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					The Group KD Group and KD Group d.d.

Annual Report 2009
The KD Group                                                               Annual Report 2009




Kazalo

1. INTRODUCTION ............................................................................................................................................ 3
Company profile .................................................................................................................................................... 3
The KD Group corporate structure ...................................................................................................................... 5
Activities of the Group KD Group ........................................................................................................................ 7
2. BUSINESS REPORT ..................................................................................................................................... 8
  Report of the chief executive officer of KD Group d. d. ....................................................................................... 8
     Report of the management board of KD Group on the review of the annual report of KD Group d.d. and the
     KD Group for 2009 ............................................................................................................................................ 10
     Events that characterised 2009 ......................................................................................................................... 13
     Strategic orientations of the KD Group.............................................................................................................. 17
     Shares, dividends and ownership structure ...................................................................................................... 19
     Analysis of operations ....................................................................................................................................... 31
         Capital markets in 2009 ............................................................................................................................... 31
         Operations of the KD Group in 2009............................................................................................................. 33
         Business operations of KD Group d.d. in 2009 ............................................................................................. 40
         Internal audit ................................................................................................................................................. 45
         Human resources and development ............................................................................................................. 45
     Research and development .............................................................................................................................. 49
     Corporate social responsibility of the Group KD Group .................................................................................... 51
3.     OPERATIONS OF KD GROUP COMPANIES ............................................................................................. 54
     Banking and investment fund management ...................................................................................................... 54
         Banking ......................................................................................................................................................... 54
         Investment fund management ...................................................................................................................... 56
     Insurance .......................................................................................................................................................... 60
     Real estate ........................................................................................................................................................ 67
4.       FINANCIAL REPORT ............................................................................................................................... 69




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The KD Group                                                        Annual Report 2009



       1. INTRODUCTION

Company profile

Parent company: KD Group, finančna družba, d. d.1
Abbreviated company name: KD Group d. d.4
Registered Office: 206 Celovška cesta, Ljubljana 1000, Slovenia
Telephone: +386 1 582 67 00
Fax: +386 1 518 41 00
E-mail: info@kd-group.com
Website: www.kd-group.com
Activity: 64.200 – Activity of holdings
Legal status: Public limited company
Company registration number: 1585126000
Tax number: 66296374
VAT identification number: SI66296374
Entry in the Company Register: District Court of Ljubljana, no. 2000/15252 dated 3 January 2001, reg. no.
1/34049/00
Share capital: EUR 98,215,756.97
Number of no-par value shares issued: 2,942,053
Number of ordinary registered shares of KDHR: 2,675,640
Number of participating preference shares of KDHP: 266,413
Date of incorporation: 3 January 2001


Financial highlights

                                                                                 Unit                       KD Group d. d.                    The KD Group
    Operating revenue                                                      in EUR thousand                               501                          367,869
    Net profit or loss                                                     in EUR thousand                          (52,827)                          (44,223)
    Assets                                                                 in EUR thousand                          336,356                           847,785
    Equity capital                                                         in EUR thousand                          162,305                           151,605
    Return on equity                                                              %                                    (28.3)                           (25.6)
    Share book value                                                            EUR                                    57.38                             52.70
    Net earnings per share                                                      EUR                                    (20.4)                           (17.1)




1Initially, and when their full or abbreviated name is used, names of the companies or enterprises in the Annual Report include designation of their
organisational status such as d.d.; afterwards, these designations are omitted for more fluent reading.


                                                                              3
The KD Group                                                      Annual Report 2009




Management Board of KD Group d. d.2

      •     Matjaž Gantar, President of the Management Board

      •     Aleksander Sekavčnik, Deputy President of the Management Board

      •     Tomaž Butina, Member of the Management Board

      •     Sergej Racman, Member of the Management Board

      •     Dr. Draško Veselinovič, Member of the Management Board, CEO

      •     Peter Grašek, Member of the Management Board, Deputy CEO




2 Following registration in the court register as of 16 November 2009, a one-tier management system was implemented in KD Group, d.d..




                                                                           4
The KD Group                                                                         Annual Report 2009



The KD Group corporate structure

Organisational chart at 31 December 2009

                                                                                             KD Fund Advisors LLC, Delaware                 90,00%

                           KD Skladi d.o.o., Ljubljana                     100,00%           KD Finančna točka d.o.o., Ljubljana            50,00%
                           KD Investments d.o.o., Zagreb                   100,00%           KD Fondovi AD, Skopje                          85,00%

                           KD Investments a.d., Beograd                    100,00%

                           SAI KD Investments s.a., Bucharest              100,00%
                           KD Investments EAD, Sofia                       100,00%                                                                   100,00%

                           KD Banka d.d., Ljubljana                        100,00%
                           KD Upravljanje imovinom d.o.o., Zagreb          100,00%
                           KD Capital Management s.a., Bucharest           100,00%

                           KD Securities EAD, Sofia                        100,00%
                                                                                                                                                               KD Mark d.o.o., Ljubljana                100,00%
                           KD Asset Management b.v., Amsterdam             100,00%
                                                                                                                                                               KD Finančna točka d.o.o., Zagreb         100,00%
                                                                            80,10%
                                                                                             KD Životno osiguranje d.d., Zagreb            100,00%             KD Financial point, s.r.o., Bratislava   100,00%
                           KD Life CJSC, Kiev                              100,00%           19,90%
                                                                                             KD Finančna točka d.o.o., Ljubljana            50,00%             KD Financial point, s.r.l., Bucharest    100,00%
                           KD Življenje d.d., Ljubljana                    100,00%
                                                                                             ZAP d.o.o., Murska Sobota                     100,00%             KD Financial point EOOD, Bulgaria        100,00%
      KD Group d.d.
                           KD Life Asigurari s.a., Bucharest               100,00%
                                                                                                                                                               Vitavizia d.o.o., Ljubljana              100,00%
                           KD Život a.d., Sofia                            100,00%

                           SC KD Fond de Pensii s.a., Bucharest             99,00%

                           KD Kvart d.o.o., Ljubljana                      100,00%
                                                                                             9,00%
                           Adriatic Slovenica d.d., Koper                  100,00% 90,82% AS Neživotno osiguranje a.d.o., Beograd           99,82%
                                                                                                                                                     20,00%

                                                                                             FM-NET d.o.o., Ljubljana                      100,00%             Radio Kranj d.o.o., Kranj                 52,68%
                                                                                                                                   9,96%
                                                                                      85,76% ABDS d.d., Sarajevo                            95,72%
                                                                                             Gama Holdings b.v., Amsterdam                 100,00%
                                                                                             ČZD Kmečki Glas d.o.o., Ljubljana             100,00%
                           KD Kapital d.o.o., Ljubljana                    100,00%           Vrtnarstvo Celje d.o.o., Celje                 50,46%
                                                                                             VIB a.d., Banja Luka                           51,00%



                           KD Private Equity, Beograd                      100,00%
                           R.E. Invest d.o.o.- in liquidation, Ljubljana   100,00%
                           Coloseum Multiplex Holdings b.v., Amsterdam     100,00%
                           Firsthouse Investments ltd., Limassol           100,00%           Manta Marine Ventures ltd, BVI                100,00%
                           Fontes Group DOO, Beograd                       100,00%
                           GEA College d.d., Ljubljana                      66,57%           GEA College PIC d.o.o., Ljubljana             100,00%             GEA College CVŠ d.o.o., Ljubljana        100,00%
                           World Life Group ltd., Limassol                 100,00%
                           OOO Sarbon Invest, Tašken                       100,00%           OOO Kredo Group, Tašken                        99,97%


Ownership shares in companies in the KD Group represent interests held by enterprises in the KD Group.

Associates
                        Company                  Ownership stake (in %)
    Concorde PS, d. o. o., Šenčur                                  50.00
    Deželna banka Slovenije d. d., Ljubljana                       35.62
    KD ID d. d., Ljubljana                                       22.063
    KD Private Equity Fund b. v., Amsterdam – in
    liquidation                                                    48.21
    Nama d. d., Ljubljana                                          48.46
    Seaway Group d. o. o., Bled                                    45.00
    Seaway Skupina d.o.o., Ljubljana                               48.65
    Seaway Technologies s.r.l., Monfalcone                         48.65
    Semenarna Ljubljana d. d., Ljubljana                          29.90
    Zellner Holdings Limited, Limassol                            48.65
    Žicnice Vogel Bohinj d.d., Bohinjsko jezero                    21.76




3   Jointly with the parent company, KD d. d.


                                                                                                 5
The KD Group                                                           Annual Report 2009




•        The Group KD Group corporate structure



                                                                                The KD Group




    Property                      Life insurance                Health insurance              Financial services               Banking                       Capital investments
    insurance                                                                                                                                                and real estater




                                  KD Življenje, Ljubljana       Adriatic Slovenica,           KD Group, Ljubljana              KD Banka, Ljubljana*          KD Kapital, Ljubljana
    Adriatic Slovenica,           KD Životno osiguranje,        Koper                                                          KD Capital management,
    Koper                         Zagreb                        - Health insurance            KD Skladi, Ljubljana             Bucharest                     KD Kvart, Ljubljana
    - property insurance          KD Life, Sofia                                              KD Investments, Zagreb           KD Securities, Sofia
                                  KD Life Asigurari,                                          KD Investments, Beograd          KD Upravljanje                Skupina Gea College,
    AS Neživotno osiguranje,      Bucharest                                                   KD Fondovi, Skopje               imovinom, Zagreb              Ljubljana
    Beograd                       KD Life, Kiev                                               KD Investments, Sofia
                                                                                              SAI KD Investments,                                            ČZD Kmečki Glas,
                                  Adriatic Slovenica,                                         Bucharest                                                      Ljubljana
                                  Koper                                                       KD Fund Advisors,                                              FM-NET, Ljubljana
                                  – life insurance                                                                                                           Fontes Group, Beograd
                                                                                              Delaware
                                  SC KD Fond de Pensii,                                                                                                      Radio Kranj, Kranj
                                  Bucharest                                                   ABDS, Sarajevo                                                 R.E. Invest – in
                                  ZAP, Murska Sobota                                          Coloseum Multiplex                                             liquidation, Ljubljana
                                  World Life Group,                                           Holdings, Amsterdam                                            Vrtnarstvo Celje, Celje
                                  Limassol                                                    Firsthouse Investments,
                                  Vitavizia, Ljubljana                                        Limassol
                                                                                              Gama Holdings, Amsterdam
                                  KD Finančna točka,
                                                                                              KD Asset management,
                                  Ljubljana
                                                                                              Amsterdam
                                  KD Finančna točka,
                                                                                              KD Private Equity, Beograd
                                  Bucharest
                                                                                              Kredo Group, Taškent
                                  KD Finančna točka,
                                                                                              Manta Marine Ventures, BVI
                                  Bratislava
                                                                                              VIB, Banja Luka
                                  KD Finančna točka,
                                                                                              Sarbon Invest, Taškent
                                  Zagreb
                                  KD Finančna točka, Sofia
                                  KD Mark, Ljubljana




* KD Banka began operating on 2 March 2009 following the transformation and expansion of operations of the stockbrokerage company KD BPD, borznosposredniška družba,
d.o.o.



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The KD Group                                            Annual Report 2009



Activities of the Group KD Group

The Group KD Group, which celebrated its 15th anniversary in 2009, is one of the largest business groups in Slovenia. The
Group's principal activities are:
    • insurance;
    • investment fund management;
    • banking and;
    • capital investments and real estate.

The principal business activity of the parent company KD Group d. d. is the management of listed and non-listed investments
and the generation of financial returns in accordance with the structure of its portfolio. The parent company makes decisions
regarding all the KD Group’s major strategic investments.

Insurance

The KD Group's insurance business comprises life, property and health insurance. It has two public limited companies in
Slovenia: KD Življenje, a life insurer, and Adriatic Slovenica, a universal insurance company that markets life insurance and
property insurance, including health insurance. In accordance with the strategy of expanding the KD Group activities to
foreign markets, in the previous year insurance companies within the Group operated on the following foreign markets:
Ukraine, Croatia, Romania and Bulgaria, as well as in Slovakia through a branch office. The Group is marketing property
insurance in Serbia through property insurance company AS neživotno osiguranje a.d.o. Beograd, Serbia.

The key strategic orientations of the KD Group in the field of insurance are based primarily on operating growth on the local
and foreign markets and on a comprehensive range of financial services provided through a variety of sales networks.
In Slovenia, we further reinforced and consolidated existing sales channels.

Investment fund management

Five investment management companies within the KD Group manage a total of 27 mutual funds and two investment
companies in the South-eastern region of Europe. KD Skladi, Ljubljana, currently the largest management company in
Slovenia, is the leading investment fund management company in the Group. The company manages the umbrella fund “KD
Krovni sklad” with 17 sub funds and KD ID, delniška investicijska družba, d. d. as well as assets of the well-informed
investors. Currently, four management companies operate outside the Slovenian borders who jointly manage eleven
investment funds: four mutual funds in Croatia, two in Romania, two mutual funds and one investment company in Bulgaria
and two mutual funds in Macedonia.

Banking

In 2009, the KD Group began operating on the banking market following a transformation of KD BPD from a limited liability
company into a public limited company on 2 March 2009 and assuming a new name of KD Banka.
Initially, KD Banka concentrated on private, personal and investment banking services, including stockbrokerage, individual
asset management and corporate finance services. However, in order to adjust to the changed economic conditions, KD
Banka decided for early implementation of the basic corporate banking services, while at the same time it was developing
services for the mass market, which began to be marketed through the sales network of branch offices by KD Finančna točka
in February 2010.
In addition to KD Banka operating in Slovenia, other companies also operated in the banking division in 2009 namely in
Croatia, Bulgaria and Romania.

Capital investments and real estate

The Group’s capital investments are managed by the KD Kapital. This division includes real estate services, publishing, and
managing of closed investment funds in South Eastern Europe (Bosnia and Herzegovina and Republika Srpska).

In the Group KD Group, real estate services are provided by KD Kvart, a young, dynamic and ambitious company, whose
core activity is investment engineering in the field of real estate. The strategy of the real estate division is to search for new
opportunities for the development of real estate projects, real estate sale, and management of real estate owned by the
Group KD Group.




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The KD Group                                          Annual Report 2009



     2.   BUSINESS REPORT

REPORT OF THE CHIEF EXECUTIVE OFFICER OF KD GROUP D. D.

Global financial crisis provided an incentive for reorganisation of the Group KD Group and implementation of measures for
business rationalisation. These activities began in 2009 and will continue 2010. The loss of EUR 44 million incurred by the
Group KD Group in 2009 is to a large extent the consequence of poor performances of companies operating abroad and
also a result of global financial crisis. The Group KD Group has already adopted strategic decisions concerning companies
operating abroad in terms of which markets should be pursued further and from which to withdraw. The relevant measures
have already been implemented. The poorest results were recorded by companies operating in South-eastern Europe
(Romania, Bulgaria, Ukraine, and Serbia), the region where the financial crisis impact on financial institutions was worst and
where the consequences were the largest. The major share of the loss incurred by the Group KD Group is due to the
Group's withdrawal from the South-eastern European markets in which the Group did not have the controlling interest and
where no profits were expected in the long-term. The proceeds will be used to realise the adopted strategy. Companies
operating in Slovenia are performing well and in 2009 exceeded the planned results.

The KD Group's performance in 2009 was better than in 2008, resulting in a loss of EUR 44 million. Operating revenue in
2009 reached EUR 368 million, a decrease of 6 percent compared with 2008. Decrease in the revenue is due to the disposal
of enterprises in the cinematographic division in 2008. Revenue from insurance premiums, which account for the majority of
revenue, rose by 3 percent compared with 2008. At the end of the year, total assets amounted to EUR 848 million, an
increase of 7 percent compared to 2008, whereas total capital was reduced by EUR 41 million or 21 percent compared with
2008. At the end of 2009, the Group KD Group reported EUR 152 million of capital and EUR 182 million of financial liabilities.
The majority (almost EUR 100 million) represents long-term financial liabilities maturing in 2015. I wish to stress that the
Group KD Group regularly meets its obligations concerning interest and principal repayments. We have established good
relationships with all commercial banks. In 2010, the Group KD Group is expected to generate profit of EUR 4 million, rising
to as much as EUR 11 million in 2011. The results of the first few months of 2010 confirm these trends.

The Group KD Group believes that the adopted strategic decisions provide solid basis for continued development of the
Company and the entire Group KD Group. Majority of the KD Group's revenue comes from the third largest insurance in
Slovenia, Adriatic Slovenica, the largest investment management company in Slovenia - KD Skladi, fast growing life
insurance companyKD Življenje, and KD Banka, a private bank, rounding up a comprehensive palette of financial services
provided by the Group.


Insurance

Insurance companies within the Group KD Group were in 2009 involved in intense expansion and improvement of their range
of products and services as well as development of new, specialised insurance products aimed at individual target groups.

Market share of 12.56 percent recorded in 2009, makes Adriatic Slovenica the third largest insurance company in Slovenia.
In terms of property insurance, the insurance company held a 17.01 percent share in 2009, 23.9 percent share in health
insurance places the company in the second place on the health insurance market, while the company holds the leading
position on the market of above-standard health insurance. Due to its consolidated market network and modern insurance
products supplemented by first-class assistance services, the insurance company has set even more ambitious goals for the
next financial year.

Life insurance company KD Življenje is the second largest life insurance providers in Slovenia and in spite of unstable
economic conditions at the end of 2009 it increased its market share to 14.1 percent. Slovenian life insurance market was in
2009 marked primarily by the financial crisis reflected in an average 3.8 percent decline which was preceded by several
years of continuous growth of the life insurance sectors.

The goals for 2010 include life insurance premiums of over EUR 84 million, over 256 million premiums for property insurance
(including health insurance premiums) which translates into 3.6 percent increase in property insurance premiums and 5
percent growth in the health insurance market.

In accordance with the adopted strategic decisions, the Group KD Group will withdraw from those markets where the results
are below the expectations and will instead, concentrate on the Slovenian market.




                                                              8
The KD Group                                             Annual Report 2009




Investment fund management

KD Skladi maintained its leading position among the Slovenian management companies in terms of assets and range of
funds and at the end of 2009 it managed over EUR 421 million of assets in 17 sub funds of KD Krovni sklad and KD ID,
delniška investicijska družba.

Five management companies operate within the Group KD Group which jointly manage 27 mutual funds and two investment
companies.

By the mid 2009 conditions on the capital markets were slowly stabilizing and from March onwards we have seen increase in
share prices indices which improved the general level of investors’ optimism. Funds within the Group KD Group performed
well in terms of their return (majority recorded positive returns) and in terms of new investors. In terms of return, they
successfully competed with local and foreign competition with some of them being the leaders in individual categories. The
increased trend in the number of accession forms continued and funds recorded positive inflows. At the end of 2009 total
value of managed assets of all asset management companies in the KD Group reached EUR 449.1 million, compared to
EUR 360.6 million recorded at the end of 2008.

In 2010 we will continue with our efforts to confirm our excellence in asset management and justify investors' trust. We will
intensify our efforts for improved recognition of KD funds in order to preserve the leading position in Slovenia and consolidate
our market shares in South-eastern Europe.

Banking

2009 marked the entry of the Group KD Group in the banking sector. On 2 March 2009, following a resolution of the Bank of
Slovenia to grant licence to KD BPD for the performance of banking and financial services and resolution of the Securities
Market Agency to grant permission to KD BPD for statutory conversion from a limited liability company into a public limited
company, the company became a public limited company and assumed a new name of KD Banka. Initially, KD Banka
concentrated on private, personal and investment banking services, including stockbrokerage, individual asset management
and corporate finance services. However, in order to adjust to the changed economic conditions, KD Banka decided for early
implementation of the basic corporate banking services, while at the same time it was developing services for the mass
market, which began to be marketed through the sales network of branch offices by KD Finančna točka in February 2010.
At the end of 2009 KD Banka had more than 3,200 clients, while total value of assets held by private clients and assets in
individual management stood at EUR 51 million, and 336 million of brokerage assets.
In 2010 we intend to improve our range of banking services with new services including investment consultation, a range of
credits and savings, as well as other financial instruments. The range of services adjusted to the needs and wishes of clients
will be available through a variety of marketing channels.

2010

The basic orientation of the Group KD Group is to consolidate its position on the financial services market. In 2010 we will
continue the process of business consolidation, preserve the existing strategy concerning strategic investments, and
continue with well-thought disposal of investments which are not of strategic importance. In addition we will focus on
successful companies and support their further development.

Our mission is a satisfied customer able to choose between a comprehensive and complete range of financial services. We
are gaining new, satisfied and loyal clients who are able to find solutions to their financial issues and realise their wishes at a
single location – in the companies within the Group KD Group.

Draško Veselinovič, PhD
CEO




                                                                 9
The KD Group                                           Annual Report 2009




REPORT OF THE MANAGEMENT BOARD OF KD GROUP ON THE REVIEW OF THE ANNUAL REPORT OF KD GROUP
D.D. AND THE KD GROUP FOR 2009



Dear Shareholders,

Based on authorisations and competences, laid down in the Articles of Association, the managing process and operations of
KD Group d.d. and the Group KD Group, were supervised and monitored by the Supervisory Board until 15 November 2009
and since 16 November 2009, by the Management Board in accordance with the legislation and Rules of procedures of the
Supervisory Board and the Management Board.

On 16 November 2009, members of the Supervisory Board who were again appointed at the 12th General Meeting of
Shareholders held on 6 March 2009, operated in unchanged composition as follows: Aleš Vahčič, PhD - President, Alojz
Penko – Deputy president and Bojan Sekavčnik – member.

A one-tier management system was implemented at the 14th General Meeting of Shareholders, with appointment of the first
Management Board of the Company in the following composition: Matjaž Gantar – President, Aleksander Sekavčnik –
Deputy president, Sergej Racman – member, Tomaž Butina- member, Draško Veselinovič, PhD – member and CEO, and
Peter Grašek, appointed as member of the Management Board and deputy CEO. The Management Board in its function of
the supervisory and management body began its mandate on 16 November 2009.

The Report of the Management Board's operations includes and describes also operations of the Supervisory Board until the
expiration of its mandate. The term »management of the Company« comprises operations of the Management Board until
the implementation of a one-tier management system, as well as operations of the executive members of the Management
Board.

Operations of the Supervisory Board and the Management Board

The Supervisory Board and the Management Board performed their roles in the corporate governance system in accordance
with the legal competences and responsibilities by regular monitoring of daily operations, by learning about the operations of
the management and its decisions and by reviewing proposals for changes and amendments. Through discussion and
proposed initiatives and opinions, the Management Board as the Supervisory Board before it, operated not only in their
supervisory role, but were also involved in developing of business strategies. The Supervisory Board and the Management
Board performed their tasks consistently and responsibly.
In accordance with their legal and statutory competences, the Supervisory Board and the Management Board in 2009
regularly monitored and supervised the Company’s operations throughout their mandates. They discussed the management
reports on daily operations and activities of the Company, learnt about important business events, monitored the work of the
management and followed implementation of the adopted resolutions. They primarily focused on professional supervision of
the operations and realisation of the strategy of the Company and the KD Group. They regularly monitored performance of
the Company and Group companies located abroad. By regular monitoring of the Company's performance, reviewing
proposals for changes and developing initiatives and opinions, their role was not only that of an active supervisor but also of
someone actively involved in the development of business strategies jointly with the Company's management.

In 2009 the Supervisory Board of KD Group held one constitutive meeting, eleven regular sessions and four correspondence
sessions and adopted a total 69 resolutions.

The Management Board of KD Group held a constitutive meeting in 2009, two regular meetings and adopted a total of 25
resolutions.

Through written materials and explanations provided by the management at meeting and through close cooperation with the
management, the Management Board and the Supervisory Board regularly monitored performance of the Company. The
quorum was always present at the meetings of the Management Board and the Supervisory Board and all members actively
participated in the discussions. The Company's management supplied all the relevant information to the Supervisory and the
Management Boards which were necessary for the performance of their supervisory and managerial roles. The Management
Board therefore assesses the co-operation of the Company's management as good.

At their meetings, the Management Board and the Supervisory Board discussed the following more important business
events and adopted the following more important resolutions:


                                                              10
The KD Group                                          Annual Report 2009



•    At the correspondence meeting on 2 February 2009 the Supervisory Board appointed a four-member Management
     Board whose mandate commenced on 3 February 2009 and determined competences of the President and members
     of the Board;

•    At its 4th meeting held on 28 May 2009 the Supervisory Board discussed the audited Annual Report of KD Group d.d.
     and the audited Annual Report of the KD Group for 2008 and was informed of the auditor's opinions and proposal for
     the distribution of the profit; further it adopted annual report of the Supervisory Board on the review of the annual
     reports thus giving its approval to the Annual Reports of KD Group d.d. and the Group KD Group. The Supervisory
     Board adopted the Constitution of the Audit Committee of KD Group d.d., appointed Audit Committee of the
     Supervisory Board, and discussed and approved KD Group's plan for 2009 and internal audit plan of KD Group for
     2009;

•    At its 5th meeting held on 14 July 2009 the Supervisory Board discussed current business of the KD Group and
     business report for the period January – May 2009;

•    At its 7th meeting on 15 September 2009 the Management Board appointed Draško Veselinovič member of the
     Management Board with his mandate commencing on 1 October 2009 and again allocated individual business areas to
     members of the Management Board;

•    At its 3rd conference meeting on 7 October 2009 the Supervisory Board was informed of the proposed Agenda for the
     14th General Meeting of Shareholders, proposals for decisions and their justification, and with regards to the
     implementation of a one-tier management system of the Company, gave its proposals for appointment of members of
     the Management Board of KD Group;

•    At its 10th regular meeting on 30 October 2009 the Supervisory Board discussed the non-audited business report of KD
     Group d.d. and the Group KD Group for the first six months of 2009 and the report on current business of KD Group
     from January to September 2009;

•    At the constitutive meeting on 9 November 2009 the Management Board appointed Matjaž Gantar, member, President
     of the Management Board, Aleksander Sekavčnik Deputy president, and Draško Veselinovič the CEO and Peter Graško
     Deputy CEO.

•    At its 1st regular meeting held on 23 November 2009 the Management Board discussed current business and appointed
     Audit Committee of the Management Board.

The Company ensured business transparency through periodical and additional regular informing of the Shareholders and
other public via simultaneous publications on the Ljubljana Stock Exchange website SEOnet http://seonet.ljse.si and the
Company's website www.kd-group.com.

Based on the above, the Management Board has concluded that it was informed of all more important business events in
2009 that affected the performance of the Company and the Group KD Group. In view of the method of information provision
and cooperation between the management and the Management Board during the year it was not necessary for the
Management Board or its individual members to ask for additional information or to verify documentation on which the
information, important for the decision-making, was based.

Management Board's report on relations with the controlling entity

The Management Board also discussed the management’s report about relations with the controlling entity KD d.d. and
transactions with related parties in 2009, and has concluded that in the conclusion of legal transactions and other legal acts
between the controlling entity and its related parties, KD Group d.d. suffered no damage or deprivation.
Annual Report 2009 – View of the auditor's report, review and the Annual Report's approval
The audit of the Annual Reports of KD Group d.d. and the Group KD Group for the year 2009 (hereafter: Annual reports for
2009) was performed by the auditing firm Ernst & Young d.o.o., Ljubljana, who issued an unqualified opinion on the two
Annual Reports on 14 April 2009.

The audited Annual reports for 2009 were discussed by the Management Board on 22 April 2010.

The Management Board considered the two Annual reports and auditor's opinions for 2009 and has concluded the following:
•     The 2009 Annual reports have been compiled in accordance with the Companies Act, Articles of Association and the
      current accounting and reporting requirements;


                                                             11
The KD Group                                            Annual Report 2009



•       The reports are comprised of all statutory formal and substantive elements of a commercial company's annual report
        as required under the law and subsequently all the key data necessary for making decisions concerning their
        approval;
•       The 2009 Annual reports are inclusive of the auditor's opinion on the financial statement audit. It is clear from the
        auditor's report that the financial statements are true and fair presentation of the financial position, operating result
        and cash flows of KD Group d.d. and the Group KD Group. The certified auditor issued un unqualified opinion on
        both sets of the financial statements.

Based on the above the Management Board issues the following observations:
Following its review of the auditor's opinions in accordance with paragraph 2, Article 282 of ZGD-1, the Management Board
hereby confirms that it has no comments on the opinions and agrees with the reports’ findings.

In accordance with paragraph 2, Article 282 of ZGD-1C the Management Board hereby confirms that it has no comments on
the Annual reports for the year 2009 and gives its approval to the Annual report 2009 of KD Group d.d. and to the Annual
Report 2009 of the Group KD Group.

Proposal for the net profit distribution

As part of the Annual reports 2009 review, the Management Board has found that in accordance with the resolution of the
management, the net loss of 2009 of EUR 52,827,433.37 was, as at 31 December 2009, settled as follows:
   -       EUR 8,152,469.82 was debited to the remaining portion of the retained earnings after the formation of treasury
           reserves.
   -       EUR 44,674,963.55 was debited to capital surplus.

KD Group as at 31.12.2009 does not have profit for appropriation, therefore the Mangement Board did not create a
resolution regarding the use of the profit for the assembly.
Based on the review of operations of KD Group d.d. and the Group KD Group in 2009 as well as the audited Annual reports
of the Company and the Group, the Management Board proposes to the General Meeting to grant dismissal to members of
the management and supervisory bodies for the year 2009.


Ljubljana, 22 April 2010


Matjaž Gantar
President of the Management Board of KD Group




                                                               12
The KD Group                                           Annual Report 2009




EVENTS THAT CHARACTERISED 2009

Changes in the composition of the KD Group


16 January
- KD Finančna Točka d.o.o., Ljubljana acquires KD Financial Point in Bulgaria.


10 June
- KD Finančna Točka d.o.o. acquires Vitavizia d.o.o.


3 July
- KD Group d.d. acquires Sarbon Invest d.o.o., Uzbekistan.


27 July
- KD Kapital acquires FM-NET d.o.o.


29 October
- KD Kapital d.o.o., Ljubljana disposes of its stake in KD Mont a.d., Monte negro.


6 December
- KD Group d.d. disposes of KD Investments Bratislava




                                                              13
The KD Group                                           Annual Report 2009



Other key events in 2009


January
    – As one of the first in Slovenia, KD Skladi, Ljubljana, establishes KD Krovni sklad whereby all of its 17 mutual funds
        are transformed into its sub funds.
    – KD Skladi, Ljubljana, in cooperation with Concorde Premoženjsko svetovanje d. o. o. begins marketing new
        savings plan VIP plus 100.
    – At the now traditional, fifth presentation of awards to the best mutual fund managers by the magazine Kapital, the
        KD MM money market fund receives a "Gold V" award in the category of one-year money market funds.

February
    – On 3 February 2009, the Supervisory Board of KD Group d. d. adopts a decision on the appointment of a four-
         member Management Board, comprising Matjaž Gantar, President, and Peter Grašek, Matija Šenk and Aljoša
         Tomaž, members.
    – KD Življenje organises an all-day family event at Postojna Caves to mark the Slovenian Cultural Holiday – the 3rd
         Day of Culture and Attractions, where a palaeontology exhibition of cretaceous fossils and replicas of dinosaur
         skeletons are on display.
    – AS neživotno osiguranje, Beograd, opens a branch office in Niš.

March
    -      At the 12th General Meeting of Shareholders on 6 March, the members of KD Group d. d.'s Supervisory Board,
           Aleš Vahčič, PhD, Alojz Penko and Bojan Sekavčnik are reappointed. The term of Supervisory Board members
           begins on 9 March.
       -   KD Banka, specialising in private and personal banking services, begins operations.
       -   The Group KD Group celebrates 15 years of operations: on 11 March 1994, Kmečka družba, the legal predecessor
           of KD Skladi, was entered in the Company Register.
       -   KD Življenje begins marketing Fondpolica Maks Garant Plus, a unique whole of life insurance product with
           instalment or one-time premium payment and a payout of a minimum sum of net premium payments when the
           insurance term expires.
       –   Peter Groznik, PhD assumes the function of President of the Management Board of KD Skladi.

April
     –     Matej Marošek becomes President of the Management Board of KD Finančna točka.
     –     The concert event of the year, Volkswagner, takes place: the musical project, initiated by KD Group d. d., combines
           the talents of the legendary group Laibach, the RTV Slovenija symphony orchestra and conductor Izidor Leitinger.
           The KD Group uses the concert as a platform for the grand celebration of its 15th anniversary of operations.

May
       –   Matej Tomažin becomes president of the Management board of KD Investments d.o.o., Zagreb.
       –   The KD Victoria fund, managed by KD Investments, Zagreb celebrates its 10th anniversary of operations.
       –   KD Življenje again sponsors the 3rd Festival of families organised in front of the entrance to the Postojna Caves.
       –   Adriatic Slovenica, insurance company, introduces a novelty – My first car policy – a new insurance cover available
           to drivers with less than three years of driving experience.

June

       –   The General Meeting of KD Finančna točka appoints Katja Kraškovic member of the Management Board to
           continue the work of Darja Gabrovšek Polajnar.
       –   The Management Board of KD Življenje appoints Gregor Šušmelj Director of the branch office KD Life in Slovakia,
           thus replacing Pavol Norulak, the former CEO.
       –   Radovan Pušnar assumes the role of a member of the Management Board and CEO of KD Life AD, Bulgaria.

July
       –   KD Življenje launches new life insurance product on the market called ŽIVLJENSKI KASKO (HULL LIFE
           INSURANCE) – life assurance policy where the sum insured is paid over the duration of the insurance policy..
       –   KD Kapital d. o. o. and ABDS d. d., Sarajevo are joint sponsors of summer holidays at Debeli rtič for children from
           Bosnia and Herzegovina, organised for the fifth consecutive year by the institution »Krog« as part of their
           humanitarian and development project »Give a Smile«.


                                                              14
The KD Group                                          Annual Report 2009




August
   – KD Skladi becomes the largest trust company in Slovenia in terms of the volume of assets under management.
   – At the ‘Trusted Brand'' award ceremony, KD Skladi is awarded first place in Slovenia in the category »Investment
       companies and Mutual funds«.


September
    – From September KD Življenje offers a Guaranteed package, a stable and safe investment guaranteeing annual
       return of a minimum 2.75%. If the return exceeds the guaranteed level, life insurances with the Guaranteed
       package are eligible for the attribution of the annual surplus.
    – KD Skladi launches a new savings plan VIP 100 Premium, which provides long-term return and allows investors
       savings for a variety of purposes such as acquisition of a real estate, to supplement your pension, to provide
       schooling for your children or grandchildren and other purposes, all with minimum regular payments into KD Krovni
       sub funds.
    – KD Privilege organises a lecture by Paul Krugman, a Nobel prize winner for economy and a lecturer at the
       University of Princeton.
    – KD Življenje opens a new branch office in Koper.


October
    – The Management Board of Adriatic Slovenica Zavarovalna družba d. d. becomes a three-member Board following
        retirement of Milena Georgievski, a long-term member and Deputy Chairperson of the Management Board. Other
        functions of the insurance company's Management remain unchanged.
    – Celebration of arrival of three Saimiri Monkeys to the Ljubljana ZOO after KD Življenje sponsored construction of a
        new animal habitat.
    – AS osiguranje in Serbia opens new offices of its business unit in Čačak.
    – KD Banka integrates its first ATM into a network of ATMs linked to a Bankart processing centre.
    – Special achievements awards in the field of PR are awarded at a formal evening of the 13th Slovene PR
        conference - Prizma 2009. One of the awarded communications projects is also project developed by KD Življenje
        »Dignitaries arriving to Ljubljana«, the first joint project marking a long-term partnership between KD Življenje and
        Ljubljana ZOO.
    – KD Fondovi, Macedonia celebrates the first anniversary of its two funds: “KD Brik” and “KD Južen Balkan”.


November
    – The first magazine is issued under the KD Privilege trademark, intended for all potential and existing private
       banking clients.
    – The one-tier management system is implemented in KD Group following its registration in the court register.
    – KD Življenje and Turizem Kras in cooperation with partners successfully bring to an end the Dinosaurs exhibition in
       the Postojna Caves. In more than 10 months, the skeleton of the Mamenchisaurus was probably seen by over
       472,000 visitors to the caves. The exhibition was seen by over 14,000 Slovene visitors who could purchase the
       ticket for the caves at a 50% family discount.

