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INTEGRATED COMPANY ANNUAL REPORTAND CORPORATE SOCIAL RESPONSIBILITY

2016


It is my great pleasure to present the second ValamarRiviera Integrated Annual Report that is also the firstannual report prepared in accordance with GlobalReporting Initiative standards for non-financial reportingthat help business organizations understand, communicateand manage the sustainability of their business model andtheir practices.

The integration of business reporting and sustainabilityreporting was not merely a presentation choice forValamar. Many sustainability and social responsibilityprinciples have always been a fundamental part of ourvision, our values, our business model and our dailypractices.

Driven by our belief in the value of transparent and opencommunication, the objective of the second integratedreport is to present a comprehensive, strategic and long-term view of the company's relations with keystakeholders, including our shareholders, employees,partners, guests and the wider community.

The year 2016 was an exceptionally successful year forValamar Riviera: we achieved record results in all keyfinancial indicators while embarking on a new strategicpath to future growth and development. The vision ofValamar Riviera to be the leader in leisure tourism and apartner to destinations in creating authentic guestexperiences, together with a redefined mission and core

values began to take shape. Last year we defined andcommunicated our strategic goals until 2020 which includeachieving a double-digit growth of our EBITDA, reachingan EBITDA margin between 35-38%, and completing anambitious investment cycle in our portfolio worth up to 2billion HRK while maintaining a moderate debt level. Wefocused on the guest and building guest relationships, weexpanded strategic partnerships and enabled theorganization and our employees in order to be recognizedas the most desirable employer in Croatia. We ensuredthat our business model and our practices promotesustainability and create new value.

When looking back on 2016 and considering our strategicgoals and initiatives, I am very proud to say that ValamarRiviera delivered excellent results, which you can readabout in much detail in this report. The growing success ofour revenues, EBITDA, EBITDA margin, investments in theportfolio, partnerships, acquisitions, guest experiences,and many new strategic programs and initiatives are aconfirmation of our strategic choices and give us theconfidence to move forward as planned.

I would like to thank our management and all ouremployees for these excellent results. I very muchappreciate all their efforts. Their smile and our outstandingservice culture have resulted in high guest satisfaction andconsequently, numerous awards for our hotels. Theinvestment in education and training remains a top priority

GUSTAV WURMBÖCK,Supervisory BoardChairman

4

Message from the Chairman


for Valamar and is as important as our investments inhotels and campsites.

Shareholders of Valamar Riviera d.d. also had a recordyear on the Zagreb Stock Exchange as they benefited fromthe 45% increase in market cap in 2016. As promised, in2016 the company paid out a dividend that is sustainablein the long-term and enables Valamar to continue investingin future growth.

Current global conditions and trends which have resultedin increased demand for certain Mediterraneandestinations including Croatia combined with historicallylow interest rates and our healthy balance sheet present avery good springboard for Valamar. They enable us toaccelerate investments in the portfolio, consider growthopportunities in Croatia and abroad through partnershipsand acquisitions, and focus the organization oninvestment, innovation and service excellence as a long-term competitive advantage.

As a true partner to our destinations and communities, inthis report we also communicate and promote numerousValamar activities that are focused on protecting naturalresources, lowering our impact on the environment,educating our employees, developing our communities andstrengthening our relations with all stakeholders with theaim of being recognized as the leading Croatian companyin social, human and environmental responsibility.

As a representative of the largest shareholder andSupervisory Board Chairman, I am therefore proud topresent you our 2016 Integrated Report.

Gustav Wurmböck, Supervisory Board Chairman

5


The year 2016 was marked by record results that confirmedValamar Riviera's status as leading tourism company inCroatia by capacities and number of destinations, revenuesand operating profit, investments, number of guests andemployees. Valamar is a hospitality company that operates infive Croatian tourist destinations-Poreč, Rabac, the islands ofKrk and Rab and Dubrovnik. The company can welcome56,000 guests, which represents 12% of categorizedaccommodation in its 30 hotels and resorts and 15 campingresorts. Furthermore, in the year 2016 we set a solidfoundation for future growth and development by adopting anew development strategy, reorganizing the company,investing in human resources, developing products,establishing strategic partnerships and completingacquisitions.

We achieved record results by all indicators in 2016. ValamarRiviera reported 1.58 billion kunas in total revenues, whichrepresents an 18% increase on 2015 results. Operating profittotaled 519 million kunas, which represents an 18% growth.Sales revenues grew by 15%, due to product repositioning,improved sales and changed distribution policy, whileovernights grew by 8.3% and the average rate grew by 4.6%.The continued optimization of business processes andincreased average rates resulted in higher operating efficiency.Hence, the EBITDA margin grew by one percentage point to34.9% (33.9% in 2015). Business growth combined with stablenet debt and favorable financing costs of 2.4% underline furtherinvestment potential and further growth.

In the past year, we redefined the portfolio and implemented anew strategy for developing products and service concepts. Weopened the first 5* campsite on the island of Krk and madesignificant progress in the premium camping segment. ValamarIsabella Island Resort achieved remarkable results by allindicators in its second year of operation. It now represents aprime example of success and operation of excellence ofValamar resorts. Two hotels, the Valamar Dubrovnik Presidentand the Valamar Lacroma reported excellent preseasonperformance. Furthermore, the company’s commitment tocontinual quality improvements and the excellent work ofoperating management resulted in 86% satisfaction, and aremarkably high number of guests (46%) who rated our servicesas “unbelievable”. Excellent financial results in leading productsand high customer satisfaction validate key strategic initiativeswhich focus on our guests and our employees.

Besides adopting the new company strategy until 2020, theacquisition of Imperial d.d. on the island of Rab in partnershipwith AZ pension fund was another important event thatmarked last year. By investing HRK 285 million we acquired54.71% of the company while AZ acquired 34.22%. We believethat the island of Rab is a destination with strong growthpotential and that the strategic partnership between ValamarRiviera and AZ pension fund will prove to be a long-termsuccessful Croatian model for investments in tourism. Twomore strategic partnerships with major tour operators, TUI andREWE group, were established in the course of the year,covering the development projects in Rabac.

ŽELJKO KUKURIN,Management BoardPresident and CEO

[GRI G4-1]6

Message from the CEO


In 2016 we confirmed our status as leading investor in Croatiantourism. Valamar invested over HRK 3 billion in developing itsbusiness operations. Moreover, we embarked on the largestannual investment cycle in Croatian tourism worth HRK 873million and encompassing over 32 development projects. Rabacbecame the largest construction site in Croatian tourism, spreadover 15 ha, where we constructed two resorts offering a total of2,700 beds. More than 130 construction companies andsuppliers were engaged in this project.

As the leading tourism company in Croatia, we have identifiedour key stakeholders: guests, employees, shareholders and thelocal community. We are aware of the importance of ourcollaboration with all our stakeholders. Moreover, we are awarethat our being a leading tourism company in Croatia entails agreat deal of responsibility for developing corporate socialresponsibility and sustainability. Our role is to manageproactively our business by taking into consideration all ourstakeholders. As leisure tourism leader, we are focused onsetting and promoting new business standards in Croatiantourism and hospitality.

Valamar Riviera is the largest employer in Croatian tourismemploying more than 4,400 people in peak season. Wecontinually work on increasing the employment rate andimproving our employees’ salaries, working conditions andskills. We will pursue this policy because we believe that humanresource management is the greatest challenge in theforthcoming period. This is why we focused on our employees in

one of our key strategic goals. The average gross I remunerationat Valamar Riviera in 2016 was HRK 8,192 or 29% above thesector average. We will continue providing competitiveremuneration and harmonizing company growth with salarygrowth. We will also persist in employing locally because webelieve that it contributes to the authenticity of our hospitality.Therefore, we have initiated a number of initiatives to maintain ahigh share of local employment and strengthen employee loyalty.

I am convinced that with the help of the investment communityand other shareholders we will strengthen our leading positionin leisure hospitality in Croatia and the Mediterranean region.The business model of Valamar Riviera is based on the idea ofthe simultaneous management of hospitality properties anddestinations. This model, which aims at developing the localeconomy by respecting the principles of sustainability, hasexcellent long-term prospects. Valamar is on the right path –we can and want to take responsibility for the futuredevelopment of Croatian tourism.

Sincerely,Željko Kukurin,

President and Chief Executive Officer for Valamar Riviera

[GRI G4-1] 7


1 INTRODUCTION 11

About This Integrated Report 11

2 ABOUT VALAMAR RIVIERA 13

Valamar at a Glance 13

History of Valamar Riviera 16

Valamar Riviera's Business Model 18

3 THE HOSPITALITY INDUSTRY 23

Market Analysis and Trends in Croatia’s Hospitality Industry 25

4 ENGAGEMENT OF KEY STAKEHOLDERS AND MATERIAL ASPECTS 29

Identification of Material Aspects and Boundaries 34

5 VALAMAR’S CORPORATE STRATEGY 36

Vision, Mission and Core Values 37

Strategic Goals 2016-2020 38

Our Strategic Initiatives 39

5.1 FOCUS ON THE GUEST 40

5.2 EMPLOYEES AND ORGANIZATION 52

5.3 GROWTH STRATEGY 72

5.4 INNOVATION AND DIGITALIZATION 86

5.5 DESTINATION DEVELOPMENT AND RESPONSIBILITY TO THE LOCAL COMMUNITY 94

5.6 COMMITMENT TO ENVIRONMENTAL SUSTAINABILITY 114

8

Table of Contents


6 INVESTOR RELATIONS 123

7 AWARDS AND RECOGNITIONS 128

8 CORPORATE GOVERNANCE 133

Corporate Structure 133

Organizational Structure of Valamar Riviera 137

Members of the Supervisory Board 138

Management Board 141

Division Vice Presidents at Valamar Riviera 142

Internal Audits and Controls within Valamar Riviera 144

Company and Group Risks 147

Ethics and Integrity 154

9 2016 BUSINESS RESULTS 157

Results of the Group 158

OPINION OF THE MANAGEMENT BOARD COMMITTEE OF THE CROATIAN BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT 168

GRI INDEX 170

9


11[GRI G4-17, G4-18, G4-28, G4-29, G4-30, G4-31, G4-33]

INTRODUCTION1

Corporate social responsibility at Valamar representsthe integration of the company’s development strategyand Valamar’s responsibility to the environment andsociety. These commitments create the preconditionsfor the sustainable development of the whole society.With this report, Valamar Riviera also sets out strategicbusiness objectives and sustainable development goalsfor the forthcoming reporting periods. Our specificobjectives include long-term profitability, investment inthe development of human resources, sustainabledevelopment of destinations and support for the localcommunity. Special focus is given to environmentalprotection, energy saving and the use of renewable

energy sources. Information on our economic, socialand environmental impact and their management isintegrated into the presentation of our strategicinitiatives and the corporate responsibility programs.The report is available at www.valamar-riviera.com. We invite all stakeholders to submit their comments andsuggestions at [email protected].

In order to make the presented data more relevant, theend of the report contains the opinion andrecommendations for future reporting given by theDirector of the Croatian Business Council for SustainableDevelopment (HRPSOR).

For the second consecutive year, Valamar hasintegrated business reporting with sustainabilityreporting i.e. non-financial information on thecompany’s environmental and social impacts, inaccordance with the Global Reporting Initiative G4guidelines (core option).

The aim of this report is to render a transparent and thoroughpresentation of Valamar Riviera’s development strategy,business results, company culture and the overall approach tocorporate social responsibility in relation to key stakeholders.This report was prepared with the expert support and guidanceof the Croatian Business Council for Sustainable Development.

This integrated report refers to the reporting period from 1 January to 31 December 2016. It is based on theAnnual Report of the Valamar Riviera Group* published on 27 February 2017.

About This Integrated Report

* The Valamar Riviera Group (hereinafter: the company, group, Valamar Group, Valamar, Valamar Riviera) in 2016 included the following entities: Valamar Riviera d.d., Mirta Bašćanska d.o.o. (merged to Hoteli Baška d.d. on 13/1/ 2016), Vala Bašćanskad.o.o.(merged to Hoteli Baška d.d. on 13/1/2016), Baškaturist d.o.o. (merged to Hoteli Baška d.d. on 13/1/2016), Hoteli Baška d.d. (merged to Valamar Riviera d.d. on 31/3/2016), Bastion upravljanje d.o.o. (merged to Valamar Riviera d.d. on 30/6/2016),Valamar hotels & resorts GmbH, Elafiti Babin kuk d.o.o., Magične stijene d.o.o., Palme turizam d.o.o., Pogača Babin Kuk d.o.o., Bugenvilia d.o.o., Puntižela d.o.o. and the balance sheet of Imperial d.d. (the income statement is not included).


13[GRI G4-3, G4-4, G4-6, G4-8]

ABOUT VALAMAR RIV IERA2

Valamar Riviera is one of the largest tourisminvestors with more than HRK 3 billion investedin Croatian tourism.

MICROFACTS

Valamar operates in Poreč, Rabac, on the islands of Krk and Rab and in Dubrovnik.

Valamar Riviera is the leadingtourism company in Croatia. The company's vision is to be theleader in leisure tourism and apartner to its destinations. For over six decades, the company has been offering excellent service,while continually investing in theupgrade of its portfolio propertiesand the development of talents and destinations.

Valamar creates unforgettable guest experiences by usinginnovative services in leisure tourism. It develops a stimulatingcorporate culture where guests and employees come first anddelivers new value for shareholders through corporate responsibility by promoting sustainable development andsupporting local communities. The skills, professionalism and hardwork of over 4,400 people employed by Valamar during peakseason in 2016 represent the foundation of our service excellenceand the company’s success. After acquiring a 54.7% stake inImperial d.d. on the island of Rab by the end of 2016, ValamarRiviera is today present in five attractive destinations– from Istriaand Kvarner to Dubrovnik. It operates about 12% of thecategorized tourist accommodation in Croatia.

Valamar’s 30 hotels and resorts and 15 camping resorts located along the Adriatic coast can welcome more than 56,000 guests daily.

Valamar at a Glance


14 [GRI G4-4, G4-5, G4-6, G4-9]

Germany Austria Italy Slovenia Netherlands Croatia Great Britain Other

28% 14% 8% 8% 6% 5% 5% 26%

VALAMAR RIVIERA D.D. KEY INDICATORS

SOURCE MARKETS

Stancija Kaligari 1, 52440 Poreč, Croatia

Business activity:Hospitality and tourism (core activities)and other associated activities related to the performance of core activities

Primary Brands:Valamar Hotels & Resortsand Camping Adriatic by Valamar

Portfolio:30 hotels and resorts and 15 camping resorts*

Land surface:579 hectares, 46% owned and 54% under concession*

Maritime domain: 36 km*

* Imperial d.d. included in the financial information on assets as of 31/12/2016.

2015 2016 2016/2015

Total revenues (bn HRK) 1.33 1.58 19%

EBITDA (mn HRK) 423 513 21%

Net debt* / EBITDA 2.56 2.73 7%

Employees (peak season) 4,112 4,429 18%

Investments (mn HRK) 310 428 38%

Guests 810,434 888,573 10%

Beds 46,848 48,524 4%

Overnights 4,750,823 5,144,328 8%

Keys 17,783 18,072** 1%

Book value of long-term assets* (bn HRK) 3.19 4.10 29%

Market capitalization as of 31/12 (bn HRK) 2.97 4.30 45%

Shareholders (31/12) 21,243 21,235 0%

** Excluding Imperial d.d.'s accommodation units (2,759).


** Imperial d.d. excluded.

15[GRI G4-4, G4-6, G4-8, G4-9]

REVENUES** (mn Hrk)

2017 PORTFOLIO OVERVIEW (by keys/pitches)NET OPERATING REVENUE (mn Hrk)

ToTal20,852 keys

Poreč9,930

rabaC1,971

iSlanD of rab2,759

Pula654

iSlanD of krk3,577

Dubrovnik1,961

Split

Zadar

Zagreb

PREMIUM 23%4,735 keys

UPSCALE 16% 3,414 keys

MIDSCALE 41%8,643 keys

ECONOMY 20%4,060 keys

2015 2016 2016/2015

Hotels and resorts 993 1,119 13%

Camping resorts 251 303 21%

Other* 32 45 41%

* Leasing, sport, laundry facility and other operating revenues included.

773 806910

1,0011,073 1,097

1,294

1,489

2009 2010 2011 2012 2013 2014 2015 2016


16

tHE bEginning of toURismanD HosPitality in PoREč

1895First public bathing area on SvetiNikola Island - Bagno Parentino

1910The Riviera hotel opened (thecompany was named after it)

1913 and 1923The Venezia and the Parentinoopened (hotels owned by the company to this day)

ComPany bEginnings

1953Rivera Poreč was established, the company-predecessor of Valamar Riviera

Management of hotels, bungalowsand restaurants in Poreč and on Sveti Nikola Island

PERioD of intEnsiVEConstRUCtion

1967Luna Hotels and Apartments

1968Neptun hotel and Lanternatourist village

1971Kristal hotel, Rubin hotel,Camping Lanterna and Solaris

1976Diamant hotel, Zagreb hotel,Solaris pavilion, Camping Istra

1979Pical hotel (the first high-category hotel in Poreč)

1986Fortuna hotel (Sv. Nikola Island)

1895-1950 1950-1965 1965-1990

HISTORY OF CROATIAN TOURISM:120 years of tourism and hospitality

RIVIERA POREč:The beginning of organized tourism andhospitality in Croatia

DEVELOPMENT OFCROATIAN TOURISM:Dynamic business growthand intensive construction of properties

1999 EstablisHmEnt of Dom fonD

Establishment of the largestprivatization investment fundduring the voucher privatization period in Croatia

1990-2000

PRIVATIZATION AND OWNER SHIP TRANSFORMATION:The economic processes of privatization and ownership transformation in the war's aftermath

History of Valamar Riviera


17

CONSOLIDATION OF THE MANAGEMENT AND THE PORTFOLIO

2010-2014

BUSINESS GROWTH AND PORTFOLIOINVESTMENTS: Improving the quality of properties and services

2000-2010

THE COMPANY VALAMAR HOTELI ILJETOVALIŠTA STARTSMANAGING HOSPITALITYOPERATIONS

Introduction of the first brands for hotels and campsites, Valamar Hotels & Resorts and Camping on the Adriatic

2010-2014CONSOLIDATION OF THE MANAGEMENT AND THE PORTFOLIO

Zlatni otok d.d., Rabac and Dubrovnik-Babin Kukwere merged to Riviera Adria d.d., which later onintegrated Valamar grupa d.d. and Valamar Adriaholding d.d. The consolidated company startedoperating under the name Valamar Riviera d.d. andwas listed on the Official Market of the Zagreb StockExchange in December 2014

MERGERS AND ACQUISITIONS

2011 Zlatni otok d.d. (est. 1956), Rabac d.d. (est. 1961)

2013 Dubrovnik – Babin Kuk d.d. (est. 1971)

2014 Valamar Adria holding d.d. (est. 2003), Valamar grupa d.d. (est. 2005)

NEW STAGE IN GROWTH AND ACQUISITIONS

2015-2016

2015INVESTMENTS IN PREMIUM SERVICES AND 4* AND 5* PROPERTIES

The Valamar Dubrovnik President 5* starts its hotel operations

Opening of the Premium Valamar Isabella Island Resort 4*/5*

Takeover and merger of Hoteli Baška d.d. (est. 1949)

2016By the end of 2016, Valamar Riviera established a strategic partnership with AZ pension fund successfully taking over Imperial d.d. Valamar Riviera acquired 54.71% of Imperial's share capital and AZ pension fund acquired 34.22%

Camping Resort Krk became the first 5* campsite in Croatia

Camping resort Lanterna 4* services upgraded after a large investment cycle

Preparation of Valamar’s largest annual investment cycle worth HRK 873 mn

Record business results

Redefined vision, mission and strategic goals for the period up to 2020


18

Valamar Riviera's Business Model

Valamar manages the complete guestexperience. It includes the development andmaintenance of our hospitality assets,operating management of hotels, campsitesand resorts and the improvement of thetourism offering in a destination.

We manage the entire destination value chain; ourbusiness excellence and destination partnershipsproduce high quality service, optimize operationsand secure a high return on investment.

OPERATINGMANAGEMENT OF HOTELS,

CAMPSITES ANDRESORTS

MANAGEMENT OF

DESTINATIONSERVICES

DEVELOPMENT AND

MAINTENANCE OF HOSPITALITY

ASSETS

Managing the complete

guest experience in adestination

Managing the productportfolio

Increased per-guest revenuedue to activevalue chainmanagement

Optimalinvestment and return on

assets

Increasedprofitability due to the horizontaland verticalintegration atdestination

level

VALAMARRIVIERA


19

We have a truly enviable traditionin hospitality and a unique assetportfolio structure thanks to ourcompany tradition spanning 60years. Our portfolio’s book value isHRK 4.1 billion and it representsthe key factor of our success.

We operate properties on more than579 ha of land in prime locationsalong the Adriatic coast, which include36 km of seaside. Our locationsrepresent our major strength and anexcellent opportunity for futuredevelopment. Over the years, we havedeveloped the organization andknowledge to develop tourismproducts and efficiently maintain thevalue of our assets. Our policy is toinvest annually 5% of our totalrevenues in investment maintenanceand FF&E in order to enhance thevalue of our properties.

ASSET MANAGEMENT AND OWNERSHIP OF HRK 4.1 BILLION IN LONG-TERM ASSET BOOK VALUE

LONG-TERM ASSETS OF THE VALAMAR RIVIERA GROUP(Including Imperial d.d.)

Hotels and resorts 67%

Campsites 20%

Other1 13%

TOTAL HRK 4.1 bn

579 ha 5% of revenues

LAND SURFACE2 INVESTMENT MAINTENANCE AND FF&E3

MARITIME DOMAIN

under concession

54%owned46%

36 km

1 Including the HQ building and non-core assets.2 In relation to 2015 Imperial d.d. included.

3 Our policy is to invest annually 5% of our revenues in investment maintenance and FF&E

(Furniture, Fixtures & Equipment).


20

PREMIUM

% of totalKeys capacity

Valamar Dubrovnik President Hotel ★★★★★ Dubrovnik 292 6%

Valamar Isabella Island Resort ★★★★★ (4/5) Poreč 334 7%

Valamar Lacroma Dubrovnik Hotel ★★★★+ Dubrovnik 401 8%

Valamar Girandella Resort ★★★★ Rabac 242 5%

Camping Resort Krk ★★★★★ Krk Island 500 11%

Camping Resort Lanterna ★★★★ Poreč 2,966 63%

UPSCALE


Valamar Club Tamaris ★★★★ Poreč 507 15%

Valamar Riviera Hotel & Residence ★★★★ Poreč 146 4%

Valamar Zagreb Hotel ★★★★ Poreč 230 7%

Hotel & Casa Valamar Sanifor ★★★★ Rabac 242 7%

Bellevue Resort ★★★★ Rabac 372 11%

Valamar Argosy Hotel ★★★★ Dubrovnik 308 9%

Padova Hotel ★★★★ Rab Island 175 5%

Camping Ježevac ★★★★ Krk Island 712 21%

Camping Marina ★★★★ Rabac 314 9%

Naturist Camping Bunculuka ★★★★ Krk Island 408 12%

PORTFOLIO SEGMENTS

2016 2017

% of total % of total 2017/Keys capacity Keys capacity 2016

Premium 1,538 9% 4,735 23% 208%

Upscale 5,869 32% 3,414 16% -42%

Midscale 6,499 36% 8,643 41% 33%

Economy 4,166 23% 4,060 20% -3%

TOTAL 18,072 100% 20,852 100% 15%

In 2017 Camping Resort Lanterna 5* went from Upscale to Premium. Valamar Girandella Resort 4*/5* went from Economy to Premium.


21

MIDSCALE


Valamar Diamant Hotel & Residence ★★★★ Poreč 372 4%

Valamar Crystal Hotel ★★★★ Poreč 223 3%

Valamar Pinia Hotel & Residence ★★★ Poreč 266 3%

Valamar Rubin Hotel ★★★ Poreč 253 3%

Allegro Hotel ★★★ Rabac 245 3%

Miramar Hotel ★★★ Rabac 178 2%

Corinthia Baška Hotel ★★★ Krk Island 456 5%

Zvonimir Hotel, Atrium & Villa Adria ★★★★★ (4&5) Krk Island 177 2%

Valamar Koralj Romantic Hotel ★★★ Krk Island 240 3%

Valamar Club Dubrovnik ★★★ Dubrovnik 338 4%

Imperial Grand Hotel ★★★★ Rab Island 136 1%

Carolina Hotel & Residence ★★★★ Rab Island 152 2%

San Marino Resort ★★★ Rab Island 457 5%

Camping Orsera ★★★ Poreč 594 7%

Naturist Camping Solaris ★★★ Poreč 1,503 17%

Camping Zablaće ★★★ Krk Island 740 9%

Camping Škrila ★★★ Krk Island 344 4%

Camping Solitudo ★★★ Dubrovnik 414 5%

Camping San Marino ★★★★ Rab Island 1,070 12%

Camping Padova III ★★★ Rab Island 485 6%

ECONOMY

MANAGEMENT OF DESTINATION SERVICES


Naturist Resort Solaris ★★★ Poreč 284 7%

Pical Hotel ★★★ Poreč 359 9%

Tirena Hotel ★★★ Dubrovnik 208 5%

Lanterna Apartments ★★ Poreč 887 22%

Marina Hotel ★★ Rabac 218 5%

Eva Hotel & Residence ★★ Rab Island 284 7%

Naturist Camping Istra ★★ Poreč 1,006 25%

Camping Brioni ★★ Pula – Puntižela 654 16%

Camping Tunarica ★★ Rabac 160 4%

Besides operating our portfolioaccommodation, together with ourpartners we also manage over 300catering establishments and outletsand provide a whole range of touristservices related to beaches,transport, excursions, sportscenters, catering etc.

In this segment, Valamar Riveraoperates as a destinationmanagement company with extensivelocal knowledge, expertise andresources. The company specializes increating, managing and supportingvarious events and activities andrepresents an excellent localizedservice provider with in-depthknowledge of a destination.


23

THE HOSPITALITYINDUSTRY

3

Travel and Tourism is one of thelargest global economic sectors. Its contribution to the global GDP is continually growing and iscurrently almost 10%.

Europe is still the dominant traveldestination, accounting for 50% of all arrivals, with the sub-regionof Southern Europe and theMediterranean (Croatia included)being the destination of 18.6% oftravel made around the world.

Travel is growing at a rapid pace andthe UNWTO forecasts arrivals to reachtwo billion per year by 2035.Nonetheless, for years now thetraditionally leading tourist macro-regions of Europe and NorthAmerica have been growing at ratesbelow the global average, whiletourism growth in the regions ofAsia/Pacific, Africa and South Americais accelerating. It is expected that,over the coming decades, the ranking of the regions will not change significantly but the share oftoday’s leading regions will dropconsiderably.

Tourism is undergoing changes not onlyin terms of quantitative trends but alsoin terms of supply and demand, somuch so that various sources haveannounced “the end of tourism as weknow it”. Firstly, the dominantconsumer generation is changing andthe baby boomers, which had fordecades dictated the growth (and thecharacteristics of the supply) is takingleave, while the millennials are enteringthe stage as the next dominant marketsegment for the coming decades. Theeconomy of sharing is also significantlychanging the relations within thehospitality industry, prompting most of


24

the hotel products to re-examine their concepts, innovate faster andintroduce completely new practices in both marketing and sales.

The said trends are a sufficient indicator of the major changes, alongsidethe dynamics of technological changes putting forward great demands onthe improvement of accommodation products, and even greater ones ontheir efficient marketing and sales. Finally, it is becoming more evident thatover the next few decades we are going to witness significant changes inthe global economic order over declining demands for human labor (despitethe fact that there is a lack of skilled workforce in the sector in Croatia andparts of Europe), as a result of technological changes, as well as possiblenegative consequences of the global climate changes. Therefore, the long-term prospects of tourism and the accommodation industry, as thestrongest link in the tourism and hospitality value chain in terms of revenues,indicate that the ability of destinations and companies to change and adaptwill be critical in the near future.

These are the most important trends inthe tourism and hospitality market in thenear future:

1. Arrival of a new market - The babyboomer generation, which has dominatedthe tourism and hospitality market fordecades, is taking its leave. It is predictedthat they will be surpassed by the millenialsin 2017 already when considering travel.Having grown up in a technologically moreadvanced environment, and being sociallyaware and eager to have an authentic localexperience, the millennials will set newstandards for the structure and the deliveryof tourism products as well as for tourismmarketing. Moreover, the share of theurban population in the overall travellingpopulation will continue to grow, and themembers of the middle class in the heavilypopulated Asian countries will make up thegrowing share of the global demand.

2. The economy of sharing is changing thecompetitive environment - Platforms suchas Airbnb and Uber continue to grow at arather fast pace and gradually increase thequality of what they offer. Together with thenew generations of visitors, they are slowlyblurring the once clear lines between thepreferences of different market segments forcertain accommodation products (forinstance, Airbnb is now becoming desirableeven to business travelers). Experiencing theauthenticity of a tourist destination isbecoming the most important criterion. Inthe future, the lines between tourists andlocals will be blurred even more with touristsseeking to experience destinations from thelocals’ perspective.

3. Personalized data for a personalizedservice – Today, most of the bookingsare made online. The amount ofbookings and information searched forvia smartphones is growing at anincreasing speed. Platforms such asBooking.com are already announcingthat they will stop sending their users’personal information (such as e-mailaddresses) to end providers. Modernmarketing trends (and even trends inpolitical marketing) are indicating that thepatterns of users’ behavior online arebecoming the main tool and key factor of success. Moreover, in such anenvironment, the demands of the users regarding digital and softwareservices from the providers of tourismand hospitality services are becomingmore frequent and more complex.

4. New product-related trends –Globally, adventure tourism has been thefastest growing tourism product for thesecond consecutive year, and thedemand for gastronomy-based tourismproducts is also on the rise. In thehospitality industry, designer interiors areno longer an added value but arebecoming the norm for lower categoriesas well, while the concepts of minimallyfurnished open spaces are becomingprevalent. With the lines graduallydisappearing between business andleisure travel, a product with completelynew characteristics is emerging and isknown as bleisure. The sustainability of atourist destination continues to grow asone of the factors of destinationselection and visitor satisfaction.


25

MARKET ANALYSIS AND TRENDS IN CROATIA’S TOURISM INDUSTRY

ARRIVALS, OVERNIGHTS AND FOREIGN EXCHANGE REVENUE FROM CROATIA’S TOURISM, 2011 – 2016

2016 Average annual growth for 2016 compared to 2011

Beds 993,339 2.2%

Arrivals 15,594,157 6.4%

Overnights 78,049,852 5.3%

Foreign exchange revenues EUR 8.635 bn 5.5%

Sources: Croatian Bureau of Statistics, Croatian National Bank.

Overnights in mn

80

60

40

20

0

2011

Overnights in m

n

2012 2013 2014 2015 2016Foreign exchangerevenue (EUR bn)

2010 2016

Accommodation share Overnights in mn Occupancy Accommodation share Overnights in mn Occupancy

Collective accommodation* 45.9% 35.0 25.1% 42.1% 44.9 29.4%

Private accommodation 52.7% 19.4 13.3% 57.3% 31.2 15.9%

Other 1.4% 1.8 14.8% 0.6% 2.0 14.5%

* Campsites, hotels and similar accommodation. Source: Croatian Bureau of Statistics.

MAIN TOURISM INDICATORS IN CROATIA IN 2016

Arrivals in mn

Arrivals in m

nFo

reign exchange re

venue

(EUR bn)

20.0

15.0

10.0

0.0

TOP GEOGRAPHICAL MARKETS IN CROATIA’S TOURISM INDUSTRY IN 2016

AnnualTop markets Share growth

Germany 23.7% 8.3%

Slovenia 9.9% 6.9%

Austria 9.0% 10.3%

Poland 6.9% 14.8%

Italy 6.9% 3.3%

2016 Fastest overnights 2016growing markets* growth share

UK 25.1% 4.2%

Scandinavia (Sweden, Norway and Finland) 27.0% 3.8%

Hungary 11.5% 3.5%

Bosnia and Herzegovina 13.9% 2.1%

Denmark 27.4% 1.0%

* Fastest growing markets in 2016 with over 1% share.Source: Croatian Bureau of Statistics.

