measured at amor- tised cost. Loss allowances for trade receivables are always meas- ured at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recogni- tion and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analy- sis, based on the Company’s historical experience and in- formed credit assessment and including forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if early warning indica- tors have been activated in accordance with the Compa- ny’s policy or contractual terms of the instrument. The Company considers a financial asset to be fully or partially in default if: • the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realising security (if any is held); • the financial asset is more than 360 days past due based on historical experience of average market participant. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instru- ment. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months af- ter the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk . 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 270 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.15 FINANCIAL INSTRUMENTS (CONTINUED) Measeurement of expected credit losses In accordance with IFRS 9, assets that are carried at am- ortized cost must have attributed excepted credit losses (ECL). Formula for calculating yearly ECL is the following: Probability od default (PD) x Loss given default (LGD) x Ex- posure at default (EAD). Company used publicly available information to model ECL for loans, as follows: Probability of default: Company used latest available Moody’s Annual Default Study. Marginal PD for automotive industry was used for every year. Probability of default used in calculation is shown in the table below : Loss given default: Company used latest available Moody’s Annual Default Study. It was calculated using annual de- fault recoveries percentage. LGD used in 2023 is 60.53% (in 2022: 60.53%). Exposure at default: Company calculated it internally tak- ing into account anually repayment schedule for loans for every year of repayment. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset or liability, and of allo- cating interest income over the relevant period. The effec- tive interest rate is the rate that exactly discounts estimat- ed future cash payments through the expected life of the financial asset or liability, or, where appropriate, a shorter period. Impairment of financial assets Financial assets are assessed for indications of impairment at each date of the statement of financial position. A finan- cial asset are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s car- rying amount and the expected credit losses. Impairment loss on a financial asset is recognised by re- ducing the carrying amount of the asset through the use of an allowance account. When a trade receivable is un- collectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) Years Cumulative probabaility of default Marginal probability of default 1 2.2% 2.2% 2 4.5% 2.3% 3 6.6% 2.1% 4 8.6% 2.0% 5 10.4% 1.8% 6 12.1% 1.7% 7 13.7% 1.6% 8 15.2% 1.5% 9 16.6% 1.4% 10 17.6% 1.0% 271FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.15 FINANCIAL INSTRUMENTS (CONTINUED) Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset have expired, when the asset is transferred and when substan- tially all the risks and rewards of ownership of the asset are passed onto another entity. If the Company neither trans- fers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and re- wards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Classification as financial debt or equity Debt and equity instruments are classified as either finan- cial liabilities or as equity in accordance with the substance of the underlying contractual arrangement. Interest income Interest income is recognised on a pro rata temporis ba- sis, using the effective interest method. Interest earned on balances with commercial banks (demand and term depos- its) is credited to income for the period as it accrues. In- terest on trade receivables is recognised as income when accrued. 2.16 CONTINGENCIES Contingent liabilities have not been recognised in these separate financial statements. They are disclosed if the possibility of outflow of resources embodying economic benefits is possible. A contingent asset is not recognised in financial statements, but it is disclosed when the inflow of economic benefits becomes probable. 2.17 EVENTS SUBSEQUENT TO THE DATE OF THE STATEMENT OF FINANCIAL POSITION Events after the date of the statement of financial position that provide additional information about the Company’s position at that date (adjusting events) are reflected in the financial statements. Subsequent events that are not ad- justing events are disclosed in the notes to the separate financial statements when material. 2.18 SEGMENT REPORTING In separate financial statements the Company discloses sales revenues grouped by country (Note 4). When assesing business performance and making deci- sions on the allocation of resources in accordance with IFRS 8 the Company’s Management Board uses the division into two operating segments: EU and Serbia and Russia. In the consolidated financial statements the Group’s financial results, assets and liabilities are disclosed for above men- tions operating segments. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 272 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2.19 LEASES At inception of a contract, Company assesses whether a contract is, or contains lease. A contract is, or contains a lease, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for con- sideration. To assess whether a contract conveys the right to control the use of an identified asset, Company uses the definition of a lease in IFRS 16. Leases are recognised by the present value of the lease payments and showed either as right-of-use assets or to- gether with property, plant and equipment. Company also recognises a financial liability representing its obligation to make future lease payments. Lessees are recognised sepa- rately interest expense on the lease liability and the depre- ciation expense on the right-of-use asset. Lessees are also required to re-measure lease liability due to certain events (e.g. a change in lease term, a change in future lease payments, resulting from a change in an index or discounting rate). The standard includes two recognition exemptions for lessees: „low-value“ leases (e.g. tablets and personal computers) and „short-term“ leases (leases which ends within 12 months). Low-value leases are considers as- sets with value lower than EUR 4,000. Right-of-use assets and lease liabilities will be reported separately in the statement of financial position. The Com- pany has elected not to apply the requirements of IFRS 16 for low-value leases (e.g. printers) and short-term leases (e.g. apartments). Detailed movement of right of use assets are presented in Note 19 and movements of lease liability in Note 34. 2.20 GRANTS Company recognizes grants as income over the period nec- essary to match them with related costs, for which they are intended to compensate on a systematic basis. Receivables from government to reimburse expenses that have already been incurred are recognized in profit or loss in the period in which the receivable is incurred, and these grants are de- ducted from related expenses in financial statements. 