adria airways - annual report 2007
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Facts and figures, resuls, numbers, future plans...TRANSCRIPT
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ANNUAL REPORT 2007
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Dajemo edinstven obËutek brezmejne svobode.Sledimo soncu, lahkotno kot ptica s krili jezdimo na vetru,uresniËujemo sanje. Letimo.
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We give you a unique feeling of infinite freedom. We follow the Sun, we ride on the wind easy as a bird, we make dreams come true.We fly.
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BUSINESS REPORT
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Table of contents
INTRODUCTION ...................................................................................................... 8 �. Key achievements of the business year ...................................................... 8
�.�. Key achievements of the business year in figures ........................................ 8�.�. Important events in �007 .......................................................................... �0�.�. Letter from the Management Board .......................................................... ���.�. Report by the President of the Supervisory Board .................................... �5
�. General information .................................................................................. �9�.�. About the company .................................................................................. �9�.�. Ownership structure ................................................................................. �9�.�. Fleet ......................................................................................................... �0�.�. Company history ...................................................................................... ��
�. Managing the company ............................................................................ ���.�. Management bodies ................................................................................. ���.�. Management of subsidiary companies ...................................................... �5�.�. Organisational Structure ........................................................................... �6
BUSINESS REPORT .............................................................................................. �7�. Mission, vision and strategy ...................................................................... �75. Improving our service ............................................................................... ��6. Operating conditions in �007 .................................................................... �57. Business segments .................................................................................. �0
7.�. Scheduled flights ...................................................................................... �07.�. Charter services........................................................................................ ��7.�. Leasing out aircrafts ................................................................................. �57.�. Marketing the media space ....................................................................... �67.5. Cargo transport ........................................................................................ �77.6. Aircraft maintenance for third parties ........................................................ �87.7. Education, flight school ............................................................................. 50
8. Partnerships ............................................................................................. 5�9. Quality ...................................................................................................... 55�0. Safety ....................................................................................................... 56��. Risk management ..................................................................................... 57 ��.�. Bussines risk ........................................................................................... 57 ��.�. Financial risk ............................................................................................. 60��. Analysis of business results ...................................................................... 6���. Events after the balance-sheet date .......................................................... 68��. Plans for the future ................................................................................... 69SUSTAINABILITY REPORT .................................................................................... 7��5. Employees ................................................................................................ 7��6. Environment ............................................................................................. 80�7. Relations with wider social environment .................................................... 8��8. Corporate communication ........................................................................ 8��9. Passenger satisfaction .............................................................................. 8��0. Research and development ...................................................................... 8���. Who’s who, contacts ................................................................................ 85��. Adria offices and points of sale ................................................................. 86
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We make sure that your pleasant travel experience begins at the airport. This is also why the number of passengers who trust us increased.
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Introduction 1. Key achievements of the business year1.1. Key achievements of the business year in figures
Item Unit �007 �006 �005
Revenue and results
Total revenue in EUR �8�,998,�9� �57,�80,��7 ��6,7�8,0�8
Revenue — passenger transport in EUR ��7,��6,06� ���,686,��0 ��6,867,00�
Operating profit in EUR �,�7�,5�0 75�,�66 -�,776,050
Net profit/loss in EUR ��5,�7� 70,�0� -9,57�,�7�
Balance sheet and cash flow
Assets in EUR �59,765,�55 ���,650,��0 ��9,�90,95�
Equity in EUR �0,�0�,957 �9,7��,�6� ��,8��,756
Equity/assets in % �5 �� �7
Cash flows from operating activities in EUR �6,890,9�� 6,5�0,�95 7,��7,��7
Physical data
Number of passengers flown �,��6,��� �,0�8,007 9�8,66�
Load factors 67,� 66,� 6�,5
Number of flights ��,7�7 ��,��0 �9,9�9
Seat capacity offered 776 7�8 768
Seat kilometres offered �,767,8�5 �,570,9�9 �,605,���
Passenger-kilometres �,�85,5�� �,0��,�50 �,0�9,��7
Average distance in km 85� 85� 885
Fuel consumption in tonnes 5�,66� �8,585 �6,6��
Planes utilization rate in h/day 9.8� 9.�5 9.�7
Employees
Employees — as at ��.��. 679 59� 5��
One of the most important years has passed for Adria Airways. In �007, Adria managed to successfully consolidate the company’s equity. Recapitalization of the company that took place in this year enabled Adria to bring the first stage — namely the financial and equity consolidation — of the company restructuring to its end. Adria has already utilised the paid-up capital to full extent. The second stage of expanding our capacities has also already started. In �007, Adria signed contracts on additional adjustment of the fleet. New CRJ-900 aircraft as well as a CRJ-�000 aircraft will complement the Adria Airways fleet in the next three operating years. At Adria, we are aware of the fact
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8
�005 �006 �007
136,
728,
018
157,
380,
137
181,
998,
193
Rev
enue
in E
UR
Index 115 116
Growth of the scale of operations of Adria Airways d.d.
0
�00
,000
,000
�00,
000,
000
�005 �006 �007
928,
662
1,01
8,00
7
1,13
6,43
1
Num
ber
of p
asse
nger
s ca
rrie
d
Index 110 112
Over a million passengers for the second time in the independent Slovenia
0
�0
0,00
0
800
,000
�,�0
0,00
0
that growth will be enabled by adapting to the market needs and the rationality of the operation.
Total revenue of the company in �007 amounted to �8�,998,�9� EUR, which exceeds the revenue in the preceding year by �6 %. The company created an operating profit five times larger than in the previous year, amounting to EUR �,�7�,5�0, and it also exceeded the minimum profit from the year �006 considering that the net profit amounted to EUR ��5,�7�.
In �007, we also carried over a million passengers, namely �,��6,���, thereby exceeding the result of the preceding year by ��%. We managed to improve the passenger cabin efficiency by �% up to 67.06%.
Liquidity of the company has improved considerably and high positive cashflow from operations proves the efficiency of all the measures taken in the process of the company restructuring.
In �007, Adria largely improved its reputation in the Slovenian business sphere. Receiving a prestigious award categorizing Adria among top �0 of the most reputable companies in Slovenia poses an obligation on Adria Airways to further build on its employees in the future.
With its motivated, highly skilled employees and a modern, economical fleet, Adria is prepared for the highly important first half-year of �008 when we are going to hold the Presidency of the European Union.
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�005 �006 �007
63.4
8
66.4
0
67.0
6
Load
fact
ors
in %
Index 101 105
Continuous improvingof load factors.
0
�0
�0
�0
50
60
70
�005 �006 �007
19,9
39
21,4
20
23,7
27
Num
ber
of fl
ight
s
Index 107 111
Growth of the number of passenger flights in �007 amounts to ��%
compared to year �006
0
�
0,00
0
�
0,00
0
�005 �006 �007
10 12 14
Num
ber
of a
ircra
fts
Index 120 117
Growth of our fleet in �007; two new CRJ-900 aircrafts with 86 seats each
were added to our fleet.
0
�
6
9
��
�
5
80
70
60
50
�0
�0
�0
�0
jan. feb. mar. apr. maj jun. jul. avg. sept. okt. nov. dec.
22
33
45 43 44 43 44 46
5663
69 69
The share of the sale of electronic tickets was increasing during the whole year �007 and reached 69% of all tickets sold.
Percentage of sold electronic tickets on JP flights in % for 2007
�005 �006 �007
�50
�00
�50
�00
50
0
We recorded growth in the number of weekly frequencies in scheduled flights, which increased by ��% compared to �006 during the summer and winter seasons.
181 184 201 190 225 212
Number of weekly frequencies
summer winter summer winter summer winter
1.2. Important events in 2007
• 8 January: a second Airbus ��0 aircraft was leased out with pilots.• In February and March, a �6-year examination was performed on our Airbus
A��0 aircraft; we are planning to market this service after completing the construction of a new hangar.
• In March and April, a recapitalisation in the amount of EUR �0.9 million was performed by the owners of the company, which enabled the company to place new investments and improved the company’s credit standing and its financial strength.
• Issuing an electronic ticket is made possible at majority of Adria’s destinations and active involvement in concluding agreements with other airlines on mutual recognition of electronic tickets brought us to the 60th place amongst the �98 IATA airlines in terms of the agreements concluded.
• In February, an agreement on migration of information systems onto a common information platform (CITP — Common IT Platform) was concluded, which will increase functionality of services for customers, especially in sales and airport services.
• An expansion of maintenance operations for foreign clients to global markets (China Taly Corporation).
• �0 April: a Boeing 7�7-�00 aircraft (�67 seats) was leased to cover the increased demand during the high season (charter flights season).
• On � June the first CRJ-900 was included in our fleet, and on 5 June the second was added, both 86-seaters, which filled the gap in the fleet (in the sphere of �8/50 and �6�-seaters) and helped us to improve the cost-efficiency of our commercial flying.
• In June, Adria Airways joined the �5 European air carriers which satisfied the requirement of the IATA International Air Transport Association regarding issuing and usage of bar code on the BCBP (Bar Coded boarding Pass).
• In September, a new simulator was bought which enables training of pilots for multi-motor aircraft and multi-pilot aircraft and which will be additionally marketed.
• Growth in the number of ad hoc charter flights increased by as much as �0%, representing a �8% share of the total charter flight income.
• In November, a contract was signed with Bombardier on purchase of two new CRJ-900 aircrafts (delivery in December �008 and February �009) and one CRJ-�000 aircraft (delivery in February �0�0), as well as for two options (CRJ-900 and CRJ-�000)
• We extended operational lease for one CRJ-�00-AAH aircraft until December �009
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• In �007, competition at the Ljubljana Airport increased: - as of April 6, Finnair started flying on the Ljubljana - Helsinki route � times a week, - as of November �9, Brussels Airlines started flying on the Ljubljana - Brussels route 6 times a week, - as of March �, Wizzair ceased flying on the Ljubljana - London-Luton route.• Bombardier published some favourable information on technical reliability of
Adria’s aircrafts — Adria Airways’ CRJ-�00 AND CRJ-900 are amongst the most reliable aircrafts of all airlines.
• We were selected among the �0 most reputable employers in Slovenia. • In �007, Adria Airways flew �,��6,��� passengers, which exceeds the year
�006 by ��%, at the same time exceeding the limit of � million passengers in the independent Slovenia for the second time.
• Upon resumption of Presidency of the European Union in December, we became the official carrier of the Portuguese Government which visited European capitals upon the handover of operations.
• Signing the contract with the Government of the Republic of Slovenia’s Presidency of the EU, which made us the official carrier.
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Acts matter.We strive to make our in-ternal relations exempla-ry, which is also reflected on the outside.The increasingly better reputation of our compa-ny is not only a reward, it is also a challenge.
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1.3. Letter from the Management Board
Ladies and Gentlemen!
Growth in every possible dimension was the key idea of the last year for Adria Airways. In the same way as the April rain encourages growth of the trees and flowers did our strenuousness, positive energy and good will water our tree which is becoming stronger and stronger, and more and more upright and spreading. The year �007 was our year for growing.
We grew in terms of numbers. Our net profit last year was five times higher than the year before, and so was our operating profit.
We performed �� percent more flights and carried �� percent more passengers, over one million and one hundred thousand passengers in total. Stability of our operation shows a �59 percent higher free cashflow. Our operating revenues were also constantly growing and increased by �7 percent last year. The value added per employee grew significantly, by as much as �� percent.
We grew in terms of reputation. In terms of value added per employee, we rated among the top ten most successful Slovenian companies and classified for the elite group of the twenty most reputable Slovenian employers. We joined the �5 European air carriers which satisfied the requirement of the IATA International Air Transport Association with regard to issuing and usage of bar code on a Boarding Pass. Our active involvement in concluding agreements with other carriers on mutual recognition of electronic tickets brought us to the 60th place amongst the �98 IATA carriers in terms of the agreements concluded. Our CRJ-�00 type aircrafts are ranked first among �� airlines in terms of technical reliability, and our CRJ-900 aircrafts are ranked sixth among �� airlines.
We grew in the sky. Our fleet was strengthened by two CRJ-900 type 86-seaters, and a �67-seat Boeing 7�7-�00 was leased for the high season; we have also arranged purchase of three new steel birds.
The scope of our services was growing. Our passengers are grateful to us for introducing an electronic ticket and the possibility to use bar code on boarding passes. Our established destinations were strengthened and new ones were introduced. Long-term contracts for maintenance of A��0 aircraft were concluded with Air Berlin and Wizzair. We entered the global market and concluded a contract with China Taly Corporation. The airport services agents are very happy as well since with the transfer of information systems onto common information platform we provided them with access to general information on a higher quality level as well as better business operation with the Star Alliance passengers.
Safety, friendliness and comfort remain our values. The attention that we devote to our passengers lives in our interpersonal relations as well. We wish to express our sincere thanks to all our employees, our external colleagues, business partners and passengers.
Yes, a successful business year has passed.
Tadej Tufek M.Sc.,President of the Management Board & CEO andMarjan Ravnikar M.Sc., Vice-president of the Management Board
Marjan Ravnikar M.Sc.,Vice-presidentof the Management Board
Tadej Tufek M.Sc.,President of the Management Board & CEO
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1.4. Report by the President of the Supervisory board
In the name of the Adria Airways owners, I can look at the past year with special contentment. Successfully completed business year �006, when the company ended the trend of negative growth of business operations, and the business plan for �007 which envisaged expansion of our operations and indicated a trend of further growth, justified the trust of the owners. Thus, in March �007 they adopted a decision to increase the company’s share capital, in the amount of �0.9 million EUR. The new capital enabled the company to implement some new investments and it also considerably improved the credit standing and financial strength of the company.
Adria Airways assigned majority of these funds to changes in own fleet. New aircrafts contributed significantly to the cost efficiency of commercial flights. At the same time, the modified fleet represents a good foundation for further development of our offer, especially introducing new connections and increasing the frequency of flights on the commercially most successful routes. But also complementary activities, which are quickly growing, contribute their share to the success of the primary activity, passenger air transport, and have an important impact on the company’s good business results.
When we draw a line under the successfully implemented projects in �007, figures bear witness to the work well done. Growth in the number of passengers exceeded �� percent; also the number of performed flights increased by �� percent and the passenger cabin efficiency was higher than in �006. The created revenue in the amount of �8� million EUR means as much as �6 percent more than the previous year. But especially encouraging is the figure speaking of the profit made, which in �007 amounted to ��5,�7� EUR.
The mentioned results are largely owing to the company management, all employees, excellent and professional collaboration between the management, the Supervisory Board, and the largest owners, KAD and SOD. We are glad that all these changes happened in a positive spirit of collective creation; the latter is confirmed also by high assessment of the company’s reputation among the employees as well as general public.
In the name of the Supervisory Board of the company I can conclude that the company managed to form sound foundations on which to build its future.
President of the Supervisory Board Franc Branko Grošl
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We strive to achieve with new goals.Opportunities inspire us to set our standardsincreasingly higher.
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2. General information
2.1. About the companyAdria Airways, Slovenski letalski prevoznik, d.d.(abbreviated to: Adria Airways d.d.)
KuzmiËeva 7, �000 Ljubljana, SlovenijaTelephone: +�86 � �69 �000, Fax: +�86 � �� 69 ���Website address: www.adria-airways.com
2.2. Ownership structure
• In �007, a recapitalisation of the company was performed in the amount of EUR �0.9 million. In three recapitalisation rounds in March and April �007, a total of �06,��8 additional shares at EUR �7.- per share were paid in.
• Kapitalska družba d.d, Dunajska cesta ��9, �000 Ljubljana, is a controlling undertaking which is in charge to prepare a consolidated annual report for the group’s undertakings, and in relation to which Adria Airways d.d. is a control-led undertaking.
• The share capital of Adria Airways d.d. is divided into 8��,��6 ordinary inscribed split shares. The value of one split share amounts to EUR 8.�5.
• As of �� December �007, the company had 56 shareholders.
Legal status: public limited company Number of employees as of 31. 12. 2007: 679Year of establishment: �96�Registration number: 5�56505
VAT number: SI5�0�9�06Companies register number: �00�08��7Entry number: 06�/�0��5�00Share capital: EUR 6,78�,�56 Nominal value of share: EUR 8.�5
Ownership structureas of ��.��.�007
Kapitalska družba, d.d. 78% Slovenska odškodninska
družba, d.d. �0% Zvon Dva holding, d.d. �% NFD holding, d.d. �% Infond ID, d. d. �% Zvon Ena holding, d.d. Other shareholders
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2.3. Fleet
The optimal fleet is a key element of Adria Airways’ adaptation to competitive circumstances in the liberalised European air transport market. Due to large difference between the A��0 and the CRJ-�00, we have leased aircrafts with intermediate capacity (wet-lease), and in �007 we have successfully added two new CRJ-900 aircrafts with 86 seats to our fleet.
In �007, the Adria Airways’ fleet consisted of:
Number of aircrafts Aircraft type Ownership Note
� Airbus A-��0 owned aircrafts
6 Canadair CRJ-�00 5 owned, � leased* *by �0��
� Canadair CRJ-�00 leased by �009
� Canadair CRJ-900 owned aircrafts as of July �007 onwards
� Boeing 7�7-500 leased- wet-lease for � year
� Boeing 7�7-�00 leased- wet-lease for 6 months in high season
At the end of �006, we concluded an agreement to lease out the second A��0 aircraft, for the whole year �007, with a view to engage larger aircrafts throughout both seasons and not only during the peak season. In order to fill the gaps we leased a Boeing 7�7-�00 for the high-season period (April - October). The lease for the S5-AAH, CRJ-�00 aircrafts was extended until the end of �009.
Due to the favourable response of the passengers and in order to increase economic stability, we placed an order with the manufacturer Bombardier for two additional CRJ-900 aircrafts and a CRJ-�000 aircraft with 98 seats. The delivery of the aircrafts is anticipated for �008, �009 and �0�0. The aircrafts are expected to substitute the leased (wet-lease) planes.
In September �007, we ceased flying the Saab ��0A cargo aircrafts. The leased aircraft was returned to the owner and the one in our ownership is for sale.
Below are the details on individual aircraft types.
�0
Airbus A-��0
Canadair Regional Jet CRJ-�00 LR
Candair Regional Jet CRJ-900
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Canadair Regional Jet CRJ-100/200 LR
Quantity 7
Length �6.77 m
Height 6.�� m
Wing-span ��.�� m
Cruising speed 860 km/h
Max. altitude ��.�96 m
Range �,�85 km
Seat capacity �8 / 50
Pitch
�st till 6th row: 78.7� cm7th row: 9�.98 cmall other rows: 78.7� cm
Canadair Regional Jet CRJ-900
Quantity �
Length ��.50 m
Height 7.57 m
Wing-span ��.�0 m
Cruising speed 88� km/h
Max. altitude ��.�96 m
Range �,600 km
Seat capacity 86
Pitch
All rows: 78.7� cm
Airbus A-320
Quantity �
Length �7.57 m
Height ��.75 m
Wing-span ��.� m
Cruising speed 900 km/h
Max. altitude ��,700 m
Range �,890 km
Seat capacity �6�
Pitch
�st till 5th row: 8�.�8 cm 6th till 9th row: 78.7� cm�0th in ��th row: 8�.8� cm��th till ��th row: 78.7� cm�5th till �7th row: 76.�0 cm
SAAB ��0A cargo
Aircrafts leased for scheduled and charter transportBoeing 7�7-500
Boeing 7�7-�00
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Boeing 737-500
Quantity �
Length ��.0� m
Height ��.07 m
Wing-span �8.88 m
Cruising speed 900 km/h
Max. altitude ��,�78 m
Range 5,6�8 km
Seat capacity ���
Pitch
All rows: 7�.66 cm
Boeing 737-400
Quantity �
Length �6.� m
Height ��.�� m
Wing-span �8.9 m
Cruising speed 9�0 km/h
Max. altitude ��,�78 m
Range �,500 km
Seat capacity �67
Pitch
All rows: 7�.66 cm
SAAB 340A cargo
Quantity �
Length �9.7� m
Height 6.97 m
Wing-span ��.�� m
Cruising speed 5�8 km/h
Max. altitude ��,�00 m
Range �,�50 km
Cargo capacity �650 kg
2.4. Company history
1961 — Establishment of the charter airline Adria Aviopromet, operating DC 6 aircrafts, end of the sixties purchase of DC 9 aircrafts.
1970 —1980 — Adria is one of the most reliable charter airlines in Europe.1980 —1990 — Domestic scheduled flights within Yugoslavia, start of international
scheduled services. Adria becomes a member of the IATA. Fleet: DC 9, MD 80, Dash 7 aircraft.
1989 — Purchase of first Airbus A-��0 aircrafts.1991 — On �5 June, the Republic of Slovenia declares independence; for political
reasons Adria is grounded for three months. 1992 — End of January: operations restarted in a significantly reduced market. The
structure of operations is significantly changed, from primarily a charter airline to a mainly scheduled service carrier.
1995 — Start of cooperation with Lufthansa, inclusion in the European integration processes.
1996 — Financial consolidation of the company.1998 — Purchase of three new Canadair Regional Jet �00 aircrafts.2000 — 2004 — Focus on operating regional scheduled flights primarily across Eu-
rope, continuous addition of new destinations and frequencies on the existing services. Intensive cooperation with European airlines, especially Lufthansa.
2000 — Purchase of the fourth CRJ �00.2001 — In November, the first scheduled flight in the EU, from Vienna to
Frankfurt.2002 — Adria was selected the first European authorised Bombardier maintenance
centre for CRJ aircrafts.2004 — In December, Adria joins the global association of airlines, Star Alliance,
as a regional member.2005 — In January, purchase of the fifth new Canadair Regional Jet �00 aircraft.2005 — In June, opening of a new hangar.2006 — In November, Adria starts introducing e-ticketing.2006 — In December, Adria carries more than one million passengers for the first
time in the independent Slovenia.2007 — In June, a successful introduction of two new 86-seat CRJ-900 aircrafts
into the Adria Airways fleet, which helped to increase and optimise our capacities mainly on the routes to Brussels, Moscow, Paris, London, Skopje, Vienna, Munich and Frankfurt;
2007 — In September, purchase of a new simulator which enabled training pilots for operating multi-engine and multi-crew aircrafts.
2007 — In December, we became the official carrier of the Government of the Republic of Slovenia during the EU presidency.
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3. Managing the company
3.1. Management bodies
Management Board• The Adria Airways d.d. Management Board manages the company
autonomously and on its own responsibility while presenting and representing it unrestrictedly vis-á-vis third parties.
• The Management Board is appointed and dismissed by the Supervisory Board which, by its Decision on the Structure of the Board, also defines the Board’s number and membership structure. The Management Board has a five-year mandate.
• In accordance with the Statute, which states that the management Board can have as much as one to four members, the Management Board of Adria Airways d.d. has two members.
• Tadej Tufek, M.Sc., President of the Management Board, represents the com-pany together with the member of the management Board — vice-president.
• Marjan Ravnikar, M.Sc., Vice-president of the Management Board, represents the company together with the President of the Management Board.
Supervisory BoardThe Supervisory Board is appointed by the shareholder’s assembly, except for the company employee’s representatives which are elected by the Employees’ Council. The members are elected for a period of four years.
There are six members in Adria Airways d.d. Supervisory Board, its main activities being:• overseeing the commercial management of the company,• verifying the annual report,• appointing and dismissing the president and other members of the Management
Board,• deliberating over the company’s investment, commercial and financial plans.
Members of the Supervisory Board, shareholder representatives:• Branko Franc Grošl, President since ��.7.�005• Dr. Bogdan Znoj, Deputy President since ��.7.�005• Aleš Vehar, member since ��.7.�005• Anton Grabeljšek, member since ��.8.�006
Members of the Supervisory Board, employee’s representatives:• Deana Potza, member since �7.6.�00�• Tomaž PeËnik, member since ��.6.�00�
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The Assembly meeting• The shareholders may assert their rights with regard to the company in
compliance with the company’s Statute and the Companies Act at the Assembly meeting.
• An assembly meeting may be called by the Management Board or by the Supervisory Board, however, it may be called upon a request of the shareholders representing at least �0% of the company’s share capital. The meeting should be called at least �0 days before the actual session.
• The meeting may be attended by those shareholders who are listed in the share register at KDD Centralna klirinško-depotna družba d.d. Ljubljana on the enrolment closing date. The shareholders may be represented at the Assembly meeting by their representatives or trustees.
• At the ��rd Assembly meeting on �� July �007, the Adria Airways d.d. shareholders deliberated on:
— discharging the Management Board and the Supervisory Board; — appointing an auditor for �007; — remuneration of the members of the Supervisory Board.
3.2. Management of subsidiary companies
The Adria Airways Group comprises of:• Adria Airways d.d., Ljubljana — parent company• Amadeus Slovenija d.o.o., Ljubljana — subsidiary (95 % interest)• Adria Airways Kosovo d.o.o. — subsidiary (�00 % interest) — dormant
Adria Airways does not compile a consolidated annual report, since the inclusion of the financial statements of the two subsidiaries in the consolidated report is not significant for a true and fair presentation of the financial statements of the Adria Airways group as a whole.
Amadeus Slovenija d.o.o., Ljubljana
Director: Mladen VesnaverNumber of employees: �5
The main lines of business of the subsidiary company Amadeus Slovenija d.o.o. are distribution, marketing, maintenance of the reservation system and Amadeus software for airlines and agents completing reservations and selling airline tickets. These servi-ces are provided in Slovenia, Macedonia and Albania.
