Nonfinancial statement 2020

Nonfinancial Statement for 2020

balance development sustainability responsibility

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Non-financial statement for 2020

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Successful and satisfied employees make a successful company.

M. Šarić

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Contents Sadržaj 1.

A FOREWORD BY THE PRESIDENT AND CEO

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2.

ABOUT THE NON-FINANCIAL STATEMENT

6

2.1.

ENTITIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS

6

3.

BUSINESS OPERATIONS DURING THE PANDEMIC

7

4.

KEY PERFORMANCE INDICATORS

8

5.

ABOUT THE ORGANISATION

11

5.1.

COMPANY NAME AND HEAD OFFICE

11

5.2.

OWNERSHIP AND LEGAL FORM

11

5.3.

MAJOR SHAREHOLDERS

11

5.4.

MANAGEMENT STRUCTURE

12

5.5.

SIGNIFICANT CHANGES DURING THE REPORTING PERIOD

12

5.6

CROATIA AIRLINES AS A BRAND

13

5.7.

FLEET AND CAPACITIES

15

5.8

KEY SERVICES AND ACTIVITIES

16

5.9

COUNTRIES/MARKETS SERVED

16

5.10. DESTINATIONS/AIRPORTS/ROUTES

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16

5.11

OTHER SERVICES

17

5.12

INFORMATION ON EMPLOYEES

18

5.13

SUPPLY CHAIN

20

5.14.

MEMBERSHIP IN PROFESSIONAL ASSOCIATIONS AND ORGANISATIONS

22

5.15

COMPANY HISTORY

24

6.

SUSTAINABLE BUSINESS MODEL

26

6.1

OPERATIONAL RISKS AND OPPORTUNITIES

27

6.2 STAKEHOLDERS

30

6.3

MATERIAL ASPECTS OF THE COMPANY’S BUSINESS OPERATIONS AND THEIR EFFECT

ON SUSTAINABLE DEVELOPMENT

36

6.4

SAFETY AND ADVANCEMENT AS BUSINESS IMPERATIVES

43

6.5

RESPONSIBILITY TO EMPLOYEES

48

6.6.

BUSINESS ETHICS

53

6.7

ANTI-CORRUPTION PROGRAMME

53

6.8

RESPONSIBILITY TO PASSENGERS

53

6.9.

HELPING THE COMMUNITY THROUGH COOPERATION PROJECTS

57

6.10

ENVIRONMENTAL IMPACT OF BUSINESS ACTIVITIES

59

7.

GRI INDEX 67

We are guided by the principles of responsibility, ethics, transparency and best business practices.

A. Grubelić

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102-14

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One of the most unusual years we have ever witnessed is finally behind us. It was marked by the worst crisis ever faced by the airline industry, forcing us to change the way we live and work. At this moment, we share the fate of the entire airline industry - one of the world’s most affected sectors, which is from day to day suffering direct damage caused by the negative consequences of the coronavirus pandemic.

Due to the extraordinary circumstances that resulted in a sharp fall of demand for travels, we were forced to significantly reduce our flight schedule, which had envisaged an expansion of operations to some new destinations. In the surprisingly uncertain and complex situation, we did our very best to identify fresh business potentials in the market affected by the economic crisis, to alleviate the negative financial consequences for our business. In line with the changed business environment, in 2020 we drew up four versions of the crisis plan to mitigate the direct damage to the Company’s operations to a maximum possible extent.

Despite all restrictions, we continued operating, all the while adhering to the principle of passenger safety during the coronavirus pandemic. This way we enabled 23,000 Croatian citizens from all over the world to return home after the global pandemic struck, as well as to numerous foreign citizens, thus staying true to both our passengers and country. From the beginning of the epidemic, we organised several repatriation flights from various parts of Europe and put ourselves at disposal of the Government of the Republic of Croatia for the organisation and transport of humanitarian aid. In cooperation with the Government of the Republic of Croatia, we flew home members of the Croatian Armed Forces from their mission in Afghanistan. We proudly note that we operated the longest flight in the Company’s history; in cooperation with the Ministry of Foreign and European Affairs, on 18 July we operated repatriation flights for young Chinese athletes and flew home Croatian and other EU citizens from the People’s Republic of China.

The Company kept following the epidemic developments and implementing all of the prescribed epidemiological measures. Croatia Airlines’ Crisis Management Team, activated on 10 March 2020, coordinated all of the above activities in 2020. As a socially responsible carrier that values its passengers, we applied the adjusted rules, which are regularly updated and published in a transparent manner on our website www.croatiaairlines.com. We also closely follow and implement all decisions and recommendations of the European Union Aviation Safety Agency (EASA) that prescribe the use of protective equipment by employees and passengers, aircraft disinfection and physical distance in the aircraft cabin. The use of face masks or shields is obligatory on all of our flights.

In this complex and turbulent business environment, Croatia Airlines as the national flag carrier aims to contribute to the mitigation of severe consequences of the coronavirus crisis, while at the same time remaining a socially responsible carrier focused on sustainable development. In 2020, the Company adopted the ISO 50001 version of the 2018 standard and thus successfully completed the recertification process, proving that its energy management system was stable and reliable even in the aggravated conditions.

We are still faced with a very challenging period ahead of us. According to the International Air Transport Association (IATA), it will take air traffic a long time to recover, and it is not seen to reach the pre-crisis level before 2024. However, strengthened by the new experiences, we will overcome this crisis and keep actively connecting our homeland to other destinations and promoting it as a tourist destination, and tread a new, responsible path to the future on both personal and corporate levels. We believe that the responsible conduct of all of us will very soon enable our Company to spread its wings and fly high again.

I take this opportunity to thank our employees for their understanding, support, professionalism and flexibility, which enabled us to respond to the business crisis in a timely and proper manner.

In these crisis times we have once again confirmed that our Company makes a strategic part of Croatia’s traffic infrastructure, by connecting people and destinations even when it seems impossible, and that our wings have been and always will be the propelling strength of both Croatia and its citizens.

Yours respectfully,

Jasmin Bajić President and CEO

A. Grubelić

Dear readers!

2. ABOUT THE NON-FINANCIAL STATEMENT Croatia Airlines’ annual report on corporate social responsibility covers the period from 1 January to 31 December 2020. It has been drawn up in line with the Sustainability Reporting Guidelines (Global Reporting Initiative - GRI Standards) - the Core option.

As Croatia Airlines is strongly focused on sustainable business operations and corporate social responsibility, it already regularly covered this topic in its business reports.

This Statement has been prepared in PDF and posted on the Company’s publicly available website http:// www.croatiaairlines.com/hr.

For any questions, clarifications or suggestions related to Croatia Airlines’ Non-financial Statement please contact us at the following email address: ana-marija.jurkovic@croatiaairlines.hr.

2.1 Entities included in consolidated financial statements Croatia Airlines Group comprises Croatia Airlines d.d. (joint-stock company) and the following associate companies: Obzor putovanja d.o.o. (limited company), 100%-owned by Croatia Airlines d.d., and Amadeus Croatia d.d., 95%-owned by Croatia Airlines d.d.

The Obzor putovanja travel agency was founded in 1993. It provides top-quality services that include organisation of individual or group travels within Croatia and abroad, sale of domestic and international airline tickets (IATA licence), arrangement of hotel accommodation in Croatia and abroad, cultural tourism, organisation of conferences, etc.

Being part of a joint booking system of European airlines, Amadeus Croatia is a national marketing company responsible for the local market, i.e. for the distribution, presentation and all other matters related to Ama-

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deus, with rights to operate in the market of Bosnia and Herzegovina as well.

Total revenues and expenses of the associate companies make up less than 1% of consolidated revenues and expenses, with an insignificant effect of their operations on those of Croatia Airlines.

The data set out in the Non-financial Statement pertain to Croatia Airlines d.d. alone.

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102-45 102-48 102-49 102-50 102-51

A. Grubelić

102-52 102-53 102-54 102-56

3. BUSINESS OPERATIONS DURING THE PANDEMIC Numerous indicators show the extent to which the year of 2020 was specific. It was the year in which the airline industry faced the worst crisis ever, pushing the boundaries of the business theory and practice as we knew them.

The coronavirus pandemic has had a devastating effect on the global airline industry. Many airlines were forced to put their aircraft out of operation and cancel numerous flights. This is by far the worst blow for the airline industry as a whole, as it has affected airlines, airports, air traffic control, aircraft and engine producers, and tour operators.

Being no exception, Croatia Airlines shares the fate of other airlines in Europe and the rest of the world.

Ever since January, the Company was following and adopting recommendations related to the coronavirus developments issued by the Croatian Public Health Institute, Ministry of Health of the Republic of Croatia, Croatian Civil Aviation Agency, Star Alliance, International Air Transport Association (IATA), and other relevant Croatian and international institutions and associations.

Croatia Airlines’ Crisis Management and Emergency Response Office actively followed the developments, and planned and undertook all necessary steps to protect the health and safety of its passengers, crew members and other employees to the greatest possible extent. All premises and aircraft were disinfected and cabin filters checked on a regular basis. The Company also introduced additional protective measures. This way it protected the health of both its employees and passengers, making the public health interest its priority.

The Company regularly notifies its employees of the latest coronavirus developments in Croatia and abroad and shares advice about the measures and conduct that need to be applied, and informs them on a regular basis of any new circumstances, thus looking after the safety of both its employees and passengers.

Despite the circumstances, the Company continued with its operations. However, to prevent the spread of the coronavirus epidemic in the Republic of Croatia, i.e. with the aim to protect the public health, as well as the health and safety of its passengers and employees to the greatest extent possible, on 10 March it started temporarily cancelling flights or significantly reducing frequencies on certain routes.

In April, Croatia Airlines operated one rotation a week only: Zagreb - Frankfurt - Zagreb. It also flew several repatriation and charity flights. After the epidemiological measures were alleviated, on 11 May it resumed flights from Zagreb by operating two daily rotations for Split and Dubrovnik, introducing an additional rotation on the route

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from Zagreb to Frankfurt in the final week of May, and reintroducing flights from Zagreb to Amsterdam. As of June, as well as in July and August, its network of flights was gradually expanded to both domestic and international destinations; however, due to the aggravating epidemiological situation and the measures introduced by individual European countries, the booking figures went down in the second half of August, which resulted in the cancellation of certain routes and further flight reductions in the period to follow.

Such dynamic circumstances called for a proactive approach, which the Company was applying in an attempt to adapt to the newly occurred business developments as much as possible.

Croatia Airlines has a strategic role in Croatia’s traffic infrastructure, which has proved to be particularly crucial in this crisis period, given the Company’s contribution to the maintenance of traffic connectivity vital for both the country’s economy and citizens. As the epidemiological situation got worse in the autumn and winter, Croatia Airlines’ importance for connecting Croatia to Europe’s main destinations became even more pronounced after a large number of foreign airlines withdrew from the market or reduced the number of flights.

Given the crisis and its consequences for the tourist season, Croatia Airlines’ additional value and contribution to tourism lay in connecting the Adriatic airports with the European destinations during the season when the operations of foreign carriers were significantly reduced amidst a low demand.

It is also clear that, if the epidemiological situation should get worse, Croatia Airlines will be one of the rare, or the only company to ensure traffic connectivity for the benefit of the country’ economy and citizens.

From the beginning of the crisis to May 2020, Croatia Airlines enabled about 23,000 Croatian citizens from all over the world to return home, putting itself at disposal of the Government of the Republic of Croatia for the transport of humanitarian aid and the return of Croatian soldiers from Afghanistan, and operating several repatriation flights from various parts of Europe.

In April, Croatia Airlines was approved by the Croatian Civil Aviation Agency to transport cargo in the passenger cabin of the Airbus aircraft, primarily humanitarian aid, i.e. protective equipment.

4. KEY PERFORMANCE INDICATORS Croatia Airlines is a carrier that has been connecting for more than 30 years domestic destinations and Croatia with the rest of the world. Despite numerous challenges, it has grown into a

Three core activities:

respectable airline known for its flight safety, professional staff and top-quality service. We are proud of our achievements, i.e. of the fact that Croatia Airlines’ aircraft transported more than 40.8 million passengers and operated over 627,000 flights in the period from our first commer-

Passenger transport

cial flight to the end of 2020.

The crisis caused by the coronavirus drastically reduced demand for air traffic services, which, in addition to the introduced traffic limitations necessitated a reduction in capacities and drastic cuts within the envisaged flight schedule, i.e. reduction of block time, whether by cancelling or decreasing the number of operations on existing routes or cancelling the introduction of envisaged new routes, or by introducing significant fleet changes and applying a number of other ope-

Cargo transport

rating measures in an effort to overcome the crisis, the effects of which reflected in both revenue and expenditure side of the balance sheet. The significantly changed business circumstances gravely affected the Company’s financial operations, and the period from March to the end of 2020 was marked by a way poorer sales, traffic and financial performance.

Given such market conditions, the Company’s operating loss at the end of 2020 totalled HRK 335.4 million, while its total net loss for the year was HRK 358.2 million.

Compared to 2019, the overall block time, expressed in the number of flights, saw a 54% decline (-15,380 flights), while the number of passengers fell by 72% (-1.56 million), directly

Aircraft maintenance

affecting the operating revenues, primarily passenger revenues, by as much as HRK 1058,6 million (-70%) on a yearly level. In addition to the noticeably reduced overall revenues, the revenue structure also changed compared to 2019: passenger revenues declined, while other revenues recorded a rise, with passenger revenues making up 61% of operating revenues (88% in 2019), and other revenues making up 38% (11% in 2019) The share of cargo transport revenues remained the same. As for the operating expenses structure, the share of variable costs declined and the share of fixed ones rose as a result of reduced block time.

More detailed information on the Company’s financial operations are available in its Annual Business Report posted on its website. https://www.croatiaairlines.com/about-us/financial-information/financial-reports?langid=en

Operating revenues - structure

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passengers 61% cargo 1% other 38%

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Operating expenses - structure Flight costs

18%

Maintenance 14% Passenger services Air traffic services

5% 16%

Promotion and sales

9%

General and administrative cost

7%

Depreciation and amortisation

19%

Other expenses

13%

Key indicators Financial indicators

2020 2019 2018

2020/2019 2019/2018 (%)” (%)”

Operating revenues (HRK 000)

759.495

1.728.289

1.701.343

-56,1%

1,6%

Operating expenses (HRK 000)

1.094.869

1.783.673

1.777.846

-38,6%

0,3%

EBIT (HRK 000)

-335.374

-55.384

-76.504

-

-

Net result (HRK 000)

-358.225

-79.359

-82.937

-

-

-47,17

-4,59

-4,87

-

-

775

1.730

1.774

-55,2%

-2,5%

165.615

167.869

-73,5%

-1,3%

Net margin %

Operating revenue per employee (HRK 000)

RTK/employee (000)

43.849

Assets value (HRK 000)

Capital and reserves (HRK 000)

Investments (HRK 000)

1.667.528

1.407.119

984.944

18,5%

42,9%

215.930

224.890

304.118

-4,0%

-26,1%

69.423

64.156

156.301

8,2%

-59,0%

Capacities Number of seats offered (million)

1,27

3,09

3,05 -58,9% 1,3%

Fleet gross carrying capacity (t)

293,2

251,2

251,2 16,7% 0,0%

Fleet net carrying capacity (t)

159,3

142,8

142,8 11,6% 0,0%

Traffic indicators

Passengers carried (thousand)

618

2.179

2.169 -71,6% 0,5%

13.052

28.432

28.003 -54,1% 1,5%

Flights in km (thousand)

8.004

18.934

18.793 -57,7% 0,8%

Cargo transported (t)

1.442

2.135

2.264 -32,5% -5,7%

PLF %

49,6

73,6

73,5 -32,6% 0,1%

WLF %

48,4

70,3

70,4 -31,2% -0,1%

ASK (million)

871

2.277

2.267 -61,7% 0,4%

RPK (million)

432

1.676

1.666 -74,2% 0,6%

Number of flights

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CTN

OU

ICAO code IATA code

13.052 618 flights in 2020

36

13 aircraft 31 Dec 2020

million passengers in 2020

flights per day

980 employees

27

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26

airports

countries

destinations

101 million EUR in sales revenues

Miles& More Frequent-flyer award programme

Global airline association

10

102-1 102-2 102-3

We pay special attention to

102-4 102-5

environmental conservation

102-6 102-7

in order to ensure a better

102-8 102-9 A. Grubelić

future for everyone.

102-10 102-13 102-18

5. ABOUT THE ORGANISATION 5.1 Company name and head office Croatia Airlines d.d.

The Company’s head office is in Zagreb, Bani 75 b, Buzin

5.2 Ownership and legal form Croatia Airlines d.d. is a joint-stock company majority-owned by the state. Its share capital has been fully paid up.

In its session of 14 December 2020, the General Assembly made a decision to increase the Company’s capital in cash contribution. The capital of HRK 277,879,530.00 was increased by HRK 350,000,000.00 (to HRK 627,879,530.00) through the issuance of 35,000,000 new registered shares, each in the nominal value of HRK 10.00. On 15 January 2021, upon entry into the court register, the capital was increased to HRK 627,879,530.00.

5.3 Major shareholders Shareholder

Number of shares

%

27.010.821

97,2033

AIRPORT ZAGREB

477.121

1,7170

HPB FOR THE REPUBLIC OF CROATIA

173.768

0,6253

22.000

0,0792

CROATIA INSURANCE d.d. (JSC)

8.950

0,0322

CROATIAN LOTTERY d.o.o. (LTD)

4.000

0,0144

ASTRA INTERNATIONAL d.d. (JSC) IN BANKRUPTCY

3.682

0,0133

HP d.d. (JSC)

2.750

0,0099

TURISTHOTEL d.d. (JSC)

2.090

0,0075

TANKERKOMERC d.d. (JSC)

2.090

0,0075

REPUBLIC OF CROATIA

JANAF d.d. (JSC)

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Š. Lugarov

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5.4 Management structure Shareholders

Shareholders’ General Assembly

Supervisory Board

Audit Committee

Management Board

SHAREHOLDERS’ GENERAL ASSEMBLY - a body through which the shareholders exercise their rights.