December
    – The first anniversary of the publication of the “Financial consultant when&how” magazine issued by KD Skladi and
       KD Življenje.
    – In order to optimize operations of KD Group as the only stakeholder in KD Investments, for the purpose of adapting
       the operations of the KD Group to market conditions, and following the resolution of the KHoV – Serbian Securities
       Market Agency (Komisija za Hartije od Vrednosti RS), consensus was given for the transfer of “KD Ekskluziv” fund
       to Citadel Asset Management.




                                                             15
The KD Group                                           Annual Report 2009



     Important events following the end of the 2009 financial year

     January

     –    KD Galileo, the first Slovene investment fund became off age in 2010, celebrating its 18th birthday. As a pioneer in
          this particular field it is of great importance for the development of Slovene capital market as it has contributed to
          the development of today's highly competitive mutual funds sector. Since its establishment, over 50,000 investors
          have entrusted their assets to the fund which is today, with over EUR 150 million of assets under management, the
          largest Slovene fund (excluding funds established on transformation of investment companies).
     –    www.financna-tocka.si website presents its new image, structure and comprehensive range of products and
          services provided by KD. For the first time a uniform and expanded presentation of financial, banking and
          insurance products and services of the KD Group is available on one location.
     –    KD Življenje life insurance company launches a new product on the market “Fondpolica Solist” life insurance tied to
          the value of a unit of the assets of a long-term business fund “Aktivni naložbeni paket”.

 February

     –    As from 15 February 2010, KD Banka’s personal accounts, cards, online banking, savings account and deposits
          are available to the wider public in all branches of KD Finančna točka in Slovenia. Thus KD Banka, which has
          initially provided private, personal and investment banking services, upgraded its range of products and services
          with a wide palette of commercial banking services.
     –    By opening a classical personal account, clients will be issued BA Maestro card which will allow them to draw cash
          at all ATMs in Slovenia and the EMU countries.
     –    Mastercard allows clients to defer payments (interest-free), thus saving time and money whilst having also a free
          accident insurance in the event of death or permanent disability.
     –    Advantages of savings account which is administered by KD Banka free-of-charge include instant liquidity of
          money, as cash can be transferred from personal account to the savings account and vice versa at any time.
          Savings account pays interest at highly competitive rates (currently one of the best rates of interest compared to
          other Slovene banks) and money can be withdrawn at any time as it is not deposited for a specified term.
     –    Online bank, one of the first in Slovenia, combines commercial and investment banking services, allows for a
          comprehensive overview of services provided by KD Banka and domestic, overseas and international payment
          processing. Online banking clients are able to order purchase or sale of securities on domestic (LJSE) and foreign
          markets (currently XETA). In addition, transfer from trading to a personal account is free. Through online banking
          clients may transfer funds between accounts freely and at any time.
     –    KD Banka also offers short-term and long-term deposits as a means of a safe and reliable investment.
     –    KD Življenje insurance company has for the fourth consecutive time organised now traditional gathering of families
          called Day of Culture and Attractions.

 March

     –    KD Skladi sponsored the project Clean Slovenia in One day by becoming the project’s Golden sponsor.
     –    KD Banka is integrated into the Bankarta centre which allows online payment using the special money order form.
     –    KD banka organises roundtable “Where does exit strategy lead to and what it means for financial markets? on 3
          March in the Grand Hotel Union where experts from the field of economy, finance and business exchanged their
          views and opinions.
     –    KD Življenje life insurance company launches new life insurance product Fondpolica EKSKLUZIV, developed in
          cooperation with a renowned banking group BNP Paribas. This is a whole of life insurance policy where premiums
          are paid in instalments and which offers a number of exclusive benefits including the best entry in the investment
          and additionally integrated safeguards which provides a unique opportunity for a safe and profitable investment.

     April

     –    KD banka introduces new service for retail users allowing them to make long-term deposits via online banking or in
          any of the KD Finančna točka branches.




                                                              16
The KD Group                                          Annual Report 2009



STRATEGIC ORIENTATIONS OF THE KD GROUP

MISSION, VISION, VALUES

Mission: responsible partnership between users, employees and owners
The Group manages financial assets of its users in a responsible, efficient and safe manner to ensure return. Employees
have the best working conditions, many possibilities for education, promotion and are granted incentives for job well done.
The Group ensures expected growth and profit for the owners and creates socially responsible partnerships between
mutually equal agents.

Vision: development growth and response expansion
We are a respected, dynamic and socially responsible financial group. Trustworthy experts fulfil the expectations of
customers with services that are a step ahead of the times. Accessible in one location, we shape the trends of financial
services in Southern and Eastern Europe.

Values: growth, respect, trust, excellence and support.

Growth
- professional approach and innovation are the corner stone of our growth.
- we are flexible and responsive.
- through sharing of knowledge and ideas we disseminate good practices
- my personal growth is our success

Respect
- in interactions with others we are kind, positive and honest
- we are open to opinions of others – we know how to listen and hear
- we appreciate everyone’s contribution, his/her uniqueness and diversity

Trust
- we have confidence in ourselves and our capabilities: we know how and we can
- through prudent and responsible actions we create a circle of trust
- we are genuine and keep to our agreements

Excellence
- through commitment and perseverance we realise our high objectives
- we are a step in front
- we work to the best of our abilities and together we recognise our successes
- we act in concert

Support
- we generate safe and positive working environment
- through collegiality we find the right way to ensure results
- we promote healthy balance between personal, family and business life
- we cooperate and help each other


REALISATION OF STRATEGIC OBJECTIVES AND ORIENTATIONS

The KD Group's strategic objectives and orientations were realised again in 2009 by seeking the best solutions and taking
advantage of opportunities for the growth and development of all companies in the Group.




                                                             17
The KD Group                                          Annual Report 2009



Key operating highlights of division-based activities

  –    At the end of 2009 KD Banka had over 3,200 clients, while total value of assets held by private clients and assets
       under individual management stood at EUR 51 million, and EUR 336 million of brokerage assets. The operations of
       the banking division were marked by financial crisis to which we have responded efficiently. Much attention was
       devoted to communications with our clients as we believe that direct communication is of vital importance as it
       enables development of an individual relationship between a bank clerk and the client. Therefore we adjusted our
       communications with clients to the time that was most suitable for them. In 2009 KD Banka focused on private and
       investment banking. We have developed a range of products for corporate entities inclusive of transaction accounts,
       deposits and a variety of credit facilities as well as online bank “Halcom”. For retail clients KD Banka developed
       variety o personal accounts, payment cards, savings accounts, deposit accounts with various maturities, Lombard
       loans and online banking.
  –    By mid 2009 conditions on capital markets have slowly stabilised and from March onwards the growth on capital
       markets helped to boost investor confidence. In terms of return and also in terms of gaining new investors, the funds
       within the Group performed well. In terms of return our funds successfully competed against local and foreign
       competition and some were best performed funds in their individual categories. The trend of increasing number of
       accession forms has continued resulting in positive cash flows of the funds managed by the Group. At the end of the
       year total assets managed by all asset management companies in the Group stood at EUR 449.1 million, compared
       to EUR 360.6 million at the end of 2008.
  –    Insurance sector could not avoid the impact of global economic crisis which was demonstrated in limited growth in
       property insurances and negative growth of gross life insurance premiums. In 2009 the KD Group gained a 17%
       share on Slovene insurance market with a total of EUR 329.3 million of insurance premiums ( Adriatic Slovenica
       EUR 260.6 million and KD Življenje EUR 68.7million). KD Življenje life insurance company is the second largest life
       insurance company in Slovenia and in spite of difficult market conditions, at the end of 2009 it increased its market
       share to solid 14.1 percent. In 2009 Adriatic Slovenica recorded a 12.56% market share, making it the third largest
       insurance company in Slovene insurance market. In property insurance division the insurance company recorded a
       17.01 percent share of the market and in health insurance divisions, a 23.9 percent % market share.
  –    At the end of 2009 KD Finančna točka's range of insurance products comprised life insurance provided by KD
       Življenje, information, consultancy and accession to 17 sub funds of KD Krovni sklad and VIP 100 Premium savings
       plan offered by KD Skladi, health and property insurance offered by Adriatic Slovenica, stockbrokerage services,
       individual asset management services provided by KD Banka and voluntary health insurance abroad inclusive of
       assistance, offered by Assistance CORIS. The range of services of KD Finančna točka will be further increased in the
       beginning of 2010 with banking services provided by KD Banka. At the end of 2009 KD Finančna točka registered
       851 new investors and over EUR 18 million of direct payments into the mutual funds of KD Skladi, and together with
       transfers, we recorded a total of EUR 32 million of payments. KD Finančna točka agreed over 9,000 new insurance
       policies and 2,000 insurance policies were agreed with the existing insurants. Total new annual premium stood at
       over EUR 5,300,000 and single premium over EUR 4,700,000. Our website www.financna-tocka.si had over 250,000
       visitors in 2009, and our KD Plus Club had over 72,000 members at the end of 2009.

Looking ahead to 2010
  – In the previous year we focused on expansion of our range of services with banking products and services. Through
      a comprehensive range of financial and insurance services we have realised one of our key strategic objectives of the
      KD Group. In 2010 we will devote our attention to making our products and services available to the wider public by
      developing sales channels which will enable individuals to arrange all their financial matters in one place.
  – Comprehensive range of products and services and complementarities between the Group companies allow us to
      efficiently utilise internal synergies. In 2010 we shall strive to organise our operations in a manner that will ensure
      efficiency whilst at the same time preserving or even improving high quality standards of our services.
  – Due to stringent conditions on markets and sectors where the Group operates, we will have to focus primarily on the
      most promising markets and activities.




                                                             18
The KD Group                                           Annual Report 2009




SHARES, DIVIDENDS AND OWNERSHIP STRUCTURE

Basic information on shares, dividends and equity

KD Group's share capital totalled EUR 98,215,756.97 as at 31 December 2009 and was represented by 2,942,053 no-par-
value shares (of which 2,675,640 were ordinary shares of KDHR, while 266,413 were preference participating shares of
KDHP).

Ordinary shares of KD Group (KDHR) have been listed on the entry market of the Ljubljana Stock Exchange since 5
February 2001. At incorporation, all issued shares were defined as ordinary registered shares with voting rights and a
nominal value of EUR 33.38 each. The first General Meeting of Shareholders held in May 2001 passed a resolution
converting a maximum of 595,691 ordinary registered shares into cumulative preference shares with no voting rights.

Preference shares (KDHP) have been listed on the entry of the Ljubljana Stock Exchange since 12 July 2001. The rights of
holders of these shares include:
                    – the right of priority in payment of dividends before holders of ordinary shares in the amount of EUR
                         1.67, for a cumulative period of five years;
                    – in the event of a dividend payout to holders of ordinary shares, the right to the payment of additional
                         dividends of at least EUR 1.67, bringing the total dividend to a maximum of EUR 3.34;
                    – during the liquidation of the company, priority in the payment of residual assets before holders of
                         ordinary shares in the amount of EUR 33.38.

Authorised capital totalled EUR 49,107,878 as at 31 December 2009. Pursuant to the resolution passed at the 8th General
Meeting of Shareholders on 13 October 2005, the Management Board is authorised to increase the company’s share capital
by a maximum of EUR 49,107,878 by issuing new shares for cash or contributions-in-kind within five years following the
entry of the amendment to the Articles of Association in the Company Register (16 November 2005). The Management
Board has not yet used the authorised capital.

The book value of the KDHR and KDHP shares was EUR 57.38 as at 31 December 2009, a decrease of 23% from the
previous year, when it stood at EUR 74.57. The book value of a share is calculated as the book value of the equity of
majority shareholders as at the end of the accounting period under the IFRS, divided by the number of all shares, excluding
treasury shares, as at the end of the accounting period.

Net earnings per share amounted to EUR -20.35 in 2009, compared to EUR -2.55 in 2008. Net earnings per share was
calculated as the net profit pertaining to majority shareholders less dividends paid on preference shares (excluding treasury
shares) for the accounting period divided by the average number of all issued ordinary shares, excluding treasury shares, in
the accounting period.

Share price movement

Ordinary shares of KDHR in 2009
Transactions made on the Ljubljana Stock Exchange in 2009 in ordinary shares of KDHR totalled EUR 2,676,049.41. The
share price stood at EUR 54.50 at the beginning of the year. The lowest share price in 2009 was EUR 48.40, while the
highest price was EUR 61.46.


Basic indicators for ordinary shares of KDHR:
                                                                   As at 31st December 2009
             Share details              As at  December 2008
                                                31st                          (EUR)                     Index 09/08 (in %)
 Number of shares                                     2,675,640                     2,675,640                                 0
 Market price (in EUR)                                     54.10                        50.57                             -6.52
 Market capitalisation (in million EUR)                   144.75                       135.31                             -6.52
Sources: Ljubljana Stock Exchange, GVIN and own calculations of KD Group




                                                              19
The KD Group                                          Annual Report 2009




Comparison of changes in SBITOP (in points) and the share price of KDHR (in EUR) from 1 January 2009 to 31 December
2009:




Source: Ljubljana Stock Exchange


Preference shares of KDHP in 2009
Transactions made on the Ljubljana Stock Exchange in 2009 in preference shares of KDHP reached EUR 738,359.30. The
share price of KDHP began the year at EUR 25.29. The share price fell to its lowest value on the one but last trading day (29
December 2009), when it was worth EUR 18.21. There were considerably fewer transactions made in preference shares of
KD Group in 2009 than in ordinary shares, the difference being as much as 72.41 percent.

Basic indicators for preference shares of KDHP:
                                                                As at 31st December 2009
            Share details           As at 31st December 2008              (EUR)                     Index 09/08 (in %)
 Number of shares                                    266,413                     266,413                                 0
 Market price (in EUR)                                  25.29                      18.28                            -27.72
 Market capitalisation (in million
 EUR)                                                    6.74                        4.87                           -27.72
Sources: Ljubljana Stock Exchange, Bloomberg, own calculations of KD Group

Comparison of changes in SBITOP (in points) and the share price of KDHP (in EUR) from 1 January 2009 to 31 December
2009:




Source: Ljubljana Stock Exchange




                                                             20
The KD Group                                          Annual Report 2009



Ownership structure

The largest shareholder of KD Group is the company KD, finančna družba, d. d., owning 1,859,312 registered ordinary
shares of KDHR, or 69.49 % of all such shares, and 63.20 % of all shares issued. In all transactions with the parent company
KD in 2009, KD Group d. d. received the appropriate payments and compensation and did not suffer any losses as the result
of these transactions.

Ownership structure of KD Group d. d. as at 31 December 2009:
                                                       Number of
                                                      shareholders               Number of shares       Share (in %)
KDHR – registered ordinary shares
Domestic entities                                              26,075                    2,548,470                 86.62
 Legal entities                                                    112                   2,276,685                 77.38
 Individuals                                                   25,963                      271,785                  9.24
Foreign entities                                                   282                     127,170                  4.32
 Legal entities                                                     57                     124,623                  4.24
 Individuals                                                       225                       2,547                  0.09
Total KDHR                                                     26,357                    2,675,640                 90.94

KDHP – registered participating preference
shares
Domestic entities                                                   10,961                 225,945                  7.68
 Legal entities                                                         30                 114,656                  3.90
 Individuals                                                        10,931                 111,289                  3.78
Foreign entities                                                        56                  40,468                  1.38
 Legal entities                                                         13                  40,036                  1.36
 Individuals                                                            43                     432                  0.01
Total KDHP                                                          11,017                 266,413                  9.06
Total                                                               37,374               2,942,053                100.00

Ten largest holders of ordinary shares (KDHR) as at 31 December 2009:
                                                                                                        Proportion of all
                                                                                         Number of
                             Shareholder                              Location                           KDHR shares
                                                                                        KDHR shares
                                                                                                            (in %)
1          KD d. d.                                            Ljubljana                    1,859,312              69.49
2          KDH Naložbe d. o. o.                                Ljubljana                      111,095               4.15
3          Caranthania Investments                             Luxembourg                     102,457               3.83
4          Auctor d. o. o.                                     Ljubljana                       99,168               3.71
5          Avra d. o. o.                                       Ljubljana                       91,281               3.41
6          Adriatic Slovenica d. d.                            Koper                           46,000               1.72
7          Onisac d. o. o.                                     Ljubljana                       20,862               0.78
8          Zveza bank reg. z. zo. j. bank und revisions        Celovec                         17,897               0.67
9          KD Group d. d.                                      Ljubljana                       16,201               0.61
10         Šifrer Peter                                        Medvode                          7,982               0.30

           Total of the top ten holders of KDHR shares                                      2,372,255              88.66
           Others                                                                             303,385              11.34
           Total KDHR shares                                                                2,675,640                100




                                                             21
The KD Group                                         Annual Report 2009



Ten largest holders of preference shares (KDHP) as at 31 December 2009:
                                                                                                     Proportion of all
                                                                                   N umber of
                             Shareholder                             Location                         KDHP shares
                                                                                  KDHP shares
                                                                                                         (in %)
1          Adriatic Slovenica d. d.                           Koper                      51,306                 19.26
2          Cercia Holding Limited                             Limassol                   38,892                 14.60
3          Marles d. d.                                       Limbuš                     21,291                  7.99
4          KDH Naložbe, d. o. o.                              Ljubljana                  13,070                  4.91
5          Krona Senior d. d.                                 Ljubljana                  10,000                  3.75
6          Vovk Boštjan                                       Ljubljana                   7,665                  2.88
7          Niton d. o. o.                                     Ljubljana                   7,441                  2.79
8          PM & A d. o. o.                                    Ljubljana                   6,040                  2.27
9          Tomažin Matej                                      Ljubljana                   2,050                  0.77
10         Gostinstvo Žalec, d. o. o.                         Žalec                       2,019                  0.76
           Total of the top ten holders of KDHP shares                                  159,774                 59.98
           Others                                                                       106,639                 40.02
           Total KDHP shares                                                            266,413                   100

Ten largest holders of regular (KDHR) and preference shares (KDHP) jointly as at 31 December 2009:

                                                                                                     Proportion of share
                                                                                   Number of
                                                                                                          capital
                             Shareholder                             Location      KDHR and
                                                                                                      KDHR and KDHP
                                                                                  KDHP shares
                                                                                                           (in %)
1          KD d. d.                                         Ljubljana                  1,859,312                    63.20
2          KDH Naložbe, d. o. o.                            Ljubljana                    124,165                     4.22
3          Caranthania investments                          Luxembourg                   102,457                     3.48
4          Auctor d. o. o.                                  Ljubljana                     99,168                     3.37
5          Avra, d. o. o.                                   Ljubljana                     91,281                     3.10
6          Adriatic Slovenica d. d.                         Koper                         97,306                     3.31
7          Cercia Holding Limited                           Limassol                      38,892                     1.32
8          Marles d. d.                                     Limuš                         21,291                     0.72
9          Onisac d. o. o.                                  Ljubljana                     20,862                     0.71
10         Zveza bank reg. z. zo. j. bank und revisions     Celovec                       18,882                     0.64
           Total of the top ten holders of KDHP and KDHR shares                        2,473,616                   84.08
           Others                                                                        468,437                    15.92
           Total KDHP and KDHR shares                                                  2,942,053                     100

Treasury shares
KD Group d. d. held 16,201 ordinary KDHR shares representing 0.55% of the company's share capital as at 31 December
2009




                                                            22
The KD Group                                          Annual Report 2009



CORPORATE GOVERNANCE STATEMENT

Responsible corporate governance is the basis for all the KD Group’s activities. This mission is followed by the management
and supervisory bodies of the parent company KD Group, where a one-tier management system has been implemented
since 16 November 2009. KD Group d. d. provides the Corporate Governance Statement in accordance with the provision
from the fifth paragraph of Article 70 of the Companies Act. Explanations relating to the sixth paragraph of Article 70 of the
Companies Act are given in the section Shares, Dividends and Ownership Structure and on the company's website at
www.kd-group.com.


Management system of KD Group

In 2009, KD Group d.d. changed from a two-tier management system where competences are divided between the General
Meeting, Supervisory Board and the Management Board, to a one-tier management system where management process is
exercised with cooperation between the General Meeting and the Management Board. Below we present operations of the
General Meeting in 2009, whose competences in both systems are comparable, followed by a description of operations of
the two-tier management system which was exercised in the Company from its establishment and until 15 November 2009.
Further we provide description of the roles and position of the Management Board members, CEOs and audit committee in
relation to the General Meeting, as assumed by them on 16 November 2009.

1. General Meeting of Shareholders of KD Group

The General Meeting of Shareholders of KD Group d. d. adopts the basic decisions leading to the realisation of the central
economic objective: creating value for shareholders.

In 2009 the General Meeting held 12th, 13th and 14th General Meeting of Shareholders, with an average 84.13 percent
representation of all ordinary KDHR shares with voting rights. At the 13th General Meeting where, according to the agenda,
holders of the preference shares also had a right to vote, 20.68 percent of all preference KDHP shares were represented.

At the 12th General Meeting of Shareholders on 6 March 2009, the mandate of the Supervisory Board members was
extended.

At the 13th General Meeting of Shareholders on 28 August 2009, the Shareholders adopted a resolution not to appropriate
the balance sheet profit of EUR 8,903,201.33 as at 31 December 2009 and to defer the decision on its appropriation until the
next year. The Shareholders issued a discharge to the Management Board and the Supervisory Board, thus confirming and
approving the work of their members in 2008, further they adopted a resolution on determination of compensation to
members of the Supervisory Board and its Committee members, and appointed auditing firm Ernst & Young, d. o. o.,
Ljubljana, as the auditors for the financial year 2009.

At the 14th General Meeting of Shareholders on 9 November 2009, the Shareholders adopted amendments to the Articles of
Association of the Company related to the implementation of a one-tier management system, supplementation of the
Company's activity, and harmonisation of the provisions of the General Meeting of Shareholders with the Companies Act
ZGD-1C. Due to a transfer to a one-tier management system, the Shareholders decided that as of the day of registration of
the amendments to the Article of Association in the court register, the mandate of members of the Management and
Supervisory Board expires, and they appointed members of the first Management Board of KD Group for the first four-year
mandate.

Resolutions passed at the 12th, 13th and 14th General Meeting of Shareholders were published and are accessible on the
SEOnet website and at the Company's website at (http://www.kd-group.com/?subpage=741).




                                                             23
The KD Group                                          Annual Report 2009



2. Management bodies at KD Group d. d. – tasks and responsibilities in a two-tier management system




2.1. Supervisory Board

The operations of the parent company KD Group was until and including 15 November 2009, supervised by a three-
member Supervisory Board. Its powers and responsibilities were set out in its own Rules of Procedure, the company’s
Articles of Association and the applicable legislation. Due to a transfer to a one-tier management system, the mandate of
all members of the Supervisory Board expired whereby at the last day of their mandate, on 15 November 2009, the
composition of the Supervisory Board was as follows:

     •    Aleš Vahčič, PhD (Chairman), doctorate in economics

     •    Alojz Penko (Deputy Chairman), agronomic engineer

     •    Bojan Sekavčnik (Member), university graduate in economics

2.1.1. Work of the Supervisory Board

KD Group d. d.’s Supervisory Board held one constitutive session, eleven regular sessions and four correspondence
sessions in 2009. At its sessions, the Supervisory Board regularly monitored the Company's operations and that of the KD
Group and monitored the implementation of the adopted business plan. The Supervisory Board provided details regarding its
work in the Report of the Supervisory Board to Shareholders on Verification of the Annual Report. This report is submitted to
shareholders as part of the materials for the General Meeting of Shareholders, which decides on the appropriation of the
balance sheet profit.




                                                             24
The KD Group                                           Annual Report 2009




2.2. Management Board

Until 16 November 2009, KD Group was managed by the Management Board, appointed by the Supervisory Board for a
four-year mandate. The number of the Management Board members was stipulated in the Articles of Association, while the
scope of work and authorisations of individual members were after its expansion from a single to a four-member
Management Board allocated by the Supervisory Board. Until 3 February 2009 the Management Board represented a single
member - Matjaž Gantar. As of 3 February 2009, the Supervisory Board appointed a four-member Management Board with
a four-year mandate in the following composition:
• Matjaž Gantar (The President of the Management Board), university economics graduate,
• Peter Grašek (Member), bachelor of laws,
• Aljoša Tomaž (Member), university graduate in economics,
• Matija Šenk (Member), university graduate, mathematical engineer.

On 11 November 2009, the Supervisory Board relieved Aljoša Tomaž from his office as member of the Management Board
and appointed Draško Veselinovič, PhD. a new member as of 1 October 2009. Following the implementation of a one-tier
management system, the Management Board consisting of Gantar Matjaž, President, Peter Grašek, Draško Veselinovič
and Matija Šenk as members, ceased to operate and as from 16 November 2009, the majority of its competences for
managing the business (as explained in section 3 of this chapter) were transferred to Draško Veselinovič, PhD, CEO and its
Deputy, Peter Graško who were appointed by the Management Board members as CEOs.

2.2.1. Members of the Management Board hold the following offices on management and supervisory
       bodies of other companies
2.2.1.1. Matjaž Gantar
Company                              Function                                                                (as at 31.12.2009)
KD d. d., Ljubljana                  Member of the Management Board
Adriatic Slovenica, d. d., Koper     Member of the Supervisory Board
KD Banka d.d.                        President of the Management Board
Seaway Group, d. o. o., Bled         Member of the Supervisory Board
DRI Naložbe, d. o. o., Ljubljana     General Manager
Vila Zahod, d. o. o., Ljubljana      General Manager
KDH Naložbe d. o. o., Ljubljana      General Manager
KDG Naložbe d. o. o., Ljubljana      General Manager
Vila Nova d.o.o., Ljubljana          General Manager

2.2.1.2. Peter Grašek
As at 31 December 2009, Peter Grašek was not member of management or supervisory bodies of other entities.
2.2.1.3. Aljoša Tomaž
                                     Function                               (as at 11.8.2009, the last day of the office of a member of the
Company                              management of KD Group)
KD Banka d.d.                        CEO
Terme Maribor d.d., Maribor          Deputy chairman of the Supervisory Board
KD Upravljanje imovinom, d.o.o., Member of the Supervisory Board
Zagreb
KD Capital Management, Bucharest Member of the Management Board

2.2.1.4. Matija Šenk
                                     Function                          (as at 15.11.2009, the last day of the office of a member of the
Company                              management of KD Group)
KD Življenje d.d.                    President of the Management Board
KD Life Asigurari s.a., Bucharest    President of the Management Board
KD Life a.d, Sofia                   President of the Management Board
KD Životno osiguranje d.d., Zagreb   Member of the Supervisory Board
KD Fond de Pensii s.a., Bucharest    President of the Management Board
KD Banka d.d.                        Member of the Management Board



                                                              25
The KD Group                                                            Annual Report 2009




2.2.1.5. Dr. Draško Veselinovič
Company                                               Function                                                                                (as at 31.12.2009)
Krka d.d., Novo mesto                                 Member of the Supervisory Board


3. Management bodies of KD Group –tasks and competencies in a one-tier management system



                                                GENERAL MEETING OF
                                                  SHAREHOLDERS


  Appointing and recalling Management Board members                     Authorisation to convene the General Meeting
  Awarding discharge to Management Board members                        Formation of proposals for resolutions (appointing/recalling
                                                                        Management Board members, appropriation of undistributed profits,
  Deliberating on Management Board members‘ remuneration
                                                                        changes to the share capital, appointing the auditor and similar)
  Adoption of other resolutions in accordance with the law              tasks, report on the verification and approval of the annual report
                                                                        and opinion regarding the auditor’s report,
                                                                        Implementing the adopted resolutions
                                                                        Other reporting and notifying of the General Meeting


                                                                                                     Appointing/recalling chief executive
                                                                                                     officer (from within Management
                                                                                                     Board members)
                                                                                                     Appointing audit committee from
                                                                                                     within Management Board members
                                                                                                     and external experts)
                                                                                                     Signing contracts with chief executive
                                                                                                     officer, stipulating his /her
 Reporting and notifying regarding
                                                                                                     remuneration, approval of loans to
 business conduct
                                                             MANAGEMENT                              chief executive officer
 Preparation of the annual report
                                                               BOARD                                 Supervising chief executive officer’s
                                                        NON-EXECUTIVE MEMBERS                        business conduct
                                                                  +
                                                             CHIEF EXECUTIVE OFFICER


                                                              AUDIT COMMITTEE




3.1. Management Board


3.1.1. Operations of the Management Board

The Management Board is comprised of members, appointed by the General Meeting of Shareholders. The Management
Board manages and supervises the managing of the Company and represents Company in all matters that are outside the
competencies of the Chief Executive Officers. The Management Board must meet at least on a quarterly basis.

The Management Board from among its members appoints chief executive officers who present and represent the Company.
The Management Board's competences are applicable to all its members, with some of them being transferred to the two
CEOs. Therefore, in accordance with the Articles of association, the two chief executive officers present and represent the
Company, they manage daily business, they report entries and submit documents for entry in the register, they are in charge
of keeping books of account and of the annual report preparation. The two CEOs manage the business by complying with
instructions and limitations laid down by the Articles of Association, the Management Board, the General Meeting of
Shareholders and the Rules of procedure of the CEOs. The Management Board may at any time recall a Chief executive
officer.



                                                                                 26
The KD Group                                         Annual Report 2009




As from 16 November 2009, KD Group is managed and supervised by the Management Board (MB) in the following
composition:
• Matjaž Gantar (President MB), university graduate in economics,
• Aleksander Sekavčnik (Deputy president MB), university graduate in economics,
• Tomaž Butina (member MB, President of the Audit Committee), university graduate, computer engineer,
• Sergej Racman (member MB, Deputy President of the Audit Committee), engineer of physics and mathematics,
• Draško Veselinovič (member MB, CEO), doctorate in economic science,
• Peter Grašek (member MB, deputy CEO), bachelor of laws.
The Management Board held a constitutive session and one regular session in 2009. The Management Board provided
details regarding its work in the Report of the Management Board to Shareholders on Verification of the Annual Report. This
report is submitted to shareholders as part of the materials for the General Meeting of Shareholders, which decides on the
appropriation of the balance sheet profit and is also published on the Company's website.

3.1.2. Members of the Management Board hold the following offices on management and supervisory
       bodies of other companies
With regards to Matjaž Gantar, President of the Management Board, Draško Veselinovič, PhD and Peter Graško,
membersthe presentation is given in section 2.2.1. of this Chapter.


3.1.2.1. Aleksander Sekavčnik
Company                                                  Function                                       (as at 31.12.2009)
KD d.d., Ljubljana                                       Member of the Management Board
KD Življenje d.d., Ljubljana                             President of the Supervisory Board
KD Investments A.D., Beograd                             Member of the Management Board
KD Banka d.d., Ljubljana                                 Member of the Management Board
P.C.I. d.o.o., Ljubljana                                 General Manager
Sekavčnik in družbenik d.n.o., Ljubljana                 General Manager
PM & A FA d.d., Ljubljana                                Member of the Supervisory Board


3.1.2.2. Tomaž Butina
Company                                                  Function                                       (as at 31.12.2009)
KD d.d., Ljubljana                                       Member of the Management Board
KD Banka d.d., Ljubljana                                 Member of the Management Board
AVRA d.o.o., Ljubljana                                   General Manager
Dermatologija Bartenjev-Rogl d.o.o.                      General Manager




                                                            27
The KD Group                                          Annual Report 2009




3.1.2.3. Sergej Racman
Company                                                   Function                                       (as at day 31.12.2009)
KD d.d., Ljubljana                                        Member of the Management Board
Kolosej kinematografi d.o.o., Ljubljana                   President of the Management Board
Kolosej Maribor d.o.o., Maribor                           General Manager
Kolosej zabavni centri d.o.o., Ljubljana                  General Manager
Adriatic Invest d.o.o., Ljubljana                         General Manager
Priori d.o.o., Ljubljana                                  General Manager
XpanD d.o.o., Ljubljana                                   General Manager
Zabavna znanost d.d., Ljubljana                           General Manager
KD Življenje d.d., Ljubljana                              Deputy President of the Supervisory Board
KD Banka d.d., Ljubljana                                  Member of the Management Board
PM & A FA d.d., Ljubljana                                 President of the Management Board
PM & A IP d.o.o., Ljubljana                               General Manager
PM & A MT d.o.o.                                          General Manager
Adriatic Invest LLC., Wilmington                          General Manager
European Funds Inc, Wilmington                            General Manager
Sidbury Enterprises Ltd., Limassol                        General Manager
Auctor d.o.o., Ljubljana                                  General Manager


3.1.3. Equity stakes of the Management Board
As at 31 December 2009, members of the Management Board held the following direct stakes in the Company:
• Matjaž Gantar held 2,643 of ordinary registered shares KDHR;
• Tomaž Butina held 16 ordinary registered shares KDHR;
• Aleksander Sekavčnik held 3 ordinary registered shares KDHR;
• Sergej Racman, Draško Veselinovič, PhD and Peter Grašek held no direct ordinary shares of the Company as at 31
     December 2009.
The members of the Management Board currently hold no stock options in KD Group d. d.

3.1.4. Management Board's Committees
On 23 November 2009, in accordance with its competences, the Management Board appointed Audit Committee comprised
of president and three members. The Audit Committee is the Management Board's body that supports the management
Board in the fulfilment of its comprehensive responsibility for the supervision of the activities of the Company and its
subsidiaries including the accounting reporting system, internal control system, audit processes and processes used to
ensure compliance with the laws, regulations and internal rules as well as ethical guidelines or code of practice. The purpose
of the Audit Committee's activity is to allow the Management Board to exercise more reliable, efficient and successful
operations in realising the vision, mission and strategic goals of the Company and the Group. The Audit Committee is a
professional working core of the Management Board for the fields for which it is responsible, who submits its professional
proposals to the Management Board, reports its findings and is responsible for its actions to the Management Board.




                                                             28
           The KD Group                                                         Annual Report 2009




           4. Overview of remuneration paid to members of the management and supervisory bodies in 2009
NAME AND SURNAME                                                                                                                                                   Meeting fees and
                                                                                                                                                                   payments for
                             Fixed            Variable                                                                                                             membership in the
                                                                                                                   Reimburs       Insurance
                             earnings         earnings         Holiday            Profit              Option                                                       SB/MB/Audit
                                                                                                                   ement of       premiums-       Commission
                                                               allowance          participation       plan                                                         Committee, other
                                                                                                                   costs          PDPZ
                                                                                                                                                                   additional payments
                                                                                                                                                                   (copyrights, benefits
                                                                                                                                                                   and similar)
Matjaž Gantar 4                63,780.77                /          1,124.42                       /            /   1,166.19          248.40                    /               7,859.84
Peter Grašek 5                135,050.66                /          2,248.84                       /            /     956.80          248.40                    /               5,064.00
Aljoša Tomaž 6                140,869.99      115,676.16           2,248.84                       /            /   1,598.31           62.10                    /               8,168.93
Matija Šenk 7                 126,641.75                /          2,248.84                       /            /   1,455.67        2,170.50                    /                       /
Draško Veselinovič                                      /                  /                      /            /                                               /               1,976.44
                               21,131.00                                                                             204.56           41.40
PhD 8
Aleš Vahčič PhD 9                        /                /                 /                     /            /              /               /                /            150,102.06
Alojz Penko 10                           /                /                 /                     /            /              /               /                /              6,551.00
Bojan Sekavčnik 11                       /                /                 /                     /            /              /               /                /              6,025.86
Sergej Racman 12                         /                /                 /                     /            /              /               /                /              5,437.93
Aleksander Sekavčnik                     /                /                 /                     /            /              /               /                /             46,858.92
13

Tomaž Butina 14                          /                /                 /                     /            /              /               /                /               3,514.30
           *Gross amounts in euros. These remunerations are based on the performance of tasks and functions in the management and supervisory bodies of the KD
           Group as well as the tasks and functions in the management and supervisory bodies of the following subsidiaries: Adriatic Slovenica d.d.; KD Skladi d.o.o.;
           KD Življenje d.d.; KD Banka d.d.; KD Životno Osiguranje d.d., Croatia; KD Life, Bulgaria; KD Life, Romania; KD Life Ukraine and SC KD Fond de Pensii,
           Romania.


