Dalekovod d.d. — Management Reports 2019

May 14, 2019

www.dalekovod.hr, Ulica Marijana Čavića 4, Zagreb

Zagreb, 30 April 2019

MANAGEMENT REPORT FOR I – III 2018

Unaudited and consolidated

1.	MANAGEMENT REPORT 2
2.	DECLARATION 5
3.	CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited) 6
4.	CONSOLIDATED INCOME STATEMENT (unaudited) 7
5.	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)7
6.	CONSOLIDATED CASH FLOW STATEMENT (unaudited) 8
7.	CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) 9
8.	NOTES TO FINANCIAL STATEMENTS 10

1. MANAGEMENT REPORT

Industry in which Dalekovod Group (Group) and Dalekovod d.d. (The Company) operates, has traditionally been characterized by reduced activity during the first quarter. The business result for the q1/2019 continued to be largely influenced by cyclical trends in the industry during 2018, i.e. fall in number of contracts and realization, which have had a negative impact on realization and business result

The Group's sales revenue was at planned level. The higher sales revenue than planned was realized in foreign markets, mainly in Norway and Sweden, while the lower revenues than planned were realized on domestic market. Decline in profitability compared to the same period of the previous year is result of higher project costs in Norway, whose growth is primarily linked to lower utilization due to poor weather conditions. Subject to the result of business segments, the largest part of revenues was achieved in Transmission line segment and the smaller part in Substations and Infrastructure segments.

Despite postponement of many tenders in 2018, the Company entered in 2019 with "high level" of order book in the amount of HRK 843 million. The beginning of 2019 was marked a strong positive trend in contracting. In the first four months of 2019, the Company contracted or was selected as the most successful bidder in the total amount of more than HRK 1,100 million. Given that a large number of tenders were contracted at the beginning of the year, start of their realization is expected in 2019 as well.

During the first quarter, Company received funds from the sale of the company Dalekovod Professio d.d. (Wind farms). The proceeds of the sale were used to reduce financial debt towards Mezzanine creditors in the amount of HRK 60.3 million and financing of working capital.

Operational and financial restructuring

The process of operational restructuring has begun with the main goal of identifying activities that negatively affect cash flows and value of the company.

Dalekovod Group has initiated a reorganization program envisaging a reduction in total labor costs, primarily through a new organizational structure, i.e. a change in jobs systematization, which is expected to reduce number of employees by about 15%, mostly in middle management and support services segment. During April, Management Board held meetings with the Workers' Council and Unions, which resulted in mutual understanding of circumstances the Group is in, Meetings resulted with decisions regarding financial framework and timeline implementation of the restructuring program.

As part of the operational restructuring process, a business segment of anticorrosion protection (galvanizing plant) was "spinned off" from the company Proizvodnja MK and OSO d.o.o. (old name: Dalekovod proizvodnja). As a result, new company Cinčaonica Usluge d.o.o. operates separately from 1

April 2019. We expect that this decision will affect even stronger revenue growth and profitability of Cinčaonica usluge d.o.o. that have so far been constrained by aggravated operations of the company Proizvodnja MK and OSO d.o.o.

In addition to the above-mentioned activities, operational restructuring process is also focused at identifying the Group's non-performing assets.

The full impact of operational restructuring is expected in 2020 due to one-off effects over the same period in 2019.

As part of the financial restructuring, given large number of contracted or won tenders and significant growth of market activities in almost all business segments of the Group, the Group's management emphasizes the need to provide sufficient guarantee frameworks with commercial banks, which is the most important leverage for successful execution of business activities in following period.

Key financial indicators for the period 1.1.-31.3.2019.

Group's sales revenue amounted to HRK 215.5 million, down by 10.8% compared to same period of last year, and previously mentioned fall in sales of the Group was mainly due to the reduction of contracting and realization activities during 2018. Due to higher project costs caused by lower utilization, Group EBIT (-32.4 million) and EBITDA (-23.1 million kuna) dropped in the first quarter of 2019. Net income for the period amounted to HRK 11,980 thousand as a result of growth of other financial income, which was largely the result of Dalekovod Professio d.d. (Wind power) sale.