ACCOMMODATION CATEGORIES IN CROATIA FOR 2016 / 2010


26

→ Tourism in Croatia continues tosignificantly grow above the region’saverage (Southern Europe and theMediterranean) with a 9% arrivalsgrowth in 2016 (compared to theregion’s average 1.4% growth);

→ Tourism in the Republic of Croatia isnearing investment cycle culmination-according to preliminary data (Ministryof Tourism) it is expected that the totalinvestments in this sector could exceedEUR 600 mn and the record year 2007;

→ However, the structural problems ofCroatian tourism still persist-privateaccommodation grows much fasterthan other accommodation types(+40,000 beds in 2016 only) by shareand overnights, while the share ofcollective accommodation (hotels,campsites etc.) is below 50%, althoughit carries most of the investments,season prolongation and development;

→ Economic effects of tourism-relatedactivities are also on the rise; however,it needs to be noted that the foreignexchange revenue is increasing at asomewhat slower pace thanovernights and arrivals, indicating thatthe unit rent is going down;

→ Average hotel bed occupancy rate isnearly 45% and one of the highest inEurope. Campsites are nearing a solid20%, while private accommodation hasa mere 15% annual occupancy rate;

→ Split-Dalmatia, Istria and Dubrovnik-Neretva counties have increased theirshares in the realized arrivals andovernights, and boast destinationswith the highest growth of turnover in2016;

→ The latest development in the structureof the top markets is the CzechRepublic’s drop from the top five

markets, with Poland rising to fourthplace with the same share as the fifth-ranked Italy;

→ For the third year in a row, both the UKand Scandinavia have posted double-digit growth rates; moreover, in 2016,out of the major markets, Hungary,Denmark and Bosnia and Herzegovinareported high growth rates, while theNetherlands had a slightly lowergrowth rate;

→ Despite an increase in the share ofprivate accommodation in theaccommodation structure, there have been some rather slow butpositive developments in theseasonality of Croatian tourism. In2015, after many years, the share ofthe four summer months in the totalnumber of overnights finally droppedbelow 86%, and in 2016, it fell by anadditional 0.1%;

→ In the period between 2011 and 2015,the employment rate in tourism andhospitality (based on the data of theFinancial Agency, which monitorsentrepreneurs) went up by 6.1% a yearto 56,170 employees;

→ Over the past five years, there has beena significant increase in investments; it isexpected that by this particular criterion,the year 2016 could be a record-breaking year for Croatian tourism. Over90% of investment was focused onaccommodation, cateringestablishments and other amenities;

→ In the period between 2013 and 2016,cumulative investments amounted toEUR 1.6 billion, and the national tourismstrategy projects EUR 7 billion for the2013 – 2020 period. Effectively, thismeans that by 2020, EUR 1.3 billion onaverage should be invested each year toreach the strategy’s goals, which is an

EMPLOYMENT TRENDS IN TOURISM – AREA OF ACTIVITY 2011 - 2016 INVESTMENTS IN TOURISM (EUR mn)

Total activity

60,000 600

400

200

0

40,000

20,000

02011 2012 2013 2014 2015

Food andbeverages

Accommodation

Source:Financial Agency.

Source: Croatian Bureau of Statistics;data for 2016 are estimates of the Ministry of Tourism based on an investment survey.

2011 2012 2013

AVERAGE ANNUAL GROWTH RATE = 21.8%

2014 2015 2016


27

unrealistic expectation, even though theinvestments are structurally going in theright direction;

→ The strategy also predicts that in theperiod between 2013 and 2020, another20,000 to 22,000 new jobs will beopened in the tourism industry; however,these figures will depend on therealization of the planned investments,and we should also take into accountthe VAT hike in the catering industry thatwill surely slow down the investmentsand employment growth in tourism;

→ Still, we can predict that by 2020 theinvestment cycle will make room foraround 10,000 new employments in thehospitality industry, including a highshare of skilled and highly skilledworkers. For the time being, theeducational system is partly or entirelynot able to deliver this number ofworkers or ensure adequate skills. Giventhe short period, the educational systemwill not be able to change in order tomeet the challenging needs of themarket. Consequently, the largestcompanies and investors alike will haveto tackle this issue independently or inpartnership with other employers and/orthe government as soon as possible.

In addition to the trends mentionedabove, the following developmentprocesses should be noted as well:

→ There have been some positivedevelopments in the Croatian NationalTourist Board’s main office and severalregional offices of the leading counties

regarding their reorientation to onlinemarketing as well as continued marketresearch. The processes of productdevelopment are being intensified;however, for the time being they aremostly limited to the leading coastaltourist regions / destinations and theCity of Zagreb;

→ As of January 1 2017, the VAT oncatering services has gone up from 13%to 25%, thus increasing the risk of thepossible negative effects on totalinvestments, development, quality andinnovation of services, particularlycatering, and consequently theplacement of local agricultural products;

→ As of 1 January 2017 the income taxrate went down from 20% to 18% andtax incentives on investments wereintroduced;

→ Most airports in the country have beenposting significant growth rates but arealso the subjects of capital projectsand/or ambitious growth plans for thecoming period. Further growth of the air travel market is to be expected,particularly in countries that are alreadyrecording high growth rates (the UK and Scandinavia);

→ The real estate market is still recovering(in terms of prices and number oftransactions); the rental real estatemarket is still far more intensive than the buying real estate market;

→ After years of growth induced by price increase, revenues in the hospitality indu-

stry for the past two years have beengoing up predominantly through occu-pancy growth, while investments andquality upgrades are becoming the exc-lusive preconditions for increasing prices;

→ In conclusion, over the next five years,we can expect further growth inCroatian tourism and hospitality and a change in the market structure (infavor of northern and western Europe,and the air travel markets). The peakseason will also reach its growth limits.However, the major competitiveweakness of Croatia’s tourism andhospitality sector is its management atthe level of destinations and regions.

→ Bearing in mind the trends and the con-siderable changes that are expected inthe global tourism industry over the nextfive to ten years, the competitiveness ofhotel and tourism companies will largelydepend on the following:

→ Innovating, managing and utilizinginternal databases, primarilydatabases on visitors, their habitsand needs, and optimal advertisingchannels. Apart from the data itself, itwill also be necessary to researchand implement sophisticated marketsegmentation methods based on thegrowing number of demographic

characteristics so as to shape bothproducts and marketing according to the resulting segments;

→ Developing online sales andmarketing channels with emphasison social networks, continuedmonitoring and application of newsolutions for online marketing andcorporate image management aswell as management of the image ofcertain products and destinations;

→ Ability to create innovative offeringsand stories with focus on videocontent, which will unsurprisinglybecome the dominant advertisingcontent over the next ten years,regarding both marketing anddelivery of products;

→ Timely adaptation of the products inline with the trends that will changeincreasingly quickly. Imagination and the ability to create stories will be more important for success than material investments in theproduct and the equipment;

→ Since users wil stop perceivingaccommodation facilities anddestinations as two separate ideas,the influence of companies ondestination management anddevelopment will prove critical fortheir success.

Sources: The end of tourism as we know it – Copenhagen tourism strategy 2020, PwC, Global Entertainmentand Media Outlook 2016 – 2020., European Parliamentary Research Service, Global Trendometer: Essays onmedium- and long-term global trends, 2016., European Strategy and Policy Analysis System, Shaping theFuture, 2016, OECD, Tourism Trends and Policies 2016., Airbus, Global Market Forecast 2016-2035., HarvardBusiness Review, Labels like “Millennial” and “Boomer“ Are Obsolete, Nov 2016, SKIFT, The MegatrendsDefining Travel in 2016, SKIFT, The Traveler Manifesto – What Super Travelers Want From the Travel Industry,2016., Destination Think! Insights & News.


29

ENGAGEMENT OF KEY STAKEHOLDERS AND MATER IAL ASPECTS

4

We have been building partnershipsand fostering open communicationwith all our stakeholders for manyyears, because we believe that ourbusiness success depends on howwell we understand their needs.

This report was created with the expertsupport of the Croatian BusinessCouncil for Sustainable Development.Continuous dialogue with stakeholdersis an important part of our corporatesocial responsibility efforts integrated inValamar’s business strategy.

We have established policies at companylevel that represent our commitment tobe the hospitality market leader in Croatiain terms of service quality, guest and usersatisfaction, caring for the interests of ouremployees, company and localcommunity, environmental protection andresource management. Hence, ValamarRiviera has adopted the Quality and

Sustainable Business Policy that focusesespecially on the following aspects:

→ compliance with legal and other requirements

→ protection and rational use of resources

→ pollution prevention as the foundation of our management ofenvironmental aspects

→ reduction of waste and adequatewaste management

→ improvement of energy efficiency

→ purchase of energy-saving products and services

→ availability of information andresources related to the achievementof general and specific goals in thefield of quality, safety, environment and energy

→ employees’ training

→ labor law compliance and caring for our employees

→ support for the local community and interests

→ protection of children.

[GRI G4-24, G4-25, G4-26]


30 [GRI G4-24, G4-25, G4-26]

Valamar’s key stakeholders are guests, employees, shareholders, the local community and destinations as well as other related stakeholderssuch as trade unions, professional associations, suppliers, the investmentcommunity, public administration bodies and the general public.

KEY STAKEHOLDERS OFVALAMAR RIVIERA

GUESTS

TRADE UNIONS

PROFESSIONALASSOCIATIONS

PUBLICADMINISTRATION

BODIES

SUPPLIERS

INVESTMENTCOMMUNITY

GENERAL PUBLIC

EMPLOYEES

SHAREHOLDERS

LOCAL COMMUNITY

AND DESTINATIONS

RELATED STAKEHOLDERS

COMMUNICATION WITH KEY STAKEHOLDERS

GUESTS

→ surveys/ guest opinion research

→ raising awareness about environmental issues

→ involvement in charity events

→ newsletters

EMPLOYEES

→ surveys/ corporate culture and climate research

→ communication through the monthly ViV corporatemagazine (printed edition) and ViV blog (web edition)

→ daily, weekly and monthly department meetings

→ workers’ meetings

→ annual party

SHAREHOLDERS

→ annual Shareholder’s General Assembly

→ financial reports

→ corporate web site

→ VIV magazine

LOCAL COMMUNITY AND DESTINATIONS

→ Valamar’s participation in the work of tourist boards

→ collaboration in the organization of destinationevents and investment projects

→ Valamar’s active participation in charity activities


31[GRI G4-24, G4-25, G4-26, G4-EC1, G4-EC9]

COMMUNICATION WITH RELATED STAKEHOLDERS

TRADE UNIONS

→ collective agreement signed

→ collaboration with the Works council on all key issuesrelated to employees’ rights

PROFESSIONAL ASSOCIATIONS

→ promoting professional interests as member of variousprofessional organizations (Association of Employers inCroatian Hospitality, Croatian Employers’ Association,Croatian Chamber of Economy, Croatian Business Council for Sustainable Development, AmericanChamber of Commerce in Croatia and others)

SUPPLIERS

→ 95% Croatian suppliers

→ long-term collaboration and partnership

INVESTMENT COMMUNITY

→ transparent communication with all investors in thecapital market (non-deal road shows, meetings andconferences, Investors Day, corporate web site)

→ collaboration with development banks and commercialbanks and creditors, proactive communication with analysts

PUBLIC ADMINISTRATION BODIES

→ collaboration on the development of investment projects, student scholarships and dialogue related to legislative initiatives

GENERAL PUBLIC

→ press releases

→ corporate website

→ VIV magazine


32 [GRI G4-EC1]

VALAMAR RIVIERA'S CONTRIBUTION TO ECONOMIC DEVELOPMENT IN 2016

DIRECT ECONOMIC VALUE GENERATED

n Guests HRK 1,455 mn net sales revenues

n Other revenues HRK 124 mnfinancial and operating revenues that, among other, include insurance revenues, interest rate revenues, foreign exchange gains, revenues form shares and stakes sold etc.

n Employees HRK 265 mnall net receipts by employees including salaries,rewards, incentive payments and other increments

ECONOMIC VALUE DISTRIBUTED

INVESTMENTS

n Suppliers HRK 473 mncosts paid to suppliers related to food and beverage,energy sources, communication, transport, promotion,maintenance, intellectual services and other

n Investments in the portfolio HRK 397 mncapital investments in hospitality properties, equipment and services

n 9 CSR umbrella programs HRK 50 mntotal investments and projects included in the CSR programs

n Acquisitions HRK 285 mnexpanding the portfolio through acquisitions of hospitality companies

n Public administration HRK 541 mnVAT and other taxes, contributions on salaries, other paymentsto the public administration and institutions, income tax excluded

n Shareholders HRK 74 mndividends paid to shareholders

n Banks and creditors HRK 66 mninterest rates and other costs related to financing

n Community HRK 1 mndonations and philantrophy


33[GRI G4-EC1]

Direct economic value generated HRK 1,579 mn

Economic value distributed HRK 1,424 mn

Economic value retained HRK 155 mn(The difference between the direct economic value generated and distributed)

Total investments HRK 732 mn


34 [GRI G4-19, G4-20]

Identification of Material Aspects and Boundaries

By identifying and quantifying theimpact our business operations haveon the environment, the localcommunity, our employees and thesociety, we are able to thoroughlyconsider our operations in order toachieve long-term efficiency and asocially responsible business.

In 2015 and early 2016, in cooperationwith external consultants, we carried outa months-long analysis of our corporatestrategy and determined the newcorporate vision, mission and key valuesfor the company. Through jointworkshops and selective in-depthinterviews with the company’s key internalstakeholders (in HR, environmentalprotection, technical maintenance ofinvestments, legal affairs, investorrelations, controlling, quality managementand corporate affairs) and its topmanagement, we carried out a jointdetermination of the material aspectswithin the organization that are not onlycritical for the company but also a part ofour corporate strategy.

Members of the Management Board ofValamar Riviera actively participated in theprocess of determining materialitytogether with the Board’s vice presidents,and the entire process was managed byValamar’s Business ExperienceCommittee (Željko Kukurin, President of

the Committee, Ivana Budin Arhanić, VicePresident of the Committee, andCommittee Members David Poropat,Davor Brenko and Alen Benković). In thesaid process, Valamar also consulted withNikolina Markota Vukić, PhD, of theCroatian Institute for Corporate SocialResponsibility (IDOP). The inneroperational team comprisedrepresentatives of different sectors withinthe company, including InvestorRelations, Legal Affairs, HR, TechnicalSector, Audit and StandardizationDepartment, Strategic Planning andControlling, Sales, Marketing, Purchasing,Quality and Corporate Communications,with coordination by the Corporate AffairsDepartment. The final conclusions wereconfirmed by the Management Board ofValamar Riviera.

In 2016, following separateworkshops and sectoral meetings,KPIs at Valamar Riviera level wereestablished for each division andsector individually. The identified KPIsare in line with the company’s definedstrategy and objectives as well as themeasurable monitoring indicators forthe coming periods of time. Whendetermining the company’s keymaterial aspects, we were guided bythe principles of sustainability andtook into consideration the effect ourbusiness operations have on theenvironment, the local community, ouremployees and the society. Using thedefined key material aspects of thebusiness, the Management Boardthen identified the priorities that arealso the company’s strategic goals.

PROCESS OF DETERMINING SIGNIFICANT ASPECTS (CONTENT OF THE REPORT) AND ASPECT BOUNDARIES

An in-depth analysis of the effects of the economic, environmental and social aspects of our business operations wascarried out, followed by the identification and prioritization of the material aspects within the organization, in adherence tothe G4 GRI guidelines. We divided the process of identifying and prioritizing material aspects into three separate steps:

1. Materiality identification: significant environmental, social and economic aspects were identified.

2. Aspect prioritization: the identified significant environmental, social and economic material aspects were prioritized with regard tothe perception of the key stakeholders and effects on the business strategy.

3. Materiality verification: internal key stakeholders verified the prioritized and identified significant environmental, social and economicmaterial aspects with regard to the perception of the key stakeholders and effects on the business strategy

→ Economic effect→ Market presence→ Contribution to the community

(economic and social contribution andemployment opportunities)

→ Increase in the local employment rate –focus on permanent seasonal workforce

→ Employee training and education→ Creating competitive working conditions→ Dialogue with the employee

representatives→ Local community→ Improving energy efficiency and using

renewable energy sources→ Energy→ Continued GHG reduction → Using recycled water→ Water→ Wastewater and waste→ Ethical commitment and transparency→ Responsible development of tourism

LIST OF MATERIALASPECTS


35

In accordance with the process of identifying and prioritizing material aspects within the organization, a materiality matrix was defined at the level of all ofValamar Riviera’s organizational units. With the materiality matrix, the environmental, social and material aspects were identified and prioritized with regard totheir effect on the company’s operations and the importance for the identified key stakeholders.

MATERIALITY MATRIX

RESPONSIBILITY TO PRODUCTAND SERVICE

16 Raising awareness and including buyerswith ethical obligations (environment)

17 Buyers’ health and safety18 Service excellence19 Innovative products and services20 Guest-oriented services

RELATIONS TO EMPLOYEES

21 Contribution to the community (economic and social contribution andemployment opportunities)

22 Dialogue with the employee representatives23 Workplace health and safety24 Increase in the local employment rate –

focus on permanent seasonal workforce25 Employee training and education26 Creating competitive working conditions

HUMAN RIGHTS

27 Ethical commitment and transparency28 Responsible tourism development29 Innovations and transparency with suppliers30 Dialogue with the stakeholders31 Development of the destination

tourism supply

SOCIAL ASPECTS

32 Local communities

13 21 30 24

27 6 25

28 17 32

1

22 26

16

23

14

29

31

18

19

20

7

15

8

9

2

10

3

11

4

12

5

IMP

AC

T O

N S

TAK

EH

OLD

ER

S

IMPACT ON COMPANY’S OPERATIONS low high

low

highENVIRONMENTAL

ASPECTS

1 Inspiring guests, employees anddestination to environmentalpreservation

2 Biodiversity3 Using recycled water4 Transport 5 Emissions6 Improving energy efficiency

and using renewable energy sources

7 Energy8 Continued GHG reduction9 Using environmentally friendly

materials10 Waste reduction and adequate

waste management11 Wastewater and waste12 Water

ECONOMIC ASPECTS

13 Indirect economic impact14 Economic performance15 Market presence

[GRI G4-20]


36

VALAMAR'S CORPORATE STRATEGY

5


37[GRI G4-2, G4-56]

Vision, Mission and Core Values

OUR VISION OUR MISSION OUR CORE VALUES

To be the leaderin leisure tourismand createauthentic guestexperiences inpartnership withour destinations

To create unforgettableguest experiences byusing innovative servicesin leisure tourism.

To develop a stimulatingcorporate culture whereguests and employeescome first.

To deliver new value for shareholders throughcorporate responsibility by promotingsustainabledevelopment andsupporting localcommunities.

RESPONSIBLE We are a responsible business partner, a caring employer, supportive towards the community and committed to preserving the environment.

WELCOMING We make our guests feel very welcome and highly appreciated.

AMBITIOUS We set challenging goals and strive for excellence in everything we do.

INNOVATIVE We engage in collaborative innovation to improve our performance, stay alert and open to change.

PROUD We take pride in our destinations and being part of the Valamar family.


38 [GRI G4-2, G4-56]

GROW SIGNIFICANTLYby retaining the market-leadingposition in Croatia, with double-digitEBITDA-CAGR in the next five years,through acquisitions and strategicpartnerships in selected Europeanleisure travel destinations.

STRENGTHEN DIRECTRELATIONSHIPS WITH GUESTS by achieving 50% of revenues from direct bookings and 30% ofreturning guests.

INVEST HRK1.5-2 BILLION INTHE PORTFOLIO while maintaininga solid balance sheet; generatepremium returns by steadily growingthe EBITDA margin to 35-38% with asustainable net debt/ EBITDA ratio.

EXPAND STRATEGICPARTNERSHIPSwith well-known internationalcompanies and key partners in order to prolong the season, diversify the customer base andoptimize business.

BE RECOGNIZED AS THE MOST DESIRABLEEMPLOYER IN TOURISMbecause we offer salaries above the Croatian average and hire locally, in order to achieve a 70% rate of returning seasonalworkers and develop more than 80% of our management internally.

CREATE NEW VALUE FOR SHAREHOLDERSby significantly increasing our market capitalization.

STEER A SUSTAINABLE ANDSOCIALLY RESPONSIBLEDEVELOPMENT OF DESTINATIONSby investing up to 2.5% of our revenues in corporate social responsibility, training and development projects indestinations.

OFFER ATTRACTIVE AND LONG-TERM SUSTAINABLEDIVIDENDSto our shareholders.

Strategic Goals 2016-2020


39[GRI G4-2, G4-56]

Our Strategic Initiatives

FOCUS ON THE GUEST Provide excellent service in each contact with ourguests to create unforgettable experiences andexceed expectations. Build long-term, personalizedrelationships with our guests while taking inconsideration their individual needs.

CARING FOR OUR EMPLOYEES Develop a stimulating corporate culture where theorganization can learn and grow and whereemployees and guests come first.

GROWTH STRATEGY Improve business operations and sales, develop theportfolio and expand through strategic partnershipsand acquisitions in order to continually achievestrong revenue and profit growth.

INNOVATION AND DIGITALIZATION Be an innovative hotel company in the leisurehospitality market and leverage the opportunitiesprovided by digital technologies in order to fullymeet and anticipate our guests' needs.

DEVELOPMENT OF OUR DESTINATIONS AND RESPONSIBILITY TO THE LOCAL COMMUNITY Steer a sustainable and socially responsibledevelopment of destinations and improve socialconditions in the local community.

COMMITMENT TO ENVIRONMENTAL SUSTAINABILITY Employ a proactive approach to environmentalpreservation and sustainability by efficiently usingnatural resources, protecting the sea and theenvironment, saving energy, adequately managingwaste and raising awareness about environmentalissues among guests, employees and suppliers. In this way, we protect the natural beauty of theenvironment where we work and live.


40

5.1 FOCUS ON THE GUEST Focus on the guest is seen in our commitment to provide our guests with top-quality service, so as to create positive moments and lasting memories during theirentire stay. Besides, we want to build a lasting relationship with guests and create direct communication throughout the year.

families

MICE7%

active guests13% 34%

vacation groupsand tours

4%

adults and couples29%

seniors13%

HOTELS AND RESORTS CAMPING RESORTS

VALAMAR MARKET SEGMENTS

families

seniors7%

active guests7%

42%

short stay 6%

adults and couples20%

luxury camping

18%

Development of Tailored Products and Service ConceptsBased on Guests’ Needs and Desires

Guests' expectations are rising, especially in the Premiumsegment, and we respond to this trend by developing tailoredproducts and service concepts. Meeting our target guestgroups’ needs more successfully increases their satisfaction andsecures new sources of revenue.


42

Service Concepts

The product development strategydefines ambitious plans forinnovative improvements of serviceconcepts, focusing on the Upscaleand Premium portfolio segments, inhotels and resorts and campingresorts.

The goal is to improve our offering,exceed guest expectations, and defineevery single service concept. It isextremely important to clearly tieindividual service concepts to the corevalues of the Valamar brand, where theguest always comes first. In this sense,the development of tailor-made serviceconcepts for each target guestsegment plays a key role.

In 2016, we successfully startedimplementing key service concepts,setting very high demands for qualityand the consistence of theirapplication throughout our properties.Such an approach will enableconsistence in market communicationas well, and subsequently contributeto the development of serviceconcepts as familiar brands. At thesame time, their development is acontinual, ongoing process where werespond to the latest marketdemands, but primarily byconsidering the demands andexpectations of guests.

V LEVELPREMIUM FAMILY

AND FAMILY

ADULTS ONLY /FRIENDLY

FOOD & BEVERAGE

PERFECTEXPERIENCECREATOR


43

V LEVEL

The premium concept consists of aseries of exclusive privileges andpersonalized services at guests’disposal at selected properties in theValamar Premium and Upscale portfolio.The personalized guest welcome andcheck-in, selection of the best roomsand suites, private concierge serviceduring the guest’ stay, exclusivebeaches and poolside services,premium gourmet and fine-diningculinary services, and the unique tailor-made destination experience allowguests to enjoy premium-level servicesand products from the moment theyarrive to the moment they depart.

ADULTS ONLY / FRIENDLY

Adults Only is a service concept thatprovides a special selection ofaccommodation units, gourmet andentertainment experiences to meet allthe needs and wishes of 16+ guests,whether couples or groups. Specialattention is directed toward creating anoasis of peace, privacy and relaxationthrough special adults-only or adults-preferred features such as beaches andpools, recreation and eveningentertainment, and there is anunavoidable breath of exclusivity andluxury in the wide selection of fine-dining and adults-only restaurants, andthe lavish romantic adventures forcouples.

PREMIUM FAMILY AND FAMILY

Providing a wealth of entertainment andprograms for children and teenagers,Valamar offers the complete experienceof an ideal family vacation at twoservice concept levels– Premium Familyand Family. Family-friendlyaccommodation units, swimming poolsand family beaches with activities andproducts for children, the kids' cornerwith a special menu and Animationteam members at the hotel buffetrestaurants, children’s Maro Club andMaro Baby Club, and the parents-freeTeen Zone, as well as day and eveningprograms allow parents to have acarefree vacation with a chance to tryout one of the Stay Fit activitiesintended just for them.

FOOD&BEVERAGE SERVICE CONCEPTS

The Food&Beverage conceptencompasses a series of branded,theme-based a la carte restaurants,buffet restaurants, bars and clubs. Theyall allow Valamar’s guests to enjoyspecial meals, tasting menus and along wine list selected by the bestCroatian sommeliers. The Dine Aroundservice gives the possibility to exchangea standard buffet dinner with a dinner atone of the theme-based a la carterestaurants, while some restaurantsalso offer an unforgettable late-nightentertainment and clubbing option. In2016, Valamar implemented thefollowing concepts: Premium BuffetRestaurant, Wine Bar & Restaurant,Craft Beer & Grill, Tuna Bay Grill andThe Beat Club.


44

The Perfect Experience Creator won the 2016 Zlatna Koza – Capra D'oro award from the Istria Tourist Board in the Innovative Product category.

→ Experience-creator.com website

→ Sales management platform

→ 18 destination info points

→ 200 selected experiences

→ 65 local partners

→ More than 100 souvenirs under thebrands Valamar, Camping Adriatic byValamar and original local souvenirs

→ 12,000 sold experiences in 2016

DESTINATIONEXPERIENCES

INFORMATIONON THE

DESTINATION

HOW TO REACH THE

DESTINATION

TRANSPORTSYSTEM AT

A DESTINATION

MERCHANDISEAND SOUVENIRS

SALES

HOTEL AND RESORT

INFO

LOYALTYPROGRAM

PERSONALIZEDSERVICES

In 2016 we launched the PerfectExperience Creator – an interactiveprogram that allows guests to easilyorganize their vacations and destination experience.

This program has been implemented at all the destinations, offering information andadvice on various destination services andexperiences, including local attractions,places to eat, events, outdoor activities, and transport services.

When using the Perfect Experience Creator,guests can simply and easily book andpurchase all services and tickets to numerous events, as well as local souvenirs.

PERFECT EXPERIENCE CREATOR


45

Direct Relationships and Increased Guest Loyalty

Creating returning loyal guests increases our revenuesand allows us to increase the share of direct bookings. In 2016, Valamar Riviera reported HRK 467.5 millionachieved via Valamar’s direct distribution system: call center, direct online booking, loyalty program andfront offices.

* Board revenues net of agency commissions.

DIRECT SALES AND MARKETING

2015 2016

Board revenues (direct booking, HRK mn) 372.5 467.5

Number of bookings 50,600 68,932

Number of web sessions** 5,512,420 6,121,367

Number of unique web users** 3,635,520 3,885,591

Number of phone and email inquiries 242,000 305,401

DIRECT BOOKING SHARE (by revenues*)

2016Direct booking

41%Other

channels

59%

We are going to continue developing theloyalty strategy in order to create even moreadded value for our clients. At the same,time we will continue developing ourwebsites, e-marketing and technology, sothat we can increase the number of visits toour sites and increase the number of uniqueweb users (2016: 3.9 million), phone andemail inquiries (2016: 305,401) andbookings (2016: 68,932).

By 2020, our goal is to reach a 50% shareof direct bookings in revenues, and increasethe share of loyal guests to 30%. In 2016the share of direct bookings was 41% andthe share of loyal guests was 24%.

** www.valamar.com and www.camping-adriatic.com.


46

Building Long-lasting and Direct Relationships with Our Guests

We have to know our guests if we want to provide thebest services tailored according to their needs. We believe we can improve our focus on the guestthrough our customer relationship management (CRM) and by systematically collecting and analysingguest preferences.

This information helps us addressing our guests’needs directly before, during and after their stay,thus establishing year-long communication. OurCRM is additionally supported by our loyaltyprograms Valamar Plus Club for hotels and resortsand Camping Adriatic Plus Club for camping resorts.

The programs are designed as an attractive platform since thefirst day of membership. Our efforts have already producedgood results: in 2016 the rate of returning guests was 24%.We believe that after some additional improvements to ourloyalty program, we will understand our guests and theirloyalty better and reach the targeted 30% of returning guests.

MARKETING DATABASE890,000 guests in

the marketing database

LOYALTY PROGRAM105,000* members in the

loyalty program

GUEST RECOGNITIONService tailoring and

personalization

ANALYTICSData analysis in

decision-making support

DIRECT COMMUNICATIONNewsletter and CustomerRelationship campaigns

Data collection

Cleansing / Merging

Guest marketing profile

Segmentation

Communication

Metrics

Hotels and resorts

Camping resorts

Reservation center

Perfect Experience Creator

Websites

*The loyalty program was launched in May 2015.

CRM


47

Unbelievable Service

Dedication to raising the service tothe highest level is an approachimplemented back in 2013, with theaim of getting extremely satisfiedand loyal guests. In relation to 2015,the Unbelievable index grew by 4.5% in 2016.

Valamar always strives to providepleasant surprises to its gueststhrough an unexpected service, byknowing a specific situation andanticipating guests’ specific needs andwishes. This is achieved by creating anorganization-wide culture focused onthe service.

Through prior staff education anddevelopment, employees areencouraged to direct their potential atproviding top-grade services in eachsituation, and there is a system ofimprovement that does not end untilservice excellence is achieved. AtValamar, such service level is calledUnbelievable; in 2016, as many as46% of the guests gave our staff thegreatest possible rating – Unbelievable.

Up!Lifting Service

Up!Lifting service at Valamar, or the excellence of service, isachieved by raising the service to both guests and colleagues to a higher level, and byimplementing our core valuesdaily, since service is our keyproduct. Service excellence is thebasis for a lasting and sustainablebusiness success.

The focus is on the employees: they lead the joint creation of service excellence in order to fulfill our vision and provide authentichospitality. At Valamar, we reachservice excellence through dailytraining to perfect our professionalskills, and the weekly Up!Liftingtrainings by certified Up!Liftingtrainers, general managers,department heads and all otheremployees.

46%The percentage of guests

that rated Valamar staff as Unbelievable

in 2016

All our employees are ValamArtistswho contribute to our top-rateservice culture and our combinationof proactivity, creativity, hospitality,team spirit and homely atmosphere,and they all treat their colleaguesand guests in accordance withValamar’s service culture.

Each ValamArtist follows these 10 ValamArtist principles:

1. Reliable

2. Cordial

3. Courageous

4. Understanding

5. Generous

6. Welcoming

7. Smiling

8. Friendly

9. Interested in learning

10. Proactive

[GRI G4-PR5]


48 [GRI G4-PR5]

Measuring Guest Satisfaction and Online Reputation

By using various tools to assess the guests’ experience and perception ofour service quality, Valamar is able to get to know its guests better andprovide them with the most excellent service possible.

Valamar measures its guests’satisfaction through print and digitalquestionnaires during their stay, andthrough questionnaires we send themafter they have left.

Valamar does this through the TrustYou system for measuring on-linereputation, in order to efficiently

manage all sources of information on guest satisfaction, and furtherimprove its reputation on socialnetworks. Valamar has a strongpresence on the internet, onlinebooking channels, and socialnetworks, as well as in bloggingcommunities, which is a great way of maintaining two-waycommunication with the guestsbefore, after and during their stay.

In our two-way, personalized guest communication model,feedback is a crucial starting point.With this in mind, Valamar’s qualitydepartment processes praises,comments, complaints andsuggestions guests leave during theirstay at our properties in directcommunication with our staff, viatablets or questionnaires in theirrooms, and those collected viaquestionnaires after departure orposted on social networks.

Such a model allows Valamar toconstantly improve service qualityand manage it skillfully in variousfields of activity, with a response timeof under 48 hours from inquiry.

In this way we reinforce ourconnection with the clients and fosterthe trust they have in the company.


49[GRI G4-PR5]

GUEST SATISFACTION IN 2016

Surveys (39% growth compared to 2015):

94,213

Overall guest satisfaction at portfolio level:

86% 87%

Guest satisfaction with Valamar’s hotels:

89%

Guest satisfaction with Valamar’s campsites:

Guest satisfaction at Premiumand Upscale hotels and resorts:

87%

Guests who would recommendValamar to friends:

97%

Guests who would return toValamar’s properties:

TripAdvisor average rating (on a scale of 1-5)

3.9

Booking.com average rating (on a scale of 1-10)

8.5

GUEST SATISFACTION BY TYPE AND CATEGORIZATION OF ACCOMMODATION

2016Hotels and Resorts Campsites TOTAL

Premium & Midscale & Premium & Midscale &Upscale Economy Upscale Economy

Guest Satisfaction Index 89% 84% 87% 84% 86%Unbelievable Index 50% 48% 41% 43% 46%Uplifted Index 94% 93% 92% 93% 93%Guests who would recommend us 98% 96% 97% 95% 97%Online Reputation Index 89% 83% 86% 84% 85%Tripadvisor rating (average) 4.3 3.8 4.1 3.5 3.9Booking.com rating (average) 9 8 8.5 8.3 8.5

2015Hotels and Resorts Campsites TOTAL

Premium & Midscale & Premium & Midscale &Upscale Economy Upscale Economy

88% 82% 84% 83% 84%48% 43% 35% 38% 44%95% 94% 90% 90% 92%98% 96% 97% 95% 97%88% 81% 84% 83% 84%

4.3 3.9 4.4 3.5 4.19 7.9 8.3 8.2 8.3

85%


50 [GRI G4-PR7, G4-15]

Caring for Our Guests’ Wellbeing

In order to meet the expectations ofour guests, Valamar’s services meetthe highest standards regarding theirimpact on the health and safety ofour guests and employees.

