balance development sustainability responsibility Non-financial Statement for 2017

Transcription

1 blnce 17 development sustinbility responsibility Non-finncil Sttement for 2017

2 Non-finncil Sttement for

3 Contents Sdržj 1. A WORD FROM THE PRESIDENT & CEO 5 2. ABOUT THE NON-FINANCIAL STATEMENT ENTITIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS 7 3. KEY PERFORMANCE INDICATORS 8 4. ABOUT THE ORGANISATION COMPANY NAME AND HEAD OFFICE OWNERSHIP AND LEGAL FORM MAJOR SHAREHOLDERS MANAGEMENT STRUCTURE SIGNIFICANT CHANGES DURING THE REPORTING PERIOD CROATIA AIRLINES AS A BRAND FLEET AND CAPACITIES KEY SERVICES AND ACTIVITIES COUNTRIES/MARKETS WHERE THE COMPANY OPERATES DESTINATIONS/AIRPORTS/ROUTES OTHER TRANSPORTATION SERVICES INFORMATION ON EMPLOYEES SUPPLY CHAIN MEMBERSHIP IN PROFESSIONAL ASSOCIATIONS AND ORGANISATIONS COMPANY S HISTORY SUSTAINABLE BUSINESS MODEL OPERATIONAL RISKS AND OPPORTUNITIES STAKEHOLDERS MATERIAL ASPECTS OF THE COMPANY S BUSINESS ACTIVITIES AND THEIR EFFECT ON ITS SUSTAINABLE DEVELOPMENT SAFETY AND ENHANCEMENTS AS BUSINESS IMPERATIVES RESPONSIBILITY TO EMPLOYEES BUSINESS ETHICS ANTI-CORRUPTION PROGRAMME RESPONSIBILITY TO PASSENGERS SUPPORT FOR THE COMMUNITY - ENGAGEMENT AND DEVELOPMENT PROGRAMMES 45 Š. Lugrov ENVIRONMENTAL IMPACT OF BUSINESS ACTIVITIES GRI INDEX 53

4 Der Reder, Let me present Non-finncil Sttement of the compny Croti Airlines for 2017, drwn up in ccordnce with the GRI (Globl Reporting Inititive) Stndrds. I kindly invite you to red ll bout our ctivities relted to corporte socil responsibility on the pges to follow. It is well known tht business opertions of the irline industry depend on the economic surroundings. New technologies, innovtions, chnges in customer behviour nd growing competition urge Croti Airlines to introduce chnges nd dequte business djustments t fster pce. We re wre tht in tody s modern business environment one s business success is not mesured by finncil results lone; ctivities in the segment of socil responsibility nd contribution to sustinble development re of equl importnce. Let me point out tht corporte socil responsibility is one of the key principles of Croti Airlines mission; ccordingly, we re mking our best effort to djust our product to the mrket needs by constntly improving it nd mking sure tht within our business process ll of the involved stkeholders re stisfied. Our compny prticiptes in the globl vition strtegy for environmentl protection nd supports ll mesures tht contribute to reduction of vition pollution, while t the sme time supporting the industry s growth nd development. When it comes to development, Croti Airlines is guided by the principles of sustinble development in the key res fleet selection nd ppliction of dequte procedures tht led to reduction in fuel consumption, CO2 emissions nd noise. In the upcoming period, Croti Airlines plns to renew its fleet by replcing the current A319 nd A320 ircrft with new, stte-of-the-rt ircrft Airbus 320neo, chrcterised by lower fuel consumption nd hrmful gsses emission. We re lso doing our best to pply the globl sustinble development guidelines in other business segments. Here t Croti Airlines, we re wre tht corporte socil responsibility brings us concrete benefits. To be precise, it is prerequisite for erning the trust of our service users, gining recognition on the mrket, nd relising comprtive dvntge in modern integrtion processes, with ll of this consequently reflecting on the stbility of our opertions. The development nd ppliction of the compny s sustinble development prctices hve been dditionlly encourged by Croti Airlines membership in interntionl irline ssocitions nd llinces. As the mjority owner of our compny, the Government of the Republic of Croti hs entrusted us with the tsk of connecting our homelnd by ir both within the ntionl borders nd with the rest of the world. We hve been successfully performing this duty for the benefit of wider socil community, thus significntly contributing to the development of Croti s tourism nd economy. I proudly emphsise tht we hve trnsported over 36 million pssengers over the pst twenty-eight yers nd tht we stnd for sfe nd relible compny in the Europen sky. Let me lso note tht we hve been mong the top ten exporters in the Republic of Croti for yers. In conclusion to the introductory prt of our first Non-finncil Sttement, I m proud to note tht within our summer flight schedule for 2017 we directly connected Zgreb with 24 Europen countries, nd improved our service qulity primrily by introducing direct flights from Zgreb to Helsinki, Stockholm, Oslo nd Buchrest. For the first time in our compny s history we trnsported more thn two million pssengers in yer s period. Our two millionth pssenger ws wrmly welcomed in erly December 2017 t Zgreb Interntionl Airport. Yours respectfully, Š. Lugrov Jsmin Bjić President & CEO

5 2. About the Non-finncil Sttement Croti Airlines Non-finncil Sttement is complint with nd supplements the Mngement s Business Report for Croti Airlines Non-finncil Sttement hs been drwn up in line with the Sustinbility Reporting Guidelines (the GRI Stndrds). The compny hs chosen the Core in ccordnce option. The Sttement covers the period from 1 Jnury to 31 December 2017 nd is published once yer. Croti Airlines hs lwys ttributed importnce to ll spects of socil responsibility. In its erlier yers it reported on certin topics in the sphere of sustinble development within its Mngement s Business Report. This is the first yer to report on the compny s corporte socil responsibility in this form. No externl verifiction of the Sttement for 2017 hs been crried out, but s for future periods, Croti Airlines undertkes to continuously improve its corporte socil responsibility, inform the public bout it nd consider the option of externl verifiction. The Sttement hs been prepred in PDF nd published on the compny s publicly vilble webpges For ny questions or clrifictions relted to Croti Airlines Non-finncil Sttement plese contct us t the following e-mil ddress: n-mrij.jurkovic@crotiirlines.hr 2.1 Entities included in consolidted finncil sttements 6 27 Croti Airlines Group comprises Croti Airlines d.d. (joint-stock compny) nd the following ssocited compnies: Obzor putovnj d.o.o. (limited libility compny), 100% owned by Croti Airlines d.d., nd Amdeus Croti d.d,, 95% owned by Croti Airlines d.d. The gency Obzor putovnj ws founded in It provides top-qulity service tht includes orgnising individul or group trvels in Croti nd brod, sle of domestic nd interntionl irline tickets (IATA licence), ccommodtion rrngements t hotels in Croti nd brod, culturl tourism, orgnistion of conferences, etc. Amdeus Croti, s prt of the joint reservtions system of the Europen irlines, is ntionl mrketing compny in chrge of the locl mrket, i.e. responsible for the distribution, presenttion nd ll other mtters relted to Amdeus, with the rights to operte on the mrket of Bosni nd Herzegovin, s well. Totl revenues nd expenditures of the ssocited compnies mke up less thn 1% of the consolidted revenues nd expenditures, with n insignificnt effect of their opertions on those of Croti Airlines. The dt set out in the Non-finncil Sttement refer to Croti Airlines d.d. lone. Š. Lugrov J. Škof

6 3. Key performnce indictors Croti Airlines ended the yer of 2017 with net profit of HRK 24.9 million, positive operting result of HRK 39.8 million nd net mrgin of 1.41%. Three core ctivities: Pssenger trnsport Key indictors % Finncil indictors Operting revenues (HRK 000) 1,767,478 1,561, % 113 Operting expenses (HRK 000) 1,727,665 1,553, % 111 EBIT (HRK thousnd) 39,813 7, % 512 Operting revenues - structure D. Fbijnić Net result (HRK 000) 24,941 8, % 310 Net mrgin % % 274 Crgo trnsport Operting revenue per employee (HRK 000) 1,913 1, % 115 TKM/employee (000) 176, , % 114 ssets vlue (HRK 000) 855, , % 99 Pssengers 80% Crgo 1% ircrft mintennce Cpitl nd reserves (HRK 000) 404, , % 107 Investments (HRK 000) 154, , % 133 Other 19% Cpcities Number of sets offered (million) 2,982 2, % 103 Operting expenses - structure Flight costs 31% Mintennce 14% Pssenger services 6% ir trffic services 23% Promotion nd sles 14% Generl nd dministrtive expenses 5% Deprecition nd mortistion 5% Other expenses 2% D. Fbijnić D. Fbijnić Š. Lugrov Fleet gross crrying cpcity (t) Fleet net crrying cpcity (t) Trffic indictors Pssengers crried (thousnd) 2,125 1,939 9,6% 110 Number of flights 27,491 26, % 102 Flights in km (thousnd) 18,321 17, % 106 Crgo trnsported (t) 2,273 2, % 88 PLF % % 106 WLF % % 105 SK (million) % 106 RPK (million) % 113 CTN ICO code OU IT code 12 ircrft 31 Dec flights per dy irports countries destintions 27,491 flights in million pssengers in employees 226 million (US$) sles revenues Miles & More Frequent-flyer wrd progrmme Globl irline ssocition

7 4. About the orgnistion 4.1 Compny nme nd hed office Croti Airlines d.d. The Compny s Hed Office is in Zgreb, Buzin, Bni 75 b. 4.2 Ownership nd legl form Croti Airlines d.d. is joint-stock compny, mjority-owned by the stte; its shre cpitl in the mount of HRK 277,879,530 is fully pid. Totl number of shres: 27,787,953 of ordinry shres with the nominl vlue of HRK No chnges in Croti Airlines size, structure or ownership occurred in Mjor shreholders Shreholder Number of shres Shre % RESTRUCTURING AND SALE CENTRE FOR THE REPUBLIC OF CROATIA 26,886, ZAGREB AIRPORT LTD. 477, HPB FOR THE REPUBLIC OF CROATIA 297, JANAF D.D. (JSC) 22, CROATIA INSURANCE JSC 10, CROATIAN LOTTERY LTD. 4, TANKERKOMERC 11 ASTRA INTERNATIONAL JSC IN BANKRUPTCY 3, HP D.D. (JSC) 2, TURISTHOTEL D.D. (JSC) 2, D.D. (JSC) 2, Š. Lugrov S. Jungić

