Atlantic Grupa d.d. — Annual Report 2020

Mar 29, 2021

ATLANTIC GRUPA d.d.

ANNUAL REPORT 31 DECEMBER 2020

MANAGEMENT REPORT……………………………………………………………….	3
CORPORATE MANAGEMENT OF ATLANTIC GRUPA …………………………….	4
RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS IN ACCORDANCE WITH PROVISIONS OF LAW ON CAPITAL MARKET ………	8
RESPONSIBILITY FOR THE FINANCIAL STATEMENTS …………………………	9
INDEPENDENT AUDITORS' REPORT ……………………………………………….	10
INCOME STATEMENT ………………………………………………………………….	15
STATEMENT OF OTHER COMPREHENSIVE INCOME……………………………	16
BALANCE SHEET ……………………………………………………………………….	17
STATEMENT OF CHANGES IN EQUITY …………………………………………….	18
STATEMENT OF CASH FLOWS ……………………………………………………	19
NOTES TO THE SEPARATE FINANCIAL STATEMENTS…………………………	20

Atlantic Grupa d.d. (the Company) was incorporated in the Republic of Croatia in 2002. The Company performs corporate activities such as planning entrepreneurial functions, organisation of principal activities, gathering and utilising financial assets, defining the strategy and development of business activities of the Atlantic Grupa, which is comprised of the Company and its subsidiaries (as set out in the Note 14 to the financial statements), as well as all other companies over which the Company has control through its subsidiaries.

The Company is domiciled in Zagreb, Miramarska 23, Croatia. The Company's shares are listed on the Prime market of the Zagreb Stock Exchange. The shareholder structure is disclosed in Note 18. Users of these financial statements should read them together with the Group's consolidated financial statements as at (and for the year ended) 31 December 2020 and together with the Group's Annual report for the year ended 31 December 2020 in order to obtain full information on the financial position, results of operations and changes in financial position of the Group as a whole. These reports are published on the Company's website (www.atlanticgrupa.com).

Atlantic Grupa's Management strategic guidance for 2021

Despite the discovery of a vaccine for COVID-19, the uncertainty remains extremely high and it is difficult to predict the future course of the pandemic and the responses of economies to it.

In 2021, management will focus on:

• (i) strengthening the position of prominent regional brands,
• (ii) internationalisation of certain brands, primarily Argeta and Donat,
• (iii) creating new brands that will drive new growth
• (iv) development of distribution operations by strengthening the existing and acquiring new principals,
• (v) further divestment of non-core business operations that do not have a significant growth potential and
• (vi) possible mergers and acquisitions.

Research and development activities

Atlantic Grupa operates in the consumer goods industry segment that includes food products with added value and, accordingly, it uses activities like investing in research and development, investing in technology and closely monitoring market trends and consumer preferences to maintain high market shares in the listed segment. The portfolio of Atlantic Grupa includes a wide range of brands with leading market positions in the region in the segments of coffee, savoury spreads, snacks and beverages. Considering that some of the listed segments are exposed to strong competitive pressures by local and multinational companies, Atlantic Grupa in 2020 continued to actively manage its own brands.

Purchase of treasury shares

During 2020 the Company has purchased 9,899 treasury shares (2019: 11,441 shares) for the total value of HRK 11,022 thousand (2019: HRK 13,424 thousand) - Note 18 to the separate financial statements.

Subsidiaries

The Company owns shares in following companies:

• Atlantic Trade d.o.o. Zagreb, Croatia
• Atlantic Cedevita d.o.o., Zagreb, Croatia
• Hopen Investments B.V., Netherlands
• Montana Plus d.o.o., Zagreb, Croatia
• Atlantic Point d.o.o., Zagreb, Croatia
• Farmacia Holding d.o.o., Zagreb, Croatia
• Atlantic Brands GmbH, Austria
• Atlantic Multipower, Italy (under liquidation process)

More details of investment in subsidiaries are provided in Note 14 to the financial statements of the Company.

Financial instruments

Details of the exposure to financial risks are set out in the Note 3 of the financial statements of the Company.

Considering that the shares of Atlantic Grupa d.d. are quoted on the Zagreb Stock Exchange, Atlantic Grupa applies the valid Code of Corporate Governance of the Zagreb Stock Exchange and the Croatian Financial Services Supervisory Agency (HANFA).

In accordance with relevant regulations, Atlantic Grupa in 2020 issued a Statement of Application of the Code of Corporate Governance, thereby confirming its actions and development in accordance with the good corporate governance practice in all business segments. The Statement of Application of the Code of Corporate Governance has been published on the Company's website (www.atlanticgrupa.com) as well as on the website of the Zagreb Stock Exchange (www.zse.hr) and HANFA (www.hanfa.hr), whereas the following corporate governance issues differ, in terms of their definition, from the ones stipulated in the Code of Corporate Governance of the Zagreb Stock Exchange and HANFA:

The company's articles of association and/or internal acts prescribe that major decisions affecting the company's strategy, expenditure, risk exposure and reputation require the supervisory board's prior approval.	NO	Responsibilities of the Supervisory Board are set within the framework of the valid Companies Act.
Each supervisory board committee should have at least three members.	Partially	The Audit Committee has three members, the Nomination and Remuneration Committee has three members, while the Corporate Governance Committee had two members in 2020.
The remuneration policy should include provisions specifying the circumstances in which part of a management board member's remuneration would be withheld or recovered.	NO	The remuneration policy does not contain such provisions.
All persons listed in Article 81 of the Code attended the General Assembly in the last 12 months.	Partially	The maximum possible attendance of the listed persons was achieved in 2020.

In addition to the Code of Corporate Governance of the Zagreb Stock Exchange and HANFA, Atlantic Grupa also applies its own Code of Corporate Governance, thus improving the standards of business transparency and fully aligning them with European Union directives. The Code defines the procedures for the functioning of the Supervisory Board, Management Board and other bodies and structures responsible for decision-making, thus ensuring the avoidance of conflicts of interest, efficient internal control and an effective responsibility system. It is available on web pages of Atlantic Grupa (www.atlanticgrupa.com)../) Additionally, Atlantic Grupa is a signatory of the Code of Ethics in Business initiated by the Croatian Chamber of Economy. The listed Code lays down guidelines for ethical behaviour of business subjects in the Croatian economy. Such definition of ethical criteria contributes to more transparent and efficient business operations and high quality relations between economic operators in Croatia and the business environment in which they operate. By signing the Code of Ethics, its parties undertake to respect human rights, apply anti-corruption provisions, use responsible and ethical behaviour towards the other companies on the market, as well as develop high quality relations and loyal competition.

Furthermore, we are aware of their importance and promote the policy of diversity and nondiscrimination in the workplace and in employment. This was the motivation behind being us signing the Diversity Charter – the initiative started by 16 EU Member States, which was developed in Croatia within the project of the Croatian Business Council for Sustainable Development. By signing the Charter, we committed to promote the policy of diversity and non-discrimination in the work and business environment, which is implemented accordingly, while also regularly reporting on activities in this area.

Atlantic Grupa is developing and acting in accordance with good practice of corporate governance and endeavours, through its business strategy, business policy and key internal acts, to contribute to transparent and efficient business and quality relationships with the business environment in which it operates, following global and European trends.

The internal control and risk management system is an integral and important component of our business operations, and its elements, as specified below, as well as the description of the functioning of, and method of exercising voting rights at, the General Assembly, composition and functioning of the Management Board and Supervisory Board and their committees, as well as information on the Company's shareholders, are an integral part of this Corporate Governance Statement.

Organisation of corporate management

Atlantic Grupa's corporate management structure is based on a dual system consisting of the Company's Supervisory Board and Management Board. Together with the General Assembly, they represent the three principal bodies of the Company under the Articles of Association and the Companies Act.

General assembly

The General Assembly is a body in which shareholders accomplish their rights in Company matters. The method of functioning of the General Assembly, its powers, the rights of shareholders and the method of their exercise are defined in the Company's Articles of Association, which are publicly available on web pages of Atlantic Grupa (www.atlanticgrupa.com).

In 2020, one session of the General Assembly was held. In order to decide on issues prescribed by law and the Company's Articles of Association, the regular General Assembly of Atlantic Grupa d.d. was held on 18 June 2020. The following decisions were made at that Assembly: issuing the note of release to the members of the Management Board and the Supervisory Board, paying a dividend to the Company shareholders in the amount of HRK 25.00 per share, in proportion to the number of shares held by each shareholder, Decision on the Approval of the Remuneration Report for 2019, Decision on remuneration of the Supervisory Board members, Decision on the Approval of the Remuneration Policy for Members of the Management Board, Decision on Amending Atlantic Grupa's Articles of Association, and appointment of an independent Auditor of the Company for the year 2020. All decisions from the meetings held by the General Assembly were made in line with legal regulations and are available on web pages of Atlantic Grupa (www.atlanticgrupa.com) and the Zagreb Stock Exchange (www.zse.hr).

Supervisory Board

Atlantic Grupa d.d. has a Supervisory Board consisting of seven members. In 2020, the Supervisory Board held four sessions in accordance with the previously announced Schedule posted on web pages of the Company (www.atlanticgrupa.com) and the Zagreb Stock Exchange (www.zse.hr). The attendance percentage of the Supervisory Board members at these Sessions was 100.00%.