This has been confirmed by a number ofcertificates, including the following:

→ HACCP

→ ISO 9001

→ ISO 14001

→ ISO 50001

→ “Q” quality mark by the Ministry of Tourism

→ FEE (Foundation for EnvironmentEducation) Blue Flag

→ Sustainable Hotels

→ Travelife Gold Award

→ TUI Environmental Champions

Complying to regulations and voluntary codes is the company’s priority whencommunicating with guests, including marketing communication such asadvertising, promotion and sponsorships. Valamar has not registered a singleinstance of violation regarding regulations or voluntary codes.


51[GRI G4-PR1]

Travelife Gold Award

As of 2016, two more of Valamar’shotels carry the Travelife GoldAward certificate – the Tirena andthe Valamar Club Dubrovnik havejoined other world-famous hotelsthat hold this accolade.

By number of accommodation units, 79.4% of our camping resorts and 62% ofour hotels and resorts hold the ISO 14001 certificate, while 63.8% of ouraccommodation units in hotels and resorts also hold the Travelife certificate.

Travelife is an international certificationsystem that promotes sustainability intourism and helps tour operators, hotelsand other accommodation capacities tomanage and monitor their social andenvironmental impact, and to informguests and partners of theirachievements. Travelife Gold Award is anaward for hotels that meet the strictsustainability criteria in the highest degreepossible. The certification project’sstrategic goal is to introduce the practiceof green business, achieving a balance ineconomic progress, care for theenvironment in the most general sense,and social involvement in the community.

Allegro Hotel ★★★ Rabac

Hotel & Casa Valamar Sanifor ★★★★ Rabac

Miramar Hotel ★★★ Rabac

Valamar Argosy Hotel ★★★★ Dubrovnik

Valamar Bellevue Hotel ★★★★ Rabac

Valamar Club Tamaris ★★★★ Poreč

Valamar Crystal Hotel ★★★★ Poreč

Valamar Diamant Hotel & Residence ★★★★ Poreč

Valamar Dubrovnik President Hotel ★★★★★ Dubrovnik

Valamar Isabella Island Resort ★★★★★ Poreč

Valamar Koralj Romantic Hotel ★★★ Krk Island

Valamar Lacroma Dubrovnik Hotel ★★★★+ Dubrovnik

Valamar Pinia Hotel & Residence ★★★ Poreč

Valamar Riviera Hotel & Residence ★★★★ Poreč

Valamar Rubin Hotel ★★★ Poreč

Valamar Zagreb Hotel ★★★★ Poreč

Valamar Club Dubrovnik ★★★ Dubrovnik

Tirena Hotel ★★★ Dubrovnik

HOTELS WITH THE TRAVELIFE GOLD AWARD CERTIFICATE


52

Valamar Riviera’s success relies onits employees, which is why thecompany continually invests effortsto develop highly trained, stronglymotivated and satisfied employees.

Only with such employees is itpossible to achieve strategic goalsand provide excellent service. For theeleventh year in a row, Valamar Rivierahas received the Employer Partnercertificate, with Valamar being the onlytourism company to be among thefirst five Employers Partners inCroatia. This status builds on thecontinual development of the manytailored programs for full-time andseasonal employees, a completepolicy for salaries and otherremunerations for employees,

improvement of all working conditions,specialized training programs, andindividual approach to careerdevelopment.

The key strategic activities of humanresources focus on creatingcompetitive working conditions,securing employee loyalty, increasingemployment in local communities andinternal development of professionaltalents. This is a foundation for astimulative corporate culture thatValamar continually develops by

always putting people first. The focusof human resource managementdirectly leans on Valamar Riviera’sstrategic goals, defined for the perioduntil 2020. Firstly, there is the focuson the guest, the employees andthe organization, through which wewant to develop, empower and awardthe employees, who are the heart ofthe organization, with the guests infocus, and create long-term employeerelations based on trust.

Responsible Management of Human Resources

5.2 EMPLOYEES AND ORGANIZATIONDevelop a stimulating corporate culture where the organization can learn and grow and where employees and guests come first.

Valamar Riviera’s development is not possible without good-quality human resource management. With the opening and expansion of the labor market, we have detected risks related to high-demand positions, development of new knowledge, and specific skills. Recognizing global trends in tourism and hospitality helps us define the needs for newknowledge and skills, and define ways to successfully address these challenges. Through a continual dialogue with social partners we have secured a high level of employeerights, in terms of salary competitiveness, motivation and reward systems, career development, healthcare and cooperation with educational institutions across Croatia.

The level of diversity in the organization gives a transparent insight into the organization’s human capital. Valamar Riviera offers equal opportunities regardless of sex, age group and other differences among employees.


53


54 [GRI G4-10]

In the past ten years, Valamar Riviera has strategicallyplanned all new employment, actively looking for talentsin all business areas. Following a number of investments,the number of employees keeps growing year to year.

Between 2012 and 2016, the averagenumber of employees based on full-timeequivalent grew by as much as 38%. During the same period, and measured atpeak employment times (31 Aug) the totalnumber of employees (pupils and studentsincluded) grew by 28%.

The employee structure reflects very highseasonal employment at Valamar Riviera, witha high share of seasonal employees, so as of31 August 2016, their share totaled 76% ofthe total number of peak-season employees.

Since the Croatian labor market has been depleted inrecent years due to high emigration and lowattractiveness of jobs in hospitality and tourism, Valamar Riviera has been investing enormous efforts and continually carrying out an active policy of attractingand employing staff through cooperation with the localcommunity and educational institutions, and thedevelopment of specific programs aimed at variousemployee groups.

We put special focus on increasing the number ofpermanent seasonal workers, increasing employeeloyalty, local employment and staff development.

Permanent and year-long employment

EMPLOYEE STRUCTURE BY TYPE OF CONTRACT

Permanent work

Permanent seasonal workers

Seasonal

Students and pupils

TOTAL4,429

4,112

506

515

2,080

2,134

448

738

1,069

1,051as of 31/8/2016

as of 31/8/2015

AVERAGE NUMBER OF EMPLOYEES BASED ON FULL-TIME EQUIVALENT

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015 2016

2,1842,283

2,361

2,8023,020


55[GRI G4-LA1]

Valamar Riviera monitors employee turnover for all its destinations: in comparison to 2015, the number of permanent empolyees who left the company fell by 31%, and the turnover rate fell from 12% to 8%.

INCREASE IN THE NUMBER OF EMPLOYEES (2012 – 2016)

31/8/2016

3,463 4,429

31/8/2012

Year-long employment index is the sum of categories “permanent work” and “year-long work” divided by the total number of employees

31/8/201631/8/2015

YEAR-LONG EMPLOYMENT INDEX

PERMANENT EMPLOYEES WHO LEFT IN THE PERIOD FROM 1/1/15 TO 31/12/15

36.9% 40.4%Men Women Total Turnover rate

Baška 1 1 2 3%

Dubrovnik 14 21 35 13%

Krk 2 4 6 15%

Poreč 25 38 63 12%

Rabac 7 11 18 11%

Total 49 75 124 12%

PERMANENT EMPLOYEES WHO LEFT IN THE PERIOD FROM 1/1/16 TO 31/12/16

Men Women Total Turnover rate

Baška 7 6 13 18%

Dubrovnik 14 19 33 14%

Krk 1 1 3%

Poreč 16 20 36 7%

Rabac 2 1 3 2%

Total 39 47 86 8%

EMPLOYEE TURNOVER RATE


56 [GRI G4-LA2, G4-LA10]

In 2016, the company contracted621 permanent seasonal jobs, a70% increase compared to 2015,when there had been only 364 suchcontracts. This points to aconsiderable interest among ouremployees for this particularmeasure, and the improvement of the measure through our Valamar +3 program.

The Valamar +3 program is thedevelopment of the Permanent SeasonalWorker measure. At Valamar Riviera,permanent seasonal employmentguarantees employment for a period of at least 9 to 12 months a year for thenext three years. For the employee, thismeans receiving a stable and good salary throughout the year. Throughoutthe three-year contract period, apermanent seasonal worker has thestatus of a permanent employee andextended pension and health insurancefor the whole period.

With guaranteed employment duration,permanent seasonal workers are alsoguaranteed financial aid in the period theymight not be working. Also, permanentseasonal workers have an opportunity tomake extra earnings in the period they arenot working, and Valamar Riviera offersremuneration for such engagement.

The new Valamar +3 program also offersa number of additional benefits for ourpermanent seasonal workers, and theirterms are closely matched to those ofthe permanent full-time workers.

→ Possibility of professional and specialistcareer development via many targetededucation and training programs

→ Participation in some of the 17 reward programs

→ Valamar’s employee healthcareprogram offers permanent seasonalworkers free health check-ups

→ Due to a more stable employment,permanent seasonal workers areoffered better loan terms at ValamarRiviera’s partner banks

→ Priority for permanent employment

PERMANENT SEASONAL WORKERS AT VALAMAR RIVIERA AND THE VALAMAR +3 PROGRAM

VALAMAR +3 PROGRAM*

2016

364 621

2015

*Included: Valamar Riviera (Poreč, Dubrovnik, Rabac, Krk) and Baška.


57

Seasonal employees hold a significant share in the overall number ofemployees at Valamar Riviera. The need to hire more seasonal employeeskeeps growing year to year.

One of the key strategic guidelines atValamar Riviera is to increase loyaltyamong seasonal workers, with the aimof increasing the overall seasonal workersatisfaction, increasing the share of localemployees and the return rates ofseasonal workers season to season.In 2015, there were 2,516 seasonalemployees, and 63% of them returned

All seasonal workers, even when theyare not working, are regularly informedabout the situation at Valamar Rivieravia personal contact with theircolleagues and direct superiors, theinternal monthly magazine VIV (Vijestiiz Valamara – News from Valamar) thatall employees receive at their homeaddress, and various social networks.

In this way we increase the sense ofbelonging to Valamar Riviera and thesense of involvement in all the importantaspects of the company.

When they are employed, all seasonalworkers get the opportunity to familiarizethemselves with Valamar Riviera indetail, through structured orientation

to Valamar Riviera in the 2016 seasonfor employment.In the ongoing effort to increase theshare of returning employees, Valamar Riviera has implementedseveral activities, the most crucial beingour focus on processes aimed atincreasing the percentage of theemployee returns.

Seasonal Employment

PERCENTAGE OF RETURNING SEASONAL WORKERS BY REGION IN 2016 COMPARED TO 2015

LOYALTY COMMUNICATION WITH EMPLOYEES

63%59%

55%51%

65%66%

74%73%

Dubrovnik

Krk

Poreč

Rabac

Baška

2015

2016

62%45%


58 [GRI G4-10]

and job induction programs. They cancontinue doing so after they havestarted working, through regular dailyinternal trainings organized at allValamar Riviera's properties.

For all new employees, there is a half-day orientation workshop that offersvarious information – about the team ofpeople they will be working with, basicinformation on Valamar Riviera and keybusiness processes, information onaccommodation, meals, transport,salary policy and other forms ofremuneration. In 2016, the orientationprocess was further developed andstructured, with special attention to new

employees at hotel operations (95% ofall new employees).

Also, in the employment period, focus isgiven to regular communication withworkers; they receive timely feedbackon work quality, and at the end of theseason they have the chance to arrangethe exact date of the start of work in thenext season.

To improve the authenticity of serviceand support to the local community’seconomy, special attention is given tohiring workers from that particulardestination, and the average share oflocal workers is 74%.

SHARE OF LOCAL EMPLOYEES IN TOTAL NUMBER OF EMPLOYEES AS OF 31 AUGUST 2106

Total number of employees Number of local employees Number of other employees Share of local employees Share of other employees

Dubrovnik 814 551 263 68% 32%

Krk 205 122 83 60% 40%

Poreč 1,980 1,505 475 76% 24%

Rabac 611 576 35 94% 6%

Baška 274 139 135 51% 49%

Total 3,884* 2,893 991 74% 26%

* Pupils, students and Puntižela's employees are not included in the data.


59

Valamar Riviera, one of the mostdesirable employers in Croatia,continually invests in its employeesand recognizes their value as theprincipal potential and mover of thecompany. Valamar House is anotherstep in our efforts to provide the bestliving quality to seasonal workers.

In its new, modernly furnished facilities,Valamar offers free lodging and board toall the seasonal workers who come towork in our destinations. Employees canuse single and double bedrooms, with

en-suite bathroom and toilet, new andcomfortable furniture, a TV set and arefrigerator. We have given specialattention to the common garden withwooden benches and a grill, while fitnessenthusiasts and athletes will be happy touse our outdoor fitness equipment.

As of season 2017, this home away fromhome will be available to seasonalworkers in Rabac and Krk, and as of2018, the comfort of the Valamar Housewill be available to employees inDubrovnik as well.

VALAMAR HOUSE – HOME AWAY FROM HOME FOR SEASONAL EMPLOYEES

VALAMAR HOUSE BENEFITS

→ Modernly furnished accommodation that offers maximum comfort in single or double bedrooms with en-suite bathrooms and toilets

→ Rooms furnished with comfortable furniture, TVs and refrigerators

→ Common rooms with all the household appliances, new and comfortablefurniture, and technical equipment supplies that provide a feeling of home: a furnished kitchen, a dining room, a laundry, and a room for relaxation and socializing

→ Free WiFi internet connection

→ PlayStation in the common recreation room

→ Garden with a grill and exercise equipment


60

One of Valamar Riviera’s strategicguidelines is to offer competitivesalaries to employees in relation tothe industry and the surroundings,as well as other material and non-material working conditions.

Through a dialogue with social partners,and as a result of a proactive analysis ofthe competition and the labor market,over the recent years, the averagesalary at Valamar Riviera has beensignificantly above the industry average.In 2016, salaries at Valamar Rivierawere 6% higher than the Croatianaverage and 29% higher than theindustry average.

Remuneration and Employment

BASE SALARY

COMPARISON OF AVERAGE GROSS 1 SALARIES FOR 2016 (HRK)

Valamar Riviera Croatia Sector(Business activities related to

accommodation services and foodpreparation and service)

8,1927,752

6,339

Source: Croatian Bureau of Statistics.


61

So, the average gross 1 salary for 2016at Valamar Riviera totaled HRK 8,192,while the average salary for Croatia wasat HRK 7,752, and the industry averagetotaled HRK 6,339, a clear indicator ofthe path Valamar Riviera has chosen inits salary policy.

Average salaries have gone upsignificantly at Valamar Riviera over thepast four years. Compared to 2012,salaries went up by almost 16%.

16% GROWTH OF AVERAGE GROSS 1 SALARY AT VALAMAR RIVIERA IN THE PERIOD 2012 – 2016 (HRK)

2016

2015

2014

2013

2012

8,192

7,887

7,464

7,340

7,086

With an active salary policy, each year Valamar Riviera carries out a regular revision ofjob complexity for all key positions, introduces new jobs following industry trends, anduses findings to revise salaries for certain jobs.

In this way, the company maintains competitiveness for jobs of special importance tothe company and the industry.

REVISIONS OF POSITIONS AND SALARIES

5,822 HRK

AVERAGE NET INCOME AT VALAMAR RIVIERA FOR 2016


62 [GRI G4-11, G4-LA13]

Valamar Riviera shows continuouscare for its employees, grounded onthe genuine belief that employeesare the heart of our organization.Our care for employees starts withthe implementation of all legalobligations and compliance with thecollective agreement.

Valamar Riviera has a collectiveagreement that guarantees not only thebasic salary, but additional materialbenefits as well. So all Valamar Rivieraemployees have a guaranteed vacationallowance of HRK 52 net per day ofvacation, child bonus, and otherincrements (shift work, Sunday andholiday work, night shift work,performance incentives etc.).

In addition to the employee rightsagreed on in the collective agreement,Valamar Riviera offers its employeesmany other benefits. In 2016, thecompany paid out the Christmas bonusto all the employees who had at least750 total hours of work in that year;more than 3,600 employees receivedthe bonus, and there was also aholiday reward in kind for more than2,800 employees.

Valamar Riviera additionally covers theexpenses of health checkups for allpermanent employees and permanentseasonal employees. Feedback showsa high response to participating inhealth checkups, and employees seethis benefit as an extremely positiveone. They appreciate and respect theemployer’s care for the employees’health. One of the initiatives our

employees especially appreciate is theuse of lower, preferential prices ofaccommodation in all of ourdestinations, family members included;our employees often use this option forvacations, getting to know our otherdestinations and spending some timewith their colleagues.

EMPLOYEE BENEFITS

MICROFACTS

There are no differences between salaries for women and men at Valamar Riviera. health checkups

HRK 430.000


63[GRI G4-LA11]

REWARDING OF EMPLOYEES

One of the most importantimprovements to the overall policyon salaries and other materialemployee benefits, is a continualdevelopment of the employeerewards program at ValamarRiviera.

In 2016, we continued improving ouremployee rewards program byintroducing new programs. There were atotal of 17 rewarding programs in forcein 2016. All the programs are defined bythe Regulation on Rewards, presentedin detail and available to all employeesvia various communication channels,from Management Board decisionmemos, presentations at employee

meetings and VIV (company magazine),and the orientation program.

In 2016, as many as 3,737 employeeswere rewarded through variousprograms. The findings of the annualemployee satisfaction survey clearlyshow that the new rewarding programslead to greater employee satisfactionwith the overall salary and reward policyin 2016.

Employee satisfaction with salaries andoverall rewards increased by 3% in 2016as compared to 2015.

NUMBER OF REWARDED EMPLOYEES IN 2015 AND 2106

2016

2016 KEY REWARDING PROGRAMS

3,040 3,737

2015

→ My idea for Valamar

→ Monthly salary increment

→ Up! rewards and recognitions for employees

→ Upselling for reception workers at hotels

→ Loyalty programs

→ Upselling for F&B employees in outlets

→ Rewards for mentors and trainers at Valamar Academy

→ Rewards for competition results

→ Monthly rewards for Reservation center employees

→ Annual rewards for corporate service workers

→ Periodic rewards for sales, marketing and revenue management employees

→ Annual management rewards

→ Employee rewards for event participation

→ Employee rewards for complex facility work

→ Annual corporate rewards

→ Best results in several categories

→ Best teams in several categories

→ Best employees in several categories


64 [GRI G4-LA4]

Freedom of association is a basic human right defined by internationaldeclarations and conventions, and collective bargaining is an important formof including stakeholders that help form institutional frameworks. Thecollective agreement covers all employees.

For all significant changes in businessoperations that reflect on employees,there is the legal regulation that definestimes to inform, gain consent from theWorks council, trade unions etc.

Valamar Riviera is committed tocontinuous improvement of the socialdialogue through cooperation with socialpartners, consisting of regular meetingswith employer’s and social partners’representatives, and negotiations onemployees’ material rights.

There are two trade unions at ValamarRiviera: Trade Union of Tourism andServices of Croatia, and the Trade Unionof Istria, Kvarner and Dalmatia.

The employer maintains regular dialoguewith the Works council, which includes11 employee representatives, discussingthe areas of consulting, presenting thecompany’s business plans, andparticipation in employee gatheringsorganized by the Works council.

Notifying workers about changes inbusiness operations is done byconsulting with the Works council oneach decision that could affect theworkers. The employer considers theWorks council’s replies, and acceptsproactive suggestions and amendments.

Employee gatherings are the basis forimproving relations between the workersand the management, and their goal isto inform workers about the company’sstrategy, as well as strategies ofindividual organizational units, and thetasks and goals set before them. In2016, there were eight workers’gatherings at Valamar that attracted alot of participants.

Social Partnership And Transparent Communication With Employees


65

CONTINUOUS COMMUNICATION WITH EMPLOYEES

At Valamar Riviera, special attentionis given to regular communicationwith employees, with the goal ofunambiguous, transparent and fastexchange of all key information. In2016, Valamar Riviera receivedconfirmation of the quality of thiscommunication through theEmployer Partner certificate, scoringa 100% result for the criterion ofinternal communication.

Employees’ satisfaction with internalcommunication is measured throughseveral channels: the regular corporateclimate and culture survey posesquestions that measure satisfaction withcommunication. The communicationsatisfaction index for 2016 totals 82%.

Furthermore, communication satisfactionis measured by assessing the satisfactionof internal users with the quality ofcooperation with all supporting services atthe company, and as of 2016 thecompany has been measuring employees’communication satisfaction via the internalmonthly VIV (Vijesti iz Valamara – Newsfrom Valamar). The findings of a series ofexternal and internal studies into theperception of our company, andcontinued work on developing newcommunication channels have resulted ina stronger employer brand, or a betterimage of Valamar Riviera as an employer,but also as a business in all the areaswhere we hold active presence.

Together with our employees, ValamarRiviera is building a vision and creatingpositive atmosphere, guided by ourcorporate values:

→ Hospitality – integrated intohuman resource processes viaUplifting projects for employees –ValamArtist competencepromotion, organization of Family Day, care for pensioners

→ Ambition – integrated in all theactivities related to recruitment,selection, internal employeetraining, rewards, ValamarAcademy program

→ Responsibility – integrated inthe activities related to employeecare, health protection, variousforms of aid and support, flexibleworking arrangements

→ Innovativeness – integrated inthe activities and criteria foremployee rewards, organizationof a company that encouragesemployee innovation

→ Pride – integrated through theEmployer Partner certificate, a sense of belonging to thecompany, employee loyalty,employee well-being, focus and commitment to internalpromotion

For the coming period, Valamar Rivieraplans to implement a survey ofemployee satisfaction with theiraccommodation and meals, andemployee satisfaction with theorientation program. We believe thatthis too will contribute to the quality ofour communication with the employees.


Year Total hours Hours per employee2

2014 30,312 12.8 h

2015 45,410 17.6 h

2016 65,408 21.03 h

66 [GRI G4-LA10]

With continued investments in the development of key employee competences and internal programs of expert andmanagement training, in 2016 we introduced a model of life-long learning and development as a new corporate value.

Life-long Learning And Training

VALAMAR ACADEMY

Valamar Riviera gives special attentionto the continual development ofValamar Academy programs.

The Valamar Academy education programhas helped train a large portion of thecompany’s current management team.Currently, more than 66% of generalmanagers, department heads and assistantmanagers have completed the ValamarAcademy program lasting 12 to 24 months,and they have successfully assumed moredemanding positions and responsibilities.

Considering Valamar Riviera’s businesspriorities, developing internal talents has sofar been focused on general managers andassistant managers at Valamar'sproperties, department heads at hoteloperations, and specialists and departmentheads in the sales and marketing sector. Inthe coming period, the Valamar Academyprogram will expand to include talents,skills and knowledge of other corporatefunctions.

Furthermore, we have realizedcontemporary needs to develop new

EMPLOYEE DEVELOPMENT, TRAINING AND EDUCATION

The education planning processalways begins by identifying trainingneeds and wishes, and that involvesmore than 3,000 employees. Thecompany continues carrying outtraining programs.

All employees at Valamar Riviera havethe option to receive additional training,depending on job requirements, and in2016 almost 100% of employeesreceived some form of training, while thenumber of training hours grew by 37%compared to 2015.

Employees can take various forms ofexpert programs and professionaltraining organized in Croatia andabroad as well. With the option ofone-day and longer courses,employees can take part inprofessional conferences, fairs, exposand meetings. There is also an optionto organize graduate studies andinternship, and foreign languagecourses, in accordance with thebusiness needs and employees’potentials.

Over the past several years, more focuswas given to internal training byemployees / internal trainers, in the areasof professional training for somedepartments, in line with the Train theTrainer program. At company level, thereare more than 200 internal trainers.

With its practice of innovative services,quality mentors and trainers, ValamarRiviera is becoming a partner to theinstitutional education sector in thecreation of specialist programs.

All key employees are involved in thetraining project via mentoring youngemployees, as well as new employees,with the goal of helping develop skillsneeded to advance professionally.

The employee mentorship program isformalized through the mentor programand status. All Valamar managers areinvolved as internal educators in theValamar Academy program.

NUMBER OF TRAINING HOURS PER EMPLOYEE1

1 Includes: Valamar Riviera (Dubrovnik, Rabac, Krk, Poreč) Valamar hoteli i ljetovališta.2 Calculated according to the average number of employees in that year (2016: 2,953; 2015: 2,555; 2014:2,365

employees). All employees have the possibility to participate in training programs.


67[GRI G4-LA10]

140

COOPERATIONWITH EDUCATIONAL

INSTITUTIONS

VALAMAR ACADEMY

CORPORATE STAFF

OPERATIONAL STAFF

Faculties

Vocational high schools

PurchasesHuman Resources

ControllingFinance

SportsWellness staff

Outlet managers Chefs

Facilitymanagers

Team leadersin the sales

and marketingsector

Departmentheads at

hoteloperations

2012:Best HR practice

in Croatia

150 managers completed theAcademy since 2007

hotel managers completed the Valamar Academy

program

66%

concepts and services in sports, pools andbeaches by designing a new Valamar Academyprogram intended for expert training ofmanagers of sports facilities and services. Wehave chosen the first 10 candidates who arestarting the program in 2017.

The many training and education programs forhotel operations’ employees will be strategicallymanaged, and the programs will be alignedwith the all-encompassing human resourcestrategy. Such an approach will allow us toadditionally improve and standardize all trainingand education programs, resulting in higherwork quality among employees, the keyelement of every organization focused onguests. With the successful development ofemployees’ key competences, the ValamarAcademy program has a strong motivatingeffect on the nominated and involved studentsand their perception of acknowledgement,recognition and pride.

Recognition of human potentials and theirdevelopment through the Valamar Academyprogram greatly contributes to growingemployee satisfaction with the corporate culture and climate, and on their loyalty to thecompany. Their success stories, word of mouthamong colleagues and good practice of internalcareer development by further promotions and management statuses, successfully recruit new candidates whose numbers keepgrowing, and are to double in 2017.

Finally, the Valamar Academy program has apositive effect on Valamar’s image as anemployer, resulting in more frequent jobapplications, as well as applications forinternships and scholarships.


68 [GRI G4-34]

Valamar Riviera strongly promotesa culture of competencedevelopment for all the keyemployees in the company’smanagement. From year to year,considering new investments andincrease in work complexity, thenumber of managers at thecompany keeps growing. In 2016,there were 426 of them; that is a10% increase compared to 2015.

Compared to the overall number ofemployees during peak season, the shareof management is a high 11%, so one ofthe key goals and priorities at ValamarRiviera is to develop and build upcompetent management that has all theneeded knowledge, skills and abilities tolead people towards the realization of thecompany’s strategic goals.

One of the key factors in managementdevelopment is the company’scommitment to internal promotion, so thelargest number of current managers(more than 60%) grew and developed inthe ranks at Valamar Riviera. Allemployees are made aware of the optionsto advance during annual evaluation talkswith their direct superiors, and they

receive timely feedback on theirperformance and career developmentplan, which includes a plan of educationand additional employee training.

In this way the company has secured along-term, comprehensive and integratedapproach to strengthening the company’smanagement competences and astructured process of identification,selection, development and retention ofkey employees for current and futureneeds at the company.

At the same time, by developing asustainable management successionplan, Valamar Riviera creates flexibility oforganization and fast reactions tochanged working conditions, and strongly

motivates and retains its best employees.In line with the salary and reward policy atValamar Riviera, key employees inmanagement positions at the company,who realize clearly defined keyperformance indicators and achieveprecisely determined individual goals,have the chance to participate in annualmanagement rewards according to thereward rules. Annual rewards – bonusesto management are expressed as apercentage of annual salaries and paid inaccordance with realized goals after thebalance sheet is done.

The total number of employees withspecial rights and responsibilities at thecompany in 2016 amounted to 432, with167 women and 265 men.

Valamar's Management

SHARE OF MANAGERS IN TOTAL NUMBER OF EMPLOYEES IN 2016

Total number ofemployees

(withoutstudents)

3,92311% total number

of managers

432Operations:

287 managers

167female managers (39%)

265male managers(61%)

Corporate services:

145managers

42.5%

31%

57.5%

69%

45 women

122 women

100 men

165 men


69

For several years, we have had a stablelevel of employee satisfaction, graded3.8 out of 5. In order to get the “real”picture, questionnaires are distributedduring peak season, in August. In 2016,88% of the questionnaires werecompleted and handed in, and this is arepresentative sample for theinterpretation of results and developmentof a corrective activity plan.

After the employee satisfaction survey,results are communicated at all levels,from presentations for the Workscouncil, at workers' gatherings, to themonthly magazine VIV, followed by adefinition and implementation of the planof activities resulting from gatheredemployee suggestions.

Managers get insight into their ownratings, which are used in theirevaluation and rewarding system.

Valamar Riviera is extremely proud of theresults of the corporate climate andculture survey that the company isachieving in the work organization (4.0)and management (4.1) criteria, as theseare much higher than the average. Theyare key elements in corporatemanagement that secure long-termstable and top-quality employee effort.

In 2013, Valamar introduced theUplifting Service project into itsoperations. The project’s aim was toincrease the level of excellence bytransforming the culture of hospitality, sothat the company and our employeeswould be recognized as the best hostson the Adriatic. It is a simple approachthat uses communication, motivation,education and common employee toolsto create an atmosphere completelyfocused on the guests. This award-

winning project encourages employeesto acknowledge one another, andstrengthen their sense of communityand team spirit.

Since we recognize the value of ouremployees taking part in businessdecision and we want to promote theimportance of their participation in thecompany’s development and success,we launched a program called My Ideafor Valamar. The purpose of thisprogram is to encourage all employeesto propose ideas to improve businessand ultimately reward the implementedsolutions that improve or introduce new,better business practices. The valuationcriteria include overall businessoperations of the company, fromlowering costs / raising revenues,improving work processes, service andproduct quality, to guest satisfaction.

Valamar surveys employeesatisfaction among all employees aspart of the annual corporate cultureand climate survey (the 3C project),which collects employee feedback inseven distinct areas: workorganization, management, educationand training, attitude toward theemployer, career opportunities, salaryand work/life balance.

Employee Satisfaction and Improvement of Working Conditions

RESULTS OF THE CORPORATE CLIMATE AND CULTURE SURVEY FOR 2016(average rating between 0 and 5)

Work organization

Management

Training

Attitude toward employer

Career opportunities

Salary

Work-life balance

Average rating

4.0

4.1

3.8

3.9

3.5

3.4

3.7

3.8

[GRI G4-LA11]


70 [GRI G4-LA10]

An especially important project focusing oninvestments in promoting jobs in hospitalityacross the country was realized in theschool year 2016/2017 in collaboration withthe Ministry of Tourism. It refers to the co-financing of 217 scholarships: with thisinitiative Valamar Riviera becomes thelargest individual scholarship provider inCroatia's hospitality and tourism (Croatia'stotal: 245, Valamar Riviera: 89%) with atotal investment worth HRK 1,085,000.00.

Valamar Riviera’s promotion at24 vocational schoolsthroughout Croatia, where weinformed the students aboutopportunities of scholarshipsand later employment, hasresulted in considerable interestamong the students. In 2016,the scholarship programincluded 217 students from 31Croatian schools, mostly from

continental Croatia and schools outsidethe destinations where Valamar Rivieraoperates (71%).

89 high school graduates are going toget their first job and first workexperience in July 2017 at all ourdestinations. The employer will securefree lodging for the 70 students comingform other parts of Croatia, their first 6-month employment contract and skills

development in a stimulating workenvironment offering excellent servicesand working conditions. 41 studentsfrom local schools will be included insummer internships at our propertieswith the expert guidance by ourlicensed mentors, together with 25students (scholarship holders) who willarrive with their teachers from highschools in Požega, Nova Gradiška andSlavonski Brod.

Investment In Future Employees And Promoting Jobs In Hospitality and Tourism

OVERALL NUMBER AND STRUCTURE OF NEW SCHOLARSHIPHOLDERS FOR 2016/2017

Chef Waiter Pastry chef Total

128 83 6 217

59%

38%

3%


71[GRI G4-LA10]

Valamar's international partnerinstitution is the Kaposvar's vocationalschool in Hungary through anErasmus project called „Professionalmobility from the Alps to the Adriatic“that promotes cross-border mobility ofvocational school students inHungary, Croatia and Austria.Pursuant to the agreement, Valamarwill offer summer internshipopportunities to 45 students in theperiod between 25/06/2017 to27/8/2017 in Poreč (Lanterna) and willcollaborate with their 6 teachers.

We have also continued oursuccessful collaboration with theFaculty of Tourism and Hospitalitymangement in Opatija (University ofRijeka): from our experts' participationin Career Days, promotion of jobs inhospitality and tourism, trends in thedevelopment of human resources andnew jobs and careers at ValamarRiviera as well as the 300-hourinternship of 15 students at ValamarRiviera.

We have also continued organizingOpen Days, aiming to presentoperations and employmentopportunities at Valamar to the localcommunity. This is a part of ourcontinued cooperation with vocationalschools and colleges in order todevelop knowledge, skills andcompetences of potential employees,and to promote vocations in tourism,a prerequisite for a long-termsustainable tourism operation.