8 4.4 Mngement structure 4.6 Croti Airlines s brnd As fully-fledged member of the Interntionl Air Trnsport Assocition (IATA) nd the renowned irline orgnistion Str Allince, our compny hs been recognised s Crotin brnd on ll of the mrkets it flies to. Shreholders Generl ssembly The brnding of the compny strted prllel with its founding, with the development of its visul identity being one of the key fetures of the process. In ddition to the compny s business chievements, its visul identity hs undoubtedly contributed to its being recognised s Crotin brnd. Supervisory Bord udit Committee Croti Airlines corporte design projects its imge of n irline both in Croti nd throughout the world, ttrcting numerous tourists to our beutiful country. The Crotin flg is bsis of the irline s visul identity tht reflects the sfety, relibility nd technicl precision our pssengers recognise, knowing tht their needs will be met by the services offered. Mngement Bord SHAREHOLDERS GENERAL ASSEMBLY body through which the shreholders exercise their rights. The scope of uthority of the Generl Assembly is prescribed by the Compnies Act nd the compny s Articles of Assocition. As member of Str Allince, the world s lrgest irline ssocition, the compny is obliged to disply the logos of Croti Airlines nd Str Allince, respectfully, in ll of its promotionl mterils in both printed nd electronic formt, nd in vrious loctions. The rules prescribed for logo displys re equl for ll Allince members. Furthermore, Croti Airlines orgnises professionl lectures for its employees, drwing their ttention to the importnce of dhering to these rules, since displying trdemrk showing tht compny is Str Allince member helps pssengers recognise the brnd s vlue. Pssengers re offered service within the globl flights network of n interntionl group of irlines they cn trust. To explin further, through coopertion with prtners, pssengers re offered the fstest connection to their finl destintion, long with high fleet mintennce stndrd nd n offer of vrious wrds through the wrd progrmme intended for frequent flyers. SUPERVISORY BOARD body whose min tsk is to supervise the Mngement s ctivities. It is composed of five members, one of whom is representtive of employees. The Supervisory Bord members receive remunertion in line with the Decision on Remunertion of Supervisory Bord nd Governing Council Members. In 2017, the Supervisory Bord held five ordinry nd two extrordinry meetings. No chnges in the Supervisory Bord composition took plce in The Supervisory Bord ppointed n Audit Committee composed of three members. In 2017, the Audit Committee held four sessions. Its conclusions re orlly presented to the Supervisory Bord within its regulr sessions. COMPANY MANAGEMENT mnges the compny s business ctivities; its scope of uthority nd role re defined by the Compnies Act, the compny s Articles of Assocition nd other internl regultions. In 2017, the compny s Mngement structure chnged: Zltko Širc ws member of the Mngement Bord nd the Chief Operting Officer until 28 Februry Krešimir Kučko ws the President & CEO until 3 November 2017, fter which the function ws ssumed by Mr. Jsmin Bjić, on 4 November The Supervisory Bord is composed of five members, nd is chired by Zltko Mteš, LLB The compny pplies the Corporte Governnce Code of Zgrebčk burz d.d. (Zgreb Stock Exchnge) nd meets ll of the obligtions rising therefrom. 4.5 Significnt chnges during the reporting period In lte Mrch 2017, upon opening of the new terminl t Frnjo Tuđmn Airport, Croti Airlines strted operting from it fter undertking extensive preprtions. Krešimir Kučko ws the President & CEO until 3 November 2017, nd on 4 November 2017 this function ws ssumed by Mr Jsmin Bjić.

9 4.7 Fleet nd cpcities In 2017, Croti Airlines operted fleet of 12 ircrft: six Airbus ircrft, of which n Airbus A320 ws under n operting lese, nd six Q400 ircrft, ll under n operting lese. In erly 2017, relevnt preprtions were crried out for the plnned cpcity increse by introducing two dditionl ircrft (wet lese) in the period from My to October Due to n incresed number of flights within the summer flight schedule, Croti Airlines lesed two CRJ seter ircrft. The ircrft of such cpcity were introduced to the fleet s n ddition to the existing Airbus nd Dsh fleets, in ccordnce with the compny s development plns, s the third type of ircrft in the fleet. Our fleet comprises the following ircrft: Airbus A , Airbus A nd Dsh8-Q400. Specifictions Airbus A Airbus A Dsh8 - Q400 Wing spn (m/ft) 34,1 / ,1 / ,42 / 93,24 Fuselge length (m/ft) 37,6 / ,84 / ,83 / 107,71 Mximum tke off weight (kg) Mximum cruising ltitude (m/ft) / / / ,40 / ,40 / ,08 / 679 Mximum cruising speed (km/h) 834 (450 KTS) 834 (450 KTS) 667 (360 KTS) Š. Lugrov S. Jungić Aircrft power plnt Number of ircrft in fleet engines x 2 CFM 56 2 engines x 2 CFM 56 Number of sets engines x 2 PW 150A 6

10 4.8 Key services nd ctivities 4.11 Other trnsporttion services As ntionl flg crrier, Croti Airlines recognises its socil responsibility in connecting the country vi ir both within domestic nd interntionl trffic, thereby significntly contributing to the development of Croti s tourism. It hs been continuously dpting to the needs of the tourism industry nd development of our country by offering network of direct flights to cpitl Zgreb nd to the Adritic destintions, in coopertion with its prtners nd through coordintion with other forms of trnsport whenever possible. Chrter flights In ddition to scheduled flights, Croti Airlines lso offers chrter flights, whether there is need for orgnising specil flight for certin compny, school or sports orgnistion or it is the mtter of series of tourist chrter flights Countries/mrkets where the compny opertes During the summer seson of 2017, Croti Airlines flew directly to 38 destintions in 24 Europen countries within scheduled trffic. In coopertion with other irlines it offered good connection with the U.S., Cndin nd other remote mrkets. Its destintions were s follows: Amsterdm, Athens, Brcelon, Vienn, Belgrde, Berlin, Brussels, Buchrest, Copenhgen, Dusseldorf, Frnkfurt, Lisbon, London, Lyon, Miln, Munich, Nice, Oslo, Pris, Prgue, Rome, Srjevo, Skopje, Stockholm, Helsinki, Sint Petersburg, Tel Aviv, Venice nd Zurich. Within Croti, the compny s ircrft connected within scheduled trffic Zgreb with Dubrovnik, Split, Zdr nd Pul, nd during the tourist seson with Rijek, Osijek nd Bol on the islnd of Brč Destintions/irports/routes Goods nd mil trnsport Crgo trnsport is lso prt of Croti Airlines service. Whether on its own nd/or in coopertion with other irlines, the compny trnsports frgile goods, lrge shipments, nimls or esily perishble goods, such s fresh fish, dily press, flowers, medicines, etc. Supervision services t Crotin irports Croti Airlines lso offers supervision services, intended primrily for irlines tht hve no representtives in Croti nd for the compnies tht re unble to cover ll of their trffic demnds with the existing personnel. These services re provided t Zgreb, Dubrovnik nd Split irports. The services comprise the supervision of the hndling gents work, support in the event of trffic irregulrities, nd representtion of irlines t sttions. For dditionl informtion click on the following link: Oslo Stockholm Helsinki St. Petersburg Aircrft mintennce services Dublin Copenhgen London Amsterdm Berlin Dusseldorf Brussels For over twenty-five yers, Croti Airlines Technicl Centre hs been providing vrious services in the field of bse nd line mintennce, engineering services, nd technicl nd logistics support for other compnies. To dte, over 300 mjor works hve been performed on its own fleet nd on those of other compnies. All informtion on the mintennce services re vilble on the compny s webpge: Commercil trining Pris Frnkfurt Prgue Our trining courses re bsed on IATA s stndrd progrmmes, nd re held by Croti Airlines highly Zürich Munich Vienn experienced instructors. We lso orgnise courses for the employees of other compnies, s well s for individuls. Applictions cn be filed vi our website, too. Lisbon Brcelon Lyon Miln Zgreb Venice Osijek Pul Rijek Belgrde Srjevo Zdr Split Rome Bol Mostr Dubrovnik Skopje Buchrest Since 1993, Croti Airlines Trining Centre hs offered wide rnge of trining courses in the sphere of reservtions, triffs nd ticketing. The compny s Trffic Trining Centre offers courses for the flight, cbin nd ground opertions personnel. All courses re bsed on the certified progrmmes hrmonised with the EASA regultions nd pproved by the Crotin Civil Avition Agency. Croti Airlines Technicl Trining Centre is certified orgnistion for the trining of ircrft nd technicl personnel, nd is locted t Zgreb Airport. It lso offers wide rnge of trining courses for certin types of ircrft, nd specilist trining courses for vition engineers nd technicins. Athens Tel Aviv

11 4.12 Informtion on employees Totl number of contrct employees (permnent contrct, temporry contrct) by gender 31 Dec 2017 Men (469) For n permnent period: (435) employees (47%) For temporry period: (34) employees (4%) Women (455) For n permnent period: (417) employees (45%) For temporry period: (38) employees (4%) Totl (924) Totl number of contrct employees (permnent contrct, temporry contrct) Republic of Croti/brod Republic of Croti (888) employees (96%) brod (36) employees (4%) Number of employees (full-time/prt-time) 31 Dec 2017 Full-time (916) employees (99%) Prt-time (8) employees (1%) Š. Lugrov S. Jungić Number of mngers by gender nd ge structure (up to 30 yers of ge, yers of ge, over 50 yers of ge) Number of employees by gender nd ge structure (up to 30 yers of ge, yers of ge, over 50 yers of ge) Externl CA employees nd type of work 31 Dec % 49% Men (8) employees (62%) Up to 30 yers of ge (0) yers of ge (4) Over 50 yers of ge (4) Women (5) employees (38%) Up to 30 yers of ge (0) yers of ge (5) Over 50 yers of ge (0) Gender structure (totl): Men (469) employees (51%) Women (455) employees (49%) Age structure (totl): Up to 30 yers of ge (90) employees (10%) yers of ge (609) employees (66%) Over 50 yers of ge (225) employees (24%) Gender nd ge structure: Men: Up to 30 yers of ge (7%) yers of ge (31%) Over 50 yers of ge (13%) Women: Up to 30 yers of ge (2%) yers of ge (12%) Over 50 yers of ge (35%) Sesonl cbin stff (9) Contrcted short-term ircrft mintennce stff (51) Men 51% Women 49% 924 employees verge employee ge: 43 yers verge employment time: 15 yers 92% of employees employed on n indefinite contrct bsis Source: Internl dt of the Humn Resource Mngement Service

12 4.13 Supply chin The fuel is supplied from the storge tnks nd pipelines t irports in line with the fuelling needs nticipted by ech individul Croti Airlines flight pln. For the supply of fuel t irports, jet fuel suppliers re licensed by the domicile civil vition gencies s prerequisite for their opertions nd so s to ensure tht bsic qulity conditions re met. Furthermore, in order to ensure qulity stndrds nd the supply nd opertions sfety, the ircrft supply nd hndling infrstructure is controlled vi IFQP (IATA FUEL QUALITY POOL) udits crried out by irlines, including Croti Airlines. Supplier structure Domestic suppliers 39% Foreign suppliers 61% Ground service providers 39% Ground services include the services of ircrft hndling, ircrft opertions nd ir trffic control by wy of which sfe nd regulr provision of pssenger nd goods trnsport through irports is ensured, with the use of irport infrstructure nd the services of hndling gents. These services re provided on regulr bsis by 25 domestic nd s mny s 149 foreign suppliers. In ddition, totl of 141 suppliers hve the sttus of n occsionl supplier, for the sesonl nd chrter trnsport needs. All of the suppliers re from within the EU, while in 2017 four suppliers were hired outside the EU s well. All of the ground service suppliers re checked nd pproved by the Crotin Civil Avition Agency through the licence issunce system for the provision of services. One of the specificities of ircrft opertions in the winter period is the de-icing nd nti-icing service within the DAQCP (DE/ANTI- ICING QUALITY POOL) system. All of the ground service suppliers, in ll Croti Airlines destintions, re within the qulity ssurnce system of compny in chrge of supplier verifiction. 61% In order to provide top-qulity services in line with its Business Pln, Croti Airlines uses complex supply chin dpted to the specific requirements of ir trffic. With regrd to the fields of supply, the supply chin functions through lrger ctegories comprising the supply of: goods nd services, vition fuel, ground services, technicl equipment, etc. During 2017, Croti Airlines did business with totl of 2,035 suppliers, of which 61% were foreign ones. Also, s the gretest turnover by fr is relised on the foreign mrkets, of the totl turnover of HRK 1.7 billion, more thn billion flls off on foreign suppliers. As per regions, in 2017 the gretest turnover ws relised in delings with the suppliers from Europe nd the USA. The lrgest portion of interntionl trnsctions is trditionlly relised through coopertion with suppliers from Germny, both in view of the totl turnover volume nd the number of suppliers. Coopertion with locl suppliers mkes up third of the totl turnover nd 39% shre in the totl number of suppliers. Aircrft ctering service suppliers Supplier countries with regrd to the relised turnover Supplier Turnover in Shre in Number Shre in totl country HRK million totl turnover of suppliers number of suppliers Ctering service suppliers provide the service of supplying the ircrft with food nd beverges. There re five domestic nd two foreign suppliers (Srjevo nd Skopje), which, in coopertion with Croti Airlines cbin stff, ensure high qulity food for the pssengers flying with the compny. In ddition to food nd beverge suppliers, there re lso suppliers of newsppers, expendble mteril nd dishes for ircrft, mking up ltogether 39 domestic suppliers nd 35 foreign ones. All of them ll obliged to ct in ccordnce with the provisions of the Food Act of the Republic of Croti nd hve the HACCP stndrd implemented, s prt of the control system within the compny s qulity ssurnce system. Aircrft component nd mintennce service suppliers Croti % % Germny % % Belgium % 39 2% United Kingdom % 170 8% Irelnd % 20 1% Frnce % 140 7% Spin % 31 2% USA % 94 5% The Netherlnds % 59 3% Others % % Totl 1, % 2, % Since Croti Airlines mintins both the ircrft from its own fleet nd those of other crriers in ccording to sme interntionl stndrds, s well s mnufcturer stndrds, the supply chin includes the procurement of ircrft components, mteril, tools nd equipment, nd the procurement of component, tool nd equipment mintennce service, with the im of ensuring continuing irworthiness of its ircrft nd the mteril bsis for the mintennce of other compnies ircrft. The procurement tkes plce on the free mrket, nd is enbled by qulified vition suppliers. To be precise, ech supplier must be licensed for certin product nd pproved by the user within its qulity ssurnce system. Due to the specific nture of supply of ircrft components nd mteril governed by vition regultions, this process is exempt from the provisions of the Procurement Ordinnce. Suppliers of jet fuel (petroleum-bsed fuel) Crgo nd customs clernce gents Jet fuel is supplied by one locl supplier nd 16 (up to 20) foreign suppliers, selected on the bsis of the qulity of fuel, service nd price s the three key prmeters for the sfety nd cost-effectiveness of ech nd every flight. Freight forwrders nd crgo gents provide the trnsporttion nd customs clernce fcilittion services nd usully include 39 domestic nd 35 interntionl gents for ll of the goods nd mil on Croti Airlines flights.