The scope of authority of the General Assembly is prescribed by the Companies Act and the Company’s Articles of Association.

SUPERVISORY BOARD - a body whose main task is supervision of the Management Board in running the Company’s business operations. According to the Articles of Association, the Supervisory Board is made up of five members, one of whom is the representative of employees. Members of the Supervisory Board receive remuneration in accordance with the Decision on Remuneration of Members of the Supervisory Board and the Management Board. In 2020, the Supervisory Board held four regular meetings and three ad hoc meetings (digital decision-making, without meetings being held). The Audit Board held four sessions in 2020. It presents its conclusions to the Supervisory Board orally, within regular sessions.

COMPANY MANAGEMENT - manages the Company’s business activities. Its competence and role are regulated by the Companies Act, the Company’s Articles of Association and other internal rules and regulations. In 2020, no changes occurred within the Company’s Management Board. The Company applies the Corporate Governance Code of Zagrebačka burza d.d. (Zagreb Stock Exchange) and the Corporate Code of Governance of Companies in which the Republic of Croatia has Shares or Interests, and fulfils all obligations arising therefrom.

5.5 Significant changes during the reporting period In line with the National Reform Programme, the Government of the Republic of Croatia reached in February 2019 a decision to initiate the procedure of seeking a strategic partner and to establish a commission to implement the procedure and propose the selection of a strategic partner for the Company. In this context, in order to meet the prerequisites for the Company’s recapitalisation, an HRK 250 million worth two-tranche shareholder loan was approved, i.e. HRK 100 million in October 2019 and HRK 150 million in January 2020.

This was necessary to stabilise the Company’s operations prior to receiving a capital injection from the state and interested investors.

However, with the onset of the COVID-19 crisis, in March 2020 the Commission decided to put the procedure of seeking a strategic partner on hold amidst the unfavourable situation and force majeure. It is uncertain when the market conditions will be such to allow for the process to resume, but given the current situation, it is unlikely that this will happen before 2023.

Pursuant to the Decision on State Aid for the Damage Caused by the COVID-19 Outbreak, in November 2020 the Company received state aid worth HRK 88.5 million as compensation for the losses it sustained in the period from March to June, i.e. to alleviate the consequences of the coronavirus crisis.

In late 2020, it received an HRK 600 million worth capital injection from the state, with HRK 350 million being a direct investment into capital in line with the European Commission’s Temporary Framework for State Aid Measures to Support the Economy in the Current COVID-19 Outbreak. The recapitalisation will enable the Company to reach the pre-crisis capital level, within the approved measures stipulated by Article 107(b)(3) TFEU. The remaining HRK 250 million is a shareholder loan, also approved in line with the Temporary Framework rules.

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5.6 Croatia Airlines as a brand Today, Croatia Airlines is a distinctive brand in both Europe and the rest of the world, actively contributing to the development of Croatia’s tourism. The Company branding started parallel with its founding (7 August 1989), with the development of its corporate visual identity being one of the most important components of the process. Its visual identity undeniably contributes to its being recognised as a Croatian brand.

The Company’s corporate design aims to project its image of a highly reputable airline not only in Croatia but throughout the world. Its visual identity is based on the historical Croatian flag, reflecting safety, reliability and technical precision. The image of Croatia Airlines is not only a visual expression of the Company’s culture, but also becomes part of the national identity.

The shapes and colours of the Croatian flag are embedded in the Company’s image and have been redesigned to convey a modern and impressive visual identity. The coat of arms, an integral part of the flag, has been transformed into a dynamic element that aims upwards and is reminiscent of a bird in flight. The increased CROATIA logo and the chequerboard squares stretch across the aircraft fuselage and are the distinct symbols of the Croatian national identity. Croatia Airlines’ aircraft, introducing Croatia for the first time to many passengers, have thus become even greater and more prominent promoters of the country throughout Europe, which makes the CROATIA logo all the more important.

Croatia Airlines contributes to the development of Croatia’s tourism and economy on an ongoing basis.

Many projects have been temporarily suspended due to the coronavirus crisis, but they are expected to continue once the pandemic subsides.

The inflight magazine Croatia has a great role in the Company’s visual corporate identity and greatly promotes the country. It places emphasis on its stunning nature, historical values and cultural events. In cooperation with the Croatian Tourist Board and other tourist boards, the Company publishes advertisements

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and articles in the magazine, while films promoting various Croatian regions are shown on Airbus flights.

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Facebook - 151,753 fans Twitter - 4,469 followers Instagram - 22,800 followers LinkedIn - 10,365 followers YouTube - 793 subscribers

A. Grubelić

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A. Grubelić

5.7 Fleet and capacities In 2020, Croatia Airlines operated a fleet of 13 aircraft: seven Airbus, of which an A320 and an A319 were under an operating lease, and six Q400, all under an operating lease. A dry-leased A319 was used as needed, by applying the PBH (Power by the Hour) principle.

The planned capacities were reduced as a result of a lower traffic scope, and the planned seasonal lease of CRJ and dry lease of a Q400 that should have been added to the existing fleet as of the summer flight schedule were cancelled.

Our fleet comprises the following aircraft: Airbus A320-200, Airbus A319-100 and Dash8-Q400.

Our fleet comprises the following aircraft: Airbus A320-200, Airbus A319-100 and Dash8-Q400.

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Specifications

Airbus A320-200

Airbus A319-100

Dash8 - Q400

Wing span (m/ft)

35,8 / 117

35,8 / 117

28,42 / 93,24

Fuselage length (m/ft)

37,6 / 123

33,84 / 111

32,83 / 107,71

Maximum ground takeoff weight (kg)

77.000

64.000 / 75.500

29.257

Maximum cruising altitude (m/ft)

11.900 / 39.000

11.900 / 39.000

7.620 / 25.000

Wing area (m2/ft2)

122,40 / 1318

122,40 / 1318

63,08 / 679

Maximum cruising speed (km/h)

834 (450 KTS)

834 (450 KTS)

667 (360 KTS)

Aircraft power plant

engines x 2 CFM 56

engines x 2 CFM 56

engines x 2 PW 150A

Number of aircraft in fleet

2

5

6

Number of seats

174

144/150

76

Airbus A320-200

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Airbus A319-100

Dash8 - Q400

5.8 Key services and activities As the national flag carrier, Croatia Airlines recognises its social responsibility to ensure optimum connection of the Republic of Croatia with the rest of the world, with an emphasis on contributing to the development of the country’s tourism. It has been continually adapting to the needs of the tourism industry and development, and planning its network of direct flights from both capital Zagreb and destinations on the Adriatic coast accordingly. It also provides passengers with good connections to their final destinations in cooperation with its airline partners, as well as those offering other means of transport.

In thirty-one years of existence and provision of transport services, Croatia Airlines has been connecting Croatian cities with major European metropolises, and in cooperation with its airline partners - with the entire world. As a member of Star Alliance, the world’s largest airline association, it provides its passengers access to the global network of flights coupled with numerous benefits.

5.9 Countries/markets served In the extraordinary circumstances during 2020, when the business and flight dynamics was dictated by the coronavirus pandemic, Croatia Airlines kept inter-connecting Croatian destinations, as well as connecting the country with the rest of the world. Our aircraft continued flying at all times, but on a reduced scale. During the 2020 peak season, they directly connected Zagreb to 14, Split to 11 and Dubrovnik to 7 international destinations.

Our destinations are: Amsterdam, Athens, Barcelona, Vienna, Berlin, Brussels, Copenhagen, Dublin, Düsseldorf, Frankfurt, Lisbon, London, Mostar, Munich, Paris, Rome, Sarajevo, Skopje and Zurich.

Within Croatia, the Company’s aircraft connected through scheduled traffic Zagreb with Dubrovnik, Split, Zadar and Pula, and during the tourist season with Rijeka, Osijek and Bol on the island of Brač.

In cooperation with other airlines, we offer a good connection to U.S., Canadian and other distant markets.

5.10 Destinations/airports/routes

16

Dublin Copenhagen

Amsterdam

London

Berlin Dusseldorf

Brussels Paris

Frankfurt

Munich

Vienna

Zürich Lyon

Zagreb Pula

Osijek

Rijeka

Sarajevo Zadar Split Rome Bol Dubrovnik

Skopje

Athens

5.11 Other services Charter flights In addition to scheduled flights, Croatia Airlines also offers charter flights, whether there is a need for organising a special flight for a certain company, school or a sports organisation or a series of tourist charter flights. https://www.croatiaairlines.com/Additional-services/Charter-transport/Ask-for-charter-service

Goods and mail transport Croatia Airlines also offers the service of cargo transport. Whether on its own and/or in cooperation with other airlines, it transports fragile goods, large shipments, animals or easily perishable goods, such as fresh fish, daily press, flowers, medicines, etc. https://www.croatiaairlines.com/Additional-services/cargo/Transport-capacity

Supervision services at Croatian airports Croatia Airlines also offers supervision services, intended primarily for airlines that have no representatives in Croatia and for the companies that are unable to cover all of their traffic demands with the existing personnel. These services are provided at Dubrovnik, Split and Zagreb airports. The services comprise the supervision of the handling agents’ work, support in the event of traffic irregularities, and representation of airlines at destination airports. https://www.croatiaairlines.com/Additional-services/supervision/Supervision-services

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Aircraft maintenance services Croatia Airlines’ Technical Centre offers various services in the field of base and line maintenance, engineering services, and technical and logistics support for other companies. To date, it has performed several hundreds of major works on its own fleet and that of other companies.

All information on maintenance services are available on the Company’s webpage: http://www.croatiaairlines.com/Technical-Services

Commercial training Our training courses are based on IATA’s standard programmes, and are held by Croatia Airlines’ highly experienced instructors. Since 1993 the Company has been organising a wide range of training courses needed by travel and commodity agencies for the acquisition of the IATA licence, training courses for the employees of airports, freight forwarders and airlines.

The Company’s Flight Operations Training Centre offers courses for the flight, cabin and ground operations personnel. All courses are based on the certified programmes harmonised with the EASA regulations and approved by the Croatian Civil Aviation Agency.

Croatia Airlines’ Technical Training Centre is a certified organisation for the training of aircraft and technical personnel, offering a wide range of training courses for certain types of aircraft, and specialist training courses for aviation engineers and technicians. Aircraft type training is provided in accordance with the EASA Part 66/ Part 147 standard, and is intended for the holders of Part 66 licence for the maintenance of A, B1, B2 or C category aircraft and for the engineers. https://www.croatiaairlines.com/Additional-services/Training-centers/Technical-training-center

5.12 Information on employees

980 employees

men

52%

women 48%

- average employee age: 43 years - average employment time: 16 years - 93% of employees employed on an indefinite contract basis - no employees outside CA performing work for CA

Manager structure by age and gender

Structure by age and gender

567

men

men

total

285

282

132

96

281

128

153

women

5 Manager number

4

4

2

36 up to 30 years

30 - 50 years

above 50 years

30 - 50 years

above 50 years

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Employee number

women

Total number of contract employees (permanent contract/temporary contract in Republic of Croatia/abroad

Number of employees (full- time/part-time)

full time 971; 99%

employees in the Republic of Croatia 945; 96%

part time 9; 1%

employees abroad 35; 4%

All of our employees have equal development and advancement opportunities, regardless of their parental status. A total of 41 employees were on parental leave in 2020. Of this number, 26 employees returned to work after a year, while the rest of them opted for extended leave. All employees who returned from parental leave continued working with the Company. Based on the data shown below, the return to work rate was 63.42%.

Year

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2020

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Gender

Total number of employees on maternity leave

Number of employees that returned to work afterwards the end of maturnity leave

Total number of employees who worked 12 months after they returned to work following the end of maturnity leave

M 7

6

6

F

20

20

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5.13 Supply chain Supplier structure

40% Domestic suppliers 40% Foreign suppliers 60% 60%

With a view to providing top-quality services in line with its Business Plan, Croatia Airlines uses a complex supply chain adapted to the specific requirements of air traffic. In terms of fields of supply, the supply chain is managed through larger categories comprising the supply of: goods and services, aviation fuel, ground services, technical equipment, etc.

During 2020, Croatia Airlines conducted business with a total of 1,563 suppliers, of which 941 (60%) were foreign ones. As the greatest turnover is realised in foreign markets, of the total turnover of HRK 784.8 million, HRK 524.4 million falls off on foreign suppliers.

In terms of regions, in 2020 the highest turnover was realised in dealings with suppliers from Europe. Cooperation with domestic suppliers comprises more than a third of total turnover. The share of domestic suppliers in the total number of suppliers is approximately 40%. As for the structure of turnover, when it comes to domestic suppliers the highest turnover was generated in operations with airports and in the fuel procurement segment.

The biggest share of international transactions is traditionally realised through cooperation with suppliers from Germany, both in terms of total transaction volumes and the number of suppliers. When it comes to the type of service in international traffic, the highest turnover was generated from fleet maintenance services, aircraft block time and airport services, operating leases and fuel procurement.

Supplier countries according to turnover generated Supplier country

Turnover in HRK (million)

Share in total turnover

Number of suppliers

Share in total number of suppliers

Croatia

260,4

33%

622

40%

Germany

169,0

22%

171

11%

Ireland

84,2

11%

27

2%

Belgium

57,2

7%

36

2%

Great Britain

45,0

6%

128

8%

USA

36,9

5%

63

4%

France

31,1

4%

91

6%

Canada

23,9

3%

13

1%

The Netherlands

22,0

3%

41

3%

Switzerland

15,2

2%

41

3%

Others

40,1

5%

330

21%

Total

784,8

100%

1.563

100%

Jet fuel (petroleum-based fuel) suppliers Jet fuel is supplied by one local supplier and some 20 foreign suppliers, selected on the basis of the quality of fuel, service and price as the three key parameters for the safety and cost-effectiveness of each and every flight.

Jet fuel suppliers supply aircraft with fuel at airports in accordance with fuelling needs planned for each individual flight. Jet fuel suppliers are licensed to supply jet fuel at airports by domicile civil aviation agencies as a prerequisite for their operations and so as to ensure that basic quality conditions are met.

Furthermore, in order to ensure that the required quality standard, and the supply and operations safety

20

standards are met, Croatia Airlines carries out inspections of suppliers under its membership in IFQP-u (IATA FUEL QUALITY POOL), which carries out inspections at all airports where Croatia Airlines operates.

In the complex operating conditions during the global pandemic, Croatia Airlines maintained cooperation with all foreign and local fuel suppliers in line with high quality and service standards. For the first time in its history, it established cooperation with a fuel supplier in China. Quality controls were intensified amidst the closing and opening of airports, and due to an exceptionally large number of charter flights, including repatriation ones.

Ground service providers Ground services include aircraft handling services, air traffic control services, and passenger accommodation services.

They ensure safe and regular provision of passenger and cargo transport through airports, using the airport infrastructure, the services of handling agents and the passenger hotel accommodation services in the event of traffic disturbances. A specificity of flight operations in the winter period is the de-icing and anti-icing service within the DAQCP (DE/ANTIICING QUALITY POOL) system.

In 2020, these services were provided by 40 domestic and 148 foreign suppliers at regular destination airports, and 55 suppliers with the status of an occasional provider of services related to seasonal and charter transport.

All handling agents of ground service providers are verified and approved by civil aviation authorities and licensing bodies competent to issue service provision licences.

All ground service providers at regular Croatia Airlines destinations undergo company quality control. Those that are members of IATA, an umbrella association of airline companies, have been accredited IATA’s Safety Audit for Ground Operations (ISAGO) certification, which guarantees that safety standards are met.

Aircraft catering service suppliers Catering service suppliers include catering companies at airports, suppliers of beverages, newspapers, expendable material and dishes for aircraft. In 2020 there were 31 domestic and 29 foreign suppliers of

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such goods and services.

All of them are obliged to act in accordance with the provisions of the Food Act of the Republic of Croatia and have the HACCP standard implemented, which is subject to control within the Company’s quality assurance system.

Due to the coronavirus pandemic, since 21 March 2020 the standard in-flight meal/beverage/newspaper service was temporarily cancelled in order to adhere to all epidemiological measures and reduce the passenger-staff interaction.

As of this date, in-flight service includes bottled water for each passenger, and sanitising wipes (unit packaging) distributed upon entering the aircraft.

Aircraft parts and maintenance service suppliers Since Croatia Airlines maintains aircraft both from its own fleet and that of other carriers by adhering to the same international and manufacturer standards, the supply chain includes the procurement of aircraft parts, material, tools and equipment, and the procurement of part, tool and equipment maintenance services, with the aim of ensuring the continuing airworthiness of its aircraft and the material basis for the maintenance of other companies’ aircraft. Procurement takes place on the free market, and is facilitated by qualified aviation suppliers approved by the buyer through quality assurance mechanisms (at Croatia Airlines this is a list of approved suppliers that is an integral part of the CAME/MOE manuals).

Due to the specific nature of procurement of aircraft parts and material governed by international trade conventions and other regulations, including aviation regulations, this procedure is exempt from the provisions of the Procurement Ordinance.

Cargo and customs clearance agents Freight forwarders and cargo agents provide the transportation and customs clearance services and usually include 39 domestic and 35 international agents for all cargo and mail transported by Croatia Airlines.