           5. Auditing and the internal control system

           The financial statements of KD Group d. d. and the KD Group for 2009 were audited by the independent auditing firm Ernst &
           Young d.o.o., Ljubljana. The certified auditor issued an unqualified opinion on the annual reports of KD Group d. d. and the
           Group KD Group for 2009. More about risk management can be found in the section on Risk Management in this Annual
           Report.

           6. Transparency of the Company's operations

           Transparency of operations is provided primarily by keeping shareholders and the general public informed, namely by
           providing regular bulletins and information about particular events. Information regarding operations, business plans and
           other important activities is published on the company’s website at www.kd-group.si, and on the Ljubljana Stock Exchange’s
           SEOnet website at http://seonet.ljse.si.

           7. Management of related parties

           Related companies are actively managed through representatives of the controlling entity in the management and
           supervisory bodies of these companies and by participation at the General Meetings.




           4 Matjaž Gantar: Company Director until 3 February 2009; President of the Management Board from 3 February until 15 November 2009; (non-executive)
           member of the MB since 16 November 2009.
           5 Peter Grašek: General Manager until 3 February 2009; member of the MB from 3 February to 15November 2009, Member of the MB and CEO since 16

           November 2009.
           6 Aljoša Tomaž: Assistant director until 3 February 2009, member of the MB from 3 February to 11 August 2009.
           7 Matija Šenk: head of projects until 3 February 2009 ; from 3 February to 15 November 2009, Member of the MB.
           8 Draško Veselinovič, PhD, Member of the MB from 1 October to 15 November .2009 , Member of the MB and CEO since 16 November 2009.
           9 Aleš Vahčič, PhD: Member of the SB until 15 November 2009.
           10 Alojz Penko: Member od the SB until 15 November 2009.
           11 Bojan Sekavčnik: Member od the SB until 15 November 2009
           12 Sergej Racman: Member od the MB since 16 November 2009
           13 Aleksander Sekavčnik: non-executive member of the MB since 16 November 2009.
           14 Tomaž Butina: non-executive member of the MB since 16 November 2009.




                                                                                        29
The KD Group                                          Annual Report 2009




Statement of the Management Board of KD Group d. d. about compliance with the Corporate
Code for Public Limited Companies
The Management Board of KD Group d.d., finančna družba, Celovška 206, 1000 Ljubljana (KD Group or the Company)
hereby declare that in the process of managing KD Group it follows provisions of the Corporate Code for Public Limited
Companies ( Official Gazette of the RS No. 118/05 as amended on 5 February 2007, as published on the official website of
the Ljubljana Stock Exchange d.d. http://www.ljse.si in the Slovene and English languages (the Code), whereas deviations
from provisions of individual chapters of the Code as determined during the drawing up of this statement, are disclosed and
explained below:


1. RELATIONSHIP BETWEEN THE COMPANY, SHAREHOLDERS AND OTHER STAKEHOLDERS

• Items 1.2.6. and 1.3.12:
In the past General Meetings of KD Group did not directly or through financial or other organisations and agents organise the
collection of proxy statements. Further, it did not indicate on its website that members of the management or supervisory
bodies were receiving proxy forms for voting at the General Meeting. If in future the Management of the Company assesses
that there is sufficient interest to organise such collection, it will ensure that the data is indicated and available on the
Company's official website.

2. MANAGEMET BOARD

• Items 2.3.2. and 2.3.3.:
Policy relating to compensation, remuneration and other benefits has not been determined in advance.

3. SUPERVISORY BOARD

• Items 3.1.7. , 3.1.10., 3.1.11. and 3.7.:
The Management Board is operating as a collective body and as a rule, meets in full composition, by participation of all
members, who at all times strive for quality work and professional decision-making process. Until this statement was
formulated, the Management Board did not implement assessment of work of individual members.

8. DISCLOSURES

• Item 8.2.:
In view of the existing Shareholder structure, costs, and as the majority of the Company's business partners are located in
the Republic of Slovenia and certain neighbouring countries, the Management Board believes that at the time of drafting this
declaration updated publication of its reports also in the English language is not necessary. All the key basic information
about the Company for English speaking business environment are included in the publication of the English language
Annual Report.

• Item 8.6.:
Financial calendar for the next financial year is not published on the Company's official website. Both, periodical and »ad
hoc« publications of all important business events are provided within the shortest possible deadlines as the Company is
striving to ensure quality information to all of its investors.


• Item 8.7.2.:
The Company does not directly monitor or publicise any potential conflicts of interest with other companies (ownership of a
significant share of voting rights in another company who also holds a significant share of voting rights of KD Group). All
received notifications of changes in the ownership of significant share of voting rights in KD Group are disclosed in a
transparent manner; in addition, the Company notifies other public limited companies of any potential changes in significant
share of voting rights of the latter in accordance with the current regulations.


In Ljubljana, 22 April 2010

President of the Management Board
Matjaž Gantar


                                                             30
The KD Group                                            Annual Report 2009




ANALYSIS OF OPERATIONS

Capital markets in 2009

The US and Europe in 2009

In the latter months of 2008, the financial crisis of 2007, with its epicentre in the USA who account for almost one quarter of
the world’s GBD and over 16 percent of global demand, shifted from financial markets to the real market, spreading to the
whole world. In the first quarter of 2009 there was no single safe investment as all sectors were in the red. In the beginning of
March, the US S&P 500 index fell through the 700 barrier and continued its fall, reaching its lowest point in the past thirteen
years on 9 March with 666 points. There was much talk about the possible repeat of the depression from the 1930s, about
the volatility of the financial system, potential nationalisation of some of the largest US banks, and similar scenarios. When
the probability of such scenarios occurring reduced and several sectors succeeded to regain the position before the failure of
the US investment bank Lehman Brothers, the conditions were right for the beginning of the strong growth of global stock
markets. The winner of the first half of the year was the technology sector which in the first six months of 2009 gained 24.08
percent, followed by the energy and raw materials sector with 12.28 percent growth and the sector of durable consumer
goods which in that same period gained 7.52 percent, whereas the financial and industrial sector remained in negative
figures in the first half of 2009 recording a 4.76 percent and 7.68 percent decline respectively. In the second half of 2009, the
market needed proof that the economy had reached the bottom and was eagerly awaiting the first information of the actual
outset of economical revival in the developed world. The next condition for higher exchange quotations was the publication of
profits achieved in the second quarter of 2009 which, in the case of US S&P 500 index, surpassed all analysts’ expectations
in over 70 percent of announced results. In addition to these, the zero interest rates and support in the increased liquidity of
central banks which additionally contributed to high gains on stock markets, should not be overlooked. After the credit crunch
in the second half of 2008 and the first few months of 2009, central banks were forced to, with increased liquidity, support the
financial sector, make available credit lines and support the remaining economy in the developed world. The US S&P 500
index recorded a nearly 26 percent growth at the end of 2009 and by the beginning of March, it increased by a total of 68
percent compared to its lowest point. Last year’s growth of the S&P 500 index is the highest since 2003. Revival of the
labour market and accessibility to and availability of new loans will be of key importance in 2010. The question of how stable
is the final consumption which is, as has been demonstrated several times, to a large extent dependent on the repayment of
debt of US consumers, still remains. In the past 20 years, consumers financed increased consumption with ever increasing
indebtedness, a process which is, at least for the time being, locked. Increased consumption on account of higher stock
market prices cannot be expected since real estate prices continue to be under pressure and nearly two thirds of an average
American family’s assets are tied in this particular segment. The rate of savings is currently stable at around 4 and 5 percent
and since production capacity utilisation remains at historically low levels, no wage and salary increases can be expected at
least in the short-term. The main risks that could in 2010 surprise investors include the following:

     •    Private sector’s inability to compensate for reduced government subsidies.
     •    Analysts’ expectations during the year may become too optimistic.
     •    Bank balances are worse than is currently reported.
     •    Any difficulties in China.
     •    Problems with government debt (Greece, Spain, Portugal, Ireland, Italy and other)
     •    US dollar growth and break in the “carry trade” process.


Other global markets

In the developing economies, the beginning of 2009 was marked primarily by a number of crises aimed at stimulating the
national economies. Central banks continued to reduce the base interest rates, while the governments were providing
cashrescue plan, planning increased budget expenditures and through changed tax policies, waived future budgetary
revenue. In November the government of the largest Asian economy, China, adopted aid package of nearly US$ 600 billion,
which accounts for nearly 15 percent of its gross domestic product, with a view to primarily increase expenditure for
infrastructure construction and modernisation, reduce taxes and provide welfare aid to the poorest. The global crisis was a
strong signal to China that it will have to change its GDP structure, increase the share of domestic consumption and reduce
its dependency on imports. In spite of a widespread scepticism that prevailed at the beginning of 2009, it is clear today that
in 2009, Chinese economy with its 8.7 percent growth in GDP, was the main driving force behind the global economic revival.
Despite low exports, by fiscal and monetary measures China succeeded in making domestic demand the principal driver
behind economic growth. With almost no exceptions, in 2009 central banks in developing economies reduced interest rates
and some also reduced obligatory reserves which commercial banks have to ensure.



                                                               31
The KD Group                                             Annual Report 2009



In India, successful parliamentary elections contributed to growth of the stock market index. At these elections, which lasted
for a month (from mid April to mid May), the leading Congress party were the conclusive winners with 206 seats out of a
total of 543, which is the best election result of any party since 1991. A day after the election results were announced, Indian
stock market, after a few interruptions in trading, recorded an incredible 17 percent growth. With a slight delay, positive news
began to trickle also from the Russian economy which was, due to its high dependency on exports of oil and some other raw
materials, during the economic crisis most affected among the developing economies. The Russian central bank at the end
of September again reduced the key interest rate to give additional boost to the domestic economy. Currently the key interest
rate stands at 8.75 percent.

One of the more piercing measures taken by the Brazilian government in 2009 was without a doubt expansion of its welfare
aid for the poor which is currently provided to over a million of the poorest households. Extensive aid and social reforms are
the reason why countries were able to more or less avoid otherwise expected social unrest and political crisis. The Brazilian
Bovespa index recorded a 121 percent growth in 2009. Towards the end of 2009, capital markets were shocked by the news
of impending bankruptcy of Dubai, but thanks to the intervention of Abu Dhabi, the news was short-lived.

Slovenia and the Balkan markets

Less liquid or marginal markets did not perform well in 2009 in terms of return. Almost all lagged behind the stock market
indices of developed countries and large developing countries. The main reason why these markets are rightly described as
marginal markets is certainly inefficiency of information technology and uncharacteristic deviation from foreign market trends.
On the other hand, these markets are relatively new and investors were more or less restricted to the local or regional areas.
All of the Balkan markets, including the Slovene market, reached their peaks as an example of a stock market boom fuelled
by speculations of takeovers and in terms of its size, it can be compared to that experienced by the technological market in
2009. An important element of fuelling these markets were high global tendencies to taking risks and low interest rates. The
Slovene SBI 20 index rose by 10 percent, Serbian Belex gained 15, Croatian Crobex 16 percent, and Macedonian MBI-10
recorded a 31 percent increase, whereas Bosnian SASX-10 closed at a loss of 15 percent. The region successfully
maintained stability in the most difficult period of the first half of 2009 primarily thanks to support provided by the IMF and the
EU as well as the commitment of all major European banks not to significantly lower their lending facilities. In terms of
currency, the highest depreciation was recorded by the Serbian dinar which lost 10 percent, and which affected positively on
higher cover of imports with exports, stimulated domestic exporters and due to underdevelopment of the economy, there was
a slight effect of imported inflation due to the general deflationary climate in importing partners. Slovenia recorded a
considerable increase in unemployment rate following a fall of some of the giants such as Mura, and there was a
considerable amount of uncertainty with regards to the fall of the domestic real estate market, which did not result in any
significant decline in real estate prices. Based on quarterly results of Slonep the price of one m2 of an apartment in Ljubljana
fell by an average of 3-6 percent, whereas December payout was by 6 percent higher than in the same period of 2008. In
terms of the average annual salary increase in Slovenia, housing prices in Slovenia are slightly higher compared to the
developed Western markets, whereas compared to the real estate prices in East and Central Europe, they are considerably
lower. Based on an average salary, an average Slovene can acquire 4.5 m2 of real estate compared to nearly 10m2 that can
be purchased by an average German house hunter or only 2m2 afforded by the Slovak or Bulgarian citizen. The past year
lead to disintegration of a number of large systems such as: Istrabenz, the Pivovarna Laško Group (whose negative results
burden the Slovene banking system), as well as Petrol. Foreign investments of some of Slovene companies such as
Zavarovalnica Triglav and Intereuropa proved to be less profitable which resulted in limited amount of inexpensive sources of
funds. In spite of low Euribor rate (0.7 percent) bank margins are high due to uncertain faith of the domestic construction
industry, numerous new provisions and continued difficulties in securing external funding.




                                                                32
The KD Group                                                 Annual Report 2009



Operations of the KD Group in 2009

The KD Group incurred a loss of EUR 44.2 million in 2009. During the year economic crisis at home and abroad deepened
which resulted in an additional write-off of investments in the Group.

Important operating indicators of the Group KD Group:
              – Operating revenue of EUR 367.9 million presents a decline of 6 percent compared to the previous
                   year. In terms of the revenue structure, net revenue from insurance premiums of EUR 330.1 million
                   account for 90 percent of total revenue,
              – At the end of 2009 the value of total assets stood at EUR 847,8 million, an increase of 7 percent
                   compared to 2008,
              – As at 31 December 2009, the Group's capital of EUR 151.6 million presents a 22 percent reduction
                   compared to 2008.


Important indicators
                                                                                                                                        Index
 Indicator                                                                                    2009                2008
                                                                                                                                      2009/2008
 Return on equity (in %)                                                                             (25.6)              (28.8)                   89
 Equity financing (capital / total assets) (in %)                                                      17.9                24.4                   73
 Earnings per share attributed to majority shareholders (in EUR)15                                   (17.1)              (29.7)                   58
 Share book value (in EUR)16                                                                         52.70               66.86                    79
 Market capitalisation / capital book value 17                                                        0.91                0.78                118




15Earnings per share attributed to majority shareholders:
Net profit of majority shareholders – dividend payout on preference shares (excluding treasury preference shares)
                   The average number of total issued shares excluding treasury shares
16   Share book value:
Capital book value of majority shareholders (as at 31 December 2009)
The number of total issued shares excluding treasury shares (as at 31 December 2009)


17   Market capitalisation / capital book value
Market capitalisation of both share classes (excluding treasury shares) (as at 31 December 2009)
Capital book value of majority shareholders (as at 31 December 2009)


Diluted earnings per share also take into account any granted options, convertible bonds or other similar financial instruments. As the
company issued no such financial instruments this indicator is identical to earnings per share attributed to majority shareholders.




                                                                     33
The KD Group                                               Annual Report 2009



Highlights from the income statement

                                                                                                                    Index
INCOME STATEMENT (in EUR thousand)                                                2009             2008
                                                                                                                  2009 / 2008
Operating revenue                                                                    367,869          391,619         94
  Net revenue from insurance premiums                                                330,130          321,283         103
  Net revenue from sales of goods and services                                         11,621           23,623        49
  Commission income                                                                    10,849           14,411        75
  Other operating revenue                                                              15,268           32,303        47
Net finance income*                                                                    45,098         (87,267)         -
Operating expenses                                                                  (431,399)        (354,212)        122
  Cost of services                                                                   (68,690)         (75,690)        91
  Labour costs                                                                       (57,577)         (64,406)        89
  Net benefits and claims paid                                                      (271,476)        (156,842)        170
  Other operating expenses                                                           (37,762)         (57,274)        66
Operating profit or loss                                                             (18,432)         (49,859)        37
Finance costs                                                                         (9,564)          (8,023)        119
Share of profit/loss of associate                                                    (23,427)         (27,407)        85
Income tax                                                                               7,200            8,286       87
Net profit or loss for the year **                                                   (44,223)         (77,004)        57

* The share of profits of associates is not included. Commission income is shown in a separate line.
** Includes the portion of net profit for the financial year attributed to minority owners.


Highlights from the balance sheet

                                                                                                                     Index
                                                                                                 31.12.2008
BALANCE SHEET (in EUR thousand)                                                 31.12.2009                        31.12.2009 /
                                                                                                  adjusted
                                                                                                                   31.12.2008

Assets                                                                               847,785          795,464         107
Intangible and tangible fixed assets                                                 106,451          104,532         102
Investment property                                                                    29,814           28,708        104
Financial assets and investments                                                     374,256          393,268         95
Receivables, inventories and other                                                   131,048          141,681         92
Unit-linked investments of policyholders and reinsurance contracts                   165,486            95,970        172
Cash and cash equivalents                                                              40,730           31,305        130
Equity and liabilities                                                               847,785          795,464         107
Equity *                                                                             151,605          192,247         79
Liabilities arising from insurance contracts                                         296,098          279,766         106
Unit-linked liabilities to policyholders                                             140,109            79,309        177
Investment contracts                                                                   17,703           16,394        108
Financial liabilities                                                                196,132          181,909         108
Operating and other liabilities                                                        46,137           45,838        101

* Also includes minority interest.


                                                                     34
The KD Group                                                                                    Annual Report 2009



Operating revenue

Structure of operating revenue

Operating revenue amounted to EUR 367.9 million in 2009, down 6percent compared to 2008. Net revenue from insurance
premiums, which represents the largest share of total operating revenues (90%), was up 3 percent from 2008 to EUR 330.1
million. Net revenue from sales of goods and services was down 51 percent in 2009 to EUR 11.6 million. The main reason
lies in the sale of the cinematography activity in September 2008, whose relevant amount of revenue was included in the
consolidated revenue. A sharp drop was also recorded in revenue from fees and commissions primarily due to the tightening
of financing conditions. Revenue from fees and commissions was down 25 percent compared to 2008 and stood at EUR
10.8 million. Other operating revenue accounts for 4 percent of total operating revenue.

Operating revenue and changes in 2009 and 2008 (in EUR thousand):
                                 450.000
                                                                                                         391.619
                                                                 367.869
                                 400.000
                                                                                15.268                       32.303             Other operating
                                 350.000                                                                               14.411   revenue
     Operating income ( in EUR thousand )




                                                                                10.849
                                                                                11.621                       23.623
                                 300.000
                                                                                                                                Commission revenue
                                 250.000

                                 200.000
                                                                                                                                Net revenue from
                                                                 330.130                                     321.283            sales of goods and
                                 150.000
                                                                                                                                services
                                 100.000                                                                                        Net revenue from
                                                                                                                                insurance premiums
                                            50.000

                                                0
                                                                  2009                                        2008

Sales revenue
Sales revenue18 amounted to EUR 352.6 million in 2009. The majority of revenue was earned by insurance activity (figure
below total property, life and health insurances), accounting for 95 percent of total revenue of the Group.
Structure of sales revenue by business segment in 2009 (in %):
                                                                               Banking         Other
                                                     Financial services          0%             2%
                                                            3%




                                                                  Health insurance           Property insurance
                                                                        28%                         41%




                                                                            Life insurance
                                                                                  26%




18    Sales revenue: Net revenue from sales of goods and services + net revenue from insurance premiums + revenue from fees and commissions


                                                                                                        35
The KD Group                                                                                            Annual Report 2009



Sales revenue by business segment in 2009 and 2008 (in EUR thousand):

                                              160.000
                                                          142.736 137.832
                                              140.000

                                              120.000
 Sales revenue in EUR thousand)




                                                                                               100.150 95.961
                                              100.000                        90.075 89.509

                                               80.000

                                               60.000

                                               40.000
                                                                                                                           16.094                         12.128
                                               20.000                                                             11.381                                            7.571 7.793
                                                                                                                                        686   0       0
                                                   0
                                                        Property insurance   Life insurance   Health insurance   Financial services      Banking   Cinematography     Other


                                                                                                 2009                      2008


In terms of sales, property insurance leads with EUR 142.7 million followed by health insurance (EUR 100.2 million) and life
insurance with EUR 90.1 million. The first two recorded 4 percent growth, while life insurance recorded 1 percent increase
compared to 2008. Revenue earned by financial services fell on account of lower commissions, whereas cinematographic
sector will probably be sold.

Net finance income from investments

Net finance income from investments reached EUR 45.1 million in 2009. The reason for the higher net inflow was the revival
of stock markets which resulted in an increase of financial assets (financial assets measured at fair value through profit or
loss).

Net finance income from investments by business segment in 2009 and 2008 (in EUR thousand):
                                              60.000
      Net finance income ( in EUR thousand)




                                              40.000

                                              20.000                         45.098

                                                   0

                              (20.000)

                              (40.000)
                                                                                                                                      (87.267)
                              (60.000)

                              (80.000)

               (100.000)
                                                                              2009                                                     2008




                                                                                                                 36
The KD Group                                                            Annual Report 2009



Operating expenses

In 2009 operating expenses19 totalled EUR 431.4 million, up 22 percent compared to 2008. In the operating expenses
structure, the majority, 63 percent represents net expenditure for insurance entitlements and claims, which recorded a 73
percent increase in 2009, primarily due to increase in liabilities to the unit-linked investments (stock prices growth in 2009
compared to 2008) and thus the increase in long-term insurance provisions. Compared to the previous year, costs of
services which account for 16 percent of total operating expenses, are down by 9 percent, as are labour costs which account
for 13 percent of total costs and which recorded an 11 percent decline. This reduction is due to the disposal of
cinematographic activities and rationalisation of the costs in the Group. Majority of other expenses present revaluation
operating expenses due to impairment of receivables, loans and goodwill.

Structure of operating expenses and changes in 2009 and 2008 (in EUR thousand):
                                                              2009               2008
                                                       0
      Operating expenses ( in EUR thousand )




                                                            (68.690)           (75.690)                          Other expenses
                                               (50.000)
                                         (100.000)          (57.577)           (64.406)
                                         (150.000)                                                               Net expenses for
                                         (200.000)                                                               claims
                                                                              (156.842)
                                         (250.000)          (271.476)
                                                                                                                 Labour costs
                                         (300.000)
                                                                               (57.274)
                                         (350.000)
                                         (400.000)                                                               Cost of services
                                                            (33.657)          (354.212)
                                         (450.000)
                                                           (431.399)
                                         (500.000)


Net profit or loss

The Group recorded a net loss in the amount of EUR 44.2 million in 2009.
The tightened financing conditions resulted in the impairment and write-down of some of financial investments. Profits were
generated in 2009 by the health insurance (EUR 3.8 million) and property insurance (EUR 2.2 million). The largest loss was
recorded by financial services (EUR 35 million), followed by life insurance (EUR 10.4 million) and banking sector which
incurred a loss of EUR 3.4 million.

Net profit or loss of the Group in 2009 and 2008 (in EUR thousand):
                                                            2009                 2008
                                                   0

                           (10.000)
 Net profit or loss ( in EUR thousand)




                           (20.000)                        (44.223)
                           (30.000)

                           (40.000)                                            (77.004)

                           (50.000)

                           (60.000)

                           (70.000)

                           (80.000)

                           (90.000)



19 Expenses and costs are shown with a negative sign so that the tables in the analysis of operations are in line with the tables in the financial section of the

Annual Report.


                                                                               37
The KD Group                                                                                              Annual Report 2009



Net profit or loss by business segment in 2009 and 2008 (in EUR thousand):
                                                     Property insurance     Life insurance    Health insurance   Financial services     Banking    Cinematography      Other
                                           10.000                                               3.808
                                                        2.180                                           1.668
                                                                                                                                               0      0   -110               -490
                                                0
 Net profit or loss ( in EUR thousand)




                                                                                                                                                                    -1.368
                                                                                                                                      -3.418
                                           -10.000
                                                                          -10.429
                                           -20.000              -13.715
                                                                                    -20.961
                                           -30.000

                                                                                                                  -34.996
                                           -40.000

                                                                                                                         -43.396
                                           -50.000


                                                                                                 2009                       2008


Assets

Total assets of the Group stood at EUR 847,8million at the end of 2009, an increase of 7 percent compared to total assets of
EUR 795,5 million at the end of 2008.

The highest growth was recorded by investments of the insured and reinsurance contracts (72 percent) which is tied to the
growth in stock market prices in 2009. Cash and cash equivalents increased by 30 percent compared to 2008, pointing to an
improved liquidity of the Group when compared to the end of 2008. In terms of their structure, financial assets and
investments which declined by 5 percent in 2009 primarily due to write-offs and impairments, account for 44 percent of total
assets.

Assets and changes in 2009 and 2008 (in EUR thousand):
                                         900.000                      847.785
                                                                                                                         795.464                      Cash and cash
                                                                          40.730                                                                      equivalents
                                         800.000                                                                            31.305
                                                                          165.486                                           95.970
                                         700.000                                                                                                      Unit-linked investments
                                                                                                                                                      of policyholders and
                                         600.000
    Assets ( in EUR thousand)




                                                                          131.048                                           141.681                   reinsurance contracts
                                                                                                                                                      Receivables,
                                         500.000                                                                                                      inventories and other
                                         400.000                                                                                                      Financial assets and
                                                                          374.256                                           393.268                   investments
                                         300.000

                                         200.000                                                                                                      Investment property

                                                                          29.814                                            28.708
                                         100.000
                                                                          106.451                                           104.532                   Intangible and tangible
                                                0                                                                                                     fixed assets
                                                                    31.12.2009                              31.12.2008 restatement




                                                                                                                   38
The KD Group                                                                             Annual Report 2009



In terms of the structure of assets by business segment, the major share is taken by the insurance segment with 68 percent,
and financial services (25 percent), whereas banking segment accounts for only 5 percent of total assets. All segments
recorded an increase in assets with exception of banking services where due to impairment and write-offs, the assets
declined by 26 percent compared to 2008. The highest growth in assets (34 percent ) was recorded by the life insurance
segment.

Structure of assets by business segment as at 31 December 2009 (in %):
                                                                                                  Other
                                                            Banking                                2%
                                                              6%




                                                                                              Property insurance
                                                            Financial services                       29%
                                                                  25%




                                                                                     Life insurance
                                                                                           33%
                                   Health insurance
                                          5%




Assets by business segment as at 31 December 2009 and 2008 (in EUR thousand):
                             350.000
                                                              292.170                                               282.420
                             300.000
                                        243.796 239.434
                             250.000
 Assets ( in EUR thousand)




                                                                        218.568
                                                                                                          209.467
                             200.000

                             150.000

                             100.000
                                                                                     39.974 38.227                             46.752
                              50.000
                                                                                                                                            15.625 16.363
                                                                                                                                        0
                                  0
                                       Property insurance     Life insurance        Health insurance      Financial services     Banking        Other


                                                                                  2009                 2008



Equity and liabilities

Equity was reduced by 22 percent to EUR 151.6 million at the end of 2009, primarily due to a reduction in capital surplus.
Liabilities to the unit-linked investments rose to EUR 140 million and there was also an increase in liabilities from insurance
contracts which at the end of 2009 stood at EUR 296.1 million. Financial liabilities of EUR 196.1 million represent an 8
percent increase, slightly more than the 7 percent increase of total equity and liabilities.



                                                                                                 39
The KD Group                                                  Annual Report 2009



The equity independence ratio indicating the share of equity in total liabilities (shown in the introductory overview of ratios)
dropped to 17.9 percent as a result of a decrease in equity. It should be noted that the ratio is low primarily due to the
specific characteristics of the insurance balance sheets which include liabilities arising from insurance contracts within items
of equity and liabilities.

Equity and liabilities and changes as at 31 December 2009 and 2008 (in EUR thousand):
                                 900.000          847.785                                         Operating and other
                                                                          795.464
                                                   46.137                                         liabilities
                                 800.000
 Equity and liabilities ( in EUR thousnad)




                                                                           45.838
                                 700.000          196.132                                         Financial liabilities
                                                                           181.909
                                 600.000           17.703
                                                                           16.394
                                                  140.109                  79.309                 Investment contracts
                                 500.000

                                 400.000
                                                                           279.766                Unit-linked liabilities to
                                 300.000          296.098                                         policyholders

                                 200.000                                                          Liabilities arising from
                                                                                                  insurance contracts
                                 100.000                                   192.247
                                                  151.605
                                             0                                                    Equity *
                                                 31.12.2009    31.12.2008 restatement

Business operations of KD Group d.d. in 2009



Significant operating indicators of KD Group d.d.:
               – KD Group d.d. ended the year 2009 with a loss of EUR 52.8 million,
               – Operating expenses in 2009 reached EUR 7.3 million, a drop of 51 percent compared to the previous
                    year. The effects of rationalisation were reflected primarily in the reduction of costs of goods, materials
                    and services (56 percent reduction) and labour costs (26 percent reduction),
               – Financial revenue of EUR 8.3 million represents a drop of 84 percent compared to 2008 mainly on
                     account of lower financial revenue from shares and interests,
               – Compared to 2008, financial expenses increased by 24 percent. Deepened economic crisis at home and
                     abroad resulted in additional impairment and write-off of investments which totalled EUR 54.8 million,
               – At the end of 2009, total value of assets reached EUR 336.4 million, a drop of 11 percent compared to
                     2008,
               – As at 31 December 2009, equity of EUR 162.3 million presents a 23 percent reduction compared to
                     2008,
               – Compared to 2008, financial liabilities rose by 6 percent to EUR 168.3 million, accounting for 50 percent
                     of total equity and liabilities. In terms of financial liabilities, there was a reduction in long-term financial
                     liabilities to banks, and an increase in short-term financial liabilities to the Group companies.




                                                                     40
The KD Group                                       Annual Report 2009




Highlights from the income statement

                                                                                                           Index
INCOME STATEMENT (in EUR thousand)                                      2009             2008
                                                                                                         2009 / 2008
Gross operating income                                                          501              659         76
Operating expenses                                                         (7,252)          (12,378)         59
Costs of goods, materials and services                                     (3,025)           (6,828)         44
Labour costs                                                               (3,636)           (4,903)         74
Amortisation and depreciation                                                  (536)            (453)        118
Other operating expenses                                                        (54)            (195)        28
Operating profit or loss                                                   (6,751)          (11,719)         58
Finance revenues                                                               8,262         53,003          16
Finance revenue from shares and interests                                      6,222         49,240          13
Finance revenue from loans                                                     2,016            3,714        54
Finance revenue from operating receivables                                       23                 49       47
Finance expenses                                                          (62,818)          (50,675)         124
Finance expenses due to investment impairment and write-off               (54,784)          (42,088)         130
Finance expenses from financial liabilities                                (7,805)           (8,565)         91
Finance expenses from operating liabilities                                    (228)             (22)       1.040
Other revenue                                                                   197                 7       2.829
Other expenses                                                                  (0)            (295)          0
Deferred tax and income tax                                                  8,283             3,380         245
Net profit or loss for the year                                           (52,827)           (6,299)         839




Highlights from the balance sheet

                                                                                                            Index
BALANCE SHEET (in EUR thousand)                                     31.12.2009         31.12.2008        31.12.2009 /
                                                                                                          31.12.2008
Assets                                                                    336.356           379.611          89
Long-term assets                                                          291.368           323.904          90
Long-term financial assets                                                271.104           301.716          90
Long-term operating assets                                                 20.264            22.188          91
Current assets                                                             44.988            55.707          81
Short-term financial assets                                                33.732            47.495          71
Short-term operating assets                                                11.257               8.212        137
Equity and liabilities                                                    336.356           379.611          89
Equity                                                                    162.305           210.917          77
Provisions                                                                       21                 32       65
Financial and operating liabilities                                       174.030           168.662          103
Financial liabilities                                                     168.258           158.241          106
Operating and other liabilities                                                5.772         10.421          55



                                                          41
The KD Group                                            Annual Report 2009




Risk management

In times of deepened financial and economic crisis, the Management Board of KD Group is regularly adopting measures that
will to the largest possible extent impact risk management and contribute to the achievement of set goals.

Conditions in the internal and international business environment deteriorated significantly in 2009. Thus the deepening of
the financial turmoil has already been felt in the real sector of the economy. In this situation, risk management at the
company and the Group KD Group was immediately adapted to new conditions. Since the situation does not permit us to
exert excessive influence on the revenue side, we are focused on the more efficient handling of resources, increasing
effectiveness and searching for additional opportunities to exploit synergies.

Strategic risks

KD Banka, which designed the overall risk management strategy, began operating in 2009. It defines, forecasts and
summaries for each individual type of risks the strategies applicable to risk assumption and management, as well as policies
relating to risk assumption and management in conjunction with the internal control system organisation that ensures the
implementation of the strategies. This lays down clearly and transparently the responsibilities, competences, systems and
processes from the Management Board, executive officers up to the senior management and all those involved in the risk
management system.

Strategic risks that affect the long-term development of the Group include the risk of a loss due to incorrect and/or untimely
business decisions made by the Group companies, inappropriate implementation of the adopted decisions, and insufficient
response of the Group companies to changes in the business environment. This is of exceptional importance particularly in
such major changes in business environment as has been witnessed recently by the majority of global economy. In these
conditions risks should be managed by implementing and regular monitoring of the appropriateness of the Group's
strategies, their implementation and timely response to changed business circumstances.

Due to highly diversified activities of the companies owned by KD Group, investment decisions taken in individual segments
continue to be of key importance. Therefore, the managing and governing system is continually adjusting to the external
changes and the development of individual segments, as well as to the achievement of target returns.


General business risk

Our activities and decisions have no impact of the wider economic environment or relevant legislation. Thus risks are more
difficult to measure and model. We manage these risks by regularly monitoring legislation, capital markets and
macroeconomic parameters. Amendments to legal regulations that significantly affect our business environment are quite
frequent and complex. A series of legislative changes have occurred in Slovenia and the countries of South Eastern Europe
in the past year that have affected our key areas of operations and required numerous activities to adapt them.

Financial risk

The primary purpose of financial risk management is to achieve stable operations and reduce exposure to specific risks to an
acceptable level. The Group is highly exposed to financial risks through its financial assets and liabilities, reinsurance
receivables and insurance liabilities. The possibility that inflows from financial investments will not be sufficient to cover
outflows from insurance contracts represents the main risk, as well as the risk that, at a given moment, other companies will
not have sufficient funds to settle their current liabilities or to maintain current operations. Given that most companies in the
Group are involved in regulated activities, this area is already controlled to a large extent by observing legislative provisions.

The most significant components of financial risk are changing interest rates and securities prices, and currency and credit
risk. It became clear in the most recent period that financial risk and its management are of key importance for the
achievement of set objectives. Therefore, we continuously plan and monitor cash flows and attempt to proactively ensure the
stability of our operations.

The risks related to market risk management are managed independently by Group companies using methods linked
primarily to the legal aspects of specific industries and may vary significantly by individual divisions. Group companies
monitor and manage market risks from investments in financial instruments by carefully selecting the sector and
geographical composition of investments. In the segment of asset management, market risks are monitored, assessed, and


                                                               42
The KD Group                                             Annual Report 2009



managed by using quantitative methods of risk assessment compared to the selected returns criteria. In accordance with the
Insurance Act, insurance companies are obliged to match long-term business fund investments with their liabilities arising
from insurance contracts, the amount of which depends on changes in exchange rates, interest rates and securities prices.

The method of managing these risks and exposure thereto are presented in detail in the financial section of the consolidated
Annual Report.

Operational risk

Operational risk (including legal risk) is the risk of loss arising primarily due to inadequate or incorrect implementation of
internal controls, other inappropriate conduct by personnel involved in the company's internal operations, inadequate or
incorrect functioning of systems that relate to the company's internal operations, and external events or acts. Operational risk
also includes IT risk, which is the risk of data loss resulting from inadequate information technology and processing,
particularly in terms of manageability, access, integrity, supervision and continuity. Operational risk is managed by
companies by identifying opportunities and threats in their respective areas and by managing business processes. The
management of these risks is subordinate to the strategic and business objectives of individual segments and companies.

In all larger KD Group companies, we manage operational risk by introducing ISO standards (at companies where this
makes sense due to the complexity of processes) and using standard software for accounting and investments. Risks are
also mitigated by a standardised system of annual planning and monthly reporting that provide the parent company with
information about the operations of subsidiaries in a timely manner. In this regard, the new planning model facilitates flexible
planning and contributes to the monitoring of established objectives and the timely adoption of measure in the context of a
change in assumptions.

The internal audit department has been particularly diligent with regard to signs of fraud in all previously performed internal
audits. In this respect, the internal audit department assesses the probability of fraud arising. Any deviations are reported in
the scope of individual internal audit reports. Risks of improper conduct of people, in the context of increased pressures on
employees as a "by-product" of the current turmoil, may also be seen as the increased risk of fraud, common in the
international environment. Therefore, time has been reserved in the proposed plans of the internal audit department for
2010 to raise the awareness of our employees. Plans include training on the subject of recognising indicators or signs of
fraud.