During the quarter, there was a further reduction in financial liabilities due to regular repayment of liabilities. Compared to the last day of the previous year, the Group's assets decreased, mainly because of sale of Dalekovod Professio d.d. (wind farms), shown in the item "Non-current assets intended for sale".

Comparing Group members, the Company contributed most to the lower Group sales revenue. Sales revenues of Dalekovod d.d. compared to the same period of the previous year are 23% lower, while the other members of the Group generally recorded a growth in sales revenues. At EBITDA level, the biggest contribution to the negative result came from companies Dalekovod d.d. and company Proizvodnja MK i OSO d.o.o.

IN HRK MILLION	SALES REVENUE		EBITDA
	Q1/2019	Q1/2018	Q1/2019	Q1/2018
DALEKOVOD GROUP	215,5	241,5	(23,1)	(6,6)
DALEKOVOD D.D.	151,8	198,1	(11,5)	2,1
DALEKOVOD PROIZVODNJA D.O.O.	54,3	43,3	(8,7)	(6,7)
DALEKOVOD PROJEKT D.O.O.	7,0	5,5	(1,7)	(1,6)
OTHER GROUP MEMBERS	22,1	17,1	(0,9)	0,1
ELIMINATIONS	(19,7)	(22,4)	(0,2)	(0,4)

Despite the reduction of sales during the first quarter and a very challenging period for the Group in the context of the operational and financial restructuring process we are expecting positive trends in the following period, with regard to the won / contracted tenders during 2019 and a significant industry uptrend in which the Group operates.

On behalf of the Management Board:

Tomislav Rosandić President of the Management Board Dalekovod d.d.

Ordinary share DLKV-R-A Listed on the Zagreb Stock Exchange official market Notice in accordance with the Capital Market Act

2. DECLARATION

Pursuant to Article 410 Paragraph 1 and Article 407 Paragraph 3 and Paragraph 3 and Paragraph 3 of the Capital Market Act, the authorized persons for drawing up the report: Tomislav Rosandić – President of the Board, Tomislav Đurić – Member of the Board, Ivan Kurobasa – Member of the Board, Đuro Tatalović - Member of the Board, issue the following

DECLARATION

According to our best knowledge, the financial Reports for the reporting period were drawn up in compliance with the appropriate financial reporting standards; they provide a complete and honest representation of assets and obligations, and the result of Dalekovod's business activities, as well as of other companies included in the consolidation, with a brief overview of the causes for data provided. Financial reports are not revised.

On behalf of the Management Board:

Tomislav Rosandić President of the Management Board Dalekovod d.d.

3. CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

Consolidated Statement of financial position	31 December 2018.	31 March 2019.
ASSETS	1.072.667.491	981.126.233
Non current assets	425.155.408	429.669.472
Intangible assets	10.696.580	8.955.440
Tangible assets	361.349.842	357.993.488
Non current financial assets	24.900.041	32.007.948
Trade receivables	28.208.945	30.712.596
Current assets	647.512.083	551.456.761
Inventories	97.419.459	104.641.124
Other available-for-sale assets	65.037.377	-
Receivables	389.513.637	372.295.422
Current financial assets	25.083.021	22.992.384
Cash on hand and in the Bank	66.179.291	47.098.091
Prepayments and accrued income	4.279.298	4.429.740
Off-Balance sheet items	519.157.671	494.424.963
EQUITY AND LIABILITES	1.072.667.491	981.126.233
Capital and reserves	82.319.251	93.014.520
Share capital	247.193.050	247.193.050
Capital reserves	88.235.980	88.235.980
Reserves from profit	76.091.965	74.807.368
Revaluation reserves	40.706.979	40.706.979
Retained earnings or loss brought forward	(249.638.779)	(369.208.977)
Profit or (loss) for the financial year	(119.570.198)	11.979.997
Minority interest	(699.746)	(699.877)
Provisions	29.036.593	29.005.608
Non-current liabilities	403.981.676	397.374.811
Liabilities towards banks and other financial institutions	350.482.561	342.859.004
Amounts payable for securities	43.797.126	44.984.793
Trade payables	766.311	595.336
Deffered tax	8.935.678	8.935.678
Current liabilities	557.329.971	461.731.294
Liabilities towards banks and other financial institutions	68.055.397	79.791.361
Amounts payable for securities	58.062.705	-
Trade payables	406.683.719	367.690.221
Accrued expenses and deferred income	24.528.150	14.249.712
Off-Balance sheet items	519.157.671	494.424.963