5.14 Membership in professional associations and organisations Croatia Airlines is a member of professional associations, financial organisations, and economic and business organisations in the activities of which it participates upon paying regular membership fees. Croatia Airlines’ membership and participation in the work of the industry’s umbrella associations, among which IATA and Star Alliance should be singled out, are of utmost importance for the Company’s operations. IATA (International Air Transport Association) is a global association of airlines whose business standards are a basis for the operations of all carriers offering scheduled flights in international air transport of passengers and cargo. Croatia Airlines’ membership in Star Alliance is exceptionally important from the commercial and strategic point of view. Owing to its membership in the world’s largest airline association, Croatia Airlines maintains a strong competitive position in the market and the position of the leading air traffic service provider not only in the Croatian market, but in the entire region.

Since 2017, Croatia Airlines has been a member of the European Regions Airline Association (ERA), a non-profit association whose main objective is to improve the conditions of business operations in the European airline sector, covering through membership the entire aviation industry with 50 airlines and 140 air service providers, including aircraft and engine manufacturers, airports, service providers and suppliers from all over Europe. Membership in this association additionally boosts Croatia Airlines’ international image and offers it excellent opportunities to respond better to the modern business challenges. Jasmin Bajić, Croatia Airlines President and CEO, was in 2018 elected member to the governing body of this international association for a three-year term.

AIRLINE ASSOCIATIONS IATA (International Air Transport Association) Star Alliance ERA (European Regions Airline Association) European Aviation Maintenance PASRA (Passenger Airline Sales Representatives Association) OTHER ASSOCIATIONS Croatian Chamber of Economy Croatian Employers’ Association Croatian Association of Corporate Treasurers Croatian Public Relations Association Croatian Information Technology Association

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5.15 Company history

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6. SUSTAINABLE BUSINESS MODEL We have fully integrated sustainable development principles into our business management model. Given the market conditions in which we operate, Croatia Airlines’ significance is considerable, and includes diverse aspects. We have a leading role in the domestic aviation market, with a share of some 25% a year on average, while in the winter season it increases to some 50%. Croatia Airlines’ role in ensuring the country’s traffic connectivity became even more pronounced during the crisis in 2020, especially in the winter season, when the majority of foreign airlines withdrew from the market or significantly reduced the number of flights. In this period, Croatia Airlines’ share in passenger transport in the domestic market rose to 36%.

Our key strategic goals for the upcoming period are focused on the post-coronavirus crisis recovery, fleet renewal, strengthening our market position and further business development based on economic, environmental and social responsibility.

The coronavirus crisis has had a significant detrimental impact on air traffic, the consequences of which will be felt for years to come. Both the International Air Transport Association (IATA) and the International Civil Aviation Organization (ICAO) forecast that it will take air traffic much longer to recover than initially expected. The critical situation has prompted IATA to call upon the governments to extend their aid, proposing several options, including direct financial support, loans, loan collaterals, support for corporate

102-2

bonds markets, and tax reliefs. This has become crucial, since many airlines will not be able to survive

102-9

without being approved urgent aid and reliefs. Many airlines are staying afloat precisely owing to the

102-10

financial support from their governments. According to IATA, they have ensured $173 billion in various

102-11

forms of aid in 2020. However, this amount will not be sufficient, and it is fair to expect that governments

102-12

will continue supporting national airlines. It is hard to say when the air traffic will return to the pre-crisis levels; airlines and related industries do not expect a recovery in years to come. In late July 2020, IATA estimated that air traffic would not return to its pre-crisis level before 2024.

In this crisis period, air traffic in Croatia has relied mostly on the national flag carrier as it contributes to the maintenance of traffic connectivity vital for both the country’s economy and citizens. Considering the

102-15 102-16 102-40 102-41 102-42 102-43

state-owned carrier’s strategic role in Croatia’s traffic infrastructure, which has proved to be particularly

102-44

crucial in this crisis period, the state aid granted in late 2020 ensured the continuation of its operations

102-46

during the pandemic.

102-47 103-1

MISSION

103-2

Our mission is to generate profit by providing air traffic services. Our priority is to provide our customers

103-3

with optimum connections between the Republic of Croatia and the world via our own flights and those of

201-1

our partners, and to contribute to the development of tourism in the Republic of Croatia.

302-1 303-1

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VISION CROATIA AIRLINES aims to be the first choice of every passenger travelling from or to Croatia.

303-2 303-3 303-4

Croatia Airlines’ business model

303-5 305-1

Emphasis on scheduled traffic Domestic traffic - under PSO* rules - International traffic - network carrier’s profitable growth strategy

Commercial cooperation - With Star Alliance and non-Star Alliance members

Social responsibility and environmental protection - Attitude to passengers, employees and environment

305-4 306-1 306-2

*Public Service Obligation

Productivity growth - Aircraft, labour and fuel

305-2

307-1

Optimisation of ownership and operating lease

Safety and quality

Optimisation of complementary development strategies - Operating, financial and human resource strategies

401-1

Modernisation of IT systems - Star Alliance standards

413-1

401-3 404-2 406-1

415-1 416-1 417-1

As the national flag carrier, Croatia Airlines has a strategic role in Croatia’s traffic infrastructure. In line with its mission and vision, it applies the business model of a network operator within the Star Alliance airline association, which emphasises in all of its key business documents the necessity of maintaining a high level of traffic safety, reliability, quality and punctuality.

The Star Alliance membership has enabled Croatia Airlines to be available in the markets where it does not physically operate flights and to increase its capacities on the existing routes. Its business model is based on the concept of a strong network carrier oriented to a strong and well-connected hub at Zagreb Airport.

We operate flights from Zagreb to all major European cities and domestic destinations. Some flights are operated from other Croatian cities as well.

The strategy of network traffic is focused on clearly defining primary, secondary and tertiary routes, that is, domestic and regional routes, while at the same time defining their specific importance and optimising flight frequency.

With regard to the market segmentation strategy, domestic scheduled air traffic, which is of special interest to the Republic of Croatia, is defined as a separate market subsidised by the state through a state aid programme. Under a contract signed with the Ministry of the Sea, Transport and Infrastructure, Croatia Airlines has undertaken to provide domestic scheduled air transport service for the purpose of maintaining traffic connections between the regions and boosting the economic development of the Republic of Croatia. In the spring of 2020, the Company signed with the Ministry of the Sea, Transport and Infrastructure a new contract for the period from 29 March to 24 October 2020. An annex to this contract was signed in September 2020, prolonging the service performance period until 27 March 2021. By separating unprofitable domestic from scheduled international air traffic, the latter has become the cornerstone of the Company’s profitable growth strategy.

6. 1 Operational risks and opportunities Efficient risk management is of exceptional importance for the sustainability of business operations.

Risk management in Croatia Airlines’ operations is carried out in compliance with the principles of ISO 9001, and the Company uses the COSO ERM (Committee of Sponsoring Organizations of the Treadway Commission - Enterprise Risk Management) framework as a basis for defining its risk management policy.

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We pay great attention to risk assessment, verification and management to ensure efficient and timely decision-making, business planning and corporate governance. Within the implementation of the risk management process, major risks have been identified according to their potential influence on Croatia Airlines’ business operations. Most risks are managed within regular corporate governance processes defined in the Quality Manual. Responsibility for the risk management and the supervision of effectiveness of the risk management system lies with the Management Board of Croatia Airlines.

The Management Board, which consists of its members and sector managers, analyses reports and key performance indicators, and takes concrete steps in accordance with the level of non-compliance with the set goals. The Company’s Commercial Committee proposes activities and adequate responses to risks with regard to sales and marketing activities. Also, when developing business plans, additional sensitivity analyses are carried out concerning possible changes in some of the high-risk categories of the Company’s business operations so as to prepare alternative scenarios. When defining goals, it is essential that the Company’s goals are aligned with those of each sector.

For all goals planned on the level of sectors, risks related to their achievement need to be defined and control activities implemented. Also, possible opportunities arising from the achievement of a particular goal need to be outlined as well. All organisational units are required to implement and harmonise the defined goals and guidelines through their risk management procedures, with monitoring being facilitated through the Company’s internal control systems, quality assurance system and internal audit.

The application of an integrated approach to external and internal risk management enables the Company to understand the true nature of individual risks, and increases its capacity to take relevant measures in a timely manner. Managing all the said risks in a systematic manner increases the Company’s level of organisational efficiency, while at the same time decreasing its costs and boosting its competitiveness. Raising further awareness and the adoption of risk culture at all levels of organisation is one of the key factors for the sustainability of the Company’s future business operations.

The crisis caused by the coronavirus outbreak has pointed to the unpredictability and the importance of

timely risk identification and management. Faced with the extraordinary circumstances in 2020, the Company undertook a number of measures on the organisational, operational and financial levels to adapt to the situation in the best possible way and to mitigate its consequences for its operations.

In the first half of March it gathered its Crisis Management Team, the main operating body in charge of managing the crisis situation in coordination with the Management Board Chairman.

At the request of the Ministry of the Sea, Transport and Infrastructure, it delivered a List of Measures for the Basic Functioning of Croatia Airlines’ Business Processes and Adaptation Measures Amidst Restricted Movement and Gatherings Resulting from the COVID-19 Spread, which it is obliged to follow until recall, as instructed by the Ministry.

All Company employees were regularly informed via internal communications channels about the latest developments related to the coronavirus spread and the measures that were being undertaken. The Company followed recommendations issued by relevant institutions, carried out corresponding activities, and issued instructions as to the related conduct. Assessments were made and responses to challenging situations sought on a daily basis and in all business segments, so as to reduce the negative impact of the crisis on the Company’s business operations.

All major risks the Company faced in its operations during 2020 are elaborated in detail in the Business Report of Croatia Airlines d.d. and Croatia Airlines Group for 2020 posted on the Company’s website, with an emphasis on two key risks in 2020 that will also mark the following several years: the coronavirus pandemic as an external risk and liquidity risk as an internal risk.

Major risks in

External risks

Internal risks

Croatia Airlines’ Economis surroundings (Croatia and destinations)

Company strategy

Transportation charges and flight permits

Human resources

Competition

Capacity management

Star Alliance and partnerships

Traffic disturbances

Suppliers

Sales and revenue management

Fuel, currencies, interest rates...

Liquidity risk

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business operations

Every risk is also an opportunity - the Company identifies areas in which its capacities and potentials can be strengthened, and in which changes can be introduced into business operations to make room for improvements and contribute to sustainability. We have identified several segments for creating business-related opportunities.

The country’s tourism potential and access to the European Single Market are the key factors, while migration within the EU and a growing demand for cargo transport services should not be ignored either. Exploiting the potential of commercial cooperation with airline companies through codeshare agreements, both within and outside Star Alliance, is also important.

Ancillary revenues are another segment of operations in which airlines have in the recent years been finding room for development, as well as for differentiation (baggage fees, seat selection, priority boarding, reservation changes, food and beverages on the flight, award miles, entertainment programmes, Internet access, advertising, etc.).

Croatia Airlines sees its development possibilities also in an ever growing application of the Internet and new e-commerce technologies as sales channels used by an increasing number of potential passengers and undergoing upgrades on an ongoing basis. A more efficient use of the Company’s own capacities and intensified efforts to make best use of the same are seen as an additional internal factor of the Company’s potential for development.

Having at disposal three work units for aircraft maintenance, i.e. three hangars, in the conditions of a rising demand for these services, the Company has met the prerequisites for an even greater scope of maintenance works on the European airlines’ aircraft at Croatia Airlines’ Technical Centre. To this effect, the Company also plans to expand its line maintenance services to other aircraft types. Croatia Airlines currently has Approval for the line maintenance of Bombardier CRJ 700/900/1000, A320neo and A330 aircraft. An additional expansion of the scope of Approval for the new aircraft types will provide the Company a possibility to expand its aircraft line and base maintenance services to other companies. There is also room for opening new line bases for aircraft maintenance and extending the major works season to the entire year (or to 10 months at least).

The use of advanced revenue and pricing management products and leading revenue optimisation solutions in the airline industry provides an all-round approach to forecasting, analysing and optimising sources of revenue by reviewing total revenues for each flight, each market, and each real-time travel date.

The Company has also recognised the possibility for its development in an increased demand for the trai-

6

ning services, and is, therefore, offering commercial training programmes intended for external users.

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6.2 Stakeholders Good cooperation with our stakeholders is a key to successful and safe business operations. This was particularly evident in this crisis year, when we jointly tried to find optimum solutions to ensure sustainable operations, with contributions from each stakeholder involved in the Company’s business operations.

We are guided by the principles of responsibility, ethical conduct, transparency and best business practices in relations with all of our stakeholders. Given the activity it carries out, Croatia Airlines cooperates with a large number of stakeholders with whom it engages in an open dialogue and exchanges information through well-established communication channels. As a result, we have been able to identify the key topics and interests (material aspects of the Company’s business operations) that make part of the Company’s analyses and ultimately of this Non-financial Statement.

Croatia Airlines has identified and classified its stakeholders into the following three categories according to their importance and impact on its business operations: key stakeholders, stakeholders with significant influence, and other stakeholders. Croatia Airlines has been cooperating with all of its business partners (domestic and foreign) by adhering to the principles of due care and diligence, and taking into account the interests of the owners, i.e. shareholders. The Company strives to maintain business cooperation with all of its partners in good faith and to mutual satisfaction. It takes particular care to adhere to the specific international aviation regulations and recommendations, and to the national legal and professional regulations in view of all of its operations.

Croatia Airlines communicates with its stakeholders with the aim to attain its desired market position, and to systematically inform the general public, and existing and potential users about the Company, its services and news on its business operations. The most important goal is to build and cultivate a distinctive and positive image of Croatia Airlines in a wider public.

KEY STAKEHOLDERS - Passengers - Cargo, aircraft maintenance and training service buyers - Employees

STAKEHOLDERS WITH SIGNIFICANT INFLUENCE - Shareholders and investors - Suppliers - Labour unions - Government bodies - Academic /business / professional community - Certification bodies and companies

Croatia Airlines Management

OTHER STAKEHOLDERS - Local community - Financial service providers - Airline associations - Media/public

30

National and international laws and regulations

Communication with Stakeholders

STAKEHOLDERS

COMMUNICATION CHANNEL

MAIN TOPICS

Passengers

Official website Call Centre Fairs and congresses Miles&More loyalty programme Social networks Marketing campaigns Promotional material Inflight magazine CROATIA Inflight entertainment Service quality questionnaires

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Environment protection, emmissions and energy, waste desposal management

Service users (cargo, technical, training)

Business correspondence, telephone calls Face-to-face meetings Business reports External user trainings Events

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Environment protection, emmissions and energy, waste desposal management Local community development

Employees

Intranet e-mail e-news Internal meetings Works Council Workers' meetings Business reports Education and training Management Board's memos

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Labour relations, decent work, freedom of associations and collective bargaining Environment protection, emmissions and energy, waste desposal management Local community development

Shareholders and investors

Regular and ad-hoc meetings Written communication (mail, e-mail) Business reports Face-to face meetings Official website Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA) Reports on carried out supervision (controls, audits)

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Labour relations, decent work, freedom of associations and collective bargaining Environment protection, emmissions and energy, waste desposal management Local community development

Suppliers

Business correspondence (mail, e-mail, telephone) Face-to-face meetings Business reports Fairs Website

Ensuring the viability of the business in crises coused by COVID-19 Safety and security Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Environment protection, emmissions and energy, waste desposal management Local community development

Direct communication - meetings Written communication (e-mail, intranet, mail)

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Labour relations, decent work, freedom of associations and collective bargaining Environment protection, emmissions and energy, waste desposal management

Government bodies

Written communication (mail, e-mail) Business reports Official website Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA) Reports on carried out supervision (controls, audits) Memberships

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Labour relations, decent work, freedom of associations and collective bargaining Environment protection, emmissions and energy, waste desposal management Local community development

Local community

Donations and sponsorships Official website Direct contact, telephone, e-mail, mail Training and internships Organized hangar and aircraft tours

Safety and quality Economic performance and contribution to tourism development Environment protection, emmissions and energy, waste desposal management Local community development

Other associations/institutions (financial institutions, airline associations, media/public, academic/business/proffesion al community, certification bodies and companies)

Business reports Media releases Official website Official website of Stock Exchange and Croatian Financial Services Supervisory Agency (HANFA) Memberships Business communication Conferences, business meetings Promotional campaigns, reports, inerviews Social networks Incentive travels Scientific and technical papers Face-to-face meetings Audits

Ensuring the viability of the business in crises coused by COVID-19 Safety and quality Economic performance and contribution to tourism development Customer satisfaction, product responsibility, marketing Labour relations, decent work, freedom of associations and collective bargaining Environment protection, emmissions and energy, waste desposal management Local community development

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Labour Unions

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We have identified the following material aspects: - Ensuring sustainable business operations during the crisis caused by the COVID-19 outbreak - Customer satisfaction, product responsibility, marketing - Economic impact and contribution to economy (tourism) - Labour relations, decent work, freedom of association and collective bargaining - Environmental protection, emissions and energy, waste management - Local community development

CROATIA inflight magazine As one way of communicating with our stakeholders, we have for many years been publishing our inflight magazine CROATIA, four times a year, with the aim to promote the Croatian culture, heritage and natural attractions, and familiarise them with various interesting topics from Croatia, as well as to support its tourism. Being an integral part of the Company’s visual identity, CROATIA is successfully reflecting the country’s national symbols, thus contributing to the authentic image of Croatia in the world. Due to the extraordinary situation, the summer edition of the inflight magazine Croatia was for the first time issued in a digital form. The measures we implemented on-board to protect our passengers and staff were published in the magazine and all other communication channels throughout the crisis year of 2020. The recent developments prompted us

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to create new visuals for our social media profiles, and new pictograms #CTNwecare.