Insurance risks

Within the framework of insurance risk, the operations of insurance companies are exposed to underwriting process risk,
product design risk, pricing risk, economic environment risk, policyholder behaviour risk, reserving risk and claims risk.

In view of the above, and the nature of insurance contracts, where insurance risks are random and unpredictable, insurance
companies in the Group have developed their own policies for concluding insurance contracts in order to diversify the
assumed risks. Measures taken in order to manage insurance risks are as follows:
                – risks that exceed a predetermined amount are transferred to a reinsurance company;
                – diversification of assumed risks and achieving sufficient number of risks in individual categories to reduce
                    variability of anticipated results (diversification and portfolio increase),
                – parameters defining the insurance premium are assessed adequately when new insurance products are
                    developed;
                – effective implementation of internal controls,
                – creation of appropriate amount of provisions,
                – monitoring and analysing changes to ensure timely and proactive measures.

Details regarding the distribution of maximum loss (maximum insured sum) by the sectors in which policyholders operate and
the diversification of the insurance portfolio (exposure to the largest policyholders) are disclosed in the financial section of the
Annual Report.




                                                                43
The KD Group                                               Annual Report 2009




Human resource risk

The risks in this area are carefully managed at the Group level and directly through individual companies in the Group, as
employees are the key to our success. To mitigate the risk of excessive employee turnover, we educate and train our
employees, attend to the working environment and general employee satisfaction, organise meetings of all employees,
stimulate affiliation with the Group, strengthen the social security of employees with additional insurance, and by
implementation of modern human resource policies and practices in line with the adopted human resource vision and
strategy.

More information about employees is included in chapter Human resources and their development.

Reputation risk

A potential loss due to a negative corporate or Group image is difficult to measure and even more difficult to correct. We
maintain and augment the Group's reputation and boost the value of our brands in the eyes of our customers, business
partners, owners, investors and regulators through good performance and by managing all other risks. We constantly
communicate with the community and financially support numerous cultural and sporting events, and humanitarian
campaigns.

IT-related risk

We constantly introduce new information support for work process at all companies in the Group. We manage this process
through an appropriate organisational structure, the inclusion of specialist departments, internal auditing, diligent testing and
project management. In 2009, the information systems of Group companies functioned well, without major interruptions that
would have a significant impact on the company's operations.


Legal risk

Legal risks form an integral part of operational risks. We define these risks as a behaviour, the consequence of which is the
legally justified intervention of a third party in the company's operations that causes it material or moral damage. This could
arise as a result of violations of regulations, internal instructions, professional recommendations, contracts, good practices or
ethical standards. These risks are managed through the adoption of internal rules of operation aimed at reducing the
probability of harmful consequences and preventing actions caused by such circumstances. The legal function is integrated
into the adoption of business decisions, providing for the timely detection of legal risks.

Incidental risk

Incidental events are quite rare but may have severe consequences for operations. The company protects itself against
incidental risk through insurance or reinsurance contracts.

Risk related to securities issued by KD Group d. d.
The holders of securities issued by KD Group d. d. are exposed to the following risks:
     -    Market risk: shares and bonds are sensitive to changes which the issuer cannot influence such as changes in the
          economy or legislation, crises, and natural and ecological disasters.
     -    Liquidity risk: the risk of a security holder not being able to sell a security or only being able to sell it at a lower price
          owing to insufficient demand.
     -    Credit risk: the risk of the bond issuer failing to pay interest and principal.
KD Group d. d. can only influence the exposure to credit risk by managing other risks and thus influencing the stability and
long-term growth of the Group.




                                                                  44
The KD Group                                              Annual Report 2009




Internal audit

In 2009, the internal audit department, as an active member of the internal control system, helped the company and the KD
Group achieve established objectives by stimulating a prudent and regulated method of evaluating and improving the
effectiveness of procedures for controlling and managing risks and thus contributed to the generation of added value by
providing independent and impartial findings and serving in an advisory role. In 2009, it also directly verified whether the
internal control system is established, if it functions and whether it is effective in its objective to continue ensuring the legality,
security, effectiveness and efficiency of operations and the protection of assets. Furthermore, the internal audit department
was responsible for improving risk management and the recognition of the internal audit department within the Group by
carrying out individual audits, through its advisory function and by organising training for all Group employees.

Based on the internal audit department's strategy adopted in 2007 and uniform rules on internal audit planning and reporting,
the internal audit department amended and expanded general internal audit rules in 2009 with the aim of achieving
standardised actions, greater efficiency and the success of the internal audit function at the Group level. This led to adoption
of a revised Document on the internal audit function. The revised document was drafted as a result of substantial
amendments to the binding internal audit standards and changes in the management of KD Group d.d. (one-tier system) and
represents the minimum standard applicable to the Group. Furthermore in 2009 we adopted the Policy of cooperation and
development of the internal audit function of the KD Group with a view of utilising synergies, harmonisation, and with an aim
of sharing the knowledge and best practices among internal audit services which are, in terms of their status and
organisation, part of an independent and decentralised system.

At the Group level, internal audit function is uniform to the extent that ensures that internal audit of the KD Group in individual
subsidiary is involved in the selection of internal auditors, in annual preparation of plan of work, and in monitoring the
implementation of recommendations and reporting in a manner that, in accordance with the professional recommendations, it
acts as a coordination unit, and is charged with the development of standard internal audit methodology and general
development of the internal audit function within the Group. The professional qualification of internal audit department
employees is appropriate. Two internal auditors employed at KD Group d. d. are experienced in the areas of external and
internal auditing and hold the relevant titles as bestowed by the Slovenian Institute of Auditors (certified internal auditor and
certified accountant), as well as internationally recognised (CIA) and other titles (state internal auditor and state auditor).


In 2009 we continued to carry out surveys of the audit subjects after completion of the internal audit (i.e. following a
consolidated and final audit report). Based on the survey we drafted a plan of activities aimed at additional increase in the
satisfaction of audit subjects and at raising internal audit's added value.

Human resources and development

At the Group KD Group we are aware that our employees are our important asset and investment for the future. With this in
mind we devoted much effort into development, education and primarily promotion of innovative potential of our employees
in all segments and at all levels of the Group. Therefore, we have specified what human resource management means and
also redefined new roles of HR leaders as the key holders of the HRM function. Moreover, the Management devotes much
attention to monitoring, measuring efficiency and particularly improving and upgrading the manner of work. We should also
highlight the even more important role of internal communication and to this aim the most senior management of the Group
was introduced and maintained dialog with all the employees.

Within the framework of human resource strategy, we designed the concept of centralised HRM. Furthermore we redesigned
and underlined the human resource management vision and mission and established its strategic goals.

Key strategic goals of human resource management of the Group KD Group remain unchanged from one year to the other
as these are of key importance for implementation of our vision. These goals include efficient HR organisation, interaction
and orientation towards common goals, activities that are consistent with values, inter-cultural cooperation and employee
mobility, excellent system of employee remuneration and motivation, as well as recognition in terms of professional
competence and innovation of employees.




                                                                  45
The KD Group                                   Annual Report 2009



Number of employees
                                                                                                                           Average
                                                                    31.12.2008                   Index      31.12.2009    number of
                           Company                 31.12.2008                     31.12.2009
                                                                   (share in %)                2008/2009   (share in %)   employees
                                                                                                                           in 2009
AS division
Adriatic Slovenica d. d., Koper                            1,033       53.00%          1,006         103       56.52%          1,020
AS Neživotno osiguranje, Beograd                              15        0.77%             49          31        2.75%             55
Life insurance division
KD Življenje, zavarovalnica, d. d.                          156         8.00%            181          86       10.17%           176
KD Životno osiguranje d. d., Zagreb                          17         0.87%             42          40        2.36%            31
KD Life AD, Sofia                                            49         2.51%             32         153        1.80%            36
KD Life Asigurari, S.A., Bucharest                           37         1.90%             43          86        2.42%            43
KD Life d. d., Kiev                                          51         2.62%             15         340        0.84%            37
SC KD Fond De Fond SA Bucharest                               8         0.41%              7         114        0.39%             8
ZAP d. o. o., Murska Sobota                                   0         0.00%              0           -        0.00%             0
World Life Group, Limassol                                    -              -             0           -        0.00%             0
Vitavizia, Vipava                                             -              -             0           -        0.00%             0
KD Finančna točka d. o. o., Ljubljana                       155         7.95%             60         258        3.37%            96
KD Finančna točka d.o.o., Bucharest                           3         0.15%              0           -        0.00%             2
KD Financial point, s.r.o., Bratislava                        2         0.10%              0           -        0.00%             0
KD Finančna točka d. o. o., Zagreb                            0         0.00%              0           -        0.00%             0
KD Finančna točka d.o.o., Bulgaria                            -              -             3           -        0.17%             0
KD Mark, d. o. o., Ljubljana                                  2         0.10%              2         100        0.11%             2
Financial operations division
KD Group d. d., Ljubljana                                    77         3.95%             48         160        2.70%            50
KD Skladi d. o. o., Ljubljana                                59         3.03%             43         137        2.42%            43
KD Investments d. o. o., Zagreb                              34         1.74%             12         283        0.67%            17
KD Investments a.d., Beograd                                 12         0.62%              3         400        0.17%             7
KD Fondovi ad Skopje                                          4         0.21%              7          57        0.39%             7
KD Investments EAD, Sofia                                    11         0.41%              8         138        0.45%             9
SAI KD Investments, Bucharest                                 8         0.56%              8         100        0.45%             8
KD Fund Advisors, LLC                                         0         0.00%              0           -        0.00%             0
ABDS d. d., Sarajevo                                          7         0.36%              7         100        0.39%             7
Coloseum Multiplex Holdings b.v., Amsterdam                   0         0.00%              0           -        0.00%             0
Gama Holdings b.v. Amsterdam                                  1         0.05%              1         100        0.06%             1
KD Asset Management b. v. Amsterdam                           0         0.00%              0           -        0.00%             0
Manta Marine                                                  0         0.00%              0           -        0.00%             0
VIB a.d., Banja Luka                                          3         0.15%              3         100        0.17%             3
KD Private Equity d. o. o., Beograd                           1         0.05%              1         100        0.06%             1
Firsthouse Investments Itd., Cyprus                           0         0.00%              0           -        0.00%             0
Kredo Group, Taškent                                          -              -             2           -        0.11%             0
Sarbon Invest, Taškent                                        -              -             2           -        0.11%             0
Banking division
KD Banka d. d. , Ljubljana                                   35         1.80%             52          67        2.92%            50
KD Capital Management S. A., Bucharest                       14         0.72%              6         233        0.34%             8
KD Securities EAD, Sofia                                     13         0.67%              2         650        0.11%             5
KD Upravljanje imovinom d. o. o., Zagreb                      8         0.41%              8         100        0.45%             8
Capital investments and real estate division
KD Kapital d. o. o., Ljubljana                                 8        0.41%              7         114        0.39%              7
KD Kvart d. o. o., Ljubljana                                   7        0.36%              8          88        0.45%              7
Gea College CVŠ d. o. o., Ljubljana                            4        0.21%              4         100        0.20%              4
Gea College d. d., Ljubljana                                   6        0.31%              5         120        0.26%              5
Gea College PIC d. o. o., Ljubljana                            5        0.26%              4         125        0.21%              4
ČZD Kmečki Glas d. o. o., Ljubljana                           34        1.74%             30         113        1.69%             32
Fontes Group d. o. o., Beograd                                 0        0.00%              0           -        0.00%              0
FM-NET , Ljubljana                                             -             -             0           -        0.00%              0
Radio Kranj, Kranj                                             -             -             9           -        0.52%              9
R.E. Invest d. o. o., Ljubljana                                1        0.05%              1         100        0.06%              1
Vrtnarstvo Celje d. o. o., Celje                              69        3.54%             60         115        3.37%             68
The KD Group                                               1,949      100.00%          1,780                  100.00%          1,860


                                                      46
The KD Group                                                                              Annual Report 2009




The Group had a total of 1,780 employees at the end of 2009, a decrease of 8.7 percent compared with 2008 (1,949
employees). Reduction in employment is primarily due to optimisation of operations in KD Finančna točka, to certain extent
in KD Skladi and in companies located abroad. In accordance with the project for establishment of KD Banka, a number of
employees were transferred from KD Group d.d. into the newly established KD Banka. No other more significant changes in
human resources occurred in the Group KD Group in 2009.

Employee age structure in the Group KD Group

                                Employee age structure in the Group KD Group as at 31 December 2009
                                                          compared to 2008

                          over 56 years               3,46
                                                       3,81
                                 51-55                  4,20
                                                                       8,39
                                 46-50                                            10,37
                                                                                          12,78
                                                                                    11,36
   Age category




                                 41-45                                                       13,78
                                                                                                                                                           2009
                                 36-40                                                                     17,53
                                                                                                   15,31                                                   2008
                                 31-35                                                                                                     26,67
                                                                                                              18,74

                                 26-30                                                                              20,74
                                                                                                               19,07

                                 21-25                         5,93
                                                                      7,77

                         under 20 years   0
                                           0,33

                                          0             5                    10               15               20                    25            30
                                                                               Percentage of employees



In 2009, the majority of the Group's employees were young, perspective and, above all, educated personnel. The largest
group of employees (26.67%) were those between 31 and 35 years of age.

Educational structure of employees in the Group KD Group
                               Educational structure of employees in the Group KD Group as at 31
                                               December 2009 compared to 2008

                                                            0,49
                                                  PhD        1

                                                                   5,19
                                   Master's degree                        8,54
  Educational category




                                                                                                                                          46,67
                              College or university                                                                31,76                            2009

                                                                             9,88                                                                   2008
                                   Higer education                              12,21

                                                                                                                           35,8
                                 Secondary school                                                                                 39,48

                                                                   4,69
                    Primary or vocational school                      7,01

                                                        0                 10             20          30                       40            50
                                                                                     Percentage of employees

In 2009, the Group primarily employed persons with a higher educational level. The share of employees with a higher
educational level was 46.67 percent, whereas employees with secondary school level accounted for 35.8 percent of total
staff.


                                                                                                   47
The KD Group                                           Annual Report 2009




Training and employee development
We look upon investment in the knowledge of our employees as investment in the future of the KD Group. Therefore we
systematically invest in increased professional competence, general work competences and innovation of our employees. In
2009 this was achieved through education, training and particularly through internal transfer of knowledge.

Supporting formal education and training
At the Group KD Group, we provide support and encourage our employees to continue education to achieve a higher level of
formal education. To this aim we fund education and provide additional study leave for all employees who decide to pursue
further education. We are aware that through formal education and increased level of education, we will ensure new
knowledge, modern practices and latest information flowing to the Group.

Internal transfer of knowledge
In 2009 we strived to further establish the concept of internal education and to include all potential internal tutors in the
process of continual education in individual professional areas as well as in general. We ensured uninterrupted transfer of
knowledge between employees with the help of modern technology, and particularly through audio and video technology and
we have begun establishing our internal knowledge base. The knowledge transfer was based primarily on the working
system of learning using the Dschool method, and involved all employees in the workshops according to their competences
in individual work areas.

Additionally we strived to build up our internal library to promote knowledge transfer and self-learning process of employees.

Monitoring job optimising and employee remuneration
The Group KD Group is aware that efficient system of success recognition and remuneration is an extremely important
element of human resource management towards their satisfaction and commitment.

Employee remuneration
Currently we are upgrading the complete system of employee remuneration at the Group level to promote success,
entrepreneurial spirit and innovation of our employees. As we are also aware of the power and importance of non-financial
remuneration, we have deliberately supported recognition of achievements of individuals with suitable commendation
whenever appropriate.

Care for our employees
As the Group is active in the services sector, we are well aware of our strong dependency on satisfied, committed and
motivated employees as it is only through them that we can satisfy the needs and aspirations of our stakeholders – business
partners, customers and owners. .

Attention to our employees
In 2009 we again surprised our employees with small tokens of appreciation at their job positions such as gifts and greetings
cards on major celebrations and events, Christmas gifts for children and organisation of “The First Day of School” We also
made it possible for our employees to participate at a variety of cultural events, concerts and other events. Special attention
was devoted in 2009 to all those who have been with the Group for a number of years to show our appreciation for their
commitment and loyalty.

Developing a close-knit working group
Our employees actively participated and socialised in the “Kaj Dogaja” sports club and organised the fifth, now traditional KD
Bowling Challenge. In addition we organised a number of teambuilding events where in addition to gaining new knowledge,
employees were able to get to know each other better and socialise at a number of internally organised workshops and
meetings organised with the most senior management.

Charity and solidarity
We would like to point out that the employees of the Group KD Group in 2009 again regularly attended blood donor
campaigns and by donating little something of our own we contributed to the wider social community. We also assisted in
education and promotion of charity work with the younger generation.

Health and safety at work
At the Group KD Group we strive to ensure optimum and pleasant working environment for all employees. In 2009 we again
provided safe and appropriate working conditions and pleasant working environment. We regularly monitored and continually
improved the quality of food served in our KD restaurant. At request of our employees we included vegetarian dishes on the
menu and continually improved selection of dishes as we support and encourage our employees to pursue healthy life styles.


                                                              48
The KD Group                                          Annual Report 2009



In the autumn of 2009 we organised vaccination against seasonal and pandemic flu and carefully followed health
organisations' guidelines concerning preventive health measures.

Optimisation of operations
The Group felt the impact of international economic and financial crisis and its consequences. Much of our energy and
knowledge was directed to specifying the role, organisation and holders of HR function of the Group. With a view of
optimisation of operations we began the project of centralisation of the human resource division and introduced our own
concept of HRM administrators. We continued with the introduction of a contemporary HR information system based on the
»know-how« and which we will use to increase the transparency of HR processes, optimise them and provide IT support. In
addition this will give us an overall view of the human resource statistics of the Group.

Recognition on the labour market
In 2009 we strongly encouraged internal communication at the Group level, while we exercised more restraint in
communication with the wider public and the labour market. Our aim was to strengthen our internal resources, optimise our
strengths and grow so that in future years we can again actively take our position in public and on the markets. The HR
vision remains unchanged as the KD Group strives to become the best employer for all our employees and to be recognised
as such also by the labour market.

RESEARCH AND DEVELOPMENT

In the insurance segment, the Group has been active in the development and modernisation of our range of insurance
products and assistance services, expansion of our sales network, development of modern information technology solutions
and safe and high quality services in all business segments. In KD Življenje insurance company we introduced two new life
insurance products in 2009: “Fondpolica Maks Garant Plus” and whole life insurance “Življenjski kasko”, and improved life
insurance policy »Fondpilica« by offering additional investment possibilities as well as the option of a wide selection of
additional insurance products. By doing this we can ensure that we remain innovative and closely follow the needs of our
target groups. In addition to product development, we actively pursued the development and adjustment of products for the
demands of foreign markets. In 2009, KD Življenje continued processing its portfolio of existing insurance clients in order to
improve and supplement existing insurance contracts. The process began in the last quarter of 2008 at the beginning of the
global financial crisis. As part of the upgrading of the information system supporting life insurance products, in 2009 KD
Življenje successfully implemented new information system Amarta.

Adriatic Slovenica insurance company in 2009 actively pursued development of property and health insurance products. As
the leading Slovene health insurance provider, Adriatic Slovenica improved its wide range of products while in terms of life
insurance products, efforts were devoted primarily to the establishment of sales and after-sales services. In addition it
launched a completely new property insurance “Dom AS”, which allows for insurance of all the property under one insurance
policy, has a comprehensive range of extensive assistance services , and represents an important new development and a
sales winner on the Slovene market. In the field of motor insurance Adriatic Slovenica designed new motor third-party
liability insurance for the young drivers with fewer than three years of driving experience. This is a novelty on the Slovene
market as is the new cover – option to surrender the first damage when underwriting motor liability insurance. Another new
development is a long-term accident insurance of pre-school children and school children and liability insurance for members
of management bodies where individuals can insure personal liability. Renewed “above” standard health insurance offers
extensive existing cover in addition to a completely new coverage – medical procedures which are part of a one day
treatment, endoscopy and tissue and cell tests. Alongside these developments, the company focused its efforts on the
development and adaptation of property and health insurance to fit the Serbian market where a new subsidiary »AS
neživotno osiguranje« began operating in September and who, in its first year of operations, gained almost 1 percent of total
Serbian insurance market, and at the end of the year, 2.5 percent share of motor third-party liability. Adriatic Slovenica
pursued development of its own market network through new representative offices and additional marketing channels, whilst
at the same time expanding marketing network in Serbia with establishment of a new business unit and two representative
offices in 2009. Today AS neživotno osiguranje operates in four branches and two offices. Adriatic Slovenica succeeded in
preserving, strengthening and continually improving the quality of its insurance products and services thus increasing
operating safety. The company successfully concluded the first stage of an extensive project of developing ASBI data
warehouse, which allows its users (at various levels) fast access to uniform and quality information for decision-making
process. The company is quickly transferring to a system of paperless, electronic data storage.

Changed business conditions on the market as a result of financial and economic crisis required from companies in the
segment of Investment fund management to continue with the process of business rationalisation and optimisation, while
at the same time focusing on improving quality of existing services and developing new products, increasing business safety,
improving quality of management services and ensuring simplified operations for the investor.



                                                             49
The KD Group                                             Annual Report 2009



KD Skladi, Ljubljana and KD Investments, Zagreb, have launched new websites. KD Skladi upgraded its website with new
user tools (investment computer, investor profile) and, as the first Asset management company in Slovenia, introduced video
comments.
The companies in this division were active in the development of risk management and information technology,
methodologies and organisation as a response to amended relevant legislation and pursued development of sales
techniques and new sales channels.
In the beginning of 2009, KD Skladi introduced new Internet service for its investors - web-based office KD Skladi.net, where
investors have free and safe access to their accounts in the selected KD Skladi funds. We continue development of
information support to our operations and modern services for our investors to provide online access to individual funds.
KD Skladi was among the first asset management companies in Slovenia to transform all of its 17 mutual funds into sub
funds of the KD Krovni sklad.
In cooperation with Concorde Premoženjsko svetovanje, KD Skladi develops new savings plan VIP plus 100 and VIP 100
Premium.
Investors (natural persons) in KD Skladi are able to make monthly payments through direct debit system.
With a view of facilitating operations of investors, reducing investor documentation and making it easier to complete
accession forms for several sub funds simultaneously, a new project »single accession form« was launched.
KD Skladi began implementation of the Charles River order management IT system, support system that will allow for more
efficient management (improved supervision, improved transaction implementation, introduction of derivative securities and
better understanding of added value), and most of all, reduce operating risks.

Year 2010

In future we will continue to direct our activities in the development of products in accordance with industry trends and sales
network initiative ( development of savings accounts and baskets of funds), whilst at the same time endeavour to upgrade
and improve the existing products and services.
We continue to develop friendlier and simpler modern business methods using the Internet. Our web-based office KD
Skladi.net will be improved to allow investors not only to check the balance and monitor transactions, but also to gain access
to funds and online services.
Websites of the companies in the division will be upgraded with new contents and tools.
In 2010 we intend to continue with activities related to the launch of a new distribution channel – newly established KD
Banka, primarily by utilising product and sales synergies.
Our aim for 2010 is also to complete the implementation of the Charles River IT system.


In the Banking division, 2009 was marked by the development of banking infrastructure, products and sales channels,
based on identified needs of (potential) clients, development opportunities, activities of our competitors, development trends
and amendments to legislation. Much effort was devoted to setting up the basic banking applications and integrating the
bank in interbanking connections, developing commercial banking products and electronic banking, which provides a
number of novelties and advantages. Online banking which KD Banka introduced for its first users in November 2009, was
one of the first in Slovenia to combine services of commercial and investment banking. Particular attention was devoted to
the online banking safety in the information environment of KD Banka. In 2009, we developed a number of banking products
for retail and corporate clients. Priority was given to solutions that directly impact either profitability of a client, product or
sales channels, or customer satisfaction. Existing products offered by private and investment banking was supplemented by
above-standard products for the mass market. The bank offers a variety of deposits, savings accounts, transaction accounts
for corporate clients, personal accounts, credit card transactions, credits and other banking products and services that
supplement the existing products and services of KD Banka. Within the framework of asset management and financial
analyses we continued training and educational courses to obtain CFA certificate, all analysts and fund managers are
involved. As high-class banking professionals are one of the prerequisites for successful operations, in 2009 we continued
with strengthening professional knowledge in the area of private banking. Private and personal banking clerks attended an
intense seminar on asset management of clients with above-average high net value and obtained DC Gardner Training
certificate for private banking. DC Gardner Training is one of the world's leading companies involved in specialised
education and training of private financial advisors. In the second half of 2009, KD Banka organised a number of training
courses in banking services for financial advisors of KD Finančna točka.




                                                                50
The KD Group                                            Annual Report 2009



CORPORATE SOCIAL RESPONSIBILITY OF THE GROUP KD GROUP

The KD Group is an active partner that encourages, is involved and strives to improve environment in which we work and
live. We encourage or clients to assume responsibility for their own financial safety and independence. We create safe,
pleasant and stimulating working environment for our employees and encourage mutual cooperation and interaction.
Through national and local sponsorship and humanitarian projects we are actively involved in social environment as we
believe that this allows us to contribute to the implementation of values in which we firmly believe.


EMPLOYEES

The Group is aware that our employees are our key assets and investment in the future. To this aim we invested much
energy and efforts into the development, education and particularly encouragement of innovative potential of employees in
all areas and at all levels of the Group. The Group KD Group stimulates and encourages employees to pursue a higher level
of formal education and we made special efforts to promote the concept of internal training and included all potential internal
instructors in the process of continued education on individual specialised areas as well as at the general level. In 2009, we
again delighted our employees with expressions of gratitude and giving gifts at major celebrations and events, Christmas
gifts for children, organisation of the “First day of School” and supported our employees' participation at a variety of cultural
events and visits to concerts and events. We organised the fifth, now traditional KD Bowling Challenge, a number of
teambuilding events and meetings and took part in blood drives. More detailed information regarding employees and
employee care is provided in the section Human Resources and Development.


NATURAL ENVIRONMENT

The principle activities of Group KD Group companies are not directly linked to environmental impacts. However, in our
everyday activities we act responsibly by saving electricity and separating waste. We also consider the environmental aspect
in our investments. Thus in 2006, KD Skladi, Ljubljana established KD Nova energija (KD New Energy), an equity mutual
fund that primarily invests in companies in the renewable energy sector.


SOCIAL ENVIRONMENT

We are actively involved in the local community through sponsorship activities and donations, which communicate a clear
link to our corporate values of trust, growth, respect, excellence and support.


CULTURE AND EDUCATION

The Group has cultivated long-term partnerships with cultural institutions and with individuals and has invested in a number
of educational projects. In 2009, we continued our work with the RTV Slovenija Symphony Orchestra. The guiding principle
of this sponsorship activity is "the harmony of cooperation". We were again involved as sponsor in the P.A.R.A.S.I.T.E.
Institute competition for the OHO Group prize for the young visual artist and supported the Cerkno Jazz Festival and the
Comedy Days at Celje Public Theatre.

KD Življenje continued its partnership with the Ljubljana Puppet Theatre, which began back in 2005. On the occasion of
Theatre's 60th anniversary, in cooperation with the Anna's Fund which has for a decade supported large families to improve
their quality of life, families with more than six children were given free tickets to see the puppets show. In cooperation with
the Zveza prijateljev mladine (Association of Friends of Youth) they provided free entry to puppets shows for large number of
under-privileged children from around Slovenia to try to reduce their distress and bring a smile to their faces.

In 2009, KD Življenje continued its partnership with the Ljubljana Zoo. They supported the »Bear Day« to raise awareness of
endangered wild animals in Slovenia and Europe and which was organised by all zoos, members of the European
Association of Zoos and Aquaria (EAZA). In the scope of long-term cooperation, we supported the project »Arrival of
Mischievous Friends to the Zoo« which provided new, larger and more modern habitat for four Saimiri Monkeys who arrived
from the Gaia park in the Netherlands. Their arrival of the Samiri Monkeys was celebrated by a family event organised in
celebration of the World Animal Day.

In 2009, KD Življenje again organised a major family event at Postojna Cave called Day of Culture and Attractions. We also
cooperated with Iskreni.net as co-organiser during the Festival of Families at Postojna Caves.


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The KD Group                                           Annual Report 2009




Upon its entry on the market and under the private banking trademark KD Privilege, on 16 September 2009 KD Banka
organised a professional event with a foreign speaker – then current Nobel prize winner for economy - Professor Paul
Krugman. The event attracted over 600 of prominent guests from economy, politics, academic life, professional public and
media, and received a wide response in Slovenia. As a sponsor, KD Banka participated at a charity event “Easter Yacht Ball”
in hotel Kempinski in Portorož and at a charity Rotary-Lions golf tournament.

Adriatic Slovenica insurance company continually recognises and responds to the needs of environment and is striving for
sustainable development of local and wider social environment. In 2009, it was again actively involved in numerous activities
and events organised by a variety of organisations, institutions, associations and societies, thus contributing to the
implementation of initiatives and ideas. At this level the company participates on projects where, in line with the business
policy, it participates as a sponsor or donator. Traditionally, the company supports projects from the field of health,
education, culture, sport and traffic accident prevention. In the field of culture, education and nature preservation, Adriatic
Slovenica's most important cooperation include those with Stud Farm Lipica, Auditorium Portorož, Koper Theatre (who is
celebrating its first centenary in 2010 and which Adriatic Slovenia has supported since its establishment), and Ljubljana
Festival.


Sport

Our support for a variety of sporting activities is aimed at spreading the idea of the active and sociable enjoyment of free
time. The Group has supported the Slovenian Chess Federation for several years in an effort to promote professional and
amateur chess in Slovenia. In 2009, KD Group supported the Slovenian Gymnastics Association on the occasion of the 42nd
Šalamun Memorial – World Cup in Men’s and Women’s Artistic Gymnastics, and the event organised at the 50th anniversary
of establishment of the Sorica Hunting Club.

Both, Group KD Group and KD Življenje were sponsors of International bridge tournament organised by the Bridge club
Tivoli. KD Življenje also sponsored Sports Club Twist Nova Gorica, Ski Association Bohinj and Sports Club Poskokec. In
addition to the insurance company KD Življenje, KD Finančna točka also participated as sponsor of various sports projects.
Both companies sponsored KD Finančna točka Cycling Club Radenska, Marathon Franja and the Franja mini-marathon,
Family marathon and many other cycling events. KD Finančna točka also sponsored Olimpija Swimming Club.

In October 2009, KD Skladi participated as one of the sponsors at the 14th Ljubljana Marathon and gave special awards to
the most senior participants in the marathon and half-marathon.

Adriatic Slovenica's support to sports is diverse however the majority of support has been give since 1993 to top athletes and
Olympic representatives, in cooperation with the Slovenian Olympic Committee. One of recipients of its support is Vasilij
Žbogar, a sailor from Izola who won a gold medal at the Athens Olympic games. In 2009, Adriatic Slovenica supported the
promising swimmer Matjaž Markič who won a gold medal at the European Championships. For the ninth consecutive year
Adriatic Slovenia is the proud sponsor and official insurance agency of the Slovenian Football Association. A variety of
sports, societies, clubs and events are sponsored by Adriatic Slovenica. Among higher profile events, we also supported the
Slovenia Open women's tennis tournament.


Humanitarian activities

The Group KD Group supports the volunteer efforts of its employees. We therefore include them in various humanitarian
activities via KD Fundacija. We also organise blood drives in which an increasing number of employees participate.

In 2009, KD Skladi again, for the second time participated in the humanitarian campaign “So lahko otroci boljši od borznih
gurujev? “ (Can kids be better than stock exchange gurus?), organised by the magazine Moje finance. The aim of the
campaign was to help children from poorer families.

The main focus at Adriatic Slovenica remains the support of healthcare. In the field of health insurance we closely cooperate
with the providers of healthcare and support education and initiatives that contribute to the development and reputation of
medical profession. As the principal sponsor, we again supported the national My Doctor campaign, supported the two
Health centres in Piran and Koper, the Izola General hospital, and assisted in organisation of International Congress of
Medical Experts. We also assisted Park Škocjanske jame in the purchase of new automated defibrillator for visitors in the
event of sudden nausea or cardiac arrest. We continued UNICEF Slovenia's Safe Points project in 2009, thus contributing to
greater safety for children and adolescents in major urban areas. All the offices of Adriatic Slovenica are safe points for
children and the projects has spread to 204 safe points around Slovenia. In cooperation with the Association of Friends of

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The KD Group                                          Annual Report 2009



Youth we donated funds to organise holidays for children from socially deprived families as part of the project »Wink at the
Sun«.


KD Fundacija

The Group established the AJDA Foundation back in 1995. Its primary purpose is to fund the education of children and
investors in KD funds and those with above-average results and , but an under-privileged social background. Over time, the
Group KD Group determined that the Foundation's original purpose had become too narrow. With the renaming of the AJDA
Foundation to the KD Fundacija Foundation at the end of 2008, we expanded its objectives and purpose. In accordance with
its purpose, in 2009 the Foundation encouraged and supported education and development of children and donated assets
for humanitarian aid. As part of the exclusive musical event Volkswagner, organised on the occasion of the 15th anniversary
of its establishment, the KD Group donated some of the proceeds from each ticket sold to the KD Fundacija. With the funds
collected, KD Fundacija in cooperation with the Association of Friends of Youth supported the Young and Europe project and
made it possible for forty senior school pupils to take part in an educational trip around Europe. The Fundacija supported
participation at International Children's Games in Athens.




                                                             53
The KD Group                                            Annual Report 2009



     3. OPERATIONS OF KD GROUP COMPANIES


BANKING AND INVESTMENT FUND MANAGEMENT


Banking

2009 marked the entry of the Group KD Group in the banking sector. On 2 March 2009, following a resolution of the Bank of
Slovenia to grant licence to KD BPD for the performance of banking and financial services and resolution of the Securities
Market Agency to grant permission to KD BPD for statutory conversion from a limited liability company into a public limited
company, the company became a public limited company and assumed a new name of KD Banka. Initially, KD Banka
concentrated on private, personal and investment banking services, including stockbrokerage, individual asset management
and corporate finance services. However, in order to adjust to the changed economic conditions, KD Banka decided for early
implementation of the basic corporate banking services, while at the same time it was developing services for the mass
market, which began to be marketed through the sales network of KD Finančna točka branches in February 2010.

In addition to KD Banka in Slovenia, in 2009 the following companies within the banking segment operated on foreign
markets: KD Securities in Bulgaria, SSIF KD Capital Management S. A. in Romania, and KD Upravljanje imovinom d. o. o.,
Zagreb, in Croatia. With the aim of adapting to the market circumstances and business optimisation of the stockbrokerage
segment, in 2009 we began the process of the closure of KD Securities in Bulgaria.

KD Bank's main projects in 2009 included successful start-up of the banking operations, development of the bank's
infrastructure and services, and implementation of the private and personal banking concepts based on a wide palette of
banking and non-banking services and top quality relationship with clients, and recruitment of new clients. Initially KD Banka
entered the market of wealthy clients under the KD Privilege trademark intended primarily for increasing wealth and as such
is designed to meet requirements of the most demanding individuals. As part of positioning and consolidating the reputation
of KD Banka in the field of private banking and in order to gain new clients and strengthen relationships with other
professional and influential public, in September 2009 KD Banka invited the then Nobel prize winner for economy, professor
Paul Krugman, one of the most admired and influential world economists to be a speaker at the professional event KD
Privelege. Professor Paul Krugman, professor of economy at the University of Princeton, talked about the current financial
crisis, its origin, development and future measures of the financial sector and global economy. In the organisation of the
event, KD Banka set up excellent cooperation with the Faculty of Economy in Ljubljana as the partner of the event and long-
term relationships with other influential associations.

In 2009, KD Bank focused on private and investment banking. We have developed a range of products for corporate entities
inclusive of transaction accounts, deposits and a variety of credit facilities as well as online bank »Halcom«. For retail clients
KD Banka developed variety o personal accounts, payment cards, savings accounts, deposit accounts with various
maturities, Lombard loans and online banking. At the beginning of 2010, KD Banka entered the mass market with
standardised products where the key sales channels include online banking and the network of KD Finančna točka branches
all over Slovenia.