2.21 INVESTMENT PROPERTY Investment property is property held by the Company to earn rentals or for capital appreciation or for both, but not for sale in the ordinary course of business or for administrative pur- poses. Investment property is measured initially at its cost, includ- ing transaction costs. Subsequently, investment property is stated at cost less accumulated depreciation and any impair- ment loss. Investment property is depreciated on a straight-line basis at the rate of 1,5%. Investment property is derecognised when either it has been disposed of or permanently withdrawn from use or no future economic benefits are expected from its disposal. Any gains or losses on the retirement or disposal of investment prop- erty are recognised in the income statement in the year of retirement or disposal. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 273FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Company’s accounting policies, which are described in Note 2, the Management Board is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on past experience and other factors that are considered to be relevant. Actual results may differ from those estimates. The estimates and underlying assump- tions are continually reviewed. Revisions to accounting esti- mates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both cur- rent and future periods.The key areas of estimation in applying the Company’s accounting policies that had a most significant impact on the amounts recognized in the financial statements were as follows: Revenue from the sale of tools Tools are custom made for the customer and cannot be used for other purposes. In accordance with the automotive prac- tice, those contracts may differ with respect to the develop- ment of tools and transfer of the title to the customer. In such cases, the Company determines whether tool arrangements are sale, lease or development of own equipment, whether this is a lease arrangement and whether it is separate from the sale of car parts. The Company has assessed that the sale of car parts is a sep- arate performance obligation from the sale of tools since the customer has the control over the use of tool and uncondi- tional right for payment upon the transfer of control of tool to the customer. Additionally, the development of the tool is not integrated with the production of parts to produce a combined output and those two are not interrelated as tool can be sold without affecting the sale of car parts. In addition, although in production of parts the Company may continue to use tools that it sold to customers, the Company has concluded that its arrangements do not contain a lease because customers control the use of the asset. In particular, customers, by placing orders, determine whether to produce parts using those tools, in what quantity and also the location of parts’ production. Measurement of fair values Certain Company’s accounting policies and disclosures re- quire the measurement of fair values, for non-financial assets. The Company has an established control framework with re- spect to fair value measurement which assumes the overall responsibility of the Management Board and finance depart- ment in relation to the monitoring of all significant fair value measurements and consultation with external experts. Fair values are measured using information collected from third parties in which case the Board and the finance depart- ment assess whether the evidence collected from third parties support the conclusion that such valuations meet the require- ments of IFRSs, including the level in the fair value hierarchy where such valuations should be classified. Fair values are categorised into different level in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 - inputs other than quoted prices included in level 1, that are observable for the asset or liability either dire- ctly (ie as prices) or indirectly (ie derived from prices). • Level 3 - input variables for assets or liabilities that are not based on observable market data (unobservable in- puts). The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted pric- es are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulato- ry agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. 274 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter deriva- tives) is determined by using valuation techniques. These valuation techniques maximise the use of observable mar- ket data where it is available and rely as little as possible on entity specific estimates. If all significant inputs re- quired to fair value an instrument are observable, the in- strument is included in level 2. If one or more significant inputs are not based on observable market data, the fair value estimate is included in level 3. Recoverability of investments in subsidiaries At the end of each reporting period, the Company carries out the process of identifying indicators that would indi- cate that the value of investments in subsidiaries and as- sociates (shown in Note 21) is potentially impaired and, if such indicators are identified, the Company assesses the recoverable amount of the investment through impair- ment testing. When implementing the process of identification of im- pairment indicators, the Company considers a number of factors. Depending on the circumstances, a single factor by itself or several of them in combination may result in an indication of impairment. Unfavourable developments in the industry, such as the recent COVID 19 pandemic or macroeconomic disturbances due to the war in Ukraine, which led to challenges in supply chains and the lack of necessary quantities of semiconductors, as a rule, re- sult in the implementation of impairment tests if there is noticeable significant impact on the operating results of subsidiaries and associates. In addition to the above, the Company monitors the key performance indicators of subsidiaries, the most important of which are realized operating margins and net assets of subsidiaries. Operat- ing margins of subsidiaries are annually compared with available market multipliers for the valuation of similar companies in the industry to determine if they deviate significantly, which would indicate the need to perform a detailed impairment test. Additionally, negative or insuffi- cient net assets of a subsidiary also typically indicate the need to perform an impairment test. When the Company concludes for a particular investment that one factor by itself or several of them in combina- tion result in an indication of impairment, a detailed im- pairment test and assessment of the recoverable value of the investment is prepared. As a rule, the discounted cash flow method (DCF method) is used to make an in- vestment assessment, which is based on the assumption that the value of the company represents the present val- ue of future net cash flows. When calculating the recover- able amount, as a rule, the Company applies the terminal growth rate of cash flows after a three-year period and discounts such cash flows using a discount rate that re- flects the risk of the asset in question and which, for the purpose of calculating the impairment test, is approximat- ed by the weighted average cost of capital (WACC) related to the primary sales market of individual subsidiary and industry. Impairment tests are also tested for sensitivi- ty to changes in key variables such as the discount rate, growth rate, and similar. During 2023, the Company identified indicators of im- pairment related to its investments in the subsidiary ADP d.o.o., Mladenovac and conducted detailed impairment tests of investments and loans. The cash flow projections of the company ADP d.o.o., Mladenovac included specific estimates for a period of three years, which are based on new deals with customers that have been contracted or announced or are the sub- ject of negotiations with customers, taking into account planned capital investments and required working capi- tal and terminal growth rate after that period. The termi- nal growth rate was determined in accordance with mar- ket assumptions and the Company estimated it at 3.38%, while the rate of return was used at 11%. The impairment test did not indicate the need for impairment of the in- vestment. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 275FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Regarding the sensitivity of impairment tests to changes in key variables, the sensitivity analysis indicates that a reasonably expected change in one of the key variables (terminal growth rate and weighted average cost of capi- tal), along with another variable that remains unchanged, does not result in a decrease in the value of the invest- ment in the subsidiary ADP d.o.o. , Mladenovac. A change of 50 basis points is considered a reasonably expected change in key variables by management. Revenues from merchandise consist of revenues from the sale of material and the sale of car parts that are not own production. 4. SALES (CONTINUED) Sales segmentation by country is shown below: Sales segmentation by type is shown below: 2022 2021 Foreign sales 88,213 78,689 Domestic sales 1,175 1,310 89,388 79,999 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 4. SALES 2023. 2022. Slovenia 24,079 24,114 Romania 18,704 15,904 France 10,545 10,100 Italy 7,193 7,512 Hungary 5,776 4,009 Poland 5,062 1,140 Germany 4,635 3,761 Spain 3,962 3,452 Serbia 3,619 3,344 Slovakia 1,792 1,855 Croatia 1,175 1,310 Other countries 2,846 3,498 89,388 79,999 2023 2022 Car parts sale 73,191 67,023 Merchandise 12,203 9,439 Revenue from tools 1,908 1,291 Engineering services revenue 1,314 1,352 Licences fees 773 894 89,388 79,999 276 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 6. COST OF RAW MATERIAL AND SUPPLIES 5. OTHER INCOME 2023 2022 Gain from sale of property, plant and equipment and intangible assets 3,455 105 Rental income and income from the sale of services to tenants 559 583 Income from sales of waste and secondary raw material 344 257 Gain from value adjustments of Investment property 329 - Income from product development, validation, quality control and laboratory testing 72 53 Income from damages and insurance 40 423 Income from consumption of own products and services 23 223 Other operating income 238 227 5,060 1,871 2023 2022 Direct materials 38,325 35,456 Electricity 3,225 3,172 Other raw material and supplies 3,145 1,895 Cost of unusable inventories, inventory shortage costs and value adjustment of inventory 364 27 45,059 40,550 7. COST OF GOODS SOLD 2023 2022 Cost of merchandise 10,359 9,096 Cost of tools sold 1,524 1,016 Other costs of goods sold 39 44 11,922 10,156 8. SERVICE COSTS 2023 2022 Transport 3,270 3,010 Intelectual service cost 1,516 1,647 Maintenance costs 983 724 Software licenses 949 842 Security and fire services 447 276 Communal fee 347 267 Rental costs 241 168 Logistic services at distribution warehouses 164 357 Marketing 157 72 Water 109 108 Engineering services costs 97 154 Telephone, cell phone, internet costs 79 94 Licence fees 32 46 Other service costs 509 410 8,900 8,175 Gain from sale of property, plant and equipment and intan- gible assets in 2023 include gain from sale of intangible assets (capitalized development costs) in amount of EUR 2,543 thousand. 277FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 9. STAFF COSTS 2023 2022 Net wages and salaries 12,544 11,623 Taxes and contributions on and out of salaries 7,537 6,623 Other staff costs 2,627 1,686 22,708 19,932 Other staff costs comprise jubilee awards, bonuses, termina- tion benefits, commuting costs, cost of sudent service and oth- er business-related costs. Company included income from reversal of provision for jubi- lee awards in amonut of EUR 24 thousand as cost reduction within category “Other staff cost”. Further, within “Other staff cost” provision for unused vacation days in amount of EUR 142 thousand and provision for termination benefits in amount of EUR 18 thousand are shown. In the previous period, reversal of provision for employee bo- nuses in amount of EUR 531 thousand, reversal of provision for termination benefits in amount of EUR 77 thousand and reversal of provision for jubilee awards in amount of EUR 46 thousand were shown as a cost reduction through „Other staff cost“.Also, in the previous period, provision for unused vaca- tion days in amount of EUR 269 thousand was shown in other staff cost. 10. DEPRECIATION AND AMORTISATION 2023 2022 Depreciation of property, plant and equipment (Note 18) 4,850 5,615 Amortisation of intangible assets (Note 17) 1,393 2,177 Depreciation of right of use assets (Note 19) 1,017 1,004 Depreciation of investment proper- ty (Note 20) 33 32 7,293 8,828 At 31 December 2023 the Company has no given advances and credits granted to the members of the administrative, managerial and supervisory bodies. 11. OTHER OPERATING EXPENSES 2023 2022 Business trips 357 441 Cost of own consumption and goods provided free of charge 341 219 Membership fees, contributions, municipal utility fees 271 259 Withholding tax 265 73 Insurance premiums 169 150 Customer complaints 144 134 Entertainment/representation costs 139 104 Non-current tangible assets write off 138 - Gifts, donations and sponsorships 110 52 Supervisory Board fees 89 71 Professional training costs 72 72 Safety at work and health services 48 36 Capitalised development cost write-off 43 - Impairment of related parties investment - 4,845 Impairment of capitalised develop- ment cost - 2,441 Other expenses 92 125 2,278 9,022 278 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 12. PROVISIONS FOR RISKS AND CHARGES 2023 2022 Provision for possible litigation losses, net (Note 30) (4) 210 Provision for warranties, net (132) - (136) 210 13. FINANCIAL INCOME 14. FINANCIAL EXPENSES 2023 2022 Dividend income from associate 4,960 2,030 Interest income 377 411 Foreign exchange income, net - 30 5,337 2,471 2023 2022 Interest expense 623 341 Interest expense on lease liabilities 29 42 Foreign exchange losses, net 20 - Other - (22) 672 361 15. INCOME TAX 2023 2022 Current tax - - Deferred tax 228 1,503 228 1,503 Income tax comprises the following: Deferred tax, as presented in the statement of financial po- sition, is as follows: 2023 2022 Deffered tax assets Deferred tax liabilities Deffered tax assets Deferred tax liabilities Balance at 1 January 1,996 - 493 - Increase 1,262 380 1,525 - Usage (60) - - - Reversal (594) - (22) - Balance at 31 December 2,604 380 1,996 - 279FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 2023 2022 Accounting profit/(loss) before tax 812 (15,246) Tax at the rate of 18% 146 (2,744) Non-deductible expenses 96 1,888 Tax exempt revenues (1,064) (647) Changes in estimates from previous years 594 - Profit tax expense (228) (1,503) Effective tax rate (28.08%) 9.86% 15. INCOME TAX (CONTINUED) 2023 Opening balance (Charged)/ credited to statement of com- prehensive income, net Closing balance Provisions for jubilee service and termination benefits 84 (1) 83 Impairement of investment property 388 (59) 329 Impairment of inventory - 66 66 Impairment/reversal receivables/loans - 66 66 Tax loss carryforward 1,524 151 1,675 Lease liabilities - 385 385 Right of use assets - (380) (380) Balance at 31 December 1,996 228 2,224 2022 Opening balance (Charged)/ credited to statement of com- prehensive income, net Closing balance Provisions for jubilee service and termination benefits 105 (22) 84 Impairement of investment property 388 - 388 Tax loss carryforward - 1,524 1,524 Balance at 31 December 493 1,502 1,996 Reconciliation between the accounting and tax results is shown as follows: Movement of Deferred tax assets/(liabilities) are presented in following table: The effective income tax rate in Republic of Croatia in year 2023 was 18% the same as it was for the year 2022. The amount of EUR 745 thousand was recognized as deferred tax assets in 2023. The Company is planning to achieve taxable profit in the period from 2024 to 2028, for which forementioned deferred tax assets is planned to be used. 280 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 15. INCOME TAX (CONTINUED) The tax losses available for carry-forward to the following tax periods are as follows: Basic earnings per share are deter- mined by dividing the Company’s net profit by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares redeemed and held by the Company as treasury shares. The basic earnings per share equal the di- luted earnings per share, as there are currently no share options that would potentially increase the number of is- sued shares. 