In line with the OECD Principles of Corporative Governance and recommendations of Code of Corporate Governance of the Zagreb Stock Exchange and HANFA in 2020, the Supervisory Board of Atlantic Grupa is mostly composed of independent members who are not in business, family, or other connections with the company, the majority shareholder, or a group of majority shareholders, or management board members or supervisory board members of the Company or the majority shareholder. Members of Supervisory Board are:

• Zdenko Adrović, President
• Siniša Petrović, Vice President
• Anja Svetina Nabergoj, Member
• Monika Elisabeth Schulze, Member
• Franz-Josef Flosbach, Member
• Aleksandar Pekeč, Member
• Lars Peter Elam Håkansson, Member

The members of the Supervisory Board have been remunerated for their work and have the right to remuneration appropriate to the period of their engagement and the tasks performed, as well as the Company's situation and business performance. In line with the above, in 2020 members of the Supervisory Board received remuneration in the following gross amount: Mr. Zdenko Adrović, a total of HRK 348,724.99; Mr. Siniša Petrović, a total of HRK 242,630.69; Ms. Anja Svetina Nabergoj, a total of HRK 180,000.00; Ms. Monika Schulze, a total of HRK 180,000.00; Mr. Franz-Jozef Flosbach, a total of HRK 153,513.25; Mr. Aleksandar Pekeč, a total of HRK 164,430.21 and Mr. Lars Peter Håkansson, a total of HRK 180,000.00.

Supervisory Board (continued)

Based on her professional education and long-standing lecturing experience in the field of development of design thinking and innovative processes at Universities of Stanford, USA, and Ljubljana, Slovenia, member of the Supervisory Board Anja Svetina Nabergoj has, during 2020, concluded three educational service contracts, with focus on their practical application. In accordance with the Companies Act, the Supervisory Board examined these engagements and, after careful review, unanimously approved them. These are: the Contract concluded on 09 March 2020 for the provision of training in the field of research of consumers' experiences and habits for the purpose of developing new products, the Contract concluded on 20 May 2020 for the provision of training in the field of innovation development and the Contract concluded on 28 July 2020 for the organisation of practical classes in the field of developing products adjusted to customer needs. In 2020, under these contracts concluded for the above purposes, member of the Supervisory Board Anja Svetina Nabergoj received a total amount of HRK 142,613.15.

Supervisory Board committees

Three Committees function within the Supervisory Board with the purpose of assisting the operation and functioning of the Supervisory Board:

• Audit Committee,
• Nomination and Remuneration Committee and
• Corporate Governance Committee.

Each of these Committees consists of three members, of which two are appointed from the ranks of the Supervisory Board members, while one member is appointed from the ranks of top experts in the subject area.

THE CORPORATE GOVERNANCE COMMITTEE defines a system of mechanisms for ensuring a balance between the rights of shareholders and the needs of management to direct and manage the Company's operations. It provides a framework to establish the Company's objectives and define the funds required to achieve those objectives as well as to monitor their implementation and efficacy. The Committee is chaired by Siniša Petrović, while Nina Tepeš was appointed as a member from the ranks of external experts. The Committee held five sessions throughout 2020, whereby the attendance percentage of its members was 100%.

THE NOMINATION AND REMUNERATION COMMITTEE proposes candidates for the Management Board, Supervisory Board and senior management personnel as well as contents of contracts with the members of Management Board, structure of their compensation and compensation of the Supervisory Board's members. The Committee is chaired by Aleksandar Pekeč. Lars Peter Elam Håkansson was appointed as a member from the ranks of the Supervisory Board and Zoran Sušanj as a member from the ranks of external experts. The Committee held two sessions throughout 2020, whereby the attendance percentage of its members was 100%.

THE AUDIT COMMITTEE analyses in detail the financial statements, provides support to the Company's accounting and establishes good and quality internal control within the Company. It monitors the integrity of financial information of the Company, particularly the accuracy and consistency of accounting methods used by the Company and the Group to which it belongs, including the criteria for consolidation of financial statements of the companies that belong to the Group. Also, the Committee assess the quality of the internal control and risk management system, with the aim of properly identifying, publicizing and managing the major risks to which the Company is exposed to. The Committee is chaired by Franz-Josef Flosbach. Marko Lesić was appointed as a member from the ranks of external experts, while Zdenko Ardović was appointed as a member from the ranks of the Supervisory Board. The Committee held two sessions throughout 2020, whereby the attendance percentage of its members was 83.33%.

The members of the said Committees who are not members of the Supervisory Board have received remuneration for their work and contribution to the functioning of the Supervisory Board of Atlantic Grupa. In 2020, Ms. Nina Tepeš received remuneration in the total gross amount of HRK 35,739.12, Mr. Marko Lesić in the total gross amount of HRK 6,200.40, and Mr. Zoran Sušanj in the total gross amount of HRK 11,695.92.

Management Board

The Management Board of Atlantic Grupa is composed of six members - President of the Management Board, Group Vice President for Corporate Activities, Group Vice President for Finance, Procurement and Investment, Group Vice President for Corporate Strategy and Development, Group Vice President for Distribution and Group Vice President for Savoury Spreads, Donat and International Expansion. The Management Board of Atlantic Grupa operates in the following composition:

• Emil Tedeschi, President of the Management Board
• Lada Tedeschi Fiorio, Group Vice President for Corporative Strategy and Development
• Neven Vranković, Group Vice President for Corporate Activities
• Zoran Stanković, Group Vice President for Finance, Procurement and Investment
• Srećko Nakić, Group Vice President for Distribution
• Enzo Smrekar, Group Vice President for Savoury Spreads, Donat and International Expansion

Strategic Management Council

Since its establishment in early 2012, the Strategic Management Council operates as a multifunctional body that discusses vital strategic and operational corporate issues, business analysis, priority definition, supervision of strategic plans, coordination between organisational units and key decision making. The Council includes the following members: President of the Management Board, Group Vice President for Corporate Activities, Group Vice President for Finance, Procurement and Investment, Group Vice President for Corporate Strategy and Development, Group Vice President for Distribution, Group Vice President for Savoury Spreads, Donat and International Expansion, Managing Directors of Strategic Business Units, Managing Directors of Strategic Distribution Units, Senior Executive Directors of Private Labels, Corporate Legal Affairs, Quality Management and Asset Management, Transformation and Information Technology and Corporate Key Accounts Management, Secretary General, as well as Executive Directors of the Business Unit Central Purchasing, People and Culture, Corporate Controlling, Central Marketing, and Corporate Strategy and New Growth.

Social Responsibility Committee

The Social Responsibility Committee contributes to the implementation of principles of sustainable development in the Company's everyday operations, monitors its status and starts initiatives for the improvement of corporate social responsibility. The Social Responsibility Committee is headed by the Company's Secretary General, while its members are: Executive Director of People and Culture, Director of Corporate Communications and Director of Corporate Quality Management.

Internal audit

The corporate internal audit of Atlantic Grupa performs an independent audit and control function and informs managers through comprehensive audit reports (findings and proposed improvements). Internal audit is responsible for estimating the level of risk management in business processes, reviewing the efficiency of the internal control systems with the purpose of advancing risk management and compliance with procedures, testing and analyses of compliance of the existing business systems with adopted policies, plans, procedures, laws and regulations that can have a significant influence on business reports.

It is responsible for recommending preventive measures in the area of financial reporting, compliance, business and control in order to eliminate risks and eventual deficiencies that could lead to inefficient processes or fraud. Internal audit informs the Audit Committee on its activities and audit plans, while its findings and recommendations help the management to improve processes, preventively eliminate potential risks or reduce risks to an acceptable level.

In 2020, seventeen audits were performed in the following areas: comparison of individual sites within SBU Beverages, maintaining production, planning process for marketing activities by using a digital tool, maintenance of equipment at customers' sites, office IT equipment, etc. These audits resulted in a total of 103 specific action proposals to improve operation and reduce specific risks to an acceptable level.

Responsibility for the annual financial statements

In accordance with provisions of Law on Capital Market, Zoran Stanković, Group Vice President for Finance, Procurement and Investment and Tatjana Ilinčić director of Department of Corporate Reporting and Consolidation, person responsible for corporate accounting, reporting and consolidation, together as persons responsible for the preparation of annual reports of the company Atlantic Grupa d.d. Zagreb, Miramarska 23, OIB 71149912416 (hereinafter: Company), hereby make the following

STATEMENT

According to our best knowledge the annual audited separate financial statements for 2020 are prepared in accordance with applicable standards of financial reporting and give true and fair view of the assets and liabilities, profit and loss, financial position and operations of the Company.

Report of the Company's Management board for the period from 1 January to 31 December 2020 contains the true presentation of development, results and position of the Company, with description of significant risks and uncertainties which the Company is exposed.

In Zagreb, 29 March 2021

_______________

Zoran Stanković Group Vice President for Finance, Procurement and Investment

_______________

Tatjana Ilinčić Director of Corporate Reporting and Consolidation

Responsibility for the financial statements

Pursuant to the Croatian Accounting Act, the Management Board is responsible for ensuring that financial statements are prepared for each financial year in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union ("EU") give a true and fair view of the financial position and results of Atlantic Grupa d.d. (the "Company") for that period.

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 financial statements.

In preparing these financial statements, the responsibilities of the Management Board include ensuring that:

• suitable accounting policies are selected and then applied consistently;
• judgments and estimates are reasonable and prudent;
• applicable accounting standards are followed; and
• the financial statements are prepared on the going concern basis 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 must also ensure that the financial statements comply with the Croatian Accounting Act. 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.