At the end of 2009, KD Banka had over 3,200 clients, while total value of assets held by private clients and assets under
individual management stood at EUR 51 million, and EUR 336 million of brokerage assets. The operations of the banking
division were marked by financial crisis to which we have responded efficiently. Much attention was devoted to
communications with our clients as we believe that direct communication is of vital importance as it enables development of
an individual relationship between a bank clerk and the client. Therefore we adjusted our communications with clients to the
time that was most suitable for them. In terms of corporate communications our efforts were devoted to the positioning and
consolidating the recognition of the bank and its trademark KD Privilege. Improved client communications, further
development of KD Banka products and services, and successful marketing of our products that allow for a number of
options to increase wealth, are the vital elements for realising the set goals.




                                                               54
The KD Group                                           Annual Report 2009




Challenges in 2010:
In the first quarter of 2010 we intend to successfully penetrate the mass market and offer wider population comprehensive
range of banking products and services through a network of KD Finančna točka branches.
In 2010 we will add new services to our range of banking products and services such as investment consultancy services, a
number of different credit facilities, savings and other financial instruments. The range of products and services will reflect
the needs and wishes of our clients and will be available through a number of marketing channels.
KD Banka will continue to develop additional services of commercial and investment banking and will strive to meet the
needs and wishes of both, individual clients and small and medium-size companies. Thus the bank will pursue its basic
strategy - for KD Banka to become recognised medium-sized bank focused on private banking and the best provider of a
comprehensive palette of investment banking services and asset management in Slovenia.
In 2010 the development of sales channels will pursue three key goals: to enable and support introduction of new products
and services through all key sales channels; ensure comprehensive overview of a client's transactions with the KD Group in
one place for unification of user experience and improvement of the available functions, as well as development of new ones
that are adjusted to the needs of clients.


Companies within the division:

Slovenia
KD Banka d.d.
Neubergerjeva 30, Ljubljana, Slovenia
Telephone: + 386 59 22 00 00
Fax: + 386 59 22 00 45
E-mail:info@kdb.si
Website: www.kdb.si
www.kd-privilege.si (KD Privilege private banking website)

Croatia
KD Upravljanje imovinom d. o. o., Zagreb
Radnička cesta 39, Zagreb, Croatia
Telephone: + 385 1 627 44 44
Fax: + 385 1 627 44 08
E-mail: kdam@kd-group.hr
Website: www.kd-group.hr

Romania
SSIF KD Capital Management S. A., Bucharest
Gheorghe Manu 5, Bucharest, Romania
Telephone: + 40 21 650 04 47
Fax: + 40 21 650 04 48
Website: www.kd-capital.ro, www.kd-group.ro
E-mail: office@kd-capital.ro

Bulgaria
KD Securities EAD, Sofia
Frityof Nansen Blvd. 9, Sofia, Bulgaria
Telephone: + 359 2 810 26 95
Fax: +359 2 981 01 08
E-mail: kds.office@kd-group.bg
Website: www.kd-group.bg




                                                              55
The KD Group                                           Annual Report 2009



Investment fund management
Five asset management companies operating within the Group KD Group manage a total of 27 mutual funds and two
investment companies in the South Eastern European region. The leading investment management company, KD Skladi,
Ljubljana, is currently the largest asset management company in Slovenia. It manages KD Krovni sklad with 17 sub funds
and KD ID, delniška investicijska družba, d. d.. In addition, it manages assets of well-informed investors. Currently there are
four asset management companies operating outside Slovenia who jointly manage eleven investment funds: four mutual
funds in Croatia, two in Romania, two mutual funds and one investment company in Bulgaria and two mutual funds in
Macedonia.
The core activity in this division is management of investment funds and assets of well informed investors. Our core strategy
is to offer investors, primarily those from South Eastern Europe, the widest possible selection of investment opportunities,
while also providing a comprehensive range of investment services in the region to investors from around the world. The goal
of KD Skladi is to become within a period of five years a recognised central asset management company in Central Europe
who, with top class professionals and excellent business processes manage assets of both Slovene investors and that of
investors from neighbouring countries as well as money of global institutional investors. Our aim is to within five years gain a
25 percent share of the Slovene market. In all other countries our goal is to establish profitable asset management
companies with increasing market shares.
By the mid 2009 conditions on the capital markets were slowly stabilizing and from March onwards we have seen increase in
share prices indices which improved the general level of optimism of investors. Funds within the KD Group performed well in
terms of their return (majority recorded positive returns) and in terms of investors. In terms of return, they successfully
competed with local and foreign competition with some of them being the leaders in individual categories. The increased
trend in the number of accession forms continued and funds recorded positive inflows. At the end of 2009 total value of
managed assets of all asset management companies in the Group KD Group reached EUR 449.1 million, compared to EUR
360.6 million recorded at the end of 2008.

Changed business conditions on the market as a result of financial and economic crisis required from companies in the
segment of Investment fund management to continue with the process of business rationalisation and optimisation, while at
the same time focusing on the core activity of fund management and looking for synergies within the Group to improve
quality of services and achieve professionalism and excellence in all business areas including corporate governance and
responsibility of supervisory bodies. Asset management companies in the Group took advantage of the increased prices in
capital markets to intensify sales efforts and market new savings plans and regain investors' trust.


Main activities and achievements in 2009:
- KD Skladi retained the leading position among Slovene asset management companies in terms of the volume of assets
    under management and selection of funds and at the end of 2009 it managed over EUR 421 million of assets in 17 sub
    funds of the KD Krovni sklad and KD ID, delniška investicijska družba, d. d.
- KD Skladi was among the first in Slovenia to transform all of its 17 mutual funds into sub funds of KD Krovni sklad,
    making transfer between individual sub funds more beneficial for investors (in terms of tax).
- The Group KD Group funds were among the most successful Slovene and foreign funds in their categories.
- KD BRIK equity fund was the most profitable fund in Macedonia.
- For the second consecutive year KD Skladi were awarded Trusted Brand prize by the Reader's Digest readers as the
    trademark that is most trusted by Slovene consumers.
- In cooperation with Concorde Premoženjsko svetovanje, KD Skladi began marketing new savings plan VIP plus 100
    and VIP 100 Premium.
- At the fifth, now traditional awards ceremony for the best mutual funds managers, KD MM monetary fund received "Zlati
    V" (Golden V) in the category of one-year monetary funds.
- KD Skladi introduced new modern service, web-based office KD Skladi.net, where investors can freely and safely check
    their balances in the selected funds.
- KD Skladi introduced the option of monthly payments for its investors (natural persons) through direct debit facilities.
- Asset management companies devoted much attention to communications with investors and organisation of seminars.
    KD Skladi, Ljubljana, and KD Investments, Zagreb, redesigned their websites; KD Skladi were first to introduce in
    Slovenia video commentary; jointly with KD Življenje, KD Skladi began publishing a magazine for investors ”Kdaj in
    kako” (When and How).
- For more efficient operations, Slovak asset management companies KD Investments, Bratislava and laD Investments
    merged and transferred mutual funds to KD Prosperita and KD Russia, who were until then managed by KD
    Investments, Bratislava, to the successor company laD Investments.
- To optimise operations of KD Group as the only partner in KD Investments, Beograd, and to adapt the KD Group
    operations to market conditions, Serbian fund KD Ekskluziv was transferred to the asset management company Citadel
    Asset Management, Društvo za upravljanje investicionim fondovima.


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The KD Group                                                Annual Report 2009




Challenges in 2010:
    • We will continue to confirm excellence in management to justify investors' trust.
    • We shall intensify our efforts for improved recognition of KD funds in order to retain the leading position in Slovenia
        and consolidate market shares in South Eastern Europe.
    • We will continue to improve our portfolio of products in line with the current industry trends and market needs, while
        preserving the main drivers of innovation and focussing on the investor. Most of all, we will market existing
        products in even more attractive packages.
    • In realisation of increased recognition and development of new products and services with the existing companies
        in the Group, we will endeavour to utilise the newly established KD Banka as additional sales channel thus utilising
        product and sales synergies.
    • We shall develop friendlier and simpler transactions for investors by using Internet to access funds and online
        services.
    • By registration of Slovene funds for local sale and in accordance with the legislation, we will expand the range of
        funds available in Romania and Bulgaria where we are already present.
    • In accordance with new regulatory guidelines and possibilities of adapting the operations of asset management
        companies, investment funds and relationships with clients, we shall continue to strive to achieve the highest
        possible satisfaction of existing and future investors.
    • By 2011, KD Skladi will transform KD ID, delniška investicijska družba, d. d., into a mutual fund.


Data concerning investment funds of the Group KD Group as at 31 December 2009

                                                                                                                                       Euro
                                                                                  Net value of                                      exchange
                                            Geographical /         Unit price     the fund (in    Number of units    Number of         rate
       Fund              Type of fund    segmental orientation     (in EUR)          EUR)          in circulation    investors     31. 12. 2008
Slovenia
                       Flexible asset
KD Galileo             structure         Europe                           8.81     150,009,865     17,031,696.8525        28,931
KD Rastko              Equity            Europe                          20.25      65,892,677      3,253,889.7709        16,243
KD Bond                Bond              Europe                          13.15       9,732,800        740,245.6894         3,377
                       Fund of equity
KD Prvi izbor          funds             Global                           4.89      27,412,226      5,604,736.3695         4,105
                       Money market
KD MM                  fund              Global                          49.49      12,566,957        253,944.8251         1,315
KD Balkan              Equity            South Eastern Europe             2.60      24,090,779      9,266,134.5347         8,236
KD Novi trgi           Equity            Emerging markets                 4.90      23,340,083      4,767,896.3165         4,518
KD Severna Amerika     Equity            North America                    3.11         795,390        255,904.4944           216
KD Surovine in
energija               Equity            Raw materials, energy            4.15        4,910,865     1,183,497.5666         1,447
KD Tehnologija         Equity            Technology                       4.50        1,603,774       356,566.9320           455
                                         Renewable sources of
KD Nova energija       Equity            energy                           0.81      11,719,368     14,450,885.7290         3,397
                                         Healthcare consumer
KD Vitalnost           Equity            goods, etc.                      0.96         869,143        901,815.9833           392
KD Indija-Kitajska     Equity            India and China                  1.30      13,332,283     10,225,863.0084         1,264
KD EM Infrastruktura                     Infrastructure-related
in gradbeništvo        Equity            activities                        1.13         425,592       375,996.9139          190
KD Finance             Equity            Finance                           0.79         656,408       826,358.7687          185
KD Latinska Amerika    Equity            Latin America                     1.38       6,719,799     4,871,549.5889          546
KD Vzhodna Evropa      Equity            Eastern Europe                    1.14       1,644,889     1,443,321.2576          421
                                                                     Share                                                             Euro
                                                                    market        Net value of                                      exchange
                                            Geographical /          price (in     the fund (in                       Number of         rate
        Share                 Name       segmental orientation       EUR)            EUR)         Number of shares   investors     31. 12. 2008
                       KD ID, delniška
                       investicijska
KD ID (KDIR)           družba, d. d.     Europe                           5.30    66,050,676.74          9,181,542        33,799




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The KD Group                                                Annual Report 2009




Croatia
                                                                     Share                                                                   Euro
                                                                    market       Net value of                                             exchange
                                          Geographical /            price (in    the fund (in                          Number of             rate
        Share                 Name     segmental orientation         EUR)           EUR)         Number of shares      investors         31. 12. 2008
KD Victoria                                                                                                                                  1 EUR =
                     Equity           Europe                            2.0848    9,182,451,46      4,404,400.0591               3,399      7.31 HRK
KD Prvi izbor                                                                                                                                1 EUR =
                     Fund of funds    Europe                            1.5764      675,797.33       428,683.6965                  26       7.31 HRK
KD Balanced          Flexible asset                                                                                                          1 EUR =
                     structure        Europe                            1.1296    1,763,679.45      1,561,323.2471                305       7.31 HRK
KD Nova Europa                                                                                                                               1 EUR =
                     Equity           Europe                            0.8634    2,572,631.79      2,979,560.1522               1,010      7.31 HRK
Romania
KD Maximus                                                                                                                                  1 EUR =
                     Equity           Romania                           2.9321       9,117,818        3,109,692.31                849      4.23 RON
KD Optimus                                                                                                                                  1 EUR =
                     Balanced         Romania                           2.1390         220,237          102,961.15                 17      4.23 RON
Bulgaria
KD Equity Bulgaria                    Central and Eastern                                                                                   1 EUR =
                     Equity           Europe                              0.38      993,660.34      2,645,484.3191                359      1.96 BGN
KD Bond Bulgaria                      Central and Eastern                                                                                   1 EUR =
                     Debt             Europe                             64.40      393,645.72          6,112.5259                 17      1.96 BGN
                                                                                                                                       Euro
                                                                                                                                       exchange
                                      Geographical / segmental    Share market Net value of the                      Number         of rate
Share                Name             orientation                 price (in EUR) fund (in EUR)  Number of shares     investors         31. 12. 2008
KD Pelikan                            Central and Eastern                                                                                   1 EUR =
                     KD Pelikan       Europe                              7.62    2,204,266.15       289,349.0000                 175      1.96 BGN
                                                                                                                                       Euro
                                                                                                                                       exchange
                                      Geographical / segmental Unit price (in Net value of the Number of units in Number            of rate
Fund                 Type of fund     orientation              EUR)           fund (in EUR)    circulation        investors            31. 12. 2008
Macedonia
KD BRIK                                                                                                                                     1 EUR =
                     Equity           Global                            2.2931      201,174.65        87,729.1838                 400     61.17 MKD
                                                                                                                                            1 EUR =
KD Južen Balkan      Equity           Balkans                           2.1893       79,328.18        36,233.5095                 181     61.17 MKD



Companies in the division:

Slovenia
KD Skladi, družba za upravljanje, d. o. o.
Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 80
Fax: + 386 1 518 40 88
E-mail: kd-skladi@kd-group.si
Website: www.kd-skladi.si
Management Board (31 December 2009):
Peter Groznik, PhD, President of the Management Board
Roman Androjna, Member of the Management Board
Louise Chatwood, MBA, Member of the Management Board

Croatia
KD Investments, društvo za upravljanje investicijskim fondovima, d. o. o., Zagreb
Radnička cesta 39, Zagreb, Croatia
(25 January 2010)
Miramarska 105, Zagreb, Croatia
Telephone: + 385 1 627 45 55
Fax: + 385 1 627 45 10
E-mail: info@kd-group.hr
Website: www.kd-group.hr
Management Board (31 December 2009):
Matej Tomažin, President of the Management Board
Branko Gladović, Member of the Management Board


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The KD Group                                      Annual Report 2009




Romania
SAI KD Investments S. A., Bucharest
Calea Giulesti 8D, 3rd floor, Bucharest, Romania
Telephone: + 402 1 650 04 44
Fax: + 402 1 650 04 42
E-mail: info@kd-group.ro
Website: www.kd-group.ro
Management Board (31 December 2009):
Gerrit Alberts, President of the Management Board
Peter Groznik, PhD, Member of the Management Board
Katja Kraškovic, MSc., Member of the Management Board

Bulgaria
KD Investments EAD, Sofia
58 Bolgarija Blvd., fl. 7, offise 24, Sofia, Bulgaria
Telephone: + 359 2 810 26 51
Fax: + 359 2 981 21 65
E-mail: info@kd-group.bg
Website: www.kd-group.bg
Management Board (31 December 2009):
Georgi Biserinski, President of the Management Board
Nelly Petrova, Member of the Management Board
Luka Flere, MSc., Member of the Management Board
Louise Chatwood, MBA, Member of the Management Board
Katja Kraškovic, MSc., Member of the Management Board

Macedonia
KD Fondovi A. D. Skopje
Ul. Vodnjanska nr. 7/1, Skopje, Macedonia
Telephone: + 389 2 3105 930
Fax: + 389 2 3105 939
E-mail: kdfondovi@kd-group.com
Website: www.kd-fondovi.mk
Management Board (31 December 2009):
Peter Groznik, PhD, President of the Management Board
Laze Kamčev, Member of the Management Board
Marijan Nikolovski, Member of the Management Board
Grega Meden, Member of the Management Board
Žiga Hieng, MSc., Member of the Management Board




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The KD Group                                             Annual Report 2009



INSURANCE

The insurance-related activities of the Group KD Group include life and property insurance (including health insurance. Two
life insurance companies operate in Slovenia: KD Življenje, a life insurer, and Adriatic Slovenica, a universal insurer that
markets life insurance and property insurance, including health insurance. In accordance with the Group's strategy of
expansion to foreign markets, in 2009 insurance companies within the Group operated in the following foreign markets:
Ukraine, Croatia, Romania, Bulgaria and Slovakia through subsidiaries. Property insurance is marketed by property
insurance company AS neživotno osiguranje a.d.o. Beograd in Serbia.

Features of the Slovenian insurance market in 2009

In the history of business, 2009 was marked by the biggest global economic crisis which affected also the field of insurance.
This is evident in a moderate growth of property insurance premium and negative growth of gross life insurance premium.
Experts assume that the latter is a consequence of a lower interest among the population to invest free assets in investments
funds which have accelerated the growth of life insurances in the past years. At the same time the market is becoming more
and more competitive since foreign insurance companies are entering the market of the already fierce domestic competition.
By the end of December 2009, there were 23 insurance entities engaged in the insurance activities and based in the
Republic of Slovenia. Among them, 11 insurance companies sell life insurances, 2 reinsurance companies and 3 affiliates of
foreign insurance companies. The competitiveness in the insurance sector has become stronger in all segments, especially
in the field of life and health insurance.
In terms of the insurance market development, Slovenia ranks among semi-developed countries. Regarding the share of the
total life insurance premium in the gross domestic product in 2008, Slovenia reached the seventeenth place among the EU
countries, according to the latest available data. It was thus placed before the Czech Republic, Luxembourg, Slovakia,
Bulgaria, Estonia, Latvia, Lithuania, Greece and Romania. Regarding the height of the premium income per capita it holds
the eighteenth place.
Unlike the comparable EU countries, Slovenia still reaches a significantly lower share of life insurances in the total insurance
premium. The share has been constantly growing. From 2000 to 2009 it increased by 11 percentage points, from 19.4
percent to 30.4 percent (including pension insurance). The reasons for such a low share of life insurance are considerable
share of social insurances, insufficient knowledge about life insurance products and lack of awareness of the importance of
such insurances.
In comparison to 2008, the extent of transactions in property insurance companies grew on the average by 5 percent. In
2009, property insurance companies (not considering the Pension Fund Management and the Fund for Craftsmen and
Entrepreneurs) gained EUR 1,445.2 million with property insurance premiums. While a 3.8 percent decrease has been noted
on the life insurance market during the period under review, the ordinary insurance companies (excluding the Pension Fund
Management and the Fund for Craftsmen and Entrepreneurs) gained EUR 486.8 million of life insurance premiums.


Insurance at the Group KD Group

The Group KD Group's key strategic orientations in the insurance division are based primarily on growth in domestic and
foreign operations and the provision of a comprehensive range of financial services through various sales networks.
Thus the Group consolidated and strengthened existing sales channels in Slovenia.

In 2009, Group KD Group insurance companies comprehensively expanded and enriched their portfolios and developed
new, specialised products for individual target groups. In Slovenia, KD Življenje continued in its role as the leader in new
product development and developed two new products in 2009: Fondpolica Maks Garant Plus, Fondpolica Maks Garant with
additional safety features that allow for fast and high return in spite of fluctuating financial markets and Whole life insurance –
life insurance for the event of death with a constant and downward insurance premium and defined insurance term. The
insurance company improved life insurance policies Fondpolica and KD Družina and KD Pokojnine by inclusion of the
Zajamčeni paket (Guaranteed package) a new investment package which makes these insurance products even more
adaptable. With the introduction of the Active investment package the insurance company has upgraded the best selling of
its all investment packages in the Fondpolica investment-linked life insurance packages namely, Dynamic investment
package.

In the field of property insurance Adriatic Slovenica once again developed a range of new products in 2009. It offered Dom
AS, a new, comprehensive immovable and movable property insurance enabling the insurance holders to insure their entire
property (their house, apartment and its equipment, agricultural machines, pets and many more subject matters) with one
policy. In the field of car insurance they expanded their quality offer and launched a new package of car insurance offering
special advantages to the insurance holders upon taking out the car liability insurance (AO) and car liability insurance plus
(AO plus) package. They were the first in Slovenia to introduce something completely new for young drivers - the insurance

                                                                60
The KD Group                                            Annual Report 2009



policy called “My first car policy” intended for the young with less than three years of driving experience. This policy
substitutes a 25 percent additional payment in the car liability insurance for a car driven by a less experienced driver. In
addition, the insurance covers a driver and not an individual vehicle. Those who chose the car liability insurance package in
June were offered also the possibility of redemption of the first loss which prevents them from losing points on a rating scale
after the first loss event. The company actively began to market unique credit insurances in case of accidental death,
permanent disability and unemployment due to non-fault-based grounds. It introduced an exclusive offer of liability insurance
for the members of the Slovenian Directors’ Association performing management or supervisory functions, with which one
can insure personal liability for damages for the performance of the function of a member of management and supervisory
boards. In addition, Adriatic Slovenica broadened its offer of accident insurance for school children. In September they
offered a possibility of long-term accident insurance policies for preschool children and primary and secondary school
students. This offered fixed premiums and insurance sums during the entire educational process, health insurance with
assistance CORIS during every summer holiday and numerous other advantages and benefits. Adriatic Slovenica also
remained the leading Slovenian insurance company offering above standard health insurances in 2009. In June it launched a
renewed above standard health insurance for the above standard services in specialist outpatient clinics, offering expanded
existing coverage and also medical procedures which are part of a one day treatment, endoscopic and cell and tissue tests.

We have expanded our offer abroad as well. At the beginning of 2009 we introduced a new type of life insurance called
Debut in Ukraine and in the middle of the year we presented a new type of accidental death insurance in Bulgaria. On other
markets we continued to sell life insurances which we had offered on the market already in the previous years. The Serbian
AS neživotno osiguranje a.d.o. Beograd markets besides property insurance also accident and voluntary health insurances
(in packages together with car insurances) and assistance insurances through Coris. AS neživotno osiguranje a.d.o. Beograd
started operating in September 2008. In 2009 it was already well established on the Serbian insurance market.. By the end
of 2009 the company held a 3.5 percent market share in the field of third party car insurance.

In 2009, the Group KD Group achieved a 17.0 percent share of the Slovenian insurance market, with total premiums
collected of EUR 329.3 million (AS 260.6 + KDŽ 68.7).

On foreign markets, the Group KD Group collected total life insurance premiums of EUR 6.8 million and total property
insurance premiums of EUR 5.1 million EUR (restated at the effective mean rate of the National Bank of Serbia as at 31
December 2009).

Life insurance company KD Življenje is the second largest life insurance providers in Slovenia and in spite of unstable
economic conditions, at the end of 2009 it increased its market share to 14.1 percent. Slovenian life insurance market was in
2009 marked primarily by the financial crisis reflected in an average 3.8 percent decline which was preceded by several
years of continuous growth in the number of life insurances.

Life insurance companies experienced a large number of cancellations or withdrawals from insurances in comparison to the
previous years. Therefore in the future life insurance offers shall include current life insurances covering the risk of death, or
standard life insurances under which the insured person receives the agreed sum after a set period of time. The investment
insurances will include interesting products with a guarantee, and in not so distant future, also annuity insurances. Regarding
the situation on the financial markets we expect a moderate increase in the number of life insurances in the medium term.

12.56 percent market share of Adriatic Slovenica in 2009 makes it the third largest insurance company in Slovenia. In terms
of property insurance, the insurance company held a 17.01 percent share, in terms of health insurance its share in 2009 of
23.9 percent places the company in the second place on the health insurance market, while it holds the leading position on
the market of above-standard health insurance. Due to its consolidated market network and modern insurance products
supplemented by first-class assistance services, the insurance company has set even more ambitious goals for the next
financial year. Regarding the situation on the Slovenian market, the offer and the possibility to take out the widest range of
insurances (property, health, life and pension insurances) bring an additional advantage on the market. In times of limited
access to other financial sources, comprehensive and quality insurance and financial services give our insurance holders a
bigger financial and personal security.

In Slovenia, the largest share of sales of KD Življenje life insurance was achieved through KD Finančna točka, which last
year had 14 regional branches, while the mobile network employs more than 250 active contractual partners and employed
marketing professionals. In terms of their number, contractual agencies of the insurance company took the second place
after the marketers, followed by our own network of representatives KD Življenje.
Adriatic Slovenica is increasing property insurance sales through an extensive marketing network and, at the end of the last
year, provided insurance services at nine business units in all of Slovenia’s main regional centres, three branches, 46
representative offices and in the contracted marketing network of insurance agents with 96 underwriting locations and 114
points of sale via complementary sales channels, for a total of 268 sales outlets. The marketing network was equipped with


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The KD Group                                             Annual Report 2009



additional points of sales and improved after-sales services developed to improve market coverage. The insurance company
also developed complementary market channels.

In foreign countries life insurances were marketed through the network of our own representatives, KD Finančna točka and
EU Life sales channels, contractual agencies and representative insurance agencies. The marketing of property insurance
was carried out through the subsidiary company AS neživotno osiguranje a.d.o. Beograd and through its operating units and
offices and points of contract conclusions. In 2009 the marketing network expanded. In addition to the business units in
Belgrade, Novi Sad and Čačak which was transferred to a new location because of the increased scope of business
transactions, a new business unit was opened in Niš. Two new offices started to operate in June in Kruševac and Šabac.

Challenges in 2010

  - To generate over EUR 84 million of life insurance premiums, over EUR 256 million of property insurance premiums
    (including health insurance premiums) which translates to 3.6 percent increase in property insurance and 5 percent
    increase in health insurance.
  - To increase returns on investments and boost short and long-term liquidity.
  - To follow the strategy of stabilisation and costs efficiency with the aim of reaching the level of profitability required by the
    owner.
  - To grow and consolidate the market positions of Group KD Group insurance companies and maintain the leading role in
    the development of new insurance products.
  - To upgrade existing insurance products, particularly through the development of cross-sales of insurance, thus offering
    policyholders additional services; to develop insurance products adapted to the needs of the market and individual
    customers; to develop innovative life insurance products; to update existing property insurance products, in particular by
    developing new standardised and supplementary insurance packages; to develop additional and enhanced assistance
    services and, to develop new after-sales activities.
  - To develop and upgrade the existing sales network.
  - To exploit the synergy effects of the various sales channels of both insurance companies; To maintain KD Finančna
    točka as the primary sales channel for KD Življenje; To maintain and develop existing sales channels at Adriatic
    Slovenica, to strengthen the company's own network of agents and to continue developing sales of insurance via
    complementary sales channels, including an Internet-based sales channel
  - To ensure the growth of operations at KD Življenje and Adriatic Slovenica outpaces growth on the domestic and foreign
    markets.

Insurance companies

Slovenia

Adriatic Slovenica, Zavarovalna družba, d. d., Koper
Ljubljanska cesta 3a, Koper, Slovenia
Telephone: + 386 5 664 31 00
Fax: + 386 5 664 31 09
E-mail: info@adriatic-slovenica.si
Website: www.adriatic-slovenica.si
Management Board (31 December 2009):          Gabrijel Škof, President of the Management Board
                                              Matej Cergolj, Member of the Management Board
                                              Marko Rems, Member of the Management Board
Management Board (1 October 2009): Gabrijel Škof, President of the Management Board
                                              Milena Georgievski, Deputy President of the Management Board**
                                              Matej Cergolj, Member of the Management Board
                                              Marko Rems, Member of the Management Board
* On 28 February 2009, Marko Rems’ tenure as member of the Management Board came to an end
** As from 1 October 2009, the mandate of Milena Georgievska, Deputy President of the Management Board expired and
she retired.

KD Življenje, zavarovalnica, d. d., Ljubljana
Celovška cesta 206, Ljubljana, Slovenija
Telephone: +386 1 58 26 550
Fax: +386 1 518 18 95
E-mail: info@kd-zivljenje.si
Website: www.kd-zivljenje.si


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The KD Group                                       Annual Report 2009



Management Board (31 December 2009):          Matija Šenk, President of the Management Board
                                              Mateja Keržič, Member of the Management Board
                                              Ingrid Kuk, MSc., Member of the Management Board


Croatia

KD životno osiguranje d. d., Zagreb
Radnička cesta 39, Zagreb, Croatia
Telephone: + 385 1 6285 101
Fax: + 385 1 6197 456
E-mail: info@kd-life.hr
Website: www.kd-life.hr
Management Board (31 December 2009):          Neven Tišma, President of the Management Board
                                              Andreja Radič, Member of the Management Board

Slovakia
Branch

KD Life, Insurance Company, plc, Ljubljana
Astrova 2/A, Bratislava, Slovakia
Telephone: +421907948244
E-mail: info@kd-life.sk
Website: www.kd-life.sk
Management (31 December 2009): Gregor Šušmelj, Branch Director



Czech Republic

Cross-border operations

E-mail: pojistovna@kd-life.cz
Website: www.kd-life.cz


Romania

KD Life Asigurari S.A.
8D Calea Giulesti 3rd floor, Bucharest, Romania
Telephone: +40 21 650 55 06
Fax: +40 21 650 55 04
E-mail: office@kd-life.ro
Website: www.kd-group.ro
Management Board (31 December 2009):            Matija Šenk, President of the Management Board until 12 December 2009
                                                Ian Harrocks, CEO
                                                Zefir Castris, Member of the Management Board
Bulgaria

KD ZHIVOT AD
Al. Dondukov blvd. 79-81, 4th floor, Sofia, Bolgarija
Telephone: +357 2 933 79 11
Fax: +357 2 933 79 19
E-mail: office@kd-life.bg
Website: www.kd-life.bg
Management Board (31 December 2009):             Matija Senk, President of the Management Board
                                                 Radovan Pusnar, Member of the Management Board
                                                 Ivan Janakiev, Member of the Management Board




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The KD Group                                             Annual Report 2009



Ukraine

KD Life CJSC
Lineynaya str., 17 Building A, Kiev, Ukraine
Telephone: +380 44 499 5999
Fax: +380 44 499 5990
E-mail: office@kd-life.com.ua
Website: www.kd-life.com.ua
Management Board (31 December 2009):               Vitaly Kovalenko, President of the Management Board
                                                   Alyona Stepanova, Member of the Management Board
                                                   Neda Thaler, Member of the Management Board

Serbia

AS neživotno osiguranje a.d.o. Beograd
Bulevar Mihajla Pupina 165E, 11070 Novi Beograd, Serbia
Telephone: +381 11 260 8676
Fax: +381 11 260 8684
E-mail: info@as-osiguranje.rs
Board of Directors (31 December 2009):
                             Prof. Jova Miloradić, PhD, General Manager and President of the Board of Directors            Metod
                    Grah, Procurator
                             Gabrijel Škof, President of the Assembly

Board of Directors (until 7 August 2009):
                              Metod Grah, General Manager
                              Prof. Jova Miloradić, PhD, Deputy General Manager
                              Gabrijel Škof, President of the Assembly
                              Metod Grah, President of the Board of Directors



Selling activities of the Group KD Group

During the global crises it is crucial to take care of the buyer, therefore the sale is our most important activity. By reorganising
the Group KD Group we raised the sale to a strategic level where KD Finančna točka plays the key role. Namely, it is the
Group’s main selling channel and at the same time the only channel which joins and combines all products of the companies
within the Group KD Group - investment in mutual funds, life, property and health insurances, securities brokerages and also
banking services. Our vision is to provide the widest range of products and services at one place and remain the leading
company selling financial products of the Group KD Group in Slovenia with the best standard of services. Apart from a wide
range of products and expert advisory service, the main advantage of KD Finančna točka is its accessibility, which can only
be reached with our strong network of regional branch offices all over Slovenia and mobile networks of marketing advisers.
Additional support is provided through our web portal www.financna-tocka.si and a call centre. The mission of KD Finančna
točka is thus to increase the satisfaction of our clients with our offer of innovative, excellent and competitive financial
products at one place with the help of a chosen personal adviser. By doing this we meet and importantly supplement the
goals of the Group.

The KD plus club functions within the framework of the company KD Mark. Its main goal is to strengthen the trust of the
already existing clients of the Group. The KD plus club offers its clients numerous advantages related to the Group’s financial
services and benefits from other various fields offered by external partners. In addition, the Club connects the services of the
companies within the Group, and strengthens and establishes synergy effects among the companies.

In 2009, KD Finančna točka had 14 regional branch offices. The mobile network was composed of 250 active contractual
partners and employed marketing professionals. A call centre with 24 associates, 4 of which are permanently employed, and
of course our website www.financna-tocka.si provide additional support to personal sales and an additional communication
channel for clients. In 2010, the website will get a new image and structure as well as an integrated and enhanced the offer
of the Group’s products. The website www.financna-tocka.si will thus enable quick, transparent and simple obtaining of
information in carrying out the Group’s financial services anyplace and anytime.




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The KD Group                                          Annual Report 2009



At the end of 2009, the offer of KD Finančna točka comprised life insurances of the insurance company KD Življenje,
information, advisory services and an access to 17 sub-funds of the KD Krovni sklad and the savings plan VIP 100 Premium
of the asset management company KD Skladi, health and property insurances of Adriatic Slovenica, securities brokerage,
individual assets management services of KD Banka and the possibility of voluntary health insurance abroad with the
Assistance CORIS. The offer of KD Finančna točka will be supplemented with banking services of KD Banka from the
beginning of 2010 on.

Since the very beginning, the plans of KD Finančna točka have been focused on the penetration to different Central and
Eastern European markets, where other companies within the Group were also present. But with regard to the existing global
economic crisis, the Company has decided to withdraw from Slovakia, Romania and Croatia. The subsidiary company in
Bulgaria has remained active.

At the end of 2009, 851 new investors and over EUR 18 million of indirect payments into KD Skladi investment funds, and
over EUR 32 million of payments (including transfers) , were recorded at the branch offices of KD Finančna točka. Over
9,000 new insurances were taken out at KD Finančna točka, and 2,000 from the “existing insurance holders” offer. The total
new written annual premium amounted to over EUR 5,300,000, and a single premium to over EUR 4,700,000. In 2009, the
website www.financna-tocka.si was visited by more than 250,000 users, and at the end of 2009 the KD plus club had more
than 72,000 members.

Challenges in 2010:
     • to sell more than 10,000 life insurance policies in Slovenia and to contribute more than EUR 30 million of direct
         inflows to mutual funds of KD Skladi (total transfers and KD MM), to gain over 4,000 clients for KD Banka
     • to set up a model KD Finančna točka branch that will offer a comprehensive range of services of all financial pillars
         the so called »all-finance« service, and combine knowledge, products and services at one place
     • to continue active marketing of banking products of KD Banka for the whole market
     • to expand the (mobile) sales network
     • to achieve a high standard of sales accompanied by a high level of professionalism of financial advisors to be
         achieved through constant training.




Companies in the sales of financial services division

KD Finančna točka, premoženjsko svetovanje, d.o.o., Ljubljana
Address: Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 51
Fee number: 080 12 08
Fax: + 386 1 582 66 52
E-mail: info@kd-financnatocka.si
Website: www.financna-tocka.si
Management Board (31 December 2009): Matej Marošek, President of the Management Board
                                             Katja Kraškovic, MSc., Member of the Management Board

KD Mark, storitveno podjetje, d.o.o., Ljubljana
Address: Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 12 and +386 1 582 68 25
Fax: + 386 1 582 66 52
E-mail: info@kdplus.si
Website: www.kdplus.si
Management Board (31 December 2009): Špela Klun, Director




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The KD Group                                           Annual Report 2009



Capital investments

The Group KD Group’s capital investment division is managed by KD Kapital, Ljubljana. With the establishment of the
company, the Group separated the management of non-listed investments and significant listed investments from strategic
and listed portfolio investments. The capital investments division also includes real estate.

KD Kapital's activities include: management of non-listed investments and specific significant listed investments;
management of management companies and investment funds that succeeded privatisation funds in Bosnia and
Herzegovina and the Republic of Srpska.