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3.3. Organisational Structure
MANAGEMENT
Quality Assurance Systems
Safety and security
Marketing and sales
(department)
Ground operations and procurement (department)
Aircraftmaintenance(department)
Finance and accounting
(department)
Flightoperations
(department)
Human resources and
organisation (department)
IT and controlling
Corporate lawand insurance
A
QISO
S�
K
L
B C D E F
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4. Mission, vision and company strategy MissionWe are a company that:
• brings together knowledge and skills in aviation;• offers customers top-quality services;• achieves these services through innovative work of satisfied employees;• produces adequate profit to the owners;• operates in harmony with the environment.
VisionWe wish to be a successful traditional European network airline with a modern fleet that is developing and growing, an airline that by achieving the highest level of quality in its services enjoys the satisfaction of its passengers - and other clients - while maintaining a recognisable profile of its own trademark.
Key Strategic ObjectivesThe primary objective of our operations is to maximise the return per unit of sharehol-ders’ equity.With regard to the commercial strategies to date and our entry into the Star Alliance, we have pursued the commercial model of a network carrier linked to partner airlines and offering its passengers a global flight network. We are convinced that the selected commercial model represents a competitive advantage, and for this reason it must be improved and enhanced, and adapted to the competitive circumstances.Business strategy for the period �007—�0�� will be denoted by the following:
• the renewal demanding the knowledge and understanding of changes in the environment, highly motivated and responsive senior management, determination for overcoming obsolete mindsets, capability for reaching new goals on all levels, and competent management which will include all employees in the implementation of these goals;
• growth, where the primary goal is to increase the market share; growth and optimisation of capacities and development of the company as a whole;
• rationalisation, which demands specific orientation into the basic activity where support processes are of lesser importance. Business strategy for the period in question demands strong financial control while limiting the usage of financial resources in all areas.
4Business report
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Chosen strategyThe primary commercial strategy of Adria Airways is conducting the business policy of a network carrier distinguished by its individual approach, responsiveness and adaptability. The company is developing into an airline that is recognised for the friendliness of its staff and its sensitive attention to the passenger. We operate flights to attractive destinations with a relatively high frequency for various types of traveller. Our responsiveness is reflected in the introduction of new flights connecting to locations that are attractive both for business and tourism. In formulating our timetables we actively cooperate with passengers and work to suit their needs.
We will strive for:• focusing on the activities for satisfying and systematic examination of the needs
of the largest possible number of passengers. Our flight network needs to be built and upgraded according to the passengers’ needs in order to maintain the competitive edge, i.e. maintain the relatively large number of scheduled direct and charter flights from the home airport;
• performing marketing communication activities with the intention to distinguish ourselves from our competitors;
• focusing on passengers’ expectations;• performing services of high quality and safety, which is proven by the IOSA
certificate.
The marketing activities of Adria Airways will consider: • given the current market circumstances and development of competition in the
EU, further development of partnership in the strategic Star Alliance network is relevant to be able to meet the needs of the majority of passengers in the Slovenian market for a global flights network;
• due to the segmentation of the sector, the competition from low-cost air carriers and small domestic market, further building of the direct flight network from Slovenia and restraining of passenger outflow to other carriers is necessary;
• it can be expected that, in the long term, not all carriers originating from the former Yugoslavian republics will be able to compete with increased foreign competition on domestic markets. For this reason, these markets should be considered promising ones and the role of Ljubljana airport as a hub should be strengthened.
• with the entry to the EU, Adria Airways was given the opportunity to perform air transport anywhere within the EU. By developing routes such as these, business risk arising from the increased competition on the domestic market could be significantly lowered.
Remaining the best air-travel option for the passengers who travel to and from Slovenia is important for Adria Airways, as it is also important, because of the small domestic market, to decrease its business risks by entering those profitable foreign markets where quality of their services for a reasonable price and business flexibility can assure long-term business success.�8
Corporate culture values originating in commitment to quality
Focusing on the clientsOrganisations depend on their clients, therefore they should understand the clients’ present and future needs, satisfy their requirements and strive to exceed their expectations.
Leadership The leaders shall establish the unity of the intent and the orientation of the organisation. Leaders should maintain internal environment of the kind where the employees will be able to integrate completely into achieving the purposes of the organisation.
Integration of the employeesThe employees at all levels of the organisation are the organisation’s core and their thorough integration enables their talents to be used for the benefit of the organisation.
Process approachAny desired result will be much more successfully achieved, when the activities and the related resources are managed in a form of a process.
System approach to managementIdentifying, understanding and managing inter-related processes in a form of a process will contribute to efficiency and effectiveness of the organisation in attaining its objectives.
Constant improvementConstant improvement of the operation of the organisation on the whole should remain a permanent objective of the organisation.
Fact-based decision making Efficient decisions are based on analysis of data and information.
Mutually beneficial relationships with the suppliersAn organisation and its suppliers are mutually co-dependent and a mutually beneficial relationship will increase the capability to create value on both sides.
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We don’t rest. Although our paths are high above the ground, we always remain close to people. They love to travel with us because of our availability and adaptability, and our attentive service always brings them back to us.
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5. Improving our serviceConstant care for development and quality of Adria Airways’ services originates in our vision, and for this reason the employees of the company are striving to design the services in such a manner so as to approximate these services with the needs and expectations of our passengers. The awareness of our flight network and services is strengthened by planned promotional activities thus strengthening our trademark and loyalty of our clients.
Novelties and improvements were introduced in several areas:
Flight schedule — introducing new direct lines and increasing the number of flights on the existing lines makes it possible for us to offer our passengers increased flexibility in planning their journeys and saving the time spent for their travel. Increasing the number of direct flights to large European hubs makes it possible for us to additionally improve the accessibility to the Star Alliance air carriers’ network.
Pricing policy — by improved planning of selling capacities, we wish to bring air travel closer to those who have not been using it so far because of a relatively high price and have been deciding for road travel and railway travel instead. Selling capacities are designed flexibly in accordance with the anticipated load factor of flights. During the low season, more seats were offered at special promotional prices and more low-price places are being sold during the season on flights where the demand is lower than the capacities offered. Designing accessible price offers has become a part of our pricing policy and is no longer time specific as for a particular time of the year.
Care for corporate and individual customers — a large portion of our customers originate from the companies whose operation depend on travel, whether planning their business trips or organising travel for rest and relaxation. Honest relationship, prompt response to the demand and flexible problem solving are of key importance for our customers, and we do take that in consideration in the course of our work. The contact with the corporate customers is taken care of by the key account managers in sales and our passengers can obtain information and help from our call centre every day in a week.
Improving airport services — Adria Airways strictly respects all EU regulations on passenger rights in air travel. The quality of the services of passenger and aircraft care suppliers is monitored on a daily basis through the reports of our representatives and crews as well as sporadic passengers’ remarks. We are following the developments in our line of business in the area of check-ins; we have successfully introduced electronic ticketing and Web Check-in service for departures from the Ljubljana, Zurich, Kiev, Skopje and Bucharest airports. We co-operate with the air carriers, members of the Star Alliance, in the initiatives for collocation on the European airports with a view of ensuring uncomplicated and quick connections from one flight to another within the Star Alliance network.
5
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Electronic ticket — in accordance with IATA requirements and with the view of simplifying the airport procedures for passengers when checking in, we hastened the introduction of electronic ticketing. Introduction of electronic ticketing, particularly in combination with foreign carriers, was taking place throughout the entire year. Fifty “Interline Electronic Ticketing” agreements will be concluded by the deadline, �� May �008, and electronic ticketing will be introduced on all Adria Airways scheduled flights. Since its introduction in November �006, the number of electronic tickets sold was increasing throughout the entire �007, while at the same time the percentage of electronic tickets sold in comparison to paper tickets also increased.
Electronic ticketing conveys advantages for both, passengers as well as for a carrier: • more modern, faster and more precise process of issuing the ticket;• significantly lowered improper use of ticketing rules, because all data must
be identical in all systems involved in the reservation process and issuing the ticket;
• faster airport data processing;• possibility for passengers to make reservations and receive their tickets at
home;• faster invoicing to foreign carriers;• lower data processing costs;• lower ticket costs;• no possibility for lost or stolen tickets;• complying with the requirements of IATA and a possibility of selling through
the IATA distribution channels.
Improving the services on boardWe are aware of the fact that our aircrafts in the business class do not always offer comfort comparable to other airlines’ business class seats, thus our main concern remains ensuring our passengers to fly comfortably. We intend to maintain adequate quality of meals regardless of the requirements to reduce the costs. To add more variety to our offer, we renewed the menus in the business class in the second year-half
��
80
70
60
50
�0
�0
�0
�0
Nov.06 Dec.06 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
22
131
33
45 43 44 43 44 46
5663
69 69
The share of electronic tickets issued on Adria Airways flights in 2007in % compared to all documents issued.
Source: Internal data of Adria Airways
and provided for several occasional attentive gestures for all our passengers. Further changes are planned for �008 when food offer will be improved in the economy class as well.
On-line bookingIn order to offer best on-line ticket sale, we have upgraded our web application with the application for easier checking of flights and prices (“Flex pricer”), which allows an insight in transport prices for three days before/after the chosen date of the flight. This feature enables passengers to buy tickets at best prices available for a given period, without any excessive repetitive inquiries. Additionally, we designed an application for browsing the reduced prices offers outside the regular offer, which will be further upgraded in �008. We are adding some other services beside ticket purchase. Since October �007, our passengers can perform a web check-in and receive text message info — daily information about particular individual flights. Apart from on-line ticket reservations, transport and accommodation can be ordered and the status of the reserved trip checked — “Check my trip”. We wish to broaden our on-line offer in �008, and redesign the graphic image of the www.adria-airways.com web-site entirely.
Loyalty programmesLoyalty of our regular passengers is awarded by our Miles&More programme, which has according to the airline passengers again received the highest mark on the world scale. The number of registered members in Slovenia increased by �5% and currently amounts to a total of ��,�07 members, of which 9,886 are active members. Our corporate customers’ loyalty is rewarded in the Adria Corporate Card programme, which has ��8 members.
Customer communicationsAdria Airways employees strive to make as genuine contact with all our present and potential customers as possible. Our customers get informed about novelties, price offer and benefits for frequent passengers through the web-site contents which are daily updated, and the members of loyalty programmes are sent periodic notifications related to the specific benefits of their programme. In �007, we successfully modernised Adria’s e-news. Targeted activities helped us gain a relevant base of customers, who are informed about new services, current offers and important novelties in relation to air travel on a regular, at least monthly basis. For more pleasant flying, we offer our passengers a new edition of cost-free bilingual magazine — Adria Inflight Magazine every two months; and we are going to dedicate the first issue of an entertaining and educating picture book, currently being designed in co-operation with renown Slovenian literary and artist authors, called “Medvedek Adrian” (Adrian the Bear) to our youngest passengers.
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6. Operating conditions in 2007
In �007, surprisingly high dynamics of global economy and trade continued. The main leverage was provided by China’s strong activity which again exceeded all expectations. In suchlike high demand conditions, the growth of global raw material prices remains to be high, particularly the prices of oil and metals, as well as prices of raw food materials.
The USA are more than any other regions affected by the consequences of the instability of global financial markets, as well as their domestic situation, particularly in the monetary and real-estate area. US dollar was losing its strength compared to Euro throughout the entire year.
The European Central Bank, which increased the key interest rate up to �.75% in March �007 due to the inflationary pressure, made another increase to �% in June. Despite the increased inflation in the Euro area, the ECB interest rate remained unchanged at the beginning of November. It is expected that the ECB will not make any substantial changes to the reference interest rates in �008, except in case of significant conjuncture recession.
Conjuncture indicators trends
Conjuncture indicators trends - world, real growth rates, in%
�006 �007Assessment
�008Forecast
Economic growth GDP — World 5.1 4.9 4.8
- USA �.9 �.9 �.0
- Japan �.8 �.� �.9
- China �� �� �0.5
- India 9.� 7.8 7.6
- Russia 6.7 7.7 7.0
- European Union — EU 27 3.0 2.9 2.4
- Euro area — EU �� �.8 �.6 �.�
- Germany �.9 �.5 �.�
Growth of prices Euro area 2.2 2.0 2.1
Growth in world trade (goods) 9 8 7.5
Oil price, US$/barrel (Brent, average) 65 77 80
Ratio � EUR = US$ (assumption) �.�5 �.�6 �.�0
Source: independent estimates and SKEP forecasts, November �007, on the basis of foreign sources (AIECE, EC, IMF)
6
�5
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.
�,6000
�,5000
�,�000
�,�000
�,�000
�,�000
�,0000
Trend of the USD/EUR exchange rate 2006-2007
�007
�006
Trends and results in the aeronautical industry in 2007 (IATA data)
In �007, particularly in its firs year-half, the aviation industry significantly improved its financial results due to the global economic growth. Growth of the number of passengers enabled covering for the increasing fuel costs which have already exceeded the limit of USD �00 per barrel. Aviation industry as a whole achieved the best results last year compared to the previous years.
Demand in the international passenger transport increased by 7.�% compared to �006; growth was also higher than in �006 (5.9%). Growth in passenger air transport is on the same level as the expansion of the global trade in �007, which amounted to 7.5%. In December, growth was 6.7%, which was a significant decrease compared to the 9.�% growth in November and is the result of growing prices and economic uncertainty which was more distinctive in December. Average passenger cabin efficiency reached the record level — 77% (76% in �006 and 75.�% in �005).
Air cargo transport increased by �.�% in �007 on the global level — somewhat less than in �006 (�.6%), but the increase was significantly lower than in the preceding years (7-8%). In the area of cargo transport, the aviation industry is under severe competitive pressure of cargo shipping.
An overview of data of the Association of European Airlines (AEA) for 2007
In �007, air carriers, members of the Association of European Airlines, carried �� million more passengers (�.�% increase) on scheduled flights and registered an increase in passenger miles travelled by 5.�%. Total number of passengers carried amounted to �58 million. The offer, i.e. the capacity offered, measured in seat-kilometres, increased by �.�%. In this way, growth in demand exceeded the growth in offer for the fourth consecutive year, which in return helped increase the passenger cabin efficiency to up to 77.�%. Passenger cabin efficiency on the international flights within Europe was 69.6%.
European airlines recorded 9.7% growth of passenger miles on the routes to the Middle East, while growth in the North-American market was �.�%. On the Asian market, the AEA carriers obtained only �.�% growth compared to �006, on the South-American market, growth was ��.8% and on the African, it was 8.�%.
On the international routes within Europe, growth of passenger mileage with the AEA airlines amounted to 7%, while growth on domestic routes within Europe was only �.�%.
Air cargo transport of the AEA carriers in the past year increased merely by �.7% compared to �006. The Middle East market represented largest share (�6%) of air cargo transport and was stagnating in �007, while the North-American market traffic (representing a �8% share) increased by �.5%. Air cargo transport within Europe decreased by 7.95% in �007.
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�7
We are directed towards the world.We constantly expand our network of flights, and with an increasing number of routes bring people from all parts of the world together.
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7. Business segments
7.1. Scheduled flights
Marketing strategyIn line with the business orientation and development of the company, scheduled flights are the focal and key activity which is complemented by charter flights and cargo transport. The primary objective of Adria Airways in the segment of passenger transport on regular scheduled flights is expanding the network of flights via the Ljubljana Airport. A broad flight network is of crucial and strategic importance for long-term growth and existence of an airline and it also represents its main competitive advantage. In this respect, we are strengthening the existing routes with new frequencies and opening new regular connections between Slovenia and Western Europe as well as between Slovenia and South-Eastern Europe. Adding new frequencies to the existing routes, we strive to maintain and increase our market shares, and by adding new routes we also add new promising markets. One of the key strategic advantages is the membership in the Star Alliance — by flying to major European hubs through a flight network of the Star Alliance airlines we enable our passengers the connections to 965 airports in �6� countries throughout the world.
Some of our key abilities and comparative advantages that we try to maintain and improve are the fast and comfortable connections in direct flights, competitive prices and quality of our services. Adria is a company that is distinguished by its individual approach, responsiveness and adaptability. We are developing into an airline that is recognised for the friendliness of our staff and our sensitive attention to the passenger.
Competition Competition at the Ljubljana Airport is growing year by year and that was the reason for the share of Adria Airways’ regular passengers in the domestic market decreasing in the period between �00� (9�%) and �005 (7�.8%). In �006, the share of regular Adria Airways passengers increased by 0.5 percentage points compared to the preceding year. In �007, the share of Adria Airways’ regular passengers was 7�.�%.
Nine regular airlines fly from the Ljubljana airport. In addition to competing with Adria Airways’ scheduled flights, some of these airlines (with their flight networks) also represent competition to the network of flights that Adria enables through its own flight network within the Star Alliance. Apart from regular airlines at the Ljubljana Airport, our Ljubljana network also encounters competition form the airlines that fly from the neighbouring airports (Trieste, Graz, Klagenfurt and Zagreb).
The Eastern-European market is of crucial importance for Adria Airways, owing to significant recognition of our trade mark throughout this market. Flying in this area (Croatia, Serbia and Montenegro, Bosnia and Herzegovina, Macedonia, Albania) and the European Union is still regulated by bilateral agreements and reciprocity, which largely inhibits the growth of traffic. Ratification of an agreement between the EU and some of the countries in this area is anticipated, which will give the airlines more freedom when
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choosing routes and frequencies. Competition is growing in these markets as well, and apart from the regular airlines, some charter airlines are competing for the same target segment. The heaviest competition in the segment of passengers travelling towards the Eastern Europe and back is coming from other network carriers which compete with their own hubs and flight networks.
In the past years, Adria Airways has strengthened its flying and business operation in the Eastern European markets and increased the number of weekly and daily frequencies. A better product means also more connections via the Ljubljana hub and better position on the market.
Competition on the domestic and foreign markets will continue to strengthen and the efficiency and the expansiveness of the flight network will represent the key competitive advantage in the future as well.
Other important factors of market positionThe Adria Airways flight network consists of three daily rotations and one night rotation, where in the first and third rotation we provide flights between Ljubljana and the Western European destinations, while in the second rotation and the night rotation we provide connections from Ljubljana to the South-Eastern destinations. Such flight network provides an adequate offer of connections for the passengers travelling from the Western Europe to the Balkans and back, as well as for those travelling from the Balkans towards the Western Europe and back. At the same time, flying towards the Western Europe also enables connections for the passengers from Slovenia via the European hubs with Star Alliance partners throughout Europe and those on other continents (and vice versa). The routes with prevailing potential of direct passengers may deviate from the general pattern of route network.
In terms of geographical location, the markets in which Adria Airways operates are divided into:
• the Slovenian market and bordering regions (Istria, Zagreb with its outskirts, Rijeka with the outskirts, the Italian and the Austrian frontier belts) — transport of passengers from Slovenia in the Adria’s flight network and via European hubs in the Star Alliance airlines flight network;
• the markets of Western Europe - transport of passengers from Western European destinations to Slovenia and via Slovenia to destinations in the South-Eastern Europe, and transport of passengers between the EU countries;
• the markets of South-Eastern Europe - transport of passengers from South-Eastern European destinations to Slovenia and via Slovenia to destinations in Western Europe;
• the markets in which we have our own representatives but in which we do not fly to destinations on that markets (e.g. the USA, Canada, Australia, Argentina, etc.) — the network of representatives enables us to sell tickets for transport from the mentioned markets to European hubs and from there on Adria’s flights further to Slovenia (and also further in Adria’s flight network).
Sale of scheduled flights is in close connection and proportionate to the capacities that we offer on individual routes. The largest portion of sales was created on the EU market in �007, followed by Slovenia with �7% and the South-Eastern markets with �5%.
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Proportion of selling scheduled flights by marketsOur position on key markets is maintained by marketing communication activities, constant contact with the market and expanding the flight network through Ljubljana. In �007, a new route Ljubljana - Kiev was introduced (first flight as early as in December �006), and frequencies were increased on the Ljubljana - Amsterdam route from � to 6 per week, Ljubljana - Brussels from �� to �8 per week, Ljubljana - Copenhagen with an additional frequency during high season; Ljubljana - Kiev from � to � per week, the Ljubljana - Ohrid route was added one weekly frequency, the same with the Ljubljana - Paris route; three night flights were added on the Ljubljana - Skopje route; the timetable on the Ljubljana - Tirana route was aligned by daily flights every day at the same hour; on the Ljubljana - Zurich route the number of weekly frequencies was increased from �� to �0; on the Ljubljana - Warsaw route, frequency was increased from � to � and the Ljubljana - Rome route was cancelled due to insufficient demand and poor results. The number of scheduled flights was increased in total by �0% in �007. In foreign markets we are trying to improve our presence and recognisability through different strategic partnerships with domestic and foreign tourist service providers and within the Star Alliance we are becoming more and more recognizable in the foreign markets as a reliable air carrier of excellent quality.
The resultsThe proportion of regular passengers in the number of all passengers carried in �007 amounted to 8�%, which is the same as in �006. In the area of scheduled flights, we performed ��,��7 flights in �007, which is �0% more than in �006 and �% less than planned. We carried 9�5,��0 passengers on scheduled routes, which is a ��% increase compared to the year before and �% more than planned. Passenger cabin efficiency increased by �% and amounted to 6�.�5%, only �% less than planned.
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�006 �007
Number of passengers carried in scheduled flights
0
�
50,0
00
5
00,0
00
7
50,0
00
9
50,0
00
�006 �007
Number ofscheduled flights
0
5,5
00
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�
6,50
0
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000
�006 �007
Passenger cabin efficiencyon scheduled flights
0
�
6.�
��.�
�8.
�
6�
.�
+ ��% + �0% + �%
*EU including sales on the Swissand Scandinavian marketsSource: Adria Airways internal data
EU* - ��% Slovenia - �7% SE Europe - �5% other - 7%
The proportion of income from scheduled flights, which includes the income from passengers carried and income from luggage payments, amounts to 6�% of Adria’s total income and 80% of income from commercial flying. In �007, the income from scheduled flights increased by 8%, which was in conformity with the planned and amounted to EUR ���,88�,559.
Forecast for the future periodDevelopment trends in air transport indicate further 5% growth in the next twenty years, so we can expect similar growth on the markets of key importance for Adria — or even higher on some markets. Higher growth is expected particularly on the markets of the South-Eastern Europe.
We are planning to maintain our market position in �008 as well, mainly by focusing our activities on systematic checking and satisfying the needs of the largest number of passengers possible. Our flight network will be built and upgraded according to the passengers’ needs, thus maintaining the competitive edge, i.e. a relatively large number of flights from the home airport.
We are planning � new routes, namely Ljubljana - Stockholm (four times a week), Ljubljana - Oslo (three times a week), Ljubljana - Bucharest (four times a week) and Ljubljana - Athens (three times a week). We are also adding an additional daily frequency on the Ljubljana - Munich route, � additional weekly frequencies on the Ljubljana - Amsterdam route, one weekly frequency on the Ljubljana - Brussels route, night flights on the Ljubljana - Priština, Ljubljana - Tirana and Ljubljana - Sarajevo routes, as well as additional night flights on the Ljubljana - Skopje route and another weekly frequency on the Ljubljana - Zurich route. By performing marketing communication activities we will inform the passengers about our competitive advantages and flight offer (including the offer of the global flight network which is available through our partnership with the Star Alliance) and about services of high quality and safety.
In �008, we plan to increase the number of flights by ��% and carry ��% more passengers. In high season, we are offering �7� scheduled flights a week.
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��0,000,000
��0,000,000
�00,000,000
90,000,000
80,000,000
70,000,000
60,000,000
Revenue - scheduled flights passengers (EUR)
97,77�,998�05,99�,856
���,88�,559
January - December�005
Index 97 �08 �08
January - December�006
January - December�007
7.2. Charter services
Marketing strategyCharter services remain Adria Airways’ complementary services to the scheduled flights and are aimed at optimising returns and not primarily at increasing the volume. Therefore, we have been paying special attention to strengthening the trade mark and improving the quality of our services.
Competition Adria Airways managed to maintain its leading position in the area of charter transport on domestic market; however, we are facing foreign carriers offering more favourable prices in selling charter flights to certain destinations (Tunisia, Turkey, Egypt). Slovenian tourist market remains traditional with prevailing role of tour operators, while in a part of European market the role of low-cost operators is given more and more emphasis in the segment of charter flights.
Other important factors of market positionIt remains characteristic for Adria to be the most important charter carrier on the national market, whose key destinations are dependent on technical characteristics of its fleet. In this manner, we also cover the products of our customers on the domestic and foreign markets.
On the domestic market, the main products were the series of charter flights which were flown in the summer season for both, Slovenian and foreign tour operators which market their products on Slovenian market, thus maintaining the role of the leading charter carrier. The above-mentioned series of charter flights to established destinations in the Mediterranean area, with special emphasis on Greek islands, represent as much as 60% share of the charter flight sales as a whole. In addition to that, together with our key partners, the tour operators, we managed to develop a whole-year destination, Egypt.
For foreign customers, we implemented three series of “incoming” charter flights to Slovenia; the traditional series Ljubljana - Larnaca and Ljubljana - Tel Aviv - Ljubljana were joined by a new one, the Ljubljana - Madrid - Ljubljana series.
On foreign markets growth was achieved based on successful expansion to the ad hoc charter flights market, which was a result of several years of intense work positioning Adria as a reliable and high-quality carrier. Quality of the operations is important particularly in the segment of the most demanding flights, such as various “incentive” events and transport of elite artistic groups.