The accompanying financial statements were approved for issuance by the Management Board on 29 March 2021.

Emil Tedeschi President and Chief Executive Officer

Zoran Stanković Group Vice President for Finance, Procurement and Investment

Neven Vranković Group Vice President for Corporate Activities

Srećko Nakić Group Vice President for Distribution

Lada Tedeschi Fiorio Group Vice President for Corporate Strategy and Growth

Enzo Smrekar Group Vice President for Savoury spreads, Donat and International Expansion

Independent auditor's report

To the Shareholders of Atlantic Grupa d.d.

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Atlantic Grupa d.d. (the Company), which comprise the balance sheet as at 31 December 2020, income statement and the statement of other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2020 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU (IFRS as adopted by the EU).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the Company in accordance with the International Ethics Standards Board of Accountants' (IESBA) International Code of Ethics for Professional Accountants, including International Independence Standards (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

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

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. For the matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying financial statements.

Key Audit Matter	How we addressed Key Audit Matter
Assessment of impairment of investments in subsidiaries See Note 4 Critical accounting estimates and Note 14 Investments in subsidiaries of the financial statements. The Company has investments in subsidiaries with carrying amount totalling HRK 1,325,705 thousand as at 31 December 2020. The carrying amount of the investments in subsidiaries represents 74% of total assets and the assessment of the impairment indicators represents significant area of management's judgment, regarding but not limited to, market values, future plans, changes in the economic environment and interest rate changes. Due to the range of judgements and assumptions used in the models and impairment assessments, as well as the significant carrying amount of the investments in subsidiaries, this is an area considered to be a key audit matter.	Audit procedures included understanding of the investment impairment assessment process. We examined the methodology used by management to assess the carrying value of respective investment in subsidiaries to determine its compliance with IFRS as adopted by the EU and consistency of application. We evaluated management assessment of indicators of potential impairments and where indicators exist, we performed the procedures listed below. We evaluated the subsidiaries' future cash flow forecasts and the process by which they were prepared. We also compared the budget inputs in the models to the approved budgets and forecast inputs in the models to management plans. We compared the current year (2020) actual results with the figures included in the prior year (2019) forecasts to evaluate assumptions used. We also compared management's key assumptions for long-term growth rate by comparing it to historical growth results and market data.
	We performed audit procedures on the mathematical integrity of the impairment models, sensitivity analysis and tested the appropriateness of discount rates used in the calculation with the assistance of the valuation specialists. We also assessed the completeness of the impairment charges.
	We also assessed adequacy of the disclosures in the financial statements and if these are in line with the requirements of IFRS as adopted by the EU.

Other information included in the Company's Annual Report for year 2020

Management is responsible for the other information. Other information consists of the information included in the Annual Report which includes the Management report and Corporate Governance Statement, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the Other information including the Management report and Corporate Governance Statement.

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.

Other information included in the Company's Annual Report for year 2020 (continued)

With respect to the Management Report and Corporate Governance Statement, we also performed procedures required by the Accounting Act. Those procedures include considering whether the Management Report includes the disclosures required by Article 21 of the Accounting Act, and whether the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act.

Based on the procedures undertaken, to the extent we are able to assess it, we report that:

1. the information given in the enclosed Management report for the 2020 financial year are consistent, in all material respects, with the enclosed financial statements;

2.the enclosed Management report for 2020 financial year is prepared in accordance with requirements of Article 21 of the Accounting Act;

1. Corporate Governance Statement, included in the Company's Annual report, includes the information referred to in Article 22., paragraph 1., items 2, 5, 6 and 7 of the Accounting Act; and

2. elements of Corporate Governance Statement containing the information referred to in Article 22, paragraph 1, items 3 and 4 of the Accounting Act, included in the Company's Annual report are prepared in accordance with requirements of the Accounting Act and are consistent, in all material respects, with the enclosed financial statements;

In addition, in the 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, Corporate Governance Statement and Annual report. We have nothing to report in this respect.

Responsibilities of management and Audit Committee for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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.

Audit Committee is responsible for overseeing the Company's financial reporting process.

Auditor's 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 auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered 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.

Auditor's responsibilities for the audit of the financial statements (continued)

As part of an audit in accordance with ISAs, 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 control.
• 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 control.
• 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 auditor's 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 auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide Audit Committee 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 Audit Committee, 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 auditor's 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

In compliance with Article 10(2) of Regulation (EU) No. 537/2014 of the European Parliament and the Council, we provide the following information in our independent auditor's report, which is required in addition to the requirements of ISAs:

Appointment of Auditor and Period of Engagement

Ernst & Young d.o.o. was initially appointed as auditors of the Company on 29 June 2017. This appointment has been renewed annually by shareholder resolution, with the most recent reappointment on 18 June 2020, representing a total period of uninterrupted engagement appointment of four years.

Kulić i Sperk REVIZIJA d.o.o. was initially appointed as auditors of the Company on 18 June 2020, representing a total period of uninterrupted engagement appointment of one year.

Consistence with Additional Report to Audit Committee

We confirm that our audit opinion on the financial statements expressed herein is consistent with the additional report to the Audit Committee of the Company, which we issued on 18 March 2021 in accordance with Article 11 of Regulation (EU) No. 537/2014 of the European Parliament and the Council.

Provision of Non-audit Services

We declare that no prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014 of the European Parliament and the Council were provided by us to the Company and its controlled undertakings within the European Union. In addition, there are no other non-audit services which were provided by us to the Company and its controlled undertakings and which have not been disclosed in the financial statements.

The partners in charge of the audit resulting in this independent auditor's report are Berislav Horvat for Ernst & Young d.o.o. and Janja Kulić for Kulić i Sperk REVIZIJA d.o.o.

Berislav Horvat, Janja Kulić, President of the Board and Certified auditor Director and Certified auditor 29 March 2021 29 March 2021 Ernst & Young d.o.o. Kulić i Sperk REVIZIJA d.o.o. Radnička cesta 50 Radnička cesta 52 Zagreb Zagreb Republic of Croatia Republic of Croatia

ATLANTIC GRUPA d.d. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020

(all amounts expressed in thousands of HRK)	Note	2020	2019
Revenues	25	191,025	165,861
Other income	5	253,165	251,783
Staff costs	6	(97,868)	(96,630)
Marketing and promotion costs	7	(6,902)	(5,303)
Depreciation and amortisation	12, 12a, 13	(30,643)	(25,505)
Other operating costs	8	(67,281)	(63,919)
Other losses – net	9	(9,360)	(29,079)
Operating profit		232,136	197,208
Finance income Finance costs	10 10	1,354 (9,308)	423 (11,018)
Finance costs – net	10	(7,954)	(10,595)
Profit before tax		224,182	186,613
Income tax expense	11	352	981
Net profit for the year		224,534	187,594

ATLANTIC GRUPA d.d. STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020

(all amounts expressed in thousands of HRK)	2020	2019
Net profit for the year	224,534	187,594
Other comprehensive income/(loss): Items that will not be reclassified to profit or loss
Actuarial gain/(loss) from defined benefit plans, net of tax	8	(38)
	8	(38)
Other comprehensive income/(loss) for the year, net of tax	8	(38)
Total comprehensive income for the year	224,542	187,556

(all amounts are expressed in thousands of HRK)	Note	31 December 2020	31 December 2019
ASSETS
Non-current assets
Property, plant and equipment	12	58,146	13,399
Right-of-use assets	12a	27,188	23,303
Intangible assets	13	45,582	46,943
Investments in subsidiaries	14	1,325,705	1,333,464
Deferred tax assets	21	5,061	4,709
Trade and other receivables	16	11,733	11,582
		1,473,415	1,433,400
Current assets
Trade and other receivables	16	174,449	110,617
Income tax receivable		736	496
Cash and cash equivalents	17	148,056	52,035
		323,241	163,148
Total assets		1,796,656	1,596,548
EQUITY AND LIABILITIES Capital and reserves attributable to owners of the Company
Share capital	18	133,372	133,372
Share premium	18	881,851	881,323
Treasury shares	18	(7,647)	(5,884)
Retained earnings		334,494	193,138
Total equity		1,342,070	1,201,949
Non-current liabilities
Borrowings	20	298,919	199,983
Lease liabilities	12a	18,290	14,511
Provisions	22	11,739 328,948	6,107 220,601
Current liabilities
Trade and other payables	19	37,417	54,708
Borrowings	20	20,445	51,417
Lease liabilities	12a	10,848	9,941
Provisions	22	56,928	57,932
		125,638	173,998
Total liabilities		454,586	394,599
Total equity and liabilities		1,796,656	1,596,548

ATLANTIC GRUPA d.d. STATEMENT OF CHANGES IN EQUITY AT 31 DECEMBER 2020

(all amounts are expressed in thousands of HRK)	Share capital, Share premium and Treasury shares	Retained earnings	Total
Balance at 1 January 2019	1,014,555	112,181	1,126,736
Comprehensive income: Net profit for the year Other comprehensive loss	- -	187,594 (38)	187,594 (38)
Total comprehensive income for the year	-	187,556	187,556
Transaction with owners
Purchase of treasury shares	(13,424)	-	(13,424)
Share based payment (Note 18)	7,680	-	7,680
Dividends (Note 18)	-	(106,599)	(106,599)
At 31 December 2019	1,008,811	193,138	1,201,949
Balance at 1 January 2020 Comprehensive income:	1,008,811	193,138	1,201,949
Net profit for the year	-	224,534	224,534
Other comprehensive income	-	8	8
Total comprehensive income for the year	-	224,542	224,542
Transaction with owners
Purchase of treasury shares	(11,022)	-	(11,022)
Share based payment (Note 18)	9,787	-	9,787
Dividends (Note 18)	-	(83,186)	(83,186)
At 31 December 2020	1,007,576	334,494	1,342,070