Management of non-listed investments and specific significant listed investments

In 2009, KD Kapital disposed off and pledged a portion of existing investments and used the proceeds to extend a loan to the
parent company. The sole source of funding of KD Kapital is the equity capital. The company preserved flat organisation with
a small team of key staff, reasonable out sourcing and efficient application of management leverages through asset
management companies in the investment funds. KD Kapital is the direct holder of 32 investments. The ten largest
investments include investment in: Elektro Ljubljana d. d., Nama d. d., Žito d. d., Kmečki glas d. o.o., Savske elektrarne d. o.
o., Semenarna Ljubljana d. d., Žičnice Vogel d. d., Ljubljanske mlekarne d. d., Mlekarna Celeia d.o.o., Cimos d.d. and
Vrtnarstvo Celje d. o. o.
Significant capital investments held indirectly or directly by KD Group d. d. include Gea College d. d., Deželna banka
Slovenije d. d. and Seaway Group d. o. o.

Closed-end investment funds in South Eastern Europe

At the end of the year, KD Kapital owned two subsidiaries among management companies established in the privatisation
process in the Federation of Bosnia and Herzegovina and the Republika Srpska:
- a stake of 95.71 percent in ABDS d. d., Sarajevo, which manages the investment fund BIG;
- a stake of 51.0 percent in VIB a. d., Banja Luka, which manages the investment fund VIB.

KD Kapital holds a direct investment of 3.73 percent in MIG, investment fund in Monte negro.

Investments in KD Mont, asset management company, BIG and a portion of MIG (both funds) were disposed of.

The total value of the three investment funds in which KD Kapital holds either direct or indirect stake, stood at EUR 40
million as at 31 December 2009. Based on the management companies' reports, the net value of the funds was EUR 115
million as at 31 December 2009.

In 2009 liquidation process was instigated for KD Private Equity Fund B. V. (venture capital fund).

Investment fund MIG AD, Podgorica, Montenegro                                                     Data as at 31 December 2009
Net share price (in EUR)                                                                                                   0.26
Number of shares                                                                                                    109,685,100
Net value of the fund (in EUR million)                                                                                     28.3
Market price per share (in EUR)                                                                                           0.065

Closed-end investment fund VIB a. d., Banja Luka, Republic of Srpska                              Data as at 31 December 2009
Net share price (in EUR)                                                                                                   3.62
Number of shares                                                                                                      1,987,956
Net value of the fund (in EUR million)                                                                                       7.2
Market price per share (in EUR)                                                                                            1.28
Local currency: Convertible Mark (EUR–BAM exchange rate as at 31 December 2009)                               1 EUR = 1.96 BAM

Closed-end investment fund BIG d. d., Sarajevo, Federation of Bosnia and                          Data as at 31 December 2009
Herzegovina
Net share price (in EUR)                                                                                                   6.76
Number of shares                                                                                                    10,654,406
Net value of the fund (in EUR million)                                                                                    71.98
Market price per share (in EUR)                                                                                            2.81
Local currency: Convertible Mark (EUR–BAM exchange rate as at 31 December 2009)                               1 EUR = 1.96 BAM

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Company profile:

KD Kapital, finančna družba, d. o. o., Ljubljana
Celovška cesta 206, Ljubljana, Slovenia
Telephone: + 386 1 582 67 96
Fax: + 386 1 582 68 23
E-mail: info@kd-group.com
Website: www.kd-group.com
Management Board: Janez Bojc, President

REAL ESTATE

The Group KD Group's real estate division is managed by KD Kvart, a young, dynamic and ambitious company. The
company's core activity is real estate investment engineering. The purpose of the real estate division is to search for
opportunities for the development of real estate projects, trade in real estate and the management of the Group KD Group's
real estate.

Business operation in 2009:

The Šumi project
The main project of the company is Šumi, a business and residential complex. During the last year, we focused chiefly on the
following activities:
Representing the interests of the KD Kvart (Group) in the settlement of dispute with a complainant regarding the issued
building permit – the legal validity has been obtained,
Preparing project documentation (in several alternative solutions) for a change of the building permit for the Šumi project,
Seeking financial resources to finance the construction of the Šumi project.

Engineering and project management
KD Kvart provided technical support and drew up the project documentation in the network expansion or the renovation of
the KD Finančna točka in Slovenia, where coordination of implementation was realised. We carried out project management
and supervision in the arrangement of the KD Banka premises, carried out professional advising on the “KD joint sale”
project, and supervised the AS projects– arrangement of new branch offices.


Real estate marketing
In 2009, the following activities in the field of real estate marketing were carried out by KD Kvart, d.o.o.:
Marketing of own real estate:
Slovenska cesta 12: in 2009 we hired out 3 apartments for a profit rent for an indefinite duration of the rent.
Soteska 6: in 2009 we hired out a business premise for a profit rent for an indefinite duration of the rent.
Kino Vič: in 2009 we launched marketing activities (lease, sale) of the Vič cinema facility.
Real estate brokerage in the KD Group:
KD Finančna točka: brokerage at hiring a business premise at Prešernov trg
Bežigrad cinema: realisation of handover and acceptance of facility under trust
Bežigrad cinema: in 2009 we launched marketing activities (lease, sale) of the Bežigrad cinema facility
AS, facility-Celovška 206, KD Banka, Bežigrad cinema: real estate advising and brokerage; reviewing, arranging and
obtaining the missing documentation.

Real estate management
In accordance with the real estate division development strategy and the cost management synergy, KD Kvart took over the
management and maintenance of the KD facilities in 2009, which also resulted in the transfer of the KD Group maintenance
staff to KD Kvart. In relation to this, new leases of KD companies were signed with the AS insurance company as the owner
of the premises at Celovška 206 and a multi-party agreement on real estate management with KD Kvart. A special
agreement on real estate management was signed also with the AS insurance company. In the field of operating expenses,
negotiations on lowering the prices were carried out in cooperation with the KD Group’s Purchase Department, which were
successfully completed in most cases.

R&R
Planning alternative solutions for the following facilities: Soseska 6, Vič cinema, Bežigrad cinema



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Challenges in 2010:

To obtain an internal decision on the final selection of the architectural solution for the Šumi building.
To manage procedures for drawing up the project documentation to obtain a modified Building permit.
To manage the marketing procedures of the Šumi business and residential premises:
To search for new investment opportunities in Slovenia and abroad;
To design and launch a new website to present the Šumi project to potential customers;
To obtain funding for the Šumi project.
To implement tangible and competitive engineering in the realisation of the projects for the KD Group.
To successfully complete sales or hire of unnecessary property in terms of business of KD (the Bežigrad cinema, Travessini
palace, Vič cinema).
To introduce a quality and efficient maintenance system for the KD Group.



Company:
KD Kvart, nepremičninska in holdinška dejavnost, d.o.o.
Address: Levstikova 14, 1000 Ljubljana
Telephone: + 386 1 24 45 050
Fax: + 386 1 24 45 055
E-mail: kdkvart@kd-group.si
Website: www.kd-group.si
Management Board (31 December 2009): Miha Gostiša, Director




                                                            68
Consolidated Financial Statements
of the KD Group
for the year ended 31 December 2009




                          69
The Group KD Group                                                        Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009

CONTENTS

Consolidated income statement ............................................................................................................................ 73
Consolidated statement of comprehensive income............................................................................................... 74
The notes are an integral part of these consolidated financial statements............................................................ 74
Consolidated balance sheet .................................................................................................................................. 75
Consolidated statement of changes in equity ....................................................................................................... 76
Consolidated cash flow statement ........................................................................................................................ 78
Notes to the consolidated financial statements ..................................................................................................... 80
1. General information ...................................................................................................................................... 80
2. Summary of significant accounting policies .................................................................................................. 80
3. Significant accounting judgements, estimates and assumptions ................................................................ 105
4. Comparatives .............................................................................................................................................. 109
5. Risk management ....................................................................................................................................... 110
6. Segment reporting ...................................................................................................................................... 139
7. Property, plant and equipment .................................................................................................................... 143
8. Investment property .................................................................................................................................... 144
9. Intangible assets ......................................................................................................................................... 145
10. Investments in associates ........................................................................................................................... 147
11. Financial assets .......................................................................................................................................... 149
12. Receivables ................................................................................................................................................ 153
13. Inventories .................................................................................................................................................. 154
14. Cash and cash equivalents ......................................................................................................................... 154
15. Equity .......................................................................................................................................................... 155
16. Other reserves and retained earnings......................................................................................................... 156
17. Borrowings .................................................................................................................................................. 157
18. Insurance contracts liabilities ...................................................................................................................... 158
19. Derivative financial instruments .................................................................................................................. 161
20. Trade and other payables ........................................................................................................................... 161
21. Deferred tax ................................................................................................................................................ 161
22. Revenue...................................................................................................................................................... 163
23. Expenses .................................................................................................................................................... 164
24. Investment income ...................................................................................................................................... 166
25. Net realised gains on financial assets available for sale ............................................................................. 166
26. Net fair value gains on assets at fair value through profit or loss ................................................................ 167
27. Operating loss before interests, tax, exchange differences and influence of associates ............................ 167
28. Finance costs .............................................................................................................................................. 167
29. Income tax expense .................................................................................................................................... 167
30. Earnings per share .................................................................................................................................... 168
31. Dividends per share .................................................................................................................................... 168
32. Acquisitions and disposals of subsidiaries .................................................................................................. 168
33. Related-party transactions .......................................................................................................................... 170
34. Events after the balance sheet date............................................................................................................ 172




                                                                                70
71
The Group KD Group                                      Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009

Statement of management's responsibilities

Pursuant to Article 60 of the Companies Act, the members of Board of Directors of the KD Group affirm that the annual report
of the KD Group for 2009, including the statement on management, is compiled and published in accordance with the
Companies Act, the Financial Instruments Market Act and the International Financial Reporting Standards. Board of directors
of KD Group d. d. confirmed financial statements on April 14, 2010.

The Company's Board of Directors hereby:
    -  approves the financial statements of the KD Group, as well as the applied accounting policies and notes to the
       financial statements;
    -  affirms, that the annual report of the KD Group for 2009, with all constituent parts, is compiled in accordance with
       valid legislation and the International Financial Reporting Standards;
    -   confirms that the financial statements of the KD Group is a true and fair presentation of the Company's financial
        position and the results of its operations for 2009;
    -   declares that the financial statements of the KD Group are compiled under the assumption of a going concern, that
        the selected accounting policies have been applied consistently and that any changes have been disclosed;
    -   states that it is responsible for the adoption of measures to prevent and detect fraud and misstatements, and for
        preserving the value of the assets of the KD Group.

Pursuant to Article 110 of the Financial Instruments Market Act, the members of Board of Directors of the KD Group declare:
    -    that the financial report of the KD Group for 2009 is compiled in accordance with the International Financial
         Reporting Standards, and that it is a true and fair presentation of the assets and liabilities, the financial position and
         operating results of the KD Group;
    -    that the business report of the KD Group for 2009 includes a fair review of the development and operating results of
         the Company, including a description of the principle risks to which the KD Group is exposed.

Ljubljana, April 22, 2010


Matjaž Gantar
President of Board of Directors




Aleksander Sekavčnik
Deputy President of Board of Directors



Dr. Draško Veselinovič
Member of Board of Directors, CEO



Peter Grašek
Member of Board of Directors, Deputy CEO



Tomaž Butina
Member of Board of Directors




Sergej Racman
Member of Board of Directors




                                                             72
The Group KD Group                                           Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009


Consolidated income statement

(in EUR)                                                                          Note           2009            2008

Gross premium                                                                             342,116,815     332,537,765
Premiums ceded to reinsurers                                                              (11,986,438)    (11,255,070)
Net premiums                                                                      22      330,130,377     321,282,695

Fees and commissions income                                                       22      10,849,086        14,410,812
Investment income                                                                 24      16,569,959        22,694,921
Net gains on available-for-sale financial assets                                  25        4,421,911        9,997,641
Impairment of available-for-sale financial assets                                 25      (2,926,357)     (24,846,254)
Net gains / (losses) on assets at fair value through profit or loss               26      27,354,774     (101,432,513)
Net gains / (losses) – derivative financial instruments                           26        (322,132)        6,319,371
Net finance income                                                                        55,947,241      (72,856,022)

Sales of goods and services                                                       22       11,621,037      23,623,244
Other operating income                                                            22       15,268,189      32,302,659
Other income                                                                               26,889,226      55,925,903

Gross benefits and claims paid                                                    23     (283,528,827)   (169,014,533)
Claims ceded to reinsurers                                                        23        12,053,097      12,172,911
Net insurance contracts benefits and claims                                              (271,475,730)   (156,841,622)

Costs of services                                                                         (68,689,724)    (75,690,259)
Labour costs                                                                      23      (57,576,822)    (64,405,668)
Other expenses                                                                    23      (33,657,053)    (57,274,415)
Other expenses                                                                    23     (159.923.599)   (197,370,342)

Operating profit                                                                  27      (18,432,485)    (49,859,388)

Finance costs                                                                     28       (9,563,914)     (8,023,466)
Share of profit of associates                                                     10      (23,426,946)    (27,407,028)
                                                                                          (32,990,860)    (35,430,494)

Profit before tax                                                                         (51,423,345)    (85,289,882)

Income tax expense                                                                29        7,199,907       8,285,899

Net profit or loss for the year                                                           (44,223,438)    (77,003,983)

Attributable to:
Equity holders of the parent                                                              (43,887,570)    (77,217,976)
Minority interests                                                                           (335,868)         213,993
                                                                                          (44,223,438)    (77,003,983)

Earnings per share for profit attributable to the equity holders
  of the Company during the year (expressed in EUR per share)
- basic and diluted                                                                30          (16,93)         (29.41)




The notes are an integral part of these consolidated financial statements.



                                                                   73
The Group KD Group                                           Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009


Consolidated statement of comprehensive income



(in EUR)                                                                          1. 1. - 30. 12. 2009   1. 1. - 31. 12. 2008

Profit for the year                                                                     (44,223,438)           (77,003,983)
Other comprehensive income
Net (loss)/gain on available for sale financial assets                                     7,572,878           (68,011,703)
Changes of revaluation reserves - associates                                                 559,924              (288,334)
Income tax effect                                                                        (1,655,662)             12,046,306
                                                                                           6,477,140           (56,253,731)

Net movement of cash flow hedges                                                               70,715             (317,425)
Income tax                                                                                   (14,140)                70,139
                                                                                               56,575             (247,286)
Exchange differences on translation of foreign operations                                    (74,229)           (2,919,677)

Other comprehensive income for the year, net of tax                                        6,459,486           (59,420,694)
Total comprehensive income for the year, net of tax                                     (37,763,952)          (136,424,677)

Total comprehensive income for the year, net of tax attributable to:
- equity holders of the parent                                                          (38,000,854)          (136,397,326)
- non-controlling interests                                                                  236,902               (27,351)
Total                                                                                   (37,763,952)          (136,424,677)




The notes are an integral part of these consolidated financial statements.



                                                                   74
The Group KD Group                                           Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009
Consolidated balance sheet
                                                                                                         31.12.2008     31.12.2007
(in EUR)                                                                          Note    31.12.2009
                                                                                                           restated       restated
ASSETS
Property, plant and equipment                                                      7      35,125,412     36,303,670     83,867,010
Investment property                                                                8      29,813,540     28,707,587     20,601,521
Intangible assets                                                                  9      71,325,802     68,228,028     87,896,641
Investments in associates                                                         10      52,308,751     81,077,285     71,687,821
Financial assets:
  - loans and other receivables                                                   11      90,335,200     96,742,037     56,598,625
       - credits to banks                                                                 4,896,696               -              -
       - credits to non-banking clients                                                  14,110,082               -              -
       - other loans and receivables                                                      71,328,422     96,742,037     56,598,625
  - at fair value through profit or loss                                          11      36,695,860     33,692,752     59,425,329
  - held to maturity                                                              11      16,461,698      7,844,709      7,590,164
  - available for sale                                                            11     177,308,048    173,911,332    305,845,228
Derivative financial instruments                                                           1.146.675              -              -
                                                                                         321,947,481    312,190,830    429,459,346
Unit-linked investments of policyholders                                                 146,036,822     78,607,121    115,158,176
Reinsurance assets                                                                18      19,449,008     17,362,703     11,004,824
Investment contracts                                                                      17,648,068     16,425,104     15,669,491
Deferred tax asset                                                                21      29,682,588     20,427,164              -
Income tax receivable                                                                        490,870      7,260,081      3,102,335
Inventories                                                                       13      13,443,059     13,932,808     12,200,210
Insurance receivables and other receivables                                       12      57,881,610     69,848,127     67,615,294
Deferred acquisition costs                                                        12       8,103,645     11,566,010      8,248,809
Deferred expenses and accrued revenues                                            12       3,798,016      2,221,991      2,075,776
Cash and cash equivalents                                                         14      40,730,072     31,305,192     27,692,313
Total assets                                                                             847,784,744    795,463,701    956,279,567
EQUITY
Capital and reserves attributable to equity holders of the company
Share capital                                                                     15       98,215,757     98,215,757    98,215,757
Capital reserves                                                                  15       60,471,037   104,395,312    104,395,312
Profit reserves                                                                   16        4,048,103      4,048,103    17,850,609
Treasury shares                                                                   15      (3,852,955)    (3,852,955)    (3,852,955)
Revaluation reserve                                                               16          785,639    (5,101,077)    54,078,273
Retained earnings                                                                 16     (10,591,492)   (10,295,314)    56,867,744
                                                                                         149,076,089    187,409,826    327,554,740
Minority interest                                                                           2,528,930      4,837,468    11,011,536
Total equity                                                                             151,605,019    192,247,294    338,566,276
LIABILITIES
Insurance contract liabilities                                                    18     296,097,984    279,766,288    258,028,873
Investment contract liabilities                                                   18      17,703,254     16,394,308     15,668,418
Unit-linked liabilities of policyholders                                          18     140,108,844     79,308,743    112,978,279
Financial liabilities                                                             17     194,705,529    181,557,903    164,250,682
   - time deposit                                                                         15,530,894              -              -
   - other financial liabilities                                                         179,174,635    181,557,903    164,250,682
Derivative financial instruments                                                  19       1,426,656        350,696      6,312,734
Other provisions and long-term accruals                                           20       2,607,327      2,862,590      4,582,141
Income tax liability                                                                       1,528,147        350,717      7,296,627
Deferred tax liability                                                            21       1,418,370              -      2,308,659
Dividends Payable                                                                 20         686,098      1,435,220        360,202
Insurance payables and other payables                                             20      31,510,435     33,627,541     38,705,893
Accrued expenses and deferred income                                              20       8,387,081      7,562,401      7,220,783
Total liabilities                                                                        696,179,725    603,216,407    617,713,291
Total equity and liabilities                                                             847,784,744    795,463,701    956,279,567
The notes are an integral part of these consolidated financial statements.




                                                                   75
              The Group KD Group                                              Annual Report 2009

              Consolidated Financial Statements as at and for the year ended 31 December 2009




              Consolidated statement of changes in equity


                                                     Attributable to equity holders of the parent



                              Share           Capital           Profit           Treasury          Revaluation       Retained       Minority
                              capital        reserves         reserves            shares            reserves         earnings       interests       Total equity
(in EUR)

Balance at 1 January
2009                        98,215,757 104,395,312             4,048,103         (3,852,955)          (5,101,077) (10,295,314)        4,837,468       192,247,294

Profit for the year                     -                -                -                  -                   - (43,887,570)        (335,868)      (44,223,438)
Other comprehensive
income                                  -                -                -                  -         5,886,716                -       572,770         6,459,486
Total recognised
income of equity
holders                                 -                -                -                  -         5,886,716 (43,887,570)           236,902       (37,763,952)

Issue of share capital to
minority shareholders                   -                -                -                  -                   -              -               -                  -
Dividends relating to
2008                                    -                -                -                  -                   -    (166,630)        (214,581)         (381,211)
Minority interest arising
on business
combinations                            -            -                    -                  -                   -            -         339,520            339,520
Other changes                           -            -                    -                  -                   -    (166,253)         (54,552)         (220,805)
Reserves                                - (43,924,275)                    -                  -                   -   43,924,275                -                 -
Increase in equity share
of associates                           -                -                -                  -                   -              -               -                  -
Increase in equity share
of subsidiaries                         -                -                -                  -                   -              -    (1,392,970)       (1,392,970)
Disposal of a stake in a
company                                 -            -                    -                  -                   -            -      (1,222,857)       (1,222,857)
Total                                   - (43,924,275)                    -                  -                   -   43,591,392      (2,545,440)       (2,878,323)

Balance at 31
December 2009               98,215,757       60,471,037        4,048,103         (3,852,955)             785,639 (10,591,492)         2,528,930       151,605,019




              The notes are an integral part of these consolidated financial statements.




                                                                                   76
              The Group KD Group                                              Annual Report 2009

              Consolidated Financial Statements as at and for the year ended 31 December 2009

              Consolidated statement of changes in equity

                                                     Attributable to equity holders of the parent



                              Share           Capital           Profit           Treasury          Revaluation       Retained       Minority
                              capital        reserves         reserves            shares            reserves         earnings       interests       Total equity
(in EUR)

Balance at 1 January
2008                        98,215,757 104,395,312            17,850,609         (3,852,955)          54,078,273     58,565,835      11,011,536       340,264,367

Restatement of
opening balance                         -                -                -                  -                   -   (1,698,091)                -      (1,698,091)

Balance at 1 January
2008                        98,215,757 104,395,312            17,850,609         (3,852,955)          54,078,273     56,867,744      11,011,536       338,566,276

Profit for the year                     -                -                -                  -                   - (77,217,976)         213,993       (77,003,983)
Other comprehensive
income                                  -                -                -                  -       (59,179,350)               -      (241,344)      (59,420,694)
Total recognised
income of equity
holders                                 -                -                -                  -       (59,179,350) (77,217,976)          (27,351)    (136,424,677)

Issue of share capital to
minority shareholders                   -                -                -                  -                   -              -        32,301            32,301
Dividends relating to
2007                                    -                -                -                  -                   - (19,744,507)        (257,031)      (20,001,538)
Minority interest arising
on business
combinations                            -                -            -                      -                   -            -                 -               -
Other changes                           -                -            -                      -                   -    1,667,879                 -       1,667,879
Reserves                                -                - (13,802,506)                      -                   -   13,802,506                 -               -
Increase in equity share
of associates                           -                -                -                  -                   -   14,329,040                 -      14,329,040
Increase in equity share
of subsidiaries                         -                -                -                  -                   -              -    (5,879,337)       (5,879,337)
Disposal of a stake in a
company                                 -                -            -                      -                   -            -         (42,650)          (42,650)
Total                                   -                - (13,802,506)                      -                   -   10,054,918      (6,146,717)       (9,894,305)

Balance at 31
December 2008               98,215,757 104,395,312             4,048,103         (3,852,955)          (5,101,077) (10,295,314)        4,837,468       192,247,294




              The notes are an integral part of these consolidated financial statements.



                                                                                   77
The Group KD Group                                         Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009



Consolidated cash flow statement

(in EUR)                                                                        Note          2009            2008
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax                                                                      (51,423,345)    (85,289,882)

Adjustments for:
- Depreciation of PPE                                                            7        3,562,971       5,771,708
- Depreciation of investments property                                           8          558,933         642,637
- Amortisation/depreciation                                                      9        1,936,761       1,509,026
- (Gain)/loss on sale of PPE                                                                110,028       (991,548)
- (Gain)/loss on sale of intangible assets                                                    1,355          21,193
- (Gain)/loss on sale of investment property                                                      -               -
- Impairment of goodwill                                                         9        5,904,886      25,722,775
- Net movements in provisions for liabilities and charges                       18.1     18,417,035    (18,290,000)
- Net movements in investment contracts                                                   1,373,090         722,890
- Net movements in employee benefits                                             20       (255,263)         654,941
- Excess on acquisition of subsidiary                                           22.2        620,680     (8,994,904)
- Gain from increase in the share capital of a subsidiary                       22.2               -              -
- Gain from acquisition of associates                                            10                -    (5,130,921)
- Investment income                                                              24    (16,569,959)    (22,694,921)
- Net fair value gains on available-for-sale securities                          25     (4,421,911)     (9,997,641)
- Impairment of AFS                                                              25     (2,927,247)      24,846,254

- Net fair value gains on assets at fair value through profit or loss           26       4,837,568      95,113,142
- Impairment of trade receivables and loans                                              9,355,631       2,722,944
- Finance cost                                                                  28       9,563,914       8,023,466
- Share of profit of associates                                                 10      23,426,946      27,407,029

Changes in working capital
- Inventories                                                                   13        (489,749)     (1,732,598)
- Trade and other receivables                                                             (578,717)    (14,374,533)
- Trade and other payables                                                                (114,996)      23,681,074

Net (purchase)/proceeds of operating assets                                     11
 - Available-for-sale financial assets                                                  (5,499,681)      45,407,191
 - Financial assets at fair value through profit or loss                                    873,866    (17,038,870)
 - Investments held to maturity                                                           9,676,810       (254,545)
- Increases of borrowings (KD Banka)                                                      9,961,240               -
Dividends received                                                                        2,318,229       7,870,526

Cash generated from operations                                                          20,219,075      85,326,433

Interest paid                                                                           (7,847,731)     (9,665,671)
Income tax paid                                                                         (2,051,617)    (12,638,848)
NET CASH FLOWS FROM OPERATING ACTIVITIES                                                10,319,727       63,021,914




                                                                78
The Group KD Group                                           Annual Report 2009

Consolidated Financial Statements as at and for the year ended 31 December 2009


(in EUR)                                                                               Note           2009             2008
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired                                   32             (2,647,049)      12,192,046
Increase in equity share of subsidiaries                                                         (1,822,573)    (10,409,684)
Acquisition of associates                                                         10             (4,018,887)    (14,571,598)
Disposals of associates                                                           10               9,808,855        2,962,628
Purchases of property, plant and equipment                                         7             (4,644,503)    (17,653,619)
Proceeds from sale of property, plant and equipment                                                2,791,852        7,626,628
Purchases of intangible assets                                                    9            (10,091,412)       (5,353,929)
Proceeds from sale of intangible assets                                                            5,260,956           26,908
Purchases of investment property                                                  8              (1,555,931)      (1,649,333)
Proceeds from sale of investment property                                                             68,567          536,071
Loans granted to related parties                                                  33             (6,782,642)    (14,712,870)
Loan repayments received from related parties                                     33               8,511,098      11,533,545
Loans and deposits granted                                                                    (311,816,857)    (302,830,052)
Loan and deposit payments received                                                              328,473,157      249,166,606
Interest received                                                                                  2,306,550        2,096,420
Dividends received from associates                                                10                  61,473        5,874,425
NET CASH FLOWS USED IN INVESTING ACTIVITIES                                                      13,902,654     (75,165,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of ordinary shares – minority interest                                              -           32,301
Purchase of treasury shares                                                                                -                -
Disposal of treasury shares                                                                                -                -
Proceeds from borrowings                                                                         65,162,870       86,357,994
Repayment of borrowings                                                                        (79,959,157)     (51,281,218)
Dividends paid to Company's shareholders                                          16                       -    (19,744,507)
Dividends paid to minority interest                                                                        -         (48,289)
NET CASH FLOWS USED IN FINANCING ACTIVITIES                                                    (14,796,287)       15,316,281
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                         9,426,094        3,172,387
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR                                               31,305,192       27,692,313
Foreign exchange gains on cash and cash equivalents                                                  (1,214)         440,492
CASH AND CASH EQUIVALENTS AT END OF THE YEAR                                                     40,730,072       31,305,192




The notes are an integral part of these consolidated financial statements.



                                                                   79
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Notes to the consolidated financial statements
1. General information

The principal activities of KD Group d. d. (“the Company”) and its subsidiaries (“the Group”) are quite diversified, namely, from
insurance to asset management financial services, banking and many others (real estate/immoveable property, publishing,
etc.).

KD Group d. d. is a public limited company with its registered office in Ljubljana, Celovška 206, Slovenia. Its shares are listed
on the OTC market of the Ljubljana Stock Exchange. The Company’s ultimate parent entity is KD d. d., with its registered
office in Ljubljana, Celovška 206, Slovenia.

These consolidated financial statements have been approved for issue by the Board of Directors on 22 April 2010 and can be
obtained from the Company’s registered office in Ljubljana, Celovška 206, Slovenia.


2. Summary of significant accounting policies
2.1     Basis for the preparation of financial statements


The accounting policies used are consistent with those applied in the previous year, except for the newly adopted
standards and interpretations as presented below.
IAS 1 Revised Presentation of Financial Statements
The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only
details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard
introduces the statement of comprehensive income; it presents all items of recognised income and expense, either in one
single statement, or in two linked statements. TheGroup has elected to present two statements.

IAS 23 Borrowing Costs (Revised)
The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing
costs’ into one - the interest expense calculated using the effective interest rate method in accordance with IAS 39. The KD
Group has amended its accounting policy accordingly. This amendment did not have any impact on the Group’s financial
statements

IFRS 2 Share-based Payment - Vesting Conditions and Cancellations
The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an
award that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this amendment did not
have any impact on the financial position or performance of the Group.

IFRS 7 Financial Instruments: Disclosures
The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value
measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instrument. In
addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as
well significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the
requirements for liquidity risk disclosures. The fair value measurement disclosures and the liquidity risk disclosures are
impacted by the amendments (Note 5.6.)

IFRS 8 Operating Segments
The new Standard requires an entity to adopt “management approach” to reporting on the financial performance of its operating
segments. As such it replaces the requirement for determining and reporting by business and regional segments. If the
numbers used by management for internal performance measurement of operating segments are different to the numbers
reported in the financial statements, this requires a reconciliation of numbers used by management to the financial statements.

IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation
The Standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as
equity if they fulfil a number of specified criteria. The adoption of this amendment did not have any impact on the financial
position or performance of the Group.



                                                            80
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement
These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host
contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This
assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the
contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states
that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair
value through profit or loss. The adoption of this amendment did not have any impact on the financial position or performance
of the Group.

IFRIC 12 Service Concession Agreement
This interpretation outlines the approach to account for contractual arrangements arising from entities providing public
services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather
recognize a financial asset and/or intangible asset. The adoption of this amendment did not have any impact on the financial
position or performance of the Group.

IFRIC 13 Customer Loyalty Programmes
This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in
which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred.
This is then recognised as revenue over the period that the award credits are redeemed. The adoption of this amendment did
not have any impact on the financial position or performance of the Group.

IFRIC 15 Agreement for the Construction of Real Estate
The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a
real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of
the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is
within the scope of IAS 11 or IAS 18. The adoption of this amendment did not have any impact on the financial position or
performance of the Group.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation
The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net
investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the
hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and
how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the
hedging instrument, to be recycled on disposal of the net investment. The adoption of this amendment did not have any
impact on the financial position or performance of the Group.




                                                            81
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


Improvements to IFRSs
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard.

IAS 1 Presentation of Financial Statements
Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and
Measurement are not automatically classified as current in the statement of financial position. The Group amended its
accounting policy accordingly and analysed whether Management’s expectation of the period of realisation of financial assets
and liabilities differed from the classification of the instrument. This did not result in any re-classification of financial
instruments between current and non-current in the statement of financial position. Improvement does not have any impact on
the Groups financial statements.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Clarifies that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting
policies. Improvement does not have any impact on the Groups financial statements.

IAS 10 Events after the Reporting Period
Clarifies that dividends declared after the end of the reporting period are not obligations. Improvement does not have any
impact on the Groups financial statements.

IAS 16 - Property, Plant and Equipment
Replaces the term “net selling price” with “fair value less costs to sell” to be consistent with IFRS 5 and IAS 36. The
Company/Group amended its accounting policy accordingly, which did not result in any change in its financial position.
Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are
transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales are subsequently shown as
revenue. Cash payments on initial recognition of such items and the cash receipts from rents and subsequent sales are all
shown as cash flows from operating activities.

IAS 18 Revenue
Replaces the term ‘direct costs’ with ‘transaction costs’ as defined in IAS 39.

IAS 19 Employee Benefits
Curtailments and negative past service costs
Revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service
costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to
plans that result in a reduction in benefits related to future services are accounted for as a curtailment.
Plan administration costs
Revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the
actuarial assumptions used to measure the defined benefit obligation.
Replacement of term ‘fall due’
Revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability
is due to be settled.
Guidance on contingent liabilities
Deletes the reference to the recognition of contingent liabilities to ensure consistency with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
Improvement does not have any impact on the Groups financial statements.

IAS 20 Accounting for Government Grants and Disclosures of Government Assistance
Government loans with no interest or a below-market interest rate
Loans granted with no or low interest rates will not be exempt from the requirement to impute interest. The difference between
the amount received and the discounted amount is accounted for as a government grant. Improvement does not have any
impact on the Groups financial statements.




                                                             82
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

IAS 23 – Borrowing Costs
The definition of borrowing costs is revised to consolidate the two types of items that are considered components of
‘borrowing costs’ into one - the interest expense calculated using the effective interest rate method calculated in accordance
with IAS 39. The Group has amended its accounting policy accordingly. Improvement does not have any impact on the
Groups financial statements.


IAS 27 – Consolidated and Separate Financial Statements
Measurement of a subsidiary held for sale in separate financial statements
When a parent entity accounts for a subsidiary at fair value in its separate financial statements, this treatment continues when
the subsidiary is subsequently classified as held for sale. Improvement does not have any impact on the Groups financial
statements.

IAS 28 - Investments in Associates
Required disclosures when investments in associates are accounted for at fair value through profit or loss
If an associate is accounted for at fair value through profit or loss, only the requirement of IAS 28 to disclose the nature and
extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or
repayment of loans applies.

Impairment of investment in an associate
An investment in an associate is a single asset for the purpose of conducting the impairment test - including any reversal of
impairment. Therefore, any impairment is not separately allocated to the goodwill included in the investment balance.
Improvement does not have any impact on the Groups financial statements.

IAS 29 – Financial Reporting in Hyperinflationary Economies
Description of measurement basis in financial statements
Revises the reference to the exception that assets and liabilities should be measured at historical cost, such that it notes
property, plant and equipment as being an example, rather than implying that it is a definitive list. Improvement does not have
any impact on the Groups financial statements.

IAS 31 - Interests in Joint Ventures
Required disclosures when investments in jointly controlled entities are accounted for at fair value through profit or loss
If a joint venture is accounted for at fair value, the only disclosure requirements of IAS 31 are those relating to the
commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities,
income and expenses. Improvement does not have any impact on the Groups financial statements.

IAS 34 – Interim Financial Reporting
Clarifies that earnings per share is disclosed in interim financial reports if an entity is within the scope of IAS 33. Improvement
does not have any impact on the Groups financial statements.

IAS 36 Impairment of Assets
Disclosure of estimates used to determine recoverable amount
When discounted cash flows are used to estimate ‘fair value less costs to sell’, the same disclosures are required as when
discounted cash flows are used to estimate ‘value in use’. Improvement does not have any impact on the Groups financial
statements.

IAS 38 – Intangible Assets
Unit of production method of amortisation
The improvement deletes references to there being rarely, if ever, persuasive evidence to support an amortisation method for
finite life intangible assets that results in a lower amount of accumulated amortisation than under the straight-line method,
thereby effectively allowing the use of the unit of production method. The Group reassessed the useful lives of intangible
assets and found the straight-line method still applicable.
Advertising and promotional activities
Expenditure on advertising and promotional activities is recognised as an expense when the entity either has the right to
access the goods or has received the services. Advertising and promotional activities now specifically include mail order
catalogues. This amendment has no impact on the Groups financial statements.




                                                             83
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009




IAS 39 Financial instruments: Recognition and Measurement
Reclassification of derivatives into or out of the classification of at fair value through profit or loss
Changes in circumstances relating to derivatives - specifically derivatives designated or de-designated as hedging
instruments after initial recognition - are not reclassifications.
When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with
paragraph 45 of IFRS 4 Insurance Contracts, this is a change in circumstance, not a reclassification.
Designation and documentation of hedges at the segment level
Removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge.
Applicable effective interest rate on cessation of fair value hedge accounting
Requires use of the revised effective interest rate (rather than the original effective interest rate) when re-measuring a debt
instrument on the cessation of fair value hedge accounting. Improvement does not have any impact on the Groups financial
statements.