Croatia Airlines’ social media We regularly communicate with our service users through social media, where we publish various information (announcements related to our flight schedule, inflight magazine, information about repatriation flights, information about the transport of Croatian athletes, travels during the coronavirus crisis).

On 31 December 2020, we had a total of 196,058 followers in all social media.

On the same date, we had 152,533 followers on Facebook.

Shown below is the number of our followers in other social media:

Facebook - 152,533 followers Twitter - 4,688 followers Instagram - 23,700 followers LinkedIn - 14,198 followers YouTube - 939 subscribers

32

Our employees

https://www.youtube.com/watch?v=J2QgJJQAia8

Our passengers have always been and will remain our priority!

Our passengers always come first, especially in these challenging times of the coronavirus pandemic, and we are doing our best to give them additional care and attention.

Jelena Pecikozić Flight attendant Our Company has been following and implementing all

33

the use of protective equipment by employees and passengers, aircraft disinfection and physical distance in

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on Safety Agency (EASA), including those pertaining to

the aircraft cabin. Also, the use of protective face masks or shields has been obligatory on all our flights since May this year. It is unusual for us to have fewer flights and passengers, but if we all act responsibly we believe Croatia Airlines will soon spread its wings again.

Petra Nuelati Contact Centre employee Our phones have been ringing night and day lately. Yet, we’re doing our best to indulge all our passengers, answer their questions related to flights, and give them all the information they need. We have introduced additional phone lines and included additional staff to respond to the inquiries of our dear passengers in this challenging period. Š. Lugarov

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recommendations issued by the European Union Aviati-

Tomislav Dolovski Captain Flying truly brings a sense of freedom. It opens up new perspectives and horizons. But we are now aware of it in a completely different way. We’re flying and connecting Croatia with the rest of the world with a greater than ever enthusiasm. Charity flights, in which Croatia Airlines as the national flag carrier gladly participated, were a particular challenge. We must join our forces to win the biggest battle of the 21st century!

I’d like to remind you that despite the exceptionally challenging period our Company continued operating on a reduced scale to enable both Croatian and foreign citizens to return home. We transported more than 23,000 passengers at the peak of the crisis.

I hope we share the pride and joy about the fact that we have justified our role of the national flag carrier and Š. Lugarov

helped mitigate the severe consequences of the coronavirus pandemic.

Robert Kruljac Head of Ground Services and Crisis Management Team leader When it comes to the airline industry, we should always be prepared for crises. However, not in our wildest dreams could we have imagined a situation like this. This crisis has put us all to the test, and we are doing our best to pass it with flying colours. When making necessary decisions, we always have in mind our passengers, employees and other target groups, and rise to the occasion.

We’re happy to have witnessed traffic within Croatia par-

34

tially resume as of 11 May, with the alleviation of protective measures in the Republic of Croatia, which enabled us to introduce two daily flights on the route Zagreb - Dubrovnik and Zagreb - Split. Also, as of 25 May we continued operating scheduled international flights on the route Zagreb - Amsterdam, and we introduced another flight on the route Zagreb - Frankfurt. As of 1 June, we reintroduced flights on the route Zagreb - Copenhagen, and as of 8 June those on the route Zagreb - Zurich, offering our passengers four morning flights, and as of 15 June afternoon flights on Monday, Wednesday and Friday. On 15 June, we reintroduced direct international routes from Zagreb to another seven European destiRome, Brussels and Vienna. We’re looking forward to further traffic normalisation.

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nations - Munich, Sarajevo, London Heathrow, Dublin,

Vjekoslav Pinjuškić Aeromechanic Safety across all business segments comes first at Croatia Airlines, and there can be no compromises here.

Disinfection, filter checks, and additional measures to protect our passengers and employees are the activities we’re carrying out on a daily basis, with great responsibility. In this way we’re protecting both our own health and the health of our passengers, making the public health interests our priority.

Safety across all business

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segments comes first at Croatia Airlines, and there can be no compromises here.

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6.3 Material aspects of the Company’s business activities and their effect on its sustainable development We have established that material aspects of our business encompass all the segments that might have significant economic, environmental and social impacts, and are to a great extent aligned with our business direction and objectives. We strive for excellence in this particular field and keep analysing impacts on the environment in which we operate. In the process of identifying important material aspects, we followed the guidelines for drawing up non-financial statements and identified material issues, established and verified their importance, and then presented them through a materiality matrix. The working group responsible for activities related to corporate social responsibility (comprising key figures from each sector to which areas and topics addressed in non-financial statements pertain), re-analysed the aspects that reflect the Company’s significant economic, environmental and social impacts and outlined the topics potentially influencing stakeholders’ assessments and decisions. It reaffirmed the classification of stakeholders and reconsidered the impact of selected material aspects on their attitudes and decisions. The key issues and topics to be communicated with a specific stakeholder group were expanded to include the matter of sustainable operations in this extraordinary year given the circumstances caused by the coronavirus crisis, which triggered off intensive communication with a large number of stakeholders. In addition to identifying and confirming key material aspects, the previously defined boundaries of each individual aspect were verified during the said process.

Material aspects Given the Company’s business environment, we approached the assessment of and reporting on material aspects in the same way as in the previous reporting period, except that the scope of material topics was expanded, in line with internal assessments, to include a new material aspect related to the Company’s sustainable operations during the coronavirus crisis that marked the entire 2020.

The involvement of key stakeholders was crucial this year to ensure ongoing business operations, although on a reduced scale, and enable the Company to follow through with its mission.

Croatia Airlines’ importance in connecting Croatia with other countries as well as maintaining all-year-round domestic flights is beyond question. This became even more pronounced during the crisis, when all carriers withdrew from the Croatian market. We put all of our resources at disposal of the Government of the Republic of Croatia to organise repatriation flights, charity charter flights and flights on any needed occasion. Although the number of flights has significantly reduced for objective reasons - operating obstacles and reduced demand, we are reviewing the feasibility of flights on a daily basis, taking into account the current situation.

Our Company’s contribution to the country’s economic development is beyond question - it is reflected in a direct contribution to the development of both economy and tourism, not to mention that the Company is a significant exporter that has ranked among the top domestic exporters over the last several years.

We are aware that one’s business success is not measured by financial results alone; activities in the segment of social responsibility and contribution to sustainable development are of equal importance. Independently of the services we provide, we are aware that our business success, as well as our worthy representation of the country, directly depend on the trust and satisfaction of our service users; responsibility to our passengers is, therefore, one of the crucial aspects of our business operations. It is our duty to understand their needs and do our best to meet their expectations. We are, therefore, continuously developing new products and services that will make it even easier for our passengers to organise their travels.

Great attention is also devoted to employee satisfaction, since highly motivated and satisfied employees are a key factor for the realisation of our goals. This is why mutual respect, cooperation and teamwork are nurtured. The latest resource management trends are being evaluated and applied. The Company has been measuring employee performance and has been actively involved in their career guidance, training and efficiency improvement. We are doing our best to retain our employees by offering them competitive, high-quality working conditions.

Today, major work-related risks occur as a result of the labour market dynamics and its open nature and also because of a lack and outflow of skilled workers. In order to address the said risks, we are constantly making efforts to create a stimulating working environment and cooperate with educational institutions in

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CROATIA AIRLINES’ SIGNIFICANCE FOR THE REPUBLIC OF CROATIA Croatia Airlines contributes to the development of Croatia’s tourism and economy on an ongoing basis through sponsorships and donations, and by promoting its destinations, culture, gastronomy, science and sports.

TRAFFIC CONNECTION COVID-19 PANDEMIC AND

b The Company directly connects Croatia to 24 countries and 38 destinations. b Croatia Airlines enables local airports to be open throughout the year

and provides all passengers excellent connection via air all year round.

b The Company contributes to the development of tourism in general, but also of MICE tourism as one of the fastest growing segments over the past

few years (Croatia ranks 34th in the world and 19th in Europe by congresses held, with Zagreb, Split, Opatija and Dubrovnik being its most important congress destinations).

REPATRIATION FLIGHTS

bCroatia Airlines continued operating even in the extraordinary circumstances. In April

2020, it operated flights from Zagreb to Frankfurt, London and Amsterdam to provide the Republic of Croatia an ongoing connection with Europe and the rest of the world. The national flag carrier thus confirmed its strategic role in Croatia’s traffic infrastructure by contributing to the maintenance of traffic connectivity vital for both the country’s economy and citizens.

b

From the beginning of the crisis, Croatia  Airlines enabled about 23,000 Croatian citizens from all over the world to return home, putting itself at disposal of the Government of the Republic of Croatia for the transport of humanitarian aid and the return of Croatian soldiers from Afghanistan, and operating several repatriation flights from various parts of Europe, including a repatriation flight to China - the Company’s longest flight ever.

bIn March 2020, it transported more than 11 tonnes of protective equipment and supplies from the UAE to Croatia.

HELPING THE COMMUNITY

bCroatia Airlines strives to support

institutions that need humanitarian aid or

A

organise humanitarian projects.

bIt provides help and direct



humanitarian aid by granting transport for patients, children or people in need, and

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participating in charity actions by donating transport services.

PROMOTING CROATIA’S GASTRONOMY,

CONTRIBUTION TO

CULTURE, ATTRACTIONS AND DESTINATIONS

CROATIA’S ECONOMY

bThe Company has been presenting Croatia’s cuisine by offering its

bBy purchasing goods and services from

passengers meals made from local groceries and based on local recipes.

b

local suppliers, Croatia Airlines indirectly

supports about 3,000 jobs.

The Company’s inflight magazine has a great role in its visual

corporate identity and greatly promotes Croatia as a brand, placing emphasis on its stunning nature, historical values and cultural events.



b

It contributes to the functioning of

numerous activities that are important for an

bFilms promoting various Croatian destinations are shown on

everyday life of Croatian citizens through regular

bCroatia Airlines supports sports in Croatia and is the official

other levies in line with applicable regulations.

Airbus flights.

carrier of the Croatian Olympic Committee, thus promoting the country and contributing to its visibility.

settlement of taxes, contributions and

bCroatia Airlines has been among the top Croatian

exporters for several years in a row (2019: 7th place).

scientific, educational and technical activities. Such institutions include the Faculty of Transport and Traffic Sciences, Polytechnic of Velika Gorica and the Secondary Aviation School. Our close cooperation with the Faculty of Transport and Traffic Sciences in Zagreb has given us the opportunity to monitor the progress of future Croatian pilots attending the Faculty.

The collective bargaining agreement in place has ensured long-term social peace as an important prerequisite for the Company’s regular and stable business operations in the next several years, and for us to face future challenges more efficiently. This year has prompted us to make a joint effort to enable our Company to respond to the crisis that has affected our business operations in an adequate manner. We have, thus, demonstrated the team spirit, solidarity, and common perspective and interests for the future.

We have been nurturing successful business cooperation with our business partners in good faith and to the satisfaction of all parties. Croatia Airlines is helping the community in which it does business through numerous sponsorships and donations.

In the segment of social responsibility, Croatia Airlines has recognised safety as one of the key aspects in all segments of its business operations. In order to secure a high level of safety, it has been heavily investing into the training of its staff to ensure they have top competencies. It also guarantees first-rate aircraft maintenance in line with the highest global aviation standards.

The affirmation of ethical norms, business practices and conduct are amongst the most important corporate goals of Croatia Airlines. The Company’s Anti-corruption Programme is of particular importance for carrying out its business activities in an ethical manner. It was revised in 2019 pursuant to the Decision of the Government of the Republic of Croatia on Adopting an Anti-corruption Programme for State-owned Companies for the period from 2019 to 2020.

Croatia Airlines also pays close attention to the impact of its activities on the environment. It strives to operate as a socially responsible company, taking account of the by-products of its operations and their impact on the environment and community. By applying modern technologies and optimising its operations, it has been reducing the negative impact of aircraft operations on the environment, thus contributing to its preservation and sustainable development, and fulfilling its obligations to future generations.

We strive to identify the impacts of our business in a timely manner so that we can manage them adequately and thus contribute to the development of Croatian economy and society, and the protection of natural resources. We believe that responsible corporate governance is fundamental for long-term successful business.

Material aspects

Sustainable development goals

Social Safety and security System quality User satisfaction Product responsibility Training and education Labour relations and decent work Marketing communication Local community development Freedom of association and collective bargaining Environmental Legal frameworks for environmental protection Emissions and energy Waste management

Economic Ensuring the viability of the business in crises coused by COVID-19 Economic impact Contribution to tourism development Procurement process and practice

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highly important for the stakeholders

Ensuring the viability of the business in crises coused by COVID-19 Economic impact Supply chain process and sustainability Safety and security System quality Local community development

User satisfaction Product responsibility Training and education Labour relations and decent work Legal frameworks for environmental protection Contribution to tourism development

important for the stakeholders

Marketing communication

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A

Waste management

Emissions and energy

Freedom of association and collective bargaining

important for the environment

highly important for the environment

Boundaries within the Group

MATERIAL ASPECTS

All entities All within the stakeCompany holders

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Economic category Ensuring sustainable business operations during the crisis caused by the COVID-19 pandemic

Economic impacts and procurement Contribution to tourism development Procurement process and practice Social category Safety and security System quality User satisfaction Product responsibility Training and education Labour relations and decent work Marketing communication Local community development Freedom of association and collective bargaining Environmental category Emissions and energy Legal frameworks for environmental protection Waste management

Suppliers

Government Users of bodies, services Suppliers social entities, provided by local community, the Company markets served

Direct economic value generated and distributed The Company’s goal is to develop its business operations by making the right and timely decisions, with the ultimate goal of ensuring its sustainable development.

As a for-profit organisation, Croatia Airlines recognises all economic aspects as material, particularly emphasising its contribution to the development of Croatia’s tourism and economy as a whole, and the well-being of an individual. In the light of the market conditions in which the Company operates, we produce a significant impact that is reflected in the economic situation at the local, regional and national levels. As we operate flights throughout the year, we contribute to the development and traffic connectivity of Croatian regions, especially the ones in the south. Croatia Airlines’ strategic role became even more pronounced during the crisis, as it was among the rare companies that continued with its operations in the period when the vast majority of other airlines either withdrew from the market or significantly reduced the number of flights. We also put ourself at the disposal of the Government of the Republic of Croatia and thus enabled thousands of Croatian citizens to return home, ensured the transport of humanitarian aid and operated several repatriation flights. We contribute to the functioning of a number of activities that are important for an everyday life of Croatian citizens through regular calculations and payment of taxes, contributions and other levies in line with applicable regulations. Our business activities significantly contribute to Croatian economy, and we have been among the top Croatian exporters for several years in a row. In this way we positively affect employment not only in our industry but in others as well.

A detailed overview of the Company’s financial results was prepared in accordance with the IFRS, the Accounting Act and other applicable legal regulations, as well as the industry rules. It is set out in the Accounting Law and in The Management’s Business Report for 2020, where the key business changes in the reporting period are also elaborated on.

The Company has been managing its economic impact through annual and medium-term planning, as well as by monitoring the achievement of the anticipated results on a monthly basis and undertaking relevant measures in a timely manner in case some major negative deviations from the plan should take place. The entire Company participates in the annual planning process, as each sector/service delivers their framework plans for the year to come. These are consolidated by the Controlling and Internal Audit Sector, which delivers the final plan to the Management Board and the Supervisory Board for approval.

Croatia Airlines’ economic contribution in 2020

Generated economic value

40 Generated economic value Sales revenue HRK 759.5 million

Distributed economic value Employees HRK 220.6 million (gross salaries, insurance, compensation to employees) Operating costs HRK 871.8 million (without employee costs and local community costs) Capital lenders HRK 9.5 million Payments to the government HRK 6.6 million Community investments HRK 2.4 million

Distributed economic value

Investments HRK 69.4 million (into tangible and intangible assets)

Procurement procedure and practice During the COVID-19 pandemic, Croatia Airlines’ procurement procedures have been focused on preventing the spread of the disease and protecting the health of passengers and employees. We have been following the recommendations and decisions of the National Civil Protection Headquarters and other Croatian public health and regulatory authorities, and international health (WHO, ECDC) and regulatory (IATA, EASA, ICAO) authorities, and defining the procedures and procurement items accordingly, so as to ensure safe domestic and international traffic operations of Croatia Airlines’ aircraft, and safe internal processes. Due to the crisis in the aviation sector, the scope of procurement at Croatia Airlines has in line with the savings scheme been rationalised and reduced to the strictly necessary items only.

The economic aspects of Croatia Airlines affect the economic prospects of its stakeholders at local, regional and national level. An ongoing task related to the procurement of goods and services is finding suppliers who can meet supply requirements in terms of quality, quantity, prices and delivery dates. For this purpose, the Company applies appropriate supplier verification methods prescribed by the law and incorporated in the Flight and Ground Operations Procurement Procedures, the Aircraft Maintenance Procurement Procedures and the Procurement Regulations. All internal procurement procedures incorporate the public procurement principles and recommendations to the highest extent possible.

In compliance with aviation regulations and standards, procurement procedures and Procurement Regulations, Croatia Airlines applies the same principles when selecting procurement procedures with respect to all economic entities - the principle of fair competition and equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principles of proportionality and transparency, the principle of efficiency, and the principle of the free movement of goods, capital and services. The Company’s procurement procedures are decentralised, which means that its organisational units initiate and conduct them on their own with the approval of the Management Board. They take on a number of different forms, depending on the type of procurement. Procurement procedures are conducted and suppliers selected in compliance with the Procurement Regulations and relevant Procurement Procedures, whereby the preparation of a specific procurement procedure, the selection of a supplier, the conclusion

41

fication requirements, all with a view to facilitating efficient and effective procurement, and cost-effective procurement spending. The Company’s Procurement Regulations recommend the application of ‘green and sustainable procurement’ whenever possible given the market circumstances, and in line with the Company’s Environmental Protection and Energy Efficiency Guidelines. When procuring machines and devices that pose increased hazards, and hazardous substances, occupational health and safety measures must be taken account of.