13 4.14 Membership in professionl ssocitions nd orgnistions 1989 The founding of Zgreb irlines - Zgl 4.15 Compny s history Croti Airlines is member of professionl ssocitions, finncil orgnistions nd economic nd business orgnistions in which it prticiptes by pying regulr membership fees. Of utmost importnce for Croti 1990 Zgl becomes Croti irlines d.d. Airlines opertions is its membership nd prticiption in the work of the industry s umbrell ssocitions, mong which IATA nd Str Allince re most certinly the most significnt ones. IATA (Interntionl Air Trnsport Assocition) is globl ssocition of irlines whose business stndrds re the bsis for the opertions of ll scheduled crriers in interntionl ir trnsport of pssengers nd goods. Croti Airlines membership st flight in domestic trffic (Zgreb-Split) Milestones in Str Allince is exceptionlly importnt from the commercil nd strtegic point of view. Owing to its membership in the world s lrgest irline ssocition, Croti Airlines mintins strong competitive position on the mrket nd the position of the leding ir trffic service provider not only on the Crotin mrket but in the entire region st flight in interntionl trffic (Zgreb-Frnkfurt)/Croti irlines joins the Interntionl ir Trnsport ssocition (IT)/cquisition of 3 Boeing 737/opening of the first foreign brnch office in Frnkfurt AIRLINE ASSOCIATIONS fleet expnsion (3 TR-42 nd 2 Boeing 737) IATA (Interntionl Air Trnsport Assocition) STAR ALLIANCE ERA (Europen Regions Airline Assocition) Europen Avition Mintennce PASRA (Pssenger Airline Sles Representtives Assocition) Strt of the fleet modernistion Croti irlines joins the ssocition of Europen irlines (E)/ introduces its first irbus 319 nd fleet expnsion until 2000 Mjor wrds nd recognitions 1999 CRO WEB TOP 100 in the Tourism ctegory (mgzine Vidi) OTHER ASSOCIATIONS Crotin Chmber of Economy Crotin Assocition of Corporte Tresurers Crotin Chmber of Architects Crotin Public Reltions Assocition Crotin Informtion Technology Assocition Croti irlines is wrded JR 145 certificte in line with the highest Europen stndrds Croti irlines is wrded JR OPS 1 OC nd ISO certifictes Regionl membership in the globl ssocition Str llince 2002 JAR 145 Certificte/mong top 100 Crotin websites nd top 10 websites in the Tourism nd Trvels ctegory (mgzine Vidi)/19th most successful irline in the world (mgzine Airline Business) st wrd for the tourism film in the ctegory Tour Region Film (Tourfilm Festivl) Fully-fledged membership in Str llince/telephone ticket sles/renewl of IOS certificte Introduction of electronic tickets (e-tix) Introduction of Web check-in/new hngr 2005 Rebrnd 100TM Awrd for ircrft redesign (Rebrnd 100TM, Providence, USA) Zltn spirl (Golden Spire) - GRAND PRIX for the best compny clendr (Slobodn Dlmcij dily) 2006 The highest rted regionl member of Str Allince/the best irline in South-Est Europe in 2006 (Finnce Centrl Europe) 2007 Amdeus e-trvel Airline Conference 2007 Awrd/Superbrnds wrd 2008 Web 100 wrd in the E-innovtion ctegory (mgzine Vidi)/Superbrnds wrd 2009 Twenty-millionth pssenger crried New pplictions/redesign of 319 pssenger cbin 1st D-check 2010 Superbrnds wrd/tesl Silver Egg Awrd/ wrd in the web Top100 ctegory for the best mobile web (mgzine Vidi)/IATA certificte 2011 Best Buy Awrd certificte ccording to GfK reserch/thnk-you note for contribution in orgnising the visits of Pope Benedict XVI to Croti 2012 The 4th best irline in Estern Europe (Skytrx)/Superbrnds wrd th nniversry of Croti irlines/ 20th nniversry of inflight mgzine Croti 2014 Among the world s sfest irlines (AirlineRtings.com) 2015 Opening of the 3rd hngr t Zgreb Interntionl irport 2015 White Flg for contribution to the protection nd preservtion wter clenliness nd for environmentl wreness (GUWAA) Š. Lugrov Four new routes Four new routes/membership in the Europen Regions irline ssocition (ER)/25th nniversry of prtnership with Lufthns Technik/1st two-millionth pssenger in yer s period 2016 The best irline in the world by the criteri of helping pssengers relise their rights; overll rnking: 8th (Air Help)/The World Airline Awrds, the Oscrs of the vition industry: the 4th best irline in Estern Europe.

14 Key risks for Croti Airlines business ctivities Externl risks Internl risks Economic surroundings (Croti nd destintions) Restructuring Pln - monitoring Trnsporttion chrges nd flight permits Humn resources Competition Cpcity mngement Str llince nd prtnerships Trffic disturbnces Š. Lugrov Suppliers Sles nd revenue mngement 5. Sustinble business model Fuel, currencies, interest rtes Liquidity risk In line with its mission nd vision, Croti Airlines pplies the business model of network opertor within the irline ssocition Str Allince tht emphsises in ll of its key business documents the necessity of mintining high level of trffic sfety, relibility, qulity nd punctulity. Croti irlines business model A consistent ppliction of n integrted pproch to externl nd internl risk mngement t Croti Airlines enbles the compny to understnd the true nture of individul risks, nd increses its bility to undertke relevnt mesures in timely mnner. By systemticlly mnging ll of the bovementioned risks, the compny improves the level of its orgnistionl efficiency, while t the sme time decresing its costs nd boosting its competitive position. Further wreness rising nd the doption of the risk Emphsis on scheduled trffic - Domestic trffic - by PSO* rules - Interntionl trffic - network crrier s profitble growth strtegy * Public Service Obligtion Commercil coopertion - With Str llince nd non-str llince members culture t ll compny levels represents one of the key fctors for its sustinble opertions in the future. All mjor risks the compny fced in its opertions during 2017 re elborted in detil in the Business Report of the compny Croti Airlines d.d. nd Croti Airlines Group for 2017, pge 27. Productivity growth - ircrft, lbour nd fuel Socil responsibility nd environmentl protection - ttitude to pssengers, employees nd environment Optimistion of ownership nd operting lese Sfety nd qulity 5.1 Opertionl risks nd opportunities Optimistion of complementry development strtegies - Operting, finncil nd humn resource strtegies Modernistion of IT systems - Str llince stndrds Systemtic nd integrted mngement of the risks to which irlines re exposed is key dimension of corporte governnce. All competitors on the mrket re fced with series of strtegic, opertionl nd finncil risks, whose specificities re relted to the chrcteristics of individul mrkets, depending on the economic development level, fetures of demnd (sesonlity, tourism, etc.), current nd future level of competition, nd the size nd finncil strength of individul crriers. Tking into considertion the industry s specific requirements, Croti Airlines s rule uses the COSO ERM (Committee of Sponsoring Orgniztions of the Tredwy Commission - Enterprise Risk Mngement) Frmework nd ISO 31000:2009 risk mngement stndrd s bsis for defining its risk mngement policy. COSO ERM is process in which risks re monitored on n ongoing bsis, in line with the probbility of their occurrence nd their effect on the relistion of gols. Given its opertions on the Crotin, Europen nd globl irline mrkets, Croti Airlines is exposed to numerous externl nd internl risks. Primrily when sfety nd security of opertions, ircrft mintennce nd personnel trining re concerned, the compny s stndrds re more stringent thn the regultory requirements, nd re being continuously monitored s prescribed by Croti Airlines qulity ssurnce system. Within the implementtion of the risk mngement process, mjor risks hve been identified ccording to their potentil influence on Croti Airlines business opertions, nd the monitoring of those risks should help mitigte potentil negtive consequences whenever possible In ddition to the bovementioned opertionl risks, Croti Airlines hs recognised the possibility for its development through severl key fctors. The country s tourism potentil nd its ccess to the Europen Single mrket stnd out s the key fctors. It is lso importnt to benefit from the commercil coopertion with irlines vi codeshre greements, both within nd outside Str Allince. Ancillry revenues re nother segment of opertions in which irlines hve in the recent yers been finding room for development, s well s for differentition (bggge fees, set selection, priority bording, reservtion chnges, food nd beverges on the flight, wrd miles, entertinment progrmmes, Internet ccess, mrketing, etc.). Croti Airlines sees its development possibilities lso in n ever growing ppliction of the Internet nd new e-commerce technologies s sles chnnels used by n incresing number of potentil pssengers. The construction of new terminl t Frnjo Tuđmn Airport is n dditionl stimulus for the compny s development in terms of n increse in its connecting cpcities. When tking into considertion the possibilities for the compny s development, one should not ignore socil migrtions within the EU nd n incresed demnd for goods ir trnsport services. By hving t its disposl three work units for ircrft mintennce, i.e. three hngrs, in the conditions of rising demnd for these services, the compny hs met the prerequisites for n even greter scope of mintennce works on the Europen irlines ircrft t Croti Airline s Technicl Centre. To this effect, the compny lso plns to expnd its line mintennce services to t lest two new ircrft types (e.g. A320neo, CRJ900/1000, B737, A330, etc.), with the im of expnding its line mintennce services to other compnies nd opening new line bses. The compny hs lso recognised the possibility for its development in n incresed demnd for the trining services, nd is, therefore, offering commercil trining progrmmes intended for externl users. Ahed of the compny re lso privtistion processes, which the vst mjority of Europe s trditionl crriers hve lredy undergone. This is prticulrly importnt in the context of cpitl increse, which would enble the compny to renew its ircrft fleet nd expnd its destintions network.