All our previous initiatives related toinvestments in future employees have hada tremendous effect on the general socialinfluence that Valamar Riviera strives for:

→ Encouragement and support foryouths to enroll and complete theireducation in the field of hospitalityand tourism

→ Stronger ties between ValamarRiviera and vocational andhospitality schools across Croatia

→ Raising the overall quality ofCroatian tourism and the quality ofpersonnel in hospitality and tourism.

SCHOLARSHIP PROGRAM AT VALAMAR

Valamar Riviera is the largest single scholarship provider in thetourism and hospitality sector in

the Republic of Croatia:

HRK 1,085,000

An important program related to investments in vocational jobs

in collaboration with the Ministry of Tourism covers:

217 scholarships

Valamar Riviera's promotion across the country

during autumn 2016 included:

24 vocational schools


72

5.3 GROWTH STRATEGY

In 2016, we achieved an exceptional increase in both revenue and profit by improving our businessprocesses, developing our own portfolio, increasing the focus on our guests, and developing ourbusiness through strategic partnerships and acquisitions.

At the same time, we identified the key factors that will support our aspiration towards the further growth of ourrevenue and profit. They are:

→ Portfolio capital investments and asset development

→ Sales and distribution strategy

→ Management of the Valamar brand

→ Segmentation and selection of target markets

→ Increase in direct bookings and guest loyalty

→ Strategic partnerships and supplier relations

→ New programs and offerings in collaboration with strategic partners and destinations to prolong the season

→ Growth through acquisitions, mergers and partnerships in leisure destinations

→ Optimization of prices, occupancy and distribution to increase revenues

→ Focus on operating efficiency

→ Active participation in associations and institutions to develop and promote tourism

[GRI G4-2]


73

PORTFOLIO CAPITAL INVESTMENTS AND ASSET DEVELOPMENT

Since 2012, Valamar Riviera hasinvested around HRK 1.4 billion inthe development of its portfolio, thus increasing the share ofPremium and Upscaleaccommodation from 29% to 40%.

In 2016 began the preparation forValamar’s largest investment cycleplanned for 2017, worth HRK 873million. The value of the single largestinvestment in this particular cycle is HRK562 million and it is focused on Rabac,where in October 2016 began theconstruction of two luxury resorts –Valamar Girandella Resort 4*/5* andValamar Bellevue Resort 4*. The saidinvestment will reposition Rabac as theleading leisure destination for high-endguests. Moreover, the investment isimportant for the overall economicdevelopment of the local community andwill secure more than 350 new jobs.Finally, a number of new features willbecome available to local residents andvisitors alike – from beaches,promenades and playgrounds to newcatering establishments and sportsactivities and venues.

In 2016, on the island of Krk, Croatia’sfirst ever five-star campsite was opened,Camping Resort Krk 5*, while CampingResort Lanterna 4* received its fourthstar and now offers brand new premiumcamping services and features.

In the period up to 2020, investments in theportfolio will reach HRK 1.5-2 billion, theEBITDA margin will steadily grow to 35-38% and generate premium returns whilemaintaining a stable balance sheet and asustainable net debt/ EBITDA ratio.

2004

158

91

159

318

213

262

115

49

98

227

382

310

428*

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

INVESTMENT CYCLE (capitalized investments, HRK mn)

[GRI G4-2]

*In this total of HRK 428 mn, HRK 167 mn represent the 2016-2017 investment cycle.


74

SALES AND DISTRIBUTION STRATEGY

In 2016, Valamar Riviera achieved significant 26% growth in direct sales, itsmost lucrative channel. The average daily rate grew by 4.6% at companylevel. As regards overnights, campsites saw an increase of as much as 10%,while hotels reported a 6.6% increase compared to 2015.

Valamar has seen a continued growth inrevenues from direct bookings andcontinues to work on initiatives directedat increasing loyalty. Furthermore, thecompany is working on establishingcooperations with key tour operators todiversify its portfolio and prolong thetourist season. In 2016, Valamar hosted a number of large-scale events,including the Daimler Mercedes-BenzGlobal Training Experience in Dubrovnik, as well as the WinDays

conference and the first Poreč Open Airfestival in Poreč.

The continual ARR growth in thePremium and Upscale segment in all ourdestinations validates our orientation toinvestments in higher categoryproperties. The said ARR and revenuegrowth is accompanied by an increase inovernights, thus reaffirming the businessgrowth stability of our key products-hotels, resorts and campsites.

AVERAGE RATE GROWTH AND OVER -NIGHTS – PREMIUM PROPERTIES1

AVERAGE RATE GROWTH AND OVER -NIGHTS – UPSCALE PROPERTIES1

Overnights ARR3

530,324

583,654

10%

856 927

20152

2016

20152

2016

8%

Overnights ARR3

1,559,5161,699,830

9%

471 509

8%

[GRI G4-2]


75

The average rate increase in Premiumand Upscale properties was 8% , withan increase in the number of overnightsfor the Premium (10%) and Upscale(9%) products.

Valamar’s occupancy grew by 2.9 percentage points. Premiumbuildings have the highest occupancy(53%). Two destinations, Krk andDubrovnik, report the highest growth(6 p.p. and 3 p.p., respectively).

Valamar Riviera’s goal is to have oneproperty working year-round for eachdestination. By additionally boostingpreseason and postseason segments,two hotels, Valamar Diamant in Porečand Valamar Lacroma in Dubrovnik,stayed opened throughout 2016. The Valamar Sanfior’s preparations for year-long operations have begun as well.

In 2016, the Valamar Lacroma had the longest operating period with atotal of 349 operating days, followedby the Valamar Diamant with 345operating days.

Direct bookingsGroups and MICE14%

OTAs19%

41%

Allotments26%

DISTRIBUTION CHANNELS IN 2016(by revenues)

2015 2016 Ix (2016/2015)

PREMIUM 45.6% 53.0% 107.4

UPSCALE 42.9% 43.4% 100.5

MIDSCALE 40.5% 43.5% 103.1

ECONOMY 35.7% 38.0% 102.3

TOTAL 40.2% 43.1% 102.9

ANNUAL OCCUPANCY OF HOTELS AND RESORTSBY SEGMENTS (units)

1 Hotels, resorts and campsites included.2 Baška included as of 1 July to 31 December 2015.3 The average daily rate has been calculated asboard revenue/ accommodation units sold.

[GRI G4-2]


76

MANAGEMENT OF THE VALAMAR BRAND

In 2016, we began the process ofredefining the existing brandstrategy, based on the ValamarRiviera corporate brand and two keyproduct brands: Valamar Hotels &Resorts and Camping Adriatic byValamar.

This strategic project aims at improvingthe efficiency and strength of the

umbrella brand and the overallstructure of the corporate, product andservice sub-brands in order toharmonize the communication strategyat all levels with the ambitious plans ofthe company. The new brand strategyis expected to be completed in 2017,while its full implementation inproperties and in communication willbe achieved in 2018 and 2019.

SEGMENTATION AND SELECTION OF TARGET MARKETS

In 2016, this strategy was bestreflected in the development of Valamar Isabella Island Resort, where aspecial family offer was created,alongside Adults Only and V Levelservices and facilities. A similar strategywill be implemented at ValamarGirandella Resort, scheduled foropening in 2017. As regards thecamping segment of the portfolio, wehave developed specific products forluxury camping such as the premiummobile home village and glamping,which resulted in the 18% share of thatparticular segment, up by 5 percentagepoints from the previous year.

In 2016, Valamar Riviera wasdetermined to position the portfolio toefficiently address the target groups.

Apart from optimal portfoliodifferentiation, it is also necessary tohave a clear strategy for brands andservice concepts, designed to meet thespecific needs and desires of particularmarket segments. This will increase themarket reach, improve the compatibilityof the products and services with thespecific market segments, increaseguest loyalty and, ultimately, facilitate aconsiderable and sustainable growth ofall the key performance indicators.

[GRI G4-4]

MICROFACTS

The intention behind Valamar’s logo is to evoke the memory of the sea and vacations. It emulates the shape of a paper nautilus, small creature thatinhabits the Adriatic, as well as other world seas. This cephalopod, whose Latin name is Argonauta argo, is a rare species in our sea, the female of which has a beautiful white shell of a wavy surface.


77

INCREASE IN DIRECT BOOKINGS AND GUEST LOYALTY

In 2016, the share of direct bookingsin revenues was 41% . They weremade through our direct distributionsystems: call center, direct webbookings, mobile platform bookingsand loyalty program. The share ofreturning guests was 24%.

We will continue developing ourloyalty program in order to createmore added value for our clients.Simultaneously, we will develop ourweb pages, e-marketing andtechnologies in order to reach a 50%share of direct bookings in revenuesand 30% loyal guests by 2020.

Valamar Riviera’s loyalty programaims at providing added value forreturning guests, and consequentlyincrease revenues through directbookings.

2016

RETURNING GUESTS*

* The CRM data base was restructured in 2016.

24%


78 [GRI G4-12]

STRATEGIC PARTNERSHIPS

Valamar continually works onestablishing strategicpartnerships. This effort hasgenerated an increase in thenumber of guests from air travelmarkets, a more uniformsegmentation of source markets,and season prolongation.

There are two segments that we have beenbuilding in particular – the specialistsegment and the tour operating segment.

→ We focus our specialist partners on theexisting and new products, throughwhich we generate growth, particularly inthe preseason and postseason period.The products on which we focus ouractivities are cycling, tennis, gastronomy,destination events , and large-scaleinternational conferences.

→ In the tour operating segment, we find additional room for growth throughnew investment projects and focusingour partners on individual projects, thus enabling both product and service optimization and, eventually,greater efficiency.

TUI Group is the world’s largest tourismcompany, with a chain of strong touroperators, 1,500 agencies, six airlineswith more than 150 airplanes, 300 hotelswith over 214,000 beds, and 14 cruiseships. More than 20 million guests usetheir services annually.

We are nearing a successful completion of the agreement andimplementation of the most complex (interms of product specification) familyconcept hotel with TUI; in the 2017season, we will open the first TUI FamilyLife concept in Croatia. Based on ouragreement with TUI, over the next threeyears, the Family Life Bellevue Resort in Rabac can expect 76,000 new guests from air travel markets in the UKand Scandinavia.

DER Touristik is a tourism divisionbelonging to the REWE group, among theleading global tourism groups and thesecond largest German tourism companywhich provides services to around 8million guests every year.

DER Touristik contributes to the successfulpositioning and sale of new, differentiated“Adults only” and “Family” facilities atValamar Girandella Resort. DER Touristikconsolidates the DACH market (Germany,Austria, Switzerland) and significantlyfocuses its sales and promotion throughthis project in Istria and Rabac. In the nextthree years covered by the agreement,Rabac expects 25,000 guests.

Such cooperation will result in therepositioning of Rabac ( from 2*-3* to 4*),

SHARE OF GUESTS BY MANNER OF ARRIVAL AT DESTINATION HOTELSAND RESORTS IN RABAC - ALL SALES CHANNELS

2016

Cartravel

Airtravel

83% 17%

Contracted for 2017

Cartravel

Airtravel

51% 49%

2016

Cartravel

Airtravel

94% 6%

Contracted for 2017

Cartravel

Airtravel

77% 23%

SHARE OF GUESTS BY MANNER OF ARRIVAL AT DESTINATION HOTELSAND RESORTS IN RABAC - TOUR OPERATOR SEGMENT


79[GRI G4-12]

the introduction of new hotel concepts (TUI FamilyLife, Adults Only), thus generating Valamar’sknowledge base and improving the entire chain ofdestination services.

Jet2holidays is UK’s third largest tour operator and asister company to Jet2.com, UK’s fourth largest airlinecompany. Each year, Jet2.com flies approximately 7million passengers.

Jet2holidays grew by 30% by number of occupiedunits in hotels and resorts in Istrian destinations, whilein Dubrovinik it reports a 94% growth whencomparing 2015 and 2016. This represents thehighest increase in the tour operator segment andthese positive trends are continued in the plans for2017.

Due to the excellent position of Istrian destinations(Poreč and Rabac) and their transport connection withthe main source markets, the conventional manner oftravelling to the destinations was by car.

Accordingly, in 2016 air travel guests represented only21% of the entire tour operator segment in hotels andresorts. In comparison, in Dubrovnik the main mannerof travelling to the destination is by plane and air travelguests represented 90% in the same year.

Our strategic component is boosting air travel arrivalsto Istria through which we will connect with moredistant markets and open up towards new ones. Theeffect of intensifying cooperation with strategicpartners can be seen in the increase from 21% of airtravel guests in 2016 to more than 35% planned for2017 for destinations in Istria in the tour operatorsegment for hotels and resorts.


80

NEW PROGRAMS AND OFFERINGS IN COLLABORATION WITH STRATEGIC PARTNERS AND DESTINATIONS TO PROLONG THE SEASON

Close relations with strategicpartners and destinations whereValamar Riviera operates, such asTUI and Der Touristik, Jet2Holidays,tennis specialists Zischka andWagner and ID Riva contributeconsiderably to the development ofthe offering in destinations andseason prolongation.

One of the key focuses is the expansion ofstrategic partnerships in order to prolongthe season and attract new source markets.

The 2016 event calendar that Valamar isinvolved in, either as organizer or sponsorwas richer than ever. The most importantevents included the Poreč Open Airfestival with MTV Summerblast Musicfestival, Swatch Beach Volleyball Major,Offshore World Challenge big gamefishing competition, Valamar Trail, BaškaFour Islands Race and many others. Alarge number of events took place in

either the preseason or the postseasonperiod, which helped generate touristarrivals in low-demand periods. The key tothe events’ successful realization was thesynergy between towns, municipalities,tourist boards, hotel companies, cateringbusinesses and other stakeholders of thedestination tourism. Eventually, it allcontributed considerably to ourdestinations being included among themost desirable destinations in Croatia.

Over the past years, Valamar’s strategicfocus has also been on the development

of specific products and programs,particularly cycling and outdoor sports.Together with the other key destinationadvantages and opportunities, includingits gourmet offer, the family-based offerat our properties, and interesting trips,they constitute a number of attractivesales packages directed at specific guestsegments in our key markets in theregion. In 2016, special focus was put onGermany and Austria, where we realizedour promotion and sales through specialcooperations with tour operators andValamar’s direct channel.


81[GRI G4-12]

OUR STRATEGIC PARTNERSHIPS

HOTELS AND RESORTS

IMPORTANT DESTINATION EVENTS

CAMPING RESORTS


82 [GRI G4-13]

GROWTH THROUGH ACQUISITIONS, MERGERS AND PARTNERSHIPS IN LEISURE DESTINATIONS

ACQUISITION OF IMPERIAL D.D.

In 2016, Valamar Riviera successfullyexpanded its business operations toanother top-quality tourist destinationon the Adriatic Sea by acquiring themajority stake in Imperial d.d. on theisland of Rab through a strategicpartnership with Allianz ZB d.o.o. amandatory pension fund managementcompany. Following the conclusion ofthe takeover bid by the end of 2016,Valamar Riviera and Allianz ZB jointlyacquired 88.93% of Imperial’s shares. Valamar Riviera purchased54.71% of shares for HRK 285 million,which meant that, as a company,

Imperial d.d. was valued at HRK 697*million in total.

Allianz ZB and Valamar Riviera acquiredthe controlling ownership stake in Imperiald.d. in stages, the most significant ofwhich had been the purchase of thecompany’s shares from the Restructuringand Sale Center that concluded theprivatization of Imperial d.d.

Today, Imperial’s offer of accommodationunits accounts for 77% of thecategorized, organized touristaccommodation of the island of Rab, with

Acquisition Value HRK 285 mn

(54.71% of shares)

Enterprise value* HRK 697 mn

Acquired enterprise value HRK 381 mn

Total revenues HRK 142 mn

EBITDA HRK 40 mn

KEY INDICATORS FOR THE IMPERIAL D.D. ACQUISITION

* Enterprise value calculated as market capitalization based on acquisition share price+net debt on 31/12/2016.


83[GRI G4-13]

DEVELOPMENT OF A DIFFUSED HOTEL IN POREČ

properties in the Town of Rab, alongsideRajska Beach in Lopar, and on the SuhaPunta peninsula in Kampor, which posted678,013 overnights in 2016. Theaccommodation capacity of Imperial d.d.accounts for 15% of Valamar’s totalcapacity. In 2016, Imperial d.d. postedtotal revenues of HRK 142 million andoperating profit of HRK 40 million.

Croatia’s leading tourism company and top institutional investor see a great synergy potential in the future joint development of the portfolio of Imperial d.d. and Rab as a destination

through a new model of a strategicpartnership between a pension fund anda tourism company.

In line with the agreement on themanagement of the hotel and touristfacilities and amenities, between ValamarRiviera and Imperial d.d. and in effectsince January 4, 2017, the twocompanies began joint work on thedevelopment of the tourism portfolio ofnot only Rab but also the entiredestination, which has been recognizedas a destination with considerablepotential for further development.

In 2016, Valamar Riviera launched aproject to develop a diffused hotel inPoreč by inviting privateaccommodation owners to expresstheir interest for such a form ofcooperation.

The development of a diffused hotel is inline with the strategy for Valamar’sgrowth and development. One of the keygoals is the revitalization of the old townof Poreč. Accommodation in householdsaccounts for a major portion of the totalaccommodation capacities, and theirmerger into a diffused hotel will increase

the overall quality of the service and,consequently, the competitiveness.Developing diffused hotels as a new form of accommodation is also one ofthe priorities of the privateaccommodation development, asdefined in the strategy for thedevelopment of Croatian tourism by2020. In a diffused hotel,accommodation units can includerooms, hotel suites, family rooms, studioapartments and apartments, and the firstaccommodation units of Valamar’sdiffused hotel opened in 2016 in theformer Kompas building in Poreč.


84

OPTIMIZATION OF PRICES, OCCUPANCY AND DISTRIBUTION TO INCREASE REVENUES

For years now, Valamar Riviera has focused on revenues. A few years ago, thecompany implemented a revenue management function and trained thenecessary professionals.

Valamar defines excellence in revenuemanagement as selling the right roomto the right client, at the right moment,at the right price, through thedistribution channel with the bestefficiency. The achieved continuousgrowth in revenues per available roomover the last five years as well as the10.8% increase in revenue peravailable room (RevPAR) in 2016 was

largely the result of a 4.6% increase ofthe average rate per unit (as comparedto 2015) with an efficient increase ofovernights through the strategicchoice of distribution channels.

OPTIMIZATION OF PRICE, OCCUPANCY AND DISTRIBUTION CHANNEL REVPAR INCREASE BY PRODUCTS (HRK)

Property 1

REVENUE MANAGEMENT

Occupancy

Room rate

Property 2

Occupancy

Room rate

Property 4

Room rate

Property 3

Room rate

Occupancy Capacity

distribution by sales channels

Average rate

Occupancy Occupancy

105,257

116,025

21,804

25,134

58,665

65,002

10%

15%

11%

Hotels andresorts

Campsites

Total

2015

2016/2015

2016


85[GRI G4-16]

ACTIVE PARTICIPATION IN ASSOCIATIONS ANDINSTITUTIONS TO DEVELOP AND PROMOTE TOURISM

As the leading tourism company, Valamar Riviera is an active member of anumber of associations and institutions, through which it contributes to thedevelopment of destinations, standards and offering, all in the interest ofdeveloping tourism and hospitality in Croatia.

Valamar considers its membershipsin associations, in which it has aseat on the managing board, to bestrategic, and participates inprojects and various board activities,thus actively representing theinterests of the profession. ValamarRiviera has its representatives in allthe assemblies, tourist councilsand/or supervisory boards of thevarious tourist boards:

1. CROATIAN NATIONAL TOURIST BOARD

2. ISTRIA TOURIST BOARD

3. KVARNER TOURIST BOARD

4. POREČ TOURIST BOARD

5. VRSAR TOURIST BOARD

6. FUNTANA TOURIST BOARD

7. TAR-VABRIGA TOURIST BOARD

8. LABIN TOURIST BOARD

9. RAŠA TOURIST BOARD

10. KRK TOURIST BOARD

11. DUBROVNIK TOURIST BOARD

12. BAŠKA TOURIST BOARD

The company also has itsrepresentatives in the followingassociations:

→ CROATIAN EMPLOYERS'ASSOCIATION (HUP)

→ CROATIAN CAMPING UNION(KUH)

→ ASSOCIATION OF EMPLOYERS INCROATIAN HOSPITALITY (UPUH)

→ CROATIAN CHAMBER OFECONOMY (HGK) – includingregional chambers in Pula andDubrovnik

→ ASSOCIATION OF CROATIANTRAVEL AGENCIES (UHPA)

→ CROATIAN MEETINGPROFESSIONALS ASSOCIATION(HUPKT)

→ ALUMNI ASSOCIATION OF THEFACULTY OF TOURISM ANDHOSPITALITY MANAGEMENT

→ CROATIAN ASSOCIATION OFCORPORATE TREASURERS(HUKR)

→ CROATIAN ASSOCIATION OFFINANCIAL ANALYSTS (HUFA)

FOCUS ON OPERATING EFFICIENCY

Over the past years, significant effortshave been invested in the optimizationof the cost structure andmodernization of Valamar’s processes.

Since 2009, we have improved our EBITDAmargin from 15.4% to 34.4% (adjusted34.9%) . The company’s business model ofoperating a cluster of properties in adestination helps centralize operationalservices such as laundry, horticulture,

maintenance or energy management, andto increase efficiency. Furthermore, due toits size on the Croatian market, thecompany is able to utilize economies ofscale in its business operations and realizepurchasing advantages. A high standard ofprofessionalism helps the company toefficiently implement the best practicesacross the orga nization. Valamar Rivieraintends to continue to use theseadvantages to reach its profitability targets.

2010 2011 2012 2013 2014 2015

EBITDA

EBITDAmargin

179

2009

119

223

307 301 284

423

2016

513

22.2%

15.4%

24.5%

30.7%28.0%

25.9%

32.7%34.4%

* Financial information until 2014 are from the consolidated financial reports of Valamar grupa d.d.,and as of 2014 from the consolidated financial reports of Valamar Riviera d.d.

OPERATING EFFICIENCY* (HRK mn)


86

5.4 INNOVATION AND DIGITALIZATION

By leveraging the opportunitiesprovided by new technologiesand digitalization processes weaim to fully meet and anticipateour guests' needs and become aleader in innovation of productsand services in the Europeanleisure hospitality market.

Innovations represent one of Valamar's core values andhave always been a part of Valamar's identity. They arealso one of the key ways Valamar is recognized by ourguests and partners. Therefore, at Valamar wecontinuously innovate and improve our products,services, processes and capabilities to achieve superiorcustomer experiences and operational efficiency.

Innovation at Valamar can be found in all areas of businessactivity, from daily operations to large investment projects.Many examples of Valamar's innovative culture over the lastyear are included throughout this report in our focus on theguest and guest relationship building, service excellenceapproach, new service concepts launched across the portfolio,human resource and corporate culture development, corporatesocial responsibility and commitment to the environment.

The company actively tracks and fosters innovation across thecompany, mainly through a central project managementorganization (PMO) which tracks, oversees and managesstrategic cross-functional projects in the organization.

We are especially proud of our Perfect Experience Creatorprogram that curates the guest experience of the entiredestination to their individual needs and desires. The programis aimed at increasing guest engagement with localexperiences and services which not only meets our guests´quest for authentic experience, but also supports communitiesand entrepreneurs in our destinations.

Innovation should also be aimed at sustainability andmanaging environmental impact. For example, in severallocations we are installing new e-chargers for electric vehicles.Our aim is to position ourselves on the e-charger maps andGPS navigation systems, in turn increasing our attractivenessas an e-destination.

CONTINUOUS INNOVATION AS ONE OF VALAMAR'S CORE VALUES


87

CAMPING RESORT LANTERNA

→ Camping Resort Lanterna received the INOVACAMP 2016 recognition for itsinnovative glamping concept.

→ For camping in style and luxury, Camping Resort Lanterna offers 14 luxury tents inthe glamping village located in one of the most beautiful zones of the campsite.

CAMPING RESORT KRK

→ Camping Resort Krk received the INOVACAMP 2016 recognition for its innovativeconcept of providing high-quality personalized service. In 2016 Camping ResortKrk became the first Croatian 5* campsite on the Adriatic.

→ This unique eco-friendly family camping resort is the only campsite in Croatia withits own small spa center, and one of the few where occupancy does not dependon weather.


88

E-BIKE

→ Protection of the environment and energy efficiency are among Valamar's strategicinitiatives, and sustainability principles are included in the goal of every investmentproject's approach.

→ In cooperation with the Istrian Tourist Board we opened the first e-bike chargingstation in Istria. Four of them were opened in 2016 in the following locations: ValamarSanfior Hotel, Valamar Club Tamaris, Valamar Diamant Hotel and Camping ResortLanterna. The project plan for 2017 includes five new e-bike charging stations.

MOBILE HOMES FROM CAMPING RESORT LANTERNA AND KRK

→ In order to provide superior accommodation experience to our guests, we areworking closely with partners who support our goal to be creative and innovative.

→ 67 mobile homes in Camping Resort Lanterna and 63 mobile homes in CampingResort Krk offer interior design specially created by Valamar in cooperation with itssupplier partner.


89

LA PENTOLA, CRAFT, THE BEAT

→ In 2016 Valamar Riviera opened three reconstructed facilities at the former locationof Slavija in Rabac.

→ Trattoria La Pentola, The Beat and Craft offer rich and innovative gastronomic andentertainment experience, all in one place. For exceptional Italian cuisineexperience, guests and visitors enjoy our La Pentola with modern and innovativeinterior design, as well as a unique gastronomic experience.

PERFECT EXPERIENCE CREATOR

→ Perfect Experience Creator platform won the 2016 Golden Goat – Capra d’oroaward in the category of innovative product.


90 [GRI G4-2]

We recognize the global process of digitalization as a key enabler as well as adisruptor in the travel and hospitality industry. As one of the early movers indigitalization in the hospitality industry in Croatia, Valamar is today theCroatian market leader in revenue from direct bookings and breadth of digitalcustomer journey touchpoints available to our guests, while they plan theirtravel or stay in a destination, ranging from our website, the newly developedmobile app*, loyalty program, newsletters, and CRM campaigns, to socialmedia, online marketing, online travel partners, guest feedback and onlinereputation tools, et cetera. When planning a travel experience, the primaryinformation sources are digital while the paths to bookings are becoming moreand more complex.

Through our presence in of all therelevant channels and touchpoints,and proper management ofmarketing campaigns, we converttarget audiences into guests. Webelieve we need to continuedigitalizing our services to ensurehigh guest satisfaction and marketpresence.

Valamar is also an early adopter ofnumerous IT systems, applicationsand technologies and has investedheavily in developing best-in-class ITsystems and infrastructure that arethe backbone of our daily businessoperations and enable us to growand scale our revenues and services.All our properties are operating onMicros Fidelio Opera PMS (property

management system). Our revenuemanagement, loyalty program andCRM databases are enabled forsmart data management and fullyintegrated with our PMS and bookingsystems. We also continue to investconsiderably in our websites as a keydriver of direct sales. We thereforebelieve that Valamar is well-positioned to quickly embrace digitalproducts and services and benefitfrom the process of digitalizationgoing forward.

As we continue to upgrade ourportfolio and our services, we alsoplan to upgrade the guests’ digitalexperience in a highly tailored way inkey service areas to enable a betterguest experience and ensure the rightbalance between personal touch anddigital excellence.

All strategic digital projects andinitiatives are coordinated by thecentral project managementorganization (PMO) and steered bythe executive leadership through theProject Committee in order to ensurea strategic focus of the organizationon the key value drivers anddigitalization implementation.

21 strategic digitalization projects identified in the PMO in 2016

ACTIVITIES IN 2016

Digitalization at Valamar

* June 2017.


91[GRI G4-2]

OUR DIGITALIZATION ROADMAP

Valamar has identified the key strategic objectives, value drivers,business process, IT capabilities and organizational principles to guideour activities in the field of digitalization.

STRATEGIC OBJECTIVES & VALUE DRIVERS

Improve guest experience throughout thecustomer journey & grow direct sales revenues.

→ Increase guest loyalty and life-time value for customers

→ Improve CRM capabilities – targeted marketing, relationship building, personalization,sales, etc…

→ Enable and improve destination discovery and authentic destination experiences

→ Optimize processes and costs

BUSINESS PROCESSES & IT CAPABILITIES

Enable and improve IT infrastructure and automate processes .

→ Wifi strength, quality and capacity as a basic service

→ Business systems integration

→ Process automation – operation focused(housekeeping, reception, F&B, ordering, etc…)

→ Ease of integration of new digital technologiesinto existing and legacy systems

ORGANIZATION & DIGITAL TRANSFORMATION

Create an innovative culture open and ready for digital transformation.

→ Centralized responsibility for digital strategy and coordination

→ Valamar as an open platform for collaboration and agile project management

→ Focus on speed and empowerment to innovate quickly, iterate, evaluate, modify and anticipate digital trends

321


92

DIGITALIZATION PROJECTS IN 2016 AND 2017

There were 20 strategic digital projects in 2016, out ofwhich 5 were completed, and 6 were initiated in 2017.

The projects are either external or guest experience andservice quality focused, or internal or business processesfocused. Valamar also tracks the level of innovation deliveredby each project as ranging from basic to highly innovative.

LEVEL OF IN

NOVATION

INTERNAL VS. EXTERNAL ORIENTATION

BUSINESS PROCESSES & IT CAPABILITIES GUEST RELATIONSHIP & EXPERIENCE

BASIC

ADVANCED

HIGHLY INNOVATIVE

1

2

3

12

17

15

19

21

20

22

11

16

14

109

13

4

6

8

25

23

24

5

7

[GRI G4-2]

18


93

EXAMPLES OF DIGITAL PROJECTS IN 2016

Booking engine & CRS

Credit Card Payment Solution

Liquidation Process Improvement

Special events live picture

Camping Adriatic new website launch

Valamar.com relaunch & improvements

Corporate web

Broadband Strategy & Wi-Fi Implementation

Facilities Management software

RFID towel control

Valamar Riviera Corporate Intranet

Portable terminal app for Sport centers

Portable terminal app for controllers in camps

E-Invoice

Advanced Planning and Forecasting

Project Management Portal

In-House Marketing

Board Revenues reporting

Cash Free Card

Guest App Valamar Hotels & Resorts

Valamar Plus Club loyalty program

E-chargers

Campsite Online check-in + Self check-in

Project "Tablet"

Perfect Experience Creator

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

ONLINE CHECK-IN & SELF CHECK-IN

→ The development of a system that wouldallow a self check-in, in the hotels and thecamping, for those guests who desire thiskind of service, with the objective of achievingshorter waiting time for registration in thecampsites, increase of customer satisfactionwith front desk services and improved datacollection about guests and therebyimprovement of the CRM base

→ Guest have the possibility to check in onlineeven before their arrival

VALAMAR MOBILE APPLICATION

→ Offers the possibility of booking, providesuseful information for guests before theirarrival, on-line check-in and the possibility touse the digital room key, as well as otheruseful features during the stay

→ Real-time communication with the hotel staffand continual guest feedback (surveys andrecommendations)

→ Developed in order to provide guest assistancethroughout the whole stay

PROJECT “TABLET”

→ Creation of a software solution that enablesdelivering digital information and content tothe guests in the comfort of their hotel rooms,which is underway as part of the developmentof a new family 5* property in 2018.

COMPLAINT MANAGEMENT SOFTWARE

→ An application used by property management,housekeeping, maintenance and front deskfor reporting guest needs, guest complaints,and maintenance issues through a smartphone and can be acted on immediately byother members of staff to improve guestexperience, shorten the time for repairingmalfunctions and track key indicators inhousekeeping performance per property.

[GRI G4-2]


94

5.5 DESTINATION DEVELOPMENT ANDRESPONSIBILITY TO THE LOCAL COMMUNITY Corporate social responsibility is an integral part of Valamar Riviera’s businesstradition spanning six decades in tourism and hospitality, rooted in the beliefthat sustainable business should be a strategic goal and key driver of newvalue. Corporate social responsibility guides all of Valamar Riviera’s strategicinitiatives, including employee development and training, destinationdevelopment, investments in the local community and care for those in need, asystematic approach to the preservation of the environment and the quality ofthe Adriatic Sea as well as corporate transparency and responsibility to itsstakeholders, shareholders and the investment community.

The success of Valamar’s hotels,resorts and campsites greatlydepends on the furtherdevelopment of the destinationswhere the company operates.

That is why Valamar takes an activerole in destination developmentthrough various strategic projects and long-term partnerships with local governments and publicauthorities, tourist boards, service

and event providers, sports clubs and non-profit organizations.

By promoting and improving adestination’s tradition, throughlearning and innovation, Valamaractively contributes to socialdevelopment and is able to offer its guests more intensive and moreauthentic experiences in destinationsthat have an exceptionally rich cultural heritage.


95

Valamar’s Nine Corporate Social ResponsibilityPrograms

MICROFACTS

In 2015, Valamar Riviera won the CSR IndexAward for responsible policies and practicesof environmental management.