In terms of correlation between procurement and environmental protection, each procurement of goods and services is subject to assessment of environmental impact (if any). The Company’s Procurement Regulations recommend applying elements of green public procurement whenever possible. The suppliers of Croatia Airlines have been acquainted with the ISO14001/50001 certificates via official correspondence with all suppliers individually and through the information available on the Company’s website. With these certificates, Croatia Airlines confirms its dedication to environmental protection, energy conservation and sustainable development. At the same time, it calls upon all of its suppliers to contribute to environmental protection and energy efficiency through their own active and preventive measures, and by encouraging their business partners to do the same.

The Company’s Environmental Protection Policy and the official correspondence sent to suppliers are available on its webpage: https://www.croatiaairlines.com/about-us/corporate-values/sustainable-development?langid=en The prescribed procurement procedure and its key requirements are integrated into all other procurement sub-procedures at Croatia Airlines.

A. Grubelić

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A

and execution of a procurement contract must meet the criteria of timeliness and compliance with speci-

A. Grubelić

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6.4 Safety and advancements as business imperatives Safety is of primary importance for all segments of Croatia Airlines’ corporate activities. There can be no compromise with safety. In order to achieve a high safety level, the Company invests largely in training the flight, cabin, ground and technical personnel and ensures relevant level of expertise of all other employees.

Moreover, it ensures a high level of aircraft maintenance that complies with the highest standards of the global airline industry, adheres to all applicable regulations and standards and continually invests technical resources to ensure that safety criteria are given priority in all business segments.

Quality assurance system Croatia Airlines has introduced an integrated quality assurance system that meets the requirements of the following EU and international regulations and international standards: Air Operations Regulation EASA Part 145, EASA Part 147, EASA Part M, Aircrew Regulation, Directive 2003/87/EC (EU ETS) and ICAO Annex 16 (CORSIA), ISO 9001, ISO 50001 and ISO 14001. The quality assurance system encompasses all organisational units of Croatia Airlines and their respective processes.

Croatia Airlines’ Quality Assurance System ISO 9001, 14001, 50001

- Finance and accounting

- Legal affairs, human resource and asset management - Information Technology management - Commercial Division - Network and revenue management - Controlling and internal audit Quality assurance for non-operating acitivities ORO.GEN.200 Management System

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(AMC1 ORO.GEN.200 (a)(6) - Flight operations - Ground operations - Cabin operations

Part M.A.712 & Part 145.A.65

- Aircraft maintenance - Engineering and technical support

- Flight Operations Training Centre

- Technical Training Centre

ORA.GEN.200 Management System (AMC1 ORA.GEN.200 (a)(6)

Part 147. A.130(b)

Flight operations quality assurance

Technical quality management

1. Air Operation Regulation CR (EU) 965/2012 Aircraft operators performing commercial air transport operations are certified and supervised in line with the provisions of Commission Regulation (EU) No 965/2012 laying down technical requirements and administrative procedures related to air operations. The Company was for the first time awarded the Air Operator Certificate (AOC) by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development (today Croatian Civil Aviation Agency) on 29 April 2003. The Air Operator Certificate (AOC) certifies that the operator has the professional ability and organisation to ensure the safety of operations.

2. Aircrew Regulation CR (EU) 1178/2011 Commission Regulation (EU) No 1178/2011 lays down technical requirements and administrative procedures related to civil aviation aircrew. Having fulfilled all certification criteria, the Company obtained the ATO certificate − HR.ATO.001 via the AOC, i.e. the approved pilot training organisation.

3. Continuing Airworthiness CR (EU) 1321/2014 - Part M In late 2007, Croatia Airlines fulfilled all requirements and was issued with a 9A Part M certificate with the scope of authorisation specified in Subpart G, allowing it to carry out independent controls of its fleet airworthiness. Starting from January 2009, the scope of authorisation was further extended to Subpart I, allowing the Company a fully independent review of airworthiness and verification of the aircraft airworthiness certificates. They can be obtained on the basis of the Continuing Airworthiness Management Organisation Manual and/or Aircraft Maintenance Organisation Manual, which are fully compliant with EU laws.

Upon Croatia’s admission to the EU, the Croatian approval HR.MG.001 became recognised and valid within the European Union.

- Part 145 In 2001, Croatia Airlines obtained an approval of the aircraft maintenance organisation in accordance with JAR 145, the regulations in force at the time of approval; in 2004 it was replaced by EASA Part 145, an approval issued in line with requirements of the European Aviation Safety Agency (EASA). On behalf of EASA, the LBA (Luftfahrt Bundesamt) experts monitored the compliance with EASA Part 145 requirements through annual audits.

At the same time, Croatia Airlines insisted on holding the equivalent Part 145 certificate, which was issued by the Air Transport Directorate of the Ministry of the Sea, Tourism, Transport and Development. This certificate is today renewed by the Croatian Civil Aviation Agency (CCAA). Upon Croatia’s accession to the EU, the EASA Part 145 approval for non-EU members ceased to be valid and the Croatian approval HR.145.001 became recognised and valid within the European Union.

- Part 147 In 2005, Croatia Airlines obtained an approval of the aircraft maintenance training organisation in accordance with JAR 147, the regulations in force at the time of approval; in 2007 it was replaced by HR Part 147, an approval issued in line with the then valid regulations 9A-Part-147 for all aircraft types within its fleet.

As of 2012, Croatia Airlines holds an approval for basic training and several aircraft types from the aircraft maintenance training organisation. Upon Croatia’s admission to the EU, the Croatian approval HR.147.001 became recognised and valid within the European Union.

4. IOSA Operator under the IATA Operational Safety Audit Programme The International Air Transport Association (IATA) set up a globally-recognised program for assessing the safety of flight operations of all members of the Association. In December 2003, the first IATA Operational Safety Audit (IOSA) was conducted at Croatia Airlines, which confirmed a high level of flight safety. This certificate is subject to biannual renewal.

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5. ISO 9001 Our approach to quality management is defined by our core document, the Quality Policy. Croatia Airlines established and in November 2003 certified the quality management system in line with the requirements of ISO 9001, the world’s most widely recognised quality management standard.

6. ISO 14001, ISO 50001 By adopting the Environmental Protection and Energy Efficiency Policy, Croatia Airlines has opted to manage the objectives and risks of its business operations by taking account of environmental protection and improving energy efficiency, thus fulfilling its obligations to future generations. To this end, in 2016 an environmental management system according to ISO 14001 and an energy management system according to ISO 50001 were implemented. The latter was recertified in 2019 and is still in use, while during the turbulent 2020 the Company transitioned to the new version, ISO50001:2018.

Croatia Airlines is highly dedicated to raising employee awareness about the level of responsibility, the job importance and the way in which the successful performance of job-related tasks contributes to achieving quality-related goals. All employees at Croatia Airlines are acquainted with the laws, regulations and procedures of all the countries to which Croatia Airlines flies and which are relevant for the performance of their tasks.

Fatigue risk management As the risk of fatigue is analysed and identified as a potential hazard for the safety of air operations, appropriate risk mitigation measures are adopted and implemented.

Specific working conditions of aircraft crew members include shift work, night work, unpredictable and constantly changing work schedule, and a particular work environment (cockpit and aircraft cabin). This may disrupt sleep and the circadian rhythm, which in turn results in fatigue, accumulated sleep loss and reduced attention. A group named the Fatigue Safety Action Group (FSAG) has been formed to help manage all fatigue-related risks. The FSAG members gather and analyse data and draw up risk assessment reports related to the level of fatigue of flight crew members, outline recommendations and measures for reducing the fatigue risk, cooperate with the Safety Department on devising safety assurance processes, provide training guide-

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lines and material to crew members.

A total of 18 reports were processed and analysed in 2020, which points to a decrease compared to 2019, when there were 67 reports. However, it should be taken into account that in 2020, 50% fewer flights were realised than in 2019 due to the COVID-19 pandemic. On average, there were 2.8 reports per 1,000 flights. In 2020, an electronic fatigue report form was introduced to the Q-Pulse quality management system. As it can be filled out through a mobile application, intranet (Crew portal) or the Internet (web browser), paper-based fatigue reports are no longer used.

Projects co-financed by the EU ADS-B OUT implementation - Within the project co-financed by the European Union under the CEF (Connecting Europe Facility) programme, Croatia Airlines has met the requirements for the use of the ADS-B OUT (Automatic Dependent Surveillance - Broadcast Out) function in European airspace.

Given that a deadline has been set for equipping all aircraft with the ADS-B OUT function (which enables more precise control of aircraft performed by flight control), Croatia Airlines has started upgrading its Dash 8 and Airbus fleets on time. The ADS-B Out aircraft performed by flight control upgrade project was initiated in mid-2018 and co-financed by the European Commission under the Connecting Europe Facility (CEF) programme, with 20% of the total project cost. The project completion was planned for the first half of 2020. As of 19 March 2020, all Dash and Airbus aircraft are equipped with devices that meet the requirements prescribed for the use of the ADS-B OUT function (Automatic Dependent Surveillance - Broadcast Out). Some 800 ground stations that make part of the Single European Sky ATM Research (SESAR) project have already been installed in the European aviation area for the ADS-B function. The Single European Sky ATM Research project (SESAR) was launched in 2004 with the aim of defining, developing and implementing what is needed to boost the efficiency of Air Traffic Management (ATM) and devise an intelligent European air traffic system. The upgrade of the Dash 8 and Airbus aircraft with the ADS-B OUT function is in line with the EU cohesion policy and supports the infrastructure projects of the European Air Traffic Management (ATM) system within the CEF.

We believe that new technologies, such as the ADS-B, will soon find their place in the Croatian air traffic control system. The upgrade of the ADS-B OUT function on Croatia Airlines’ aircraft could speed up the installation of new ADS-B ground stations in Croatia and thus further develop the European air traffic management infrastructure. As part of the European ATM Master Plan, the implementation of the ADS-B OUT function on the DASH 8 and AIRBUS fleets will produce direct and measurable benefits for air traffic management and aviation in Europe. With the installation of the ADS-B OUT function, Croatia Airlines expects to benefit from all SESAR performance ambitions: reduced route costs and TMA per flight, reduced fuel consumption and flight duration, fewer delays, increased network throughput at busy airports, reduced CO2 emissions, and high safety at work standards.

KAAT (Knowledge Alliance in Air Transport) is an EU-financed ERASMUS+KA2 project gathering 15 partners from six European Union countries: France, Croatia, Italy, Portugal, Romania and Slovakia. The project was launched in January 2018, with the planned duration of 36 months (the planned completion date was set for 31 December 2020.) With the project taking longer than planned due to the Covid-19 situation, its completion is expected to take place in mid-2021. A total of EUR 27,972.80 was spent out of the allocated funds, which in terms of days represents 345.3 working days.

The project aims to establish close cooperation between higher education institutions and airline companies by developing a study programme (on the EU level) that would provide qualifications for the work in various airline industry fields, all based on the needs of the companies operating in the industry. The goal is to develop an innovative European study programme based on ICT (information and communications technology), which would turn students into aviation experts. Being certified for the training of aircraft staff, our Company contributes with its operational potentials and experience as a partner within the Croatian consortium comprising the Faculty of Transport and Traffic Sciences (the consortium leader) and the Croatia (Air Traffic Services) Control. The project was divided into 10 work packages (WP). Croatia Airlines participated in nine of them, and co-led the Work Package 1 (WP1), aimed at defining, i.e. selecting and describing at least 120 aviation industry jobs, which would represent a basis for outlining study programmes in the subsequent work packages. Furthermore, one of our representatives participated, on behalf of the Croatian consortium, in the project quality assessment (WP9) within the QAMB (Quality Assurance & Monitoring Board), which consists of seven members from different countries participating in the project, all in line with the applicable Quality Manual.

Projekt Revenue Optimizer The project for the implementation of the Saber AirVision Revenue Optimizer system was completed in 2020, thus replacing the previously used Revenue Management system. The new system is a leading revenue optimisation solution in the aviation industry. Sabre’s revenue optimisation solution provides an all-round approach to forecasting, analysing and optimising sources of revenue by reviewing total revenues for each flight, each market, and each real-time travel date. Alongside a drastic decline in demand, changed passenger habits represented the biggest challenge in revenue management and the proper use of the Revenue Optimizer system, to which the system is still adapting. Due to the situation with the COVID-19 pandemic, flight booking mostly takes place some ten days before the flight, which represents an additional challenge in planning a flight network and capacity, and then managing the capacity to maximise revenue.

A sub-project was launched simultaneously with the Revenue Optimizer system implementation, aimed at setting up additional modules in the area of revenue integrity management. The Redundant Segment module has been designed to detect unnecessary or additional unusable segments posted in bookings on company flights that cannot be used, but at the same time create distribution costs and take up space on the flight, due to which it is not offered for sale. The Redundant Segment was activated in August 2020 with satisfying results, given the number of reservations in the system. Due to low demand and few reservations recorded in 2020, the system is operated manually, i.e. irregularities detected by the system are processed manually under the supervision of a competent specialist. The moment the number of passengers starts reaching the numbers before the pandemic, it will be set to automatic mode.

After the Revenue Optimizer project was fully implemented, another sub-project from the field of revenue integrity was initiated. A system that dynamically assigns a ticket purchase time limit (Dynamic Ticketing 1

Innovation and Networks Executive Agency

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Time Limit - DTTL) will fully replace the existing standard TTL with fixed, pre-determined time limits. This module is expected to be launched no later than February 2021.

Implementation of a business management and customer relationship management system (CRM) The implementation of the CRM solution will enable sales and customer support teams to manage relationships with private and corporate clients (B2C and B2B) in a more efficient way. All data and communication channels will be integrated into a single solution, which will allow for a simpler and more efficient monitoring of customers and detecting their needs as well as responding in a timely manner, i.e. the so-called 360-degree view of the customer. The said implementation will consolidate the process and consequently boost the deployment of human resources and tighten the control of activity implementation. It will ensure the mobility of sales representatives, who will be able to respond to customer needs in real time as the system functionalities will be available through a mobile application.

It is a three-phase project that began in February 2020. In 2020, all planned steps of phase one (SAP Sales and Services Cloud configuration, e-mail integration configuration, Contact Centre system integration, Facebook application configuration, presentation of configured functionalities) were completed and phase two began (key user training, testing of the installed B2C segment functionalities). Phase 3 of the project (system configuration for B2B operations, user training and functionality testing) was scheduled for February 2021, and the project is expected to be completed in the second quarter of 2021.

Development and implementation of a new Company’s website and billing system The project aims to design and develop a new Company’s website based on cutting-edge technology and integrate it with all relevant systems within the Company. It also includes the implementation of a new billing system, which will be used for online transactions and in operations of the Contact Centre and branch offices. Current functionalities of the website will be upgraded and additional ones developed so as to obtain a solution that is aligned with both technological and industry trends and that enables digital channel users to plan their travels more easily. Here we would like to highlight the automatic change of prices displayed in the offers and the availability calendar. These two functionalities will provide users with information on

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available prices in real time and help them find the most favourable travel options faster and easier, which will contribute to the improvement of online sales. The new website will be responsive, thus ensuring a unique user experience regardless of the type and screen size of the device used to access the website. It is a five-phase project that began in June 2020. Extensive work was carried out in the first two phases, which include the design, development, delivery and testing of a new content editing system and the development of the billing system. The planned completion date is set for the third quarter of 2021.

Data protection The previously applied data protection measures are being continuously implemented in the infrastructural segments of the IT system of our Company with the aim of strengthening security measures affecting personal data protection. All procedures required by the GDPR (the EU’s General Data Protection Regulation) have been implemented: risk assessment has been performed, safety measures adopted, internal acts amended, and data processor tasks annexed to the existing work contracts. The following principles have been implemented with regard to personal data processing: lawfulness, fairness and transparency; purpose limitation; data minimisation; accuracy; storage limitation; integrity and confidentiality; and accountability.

There were no significant activities related to the GDPR in 2020, but we worked intensively on further harmonisation in line with the requirements of the EU’s NIS Directive and the Act on the Cyber Security of Key Service Operators and Digital Service Providers, adopted by the Government of the Republic of Croatia.

The Company has outlined activities to be carried out in line with the Information Systems Security Bureau’s document entitled Good practice framework for harmonising key service operators with the measures of the Act on the Cyber Security of Key Service Operators and Digital Service Providers (CARNET CERT, version 1.0, October 2019), and managed to implement the following: - Numerous meetings and workshops (live and online) were held to implement compliance measures.

- An extraordinary information risk assessment was carried out in response to the COVID-19 pandemic (report of 30 March 2020).

- A regular annual information risk assessment was conducted for PCI DSS and GDPR resources (report of 21 July 2020).

- An assessment of information risks caused by the state of computer network segmentation was performed (report of 28 August 2020).

- The Decision on handling information risks in 2020 was adopted.

- Activities aimed at preserving the business continuity of the SAP business system were initiated and carried out at the backup location.

- A social engineering test was conducted (report of 17 July 2020).

- A regular review of vulnerability of the internal IT infrastructure was conducted in line with Article 31 of the Regulation.

- Activities were carried out to adjust the existing Security incident response plan and improve monitoring activities related to incident detection and computer attack simulations through several presentations/ training sessions based on the ‘tabletop exercise’ methodology.

- Activities aimed at harmonising hardware and software asset management were carried out.

- More training sessions were added for the purpose of educating employees about the threats of social engineering.