4. CONSOLIDATED INCOME STATEMENT (unaudited)

Consolidated Income statement	Q1 2018	Q1 2019
Operating income	252.596.275	220.690.828
Sales revenue	241.546.259	215.506.006
Other operating income	11.050.016	5.184.822
Operating expenses	269.943.032	253.124.873
Changes in inventories of finished products and work in progress	(7.360.995)	(8.672.409)
Material costs	163.743.764	156.780.035
Staff costs	69.387.703	65.836.615
Depreciation and amortisation	10.783.275	9.351.244
Other expenditures	4.556.561	5.073.652
Value adjustments	39.911	30.111
Provisions	45	-
Other operating expenses	28.792.768	24.725.625
Financial income	15.110.733	50.498.077
Financial costs	19.679.133	6.000.273
Share of income/(loss) of associates	-	-
Total income	267.707.008	271.188.905
Total expenses	289.622.165	259.125.146
Profit or (loss) before tax	(21.915.157)	12.063.759
Income tax expense	12.805	83.762
Profit or (loss) for the period	(21.927.962)	11.979.997

5. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

Consolidated Statement of comprehensive income	Q1 2018	Q1 2019
Profit or loss for the period	(21.927.962)	11.979.997
Exchange rate differences from translation of foreign operations	(2.162.709)	(1.284.597)
Tax on other comprehensive income for the period	-	-
Net other comprehensive income or loss	(2.162.709)	(1.284.597)
Comprehensive income or loss for the period	(24.090.671)	10.695.400
Attributable to owners of the parent	(24.090.671)	10.695.269
Attributable to minority (non-controlling) interest	-	131

6. CONSOLIDATED CASH FLOW STATEMENT (unaudited)

Consolidated Cash Flow Statement	Q1 2018	Q1 2019
Cash flow from operating activities
Profit before taxation	(21.915.157)	12.063.759
Depreciation and amortisation	10.783.275	9.351.244
Gains and losses from sale and value adjustment of fixed tangible
and intangible assets	39.911	18.678
Gains and losses from sale and unrealised gains and losses and
value adjustment of financial assets	452.941	(47.155.000)
Interest and dividend income	(2.004.296)	(223.000)
Interest expenses	7.786.026	3.636.000
Provisions	45	(30.392)
Exchange rate differences (unrealised)	3.132.458	616.115
Other adjustments for non-cash transactions and unrealised gains
and losses	2.833.444	-
Cash flow increase or decrease before changes in working capital	1.108.647	(21.722.596)
Increase or decrease in short-term liabilities	(6.906.014)	(41.529.856)
Increase or decrease in short-term receivables	-	5.276.932
Increase or decrease in inventories	(11.633.623)	(7.220.124)
Other increase or decrease in working capital	(11.533.189)	6.511.973
Cash from operations	(28.964.179)	(58.683.671)
Interest paid	-	(693.651)
Income tax paid	-	(1.431.000)
NET CASH FLOW FROM OPERATING ACTIVITIES	(28.964.179)	(60.808.322)
Cash flow from investment activities
Cash receipts from sales of fixed tangible and intangible assets	152.880	12.500
Cash receipts from sales of financial instruments	-	108.703.000
Interest received	166.994	131.000
Cash receipts from repayment of loans and deposits	1.190.485	1.617.842
Cash payments for the purchase of fixed tangible and intangible assets	(7.514.432)	(9.383.000)
Other cash payments from investment activities	-	(6.138.220)
NET CASH FLOW FROM INVESTMENT ACTIVITIES	(6.004.073)	94.943.122
Cash flow from financial activities
Cash receipts from credit principals, loans and other borrowings	18.000.000	24.894.000
Cash payments for the repayment of credit principals, loans and
other borrowings and debt financial instruments	(20.336.816)	(73.133.000)
Cash payments for finance lease	(4.388.320)	(3.775.000)
Other cash payments from financing activities	(47.153)	(1.202.000)
NET CASH FLOW FROM FINANCING ACTIVITIES	(6.772.289)	(53.216.000)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD	107.378.391	66.179.291
Increase/(decrease) of cash and cash equivalents	(41.740.541)	(19.081.200)
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	65.637.850	47.098.091

7. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Consolidated Statement of changes in equity	31 December 2018	31 march 2019
Share capital	247.193.050	247.193.050
Capital reserves	88.235.980	88.235.980
Profit reserves	76.091.965	74.807.368
Revaluation of fixed tangible assets	40.706.979	40.706.979
Retained earnings or loss brought forward	(249.638.779)	(369.208.977)
Profit or (loss) of the current year	(119.570.198)	11.979.997
Total capital and reserves	83.018.997	93.714.397
Exchange rate differences from translation of foreign operations	1.225.179	(1.284.728)
Other equity changes	(28.695.510)	11.980.128
Total equity increase or decrease	(27.470.331)	10.695.400
Total attributable to owners of the parent	83.018.997	93.714.397
Minority (non-controlling) interest	(699.746)	(699.877)

Ordinary share DLKV-R-A Listed on the Zagreb Stock Exchange official market Notice in accordance with the Capital Market Act

8. NOTES TO FINANCIAL STATEMENTS

I. BASIC INFORMATION

MANAGEMENT BOARD

Tomislav Rosandić – President of the Management Board

Tomislav Đurić – Member of the Board

Ivan Kurobasa – Member of the Board

Đuro Tatalović – Member of the Board

SUPERVISORY BOARD

UNTIL 21 March 2019

Željko Perić – President

Hrvoje Markovinović – Member

Hrvoje Habuš – Member

Dinko Novoselec – Member

Gordan Kuvek – Member

Vladimir Maoduš – Member

Rajko Pavelić – Member

FROM 21 March 2019 Željko Perić - President Hrvoje Markovinović - Member Toni Đikić - Member Dinko Novoselec - Member Gordan Kuvek - Member Vladimir Maoduš - Member Rajko Pavelić - Member

Dalekovod JSC for engineering, production and construction Marijana Čavića 4, 10 000 Zagreb, Croatia 10001 Zagreb, P.P. 128 URL: www.dalekovod.hr, www.dalekovod.com E-mail: dalekovod@dalekovod.hr Share capital: 247,193,050.00 HRK. Number of shares: 24,719,305 IBAN: HR8323600001101226102 ZABA Zagreb Reg. No.: 080010093, Commercial Court in Zagreb Stat. No.: 3275531 PIN: 47911242222

Activity code: 4222 (Construction of electricity and telecommunications lines)

Ordinary share DLKV-R-A Listed on the Zagreb Stock Exchange official market Notice in accordance with the Capital Market Act

II. SHAREHOLDERS STRUCTURE (on 31 March 2019):

Konsolidator d.o.o.	15.000.000
Domestic natural persons	5.105.726
Financial institutions	3.864.051
Others	650.687
Own shares	98.841
TOTAL	24.719.305

III. ACQUISITIONS AND MERGERS

There were no acquisitions or mergers in the first quarter of 2019.

IV. UNCERTAINTY

There were no identified suspicious or disputable claims in the first quarter 2019 which would affect the continuity of business.

V. DESCRIPTION OF PRODUCTS AND SERVICES

Over time, Dalekovod d.d. specialized for the realization of "turn-key" contracts in the following fields:

• electricity facilities, especially transmission lines between 0.4 and 750 kV
• transformer substations of all levels and voltages up to 500 kV
• air, underground and underwater cables up to 100 kV
• telecommunications facilities, all types of networks and antennas

• production of suspension and jointing equipment for all types of transmission lines and substations between 0.4 and 750 kV

• manufacture and installation of all metal parts for roads, especially for road lighting, security barriers and traffic signals, tunnel lighting and traffic management

• electrification of railroads and tramways

VI. CHANGES IN ACCOUNTING POLICIES

There are no new accounting policies.