Considering its impact on the localcommunity, environment and societyas a whole, Valamar Riviera hasorganized its CSR efforts into nineumbrella programs and havecommitted at least 2.5% of annualrevenues to investments in theseprograms. In 2016, as much as 3.37%(HRK 49.5 million) of the revenueswas invested in the programs.

In 2016, we invested HRK 12.5 millionmore in corporate socialresponsibility programs than in 2015.

Enriching theDestination

HRK 3.3 million

BuildingTourismInfrastructureHRK 16.1 million

ExcellenceThroughKnowledgeHRK10.3 million

ValamART HRK 261,000

PromotingSportsHRK 2.6 million

Green ValamarHRK 16.6 million

Our Retired

Colleagues100 retiredcolleagues

Little tourism

440kindergarten

children

Valamar’s Big Heart

HRK 391,000 CSR PROGRAMS AT VALAMAR

HRK 49.5 million, or 3.37%of the 2016 revenues, were invested in the

CSR programs


96

enriching the Destination

The program for enriching thedestination experience supportscultural, culinary, educational andentertainment events, projects andinitiatives that improve theattractiveness and competitivenessof a destination, contribute to theprolongation of the tourist season,and cultivate the local communities’cultural identity and values. Asidefrom supporting destination projectsthrough partnerships, Valamarriviera independently organizesprojects that are enjoyed bynumerous tourists and localpopulation alike.

in 2016, more than HrK 3.3 millionwere invested in expanding thedestination events.

In 2016, we continued organizing andsupporting a series of destination events,including the traditional Giostra, LabinRepublic, Labin Carnival, Oktoberfest byValamar, Tunalicious Street Food Festival,Valamar Terra Magica and Valamar Trail inRabac, Poreč Major, Istrian Riviera,SUPer Surfers Challenge in Poreč, 4 Islands in Baška, Dubrovnik SummerFestival, Dubrovnik Symphony Orchestra,Sentimento Festival, and large-scaleperformances by Maksim Mrvica, TheFrajle and Klapa Intrade in Dubrovnik.

Especially important for 2016 was thePoreč Open Air festival, which lastedthree months and featured more than250 events that brought life to the streetsand squares of Poreč, to the delight oftourists and locals alike. The festival isthe product of a cooperation betweenValamar Riviera as the event’s initiatorand chief partner, and MPG, thecompany in charge of organizing thefestival, with financial and communicationsupport from the Town of Poreč, PorečTourist Board, Istria County TouristBoard, and the Croatian National TouristBoard, as well as numerous sponsors,who have all recognized the value of thisunique festival.

During the tourist season, in the periodbetween mid-June and mid-September,Poreč Open Air’s varied program for all

Festival period

100 days>50,000

visitors>250

events11catering establishments

as festival partners

Poreč oPen Air


97

ages and tastes brought new life toPoreč, with the festival’s many dailyevents making the destination even moreattractive. As confirmation, Porečreceived the coveted Tourist FlowerAward as the best summer vacationdestination. The award is presented bythe Croatian National Tourist Board, thecountry’s Ministry of Tourism and theCroatian Chamber of Commerce. PorečOpen Air also received the Golden GoatAward for outstanding contribution in thefield of marketing in Istrian tourism,particularly for improving products aswell as promoting activities, productsand projects in Istria.

The festival featured more than 250music, cultural, film and children’s events,enjoyed by more than 50,000 visitors. Thefestival also involved the local community– from catering establishments to localsuppliers and entertainers.


98

Tour of Croatia 600

WinDays 2016 1,700

Wine Nights 2,500

Lighthouse Festival 3,400

Poreč Open Air festival & MTV Summerblast 50,000

Beach Volleyball Major series - Poreč Major 75,000

Offshore World Challenge & Tunalicious Street Food 3,500

Oktoberfest by Valamar 5,000

Advent Poreč & New Year’s Eve celebration 40,000

Valamar Terra Magica 300

Valamar Trail 550

Dimensions Festival 6,500

Outlook Festival 13,000

4 Islands 600

Baška Outdoor Festival 1,000

Du Motion 4,600

Sentimento Festival 1,000

Summer at Valamar 9,500

Dubrovnik Summer Festival 60,000

International Late Summer Music Festival Dubrovnik 4,000

NUMBER OF GUESTS, VISITORS AND PARTICIPANTS IN KEY DESTINATION EVENTS IN 2016

The Poreč Open Air festival also featured the MTV EuropeSummerblast, with many international DJ stars who drewnumerous young people as well as domestic and foreignelectronic and pop enthusiasts to Poreč. The extraordinarysuccess of the first Poreč Open Air festival guarantees theevent’s 2017 edition. Moreover, Valamar intends to apply asimilar concept to its other destinations as well.

More than

40 eventsAround 310,000

guests, participants and visitors

ACTIVITIES IN 2016


99

POREČ

04/03 - 13/03 Poreč, Valamar Diamant, Pical Istrian Riviera

14/04 - 17/04 Poreč, Valamar Pinia SportAktiv & IstriaBike Training Camp

19/04 - 24/04 Poreč Tour of Croatia

26/04 - 29/04 Poreč, Valamar Isabella WinDays 2016

28/04 - 01/05 Poreč, Lanterna Collegium Spring Break Festival

12/05 - 15/05 Poreč Wine Nights

13/05 - 16/05 Poreč, Lanterna Spring Break Europe

25/05 - 29/05 Poreč, Lanterna Lighthouse Festival

09/06 - 10/09 Poreč Poreč Open Air festival & MTV Summerblast

09/06 - 12/06 Poreč, Lanterna/Brulo Veteran Handball Championship

15/06 - 15/09 Poreč Artist on Vacation

18/06 - 19/06 Poreč/ Lanterna SUPer Surfers Challenge Poreč – Lanterna

28/06 - 03/07 Poreč Beach Volleyball Major Series – Poreč Major

07/09 - 10/09 Poreč Offshore World Challenge & Tunalicious Street Food

16/09 - 24/09 Poreč, Lanterna Oktoberfest by Valamar

06/12 - 08/01 Poreč Advent Poreč & New Year’s Eve Celebration

RABAC & LABIN

21/05 - 22/05 Rabac, Valamar Sanfior Valamar Terra Magica

01/10 - 01/10 Rabac, Valamar Sanfior Valamar Trail

22/12 - 24/12 Labin Christmas in Labin & Parni Valjak concert

PULA

24/08 - 29/08 Puntižela, Camping Brioni Dimensions Festival

01/09 - 04/09 Puntižela, Camping Brioni Outlook Festival

KRK ISLAND

13/04 - 16/04 Baška 4 Islands

29/04 - 01/05 Baška Baška Rožica Flower Festival

29/04 - 01/05 Baška Photo & Hike Weekend

06/05 - 08/05 Baška Baška Trekking & Trail Camp

20/05 - 22/05 Krk Krk Spring Bike Adventure

15/8 - 15/8 Krk Krk Sails

17/08 - 20/08 Baška Baška International Guitar Festival

14/10 - 16/10 Baška Baška Outdoor Festival

DUBROVNIK

30/3 - 3/4 Dubrovnik Tomo Udovičić Memorial water polo tournament

8/4 - 10/4 Dubrovnik Aklapela

29/4 - 30/4 Dubrovnik Du Motion

15/5 Dubrovnik, Babin kuk Family Day

20/6 - 3/7 Dubrovnik, Babin kuk Libertas Basketball Camp

21/6 Dubrovnik Sentimento Festival

7/7 - 4/11 Dubrovnik, Babin kuk Summer at Valamar

10/7 - 25/8 Dubrovnik Dubrovnik Summer Festival

26/8 - 23/9 Dubrovnik International Late Summer Music Festival Dubrovnik

7/10 - 9/10 Dubrovnik Valamar Junior Open

20/10 - 23/10 Dubrovnik Good Food Festival

20/10 - 23/10 Dubrovnik Dubrovnik Film Festival for the Children and theYouth of the Mediterranean Countries

KEY DESTINATION EVENTS IN 2016


100

Building Tourism Infrastructure

As part of this particular program,Valamar Riviera systematicallyinvests in beaches, walking andbiking trails, access paths,playgrounds and other forms ofimprovement to the tourisminfrastructure. Moreover, thecompany directly contributes to thedevelopment of the local communityand the creation of the prerequisitesfor a sustainable development of thetourism business in the general,social interest of all the destinationswhere it operates.

In 2016, various tourism infrastructureprojects of improvement andconstruction received more than HRK 16.1 million in investments.

More than HRK 10.3 million wereinvested in the construction andoutfitting of children’s playgrounds andsports grounds; over HRK 2.8 millionwere invested in beach improvements;and more than HRK 3 million wereinvested in walking and biking trails,promenades and access paths.

INVESTMENTS IN 2016

Construction andoutfitting of children’splaygrounds and sports

grounds

Beach improvements

Contruction ofpromenades, walkingand biking trails, and access paths

HRK 3 million HRK 2.8 million HRK 10.3 million


101


102 [GRI G4-SO1, G4-LA10]

Excellence Through Knowledge

A rather important project wascarried out in 2016 incooperation with the Ministryof Tourism, awarding 198scholarships for studentspursuing careers in tourismand catering across Croatia.Valamar will also provide themwith internships andemployment once theireducation is completed.

Internal training and employeedevelopment, including the Valamar Academy program

Promotion of vocations, scholarships and cooperation with

educational institutions

In 2016, a total of 217 students were involvedin the scholarship program. Furthermore, in2016, we established cooperation with theZnanje na Djelu Foundation for the programcalled “Exploring the World of Work”, with thegoal of familiarizing high school students withthe possibilities of career development intourism nad hospitality. In 2016, we alsocontinued organizing our Open Days, aimedat presenting operations and employmentopportunities at Valamar to the localcommunity. This is a part of our continuedcooperation with vocational schools andcolleges in order to develop the knowledge,skills and competences of potentialemployees, and to promote vocations intourism and hospitality, a prerequisite for along-term sustainable tourism business.

Bjelovar

Labin

RabacKrk

Opatija

Pula

ŽupanjaSlavonskiBrod

Nova Gradiška

DaruvarGarešnica

Đakovo

Osijek

Vukovar

Vinkovci

SCHOLARSHIP PROGRAM

Towns of Valamar Riviera’sscholarship holders

HRK 602,000HRK 9.1 million

INVESTMENTS IN 2016


103


104

ValamART

Valamar Riviera continuouslysupports the creativity of nationaland world’s artists, as well asnumerous cultural initiatives andprojects that have yielded manyworks of art. In 2016, Valamarsupported projects in arts andculture that gathered a number ofrenowned national and foreignartists, as well as attractive arts-and-culture events, with overHRK 260,000.

In 2016, the company continuedsupporting the Artist on Vacation project,which was set up for the fourth year in arow with collector Marinko Sudac andthe Institute for the Research of theAvant-Garde. Valamar’s hotels hostedworld renowned avant-garde artists, andthe project included exclusive exhibitionspresenting the audiences with some ofthe most important figures in Europeanavant-garde art. Furthermore, for the33rd year in a row, Valamar hosted the

international Art Colony, during whichartists stayed at Valamar and createdworks of art, many of which now adornour hotels and form a valuable collectionbolstered by a long tradition ofpartnership with artists.

We also continued our cooperation withPoreč Open University; numerousnational and foreign artists, whosecreations enriched Poreč’s culturalscene, were guests at Valamar.

In Dubrovnik, Valamar Riviera regularlycooperates with the DubrovnikSymphony Orchestra, organizing anumber of music evenings.

There was also a donation to helporganize the Industrial Art Biennial inLabin, one of the most important art

events in Istria and beyond. This is also acontinuation of the cooperation betweenValamar and the City of Labin, partners inthis important art festival project that wasinitiated and organized by the Labin ArtExpress XXII artistic collective. TheIndustrial Art Biennial and its attractiveprogram undoubtedly enrich regionalculture and the offering, and contribute tothe strengthening of the identity andrecognition of Istria’s rich and significantindustrial heritage, motivating Valamar tosupport this valuable event.

The works of art and elements of theinterior from Valamar’s hotels in Rabacand Poreč were included in the exhibitiontitled Enjoying the Fruits of Yugoslavia'sThird Way, which was set up in lateMarch 2016 at the Gebhart BlazekGallery in Graz, Austria.

ACTIVITIES

The Artist on Vacation project has sofar hosted more than 58 artists

The Art Colony has so far hostedmore than 218 artists


105


106

Promoting Sports

Valamar Riviera directly organizes orsponsors a number of sports events.In 2016, the company investedaround HRK 2.6 million in thesesports events, organized in all ofValamar’s destinations with the aimof developing the localities, andpromoting sports and activelifestyle. Most of the sports eventsare held in both pre-season andpost-season, with an exceedinglypositive effect on guest arrivalsoutside peak season.

There were a number of sports events in2016, but we should single out oursponsorship of the Poreč Major sportsand tourism event at Poreč, whichgathered over 74,000 beach volleyballfans, the 3rd Valamar Terra Magicabicycle race in Rabac that attracted 169contestants from seven differentcountries, the SUPer Surfers ChallengePoreč that gathered the world’s beststand-up paddlers, the Krk Spring BreakAdventure (a three-day bicycle event),the third edition of the Valamar Trail inRabac (international trail race) with

contestants from 18 countries and 4continents, the Istrian Riviera tennistournament that took place for the 44thyear, being one of the most importantEuropean competitions for young tennisplayers worldwide, the 4 Islands MTBrace where all participants stayed inValamar’s hotels, and the Tour ofCroatia, the biggest annual event inCroatia, during which Valamar providedaccommodation for the participants andthe organizers of the race’s fifth stagethat started in Poreč. In Dubrovnik,Valamar Riviera actively supports Du

Motion (the Dubrovnik half-marathon),especially attractive to athletes andrecreational runners from Croatia, itsneighboring countries, and even farawaycountries such as Brazil, the USA,Canada, Russia and South Africa. InOctober, Dubrovnik will be the venue forthe Valamar Junior Open, Croatia’s openjuniors’ championship graded for theworld junior rankings. In 2016, 98 bothmale and female juniors from 15countries participated in the event.Valamar Riviera is also the sponsor ofthe Jug Water Polo Club, the Dubrovnik


Basketball Club, the Libertas BasketballCamp, and the Tomo Udovičićinternational memorial water polotournament for children.

In addition to all these events,Dubrovnik’s Maslinata Park, locatedbetween Valamar’s hotels, now housesan open-air training ground with 10different exercise equipment for a funworkout suitable for all generations.Finally, a new 500-meter training trackconnecting all the existing tracks at theValamar resort, was built.


108 [GRI G4-EN19, G4-SO1]

Green Valamar

The umbrella program called “Green Valamar” includes energy efficiencyprojects and various environmental protection initiatives, in the context ofeveryday operations and awareness-raising activities among guests,employees and the local community about the importance of preservingthe Adriatic coast and sea.

Overall, in 2016, around HRK 16.6million were invested in projetcsincluded in this program.

In 2016, all Valamar Riviera’s propertiesintroduced the ISO 50001 certifiedenergy management system. Followingthe introduction of the ZelEn project in2016, 100% of electrical energy is nowsecured from renewable sources.Together with other energymanagement measures, this hasresulted in reduced greenhouse gasemissions by more than 70%.Furthermore, through an agreementwith the Poreč-based companyOdvodnja d.o.o., Valamar has joinedthe project of using treated wastewater from the future municipal water

treatment system. In 2016, as many as18 Valamar Riviera hotels received orconfirmed their Travelife Gold Award,the international certification systemthat promotes sustainability in thetourism sector, while our beachessport 12 Blue Flags. Last year, ValamarRiviera opened two EV chargingstations in Poreč and the first e-bikecharging station in Istria, incooperation with the Istria TouristBoard. By the end of the year, therewere four newly opened e-bikecharging stations.

For the third year in a row, ValamarRiviera successfully implemented thedonation program called We Love theAdriatic Sea that actively includes the

INVESTMENTS IN 2016

Energy efficiency Horticulture Certification

HRK 472,000HRK 4.6 millionHRK 9.9 millionElectric vehicles andcharging stations

Useful waste collection

HRK 619,000HRK 831,000


109

local community in cleaning up beachesand the seabed in all of Valamar’sdestinations. Many associations andsports clubs participated in the cleanupaction in 2016, together with ValamarRiviera employees and many locals.The biggest coast and seabed cleanupactivities involved the Dubrovnik ScubaDiving Club, the Adriatic MaritimeInstitute, Horizont Sailing Club fromPoreč, Štinjan Pula Saltwater SportFishing Club, Rudar Football Club fromLabin, Mladi Rudar Handball Club,Rabac Underwater Activity Society, andBioteka, an association that promotesbiology and related sciences, as well asthe Submania Diving And Fishing Clubfrom Zagreb. At the initiative of andparticipation by the employees ofCamping Orsera, there was a voluntaryseabed cleanup eco-action incooperation with the Triton Diving Cluband other diving centers, including CPAPula, RC Poreč, Sport Orsera, andguests of the campsite. In Dubrovnik, ahundred divers and volunteers of allages, headed by Abyss Diving Clubfrom Dubrovnik, cleaned up the seabedin front of Valamar’s hotels andCamping Solitudo, as well as Cava andImportanne resort beaches. Thecleanup involved divers from Croatia,Bosnia and Herzegovina, andMacedonia, as well as EUFORmembers stationed in Trebinje.


110

Our Retired Colleagues

This program fosters long-termrelations with the retired employees,primarily as a gesture of gratitudefor all they did during their years ofservice, but also with the intent toinclude former colleagues andexchange experiences that couldcontribute to Valamar’s growth anddevelopment.

ACTIVITIES IN 2016

We gather more than 100 pensionersfor various events: dinners, trips

and other events

In 2016, Valamar’s pensioners were offeredfree day-long trips to the island of Krk, andto the Valamar Isabella Island Resort on theisland of Sveti Nikola near Poreč. We keepin touch with the retired Riviera’semployees in Poreč, and there are plans forestablishing such cooperations in otherdestinations as well.


111[GRI G4-SO1]

Little Tourism

In 2016, as part of this program, weorganized visits by kindergartengroups from Valamar’s destinations,so that the children could learntheir first facts about vocations inthe hospitality industry, but in aplayful and entertaining way, suitedto their age.

In 2016, during these educational visits,440 kindergarten children visited Valamar’shotels, resorts and campsites from Porečand Rabac, to the island of Krk andDubrovnik.

ACTIVITIES IN 2016

Valamar was visited by 440 kindergarten children

in 2016


112 [GRI G4-SO1]

Valamar’s Big Heart

Valamar’s Big Heart is a frameworkfor fundraisers and charity initiativesand projects intended to help thosein need. In 2016, Valamar continuedhelping the many associations andinitiatives in the local communityaimed at helping vulnerable groupsof society. Over the year 2016, aspart of this program, more than HRK 390,000 were distributedthrough donations.

In 2016, for the first time ever, thisprogram included a fundraiser bearingthe same name, involving employees,guests and the local community.During the fundraiser, reception desksat all Valamar hotels, resorts andcampsites had donation boxes tocollect funds for those in need in thelocal communities where Valamaroperates. The collected funds weredirected to a family from Funtana thatlost their home in a fire, as well as theLiče Faraguna Center, which providescare for children with special needs.Among many other initiatives, theprogram also featured a donation offunds for the construction andoutfitting of the children’s playground ina park near the Ivo Lola RibarElementary School in the LabinMunicipality. By supporting projects bylocal communities via initiatives suchas this one, Valamar creates addedvalue and makes a positive impact onthe environment where it operates.

For the third year in a row, Valamar’sBig Heart program included thedonation initiative A Thousand Days onthe Adriatic Sea. With this initiative,Valamar provides free summervacations for children withoutadequate parental care, children fromlow-income families, and children withspecial needs and health problems.

All associations, schools and otherinstitutions are invited to apply for a donation. Over the past three years,Valamar has donated a total of 3,500 free room and board overnightsand provided summer vacations tomore than 1,000 children and theiraccompaning carers from all parts of Croatia.

For most children, this was their firstencounter with the sea, and their firstsummer vacation ever. In 2016 alone,Valamar Riviera provided free summervacations for more than 390 childrenand their carers and supervisors from28 associations and schools. In 2016, Valamar Riviera received theprestigious Pride of Croatia Award for this particular initiative.

ACTIVITIES

More than 1,000 children have spent their summer vacations at

Valamar in the past three years


113


114

5.6 COMMITMENT TO ENVIRONMENTALSUSTAINABILITYAs the leading tourism company in Croatia, Valamar Riviera is fully aware ofits environmental responsibility and involvement in the lives of the localcommunities in its destinations. The company employs a systematicapproach to protect the key resource in tourism - the environment.

Furthermore, the company isoriented towards achievingsustainability goals, and devotesspecial attention to regulatorycompliance, prevention of pollutionas the fundamental approach tomanaging environmental aspects,rational use of resources, wastereduction and disposal, and stafftraining to handle any potentialincidents.

Valamar Riviera approachesenvironmental protectioncomprehensively. The companyapplies and certifies managementsystems promoting green businesspractices in order to achieve a balancebetween the economic progress, carefor the environment and socialinvolvement in the local community. Inthis way each aspect is approachedproactively and systematically.

Valamar’s properties haveimplemented the ISO 14001Environmental ManagementSystem, ISO 9001 QualityManagement System and ISO 50001Energy Management System, aswell as the Food SafetyManagement System (HACCP)based on Codex Alimentarius.

MICROFACTS

All the electricity that was used by Valamar Riviera in 2016 came from renewable sources.


115[GRI G4-PR1, G4-EN31, G4-EN19]

Key Achievements in Environmental Protection and Sustainable Tourism

Valamar Riviera’s 2016achievements in the field ofenvironmental protection andsustainable tourism are numerous.

→ 100% of Valamar Riviera’s propertiesintroduced the certified energymanagement system according toISO 50001.

→ 100% of electrical energy is securedfrom renewable sources: it isprovided by the power companyHEP’s hydroelectric power plants aspart of the ZelEn project. With theimplementation of ZelEn and otherenergy management measures, in2016, the company saw a decreaseof over 70% in both direct andindirect greenhouse gas (GHG)emissions (Scope 1 and 2).

→ With the agreement between ValamarRiviera and Odvodnja d.o.o.fromPoreč, the company joined theproject of utilizing treatedwastewater from the futuremunicipal water treatment system.The treated water will be used asservice water in campsites’ sanitaryfacilities and for irrigating greenareas. It is expected that the usage ofwater from the public water supply system will drop by65,000 m3 annually.

→ In 2016, Valamar Riviera opened twoEV charging stations in Poreč, andthe first e-bike charging station inIstria in cooperation with the IstriaTourist Board.

→ The company continues to invest inthe purchase of electric vehicles; in2016, there were 43 electric vehicles,worth HRK 2.5 million in total.

→ In 2016, as many as 18 ValamarRiviera hotels received or extendedthe Travelife Gold Award certificate.Travelife is an internationalcertification system promotingsustainability in the tourism sector.

→ Five of our hotels have received aspecial recognition for sustainability inthe hotel industry, the Sustainable

Hotel Certificate: Hotel & Casa ValamarSanfior 4*, Valamar Koralj 3*, ValamarDubrovnik President 5*, ValamarZagreb 4* and Valamar Bellevue 4*.

→ 12 of our beaches hold the Blue Flagcertification, an international symbol ofquality for preserved environment, cleanwater and beaches, well-managedbeaches and high-quality services.


116 [GRI G4-EN31, G4-EN3, G4-PR1]

→ The company has begun working ona pilot project – a photovoltaicpower plant for the headquarters ofValamar Riviera in Poreč. Upon itscompletion in 2017, the power plantwill be used for the purposes of thatparticular building only. The plan isto build one such facility annuallyover a five-year period.

→ Over the past five years thecompany has been workingintensively on installing solar panelsor photovoltaic cells: so far, 1,800panels (around 3,600 m2) have beeninstalled. In 2016 alone, a total of295 panels (around 590 m2) wereinstalled. The plan is to exceed2,000 installed solar panels over thenext five years.

→ Campsite Krk has a constructedwetland, which treats and recycleswastewater, and then uses it forhorticultural irrigation.

→ In mid-2016, a water treatmentsystem was installed at the

→ For the third year in a row, ValamarRiviera has successfully implementedthe We Love the Adriatic Seaproject as part of the Green Valamarumbrella program. In 2016, the focus was on cleaning up beachesand the seabed, in cooperation witha number of associations and locals;nearly HRK 100,000 were invested in the project.

→ In 2016, a total of 16 heat pumpswere installed for the preparationof hot water with the total heatoutput of 2,559 kW. The goal wasto reduce the heating oilconsumption to under 5% of thetotal kilowatt-hours consumptionover the course of five years, andin the long run, fully replace theheating oil with environmentallyfriendly energy sources.

→ In 2016, the photovoltaic cells ofthe power plant located insidethe Atrium Hotel in Baškagenerated around 37,000 kWh ofelectrical energy.

central laundry facility in Poreč toenable the treating and reusing ofup to 70% of the total wastewaterfrom the washing process.

→ A UV disinfection system wasintroduced at the Valamar CrystalHotel to reduce the use of chlorine.

→ The company has been graduallyswitching to electric vehicles for the internal transportation of guestsand goods in order to reduce theuse of diesel fuel or other motorfuel in cars, thus also decreasingthe GHG emissions. The goal is toreduce the use of fossil-fueled cars

for internal transportation as muchas possible.

→ As measured by keys, in 2016,100% of Valamar Riviera’sproperties had a certified energymanagement system according toISO 50001; 79% of campsites and62% of hotels and resorts hadcertified environmentalmanagement systems; while 64% accommodation units inhotels and resorts had the Travelifecertificate, thus confirming thecompany’s plan to managesustainably, in accordance with thehighest international standards.


117[GRI G4-EN19]

Protection of the Sea and the Environment

Valamar has always considered itsenvironmental impact with long termin mind. As a result, the companyapplies the highest environmentalprotection standards in itsmanagement and investmentpractices, with the aim ofmaintaining a sustainable business.

Valamar has involved both itsemployees and its guests in variousenvironmental protection projects.

The employees are regularly educated onhow to behave and what to do to preservethe environment. There are notices forboth the employees and guests in severalkey places across the facilities remindingthem how they can contribute toenvironmental protection – from differentways to conserve water and energy, toways to reduce chemical use and wastegeneration, and properly dispose wastefor the purpose of recycling.

The CSR umbrella program calledGreen Valamar comprisesenvironmental protection initiativesand projects, which Valamar has beensystematically working on.

Special attention is devoted to theGHG emission reduction, waterconsumption reduction, wastegeneration reduction, recycling,wastewater treatment and reuse forirrigation and in laundries,

improvement of solar energy use, and purchase of environmentallyfriendly materials, particularly inrelation to the company’s keyinvestments; raising awarenessamong guests, employees and localpopulation about the importance ofpreserving the Adriatic Sea and thecoast; and the organization of beachand seabed cleanups.

GREENHOUSE GAS EMISSIONS – COMPARISON BETWEEN 2015 AND 2016* (GROUPED DATA)

RAISING ENVIRONMENTAL AWARENESS AMONG EMPLOYEES AND GUESTS

In 2016, Valamar Riviera posted a significant drop in direct and indirect Scope 1and 2 CO2 emissions, primarily as a result of introducing ZelEn, i.e. contractinggreen electrical energy supply, and replacing a large portion of the boiler roomrunning on heating oil in Rabac with a total of 14 heat pumps, and installing oneheat pump in Poreč and one one the island of Krk.

(t) kg/overnight

2015 18,511 3.9

2016 6,008 1.2

Decrease in emissions in 2016 as compared to 2015 70.5% 72.8%

* The calculation includes joint services and central kitchen.


118 [GRI G4-EN3, G4-EN5]

Energy Efficiency

As regards energy efficiency, thecompany is focused on reducingthe consumption of fossil fuels(heating oil in particular), drinkingwater and electrical energy.Valamar’s first investments ingreen technologies were madeback in the 1980s: the companyinvested in the early solarcollectors in its campsites.Nowadays, there are around 1,800 solar collectors acrossValamar’s properties, covering an area of 3,600 m2.

The environmental protection aspect isespecially evident in Valamar’sinvestment projects: the companyinstalls energy-saving appliances andreplaces conventional light fixtures withhighly efficient lighting solutions (LEDlights), while solar energy and heatpumps are used to heat water incampsites and resorts.

Valamar also carries out regular energyaudits with the aim of increasing energyefficiency. There is a number of appliedmeasures for saving energy and water,and the most significant are:

→ Systems for monitoring theconsumption of energy andwater, as well as systems formanaging the peak-load engaged electric power

→ System for remote lighting controland hot water preparation

→ Gradual introduction of the hotelroom controls and monitoringsystem (intelligent rooms) inhotels and resorts; the systemenables better electrical energyconsumption management andcost cuts

→ Company-adopted purchasepolicy acording to whichsustainability has to beconsidered when purchasinggoods and services for ouroperations

→ Centralization of the irrigationsystem, which calculates anddistributes optimum amounts of water based on weatherconditions.

CONSUMPTION OF ENERGY PRODUCTS IN 2016

Consumption in unit of measurement kWh kWh/overnight

Electricity (kWh) 54,978,106 54,978,106 10.69

Heating oil (l) 1,146,398 11,463,985 2.23

Diesel fuel (l) 218,190 2,160,084 0.42

Natural gas (kWh) 10,408,564 10,408,564 2.02

LPG (kg) 228,994 2,931,127 0.57

Total 81,941,866 15.93

CONSUMPTION OF ENERGY PRODUCTS – COMPARISON BETWEEN 2015 AND 2016 (GWh)

2015

100 20 30 40 50 60

2016

Electricity

Heating oil

Natural gas

LPG

Onaverage,

was consumedin 2016

15.93kWh/

overnight


119[GRI G4-EN3, G4-EN5]

In 2016, we used solarcollectors to producemore than 1,600,000kWh of thermal energyor approx. 2% of thetotal consumedenergy (calculatedvalue)

ENERGY AND ENERGY INTENSITY

ENERGY DELIVERED TO THE SYSTEM VIA QSOL SOLAR COLLECTORS IN 2016 (kWh)

1. ENERGY CONSUMPTION, AS SHOWN BY THE FOLLOWING ITEMS:

a) Total consumption of energy from unrenewable sources:in 2016, of the total of 81,941,866 kWh of energy consumed at company level, 26,963,760 kWh came from unrenewable sources

b) Total consumption of energy from renewable sources:54,978,105 kWh (all the electrical energy we use comes from renewable sources)

c) Total consumption of electrical energy:54,978,105 kWh

d) Total consumption of energy in joules or their derived units:294,990,718 MJ

2. ENERGY INTENSITY, AS SHOWN BY THE FOLLOWING ITEMS:

a) Energy intensity ratio (total energy in kWh/overnight):15.93 kWh/overnight

b) Types of energy included in the ratio:Electrical energy, heating oil, motor fuel, natural gas, and LPG

01 02 03 04 05 06 07 08 09 10 11 12

134,577

237,949

339,161366,582

337,872

211,459

13,999

IN 2016, VALAMAR HAD

42ELECTRIC VEHICLES


120 [GRI G4-EN23, G4-EN22]

Waste Disposal

The company has adopted Policies on quality and sustainable businessoperations, dedicating special attention to the reduction of waste generationand waste management.

TOTAL WEIGHT OF HAZARDOUS AND NON-HAZARDOUS WASTE BY DISPOSAL METHODS (t)

20151 20162

Surrendered to an authorized waste removal service – hazardous waste3 21 20

Surrendered to an authorized waste removal service – non-hazardous waste 1,321 2,280*

Composting4 180 639

Disposal5 3,619 3,670

* Data for 2016 include the destination of Baška (362 t) and construction sites in Rabac (650 t).

1 Properties in Baška not included in 2015.2 Properties in Baška included in 2016.3 Hazardous and non-hazardous waste, collected separately and surrendered to the authorized

waste removal service.4 Biodegradable waste from gardens and parks as well as kitchens and cafeterias.5 Mixed municipal waste.

Removal services decide on the method of biodegradable and mixed municipal waste disposal.

→ Total volume of wastewater is based on an estimate of delivered water, minus the percentage used forirrigation and watering of sports fields. There are no wastewater flow meters.

→ Wastewater is tested 2-4 times a year for every profit center; tests are carried out by authorized laboratories(public health institutes). Before being discharged, all wastewater is treated: mechanically (FOG separators –all the hotels and campsites) and biologically (Krk and Marina campistes).

WATER CONSUMPTION - COMPARISON BETWEEN 2015 AND 2016 (m3/overnight)

20162015

0.239 0.235

WATER RECYCLING IN 20162016

Total water consumption (m3) 1,209,792

Amount of recycled water for irrigation (m3) 2,800

Amount of recycled water for the Poreč Laundry Facility (m3) 15,533

% of used recycled water (out of total consumption) 1.52%

GROUNDWATER AND WATER FROM LOCAL OR OTHER WATER SUPPLY SYSTEMS2014 2015 2016

Groundwater supply system (m3) 5,242 28,379 26,980

Local or other water supply systems (m3) 915,314 1,130,993 1,209,792

DISCHARGE OF WATER BY DESTINATION2014 2015 2016

Public sewage system (m3) 796,323 848,841 998,593

Sea (m3) 28,048 30,241 33,669

Discharge of water to surrounding terrain (m3) 5,675 8,153 7,486


121

Continued work onprojects aimed at

reducing GHGemissions, drinkingwater consumption,

and waste generation,and at increasing

recycling

In 2017, as part of a pilotproject, a photovoltaic

power plant for theheadquarters of ValamarRiviera in Poreč will be putinto operation; the plan is to

build one such facility annuallyover a five-year period

Reduction of the use of

fossil-fueled carsfor internal

transportation

Improvement ofcommunicationtowards guest,

employees and thelocal community toraise awareness about

environmentalprotection

The goal is to reduce the heating oilconsumption to under 5% of the

total kilowatt-hours consumption over thecourse of five years, and in the long run,

fully replace the heating oil withenvironmentally friendly energy products

The plan is to exceed

2,000 installed solar panelsover the next five years

Continued andsignificant growth of

the share ofconsumed energy

from renewablesources

Focus in the Forthcoming Period

Valamar Riviera plans to invest around HRK 30 million directly in projects related to energy efficiency over a period of three years.