ERCM - Emergency Response and Crisis Management Regardless of the fact that safety is one of the Company’s most important tasks and that it has in place all the required safety and protection measures, the possibility of adverse events should also be taken into account. In order to ensure a continuous level of preparedness, Croatia Airlines has for many years been managing an emergency response and crisis management system.

The Office for Emergency Response and Crisis Management (ERCM) is responsible for planning, devising and testing plans and procedures, and training a variety of teams that are crucial for crisis response. Its primary task is to take care of passengers, their families, crew members and other employees in case of an aircraft accident, incident or any other crisis situation.

Its last year’s activities were largely marked by the COVID-19 pandemic, which significantly affected not only our Company but also the entire aviation industry. Managing such crisis situations is crucial for the Company’s business continuity and its future development. We apply all protection measures in line with the guidelines of domestic and international public health authorities and continuously monitor and exchange experiences with other airlines. In these extraordinary circumstances, safety of flights and the health of our passengers and employees remain our number one business priority.

6.5 Responsibility to employees

Our employees are the Company’s greatest asset and the main catalyst of business activities and development. We aim to offer passengers a lot more than just a comfortable and safe flight, by investing in aircraft and ground personnel. This is why we devote a lot of time to training, in order to continuously improve the expertise of all employees.

Working at Croatia Airlines offers opportunities for professional advancement in an international environment, which poses a challenge for all employees and contributes to their satisfaction and motivation. The Company builds upon a working culture that promotes cooperation and teamwork, while readiness to learn and develop further is expected from each employee. Highly motivated and satisfied employees are key for ensuring quality, so motivation and professional interests are important factors when hiring and developing the staff.

The differences between employees with regard to education, skills, personal traits, interests and work mo-

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tivation indicate quite clearly that achieving sustainable development goals is an exceptionally complex and challenging process. The Company carries out annual work performance assessments.

By aligning individual interests of a large number of people with common interests of the Company, we strive to organise the work in a way that each individual is satisfied and contributes his/her best as a member of the organisation. The goal of human resource management activities is to ensure that all employees make use of their knowledge, skills and experience to create added value for the Company, by being assigned an optimal workplace according to their competencies.

We keep up with the industry’s requirements and current trends, and also pay due attention to the health of our employees by organising periodic health examinations. As the Company nurtures a great tradition of celebrating our employees’ year-long loyalty, it presented jubilee rewards for 2020 to the employees who marked 25 years of uninterrupted service with Croatia Airlines. The Company has also organised flu vaccination to protect the health of its employees and is actively working on ensuring vaccination against the coronavirus as soon as possible.

Employment policy and employee care New recruitments, required competencies, and training for the successful performance of all work-related tasks are planned on an annual basis. The Company regularly offers its employees to apply for job vacancies within the Company by way of internal hiring procedures and, in addition to regular education programmes necessary for an uninterrupted flow of the business process, it organises training courses to improve employee skills and knowledge.

Amidst the COVID-19 crisis, in 2020 the Company adjusted its operations to the new circumstances through in-house task reassignments, and hired no seasonal workers amidst reduced business activity. The total employee turnover in 2020 was 5% (turnover rate = employees who left the Company/average number of employees). Due to the COVID-19 crisis, employer branding activities were focused on promoting the company as a COVID-safe company with a high level of infection prevention. A pilot project was initiated in 2020 for the purpose of implementing more flexible work forms such as occasional work from a separate workplace for non-operational staff as well as part-time work, at the request of employee, to successfully

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balance private and business life. Having been implemented much earlier, flexible working hours facilitate the business process to a significant extent.

The COVID-19 crisis has brought about numerous adjustments to the execution of business process through a variety of online platforms (Teams, Zoom, etc.) in all areas and types of activities such as meetings, recruitment and training. We put efforts into optimising, redesigning and adjusting the functionalities of the official HRIS HR net software, the full implementation of which is planned for 2021, and on organising outside-the-office work in shift teams. Parents of the minors in self-isolation were allowed to work from a separate place so as not to affect the work-life balance and to support long-term sustainability of both spheres.

In 2020, our employees were given a day off on the first day of school for first-graders - the First-graders’ Day. Zagreb and Sisak-Moslavina County were hit by two extremely strong earthquakes in 2020, so the Company provided financial support to the employees whose homes were no longer fit for living. The Company ensured internal resources for psychological and psycho-social assistance to its employees due to the impact of the pandemic and earthquakes. We also initiated the ERCM activities and set up a special assistance team to offer yet another point of contact for psycho-social assistance.

Occupational health and safety of employees Croatia Airlines has undertaken to protect the health and safety of its employees at their workplaces and implement all prescribed occupational safety measures.

In order to protect the health and safety of its employees, Croatia Airlines adopted the Occupational Safety Guidelines as early as 1991 (they have been amended multiple times since, in line with legal regulations).

Based on the Workplace Risk Assessment and in line with the relevant activity, technology, jobs performed in special working conditions, equipment, hazardous substances, and the number of workers, they set out the manner of ensuring workplace safety, related rules and rights, obligations and responsibilities of an authorised person of the Employer and workers where these issues are not regulated by the Occupational Safety Act, its subordinate regulations, and relevant employment contracts. Most jobs in the Technical

Sector are high-risk jobs (such as working at heights, with hazardous chemicals, different machines and dangerous devices). Employee training related to working in a safe manner and basic training in fire protection are regularly organised and implemented for all new employees and those that could benefit from a refreshment course. Specialist training for the safe handling of machines and devices posing a greater hazard (hydraulic platform lifts, metal and non-metal processing machines, fork-lifts, etc.), and courses on the protection against hazardous chemicals are organised in line with the needs of the Technical Sector. Due to the COVID-19 pandemic and the fact that no new employees were hired in 2020, no specialist training sessions were organised.

All employees at workplaces with special conditions regularly undergo medical examinations.

All work equipment (machines, devices, tools, plants and installations) within the operating process, as well as those serving for the fire signalling and extinction, undergo regular check-ups and testing. All hazardous waste resulting from the work process is regularly and duly disposed of, with prescribed records (registers) being kept on it, and reports submitted for the Environmental Pollution Register with the Ministry of Environmental Protection.

A total of 10 injuries at work were reported in 2020, of which two occurred during the commute. There were neither deaths related to injuries at work, nor professional illnesses.

Employee training and education Through continuous investment in education, Croatia Airlines develops and strengthens human resources, having recognised since day one that its business activity is both capital and labour intensive. Due to exceptionally sophisticated technology and demanding business processes, each year it invests considerable funds in employee training, especially in the specialist training and maintaining the level of education of the flight and cabin staff, as well as of all other employees whose contribution to the Company’s basic business processes is invaluable. The training process for the employees of Croatia Airlines relies primarily on internal resources, implying the use of its own authorised instructors. In addition to financial savings realised in this way, the nourishment of its own know-how results in reduced dependence on external resources and promotes the Company’s cultural and business strategies.

The training of Croatia Airlines’ employees is simultaneously provided on three levels: training of operative sector employees, technical sector employees and non-operative sector employees. In 2020, a total of 4,939 hours of in-house training was provided for all three employee categories.

Croatia Airlines’ Technical Training Centre is a certified organisation providing aviation technical training under the EASA Part 147 approval. The Technical Training Centre offers a wide range of training solutions for a particular aircraft type and specialist courses for aeronautical engineers and technicians. Aircraft type training is performed according to EASA Part 66/Part 147, and is intended for Part 66, aircraft class A, B1,

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B2 or C aircraft maintenance licensees and engineers. All other training courses are carried out according to the Part 66 standard in order to fully meet the needs of Part 145 aircraft maintenance. In the part of training prescribed by the PART 145 requirements, a somewhat smaller number of training sessions was held compared to 2019 due to the COVID-19 pandemic, which affected the Company’s entire business. However, all training courses required for extending the in-house authorisations of PART 145 engineers and mechanics were carried out as planned. Given the pandemic and the introduction of special measures to protect the population, which specifically limited the work of training centres (limitation of the number of attendees, no classroom sessions), the Technical Training Centre obtained approval from the Croatian Civil Aviation Agency for synchronous distance learning (SDL).

Croatia Airlines’ Technical Training Centre organised the first virtual training: the DHC-8-400 Airframe, Power Plant & Avionics type training B1 & B2 (Part 147 training). It comprised 148 theory sessions and lasted from 6 July 2020 to 11 August 2020, under the supervision of the Croatian Civil Aviation Agency during the first week. The Agency had no remarks regarding the training. In order to provide this type of training, it was also necessary to devise an entirely new teacher training course aimed at enabling our instructors to apply the new SDL method, and thus adapt all current courses to virtual teaching.

Croatia Airlines’ Flight Operations Training Centre offers a wide range of training courses intended for flight, cabin, and ground personnel. All training courses are based on certified programmes harmonised with EASA regulations and approved by the Croatian Civil Aviation Agency. Training courses are held by highly experienced Croatia Airlines instructors. In order to ensure the completion of any necessary training courses and a smooth flow of traffic, Croatia Airlines asked the Croatian Civil Aviation Agency to allow distance knowledge refreshments based on EASA’s instructions. After obtaining the approval, knowledge refreshment courses were developed and organised virtually, and successfully run for the flight and cabin staff, and the restrictions related to the necessary simulator and aircraft training were gradually loosened in order to return the operations to normal.

During 2020, the Croatian Civil Aviation Agency carried out a number of audits and inspections for the purpose of implementing on-going supervision of activities performed by the Flight Operations Training Centre staff at Croatia Airlines’ premises, on simulators and on the Croatia Airlines aircraft flights. The results

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showed an enviable level of compliance with the prescribed standards. For most categories of specialist employee training courses, the Company uses the services of IATA (International Air Transport Association) Training Centre and other international specialised training courses, and, if necessary, the services of external experts who run in-house courses. In 2020, the Company’s employees participated in various theme conferences, symposia and working groups on a remote basis only, with the aim of learning more about the operational and commercial innovations within the industry as well as about the new rules and procedures introduced to address the current crisis situation.

Employees in direct contact with Croatia Airlines passengers regularly attend training courses required by Star Alliance standards, focusing on the recognition and treatment of special status passengers pursuant to Star Alliance categories, and standard procedures in emergency situations with the aim of maintaining a high level of service quality and improving passenger satisfaction, while also covering extensive preparations for intensive sales activities before the start of the main tourist season.

As the national flag carrier, Croatia Airlines organises within its Training Centre a series of training courses needed by travel and commodity agencies for the acquisition of the IATA licence, training courses for the employees of airports, freight forwarders, and airline companies. Due to the technology requirements of the fares and ticketing training and focus on the booking system, it was not possible to organise a passenger sales training course for external users in 2020. Still, in November 2020 we managed to organise and run a virtual training course in the transport of goods. The attendees were representatives of both freight and travel agencies, given the poor results in the passenger segment and a strong trend of turning to the transport of goods during the period of crisis.

Works Council In accordance with the regulations related to employment, the Works Council comprised of nine members operates within the Company. It informs, consults, and participates in decision-making processes with regard to economic and social rights of workers. Up to twice a year, the Works Council organises, in

cooperation with the employer, a workers’ meeting in order to inform them about the Company’s current situation and development. The Works Council also appoints to and withdraws worker representatives from the Supervisory Board and draws up quarterly reports on employment situation and structure.

Freedom of association and collective bargaining The following labour unions operate within the Company: Croatian Union of Air Traffic Pilots (HSPP), Air Cabin Staff Union (SKOZ), Independent Professional Union of Croatian Aeromechanics (SSSAH), Independent Croatian Union of Airline Employees (SHSZUZ) and Union of Engineers and Technicians in Aviation (SITUZ). As the Croatian legal framework sets out that representative unions are authorised for collective bargaining, in 2016 a new union, Croatia Airlines’ Employees Organisation (ORCA), was founded, gathering the members of the above-listed pilot, cabin staff and aeromechanic unions.

The majority of employees are union members, but provisions of the collective bargaining agreement apply to all of them (100%). The level of rights contained in the collective bargaining agreement regulates many additional benefits of employees in order to improve their economic and social status, such as the number of days of annual leave, paid leave, salary bonuses, severance payments, etc., which are above the legal minimum. In case of more serious health problems, deaths, childbirths, long-term illnesses or similar situations requiring an individual approach, the Company helps its employees to the fullest extent possible by participating in the medical treatment costs and purchasing the necessary aids, thus protecting their social position.

Due to the coronavirus crisis, an annex to the Collective Bargaining Agreement from 2019 was signed on 4 May 2020 in agreement with the unions, temporarily reducing the gross income of employees by 15% as one of the measures the Company implemented to mitigate the impact of coronavirus crisis on its business operations.

Non-discrimination and employee dignity The Company has appointed a person responsible for protecting the dignity of workers and has drawn up a detailed procedure for the protection of dignity in accordance with relevant legal documents regulating the protection from discrimination and harassment. Furthermore, the Company regularly adopts an action plan for promoting and ensuring gender equality. No reports related to dignity protection were received in 2020.

There were no discriminatory treatments of employees.

We also promote gender equality: there are 52% male and 48% female persons employed with the Company. There is also equal gender representation among managers: 53% female and 47% male executives, who are paid equally for their work. Non-discrimination and the promotion of diversity are also reflected in a growing number of employees of different nationalities.

Special benefits for employees Croatia Airlines takes care of its employees and notifies them via its intranet site about its cooperation with a number of business entities (theatres, sports associations, banks, etc.) and offers them to use their services at a more favourable price (health services, catering and hospitality services, tickets for cultural events, etc.).

They are offered the possibility of using air transport services for private travels on more favourable conditions.

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6.6 Business ethics Croatia Airlines and its Management Board deem that raising anti-corruption and ethical awareness of all employees and adopting zero tolerance to corruption are crucial for an efficient prevention of corruption.

The Company strives to promote ethical behaviour in all spheres of its business activities: among employees, toward its customers, business partners, segments of the industry, owners, shareholders, and all other entities it cooperates with. Croatia Airlines guarantees equality and equal treatment to all.

Ethics Committee The Committee for Monitoring the Ethics Code Implementation has been active within Croatia Airlines since 2002. Its purpose is to monitor the enforcement, implementation, and breach of provisions of the Code of Ethics in the Company’s work, proposing to the Management Board methods of settling problems related to any reported breach of provisions as an independent body. Based on the relevant report, the Management Board decides on sanctions that may be applied in the case of non-adherence or breach of ethical principles. Its main goal is to promote moral standards, ethical behaviour and business ethics. By rectifying irregularities occurring as a result of non-adherence to the provisions of the Ethics Code, it aims to promote ethical behaviour to make work and professional activities at the Company as pleasant and well-balanced as possible. For this purpose, a system for reporting the cases of non-adherence to the Ethics Code has been set up, allowing employees to report any case of breach thereof.

The Committee meets when necessary, i.e. when it has found out or has been informed by a Company employee of a possible breach of the provisions of the Ethics Code. In accordance with the Ethics Code, all employees are required to act with due care and attention, following the principle of integrity. The Company pays particular attention to the choice of its business partners and refuses to do business with those who have committed a serious breach of contractual obligations and the rules of business ethics. Two breaches of the Ethics Code were reported and rectified in 2020. The Ethics Code of Croatia Airlines d.d. has also been published on the Company’s website and must be adhered to by all employees.

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6.7 Anti-corruption Programme In early 2010, Croatia Airlines started implementing its Anti-corruption Programme with the aim of improving the legal and institutional framework for efficient and systematic prevention of corruption and the promotion of zero tolerance to corruption. The Programme undergoes revisions, if needed, which was last done in 2019, in line with the Decision of the Government of the Republic of Croatia on Adopting an Anti-corruption Programme for the Companies majority-owned by the State for the period 2019 - 2020. Any breach or non-adherence to the Anti-corruption Programme is considered a breach of ethical principles and standards.

The primary goals of Croatia Airlines’ Anti-corruption Programme are: - Goal 1 Strengthening work integrity, responsibility and transparency - Goal 2 Strengthening anti-corruption mechanisms.

The Anti-corruption Action Plan is published on the Company’s website and must be adhered to by all employees. Its Ethics Code is published on its intranet site, which all employees can access. It provides them with an insight into the Company’s dedication to affirming zero tolerance to corruption. In 2020, no cases related to any form of corruption were reported.

6.8 Responsibility to passengers Our goal is to ensure good connectivity, reliability and safety by providing our passengers high-quality service during the flight. We want their journey to be stress-free and in line with their expectations. Therefore, we take surveys on a regular basis and communicate with our passengers to offer a service that meets their expectations.

We have been carrying out a customer satisfaction survey throughout the year, on a daily basis, so as to get feedback from the passengers on their satisfaction with our service quality. Its aim is to continuously monitor the entire service delivery process. The main survey parameters are customer satisfaction with the service, NPS and the likelihood of reusing our service. We manage products and make decisions on improving our products and

services or introducing new ones on the basis of the survey results. Due to the epidemiological situation in 2020, passengers were surveyed online only, via the QR code available on our aircraft during the flight.

The Company’s Customer Service monitors, adopts and applies any Star Alliance rules regarding the communication with passengers and that among its members. If a passenger files a complaint, a response will be given within the legally prescribed 30 days.

Our passengers always come first, especially during these highly demanding times marked by the coronavirus pandemic. We always do our best to meet our passengers’ needs, answer all of their questions related to flights and ensure they get the necessary information. Since the start of the pandemic, we have also made available additional telephone lines and hired additional personnel to be able to provide timely responses.

Passengers can contact our Customer Service in writing: - using the web form on our www.croatiaairlines.hr website - using the form available on our aircraft - by post (at Bani 75b, Buzin, 10010 Zagreb) - by fax (+385 1 6160 152).