The resultsIn �007, the growth trend in the market for tourism services and products in both Slovenian and foreign markets where Adria Airways markets its services has continued, which in return affected the growth in the number of charter flights. In the previous year we flew �,�5� flights, exceeding the year �006 by ��%, and carried �9�,0�� passengers — a ��% growth. Revenues from the charter flights sales increased by �0% and amounted to over �� million EUR.��
An essential characteristic in �007 was growth in the number of ad hoc charter flights which increased by as much as �0%, representing a �8% share of the total turnover. The number of ad hoc flights increased both for buyers on domestic market, where in addition to tourist agencies as buyers appear also interested companies, sports clubs, cultural and artistic groups and state institutions, as well as for buyers on foreign markets, especially on the EU market.
Forecast for the future periodAlso in the next period we will develop our business operations in the direction complying with the current strategy, which means focusing on quality of services and ensuring optimum rate of return. Traditional charter series for the areas of the Mediterranean and North Africa, which represent the majority of charter traffic, will continue to be supplemented by “ad hoc” charter flights for domestic and foreign tourist agencies, domestic and foreign companies, sports clubs and state institutions. In �008 we are planning �,�6� flights, which is �% less than in �007. The planned number of passengers carried in charter traffic is �80,600, 5% less than in �007.
7.3. Leasing out aircrafts
Marketing strategyWhen leasing out aircrafts, we follow the objective of fleet optimisation, especially at times when certain aircrafts are not needed for our own flights due to low demand. That is especially in wintertime, when demand for charter flights is lower, and also the number of regular passengers decreases and the flights are reallocated to aircrafts with lower capacity. We lease out aircrafts only to “wet-lease” in order to ensure control over the state of aircrafts.
Competition From November to March, strong competition arises on the market because of excess supply in low season. Majority of European air carriers have surplus of capacities and lease them out at extremely low prices. The strongest competitors are the airlines from Eastern Europe and the area of the new EU Member States, as well as charter operators who often lease out aircrafts even below cost price.
Other important factors of market positionAdria Airways is, just like majority of middle-European airlines, also encountering the problem of distinctive “seasonalisation”, especially in the sphere of bigger aircrafts of the A��0 type. In the summer months capacities on the market are too few, and just the opposite in the winter months.
Aircrafts of the type CRJ-�00 and CRJ-900 meet no substantial demand. In �007 we received a demand for a long-term lease of a CRJ-�00 aircraft, but because of own flights we could not spare the aircraft and we have not leased it out.
Air carriers are ordering new aircrafts and consequently the possibility of leasing them out, especially in the wintertime, is diminishing. Air carriers are ordering their own, new aircrafts also on the markets that up to now experienced lack of capacities (India, �5
China, Middle East, North Africa), so the demand for lease will be adequately lower.
In leasing out aircrafts, our advantages of a reliable and efficient carrier whose price is competitive on the market are of key importance.
ResultsWe have created �5.7 million EUR of revenue by leasing out two aircrafts on a “wet-lease” basis for one-year, which is ��5% higher than in �006.
Forecast for the future periodAt the moment, a lack of capacities may be felt in the market due to general conjuncture trend in the aviation sector as well as increased demand for aircraft capacities of the A-��0 size. But a surplus of aircrafts is anticipated on the market in the near future, which will mean stronger competition.
In the next years, we expect reduction of the scope of leasing out aircrafts for long-term periods, especially because of the needs for flying in own operation. A lease contract for a A-��0 is terminating in �008, and the aircraft is returning to own operation to Ljubljana.
Another A-��0 aircraft will be in wet-lease in Libya until �009.
For the CRJ-900 fleet, lease is currently not reasonable because the aircraft is ideal for year-round operation of Adria Airways regular scheduled flights and ad-hoc charter flights.
7.4. Marketing the media space
Because of its exclusivity, the air carriers’ media are an attractive advertising medium as the passengers are exposed to the advertisement message during major part of the journey and various segments of passengers are appropriate target groups for various types of advertising. Adria Airways is taking good advantage of that. In advertising, our main target are business passengers, while in marketing our media we are careful to pay regard to the value of the Adria Airways trademark. Advertisers in our media are chosen with regard to the fact how they complement our primary activity.
In �007, we earned revenue from marketing the following media: • advertising on the aircraft surface• advertising in the Adria Airways printed publications Inflight Magazine, in the
flight schedule and on some travel documents• distribution of promotion material and presentation of products in airplanes• advertising on seats and on the products which are used in the service on
airplanes• advertising on the webpage www.adria-airways.com, which is a novelty in our
offer of advertising media.
Revenue from marketing our own media in �007 increased by �6%.�6
7.5. Cargo transport
Marketing strategyAdria Airways wishes to ensure a high-quality service in the segment of cargo transport, adjusted to the needs of our clients, which will be, based on a clear vision of development, constantly improved in the future. We wish and plan to be one of the key connectors for the bigger collection cargo centres for the Balkans. Orientation to e-Business will be of key importance in implementing this strategy, because by using the new programme support “e-champ” we will improve transparency, responsiveness and efficiency of our business operations.
We offer our clients competitive prices, flexibility and determination in choosing transport routes on one hand, as well as individual approach, responsiveness and adaptability on the other.
We wish to collaborate with “integrators” and offer them space on all routes where conditions for that exist. We wish to offer our sales agents and general sales agents a clear and transparent offer, which will include air and road transport. By adapting our offer to the demand of the main consignment senders in Slovenia, we wish to attain better positioning of our services on the market of cargo transport in the western and south-western Europe.
Competition Since the market opened, competition is constantly increasing. Aggressive performance of “integrators”, who offer a complete door-to-door service and at the same time low prices to our sales agents also for general cargo, is most felt.
The market is also increasingly price-sensitive in comparison to other types of transport - especially transport by trucks represents growing competition. In Slovenia, a growing market share belongs also to general sales agents who represent “off line” operators and sell transport from Ljubljana on trucks to bigger airports in the EU, and with lower prices increase their own market share.
Other important factors of market positionOffer to destinations where Adria does not fly directly is provided in collaboration with operators with whom we have special agreements on dividing the revenue on the route. For such transports, our position is better on the markets of south-eastern Europe, where bigger operators do not have such strong influence or sales activities at the moment.
Cargo transport is performed on Adria’s scheduled passenger flights as a supplementary service, and as such depends on free capacities on those flights. There is relatively little space for cargo on the routes where mainly CRJ-�00 and CRJ-900 aircrafts are planned, and consignments are limited both by dimension as well as by weight (maximum �00 kg/package). Also the flight schedule is adjusted to the passenger needs and sometimes it does not suit the client ordering cargo transport. A solution was found in road, truck connections. �7
Current demand, taking into account the prices existing on the market, does not enable introducing a cargo route to any destination in the Balkans. Namely, there is very little cargo in the opposite direction.
ResultsIn �007, we transported �,559,�60 kg of cargo on scheduled routes, which is ��% less than the year before, while the cargo transport by trucks increased by 5�% to ��6,5�8 kg. We transported 667,976 kg of postal consignments, which is 6% more than in �006. Revenue from cargo transport in �007 amounted to 6,�85,86� EUR, which is �9% more than in �006. Forecast for the next periodWe will join consolidated truck transports on the route Frankfurt - Ljubljana and already regular transports between Ljubljana and Tirana, Priština, Beograd, Skopje and Sarajevo, as the need arises. We anticipate introduction of an additional frequency on the route Amsterdam - Brussels - Ljubljana. We expect to expand the offer to transport of special types of cargo - “dry ice” and biological substances.
7.6. Aircraft maintenance for third parties
Marketing strategyAdria Airways, its aircraft maintenance sector (hereinafter AMS), has been present on the market for maintenance of regional aircrafts (CRJ) as Bombardier’s centre for Europe for over five years. We are planning to increase the share of maintenance for third parties in the coming years from the current 50% to 75%; in so doing, we are planning a 5 - 7% increase of the scale of operations on an annual level. Our marketing and sales activities are focused on direct contact with potential buyers, and we shall continue this policy also in the future. We are trying to replace the contracts which were so far concluded for one year with long-term contracts; our goal is therefore to earn 80% of annual revenue on the basis of concluded contract, and the rest by individual demand of buyers on the aircraft maintenance market.
ResultsIn �007, we renewed the existing contracts with our current clients in both fields of maintenance (CRJ and Airbus aircraft types). In the past year, �007, we successfully performed service checks on 9� aircrafts owned by other airline companies (66 aircrafts of the CRJ type and �8 aircrafts of the Airbus family). With an independent presence on the aircraft maintenance market for aircrafts of the Airbus family, we performed �5 C-checks for five different clients in �007, so that the share of turnover from checks performed on the aircrafts of the Airbus type increased to �0%.
We have created revenue higher by �9% compared to �006 from maintenance of aircrafts owned by third parties, and exceeded the planned turnover by �8%.
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A-��9 - �0% A-��0 - ��% A-��� - 7% CRJ-�00 - �% CRJ-�00 - �9% CRJ-700 - �% CRJ-900 - ��%
�����086��0 �005
Revenue from aircraft maintenance for third parties
�006 �007
Value inmillion EUR
An important milestone in our business operations in the past year was the breakthrough to the world market of aircraft maintenance (China Taly Aviation - CRJ-�00/VIP version) and the beginning of successful performance of C-checks on CRJ-900 aircrafts, and further marketing in �008. Our position is very encouraging also in the market of A��0 maintenance, because our main clients of the mentioned aircraft type (Air Berlin, Germanwings, Wizzair) are enlarging their fleets.
Forecast for the next periodIn �008, we are planning a reduction in revenue from aircraft maintenance for third parties by 5%, due to increased amount of service work on own fleet or increased number of home fleet aircrafts.The main problem to be successful in achieving the set goals and partly already concluded deals is the lack of capacities in terms of space and human resources:
• planned construction of a new hangar by the end of �008,• additional training and employment of mechanics - annual capacity �50,000
operative working hours,• additional employment of other staff in the sales, engineering and other
supporting departments.Business operations in the coming period are bringing new challenges for the AMS employees. Two factors are crucial for long-term stability of the department and the company as a whole: further rationalisation of operating costs while preserving and increasing the business performance, and marketing of new services, which will create new income and preserve jobs. We are aware that we are heading for the times of important and big opportunities, which require constant development, increased quality of operations and better cost management. Only with joint efforts - all employees and the company management - we will be able to ensure further effective growth of the company as a whole, the employees and the environment in which we operate.
Strategic goals of development in the department are:• preserving the leading position in the market of aircraft maintenance for the
CRJ-�00/�00/700/ type,• expanding maintenance in the market of C-checks for aircrafts from the Airbus
family (A��9/��0/���),• restructuring or optimising the staffing in the sector, which is necessary for
performing the existing activities, business functions and new services.Our key factors of success remain the high motivation and professional competence of all employees in the department, quality performance of repair services and flexibility, competitive sales prices and determination to achieve the set goals.
Marketing activities which we will use to increase our market share and encourage development of new services are:
• using our competitive advantages,• active approach (assisting the user in searching for solutions),• setting up long-term strategic or project connections with established entities
in similar business fields.
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heavy maintenance material charges line maintenance others maintenance off-site loans workshops modifications
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20
14
8
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4 2
Share of separate types of activities within aircraft maintenance for third parties in �007
7.7. Education, flight school
Flight schoolAdria Airways’ flight school has a long history. It was founded in �980 in collaboration with the Faculty of Mechanical Engineering in Ljubljana. Its initial purpose was to educate and train pilots on smaller aircraft to obtain a professional pilot licence, which was a requirement for employing a professional or transport pilot on large passenger aircrafts.
Every flight school needs for successful operations, among other, aircrafts, a simulator and flight instructors. In �007, our flight school was enriched by a new, stationary flight simulator with visual terrain display and with three configurations for single-engine and double-engine propeller and turbo-propeller airplane (Turbo Arrow, Senneca 5, King Air �00).
The simulator brings many advantages and is intended for pilot education for the following authorisations:
• Commercial Pilot Licence - CPL,• Instrument Rating for single-engine airplanes - IR/SE,• Instrument Rating / Multi Engine - IR/ME,• Multi Crew Cooperation - MCC.
≈Ascent Convertible Flight Trainer« is the state-of-the-art flight simulator in a wider region. It will be used for training our pilots, as well as marketed in the neighbouring countries.
Technical trainingThe Technical Training department within the EASA Part-��7 provides for the following needs:
• Adriatic process of aircraft maintenance and external clients, especially flight units within the Ministry of Defence of the Republic of Slovenia (MORS) and Ministry of the Interior (MNZ), for basic training of aircraft mechanics-technicians for the EASA Part-66 licences of categories A, B�, B� and C,
• Adriatic process of aircraft maintenance for technical training for the aircraft types from the list Part-��5 AMO authorisations no. SI.��5.0� (CRJ �00,700,900, A��9/A��0/A���, B7�7-500),
• Adriatic process of aircraft maintenance and external clients, especially on the basis of Bombardier contractual obligations, for intensive (PT = Practical Training) and extensive (OJT = On Job Training) practical trainings for the aircraft types from the list Part-��5 AMO authorisations no. SI.��5.0� (CRJ �00,700,900, A��9/A��0/A���, B7�7-500),
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• Adriatic process of aircraft maintenance for continuous training in the fields Human factors, Technical Updates and Company procedures, refresher and occasional trainings,
The Technical Training department fulfils the needs of its clients by performing own training or organising training performed by other providers, but in any case designed as a fully integrated service including all required organisational, coordination and logistics support.
In �008 we are starting a gradual replacement of classic theoretical technical trainings with modern CBT (= Computer Based Training) and above all WBT (= Web Based Training) trainings - in accordance with the clients’ needs, possibilities of the infrastructure, economic and logistics calculation, and legislative restrictions.
Through its membership in the EAMTC (= European Aircraft Maintenance Training Conference) the Technical Training department brings the needs of its internal and external clients in line with the global offer, especially the European and North American providers, and also offers its own services to that market.
In the contract for Bombardier Recognised Service Facility, renewed in �007, Adria is defined as provider of practical training for CRJ-�00, 700, 900 aircrafts, based on Bombardier’s contractual obligations to aircraft buyers. We are expecting an increase of practical trainings for CRJ in �008-�0�0 arising from that.
Because of the shortage in supply of technical trainings for CRJ-�00, 700, 900 in Europe, a business initiative was submitted to Bombardier in the beginning of �008 to expand collaboration, in the direction of Adria becoming also an authorised provider of Bombardier theoretical trainings for CRJ-�00, 700, 900.
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We grow, also above the clouds. We accept new members into our ranks and expand our partnerships. We are ready for everyday challenges.
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8. PartnershipsAdria Airways’ collaboration with foreign airline operators
Adria Airways concluded �50 MITA (Multilateral Interline Traffic Agreements) agreements, which enable and define mutual acceptance of flight documents. These agreements facilitate mutual sales of airline services and their combining. Prices and the manner of dividing the income earned in this system are determined at International Air Transport Association (IATA) conferences.
Air carriers may also agree on the manner of income division bilaterally, using the so-called SPA agreements (Special Prorate Agreements), which enable adjustment to specific requirements. Adria concluded SPA agreements with 5� air carriers.
A basis for a more intense mutual marketing are the “Code Share” agreements. Adria collaborates with eight operators on the basis of such agreements: Lufthansa, LOT Polish Airlines, Swiss International Airlines, Austrian Airlines, Ukraine International Airlines, SAS Scandinavian Airlines, Aeroflot and Montenegro Airlines.
As part of this system, in �007 foreign air carriers sold on their flight documents Adria Airways’ services in the amount of EUR �5,�90,�60 (���,89� coupons), while Adria Airways sold on its documents their services in the amount of EUR ��,�09,5�� (�07,�0� coupons). These figures are the best indicator of the importance of collaboration between air carriers.
Adria Airways regional membership in Star Alliance and collaboration with the air carriers that are members of this association
Since December �00� Adria has been a regional member of the largest global airline group Star Alliance.
Star Alliance association was founded in �997 as the first really global airline association, which provides the passengers with global connections and comfortable flying. In �00� and �006 it was selected the best global association of air carriers by the Business Traveller Magazine, and in �00� and �005 by Skytrax organisation. The members of the group are Air Canada, Air China, Air New Zealand, ANA, Asiana Airlines, Austrian, bmi, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, SWISS, TAP Portugal, THAI, Turkish Airlines, United and US Airways. Regional reach of the world network of flights is complemented by the regional members Adria Airways (Slovenia), Blue� (Finland) and Croatia Airlines (Croatia).
By joining Star Alliance, Adria reached its strategic goal and outlined its business policy of a network air carrier offering global service. We confirmed that we are a modern and efficient airline company, which fulfils all safety, technical and commercial standards and requirements. Our sponsor in joining the alliance was Lufthansa, who has been our active partner for many years.
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We now offer to our passengers the best and cost effective connections with all �9 members of the Star Alliance, who offer �8 thousand flights per day to 965 destinations in �6� countries. Miles & More loyalty club membership enables passengers to collect and use miles for award flights in the whole Star Alliance flight network. In addition to global reach, Star Alliance facilitates transfer of knowledge from various fields of airline business operations (best practice), recognition through a global trademark, and ensures a high level of service that a passenger may expect throughout the entire network of Star Alliance flights.
We already provide mutual issuing of electronic tickets with all Star Alliance operators; with some members we are migrating to a common IT platform, the purpose of which is to improve offer for the passengers, using the most recent information technology. We also participate in some other Star Alliance projects, such as “Round the World Fare” and “Circle Trip”, as well as “Conventions Plus”, which is a product aimed at organisers of bigger conferences and congresses.
9. QualityIn �007 we continued to maintain and develop the quality assurance system. In �00� Adria received the ISO 900� quality certificate from the Slovenian Institute for Quality and Metrology. By obtaining the ISO 900�:�000 certificate the company completed the cycle of establishing comprehensive quality assurance system.
Quality assurance system in compliance with ISO 900�:�000 includes also a system of quality in the field of maintenance for Part-��5 aircrafts, for which we obtained a certificate in �999. On its basis, in �00� Adria became one of the two authorised service centres for CRJ type aircrafts in the world.
In March �005 we included in Part-��5 of the quality assurance system the Part-��7 system of quality in the area of training aircraft maintenance personnel, on the basis of which Adria can itself provide training in the area of aircraft maintenance that is recognised and valid throughout Europe.
Our comprehensive system of quality assurance also comprises a system of quality in the sphere of commercial air transport JAR-OPS �, for which we obtained certificate in �00� and on the basis of which we started implementing routes within the European Union at the end of �00�.
Safety always comes firstAdria’s quality in this area has been confirmed by the renewed IOSA (IATA Operational Safety Audit Registry) assessment in December �005, something that needs to be performed every two years by an IATA accredited assessment organisation. The IOSA standard determines the level of company organisation, operating procedures, flight safety and company security. In �007, we were intensely preparing for the second
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renewal assessment, which took place in January �008. We are therefore one of the first airline operators in the world, who obtained IOSA certificate for the third time.
In �007 we put much emphasis also on monitoring our partners, as this is essential to provide service at the level of Adria Airways. As part of the quality assurance system, we have also strongly supported adopting and implementing business decisions through working groups, and by that reduced risks.
10. SafetyFlight safetyIn �007, we continued with activities that improve safety of flying. We acceded to the analysis of other providers of flight monitoring software - Flight Data Monitoring. Our aim in this is to improve data entry, as the quantity of data is increasing because of the growing fleet of Canadair Regional Jet aircrafts. With the knowledge that we obtained improving the current software, we can collaborate with the manufacturers and have impact on the final product.
In �007 we also implemented changes in the sphere of handling events that could af-fect safety of flying. We introduced the so-called “Just Culture” principle, which builds a culture of handling events and observing procedures. The principle was developed by experts for safe flying from European airline companies. We were one of the first among European airline operators to have introduced the principle.
Safety TeamAdria Airways has a highly qualified professional safety team, which is responsible for monitoring the achieved level of safety in the company. It cooperates professionally within the working bodies of the Association of the European Airlines, mainly those from the area of flight safety whose aim is to improve safety level in the European airspace. ”Safety Team” also actively monitors the trend of development of safety standards in the branch, and actively participates in their forming, when necessary. Work and influence of the Safety Team was especially important in �007 because of the fleet expansion.
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11. Risk management
11.1 Business risk
Adria Airways is an air carrier, for which apply the general risks that are characteristic for aviation industry - internal as well as external. We are listing the main risks that are characteristic for operations of an airline company. Management of these risks is performed as part of the processes that are affected by the stated risks; the management is informed of each significant change - increase of a certain type of risk through reports, and it decides on further activities to solve consequences, if they occur.
Competition Highly competitive environment is characteristic for majority of business segments, but it is strongest for Adria’s primary activity - passenger transport. New competitors constantly enter the market - both network and national air carriers, as well as low cost carriers which represent a threat to the market share, and consequently a possibility of reduction in revenue. In order to preserve and increase their market share, competitors actively offer promotional ticket prices especially in low season, adjust their flight schedule and pricing policy. For such competitive environment are characteristic constant efforts of carriers to improve their competitive advantages and structure of the costs. They also compete by using strategic connections, where together with their partners they seek new opportunities to expand and improve global reach of the network of flights. It is worth mentioning also the influence of the competition of land transport (car, bus, rail) - with improvement of transport by land (better roads, railways, fast train, etc.) the impact of these substitutes on the competition to airline transport is stronger. We are trying to manage the risk arising from competition by expanding the flight network, independently as well as through connections within the Star Alliance partnership, by improving our own product which includes privileges for loyal passengers (Miles & More global programme), and by constant improvement of the structure of costs.
Market riskGeneral situation on the market and the economy impact the demand for air transport - in recession, the amount of travelling is reduced. The current financial crisis in the USA should not have a significant impact on global growth of demand for air transport; also in Europe a moderate growth at the level of approximately 5% per year is expected. Nevertheless, the ability of an air carrier to respond relatively quickly in case of changes in demand by adjusting the supply or capacities is important. Due to considerably long delivery deadlines for new aircrafts that is a demanding task in the aviation industry; we are currently solving it by a combination of own fleet and leasing aircrafts from other operators. This enables quick adjustment in short-term, and in a long-term we replace the leased aircrafts with new, which are included in our own fleet. Especially in the coming years, excess capacities are expected on the market because of large quan-
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tity of orders for new aircrafts. We have therefore decided for moderate growth of the fleet with a possibility of adjusting; we are, though, still open to the possibility of further aircraft leases because the lease prices are expected to fall due to excess supply.
Limited airport capacitiesThe main limitation in adjusting the times of airplane landing and taking off (slots) at foreign airports remains the high density of operations at primary airports, and consequently the limited number of slots. With regard to the fact that air carriers may increase capacity on a route either by additional frequencies or by larger aircrafts, the slot limitation will in the future considerably influence the trend of using increasingly bigger aircrafts on the existing routes. Adria is often encountering slot limitations at primary airports when adjusting its flight schedule either by additional frequencies or by modifications of the existing flight times and introducing new routes. That is an obstacle in optimising the flight network at the Ljubljana airport, as well as in providing optimum connections via Star Alliance hubs Frankfurt, München, Vienna and Zurich. At some of the mentioned airports, adapting is restricted to planning larger aircrafts on the existing flights, because it is not possible to plan additional frequencies.
Delays in air traffic in EuropeDelays have been increasing in Europe in the past years, especially because of bottlenecks in air traffic controls. Airline operators lose � billion EUR per year unnecessarily because of fragmentation of air traffic controls in Europe; at the same time that means �� million tons of unnecessary CO� emissions. Delays cause inconvenience for passengers and consequently damage to airline operators because of missed connections and inefficient use of aircrafts. The European Commission is therefore trying to set up a unified air traffic control, which would improve efficiency and reduce unnecessary costs. Its efforts are supported by airlines and their associations or organisations such as AEA (Association of European Airlines), IATA (International Air Transport Association) and ERA (European Regions Airline Association). Adria Airways, as active member of these associations, supports the mentioned initiative.
Small domestic market and scarcity of domestic tourist capacitiesThis risk means limitation to Adria Airways’ expansion as Slovenian carrier on the domestic market. We must therefore seek expansion and growth on foreign markets, as well as by providing good connections via the home airport; with that we can highly increase the number of passengers that we can transport on our own flights.
War, epidemic, terrorism and natural disastersThese events may have negative impact on the possibility of commercial flying to affected areas, which is reflected in loss of revenue. That might be of a more or less limited nature (epidemic may have a global impact on reduced demand for air transport), or they may have a more direct consequences in the form of material damage and loss of assets (aircrafts, business premises).
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Information technologyWith increased automation of some key processes, which is a consequence of growth and bigger scope of business operations, there is increased risk of possible failures of information systems and programmes which provide smooth functioning of the company and its daily operations. The mentioned key processes are: reservations and sale of air tickets, planning commercial flying, communication to operative services, operative planning of flights and crews, and the support processes linked to that. A failure may cause that flights are suspended, and consequently revenue is lost and additional costs occur to set up the operations again. In �008, we are planning to transfer the flights inventory from Lufthansa Systems to Amadeus common IT platform of Star Alliance. Safety support, or the systems in connection with the reservation system and flights inventory are provided by the suppliers, Amadeus and Lufthansa Systems, while most of the programmes for planning and operative support have a backup server location available.