ATLANTIC GRUPA d.d. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020

(all amounts expressed in thousands of HRK)	Note	2020	2019
Cash flows (used in)/from operating activities
Cash (used in)/ generated from operations	24	(6,690)	41,607
Income tax paid		(240)	(437)
Interest paid		(4,624)	(8,135)
		(11,554)	33,035
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets	12, 12a,13	(63,829)	(25,498)
Proceeds from sale of property, plant and equipment		-	170
Proceeds from sale of investment in subsidiary	14	39,366	81,467
Investments in subsidiaries	14	-	(259)
Repayments of loans receivable and deposits placed - net		(69,561)	887
Dividends received	5	193,000	129,000
Interest received		488	114
		99,464	185,881
Cash flows from/(used in) financing activities
Issuance of bonds	20	140,025	-
Purchase of bonds	20	(43,796)	-
Proceeds from borrowings	20	309,264	132,107
Repayment of borrowings	20	(293,386)	(176,938)
Principal elements of lease payments	12a	(9,788)	(9,381)
Purchase of treasury shares	18	(11,022)	(13,424)
Dividends paid	18	(83,186)	(106,599)
		8,111	(174,235)
Net increase in cash and cash equivalents		96,021	44,681
Cash and cash equivalents at beginning of year		52,035	7,354
Cash and cash equivalents at end of year	17	148,056	52,035

NOTE 1 – GENERAL INFORMATION

Atlantic Grupa d.d. (the Company) was incorporated in the Republic of Croatia in 2002. The Company performs corporate activities such as planning entrepreneurial functions, organisation of principal activities, gathering and utilising financial assets, defining the strategy and development of business activities of the Atlantic Grupa (the Company and its subsidiaries, see Note 14).

The Company is domiciled in Zagreb, Miramarska 23, Croatia.

The Company's shares are listed on the Prime market of the Zagreb Stock Exchange. The shareholder structure is disclosed in Note 18.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) which were endorsed by the European Union (EU) under the historical cost convention.

The preparation of financial statements in conformity with IFRS which were endorsed by EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4.

The Company has issued these separate financial statements in accordance with Croatian regulations. The Company has also prepared consolidated financial statements as at 31 December 2020 and for the year then ended in accordance with IFRS which were endorsed by the EU for the Company and its subsidiaries (the Group), which were approved by the Management Board on 29 March 2021. Users of these separate financial statements should read them together with the Group's consolidated financial statements as at and for the year ended 31 December 2020 in order to obtain full information on the financial position, results of operations and changes in financial position of the Group as a whole. Consolidated financial statements are published on the Company's website (www.atlanticgrupa.com).

Changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the amendments listed below which are the result of amendments to International Financial Reporting Standards (IFRS) adopted by the Company as of 1 January 2020 and which did not have material impact on the financial statements of the Company. The Company has not early adopted any standards, interpretations or amendments that have been issued by the International Financial Standards Board ("Board") but are not yet effective.

2.1 Basis of preparation (continued)

(a) Standards and Interpretations effective in the current period

• Conceptual Framework in IFRS standards – revised issued on 29 March 2018. The Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. IASB also issued a separate accompanying document, Amendments to References to the Conceptual Framework in IFRS, which sets out the amendments to affected standards in order to update references to the revised Conceptual Framework. Its objective is to support transition to the revised Conceptual Framework for companies that develop accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular transaction. For preparers who develop accounting policies based on the Conceptual Framework, it is effective for annual periods beginning on or after 1 January 2020.

• IFRS 3: Business Combinations (Amendments) - amendments in Definition of a Business aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The Amendments are effective for business combinations for which the acquisition date is in the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period, with earlier application permitted.

• IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of 'material' (Amendments) effective for annual periods beginning on or after 1 January 2020 with earlier application permitted. The Amendments clarify the definition of 'material' and how it should be applied. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity'. In addition, the explanations accompanying the definition have been improved. The Amendments also ensure that the definition of 'material' is consistent across all IFRS standards.

• Interest Rate Benchmark Reform - IFRS 9, IAS 39 and IFRS 7 (Amendments) effective for annual periods beginning on or after 1 January 2020 and must be applied retrospectively. Earlier application is permitted. In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. The amendments published, deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement, which require forward-looking analysis. The amendments provided temporary reliefs, applicable to all hedging relationships that are directly affected by the interest rate benchmark reform, which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate.

There are also amendments to IFRS 7 Financial Instruments: Disclosures regarding additional disclosures around uncertainty arising from the interest rate benchmark reform. Phase two will focus on issues that could affect financial reporting when an existing interest rate benchmark is replaced with a risk-free interest rate (an RFR).

2.1 Basis of preparation (continued)

(b) Standards, amendments and interpretations issued but not yet effective and not early adopted

At the date of authorization of these financial statements the following standards, amendments and interpretations were in issue but not yet effective and not early adopted:

• IFRS 17 Insurance Contracts effective for annual periods beginning on or after 1 January 2021 with earlier application permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have also been applied. IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity. The standard has not been yet endorsed by the EU and is not applicable to the Company.

• IFRS 17: Insurance Contracts (Amendments), IFRS 4: Insurance Contracts (Amendments)

The amendments to IFRS 17 are effective, retrospectively, for annual periods beginning on or after January 1, 2023, with earlier application permitted. The amendments aim at helping companies implement the Standard. In particular, the amendments are designed to reduce costs by simplifying some requirements in the Standard, make financial performance easier to explain and ease transition by deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time. The amendments to IFRS 4 change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after January 1, 2023. The Amendments to IFRS 17 have not yet been endorsed by the EU and are not applicable to the Company.

• Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU and the Management anticipates that the adoption will have no material impact on the financial statements of the Company.

2.1 Basis of preparation (continued)

(b) Standards, amendments and interpretations issued but not yet effective (continued)

• IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Noncurrent (Amendments), effective for annual reporting periods beginning on or after January 1, 2022 with earlier application permitted. However, in response to the covid-19 pandemic, the Board has deferred the effective date by one year, i.e. 1 January 2023, to provide companies with more time to implement any classification changes resulting from the amendments. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments. These Amendments have not yet been endorsed by the EU and management anticipates that the adoption will have no material impact on the financial statements of the Company.

• IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets as well as Annual Improvements 2018- 2020 (Amendments) effective for annual periods beginning on or after 1 January 2022 with earlier application permitted. The IASB has issued narrow-scope amendments to the IFRS Standards as follows:

IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.

IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous.

Annual Improvements 2018-2020 make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases.

The amendments have not yet been endorsed by the EU and management anticipates that the adoption will have no material impact on the financial statements of the Company.

2.1 Basis of preparation (continued)

(b) Standards, amendments and interpretations issued but not yet effective (continued)

• IFRS 16 Leases-Covid 19 Related Rent Concessions (Amendment) applies, retrospectively, to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at 28 May 2020. IASB amended the standard to provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. The amendment provides a practical expedient for the lessee to account for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change was not a lease modification, only if all of the following conditions are met:

The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change.

Any reduction in lease payments affects only payments originally due on or before 30 June 2021.

There is no substantive change to other terms and conditions of the lease.

This amendment did not have an impact on the Company's financial statements.

• Interest Rate Benchmark Reform – Phase 2 – IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Amendments) In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, completing its work in response to IBOR reform. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). In particular, the amendments provide for a practical expedient when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, to require the effective interest rate to be adjusted, equivalent to a movement in a market rate of interest. Also, the amendments introduce reliefs from discontinuing hedge relationships including a temporary relief from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. Furthermore, the amendments to IFRS 4 are designed to allow insurers who are still applying IAS 39 to obtain the same reliefs as those provided by the amendments made to IFRS 9. There are also amendments to IFRS 7 Financial Instruments: Disclosures to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity's financial instruments and risk management strategy. The amendments are effective for annual periods beginning on or after 1 January 2021 with earlier application permitted. While application is retrospective, an entity is not required to restate prior periods. Management anticipates that the adoption of Phase 2 of this reform will not have a material impact on the Company's financial statements.

2.2 Foreign currencies

(a) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment where the entity operates ('the functional currency'). The financial statements are presented in Croatian kuna (HRK), which is the Company's functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of these transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign exchange gains and losses related to borrowings and lease liabilities are presented in the income statement within 'finance costs - net'. All other foreign exchange gains and losses are presented in the income statement within 'other gains/(losses) – net'.

2.3 Investments in subsidiaries

Investments in subsidiaries in which the Company has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations are recorded at cost less impairment losses, if any. Impairment is tested annually whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Investments in subsidiaries for which an impairment loss has been previously recognized are tested at each reporting date for a potential reversal of impairment.

Dividend income is recognised when the right to receive payment is established.