15 5.2 Stkeholders With regrd to importnce nd influence on its business opertions, Croti Airlines hs identified nd clssified its stkeholders into the following three ctegories: key stkeholders, stkeholders with significnt influence, nd other stkeholders. In the spirit of preserving fvourble business climte, stkeholder communiction is crried out t professionl level nd through prtner reltions throughout the yer, both on n ongoing bsis nd whenever needed. Croti Airlines hs been cooperting with ll of its business prtners (domestic nd foreign) by dhering to the principles of due cre nd diligence, nd tking into ccount the interests of the owners, i.e. shreholders. The compny strives to mintin business coopertion with ll of its prtners in good fith nd to mutul stisfction. It tkes prticulr cre to dhere to the specific interntionl vition regultions nd recommendtions, nd to the ntionl legl nd professionl regultions in view of ll of its opertions. Below listed re some of the mjor wys of stkeholder communiction nd enggement during the report- ing period. The gol of such communiction is to chieve the desired position on the mrket, s well s to provide informtion on the compny, its services nd news relted to its business ctivities to wider public nd to the current nd potentil users, in systemtic mnner. Its utmost gol is to estblish nd nurture the distinctive nd positive imge of Croti Airlines in wider public. STAKEHOLDERS Pssengers COMMUNICATION CHANNEL Officil website Cll Centre Firs nd congresses Miles&More loylty progrmme Socil networks Mrketing cmpigns Promotionl mteril Inflight mgzine CROATIA Inflight entertinment Service qulity questionnires KEY STKEHOLDERS - Pssengers - Crgo, ircrft mintennce nd trining service buyers - Employees STKEHOLDERS WITH SIGNIFICNT INFLUENCE - Shreholders nd investors - Suppliers - Lbour unions - Government bodies - cdemic /business / professionl community - Certifiction bodies nd compnies Service users (crgo, technicl, trining) Employees Shreholders nd investors Business correspondence; telephone clls Fce-to-fce meetings Business reports Externl user trinings Events Intrnet e-mil e-news Internl meetings Works Council Workers meetings Business reports Eduction nd trining Mngement Bord s memos Regulr nd d hoc meetings Written communiction (mil, e-mil) Business reports Fce-to-fce meetings Officil website Officil websites of Stock Exchnge nd the Crotin Finncil Services Supervisory Agency (HANFA) Reports on crried out supervision (controls, udits) OTHER STKEHOLDERS - Locl community - Finncil service providers - irline ssocitions - Medi/public 5 Suppliers Lbour unions Government bodies Business correspondence (e-mil, mil, telephone) Fce-to-fce meetings Business reports Firs Website Direct communiction - meetings Written communiction (e-mil, intrnet, mil) Written communiction (mil, e-mil) Business reports Officil website Officil websites of Stock Exchnge nd the Crotin Finncil Services Supervisory Agency (HANFA) Reports on crried out supervision (controls, udits) Memberships Croti irlines Mngement Ntionl nd interntionl lws nd regultions Locl community Finncil service providers Dontions nd sponsorships Officil website Direct contct; telephone; e-mil; mil Trining nd internships Orgnised hngr nd ircrft tours Business reports Medi releses Officil website Officil websites of Stock Exchnge nd the Crotin Finncil Services Supervisory Agency (HANFA) Airline ssocitions Memberships Written communiction Conferences, business meetings Business reports Communiction with Stkeholders Fcebook - 137,712 fns Twitter - 2,745 followers Instgrm - 12,900 followers Google followers LinkedIn - 6,369 followers YouTube subscribers Medi/public Acdemic/business/professionl community Certifiction bodies nd compnies Releses Regulr nd d hoc press conferences Officil website Promotionl cmpigns; reports; interviews Socil networks Incentive trvels Conferences Scientific nd technicl ppers Memberships Business correspondence (e-mil; mil; telephone) Fce-to-fce meetings Business reports Audits

16 5.3 Mteril spects of the compny s business ctivities nd their effect on its sustinble development Š. Lugrov We re wre tht in tody s modern business environment one s business success is not mesured by finncil results lone; ctivities in the segment of socil responsibility nd contribution to sustinble development re of equl importnce. Independently of the services we provide, we re wre tht our success in connecting Croti with the rest of the world, s well s our worthy representtion of the country directly depend on the trust nd stisfction of our service users; responsibility to our pssengers is, therefore, one of the crucil spects of our service. It is our duty to understnd their needs nd do our best to meet their expecttions. We hve been nurturing successful business coopertion with our business prtners, guided by the principles of corporte excellence nd business ethics. We strive to estblish business coopertion with ll of our prtners in good fith nd to mutul stisfction. In the segment of socil responsibility, Croti Airlines hs recognised sfety s one of the key spects nd the bsic prerequisite for its business opertions. The ffirmtion of ethicl norms, ctivities nd behviour re mong the most importnt corporte gols of Croti Airlines. The compny s Anti-corruption Progrmme is of prticulr importnce for crrying out business ctivities in line with the ethicl principles. Through numerous sponsorships nd dontions, Croti Airlines invests into the community in which it does business, s well s into vrious segments of the society. Gret ttention is pid to employee stisfction, too, since highly motivted nd stisfied employees re key fctor for the relistion of our gols. This is why the spirit of mutul respect, coopertion nd temwork is nurtured. The ltest resource mngement trends re being evluted nd pplied; we hve been mesuring employee performnce nd ctively cooperting in their creer guidnce, trining nd efficiency improvement. We hve lso recognised our role in connecting Croti with the rest of the world, nd in mintining the route connectivity of its regions throughout the yer, thus directly contributing to the country s economic development. In ddition to our ctive enggement in strengthening the competitive position of Croti s tourism, we hve in the pst severl yers been mong the top locl exporters. Gret ttention is lso pid to the environmentl impct of the compny s ctivities. Croti Airlines strives to do business s socilly responsible compny, tking into ccount the by-products of its opertions nd their impct on the environment nd the community. By pplying modern technologies nd optimising its opertions, we re reducing negtive impct of vition ctivities on the environment, thus contributing to its preservtion nd the dvncement of sustinble development, nd fulfilling our obligtion towrds future genertions. We hve defined the content of this Non-finncil Sttement in line with the requirements of the stndrds prescribing the preprtion of non-finncil sttement, nd tking into ccount Croti Airlines business ctivity. During the reporting period, we communicted with our key stkeholders on n ongoing bsis, through our communiction chnnels (see Tble on pge 27). A tsk force ws formed, comprising the key individuls Mteril spects Socil Sfety nd security System qulity User stisfction Product responsibility Sustinble development gols from ech sector identified s relevnt Trining nd eduction for the fields nd topics covered by the Nonfinncil Sttement. In broder sustinbility Lbour reltions nd decent work context, members of the tsk force reviewed for the first time, in line with the methodology prescribed by the GRI Stndrds, significnt impcts of Croti Airlines ctivities on the society, environment nd economy. Bsed on this, topics relevnt for n overview of the compny s impcts, s well s topics tht might ffect stkeholders ssessments nd decisions, were identified. After defining relevnt mteril Mrketing communiction Locl community development Freedom of ssocition nd collective brgining Environmentl Legl frmeworks for environmentl protection Emissions nd energy Wste mngement spects, the following ws defined: spect boundries within nd outside the Group, key stkeholders in Croti Airlines business process, nd the effect of mteril spects on their decisions nd ttitudes. Economic Economic impct Contribution to tourism development Procurement process nd prctice

17 MATERIAL ASPECTS Economic impcts nd procurement Contribution to tourism development Procurement process nd prctice Sfety nd security System qulity User stisfction Product responsibility Trining nd eduction Lbour reltions nd decent work Mrketing communiction Locl community development Freedom of ssocition nd collective brgining Emissions nd energy Legl frmeworks for environmentl protection Wste mngement Boundries within the Group All entities within the compny All stkeholders Economic ctegory Socil ctegory Employees Environmentl ctegory Croti Airlines environmentl, socil nd economic impcts Boundries outside the Group All compny service users Suppliers Socil, locl community, mrkets served Direct economic vlue generted nd distributed Croti Airlines economic spects ffect the economic position of its stkeholders t both the locl, regionl nd ntionl levels. As for-profit orgnistion, Croti Airlines recognises ll economic spects s mteril, prticulrly emphsising its contribution to the development of Croti s tourism nd economy s whole, s well s the well-being of n individul. It regulrly clcultes nd pys txes, contributions nd other levies in line with the pplicble regultions, thus significntly contributing to the functioning of numerous business ctivities of importnce for the dily lives of the Crotin citizens. A detiled overview of the compny s finncil results is prepred in ccordnce with the IFRS, the Accounting Act nd other pplicble legl regultions, s well s the industry rules. It is set out in the Audit Report nd in The Mngement s Business Report for 2017, where the key business chnges in the observed period re elborted on, too. The compny s gol is to develop its business by mking the right nd timely decisions, with the ultimte gol of ensuring its sustinble development. The compny hs been mnging its economic impct through nnul nd medium-term plnning, s well s by monitoring the relistion of the nticipted results on monthly bsis nd undertking relevnt mesures in timely mnner in cse of mjor devitions from the pln. The entire compny prticiptes in the nnul plnning process, s ech sector/service delivers their frmework plns for the yer to come, which re consolidted t the Controlling nd Internl Audit Sector, fter which the defined pln is delivered to the Mngement Bord nd the Supervisory Bord for pprovl. Importnt for the stkeholders Highly importnt for the stkeholders Locl community development Wste mngement Freedom of ssocition nd collective brgining Economic impct Supply chin process nd sustinbility Sfety nd security System qulity User stisfction Product responsibility Trining nd eduction Lbour reltions nd decent work Legl frmeworks for environmentl protection Contribution to tourism development Mrketing communictions Emissions nd energy Croti Airlines economic contribution in 2017 Distributed economic vlue Generted economic vlue Revenues from the sle of products nd services HRK 1,497.8 million Revenues from the sle in Croti nd brod Other revenues HRK 336 million Other operting revenues, revenues from subsidies nd finncil revenues Distributed economic vlue Suppliers HRK 1,595.7 million Costs of rw nd other mteril, service costs nd other costs Employees HRK million Employees net receipts (net slries, incentives, bonuses) Importnt for the environment Highly importnt for the environment All ctegories tht cn hve significnt economic, environmentl nd socil impct hve been recognised by Croti Airlines s the mteril spects. Their recognition is ligned with the compny s mission, vision nd ctivities. All of the bove listed mteril spects re n integrl prt of the Business Report for Croti Airlines undertkes to implement, nlyse nd updte the mteril spects in the future reporting periods, too. Generted economic vlue Public dministrtion HRK million VAT, slry contributions, fees nd other levies for the public dministrtion nd institutions Bnks nd creditors HRK 8.5 million Interest, fees nd other finncing costs Community HRK 1.2 million Dontions nd sponsorships Investments Investments into tngible nd intngible ssets HRK million