In the periodbetween 2013 and 2016, the

company investeda total of HRK

12 million inenergy efficiency

projects.

[GRI G4-13]


123

INVESTORRELATIONS

6

The high transparency and quality of business andfinancial communication with investors represents thefoundation of investor relations in promoting ValamarRiviera as the leading share in Croatian tourism. In thisway, we aim to provide active support to liquidity,share value growth and the involvement of investorswho can contribute to the further growth of ValamarRiviera's value for all stakeholders.

We strive to contribute directly toincreasing the transparency ofValamar Riviera's business aswell as the quality ofcommunication with analysts andinvestors through regularcorporate presentations both inCroatia and abroad, group andindividual meetings, conferencecalls as well as comprehensive,publicly available financial andbusiness reports.

The objectives of Investor Relations:

→ Increasing investor demand

→ Facilitating investment decisions

→ Expanding opportunities for growth and profitability

→ Increasing share value

→ Reducing the cost of capital

→ Boosting the potential for growth and/or acquisition financing

After integrating Valamar Riviera's management, portfolio andshareholders' structure in October 2014, we created the leadingshare on the Croatian capital market, offering significantexposure to the growing tourism sector.


PERFORMANCE OF VALAMAR RIVIERA’S SHARE, CROBEX AND CROBEX 10 INDICES

35.94

32.94

29.94

26.94

23.94

20.94

124

On 17 November 2014, the GeneralAssembly of Valamar Riviera decided tolist Valamar Riviera's shares on theOfficial market of the Zagreb StockExchange. The first day of trading was17 December 2014. The quotation onthe demanding official listing of theZagreb Stock exchange and anincreased level of transparency were

aimed at attracting institutional investorswho, until then, had limited access tothe growing Croatian tourism sector. Asinvestors’ interest grew (foreigninvestors in particular), this approachproved to be justified.

As the leading Croatian tourism shareand company with about 21,000

shareholders, on 9 June 2016, ValamarRiviera organized its first Investors Day,making a step forward towards not onlyits present and future investors, but alsothe wider public. On that occasion thecompany presented its new growthstrategy and goals for the period up to2020 which promote a sustainable andresponsible development of destinations

and include: i) a total investment of HRK 1.5-2 billion in the portfolio, ii)EBITDA margin growth to 35-38% andiii) attractive and long-term dividends toshareholders. The first Valamar Riviera’sInvestors Day received great interestfrom the media and the investingcommunity, including over 30 funds,banks, analytics companies, brokerage

4/1/2016 15/3/2016 27/5/2016 9/8/2016 19/10/2016 31/12/2016

RIVP-R-A

CROBEX*

CROBEX 10*

* Indexed according to the average share price for RIVP-R-A as of 4 Jan 2016.


125

firms and insurance companies, as wellas a number of private investors.

Sustainable and socially responsibledevelopment of destinations combinedwith investments of up to 2.5% ofrevenues in corporate socialresponsibility, education, anddestination development projects

represent an integral part of ValamarRiviera’s business operations.

In the period from 1 January 2016 to 31December 2016, the highest recordedshare price on the regulated market wasHRK 36.25, while the lowest was HRK22.30. In the reporting period theCompany's share price increased by

44.5%, exceeding both CROBEX andCROBEX 10 indices trends, whichrecorded a growth of 19.6%, and 18.4%respectively. With a regular tradingturnover of HRK 931 thousand a dayand free float of over 50%, ValamarRiviera’s share is among the 3 mostliquid Croatian shares listed on theZagreb Stock Exchange. It is also among

the top ten shares by marketcapitalization. The recent HRK 5.3 billionmarket capitalization accounts for 3.4%of the total market capitalization ofshares traded on the Zagreb StockExchange. In addition to the ZagrebStock Exchange indices, the share isalso listed in Vienna Stock Exchangeindices (CROX and SETX indices).

INVESTMENT PROPOSITION

VALAMAR RIVIERA

CROATIAN TOURISM

12%of Croatiancategorized

accommodationcapacity

Key touristdestinations

(Istria, Krk Island,Rab Island and

Dubrovnik

The largest

Croatian tourismcompany and the first

Croatian hotelbrand

Increasingprofitability and furthergrowth potential

High share liquidity, large free float and excellent IRstandards

Sustainabledividend potential

Attractivegeographicposition in theMediterranean

region

Continual growth in

overnights andarrivals inCroatia

Stable growth ofhospitalityrevenues

Small share of hotel

accommodation

[GRI G4-2]


126

Valamar Riviera’s shares are the most monitored Croatianshares by financial analysts. Analysts specify a target value forshares based on their assessments of the future performanceby applying various financial models such as discounted cashflow, peer group and comparables approach, marketvaluation, etc.

The key prerequisite for a good assessment of futureperformance is high transparency and open businesscomunication by the management.

Valamar Riviera's analyst coverage is provided by:

1. Addiko bank d.d., Zagreb

2. Alta invest d.d., Ljubljana

3. ERSTE bank d.d., Zagreb

4. Fima vrijednosnice bank d.o.o., Varaždin

5. Interkapital vrijednosni papiri d.o.o., Zagreb

6. Raiffeisenbank Austria d.d., Zagreb

7. UniCredit Group - Zagrebačka banka d.d., Zagreb.In 2016 we held 114 meetings withinvestors in 10 locations

→ Zagreb, Croatia

→ Poreč, Croatia

→ Rabac, Croatia

→ London, UK

→ Stegersbach, Austria

→ Belgrade, Serbia

→ Vienna, Austria

→ Budapest, Hungary

→ Frankfurt, Germany

→ Ljubljana, Slovenia.

Share of the Year by public choice for the fifth consecutive time

AWARDS IN 2016

COMMUNICATION WITH SHAREHOLDERS AND THE INVESTING COMMUNITY IN 2016

Shareholders'General

Assembly

Road shows andmeetings withinvestors andshareholders

Investor Relations

Corporate website for shareholders

and investors

Timely disclosure ofinformation and

materially significant facts

Participation in congresses, forums and

investor events

Investors Day

MEETINGS WITH INVESTORS IN 2016


127


128

AWARDS ANDRECOGNIT IONS

7

Valamar Riviera's hotels, resorts and camping resorts operate in accordance with the highest quality standards for services andaccommodation. Our efforts are continually recognized by hospitality professionals and our guests. Their awards, recognitions andhigh ratings from leading travel web sites and organizations, contribute to Valamar's top position in Croatian tourism.

Le monde du plein air Caravane - Camping Les plus beax campings d'Europe Camping Resort Lanterna

ADAC Best Camping 2016 Camping Resort Lanterna, Camping Resort Krk

ANWB Best Campsite Camping Resort Lanterna, Camping Resort Krk

Camping2be.com Camping2be 2016 Award Camping Resort Lanterna

DCC Europa-Preis Camping Award 2016 Camping Resort Krk

HolidayCheck HolidayCheck Quality selection 2016 Valamar Club Dubrovnik

2016 INTERNATIONAL AWARDS AND RECOGNITIONS


129

Hotels.com 2016 Certificate of Excellence Valamar Lacroma Dubrovnik, Valamar Dubrovnik President,Valamar Argosy, Tirena, Valamar Club Dubrovnik

IHAC IHAC reward Valamar Argosy, Tirena

Kongres magazine TOP 10 Premium Resorts Meeting Hotels Valamar Lacroma Dubrovnik

TripAdvisor 2016 Travelers' Choice winner Valamar Club Tamaris

2016 Travelers' Choice award Valamar Riviera Hotel

2016 Travelers' Choice award Valamar Isabella Hotel

2016 Travelers' Choice award Valamar Dubrovnik President

2016 Certificate of Excellence Valamar Argosy Hotel

World Travel Awards Leading resort in Croatia Valamar Club Tamaris

Leading boutique hotel in Croatia Valamar Riviera Hotel

Leading business hotel in Croatia Valamar Lacroma Dubrovnik

Leading hotel in Croatia Valamar Lacroma Dubrovnik

Travelife Travelife Gold Award 18 Valamar Riviera's properties

World Luxury Hotel Awards Luxury Beach Resort Valamar Dubrovnik President, Valamar Isabella Island Resort

avtokamp.si Best campsite 2016 - Award for lifetime achievement Josipa Cvelić Bonifačić

avtokamp.si Best campsite Adria Camping Resort Lanterna, Camping Resort Krk, Naturist Camping Solaris

Leading Campings of Europe Leading Campings of Europe Camping Resort Lanterna, Camping Resort Krk

Greenovation Green Mark Camping Resort Lanterna


130

Croatian Congress Industry Forum Ambassador of Croatian Conference Tourism Dorja Horvat

Croatian National Tourist Board, Tourism Flower-Quality for Croatia Valamar Lacroma Dubrovnik, Valamar Dubrovnik President,

Croatian Chamber of Economy Valamar Argosy, Valamar Isabella Island Resort,

Valamar Koralj Romantic, Camping Resort Krk,

Camping Resort Lanterna

Croatian National Tourist Board People- the Key to Success in Tourism- Employee of the Year Mateo Gverović, Ilija Kmet

Zagreb Stock Exchange Share of the Year Valamar Riviera

Istrian Tourist Board Golden Goat Perfect Experience Creator and Poreč Open Air

Croatian Chamber of Economy-County Chamber in Pula Golden Kuna Valamar Riviera

Banka.hr and Deloitte CFO of the Year Marko Čižmek

Croatian National Tourist Board Award for Lifetime Achievement in Hospitality Kazimir Bažon

Contact Center Akademija Best Contact Center Valamar Reservation Center

Croatian Camping Union Village for All Zablaće, Naturist Camping Solaris

INOVACAMP 2016 Camping Resort Krk, Camping Resort Lanterna

Croatia's Best Campsite Naturist Resort Solaris, Camping Resort Lanterna,

Camping Resort Krk, Camping Orsera, Camping Marina,

Naturist Camping Istra, Camping Ježevac,

Naturist Camping Bunculuka, Camping Zablaće

Association of Employers in Croatian Hospitality Sustainable Hotel Hotel & Casa Valamar Sanfior, Valamar Koralj Romantic,

(UPUHH) Valamar Dubrovnik President, Valamar Zagreb,

Valamar Bellevue

2016 NATIONAL AWARDS AND RECOGNITIONS


131[GRI G4-15, G4-PR1]

HACCP Codex Alimentarius Valamar Diamant Hotel and Residence, Valamar Crystal, Valamar Rubin, Valamar Pinia Hotel & Pinia Residence,

Valamar Club Tamaris & Valamar Tamaris Residence, Pical/CK, Valamar Riviera Hotel & Villa Parentino, Naturist Resort Solaris,

Hotel&Casa Valamar Sanfior, Girandella /CK, Albona, Valamar Bellevue, Valamar Koralj Romantic, Valamar Lacroma Dubrovnik,

Valamar Dubrovnik President, Valamar Zagreb, Valamar Isabella Island Resort

ISO ISO 14001 Valamar Diamant Hotel and Residence, Valamar Crystal, Valamar Rubin, Valamar Pinia Hotel & Pinia Residence,

Valamar Club Tamaris & Valamar Tamaris Residence, Valamar Riviera Hotel & Villa Parentino, Naturist Resort Solaris,

Camping Resort Lanterna, Naturist Camping Istra, Camping Orsera, Hotel&Casa Valamar Sanfior, Valamar Bellevue,

Valamar Koralj Romantic, Camping Resort Krk, Camping Ježevac, Valamar Lacroma Dubrovnik, Valamar Dubrovnik President,

Camping Solitudo, Valamar Zagreb, Valamar Argosy, Valamar Isabella Island Resort, North Laundry Facility, Camping Marina,

Tirena, Valamar Club Dubrovnik, South Laundry Facility

ISO 9001 Valamar Diamant Hotel and Residence, Valamar Crystal, Valamar Rubin, Valamar Pinia Hotel & Pinia Residence, Valamar Club Tamaris &

Valamar Tamaris Residence, Valamar Riviera Hotel & Villa Parentino, Hotel&Casa Valamar Sanfior, Valamar Bellevue,

Allegro, Miramar, Valamar Koralj Romantic, Valamar Lacroma Dubrovnik, Valamar Dubrovnik President, Valamar Zagreb, Valamar Argosy,

Valamar Isabella Island Resort, North Laundry Facility, Tirena, Valamar Club Dubrovnik, South Laundry Facility

FEE (Foundation for Environmental Educational) Blue Flag Brulo, Borik, Oliva, Galeb, Valeta, Istra, Vala, Crnika, Camping Ježevac,

Camping Resort Krk, Valamar Dubrovnik President, Cava

Ministry of Tourism "Q" Quality Label Valamar Riviera Hotel & Villa Parentino

Croatian Islamic Community - Halal Quality Certification Center Halal Corinthia Hotel

Healthy Meal Standard Healthy Meal Standard Valamar Diamant Hotel

2016 CERTIFICATES AND STANDARDS


133[GRI G4-7, G4-56]

CORPORATEGOVERNANCE

8

As a joint - stock company withmore than 21,000 shareholders,Valamar Riviera is committed to thehighest principles of good corporategovernance and regulatorycompliance.

A well-defined and clear corporatestructure is the foundation for theeffective strategic and operationalmanagement of the Company. The keygoverning bodies of Valamar Riviera d.d.are the Shareholders' General

Assembly, the Supervisory Board withits corresponding delegate committees and the Management Board led by the President of the Management Board or CEO of Valamar Riviera.

The specific governance authoritiesand responsibilities of these governingbodies are regulated by the relevantCroatian legislation, Company Statuteand other corporate governancecodes, regulations or prescribedprocedures.

Corporate Structure GENERAL ASSEMBLY

SUPERVISORY BOARD

MANAGEMENT BOARD

VICE PRESIDENTS AND MANAGEMENT TEAM

Presidium of theSupervisory Board

Audit Committee

InvestmentCommittee


134 [GRI G4-34]

The Supervisory Board consists of 7 members, of whom 2 areindependent and one is an employee representative.

The Management Board consists of two members:

→ President of the Management Board:Željko Kukurin

→ Member of the Management Board:Marko Čižmek.

The President of the ManagementBoard is primarily responsible forformulating and managing thecompany’s strategic, operating andfinancial activities. In addition, thePresident individually leads thefollowing areas: hotel operations,marketing & sales, human resources,destination management, purchasing,investment and asset development,external affairs and public relations,quality management, internal audit andproject management, controlling, legaland general affairs.

Marko Čižmek, Member of theManagement Board, is primarily andindividually responsible for finance,accounting, treasury, IT andinstitutional investor relations.

→ Presidium of the Supervisory Board

→ Audit Committee

→ Investment Committee

The Supervisory Board meets at leastfour times per year. The SupervisoryBoard is actively engaged in keymanagement decisions throughcorresponding delegate committees that meet more often to manage key strategic initiatives and support the Supervisory Board in the decision-making process.

Gustav Wurmböck Chairman 07/2017 Proprietary n n n

Franz Lanschützer Deputy Chairman 07/2017 Proprietary n n n n

Mladen Markoč Deputy Chairman 07/2017 Independent n n n

Georg Eltz Vukovarski Member 07/2017 Proprietary n n n

Vicko Ferić Member 07/2017 Proprietary n n n

Hans Turnovszky Member 07/2017 Independent n n

Mariza Jugovac Member 07/2017 Employee Representative n

Dubravko Kušeta exterior independent member n

Meetings held in 2016 10x 9x 3x 3x

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SUPERVISORY BOARD MANAGEMENT BOARD


135[GRI G4-34]

The strategic corporate business functions are organizedin 4 divisions that are led by four Vice Presidents:

→ Sales & Marketing, VP Davor Brenko

→ Operations, VP David Poropat

→ Asset Development, Maintenance & Technical Services, VP Alen Benković

→ Business Development and Corporate Affairs, VP Ivana Budin Arhanić.

The senior management team or division vice presidents areresponsible for managing specific functional business areasand activities. In addition, the senior management team istasked with cross-functional steering and leadership,implementing the corporate strategy and providingmanagement support to the CEO.

Hence, the senior management team works closely with theManagement Board and relevant corporate functions through business committees that are focused on thosestrategic activities in the Company that require a high degree of cross-functional involvement:

→ CAPEX Committee (capital investment projects)

→ Project Committee (steering the project management organization)

→ Business Experience Committee (business expansion, loyalty and CRM, quality management& service excellence, corporate social responsibility)

→ Purchasing Committee(strategic partnerships and purchasing agreements)

Željko Kukurin Management Board President n n n n

Marko Čižmek Management Board Member n

Alen Benković Vice President n n n n

David Poropat Vice President n n n n

Davor Brenko Vice President n n n

Ivana Budin Arhanić Vice President n n n

Sebastian Palma Director of the Strategic Planning and Controlling Sector n

Andrea Štifanić Director of Asset Management and General Affairs n

Marko Vusić Director of Internal Audit and Project Management n

Dragan Vlahović Director of the Purchasing Sector n

Position CA

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SENIOR MANAGEMENT


136 [GRI G4-34, G4-LA12]

CAPEX COMMITTEE

Željko Kukurin, President of the Committee

Alen Benković, Vice President of the Committee

David Poropat, Member

Davor Brenko, Member

Ivana Budin Arhanić, Member

Andrea Štifanić, Member

Sebastian Palma, Member

Tasks of the Committee:

→ Preparing the concept, analyzing the cost-effectiveness, andassessing the risks of investing incertain projects,

→ Outlining proposals for choosingprojects and preparing the annualinvestment plan,

→ Monitoring the investment process:planning, choosing contractors and materials, implementations, pre-opening and post-opening,

→ Analyzing the success of theinvestment.

PURCHASING COMMITTEE


David Poropat,Vice President of the Committee

Dragan Vlahović, Member

Alen Benković, Member


→ Preparing purchasing guidelines andpolicies,

→ Analyzing tender results andselection of key suppliers,

→ Analyzing the purchasing processand preparing improvementrecommendations.

PROJECT COMMITTEE


Ivana Budin Arhanić,Vice President of the Committee

Marko Čižmek, Member

Marko Vusić, Member





→ Analyzing and formulating proposalsfor selecting development projectsthat are of importance for thecompany,

→ Outlining proposals for projects andnecessary resources,

→ Monitoring project implementation,

→ Outlining proposals for projectending and monitoring of the results.

BUSINESS EXPERIENCECOMMITTEE


Ivana Budin Arhanić,Vice President of the Committee





→ Analyzing the reports on quality andformulating proposals for improvingthe Valamar experience,

→ Monitoring the CRM, managing theclient database, loyalty and directcommunication with the guests,

→ Analyzing possible acquisitions,strategic partnerships and mergers,analyzing the cost-effectiveness andassessing the risks of acquisitionsand/or partnerships or investments,

→ Analyzing activities and monitoringthe development of destinationmarketing and destination products,

→ Analyzing other activities and projects ofstrategic importance for the company.


137[GRI G4-LA12]

Organizational Structure of Valamar Riviera

→ Valamar Isabella Island Resort

→ Valamar Riviera Hotel & Residence

→ Valamar Zagreb Hotel

→ Valamar Diamant Hotel & Residence

→ Valamar Crystal Hotel

→ Valamar Pinia Hotel & Residence

→ Valamar Rubin Hotel

→ Pical Hotel

→ Valamar Club Tamaris

→ Lanterna Apartments

→ Central kitchen facility

→ Camping Resort Lanterna

→ Camping Orsera

→ Naturist Resort Solaris

→ Naturist Camping Solaris

→ Naturist Camping Istra

→ Camping Brioni

→ Hotel & Casa ValamarSanfior

→ Bellevue Resort

→ Allegro Hotel

→ Miramar Hotel

→ Valamar Girandella Resort

→ Marina Hotel

→ Camping Marina

→ Camping Tunarica

→ CPH

→ Corinthia Baška Hotel

→ Zvonimir Hotel, Atrium & Villa Adria

→ Valamar Koralj Romantic Hotel

→ Camping Resort Krk

→ Camping Ježevac

→ Naturist Camping Bunculuka

→ Camping Zablaće

→ Camping Škrila

→ Valamar DubrovnikPresident Hotel

→ Valamar Lacroma Dubrovnik Hotel

→ Valamar Argosy Hotel

→ Tirena Hotel

→ Valamar Club Dubrovnik

→ Camping Solitudo

→ Central kitchen facility

→ Valamar accommodation

→ Padova Hotel

→ Imperial Grand Hotel

→ Carolina Hotel &Residence

→ Eva Hotel & Residence

→ Camping San Marino

→ San Marino Resort

→ Camping Padova III

The organizational structure of Valamar Riviera isfunctional, efficient and transparent, thus enablingthe effective management of key processes andbusiness objectives.

Sales andMarketingDivision

AssetDevelopment,

Maintenance &Tech. Ser vices

Division

OperationsDivision

BusinessDevelopmentand Corporate

Affairs Division

DubrovnikRegion

HumanResources

AssetManagement

& GeneralAffairs

StrategicPlanning andControlling

Purchasing Finance &Accounting

IT &Application

Support

Destination Poreč Campsites (Poreč) Destination Rabac Destination Krk Destination Dubrovnik Destination Rab*

Management Board Office

MANAGEMENT BOARD

* Organization scheme effective as of 04/01/2017.


138 [GRI G4-LA12]

Members of the Supervisory Board

GUSTAV WURMBÖCK,Supervisory Board Chairman

Gustav Wurmböck graduated from the Universities ofVienna and Innsbruck in Business and Finance. Beforefounding EPIC in 1991, Mr. Wurmböck has held variouspositions in prestigious companies such as IFC inWashingotn D.C (International Finance Corporation -World Bank Group), DEG (Deutsche Investitions undEntwicklungsgesellschaft) in Cologne, Germany, andwas Director of the International Department ofLänderbank in Vienna (today’s Bank Austria).

Mr. Wurmböck is one of the co-founders and ManagingPartners of EPIC in Vienna, which is one of the leadinginvestment and advisory firms in CEE. At EPIC he hasled many large privatization and corporate financetransactions in the areas of energy, telecommunications,brewing and the hotel industry. Mr. Wurmböck was alsoMember of the Management Board of Valamar poslovnirazvoj d.o.o. (2005 – 2011) and President of theManagement Board of Valamar Group d.d. (2005 –2010). He has held several positions in the Supervisoryboards of Valamar Adria holding d.d., Valamar Groupd.d., Puntižela d.o.o., and Valamar turistički projektid.o.o., while he continues to act as Chairman of theSupervisory Board of Valamar Riviera d.d.

FRANZ LANSCHÜTZER,Supervisory Board Deputy Chairman

Franz Lanschützer received his MBA from the ViennaUniversity of Economics and his PHD from theUniversity of Budapest. He has gained extensiveexperience in the areas of corporate finance and assetmanagement in Central and Eastern Europe. Mr. Lanschützer is a managing partner in EPICGoldscheider und WurmböckUnternehmensberatungsgesellschaft m.b.H. fromVienna. For the last twenty five years, Mr. Lanschützerhas been working in the field of mergers, acquisitionsand corporate finance, as well as providing consultingservices in Austria, the Czech Republic, Poland,Croatia, and some other countries of the formerYugoslavia. He has also set up and run investmentprivatization funds in the Czech Republic and Croatia.

Mr. Lanschützer held executive positions at majorfinancial advisory and auditing companies such asErnst&Young and Price Waterhouse before joining EPIC.He has also held executive positions at Valamar Groupsince 1999, including President of the ManagementBoard of Valamar Grupa d.d. and has also beenMember of the Supervisory Board of Valamar Adriaholding d.d. and Riviera Adria d.d. (currently ValamarRiviera d.d.). He has also been a Member of theManagement Board of Valamar poslovni razvoj d.o.o.(2005 - 2011) and Vela Kluda d.o.o. (1997 -2013). Mr.Lanschützer was President of the Management Boardof Valamar Riviera d.d. in 2014 and 2015 and he hasbeen Deputy Chairman of the Supervisory Board ofValamar Riviera d.d. since June 2015.


139[GRI G4-LA12]

Mladen Markoč,Supervisory Board Deputy Chairman

Mladen Markoč graduated from the Faculty of Law ofthe University of Zagreb. He specialises in company law,securities law, and commercial law. Mr. Markoč hasbeen a consultant in numerous important transactions inthe Croatian and foreign capital markets and has been aregular speaker at conferences organised by the ZagrebStock Exchange Academy and the Judicial Academy.He started his career in law in 1988 as legal apprenticewith attorney Zvonimir Raić. He was CorporateSecretary of the pharmaceutical company PLIVA d.d.from 1990 to 1997, partner at the law firm Bogdanović,Dolički & Partners from 1997 to 2007, and BoardMember at ICF Group d.o.o. in 2008.

He served as attorney at the Mladen Markoč law officefrom 2010 to 2013 and has been working as an attorneyat law for the joint law office of Mladen Markoč and Ivan-Krešimir Tomić since 2013. He is Vice President of theAssociation of Business Lawyers of Zagreb. He was alsoMember of the Supervisory Board of Valamar Adriaholding d.d. (2011 – 2014), and is currently Member ofthe Supervisory Board of Valamar Riviera d.d., Proficiod.d., and Hotel Laguna d.d.

GeorG eltz VukoVarski,Supervisory Board Member

Georg Eltz Vukovarski was educated in Switzerlandand Germany where he majored in economics, historyand philosophy. He graduated from the University of St.Gallen with a degree in Business Administration. Beforemoving to Croatia in 1994, he was management boardmember & sr. vp marketing of a major Swisscorporation, as well as CEO of its Canadian subsidiary.He co-founded Valamar Adria holding (as PIF Dom fondd.d.) in 1998 and served as President of itsmanagement board before it was merged to ValamarRiviera d.d. in 2014.

In the years between, he served as president andmember of management boards and supervisory boardsof a number of affiliated companies. Currently, he ismanaging director of SATIS d.o.o. and of its parentcompany ELADCO Invest GmbH, as well as a memberof Valamar Riviera's supervisory board. He is a memberof the management boards of both the German-CroatianChamber of Industry & Commerce, and the Croatian-Austrian Chamber of Commerce. As co-founder of"Zaklada znanje na djelu - Stiftung Wissen am Werk" heis also a member of its supervisory board.


140 [GRI G4-LA12]

vicko Ferić,Supervisory Board Member

Vicko Ferić graduated from the Faculty ofEconomics and Business at the University ofZagreb in 1974. He started his professionalcareer working for the Organic PetrochemicalCompany (currently Dioki d.d.), and then hejoined INA d.d. where he held managementpositions in the finance department and laterbecame Assistant Financial Director until 1998.By the end of 1998, he joined Epic. From 2003until 2005 he was appointed President of theManagement Board of SN holding d.d. From2005 until 2011 he was President of theManagement Board of Valamar Adria holdingd.d. (former Dom holding d.d.), as well asExecutive Director of Epic Zagreb d.o.o.

From 2011 until 2014 he is Member of theManagement Board of Valamar Grupa d.d. Hehas also been involved in numerous importantinvestment projects in the oil and tourismindustries, the gasification process in Croatia,privatizations of Croatian Telecom d.d., Croatiaosiguranje d.d., Dresdner Bank Croatia d.d., andthe restructuring and sale of several companiesfrom the Dom Fond d.d portfolio. He has beeninvolved in the operation of numerous companies,such as Petrokemija d.d., Poljoopskrba d.d.,Svetice građenje d.d., Instrumentaria d.d., Rabacd.d., Vrboska d.d., Koestlin d.d., Belvedere d.d.,Brodospas d.d., etc., either as Member orPresident of the Supervisory Board and is alsomember of the Croatian Association of CertifiedMembers of Supervisory and ManagementBoards. He is currently Member of theSupervisory Boards of Končar - Elektroindustrijad.d. and Valamar Riviera d.d.

Hans DoMinik Turnovszky,Supervisory Board Member

Hans Dominik Turnovszky was educated in Austria and Germanyand has a degree from the renowned Cornell School of HotelAdministration. He has built a long and successful career as amanager in the hotel industry with more than forty years ofexperience in the operational, development, and administrativesectors. He has gained basic professional knowledge andexperience in his home country as well as Great Britain, Ireland,Africa, Asia, and the United States. He has held executive positionsin various companies, such as Kempinski, Regent, Rafael Hotels,Mandarin Oriental, Austria Hotels International, ANA Grand Hotel inVienna, the Lodge at Vail in Colorado and The Phoenician Resort inScottsdale Arizona.

Mr. Turnovszky was Member of the Management Board andseveral committees of the Austrian Hotel Association. He currentlyserves as Chairman of the Hotel Classification Commission inVienna and is Member of the five-star Certification Committee ofthe Austrian Federal Chamber of Commerce.He was Member of the Supervisory Boards of Valamar Grupa d.d.and Valamar Adria holding d.d. and is currently Member of theSupervisory Board of Valamar Riviera d.d.

Mariza Jugovac,Supervisory Board Member

Mariza Jugovac graduated from Pula’s vocational school in1975. She has been an employee of Valamar Riviera d.d sinceApril 20, 1979. She became an employee of the hotel company“Riviera” in Poreč, where she spent her first two years working in the IT department. She became a payroll accountant in 1981 and has been the company's Senior Payroll Accountantsince 2002.

As an active union member, she has been elected as employeerepresentative to the Supervisory Board of Valamar Riviera.


141[GRI G4-LA12]

željko kukurin,President and CEO

Željko Kukurin was born in 1974 in Zagreb. Hegraduated in 1999 from the Faculty of Economics andBusiness in Zagreb where he received his Master ofScience degree in Marketing in 2003. In 2010 he receivedhis EMBA degree in International Management from theBocconi University in Milan.

In 2000 he began his career as an intern in Riviera Poreč, amember of the Valamar Group, as Assistant Director onSveti Nikola Island. From 2003 to 2009, he held variousmanaging positions in Valamar's Sales and Marketing, andhe was responsible for a number of strategic projectswithin the Group. From 2010 to 2014 he was ManagementBoard President of Istraturist d.d., owned by the ZabaUnicredit Group, and cooperated with Meliá HotelsInternational in managing the hospitality portfolio in Umag.

In 2015, Mr. Kukurin joined Valamar Riviera again and wasappointed President of the Management Board of ValamarRiviera's consolidated portfolio in June of the same year.He also serves as Supervisory Board Chairman of Imperiald.d. Rab, a company that was successfully taken over atyear-end 2016 by Valamar Riviera and its strategicpartner, AZ pension fund.

Mr. Kukurin holds a number of important positions inCroatian tourism; he serves as Chairman of the Hospitalityand Tourism branch of the Croatian Employers’ Association,he is member of the Croatian National Tourist Board Counciland the Istrian Tourist Board Council. In addition, he isinvolved in various national professional associations.

Marko ČižMek,Management Board Member

Marko Čižmek graduated from the Faculty ofEconomics and Business in Zagreb. He has qualified asbroker and investment advisor. In 1996, he started hiscareer at the Croatian National Bank. He spent severalyears working in corporate finance at InvestmentbankAustria and ICF. In the period from 2001 to 2004, hewas member of the Management Board at EURO Invest,an investment fund management company.

Mr. Čižmek has held numerous managing positions incompanies that have been merged to the presentValamar Riviera: he was Management Board Member of Rabac d.d. (2004-2011), Management Board Member of Dubrovnik Babin kuk d.d. (2009-2013) andManagement Board Member of Valamar Adria holdingd.d. (2008-2013), Director at Epima d.o.o. (2008-2014),Supervisory Board member of Zlatni otok d.d. (2002-2011) and Rabac d.d. (1999-2011).

Mr. Čižmek started serving as Management BoardMember of Valamar Riviera in 2011. He is also Member of the Management Boards of the Croatian Association of Financial Analysts and theCroatian Association of Corporate Treasurers.

Management Board


142 [GRI G4-LA12]

DAVOR BRENKO,Vice President of Sales and Marketing

Davor Brenko graduated from the Faculty of Economicsin Rijeka, and began his professional career in 2000 atValamar hoteli i ljetovališta, in Sales and Marketing. In2002 he became Project Manager for research intoguest satisfaction and guest relations management,while in 2004 he was in charge of Direct Sales, whichquickly became the strongest sales channel in Valamar.In 2009, Mr. Brenko was promoted to the position ofValamar’s Director of Direct Sales and Marketing, wherehe participated in the creation of a series ofdevelopmental projects resulting in improved sales,marketing and operational growth.