2.4 Property, plant and equipment

Motor vehicles, equipment, land, leasehold improvements and assets not yet in use are included in the balance sheet at historical cost less accumulated depreciation and provision for impairment, if required. Historical cost includes expenditure directly attributable to the acquisition of items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land and assets not yet in use are not depreciated. Depreciation of motor vehicles, equipment and investments in leasehold improvements is calculated using the straight-line method to allocate their cost to residual values over their estimated useful lives, as follows:

Motor vehicles	5 years
Leasehold improvements	4 to 10 years
Equipment	2 to 10 years

The residual value of an asset is an estimated amount that the Company would currently obtain from disposal of the asset less estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil if the Company expects to use the asset until the end of its physical life. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 2.6).

Gains and losses on disposals are determined by comparing the proceeds with carrying amount, and are recognised within 'other gains/(losses) – net' in the income statement.

2.5 Intangible assets

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight-line method over their estimated useful lives (4 to 5 years).

2.6 Impairment of non-financial assets

Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.7 Financial assets

The Company classifies its financial assets in the following categories: financial asset at fair value through other comprehensive income (OCI), financial assets at fair value through profit or loss and financial assets at amortised cost. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition and revalues this designation at each reporting date.

(a) Financial assets at amortised costs

The Company measures financial assets at amortised cost if both of the following conditions are met:

• o the financial asset is held within a business model with the objective of holding financial assets in order to collect contractual cash flows,
• o The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Financial assets at amortised cost include trade receivables and loans and deposits given.

(b) Financial assets at fair value through profit or loss

This category includes financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets except derivative financial instruments.

(c) Financial assets at fair value through OCI

The Company measures financial assets at fair value through OCI if both of the following conditions are met:

• o the financial asset is held within a business model with the objective of holding the financial assets to collect and selling contractual cash flows,
• o the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of the principal and interest on the principal amount outstanding.

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for the financial assets measured at amortised cost.

The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

Financial assets at fair value through OCI are included in non-current assets unless management intends to dispose the investment within 12 months of the balance sheet date. Financial assets at fair value through OCI are carried at fair value, except investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, consequently, these are carried at cost.

2.7 Financial assets (continued)

Regular way purchases and sales of financial assets are recognised on trade-date – the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as financial assets at fair value through OCI are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security.

Interest income and the translation differences are recognised in the income statement, whereas other changes in carrying amount are recognised in other comprehensive income. Changes in the fair value of other monetary securities classified as financial assets at fair value through OCI and non-monetary securities classified as financial assets at fair value through OCI are recognised in other comprehensive income.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm's length transactions and references to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. Financial assets are written off when there is no reasonable expectation of recovery. The amount of the impairment and subsequent recoveries of amounts previously written off are recognised in the income statement within 'other operating costs'.

2.8 Leases

i) The Company's leasing activities and accounting policy

The Company leases various offices, equipment and vehicles. Rental contracts are typically made for fixed periods of 12 months to 5 years, but may have extension options as described in (iii) below.

Contracts may contain both lease and non-lease components. The Company has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• o fixed payments (including in-substance fixed payments), less any lease incentives receivable
• o variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• o amounts expected to be payable by the Company under residual value guarantees
• o the exercise price of a purchase option if the Company is reasonably certain to exercise that option, and
• o payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. In that sense, incremental borrowing rate of 2%, representing unsecured risk of the Company was used for new and modified leases whose maturity is above 5 years (2019: 3%), and incremental borrowing rate of 1%, representing the secured risk of the Company was used for new and modified leases with maturity of 5 years and less (2019: 2%).

2.8 Leases (continued)

i) The Company's leasing activities and accounting policy (continued)

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• o the amount of the initial measurement of lease liability
• o any lease payments made at or before the commencement date less any lease incentives received
• o any initial direct costs, and
• o restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Company is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases of equipment and vehicles and all leases of software licences and low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

ii) Variable lease payments

The Company may be exposed to variable payment terms linked to an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Variable lease payments which depend on the sales realization, if contracted, are recognized in the income statement within 'other operating costs'.

iii) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Company. These are used to maximise operational flexibility in terms of managing the assets used in the Company's operations.

Lease income from operating leases where the Company is a lessor is recognised in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature.

2.9 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest (EIR) method, less the allowance for expected credit losses (ECLs), as described in Note 2.7.

2.10 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid instruments with original maturities of three months or less. Bank overdrafts are included within current liabilities on the balance sheet.

2.11 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of the consideration received over the par value of the shares issued is presented in the notes as a share premium.

When the Company purchases its equity share capital (treasury shares), the consideration paid, including all directly attributable incremental transaction costs, is deducted from equity until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity.

2.12 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.13 Current and deferred tax

The current tax charge is calculated on the basis of the tax law enacted at the balance sheet date in Croatia. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and consider establishing provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is provided, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.14 Employee benefits

(a) Pension obligations and post-employment benefits

The Company makes payments to mandatory pension funds on behalf of its employees in the ordinary course of business through salary deductions, as required by law. All contributions made to the mandatory pension funds are recorded as salary expense when incurred. The Company has no other pension scheme and consequently, has no other obligations in respect of employee pensions. In addition, the Company is not obliged to provide any other post-employment benefits except for the oneoff retirement payment as prescribed by internal rulebook. The liability recognised in the balance sheet in respect of one-off retirement payment is the present value of the defined benefit obligation at the end of the reporting period. This obligation is calculated annually by independent actuaries. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Interest costs/income arising from actuarial calculation are charged/credited to income statement within 'interest expenses'.

(b) Termination benefits

Termination benefits are payable when employment is terminated by the Company before the ordinary retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy or early retirement. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value.

(c) Long-term employee benefits

The Company recognises a liability for long-term employee benefits (jubilee awards) evenly over the period the benefit is earned based on actual years of service. The long-term employee benefit liability includes assumptions regarding the likely number of staff to whom the benefit will be payable, estimated benefit cost and the discount rate. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged immediately or credited to the income statement within 'staff costs'. Interest costs/income arising from actuarial calculation are charged/credited to income statement within 'interest expenses'.

2.14 Employee benefits (continued)

(d) Share-based compensations

Management and employees of the Company are entitled through ESOP program to receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ('equity-settled transactions').

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which relevant employees become fully entitled to the award ('the vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

(e) Short-term employee benefits

The Company recognises a provision for bonuses and accumulating unused vacation entitlement days if contractually obliged or if there is a past practice that has created a constructive obligation.

2.15 Provisions

Provisions for termination benefits, legal proceedings and employee benefits are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.

When there is a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.16 Revenue recognition

Company recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expect to be entitled in exchange for those goods or services. This core principle is delivered in a five-step model framework.

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company's activities. Revenue is presented net of value-added tax. The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Company's activities as described below.

(a) Revenue from services

Revenue from services is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Income from corporate governance services is recognised in the accounting period in which the services are rendered and invoiced.

(b) Interest income

Interest income arising from fixed-term bank deposits, granted loans and interest from customers is recognised on a time-proportion basis using the effective interest method.

(c) Dividend income

Dividend income is recognised when the right to receive payment is established.

(d) Rental income

Rental income is generally recognised in the period in which the services are provided using a straightline basis over the terms of contracts with lessees and presented in income statement within "Other income".

2.17 Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which dividends are approved by the Company's General Assembly.

2.18 Value added tax

The Tax Authorities require the settlement of VAT on a net basis. VAT related to sales and purchases is recognised and disclosed in the balance sheet on a net basis. Where a provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT.

2.19 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the regular operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.20 Operating segments reporting

The Company does not report information about its operating segments in separate financial statements, as its activities are of corporate nature. Operating segments reporting is relevant from Group perspective, and is presented in consolidated financial statements of the Group which are published on the Company's website (www.atlanticgrupa.com).

NOTE 3 – FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. Management closely monitors the risk profile of the Company's operations, including the establishment of authorisation and accountability levels.

(a) Market risk

(i) Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the EUR. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Movements in exchange rates between the EUR and Croatian kuna (HRK) may have an impact on the results of future operations and future cash flow. The table below shows EUR denominated trade and other payables, trade and other receivables, cash and cash equivalents, borrowings and lease liabilities as a percentage of their total balances at the balance sheet dates.

	2020	2019
Trade and other receivables	26%	32%
Trade and other payables	15%	23%
Cash and cash equivalents	8%	23%
Borrowings	-	16%
Lease liabilities	98%	97%

As at 31 December 2020 if the EUR had weakened/strengthened by 0.5% against the HRK, with all other variables held constant, profit for the year would differ by -/+ HRK 94 thousand.

As at 31 December 2019 if the EUR had weakened/strengthened by 0.5% against the HRK, with all other variables held constant, profit for the year would differ by +/- HRK 22 thousand.

3.1 Financial risk factors (continued)

• (a) Market risk (continued)
• (ii) Cash flow and fair value interest rate risk

As the Company does not have significant interest-bearing assets, the Company's income and operating cash flows are not substantially dependent of changes in market interest rates.

The Company's interest rate risk arises from long-term borrowings and bonds issued. Debt issued at variable rates expose the Company to cash flow interest rate risk. Debt issued at fixed rates expose the Company to fair value interest rate risk.

The Company analyses its interest rate changes on a regular basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift.

At 31 December 2020, if the effective interest rate on borrowings had been 100 basis points higher/lower on an annual level, profit for the year would have been HRK 253 thousand lower/higher (2019: HRK 682 thousand lower/higher).