Safety and protectionPassenger safety is Adria Airways’ highest priority. Inability to prevent a major safety incident would have long-term and hard consequences for the company’s business operations, in terms of losing revenue, losing assets, losing reputation and the value of the trademark. More details are outlined in a separate chapter no. �0.
Labour forceWith increased traffic, also the need for qualified labour force is growing - aircrew, maintenance staff, as well as support service. Expanding aircraft fleet also requires that we provide adequate number of qualified labour force. The risk is managed in short-term by hiring temporary foreign labour force, while at the same time we are intensely educating our own young cadres to obtain the required functional knowledge. We are intensely employing new operational personnel to solve long-term needs, partly because of expansion of our own fleet, but mostly because of extremely high requirements on the market, where in the future we could place our surplus of otherwise scarce professionals for short term lease to other airline companies. We are also preparing a programme of collaboration with educational institutions which provide education for key operative professions, whereby certain programmes of functional knowledge would be transferred already to the system of compulsory education in those schools, and at the same time identify the most promising pupils and students and tie them to later employment in our company with a system of scholarships.
Trade union requirementsTrade unions’ requirements for salary increases have negative impact on achieving success at reducing costs. Employee strikes could cause disturbance in daily operations and performing commercial flying, and consequently a loss of revenue and unforeseen costs. In �007 we reached individual agreements with the trade unions in the company with regard to increasing employees’ remunerations which are linked to operative performance of air traffic and do not have such direct influence on revenue,
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or to a limited extent on cost management. In general, the biggest reserves are still in organisation of work, productivity, higher flexibility and multi-functionality of employees, in monitoring the efficiency, quality and amount of the employees’ work; but all of that requires additional engagement of the management at the medium level, who should dedicate a bigger share of their working time to optimising, organising and managing employees, and to a lesser extent deal with expert operative matters.
Legislation and the EU regulationInternational aviation industry is to a great extent subject to the European and national regulations, which regulate most of activities of airline operators. This framework is in force both in the sphere of commercial activities (rights to access to airways and airport ≈slots«, liberal price regime) as well as operational standards relating to the fields such as safety, protection, noise and passenger rights.
Adria is also affected by the European Union legislation and regulation, especially with regard to competition, airports and air traffic control. Adria’s ability to fulfil these requirements on one hand, and on the other to influence their amendments, is of key importance in ensuring success of our operative and financial activities.
In �008, the most important topics of legislative activity will be focused on regulation of Emission Trading, setting up the Single European Sky and the Air Traffic Management.
SuppliersProblems with suppliers could cause reduction in revenue, or negative perception of the public with regard to our services. For certain services we hire external suppliers and we rely on them regarding timeliness, efficiency and quality of their services. Among those are for example certain maintenance services, flying leased aircrafts on our routes, providing groundhandling, information support and similar. We have concluded agreements for service hire which include a notice period in which we can find a replacement in case of unilateral or consensual termination of collaboration. Nevertheless, adequate implementation of the hired service has relatively strong influence on the overall quality of the services offered by us.
11.2 Financial risk
Due to its international orientation, Adria Airways d.d. is exposed to certain types of financial risks, which the company tries to detect and manage in the risk management process.
For efficient and systematic risk management, we follow the strategy of managing financial risks adopted at the end of �005.
The company divides financial risk into the following types: currency, credit, interest-rate, liquidity, risk in insuring interests and property and risk associated with changes in fuel prices.
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Currency riskIn view of the geographical spread of its business operations, the company is exposed to currency risk, where changes in the exchange rate of an individual currency can impair the company’s commercial benefits. The key pair of currencies in �007 was EUR/USD, but we are also monitoring the following pairs of currencies, the open positions of which are relatively low: EUR/CHF, EUR/GBP; and to smaller extent also others.
The company is in a net short position and thereby most exposed to fluctuations in the dollar rate since USD affects business transactions of the company the most, due to its association with: purchase of aviation fuel, aircraft and spare parts as well as lease and investment maintenance of the aircraft; also, inflows of dollars are scarce.
In a long term, we are trying to reduce exposure by natural securing (restructuring all long-term loans to EUR), i.e. by regulating inflows and outflows, while in �007 a part of short position was secured also by purchasing derivative financial instruments, and a part was left unsecured in compliance with the adopted strategy.
Also in �008, we are planning short position in USD, which we have already partly secured by purchasing derivatives, and a part will be left unsecured.
Credit riskCredit risk relates primarily to the risk of default on payment of operating receivables by customers in Slovenia and abroad, and the company successfully manages this by:
• having a wide spread of customers;• analysing the financial operations of customers and assessing risk prior to
signing contracts for deferred payment;• operating through the IATA (International Air Transport Association), which
includes all the airlines with which we cooperate; the majority of our partner travel agents also have IATA authorisation to sell tickets; IATA members are subject to control, and are penalised for non-adherence to the terms of payment;
• additional security for higher-risk claims with bank guarantees, drafts, letters of credit;
• systematically and actively pursuing the collection of receivables.
Interest rate riskRisks relating to interest rate changes are defined as the uncertainty associated with the future values of reference (variable) interest rates, LIBOR for the dollar and EURIBOR.
All long-term loans as of �� December �007 are therefore denominated in EUR and linked mainly to �-month, and to a lower extent to a �-month EURIBOR. In the past we have secured part of loans by purchasing derivative financial instruments, while in �007 we have not increased the level of security due to relatively unfavourable price levels of derivative financial instruments for protection against interest rate risk. As of �� December �007, the company has �� percent of long-term loans secured against the risk of interest rate changes; on the basis of the adopted strategy, we will continue securing them in �008.
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Liquidity riskLiquidity risk, or the risk of inability to settle current liabilities, is managed by coordinating the due dates for receivables and liabilities through the monitoring of cashflow. The company is preparing daily, as well as weekly and monthly liquidity plans, and has access to available credit lines for short-term adjustment of cashflow.
Insuring interests and propertyThe extent and intensiveness of insurance cover change with the growth of property, the use of new technologies and markets, and at the same time there are changes in risk exposure.
The extent of insurance cover indicates against what danger a thing is insured, and the intensiveness indicates the extent to which damage will be reimbursed.
In avoiding damage and exposure, the company operates preventively:• by additionally equipping aircraft with anti-intrusion doors, so as to increase
the safety of passengers, crew and property;• by installing GPS navigation systems on aircrafts, which enable the highest
possible level of detail in establishing the current position of the aircraft in airspace;
• by training technical and aircraft crew in the sphere of safety protection, with a purpose of performing safety checks of aircrafts before flying;
• by installing enhanced ground proximity warning systems (EGPWS);• by purchasing work platforms and stairs for safer work by contractors and
preventing damage to aircraft;• by investing in equipment for controlled access to protected areas;• by upgrading the existing and purchasing new equipment for groundhandling
of aircrafts• by investing in equipment which enables controlled handling/disposal of waste/
dangerous substances;• by renovating the existing working areas and roof on the hangar for aircraft
maintenance;• through twice-yearly refresher courses for flight personnel on a simulator;• through continuous training of employees in fire safety and safe work;• by linking up fire safety systems with Ljubljana Airport and the security
services;• through regular medical check-ups for employees.
The company insures aircraft, spare parts, goods in transit, all liability regarding passengers and possible injury to third persons in line with the valid international regulations and conventions (Montreal Convention).
The company’s business operations are backed up by all the aforementioned insurance.
Risk associated with fuel price changesThe cost of fuel is the second biggest cost of airlines, and movements in oil prices therefore have a major impact on airline operations. The price of kerosene, like the price 6�
of crude oil, is subject to enormous fluctuations. After a period of relatively cheap oil in the first half of �007, we have witnessed quick growth in the second half of the year, which has intensified in �008.Consumption and fuel cost are managed by:
• selecting the most competitive offer from aviation fuel suppliers at international airports and demanding transparency of prices offered by the domestic fuel supplier;
• planning the use of aircraft appropriate to the number of passengers;• using the programme for reduction of fuel consumption, which was prepared
at IATA and includes measures in monitoring decantation of fuel, aircraft maintenance and technique of flying.
• adding a surcharge to our own sales prices for the increased cost of fuel.
In compliance with the adopted strategy of protection from the risk of price fluctuations for aviation fuel, in �007 we secured prices also by using derivative financial instruments.
12. Analysis of business results
Adria Airways’ business operations in �007 reflect both, implementing the set company strategy as well as achieving objectives of the short-term plan.
In �007 the company continued the restructuring and optimisation of business operati-ons, started in �005. Already in �006 we managed to stabilise our business operations and, by implementing measures to increase revenue and to optimise costs, get out of the red. In very short time we managed to stop negative business trends and by raising additional capital in �007 we ensured further expansion of the company.
For the business year �007 we set many objectives and also managed to achieve most of them, changes in the fleet being the key factor:
• We successfully introduced two new 86-seater CRJ-900 aircrafts to the Adria Airways fleet, which contributed to an increase or optimisation of capacities especially on the routes Brussels, Moscow, Paris, London, Skopje, Vienna, Munich and Frankfurt.
• The planned fleet optimisation by leasing out larger and hiring smaller aircrafts, according to the flying needs, was implemented in its entirety.
• We planned net profit in the amount of ��5,�56 EUR, and achieved more than three times higher net profit in the amount of ��5,�7� EUR.
• We planned 7% more flights and �% higher number of passengers carried, as well as an increase in operational revenue by 9%. We achieved ��% more flights, ��% more passengers and �7% higher revenue, which might be considered a successfully implemented plan.
• In the summer season of �007 we increased the number of frequencies by ��% compared to the summer season of �006, while in the winter season �007/�008 the number of frequencies was increased by ��% compared to the winter season �006/�007; in the latter, the number of frequencies was
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6�
increased by �% compared to the winter season �005/�006. • The main objective of the charter plan for �007 was to preserve the market
position of the leading charter operator on domestic market and to continue systematic work with selected key clients on foreign markets on one hand, while on the other follow the fleet optimisation, pursuing the goal of performing successful business.
• In the sphere of maintenance of foreign aircrafts we were planning to continue the strategy of expanding the scope of work on the aircrafts of the A-��0 family and at the same time preserve the leading role on the CRJ market; the planned revenue from maintenance for third parties was exceeded by �8%.
In addition to exceeding all planned objectives, we more than surpassed both physical as well as financial data from the previous year in all spheres.
Notes on the physical operating indicators• In �007, the company carried �,��6,��� passengers on ��,7�7 flights.
Compared to �006 the number of passengers carried increased by �� %. The number of passengers carried on scheduled flights increased by ��%, and the number of passengers carried on charter flights by ��%.
• The share of passengers on scheduled flights in the total number of passengers carried was 8�% in �007, which is the same as in �006.
• The passenger cabin use on scheduled flights improved by �% in �007 compared to �006, and the number of seats available for sale increased by �%.
• Average daily use of aircrafts was 9.8� hours per avioday which represented a �% increase compared to �006.
• Average fuel consumption per hour of flying increased by �% compared to �006, which is mainly a result of larger aircrafts in own fleet and the leased Boeing aircrafts.
Revenue structureCompared to the previous year, net sales revenue in �007 increased by �8%; all categories of revenue increased as a consequence of company development and expansion: revenue from passenger and cargo transport as well as from aircraft maintenance and lease.
The biggest proportion of net revenues comes from scheduled passenger transport.
Revenue from scheduled passenger services grew in this period by 8%; the reasons are a larger number of passengers and maintained value of travel coupons. In �007 we tried to prevent the pressure causing reduction of average revenue per passenger which is a consequence of growing competition, also at the Ljubljana airport where already 9 airline operators offer scheduled connections.Revenue from charter services grew by �0% despite the strong competition in this area; also the number of “ad-hoc flights”, which are economically most interesting, increased. We also continued operating charter flights within the EU. The growing sales
6�
�006 �007
Revenue structure in %
Scheduled transport - passengers
Charter transport - passengers Aircraft maintenance for third
parties Scheduled transport - cargo Other
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��
7 8
�
64��
�7
��
trends are achieved by high-quality services and establishing Adria trademark as a quality provider.Revenue from cargo transport grew by �9% over �006, mainly due to cargo transport via our own cargo operations. Cargo transport on the company’s scheduled routes did not have much possibility for expansion because we leased out two large aircrafts, and consequently the revenue remained constant.Revenues from maintaining aircrafts for third parties grew by �9 % despite growing number of checks on our own fleet and have exceeded the values from �006; Adria is becoming an important maintenance centre not only for the CRJ aircraft but also for the Airbus aircraft family. While introducing our own new CRJ-900 aircrafts, we also marketed maintenance for this type of aircrafts. In the past year, �007, we successfully performed service checks on 9� aircrafts owned by other airline companies (66 CRJ-type aircrafts and �8 aircrafts of the Airbus family); in addition to basic maintenance we also performed line maintenance services for foreign partners.
Due to fleet optimisation we performed even more intense leasing out of our own aircrafts including pilots in �007. The whole year we operated two Airbus A��0 aircrafts abroad and as a result created revenue which was ��5% higher than the year before.
Expenses structureProduction costs, distribution costs and general and administrative costs increased by �5 % over �006.
The cost of material grew by ��% compared to �006, still mainly due to high prices of aviation fuel in the second half of the year. The growth in the cost of services was �7%, owing to larger extent of flying, increased activity also in other profit centres and because of higher costs of lease which are a consequence of leasing aircrafts to optimise operations.
The cost of fuel shows an index ���; also the year �007 was (towards the end of the year) marked by high prices of oil which were breaking records. Although the fuel consumption grew by ��% and the price of kerosene increased by 7% in average, the costs grew “only” by ��%. The reasons are:
• kerosene prices are in USD and consequently the US dollar exchange rate, which was dropping as the prices were growing, had positive influence on the costs,
• protection on the futures market,• economical fleet.
Airport costs grew by 8% in �007 and are under constant control. With an ��% increase in the number of passenger flights and additional cargo flights, the costs increased “only” by 8% despite the fact that in �007 we were additionally burdened by the cost of terminal navigation in Ljubljana. These costs are managed by seeking competitive offers at individual airports and through greater use of CRJ aircraft for flights. In �007, there were significant savings in this area since in the opposite case the costs would increase significantly due to increased scope of flights and to own cargo operation.
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Navigation costs (index ���) grew in proportion to growth of operational flying, on scheduled, charter and cargo flights.
Aircraft maintenance costs increased by �� %. They include both, the costs of maintaining our own fleet as well as the costs related to servicing aircrafts for other clients. The increase is mainly related to considerably increased amount of operations for other clients, but also our fleet is expanding and it requires more and more line and basic maintenance.
Aircraft leasing costs are compared to �006 higher by ��%, they include lease for two CRJ-�00/�00 aircrafts, lease for Boeing 7�7-500, 6-month lease for Boeing 7�7-�00 aircraft, leasing of cargo aircrafts and occasional sub-charters, mainly during the period of the �6-year and C-checks of our Airbuses when we had to lease sub-charters to ensure scheduled flights.
Labour costs increased by �5%, the reason being intense employing, mostly in operative sectors, an increased scope of flight operation as well as maintenance, and the nature of work (pilots and mechanics abroad).
Amortisation and depreciation costs have increased by ��% compared to �006 and are high because the aviation sector is highly investment-intensive; the deviation with regard to �006 is mainly due to purchasing two new aircrafts and the corresponding roto spare parts
Distribution costs grew by �% over �006; they include the costs of our own domestic and foreign sales network, all agency commissions, the costs of reservation system and the costs of employees in sales and marketing. The growth did not follow the increase in physical indicators, which speaks of rationalisation of the distribution network costs.
Among financial part of operations, the expenses on interest payments showed highest growth, namely by 50%, the reason being in incurring debts to expand the fleet, and growth in the key interest rates.
Results• In �007, the company created operating profit in the amount of �,�7�,5�0 EUR,
which is �55% better than in �006 and it reflects further optimisation of business operations.
• The company has loss in the amount of �,��9,000 EUR from financial operations, which is higher than the loss in �006, mainly due to incurring new long-term loans for aircrafts and because of growth of key interest rates.
• All this affected the achieved net profit in the amount of ��5,�7� EUR, which is several times higher than in �006.
Asset structure• As of ��.��.�007, total assets were �0% higher than at the end of the previous
year.• As much as 80% of the company's assets are fixed assets, �5% are receivables, and
inventories represent only �%; the structure of assets changed only slightly compared to the previous year.
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�006 �007
Asset structure in %
Fixed assets Inventories Receivables Other assets
80�
���
80�
��5
• The company’s fixed assets are for the most part tangible fixed assets, of which the major proportion is aircraft (9� %). In �007, fixed assets were enlarged by two new CRJ-900 aircrafts and the correspo nding roto spare parts.
• The value of the item land and buildings fell due to sale of a business premises building in Ljubljana.
• Operating receivables grew by �0% compared to �006, as a result of larger scope of sales and settling larger amounts of receivables already in January �008.
Structure of liabilities• In the structure of liabilities the share of capital increased compared to �006,
owing to an injection of share capital and the net profit, which has a favourable effect on the company's financial strength.
• Long-term financial liabilities (long-term operational liabilities are negligibly low) grew by ��% compared to �006, mostly because of a new long-term loan for two new aircrafts.
• The share of short-tem liabilities in the structure of liabilities fell by as much as 6%.• Short-term financial liabilities fell by ��% compared to �006, mainly due to
settling short-term revolving loans and the loan for advance payments for aircrafts. Also, the company did not raise short-term loans for current assets at the end of the year.
• Short-term operating liabilities grew by 8%, mostly owing to the company's increased activity in all spheres.
Cashflow from operating activitiesCashflow from operating activities is positive, in the amount of �6,890,9�� EUR and is �59% better than in �006. A detailed calculation of cashflow is presented in financial statements.
Indicators of business performance
DESCRIPTION / PERIOD Jan. − Dec. �007
Jan. − Dec. �006
Index �007/�006
BASIC FINANCING INDICATORS
�. Equity financing rate �5.��% ��.��% �0�
�. Long-term financing rate 76.85% 7�.�9% �07
�. Equity to operating fixed assets 0.��6� 0.�0�� �05
BASIC INVESTMENT INDICATORS
�. Operating fixed assets rate 79.75% 80.�7% 99
5. Long-term investment rate 80.99% 8�.68% 99
SOLVENCY INDICATORS
6. Immediate solvency ratio 0.0��6 0.0��� 98
7. Quick ratio 0.70 0.5� ��9
8. Current ratio 0.8� 0.65 ��8
INDICATORS OF ECONOMY AND PROFITABILITY
9. Operating efficiency ratio �.0�� �.005 �0�
�0. Net return on equity ratio ( ROE) 0.0� 0.00 �87 67
�006 �007
Structure of liabilities in %
Capital Long-term financial
and operational liabilities Short-term operational
and financial liabilities Other sources
24�8
��6
25��
�5�
13. Events after the balance-sheet date
We successfully completed the second renewal assessment for IOSA standard in January �008 and we are one of the first air carriers in the world that obtained the IOSA certificate already for the third time.
In February, we signed contracts with a foreign leasing house for operational lease of two ordered CRJ-900 aircrafts, which will join our fleet in December �008 and February �009.
With regard to considerably higher rate of inflation in �007 and the increased labour productivity in the company the company management in the beginning of �008 adopted a decision on a general salary raise.
Four new routes were introduced with the summer flight schedule, which becomes effective at the end of March: Stockholm, Oslo, Athens and Bucharest.
The “Open Skies” agreement between the EU and the USA came into force on �0 March �008. We anticipate that liberalisation of this market will eventually cause reduction in prices of air fares as a result of stronger competition - especially on the routes between the London-Heathrow airport and the USA the competition is growing, and as a consequence it is increasing also on the USA connections from other European cities. Lower prices mean more demand, which means that in long-term more passengers who are travelling between the USA and Slovenia will be carried also to/from Slovenia on connection flights from/to European hubs.
As an official airline operator during the time of the Slovenian Presidency of the EU, we expect more passengers on our flights, especially between Ljubljana and Brussels, but also from other European destinations. A part of this increase is reflected in the ��% increase of the number of passengers on our scheduled flights in the first trimester of �008.
We are continuing the process of fleet optimisation and expanding capacities: from April, we have leased a Fokker �00 including crew for the season, and we included again the second Airbus-��0 in own operation.
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14. Plans for the future
The key factors of the company’s operationIn the next period, Adria Airways intends to dedicate much attention to its customers and business partners. Relatively quick growth of air traffic in Europe and the world requires that airline operators increasingly adjust to the needs of the market. Aviation activity is no longer just transport of passengers from one destination to another; it is providing services and offer which enables a partnership relations between the airline company and the users of aviation services.
In �007, Adria already signed contract for additional fleet adjustment. New CRJ-900 aircraft as well as a CRJ-�000 aircraft will complement the Adria Airways fleet in the next three operating years. At Adria, we are aware of the fact that growth will be enabled by adapting to the needs of the market and rationality of the operation.
In �008, we will also complete the stage of introducing electronic ticket. We will adjust our services to our more demanding partners; introducing the “WEB Checkin” and special access passage for VIP clients is a step in that direction. In the continuation, we are planning direct communication with our passengers and introduction of modern communication tools, such as: internet communication, communication via telephone portals, and informing passengers of flight adjustments via SMS messages. An important contribution to adapting to the needs of the market will be also expansion of capacities in aircraft maintenance. In �008, we are planning to complete the construction of additional third hangar for aircraft maintenance, and increase productivity and competitiveness by training additional staff.
Adria will also achieve additional expansion and increased competitiveness and productivity by expanding resources to provide operative activities in aviation. Namely, in addition to the already mentioned expansion of the fleet, we will in �008 also continue with training and educating captains and new co-pilots, as well as cabin staff. We expect that with these measures we will considerably reduce the gap between the needs of the market and the available capacities of our company also in this area.
An important factor will be introduction of new routes, which should meet the demand of our clients. In �008, we will therefore strengthen our presence in Scandinavia (Stockholm, Oslo) and in the Balkans (Athens, Bucharest), which will strengthen our position as one of the biggest operators in the Balkans area and connect it crucially to the Scandinavian countries via our network of flights.
Not least, we are planning to merge the operations of the company Adria Airways into an integrated whole in �008. By moving the offices of the management and support
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activities to the Brnik location, we will surpass the fragmentation and ensure higher efficiency of the company’s employees, and significantly adapt the capacities to the needs of the growing company.
A result of all activities listed above are the following physical and financial planning indicators of business performance:
A result of all activities listed above are the following physical and financial planning indicators of business performance:
• In �008, we are planning a total of �8,��0 flights, which is �9% more than in �007 and ��,��6 hours flown, a ��% increase compared to �007.
• In �008 we are planning to carry �,��5,07� passengers on scheduled and charter flights, which is a �7% increase over �007.
• We plan a total of �6,078 scheduled flights, a ��% increase compared to �007 and �9,0�� hours flown, a �5% increase over �007.
• We will carry a total of �,���,�7� passengers on scheduled flights, which is ��% more than in �007 and achieve 65.8% passenger cabin efficiency, � percentage points better than in �007.
• In the sphere of cargo transport, we will focus only on cargo transport on the company’s scheduled flights.
• We will preserve the share of revenue from aircraft maintenance for third parties, and with construction of the hangar obtain new capacities for the future.
• In �008, we are planning profit in the amount of 0.7 million EUR, which is also in compliance with the company’s long-term plan until �0��.
• The year �008 will be marked mainly by expansion of scheduled flights, introduction of four new routes and increase in frequencies on the existing routes.
• We will also face the challenges of high oil prices and an increase of other prices, according to the increased rate of inflation. It will be of extreme importance to know how to adjust to the price pressure occurring on the side of the costs also on the side of the revenues, and complete the year with the planned net profit.
Expectations for the sector in 2008 (summary from IATA)Forecasts for �008 are increasingly careful, especially because of the increasing fuel prices, broader impact of the financial crisis in the USA, increased number of delivered new aircrafts and economic uncertainty. Higher costs will strengthen the pressure causing growth of air transport prices, but the latter will be difficult to implement in case of reduced demand and an increase of available capacities. Growth in demand will probably not reach the level of �007, although most airline operators expect an increased number of passengers.
Liberalisation will contribute to further strengthening of competition, which will intensify the difficulties to raise prices. In Europe the prices in the segment of domestic and
70
regional flights are expected to rise between �% and 5%, depending on the market. A reduction in profitability of the aviation industry as a whole is expected, because the air carriers will find it difficult to continue to achieve improved cost efficiency based on non-operational costs, while the operational costs will grow.
International demand for passenger air transport should increase in average by 5.�% per year, which is less than in the period �00�-�006 when the average growth was 7.�% - the main reason being slightly lower anticipated economic growth. International traffic in Europe is in the next years expected to rise in average by 5%; growth rates will be higher in the markets of the Eastern European countries.
Because of the needs for further search for synergy effects, further consolidation is expected in Europe and the USA, as a consequence of take-overs and mergers of airline operators; also strategic partnerships, as an important factor of competition, will strengthen.
7�
We make progress.We always find room for motivated profes-sionals and also for more powerful, larger airplanes. There isnever too many of us.
7�
7�
15. EmployeesHuman resources structure and growth of employmentAdria is distinguished for its highly competent and flexible colleagues. All the objectives that we set in the past two years would not be achievable if it weren’t for the abilities and expertise of the employees, who provided flexibility and were of support in daily challenges on the aviation industry and especially flexibility of the fleet and flight operation.