At the beginning of 2010, he joined Istraturist Umag d.d.,where as Director of Business Development heimplemented a series of successful projects in the fieldof strategic marketing and destination management,aimed at raising the quality and competitiveness of thecompany and its destination.

As from 2015, Davor Brenko has been Vice President of Sales and Marketing at Valamar Riviera d.d., wherehe has been working intensively on corporatedevelopment and growth within this business segment,and numerous projects aiming at improving the offering,destination management and the attractiveness ofValamar's destinations.

DAVID POROPAT,Vice President of Operations

David Poropat graduated in 1993 from the Universityof Rijeka's Hotel Management Faculty in Opatija. In2007, he completed his graduate study at the Facultyof Tourism and Hotel Management in Opatija, wherehe successfully completed a doctoral course in 2013.He started his career in 1993 as a Sales andMarketing intern at the former Jadran turist d.d. inRovinj, where he continued his career in charge of thewestern market in Sales, and then as planner andanalyst in the Controlling Department. From 1996 to2002, he was the director of Sol Park, one of Jadranturist's hotels, managed at the time by the Spanishcompany Sol Meliá.

In March 2002, he joined the former companyRiviera Holding d.d. in Poreč as Director of Operations

and until 2006 he was in charge of all Valamar'sfacilities. From 2007 to 2011, he was ManagementBoard Member at Valamar hoteli i ljetovališta d.o.o.,and from 2012 to 2014 at Valamar poslovni razvojd.o.o. At year-end 2014, he became Vice President ofOperations for Valamar Riviera d.d., the leadingtourism company in Croatia. Mr. Poropat has also heldvarious important positions in trade associations, andactively participated in dozens of business projectsthat particularly broadened his business experience.He has also written a number of scientific andprofessional papers.

Division Vice Presidents at Valamar Riviera


143[GRI G4-LA12]

alen BenkovIć,Vice President of Asset Development, Maintenance & Technical Services

After graduating from the Faculty of Economics inPula, Alen Benković began his career in 1999 as anintern in today’s Riviera, where he worked at severalimportant positions as Assistant Director of the Funtanacampsite, Assistant Director of the Lanterna campsiteand Director of the Neptun Hotel – today’s ValamarRiviera 4* in Poreč. He continued his career as thedirector of the Lanterna cluster, and then in themunicipal company Parentium, which handlesinvestments for the town of Poreč. In 2011, he joinedIstraturist in Umag, as Director of Development, FacilitiesMaintenance and Technical Services.

In 2015, he joined Valamar Riviera d.d. as Vice Presidentof Asset Development, Maintenance and TechnicalServices, where he oversees major investment projectsand the planning of the company’s further growth.

Ivana BudIn arhanIć,Vice President of Business Development and Corporate Affairs

Ivana Budin Arhanić graduated with a degree inEconomics from Middleburry College in the USA in 1999.After finishing her studies, she spent three years as astrategy management consultant in Boston and in NewYork. In 2003, she joined Lura d.d., where she led theacquisition and restructuring of Somboled d.d. into theLura group and held the position of Vice President onSomboled d.d. Supervisory Board.

In 2007 she received her MBA from Harvard BusinessSchool and joined Valamar. Until 2015, she served onthe Management Boards of Valamar grupa d.d., Valamar Adria holding d.d., and Valamar Riviera d.d. as a member.

As of June 2015, Ms. Budin Arhanić has served theposition of Vice President of Business Development andCorporate Affairs and is in charge of acquisitions andbusiness expansion, strategic partnerships and projects,digitalization, corporate social responsibility, qualitymanagement, corporate communication and relationswith industry associations and public institutions, as wellas strategy and sale of non-core assets.


144 [GRI G4-2]

Internal Audits and Controls within Valamar Riviera

Valamar Riviera d.d. and its Auditcommittee is devoted to maintainingthe highest standards of integrityand corporate governancepractices, in order to maintainexcellence in its operations andpromote confidence in itsgovernance systems. In addition,the Company will conduct itsbusiness in an open, honest andethical manner, recognizing theimportance of protecting its entirehuman, financial, physical,informational, social, environmentaland reputational assets.

Independence is ensured by theorganizational structure and theallocated reporting lines. TheCommittee also monitors and reviews the appointment of Valamar'sexternal Auditor (including the nature and scope of the audit), theAuditor's independence andeffectiveness, audit fees and theprovision of non-audit services.

The Audit Committee meets at leastfour times per year or more frequentlyif circumstances dictate. TheCommittee will also meet separately ona periodic basis with the Management,the internal auditors and theindependent auditors to discuss anymatters that the Committee or any ofthese persons or firms believes shouldbe discussed privately. The Committeemay invite observers, including anyindependent advisers to attend itsmeetings from time to time, as itdeems appropriate. The Auditcommittee shall keep such records ofits meetings, as it deems appropriate.

In addition, the Internal Audit functionat Valamar Riviera d.d. features adiverse collection of skills.

The scope of the work of Internal Auditsfocuses on the following areas:

→ Regulations, processes andprocedures,

→ Finance and operations,

→ Contracts with third parties,

→ Changes in hotel management,

→ Regulatory compliance,

→ Internal Control System.

Although every audit project is unique,the Audit process is similar for mostengagements and usually consists offour stages:

→ Planning,

→ Audit Work (Initial interview,Fieldwork, Exit interview),

→ Audit Report,

→ Follow-up Review.

The internal audit plan of engagement isbased on a documented riskassessment, conducted, at least,annually. The Annual audit plantranslates the Company strategic planinto Audit assignments.

The purpose of the Committee is toassist the Board’s oversight of the:

→ Adequacy and integrity of theCompany’s financial reportingprocesses and procedures,

→ Integrity of the Company’s financialstatements,

→ Company’s compliance with legaland regulatory requirements andthe Company’s enterprise riskmanagement program,

→ Appointment of independentauditors, qualifications,independence, work and retention,and

→ Scope, approach, performanceand results of the independentauditors and the Company’sinternal audit function.

Valamar's Internal Audit Committee isan independent, internal body thatensures that the internal controls areput in place and are appropriate formitigating risks, the checkingprocedures are proper and efficientand that the established rules andprocedures are complied.


145[GRI G4-2]

Within Valamar Riviera d.d. the internalaudit process has not been completedby compiling, signing, and distributingthe final internal audit report.

Follow-up is a process where internalauditors evaluate the appropriateness,efficiency and timeliness of the actionstaken by management in terms ofcommunicated remarks andrecommendations and therefore thecooperation of the Internal Audit

Department and the Director / Head oforganizational units is of utmostimportance.

It is important to mention the synergyand joint efforts with the Internalcontrol department and day-to-daywork on preventing any misconductand wrongdoing within a fieldoperation, small inventory, cashtransactions, tax compliance, billissuance, etc.

RISK BASED AUDIT PLANNING FRAMEWORK WITHIN 5 STAGES

AUDIT UNIVERSE/AUDITABLE ENTITIES

IDENTIFY RISKS(„brainstorming“)

MEASURE RISKS ( impact and probability)

PRIORITIZE RISKS(risk factors)

SELECT AND DEVELOP AUDITS (strategic and annual Audit plan)

54321


146 [GRI G4-56]

Risks are classified as high,medium and low.

The Risk Management model appliesto the entire Company. In 2016, a total of 11 key executives wereinvolved in the process of drawing upthe "Risk register".

A total of 37 risk events wereidentified, spread over the followingcategories, while in 2017 specialemphasis will be put on the categoryof IT and related risks.

RISK CLASSIFICATION

37 ASSESSED RISKS KEY AUDITED AREAS IN 2016

POLICY AND RULES

Internal audit activities areperformed within the organizationthat vary in purpose, size,complexity, and structure and bypersons within or outside theorganization. While differencesmay affect the practice of internalauditing in each environment,compliance with the InternationalStandards for the ProfessionalPractice of Internal Auditing(Standards) are essential.

Key documents, regulating the areaof the Internal Audit within Valamarare the following:

→ Internal Audit Department Charter,

→ Standards for Internal Auditing,

→ Code of Ethics,

→ Audit Committee Charter.

The respect and ethical behavior ofthe members of the organization isthe result of the application of therules and standards adopted by theCompany, but also the manner inwhich these rules are communicatedand accepted in practice among theindividuals and members of theorganization.

Strategic27%

Operational43%

Purchasing13%

HumanResources

12%

Sales andMarketing

25%

Compliance16% Operations

25%

Financial14%

Investments25%


147[GRI G4-2]

Company and Group Risks

Tourism is a global industry,closely connected with the realand financial economy,geopolitical position andenvironmental sustainability. The way this industry functions as a whole will determine itsfuture growth.

Due to the industry’s relevance andeconomic and social impact, theCompany and Group monitor andassess risks at micro and macrolevels. Moreover, when defining thestrategy, particular attention is givento short and medium–term risk impactin order to maintain businesssustainability over time.

When monitoring and assessing risksthe Company and Group use aproactive approach thus assessing thepotential impact of each individualrisk. The Company and Groupconsider risk management to be a keyfactor of differentiation amongcompetitors. Risk management aimsat creating sustainable value, thusoffering reliability and security tonumerous stakeholders.

The Audit Committee supports theCompany in reviewing theeffectiveness of Valamar’s internalcontrol and risk managementsystems, having oversight of the riskand control activities.

In support of this, the AuditCommittee regularly reviews theprincipal risks and the operation of therisk management systems, seekingassurance that the principal risks arebeing identified, assessed, prioritized,

evaluated and appropriately managedand mitigated.

The Committee’s review is supportedby the Internal Audit (IA) annual plan,which is discussed in June each year.The Committee approves the natureand scope of the plan, and isresponsible for reviewing and

monitoring the activities, in line withthe agreed plan, but always leasing anecessary space for ad hoc auditrequests throughout a year, includingproduct price and cost benchmarking,exercised each year.


148 [GRI G4-2]

THERE ARE FIVE KEY STEPS IN A RISK MANAGEMENT PROCESS

THE DIFFERENT TYPES OF RISKS FACING VALAMAR RIVIERA CAN BE CLASSIFIED INTO THE FOLLOWING GROUPS

IDENTIFYINGpotential risks

related to financial variables,can have a negative impacton meeting liabilities for the

company and the Group, liquidity, debtmanagement etc.

related to the waycompany business isconducted in terms ofsupply and demand,

competition, adapting tomarket trends,

investments, growth etc.

can arise form errors inbusiness operations, human

error, IT system etc.

can arise from naturaldisasters, pandemics, foodshortage, social unrest, warsand other force majeureevents beyond Valamar

Riviera's control

can arise from failure tocomply with state laws andlocal regulations; risksrelated to changes in taxand other regulations

ASSESSINGidentified risks

DETERMINING ACTIONSand responsibilities for efficientrisk management

MONITORING ANDOVERSEEINGpreventive actions

EXCHANGING INFORMATIONon risk management results conducted by themanagement board

54321

FINANCIAL RISKS

BUSINESS RISKS

OPERATIONAL RISKS

GLOBAL RISKS

COMPLIANCE RISKS


149[GRI G4-2]

In their day-to-day businessactivities, the Company and Groupface a number of financial threats,especially:

1) Foreign exchange risk

2) Interest rate risk

3) Credit risk

4) Price risk

5) Liquidity risk

6) Share-related risks.

The Company and Group have aproactive approach in mitigating interestrate and foreign exchange risks, byemploying available market instruments.

Internal risk management goals andpolicies aim at protecting foreigncurrency inflows during seasonal activityand partial interest hedging of theprincipal loan amount.

The Company and Group conducttheir business operations acrossnational borders and are exposedto foreign exchange risks.

They mainly result from changes in theeuro/ kuna exchange rate.

Foreign exchange risk arises fromfuture commercial transactions andrecognized assets and liabilities. Mostof our sales revenue generated abroadand long-term debt is denominated ineuros. Hence, for the most part theCompany and Group are naturallyhedged from exchange rate risks.Since some liabilities are denominatedin kunas, the Company and Group

actively manage risks by usingderivative instruments available on thefinancial market.

The instruments are used according tooperating assessments and expectedmarket trends. In this way the assets,liabilities and cash flow are protectedfrom the risk impact.

1) FOREIGN EXCHANGE RISK

FINANCIAL RISKS

Variable rate loans expose theCompany and Group to cash flowinterest rate risk.

Periodically, the Company and Groupresort to derivative instruments in order to hedge cash flow and fair value interest rate by applying interest rate swaps.

The economic effect of such swaps isthe conversion of variable interest rateloans into fixed interest rate loans fora pre-committed hedged part of theloan principal. The Company andGroup have interest-bearing assets(cash assets and deposits) so theirrevenue and cash flow depend on

changes in market interest rates. Thisbecomes evident especially during theseason when the Company andGroup have significant cash surplusesat their disposal.

2) INTEREST RATE RISK


150 [GRI G4-2]

Credit risk arises from cash assets, time deposits andreceivables.

In accordance with the Company and Group sales policy,business transactions are conducted only with customers with suitable credit history, i.e. by agreeing advances, banksecurities and (for individual customers) payments madethrough major credit card companies.

The Company and Group continuously strive to monitor their exposure towards other parties and their credit rating as well as obtain security instruments (bills of exchange,promissory notes) in order to reduce bad debt risks related to services provided.

3) CREDIT RISK

The Company and Group hold equity and debtsecurities and are exposed to equity price risk due to security price volatility.

The Company and Group are not an active participant in themarket trade in terms of investing in equity and debtsecurities. However, with the HRK 285 million invested inbuying a stake in Imperial d.d. Rab, the company isexposed to the said risk to a certain extent.

4) PRICE RISK

The Company and Group have asound liquidity risk management:sufficient cash assets are madeavailable at any given moment inorder to meet their liabilitiesthrough monthly, annual and long-term cash flow forecasts. TheCompany and Group aims atmaintaining flexible financing bymaking the arranged lines of creditconstantly available.

Liquidity risk is managed by generating strong positive netoperating cash flows, while capital investments are financed bycredit lines. All the credit lines in 2017 have already beenarranged with financial institutions. The repayment of the majorcredit lines coincides with periods of strong cash inflows fromoperations.

The Company and Group monitor the level of available fundsthrough daily cash and debt reports. Long-term cash flowforecasts as well as annual (monthly) forecasts are based onthe set budget.

After meeting the needs of working capital management, thesurplus is deposited in the treasury of the Company and Group.From there the funds are invested in interest-bearing currentaccounts, time deposits, money market deposit accounts andmarketable securities. Only instruments with suitable maturitiesand sufficient liquidity are selected, according to the forecastneeds for liquid funds.

5) LIQUIDITY RISK

The market value of shares is the riskiest asset classdue to its volatility resulting from the volatile nature ofthe whole capital market, macroeconomic trends onmarkets where the Company and Group operate anddiscrepancies between the expectations of financialanalysts and the actual results.

Furthermore, other contributing factors are also changes inthe dividend policy, various activities in the segment ofconsolidations, mergers, acquisitions and forming of strategicpartnership, the instability of the business model of theCompany and Group as well as the fluctuations in thefinancial results for the Company and Group. In case anynegative implications happen to be associated with thesefactors there is a considerable risk of market value drop thatwill in turn prevent investors from selling their shares at a fairmarket price.

6) SHARE-RELATED RISKS


151[GRI G4-2]

The Company and Group areconstantly exposed to risksthreatening its competitivenessand future stability.

Since the Company and Group ownreal estate, this business modelrequires a large amount of capital inorder to maintain high product andservice standards. Various large capitalinvestments in the upgrade of productsand services can surpass budgetexpectations, thus delaying the end ofconstruction works. In the meantime,town-planning regulations and fiscalpolicy may be changed. These riskscan increase costs for the Companyand Group, and have a negativeimpact on the cash flow and revenues.In the previous period, the companyand Group's business decisionsimproved their results and operatingefficiency in the demandingMediterranean market. These positivetrends are expected to continue in thefuture through a prudent long-termstrategic management.

Over 95% of Valamar Riviera's guestscome from other countries and theyare very careful when choosing theirvacation destination in the competitiveMediterranean environment. Stablecountry macroeconomic indicators areimportant decision-making factorsespecially those relating to exchangerates and the price of goods andservices because they directly affectthe guests' purchasing power.However small, the share of domesticguests is also important; it is asegment directly influenced by various

other macroeconomic indicators:employment/ unemployment rate, GNPrise/fall, industrial production andothers. They all have a direct impactnot only on the purchasing power ofCroatian residents but they alsodetermine whether they will choose tospend their vacation on the Adriatic.

When considering risks related to thetourism and hospitality industry, inprevious years, the Croatian economyhas been afflicted by theconsequences of a global financialcrisis and economic standstill. In thisperiod, the tourism and hospitalityindustry has been among the raregrowing industries in Croatia.Moreover, the marked seasonality ofthis industry leads to insufficient use ofthe Company and Group’s resources.After joining the European Union, theCroatian market became part of a largeEuropean market, while safety risksdecreased after joining the NATO. TheCroatian Tourism Developmentstrategy until 2020 (a governmentdocument published in the OfficialGazette no. 55/13) defines the kind oftourism Croatia wants and needs todevelop using the country'scomparative advantages and expertisein order to improve thecompetitiveness of Croatian tourism.Maintaining the current tourism growthrates in the following years is of vitalimportance. It can be achieved by

strategically developing tourismproducts and investing in the creationof additional values, which will helpdistinguish Croatian tourism from itscompetitors by emphasizing itsuniqueness, appeal and quality.

Good management of humanresources is vital for the future growthof the Company and Group. Risksrelated to shortages of specific skills,expertise and jobs are connected withthe opening and expansion of the labormarket. Valamar Riviera is one of thelargest and most desirable employersin tourism. The active approachtowards HR management developskey talents and supports investmentsin training opportunities (over HRK 3million invested in training andprofessional development in 2016). Wedetermine the needs for new skills andexpertise by following emerging globaltrends in tourism. In this way, we areable to respond to challengeseffectively. Through a continualdialogue with our social partners, wehave ensured a high level of workers’rights in terms of competitive salaries,reward systems, career development,employees’ wellbeing and cooperationwith training institutions from all partsof Croatia.

BUSINESS RISKS


152 [GRI G4-2, G4-EC2]

Operational risks are risksconnected with direct or indirectlosses that arise form inadequate orwrong internal or external processeswithin the Company and the Group.They include the creation, analysisand insufficient or inadequateinternal and external informationexchange.

When implementing the system ofoperational risk management, theCompany and Group focused on itscontinuity and complexity due to thesize of the organization. The benefits ofthe system include i) defining andidentifying the Company and Grouprisk profile in relation to the operatingrisk ii) identifying and managing theknown risk occurrences in order todecrease the Company and Groupcosts and iii) data analysis whichindicates the business trends for theCompany and Group and trends in thedomestic economy

The Company and Group are aware ofthe reliability of IT business solutionsand safety in the cyber world. Hence,they continually upgrade, develop andimplement new technologies ineveryday business operations. Aspecial focus is given to providingsufficient resources for thedevelopment and implementation ofnew technologies related to ICT, dataprotection, and upgrade of the currentbusiness systems and implementationof new ones.

Despite improved security andpolitical conditions, which haveencouraged to a certain extentinvestments into tourism andhospitality, there are challengesthat the Croatian tourism has toface, such as:

→ Periods of global financial crisiswhich reduce the purchasingpower of the travelling-pronepopulation

→ Security issues related to globallyescalating terrorism threats

→ Security and political instability inthe immediate environment of theneighboring countries.

Environmental risks can also have anadverse effect on the Company andGroup's business results, primarily interms of customer satisfaction withthe whole experience while staying atone of Valamar’s properties and thiscan affect the number of arrivals.

The possible risks can include: seapollution (caused by oil or chemicalspillage), but also long-term waterquality reduction and coast pollutiondue to inadequate waste disposal andwaste water treatment as well asextensive use of agricultural fertilizers.Other environmental conditions typicalfor climate changes such as longdrought periods or long rainy periodscan directly influence the guests'length of stay in the hotels andcampsites as well as increasing theoperating costs.

A number of other natural disastersand calamities (earthquakes, fires,floods and rainstorms), air pollutioncaused by toxic gas emissions fromindustrial plants and vehicles, as wellexcessive urbanization and theintroduction of invasive species shouldalso be taken into consideration.

GLOBAL RISKSOPERATIONAL RISKS


153[GRI G4-14, G4-2]

Changes in tax laws and otherregulations pose a very seriousthreat and represent a demandingsegment in risk managementbecause in this particular situationthe possibilities for the Companyand Group are limited.

In previous years, there has been anumber of important changes in taxand non-tax charging regulations,which have adversely affected theCompany and Group profitability:

→ In March 2012 the standard VATrate grew from 23% to 25%, inJanuary 2013 a new 10% VAT ratewas introduced only to bereplaced within a year by a 13%VAT rate applicable to the tourismand hospitality industry, while inJanuary 2017 a new 25% VAT ratewas introduced for F&B services incatering establishments.

→ In May 2012 the health insuranceemployer contribution rate fell from15% to 13% and then in April2014 it grew back to 15%

→ Frequent increases in various feesand charges regarding waterdistribution and the like.

Such frequent changes in lawsregulating taxes and parafiscalcharges often take place only after thebusiness policy and budget for thenext financial year have beenapproved and commercial terms andconditions with partners agreed. Allthis jeopardizes the Company andGroup financial position and futureinvestment plans as well as credibilitytowards shareholders. The Companyand Group are also threatened bychanges in regulations governingconcession fees for maritime domainand tourism land use, the latter stillpresenting unresolved legal issues.

Given the nature of the Company and Group’s business, the right to use parts of the maritime domain aswell as land for tourism purposes is of vital importance for future growth,especially for campsite-relatedoperations.

In order to maximally reduce risksrelated to the environment, thelocal community and society,Valamar Riviera actively managesrisks in all business segments. Thisrepresents a precondition for aresponsible development oftourism and its destinations.

Pursuant to the precautionaryprinciple, Valamar Riviera meets thehighest standards devised to protectthe environment, local community andsociety at large. These standards areapplied in all business segments, andthe company continually monitors andmanages risks that influence thebusiness and corporate socialresponsibility strategies.

PRECAUTIONARY PRINCIPLECOMPLIANCE RISKS


154 [GRI G4-56]

Ethics and integrity

Integrity and ethics are a part ofthe corporate culture and thefundamental characteristic ofeveryday work and businessmanagement.

Valamar Riviera has adopted a Code ofEthics, which regulates issues related tocorruption prevention, and adheres tothe Zagreb Stock Exchange CorporateGovernance Code. It also fills out theannual Zagreb Stock Exchangecorporate governance survey.

The fundamental principles of ValamarRiviera’s business operations includedoing business ethically, providingequal opportunities and conditions forall its employees, ensuring equality andprotection of human rights, andnurturing of the culture of diversity. Inall our business activities we arecommitted to implementing the UnitedNations’ principles for business andhuman rights as well as theInternational Labor Organization’sfundamental conventions. We are alsodetermined to act in a way that willnever have misuse of human rights asits consequence.

Creating a transparent environment forbusiness management is thecompany’s highest priority. Thefundamental approach in ValamarRiviera’s business operations refers toprotecting human rights, andpromoting fair employment conditions,safe work conditions, responsibleenvironmental management and highethical standards.

Basic human rights and theirprotection, including the protection oflife, health, dignity and privacy, as wellas prevention of discrimination, haveall been built into the positive, legalemployment regulations of theRepublic of Croatia, which ValamarRiviera adheres to and implements.They have also been integrated intothe collective agreement that Valamarhas concluded with the trade unionsin the company.

Valamar Riviera’s basic values includeresponsibility and credibility towardsbusiness partners, caring foremployees, support for the socialcommunity, and commitment toenvironmental preservation.

Members of the Management Board of Valamar Riviera and division vice presidents areresponsible for making decisions on Valamar Riviera’s economic, environmental andsocial impact. The Business Development and Corporate Affairs Division is tasked withthe coordination of the umbrella CSR programs and their reporting.

RESPONSIBILITY FOR MAKING DECISIONS ON VALAMARRIVIERA’S ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACT


157

2016 BUSINESSRESULTS

9

This chapter contains thesummary of 2016 consolidatedfinancial results, as reported in ourconsolidated audited AnnualReport for 2016 that waspublished this year in February.

The Group balance sheet for thereviewed period contains Imperiald.d. Rab’s data as of 31 December2016. Please note that the 2016data cannot be entirely comparedto the same period last year, as thelatter did not include Imperial.

The Group’s income statement for thereported period includes the data for thefollowing companies: Puntižela d.o.o.,Bastion upravljanje d.o.o., Elafiti Babinkuk d.o.o., Magične stijene d.o.o.,Palme turizam d.o.o., Pogača Babin Kukd.o.o., Bugenvilia d.o.o., and HoteliBaška d.d. (merged on 31 March 2016),while the data for the companies MirtaBašćanska d.o.o., Vala Bašćanskad.o.o., and Baškaturist d.o.o. areincluded until the day of their merger tothe company Hoteli Baška d.d. (until 13January 2016). Thus, the data for 2016are not fully comparable to the data for

the previous period, as the latter do notinclude, until the date of consolidation(i.e. 1 July 2015) the data for thefollowing companies: Hoteli Baška d.d.,Mirta Bašćanska d.o.o., Vala Bašćanskad.o.o., and Baškaturist d.o.o.

Please note that Imperial’s revenues andexpenses were not included in theGroup’s income statement, becausethey were not deemed materiallysignificant in the period between theacquisition of control (12 December2016) to the end of the business year(31 December 2016).


Overnights ADR(in HRK)

Total Revenues (in ‘000 HRK)

Sales revenues(in ‘000 HRK)

Units sold

158

2016 was marked by strong results, high operating efficiency and increased profitability. Anumber of factors contributed to this: i) continual investments in raising the competitiveedge and the quality of services and products, ii) focus on the guest and operationalexcellence in sales, marketing and revenue management, iii) the strategic acquisition ofthe Baška hotel group and iv) continual efforts in developing destinations, products andadded-value services.

In responding to the increased demand for hospitality products and services, ValamarRiviera was guided by adopted strategic initiatives and the best practices of businessexcellence. In 2016 the Group reported a 15.0% increase in operating revenues totalingHRK 1,488.6 million by optimizing distribution, sales channels and marketing segments,the average daily rate increased by 4.6% to HRK 516, while the total number of units soldwas 2,227,815 (or 162,394 over prior year results).

Despite the increased business volume and the year-round consolidation of the Baškahotel group, operating costs were actively managed and remained under control, thusreporting a 13.3% growth. Excluding costs generated by destination Baška during thefirst six months of 2016, operating costs reported an 11% growth.

KEY FINANCIAL INDICATORS OF VALAMAR RIVIERA GROUP1 (in HRK)

2015 2016 2016/2015Total revenues 1,333,493,479 1,579,499,901 18.4%

Sales revenues 1,268,724,937 1,454,867,739 14.7%

Board revenues (accommodation and board revenues)2 1,043,250,301 1,174,716,569 12.6%

Operating costs3 838,362,755 949,930,753 13.3%

EBITDA4 423,364,870 512,583,688 21.1%

Extraordinary operations result and one-off items5 -15,106,588 -6,376,909 57.8%

Adjusted EBITDA6 438,471,458 518,960,597 18.4%

EBIT 171,792,373 246,704,521 43.6%

Adjusted EBIT6 186,898,961 253,081,430 35.4%

EBT 132,926,778 271,909,189 104.6%

Net profit 105,461,478 342,313,778 224.6%

EBT margin 10.3% 18.3% 800 bp

EBITDA margin 32.7% 34.4% 170 bp

Adjusted EBITDA margin6 33.9% 34.9%6 100 bp

31/12/2015 31/12/2016 2016/2015Net debt7 1,082,520,078 1,398,102,734 29.2%

Net debt / EBITDA 2.56 2.73 6.5%

Net debt / Adjusted EBITDA 2.47 2.69 9.1%

Cash and cash equivalents 318,755,282 274,650,648 -13.8%

Capital investments 310,477,293 428,440,048 38.0%

ROE8 5.5% 14.4% 890 bp

Adjusted ROCE9 6.3% 6.7% 40 bp

Market capitalization10 2,970,629,728 4,295,057,872 44.6%

EV11 4,053,149,806 5,693,160,606 40.5%

EPS12 0.84 2.76 228.6%

DPS13 0.55 0.60 9.1%

Results of the Group

OVERNIGHTS AND ADR REVENUES AND ACCOMODATION UNITS SOLD

20162015 20162015

4,750,8231,333,493

5,144,328 1,579,500

2,115,421

2,277,815

1,268,725

1,454,868493516


159

Marketing and sales activities and the upgraded products and services reportedexcellent market feedback. The increased business volume and higher operatingefficiency resulted in a marked profitability growth. EBITDA grew by 21.1% (or: HRK89.2 million) totaling HRK 512.6 million. Adjusted EBITDA17 grew by 18.4% totalingHRK 519.0 million. The increase in operational efficiency as seen through the adjustedEBITDA margin growth from 33.9% in 2015 to 34.9% in 2016 also includes thenegative effect of the consolidation costs of the Baška destination during the first sixmonths of this year. Without this negative effect, the comparable adjusted EBITDAmargin would be 36.1% thus representing an actual increase in operational efficiencyby 220 basis points. Operating profit grew by 104.6% and totaled HRK 271.9 million.In 2016 the Group’s net profit grew by HRK 236.9 million and totaled HRK 342.3million. This is mainly due to i) increased operating profit, ii) positive extraordinaryfinancial result, and iii) one-time recognized deferred tax assets which will burden thegross profit in the forthcoming years of utilization18. Following these trends, the EBTmargin grew by 800 basis points and was 18.3%.

1 Classified accordiong to the Annual Business Financial Statement (GFI POD-RDG). EBIT, EBITDA and their adjusted values and respective margins are recorded on the basis of operating income.2 In compliance with the classification under the USALI international standard for reporting in hotel industry (Uniform System of Accounts for the Lodging Industry).3 Operating costs include material costs, staff costs, other costs, and other operating costs reduced by extraordinary expenses and one-off items.4 EBITDA (eng. earnings before interest, taxes, depreciation and amortization) is calculated as: operating income - total operating costs + depreciation and amortisation + value adjustments.5 The adjustment includes (+) extraordinary income and (-) expenses in accordance with the USALI standard classification and (-) one-off termination benefit costs and (-) administrative costs related to theprocess of merger and business reorganisation.

6 Adjusted by the result of extraordinary operations and one-off items which does not include negative effect of the consolidation costs of the Baška destination during the first six months of this year .Without this negative effect, the comparable adjusted EBITDA margin would be 36.1%.

7 Net debt: non-current and current liabilities to banks and other financial institutions + liabilities for loans, deposits and other– cash and cash equivalents – long-term and short-term investments insecurities – current loans given, deposits, etc.

8 ROE refers to return on equity; calculated as: profit for the period / (capital and reserves).9 Adjusted ROCE refers to return on capital employed; calculated as: adjusted EBIT / (capital and reserves at the end of the period + non-current and current liabilities to banks and other financial institutions- cash and cash equivalents - long-term and short-term investments in securities - loans given, deposits, etc.).

10 The number of shares as at 31 December 2016 net of treasury shares amounts to 124,170,508, while per 31 December 2015 amounts to 124,190,206.11 EV refers to enterprise value; calculated as market capitalization + net debt.12 EPS refers to earnings per share calculated on the basis of net profit.Weighted average number of shares as at 31 December 2016: 124,235,079.Weighted average number of shares as at 31 December 2015: 124,784,807.

13 DPS refers to dividends per share.14 Key business indicators of Valamar Riviera Group do not include data of Imperial’s d.d. The total capacity with Imperial is 20,852 accomodation units.15 Average daily rate is recorded on the basis of board revenues (accommodation and board’s food and beverage revenues).16 Revenue per accommodation unit is recorded on the basis of cumulative board revenues (accommodation and board’s food and beverage revenues).17 Adjustments were made for (i) extraordinary income (in the amount of HRK 21.5 million in 2016, and HRK 34.2 million in 2015), (ii) extraordinary expenses (in the amount of HRK 23.6 million in 2016, andHRK 33.9 million in 2015), and (iii) termination benefit costs (in the amount of HRK 4.3 million in 2016, and HRK 15.4 million in 2015). Extraordinary operations result and one-off items amounted to HRK -6.4 million in 2016, and HRK -15.1 million in 2015.

18 Net tax revenue totaled HRK 70.4 million and largely resulted from the recognized deferred tax assets due to tax incentives (prescribed by the Act on Investment Promotion and Investment Improvement).

KEY BUSINESS INDICATORS OF VALAMAR RIVIERA GROUP14

2015 2016 2016/2015Number of accommodation units 17,783 18,072 1.6%

Full occupancy days 119 126 6.0%

Annual occupancy (%) 33% 34% 100 bp

Accommodation units sold 2,115,421 2,277,815 7.7%

Overnights 4,750,823 5,144,328 8.3%

ADR15 (in HRK) 493 516 4.6%

RevPAR16 (in HRK) 58,665 65,002 10.8%


160

M.I.C.E.19 events in the pre-season period contributed to increased operatingefficiency. Firstminute sales created a better basis for the management of saleschannels and boosted start bookings in May and June. Optimal management of thegroup channel boosted the individual channel in May. In June, southern destinationsreported a decrease in groups (due to an unfavorable public holiday spread) whichwas compensated by the M.I.C.E. segment and supported by growth in other saleschannels. Peak season saw an improvement in distribution and price management,sales channels and sales activities. Active optimization of allotment occupancy andprices resulted in a 16% growth in the individual segment, which usually carrieshigher average rates. In the shoulder season the focus was on group and allotmentplacements, while targeting individual placements in the Christmas/New Year period.