IAS 40 – Investment property
Property under construction or development for future use as investment property
Revises the scope (and the scope of IAS 16 Property, Plant and Equipment) to include property that is being constructed or
developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment
property under construction, but expects to be able to determine its fair value on completion, the investment under
construction will be measured at cost until fair value can be determined or construction is complete.
Revises the conditions for a voluntary change in accounting policy to be consistent with IAS 8. Clarifies that the carrying
amount of investment property held under lease is the valuation obtained increased by any recognised liability.
Improvement does not have any impact on the Groups financial statements.

IAS 41 Agriculture
Additional biological transformations
Removes the prohibition to take into account cash flows resulting from any additional transformations when estimating fair
value. Instead, cash flows that are expected to be generated in the ‘most relevant market’ are taken into account.
Discount rate for fair value calculations
Removes the reference to the use of a pre-tax discount rate to determine fair value, thereby allowing use of either a pre-tax or
a post-tax discount rate depending on the valuation methodology used. Improvement does not have any impact on the
Groups financial statements.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Plan to sell the controlling interest in a subsidiary When a subsidiary is held for sale, all of its assets and liabilities will be
classified as held for sale under IFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.
This amendment is effective for periods commencing 1 July 2009. Improvement does not have any impact on the Groups
financial statements.

IFRS 7 Financial Instruments Disclosures
Removes the reference to ‘total interest income’ as a component of finance costs. Improvement does not have any impact on
the Groups financial statements.




                                                             84
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


Early application of IFRS and IFRIC's interpretations not yet effective

Group has not early adopted any standards or interpretations issued and not yet effective.

The following new and amended IFRIC will be adopted in future periods as required by International Financial
Reporting Standards:
IFRIC 17 Distribution of Non-Cash Assets to Owners
IFRIC 17 becomes effective for annual periods beginning on 1 July 2009. The interpretation provides guidance on how to
account for non-cash distribution of assets to owners. The interpretation clarifies when an entity should recognize the liability,
how it should be measured, and how to recognize and measure the related assets, as well as when such assets and liabilities
should be derecognised in books of accounts.

IFRIC 18 Transfers of Assets from Customers
IFRIC 18 applies to transfers of assets from customers on or after 1 July 2009.
The interpretation provides guidance on how to account for property, plant and equipment transferred from customers or cash
received for acquisition or construction of certain assets. This guidance applies only to assets used by an entity to connect the
customer to a network or to provide the customer with an ongoing access to a supply of goods, services or, in some cases, to
do both. The entity must identify the service or services rendered and allocate the received payment (the fair value of assets)
to each identifiable service. Revenue should be recognised on delivery or performance of each individual service by the entity.

The following new and amended IFRIC’s will be adopted in future periods as required by International Financial
Reporting Standards and if adopted by the EU.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
The interpretation becomes effective on 1 July 2010 and provides guidance on how to account for the extinguishment of a
financial liability by the issue of equity instruments (a debt for equity swaps). The interpretation clarifies how to measure and
recognise such swaps.

The following new standards will be adopted in future periods as required by International Financial Reporting
Standards and the EU.

IFRS 3R – Business Combinations and IAS 27R – Consolidated and Separate Financial Statements.
The revised standards were issued in January 2008 and become effective for financial years beginning on 1 July 2009. IFRS
3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill
recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a
change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have
no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for
losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS
27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.

IAS 39 – Financial Instruments: Recognition and Measurement – Eligible Hedged Items
These amendments to IAS 39 were issued in August 2008 and become effective for financial years beginning on or after 1
July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as
a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value
changes or cash flow variability of a financial instrument as a hedged item.

The following new and amended standards will be adopted in future periods as required by International Financial
Reporting Standards, if endorsed by the EU.

IFRS 2 – Cash-Settled Share-Based Payment Transactions in the Group
Applicable for periods beginning on or after 1 January 2009.
Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based transactions and agreements,
the scope of IFRS2, and additional clarification of how to account for cash-settled share-based payment transactions in the
group.

IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares Denominated in a Foreign
Currency


                                                              85
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Applicable for periods beginning on or after 1 February 2010.
The amended Standard allows an entity issuing puttable financial instruments denominated in foreign currency not to account
for these rights as derivatives but rather to recognize the effects in the profit or loss. These rights are classified as equity if
they fulfil a number of specified criteria.

IAS 24 – Related Party Disclosures
Applicable for periods beginning after 1 January 2011
Amendments to IAS 24 define in more detail and simplify definition of a related party. Furthermore the amended standard
reduces the scope of disclosures of transactions of a government owned entity with the government and other government
owned entities.

IFRS 9 – Financial Instruments
The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The first part of the standard
introduces new requirements for classifying and measuring financial assets.

Improvements to IFRSs
In April 2009 the Board issued its second omnibus of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard. So far these
amendments have not been endorsed by the EU.


IFRS 2- Share-Based Payments – specification when to apply IFRS 2 and IFRS 3
IFRS 5 – Non-current Assets Held for Sale – Disclosure
IFRS 8- Operating Segments – Disclosure of Segments' assets
IAS 1 –Presentation of Financial Statements – current/non-current liabilities for swap instruments
IAS 7 – Statement of Cash Flows – classifying expenditure for unrecognized assets
IAS 17 – Leases – classifying land and buildings
IAS 18 - Revenue – designation whether an entity acts as a principal or an agent
IAS 36 – Impairment of Assets – the maximum unit to which goodwill may be attributed
IAS 38 – Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in relation to determining
fair value
IAS 39 – Financial Instruments – assessment of liquidating damages for prepayment of a credit as a derivative, cash flow
hedges
IFRIC 9 – Reassessment of Embedded Derivatives – impact of IFRS 3 and IFRIC 9
IFRIC 16 – Hedges of a Net Investment in a Foreign Operation– amendment of restriction to an entity allowed to have a
hedge




                                                             86
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


2.2     Consolidated financial statements


2.2.1 Assets and liabilities according to expected maturity



(in EUR)                                                                               31.12.2009        31.12.2008

Non current assets
Financial assets                                                                      196,487,576      173,221,477
Reinsurance contracts                                                                   4,603,946        5,085,554
Insurance receivables and other receivables                                            10,207,953       19,036,827
Other non current assets                                                              188,573,505      214,316,570
                                                                                      399,872,980      411,660,428

Current assets
Financial assets                                                                      143,107,973      155,394,457
Reinsurance contracts                                                                  14,845,062       12,277,149
Insurance receivables and other receivables                                            47,673,657       50,811,300
Other current assets                                                                   96,248,250       86,261,854
                                                                                      301,874,942      304,744,760

Unit-linked investments of policyholders                                              146,036,822        78,607,121

Total assets                                                                          847,784,744      795,012,309


(in EUR)                                                                               31.12.2009        31.12.2008

Non current liabilities
Insurance contracts                                                                   150,387,932      136,122,771
Investment contracts                                                                   17,654,644       16,272,396
Financial liabilities                                                                 112,433,921      109,225,022
Insurance liabilities and other liabilities                                               712,890          623,677
                                                                                      281,189,387      262,243,866
Current liabilities
Insurance contracts                                                                   145,710,052      141,558,178
Investment contracts                                                                       48,610           57,768
Financial liabilities                                                                  82,271,608       72,332,881
Insurance liabilities and other liabilities                                            30,797,545       33,003,864
Other current liabilities                                                              16,053,679       12,561,624
                                                                                      274,881,494      259,514,315

Unit-linked liabilities of policyholders                                              140,108,844        79,308,743

Total liabilities                                                                     696,179,725      601,066,924


2.2.2 Subsidiaries

Subsidiaries are those companies for which the Company and its subsidiaries hold, directly or indirectly, more than one half of
voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-
consolidated from the date on which control of the Company ceases.

The cost method of accounting is used to account for the acquisition of subsidiaries by measuring the acquisition value of the
investment first. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.


                                                            87
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at fair value at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the
identifiable assets, liabilities and contingent liabilities is recorded as goodwill. If the cost of acquisition is less than the fair
value of the Group’s share of net assets acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions as well as income, expenses and dividends
between Group companies have been eliminated. Subsidiaries’ accounting policies have been changed or adequately
restated where necessary to ensure consistency with the policies adopted by the Group. All Members of the Group have the
same balance sheet date.


2.2.3 Transactions and minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.
Purchases from minority interests result in goodwill (excess), being the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary. Disposals of minority interests result in gains and
losses for the Group that are recorded in the income statement. Minority interests are disclosed as a separate item of the
Group’s equity. Net profit or loss is divided into net profit (loss) of the majority owner and net profit (loss) of the minority
owner.

2.2.4 Associates

Associates are all entities over which the Group has a significant influence but not control, generally accompanying a direct or
indirect shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the
equity method of accounting according to which such investments are initially recognised at cost and are subsequently
increased or decreased by the Group’s share of the associate’s profit or loss. Dividends received from an associate reduce
the carrying amount of the investment.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement. The Group’s
share of post-acquisition movements in associates’ reserves is recognised as a movement in the Group’s reserves.
If the Group’s share of losses of an associate equals or exceeds its interest in the associate, including unsecured receivables
to the associate, the Group discontinues recognising its share of further losses unless the Group has any legal or other
liabilities assumed on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognising its
share of those profits only after its share of the profits equals the share of losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in
the associates. Accounting policies of associates have been changed where necessary to ensure consistency with the
policies adopted by the Group.

The Group’s investments in the internally managed mutual funds where the Group has a significant influence are treated as
investments in associated companies and are accounted for using the equity method. The unit-linked insurance funds are
categorised as financial assets designated at fair value through profit or loss at inception as permitted by IAS 28, Investments
in Associates (see Note 10).

In the case of a gradual purchase of affiliated companies, the Group recognises goodwill or negative goodwill resulting from
individual transactions. Negative goodwill is recognised in the profit or loss of the year during which the company became
associated (the part that refers to purchases made in that year). Negative goodwill in connection with purchases made in the
previous period however, is recognized directly in the retained earnings.




                                                              88
The Group KD Group                                 Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.2.5 Subsidiaries

                                                                Registered office          Percentage of ownership
Members of the Group – direct:
KD Skladi d. o. o. Ljubljana                                    Slovenia                               100.00%
KD Investments d. o. o. Zagreb                                  Croatia                                100.00%
KD Investments a. d. Belgrade                                   Serbia                                 100.00%
SAI KD Investments s. a. Bucharest                              Romania                                100.00%
KD Investments plc Sofia                                        Bulgaria                               100.00%
KD Investments Bratislava                                       Slovakia                               100.00%
KD Banka d. d. Ljubljana                                        Slovenia                               100.00%
KD Upravljanje imovinom d. o. o. Zagreb                         Croatia                                100.00%
KD Capital Management s. a. Bucharest                           Romania                                100.00%
KD Securities EAD, Sofia                                        Bulgaria                               100.00%
KD Asset Management b. v. Amsterdam                             Netherlands                            100.00%
KD Life d. d. Kiev                                              Ukraine                                100.00%
KD Življenje d. d. Ljubljana                                    Slovenia                               100.00%
KD Life Asigurari s. a., Bucharest                              Romania                                100.00%
KD Life a. d., Sofia                                            Bulgaria                               100.00%
SC KD Fond De Pensii s. a. Bucharest                            Romania                                 99.00%
Adriatic Slovenica d. d. Koper                                  Slovenia                               100.00%
KD Kapital d. o. o. Ljubljana                                   Slovenia                               100.00%
KD Private Equity d. o. o., Belgrade                            Serbia                                 100.00%
R.E. Invest d. o. o. Ljubljana                                  Slovenia                               100.00%
KD Kvart d. o. o. Ljubljana                                     Slovenia                               100.00%
Coloseum Multiplex Holdings b. v., Amsterdam                    Netherlands                            100.00%
Firsthouse Investments Ltd., Limassol                           Cyprus                                 100.00%
Fontes Group d. o. o., Belgrade                                 Serbia                                 100.00%
Gea College d. d. Ljubljana                                     Slovenia                                66.57%
World Life Group ltd., Limassol                                 Cyprus                                 100,00%
OOO Sarbon Invest, Taškent                                      Uzbekistan                             100,00%

Members of the Group through subsidiaries
ABDS d. d. Sarajevo                                             Bosnia and Herzegovina                   95.72%
KD Finančna točka d. o. o. Ljubljana                            Slovenia                                100.00%
KD Fund Advisors LLC, Delaware                                  United States                            90.00%
KD Financial point s. r. l. Bucharest                           Romania                                 100.00%
ZAP d. o. o. Murska Sobota                                      Slovenia                                100.00%
ČZD Kmečki Glas d. o. o. Ljubljana                              Slovenia                                100.00%
Vrtnarstvo Celje d. o. o. Celje                                 Slovenia                                 50.46%
VIB a. d. Banja Luka                                            Bosnia and Herzegovina                   51.00%
Gea College PIC d. o. o. Ljubljana                              Slovenia                                100.00%
Gea College CVŠ d. o. o. Ljubljana                              Slovenia                                100.00%
KD Fondovi a. d. Skopje                                         Bosnia and Herzegovina                   85.00%
KD Životno osiguranje d. d. Zagreb                              Croatia                                 100.00%
AS Neživotno osiguranje a. d. o. Beograd                        Serbia                                   99.82%
Manta Marine Ventures Ltd                                       United States                           100,00%
KD Financijska točka d. o. o. Zagreb                            Croatia                                 100,00%
KD Financial point, s. r. o. Bratislava                         Slovakia                                100,00%
KD Mark d. o. o. Ljubljana                                      Slovenia                                100,00%
KD Financial point EOOD, Sofia                                  Bulgaria                                100,00%
Vitavizia d. o. o., Ljubljana                                   Slovenia                                100,00%
FM-NET d. o. o., Ljubljana                                      Slovenia                                100,00%
Gama Holdings b. v., Amsterdam                                  Netherlands                             100,00%
OOO Kredo Group, Taškent                                        Uzbekistan                               99,97%
Radio Kranj d. o. o., Kranj                                     Slovenia                                 52,68%




                                                        89
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.3     Segment reporting

Business and geographical segments are parts of the Group’s operations that are subject to different rates of profitability,
opportunities for growth, future prospects and risks. A business segment is a distinguishable component of the Group that is
engaged in providing a group of related products or services and that is subject to risks and returns that are different from
those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in
providing products or services within a particular economic environment and that is subject to risks and returns that are
different from those of segments operating in other economic environments.


2.4     Foreign currency translation

Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are
presented in euros, which is the Group’s presentation currency.



Transactions and balances

Foreign currency transactions and balances are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement.

If the transaction is recognised directly in equity, exchange differences from the conversion to the functional currency are also
recognised directly in equity. Exchange differences arising in respect of investments of the parent company in the capital of
subsidiaries abroad are recognised directly in other comprehensive income, and recognised in the income statement only on
disposal of the investments.

Foreign currency monetary items are translated on the balance sheet date using the reference rate of ECB or Bank of
Slovenia exchange rates (for currencies for which the ECB does not publish reference rates) on the last day of the year. Non-
monetary items that are measured in terms of historical cost in a foreign currency are translated using the mean exchange
rate of the Bank of Slovenia applicable at the date of transaction, while non-monetary items that are measured at fair value in
a foreign currency are translated using the reference rate of the ECB applicable at the date when the fair value was
determined.

In the context of changes in the fair value of monetary securities denominated in foreign currency classified as available for
sale, translation differences resulting from changes in the amortised cost of the security and other changes in the carrying
amount of the security are accounted for separately.. Translation differences related to changes in the amortised cost are
recognised in profit or loss, whereas other changes in the carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets and liabilities, such as equities held at fair value through profit or
loss, are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial
assets, classified as available for sale, are included in other comprehensive income.




                                                            90
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


Group companies

The financial statements of all Group entities (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency of the Group are translated into the presentation currency as
follows:
      -   assets and liabilities for each balance sheet presented are translated at the reference rate of ECB or Bank of
          Slovenia exchange rates on the date of the balance sheet;
      -   income and expenses for each income statement are translated at the average annual reference rate of ECB or
          Bank of Slovenia exchange rates;
      -   all resulting exchange differences are recognised as a separate component of equity (reserves).

Upon consolidation, exchange differences arising from the translation of the net investment in foreign entities are transferred
to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the income
statement as part of the gain or loss on sale.


2.5     Property, plant and equipment

Property, plant and equipment are land, buildings and equipment used by the Group for the performance of its activities.
After initial recognition, property and equipment are carried at historical cost less accumulated depreciation and accumulated
impairment losses, if any (cost model). Historical cost includes expenditure that is directly attributable to the acquisition of the
items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in
which they are incurred. If the cost of an item of property, plant and equipment is significant, it is allocated to its individual
parts. If the parts are significant in relation to the total cost, and have different useful lives, each individual part of the asset is
accounted for separately.


An item of property and equipment is derecognised upon disposal or when no further economic benefits are expected from
the asset. The gain or loss arising from derecognition of an item of property or equipment is determined as the difference
between the disposal proceeds and the carrying amount of the item, and is recognised in other operating income or
expenses.


Depreciation

The Group systematically allocates to profit or loss the cost less residual value (depreciable amount) over the useful life of
each individual item of property, plant and equipment. The Group uses the straight-line depreciation method. Land is not
depreciated.
Depreciation is calculated individually.

The useful lives are as follows:

Property, plant and equipment
  Buildings                                                                                                     20 to 59 years
  Vehicles and machinery                                                                                         3 to 10 years
  Furniture, fittings and equipment                                                                              2 to 7 years

The assets’ residual values and useful lives are reviewed at least once a year on the balance sheet date and restated if
appropriate. If the asset’s recoverable amount is lower than its book value the asset is written down immediately to its
recoverable amount and the impairment loss is recognised in the income statement. The recoverable amount is the higher of
an asset's value in use and fair value less costs to sell (see Note 2.1.10).




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The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.6     Investment property

Investment property is property (land or a building, or part of a building, or both) held to earn rentals and/or for capital
appreciation or both, rather than for administrative purposes or sale in the ordinary course of business. Investment property is
initially measured at cost. After initial recognition, investment property of the Group is carried at its cost less accumulated
depreciation and accumulated impairment losses, if any (cost model), i.e. the same as property, plant and equipment. The
Group reviews once a year the proportion of investment property obtained by other companies in the Group under lease
agreements; in the consolidated balance sheet, the value of investmet property is recognised within the items of property,
plant and equipment.

The recognition and derecognition policies and methods of accounting for depreciation and impairment are defined under
property, plant and equipment. The costs of day-to-day servicing of the investment property (repairs and maintenance) are
expensed when incurred.


2.7     Intangible assets

After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated
impairment losses (cost model). An entity assesses whether the useful life of an intangible asset is finite or indefinite. If finite,
it is amortised over its useful life. An intangible asset with an indefinite useful life is not amortised.

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets,
liabilities and contingent liabilities of the acquired subsidiary, and is disclosed under intangible assets with an indefinite useful
life.

Goodwill on acquisition of subsidiaries is included in intangible assets and carried at cost less accumulated impairment
losses. Goodwill on acquisitions of associates is included in investments in associates. Separately recognised goodwill is
tested annually, and any impairment is recognised in the income statement. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Once a year
the adequacy of the goodwill is reviewed and any impairment loss is recognised in the profit and loss account. The reversal of
impairment of goodwill is not allowed. Gains and losses on disposal of subsidiaries also include the value of goodwill, which
refers to the disposed subsidiary.


Excess of fair value of the acquired identifiable assets, liabilities and contingent liabilities above the cost of their acquisition is
reassessed, and any excess remaining after the reassessment is recognised as income in the income statement.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill is allocated to the Group’s cash-
generating units that are expected to benefit from the synergies of the combination.

Other intangible assets
The Group’s intangible assets with a finite useful life include computer software and licences. The cost of acquired software
comprises the costs of acquisition and preparation of the asset for its intended use, and for licences it is the cost of
acquisition. Throughout the useful life of an individual item of an intangible asset the Group consistently allocates the amount
of its amortisation to individual accounting periods as amortisation at that time. Amortisation is calculated using the straight-
line method.

Amortisation is charged individually. The periods of amortisation of intangible assets with a finite useful life are the following:

Intangible assets:
Licences                                                                                                        3 to 5 years
Computer software                                                                                               3 to 5 years




                                                               92
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.8       Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans
and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the
classification of its investments at initial recognition.


2.8.1 Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or
loss at inception.

A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or
repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking.

Financial assets and financial liabilities are designated at fair value through profit or loss when:

      -    doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated
           as held for trading and the underlying financial instruments were carried at amortised cost for loans and advances to
           customers or banks and debt securities in issue; and
      -    certain investments, such as equity investments, are managed and evaluated on a fair value basis in accordance
           with a documented risk management or investment strategy and reported to key management personnel on that
           basis, and are designated at fair value through profit or loss.


2.8.2 Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that
the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an
insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale.

2.8.3 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an
active market, other than: (a) those that the entity intends to sell immediately or in the short term, which are classified as held
for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the
entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially
all of its initial investment, other than for reason of credit deterioration. If the loan is irrecoverable, it is written-off and
recognised in revaluation expenses - impairment of loans. Loans are considered to be irrecoverable when all the necessary
procedures of recovery have been performed and the amount of loss can be determined. The subsequent repayments of
debts written off reduce the impairment loss recognised in the income statement, providing the repayments are received in the
current year; if not, they increase the revenue.

2.8.4 Available-for-sale financial assets

Available-for-sale investments are those intended to be held for an indefinite period of time, and which may be sold in
response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

2.8.4.1. Recognition of financial assets
Regular purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are
recognised at the trade-date – the date on which the Group commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and
transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognised when they are extinguished − that is, when the obligation is discharged,
cancelled or expires.



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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.8.4.2. Measurement of financial assets
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Gains and losses arising from changes in the fair value of the "financial assets at fair value through profit or loss" category are
included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of
available-for-sale financial assets are recognised directly inother comprehensive income, until the financial asset is
derecognised or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised in profit or
loss. However, interest calculated using the effective interest method and foreign currency gains and losses on monetary
assets classified as available for sale are recognised in the income statement. Dividends on available-for-sale equity
instruments are recognised in the income statement when the entity’s right to receive payment is established.

The fair values of investments listed on active markets are based on current bid prices. If there is no active market for a
financial asset, the Group establishes fair value using valuation techniques. These include the use of recent arm’s length
transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants.

2.9       Impairment of assets

2.9.1 Impairment of financial assets

(a) Financial assets carried at amortised cost
The Group assesses at balance sheet date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only
if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the
asset (a "loss event") and that a loss event (or events) has an impact on the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is
impaired includes observable data that comes to the attention of the Group about the following loss events:

      •    significant financial difficulty of the issuer;
      •    a breach of contract, such as a default or delayed payement of interest or principal amount;
      •    the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a
           concession that the lender would not otherwise consider;
      •    it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
      •    the disappearance of an active market for that financial asset because of financial difficulties; or
      •    observable data indicating that there has been a measurable decrease in the estimated future cash flows from a
           group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified
           with the individual financial assets in the Group, including:
           -      adverse changes in the payment status of borrowers in the Group; or
           -      national or local economic conditions that correlate with defaults on the assets in the Group.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at
amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment
has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate
determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s
fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the
collateral, whether or not foreclosure is probable.




                                                              94
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk
characteristics (using the valuation model of the Group, which takes into account the type of assets, industry, geographical
location, type of investment, maturity and other relevant characteristics).
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the
debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively assessed for impairment are estimated on the basis of the
contractual cash flows of the assets in the Group and historical loss experience, namely on the basis of similar credit risk
exposure in the past. Historical loss experience is restated on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows for groups of assets should reflect and be directly consistent with changes in
related observable data from period to period (for example, changes in unemployment rates, property prices, payment status,
or other factors indicative of changes in the probability of losses in the group and directly consistent with their magnitude). The
methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any
differences between loss estimates and the actual loss .

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously
recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the
income statement.

When an asset is uncollectible, it is written off against the allowance account for the asset. Such assets are written off after all
the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of
amounts previously written off decrease the amount of the impairment charge in the income statement.

(b) Financial assets classified as available for sale
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of
financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged
decline in the fair value below their cost, a maximum period of 9 months from the date when the fair value of equity
instruments first fell below the purchase price and has remained below the total period of 9 months is taken into account,
while in determination of a significant decrease in the assessment of fair value, the management takes into account at least
40% reduction in the fair value.

If any such evidence exists, the cumulative loss – measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on the financial asset previously recognised in profit or loss – is removed from equity and
recognised in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for
sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed through the income statement.

2.9.2 Impairment of non-financial assets

Intangible assets which are not subject to amortisation are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. In such case, the recoverable amount is
established for a cash-generating unit i.e. the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. The criterion for determining the cash-generating units
is the individual business area of the Group. The recoverable amount of an asset or a cash-generating unit is the higher of its
fair value less costs to sell and its value in use.

2.10    Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost
method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.




                                                              95
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.11    Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and
settle the liability simultaneously.

2.12    Cash and cash equivalents

Cash and cash equivalents include cash in hand and demand deposits held with banks. The Group reports cash flows from
operating activities using the indirect method, whereby profit or loss is restated for the effects of transactions of a non-cash
nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense
associated with investing or financing cash flows.

2.13    Share capital and dividend distribution

Ordinary and preference shares are equity. Incremental costs directly attributable to the issue of new shares or options or to
the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds.

Where the Company or another member of the Group purchases the Company's equity share capital, the consideration paid
is deducted from total shareholders’ equity. Where such shares are subsequently sold or reissued, any consideration received
is included in the shareholders’ equity.

Dividends on ordinary and preference shares are recognised as a liability in the period in which they are approved by the
Company's shareholders. Dividends for the year that are declared after the balance sheet date and before the financial
statements are authorised for issue are disclosed in the subsequent events note (see Note 30).

2.14    Insurance and investment contracts

The Group issues contracts that transfer insurance risk or financial risk, or both. Insurance contracts are those contracts that
transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines
as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least
10% above the benefits payable if the insured event did not occur.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk.

Traditional life insurance contracts and investment contracts include the possibility of discretionary participation in the positive
result realised through management of assets from said contracts (hereinafter: DPF). The possibility of discretionary
participation is a contractual right to additional benefits supplementary to guaranteed benefits, namely:
   - benefits which are likely to represent a significant share of the total contract benefits;
   - benefits whose amount or time frame is specified by the insurer; and
   - benefits which are contractually based on:
     • the success of a given category of contracts or certain types of contracts;
     • realised and/or unrealised investment returns on a specific pool of assets held by the issuer; or
     • the profit of the company, cover of assurance or other entity that issues the contract.

Traditional life insurance contracts with DPF and investment contracts with DPF contain an agreed insurance sum or annuity
(calculated under the premise of achieving a certain rate of return on accumulated assets) and an additional possibility of the
insured’s participation in the Group’s realised profits in the segments of life insurance and annuity insurance at the end of the
financial period and/or with regard to the profitability of assets if higher than the pre-calculated amounts. The basis for
determining the amounts of discretionary participation of the insured and the percentage vary between individual insurance
products and are defined in the insurance terms.

Insurance and financial life insurance contracts are defined as contracts with DPF because the interest rate used at the time
of preparing the product and calculating the agreed insurance sum or annuity was lower than the expectations at the time with
regard to commercial interest rates. Additional benefits for the policyholder were expected at the stage of preparing the
insurance product, which represents a discretionary right to additional benefits.




                                                              96
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009



2.14.1 Insurance contracts

2.14.1.1    Recognition and measurement

The Group offers four main categories of insurance contracts, depending on the duration of risk and whether or not the terms
and conditions are fixed:
     • Property insurance contracts
     • Health insurance contracts
     • Life insurance contracts with DPF
     • Unit-linked life insurance contracts

2.14.1.2    Property insurance contracts

This category includes accident insurance, insurance of land vehicles, fire and other damage insurance, liability insurance,
financial loss insurance, transport insurance, credit and suretyship insurance, and insurance of assistance and costs of
procedures. This mainly involves short-term insurance contracts, with the exception of credit insurance.

In accident insurance, in addition to the basic insured risks such as disability and death, policyholders mainly opt for additional
insurance coverage such as daily accident insurance, daily insurance in the event of hospital treatment due to an accident,
and daily insurance in the event of prolonged treatment in a medical facility due to an accident. In addition to the
aforementioned risks, an insurance policy may also be taken out for the event of death in a traffic accident, reimbursement of
medical expenses, funeral costs in the event of the insured’s death, and reimbursement of accommodation costs for adult
supervisors in the case of insuring schoolchildren.

Land motor vehicle insurance covers material damage (partial or total loss of the vehicle’s value) which might result from
traffic accidents, natural disasters, theft, fire, malicious acts and other insured risks.

Car insurance falls under the category of mandatory traffic insurance and must be ensured by every owner of a motor vehicle
prior to beginning to use the vehicle in traffic. This applies to all types of motor vehicles which require registration. The Group
reimburses the injured party for damages incurred as a result of the use or possession of the vehicle causing the damage.
The insurance also provides coverage of property (destruction, accidental damage) as well as non-property damage (bodily
injury, health conditions or death), providing the insured with total property security. The amount of indemnification is limited in
both cases by the legally defined minimum insurance sum.

Fire insurance covers real and moveable property from the risk of fire, lightning, explosion, hailstorm, windstorm, crash of the
insured’s motor vehicle and work machinery, airplane crash and public manifestations and demonstrations. By special
agreement and subject to an additional premium, it is also possible to include insurance coverage in the event of flooding,
water spill, landslide, avalanche, spill of fluids or gases, self-combustion of inventories and spill of glowing mass in industrial
environments. Additionally, insurance coverage can extend to earthquake and torrential flooding. Insurance can be taken out
on new or actual value.

In the context of the insurance category "Other indemnity insurance", the following subcategories are of significance
according to the amount of the premium: home insurance for insuring domestic non-fixed assets, machinery malfunction to
insure machinery and its parts, burglary insurance to insure moveable property from burglary and theft, building insurance,
insurance of computers and glass.

General liability insurance covers damages from indemnification claims enforced by third parties against the insured due to a
sudden event which resulted in damage to persons or things. The key element of this insurance category is insurance of
general liability, including employer liability. Other important subcategories include: forwarding, manufacturer, project
engineering, medical and accounting liability. To a smaller degree, other forms of professional liability insurance are traded:
professional liability of attorneys, insurance agents, real estate agents, surveyors, members of management boards and
supervisory boards, liability of auditing firms and other legally prescribed professional liability insurance types.

The category of financial loss insurance includes insurance for the event of halting the working process due to fire or machine
breakage, and insurance of public events. The former are taken as additional insurances against fire and machine breakage
insurance, and events are insured independently. Insurance of halted production processes involves insurance of fixed costs
which the insured was unable to cover due to the fire or machine breakage. By special agreement, insurance may also



                                                              97
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
include profits which the policyholder was unable to realise during the halt in production. Insurance of events covers damages
incurred by the organiser in the event of cancellation of an event due to weather, and by special agreement also if the
cancellation occurs as a result of natural or administrative force majeure, or due to fire or explosion.

Transport insurance includes coverage of goods in domestic and international transport, comprehensive insurance of boats
and airplanes, liability insurance of the owner or authorised user of the boat or airplane, insurance of the transporter’s liability
in road traffic, insurance of the forwarding agent’s liability and insurance of maritime agents. The quote is also customised to
fit the needs of the policyholder in the field of liability insurance, or in case of damage to goods under the FIATA bill of lading,
and we also design and provide more specific insurance policies such as liability coverage for repairers of boats, marina and
harbour managers, and insurance of risk borne by constructors of boats and shipyards.

Credit insurance marketed by the Group covers failure to pay contractual obligations for whatever reason and comprises
insurance of commercial loans, insurance of loans for investment in real property, bank overdraft limits, etc. In the segment of
suretyship insurance, the policyholder is provided with a guarantee for earnest deposits, good performance of works, repair of
malfunctions during the warranty period, payment of customs duties, for the event of insolvency of tourist organisations, for
ensuring the payment of goods and services acquired through use of a credit card, guarantees for TIR carnets, etc.

Insurance of assistance costs provides the policyholder with emergency assistance either in relation to vehicles in the event of
malfunction or traffic accident, or in relation to an apartment or house when normal residence is impossible due to the sudden
emergence of events, or when emergency assistance is needed when travelling abroad. In insuring the costs of procedures,
the most important feature is the insurance of legal aid, which provides the policyholder with coverage of attorney fees.

In all of the above contracts, premiums accrue when they become payable by the policyholder. Premiums contain all costs in
addition to premiums, including the agency fee, except taxes. The part of the premiums from valid insurance contracts which
refers to unexpired insurance coverage on the balance sheet date is presented as unearned premium reserve and represents
a liability of the Group. Accrued premiums less changes in unearned premium reserves are recognised as revenue.

The amounts of damage and appraisal costs are recognised as liabilities at the time the claim was incurred. Claims incurred
but not fully resolved as at the balance sheet date are recognised as provisions for claims. Liabilities for claims incurred and
reported as at the balance sheet date are formed on the basis of individual appraisal of claims. Liabilities for claims incurred
but not reported as at the balance sheet date are assessed through statistical analysis. Liabilities for claims are further
increased by the estimated costs of resolving such claims. Accrued indemnifications/insurance amounts, including costs of
appraisal and resolution of cliams, increased by the difference of provisions for claims, are recognised as an expense.

2.14.1.3    Health insurance contracts

The Group offers three of the four types of optional health insurance as set forth by the Health Care and Health Insurance Act
(ZZVZZ), namely supplementary health insurance, extra health insurance and parallel health insurance.

Supplementary health insurance covers the difference between the health care costs under Art. 23 of ZZVZZ and the share of
these costs which is covered under mandatory health insurance or part of this difference where the extra payable amount
relates to the right to medical products included on the list of interchangeable medical products, medical aids and technical
accessories.

Extra health insurance covers the costs of health services and related services and supply of medical products and medical
aids and technical accessories, and the costs involved in cash payouts which are not part of mandatory health insurance and
are not covered under supplementary or substitute health insurance.

Parallel health insurance covers the costs of health services and related services, and supply of medical products and
medical aids and technical accessories which, although they constitute entitlement under mandatory health insurance, are
pursued by the insured under alternative procedures and under different conditions than those regulated under mandatory
health insurance.

The Group concludes long-term insurance contracts on the basis of monthly or annual premiums.

In addition to the above, the Group also offers travel insurance abroad with assistance from CORIS, which covers the costs of
medical treatment and emergency transport. These insurance policies are short term in nature.

The premium is recognised as revenue when the policyholder’s obligation to pay falls due. Premiums contain all costs in
addition to premiums, including the agency fee, except taxes. The part of the premiums from valid insurance contracts which



                                                              98
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
refers to unexpired insurance coverage on the balance sheet date is presented as unearned premium reserve. Accrued
premiums less changes in unearned premium reserves are recognised as revenue.

The amounts of claims and appraisal costs are recognised as an appraised liability at the time the claim was incurred. Claims
incurred but not fully resolved as at the balance sheet date are recognised as provisions for claims. Provisions for claims
incurred and reported as at the balance sheet date are formed on the basis of individual appraisal of claims. Provisions for
claims incurred but not reported as at the balance sheet date are assessed through statistical analysis. Provisions for claims
are further increased by the estimated costs of resolving such claims. Accrued indemnifications/insurance amounts, including
costs of appraisal and resolution of claims, increased by the difference of provisions for claims, are recognised as an
expense.

Insurance companies offering supplementary health insurance are included in compensatory schemes under ZZVZZ, which
offset the differences in the medical costs between different structures of insured with individual insurance companies with
regard to gender and age. As a compensatory scheme payer, the Group recognises these expenses as damage expenses.

2.14.1.4    Long-term insurance contracts with included guarantees and DPF

These contracts include contracts insuring events related to the insured’s life (e.g. death, maturity) over a longer period of
time. The premium is recognised as revenue when the policyholder’s obligation to pay falls due. Premiums are disclosed
before deduction of expenses.

Liabilities stemming from the insurance contract are recorded as expenses as they are incurred.

Liabilities for anticipated future contract entitlements are recorded at the recognition of premiums. For long-term life insurance
contracts with included guarantees, the liabilities on the valuation date are formed in the amount of current values of the
Group’s anticipated future liabilities less the current estimate of future premiums to be paid in on the basis of concluded
insurance policies (prospective method). The Group uses reduction in insurance liabilities in terms of the Zillmer method. The
Zillmer method is an actuarial method used in traditional life insurance business for deferral of acquisition costs (reduction in
mathematical provisions). The Zillmer amount for an individual contract does not exceed 3.5% of the insured sum. Negative
mathematical provisions are set to 0.