Company’s business difficulties and as a consequence the human resource policy until �005 caused a huge gap especially among operational staff (pilots, mechanics) because the key guideline was to reduce the number of employees at all cost. Optimisation of costs at the expense of additional functional education of employees also caused a deficiency of adequately trained operational employees and dependence on more expensive hired foreign workforce.
In �006, we started to employ at a high pace operational staff to support expansion of the fleet and the flight network (pilots, cabin staff, direct sale) and aircraft maintenance (aviation mechanics and engineers). The year �007 was marked by intense additional employing and functional training of those two categories of employees, in order to close the gap as soon as possible and ensure optimum structure and competence of the key segment of workforce.
�50
�00
�50
�00
�50
�00
50
0
Growth of employment in 2006 and 2007 per categories of employees
2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007
Pilots Cabin staff Mechanics Other
Structure of employees in �006 and �007As evident from the chart, in the past two years we recorded the highest growth of employment in the sphere of aircraft maintenance, then in flight operations and direct sales personnel, while the number of employees in support services is being reduced. We are reducing the number of employees in support services by outsourcing the activities which don’t directly support the company’s principal activity, and by soft methods of disemployment.
Sustainability report
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7�
0
�0
�0
6
0
80
�
00% Pilo
ts
Cab
inst
aff
Mec
hani
cs
Oth
er
�005 �006 �007
Structure of employees in 2006 and 2007
Increased employment of young personnel also contributes to the company “growing younger”, as the average age of the employees, which was at the end of �005 ��.8� years, is constantly falling and it was ��.55 years in �006 and �0.�� years at the end of �007.
Educational structure
Comparison of educational structure in 2001, 2005 and 2007
Level ofeducation
primaryschool
secondaryvocational
secon-dary
two-year tertiary
four-year tertiary
university masters doctorate
Year �00� 6% �8% �7% ��% �% ��% /
Year �005 �% �0% ��% ��% 5% �6% �% /
Year �007 �% 7% ��% ��% ��% �5% �% /
Educational structure is constantly improving, becoming higher and approaching the desired; the highest was the growth of employees with completed secondary and four-year tertiary level of formal education. With regard to the planned fleet expansion, we will accelerate functional education for younger operative staff in technical maintenance and flight operation.
Human resources developmentAt the end of �007 we implemented a new human resources information system (KADRIS); in the beginning of �008 a new system of calculation of salaries (SPIN) will be set up and the system for registering working hours will be upgraded. We are also planning integration of all other subsystems related to employees, resulting in high savings as a result of improved transparency of data, labour cost and optimisation of planning, managing and monitoring work of the employees.
With modern information systems, we will also obtain tools to monitor employees’ efficiency and development, such as planning objectives for individual’s working tasks, annual interviews, optimised planning of working time, planning education and career development.
The human resource department prepared in �007 a programme of development and building relations with employees and external interested public.
We have set up new forms of communication with employees, the so-called management open days, where the colleagues may directly bring forward issues and initiatives which the management addresses individually. We have also set up an interactive intranet page with more contents for communication with and among the employees, which also provides various possibilities of informing and communicating. But still, personal communication is indispensable, at workplaces, department and sector meetings, monthly sessions of the workers’ council, annual assembly of all employees, as well as informal socialising at the summer picnic and New Year’s party, where we celebrate our collective achievements.
Sustainability report
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In �007 we performed a study of organisational climate and employees’ satisfaction (SIOK) which showed certain distinctive advantages at Adria Airways, and also certain challenges that the organisation is facing. In general, the employees’ assessment of the climate and satisfaction was considerably more positive than in �00�, which speaks of a more positive energy in the company. Relations between employees improved, as well as trust in the mission and future, communication among the managers and employees, and satisfaction, both with the company’s management as well as with the direct superior. Challenges remain in the sphere of satisfaction with working conditions, systems of management and training.
All the measures in the field of safety and health at work were implemented. Annual average of sick leave was within the Slovenian average and lower than the year before. We performed regular and special periodic health checks, additional vaccinations for the employees and education in the sphere of safe work and healthy lifestyle.
Joint success of the employees in consolidating the business operations and successful restructuring of the company contributed to better recognition of the company; in �007 we were presented a prestigious award which placed us among �0 most prominent employers in Slovenia. This is our confirmation and commitment to strengthen and establish the company’s organisational culture, which will preserve the reputation that was created, also in the future.
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We are a part of the environment. Natural and social. We responsibly maintain good relations with both. By taking exemplary actions, we constantly grow also in the eyes of others.
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16. EnvironmentAdria Airways is an environmentally aware company. We are actively working towards continuously reducing fuel consumption, towards reducing gas emissions and reducing noise. All the aircrafts in our fleet comply with ICAO (International Civil Aviation Organization) environmental and other requirements. Both types of engine used by Adria fleet aircraft operate within 70% of the permitted values of gas and smoke emissions laid down by ICAO.
0,080,070,060,050,0�0,0�0,0�0,0�0,00
Fuel consumption in t/000 passenger km
�99� �99� �99� �995 �996 �997 �998 �999 �000 �00� �00� �00� �00� �005 �006 �007
Regardless of the small share of air traffic in CO� burdening of the environment, Adria committed years ago to reduce the burden by reducing consumption of fuel. Adria used the programme of fuel consumption reduction which was prepared at IATA. Most recommendations of the programme were complied with already before, but after statistical processing of the data for representative flights the use of fuel fell by a few percent. The programme includes measures to control fuel decantation, aircraft maintenance and technique of flying.
In the process of aircraft maintenance we are using various chemicals which are mainly built into an aircraft and do not burden the environment. Chemical substances are specific (and are used solely to service our own aircrafts and aircrafts of foreign air carriers - our clients. We have in the company staff trained in this area, which takes care of yearly reports on import of these substances into the country, safe storing and regular collection and disposal of waste, which is for Adria Airways performed by an organisation registered to perform that. Workers who come into contact with these chemicals undergo formal courses in familiarisation with hazardous chemicals, the conditions of their storage and procedures and guidelines for first aid in the event of an accident at work with chemicals. Technological wastewaters originating in the process are treated at own wastewater treatment facility for technological water (separation of oils and grease, coagulation, neutralisation, flocculation - silt), and afterwards they are led to biological treatment facility which is joint for the whole airport.
We separate paper from other waste and it is removed for recycling. In the process of management of documentation we are trying to manage and archive documents in electronic form. Manuals and instructions required for smooth performance of the processes are distributed over the intranet and internet for the clients at external
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airports. We have achieved additional contribution to rationalisation of our business operations with implementation of electronic ticket and web check-in.
In the process of supplying the passengers on board of aircrafts we separate waste, and in choosing packaging we give preference to bio-degradable materials.
17. Relations with wider social environmentSince its inception, Adria Airways, the Slovenian national airline operator, has been a closely connected part of the social environment in which we operate. We are aware of our responsibility to the broader social environment and we participate in a variety of projects at local and national level. We cooperate with groups, organisations and individuals with whom we share common values through donations and sponsorships, and by that we develop a responsible attitude to issues of general and specific interest in the society. We try to maintain such attitude as part of our corporate culture. Our contribution is mostly in form of assistance in travel cost, by which we help in organisation of events, meetings, projects which are of general importance for the society. Our activities in �007 were:
• We participated in humanitarian activities to help socially endangered children and families; among other we donated to the Slovenian Red Cross, Karitas, the Slovenian Army, the Scientific Research Centre SAZU and we joined the project Floods (Poplave) �007.
• We took part in the projects organised by Unicef and the Amnesty International of Slovenia, and supported the projects/events for children and adolescents Študentska arena, Lunin festival, Pikin festival and others.
• In the sphere of culture, we supported renowned events such as Festival Ljubljana, Lent, Carlos Kleiber memorial centre, Frankfurt Book Fair, Days of poetry and wine Medana, as well as the projects Ekran film school at Liff, the Stara gara Institute, Kiberpipa, Code Sign - Robovox and others that create modern culture or follow the new art trends.
• In the sphere of sports we have successful collaboration with the Slovenian Olympic Committee, the Slovenian Football Association and the Slovenian Athletics Association on the national level, and we always support also several smaller amateur events in the sphere of aviation, sports and dance.
• Since September �007 we have been participating in the government project Slovenian Presidency of the EU.
• We have supported more than a dozen international presentations and con-gresses in the field of business, medicine, culture, education and sports as their official air carrier.
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8�
18. Corporate communicationThe corporate communication department strives for effective communication with a variety of target audiences associated with the company: internal and external public - the media, passengers, business public, decision makers, financial public and others. Parts of our public are interconnected; after all, we are all our potential passengers.Our goal is to, through our activities, contribute as much as possible to implementation of business objectives and to growing reputation of our company thus contributing to its successfulness. Our attention is also devoted to current issues in aviation. Our principles in communication are: openness, advancing cooperation, transparency, bi-direction, quick responsiveness and sustainability.
Corporate communication in �007 was highly proactive, in compliance with the management’s guidelines. Throughout the �007 we approached our internal and external public with help of numerous communication tools and performed several activities and events.
We prepared two press conferences in �007, in February the annual press conference, where we presented business performance of the previous year and the guidelines for �007, while in September, upon purchase of the simulator, we introduced to the media and partners the Flight school.
When we set up a new flight connection to Kiev, we prepared an opening flight in collaboration with the Ukraine International Airlines, to which we invited our business partners and the media. In May we attended the celebration of the �0th anniversary of the Star Alliance association in Copenhagen and with a special offer on Adria flights joined the global promotion activity of the alliance. We communicated considerably about the success of our maintenance centre and the new aircrafts in our fleet. The new aircrafts were presented via press releases, at the event for tour operators, as well as at an official event for journalists, business public and general public at the end of May.
In September �007, Adria Airways acceded to the government project Slovenian Presidency of the EU as a partner company. The collaboration from � December �007 until �0 June �008 comprises transport and including the PEU symbols in the image of the Adria Airways fleet.
We also communicated about topics which are common to the aviation sector, European airline companies and the members of the association - this is performed in collaboration with IATA, AEA, ERA and the Star Alliance association.
We renewed Adria’s intranet in �007, which is now more transparent and user friendly. We have invited representatives of all departments as administrators. Adria’s intranet pages became a daily address for the employees; they get there the information which they need at their work, information on what is going on in the company and topics of interest in the sphere of aviation. We have also performed two yearly meetings of all
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employees. A novelty in communication with the employees are monthly meetings with the management, Management Open Days, at which the employees may exchange their thoughts on the work processes and activities in the company with the management.
Adria Airways received a certificate of a prominent employer in �007. In an extensive study, performed by the company Moje delo throughout 8 months, �� companies were awarded a certificate of a prominent employer. The mentioned study is the first in Slovenia to focus on how a company is accepted by its employees and how satisfied the employees are with the company where they work. The study assesses company’s reputation also externally, which means that it establishes how the company is perceived as an employer by the job market. Adria Airways’ reputation grew considerably in the past year; according to the business reputation survey, which is performed by the company Kline & Partner every year, it jumped from 7�th place in the last year to the 5�nd place this year.
19. Passenger satisfactionPassenger satisfaction is measured twice a year with an opinion poll on a representative sample of all Adria Airways flights, which were performed in June and November. Passengers assess �� different components, from the first contact with the sales personnel until exiting the aircraft, as well as suitability of flight schedule and airport services. The results showed in average slightly lower grades than in both measurements in �006, but still our services are assessed extremely positively. The autumn measurement delivered higher grades than the measurement in the spring. We estimate that majority of lower grades are a consequence of renovation work at the Jože PuŠnik Airport Ljubljana, which were undergoing at that time. The last comparison of the index satisfied/unsatisfied passengers shows an increase of satisfied passengers. Among all passengers who expressed positive or negative opinion with regard to Adria’s services, in average 9�% expressed positive opinion and only 8% of passengers expressed negative opinion. The highest improvement was reached in personnel efficiency and friendliness upon purchase of a ticket, check-in efficiency and cabin staff efficiency and friendliness. Lower than in previous measurements are the grades for quantity and quality of meals, business lounge comfort, and comfort of the seats and baggage compartment; the latter is unfortunately because of our fleet composition.
At our Passenger Relations Centre we are aware that our response to the, mainly negative, experiences that they communicate may have a decisive influence on the passengers’ satisfaction with our company and their future choice of air carrier. Passengers are well informed of their rights in case of a flight delay / cancellation, and the number of compensation claims per year is still growing since the implementation of the European Decree �6�-�00� in February �005. In �007 we solved �80 written complaints with compensation claims, ��% more than in �006. �0% of received complaints were solved within the compensation claim commission, which met 9 times
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in the past year. We paid indemnities in the amount of 55.6�5 EUR, which is �% less than in �006. In cases when passengers are not entitled to an indemnity, but they experienced major inconvenience at travel, we use also other manners of damage compensation. In �007 we therefore awarded 56 business class coupons and added 65,000 miles to the accounts of twenty M&M members. We also replied to complaints, remarks or various requests for information which we receive by email. We delivered �60 such explanations in �007, which is 8% less than in �006.
The Passenger Relations Centre report and results of the opinion polls performed on aircrafts are, next to the general trends in the aviation services, the most important source for planning changes or improving our services.
20. Research and developmentWe are continuously developing and enhancing our technical and managerial skills and experience in all areas of civil aviation.
Also in �007 we participated in projects financed by the European Union. We participate in design of new navigational equipment within the FlySafe project. We test the equipment for the producers and advise in the sphere of user-friendliness.
Within the project HILAS we participate as advisors in the analysis of the impact of human factor on the safety of civilian aviation.
We also participate in the project CASAM, which regulates set up of the system for detection and destruction of missiles from the ground in the take-off or landing stage of an aircraft. For over �0 years now, Adria has been cooperating with the Faculty of Mechanical Engineering in Ljubljana. In �00� we signed a new contract with this faculty, as required by the amended legislation (EASA IR). We became a practical education provider for students completing their theoretical studies at the faculty. At our aviation school young pilots can obtain:
• PPL - Private Pilot Licence• CPL - Commercial Pilot Licence• Certification to fly by instruments (IR - Instrument Rating) and• ATPL - Airline Transport Pilot Licence.
The most important acquisition of the educational centre is a new flight simulator, which we already started using for training and selection of our pilots. We also use it for training to fly in instrumental conditions and for beginner training for two-engine aircrafts and for aircrafts which require two pilots.
With regard to the Part-��7 certificate obtained from the Slovenian and British aviation authorities, in the technical education department we are providing training for our own needs and also for foreign clients.
8�
2121. Who’s who, contactsCompany management:
Tadej Tufek, M.Sc., President of the Management Board & CEO / [email protected] Ravnikar, M.Sc., Vice-President of the Management Board / [email protected]
Management associates:
Peter Kolar, M.Sc., Assistant President of the Management Board, CIO / [email protected] Petelin, Management Board Associate for Quality Assurance / [email protected]
Division managers:
Tomaž Kostanjšek, MBA, Director of marketing and sales department / [email protected] Mirjana Tratnjek »eh, Director of aircraft maintenance department/ [email protected] Dejan Slodej, Director of flight operation department/ [email protected] Stopar, Director of finance and accounting / [email protected] Berginc, Director of groundhandling and procurement department/ [email protected] Pirc, Director of organisation and human resources department / [email protected]
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LJUBLJANA, SloveniaKuzmiËeva 7�000 LjubljanaPhone: +�86 (0)� �6 9� 0�0 Fax: +�86 (0)� �� 68 606 E-mail: [email protected]
Adria Airways Sales offices:
Gosposvetska 6�000 LjubljanaCall centre: �6 9� 0�0, 080 �� 00Phone: +�86 (0)� �� 9� 9�0 Fax: +�86 (0)� �� �� 668E-mail:[email protected]
LJUBLJANA Jože PuËnik Airport, LjubljanaAdria Airways Sales OfficeCall centre: �6 9� 0�0 080 �� 00Phone: +�86 (0)� �5 9� ��5Fax: +�86 (0)� �� 6� �6�E-mail: [email protected]
AMSTERDAM, NetherlandsAdria Airways, NetherlandsP.O. Box 756�����8 ZR Schiphol TriportPhone: +�� �0 6�5 �� ��Fax: +�� � 75� �� �7E-mail: [email protected]
Airport Ticketing Desk Amsterdam Schiphol AirportGlobeground Ticketing Desk Terminal �, opposite check-in row �0 Phone: +�� �0 79 5� 600 Fax: +�� �0 79 5� 60� E-mail: [email protected]
ATHENS, GreeceAdria Airways,General Sales AgentZEUS KOMPAS S.A., 57� Vouliagmenis Ave & Karaiskaki, �6� 5� Athina ArgiroupolisPhone: + �0 �� 09 9� 7�6�,Fax: + �0 �� 09 9� 7�88,E-mail: [email protected]
BARCELONA, SpainAdria Airways,General Sales AgentKompas SpainC/ Paris, �6�-�6� Entlo �a
080�6 Barcelona Phone: + �� 9� ��6 67 77Fax: +�� 9� ��5 �� 88E-mail: [email protected]
BRUSSELS, Belgium Adria AirwaysBrussels Airport — Box ��9�0 ZaventemPhone: +�� (0)� 75 �� ��6Fax: +�� (0)� 75 �� ��7E-mail: [email protected]
Adria Airways Ticket Desk Airport Zaventem / Brussels Phone: +�� (0)� 75 �� ��7
BUCHAREST, RomaniaAdria Airways, General Sales Agent CORPORATE STUDY TURISM SRLB-dul Dimitrie Cantemir nr. �0, BI. 8,ap. 65, Sect. �Cod postal: 0�0��5,BUCURESTI- ROMANIAPhone/Fax: + �0�� ��5 �� �0E-mail: [email protected] [email protected]
COPENHAGEN, DenmarkAdria AirwaysRepresentative and InformationAntello AB, Tings Gatan ��56 56 Helsingborg, SWEDENPhone: +�6 (0)�� �8 �7 78Fax: +�6 (0)�� �� �7 78Mobil: +�6 708 �8 �7 78 E-mail: [email protected]
Adria Airways Airport Ticket DeskCopenhagen AirportTerminal �, Floor �, Office ��0�770 Kastrup, DenmarkPhone/Fax: +�5 (0)�� 5� 59 59Mobil: +�6 708 �8 �7 78E-mail: [email protected]
FRANKFURT, GermanyAdria Airways Frankfurt Airport Terminal �,Building �0�, Room �0�. �0��/�0��P.O.Box 0�9,605�9 Frankfurt am MainPhone: +�9 (0)69 �69 56 7�0, �69 56 7�� Fax: +�9 (0)69 �69 56 7�0E-mail: [email protected]
Adria Airways Airport Ticket DeskFrankfurt Airport, Terminal �, Hall B Sales Desk �07P.O.Box 0�9,605�9 Frankfurt am Main Phone +�9 (0)69 �69 56 7��
ISTANBUL, TurkeyAdria Airways General Sales AgentOrdu Cad No. �06/� ���70 Laleli, IstanbulPhone: +90 (0)��� 5� �� ���Fax: +90 (0)��� 5� �� ���, 5� �5 ��6E-mail: [email protected]
KIEV, UkraineAviarepsChervonoarmijska st. 9/�Office number �0�00� Kiev, UkrainePhone: +�8 0�� �87 07 �7Fax: +�8 0�� �90 65 0�E-mail:[email protected]
Adria AirwaysBorispol International AirportTicketing agent: Aquavita Phone: +�8 0�� ��0 00 �9, ��0 00 50Fax: +�8 0�� ��0 00 �8E-mail: [email protected]
LONDON, United KingdomAdria Airways�9 Conduit StreetLondon W�S �YSPhone: +�� (0)�0 7 7� �� 6�0, 7 �� 70 ���Fax: +�� (0)�0 7 �8 75 �76E-mail: [email protected]
22 22. Adria offices and points of sale
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Adria AirwaysLondon Gatwick AirportSkybreak - Ticketing AgentNorth Terminal, Zone APhone: +��(0)��9�507�8�Fax: +�� ��9� 6090�0Reservations: 0��9� 555707
MOSCOW, RussiaAdria Airways Derbenevskaja ���� ��� MoscowPhone: +7 �95 7�7 08 85 Fax: +7 �95 7�7 08 88E-mail: [email protected]
Adria AirwaysSheremetyevo Airport6th Floor, Room Nr. �� (6.��)Phone: 7 �95 578 80 ��
MUNICH, GermanyAdria AirwaysAirport Munich, Terminal �Reisemarkt Süd, Ebene 0�, Raum 67�8 (counter �55, �56)85�56 München-FlughafenP.O. Box ������, 85��� MünchenPhone: +�9 (89) 97 59 �� 9� Fax: +�9 (89) 97 59 �� 96E-mail: [email protected]
OHRID, MacedoniaAdria Airways, Town OfficeAAM, General Sales Agent Phone: + �89 (0) �6 �6 �0 �6Fax: +�89 (0) �6 �6 �0 7�E-mail: [email protected]
Adria Airways Ticket Office Ohrid Airport Phone: + �89 (0) 70 �6� �9�Fax: + �89 (0) �6 �60 �67E-mail: [email protected]
OSLO, NorwayAdria AirwaysRepresentative and InformationAntello AB, Tings Gatan ��56 56 Helsingborg, SwedenPhone: +�6 (0)�� �8 �778Fax: +�6 0)�� �� �778Mobil.: +�6 708 �8 �778E-mail: [email protected]
PARIS, FranceAdria Airways9� rue Saint Lazare75009 ParisStaircase A, �nd floorPhone: +�� (0)� �7 �� 95 00 Fax: +�� (0)� �7 �� 00 67 E-mail: [email protected]
PODGORICA, Montenegro Adria Airways,Authorised agencyOki Air International, Ivana VujoševiÊa �68�000 PodgoricaPhone: +�8� (0) �0 �0� �0�Phone & Fax: +�8� (0) �0 ��� �5�Mobil: +�8� (0)67 �� �� 5�E-mail: [email protected]
Adria Airways Ticket Office Podgorica Airport OKI AIR INTERNATIONALPhone & Fax: +�8� (0) �0 6�� ���Mobil: +�8� (0)67 �� �� 5�E-mail: [email protected]
PRISTINA , Republic of Kosovo Adria Airways,Authorised agencyAdria Airways Kosovo L.L.CQamil Hoxha Nr. ��,�8000 PrištinaPhone: �8� (0)�8 ��6 7�6Phone: & Faks: �8� (0)�8 ��6 7�7E-mail: [email protected]
Pristina Airport Ticket officePhone & Fax �8� (0)�8 5� 8� �7Mobil: + �77 �� 50 �� ��
SARAJEVO, Bosnia and HerzegovinaAdria Airways,General Sales AgentFerhadija ��, 7�000 SarajevoPhone: +�87 (0)�� �� �� �5, �� �� �6 Fax: +�87 (0)�� �� �6 9�E-mail: [email protected]
Adria Airways Airport Ticket DeskSarajevo International AirportPhone & Fax: +�87 �� �6� ���E-mail: [email protected]
SKOPJE, MacedoniaAdria AirwaysUlica Dame Gruev, Gradski Zid, blok �/8 �000 SkopjePhone: +�89 (0)� �� �7 009, �� �9 975Fax: +�89 (0)� �� 65 5��E-mail: [email protected]
Adria AirwaysAirport Ticket Office Skopje AirportPhone: +�89 (0)� �5 50 ���
STOCKHOLM, SwedenAdria AirwaysRepresentative and InformationAntello AB, Tings Gatan ��56 56 Helsingborg, SwedenPhone: +�6 (0)�� �8 �778Fax: +�6 0)�� �� �778Mobil.: +�6 708 �8 �778E-mail: [email protected]
TEL AVIV, Israel Adria AirwaysMirus Services (�996) Ltd. General Sales Agent8 Mendele Str.Tel Aviv 6����Phone: +97� (0)� 5� �� �6�Fax: +97� (0)� 5� �0 895
Adria Airways Ticket DeskBen Gurion AirportLaufer Aviation Ltd.Phone: +97� (0)� 97 7� �00Fax: +97� (0)� 97 �� 0��
TIRANA, AlbaniaAdria Airways,Authorised agencyEuropian Trade CenterStreet bajram Curri No. �9Phone:& Fax: +�55 (0) � �7� 666E-mail: [email protected]
VIENNA, AustriaAdria Airways AirportTicket Office��00 Vienna AirportPhone: +�� (0)� 70 07 �6 9��Fax: +�� (0)� 70 07 �6 9��E-mail: [email protected]
WARSAW, PolandAdria Airways, General Sales AgentGlobair Polskaul. Grzybowska �/��00-��� WarszawaPhone: +�8 (0��) ��0 9��5Fax: +�8 (0��) ��0 9�5�E-mail: [email protected]
ZAGREB, CroatiaAdria AirwaysPraška 9, �0000 ZagrebPhone: +�85 (0)� �8 �0 0��, �8 �0 0�6Fax: +�85 (0)� �8 �0 008E-mail: [email protected]
ZURICH, SwitzerlandAdria AirwaysLoewenstrasse 5�/II.,800� ZurichPhone: �� (0)�� �� �6 �9�,�� �6 �9�Faks: �� (0)�� �� �5 �66E-mail: [email protected]
Adria Airways Airport Ticket Office, Airport ZurichTerminal B-�-5��Phone: �� (0)�� 8� 6� ��7
Purchase tickets online:www.adria-airways.com
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FINANCIAL STATEMENTS
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Table of contents
1. General information ................................................................................... 922. Statement of Responsibility of the Management Board .............................. 933. Independent Auditors’ Report .................................................................... 944. Financial Statements ................................................................................. 95
4.1. Balance Sheet .................................................................................... 954.2. Income Statement .............................................................................. 964.3. Cash Flow Statement for the year ended 31 December 2007 ............. 974.4. Statement of Changes in Equity for the year ended 31 December 2007 ..... 984.5. Profit/loss available for appropriation ........................................................... 99
5. Summary of significant accounting policies .............................................. 1006. Classifications and notes to the financial statements................................ 110
6.1. Additional disclosures of the balance sheet items .................................. 1106.1.1. Intangible assets and long-term deferred costs ......................... 1106.1.2. Property, plant and equipment .................................................. 1116.1.3. Investment property .................................................................. 1146.1.4. Long-term investments ............................................................. 1156.1.5. Inventories ................................................................................. 1166.1.6. Short-term investments ............................................................. 1166.1.7. Short-term operating receivables ............................................... 1166.1.8. Cash ......................................................................................... 1186.1.9. Short-term deferred costs and accrued revenue ....................... 1186.1.10. Equity ...................................................................................... 1186.1.11. Provisions and long-term accrued costs and deferred revenue 1206.1.12. Financial liabilities .................................................................... 1206.1.13. Long-term operating liabilities .................................................. 1226.1.14. Short-term operating liabilities ................................................. 1226.1.15. Short-term accrued costs and deferred revenue ..................... 1236.1.16. Off balance sheet assets ......................................................... 1246.1.17. Financial instruments ............................................................... 125
6.2. Additional disclosures of the income statement items ............................. 1266.2.1. Net sales ................................................................................... 1266.2.2. Costs of goods, materials and services ..................................... 1276.2.3. Labour costs ............................................................................. 1286.2.4. Write-downs.............................................................................. 1286.2.5. Financial revenue ....................................................................... 1296.2.6. Financial expenses .................................................................... 1296.2.7. Income tax ................................................................................ 1306.2.8. Net profit ................................................................................... 130
7. Other disclosures .................................................................................... 1317.1. Information on groups of persons ........................................................ 131
8. Events after the balance sheet date ......................................................... 1319. Financial Statements − expanded format ................................................. 132
9.1. Balance Sheet — expanded format under SAS ................................ 1329.2. Income Statement - expanded format under SAS ............................ 134
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1. General information
Company Profile
ADRIA AIRWAYS d.d.KuzmiËeva 71000 LjubljanaSlovenija
Nature of business and primary activities
• The two most significant lines of business of Adria Airways d.d. are scheduled air transport and charter air transport. In addition, the Company is involved in the transport of cargo, aircraft servicing for third parties, aircraft charter, and training of aircraft personnel.