18 Procurement process nd prctice Croti Airlines economic spects ffect its stkeholders economic sitution on both the locl, regionl nd ntionl levels. An ongoing tsk relted to the procurement of goods nd services is to find such suppliers tht cn meet the supply requirements in terms of qulity, quntity, prices nd dedlines. For this purpose, the compny pplies both the leglly prescribed supplier verifiction methods nd those it finds relevnt to suit its purpose. In line with its Procurement Ordinnce, Croti Airlines pplies equl principles to ll economic opertors when selecting the procurement procedure, s follows: fir competition nd equl tretment, non-discrimintion, reciprocity, proportionlity nd trnsprency, efficiency, free movement of goods cpitl, nd services. The implementtion of the procurement process in the compny is decentrlised, which mens tht with the pprovl of the Mngement Bord, the orgnistionl units initite nd implement the process on their own. The very procurement process depends on the type of goods, nd is crried out in severl different forms of procurement procedures. When implementing procurement procedures nd selecting suppliers, steps re undertken in line with the compny s Procurement Ordinnce, whereby the preprtion of certin procedure, supplier selection, procurement contrct wrd nd execution must meet the criteri of timeliness nd complince with the specifiction requirements, ll with the im of enbling efficient nd effective procurement nd the cost-effective spending of the funds intended for the procurement. The Ordinnce recommends the ppliction of green nd sustinble procurement whenever possible given the mrket circumstnces nd in line with the compny s Environmentl Protection nd Energy Efficiency Guidelines. When procuring mchines nd devices tht pose incresed hzrds, nd dngerous substnces, the compny rigorously pplies the occuptionl helth nd sfety mesures In view of the correltion between procurement nd environmentl protection, ech procurement of goods nd services undergoes ssessment from the spect of environmentl impct (if ny), nd the Procurement Ordinnce recommends tht, whenever possible, the elements of green public procurement re pplied. All Croti Airlines suppliers hve been fmilirised with the ISO14001/50001 certifictes through n officil letter the compny sent to ech of them, nd from the informtion posted on its website. By these certifictes, Croti Airlines confirms its dediction to preserving the environment nd energy, nd supporting sustinble development. At the sme time, it clls upon ll of its suppliers to contribute to environmentl protection nd energy efficiency through ctive nd preventive ctivities, nd by encourging their business prtners to do the sme. The compny s Environmentl Protection Policy nd the officil letter to suppliers re vilble on its webpge: The prescribed procurement process nd its key requirements re integrted in ll other procurement subprocesses t Croti Airlines. Š. Lugrov

19 5.4 Sfety nd enhncements s business impertives Sfety is of primry importnce for ll segments of Croti Airlines corporte ctivities. There cn be no compromise with sfety. In order to chieve high sfety level, the compny invests lrgely in trining the flight, cbin, ground nd technicl personnel nd ensures relevnt level of expertise of ll other employees. Moreover, it ensures high level of ircrft mintennce tht complies with the highest stndrds of the globl irline industry, dheres to ll pplicble regultions nd stndrds nd continully invests technicl resources to ensure tht sfety criteri re given priority in ll business segments. Qulity mngement system Croti Airlines hs introduced n integrted qulity mngement system complint with the requirements of the following stndrds: Air Opertion Regultion, EASA Prt 145, EASA Prt 147, EASA Prt M, Aircrew Regultion, EU ETS, ISO 9001, ISO nd ISO The qulity mngement system encompsses ll orgnistionl units of Croti Airlines nd their relted processes. CROATIA AIRLINES QUALITY MANAGEMENT SYSTEM - Finnce nd ccounting - Legl ffirs, humn resource nd sset mngement - Informtion Technology mngement - Sles nd mrketing - Network nd revenue mngement - Controlling nd internl udit Qulity mngement for non-operting ctivities Flight opertions - Ground opertions - Flight opertions Trining Centre - ircrft mintennce - Engineering nd technicl support - Technicl Trining Centre Flight opertions qulity mngement Technicl qulity mngement 1. Air Opertion Regultion CR (EU) 965/2012 CR (EU) 965/2012 is Europen nd Crotin stndrd lying down requirements to be met by ir crriers in civil commercil ir trnsport. Hving fulfilled ll certifiction criteri prescribed by the Regultion, on 29 April 2003 the compny ws for the first time wrded the Air Opertor Certificte (AOC) by the Air Trnsport Directorte of the Ministry of the Se, Tourism, Trnsport nd Development (tody Crotin Civil Š. Lugrov Avition Agency).

20 2. Aircrew Regultion CR (EU) 1178/2011 CR (EU) 1178/2012 is Europen nd Crotin stndrd lying down requirements relted to civil vition ircrew. Hving fulfilled ll certifiction criteri prescribed by the Regultion, the compny obtined the ATO certificte HR.ATO.001 vi the AOC, i.e. the pproved pilot trining orgnistion. tsks contributes to chieving qulity gols. All of our employees re fmilir with the lws, regultions nd procedures of the destintion countries relevnt for the performnce of their tsks. Dt protection In line with requirements of the GDPR nd risk ssessment results, the compny regulrly implements dt protection mesures in infrstructurl segments of its IT system with the im of strengthening security mesures ffecting the protection of personl dt. It lso regulrly implements mesures for enhncing supervision mechnisms in its IT system with the im of identifying the misuse of personl dt nd mking sure they re not compromised. For the purpose of hrmonising with the GDPR, pproprite mesures nd system supervision were implemented in the compny s IT system in We continue with further hrmonistion with the GDPR. 3. Continuing Airworthiness CR (EU) 1321/ Prt M In lte 2007, Croti Airlines fulfilled ll requirements nd ws issued with 9A Prt M certificte with the scope of uthoristion specified in Subprt G, llowing it to crry out independent controls of its fleet irworthiness. Strting from Jnury 2009, the scope of uthoristion ws further extended to Subprt I, llowing the compny fully independent review of irworthiness nd verifiction of the ircrft irworthiness certifictes. They cn be obtined on the bsis of the Continuing Airworthiness Mngement Orgnistion Mnul nd/or Aircrft Mintennce Orgnistion Mnul, which re fully complint with EU lws. Upon Croti s dmission to the EU, the Crotin pprovl HR.MG.001 becme recognised nd vlid within the Europen Union. - Prt 145 In 2001, Croti Airlines obtined n pprovl of the ircrft mintennce orgnistion in ccordnce with JAR 145, the regultions in force t the time of pprovl; in 2004 it ws replced by EASA Prt 145, n pprovl issued in line with requirements of the Europen Avition Sfety Agency (EASA). On behlf of EASA, the LBA (Luftfhrt Bundesmt) experts monitored the complince with EASA Prt 145 requirements through nnul udits. The compny lso insisted on holding the equivlent Prt 145 certificte, issued by the Air Trnsport Directorte of the Ministry of the Se, Tourism, Trnsport nd Development nd now renewed by the Crotin Civil Avition Agency. Upon Croti s dmission to the EU, the EASA Prt 145 pprovl for non-eu member cesed to be vlid nd the Crotin pprovl HR becme recognised nd vlid within the Europen Union. ERCM (Emergency Response nd Crisis Mngement) Despite the mesures tken t Croti Airlines to ensure protection nd security, the occurrence of unexpected events should lso be tken into ccount (incidents or ircrft ccidents, hijcks, etc.). Given tht the mngement of such crisis hs mjor impct on the business continuity nd future development of the compny, it hs founded n Office for Emergency Response nd Crisis Mngement (ERCM). Emergency response nd crisis mngement pplies to ll of our ircrft regrdless of their loction, wetlese ircrft, ircrft of our STAR Allince prtners (for the territory of Croti, Bosni nd Herzegovin, nd Mcedoni) nd codeshre prtners. The system is bsed on coordinted ctions of ERCM tems, imed t providing n pproprite nd efficient response, minimising negtive impct of ccidents nd ensuring business continuity. 5.5 Responsibility to employees - Prt 147 In 2005, Croti Airlines obtined n pprovl of the ircrft mintennce trining orgnistion in ccordnce with JAR 147, the regultions in force t the time of pprovl; in 2007 it ws replced by HR Prt 147, n pprovl issued in line with the then vlid regultions 9A-Prt-147 for ll ircrft types within its fleet. As of 2012, Croti Airlines holds n pprovl for bsic trining nd severl ircrft types from the ircrft mintennce trining orgnistion. Upon Croti s dmission to the EU, the Crotin pprovl HR becme recognised nd vlid within the Europen Union. 4. IOSA Opertor under the IATA Opertionl Sfety Audit Progrmme The Interntionl Air Trnsport Assocition (IATA) hs estblished common globl sfety ssessment stndrd pplying to ll of its members. An IATA Opertionl Sfety Audit (IOSA) ws crried out t Croti Airlines in 2003, confirming high level of flight sfety. The sid certificte is subject to renewl on binnul bsis. 5. ISO Our employees re the compny s gretest sset nd the min ctlyst of business ctivities nd development. We im to offer pssengers lot more thn just comfortble flight, by investing in ircrft nd ground personnel. This is why we devote lot of time to trining, in order to continuously improve the expertise of ll employees. Working t Croti Airlines offers the opportunity for professionl dvncement in n interntionl environment, which poses chllenge for ll employees nd contributes to their stisfction nd motivtion. The compny builds upon working culture tht promotes coopertion nd temwork, while rediness to lern nd develop further is expected from ech employee. Highly motivted nd stisfied employees re the key fctor for ensuring qulity, so their motivtion nd professionl interests re importnt fctors when hiring nd developing the stff. The differences between employees with regrd to eduction, skills, personl trits, interests nd work motivtion indicte quite clerly tht chieving sustinble development gols is not simple or esy tsk. By ligning individul interests of lrge number of people nd common interests of the orgnistion, we strive to orgnise the work in wy to mke ech individul stisfied nd encourge them to mke mximum contribution s member of the orgnistion. Humn resources mngement ctivities im to enble employees to mke use of their knowledge, skills nd experience to crete n dditionl vlue for the compny in wy tht the most competent person is ssigned to the most pproprite workplce. Our pproch to qulity mngement is defined by our core document, the Qulity Policy. Croti Airlines estblished nd in November 2003 certified the qulity mngement system in line with the requirements of ISO 9001, the world s most widely recognised qulity mngement stndrd. 6. ISO 14001, ISO By dopting the Environmentl Protection nd Energy Efficiency Policy, Croti Airlines undertook to mnge its business risks nd gols by tking into ccount cre for the environment nd improvement of energy efficiency, s n obligtion to future genertions. In order to deliver on this commitment, in 2016 the compny implemented n environmentl protection mngement system ccording to ISO nd n energy mngement system ccording to ISO Croti Airlines is highly dedicted to rising employee wreness bout the level of responsibility, job importnce nd the wy in which successful performnce of job-relted Employment policy New recruitments, required competencies nd trining for the successful performnce of ll work-relted tsks re plnned on n nnul bsis. The compny regulrly offers employees to pply for job vcncies within the compny by wy of internl hiring procedures nd, in ddition to regulr eduction necessry for sustining the business process, orgnises trining courses to improve employee skills nd knowledge.