In case of denied boarding and cancellation or long delay of flights, complaint management is handled in line with the Regulation (EC) No 261/2004, provisions of the Act on Civil and Proprietary Relations in Air Traffic (OG 132/98 and 63/08) and the Montreal Convention of 28 May 1999, which in the Republic of Croatia is implemented on the basis of the Act Ratifying the Convention for the Unification of Certain Rules for International Carriage by Air and provisions of the Act on Civil and Proprietary Relations in Air Traffic (OG 132/98 and 63/08).

Tailored service Due to the global crisis caused by the coronavirus pandemic, the year of 2020 was challenging and demanding in this segment as well. We adjusted our services in line with the prescribed epidemiological measures on multiple occasions, and focused on meeting the demand for air transport services. It should be noted that, being a socially responsible company, in these extraordinary circumstances Croatia Airlines offered its passengers flexible ticket purchase and travel terms and conditions with an unlimited number of travel date changes free of charge, provided that they fly within the ticket validity period. It is also possible to get a refund of the amount paid in the form of a voucher, which can be exchanged for a new ticket within a year from its issuance. All the passenger information are provided in a transparent and timely manner on our website www.croatiaairlines.com.

Since the beginning of the coronavirus crisis, the Company has been operating flights without interruption.

What is more, during the spring of 2020 we were the only airline connecting Croatia with the rest of Europe.

With international and domestic flights operated during the tourist season we strongly supported the efforts of the hospitality industry aimed at achieving the best possible results amidst the pandemic.

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We have continued to monitor the quality of our services regardless of the crisis. We use an online survey to monitor the level of customer satisfaction and adjust our services in line with their needs and suggestions.

Just like in the previous years, we have continued to develop and advance our services, but to a considerably smaller extent than planned due to organisational limitations that we and our partners had to face following the implementation of epidemiological measures.

We have expanded the booking and additional service payment options by introducing an upgrade to business class at a more favourable price, which comes with all the benefits of a business class flight. Our seat reservation for a charge service was complemented by adding the ‘neighbouring seat available’ option for economy class, which was made available to users of digital and any other sales channels. In order to protect the health of our passengers, crew members and other employees, we improved the web check-in by introducing the Health Regulations section.

In 2020 we also launched two related projects, with their implementation planned for January 2021. The first is the Promo code for a discount, aimed at improving the existing functionalities by offering passengers more affordable travel in line with their specific needs. The second one is Amadeus Reservation Essential, aimed at migrating the existing booking system to a new platform. Even though the application is intended for Croatia Airlines’ sales staff rather than for our passengers, the new platform will enable us to provide an upgraded and faster service to passengers who do not use digital channels. In order to improve the passenger registration service, in 2020 we worked on introducing the Altea DCS (Departure Control System) at as many departure points as possible. The Altea DCS system was introduced in 2020 for the registration of passengers at the following airports: Berlin - BER, St. Petersburg - LED and Belgrade - BEG. The implementation of a redesigned responsive website with new functionalities, which will help passengers plan their travels faster and easier, is expected to take place in 2021. We will continue developing a notification system with the aim of better informing passengers about all the details they need to know before and during the flight. This is especially important during the pandemic, given the new travel conditions and frequent changes in the flight schedule.

Meals for passengers

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Our most important task is to ensure customer satisfaction with the service provided. As the national flag carrier and a company that continuously works on improving its services, our goal is to make flights even more pleasant and introduce the riches of Croatian cuisine to passengers. All meals and beverages on our flights are free of charge and the service depends on the flight duration and the time of day. Business class passengers can enjoy special meals, in line with their health and religious requirements, and there are also special meals for children, etc.

In order to minimise the contact between the passengers and staff during the pandemic, in 2020 we did not offer our standard catering service on flights. In line with recommendations of the Croatian Public Health Institute, we served only bottled water. Also, no sales activities were performed during the flight.

Health and safety of passengers Health and safety of passengers, crews, and employees are of high priority to Croatia Airlines, and are ensured through an integrated quality assurance system encompassing all of its business processes and organisational units. A more detailed description of Croatia Airlines’ quality management system can be found on page 43 of this Statement. The system is continuously certified and advanced through regular internal supervision and the supervision of relevant domestic and international organisations. The supervision encompasses regular audits and inspections carried out by the Croatian civil aviation authorities, i.e. Croatian Civil Aviation Agency (CCAA).

Croatia Airlines fully implements professional IATA standards related to air traffic safety.

In order to protect the health of the Company’s service users, all food and beverages served on the flight must meet certain health standards. Croatia Airlines regularly checks the preparation of passenger meals by catering services at Croatian airports. The procurement and storage of ingredients, preparation and storage of meals, and their transport to aircraft are regulated by applicable Croatian laws and related ordinances. The basic acts are: Food Act, Act on General Use Items, Veterinary Act, Act on the Protection of the Population from Infectious Diseases, and Act on the Provision of Food Information to Consumers. Sanitary inspectors are responsible for ensuring the implementation of relevant laws and ordinances.

Š. Lugarov

The cabin crew must adhere to the provisions of the Act on the Protection of the Population from Infectious Diseases. They are obligated to obtain sanitary certificates, which have to be renewed every year, and attend training courses on minimum hygiene standards every five years.

Since the beginning of the COVID-19 pandemic, the Company has been adhering to and implementing the recommendations of the European Aviation Safety Agency (EASA), which prescribe mandatory protective equipment for employees and passengers, aircraft disinfection and physical distance in the aircraft cabin.

In this way we protect our own health and that of our passengers, putting the public health interest first.

Under the new measures, passengers are required to wear protective masks or face shields while boarding and use them throughout their stay in the aircraft cabin. The Company implements many other measures aimed at protecting the health of its passengers and staff. Cabin crew members who come into direct contact with passengers and ground personnel wear appropriate protective equipment, aircraft are disinfected daily, advanced hygiene measures are taken during the regular cleaning of the passenger cabin, and various disinfectants are made available to staff. Our aircraft are equipped with high-quality air filters in the passenger cabin. The air is brought from the atmosphere with a constant flow, while the air in the passenger area circulates vertically so its quality, as research and analyses of international health authorities show, equals that of operating rooms in hospitals. Depending on the cabin load, the cabin crew members will ask the passengers to sit in a way to ensure the largest possible distance between them, except for family members who will not be required to maintain a distance. The last row remains empty to provide a seat for any of the passengers possibly showing COVID-19 symptoms during the flight.

Product information Croatia Airlines has in place a Miles&More frequent flyer programme, the most extensive one in Europe.

Information about offers, travel planning and booking, the Miles&More programme and all other travel-related information can be found on our website www.croatiaairlines.com.

Existing and potential customers are informed about Croatia Airlines’ transport services also through planned promotional activities, media releases, participation in domestic and international fairs, distribution of promotional material, sponsorships, and direct communication with our sales personnel. Croatia Airlines’ General Conditions of Carriage are available to customers at all sales locations, branch offices, and representative offices of Croatia Airlines, and have also been posted on the following webpage: https://www.croatiaairlines.com/Legal-information/General-conditions-of-carriage/

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6.9 Helping the community through cooperation projects Croatia Airlines strives to support institutions that need humanitarian aid or organise humanitarian projects.

It provides help and direct humanitarian aid by granting cost-free transport for severely ill patients, children or people in need, and participating in charity actions by donating free transport.

Due to the global COVID-19 crisis, which strongly affected all aspects of social activities on a global scale, the Company was forced to introduce emergency measures in mid-March 2020. Consequently, most of our cooperation activities were postponed. The ones we managed to realise are listed below: We cooperate with the Croatian Tourist Board and its branch offices on strategic projects on an ongoing basis.

In early July 2020, Croatia Airlines signed an agreement with Jadrolinija in an effort to join forces and further improve the Croatian tourist offer. As both companies are important players in the Croatian transport sector, our objective was to devise a unified, simple and efficient service that we would offer to both Croatian citizens and tourists, thus making Croatia and its destinations even more accessible.

We have also signed an agreement on continuing cooperation with the Croatian Football Federation, and are still the official airline of the World Cup runners-up. We actively support the Croatian Olympic Committee as their official airline. We continue our cooperation with the Croatian Paralympic Committee: Croatian Paralympic athletes recorded a video in support of Croatia Airlines. We were proud to carry Croatian women’s handball team (bronze medal winners) and tennis players that recorded ATP tour wins in 2020. Croatia Airlines flies many sports clubs and federations to the competition venue on its regular and charter flights.

The activities related to the Cooperation Agreement on European Project in Aviation (KAAT - Knowledge Alliance in Air Transport) continued in 2020, with Croatia Airlines being one of the local partners in the project led by the Faculty of Transport and Traffic Sciences.

Within its projects, the Company successfully cooperates with Croatia (Air Traffic Services) Control, the Geophysics Department of the Faculty of Science in Zagreb, Croatian Meteorological and Hydrological Service, Dubrovnik Airport, etc.

It should also be noted that, in line with its internal rules and regulations, Croatia Airlines does not offer sponsorships, donations or grants to political parties and state organisations, or organisations supporting

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We reach out to the community we operate in through numerous sponsorships and donations.

I. Bioćina / HTZ arhiva

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6.10 Environmental impact of business activities The Company entered the year with plans to boost the level of environmental protection and energy efficiency. With the pandemic unfolding, many activities were temporarily suspended or delayed. However, this was not the case in the segment of environmental protection.

From the energy efficiency perspective, 2020 was a very challenging year. Although administrative segment indicators showed a positive trend, they are considered unrealistic due to business circumstances (lockdown restrictions and working from home). On the other hand, negative (higher) indicators were calculated due to a significantly reduced amount of CO2 emissions per passenger kilometre as a result of the pandemic. The above impact was mitigated through traffic optimisation, i.e. by using aircraft of smaller capacity (and consumption) as much as possible.

Croatia Airlines is dedicated to managing its business goals and risks by taking into account environmental protection and improvement of energy efficiency. The impact of Croatia Airlines on the environment can be seen in the activities of its various segments. The Flight Operations Sector is the most intensive in terms of greenhouse gas emissions, the Technical Sector in terms of hazardous and non-hazardous waste, whereas the other sectors affect the environment at a considerably lower level.

Croatia Airlines has identified greenhouse gas emissions as the most important aspect of the environmental impact of its business activities and is focused the most on addressing this issue. Aircraft operate in higher layers of the Earth’s atmosphere and are the only anthropogenic pollutant that can affect the ozone layer. Greenhouse gases, particularly CO2, are the cause of climate change on Earth and as such are subject to the greatest number of regulatory obligations of Croatia Airlines.

In order to mitigate the impact of greenhouse gas emissions, the Company has since the very beginning introduced a system for measuring and monitoring aircraft fuel consumption, and it meets all related regulatory requirements (both domestic and international). Regulatory requirements are continuously evaluated on a monthly basis, thus ensuring their timely implementation in the Company’s business operations.

Croatia Airlines endorses the global aviation strategy of environmental protection by investing in technology, optimising air traffic and improving aviation infrastructure, and boosting operational performance. We

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are sure that sustainable development will be among top business trends in the years to follow.

FLEET

13

Average fleet age: 16.02 years

aircraft

78

CARBON FOOTPRINT

000 t CO2e

CO2

(Scope1) 62,1% less compared to 2019

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ZAGREB

SPLIT

A 73-tonne A320: 33 kg of CO2 per passenger

CO2 DISTRIBUTION aircraft 98,84% other 1,16%

A 70-tonne A319: 38 kg of CO2 per passenger A 30-tonne Dash8: 30 kg of CO2 per passenger An average vehicle of 1.5 tonnes: 46 kg of CO2 per passenger

ELECTRICITY 1.6 MWh

NOISE

ICAO Chapter IV 100%

GAS

-6% compared to 2019

MOTOR FUELS

a 12% more

22 t

compared to 2019

-51% compared to 2019

Croatia Airlines strives to operate as a socially responsible company, taking account of the by-products of its operations and their impact on both the environment and the community.

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COOPERATIONWe cooperate with regulatory bodies and interested parties such as educational institutions and individuals to share information and experience in the field of environmental protection and energy These are the pre-pandemic results that we are trying to achieve during the pandemic as well, and improve them by optimising the fleet utilisation.

CO2 MANAGEMENT - The Company compensates CO2 through the EU ETS and related systems (CH ETS) and will be doing so in future through CORSIA and UK ETS; data is collected for each flight, then verified and delivered to relevant bodies

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NOISE MANAGEMENTall of our aircraft comply with the Chapter IV standards for aircraft noise; changes made on Airbus aircraft in 2019 enabled us to exceed these standards

From a global perspective, the European Union leads the way when it comes to creating and implementing environmental protection objectives, and so does the Republic of Croatia as an EU member state and Croatia Airlines as a company operating in this area. As a member of the largest airline association, Star Alliance, Croatia Airlines also engages in achieving common goals in terms of waste, use of sustainable fuels, emission reductions and the impact on the supply chain. In the coming years, we plan to establish benchmark values and make steady progress in these fields.

Croatia Airlines has been participating in the EU ETS process since 2010. In 2018, it joined the Swiss emissions trading scheme, and as of 1 January 2019, it joined the CORSIA process after developing new procedures and monitoring plans in 2019. The adoption of the CORSIA system required Croatia Airlines to make adjustments of the existing EU ETS (Emissions Trading System) in order to cover a greater number of flights. After the regulation applied, all Croatia Airlines flights have joined one of the CO2 measurement and emissions trading systems (EU ETS, CORSIA, Swiss ETS), allowing the Company to join the growing number of companies and countries that invest significant efforts and initiatives for the global reduction of greenhouse gases emissions. Following Brexit and the United Kingdom leaving the EU, as of 1 January 2021 the Company was required to monitor emissions in the UK territory. Our experts complied with this by drawing up an additional emissions monitoring plan.

As of 2019, the Company’s new emissions monitoring, reporting and trading system was named EOS (Emissions Offsetting System), and in 2020 it was upgraded through a new and more efficient way of recording.

Activities related to the reduction of greenhouse gas emissions directly affect the Company’s economic balance. A reduction of fuel consumption in tonnes through technical and operational activities reduces the cost of fuel. Consequently, the level of emissions has been dropping, which implies lower costs related to emissions credits, so every initiative aimed at reducing fuel consumption results in both an environmental and economic impact. Moreover, various fees for waste, emissions, and noise are part of the service price related to every flight destination of Croatia Airlines, thus directly affecting its financial operations.

Besides limiting greenhouse gas emissions through the EU ETS system, it is also important to consider the relationship between passenger growth and emissions. An increase in the number of passengers at every flight positively affects emission indicators per passenger seat at a certain distance since the volume of emissions does not increase proportionally to the number of passengers. For example, by comparing the average aircraft and car load, in terms of emissions, air travel is often more environmentally friendly. The physical properties of aircraft/vehicles and the fact that usually only one passenger travels by car (the driver) should also be taken into account. As we witness a growing number of technical and technological initiatives in the automotive industry, the airline industry tries to keep pace and be competitive in environmental terms as well.

Croatia Airlines is actively meeting all regulatory requirements and improving its business processes in line with available capacities in order to reduce, to the extent possible, their impact on the environment. Furthermore, it strives to improve its attitude towards the environment by adopting proposals of other stakeholders. The growth of Croatia Airlines is guided by the principles of sustainable development in the following key areas: fleet selection and application of relevant procedures aimed at reducing fuel consumption, CO2 emissions, and noise. Environmental impacts are monitored through the environmental protection and energy management system certified under ISO 14001 and ISO 50001 international standards, which were renewed in late 2019 through a recertification audit. The system encompasses all activities that are carried out in a number of the Company’s business sectors with regard to the environmental protection and conservation of energy.

Since the above certificates require continuous work and progress in the segment of environmental protection, in 2020 Croatia Airlines adopted the ISO 50001:2018 version with stricter and more precise requirements in terms of energy consumption, i.e. it calls for more detailed planning by taking into account the ‘operating environment’, thus providing a more realistic overview of energy consumption, and positively affecting its management. The audit was carried out successfully in the pandemic setting through the use of modern communication platforms, allowing the participants to be present in real time at several Company’s locations and in several counties.

Aircraft fuel consumption is the most significant aspect affecting the environment and energy consumption at Croatia Airlines, so it is in this segment that biggest improvements are expected. The Company strives to 2

Carbon Offsetting and Reduction Scheme for International Aviation

62

boost energy efficiency with each upgrade of technical resources (primarily aircraft). With this in mind, in 2020 expert teams assessed the use of sustainable fuels in the operations of Croatia Airlines’ aircraft. The assessment showed readiness for such an initiative, but the next steps will depend on the supplier’s infrastructure and economic aspects of the market, considering a higher price of such fuels. In the post-pandemic period of 2020, there was a strong focus on the increasing use of ‘green technologies’.

There were no instances of non-compliance or penalties in 2020 in relation to environmental protection.

In order to protect the health and safety of employees, some of them worked from home as much as possible. Due to this, the planned measurement of the Company’s resource consumption was not carried out as conditions were not stable (which is one of the requirements of the environmental protection management system).

Environmental protection management systems have been set up to ensure more efficient monitoring of environmental protection and better coordination at company level. The introduction of the system has enabled the Company to check and monitor relevant indicators and facilitated the identification of related goals. This has allowed the Company to introduce positive business practices in its processes.

Croatia Airlines implements several policies within its management system. The first and most important one is the Safety Policy, followed by the Quality Assurance Policy, Aircraft Maintenance Quality Policy, Protection Policy and the Environmental Protection and Energy Efficiency Policy.

By introducing ISO 50001 (Energy Management System) and ISO 14001 (Environmental Management System) systems in late 2016, Croatia Airlines joined a small circle of global airline companies with an implemented range of ISO management systems (ISO 9001/14001/50001). Their introduction and subsequent monitoring have resulted in certain savings, as shown by indicators for which 2015 is still taken as a base year; however, measurements and comparisons with previous years have been set up, as well as the planned/realised ratio, pointing to a more dynamic approach to data gathering.