(b) Credit risk

The Company's assets, potentially subjecting the Company to concentrations of credit risk, primarily include cash and trade and other receivables. The Company does not have significant concentrations of credit risk, since loans and receivables mainly relate to transactions within the Group. The Company has policies that limit the amount of credit exposure to any financial institution.

3.1 Financial risk factors (continued)

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to meet all obligations. The Company aims to maintain flexibility in funding by keeping committed credit lines available. Trade and other payables as well as short-term borrowings are due within 12 months after the balance sheet date, while the maturity of long-term borrowings is disclosed in Note 20.

Cash flow forecasting is performed by Company finance. Company finance monitors the Company's liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities when needed. Such forecasting takes into consideration the Company's debt financing plans, covenant compliance and compliance with internal balance sheet ratio targets.

Surplus cash held over and above the balance required for working capital management is invested in interest bearing gyro accounts, time deposits and cash funds, i.e. instruments with appropriate maturities or sufficient liquidity. At the balance sheet date the Company held cash and cash equivalents in the amount of HRK 148,056 thousand (2019: 52,035 thousand) that are expected to readily generate cash inflows for managing liquidity risk.

The next table analyses financial liabilities of the Company according to contracted maturities. The amounts stated below represent undiscounted cash flows.

(in thousands of HRK)	Less than 1 year	Between 1- 5 years	Total
31 December 2020 Trade and other payables	31,566	-	31,566
Borrowings Lease liabilities	23,103 11,506	310,500 18,768	333,603 30,274
(in thousands of HRK)	Less than 1 year	Between 1- 5 years	Total

31 December 2019
Trade and other payables	49,019	-	49,019
Borrowings	57,596	206,250	263,846
Lease liabilities	10,419	15,047	25,466

(in thousands of HRK)	Bonds Non current	Bonds Current	Bank borrowings	Related parties borrowings	Leases Non Current	Leases Current	Total
1 January 2020	199,983	124	46,750	4,543	14,511	9,941	275,852
Cash flow	96,229	-	(31,975)	47,853	-	(9,788)	102,319
Additions, modifications and leases expirations	-	-	-	-	13,086	1,144	14,230
Prepaid fee amortized	154	-	-	-	-	-	154
Current portion	-	-	-	-	(9,453)	9,453	-
Compensations	-	-	-	(47,000)	-	-	(47,000)
FX movement	-	-	302	(853)	146	98	(307)
Other	2,553	(124)	(77)	902	-	-	3,254
31 December 2020	298,919	-	15,000	5,445	18,290	10,848	348,502

3.2 Changes in liabilities arising from financial activities

The effect of net settlement of receivables from distribution of profit with borrowing liabilities are shown as "Compensations". The line "Other" includes change in interest payable liability as the Company classifies interest paid as cash flows from operating activities.

3.3 Capital risk management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital and net debt. Net debt is calculated as total borrowings (including long-term and short-term borrowings, as shown in the balance sheet) plus lease liabilities, derivative financial liabilities less cash and cash equivalents. Total capital and net debt is calculated as equity, as shown in the balance sheet, plus net debt.

3.3 Capital risk management (continued)

The gearing ratios were as follows:

	31 December 2020	31 December 2019
	(in thousands of HRK)
Total borrowings (Note 20)	319,364	251,400
Lease liabilities (Note 12a)	29,138	24,452
Less: Cash and cash equivalents (Note 17)	(148,056)	(52,035)
Net debt	200,446	223,817
Total equity	1,342,070	1,201,949
Total capital and net debt	1,542,516	1,425,766
Gearing ratio	13%	16%

3.4 Fair value estimation

All financial instruments that are recognized and measured at fair value in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

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-thecounter 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 instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments.
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value.
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

Impairment of Investments in subsidiaries

The Company performs analysis on an annual basis to conclude whether there are any indicators that investment in subsidiaries suffers any impairment, in accordance with the accounting policy disclosed in Note 2.3. If any indicator of impairment exists, the Company performs impairment tests. These tests require the use of estimates such as expected growth rate, discount rate etc., that are mainly based on market conditions existing at the time when the tests are performed.

NOTE 5 – OTHER INCOME

	2020	2019
	(in thousands of HRK)
Dividend income – related parties (Note 25)	240,000	239,000
Rental income – third parties	1,881	1,927
Interest income - third parties	688	113
Interest income – related parties (Note 25)	370	140
Other income – related parties (Note 25)	122	197
Other	10,104	10,406
	253,165	251,783

NOTE 6 – STAFF COSTS

	2020	2019
	(in thousands of HRK)
Gross salaries /i/	72,262	67,443
Education	1,337	3,335
Public transport	368	604
Other staff costs /ii/	23,901	25,248
	97,868	96,630

In 2020, the average employees number was 170 (2019: 164).

• /i/ Pension contributions to mandatory pension funds for the year ended 31 December 2020 amounted to HRK 10,299 thousand (2019: 9,568 thousand).
• /ii/ Other staff costs comprise of bonuses, education expenses, accruals for unused vacation days and jubilee awards.

NOTE 7 – MARKETING AND PROMOTION COSTS

	2020	2019
	(in thousands of HRK)
Advertising and marketing expenses	3,003	1,249
Sponsorships and donations	2,551	2,867
Market research expenses	1,348	1,187
	6,902	5,303

NOTE 8 – OTHER OPERATING COSTS

	2020	2019
	(in thousands of HRK)
Donations – Covid 19	14,070	-
Rentals	12,034	8,542
Maintenance and security	11,938	10,631
Intellectual services	7,113	8,264
Telecommunication services	4,391	4,383
Transportation services	4,120	6,839
Services from related parties (Note 25)	2,208	5,495
Entertainment	2,068	6,453
Supervisory Board compensation	1,496	1,174
Subscriptions and membership fees	1,118	965
Travel expense and daily allowances	798	3,019
Insurance premiums	751	576
Fuel	662	1,124
Office supplies	623	623
Taxes and contributions irrespective of operating results	307	234
Bank charges	203	301
Impairment of receivables (Note 16)	-	365
Other	3,381	4,931
	67,281	63,919

NOTE 9 – OTHER LOSSES – NET

	2020	2019
	(in thousands of HRK)
Loss from sale of subsidiaries Impairment of investment in subsidiaries Gain on sale of property, plant and equipment Foreign exchange (losses)/ gains – net Other gains	(1,153) (7,759) - (544) 96	(24,243) (5,000) 83 81 -
	(9,360)	(29,079)

NOTE 10 – FINANCE COSTS – NET

	2020	2019
	(in thousands of HRK)
Finance income:
Foreign exchange gains from borrowings and lease liabilities	1,354	423
	1,354	423
Finance costs:
Interest expense - bonds	(6,393)	(6,386)
Interest expense - related parties (Note 25)	(902)	(2,343)
Interest expense - leases	(464)	(539)
Interest expense - banks	(274)	(1,048)
Interest expense - other	(34)	(13)
Total interest expense	(8,067)	(10,329)
Foreign exchange losses from borrowings and lease liabilities	(1,241)	(689)
	(9,308)	(11,018)
	(7,954)	(10,595)

NOTE 11 – INCOME TAX EXPENSE

	2020	2019
	(in thousands of HRK)
Current income tax	-	38
Deferred tax (Note 21) Tax income	(352) (352)	(1,019) (981)

The tax on the Company's profit before tax differs from the theoretical amount that would arise using the tax rate of 18% (2019: 18%) applicable to the Company's profit as follows:

	2020	2019
	(in thousands of HRK)
Profit before tax	224,182	186,613
Tax at 18%	40,353	33,590
Effect of expenses not deductible for tax purposes	7,917	5,980
Effect of income not subject to tax	(46,798)	(46,373)
Effect of used tax losses	(1,824)	-
Unrecognized tax losses	-	5,822
Tax income	(352)	(981)
Effective tax rate	-	-

In accordance with positive legal regulations, the Tax Authority may carry out a tax audit within three years from the year in which the income tax liability for a certain financial period was established. The statute of limitations applicable on the right to assess tax liabilities and interest commences upon expiry of the year in which a tax liability became payable. The moment when the tax liability becomes payable is prescribed by special tax laws governing various types of direct and indirect taxes. The tax audit which was auditing the tax return for the year 2017, and which started in 2019, was completed by the end of 2020. The tax audit assessed an additional corporate income tax liability amounting to HRK 139 thousand. The Company has not yet settled the above tax liability assessed in the course of the tax audit since it has not yet received a written decision and does not intend to appeal the findings of the tax audit.

NOTE 12 – PROPERTY, PLANT AND EQUIPMENT

(in thousands of HRK)	Land	Leasehold Improvements	Equipment	Assets not yet in use	Total
At 31 December 2018
Cost	-	17,245	14,239	1,390	32,874
Accumulated depreciation	-	(10,491)	(8,856)	-	(19,347)
Net book amount	-	6,754	5,383	1,390	13,527
At 1 January 2019
Opening net book amount	-	6,754	5,383	1,390	13,527
Additions	-	-	-	3,676	3,676
Transfer	-	533	1,678	(2,211)	-
Disposals	-	(7)	(81)	-	(88)
Depreciation	-	(1,843)	(1,873)	-	(3,716)
Closing net book amount	-	5,437	5,107	2,855	13,399
At 31 December 2019
Cost	-	17,759	15,566	2,855	36,180
Accumulated depreciation	-	(12,322)	(10,459)	-	(22,781)
Net book amount	-	5,437	5,107	2,855	13,399
At 1 January 2020
Opening net book amount	-	5,437	5,107	2,855	13,399
Additions	44,688	-	-	4,578	49,266
Transfer	-	229	6,696	(6,925)	-
Depreciation	-	(1,881)	(2,638)	-	(4,519)
Closing net book amount	44,688	3,785	9,165	508	58,146
At 31 December 2020
Cost	44,688	17,988	22,035	508	85,219
Accumulated depreciation	-	(14,203)	(12,870)	-	(27,073)
Net book amount	44,688	3,785	9,165	508	58,146

At the beginning of 2020 the Company bought construction land in Zagreb for the new administrative building.