21 Mirn Žic Member of the Croti Airlines ircrft cbin crew Drem job During 2017, totl of 178 persons were employed, of whom 84 on long-term employment contrct nd 94 gency workers, primrily cbin stff nd eromechnics. At the end of 2017, there were 42 employees working on the bsis of long-term employment contrct nd 28 gency workers. Together with sesonl workers, the fluctution of employees in 2017 totlled 10%. Sixty cbin stff members were employed in 2017 on sesonl bsis. Siniš Krlj Croti Airlines first officer Flying is more thn just job. Der pssengers, fly with us! You re in sfe hnds. We cre for the sfety of our pssengers. Looking fter occuptionl helth nd sfety of employees Croti Airlines hs undertken to protect the helth nd sfety of employees t their workplces nd implement ll prescribed occuptionl sfety mesures. In order to protect the helth nd sfety of its employees, in 2013 Croti Airlines dopted the Occuptionl Sfety Guidelines which, bsed on the relevnt Workplce Hzrds Assessment nd in line with the relevnt ctivity, technology, jobs performed in specil working conditions, equipment, hzrdous substnces nd the number of workers, set out the mnner of ensuring workplce sfety, relted rules nd rights, obligtions nd responsibilities of n uthorised person of the Employer nd workers where these issues re not regulted by the Occuptionl Sfety Act, its subordinte regultions nd relevnt employment contrcts. The compny looks fter its employees helth lso by orgnising comprehensive helth ssessments, flu jbs nd dermtology checks. Moreover, it ensures ll workplce protection mesures for the employees performing their tsks in specil conditions in order to prevent potentil hrmful impcts. Employee trining nd eduction Through regulr investments in eduction, Croti Airlines develops nd strengthens humn resources, hving recognised since dy one tht its business ctivity is t the sme time both cpitl nd lbour intensive. Due to n extremely sophisticted technology nd demnding business processes, ech yer it invests considerble funds in employee trining, especilly in the specilist trining nd mintining the level of eduction of the Mrin Hinić Croti Airlines sttion mnger ssistnt Flying is my life. I live, sleep nd wke up with 5 flight nd cbin stff, s well s of ll other employees. Additionl informtion on employee trining is vilble in the Business Report for 2017 of Croti Airlines d.d. nd Croti Airlines Group, on pge 11. The trining process for the employees of Croti Airlines relies primrily on internl resources, implying the use of its own uthorised instructors. In ddition to finncil svings relised in this wy, the nourishment of its own know-how results in reduced dependence on externl resources nd promotes its corporte culture nd business strtegy. plnes on my mind The trining of Croti Airlines employees tkes plce on three levels: the trining of opertive stff, technicl stff nd non-opertive stff. Dnijel Crnobrnj Croti Airlines licensed eromechnic Pssionte bout plnes since childhood. We gurntee supreme fleet mintennce. The Croti Airlines Technicl Trining Centre is certified orgnistion providing vition technicl trining under the EASA Prt 147 pprovl. The Technicl Trining Centre offers wide rnge of trining solutions for prticulr ircrft type nd specilist courses for eronuticl engineers nd technicins. Aircrft type trining is performed ccording to EASA Prt 66 / Prt 147, nd is intended for Prt 66, ircrft clss A, B1, B2 or C ircrft mintennce licensees nd engineers. All other trining courses re crried out ccording to the Prt 66 stndrd in order to fully meet the needs of Prt 145 ircrft mintennce. The Croti Airlines Flight Opertions Trining Centre offers wide rnge of trining courses intended for flight, cbin nd ground personnel. All trining courses re bsed on certified progrmmes hrmonised with EASA regultions nd pproved by the Crotin Civil Avition Agency. Trining courses re held by highly experienced Croti Airlines instructors. For certin ctegories of specilised employee trining courses, the compny uses the services of the IATA (Interntionl Air Trnsport Assocition) Trining Centre nd other interntionl specilised trining courses,

22 nd, if necessry, the services of externl experts who crry out in-house progrmmes. Compny employees regulrly ttend vrious theme conferences, symposi nd work groups, with the im of getting fmilir with opertionl nd commercil innovtions within the industry. Ethics Committee The Committee for Monitoring the Ethics Code Implementtion hs been ctive within Croti Airlines since Its purpose is to monitor the enforcement, implementtion nd brech of provisions of the Code of Ethics in the compny s work, proposing to the Mngement Bord the wy of settling problems relted to ny reported brech of provisions s n independent body. Bsed on the relevnt report, the Mngement Bord decides on snctions tht my be pplied in the cse of non-dherence or brech of ethicl principles. Its min gol is to promote morl stndrds, ethicl behviour nd business ethics. By rectifying irregulrities occurring s result of non-dherence to the provisions of the Ethics Code, it ims to promote ethicl behviour to mke work nd professionl ctivities t the compny s plesnt nd well-blnced s possible. For this purpose system for reporting the cses of non-dherence to the Ethics Code hs been set up, llowing employees to report ny cse of brech thereof. The Committee meets when needed, i.e. when it hs found out or received notifiction from compny employee bout possible brech of the provisions of the Ethics Code. In ccordnce with the Ethics Code, ll employees re required to ct with due cre nd ttention, following the principle of integrity. The compny pys prticulr ttention to the choice of its business prtners nd refuses to do business with those who hve committed serious brech of contrctul obligtions nd the rules of business ethics. In 2017 there were no cses relted to the brech of the Ethics Code. The Ethics Code of Croti Airlines d.d. hs lso been published on the compny s website nd must be dhered to by ll employees. As ntionl flg crrier, Croti Airlines orgnises within its Trining Centre series of trining courses needed by trvel nd commodity gencies for the cquisition of the IATA licence, trining courses for the employees of irports, freight forwrders nd irline compnies. Works Council In ccordnce with the regultions relted to lbour reltions, the Works Council comprised of nine members opertes within the compny. It provides notifictions nd consulttions, nd prticiptes in decision-mking processes with regrd to economic nd socil rights of workers. Up to twice yer, the Works Council orgnises in coopertion with the employer workers meeting in order to inform them bout the compny s current sitution nd development. Freedom of ssocition nd collective brgining The following lbour unions operte within the compny: Crotin Union of Air Trffic Pilots (HSPP), Air Cbin Stff Union (SKOZ), Independent Professionl Union of Crotin Aeromechnics (SSSAH), Independent Crotin Union of Airline Employees (SHSZUZ) nd Union of Engineers nd Technicins in Avition (SITUZ). As Crotin legl frmework sets out tht representtive unions re uthorised for collective brgining, in 2016 new union, Croti Airlines Employees Orgnistion (ORCA) ws founded, gthering the members of the bove-listed pilot, cbin stff nd eromechnic unions. Negotitions over new collective brgining greement re still underwy, nd, despite the fct tht there is no vlid collective brgining greement in plce, the level of rights of ll employees hs remined on the level of the 2015 Collective Brgining Agreement. The mjority of employees re union members, but provisions of the collective brgining greement pply to ll of them (100%). The level of rights contined in the collective brgining greement regultes mny dditionl benefits of employees in order to improve their economic nd socil sttus, such s the number of dys of nnul leve, pid leve, slry bonuses, severnce pyments, etc., which re bove legl minimum. In cse of more serious helth problems, deths, childbirths, long-term sicknesses or similr situtions requiring individul pproch, the compny helps its employees to the fullest extent possible by pying prt of the medicl tretment costs nd purchsing the necessry ids, thus protecting their socil position. 5.7 Anti-corruption progrmme Non-discrimintion nd employee dignity The compny hs ppointed person responsible for protecting the dignity of workers nd hs drwn up detiled procedure for the protection of dignity in ccordnce with relevnt legl documents regulting the protection from discrimintion nd hrssment. Furthermore, the compny regulrly dopts n ction pln for promoting nd ensuring gender equlity. There were no discrimintory tretments of employees in In erly 2010, Croti Airlines strted implementing its Anti-corruption Progrmme with the im of improving the legl nd institutionl frmework for efficient nd systemtic prevention of corruption nd the promotion of zero tolernce to corruption. Any brech or non-dherence to the Anti-corruption Progrmme is considered brech of ethicl principles nd stndrds. Primry gols of the Croti Airlines Anti-corruption Progrmme: - Strengthening work integrity, responsibility nd trnsprency; - Creting conditions for the prevention of corruption on ll levels; - Promoting zero tolernce to corruption. No cses relted to corruption hve been reported since the foundtion of the compny. Its Anti-corruption Action Pln hs lso been published on the compny s website nd must be dhered to by ll employees Responsibility to pssengers Specil benefits for employees Croti Airlines tkes cre of its employees nd notifies them vi its intrnet site bout its coopertion with number of business entities (thetres, sports ssocitions, bnks, etc.) nd offers them to use their services t more fvourble price (helth services, ctering nd hospitlity services, tickets for culturl events, etc.). Croti Airlines mngement regulrly monitors customer expecttions with regrd to the service qulity. Being wre tht the success of the compny directly depends on the stisfction of pssengers nd other customers, we mke every possible effort to meet or even go beyond customer expecttions. In order to chieve this, it is crucil to identify, understnd nd consistently pply customer demnds nd ll pplicble requirements of relevnt regultions. Vrious methods re used to mnge risks nd opportunities possibly ffecting the qulity nd complince of our products nd services, nd consequently customer stisfction. In line with the bove, the compny cretes flight schedule, djusts the flight network to the pssenger needs, nd monitors, mesures nd mnges the processes tht re directly focused on creting customer service, such s mrket reserch nd nlysis, mesuring customer stisfction, mrketing ctivities nd customer reltionships. Our customers cn mke orl or written complints, commendtions nd suggestions. We hve been crrying out customer stisfction survey since The qulity of service should go beyond our customers expecttions nd contribute to their loylty, thus incresing the compny s profitbility. The survey is crried out throughout the yer by wy of pssenger questionnire. In 2017, the pln ws to sk 6,640 pssengers on 664 flights to complete the questionnire. 5.6 Business ethics Croti Airlines nd its Mngement Bord deem tht rising nti-corruption nd ethicl wreness of ll employees nd dopting zero tolernce to corruption is the key for n efficient prevention of corruption. The compny strives to promote ethicl behviour in ll spheres of its business ctivities: mong employees, towrd its customers, business prtners, segments of the business public, owners, shreholders, nd ll other entities it coopertes with. Croti Airlines gurntees equlity nd equl tretment to ll.

23 Sustinbility in ll flight segments CRBON FOOTPRINT - our flights cn be ccessed by public trnsport, by which we re reducing flight crbon footprint left by pssengers CO 2 CO2 MNGEMENT - the compny compenstes CO2 through - the EU ETS system; dt is collected for ech flight, then verified nd delivered to relevnt bodies kg WTER MNGEMENT - the crrying of s little s 50% of lvtory wter is prescribed for irbus flights, by which we re reducing emissions by 40 t of CO2/yer/ircrft WEIGHT MNGEMENT -by using n EFB (Electronic Flight Bg) device we hve reduced the need for crrying 35 kg of pper documents per ircrft WEIGHT MNGEMENT - by redesigning the cbin on the irbus fleet we hve incresed the number of vilble sets from 132 to 144, nd from 162 to 174, thus reducing the ircrft weight by some 200 kg, reducing the mount of CO2 emissions per pssenger nd incresing comfort FUEL MNGEMENT - we re introducing single engine txiing by the Dsh8 Q400 fleet t irports enbling this, in 60% of cses, by which we re reducing fuel consumption nd engine wer PROCESS MNGEMENT - web check-in sves time nd reduces the need for pper documents (printouts) COOPERTION - in coopertion with the Ministry of Environment nd Energy in 2017 we creted theme picture book SUPI, intended to educte our youngest pssengers bout the ozone lyer protection WEIGHT MNGEMENT - the mss of our inflight mgzine Croti hs been reduced, by which we re mking svings on the mss, nd consequently on the consumption of fuel nd CO2 FUEL MNGEMENT - by using dvnced flight plnning systems (LIDO), we re optimising our flights in view of fuel consumption WSTE MNGEMENT - when performing ircrft mintennce ctivities t our technicl bse, responsible wste disposl pproch is pplied PROMOTION - Croti s beutiful nture, which we re doing our best to preserve, is promoted on our flights NOISE MNGEMENT - ll of our ircrft comply with the Chpter IV stndrds for ircrft noise; chnges tht will be mde on irbus ircrft in 2018 will enble us to exceed these stndrds