Employees
• Number of employees at 31 December 2007: 679• Average number of employees per groups in terms of professional qualification:
Professional qualification level I. II. III. IV. V. VI. VII. VIII. IX. Total
Total - 11 3 51 295 143 172 4 - 679
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Marjan Ravnikar M.Sc. Vice President of theManagement Board
Tadej Tufek M.Sc.President of the Management Board & CEO
2. Statement of Responsibility of the Management Board
The Management Board has approved the financial statements for the financial year ended 31 December 2007 on pages 95 to 99 and pages 132 to 135, and the accounting policies and notes to the financial statements on pages 100 to 131 of the annual report.
The Management Board is responsible for the preparation of the annual report that gives a true and fair presentation of the financial position of the Company and of its financial performance for the year ended 31 December 2007.
The Management Board confirms that the appropriate accounting policies were consistently applied, and that the accounting estimates were made under the principle of prudence and the diligence of a good manager. The Management Board also confirms that the financial statements and notes thereof have been compiled under the assumption of a going concern, and in accordance with the current legislation and Slovene accounting standards.
The Management Board is also responsible for the appropriate accounting system and adoption of measures to secure the assets, and to prevent and detect fraud and other irregularities and/or illegal acts.
May 2008
2
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3. Independent Auditors’ Report3
94
4. Financial Statements4.1. Balance Sheet1
(EUR) Notes 31. 12. 2007 31. 12. 2006
Assets 159,765,355 122,650,230
A/ Long-term assets 128,951,669 99,807,912
I. Intangible assets and long-term deferred costs and accrued revenue 6.1.1. 2,430,510 909,523
II. Property. plant and equipment 6.1.2. 124,988,964 97,420,155
III. Investment property 6.1.3. 230,191 238,454
VI. Long-term investments 6.1.4. 854,234 861,688
V. Long-term operating receivables 447,770 378,092
B/ Current assets 30,030,436 21,961,897
I. Assets (disposal groups) held for sale 70,401 —
II. Inventories 6.1.5. 5,041,630 3,911,855
III. Short-term investments 6.1.6. 128,974 163,136
IV. Short-term operating receivables 6.1.7. 23,748,839 16,926,682
V. Cash 6.1.8. 1,040,592 960,224
C/ Short-term deferred costs and accrued revenue 6.1.9. 783,250 880,421
Off balance sheet assets 6.1.16. 114,424,571 77,113,061
Equity and liabilities 159,765,355 122,650,230
A/ Equity 6.1.10. 40,304,957 29,711,463
I. Called-up capital 6,782,156 3,390,235
II. Capital surplus 28,180,234 20,604,269
III. Revenue reserves 6,493,712 6,281,076
IV. Revaluation surplus -1,363,781 -564,117
V. Retained earnings — —
VI. Net profit of the year 212,636 —
B/ Provisions and long-term accrued costs and deferred revenue 6.1.11. 1,543,735 1,550,417
C/ Long-term liabilities 80,926,369 56,424,942
I. Long-term financial liabilities 6.1.12. 80,916,141 56,414,714
II. Long-term operating liabilities 6.1.13. 10,228 10,228
D/ Short-term liabilities 35,117,549 34,748,006
II. Short-term financial liabilities 6.1.12. 9,828,864 11,312,727
III. Short-term operating liabilities 6.1.14. 25,288,685 23,435,279
E/ Short-term accrued costs and deferred revenue 6.1.15. 1,872,745 215,402
Off balance sheet liabilities 6.1.16. 114,424,571 77,113,061
The notes are a constituent part of the financial statements.1 For the expanded version of the balance sheet, refer appendix 9.1.
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4.2. Income Statement2
(EUR) Notes 2007 2006
1. Net sales 6.2.1. 179,175,624 152,348,903
2. Production costs of goods sold (including depreci- ation and amortisation) or cost of goods sold 6.2. 155,686,325 133,788,357
3. Gross profit from sales 23,489,299 18,560,546
4. Selling costs (including depreciation and amortisation) 6.2. 16,742,141 16,434,331
5. General and Administrative Expenses (including Amortization and Depreciation) 6.2. 4,336,829 3,805,458
6. Other operating revenue (including revaluation operating revenue) 6.2. 1,763,181 2,430,709
7. Financial revenue from shares and interests 6.2.5. 96,063 191,616
9. Financial revenue from operating receivables 6.2.5. 811,725 515,957
10. Financial expenses due to impairment and write-off of investments 6.2.6. — 170,406
11. Financial expenses for financial liabilities 6.2.6. 4,255,204 2,828,401
12. Financial expenses for operating liabilities 6.2.6. 81,584 96,716
13. Other revenue 151,600 1,892,952
14. Other expenses 470,838 186,367
15. Income tax — —
17. Net profit or loss of the year 6.2.8. 425,272 70,101
The notes are a constituent part of the financial statements.
2 For the expanded version of the Income statement, refer appendix 9.2.
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4.3. Cash Flow Statement for the year ended 31 December 2007
No (EUR) 2007 2006
A/ Cash flows from operating activities
a) Cash flows derived from the income statement items 14,328,407 9,937,669
1. Operating revenue (except from revaluation) and financial revenue from operating receivables 180,145,724 154,927,378
2.Operating expenses excluding depreciation and amortisa-tion (except from revaluation) and financial expenses from operating liabilities
-165,817,317 -144,989,709
3. Income tax and other taxes not included in operating expenses — —
b)Changes in net operating assets in balance sheet items (including accruals and deferrals, provisions and deferred tax assets and liabilities)
2,562,507 -3,427,474
1. Opening less closing operating receivables -6,625,829 -1,188,036
2. Opening less closing deferred costs and accrued revenue 97,171 196,324
3. Opening less closing deferred tax assets — —
4. Opening less closing assets (disposal groups) held for sale -70,401 —
5. Opening less closing inventories -1,129,775 -478,580
6. Closing less opening operating liabilities 8,640,680 -1,043,916
7. Closing less opening accrued costs and deferred revenue, and provisions 1,650,661 -913,266
8. Closing less opening deferred tax liabilities — —
c) Net cash from operating activities (a+b) 16,890,914 6,510,195
B/ Cash flows from investing activities
a) Cash receipts from investing activities 3,705,138 2,644,930
1. Interest and dividends received from investing activities — —
2. Cash receipts from disposal of intangible assets — —
3. Cash receipts from disposal of property, plant and equi-pment 3,662,899 2,384,260
4. Cash receipts from disposal of investment property — —
5. Cash receipts from disposal of long-term investments 7,454 102,725
6. Cash receipts from disposal of short-term investments 34,785 157,945
b) Cash disbursements from investing activities -49,388,996 -10,753,201
1. Cash disbursements to acquire intangible assets -1,992,559 -855,821
2. Cash disbursements to acquire property, plant and equi-pment -47,289,474 -9,638,558
3. Cash disbursements to acquire investment property — —
4. Cash disbursements to acquire long-term investments — -2,500
5. Cash disbursements to acquire short-term investments -106,963 -256,322
c) Net cash from investing activities (a+b) -45,683,858 -8,108,271
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4.4. Statement of Changes in Equity for the year ended 31 December 2007
C Cash flows from financing activities
a) Cash receipts from financing activities 79,552,691 27,015,356
1. Cash proceeds from paid-in capital 10,967,886 —
2. Cash proceeds from increase in long-term financialliabilities 34,313,012 6,813,537
3. Cash proceeds from increase in short-term financialliabilities 34,271,793 20,201,819
b) Cash disbursements from financing activities -50,679,379 -24,963,178
1. Interest paid on financing activities -4,248,871 -2,048,272
2. Cash repayments of equity — —
3. Cash repayments of long-term financial liabilities -7,244,684 -5,822,826
4. Cash repayments of short-term financial liabilities -39,185,824 -17,092,080
5. Dividends and other profit shares paid — —
c) Net cash from financing activities (a+b) 28,873,312 2,052,178
d) Closing balance of cash 1,040,592 960,224
1. Net cash inflow or outflow for the period (sum total of Ac, Bc and Cc) 80,368 454,102
2. Opening balance of cash 960,224 506,122
Calle
d-up
cap
ital
Capi
tal s
urpl
us
Revenue reserves
Reva
luat
ion
surp
lus
Net p
rofit
or l
oss
Total
(EUR)
Sha
re c
apita
l
Sta
tuto
ryre
serv
es
Oth
erre
venu
ere
serv
es
Net
pro
fit
of th
e ye
ar
A. Balance at 31 December 2006 3,390,235 20,604,269 561,472 5,719,604 -564,117 — 29,711,463
B. Movements to equity
d) Additional paid-in capital 3,391,921 7,575,965 — — — — 10,967,886
e) Net profit of the year — — — — — 425,272 425,272
e) Increase in revaluation surplus — — — — 64,598 — 64,598
C. Movements within equity
a) Allocation of net profit based on decision of the Management Board and Supervisory Board
— — 212,636 — — -212,636 —
D. Movements from equity d) Decrease of revaluation surplus — — — — -864,262 — -864,262
E. Balance at 31 December 2007 6,782,156 28,180,234 774,108 5,719,604 -1,363,781 212,636 40,304,957
NET PROFIT/LOSS AVAILABLE FOR APPROPRIATION -212,636 425,272 212,636
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Statement of Changes in Equity for the year ended 31 December 2006
4.5. Profit/loss available for appropriation
Profit available for appropriation (EUR) 2007 2006
Net profit of the year + 425,272 70,101
Loss brought forward - — 1,559,105
Decrease in other revenue reserves + — 1,489,004
Increase in revenue reserves - 212,636 —
Profit available for appropriation 212,636 —
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Called-up capital
Capital surplus Revenue reserves
Reva
luat
ion
surp
lus
Reta
ined
ea
rnin
gs
Net profit or loss
Capital revaluation adjustment Total
(EUR)
Sha
re c
apita
l
Sta
tuto
ry
rese
rves
Oth
er r
even
ue
rese
rves
Ret
aine
d pr
ofit/
loss
car
ry
forw
ard
Net
pro
fitof
the
year
Gen
eral
cap
ital
reva
luat
ion
adju
stm
ent
Spe
cific
cap
ital
reva
luat
ion
adju
stm
ent
A. Balance at 31 December 2005 3,390,235 15,148,602 561,471 7,208,609 — — — 5,455,667 51,619 31,816,203
B. Transition to SAS 2006 — 5,455,667 — — 51,619 -1,559,105 — -5,455,667 -51,619 -1,559,105
C. Balance at 1 January 2006 3,390,235 20,604,269 561,471 7,208,609 51,619 -1,559,105 — — — 30,257,098
B. Movements to equity
d) Net profit of the year — — — — — — 70,101 — — 70,101
C. Movements within equity
b) Loss settlement — — — -1,489,004 — 1,559,105 -70,101 — — —
D. Movements from equity
d) Decrease of revaluation surplus — — — — -615,736 — — — — -615,736
E. Balance at 31 December 2006 3,390,235 20,604,269 561,471 5,719,604 -564,117 — — — — 29,711,463
NET PROFIT/LOSS AVAILABLE FOR APPROPRIATION
— — — 1,489,004 -1,559,105 70,101 — — 0
5. Summary of significant accounting policies Basis of preparation
• The financial statements in this report and notes thereto have been prepared in accordance with Slovene accounting standards 2006, issued by the Slovenian Institute of Auditors.
• The general rules on the classification of the balance sheet and the income statement items, the valuation of the financial statement items, the content of notes to the financial statements and the requirements with regards to the business report have been applied in the compilation of these financial statements, which is sufficient for true and fair presentation of the Company's performance in the annual report. The fundamental accounting assumptions of accrual and a going concern have also been considered.
• The qualitative characteristics of the financial statements and hence the entire accounting system are primarily understandability, relevance, reliability, and comparability.
• Adria Airways d.d. keeps its analytical records also in accordance with the recommendations of the ICAO (International Civil Aviation Organization), of which Slovenia is a member.
• The financial statements are compiled in the Euro, excluding cents. For reasons of rounding up, calculation differences may occur.
Exchange rate and translation into the local currency• Adria Airways d.d. converts all purchase and sale transactions, investments,
long-term and short-term liabilities, as well as long-term and short-term receivables in foreign currencies into the Euro at the Bank of Slovenia middle exchange rate prevailing on the transaction date, while at the balance sheet date, these are translated at the final Bank of Slovenia middle exchange rate effective on 31 December 2007.
• Exchange rate gains and losses arising from the conversion are recognised in the income statement.
Reporting by business and regional segments• The business segments represent scheduled passenger services, cargo
services, charter passenger services, aircraft servicing for foreign clients, aircraft charter services, and miscellaneous.
• In terms of segment reporting, the Company reports net sales revenue that can be directly attributed to individual segments, while other data is not disclosed.
• The Company has no regional segments.
5
100
Intangible assets• Intangible assets are recognised at costs and are amortised over their useful
life which is a maximum of seven years. The Company holds no assets with indefinite useful life.
• Intangible assets are not restated to account for value gains.
Property, plant and equipment • Property, plant and equipment represent land, buildings, manufacturing plant,
and other equipment. Small tools that are ready for use whose useful life is more than a year and whose individual value does not exceed € 500, are also considered items of property, plant and equipment. The pertaining replacement parts are also classed as property, plant and equipment under construction or being acquired. Equipment acquired under financial lease and depreciated under depreciation rates applicable to equipment of the same or similar class, is also recognised as property, plant and equipment. At the end of the financial lease, the title to the assets is transferred to the lessee.
• The Company applies the cost model whereby property, plant and equipment are carried at cost of purchase, reduced by accumulated depreciation. Property, plant and equipment are depreciated over their useful lives. Depreciation expenses are charged against the relevant operating costs.
• The cost of an item of property, plant and equipment comprises its purchase price and all directly attributable costs to bringing the asset to the condition necessary for the intended use. Subsequent expenditure that enable the extension of useful life of the asset over the originally assessed useful life, reduce the accumulated depreciation. The land is valued at historical cost or assessed cost if the former is not known.
• Property, plant and equipment are derecognised in the books of account and in the balance sheet on their disposal or when they are permanently withdrawn from use as no future economic benefits are expected from them. Proceeds from disposal of property, plant and equipment are recognised as revaluation operating revenue, whilst the present value is recognised as the revaluation operating expense.
• Property, plant and equipment expressed in a foreign currency are converted into the local currency at the Bank of Slovenia middle exchange rate prevailing on the transaction date. Any subsequent exchange rate differences arising on settlement are recognised as financial revenue or expenses.
• Advances for property, plant and equipment are recognised at the notional amounts.
• Interest paid on loans raised for the acquisition and construction of property, plant and equipment is recognised as financial expense.
Amortisation and depreciation expense • The carrying amount of intangible assets and property, plant and equipment is
reduced through depreciation and amortisation. Depreciation and amortisation
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begin on the first day of the month following the month when the asset was made available for its use. Land, advances paid for the assets and assets under construction or manufacture, are not depreciated.
• Amortisation and depreciation are accounted for individually under the straight-line depreciation method applied over the expected useful life of individual assets.
• In the 2007 year, the Company applied the following amortisation and depreciation rates:
(Ne)opredmeteno sredstvo Minimum (%)
Maximum (%)
Intangible assets Software applications 25,00 50,00Property, plant and equipment Real estate Buildings 1,50 2,50 Other structures 2,00 12,50 Plant and equipment Plant - aircraft 4,38 10,00 Plant - replacement parts 10,00 10,00 Other equipment 8,30 20,00 Computer equipment Hardware 25,00 25,00 Motor vehicles Vans and Trucks 12,50 14,30 Cars 12,50 15,50Other property, plant and equipment * small tools 25,00 33,00
Investment property• An investment property is initially measured at cost comprising its purchase
price and any attributable costs of acquisition. After the initial recognition, investment property is recognised under the cost model and depreciated at the annual rate of 2.20%.
Investments
Investments in associates
• Investments in associates are recognised under the equity method. An associate is an entity in which the parent company has a significant influence and which is neither a subsidiary nor a joint venture of the investor. The financial statements of associates provide the basis for the application of the equity method. The reporting date of associates is the same as the reporting date of Adria Airways. All the associates apply unified accounting policies as used by Adria Airways. Investments in associates are recognised in the balance sheet
102
at their cost increased to recognise any changes (following the acquisition) in the equity of the associate and decreased by any impairment of the value. The relevant share of the profit or loss of the associate is disclosed in the profit or loss of the parent company. When the changes are recognised directly in the equity of the associate, Adria Airways recognises the proportionate amount of these changes and discloses any significant changes in the statement of changes in equity.
Investments• Investments of Adria Airways d.d. are classified into the following categories: • Financial assets at fair value through profit or loss, • Investments held to maturity, • Available-for-sale investments, loans and receivables.Investment classification depends on the purpose for which the investment was
made.
Recognition of financial assets• On initial recognition, all investments except for investments designated at fair
value through profit or loss are recognised by Adria Airways d.d. at fair value inclusive of costs directly associated with the acquisition. Investments classified at fair value through profit or loss are recognised at fair value (excluding directly attributable costs of acquisition).
Financial assets at fair value through profit or loss• Financial assets classified as financial assets at fair value through profit or loss
are measured at fair value. Gains or losses on investments classified at fair value through profit or loss are recognised directly in profit or loss. The fair value of investments actively traded on the organised stock markets is the quoted stock market price at the end of trading on the balance sheet date. The fair value of investments in equity instruments that do not have a quoted market price is determined on the basis of a similar financial instrument, or as the net present value of future cash flows expected by Adria Airways d.d. to flow from a certain investment. Purchases and redemptions of financial assets classified at fair value through profit or loss are recognised on the trading day; i.e. the day when the Company makes a commitment to either purchase or sell an individual financial asset.
Investments held to maturity• Financial assets with fixed or determinable payments and fixed maturity that
are not derivative financial instruments are recognised by Adria Airways d.d. as financial assets held to maturity if the Company has the positive intention and ability to hold the investments to maturity. Investments held by the Company for an indefinite period of time are not included in this class. Investments recognised as financial assets held to maturity are measured at amortised
103
cost using the effective interest method. The amortised cost is calculated by allocation of the premium or discount granted on acquisition over the period until the investment maturity. Any gains and losses on investments measured at amortised costs are recognised in the profit or loss (disposal, impairment, or the effects of amortisation of a premium or a discount). Investments classified as held to maturity are recognised on the settlement date.
Available-for-sale investments• After the initial recognition, all investments made by Adria Airways d.d. are
determined as available-for-sale investments measured at fair value or cost, if the fair value cannot be reliably determined. Any gains or losses on available-for-sale investments are recognised in equity as net realised capital gains on available-for-sale investments until the investment is sold or otherwise disposed of. In the event of investment impairment, the impairment is recognised in profit or loss. Purchases and sales of individual investments designated as available-for-sale are recognised on the trading day i.e. the day when the Company makes a commitment to either purchase or sell an individual financial asset.
Investments in subsidiaries and joint ventures• Investments in subsidiaries are recognised by Adria Airways d.d. at cost,
reduced by any impairment loss.
Loans and receivables• Loans and receivables are financial assets with fixed or determinable payments
that are not quoted in an organised market. They include loans and receivables acquired by the Company as well as loans and receivables derived from the Company. Loans and receivables are measured at amortised cost using the effective interest method and are recognised on the settlement date.
• Long-term and short-term investments are reported separately. • Amounts of long-term investments in loans that mature within a period of one
year from the balance sheet date are recognised as short-tern investments.
Receivables• Operating receivables may be long-term or short-term receivables comprising:
trade receivables, other receivables associated with operating revenue, receivables associated with financial revenue, receivables associated with equity payments and other receivables.
• Receivables of all categories are initially recognised at amounts recorded in the relevant documents under the assumption that they will be collected.
• Receivables believed not to be settled or not settled within the set period and which are subject to a dispute are recognised as doubtful and disputed receivables. Allowances of the total amount are made against doubtful and disputed receivables. The likelihood of individual receivable recovery is determined every month and at the end of the year.
104
• Receivables due from foreign legal or natural entities are translated into the local currency on the accrual date. Exchange rate differences arising by the settlement date or the balance sheet date are recognised as financial revenue or expenses.
Taxes
Current tax • Current tax is the amount of income tax Adria Airways d.d. expects to pay to
or recover from the Tax Authorities in respect of the present and past periods. Current income tax payable or recoverable is measured on the basis of tax rates applicable at the balance sheet date.
Deferred tax• Deferred tax assets and liabilities are accounted for under the balance sheet
liability method. Only deferred tax assets and liabilities arising from temporary differences are recognised. At the balance sheet date, the Company recognised no deferred tax assets or liabilities.
Inventories• Inventories are carried at cost.• The use of materials is accounted for under the FIFO method.• At the year-end, inventories are checked for obsolescence and allowances of
the total amount are made against all obsolete inventories.• Inventory allowances are made to account for inventory value reduction to the
recoverable amount. Inventory allowances are included in operating expen-ses.
Cash • Cash comprises ready cash, deposit money and cash in transit. Ready cash is
cash on hand in the form of bank notes, coins and cheques received. Deposit money is cash in bank accounts or deposited with another financial institution to be used for payments. Cash in transit is the cash being transferred from a cash register to a relevant account in a bank or another financial institution, and is not credited to that account on that same day.
• An item of cash is initially recognised at the amount arising from the relevant document after the verification of its nature.
• Cash expressed in a foreign currency is translated into the local currency at the Bank of Slovenia middle exchange rate prevailing on the date of receipt.
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Equity• Total equity is the entity’s liability to owners. It is determined by both the amo-
unts invested by the owners and the amounts generated in the course of ope-ration that belong to the owners.
• Total equity consists of share capital, capital surplus, revenue reserves, revaluation surplus, retained earnings or accumulated loss, and undistributed net profit of the financial year.
• Share capital is carried in the local currency.
Liabilities• Liabilities are long-term or short-term financial or operating liabilities.• Initially short-term and long-term liabilities of all categories are recognised
at amounts recorded in the relevant documents under the assumption that creditors demand their repayments.
• Long-term liabilities are reduced by repaid amounts and any potential other settlements agreed with the creditor. They are also reduced by the amounts maturing within a period of less than one year and which are disclosed as short-term liabilities.
• Operating liabilities expressed in a foreign currency are translated into the local currency on the accrual date. Exchange rate differences arising up to the balance sheet date are recognised as financial revenue or expenses.
• Prior to the compilation of the financial statements, the Company reviews the fair value of the short-term operating liabilities on the basis of the contracts, account balance confirmations, and other financial tools.
Short-term accrued and deferred items• Deferred costs and accrued revenue comprise short-term deferred costs or
short-term deferred expenses and short-term accrued revenue. Short-term deferred costs or short-term deferred expenses are amounts incurred but not yet charged against an entity's activity. Short-term accrued revenue arises when payments have not been received and invoices could not have been issued, but where an entity has good reasons to include the revenue in its profit or loss.