16. EARNINGS PER SHARE 2023 2022 Profit/(loss) for the year (in EUR '000) 1,040 (13,743) Weighted average number of shares 4,159,022 4,151,975 Basic and diluted earnings per share (in euros and cents) 0.25 (3.31) 2023 2022 Issued ordinary share at 1 January 4,199,584 4,199,584 Effect of treasury shares held (38,428) (40,628) Effect of treasury shares disposed of (2,134) (6,981) Weighted-average number of ordinary share at 31 December 4,159,022 4,151,975 Projects comprise investments in the development of new products that are expected to generate economic benefits in future periods. Consequently, the costs are amortised over the period in which the related economic benefits flow into the Company. Intangible assets under development mostly refer to the capitalized costs of new product development. In 2023, the cost of net salaries and wages of EUR 366 thou- sand the cost of taxes and contributions from salaries of EUR 151 thousand and the cost of contributions to salaries of EUR 79 thousand were capitalized in intagible assets. In the previous 2022, the capitalized cost of net salaries and wages amounted to EUR 323 thousand the cost of taxes and contributions from salaries amounted to EUR 126 thousand and the cost of contributions to salaries amounted to EUR 68 thousand. In 2023, capitalized interest expense in the amount of EUR 19 thousand (2022: EUR 6 thousand) was recognized on in- tangible assets. 17. INTANGIBLE ASSETS 2023 2022 Tax losses from 2022 - expire in 2027. 8,348 8,348 Tax losses from 2023 - expire in 2028 4,142 - 12,490 8,348 281FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 17. INTANGIBLE ASSETS (CONTINUED) Software Projects Other intagible assets Intangible assets under development Total Cost Balance at 31 December 2021 1,647 20,979 748 3,824 27,198 Additions - - - 2,236 2,236 Transfer from assets under development 223 1,084 5 (1,311) - Disposals (18) (5,086) - - (5,104) Retirements/Write Offs - (2,505) - (1,333) (3,838) Balance at 31 December 2022 1,852 14,472 752 3,416 20,492 Additions - - - 3,412 3,412 Transfer from assets under development 4 1,058 3 (1,065) - Disposals (1) (1,113) - - (1,114) Impairment (28) (303) - - (331) Balance at 31 December 2023 1,826 14,114 756 5,763 22,459 Accumulated amortisation Balance at 31 December 2021 1,497 15,550 389 - 17,436 Charge for the year 90 1,937 150 - 2,177 Disposals (18) (5,086) - - (5,104) Retirements/Write Offs - (1,397) - - (1,397) Balance at 31 December 2022 1,568 11,004 539 - 13,111 Charge for the year 91 1,153 150 - 1,393 Write Offs (28) (260) - - (287) Impairment (1) (545) - - (545) Balance at 31 December 2023 1,630 11,353 689 - 13,672 Net book value At 31 December 2022 284 3,468 213 3,416 7,380 At 31 December 2023 197 2,761 67 5,763 8,787 282 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 18. PROPERTY, PLANT AND EQUIPMENT Land Buildings Plant and equipment Assets under development Total Cost Balance at 31 December 2021 17,352 34,498 77,610 847 130,307 Additions - - - 2,366 2,366 Transfer from assets under development - 23 597 (620) - Disposals - - (711) - (711) Retirements/Write Offs - - (702) - (702) Transfer to investment property (Note 20) 13 - - - 13 Balance at 31 December 2022 17,366 34,521 76,795 2,592 131,274 Additions - - - 4,635 4,635 Transfer from assets under development - 1,781 2,031 (3,812) - Disposals - - (2,492) - (2,492) Retirements/Write Offs - (215) (284) - (500) Balance at 31 December 2023 17,366 36,087 76,049 3,415 132,916 Accumulated depreciation Balance at 31 December 2021 - 10,886 48,383 - 59,269 Charge for the year (Note 10) - 518 5,097 - 5,615 Disposals - - (397) - (397) Retirements/Write Offs - - (687) - (687) Transfer from investment property (Note 20) - - - - - Balance at 31 December 2022 - 11,404 52,396 - 63,801 Charge for the year (Note 10) - 661 4,189 - 4,850 Disposals - - (1,863) - (1,863) Retirements/Write Offs - (78) (284) - (361) Balance at 31 December 2023 - 11,988 54,437 - 66,425 Net book value At 31 December 2022 17,366 23,117 24,399 2,592 67,473 At 31 December 2023 17,366 24,099 21,612 3,415 66,491 283FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 18. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) From assets mentioned in Note 18 Property, plant and equipment and in Note 20 Investment property, pledged assets are lands with book value on the date of 31.12.2023 of (in thousand EUR) 13,260 (31.12.2022: 18,819) and buildings 16,427 (31.12.2022: 24,165). Plant and equipment are not pledged in 2023 (31.12.2022: 2,597). The mentioned assets include investment proper- ty, land in the net book value of 1,479 and buildings in the net book value of 1,777 (in thousand EUR). Buildings Plant and equipment Total Cost Balance at 31 December 2021 3,221 1,073 4,294 Additions 238 - 238 Lease modification, net 90 (44) 46 Balance at 31 December 2022 3,549 1,029 4,578 Lease modification, net 1,269 - 1,269 Balance at 31 December 2023 4,818 1,029 5,847 Accumulated depreciation Balance at 31 December 2021 1,404 309 1,713 Charge for the year 682 322 1,004 Balance at 31 December 2022 2,086 631 2,717 Charge for the year 699 318 1,017 Balance at 31 December 2023 2,785 949 3,734 Net book value At 31 December 2022 1,463 398 1,861 At 31 December 2023 2,033 80 2,113 19. RIGHT OF USE ASSET 284 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 19. RIGHT OF USE ASSET (CONTINUED) Amounts recognised in profit and loss 2023 2022 Depreciation expense on right of use assets 1,017 1,004 Interest expense 29 42 Expenses relating to variable lease payments not includ- ed in the measurement of lease liability 100 23 Expense relating to leases of low value 99 133 Expense relating to short-term leases 42 12 1,287 1,214 In accordance with IFRS 16, Company has classified leases for buildings and plant and equipment as “Right of use asset”. Within the category “Buildings”, the leases of office buildings and ware- houses used by the Company in busi- ness are positioned. The “Plant and equipment” category includes conclud- ed car and forklift rental agreements. 