NOTE 12a – LEASES

This note provides information for leases where the Company is lessee.

(i) Amounts recognized in the balance sheet

(in thousands of HRK)	Buildings	Vehicles	Total
Right-of-use assets
At 1 January 2019	16,444	12,004	28,448
Additions	3,527	1,468	4,995
Lease modification	-	(483)	(483)
Depreciation	(5,945)	(3,712)	(9,657)
At 31 December 2019	14,026	9,277	23,303
Additions	-	5,385	5,385
Lease modification	9,026	-	9,026
Termination of lease	-	(326)	(326)
Depreciation	(5,849)	(4,351)	(10,200)
At 31 December 2020	17,203	9,985	27,188

(in thousands of HRK)	31 December 2020	31 December 2019
Lease liabilities
Current	10,848	9,941
Non-current	18,290	14,511
	29,138	24,452

(ii) Amounts recognized in the income statement

(in thousands of HRK)	2020	2019
Depreciation charge of right-of-use assets	10,200	9,657
Interest expense (included in "Finance costs") Expense related to short-term leases, leases of software licences and low value assets (included in "Other operating	464	539
costs")	12,034	8,542

The total cash outflow for leases in 2020 was HRK 9,788 thousands (2019: HRK 9,381 thousand).

NOTE 13 – INTANGIBLE ASSETS

	31 December 2020	31 December 2019
	(in thousands of HRK)
Opening net carrying amount	46,943	37,253
Additions	14,563	21,822
Amortisation	(15,924)	(12,132)
Closing net carrying amount	45,582	46,943
Cost	95,786	81,223
Accumulated amortisation	(50,204)	(34,280)
Closing net carrying amount	45,582	46,943

The entire amount of intangible assets relates to software.

NOTE 14 – INVESTMENTS IN SUBSIDIARIES

	31 December 2020	31 December 2019	31 December 2020	31 December 2019
	Holding in %	Holding in %		(in thousands of HRK)
Atlantic Trade d.o.o., Zagreb, Croatia	100%	100%	738,544	738,544
Atlantic Cedevita d.o.o., Zagreb, Croatia	100%	100%	132,736	132,736
Hopen Investments B.V., Netherlands /i/	100%	100%	22,384	29,884
Montana Plus d.o.o., Zagreb, Croatia	100%	100%	12,000	12,000
Atlantic Brands GmbH, Austria	100%	100%	10,973	10,973
Atlantic Point d.o.o., Zagreb, Croatia	100%	100%	20	20
Farmacia Holding d.o.o., Zagreb, Croatia	100%	100%	409,048	409,048
Atlantic Multipower Italy /ii/	100%	100%	-	259
			1,325,705	1,333,464

/i/ Impairment of HRK 7,500 thousand was made in 2020 (2019: HRK 5,000 thousand, Note 9) to reduce the carrying value of investment to the carrying value of net assets of the subsidiary.

/ii/ Company is in liquidation proceedings. In order to support the working capital needs of its subsidiary, the Company has paid additional HRK 259 thousand in 2019 and in 2020 reduced the value of the investment by the same amount (Note 9).

Investment in subsidiary Atlantic Trade d.o.o. Zagreb and its subsidiaries Atlantic Droga Kolinska d.o.o., Atlantic Grand d.o.o, Beograd and Atlantic Štark d.o.o. Beograd have been pledged as collateral for Group borrowings.

NOTE 15 – FINANCIAL INSTRUMENTS BY CATEGORY

The accounting policies for financial instruments have been applied to the line items below:

	31 December 2020	31 December 2019
	(in thousands of HRK)
Financial assets at amortised cost
Trade receivables	70,360	51,706
Loans and deposits given	88,834	18,688
Other financial assets at amortized cost	14,789	44,126
Cash and cash equivalents	148,056	52,035
	322,039	166,555
Total current	310,306	154,973
Total non-current	11,733	11,582
Financial liabilities at amortised cost
Borrowings	319,364	251,400
Trade and other payables	31,566	49,019
	350,930	300,419
Total current	52,011	100,436
Total non-current	298,919	199,983
Lease liabilities	29,138	24,452
Current	10,848	9,941
Non-current	18,290	14,511

NOTE 16 – TRADE AND OTHER RECEIVABLES

	31 December 2020	31 December 2019
	(in thousands of HRK)
Non-current receivables
Deposits	1,121	1,107
Loans given	10,612	10,475
	11,733	11,582
Current receivables
Trade receivables – related parties (Note 25)	65,505	47,783
Trade receivables	4,855	3,923
Short-term loans given – related parties (Note 25)	70,000	-
Short-term loans given	6,426	6,801
Accrued interest receivable – related parties (Note 25)	675	305
Other receivables /i/	26,988	51,805
	174,449	110,617
Total trade and other receivables	186,182	122,199

/i/ Other receivables as at 31 December 2020 are mostly related to receivable from Government institutions and employees and to prepaid expenses. As at 31 December 2019, other receivables in the amount of HRK 39,239 thousand related to receivables from disposal of subsidiaries that were fully collected in 2020. Due to uncertainty in collection, other receivables were impaired in 2019 in amount of HRK 365 thousand (Note 8).

Financial assets by category are as follows (Note 15):

	31 December 2020	31 December 2019
	(in thousands of HRK)
Category: Trade and other receivables
Deposits	1,121	1,107
Long-term loans given	10,612	10,475
Trade receivables – related parties (Note 25)	65,505	47,783
Trade receivables	4,855	3,923
Short-term loans receivables – related parties (Note 25)	70,000	-
Short-term loan receivables	6,426	6,801
Accrued interest receivable – related parties (Note 25)	675	305
Other receivables	14,789	44,126
	173,983	114,520

NOTE 16 – TRADE AND OTHER RECEIVABLES (continued)

All non-current receivables fall due within 2 years after the balance sheet date.

The fair value of non-current receivables approximates the carrying amounts, since the contracted interest rates reflect market rates.

As at 31 December 2020, trade and other receivables past due amounted to HRK 27,484 thousand (2019: HRK 13,759 thousand). Almost all receivables past due relate to receivables from related parties and they were not provided for as collection is not questionable. The ageing analysis of past due but not provided for trade and other receivables by maturity periods is as follows:

	31 December 2020	31 December 2019
	(in thousands of HRK)
Less than 3 months	5,854	6,204
3 to 6 months	8,147	1,664
Over 6 months	13,483	5,891
	27,484	13,759

The carrying amounts of the Company's trade and other receivables are denominated in the following currencies:

	31 December 2020	31 December 2019
	(in thousands of HRK)
HRK	128,860	78,163
EUR	45,123	36,357
	173,983	114,520

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Company does not hold any collateral as security other than bills of exchange and promissory notes.

NOTE 17 – CASH AND CASH EQUIVALENTS

	31 December 2020	31 December 2019
	(in thousands of HRK)
Gyro account and cash on hand	136,854	40,169
Foreign currency account	11,202	11,866
	148,056	52,035

Cash and cash equivalents are denominated in the following currencies:

	31 December 2020	31 December 2019
	(in thousands of HRK)
HRK	136,841	40,156
EUR	11,210	11,821
Other currencies	5	58
	148,056	52,035

NOTE 18 – SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES

	Number of shares	Share capital	Share premium	Treasury shares	Total
				(in thousands of HRK)
1 January 2019	3,334,206	133,372	881,275	(92)	1,014,555
Purchase of treasury shares	(11,441)	-	-	(13,424)	(13,424)
Share based payments	6,525	-	48	7,632	7,680
31 December 2019	3,329,290	133,372	881,323	(5,884)	1,008,811
Purchase of treasury shares	(9,899)	-	-	(11,022)	(11,022)
Share based payments	8,180	-	528	9,259	9,787
31 December 2020	3,327,571	133,372	881,851	(7,647)	1,007,576

All shares issued are ordinary shares, including all relevant rights. All shares have the right to vote at the Company's General Assembly, as well as the right to dividend payment.

The founder and majority owner of the Company is Mr. Emil Tedeschi, President of the Management Board. Mr. Tedeschi is the ultimate controlling party of the Company.

NOTE 18 – SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES (continued)

The ownership structure of the Company is as follows:

	31 December 2020		31 December 2019
	Number of shares	%	Number of shares	%
Emil Tedeschi	1,673,819	50.20	1,673,819	50.20
Raiffeisen Obligatory pension fund	322,729	9.68	322,729	9.68
AZ Obligatory pension fund	286,946	8.61	286,946	8.61
Erste Plavi Obligatory pension fund	256,019	7.68	246,926	7.41
Lada Tedeschi Fiorio	193,156	5.79	193,156	5.79
Management of the Company	31,189	0.93	30,211	0.90
Other shareholders	563,713	16.91	575,503	17.26
Treasury shares	6,729	0.20	5,010	0.15
Total	3,334,300	100.00	3,334,300	100.00

Share based payments

According to the Company's ESOP program, employees can opt to receive bonus in Company's shares and this right is granted to the Management as well as to other employees (equity- settled transactions).