24 The im of our mrket reserch is to continuously monitor the entire service delivery process. The min survey prmeters re customer stisfction with the service, likelihood of reusing our service nd the likelihood of recommending Croti Airlines s crrier. We lso monitor the experience of our customers in reltion to the competition, nd the generl opinion of pssengers bout our brnd. We hndle product mngement nd rech decisions bout improving our products nd services or introducing new ones on the bsis of the survey results. We wnt our pssengers to enjoy the benefits of good connectivity, relibility nd sfety by providing highqulity service during the flight. We lso wnt to mke their trvels simpler, so we crry out reserch on regulr bsis nd communicte with our pssengers in order to offer them service tht meets their expecttions. In order to protect the helth of the compny s customers, ll food nd beverges served in ircrft must meet certin helth stndrds. Croti Airlines regulrly checks the preprtion of pssenger mels. The procurement nd storge of ingredients, preprtion nd storge of mels nd their trnsport to ircrft re regulted by pplicble Crotin lws nd relted ordinnces. The bsic cts re: Food Act, Act on Generl Use Items, Veterinry Act, Act on the Protection of the Popultion from Infectious Diseses, nd the Act on the Provision of Food Informtion to Consumers. Snitry inspectors re responsible for ensuring the implementtion of relevnt lws nd ordinnces. Members of the cbin stff must dhere to the provisions of the Act on the Protection of the Popultion from Infectious Diseses. They possess snitry certifictes nd ttend trining course on minimum hygiene stndrds every four yers. Pssenger-oriented service By segmenting the mrket, the compny tilors its service to meet the needs of individul pssenger segments: we im to provide simple nd impeccble business trvels; s for the tourist segment, during the summer flight schedule we expnd the flight network to meet the requirements of feeder mrkets; to the privte trvel segment we offer high-qulity service t fvourble price for mny city-brek destintions in Europe, nd to the segment of low-fre pssengers we offer trvelling without luggge t lower cost. In 2017 Croti Airlines introduced new product the triff clss FlyEsy. FlyEsy enbles our pssengers to trvel cheper without luggge, i.e. only with hnd luggge of up to 8 kg. With this product, Croti Airlines hs further improved its service. Furthermore, the first phse of the ncillry service sle project (AAAS - Amdeus Airline Ancillry Services) hs been completed by implementing the possibility of purchsing the luggge trnsporttion service. In ddition to the routine prctice of chrging excess luggge, the FlyEsy triff enbles the chrging of the trnsport of the first hnded piece of luggge. This service cn be purchsed online, t the Cll Centre nd the compny s brnch offices, s well s through sles gents, which ws prerequisite for introducing the FlyEsy triff. The project will continue by working on the implementtion of the sle of sets, mels, nd upgrde nd Time to Think options (online functionlity). Upon implementing the new user interfce for the online sle of irline tickets in lte 2016, Croti Airlines begn with series of projects in 2017 within its digitl chnnel development strtegies, imed t improving user experience nd online sles. These projects will be implemented during One of them is PNR Retrieve functionlity tht will enble pssengers to mnge the reservtion for which the ticket hs lredy been issued. They will be ble to chnge their contct dt or purchse n dditionl service if they filed to do so when purchsing the ticket. Furthermore, the compny strted working on the functionlity of online chnges of the lredy issued tickets nd chrging the fees nd potentil price differences, ll within the ATC Shopper project (Automtic Ticket Shopper). Cmpign Mngement is nother digitl project, nd the implementtion of this softwre will enble the disply of offers on the compny s website in rel time, with the belonging clendr, so tht the users will be ble to see the lowest prices by routes nd dys even before strting the purchse process. In this wy, finding the most fvourble offer for the desired flight in certin period will be lrgely fcilitted. Product offer informtion Informtion bout offers, trvel plnning nd booking, Miles&More progrmme nd ll other trvel-relted informtion cn be found on our website Existing nd potentil customers re informed bout the Croti Airlines trnsport service lso through plnned promotionl ctivities, medi releses, prticiption in domestic nd interntionl firs, distribution of promotionl mteril, sponsorships, nd direct communiction with our sles personnel. Croti Airlines Generl Conditions of Crrige re vilble to customers t ll sles loctions, brnch offices, nd representtive offices of Croti Airlines, nd hve lso been posted on the webpge Support for the community We hve estblished ongoing coopertion with the nerby vition city of Velik Goric nd prticipte in mjor events relted to vition. We lso cooperte with the Rudolf Perešin Secondry School for Avition, whose students complete their internship with our Technicl Sector nd lter get job there. Furthermore, we successfully cooperte with the Fculty of Mechnicl Engineering nd Nvl Architecture, nd the Fculty of Trnsport nd Trffic Sciences in Zgreb. Some of our employees re visiting lecturers for certin courses held t the Fculty of Trnsport nd Trffic Sciences. As potentil employer, we hve been prticipting in the Creer Dys for number of yers, donting irline tickets to students within the prize competition we orgnise on regulr bsis. We ctively prticipte in the vition-relted projects of the Fculty of Trnsport nd Trffic Sciences nd relted expert meetings, nd hire its grdutes. Our compny lso prticiptes in the Bur Project, iming to reduce the impct of the bur wind on ircrft opertions t Dubrovnik Airport. Croti Airlines encourges humnitrin ctivities nd strives to support, whenever possible, institutions tht need humnitrin id or prticipte in humnitrin projects. It hs been providing direct humnitrin id by grnting cost-free trnsport for severely ill ptients, children or people in need, nd by prticipting in chrity ctions by providing free trnsport. In n effort to contribute to the qulity of medicl tretment of young ptients, in 2017 Croti Airlines donted funds to the Peditric Clinic of the Clinicl Hospitl in Osijek, nd in lte 2017 it donted funds lso to the Clinicl Hospitl in Split. Specil mels for pssengers Our most importnt tsk is to ensure customer stisfction with the service provided. All mels nd beverges on our flights re free of chrge nd the service depends on the flight durtion nd the time of dy. Pssengers on ll business flights nd on certin flights in economy clss cn enjoy specil mels tht need to be ordered in dvnce, such s specil diet mels in line with helth nd religious requirements, mels for children, etc. Croti Airlines crries out on regulr bsis sponsorship nd dontion ctivities in the field of culture, science, sports, etc. It conducts its business ctivities in line with the principles of socil responsibility nd, when selecting projects or events it wishes to sponsor or donte funds for, it tkes into ccount how relevnt they re to the wider community. The compny mostly sponsors culturl nd sports events. Within its projects, the compny successfully coopertes with Crotin Air Trffic Control, Geophysics Deprtment of the Fculty of Science in Zgreb, Crotin Meteorologicl nd Hydrologicl Service, Dubrovnik Airport, etc. In line with its internl rules nd regultions, Croti Airlines does not offer sponsorships, dontions or grnts to politicl prties nd stte orgnistions, or orgnistions supporting rcil, religious, minority or ny other discrimintion: Helth nd sfety of pssengers Helth nd sfety of pssengers, crews nd employees is of high priority to Croti Airlines, nd is ensured through n integrted qulity mngement system encompssing ll of its business processes nd orgnistionl units. A more detiled description of the Croti Airlines qulity mngement system cn be found on pge 35 of this Sttement. The system is continuously certified nd dvnced through regulr internl supervision nd the supervision of relevnt domestic nd interntionl orgnistions. The supervision encompsses regulr udits nd inspections of Crotin civil vition uthorities, i.e. Crotin Civil Avition Agency (CCAA). Croti Airlines fully implements professionl IATA stndrds relted to ir trffic sfety.

25 5.10 Environmentl impct of business ctivities Croti Airlines is wre of the importnce of preserving the environment nd nturl resources, nd of the fct tht by rendering its services it mkes considerble impct on the environment. It is, therefore, dedicted to mnging business gols nd risks ll the while tking into ccount the environmentl protection nd improvement of energy efficiency. The impct of Croti Airlines on the environment cn be seen through the ctivities of its vrious segments. The Flight Opertions Sector hs mjor impct in terms of greenhouse gs emissions, nd the Technicl Sector in terms of hzrdous nd non-hzrdous wste, while other sectors ffect the environment on considerbly lower level. Croti Airlines hs identified greenhouse gs emissions s the most importnt spect of environmentl impct of its business ctivities nd is focused the most on ddressing this issue. Aircrft operte in higher lyers of the Erth s tmosphere nd represent the only nthropogenic pollutnt tht cn ffect the ozone lyer. Greenhouse gses, prticulrly CO 2, re the cuse of climte chnges on Erth nd s such re subject to the gretest number of regultory obligtions of Croti Airlines. In order to mitigte the impct of greenhouse gs emissions, the compny hs since the very strt introduced system for mesuring nd monitoring the ircrft fuel consumption, nd meets ll relted regultory requirements (both domestic nd interntionl). Regultory requirements re regulrly evluted on monthly bsis, thus ensuring their timely implementtion in the compny s business opertions. Croti Airlines endorses the globl vition strtegy of environmentl protection tht is bsed upon four pillrs: investments in technology, optimistion of ir trffic nd improvement of vition infrstructure, boosting of opertionl performnce nd enhncement of pplicble economic mesures. Croti Airlines supports ll mesures contributing to reduced lod on the environment nd reduced ircrft emissions, t the sme time boosting the growth nd development of the irline industry. FLEET 13.6 yers verge fleet ge 12 ircrft CRBON FOOTPRINT 189 thousnds t CO2e CO ZGREB SPLIT 73-tonne 320: 33 kg of CO 2 per pssenger 70-tonne 319: 38 kg of CO 2 per pssenger 30-tonne Dsh8: 30 kg of CO 2 per pssenger n verge vehicle of 1.5 tonnes: 46 kg of CO 2 per pssenger DISTRIBUTION OF CO 2 EMISSIONS ircrft 99,6% Other 0,4% ELECTRICL ENERGY NOISE ICO Chpter IV 100% 1,8 MWh +1.4% compred to 2016 GS +707% compred to 2016 MOTOR FUELS P. Strmečki HETING OIL HETING OIL -76% compred to t On the level of 2016