20. INVESTMENT PROPERTY Income from the rental of the building in 2023 amounts to EUR 266 thousand (2022: EUR 265 thousand), and the de- preciation charge for the year 2023 amounts to EUR 33 thousand (2022: EUR 33 thousand). At December 31 2023 the carrying amount of investment property approx- imates fair value, that has been inter- nally determined by the company based on the income capitalisation method which assumes sustainable annual lease income which investment proper- ty generates or is able to generate dur- ing its ordinary course of business. Land Buildings Total Cost Balance at 31 December 2021 1,492 2,210 3,703 Value increase of investment property (13) - (13) Balance at 31 December 2022 1,479 2,210 3,689 Value increase of investment property 408 408 Balance at 31 December 2023 1,479 2,618 4,097 Accumulated depreciation Balance at 31 December 2020 - 695 695 Charge for the year (Note 11) - 33 33 Balance at 31 December 2021 - 728 728 Charge for the year (Note 11) - 33 33 Value increase of investment property - 79 79 Balance at 31 December 2022 - 840 840 Net book value Balance at 31 December 2021 1,479 1,482 2,961 Balance at 31 December 2022 1,479 1,778 3,257 285FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Set out below are details of the Company’s subsidiaries at the end of the reporting period: Associates: 21. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES Name of subsidiary Country of incorporation and business Ownership interest in % Amount of equity in- vestment, in EUR '000 31.12. 2023 31.12. 2022 31.12. 2023 31.12. 2022 AD Plastik Tisza Kft. Tiszaújváros, Hungary 100.00% 100.00% 9,418 9,418 ADP d.o.o. Mladenovac, Serbia 100.00% 100.00% 1,993 1,993 AO AD Plastik Togliatti Samara, Russian Federation 100.00% 100.00% 674 674 AD Plastik d.o.o. Novo Mesto, Slovenia 100.00% 100.00% 8 8 ZAO AD Plastik Kaluga Kaluga, Russian Federation 100.00% 100.00% - - 12,092 12,092 Name of associate Country of incorporation and business Ownership interest in % Amount of equity in- vestment, in EUR '000 31.12. 2023 31.12. 2022 31.12. 2023 31.12. 2022 EURO Auto Plastic Systems Mioveni, Romania 50.00% 50.00% 2,887 2,887 2,887 2,887 Total investments in subsidiaries and associates 14,980 14,980 Company has a 50-percent equity share in EURO Auto Plastic Systems, but has no control over the entity. However, the com- pany is treated as an associate. Currently, there is a limit on the loan collection from Russian subsidiaries in the amount of 10,000 thousand rubles on a monthly basis per one subsidiary company. 286 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Set out below is a summary of financial information about the subsidiaries and associates: 21. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (CONTINUED) AD Plastik Tisza, Tiszaújváros, Hungary 31.12.2023 31.12.2022 Current assets 4,823 4,465 Fixed assets 6,692 6,496 Total assets 11,515 10,961 Short-term liabilities (5,713) (6,278) Long-term liabilities and provisions (2,721) (2,519) Total Liabilities (8,434) (8,797) Net assets 3,081 2,164 ADP d.o.o, Mladenovac, Serbia 31.12.2023 31.12.2022 Current assets 5,684 5,427 Fixed assets 7,343 6,815 Total assets 13,027 12,242 Short-term liabilities (6,127) (9,175) Long-term liabilities and provisions (7,547) (2,898) Total Liabilities (13,674) (12,073) Net assets (647) 169 AO AD Plastik Togliatti, Togliatti, Russian Federation 31.12.2023 31.12.2022 Current assets 12,445 13,660 Fixed assets 8,538 11,320 Total assets 20,983 24,980 Short-term liabilities (12,027) (12,302) Long-term liabilities and provisions (1,932) (2,312) Total Liabilities (13,959) (14,614) Net assets 7,024 10,366 287FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 21. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (CONTINUED) ZAO AD Plastik Kaluga, Kaluga, Russian Federation 31.12.2023 31.12.2022 Current assets 2,733 4,048 Fixed assets 4,107 6,207 Total assets 6,840 10,255 Short-term liabilities (1,747) (1,989) Long-term liabilities and provisions (9,967) (10,797) Total Liabilities (11,714) (12,786) Net assets (4,874) (2,531) AD Plastik d.o.o., Novo Mesto, Slovenia 31.12.2023 31.12.2022 Current assets 480 478 Fixed assets - 1 Total assets 480 479 Short-term liabilities (20) (22) Long-term liabilities and provisions - - Total Liabilities (20) (22) Net assets 460 457 EURO Auto Plastic Systems 31.12.2023 31.12.2022 Current assets 38,767 39,297 Fixed assets 19,478 12,249 Total assets 58,245 51,546 Short-term liabilities 35,959 28,165 Long-term liabilities and provisions 1,271 1,023 Total Liabilities 37,230 29,188 Net assets 21,015 22,358 288 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 22. GIVEN LONG-TERM LOANS Long-term investment loans were granted to the subsidiaries with matur- ities from one to ten years and an inter- est rate of 2.40%. During the 2022 loans were granted with the interest rate of 2.68 %. 31.12.2023 31.12.2022 Long-term loans to subsidiaries 18,776 15,297 Long-term receivables for interests 729 729 Impairment of given loans (3,152) (2,987) 16,353 13,039 23. LONG-TERM RECEIVABLES 31.12.2023 31.12.2022 ADP d.o.o., Mladenovac, Serbia 2,318 4,716 2,318 4,716 24. INVENTORIES 31.12.2023 31.12.2022 Tools 9,337 944 Raw material and supplies on stock 5,229 7,258 Prepayments for tools 3,792 1,774 Finished products 1,870 2,146 Work in progress 1,043 940 Merchandise on stock 389 669 21,660 13,730 The amount of inventories recognised as an expense during the 2023 was EUR 77,176 thousand (in the 2022 the expense was EUR 70,887 thousand). Total inventory write – off was EUR 364 thousand in 2023 ( in 2022 it was EUR 27 thousand). The inventories were deemed as obsolete. The inventory write – off is included in note 6 – Cost of raw material and supplies, line „Cost of unusable in- ventories and inventory shortage costs“. 289FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 31.12.2023 31.12.2022 0 - 90 days past due 1,884 925 91 - 180 days past due 347 115 181 - 365 days past due 694 1,146 Preko 365 days past due 987 1,778 Not due 13,117 9,785 17,029 13,749 25. TRADE RECEIVABLES 31.12.2023 31.12.2022 Foreign trade receivables (unrelated companies 13,033 9,529 Foreign trade receivables (intra group) 2,692 3,318 Foreign trade receivables (associates) 1,124 514 Domestic trade receivables 553 557 Impairment allowance on receivables (373) (169) 17,029 13,749 The average credit period on sales is 78 days (2022: 92 days). Movements in the impairment allowance on doubtful trade re- ceivables can be presented as follows: 2023 2022 Balance at beginning of the year 169 202 Movements based on IFRS 9 expected credit losses calcula- tion for year end 26 (33) Trade receivables impairement 178 - Total impairment allowance 373 169 Ageing analysis of not impaired receivables can be presented as follows: The majority of the receivables past due beyond 365 days comprise amounts owed by the subsidiaries. At December 31 2023, the carrying amount of the receivables from companies in the same group which make more than 15% of the total receivables was EUR 3,817 thousand (31.12.2022.: EUR 2,523 thousand) while sales income of this group in 2023 amounted to EUR 22,682 thousand (in 2022: EUR 17,933 thou- sand). At December 31 2023, the carrying amount of the second largest receivables from companies in the same group which make more than 15% of the total receivables was EUR 2,818 thousand (31.12.2022.: EUR 754 thousand) while sales in- come of this group in 2023 amounted to EUR 15,590 thousand (in 2022: EUR 15,174 thousand). 290 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Amounts due from the State and State institutions com- prise from these receivables: Interest receivables relate to loans given to subsidiaries. 