• Accrued costs and deferred revenue comprise short-term accrued costs or short-term accrued expenses and short-term deferred revenue. Accrued costs or accrued expenses arise from charging the expected and not yet incurred costs against an entity's profit or loss. Short-term deferred revenue arises when services to be rendered in the future have been already invoiced. Revenue may also be deferred when at the time of the sale, entitlement to revenue recognition is doubtful.
Finance and operating leases• Adria Airways d.d. recognises a finance lease when substantially all the risks
and rewards incidental to the ownership of an asset are transferred to Adria 106
Airways d.d. Finance lease is recognised in the balance sheet as an asset and a liability in the amount which on initial recognition, equals the fair value of an asset obtained under finance lease or the present value of the minimum amount of rent, whichever is the lower. Rent repayments are allocated to financial expenses and reduce the outstanding amount of the liability. Financial expenses are allocated over the whole of the lease period to derive to the effective interest rate applicable to the remaining balance of a liability of each individual lease period. Financial expenses are recognised directly in profit or loss. Assets obtained under the finance lease are depreciated over the shorter of the estimated useful life or duration of the finance lease.
• Operating lease is a lease where the lessor retains substantially all the risks and rewards incidental to the ownership of an asset. Lease payments are recognised by Adria Airways d.d. in profit and loss as expenses under the straight-line method over the lease period.
Financial instruments: derecognition• A financial instrument is derecognised in the books of account when the entity
has no longer control of the contractual rights that comprise that asset. A financial liability is derecognised on its repayment, expiration or when it falls under the statute of limitation.
Derivative financial instruments• Adria Airways d.d. applies financial instruments such as forward contracts
and interest swaps to hedge against the risks associated with interest rate changes, foreign currency fluctuations, and aviation fuel price oscillation. Derivative financial instruments are recognised at fair value.
• The fair value of a forward contract is designated as the current price of contracts with similar maturity. The fair value of interest rate swaps is determined as the market value of similar instruments. Hedge accounting is classified as fair value hedge i.e. the hedge of the exposure to changes in the fair value of recognised assets or liabilities, and as cash flow hedge i.e. the hedge of the exposure to variability of cash flows that is attributable to a particular risk associated with a recognised asset, liability or highly probable forecast transaction. The gain or loss from re-measuring the hedging instrument used as the fair value hedge is immediately recognised in profit or loss. The gain or loss associated with the re-measurement of the hedged item and associated with the hedged risk of the hedged item, is credited or debited to the hedged item and recognised in profit or loss. When the hedged item is an interest bearing asset or liability, the cumulative gain or loss is amortised over the period to maturity. In cash flow hedges, gains and losses on the hedging instrument that is determined to be an effective hedge are recognised in equity. The ineffective portion is recognised in profit or loss. When a hedged firm commitment subsequently results in the recognition of a non-financial asset, the associated gains or losses that were recognised in equity are included in the asset. In all other circumstances gains
107
or losses on hedging instrument are in the next years transferred to profit or loss and the effect of changes in the value of the hedged item is offset in profit and loss. The effects of re-measurement of derivative financial instruments which no longer meet criteria for hedge accounting are recognised directly in profit or loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, or no longer meets the criteria for hedge accounting. The cumulative gain or loss on the derivative financial instrument recognised by Adria Airways d.d. in equity, remains in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that remains in equity is recognised in profit or loss of the current period.
Revenue recognition • The revenue is recognised if increases in economic benefits during the
accounting period are associated with increases in assets or decreases in liabilities, and those increases can be measured reliably.
• The sales revenue is measured at selling prices stated in invoices or other documents relating to the services rendered and merchandise and materials sold during the accounting period if it can be reliably expected that cash receipts will flow from them to the entity. Selling prices are decreased by discounts and rebates granted at the time of sale or subsequently, including the value of returned goods.
• The revaluation operating revenue arises on disposal of intangible assets and property, plant and equipment as an excess of their sales value over their carrying amount reduced by the revaluation surplus resulting from a previous increase in the value of the assets.
• The financial revenue is the revenue generated by investment activities. Financial revenue arises in relation to investments, as well as in association with receivables. Financial revenue is recognised upon statements of accounts, irrespective of receipts, unless their is a substantiated doubt as to their amount, maturity, or repayment. Interest is charged on a time proportion basis with regard to the principal outstanding and the applicable interest rate.
• Other revenue comprises unusual items. They are disclosed in the actual amounts.
Recognition of expenses• Expenses are recognised if decreases in economic benefits during the
accounting period are associated with decreases in assets or increases in liabilities and such decreases can be measured reliably.
• Revaluation operating expenses are recognised when the relevant adjustments are made irrespective of their impact on profit or loss. Revaluation operating expenses arise in association with intangible assets, property, plant and equipment, and current assets as a result of their impairment.
108
• Financial expenses are financing expenses and investment expenses. Revaluation financial expenses arise in association with the impairment of long-term and short-term investments as well as in association with the increase in the value of long-term and short-term liabilities.
• Other expenses consist of unusual items. They are disclosed in the actual amounts incurred.
Cash flow statement• The cash flow statement is compiled under the indirect method on the basis
of the balance sheet data as at 31 December 2007 and 31 December 2006, the income statement data for the year ended 31 December 2007, as well as additional information necessary to adjust the receipts and disbursements, and for the relevant classification of significant items.
Disclosures• In the annual report for the year ended 31 December 2007, the Company
has disclosed all the significant transactions, receivables, liabilities, expenses, revenue, and risks, as well as all significant events subsequent to the balance sheet date.
• The cost of aircraft is not disclosed.• The Company has not disclosed any information that is designated as
confidential, any personal data, or any other confidential information, which could be detrimental to the Company or an individual.
109
6. Classifications and notes to the financial statements
6.1 Additional disclosures of the balance sheet items
6.1.1 Intangible assets and long-term deferred costs
Intangible assets and long-term deferred costs represent software applications (software, Navision software, online ticket) which are amortised under the straight-line basis at the annual rate of 25%; pilot licences, and licences issued to the mechanics, all of which are amortised at the annual rates of 50%, 33.33%, 25% or 14.28%.
At 31 December 2007, the Company reports no liabilities for the acquisition of intangible assets.
6
110
(EUR) Licences Softwareapplications
Assetsbeing
acquired
Otherdeferred
costsTotal
Cost
Balance at 31 December 2006 620,913 1,254,207 — — 1,875,120
Additions — — 1,310,950 681,609 1,992,559
Transfer from assets being acquired 538,736 760,145 -1,298,881 — —
Balance at 31 December 2007 1,159,649 2,014,352 12,069 681,609 3,867,679
Accumulated amortisation
Balance at 31 December 2006 43,985 921,612 — — 965,597
Amortisation expense for the year 252,221 219,351 — — 471,572
Balance at 31 December 2007 296,206 1,140,963 — — 1,437,169
Carrying amount at 31 December 2007 863,443 873,389 12,069 681,609 2,430,510
Carrying amount at 31 December 2006 576,928 332,595 — — 909,523
Movements in intangible assets in 2007
6.1.2 Property, plant and equipment
(EUR) 31. 12. 2007 31. 12. 2006
Land 487,183 694,137
Buildings 6,335,302 7,987,127
Equipment, of which: 117,453,745 86,996,703
* Plant and machinery 115,741,582 85,826,348
- Aircraft 110,577,854 82,564,155
- Replacement parts 5,163,728 3,262,193
* Other plant and equipment 1,712,163 1,170,355
- Other equipment 1,708,020 1,162,936
- Small tools 4,143 7,419
Assets in process of acquisition of which: 712,734 1,742,188
*Advances for property, plant and equipment 578,546 1,739,676
*Assets under construction 134,188 2,512
Total 124,988,964 97,420,155
• In the 2007 financial year, € 41,664,200 was invested in property, plant and equipment. The majority of the invested amount relates to the investments in aircraft i.e. acquisition of two new Bombardier CRJ-900 aircrafts and to the servicing of the aircraft fuselage and engines. There was also an increase in the value of replacement parts as a result of the acquisition of aircraft parts for the new types of aircraft introduced into the Adria Airways fleet.
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(EUR) Licences Software applications
Assets being
acquiredTotal
Cost
Balance at 31 December 2005 — 1,019,300 — 1,019,300
Balance at 1 January 2006 — 1,019,300 — 1,019,300
Additions — — 855,821 855,821
Transfers from assets being acquired 620,915 234,907 -855,821 —
Balance at 31 December 2006 620,915 1,254,206 — 1,875,121
Accumulated amortization
Balance at 31 December 2005 — 839,438 — 839,438
Balance at 1 January 2006 — 839,438 — 839,438
Amortisation expense of the year 43,987 82,173 — 126,160
Balance at 31 December 2006 43,987 921,612 — 965,598
Carrying amount at 31 December 2006 576,928 332,595 — 909,523
Carrying amount at 31 December 2005 — 179,861 — 179,861
Carrying amount at 1 January 2006 — 179,861 — 179,861
Movements in intangible assets in 2006
• The reduction in the value of land and buildings represents the sale of an office building and car parks in Ljubljana.
• In the 2007 financial year, the Company acquired property plant and equipment worth € 313,012 on finance lease. This represents a flight simulator for the flying school. The items of property, plant and equipment which the Company acquired under finance lease in the past include SAAB 340 cargo plane (€ 970,593) and a company car in Zurich.
• The major share of property, plant and equipment represent three Airbus A-320 aircrafts and 5 CRJ-200-LR regional aircrafts, as well as two new Bombardier CRJ-900 aircrafts. The increase also relates to major overhaul of A320 aircrafts, and increase in the value of CRJ-200 aircraft resulting from the engine and fuselage overhaul. The decrease represents depreciation accounted for under the straight-line basis at the rate of 4.38% applied to A-320 aircraft, 5.00% applied to CRJ-200-LR and CRJ-900 aircraft, and 10 % to 50 % applied to additional investments in the aircraft.
• The net sales value of the aircraft is verified twice a year based on the values reported in The Aircraft Value Reference publication issued by the Aircraft Value Analysis Company (AVAC). The Company assessed the value in use of its Canadair aircraft fleet as at 1.1. 2007 (Canadair aircraft fleet represents an
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(EUR) Land Buildings Aircraft Replacementparts
Other equipment
Small tools
FAunder
construction
Advances for FA Total
Cost
Balance at 31 December 2006 694,137 13,750,976 158,103,351 10,285,650 5,707,802 58,929 2,512 1,739,676 190,343,033
Additions — — — — — — 41,664,200 6,093,650 47,757,850
Transfer from assets being acquired — — 37,452,339 2,931,066 1,141,367 549 -41,525,321 — —
Disposals -206,954 -2,422,454 — -93,425 -1,024,299 -277 — -7,106,619 -10,854,028
Exchange rate differences — — — — — — -7,203 -148,161 -155,364
Balance at 31 December 2007 487,183 11,328,522 195,555,690 13,123,291 5,824,870 59,201 134,188 578,546 227,091,491
Accumulated depreciation
Balance at 31 December 2006 — 5,763,849 75,539,196 7,023,457 4,544,866 51,510 — — 92,922,878
Depreciation expense of the year — 268,891 9,438,640 1,020,526 269,151 3,824 — — 11,001,032
Disposals — -1,039,520 — -84,420 -697,167 -276 — — -1,821,383
Balance at 31 December 2006 4,993,220 84,977,836 7,959,563 4,116,850 55,058 102,102,527
Carrying amount at 31 December 2007 487,183 6,335,302 110,577,854 5,163,728 1,708,020 4,143 134,188 578,546 124,988,964
Carrying amount at 31 December 2006 694,137 7,987,127 82,564,155 3,262,193 1,162,936 7,419 2,512 1,739,676 97,420,155
Movements in property, plant and equipment in 2007
independent cash-generating unit); the valuation showed a significant excess of replaceable value over the carrying amount. The Management Board believes there are no indications of impairment.
• All the long-term financial liabilities of the Company are secured by first pledges on three A-320 aircrafts (S5-AAA, S5-AAB and S5-AAC), on five CRJ-200-LR regional aircrafts (S5-AAD, S5-AAE, S5-AAF, S5-AAG and S5-AAJ), and on two CRJ-900 aircrafts (S5-AAK, S5-AAL). All the aircraft pledged is owned by Adria.
• In the 2007 year, five aircrafts were under the operating lease, namely: CRJ-100, CRJ-200, and Boeing 737-500 which were under operating lease for the whole of the year; Boeing 737-400 was leased for a period of eight months, while one SAAB cargo plane was under operating lease until October.
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(EUR) Land Buildings Aircraft Replacement parts
Otherequipment
Smalltools
FA under construction
Advances for FA Total
Cost
Balance at 31 December 2005 694,137 13,902,178 153,865,448 11,138,741 5,538,817 57,566 — 42,234 185,239,121
Balance at 1 January 2006 694,137 13,526,598 153,865,448 11,138,741 5,538,817 57,566 — 42,234 184,863,541
Additions — — — — — — 7,915,916 1,706,464 9,622,379
Transfer from assts under construction — 224,378 6,486,642 868,332 334,260 1,786 -7,915,398 — —
Disposals — — — -1,724,236 -165,273 421 — — -1,889,931
Exchange rate differences — — -2,248,740 2,808 — — 1,995 -9,022 -2,252,959
balance at 31 December 2006 694,137 13,750,976 158,103,351 10,285,645 5,707,803 58,930 2,512 1,739,676 190,343,031
Accumulated depreciation
Balance at 31 December 2005 — 5,535,449 70,035,445 7,902,107 4,454,932 47,989 — — 87,975,922
Balance at 1 January 2006 — 5,406,589 70,035,445 7,902,107 4,454,932 47,989 — — 87,847,062
Depreciation expense of the year — 357,261 7,774,825 753,042 236,284 3,852 — — 9,125,263
Disposals — — — -1,633,634 -146,349 -330 — — -1,780,312
Additions — — — — — — — — —
Exchange rate differences — — -2,271,073 1,936 — — — — -2,269,137
Balance at 31 December 2006 — 5,763,850 75,539,196 7,023,452 4,544,867 51,511 — — 92,922,876
Carrying amount at 31 December 2006 694,137 7,987,127 82,564,155 3,262,193 1,162,936 7,419 2,512 1,739,676 97,420,155
Carrying amount at 31 December 2005 694,137 8,366,729 83,830,003 3,236,634 1,083,884 9,577 — 42,234 97,263,199
Carrying amount at 1 January 2006 694,137 8,120,009 83,830,003 3,236,634 1,083,884 9,577 — 42,234 97,016,479
Movements in property, plant and equipment in 2006
6.1.3. Investment property
Investment property represents holiday apartments as well as other apartments used for the purpose of lease.
(EUR) 31. 12. 2007 31. 12. 2006Buildings 230,191 238,454Total 230,191 238,454
114
(EUR) Buildings Total
Cost
Balance at 31 December 2006 375,578 375,578
Balance at 31 December 2007 375,578 375,578
Accumulated depreciation
Balance at 31 December 2006 137,124 137,124
Depreciation expense of the year 8,263 8,263
Balance at 31 December 2007 145,387 145,387
Carrying amount at 31 December 2007 230,191 230,191
Carrying amount at 1 January 2007 238,454 238,454
Movements in investment property in 2007
(EUR) Buildings Total
Cost
Balance at 31 December 2005 — —
Balance at 1 January 2006 375.576 375.576
Balance at 31 December 2006 375.576 375.576
Accumulated depreciation
Balance at 31 December 2005 — —
Balance at 1 January 2006 128.860 128.860
Depreciation expense of the year 8.262 8.262
Balance at 31 December 2006 137.122 137.122
Carrying amount at 31 December 2006 238.454 238.454
Carrying amount at 31 December 2005 — —
Carrying amount at 1 January 2006 246.716 246.716
Movements in investment property in 2006
6.1.4. Long-terminvestments
(EUR) 31. 12. 2007 31. 12. 2006
Investments in shares and interests in the group 793,332 793,332
Investments in shares and interests of associates 200 200
Other investments 56,063 62,368
Long-term loans to others 4,639 5,788
Total 854,234 861,688
• Adria Airways d.d. does not compile consolidated annual report as the inclusion of the separate financial statements of the two subsidiaries is not significant for the true and fair presentation of the financial statements of the Adria Airways Group as a whole.
Subsidiary(EUR) Head office Country
Share in the equity at
31.12.2007
Equity of the subsidiary at31.12.2007
Profit of the 2007 year
Shares and interests in subsidiaries
31.12. 2007 31.12. 2006
AmadeusSlovenija d.o.o.
Dunajska 122,Ljubljana Slovenia 95% 822,801 16,770 781,661 848,882
AA Kosovo Eqrenz Qabey 119, Priština Serbia 100% 2,500 0 2,500 2,500
Total 784,161 851,382
• Investments in shares and interests of associates include the investment in NMC d.o.o. Skopje where the Company holds a 5% equity interest, representing
€ 200.
Movements in long-term investments in the 2007 financial year
(EUR) Groupcompanies Associates Other
companiesLoans toothers Total
Balance at 1 January 2007 793,332 200 62,373 5,788 861,693
Additions — — — — —
Disposals — — — 1,149 1,149
Revaluation — — -6,305 — -6,305
Balance at 31 December 2007 793,332 200 56,068 4,639 854,239
Impairment loss
Balance at 1 January 2007 — — 5 — 5
Balance at 31 December 2007 — — 5 — 5
Net value at 1 January 2007 793,332 200 62,368 5,788 861,688
Net value at 31 December 2007 793,332 200 56,063 4,639 854,234
• Investments in shares and interests in the Group represent € 793,332 invested in Amadeus Slovenija d.o.o.
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6.1.5. Inventories
(EUR) 31. 12. 2007 31. 12. 2006
Materials 7,468,277 6,268,494
Allowances -2,426,647 -2,356,639
Total 5,041,630 3,911,855
• The inventories mainly represent spare parts and materials used in the aircraft servicing. The value of inventories and their optimum use depend on the recommendations of the aircraft manufacturers and the number of aircraft in the fleet.
• In the 2007 year, the Company acquired two new CRJ-900 aircrafts which resulted in an increase in inventories of spare parts and materials used in regular maintenance and overhaul of the aircraft. The increase in inventories is also due to the expansion of the provision of aircraft servicing, which is now also offered to foreign air carriers.
• The carrying amount of inventories is equal to their recoverable amount.• During the physical stock count of inventories at the year-end, inventories
worth € 134,441 were found to be obsolete. These inventories were acquired in the period from 1999 to 2001. As a result, the Company made additional inventory allowances.
• At 31 December 2007, no inventories are pledged as collateral.
6.1.6. Short-term investments
(EUR) 31. 12. 2007 31. 12. 2006
Short-term loans
- to others 128,974 163,136
Total 128,974 163,136
• The majority of loans to others (€ 128,974) represent deposits placed at banks as collateral for bank guarantees and therefore the Company is limited as to their disposal.
6.1.7. Short-term operating receivables
(EUR) 31. 12. 2007 31. 12. 2006
Short-term operating receivables due from subsidiaries 3,261 —
Short-term operating trade receivables 17,484,492 12,062,890
Short-term interest receivable 56,938 8
Other short-term operating receivables 6,595,942 5,279,090
Allowances for short-term operating receivables -391,794 -415,306
Total 23,748,839 16,926,682
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• Compared to the previous year, there was a 40% increase in the short-term operating receivables, primarily as a result of the increase in sales and some major batches of receivables which were, due to Christmas and New Year's holidays, collected in the beginning of January 2008 (BSP Slovenia, China Taly's letter of credit called up).
• Gross amount of short-term trade receivables represents receivables due from foreign customers in the amount of € 10,072,976, and € 7,411,516 which is due from the local customers. The Company ensures regular control over its accounts receivables. All the receivables are reported at real values and are recoverable.
• Regular aircraft operators, members of the IATA (International Air Transport Association), account for their monthly receivables and liabilities through the Clearing House registered in Montreal, who provides weekly offsetting. The transition from monthly to weekly offsetting occurred in the middle of the year and provides for faster turnover of receivables and liabilities. In its own way the receivables are secured as non-compliance with the agreed contractual terms represents a severe breach against the airline and leads to the exclusion from the association. At 31 December 2007, the balance of receivables towards IATA is € 1,291,425 and has been partially offset. The remaining balance was offset and the payments were made in full in January 2008.
• Adria Airways d.d. sells air tickets also through its representatives at home and abroad. A similar monthly account and payment discipline applicable to the airlines, also applies to the representatives and the receivables are offset through the Bank Settlement Plan (BSP) set up in the locations where the air tickets are sold. BSP regularly verifies credit rating of all its business partners. If certain financial ratios are not met (these are unique for each individual country) a collateral is required which is, in the event of payment default, shared among the airlines in proportion of the outstanding amount of the receivables. At 31 December 2007, receivables due from various BSPs amount to € 2,793,172, which accounts for 16% of all the receivables.
• No receivables are due from Members of the Management and Supervisory Board, employees with special authorisations, or internal owners.
• Allowances are made against receivables in accordance with the criteria described under the Accounting policies section. In the 2007 year, additional allowance of € 100,027 was made against short-term operating trade receivables, whereas € 18,175 of receivables that were previously written-off was recovered. In the financial year 2007, € 25,898 of receivables was written-off and charged directly to the revaluation expenses.
• Classification of operating receivables per maturity
31. 12. 2007 Not past due Up to 30 days
From 31 to 60 days
From 61 to 90 days
From 91 to 180 days
From 181 to 365 days
More than 366 days
17,484,492 12,158,572 3,087,768 820,923 380,625 345,917 312,669 378,018
% 69.4 17.7 4.7 2.2 2.0 1.8 2.2
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• 76% or € 13,224,142 of total short-term operating trade receivables are secured as follows: Clearing House (5% or € 890,980 of total receivables), BSP (16% or € 2,793,172), receivable due from the sale of office building (19% or € 3,250,000), 12% or € 2,123,101 of the total receivables are secured with deposits, 7% or € 1,259,246 with bank guarantees and letters of credit, 5% or € 784,895 with advances, 6% or € 984,662 with offsetting arrangements, € 7,614 with bills of exchange, while 6% or € 1,130,472 of total receivables is secured as it is due from the budget users. 24% or € 4,260,350 of total short-term receivables is not secured.
• Other short-term operating receivables represent short-term advances paid for leased aircraft and collaterals, VAT receivable, receivables due from the sale outlets in respect of air ticket sales, and receivables from suppliers for credits recognised but not yet issued.
6.1.8. Cash
(EUR) 31. 12. 2007 31. 12. 2006
Cash in hand and cheques 37,755 33,133
Cash at bank 1,002,837 927,091
Total 1,040,592 960,224
6.1.9. Short-term deferred costs and accrued revenue
• At 31 December 2007, € 783,250 (€ 880,421 at 31 December 2006) represents short-term deferred costs and expenses on account of invoiced rent of the aircraft and the engine, and costs of the passenger and aircraft insurances.
6.1.10. Equity
(EUR) 31. 12. 2007 31. 12. 2006
I. Called-up capital 6,782,156 3,390,235
1. Share capital 6,782,156 3,390,235
II. Capital surplus 28,180,234 20,604,269
III. Revenue reserves 6,493,712 6,281,076
4. Statutory reserves 774,108 561,472
5. Other revenue reserves 5,719,604 5,719,604
IV. Revaluation surplus -1,363,781 -564,117
VI. Net profit of the year 212,636 —
Total 40,304,957 29,711,463
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• At the 22nd AGM of the Shareholders held on 19 February 2007, the shareholders passed a resolution of a regular increase in the share capital of the Company, thus approving the share capital increase in the amount of € 10,967,886. The share capital increase was carried out in three phases in March and April 2007 and a total 406,218 of additional shares at € 27 per share were paid-in.
• Of total € 10,967,886 of additional capital raised, € 3,391,921 represents the share capital of the Company and € 7,575,965 capital surplus paid-in.
• The called-up capital represents the share capital defined in the Company's statute, registered at the court, and subscribed to by the shareholders. The share capital of € 6,782,156 represents the amount registered at the court. It is divided into 812,436 ordinary, nominal non par value shares.
• All the shares are of the same class, issued as dematerialised shares. As a result of the increase in the share capital, the number of shares had changed during the year.
• The company holds no treasury shares and did not hold any during the year.• At 31 December 2007, the carrying amount of one share was € 49.61.• In the 2008 year, the net profit of € 425,272 generated in the 2007 financial
year was appropriated by the Management Board as follows: • € 212,636 to statutory reserves, • € 212,636 to profit available for appropriation.
• At the Annual General Meeting of Shareholders, the Management Board and the Supervisory Board will propose € 212,636 of the 2007 profit available for appropriation to be allocated to:
• Other revenue reserves (€ 106,318) • Retained earnings (€ 106,318)
• In its Statute, the revenue reserves are specified for the following purposes: • The capital surplus resulted from the privatisation and injection of the
equity capital and is to be used under the conditions and for the purposes set out by the law. As a result of raising additional share capital of the Company, the capital surplus has increased to € 28,180,234.
• The revenue reserves represent statutory reserves in the amount of € 774,108. In accordance with the provisions of the Statute, statutory reserves represent 50% of the net profit generated in the financial periods 2002, 2003, 2004 and 2007. In the 2007 year, there were no changes to the amount of other revenue reserves of € 5,719,604. The statutory reserves may be used to cover losses, to increase the share capital, and as a capital expenditure. The other revenue reserves may be used for any purpose in accordance with the law, the Statute, and the Company’s business policy.