26 From globl perspective, the Europen Union leds the wy when it comes to creting nd implementing environmentl protection objectives, nd so does the Republic of Croti s n EU member stte, nd Croti Airlines s compny operting in this re. Croti Airlines hs been prticipting in the EU ETS process since In 2018, it joined the Swiss emissions trding scheme, while in 2019 it plns to join the CORSIA process, thus expnding its efforts to reduce greenhouse gs emissions to globl level. The ctivities relted to the reduction of greenhouse gs emissions directly ffect the compny s economic blnce. A reduction of fuel consumption in tonnes through technicl nd opertionl ctivities reduces the cost of fuel. Consequently, the level of emissions is lower nd less money is needed to buy crbon emissions credits, so every inititive imed t reducing fuel consumption results in double impct: environmentl nd economic. Moreover, vrious fees for wste, emissions nd noise mke prt of the service price with regrd to every flight destintion of Croti Airlines, thus directly ffecting its finncil opertions. Besides limiting greenhouse gs emissions through the EU ETS system, it is lso importnt to consider the reltionship between the pssenger growth nd emissions. The pssenger growth with every flight positively ffects the emission indictors per pssenger set t certin distnce, s the volume of emissions does not rise proportionlly with the number of pssengers. For exmple, by compring the verge ircrft nd cr occupncy rte we cn conclude tht, in terms of emissions, ir trvel is often more environmentlly friendly. Physicl properties of ircrft/vehicles nd the fct tht usully only one trveller, the driver, trvels by cr should lso be tken into ccount. As we witness growing number of technicl nd technologicl inititives in the utomotive industry, the irline industry tries to keep pce nd be competitive in environmentl terms s well. Croti Airlines is engged in fulfilling ll regultory requirements nd improving its business processes in line with vilble cpcities in order to reduce, to the extent possible, their impct on the environment. Furthermore, it strives to improve its ttitude towrd the environment by dopting proposls of other stkeholders. Two new ircrft of prtner compny were lesed in 2017 in order to expnd the destintions network, which lso contributed to lower emission rtes per pssenger. Environmentl impcts re monitored through the compny s environmentl nd energy mngement system certified in ccordnce with interntionl ISO14001 nd ISO50001 stndrds. It encompsses ll ctivities tht re crried out in number of the compny s business sectors with regrd to the environmentl protection nd preservtion of energy. The growth of Croti Airlines is bsed on the principles of sustinble development in the following key res: fleet selection nd ppliction of relevnt procedures imed t reducing fuel consumption, CO 2 emissions nd noise. As the ircrft fuel consumption represents the most prominent spect of environmentl impct nd energy consumption of Croti Airlines, the biggest improvements re expected in this very segment. With ech improvement of our technicl resources (primrily in reltion to ircrft), the compny strives to enhnce energy efficiency. It is expected tht during 2022 new A320neo ircrft will be delivered to replce the existing fleet. Estimtes show tht fuel consumption per pssenger set will thus be reduced by some 20%. In the upcoming period, the compny plns to modify the existing Airbus fleet by instlling wke vortex genertors on ircrft wings, reducing the noise from tke-off nd lnding opertions by some 9dB in ccordnce with the stkeholder requirements The introduction of the environmentl protection nd energy mngement system in 2016 ws followed by the introduction of the relted process mesurements nd supervision. Mny segments show improving trends. In 2017, project of gsifiction of the Technicl Sector ws completed, converting from heting oil to more environmentlly friendly energy-generting product. Alterntive fuels represent prcticl chllenge, especilly in view of their price nd the fct tht on the mrket they cnnot be bought in lrger quntities, while in Croti they re not vilble t ll. The compny prticiptes in the work of professionl llinces to get informtion on the vilbility nd possibilities of using lterntive fuels. Environmentl protection mngement systems hve been set up to ensure more efficient monitoring of environmentl protection nd better coordintion t the compny level. The introduction of the system hs enbled the compny to check nd monitor relevnt indictors nd fcilitted the identifiction of relted gols. In this wy the compny introduces positive business prctices in its processes. Croti Airlines implements severl policies within its mngement system. The first nd most importnt one is the Sfety Policy, followed by the Qulity Assurnce Policy, Aircrft Mintennce Qulity Policy, Protection Policy nd the Environmentl Protection nd Energy Efficiency Policy. By introducing ISO (Energy Mngement System) nd ISO (Environmentl Mngement System) systems in lte 2016, Croti Airlines joined smll circle of globl irline compnies with n implemented rnge of ISO mngement systems (ISO 9001/14001/50001). Their introduction nd subsequent monitoring hve resulted in certin svings, shown by the indictors for which 2015 is tken s the bse yer. The compny dheres to ll pplicble legl regultions on environmentl protection nd energy preservtion on the ntionl nd interntionl level, including the wste mngement. The compny lso strives to implement new technologies nd mesures for improving energy performnce on permnent bsis, monitor nd reduce greenhouse gs emissions nd rise wreness bout efficient environmentl protection nd the strengthening of energy efficiency stndrds through employee eduction. Mteril spects hve been hrmonised lso with the business prtners using the sme infrstructure (for exmple, with Zgreb Interntionl Airport, with which Croti Airlines shres the wter dringe infrstructure). The ppliction of ll principles of sustinble development is limited by certin restrictions rising from the prticulr nture of ir trnsport. This primrily pplies to the Sfety Policy, regrded the most importnt policy on whose principles the qulity ssurnce policy nd the environmentl protection nd energy efficiency policy re bsed. In 2017, Croti Airlines recorded no cses of non-complince with the lws regulting environmentl protection nd energy consumption. Due to the prticulr nture of its business opertions, consumption of energy nd resources within Croti Airlines is nlysed in three seprte segments: flight opertions, Technicl Sector, nd dministrtive segment of the compny. Flight opertions consume most energy t Croti Airlines, with regultions nd procedures relted to sfe ir trffic hving bsolute priority. Due to congested irspce, the EU crriers re constrined to ct in ccordnce with mny fctors of ir trffic, which sometimes hinders the implementtion of ecologicl pproch to business. For exmple, in 2017 Croti Airlines introduced four new routes nd lesed two new CRJ1000 ircrft, which resulted in n incresed energy efficiency per pssenger set, i.e. reduced emission rtes per pssenger, but lso brought n increse in the bsolute mount of CO 2 emissions. A stndrd EU ETS MRV method ws used to collect CO 2 emissions dt through the use of 3.15 emission fctor, mening tht one tonne of vition fuel produces 3.15 tonnes of CO 2. The consumption of ircrft fuel in tonnes is considered business secret nd s such is not stted herein. Energy nd wter consumption In 2017, the compny s dministrtive segment consumed 1% less electricity compred to 2016, or 389,482 kwh. We should mention here tht the electricity used by Croti Airlines holds n HEP ZelEn certificte, mening tht it is produced from renewble sources. The Technicl Sector consumed 1.413,338 kwh during vrious ircrft mintennce ctivities, or 2% more compred to the previous yer. Such n increse in the consumption of electricity occurred due to the complexity of certin ircrft mintennce ctivities. It should be noted here tht ircrft mintennce ctivities re focused first on the qulity of work nd sfety, nd only then on energy efficiency. Along with mintining Croti Airlines fleet, the Technicl Sector lso performs mintennce works for other

27 In 2017, ircrft of other compnies were used on short-term bsis due to disruptions in opertions ( 0.26% shre in totl BH) nd their impct on emissions ws not included in the overll emissions of Croti Airlines. An nlysis of CO 2 emissions per revenue pssenger kilometre (RPK) s n indictor of energy consumption nd volume of emissions shows n improvement due to incresed cbin occupncy nd successfully implemented sving mesures with regrd to ircrft. The CRJ 1000 ircrft lesed for the first time in 2017 lso show very good result. In line with the dopted performnce indictor on the volume of CO 2 emissions per pssenger kilometre, in 2017 the Flight Opertions Sector recorded significnt improvement, resulting from the implementtion of fuel sving mesures nd n increse in the number of pssengers nd distnces flown. As during the 2017 summer seson the compny operted flights lso on new CRJ1000 ircrft of its prtner compny, their trffic performnce ws lso monitored. The results were positive, nd the performnce moni- compnies. Considering tht the demnd for such works is growing, we cn expect n increse in the use of resources nd the mount of hzrdous nd non-hzrdous wste. The segment of bsic ircrft mintennce (mjor check-ups) shows the biggest growth. The compny s dministrtive segment recorded decrese in the consumption of electricity, while the consumption of gs (used for heting) incresed despite higher verge tempertures during the yer, indicting tht n nlysis should be crried out in view of potentil svings. According to the dt of the Crotin Meteorologicl nd Hydrologicl Service, in 2016 the verge nnul temperture ws 13.1 C, while in 2017 it ws 13.6 C. Such huge increse in gs consumption within the Technicl Sector occurred s result of replcing heting oil with gs, more environmentlly friendly energy-generting product. In 2017, Croti Airlines lmost totlly bndoned the use of heting oil nd thus considerbly reduced the environmentl impct, s cn be seen from the dt bout the emission rtes contined herein. As for wter consumption, in June 2017 seprte wter meter ws instlled for the dministrtive building, so new nd ccurte dt bout the bse vlue of consumption will be vilble s erly s At the end of 2017, the verge ge of the vehicle fleet ws 11.3 yers, which contributed to the expected increse of consumption indictors. In 2016, the introduction of GPS vehicle trcking system enbled more precise clcultion of fuel consumption, which continued lso in The compny plns to eliminte diesel vehicles s they relese higher mount of nitrogen oxides ffecting the ir qulity t locl level. The fct tht vehicles of the Technicl Sector re used for specific purpose requires the dherence to dditionl sfety rules relted to vehicle movements on irport surfces; nevertheless, the consumption index shows considerble decrese due to the optimistion of Croti Airlines opertions on the new terminl of Zgreb Interntionl Airport toring will continue in The pplied clcultion methodology ws developed on the bsis of officil trffic performnce sttistics of Croti Airlines, verified dt for Croti Airlines from the EU ETS dtbse nd the selected CO 2 /RPK indictor, most commonly used in the irline industry for presenting the bove dt. The fctor used to clculte the totl direct emissions of other energy-generting products in use ws the GHG Protocol Corporte Stndrd, developed by the World Resources Institute (WRI) nd the World Business Council on Sustinble Development (WBCSD) in ccordnce with IPCC 2006 Guidelines for Ntionl Greenhouse Gs Inventories. The totl direct emissions of the compny in 2017 with regrd to consumed energy-generting products mounted to 715,735 CO 2. In 2016, the volume of direct emissions ws 848,426 kg CO 2. Such significnt improvement occurred s result of introducing gs s n energy-generting product to the Technicl Sector during 2016 nd In 2015, the bse yer, they mounted to 833,272 kg CO 2. Since the compny uses the HEP ZelEn certified electricity, there re no greenhouse gs emissions for this segment, which is huge business chievement. Through its product ZelEn, HEP Supply sells the electricity generted in HEP s hydro power plnts registered in the relevnt dtbse of gurntees of origin, nd delivers such proof of origin to its customers bsed on the Methodology for Estblishing the Origin of Electricity (OG 133/14). Crotin Energy Mrket Opertor (HROTE) is responsible for issuing gurntees of origin nd for setting up nd mnging dtbse of gurntees of origin. CO 2 emissions In 2017, Croti Airlines cumultive CO 2 emission impct mounted to ,422 kg CO 2. Compred to 2016, the totl volume of CO 2 rose by 6.4% due to n increse in the number of operting ircrft units in 2017, resulting from the expnsion of the destintions network. However, the bigger picture shows evident improvements, i.e. sustinble growth, given tht CO 2 emission indictors per RPK for ech individul type of ircrft recorded decline rnging from 2.7% to 8.1%. The compny s CO 2 emissions in 2017 include those from ircrft nd those occurring due to consumption of vrious energy-generting products. As expected, ircrft trffic ccounts for the lrgest shre in CO 2 emissions.

28 Wste 6. GRI index Wste is delivered to n uthorised wste collector nd dt re entered into the Hzrdous Wste Register with regrd to the following: the quntity, the mnner in which it hs been produced nd the methods of wste mngement, in ccordnce with relevnt lws on wste mngement. At the generl orgnistionl level, the compny successfully engged in rtionlising the consumption of sttionery nd office supplies. Where pplicble, the print defult on single-model printers ws set on both pges, which resulted in 2.6% decrese in consumption, with n verge monthly consumption of 68,524 sheets of pper in the period since the beginning of mesurements, i.e. from My until December 2016/2017. In ddition to the bove, the employees were fmilirised with the need for conscious printing, by which the compny mkes svings on both the input (pper, toner, electricity) nd output (wste mngement, rchiving s by-products) resources. Croti Airlines hs in plce wste disposl system nd pys equl ttention to the mnging of both hzrdous nd non-hzrdous wste. Along with communl wste, seprte wste collection cn be crried out within the Technicl Sector, the biggest wste producer, nd the pproprite mngement thereof elimintes the impct on the environment nd ensures sustinble development of the compny s technicl ctivities. In 2017 the wste mngement cpcity ws further incresed nd more precise wste seprtion enbled. According to the wste documenttion, in 2017 the Technicl Sector locted in Zgreb produced 41,352 kg of hzrdous wste (s result of more complex works on the compny s fleet nd those performed on third prties ircrft) nd 23,692 kg of non-hzrdous wste; it should be noted tht such considerble increse in this ctegory mens tht lrger quntity of wste ws seprted for reuse, while the percentge of the properly hndled wste remined t 100%. The collection of communl wste in dministrtive segments is performed in ccordnce with pplicble regultions on the stte nd locl level, with seprte wste collection depending on the cpcity of locl community. In this segment, pper represents the most significnt type of wste: 11,620 kg of pper were collected in 2017, or 10,355 kg more compred to the previous yer, which required the purchse of lrger wste pper continer. The compny looks forwrd to thorough implementtion of wste mngement plns in the City of Zgreb nd the Zgreb County s this will increse the percentge of wste seprtion nd thus reduce the impct on the environment % incinertion (hzrdous wste nd contminted plstics) 23% recycling (pper nd clen plstics) 13% other

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