In 2016, board revenues grew by HRK 131.5 million and totaled HRK 1,174.7 million.Sales revenues (outside the Group) grew by HRK 186.1 million and totaled HRK1,454.9 million. This resulted from i) a 12.6% increase in board revenues, ii) a 26%increase in non-board outlet revenues and iii) a 57% increase in the revenue of otheroperating departments (laundry, travel agency, equipment-rental services, etc.).Domestic sales revenues totaled HRK 119.0 million and represented 7.5% of totalrevenues (7.9% in 2015). They reported a 12.3% increase over prior comparableperiod results. International sales revenues totaled HRK 1,335.8 million andrepresented 84.6% of total revenues (87.2% in 2015). They grew by HRK 173.1million over prior comparable period results. Other operating (outside the Group) andfinancial income represented 7.9% of total revenues (4.9% in 2015). The 33.3%increase in other operating revenues resulted mainly from the one-off incomereceived from cancelling provisions related to legal disputes. Financial incomereported a HRK 51.4 million growth, which is mainly due to the share portfolio salesand exchange rate gains. As a result, total revenues grew by HRK 246.0 million andtotaled HRK 1,579.5 million.

VALUATION OF VALAMAR RIVIERA GROUP

31/12/2015 31/12/2016 2016/2015Average share price per 23.92 34.59 44.6%

Market capitalization (in HRK) 2,970,629,728 4,295,057,872 44.6%

EV (in HRK) 4,053,149,806 5,693,160,606 40.5%

EPS 0.84 2.76 228.6%

DPS 0.55 0.6 9.1%

EV / Sales revenues 3.2x 3.9x 22.3%

EV / EBITDA 9.6x 11.1x 15.7%

EV / Adjusted EBITDA 9.2x 11.0x 19.2%

EV / EBIT 23.6x 23.1x -2.2%

EV / Adjusted EBIT 21.7x 22.5x 3.7%

19 Meetings, incentives, conferencing, exhibitions.

PROFITABILITY INDICATORS OF VALAMAR RIVIERA GROUP

2015 2016 2016/2015EBITDA margin 32.7% 34.4% 170 bp

Adjusted EBITDA margin 33.9% 34.9% 100 bp

EBIT margin 13.3% 16.6% 330 bp

Adjusted EBIT margin 14.4% 17.0% 260 bp

EBT margin 10.3% 18.3% 800 bp

Net profit margin 8.1% 23.0% 1,490 bp

ROA 3.0% 7.7% 470 bp

ROE 5.5% 14.4% 890 bp

Adjusted ROCE 6.3% 6.7% 40 bp


161

In 2016 total operating expenses grew by 10.7% due to increased business volumeand this year consolidation of the Baška hotel group from 1 January 2016. Excludingcosts generated by destination Baška during the first six months of 2016 forcomparability’s sake, operating expenses reported a low 6.7% growth. This confirmedcontinual positive trends in operating efficiency, management consolidation andrestructuring at all levels, as well as Valamar Riviera’s strategic goals.

Material costs grew by 13.1% and totaled HRK 450.4 million, representing 36.3% oftotal operating expenses (35.5% in 2015), which was largely due to increasedbusiness volume which caused higher costs of raw material and maintenance. Staffcosts totaled HRK 371.3 million, representing 29.9% of total operating expenses(29.2% in 2015). The 13.2% increase in staff costs was due to several factors: i)longer full occupancy days, ii) takeover of the Baška hotel group staff, and iii) salaryincrease (a 2% salary increase in June 2016, a 1.5% salary increase and 0.5% salaryincrement for years of service in June 2015). Amortization and depreciation totaledHRK 265.2 million (HRK 232.9 million in 2015), and represented 21.4% of totaloperating expenses (20.8% in 2015). Their 13.9% growth was due to a widerconsolidation scope and the previously realized large investments. Other operatingexpenses were HRK 24.0 million, and their 65.9% growth resulted from the operatingexpenses of previous years and the undepreciated assets due to investments. Valueadjustments and provisions were HRK 2.5 million and decreased by HRK 21.5 millionmainly due to the 2015 claim write-off in relation to Glavice d.o.o and lowerprovisions per legal disputes. Other costs grew by 3.0% or HRK 3.7 million primarilydue to this year’s Baška operations.

In 2016 financial income grew by HRK 51.4 million over prior comparable periodresults and totaled HRK 90.9 million. Other financial income reported the strongestgrowth, and rose by HRK 36.5 million, which was mostly due to the Group shareportfolio sales totaling HRK 35.2 million. Interest income, foreign exchangedifferences, dividend and similar third-party related income grew by HRK 11.4 million.Exchange rate gains from settled unrealized balance sheet items and loan paymentsreported the strongest growth of HRK 23.6 million because of a 1% stronger HRK inrelation to the EUR in 2016. This contributed to the decrease in balance sheetliabilities denominated in EUR and disclosed in HRK. Revenues form time deposits, avista accounts and placements totaled HRK 4.2 million. The lower value is mostly

20 Classified according to the Quarterly Business Financial Statement GFI POD-RDG.

TOTAL OPERATING EXPENSES OF VALAMAR RIVIERA GROUP20 (in HRK)

2015 2016 2016/2015Operating costs3 838,362,755 949,930,753 13.3%

Total operating expenses 1,122,244,561 1,241,906,080 10.7%

Material costs 398,167,101 450,374,430 13.1%

Staff costs 327,901,582 371,316,789 13.2%

Depreciation and amortisation 232,922,484 265,188,188 13.9%

Other costs 124,793,680 128,500,052 3.0%

Provisions and value adjustments 24,003,901 2,545,384 -89.4%

Other operating expenses 14,455,813 23,981,236 65.9%

due to a smaller amount of free cash funds during 2016 compared to the sameperiod last year as well as a significant reduction in market interest. Unrealizedincome (gains) from financial assets grew by HRK 3.6 million, largely due to thevaluation of derivative financial instruments contracted for 2017 as FX and interesthedge .

Financial expenses decreased by HRK 12.6 million compared to the same period ayear ago and totaled HRK 65.7 million, representing 6.5% of total expenses (5.0% in2015). Interest, foreign exchange differences, and similar expenses from third partiesdecreased by HRK 18.8 million. Other financial expenses grew by HRK 2.7 million,out of which HRK 0.9 million refers to the Group share portfolio sales, and HRK 1.7million refers to interest rate swap early termination payment. The most significantchange compared to the same period a year ago is related to exchange rate lossesfrom settling unrealized balance sheet items, which fell by HRK 26.2 million due tothe said stronger HRK in relation to EUR. A HRK 8.5 million increase in interestexpenses in 2016 was related to the increase of debt resulting from loans contractedfor financing investments and the consolidation of the Baška hotel group (from 1January 2016).


162

Please note that as of 31 Decemeber 2016 the Group balance sheet includedImperial d.d. data which were not included in the comparable period (31 December2015). As of 31 December 2016 the total value of the Group’s assets was 25.2%higher compared to 31 December 2015. The total share capital and reserves grewby HRK 471.9 million, totaling HRK 2,373.6 million. This was mainly due to a HRK 236.9 million increase in generated net profit and the stated minority interestdue to the consolidation of Imperial (HRK 235.7 million increase).

The total long-term liabilities were 16.8% higher and as of 31 December 2016totaled HRK 1,556.1 million due to i) arranged loans for financing investments and ii)the consolidation of Imperial which brought an increase of HRK 210.3 millionincrease.

The total short-term liabilities were 71.6% higher compared to 31 December 2015and totaled HRK 394.1 million. This resulted from i) current repayment of long-termdebt (HRK 21.0 million increase), ii) trade payables (increased by HRK 103.1 million)due to large investments and iii) the consolidation of Imperial (HRK 27.6 totalincrease).

Cash and cash equivalents as of 31 December 2016 totaled HRK 274.7 million. This 14% decrease is mainly due to i) investments in Imperial’s shares and ii) largeinvestments. The reported cash and cash equivalents indicate a strong furtherpotential from business activities and external borrowings, able to ensure a smoothcontinuation of future investments and potential acquisitions.

31/12/2015 31/12/2016

Amount(in HRK ‘000)

4,500,000

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

21,2473.567 billion

23,370336,880

4,105,084

103,423

141,441

394.111

1,556,145

2,373,637

229,557

1,331,948

1,901,691

355,363

3,190,008

Total LT asset

Total ST asset

Prepayments and accrued Income

Capital and reserve

LT liabilities and provisions

ST liabilities

Accrued expenses and deferred income

ASSETS AND LIABILITIES

4.465 billion


163

Hotels and resorts reported HRK 919.7 million in board revenues. The Premium andMidscale segments were major drivers for the strong HRK 93.0 million increase.These results were largely due to a sales mix optimization, investments in theupgrade of products and services, and the successful realization of a number ofbusiness and entertainment events in Dubrovnik and Poreč. It should be noted thatthis growth was partly influenced by the results of destination Baška. Excludingthem, the total board revenues for hotels and resorts reported a 10% growth.

The Premium segment reported the strongest growth in board revenues (HRK 39.9 million) and totaled HRK 224.7 million. This was mainly due to anincrease in accommodation units sold (i.e. 28,404 more, or 201,003 total) and the4.4% increase in the average daily rate. The Valamar Isabella Island Resort 4* & 5*was the main revenue driver. By focusing on direct sales channel, a longer operatingperiod and M.I.C.E events it reported a strong growth of over HRK 17 million.Daimler AG-Mercedes-Benz organized the M.I.C.E. event “Global TrainingExperience” at the Valamar Dubrovnik President 5* and the Valamar Lacroma 4* inthe February-mid April period and contributed to the prolongation of the operatingperiod and high occupancy rates. The high-season growth of the DubrovnikPremium segment was mainly due to the excellent positioning of the ValamarDubrovnik President 5* in the individual channel. The adequate distribution ofmarketing segments ensured the significant growth of the Valamar Lacroma 4*,mainly through allotment and M.I.C.E. placements.

KEY OPERATING INDICATORS OF VALAMAR RIVIERA GROUP PER SEGMENTS21

HOTELS AND RESORTS Total Premium Upscale Midscale Economy2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/

2015 2015 2015 2015 2015Number of accommodation units 7,855 7,927 0.9% 1,037 1,037 0.0% 1,422 1,422 0.0% 3,047 3,112 2.1% 2,349 2,356 0.3%

Full occupancy days 147 158 7.6% 166 194 16.5% 157 159 1.5% 148 159 7.9% 130 139 6.7%

Annual occupancy rate (%) 40% 43% 7.3% 46% 53% 16.1% 43% 43% 1.2% 40% 44% 7.6% 36% 38% 6.4%

Accommodation units sold 1,151,809 1,250,795 8.6% 172,599 201,003 16.5% 222,829 226,086 1.5% 449,981 495,689 10.2% 306,400 328,017 7.1%

Overnights 2,503,172 2,668,550 6.6% 343,961 386,163 12.3% 487,576 500,925 2.7% 970,673 1,056,601 8.9% 700,962 724,861 3.4%

ADR15 (in HRK) 718 735 2.4% 1,070 1,118 4.4% 928 984 6.0% 678 682 0.6% 424 410 -3.3%

Board revenues (in HRK) 826,767,088 919,726,790 11.2% 184,764,002 224,678,769 21.6% 206,882,926 222,521,004 7.6% 305,133,485 338,024,283 10.8% 129,986,675 134,502,733 3.5%

RevPAR16 (in HRK) 105,257 116,025 10.2% 178,172 216,662 21.6% 145,487 156,485 7.6% 100,142 108,620 8.5% 55,343 57,089 3.2%

Adjusted EBITDA22 (in HRK) 476,130,680 560,211,649 17.7% 107,849,926 144,730,691 34.2% 122,950,922 138,900,914 13.0% 170,816,094 195,987,797 14.7% 74,513,737 80,592,247 8.2%

21 According to the classification under the USALI international standard for reporting in hotel industry (Uniform System of Accounts for the Lodging Industry). Business operations of Baška properties areincluded for the period January – December 2016, while in the comparable period of 2015 are included in the period July - December 2015. Destination Pula - Puntižela business is included indestination Poreč.

22 When calculating adjusted EBITDA, internal allocation of revenues and expenses as well as inter-segment revenues and expenses are excluded from the calculation. Adjusted EBITDA of other segmentsamounts to HRK -229.6 million in 2016, i.e. HRK -189.9 million in 2015. Other segments include business of central operations, laundry, sport, central kitchen, strategic rentals, etc.


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The Upscale segment reported a HRK 15.6 million board revenue growth. Theincreased average daily rate (+HRK 56) contributed to the HRK 222.5 million in boardrevenues. The Valamar Club Tamaris 4* owed its strong results to a successfulfirstminute allotment distribution and a stronger individual sales channel which wasresponsible for over two thirds of the total growth. The increase in the individualsegment and occupancy contributed to a significant growth of Hotel & Casa Sanfior4*. The management of the marketing segments and prices received a good marketfeedback and boosted the individual segment of the Valamar Zagreb 4*. Similarly, theValamar Riviera 4* hotel owed its robust growth and high occupancy primarily to anincrease in capacity (10 new accommodation units) which resulted in higheroccupancy.

The Midscale segment of hotels and resorts reported a growth of HRK 32.9 millionand contributed to a large extent to the total board revenue growth. The HRK 338.0million board revenues were partially influenced by the business done in destinationBaška during the first half-year of 2016. Excluding Baška, the Midscale boardrevenue growth exceeded HRK 15 million. The main revenue drivers were theValamar Diamant 4* and the Valamar Club Dubrovnik 3*. The prolonged operatingperiod, high occupancy rates, the new multifunctional hall which was an importantfeature for the M.I.C.E. channel as well as an improved realization of the groupchannel during the season resulted in a significant increase in the business volumeand strong growth of the Valamar Diamant 4* board revenue. On the other hand, theValamar Club Dubrovnik 3* grew in all its marketing segments due to an adequateplacement of allotments and group. The Valamar Crystal 4* grew further mainlybecause of a strategic shift towards long-term charter partners which ensuredadditional occupancy through flights to Istria during the shoulder season and a longeroperating period. The competitive price policy in defined periods that was focusedmainly on occupancy resulted in increased board revenues in the Valamar Rubin 3*.The Allegro and the Miramar 3* in destination Rabac reported strong growth mainlydue to a significant increase of the individual channel and adequate group andallotment placement in the pre-season period.

The Economy segment of hotels and resorts reported HRK 134.5 million in boardrevenues, representing a 3.5% increase. The Pical 3* board revenue increase was theresult of a stronger individual sales channel, and an active price management, bothcontributing to a higher average daily rate. The Tirena 3* results grew due to theperformance of the individual sales channel and optimal allotment placement. Anincreased group volume and pre-season events led to the Lanterna’s 2* increasedboard revenue. Fewer operating days reduced the Girandella Tourist Village 2*occupancy, although board revenues remained the same due to increased averagedaily rates.


165

KEY OPERATING INDICATORS OF VALAMAR RIVIERA GROUP PER SEGMENTS (CONTINUED)

CAMPING RESORTS Total Premium Upscale Midscale Economy2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/

2015 2015 2015 2015 2015Number of accommodation units 9,929 10,145 2.2% 475 511 7.6% 4,449 4,437 -0.3% 3,378 3,387 0.3% 1,626 1,810 11.3%

Full occupancy days 97 101 4.3% 137 132 -3.3% 101 106 5.0% 91 98 7.8% 87 87 -1.0%

Annual occupancy rate (%) 27% 28% 4.0% 38% 36% -3.5% 28% 29% 4.7% 25% 27% 7.5% 24% 24% -1.3%

Accommodation units sold 963,612 1,027,020 6.6% 65,054 67,694 4.1% 447,846 469,121 4.8% 308,523 333,531 8.1% 142,189 156,674 10.2%

Overnights 2,247,651 2,475,778 10.1% 186,363 197,491 6.0% 1,071,940 1,198,905 11.8% 668,609 721,187 7.9% 320,739 358,195 11.7%

ADR15 (in HRK) 225 248 10.5% 288 361 25.4% 243 280 15.0% 203 209 2.9% 184 189 2.7%

Board revenues (in HRK) 216,483,213 254,989,779 17.8% 18,741,250 24,448,224 30.5% 108,877,309 131,206,913 20.5% 62,667,820 69,686,153 11.2% 26,196,835 29,648,489 13.2%

RevPAR16 (in HRK) 21,804 25,134 15.3% 39,449 47,844 21.3% 24,472 29,571 20.8% 18,549 20,575 10.9% 16,111 16,380 1.7%

Adjusted EBITDA22 (in HRK) 152,259,096 188,350,077 23.7% 13,718,824 17,245,497 25.7% 80,851,341 102,671,633 27.0% 38,672,507 46,834,312 21.1% 19,016,424 21,598,635 13.6%

Camping resorts reported HRK 255.0 million in total board revenue. The HRK 38.5million increase was due to the strong positive market feedback that the newlyinvested properties received and to a lesser extent, to the results of the Baškacamping resort operations in the first half of 2016. Excluding the Baška operationsresults, the total camping resort board revenues reported a solid 15% growth.

The Premium segment of camping resorts includes the Krk 5* campsite, whichreported a strong 30.5% board revenue growth totaling HRK 24.5 million. Thisgrowth resulted from a HRK 73 increase in the average daily rate due to this years’investment in new mobile homes, improved quality and service as well as intensivepromotional activities.

A 15.0% increase of the average daily rate in the Upscale segment of campingresorts resulted in a HRK 22.3 million increase in board revenues. The Lanterna 4*campsite contributed most to the reported board revenues total of HRK 131.2million. The leading Istrian camping resort owed its 24% growth in board revenues toinvestments in new mobile homes, quality and service upgrades and promotionalactivities. The campsites Marina 4* and Ježevac 4*, owed their increased boardrevenues to a higher average rate. This years’ Bunculuka 4* performance contributedto stronger Upscale results totaling HRK 3.6 million in additional board revenues.

The camping resort Midscale segment reported a HRK 69.7 million in boardrevenues. The Zablaće 3* campsite year-round consolidation is mainly the result ofthe 11.2% increase in board revenues. This is because early Easter holidays do notbenefit camping operations and cause fewer operating days and lower boardrevenues.

The Economy segment reported HRK 29.7 million in board revenues. The HRK 3.5million increase is mainly due to investments in the Brioni 2* campsite and the newTunarica 2* campsite operations.


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KEY OPERATING INDICATORS OF VALAMAR RIVIERA GROUP PER DESTINATIONS20

DESTINATION Poreč Rabac Island of Krk Dubrovnik2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/ 2015 2016 2016/

2015 2015 2015 2015Number of accommodation units 10,592 10,632 0.4% 1,913 2,065 7.9% 3,318 3,414 2.9% 1,961 1,961 0.0%

Full occupancy days 113 116 2.9% 138 136 -0.8% 107 128 18.7% 153 166 8.6%

Annual occupancy rate (%) 31% 32% 2.6% 38% 37% -1.1% 29% 35% 18.4% 42% 45% 8.3%

Accommodation units sold 1,195,798 1,234,697 3.3% 263,064 281,750 7.1% 356,269 435,348 22.2% 300,290 326,020 8.6%

Overnights 2,716,812 2,881,737 6.1% 598,486 642,552 7.4% 863,065 1,010,914 17.1% 572,460 609,125 6.4%

ADR15 (in HRK) 430 465 8.1% 546 538 -1.5% 376 384 2.3% 838 864 3.2%

Board revenues (in HRK) 514,060,909 574,077,286 11.7% 143,606,002 151,518,687 5.5% 134,035,119 167,341,883 24.8% 251,548,271 281,778,713 12.0%

RevPAR16 (in HRK) 48,534 53,995 11.3% 75,068 73,375 -2.3% 40,402 49,016 21.3% 128,276 143,691 12.0%

Adjusted EBITDA22 (in HRK) 303,823,058 368,687,622 21.3% 79,821,108 85,462,089 7.1% 88,965,226 109,627,842 23.2% 155,780,384 184,784,174 18.6%

Destination Poreč reported HRK 574.1 million in board revenues. The average dailyrate growth of HRK 35 and the 3.3% increase in the number of accommodationunits sold resulted in a HRK 60.0 million increase in board revenues. The mostsignificant contribution to the board revenue growth in this destination was attributedto the excellent performance of the Valamar Isabella Island Resort 4* & 5*, theLanterna 4* campsite and the Valamar Diamant 4* hotel. A solid occupancy wasmainly due to group and allotment placements in the shoulder season, and individualplacements in the Christmas/ New Year period.

Destination Rabac owed its HRK 7.9 million increase in board revenue to an increasein accommodation units sold (+18,686). The reported HRK 151.5 million in boardrevenues was mostly attributed to the strong performance of the Hotel & CasaValamar Sanfior 4*, the Allegro hotel 3* and the Miramar hotel 3*, as well as theMarina campsite 4*.

Destination Krk reported board revenues amounting to HRK 167.3 million (+24.8%),mainly due to the destination Baška 2016 yearlong consolidation. Excluding theperformance of hotels, resorts and camping resorts in destination Baška, boardrevenues rose by 10.5%, while the rest of the growth is mainly due to the strongperformance of the Krk 5* campsite.

Destination Dubrovnik reported a growth in the average daily rate (+HRK 26) and an8.6% rise in accommodation units sold. This resulted in a robust HRK 30.2 millionincrease in board revenues, totaling HRK 281.8 million, mostly due to the excellentperformance of two hotels: the Valamar Dubrovnik President 5* and the ValamarLacroma 4* (which stayed open the whole year round ) and good group andallotment placements in the shoulder season.


167


168 [GRI G4-33]

Opinion of the Management Board Committee of theCroatian Business Council for Sustainable Development on the 2016 Sustainability Report of Valamar Riviera

The independent Management Board Committee of the Croatian BusinessCouncil for Sustainable Development assessed the new 2016 Sustainabilityreport of Valamar Riviera. This is Valamar's second integrated report thatencompasses the most relevant facts on business operations as well asthe most important non-financial impacts reported using the GRI G4guidelines. We hereby confirm that the said report was produced inaccordance with the core option requirements.

The report gives a very detailed andarticulate presentation of businessresults, non-financial impacts,numerous improvements made in thecourse of the year such as investments,innovations, better organization andmanagement of non-financial impacts.The report includes an overview ofcommunity investments made toenhance the quality of life in the localcommunity, better environmentmanagement and destinationdevelopment as an important factor forValamar’s business.

Valamar Riviera sets definite strategicbusiness and sustainability goals forthe forthcoming reporting periods.They include long-term profitability,investments in the development ofhuman resources, sustainabledevelopment of destinations andsupport to the local community. Thecompany especially focuses onenvironmental protection, savingenergy and using renewable sources.What stands out from the large amountof data reported are the 400 million

kunas invested in 2016 that confirmValamar’s commitment to maintainingthe company’s long –termcompetitiveness and developing itsassets. The report shows that Valamarunderstands its risks and recognizeschanges in the structure of guests andstrives to adapt and respond to thedemands of new generations ofguests. The introduction of an EVcharger for guest use is a goodexample of this. Valamar included asustainable and socially responsibledevelopment of its destinations amongits strategic goals for the period up to2020. Other strategic goals alsoinclude caring for employees,innovation and digitalization,destination development andresponsibility to the community,commitment to environmentalsustainability and others.

The analysis of stakeholders showsthat the company fully understands itskey impacts and uses this knowledgeto identify its key stakeholders whomaterialize these impacts.


169[GRI G4-33]

Appropriate communication has beenestablished with each stakeholdergroup in order to receive feedbackabout Valamar Riviera. Similarly,Valamar defined its material aspectsand strives to manage them actively.The report does not provide a clearexplanation of the link between thesetwo processes: it is not clear how thekey stakeholders participated in thedefinition of material aspects andconsequently the contents of thisreport’s non-financial part. However,Valamar chose to report on impactsrelated to a large number of materialaspects, which makes this report verycomprehensive.

Valamar especially focuses on theguest as the most importantstakeholder and, consequently, guestsatisfaction is very important as canbe seen in the continual measuring ofguest satisfaction and onlinereputation that both show highsatisfaction levels. This validates thequality and efficiency of the company’sstrategy. Apart from guests, the

second most important stakeholdersare Valamar’s employees. Thecompany offers additional benefits,continual salary increase, andpermanent employment and invests instaff lodging, training and similar toimprove employee satisfaction andretain the best of them. The companyis aware that excellent service canonly be based on excellent staff andthat both components are necessaryfor a successful hospitality operation.Finally, Valamar devotes specialattention to establishing long-termrelationships with suppliers in order toguarantee quality.

The report also presents a verydetailed overview of the keymanagement teams and an in-depthexplanation of their responsibilitiesand areas of management that areperformed through Committees. Aclear definition of the responsibilities inthe management of non-financialimpacts would additionally prove thatsustainable development is ValamarRiviera’s strategic orientation.

The area of risks and risksmanagement is explained in detail. Inline with the perception of global riskspublished by WEF (World EconomicForum), Valamar also included the risksof climate change.

Our proposal for the report is to make amore visible distinction betweencorporate social responsibility (activitiesrelated to the management of thecompany’s own impacts on theenvironment and society) and thecompany’s philanthropy activities(programs related to destinationmanagement and communityinvestment). Valamar shows significantresults in both area and with theirdistinction and separation, thecompany would offer a betterpresentation of these two impactgroups. Besides, the structure ofinformation related to the environmentwould comply with the structuredefined by GRI guidelines that wouldcontribute to the clarity of informationand give a better assessment overviewof Valamar’s environmental impact.

Although there is still room forimprovement, Valamar’s report is veryclear, articulate and comprehensiveand renders a clear presentation ofthe impacts, main activities, businessstrategy and performance in the pastyear.

The data is presented in a clearmanner so we can conclude that thisreport shows significant improvementin relation to the report published theyear before.

We congratulate Valamar on theremarkable effort put in creating thisreport and on the numeroussuccessful activities undertaken, thatsubstantiated this report withinteresting and positive information.

Management Board Committee of theCroatian Business Council forSustainable Development


170 [GRI G4-32]

GRI Index

Aspect GRI description Page no.

G4-1 Statement from the CEO 6, 7

G4-2 Key impacts, risks and opportunities 37, 38, 39, 72, 73, 74, 75, 90, 91,92, 93, 125, 144, 145, 147, 148, 149, 150, 151, 152, 153

G4-3 Name of the organization 13

G4-4 Primary brands, products and/or services 13, 14, 15, 76

G4-5 Location of the organization's headquarters 14

G4-6 Number of countries where the organization operates 13, 14, 15

G4-7 Nature of ownership and legal form 133

G4-8 Markets served 13, 15

G4-9 Scale of the organization 14, 15

G4-10 Total number of employees by employment type, employment contract and region 54, 58

G4-11 Percentage of total employees covered by collective bargaining agreements 62

G4-12 The organization’s supply chain 78, 79, 81

G4-13 Significant changes during the reporting period 82, 83, 121

G4-14 Whether and how the precautionary approach or principle is addressed by the organization 153

G4-15 Externally developed economic, environmental and social charters, principles, orother initiatives to which the organization subscribes or which it endorses 50, 131

G4-16 Memberships of associations 85


Identified Material Aspects and Boundaries

G4-17 Entities included in the organization’s financial statements 11

G4-18 Process for defining the report content 11

G4-19 List of all the material Aspects 34

G4-20 Material Aspects within the organization 34, 35

Stakeholder Engagement

G4-24 List of stakeholder groups engaged by the organization 29, 30, 31

G4-25 Identification and selection of stakeholders with whom to engage 29, 30, 31

G4-26 Approach to stakeholder engagement 29, 30, 31

Report Profile

G4-28 Reporting period 11

G4-29 Date of most recent previous report 11

G4-30 Reporting cycle 11

G4-31 Contact point for questions regarding the report 11

G4-32 GRI Content Index 170, 171

G4-33 External assurance for the report 11, 168, 169

Governance Structure and Composition

G4-34 Governance structure of the organization 68, 134, 135, 136

Ethics and Integrity

G4-56 Values, principles, standards and norms of behavior 37, 38, 39, 133, 146, 154


171[GRI G4-32]


CATEGORY: ECONOMIC

Economic Performance

G4-EC1 Direct value generated and distributed 31, 32, 33

G4-EC2 Financial implications and other risks and opportunities for the organization’s activities due to climate change 152

G4-EC9 Proportion of spending on local suppliers at significant locations of operation 31

CATEGORY: ENVIRONMENTAL

INDICATORS OF ENVIRONMENTAL IMPACT

Energy

G4-EN3 Energy consumption within the organization 116, 118, 119

G4-EN5 Energy intensity 118, 119

Emissions

G4-EN19 Reduction of greenhouse gas (GHG) emissions 108, 115, 117

Effluents and Waste

G4-EN22 Total water discharge by quality and destination 120

G4-EN23 Total weight of waste by type and disposal method 120

Overall

G4-EN31 Total environmental protection expenditures and investments by type 115, 116


CATEGORY: SOCIAL

LABOR PRACTICES AND DECENT WORK

Employment

G4-LA1 Total number and rates of new employee hires and employee turnover by age group, gender and region 55

G4-LA2 Benefits provided to full-time employees that are not provided to temporaryor part-time employees, by significant locations of operation 56

Labor/Management Relations

G4-LA4 Minimum notice periods regarding operational changes, including whether these are specified in collective agreements 64

Training and Education

G4-LA10 Programs for skills management and lifelong learning that support the continued employability of employees 56, 66, 67, 70, 71, 102

G4-LA11 Percentage of employees receiving regular performance and career development reviews 63, 69

G4-LA12 Composition of governance bodies and breakdown of employees per employee categoryaccording to gender, age group, minority group membership, and other indicators of diversity 136, 137, 138, 139, 140, 141, 142, 143

Equal Remuneration for Women and Men

G4-LA13 Ratio of basic salary and remuneration of women and men by employee category, by significant locations of operation 62

SOCIETY

Local Communities

G4-SO1 Percentage of operations with implemented local community engagement, impact assessments, and development programs 102, 108, 111, 112

PRODUCT RESPONSIBILITY

Customer Health and Safety

G4-PR1 Percentage of significant product and service categories for which health and safety impacts are assessed for improvement 51, 115, 116, 131

Product and Service Labeling

G4-PR5 Results of surveys measuring customer satisfaction 47, 48, 49

Marketing Communications

G4-PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerningmarketing communications, including advertising, promotion and sponsorship, by type of outcomes 50


172

The strategic goals presented in this report representthe intention of the Management Board and are basedon currently available information, current assumptions,and forward-looking expectations and projections.Strategic goals are not a guarantee of future results andare subject to future events, risks and uncertainties,many of which are beyond the control of, or currentlyunknown to Valamar Riviera, as well as to potentiallyincorrect assumptions that could cause the actualresults to materially differ from the strategic goals. Inaddition, the level of capital investments in any givenyear is subject to specific proposals of the ManagementBoard to the Supervisory board, each board may electto deviate from this policy if appropriate under theprevailing circumstances.

Risks and uncertainties include, but are notlimited to the ones described in the part“Company and Group Risks“. Materiallysignificant deviations from the strategic goals mayarise from changes in circumstances,assumptions not being realized, as well as otherrisks, uncertainties, and factors, including:

→ Macro-economic developments in the Republicof Croatia and in the source markets, includingcurrency exchange rates fluctuations andprices of goods and services, deflation andinflation, unemployment, developments of thegross domestic product and industrialproduction, as well as other developmentshaving a direct or indirect impact on thepurchasing power of Valamar Riviera’s guests;

→ Economic conditions, security and politicalconditions, developments and events in thecapital markets of the Republic of Croatia andin the source markets of Valamar Riviera;

→ Spending and disposable income of guests, aswell as guests’ preferences, trust in andsatisfaction with Valamar Riviera’s productsand services;

→ Trends in the number of overnights, bookings,and average daily rates of accommodation inValamar Riviera’s properties;

→ Trends of the Croatian kuna exchange rate inrelation to world currencies (primarily euroand Swiss franc), changes in market interestrates and the price of equity securities, andother financial risks to which Valamar Rivierais exposed;

→ Labor force availability, mobility and costs,transport, energy, and utilities costs, sellingprices of fuel and other goods and services,as well as supply chain disruptions;

→ Changes in accounting policies and findings offinancial report audits, as well as findings oftax and other business controls;

→ Outcomes and costs of judicial proceedings to which Valamar Riviera is a party;

→ Loss of competitive strength and reduceddemand for products and services of Croatian tourism and Valamar Riviera underthe impact of weather conditions andseasonal movements;

→ Development of new technologies, reliability of IT business solutions and cyber security of Valamar Riviera’s business operations, aswell as related costs;

→ Issues with construction companies,subcontractors, permits and permissions,weather, prices of goods and services in thecourse of realizing investments in Valamar'sportfolio;

→ Changes of tax and other regulations andlaws, trade restrictions, and rates of customs duty;

→ Adverse climatic events and environmental risks.

The strategic goals presented herein are not anoutright recommendation to buy, hold or sellValamar Riviera’s shares.

DISCLAIMER


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