26. OTHER RECEIVABLES 27. CURRENT FINANCIAL ASSETS 31.12.2023 31.12.2022 Receivables from the State and State institutions 2,881 1,492 Foreign prepayments made 941 435 Domestic prepayments made 184 74 Other receivables 86 1 4,092 2,002 31.12.2023 31.12.2022 Interest receivables 1,754 1,505 Receivables per short-term loans 600 600 2,354 2,105 31.12.2023 31.12.2022 VAT refund receivables 2,810 1,407 Receivables for sick leave 65 61 Other receivables 6 24 2,881 1,492 28. CASH AND CASH EQUIVALENTS 31.12.2023 31.12.2022 Current account balance 1,013 11 Foreign account balance 9 2,367 Cash in hand 3 - Cash and cash equivalents in statement of financial position 1,025 2,378 Bank overdrafts (608) - Cash and cash equivalents in statement of cash flows 417 2,378 29. CAPITAL Subscribed capital amounts to EUR 54,595 thousand and consists of 4,199,584 shares, with a nominal value of EUR 13 per share (2022: EUR 55,738 thousand, comprising 4,199,584 shares, with a nominal value of EUR 13,27 each). On the date of 19.09.2023 the nominal value of individual share was changed from EUR 13,27 to EUR 13,00. Capital reserves are the differences between the nominal and selling values of a share. General and legal reserves consist of legal reserves up to 5% of the amount of share capital (defined by the Cro- atian Company law), and of unwritten development costs. Under Croatian Accounting Law, Article 19, Paragraph 14, AD Plastik d.d. has made provisions for not written - off de- velopment costs stated in Assets. The provision was made with the transfer from Retained earnings to the position of General and legal reserves of Company’s equity. Amount od provisions at least amounts capitalised development costs stated in Assets at the end of previous year. Own treasury shares refers to treasury shares of the Com- pany. The company owns 38,428 treasury shares on 31.12.2023. The Company owned 40,628 treasury shares on the date of 31.12.2022. 291FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 30. LONG-TERM AND SHORT-TERM PROVISIONS Short-term Long-term 31.12.2023 31.12.2022 31.12.2023 31.12.2022 Vacation accrual 517 375 - - Legal cases 126 366 - - Jubilee awards (long-service benefits) 39 32 139 171 Termination benefits 36 26 246 238 Risks within the warranty period - 132 - - 718 931 385 409 According to the collective agreement, the Company has the ob- ligation to pay long-service (jubilee awards), termination ben- efit upon regular retirement and other benefits to employees. Long-service benefits (jubilee awards and termination benefit upon regular retirement) are defined in the union agreement and employment agreements. No other post-retirement benefits are provided. Long-service benefits are paid for full years of service in the month of the current year in which the service is determined as completed. The present value of defined benefit obligations arising from long-service benefits and termination benefits upon regular re- tirement is determined using the projected credit unit method and serves as the basis for arriving at the past and current ser- vice costs, the interest expense and the actuarial gain or loss. Jubilee Awards Retirement/ termination benefits Legal Cases Vacation Accrual Employee Bonuses Risks within the warranty period Total Balance at 1 January 2023 202 264 366 375 - 132 1,339 Increase/(decrease) in provi- sions,net (24) 18 (240) 142 - (132) (236) Balance at 31 December 2023 178 282 126 517 - - 1,103 Balance at 1 January 2022 248 508 156 106 531 132 1,681 Increase/(decrease) in provi- sions,net (46) (244) 210 269 (531) - (342) Balance at 31 December 2022 202 264 366 375 - 132 1,339 Movement in provisions was as follows: 292 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Provisions for litigation losses represents provisions relating to litigation against the Company from regular commercial operations and from disputes with former employees. During 2023, the Company settled the liability for the court case in the amount of 235 thousand euros, 12 thousand euros were additionally reserved and 17 thousand euros were released as a result of the favorable outcome of the court case. Provisions for unused vacation days are calculated on the ba- sis of the remaining days of the vacation days that employees have made in the current year, multiplied by amount of gross daily wage. Employees bonuses represents rewards that were planned to be paid out in the coming year based on results from the cur- rent year. Provisions for risks within the warranty period are estimated costs of complaints that we expect in future years, calculated on the basis of delivered pieces in current and previous years. Key assumptions used in calculating provisions for jubilee awards and severance pay in 2023 are the discount rate of 1.85% and the fluctuation rate of 15.41%. Discount rate of 1.26% and the fluctuation rate of 13.54% were used in cal- culation of the required provisions in the year of 2022. Fluc- tuation rate is based on average fluctuation of employees in the last 5 years. 30. LONG-TERM AND SHORT-TERM PROVISIONS (CONTINUED) 31. LONG – TERM BORROWINGS Long-term borrowings are used to finance capital invest- ments and development projects. Instruments of collateral provided for the long-term loans include mortgage on real es- tate and/or equipment and payment instruments. Majority of the long-term loans are repayable on a monthly basis. By the date of the balance sheet, the company received the bank’s confirmation (regarding the long-term loan), accord- ing to which it waives the clause of maintaining the ratio of net debt to EBITDA. Book value of the loan amounts to HRK 4,243 thousand. In 2023, the weighted average interest rate on the long-term loans was 1.10% (in the 2022 the average interest rate on the long-term loans was 0.65%). The Company regularly meets all its obligations arising from the loans and observes all the conditions specified in the underlying contracts. 31.12.2023 31.12.2022 Long-term borrowings 37,307 28,969 37,307 28,969 Current portion of long- term borrowings (Note 36) (9,408) (7,744) Total long-term borrow- ings 27,899 21,226 32. DEFERRED REVENUE Deffered revenue arose as a result of borrowing from a fi- nancial institution at an interest rate lower than the market rate. 31.12.2023 31.12.2022 Deferred revenue 38 76 Total deffered revenue 38 76 293FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 33. LEASE LIABILITIES – IFRS 16 2023 2022 Balance at 1 January 1,905 2,629 Additions - 238 Lease modifications, net 1,249 39 Interest expense on lease liabilities 29 42 Principal paid (1,015) (1,001) Interest paid (29) (42) 2,139 1,905 Long-term liabilities 1,346 1,029 Short-term liabilities 793 876 34. ADVANCES RECEIVED 31.12.2023 31.12.2022 Foreign customers 5,338 3,381 Domestic customers 1 - 5,339 3,381 31.12.2023 31.12.2022 Domestic trade payables 11,097 4,514 Foreign trade payables 4,966 8,766 Accrued expenses 843 1.499 16,906 14,779 35. TRADE PAYABLES In 2023, the average days payables outstanding was 75 (2022: 73 days). The short-term borrowings were used to finance develop- ment projects and for working capital purposes. Instru- ments of collateral provided for the short-term borrowings are payment instruments. In 2023, the weighted average interest rate on the short- term loans was 2.35% (1.31% in 2022). The Company fulfils all its obligations under the loans regularly. 