• The negative amount of revaluation reserve is the result of the valuation of derivative financial instruments to be used as cash flow hedges in 2008 and 2009.
119
• The Company has no approved unissued shares (exercise of the right of holders of fungible bonds to exchange these for shares or the exercise of the pre-emptive right to acquire new shares).
• As the Company has no approved but unissued shares, the basic earnings per share is the same as diluted earnings per share.
2007 2006
Net profit attributable to the holders of ordinary shares (EUR) 425,272 70,101
Diluted profit attributable to the holders of ordinary shares (EUR) 425,272 70,101
Weighted average number of ordinary shares for the purpose of calculating basic earnings per share 710,500 406,218
Diluted average number of ordinary shares for the purpose of calculating diluted earnings per share 710,500 406,218
Net profit per share (EUR) 0.60 0.17
6.1.11. Provisions and long-term accrued costs and deferred revenue
The provisions of € 1,543,735 were made on account of pensions, anniversary bonuses and termination bonuses upon retirement: The provisions were calculated in accordance with the provisions of the collective and individual employment contracts, taking into account the employees’ fluctuation in terms of their retirement age and the years of service with the Company.
(EUR) 31. 12. 2007 31. 12. 2006
Provisions for pensions, termination bonuses 1,543,735 1,550,417
Total 1,543,735 1,550,417
Movements in provisions in 2007
(EUR) Balance at 01.01.2007
Utilisation,reversal Formation Balance at
31.12.2007
Provision for pensions, termination bonuses 1,550,417 58,430 51,748 1,543,735
Total 1,550,417 58,430 51,748 1,543,735
Movements in provisions in 2006
(EUR) Balance at 01.01.2006
Utilisation,reversal Formation Balance at
31.12.2006
Provision for pensions, termination bonuses 1,644,339 93,922 — 1,550,417
Total 1,644,339 93,922 — 1,550,417
6.1.12. Financial liabilities
Non-current Current Total
(EUR) 31. 12. 2007 31. 12. 2006 31. 12. 2007 31. 12. 2006 31. 12. 2007 31. 12. 2006
Financial liabilities to group companies
Financial liabilities to banks 79,844,533 55,432,950 7,848,759 10,258,087 87,693,292 65,691,037
Other financial liabilities 1,071,608 981,764 1,980,105 1,054,640 3,051,713 2,036,404
Total 80,916,141 56,414,714 9,828,864 11,312,727 90,745,005 67,727,441120
Weighted average interest rates at 31 december
31. 12. 2007 EUR (%)
Financial liabilities to banks 5.26
31. 12. 2006 EUR (%)
Financial liabilities to banks 4.88
Disclosure of the interest rate risk per individual type of borrowings
Year ended 31. December 2007(EUR)
Interest rate changes within
6 monthsor less
Interest rate changes within 6-12 months
Interest rate changes in 1-5 years
Over 5 years Total
Total borrowings 83,817,058 — 3,876,234 — 87,693,292
Interest rate swap -969,697 — — 969,697 —
Total 82,847,361 — 3,876,234 969,697 87,693,292
Year ended 31. December 2006(EUR)
Interest rate changes within
6 monthsor less
Interest rate changes within 6-12 months
Interest rate changes in 1-5 years
Over 5 years Total
Total borrowings 60,902,746 — — 4,788,291 65,691,037
Interest rate swap -1,000,000 — — 1,000,000 —
Total 59,902,746 — — 5,788,291 65,691,037
• The current amount of long-term borrowings that matures in the 2007 financial year in the amount of € 7,848,759 is reported under short-term financial liabilities.
• Compared to the year 2006, the short-term liabilities to banks have decreased by 23% since at the year-end the Company does not report any short-term borrowings for current assets and the short-term liabilities to banks comprise only the current amounts of long-term borrowings.
• The current amount of long-term financial lease liabilities that matures in the 2007 financial year of € 215,346 is reported under short-term financial liabilities.
• In 2007, the Company raised a new long-term loan of € 34,000,000 from local banks to finance the acquisition of aircraft.
• In the 2007 financial year, the Company repaid the long-term loan raised for the acquisition of current assets in the amount of € 2,071,021.
• All the long-term and short-term loans were raised from the local banks and are denominated in the Euro.
• The principal amounts and the interest are repaid in monthly instalments.• All the long-term financial liabilities are secured with a pledge placed on the
aircraft.
121
Classification of long-term financial liabilities per maturity
(EUR) 31. 12. 2007
From 1 to 2 years 10,342,566
From 2 to 5 years 31,900,013
Over 5 years 38,673,562
Total 80,916,141
Short-term financial liabilities to banks (EUR) 31. 12. 2007 31. 12. 2006
Current amounts of bank loans 7,848,759 5,353,539
Short-term financial liabilities to banks — 4,904,548
Total 7,848,759 10,258,087
• The current amounts of loans extended by the local banks represent the amounts of long-term loans that mature within a period of 12 months.
• The current amounts of long-term borrowings are secured with a pledge on the aircraft.
6.1.13. Long-term operating liabilities
(EUR) 31. 12. 2007 31. 12. 2006
Long-term operating liabilities for advances 10,228 10,228
Total 10,228 10,228
• The long-term operating liabilities are not collateralised.
6.1.14. Short-term operating liabilities
(EUR) 31. 12. 2007 31. 12. 2006
Short-term operating liabilities to the Group 40,213 100,301
Short-term operating liabilities to suppliers 19,464,393 18,374,888
Short-term operating liabilities for advances 1,602,651 1,034,456
Other short-term operating liabilities 4,181,428 3,925,634
Total 25,288,685 23,435,279
• The short-term operating liabilities are not collateralised.
122
Classification of operating liabilities per maturity
(EUR)
Operating liabilities due
to group companies
Operating liabilities to suppliers
Operating liabilities for advances
Other opera-ting liabilities Total
Up to 1 year 40,213 19,464,393 1,602,651 4,181,428 25,288,685
From 1 to 2 years
From 2 to 5 years 10,228 10,228
Over 5 years
Total 40,213 19,464,393 1,612,879 4,181,428 25,298,913
Collateralised liabilities
Short-term supplier payables
(EUR) 31. 12. 2007 31. 12. 2006
Short-term operating liabilities to local suppliers 6,349,797 5,164,689
Short-term operating liabilities to foreign suppliers 13,114,596 13,210,199
Total 19,464,393 18,374,888
• The short-term operating liabilities to suppliers represent amounts due to the suppliers of goods and services at home and abroad. The short-term opera-ting liabilities mature within a period of 8 to 60 days from the date of the supply of goods, the rendering of services, or the invoice date.
Other short-term operating liabilities
(EUR) 31. 12. 2007 31. 12. 2006
Short-term operating liabilities to the government 532,786 575,033
Short-term operating liabilities to the employees 2,475,698 2,138,716
Other short-term operating liabilities 1,172,944 1,211,885
Total 4,181,428 3,925,634
• As at 31 December 2007, no operating liabilities are due to the management and the supervisory board or the employees, other than the amounts due for December 2007 wages and salaries.
• The other short-term operating liabilities mainly represent court damages due to JAT Airways Beograd.
6.1.15. Short-term accrued costs and deferred revenue
• Total € 1,872,745 of accrued costs and deferred revenue comprises € 451,734 of accrued costs of computer reservation system and interest due on borrowings, and € 1,421,011 of deferred revenue from charter flights and tickets sold for future flights. 123
(EUR) 31. 12. 2007 31. 12. 2006
Short-term accrued costs and deferred revenue 1,872,745 215,402
6.1.16. Off balance sheet assets
(EUR) 31. 12. 2007 31. 12. 2006
Mortgages 112,516,130 74,987,640
Guarantees 1,879,967 2,096,945
Other 28,474 28,476
Total 114,424,571 77,113,061
Off balance sheet assets and liabilities maturing in a period of more than five years
(EUR) 2007
Mortgages 95,737,595
Guarantees —
Other —
Total 95,737,595
• The off balance sheet records represent mortgages (pledges) entered for the benefit of the local banks against long-term loans extended to the Company for the purchase of the aircraft, and a pledge entered for the benefit of the IAE in respect of a seven-year contract the Company agreed for the servicing of the A-320 engines.
• As at 31 December 2007, a total of € 87,693,292 of borrowings is secured with mortgages.
• The guarantees represent payment guarantees granted to the suppliers for the purchase of goods and services at home and abroad, and guarantees received as a security against receivables.
• The Company is involved in court proceedings either as a plaintiff or a defendant. These court actions mainly relate to breach of obligations or labour disputes. As a result of a request for judicial protection, Adria Airways is also subject to procedures of the supervisory and government institutions.
• No additional provisions were made for these disputes as we do not expect the outcome of these to have a significant financial impact.
124
6.1.17. Financial instruments
Fair value• The majority of investments recognised through profit or loss and as
available-for-sale investments, are recognised at fair value, whilst receivables and borrowings are reported at amortised cost. Since the majority of the receivables, liabilities, and borrowings are short-term, the fair value of these financial instruments does not significantly deviate from their carrying amount.
Derivative financial instruments At 31 December 2007, the Company reports the following outstanding financial
instruments:
Interest rate hedge instruments (EUR)
Instrument Notional amount Fair value
31. 12. 2007 31. 12. 2006 31. 12. 2007 31. 12. 2006
IRS 969,697 1,000,000 40,886 30,162
IRS - collar 14,000,000 14,000,000 153,185 99,311
The interest rate swaps and collars are accounted for as the future cash flow hedges. (EUR)
Instrument Notional amount Fair value
31. 12. 2007 31. 12. 2006 31. 12. 2007 31. 12. 2006
Interest rate cap 10,300,000 10,600,000 239,237 102,424
Interest rate caps are not accounted for as the hedge accounting.
Currency forwards (EUR)
Notional amount Fair value
31. 12. 2007 31. 12. 2006 31. 12. 2007 31. 12. 2006
Currency acquisition 38,876,351 41,273,339 -2,021,335 -660,445
Currency sales 39,202,088 42,103,080 411,862 587,857
Interest rate risk The interest rate risk, which the Group is exposed to, arises primarily from the
financing of the Group as disclosed under the financial liabilities section. Credit risk The Company is not exposed to any significant credit risk concentration.
125
6.2. Additional disclosures of the income statement items
• Costs in terms of functional groups
(EUR) 2007 2006
Production costs 155,686,325 133,788,357
Selling expenses 16,742,141 16,434,331
General and administrative costs 4,336,829 3,805,458
Total 176,765,295 154,028,146
• Production costs of goods sold comprise direct costs of the airport and other services, costs of materials, costs of labour, depreciation expenses, and production overheads.
• Selling expenses represent marketing costs, costs of sales made at home and abroad, and costs of agency sales at home and abroad (commission — other selling costs).
• General and administrative costs represent costs of administrative services for the whole of the Company.
Classification of costs and expenses per individual types is presented below.
6.2.1. Net sales
Net sales per business segments
(EUR) 2007 2006
* Scheduled passenger services 114,882,559 105,993,856
* Schedule cargo services 6,185,861 5,195,577
* Charter passenger flights 22,343,502 18,692,364
* Aircraft servicing for third persons 13,314,578 10,283,950
* Aircraft charter services 15,723,189 6,404,603
* Other 6,725,935 5,778,553
Total 179,175,624 152,348,903
• The activity of the Company is classed as international air passenger service and accounts for 77% of total sales revenue.
• 7% of the sales revenue represents aircraft servicing for third persons which is becoming an ever more significant line of the Company’s activities, while 3% of the sales revenue accounts for cargo transport.
• 9% of the net sales are achieved by the aircraft charter services.
126
Net sales at home and abroad
(EUR) 2007 2006
Sales revenue (Slovenia) 1,872,856 1,656,898
Sales revenue (outside Slovenia) 177,302,768 150,692,005
Total 179,175,624 152,348,903
6.2.2. Costs of goods, materials and services
(EUR) 2007 2006
Costs of goods sold 43,325 685,883
Cost of materials 41,851,041 37,290,932
Cost of services 83,037,388 70,749,770
Total 124,931,754 108,726,585
• Compared to the previous year, the costs of goods, materials and services have increased by 15%, which is primarily due to the increase in the costs of aircraft rent as a result of the restructuring of the fleet, the increase in the price of aviation fuel, and the increase in the air transport services.
Costs of materials
(EUR) 2007 2006
Aviation fuel 32,685,964 29,178,129
Merchandise and materials used in passenger care 2,927,485 2,496,044
Replacement parts used in aircraft servicing 4,247,508 3,894,984
Other costs of materials 1,990,084 1,721,775
Total 41,851,041 37,290,932
Costs of services
(EUR) 2007 2006
Airport costs 26,287,845 24,371,470
Navigation costs 8,678,840 7,804,044
Maintenance costs 9,331,579 7,607,546
Rent 19,512,303 14,651,938
Costs of computer reservation system 4,185,987 3,485,169
Reimbursements of costs 2,086,890 1,691,817
Costs of transport services 1,192,248 1,464,881
Other costs of services 11,761,696 9,672,905
Total 83,037,388 70,749,770
Other costs of services comprise costs of training, cargo, bank charges, costs of student work, passenger tax, intellectual and personal services, and other costs.
127
The costs of the audit of the financial statements and the annual report for the financial year ended 31 December 2007 of € 50,300 relate to the following services;
• Auditing of the annual report (€ 20,000) • Other auditing services (€ 15,300) • Other non-auditing services (€ 15,000)
6.2.3. Labour costs
(EUR) 2007 2006
Payroll costs 24,272,989 19,842,781
Social insurance costs 3,525,284 3,330,805
Retirement insurance costs 1,377,873 1,213,470
Other labour costs 4,911,510 5,176,502
Total 34,087,656 29,563,558
• Other labour costs comprise holiday bonus, travel allowance, termination bonuses, anniversary bonuses, payroll taxes, and salaries of the staff employed at the representative offices abroad.
• None of the employees’ claims based on the provisions of the law, collective agreement, general rules of the Company or employment contracts are disputed by the Company.
• Other labour costs comprise provisions for termination bonuses in the amount of € 51,748.
6.2.4. Write-downs
Amortisation and depreciation expense
(EUR) 2007 2006
Amortisation and depreciation of intangible assets and property, plant and equipment 11,480,867 9,259,685
Revaluation expenses associated with intangible assets and property, plant and equipment 19,533 53,568
Total 11,500,400 9,313,253
Revaluation operating expenses from the current assets:
• € 250,293 of revaluation operating expenses from current assets mainly represents write-off of receivables in the amount of € 115,853, and write-off of obsolete inventories in the amount of € 134,440.
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6.2.5. Financial revenue
(EUR) 2007 2006
Financial revenue from shares and interests 96,063 191,616
- in group companies 87,529 55,324
- in associates 8,456 —
- in other companies 78 13,583
- other investments — 122,709
Financial revenue from operating receivables 811,725 515,957
- due from group companies — 7,486
- due from others 811,725 508,471
Total 907,788 707,573
• Almost all of the financial revenue represents interest income.• The majority of other financial revenue from the short-term receivables
represents interest (€ 665,592) inclusive of interest on denationalisation compensation.
• The exchange rate gains in the amount of € 2,330,350 arising on translation of foreign currencies are disclosed under the offsetting balance of financial expenses.
6.2.6. Financial expenses
(EUR) 2007 2006
Financial expenses from financial liabilities 4, 255,204 2,828,401
- loans received from group companies 5,361 5,462
- loans received from banks 4,249,843 2,822,939
Financial expenses from operating liabilities 81,584 96,716
- to group companies — 8,580
- to suppliers 37,865 37,982
- other operating liabilities 43,719 50,154
Total 4,336,788 2,925,117
• The majority of the financial expenses represent interest paid on long-term borrowings in the amount of € 4,249,843.
• The exchange rate losses (€ 2,373,553) are disclosed under the financial expenses from operating liabilities in the offsetting balance of € 43,203.
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6.2.7. Income tax
• As a result of the settlement of tax loss incurred in 2005, the Company reports no income tax liability.
(EUR) 2007 2006
Pre-tax profit 425,272 70,101
Expenses not recognised as expenditure 863,953 1,330,331
Allowances for inventories and receivables 115,852 190,503
Provisions formation 25,874 —
Non-taxed revenue -107,426 —
Tax losses -1,269,898 -1,701,990
Other -53,627 111,054
Total 0 0
Income tax (25%) 0 0
6.2.8. Net profit
(EUR) 2007 2006
Net profit of the year 415,272 70,101
• In the 2007 year, the Company generated € 4,747,446 of operating profit, representing a 460% increase compared to the result recorded in the 2006 year, which is the result of continued business optimisation.
• The Company reports financial loss of € 4,002,936, which is above the financial loss incurred in the previous year. This is primarily due to new long-term loans raised for acquisition of aircraft and the increase in key interest rates.
• The result is the net profit of € 425,272 which is several times higher than the amount generated in the 2006 year.
(EUR) Consumer price index
2007 2006
Change 5.6% 2.8%
General revaluation adjustment 2,257,078 831,923
Loss after the revaluation to preserve the purchasing power of the equity -1,831,806 -716,822
• If equity was restated by the consumer price index, the result achieved by Adria Airways d.d. in the 2007 financial year would be lower by € 2,257,278.
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7. Other disclosures
7.1. Information on groups of persons
Total earnings received in the 2007 year by groups of persons for holding office or the performance of tasks under Article 253 of the Companies Act are presented in the following table:
(EUR) 2007 2006
Gross wages and salaries
- Management Board 301,001 266,225
Bonuses, attendance fees, other receipts
- Management Bodies (Management Board, representatives 323,410 60,402
Employees on individual contracts 1,334,747 1,045,193
Total 1,959,158 1,371,820
The amounts above are gross, excluding contributions payable by the employer.
• Receipts of the Management Board comprise salaries, fringe benefits, holiday bonus, any other receipts and reimbursements of costs. Receipts of the staff on individual contracts to whom the collective agreement tariffs do not apply comprise salaries, fringe benefits, holiday bonus, reimbursement of costs and any other receipts such as anniversary bonuses and termination bonuses. Receipts of the Supervisory Board include attendance fees, travel allowance and fees for holding their office as determined by the Shareholders' meeting.
8. Events after the balance sheet date
• In the 2008 financial year, the Company is continuing with the optimisation of the fleet as a prerequisite for long-term stable and profitable performance. Accordingly, in February 2008 the Company signed an operating lease contract with a foreign leasing company for operative lease of two new CRJ-900 aircraft to be supplied in December 2008 and February 2009. In April, the Company leased Fokker 100, while one Airbus was returned from its charter abroad.
• At the beginning of the year 2008, the Management Board adopted a resolution of a general increase in wages and salaries in view of the significant increase in inflation in the 2007 year and to reflect the increased labour productivity in the Company.
• In the first quarter of 2008, the Company has exceeded its optimistic plan set with regards to the passenger transport as the number of passengers is up 24% compared to the first quarter of the 2007 year.
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9. Financial Statements − expanded format
9.1. Balance Sheet — expanded format under SAS9
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(EUR) 31. 12. 2007 31. 12. 2006
ASSETS 159,765,355 122,650,230
A. LONG-TERM ASSETS 128,951,669 99,807,912
I. Intangible assets and long-term deferred costs 2,430,510 909,523
1. Concessions, patents, licences and other rights 863,443 576,928
5. Other long-term deferred costs 1,567,067 332,595
II. Property, plant and equipment 124,988,964 97,420,155
1. Land and buildings 6,822,485 8,681,264
a) Land 487,183 694,137
b) Buildings 6,335,302 7,987,127
2. Machinery and equipment 115,741,582 85,826,348
3. Other plant and equipment 1,712,163 1,170,355
4. Property, plant and equipment being acquired 712,734 1,742,188
a) Property, plant and equipment under construction 134,188 2,512
b) Advances for acquisition of property, plant and equipment 578,546 1,739,676
III. Investment property 230,191 238,454
IV. Long-term investments 854,234 861,688
1. Long-term investments, excluding loans 849,595 855,900
a) Shares and interests in group companies 793,332 793,332
b) Shares and interests in associates 200 200
c) Other shares and interests 56,063 62,368
2. Long-term loans 4,639 5,788
b) Long-term loans to others 4,639 5,788
V. Long-term operating receivables 447,770 378,092
3. Long-term operating receivables due from others 447,770 378,092
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B. CURRENT ASSETS 30,030,436 21,961,897
I. Assets (disposal groups) held for sale 70,401 —
II. Inventories 5,041,630 3,911,855
1. Materials 5,041,630 3,911,855
III. Short-term investments 128,974 163,136
2. Short-term loans 128,974 163,136
b) Short-term loans to others 128,974 163,136
IV. Short-term operating receivables 23,748,839 16,926,682
1. Short-term operating receivables due from group companies 3,261 —
2. Short-term operating trade receivables 17,092,698 11,647,584
3. Short-term operating receivables due from others 6,652,880 5,279,098
V. Cash 1,040,592 960,224 C. SHORT-TERM DEFERRED COSTS AND ACCRUED REVENUE 783,250 880,421
Off balance sheet assets 114,424,571 77,113,061
EQUITY AND LIABILITIES 159,765,355 122,650,230
A. EQUITY 40,304,957 29,711,463
I. Called-up capital 6,782,156 3,390,235
1. Share capital 6,782,156 3,390,235
II. Capital surplus 28,180,234 20,604,269
III. Revenue reserves 6,493,712 6,281,076
4. Statutory reserves 774,108 561,472
5. Other revenue reserves 5,719,604 5,719,604
IV. Revaluation surplus -1,363,781 -564,117
VI. Net profit of the year 212,636 — B. PROVISIONS AND LONG-TERM ACCRUED COSTS AND DEFERRED REVENUE 1,543,735 1,550,417
1. Provisions for pensions and similar obligations 1,543,735 1,550,417
C. LONG-TERM LIABILITIES 80,926,369 56,424,942
I. Long-term financial liabilities 80,916,141 56,414,714
2. Long-term financial liabilities to banks 79,844,533 55,432,950
4. Other long-term financial liabilities 1,071,608 981,764
II. Long-term operating liabilities 10,228 10,228
9.2. Income Statement - expanded format under SAS
134
4. Long-term operating liabilities from advances 10,228 10,228
D. SHORT-TERM LIABILITIES 35,117,549 34,748,006
II. Short-term financial liabilities 9,828,864 11,312,727
1. Short-term financial liabilities to group companies 155,287 155,287
2. Short-term financial liabilities to banks 7,848,759 10,258,087
4. Other short-term financial liabilities 1,824,818 899,353
III. Short-term operating liabilities 25,288,685 23,435,279
1. Short-term operating liabilities to group companies 40,213 100,301
2. Short-term trade payables 19,464,393 18,374,888
4. Short-term operating liabilities from advances 1,602,651 1,034,456
5. Other short-term operating liabilities 4,181,428 3,925,634
E. SHORT-TERM ACCRUED COSTS AND DEFERRED REVENUE 1,872,745 215,402
Off balance sheet liabilities 114,424,571 77,113,061
(EUR) 2007 2006
1. Net sales 179,175,624 152,348,903
a) Net sales on the local market — group companies 157,386 79
b) Net sales on the local market — others 1,715,470 1,656,819
c) Net sales on foreign markets — group companies 23,760 3,693,328
d) Net sales on foreign markets — others 177,279,008 146,998,677
2. Production costs of goods sold (including depreciation and amortisation), or costs of goods sold 155,686,325 133,788,357
3. GROSS PROFIT FROM SALES 23,489,299 18,560,546 4. Selling costs (including depreciation and amortisation) 16,742,141 16,434,331
5. General and administrative expenses (including depreciation and amortisation) 4,336,829 3,805,458
a) General and administrative costs 4,067,003 3,561,388
b) Revaluation operating expenses associated with intangible assets and property, plant and equipment 19,533 53,568
c) Revaluation operating expenses associated with current assets 250,293 190,502
6. Other operating revenue (including revaluation operating revenues) 1,763,181 2,430,709
9.2. Income Statement - expanded format under SAS
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7. Financial revenue from shares and interests 96,063 191,616
a) Financial revenue from shares and interests in group companies 87,529 55,324
b) Financial revenue from shares and interests in associates 8,456 -
c) Financial revenue from shares and interests in other companies 78 13,583
d) Financial revenue from other investments — 122,709
9. Financial revenue from operating receivables 811,725 515,957
a) Financial revenue from operating receivables due from group companies 7,486
b) Financial revenue from operating receivables due from others 811,725 508,471
10. Financial expenses due to impairment and write-offs of investments 170,406
11. Financial expenses for financial liabilities 4,255,204 2,828,401
a) Financial expenses for loans, received from group companies 5,361 5,462
b) Financial expenses for loans received from banks 4,249,843 2,822,939
12. Financial expenses for operating liabilities 81,584 96,716
a) Financial expenses for operating liabilities to group companies 8,580
b) Financial expenses for trade payables and bills payable 37,865 37,982
c) Financial expenses for other operating liabilities 43,719 50,154
13. Other revenue 151,600 1,892,952
14. Other expenses 470,838 186,367
15. Income tax
17. NET PROFIT OF THE YEAR 425,272 70,101
Publisher: Adria Airways, Slovenski letalski prevoznik d.d. / The Airline of Slovenia d.d.AD & CD, realization: IMAGO, marketinška agencija / marketing agencyPhoto: Dean DubokoviË, Branko »eak and Adria Airways archivesTranslation: PSD d.o.o., Ernst & Young d.o.o.Printed by: Tiskarna Schwarz, August 2008
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