One part of share options is conditional on the relevant employee's completing two or three years of service (vesting period) and the other part is available without restrictions.

The fair value of the shares granted in 2020 is determined as of the grant date, at the estimated market price of share of HRK 1,168.65 (2019: HRK 1,170.67).

In 2020, Management and employees have received 7,603 non-conditional shares granted in 2020, 380 shares conditional shares granted in 2016 and 197 shares conditional shares granted in 2018.

In 2019, Management and employees have received 6,199 non-conditional shares granted in 2019 and 326 conditional shares granted in 2017.

Dividend distribution

According to the decision of the Company's General Assembly from 18 June 2020, the distribution of dividend in the amount of HRK 25.00 per share, or HRK 83,186 thousand in total was approved. Dividend was paid in July 2020.

In 2019 the distribution of dividend in the amount of HRK 32.00 per share, or HRK 106,599 thousand in total was approved. Dividend was paid in July 2019.

NOTE 19 – TRADE AND OTHER PAYABLES

	31 December 2020	31 December 2019
	(in thousands of HRK)
Trade payables Trade payables – related parties (Note 25)	22,856 3,864	35,749 8,330
Other payables /i/	10,697	10,629
	37,417	54,708

/i/ Other payables are as follows:

	31 December 2020	31 December 2019
		(in thousands of HRK)
Gross salaries payable	5,851	5,689
Accrued expenses	4,815	4,045
Other	31	895
	10,697	10,629

Financial liabilities i.e. trade and other payables excluding gross salaries payable are denominated in the following currencies:

31 December 2020	31 December 2019
	37,549
	11,470
293	-
31,566	49,019
	(in thousands of HRK) 26,516 4,757

NOTE 20 – BORROWINGS

31 December 2020	31 December 2019
(in thousands of HRK)
298,919	199,983
298,919	199,983
	4,543
	46,750
-	124
20,445	51,417
319,364	251,400
	5,445 15,000

• /i/ In December 2020 the Company issued corporate bonds in amount of HRK 300 million at the price of 99.985% with a coupon of 0.875% per annum with semi-annual payment of interest and final redemption on 11 December 2025. The purpose of these bonds is financing working capital and refinance of bonds whose maturity was on 17 June 2021.
• /ii/ Remaining liability at the balance sheet date comprise of interest payable.
• /iii/ Short-term bank borrowings include one tranche (2019: two) secured with co-guarantees from the Company's subsidiaries.

The exposure of the Company's borrowings to interest rate changes and the contractual re-pricing dates at the balance sheet date are as follows:

	31 December 2020	31 December 2019
	(in thousands of HRK)
3 to 6 months	-	46,751
Fixed interest rate	319,364	204,649
	319,364	251,400

The average effective annual interest rate relating to borrowings from banks and from related parties at the balance sheet date was 0.65% (2019: 0.63%). The effective annual interest rate relating to bonds at the balance sheet date was 3.10% (2019: 3.19%).

NOTE 20 – BORROWINGS (continued)

The carrying amounts and fair value of long-term borrowings were as follows:

	Carrying amounts		Fair value
	31 December 2020	31 December 2019	31 December 2020	31 December 2019
		(in thousands of HRK)		(in thousands of HRK)
Long-term borrowings
Bonds	298,919	199,983	300,750	201,160
	298,919	199,983	300,750	201,160

The carrying amount of short-term borrowings approximates their fair value.

The carrying amounts of the Company's borrowings are translated from the following currencies:

	31 December 2020	31 December 2019
	(in thousands of HRK)
HRK EUR	319,287 77	212,114 39,286
	319,364	251,400

NOTE 21 – DEFERRED TAX ASSETS

Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that the amounts recognised will be realised through future taxable profits of the Company. Temporary differences primarily relate to accrued bonuses and unused vacation days.

The Company did not recognise deferred income tax assets of HRK 3,998 thousand (2019: HRK 5,822 thousand) in respect of tax losses that can be carried forward against future taxable income. Deferred tax assets have not been recognised in respect of these losses as it is not certain that future taxable profit will be available for utilisation of temporary differences. Tax losses amounting to HRK 22,209 thousand (2019: HRK 32,342 thousand) expire over the next four years.

Deferred tax assets (in thousands of HRK)	Bonuses	Other	Total
At 1 January 2019	3,142	548	3,690
Tax credited to the income statement (Note 11)	4,070	91	4,161
Tax charged to the income statement (Note 11)	(2,848)	(294)	(3,142)
At 31 December 2019	4,364	345	4,709
Tax credited to the income statement (Note 11)	5,036	-	5,036
Tax charged to the income statement (Note 11)	(4,561)	(123)	(4,684)
At 31 December 2020	4,839	222	5,061

NOTE 22 – PROVISIONS

(in thousands of HRK)	Jubilee awards and termination	Legal
	benefits	proceedings	Bonuses	Total
At 31 December 2019	575	39,218	24,246	64,039
Analysis of total provisions:
Non-current	523	-	5,584	6,107
Current	52	39,218	18,662	57,932
At 1 January 2020	575	39,218	24,246	64,039
Additions	90	1,153	22,710	23,953
		-
Used during the year	(37)		(18,782)	(18,819)
Reversed during the year	-	-	(506)	(506)
	628	40,371	27,668	68,667
Analysis of total provisions:
Non-current	583	-	11,156	11,739
Current	45	40,371	16,512	56,928
At 31 December 2020	628	40,371	27,668	68,667

The Company has recognized a provision in an amount of HRK 38,529 thousand (2019: HRK 38,529 thousand) arising from the agreement for the sale and purchase of shares in company Neva d.o.o. which was concluded in 2018. Namely, based on the above agreement for the sale and purchase of shares, the Company is liable to the Buyer for any additional tax liabilities arising from a pending court case with the Croatian Tax Authorities. Since the Administrative Court in first instance has issued a negative decision in this case during 2018, the Company has recognized the above amount. In 2020 the Company provided additional amount of HRK 1,153 thousand (2019: HRK 689 thousand) related to default interests. The same will not become due until the appeal to the High Administrative Court which has been filed by Neva d.o.o. is decided upon.

NOTE 23 – COMMITMENTS

Capital expenditures contracted at 31 December 2020 but not yet incurred amounted to HRK 2,060 thousand and relate entirely to intangible assets (2019: HRK 850 thousand).

The Company is co-debtor and guarantor to its subsidiaries and other members of the Group in their long-term and short-term borrowings. Furthermore, these borrowings are secured by pledges over shares in subsidiary Atlantic Trade d.o.o., Zagreb and its subsidiaries Atlantic Droga Kolinska d.o.o., Ljubljana, Atlantic Grand d.o.o., Beograd and Atlantic Štark d.o.o. Beograd. Total net assets value of Atlantic Trade d.o.o. sub-consolidation (direct owner of other two) as at 31 December 2020 was HRK 2,156,122 thousand (2019: HRK 2,041,618 thousand). The financial liability related to these guarantees is not material and the Management believes that the possibility of any outflow is remote.

NOTE 24 – CASH GENERATED FROM OPERATIONS

	Note	2020	2019
Net profit for the year		224,534	187,594
Income tax expense	11	(352)	(981)
Depreciation and amortisation	12,12a,13	30,643	25,505
Impairment of receivables	8, 16	-	365
Impairment of investment in subsidiaries	9, 14	7,759	5,000
Loss from sale of subsidiaries	9	1,153	24,243
Gain on sale of property, plant and equipment	9	-	(83)
Unrealised foreign exchange differences – net		(303)	260
Increase in provisions	22	3,475	5,275
Share based payment	18	9,787	7,680
Interest income	5	(1,058)	(253)
Interest expense	10	8,067	10,329
Dividend income	5	(240,000)	(239,000)
Other non-cash items		2	(41)
Changes in working capital:
(Increase)/decrease in trade and other receivables		(33,076)	5,854
(Decrease)/increase in trade and other payables		(17,321)	9,860
Cash (used in)/ generated from operations		(6,690)	41,607

NOTE 25 – RELATED PARTY TRANSACTIONS

The Company enters into transactions with the related parties as presented in Note 14 and other entities owned or controlled by the Company and ultimate controlling party.

Related party transactions that relate to balances as at 31 December 2020 and as at 31 December 2019 and transactions recognized for years then ended are as follows:

(all amounts expressed in thousands of HRK)	Note	2020	2019
RECEIVABLES Short-term loans Subsidiaries	16	70,000	-
Interest receivable Subsidiaries Trade receivables	16	675	305
Subsidiaries Other entities	16	65,475 30	47,753 30
LIABILITIES
Trade and other payables Subsidiaries Other entities	19	3,849 15	8,330 -
Borrowings Subsidiaries	20	5,445	4,543
REVENUES Revenues Subsidiaries		191,025	165,861
Dividend income Subsidiaries	5	240,000	239,000
Interest income Subsidiaries	5	370	140
Other income Subsidiaries	5	122	197
EXPENSES Other operating costs Subsidiaries Other entities	8	2,044 164	5,495 -
Net finance costs Subsidiaries	10	902	2,343

Management board compensation

In 2020 members of the Management Board received a total gross amount of HRK 17,794 thousand relating to salaries and bonuses (2019: HRK 11,841 thousand).