36. SHORT – TERM BORROWINGS 31.12.2023 31.12.2022 Current portion of long-term borrowings (Note 31) 9,408 7,744 Short-term borrowings – principal payable 7,506 7,000 Short-term borrowings – interest payable 139 30 17,053 14,774 294 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. The total movement in loans (short-term and long-term) during the year can be shown as follows: 36. SHORT – TERM BORROWINGS (CONTINUED) 2023 2022 Balance at 1 January 36,000 44,192 Borrowings raised 34,051 5,497 Change in bank overdrafts 606 - Interest expenses 572 302 Exchange rate differences - 79 Interest paid (463) (317) Principal repaid (25,874) (13,891) Rest of changes 61 138 Balance at 31 December 44,952 36,000 Balance at 31 December 44,952 36,000 37. OTHER CURRENT LIABILITIES Grant liabilities arose as a result of borrowing from a finan- cial institution at an interest rate lower than the market rate. 31.12.2023 31.12.2022 Amounts due to employees 1,229 1,166 Due to the State and State institutions 583 587 Grant liabilites 101 124 Other current liabilities 22 28 1,936 1,904 38. RELATED-PARTY TRANSACTIONS Receivables and payables for goods and services Receivables Payables 31.12.2023 31.12.2022 31.12.2023 31.12.2022 ADP d.o.o., Mladenovac, Serbia 3,531 5,668 926 983 AO AD Plastik Togliatti, Russia 819 1,841 - - AD Plastik Tisza, Hungary 660 427 195 29 EURO APS, Romania 507 514 5 - ZAO AD Plastik Kaluga, Russia - 97 2 2 AD Plastik d.o.o., Slovenia - - 464 443 5,517 8,547 1,593 1,456 Transactions with related companies were as follows: 295FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. During the 2023 in its financial statements Company recognized a im- pairment of receivables based on expected credit losses (all regarding the impairment of given loans) in the amount of EUR 164 thousand. Total amount of receivables impairment based on expected credit loss on the date of 31 December 2023 is EUR 3,152 thousand and it is related with the Companies - ADP doo Mladenovac EUR 389 thousand (2022: EUR 204 thousand), AO AD Plastik Togliatti EUR 60 thousand (2022: EUR 80 thou- sand) and ZAO ADP Kaluga EUR 2,703 thousand (2022: EUR 2,703 thou- sand). During the 2023 in its financial statements Company recognized a impairment of long-term receivables from ADP doo Mladenovac in the amount of EUR 40 thousand(2022: 218 thousand). Sankt-Peterburgskaya investicionnaya kompaniya is member of Group in which is also company AO Holding Autokomponenti. Company AO Hold- ing Autokomponenti holds 30% of shares in Company AD Plastik d.d. 38. RELATED-PARTY TRANSACTIONS (CONTINUED) Receivables and payables for loans and interest Receivables Payables 31.12.2023 31.12.2022 31.12.2023 31.12.2022 ZAO AD Plastik Kaluga, Russia 8,515 9,218 - - ADP d.o.o., Mladenovac, Serbia 7,814 3,325 - - AO AD Plastik Togliatti, Russia 1,766 2,001 - - AD Plastik Tisza, Hungary 613 601 - - Sankt-Peterburgskaya investi-cionaya kompaniya - - 2,508 2,508 18,707 15,144 2,508 2,508 Receivables for dividends Receivables 31.12.2023 31.12.2022 EURO APS, Romania 619 - 619 - 296 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. The total remuneration provided to the members of the Super- visory Board, President and members of Management Board and Board Assistants in 2023 amounts to EUR 922 thousand (in 2022 EUR 870 thousand). Of the total operating income EUR 482 thousand refers to prof- it from the sale of long-term tangible assets (ADP d.o.o. Mlad- enovac EUR 243 thousand; AD Plastik Tisza EUR 1 thousand, EURO Auto Plastic Systems – 238 thousand), and EUR 586 thousand to the profit of intangible assets (ZAO AD Plastik Kaluga EUR 334 thousand; AO AD Plastik Togliatti EUR 252 thousand). In 2022, no income was generated from the sale of assets to related parties. 38. RELATED-PARTY TRANSACTIONS (CONTINUED) Purchase transactions Operating income and expenses Income Purchases 2023 2022 2023 2022 ADP d.o.o., Mladenovac, Serbia 3,934 3,118 6,336 6,483 EURO APS, Romania 1,518 1,181 5 - AO AD Plastik Togliatti, Russia 567 512 - - ZAO AD Plastik Kaluga, Russia 345 746 - - AD Plastik Tisza, Hungary 137 326 249 233 AD Plastik d.o.o., Slovenia - - 97 154 6,501 5,881 6,687 6,870 Financial transactions Financial income and expenses Income Purchases 2023 2022 2023 2022 EURO APS, Romania 4,960 2,030 - - ZAO AD Plastik Kaluga, Russia 252 289 - - ADP d.o.o., Mladenovac, Serbia 70 75 - - AO AD Plastik Togliatti, Russia 40 46 - - AD Plastik Tisza, Hungary 14 1 - - Sankt-Peterburgskaya investicionaya kompaniya - - 30 39 5,337 2,441 30 39 297FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Equity consists of share capital, reserves, reserves for own shares, own shares, retained earnings and profit/loss for the year. 39.1 GEARING RATIO The Company’s gearing ratio, expressed as the ratio of net debt to equity, is expressed as follows: 31.12.2023 31.12.2022 Long-term borrowings (Note 31) 27,899 21,226 Short-term borrowings (Note 36) 17,053 14,774 Cash and cash equivalents (Note 28) (1,025) (2,378) Net debt 43,927 33,622 Equity 91,115 90,044 Net debt-to-equity ratio 48.21% 37.34% 39.2 CATEGORIES OF FINANCIAL INSTRUMENTS 31.12.2023 31.12.2022 Financial assets 39,509 36,760 Given loans and other financial assets (Notes 22, 27) 18,707 15,144 Trade receivables (Notes 25) 17,029 13,749 Non-current trade receivables (Note 23) 2,318 4,716 Cash and cash equivalents and deposits (Note 28) 1,025 2,378 Accrued income and other receiv- ables 430 773 Financial liabilities 65,110 53,689 Loans and deposits received (Notes 31, 36) 44,952 36,000 Trade and other payables 18,019 15,784 Lease liabilities (Note 33) 2,139 1,905 Accrued income and other receivables includes: accrued income, other receivables less receivables from the State and advances given. Trade and other payables includes amounts from Statement of fi- nancial position: trade payables and other current liabilities less accrued expenses, payables to the State and grants. The requirements of IFRS 9 related to asset impairment are applied to trade receivables and interest-bearing assets. Details of concentration of credit risk are included in Note 25 Trade receivables. 298 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 39.2 CATEGORIES OF FINANCIAL INSTRUMENTS (CONTINUED) Probability of default: Company used latest available Moody’s Annual Default Study. Marginal PD for automotive industry was used for every year. Lifetime probabilities of default are based on historical data published by Moody`s rating agency for Auto- motive industry group. Loss given default (LGD) parameters generally reflect an as- sumed LGD rate of 60.53%. The exposure to credit risk for loans given at amortised cost at the reporting date 31.12.2023 by subsidiary was as follows: Loans given to subsidiaries include in- terest. The amount of loans given is in the gross amount without an impair- ment allowance. Balance of an impair- ment allowance of in amount of EUR 3,152 thousand (2022: EUR 2,988 thou- sand) in respect of loans given is recog- nised in statement of financial position. Collaterals for loans given to subsidiar- ies are promissory notes. 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 31.12.2023 31.12.2022 ZAO AD Plastik Kaluga (Notes 22, 27) 11,217 11,921 ADP d.o.o.. Mladenovac (Notes 22, 27) 8,203 3,529 AO AD Plastik Togliatti (Notes 22, 27) 1,826 2,081 AD Plastik Tisza Kft (Notes 22, 27) 613 601 Total 21,859 18,132 39.4. MARKET RISK Market risk is the risk of fluctuation of fair value or future cash flows of a financial instrument because of changes in market prices. These changes often refer to movements in interest rates or exchange rates, but can also include changes in the prices of basic products that are important for business. 39.3 RISK OF RELYING ON ONE CUSTOMER Aware of the risk of relying on one customer, for many years ac- tive work has been done on diversifying the customer portfolio in accordance with the company’s strategy. The goal of reduc- ing exposure to the Renault Group has been achieved through sealing new deals with Stellantis, Ford and Suzuki, and was fur- ther accelerated by Renault’s exit from AvtoVaz ownership and the reduction of production at the Revoz factory in Novo Mesto. Although the continuing trend of the association of different car manufacturers may reduce the possibilities of diversifying the customer’s portfolio, at the same time new markets are opening up and providing opportunities for expanding cooperation with individual groups. 299FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Credit risk related to loans granted is under the control of the com- pany as these are loans granted to subsidiaries in which the parent company is the sole owner. 39.7. FOREIGN CURRENCY RISK MANAGEMENT Since the euro became the official currency of payment in Croatia on January 1, 2023, the significant currency risk disappeared, i.e. the company’s exposure to other currencies is insignificant. 39.8. LIQUIDITY RISK MANAGEMENT This risk represents the risk of the company not being able to convert assets into liquid assets in a short time, ie the inability to fulfill its obligations to creditors. Therefore, AD Plastik Group maintains optimal amounts of funds on the account with se- cured available credit lines. Cash flow management is of key importance for liquidity risk management. Each company within the Group, based on opera- tional business plans, financial liabilities and investment needs, plans its future cash needs on a monthly, quarterly and annual basis. Based on that data, the parent company’s Finance De- partment prepares a consolidated cash flow plan of the Group, and makes decisions on timely provision of credit lines for capi- tal investments and project financing, as well as placing surplus funds in deposits or covering the lack of funds from short-term financing sources. The parent company issued corporate guarantees to the subsid- iaries in the following amounts: EUR 7,700 thousand to banks, EUR 1,377 thousand to suppliers and EUR 3,000 thousand to buyers. The following tables detail the Company’s remaining estimat- ed maturity for its non-derivative financial assets and liabilities. The tables have been drawn up based on the undiscounted cash flows of financial assets and liabilities based on the earliest date on which the Company can require payment and can be required to pay. 39.5. INTEREST RATE RISK This type of risk includes possible losses arising from the chang- es in market interest rates. Although in earlier periods of low inter- est rates, long-term credit arrangements were concluded with fixed interest rates, in the past year of strong interest rate growth, new arrangements were concluded with variable interest rates. This means that financing costs will be higher in the future, although they will be mitigated to a certain extent by fixed interest rates from earlier borrowings. The market situation and interest rate projections are constantly monitored and, if necessary, refinancing of existing loans is carried out in order to ensure the fair value of the interest rates being paid, in accordance with the most favorable interest rates in the market at the time of refinancing. Interest-bearing loans are contracted with variable and fixed inter- est rates. Loans with variable rates expose the Company to cash flow interest rate risk. As of December 31, 2023, loans contracted with variable interest rates amount to EUR 15,812 thousand (2022: EUR 0 thousand). Interest rates on bank loans are linked to one- month and three-month EURIBOR. On December 31, 2023, if interest rates on loans with a variable in- terest rate were 1% lower/higher, assuming that other variables re- main unchanged, the Company’s net profit would be EUR 72 thou- sand lower/higher (2022: EUR 0 thousand). 39.6. CREDIT RISK This risk arises when one contracting party fails to meet its finan- cial obligations on time, which can jeopardize the market position of the other party. The company’s credit risk may arise from the inability to collect receivables from its customers and the loans granted. AD Plastik Group cooperates with reputable customers that are finan- cially stable companies, which is also the company’s business poli- cy. This minimizes the risk of collection and receivables are realized within the agreed deadlines. Due to the potential deterioration of the financial stability of individual customers, most of them have the sup- port of their home countries in maintaining business and liquidity as very important factors for their economy. 300 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 39.8 LIQUIDITY RISK MANAGEMENT (CONTINUED) 2023 Weighted average interest rate Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total Carrying amount Assets Non-interest bearing - 7,345 7,560 3,578 - - 18,483 18,483 Interest bearing 3.25% 52 100 2,832 9,877 12,008 24,869 21,026 7,397 7,660 6,410 9,877 12,008 43,352 39,509 Liabilities Non-interest bearing - 10,714 6,612 693 - - 18,019 18,019 Interest bearing 1.32% 898 1,676 15,544 28,688 771 47,577 44,952 Lease liability 2.00% 88 153 585 1,379 - 2,206 2,139 11,700 8,441 16,822 30,067 771 67,801 65,110 2022 Weighted average interest rate Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total Carrying amount Assets Non-interest bearing - 8,547 4,744 3,609 - - 16,900 16,900 Interest bearing 2.40% 10 49 2,287 7,632 10,829 20,807 19,860 8,557 4,793 5,896 7,632 10,829 37,707 36,760 Liabilities Non-interest bearing - 10,059 4,539 1,186 - - 15,784 15,784 Interest bearing 0.74% 3,119 3,334 8,656 21,526 - 36,635 36,000 Lease liability 2.00% 86 172 647 1,049 - 1,953 1,906 13,264 8,045 10,489 22,575 - 54,372 53,689 Total interest bearing liabilities in amount of EUR 44,952 thousand at 31.12.2023 refers to liabilities denominated in EUR. From total interest bearing liabilities in amount of EUR 36,000 thousand at 31.12.2022, EUR 12,519 thousand refers to liabilities denominated in HRK currency while EUR 23,481 thousand refers to liabilities denominated in EUR. Lease liabil- ities at 31.12.2023 are denominated in EUR and at 31.12.2022 are denominated in HRK. 301FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 39.8 LIQUIDITY RISK MANAGEMENT (CONTINUED) Financial instruments held to maturity in the ordinary course of business are carried at the lower of cost and net amount less repaid portion.Fair value is the price that would be gener- ated from the sales of some item of an asset or paid for trans- ferring some liability in a fair transaction between market par- ticipants at the measurement date, regardless of whether it would be directly visible or evaluated by applying some oth- er valuation technique. At 31 December 2023, the carrying amounts of cash, receivables, short-term liabilities, accrued expenses, short-term borrowings and other financial instru- ments match their fair values. 40. EVENTS AFTER THE REPORTING PERIOD After 31 December 2023, there were no events that would have a significant impact on the financial statements for the year 2023, respectively they are not of such significance to the Company to require disclosure in the notes to the financial statements. 302 FINANCIAL STATEMENTS OF THE COMPANY AD PLASTIK d.d. Based on the Management’s estimate, the Company had no material contingent liabilities at 31 December 2023 which would require to be disclosed in the notes to the financial statements. The Company had no capital expenditure commit- ments contracted at 31 December 2023 which would require to be disclosed in the notes to the financial statements. As at 31 December 2023 and 2022 there were no material legal actions outstanding against the Company with an expected negative outcome other than those reflected in these separate financial statements. 41. CONTINGENT LIABILITIES 42. APPROVAL OF THE SEPARATE FINANCIAL STATEMENTS These separate financial statements were approved by the Management Board of AD Plastik d.d. and author- ised for issue on 24 April 2024. 24 April 2024 Marinko Došen President of the Management Board Mladen Peroš Member of Management Board Zlatko Bogadi Member of Management Board Josip Divić Member of Management Board For AD Plastik d.d., Solin by:
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