The Company adheres to all applicable legal regulations on environmental protection and energy preservation at national and global level, including waste management regulations.

It also strives to implement new technologies and measures for a permanent improvement of energy performance, as well as to monitor and reduce greenhouse gas emissions, and raise awareness about efficient

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environmental protection and the strengthening of energy efficiency standards through employee education. Material aspects have also been harmonised with business partners using the same infrastructure, for example, with Zagreb International Airport, with which Croatia Airlines shares water drainage infrastructure.

The application of all principles of sustainable development is limited by certain restrictions arising from the particular nature of air transport. This primarily applies to the Safety Policy, regarded as the most important policy on whose principles the Quality Assurance Policy and the Environmental Protection and Energy Efficiency Policy are based. Due to the particular nature of its business operations, the consumption of energy and resources within Croatia Airlines is analysed in three separate segments: flight operations, Technical Sector, and the administrative segment of the Company.

Flight operations consume the most energy at Croatia Airlines, with relevant regulations and procedures for safe air traffic having the absolute priority. Due to congested airspace, the EU carriers have been forced to act in coordination with numerous factors of air traffic, which sometimes makes it hard to apply an environmentally friendly approach to business. In 2020, Croatia Airlines introduced a more recent version of Airbus A319 aircraft into the fleet for the summer flight schedule. However, it operated with a reduced number of flights due to the pandemic. A standard EU ETS MRV method was used to collect CO2 emissions data through the use of the 3.15 emission factor, meaning that one tonne of aviation fuel produces 3.15 tonnes of CO2. The consumption of aircraft fuel in tonnes is considered a business secret and as such is not stated herein. All measurement systems (Swiss ETS, UK ETS, CORSIA) are compliant with the above method.

Energy and water consumption In 2020, the Company’s administrative segment consumed 312,780 kWh, or 24% less electricity compared to 2019. The consumption was reduced through regular renewal of IT equipment in 2019/2020, so the average consumption per computer is currently about 65 W. It should also be noted that annual consumption was to a large extent influenced by lockdown restrictions and remote work.

Energy and water consumption

Measurement unit

Index

Index

98

Electrical energy Electrical energy consumption - total

kWh

1.656.624

1.764.760

1.825.608

1.802.820

1.778.360

1.690.244

94

Electrical energy consumption - Buzin

kWh

312.780

389.578

391.892

389.482

394.042

436.972

80

72

Electrical energy consumption

kWh

1.343.844

1.375.182

1.433.716

1.413.338

1.384.318

1.253.272

98

107

m³

37.255

33.246

42.382

46.500

28.844

25.785

112

144

20.546

26.995

26.573

25.785

137

58

100

0

- Technical Sector Gas Gas consumption - total Gas consumption - Buzin

m³

14.881

10.885

Gas consumption - Technical Sector

m³

22.374

22.361

21.836

19.505

2.271

0

Water conspumption - total

m³

4.545

7.655

7.370

4.765

3.597

3.176

59

143

Water consumption - Buzin

m³

1.312

1.549

2.977

3.519

1.293

1.025

56

128

Water consumption - Technical Sector

m³

3.233

6.081

4.393

1.246

2.304

2.151

53

150

Eurosuper 95 consumption

liter

16.575

29.506

30.391

31.026

31.028

30.230

56

55

Eurodiesel consumption

liter

5.620

16.065

17.731

17.110

35

33

Eurosuper 95 consumption

l/km

0,092

Eurodiesel consumption

l/km

0,061

Water

Motor fuels

15.921

17.149

0,089

0,089

0,107

0,124

0,130

103

71

0,104

0,126

0,120

0,135

0,150

59

41

Energy consumption data was retrieved using US Energy Information Administration-https://www.eia.gov

We should mention here that the electricity used by Croatia Airlines holds a HEP ZelEn certificate, meaning that it is produced from renewable sources and that the greenhouse emissions amount to zero.

The Technical Sector consumed 1.343,844 kWh during various aircraft maintenance activities, or 2% less compared to the previous year, indicating that the level of maintenance works was preserved during the pandemic. It should be noted here that aircraft maintenance activities are focused primarily on the quality of work and safety, with energy efficiency following suit. Along with maintaining Croatia Airlines’ fleet, the Technical Sector also performs maintenance works for other companies. Considering a growing demand, we can expect an increase in the use of resources and the amount of hazardous and non-hazardous waste. The segment of base aircraft maintenance (major check-ups) shows the biggest growth.

The Company’s administrative segment recorded a decline in the consumption of electricity, while the consumption of gas (used for heating) increased, with significant consumption levels recorded in March and December. According to the data of the Croatian Meteorological and Hydrological Service, deviations of the average air temperature in 2020 in relation to the reference period 1981-2010 range from 0.7 °C (Karlovac, Makarska, Komiža) to 1.6 °C (Puntijarka). The air temperature was higher than the multi-year average at all stations.

Gas consumption at the Technical Sector totalled 22,374 m3 or 135 kWh, which is a mild increase by 13 m3 compared to 2019. Regarding water consumption at the locations in Buzin, it amounted to 1,312 m3 in 2020. Compared to the previous year (corrected data were adjusted and last year’s data on water consumption at this location were corrected), it fell by 14%. As there is no water recovery system, it is considered that all the water spent was released to appropriate drainage systems according to earlier data on both key locations. The average age of the vehicle fleet in late 2020 was approximately 13 years, which contributes to the expected increase of consumption indicators. The fact that the vehicles of the Technical Sector are used for a specific purpose requires adherence to additional safety rules related to vehicle movement on airport surfaces.

CO2 emissions The Company’s CO2 emissions in 2020 include those from aircraft and those occurring due to the consumption of various energy products. As expected, aircraft traffic accounts for the largest share in CO2 emissions.

64

Measurement unit

CO2 emissions

Index

Index

Index

Index

Index

Index

Total CO2 emissions CO2 amount (aircraft)

kg

CO2e amount (total)

kg Measurement unit

A320/A319 aircraft

Amount of CO2 emissions within RC by RPK

kg

Amount of CO2 emissions in international traffic by RPK

kg

Measurement unit

Q400 aircraft

Amount of CO2 emissions within RC by RPK

kg

Amount of CO2 emissions in international traffic by RPK

kg

During 2020, aircraft of other carriers were also used on a short-term basis (for several flights only).

Their impact on emissions has been included in the total emissions of Croatia Airlines as well as in the emissions trading systems. An analysis of CO2 emissions per revenue passenger kilometre (RPK) as an indicator of energy consumption and volume of emissions shows a significant increase, resulting from reduced cabin load and traffic due to the pandemic.

The applied calculation methodology was developed on the basis of official traffic performance statistics of Croatia Airlines, verified data for Croatia Airlines from the EU ETS database, and the selected CO2/RPK indicator, most commonly used in the airline industry for presenting the data.

The factor used to calculate the total direct emissions of other energy products in use was the GHG

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Protocol Corporate Standard developed by the World Resources Institute (WRI) and the World Business Council on Sustainable Development (WBCSD) in accordance with the IPCC 2006 Guidelines for National Greenhouse Gas Inventories.

The total direct emissions of the Company in 2020 with regard to consumed energy products amounted to 122,726 kg CO2, i.e. 34% less due to the pandemic. In 2019, the volume of direct emissions of the Company was 184,638 kg CO2.

Since the Company uses the HEP ZelEn certified electricity, there are no greenhouse gas emissions for this segment (Scope 2), which can be emphasized as an exceptional business achievement.

Through its product ZelEn, HEP Supply sells the electricity generated in HEP’s hydro power plants registered in the relevant database of guarantees of origin and delivers the proof of origin to its customers based on the Methodology for Establishing the Origin of Electricity (OG 133/14). Croatian Energy Market Operator (HROTE) is responsible for issuing guarantees of origin and for setting up and managing a database of guarantees of origin. In 2020, Croatia Airlines’ cumulative CO2 emission impact amounted to 78,754,346 kg CO2e. Compared to 2019, the total amount of CO2e recorded a dramatic 62% fall due to pandemic restrictions in air traffic.

Waste The application of the waste management system using a responsible approach ensures that none of the elements that might jeopardise the environment come into contact with it. Upon delivery of waste to an authorised collector and entering relevant data (for example for hazardous waste) into the Hazardous Waste Register, the so-called waste flow is monitored from its emergence to the final disposal by authorised companies. Croatia Airlines has in place a waste disposal system and pays equal attention to managing both hazardous and non-hazardous waste.

At the general organisational level, the Company successfully engaged in rationalising the consumption of stationery and office supplies. Where applicable, the print default on single-model printers has been set

on both pages. In addition, the employees were familiarised with the need for conscious printing, by which the Company makes savings on both the input (paper, toner, electricity) and output (waste management and archiving as by-products) resources.

Along with municipal waste, separate waste collection can be carried out within the Technical Sector, the biggest waste producer, and the appropriate management thereof eliminates the impact on the environment and ensures a sustainable development of the Company’s technical activities. In 2020, increased capacities for waste management were still in effect and a more precise waste separation was further enabled. According to the waste documentation, in 2020, the Technical Sector located in Zagreb produced 12,420 kg of hazardous waste as a result of more complex works on the Company’s fleet and those performed on third party aircraft, and 18,432 kg of non-hazardous waste. When we exclude 600 kg of waste kerosene (which can vary significantly due to the specific nature of aircraft maintenance and has, therefore, been separately indicated in the tables), the Company produced 11,821 kg of hazardous waste in 2020, or 19% more compared to 2019. In 2020, Croatia Airlines repeated its request to its maintenance partners to make better plans in view of the remaining fuel on aircraft brought in for maintenance, which resulted in a significant decrease in waste kerosene. We are especially proud of the 37% increase in non-hazardous waste in 2020, achieved through the application of appropriate waste separation practices which reduce the amount of municipal waste. The collection of municipal waste in administrative segments is performed in accordance with applicable regulations on the state and local level, with separate waste collection depending on the capacity of the local community. In this segment, paper represents the most significant type of waste: 9,753 kg of paper was collected in 2020 at the following locations: Zagreb Airport, Buzin, and Zrinjevac branch office. The Company supports all activities aimed at improving waste management and will do its best to increase the percentage of waste separation across all of its premises, in line with the capacities of the local community, and thus reduce the impact of its operations on the environment.

Waste

Measurement unit

Index 2020/2019

Index 2020/2015

2020

2019

2018

2017

2016

2015

kg

600

8.240

6.700

32.100

6.150

1.000

7

60

Other hazardous waste kg

11.821

9.965

11.927

12.921

9.821

11.845

119

100

18.432

13.470

13.004

16.286

4.253

1.375

137

1.340

Hazardous waste Waste kerosene

Non-hazardous waste Non-hazardous waste

kg

Total waste weight by type and disposal method

Measurement unit

2020

2019

2018

2017

Index 2020/2019

Reuse Recycling (paper and clean plastics) Composting Recovery, including energy recovery Incineration (hazardous waste without kerosene and contaminated plastics) Incineration (kerosene) Deep well injection Storage On-site storage Other

Incineration of hazardous waste: 12,421 kg, or 40% of total waste (hazardous and non-hazardous)

Recycling (paper and clean plastic) 1,287 kg, or 40% of total waste (hazardous and non-hazardous)

Other 6,145 kg, or 20%

66

7 . GRI index

Chapter General disclosure

Name of the organization

4.1. Company name and head office

11

102-2

Activities, brands, products, and services (fleet)

4.6. Croatia Airlines as a brand

13

4.7. Fleet and capacities 4.8. Main services and activities 4.10. Destinations/airports/routes 4.11 Other transport services

8-9 18-19

Location of headquarters Location of operations Ownership and legal form

102-6

Markets served

102-7

Scale of the organization

3. Key performance indicators

102-8

Information on employees and other workers

102-9

Supply chain

4.12. Employee data 4.13. Supply chain

102-10

Significant changes to the organization and its supply chain

5.3. Material aspects of the company's business operations and their effect on sustainable development 4.5. Significant changes during the reporting period

102-11

Precautionary Principle or approach

102-12 102-13 102-14 102-15 102-16

External initiatives Membership of associations Statement from senior decision-maker Key impacts, risks, and opportunities Values, principles, standards, and norms of behavior

102-18 102-40 102-41 102-42 102-43

Governance structure List of stakeholder groups Collective bargaining agreements Identifying and selecting stakeholders Approach to stakeholder engagement

7

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5.8. Responsibility to passengers 5.10. Environmental impact of bussines activites 5.4. Safety and andvancements as business imperatives 4.14. Membership in professional associations and organisations 1. A foreword by the President and CEO 5.1. Operational risks and opportunities 5.6. Business ethics 5.7. Anti-corruption program 4.4 Management structure 5.2. Stakeholders 5.5. Responsibility to employees 5.2. Stakeholders 5.2. Stakeholders 5.3. The material aspects of the company's business operations and their effect on sustainable development 5.5. Responsibility to employees 5.8. Responsibility to passengers 5.9. Support for the community- inclusion and development programs 5.3. Material aspects of the company's business operations and their effect on sustainable development 5.5. Responsibility to employees 5.8. Responsibility to passengers 5.9. Support for the communitiy 5.10. Environmental impact of business activites

102-45

Entities included in the consolidated financial statements

2. 1. Entities included in consolidated financial statements

102-46

Defining report content and topic Boundaries

5.3. Material aspects of the company's business operations and their effect on sustainable development

102-47

List of material topics

102-48 102-49 102-50 102-51 102-52 102-53

Restatements of information Changes in reporting Reporting period Date of most recent report Reporting cycle Contact point for questions regarding the report

102-54

Claims of reporting in accordance with the GRI Standards

2. About the Nonfinacial Statement

102-55

GRI content index

7. GRI Indeks

103-1

Explanation of the material topic and its Boundary

103-2

The management approach and its components

103-3

Evaluation of management approach

5.3. The material aspects of the company's business operations and their effect on sustainable development 2. About the Nonfinacial Statement 2. About the Nonfinacial Statement 2. About the Nonfinacial Statement 2. About the Nonfinacial Statement 2. About the Nonfinacial Statement 2. About the Nonfinacial Statement

5.3. The material aspects of the company's business operations and their effect on sustainable development 5.3. The material aspects of the company's business operations and their effect on sustainable development 3. Key performance indicators 5.3. The material aspects of the company's business operations and their effect on sustainable development

201-1

Environmental

67

Direct economic value generated and distributed

5.3. Material aspects of the company's business operations and their effect on sustainable development 5.3. Material aspects of the company's business operations and their effect on sustainable development

20-21 38 I 41 7 I 12 20-21 53-56 59-66 43-45 22 5 27-29 53-54 38 I 53 12 30-31 51-52 30-31 30-31 31 I 36-39 48-52 53-56 57 32 I 36-39 48-52 53-56 57 59-66 6 30-31 I 32 I 36-39 32 I 38-39 6 6 6 6 6 6 6 67 36-38 36-39 8-9 36-39 40

103-1

Explanation of the material topic and its Boundary The management approach and its components

103-2

Evaluation of management approach

5.8. Responsibility to passengers - sustainability in all flight segments

302-1 303-1

Energy consumption within the organization Water withdrawal by source

5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites

38 I 59-63 63-64 64

303-2

Water sources significantly affected by withdrawal of water

5.10. Environmental impact of business activites

64

303-3 303-4 303-5 305-1 305-2 305-4 306-1 306-2

Water recycled and reused Water discharge Water consumption Direct (Scope 1) GHG emissions Energy indirect (Scope 2) GHG emissions GHG emissions intensity Water discharge by quality and destination Waste by type and disposal method

5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites 5.10. Environmental impact of business activites

64 64 64 64-65 64-65 64-65 64 65

307-1

Non-compliance with environmental laws and regulations

103-1

Explanation of the material topic and its Boundary

103-2

The management approach and its components

103-3

Evaluation of management approach

5.3. Material aspects of the company's business operations and their effect on sustainable development

5.10. Environmental impact of business activites 5.3. Material aspects of the company's business operations and their effect on sustainable development 5.4. Safety and advancements as business imperatives 5.5. Responsibility to employees 5.8. Responsibility to passengers 5.9. Support for the communitiy 5.5. Responsibility to employees 5.6. Business ethics 5.7. Anti-corruption program 5.8. Responsibility to passengers

36-39 38 I 59-63 59-66 53-56

63 30-39 43-45 48-52 I 53 53-57 57 30 I 36 I 48-53 53 38 I 53 53-56

5.9. Support for the community

57

New employee hires and employee turnover Parental leave Programs for upgrading employee skills and transition assistance programs

5.5. Responsibility to employees 4.12. Employee data

49 19

5.5. Responsibility to employees

50-51

406-1

Incidents of discrimination and corrective actions taken

5.5. Responsibility to employees

51-53

413-1

Operations with local community engagement, impact assessments, and development programs

5.9. Support for the community

57

5.9. Support for the community

57

401-1 401-3 404-2

415-1 416-1

102-55

16

103-2

5.10. Environmental impact of business activites

Social

17 53-56 11 16 11 11

102-3 102-4 102-5

Key topics and concerns raised

16 24-25

5.8. Responsibility to passengers 4.1. Company name and head office 4.9. Countries/markets of operation 4.2. Ownership and legal form 4.3. Major shareholders 4.9. Countries/markets of operation

102-44

15 16-17

4.15. Company history

4.13. Supply chain

Economic performance

Page

102-1

417-1

Political contributions Assessment of the health and safety impacts of product and service categories Requirements for product and service information and labeling

5.8. Responsibility to passengers

55-56

5.8. Responsibility to passengers

56