The assumptions used in the assessment of iabilities also take into account the risk adjustment.

Liabilities also include liabilities connected with the distribution of a surplus to holders of life insurance policies. In accordance
with the insurance terms, only a valid contract of mixed insurance and insurance in annuities which has been in place for at
least 24 months at the end of the financial period is included in the distribution of a surplus.

The surplus in endowment life insurances is added at the end of each year as an additional premium, and consequently the
sum insured is increased. An additional insured sum is paid out in the event of death or maturity. For annuity insurance, the
addition of the surplus during the time of postponement of pension increases the agreed sum of the annuity. The surplus can
be distributed due to higher yield of investments, under-mortality (over-mortality for annuities) or lower expenses than
anticipated and provided for.

In accordance with insurance terms, the distribution of profits attributable to life insurance is within the discretion of the
management, which passes a resolution each year setting the amount of participation in the surplus. This amount is not
specified in the internal regulations.

In the case of insurance contracts with a single payment of the premium, or when the period of premium payments is shorter
than the period during which the entitlements from the insurance contract are created, the surplus of premiums which have
fallen due is deferred and recognised as revenue as and when entitlements from the insurance contract fall due, i.e. in
accordance with anticipated future entitlements. Deferred revenue on the balance sheet date is recognised as a liability. For
life insurance (with the exception of extra accident insurance policies), this part is recognised under liabilities from insurance
contracts. For extra accident insurance policies, this part is disclosed as a liability for the unearned premium. The liability is
formed using the pro-rata method for all insurance contracts which do not involve monthly payments and is calculated for
each insurance contract individually.

In the context of the remaining obligations under insurance contracts, the Group recognised liabilities for unexpired risks for
insurance products of supplementary accident insurance, for which a sufficient amount of the premium was charged to cover
the risk and cost.




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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

As the Group has no reinsurance to partially cover its liabilities from such contracts, the reinsurance part of liabilities is zero
as at 31 December 2009.

Liabilities are calculated on the balance sheet date on the basis of the assumptions applicable at the time of concluding such
contracts, or in certain cases on the assumptions which the Group adopted during the insurance term. The assumptions
additionally take into account an adjustment for unanticipated deviations.

Liabilities from claims incurred and reported and from claims incurred but not reported represent estimated amounts for:
• claims settled, but not paid out as of the balance sheet date;
• incurred but not reported claims as of the balance sheet date (IBNR);
• incurred but not fully reported claims as of the balance sheet date (IBNFR);
• estimated expenses related to claims handling.

Liabilities for reported but not yet resolved claims are recognised based on the estimated amount and are regularly reviewed.
Accident insurance liabilities related to incurred but not reported claims are determined for accident insurance based on the
statistical method, and for other life insurances based on the trend method.

The liabilities also include expenses related to claims handling in the lump sum amount of 2.5% of total liabilities. Claims
liabilities are not discounted. In accordance with the reinsurance contract, the Group discloses the reinsurance part of its
liabilities attributable to claims as reinsurance assets.


2.14.1.5    Long-term unit-linked insurance contracts

Unit-linked insurance contracts cover insurance events referring to the life of the policyholder (in the event of death and
maturity) for a longer term. A unit-linked insurance contract is a contract where the contractual payments are invested in units
of an internal or external investment fund selected by the policyholder. In accordance with accounting standards, the financial
and insurance parts of the contract do not need to be separated, and their accounting does not need to be conducted
separately. Liabilities arising from those contracts are recognised at fair value to income.

The premium is recognised as revenue when the policyholder’s obligation to pay falls due. The Group discloses its liabilities to
its policyholders under liabilities related to unit-linked insurance contracts, in accordance with the relevant individual insurance
contract and product.

Liabilities are increased by premiums and decreased by costs. Furthermore, the amount of liabilities takes into account
changes in the value of fund unit prices and is reduced by the management fees and risk premium. In the event of
redemption, the liabilities are reduced and the redemption value equals the Group’s liabilities less exit fees charged in the
event of redemption or upon termination of insurance.

It is assumed that the risk premiums charged in an individual time period for the expected population mortality are adequate to
cover the insurance claims from entitlements in the event of death which exceed the value of units on individual personal
accounts of the policyholders. Additional liabilities in regard of such claims are therefore not disclosed. The risk premium for
an individual insurance contract is calculated on a monthly basis according to the asset value.

For an individual long-term unit-linked life insurance contract, the balance of liabilities as at the balance sheet date equals the
sum of the value of units on the balance sheet date, not evaluated net premiums paid, the revised claims and additional
liability. The balance also includes the revised claims, as the financial statements are prepared on the basis of the invoiced
premium.

The Group defers costs with regards to those relating to paid commission - that is, when the dynamics of the
payment of fees is different from the dynamics of calculated acquisition costs. Commission costs are deferred only with
regards to life insurance for which the Zillmer method is not applied in the calculation of liabilities. Nor is the Zillmer method
applied where the dynamics of the payment of fees is consistent with the dynamics of accrued acquisition costs.


2.14.1.6    Deferred policy acquisition costs (DAC)

Commissions and other acquisition costs for unit-linked insurance contracts that vary with and are related to securing new
contracts and renewing existing contracts are deferred and charged to the income statement in proportion to and over the


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The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
period when premium allocations to the unit-linked insurance liability are reduced for upfront charges. For property insurance
contracts a proportional share of acquisition costs is deducted from the unearned premium reserves. For life insurance
contracts with DPF and investment contracts with DPF, acquisition costs are deducted from mathematical provisions.
.

2.14.1.7    Liability adequacy test

On each balance sheet date, contract liability adequacy tests are carried out. The Group assesses at each reporting date
whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance
contracts, appraisal costs and administration costs, as well as financial income from the investments to cover these liabilities.
If this estimate shows that the carrying amount of insurance liabilities is not appropriate in terms of estimated future cash
flows, the entire amount of the deficit is recognised in the profit or loss.

The liability adequacy test is done on the basis of recognised gross liabilities. The relevant insurance assets are considered
separately. In carrying out the liability adequacy test, the insurance considers only liabilities which stem from contracts listed
under the insurance contract category according to the standard. These liabilities include liabilities for unearned premiums,
liabilities from insurance contracts, deferred agency fee costs, claims liabilities and other liabilities.

If the liability adequacy test indicates inadequate liabilities, the calculation of liabilities from such insurance contracts in future
periods is done on the basis of the assumption of the test which showed inadequate disclosure of liabilities.


2.14.1.8    Reinsurance contracts

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more
contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These
assets consist of short-term balances due from reinsurers, as well as long-term receivables that are dependent on the
expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to
reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance
with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts
and are recognised as an expense when due.

The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the
reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and
recognises the impairment loss in the income statement.


2.14.1.9    Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance
contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying
amount of the insurance receivable accordingly and recognises that impairment loss in the income statement.


2.14.1.10 Salvage and subrogation reimbursements

Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (i.e. salvage). The
Group may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and
salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably
be recovered from the disposal of the property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and
are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be
recovered from action against the liable third party.



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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.14.2 Investment contracts

Investment contracts are contracts which involve financial risk without significant insurance risk.

All of the Group’s investment contracts include the option of discretionary participation, giving policyholders the right to
participate in the generated surplus over the guaranteed returns through management of assets which relate to such
investment contracts. The attribution of the generated surplus is the discretionary right of the management.

In this category the Group includes voluntary supplementary pension insurance under the PN-A01 pension plan, and annuity
contracts with specific periods of pay-ins and payouts with a fixed (technical) interest rate.

Voluntary supplementary pension insurance is based on the Pension and Disability Insurance Act. It provides extra pension
savings and ensures receiving pension benefits until death. The pension basis is a collective pension plan which a company
subscribing to the collective insurance contract, wishing to take care of its employees, may join with a minimum of 51% of all
employees. Through this type of insurance, employees of the company subscribing to the insurance contract invest in assets
held in special personal pension accounts. The paid-in assets accrue interest with a guaranteed return which is at least 60%
of the interest rate on long-term government securities with a maturity of more than one year. Based on accumulated assets,
an additional pension will be calculated when the insured retires. Each policy is entitled to the distribution of a surplus from
higher returns than the guaranteed return, which is generated through the long-term business fund. The profit generated is
distributed among the insured in the form of regular and final bonuses, as per the insurance conditions. The amount of the
regular bonus is set each year by the management depending on the market value of assets held in the long-term business
fund.

Limited-time annuity insurance is a new form of savings which represents a source of income for a specific period, and the
insured chooses the term of savings and the term of annuity payouts. The Group guarantees the payout of agreed annuities,
which can be increased during the term of the contract at the expense of the insured’s participation in the profits realised
within the insurance category.

Premiums attributable to investment contracts with DPF are recognised in the same way as with life insurance contracts with
DPF.

At the end of the business year, the Group determines the DPF distribution based on the realised result/returns on the pool of
assets relating to the investment contracts (DPF portion). This amount is added to the liabilities from investment contracts with
DPF, and no unallocated DPF portion remains as of the end of the year.

Obligations and revenue from financial contracts are calculated and recognised in the accounts in the same way as with the
mixed life insurance component of the DPF.

Where the resulting liability is lower than the sum of the amortised cost of the guaranteed element of the contract and the
intrinsic value of the surrender option embedded in the contract, it is restated and any shortfall is recognised immediately in
the income statement.

Unearned premium and claim reserves are calculated in the same manner as in the case of life insurance contracts with DPF.

Mathematical reserves for annuities contracts for a limited time are calculated based on the prospective net Zillmer method.
Its value is calculated as the current value of future payments of agreed annuities, including payment commissions, restated
for the current value of future technical premiums that will be paid based on those annuity contracts.

Mathemtical reserves from long-term pension insurance contracts are computed as the mathematical product of the value per
unit of the long-term business fund and the number of units held on the reporting date. The calculation is made for each
policy. This covers the liability to the policyholder. In addition, the Group forms an additional liability for surplus returns over
the guaranteed returns (for attribution of regular and final bonuses).




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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

2.15    Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the amount at initial recognition and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.

If the Group purchases its own debt, it is removed from the balance sheet and the difference between the carrying amount of
the liability and the consideration paid is included in investment income.

2.16      Derivative financial instruments and accounting point of hedging

Derivative financial instruments including futures and forwards, swaps and options are initially recognised at fair value on the
balance sheet date. Fair values are obtained from quoted market prices on active markets, including recent market
transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All
derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group uses derivative financial instruments for hedging future
cash flows which are attributable to assets, liabilities and future business.

From an accounting point of view, hedging is used only under specific conditions.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedging transactions. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are expected to be and have been highly effective in offsetting changes in fair values or cash flows of hedged
items. The Group assesses the success of hedging at the time of transaction and for the duration of hedging.

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to any ineffective portion is recognised immediately in
the income statement within net fair value gains on financial assets at fair value through profit or loss.

Amounts recognised directly in other comprehensive income are recycled into the income statement in the periods in which
the hedged item affects profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in other comprehensive income and is recognised when the
forecast transaction is ultimately recognised in the income statement. However, when a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to
the income statement.

2.17    Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
rate method.

2.18    Income tax

2.18.1 Current tax

The Group charges taxes in accordance with the provisions of the legislation applicable in individual countries in which the
Group’s subsidiaries are located. In Slovenia, the corporate income tax rate for the year 2009 is 21%. In the year 2010 the tax
rate will be 20%.




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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
2.18.2 Deferred tax

Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. In accordance with the initial
recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in
a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable
profit. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is
settled.
Deferred tax assets are the amounts of taxable profits, which will be available in future periods for deductible temporary
differences, unused tax losses and unused tax credits carried forward to the next period. Deferred tax liabilities are the
amounts of tax to be paid in future periods depending on the taxable temporary differences. Deferred tax liabilities are
recognised in full. Deferred tax assets and liabilities are not discounted and are offset if they relate to tax expense in the same
tax authority and the companies of the Group have legally enforceable right to offset the assessed tax assets and tax
liabilities.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.

The effects of recognising deferred tax assets and liabilities are recognised as income or expense in the Group’s income
statement unless the tax arises from a transaction that has been recognised directly other comprehensive incomeor a
business combination.

Deferred tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the
Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not be
reversd in the foreseeable future.

2.19    Provisions for jubilees and post-employment benefits

The Group provides benefits to employees as a legal obligation – jubilees and retirement benefit bonuses. According to
Slovenian legislation, employees retire after 40 years of working life, at which time, if fulfilling certain conditions, they are
entitled to benefits paid in a lump sum t. Employees are also entitled to jubilees for every 10 years of employment with the
Group.

The Group recognises all actuarial gains and losses immediately in the income statement.

The future liabilities are calculated by an independent certified actuary. Key assumptions included in the calculation of
provisions for jubilees and post-employment benefits are:
     -    discount rate of 4.5%,
     -    expected wage growth in the company and the expected wage growth due to promotions – 4.5%,
     -    the estimated fluctuation rate according to historical data – the average rate of 4%.

2.20    Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services, in the
ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after
elimination of sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured,
it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s
activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies
relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type
of customer, the type of transaction and the specifics of each arrangement.


Revenues are recognised as follows:

(a) Sales of goods
Sales of goods are recognised when a Group entity has delivered products to the customer and the customer has accepted
the products. Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to
the Group entity and the Group entity has transferred to the buyer the significant risks and rewards of ownership of the goods.



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The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


(b) Sales of services
Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of
the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be
provided.

(c) Interest income and expenses
Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or
designated at fair value through profit or loss, are recognised within interest income and interest expense in the income
statement using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a
shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate,
the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment
options) but does not consider future credit losses. The calculation includes all fees and points paid or received between
parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or
discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest
income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss.

(d) Dividend income
Dividend income is recognised when the right to receive payment is established.

(e) Premium income
Income from insurance premiums includes net income from insurance premiums, calculated on the basis of gross written
premiums accrued in the accounting period, less the share of gross written premiums ceded to the reinsurer and restated for
changes in net unearned premium reserves.

Income from insurance contracts is recognised as premium income in the following way:
    - Income arising from a single premium is recognised when the insurance policy is incepted and bills charged;
    - Income arising from long-term insurance contracts in which the premium is paid in instalments (monthly, quarterly,
         annually) is recognised upon the recognition of premium receivables.

The premium charged by the Group covers transaction costs (the fees of concluding the contract, management and
collection) and represents income in the period of settlement. If a period of more than one year is concerned, a portion of the
premium is deferred as a liability and transferred to income over the life of the contract.

3. Significant accounting judgements, estimates and assumptions

3.1       Significant accounting judgements, estimates and assumptions in applying accounting policies


The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and assumptions are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.

3.1.1 Estimated impairment of goodwill

The Group annually tests goodwill for potential impairment in accordance with the accounting policy stated in Note 2.7. The
recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates.

3.1.2 Ultimate liability arising from claims made under insurance contracts

The estimation of the ultimate liability arising from claims made under insurance contracts is the Group’s most critical
accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that


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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
the Group will ultimately pay for such claims. At each balance sheet date, liability adequacy tests are performed to ensure the
adequacy of liabilities. In performing these tests, current best estimates of future contractual cash flows and claims handling
and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency
is charged to profit or loss by establishing a provision for losses arising from liability adequacy tests.
The Group performs the adequacy test of the obligations from insurance contracts on the balance sheet day.Through this test
the Group revisits the adequacy of the insurance liabilities recognised. The test of provisions considers all the liabilities arising
form insurance contracts and deferred acquisition costs. In the test the current estimates of the future cash flows form
insurance contracts are applied.

If the liability adequacy test shows deficit of the provisions recognised, the deficit is recognised as and increase of provision
through the income statement.

The liability adequacy test is performed separately for life and non-life insurances.

Liability adequacy test for life insurance

The test is carried out for each contract which was valid on the balance sheet date, and the outcome is summarised and
presented by insurance contract category.
Expected cash flows are generated for:
    • premiums (life insurance contracts and extra accident insurance);
    • payout of damages (death, maturity, annuities, redemptions, accident loss);
    • costs (remaining commission fees, administrative fees, costs of claims);
    • revenue from investments.

For individual future cash flows, the following items are taken into consideration:
     • provisions of individual insurance policies (amount of the premium, premium payment dynamics, amount of the
           insured sum in the event of death and maturity, amount of annuities);
     • technical bases of the relevant products (mortality tables, interest rate, initial fee costs, other administrative costs);
     • assumptions (the realised mortality rates for life insurance policies, mortality in annuity insurances, rates of
           redemption, future profitability, level of realised administrative costs, future inflation, damage outcome from accident
           insurance policies, profitability, etc.). Assumptions are individually explained.

The cash flows for individual years (development up to 80 years) are discounted on the balance sheet date.

Economic and operative assumptions

1. Risk discount rate
To calculate the present value of expected cash flows, the discount rate, shown by the curve of AAA-rated euro area central
government bonds as at 4 January 2010 are taken into account.

2. The rate of return on investments
While peforming the LAT test for life and annuity insurance, the return on investment ranging from 4 to 5% for the first ten
years and 5% for subsequent years was taken into account. The same dynamics of the return on investments, increased by
1% was considered for insurance products with investment risk.

3. Inflation

The expected inflation rates (2%) are considered in the estimate of expected costs.

4. Costs
Costs of operations (administration, costs of payout of damages, etc.) are calculated on the basis of estimates contained in
the technical bases of the product, multiplied by a factor which represents the estimate of expected realised costs compared
to those calculated into the products, under the assumption that one half of the costs is not subject to inflation. Other costs are
increased at the inflation rates.

5. Mortality
35% mortality tables werer considered for life insurance which was used as technical base of product (based on the Group´s
10 years of experience). Based on this assumption, a small number of deaths and a small amount of payments in case of
death is assumed compared with mortality based on technical grounds.



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The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


For annuities contracts, the Group used Austrian annuity tables from 1996 (this is a cautious estimation, which provides a
lower mortality and longer life expectancy, which is also observed in the Slovenian population).

6. Redemption rates

Based on an analysis of redemptions of life insurance policies and investment risk insurance policies, the following rates of
redemption are used:


Year after                   Rate of buy-out
                                         Unit-
agreement             Life insurance     linked
0                               17.00%      10.00%
1                                6.00%       5.00%
≥2                               3.00%       3.00%

7. Claims from extra accident insurance contracts

Based on historical data, the future claims from additional accident insurance is estimated at 40% of the additional accident
insurance premium.

Result of the adequacy test for 2008

The LAT test has shown that the provisions formed as at 31 December 2008 are adequate for all long-term business funds.
The liabilities calculated under the LAT test based on the best estimate as at 31 December 2008 are lower than the liabilities
calculated by the Company using the aforementioned methodology and recognised in its financial statements.

Life insurance

With regard to life insurance with guarantee and DPF, liabilities do not increase enough at any upper sensitivity to lead to
overstated liabilities as at 31 December 2009.

For unit-linked life insurance, the adequacy test has shown that future liabilities will be covered from overstated liabilities and
future costs and premiums. This means that supplementary liabilities beside overstated liabilities are not disclosed. The same
applies to all sensitivity tests which were carried out.

Property and health insurance
The Group has tested the adequacy of the provisioning for unearned premiums for property and health insurance contracts.
The provisions for losses and provisions for bonuses, discounts and cancellations are calculated on the basis of the estimates
made at the time of the calculation; hence it is deemed that the provisions formed for these liabilities have been made in the
adequate amount.

The liability adequacy test is therefore limited to the unexpired portion of active (in-force) contracts. It is performed by
examining the difference between the expected amount of claims for losses and the expenses attributable to the unexpired
portion of policies still in force at the balance sheet date and the amount of provisions formed for unearned premiums.

For those classes of insurance where an inadequate amount of unearned premium provisions in relation to the expected loss
event is determined, the Group forms additional provisions for unexpired risk and recognises them in the financial statements
as liabilities in the scope of other insurance technical provisions.

Result of the adequacy test for 2009

LAT test results have not shown any deficit in the amount of the obligations created under the unearned premiums, provisions
for claims, reserves and provisions for bonuses and discounts for property and health insurance as at 31 December 2009.




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The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
3.1.3 Estimate of future benefit payments and premiums arising from long-term insurance contracts

The determination of the liabilities under long-term insurance contracts is dependent on estimates made by the Group.
Estimates are made as to the expected number of deaths for each of the years in which the Group is exposed to risk. The
Group bases these estimates on standard industry and national mortality tables that reflect recent historical mortality
experience, restated where appropriate to reflect the Group’s own experience. For contracts that insure the risk of longevity,
appropriate but not excessively prudent allowance is made for expected mortality improvements. The estimated number of
deaths determines the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty
is that epidemics such as AIDS, SARS and wide-ranging lifestyle changes, such as in diet, smoking and exercise habits,
could result in future mortality being significantly worse than in the past for the age groups in which the Group has significant
exposure to mortality risk. However, continuing improvements in medical care and social conditions could result in
improvements in longevity in excess of those allowed for in the estimates used to determine the liability for contracts where
the Group is exposed to longevity risk.

For long-term insurance contracts with fixed and guaranteed terms, estimates are made in two stages. Estimates of future
deaths, voluntary terminations, investment returns and administration expenses are made at the inception of the contract and
form the assumptions used for calculating the liabilities during the life of the contract. A margin for risk and uncertainty is
added to these assumptions. These assumptions are "locked in" for the duration of the contract. New estimates are made
each subsequent year in order to determine whether the previous liabilities are adequate in light of these latest estimates. If
the liabilities are considered adequate, the assumptions are not altered. If they are not adequate, the assumptions are altered
("unlocked") to reflect the best estimate assumptions. A key feature of the adequacy testing for these contracts is that the
effects of changes in the assumptions on the measurement of the liabilities and related assets are not symmetrical. Any
improvements in estimates have no impact on the value of the liabilities and related assets until the liabilities are
derecognised, while significant enough deterioration in estimates is immediately recognised to make the liabilities adequate.

3.1.4 Impairment of available-for-sale equity financial assets

The Group determines that available-for-sale equity financial assets are impaired when there has been a significant or
prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In
making this judgement the Group evaluates among other factors, the normal volatility in share price, the financial health of the
investee, industry and sector performance, changes in technology and operational and financing cash flows. Impairment may
be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance,
changes in technology, and financing and operational cash flows.

3.1.5 Impairment losses on loans and receivables

In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as to
whether there is any observable data indicating that there is a measurable decrease in estimated future cash flows. This
evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers
in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses
estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment
similar to that in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating
both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and
actual loss experience.

3.1.6 Held-to-maturity investments

The Group follows the guidance of IAS 39 when classifying non-derivative financial assets with fixed or determinable
payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement,
the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments
to maturity other than for specific circumstances – for example, selling an insignificant amount close to maturity – it will be
required to reclassify the entire class as available for sale. The investments would therefore be measured at fair value and not
at amortised cost.

3.1.7 Employee benefits

The employee benefits obligations (loyalty bonuses and retirement benefit bonuses) are measured using actuarial valuations;
therefore, some actuarial estimates and assumptions are needed, such as rates of employee turnover, early retirement,
discount rate and future salary levels.




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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

3.1.8 Income taxes

The Group is subject to income taxes in different jurisdictions. Some estimates are required in determining the amount of
provisions for income taxes. There are many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. Due to changes in the future income tax rate, some estimates regarding the
disposal of the available-for-sale portfolio have to be made by the management when calculating the deferred tax liability.
Additionally, the management’s best estimates of future taxable profits are used for calculating the deferred tax assets
regarding carry-forward tax losses.

4. Comparatives

During the review of the insurance company operating within the Group, which was performed by the Insurance Supervision
Agency, it was found that some types of life insurance contracts and investment contracts were not kept in accordance with
the policy’s terms and conditions regarding the participation of policyholders in the profits. The insurance company of the
Group complied with the order and changed the methodology used for attributing profits, and restated all the amounts under
the new methodology. Additional mathematical provisions were made for the attribution of profits for groups of contracts
where the calculations under the new methodology were higher. The amount of these provisions as at 1 January 2009 stood
at 1,824,016 euros. In 2009, the insurance company for the first time formed provisions resulting from guaranteed premium
factors used to calculate the supplementary retirement pension. As at 1 January 2009, mathematical provisions for the
entitlement total 261,323 euros.
The insurance company made additional provisions for investment contracts relating to attributed profits for groups of
contracts where the calculations under the new methodology were higher. The amount of these provisions as at 1 January
2009 amounted to 64,144 euros.
In its financial statements, the KD Group eliminated the error by restating each individual category in the 2008 financial
statements. Adjustments to the 2008 financial statements refer entirely to the reporting of life insurance segment, namely
standard life insurances and investment insurances. In the process of eliminating the error, the amount of insurance technical
provisions (mathematical provisions) and investment contracts for 2008 increased. The increase in mathematical provisions
consequently resulted in reduction of retained earnings of 824,710 euros on the liabilities side, and increase of deferred tax
assets of 219,227 euros on the assets side. The increase in investment contracts resulted in reduction of retained earnings of
873,381 euros and increase in deferred tax assets of 232,165 euros.
Given that the life insurance business at the end of 2008 showed a loss, this adjustment had no impact on the 2008 income
statement, and the audited income statement for 2008 was not restated. However, the adjustment of the investment contracts
for the past years did affect the 2008 income statement.

Balance sheet
                                                                                     2008                       2008
                                                                                  reported restatements-    restated
                                                                                            correction of
(in EUR)                                                                                      past years
Total assets                                                                   795,012,309       451,392 795,463,701
Deferred income tax assets                                                      20,207,937       219,227 20,427,164
Income tax receivables                                                           7,027,916       232,165   7,260,081

Equity                                                                         193,945,385        (1,698,091) 192,247,294
 Retained earnings                                                              (8,597,223)       (1,698,091) (10,295,314)

Liabilities                                                                    294,044,113         2,149,483 296,193,596
 Insurance contracts                                                           277,680,949         2,085,339 279,766,288
   Gross non-current insurance contracts with DPF                               66,935,728         2,085,339 69,021,067
   Gross non current insurance contracts with DPF-math.prov.-guaranteed
element                                                                         66,898,431           261,323 67,159,754
   Gross non-current insurance contracts with DPF-math.prov.-DPF element            37,297         1,824,016   1,861,313
  Investment contracts                                                          16,330,164            64,144 16,394,308
   Investment contract with DPF                                                 16,272,396            64,144 16,336,540
   Investment contracts with DPF-non-current-DPF element                            11,857            64,144      76,001
Total equity and liabilites                                                    487,989,498           451,392 488,440,890




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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
                                                                                            2007                                2007
                                                                                         reported      restatement-          restated
                                                                                                       correction of
(in EUR)                                                                                                 past years
Total assets                                                                          956,047,402           232,165 956,279,567
Income tax receivables                                                                  2,870,170           232,165   3,102,335

Equity                                                                                340,264,367         (1,698,091) 338,566,276
 Retained earnings                                                                     58,565,835         (1,698,091) 56,867,744

Liabilites                                                                            615,783,035          1,930,256 617,713,291
 Insurance contracts                                                                  255,943,534          2,085,339 258,028,873
   Gross non-current insurance contracts with DPF                                      62,547,906          2,085,339 64,633,245
   Gross non current insurance contracts with DPF-math.prov.-guaranteed
element                                                                                61,340,938            261,323 61,602,261
   Gross non-current insurance contracts with DPF-math.prov.-DPF element                1,206,968          1,824,016   3,030,984
  Investment contracts                                                                 15,604,274             64,144 15,668,418
   Investment contract with DPF                                                        15,512,160             64,144 15,576,304
   Investment contracts with DPF-non-current-DPF element                                  614,823             64,144     678,967
Deferred tax                                                                            2,527,886          (219,227)   2,308,659
Total equity and liabilities                                                          487,989,498            232,165 488,221,663

5. Risk management

The Group’s activities expose it to a variety of risks: strategic risks, insurance and financial risks, operating risks and general
business risks. Since the insurance represents a substantial part of the Group's activities, the management of insurance
risks is crucial for the Group.

Strategic risks refer to the Group’s long-term development as much as to each of its subsidiaries. The management of the
Group manages these risks, defining its vision and strategy and monitoring their appropriateness on a regular basis.
According to the diversity of the Group’s activities, appropriate long-term investment decisions are the key factor when
managing strategic risks. The corporate governance of the Group helps it to pursue long-term business development and
growth to achieve the required rate of return.

The Group is exposed to financial risks through its financial assets and liabilities, reinsurance receivables and insurance
liabilities. The principal financial risk is the possibility that the inflows from financial investments will not be sufficient to cover
the outflows arising from insurance contracts. The most significant components of this risk are the risk of changes in interest
rates and the prices of securities, currency risk and credit risk.

The primary purpose of the financial risk management process is to maintain the stability of operations and reduce the
exposure to individual risks to an acceptable level. Because of its highly diversified activities, the Group is mainly faced with
insurance and financial risks.

Risk management is a continuous cyclical process, which can be divided into three stages. In the first stage, potential risks
are identified. In the second stage, individual risks are modelled and measured. These models serve as a basis for measuring
the level of exposure of individual companies in the Group and the Group itself to individual risks. On the basis of identification
and measurement of risks in the Group, the management adopts adequate measures for reducing or controlling these risks
(stage three). Measures used by the management vary and depend on the level of exposure and the type of risk.

The management of the Group manages risks present in individual companies in the Group and at the level of the entire
Group. It thereby sets guidelines concerning the balance between the risks, returns and capital, performs periodic controls,
and sets guidelines for implementation of business policies and strategy for individual companies in the Group.

Individual companies in the Group have established a system of reporting for the needs of the management that enables
regular monitoring of risks to which they are exposed. The insurance companies in the Group have set up investment and
liquidity committees, which take care of the ALM function.




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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Types of risks

5.1     Insurance risk

Risk related to the insurance policy represents the possibility that the event insured against actually occurs and uncertainty in
relation to the amount of the sum insured or indemnity. It is the nature of insurance contracts that insurance risks are
incidental and unpredictable; however, the main risk for the insurer is the possibility that claims and benefits exceed the
amount of insurance liabilities (technical provisions) created for a portfolio of insurance contracts using statistical methods.
This may happen because of a change in the frequency of claims or their amount, which can be higher than expected.

Insured events are incidental, which means that their number and amount vary in individual years and in relation to
statistically established averages. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the
relative variability of the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a
change in any subset of the portfolio.

Insurance companies in the Group have developed their own policy of concluding insurance contracts with the aim of
spreading the assumed risks and achieve, within each individual category, a sufficient amount of risk population to reduce the
variability of expected results. The principal means for reducing insurance risks is reinsurance, i.e. the transfer of risks that
exceed a predetermined amount to a reinsurance company.

When developing a new insurance product, it is very important that the parameters defining the insurance premium are
assessed adequately. The risk accepted by the Group at the inception of an insurance contract is reflected in the price, i.e.
the insurance premium. If the parameters defining the insurance premium are not assessed adequately when developing a
new insurance product, this is a risk for the Group to which it is exposed during the entire life cycle of the insurance product.

In the context of insurance risk, the Group is exposed to underwriting process risk, product design risk, pricing risk, economic
environment risk, policyholder behaviour risk, reserve risk and claims risk. Insurance risks are also managed with reinsurance
protection.

5.1.1 Description of risks

Insurance activities are based on managing insurance risks. Insurance risks apply to risks accepted by the insurer from the
policyholder. Insurance risks are random and unpredictable. At the signing of an insurance contract, the insurer accepts the
risk to repay the insured the agreed contractual amount if an insured event occurs or if the contract expires, whereas when
the insured event will occur is uncertain.

Insurance cases are random; their number and amounts vary from year to year and deviate from statistical averages. The
Group is therefore engaged in diversifying and increasing its portfolio. This allows it to disperse the risk and lower the
variability of expected events. An important instrument to lower insurance risks is reinsurance, i.e. the transfer of risks which
exceed a predetermined amount to a reinsurer. The Group further manages insurance risks through the effective performance
of internal controls, internal audits and forming appropriate insurance technical provisions to cover potential future liabilities
stemming from existing insurance contracts.

In the management’s opinion, the important risks faced by the Group in its operations are the following:

- Underwriting process risk, the danger of misevaluation of accepted risk. This risk involves mistaken decisions to
underwrite a risk regardless of the risk exposure of the insured, insurance on the basis of inaccurate and incomplete
information on the insured, incorrect information about the amount of maximum potential claims, or potential inappropriate
acquisition of reinsurance coverage by the reinsurer.

The Group manages the aforementioned risk through providing guidelines for accepting insurance risks, using software for
accepting insurance risks, and strict criteria and procedures for accepting insurance risks, especially for large insured sums
and coverage. Also, the Group has concluded an obligatory reinsurance contract with its reinsurer, by which the reinsured
risks over a certain contractually agreed insured sum are automatically reinsured. The Group also monitors claims outcome
and analyses any worsening thereof.

- The risk of inadequate assessment of liabilities stemming from insurance contracts (reserve risk) is the risk that these
reserves will not be adequate to cover the liabilities stemming from accepted risks, or the risk that future claims payments will
exceed the evaluated amount of liabilities.



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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The Group regularly checks the adequacy of liability calculations and the adequacy of assumptions used in the calculation of
higher liabilities stemming from insurance contracts. The Group also carries out liability adequacy tests. If the liability
adequacy test indicates that the liabilities are understated, they are increased.

In the case of property insurance, an accurate estimate of the obligations of the reported and unreported claims is the most
important factor, i.e. the assessment of liabilities assumed for any claims that are already registered, and obligations under
insurance contracts for incurred but not reported claims (IBNR). Inaccurately estimated liabilities for reported claims also
affect the calculation of IBNR. Contingencies may occur in the Group for which the obligations for claims were not designed
(eg, in the past, asbestosis), or liability insurances, where there is a gap of a number of years between the conclusion of the
insurance contract and the time when the claim is reported.


For insurance contracts with DPF component and unit-linked insurance contracts, assumptions on future mortality, interest
rates, contract terminations and administrative costs are applied. These assumptions are used to determine liabilities
stemming from the insurance contract. The assumptions also include a risk adjustment.

For estimations on the mortality rate, mortality tables are used, as in the past the portfolio of insurance contracts has been too
small for it to be able to rely on its own experience. Thus, for insurances for the event of death and insurances for the event of
death and maturity, the Group uses Slovenian mortality tables made in 1990–1992, and for annuity insurance it uses Austrian
annuity tables from the year 1996. In comparison with 2008, the Group has not changed its assumptions regarding population
mortality. In the context of managing insurance risk, actuarial services are constantly checking the applied assumptions
against the actual damage result, by individual insurance product.

It is the management’s assessment that Slovenian mortality tables adequately reflect expectations with regard to the maturity
and mortality rate of the Slovenian population.

In its long-term insurance products, the Group uses interest rates spanning from 2.75% (new insurance products) to 4% (older
products). The adequacy of returns on investments of insured liabilities in the future is checked on a regular basis.

On each reporting date the assumptions are reset to reflect current assumptions and are used to check whether the liabilities
have been adequately evaluated. If the liabilities are inadequate, the assumptions are changed to reflect the current state.
Current assumptions do not contain a risk adjustment.

The assumption on mortality is determined using the statistical mortality rate and analyses of actual mortality of the insurance
portfolio in the past and current year. Also, in cases of disability, statistical tables and the insurer’s own experience are used.

The Group also regularly analyses the duration of insurance contracts and monitors the movements of such durations over
the period by main product and, as necessary, by sales channel if more significant deviations occur. These analyses are used
when estimating the duration of insurance contracts with a view to providing the best possible assessment of the insured’s
behaviour.

The return on investment affects the amount of future payouts from insurance contracts. When determining returns, the Group
considers government bonds as risk-free securities, and for other securities risk adjustments are applied. Considering this and
considering the structure of investments for covering liabilities, the expected returns of the investment portfolio are calculated.

Future costs are determined on the basis of current costs. Additionally, the assumption of future inflation is also used, which is
based on the EU’s long-term projections for the euro currency.

- Pricing risk applies to the risk that the amount of the insurance premium is not adequate for covering the insurance
liabilities stemming from claims and operating costs. The reasons can vary, e.g. unsuitable statistical data, inadequate
assessment of claims events, low premium due to competition, unsuitable premium for new products, unsuitable mortality,
annuity, morbidity tables, inadequate amount of expenses calculated into the price of the product. Furthermore, we can speak
about the adequacy of the probability tables used, which further expose the Group to risks of natural death, longevity, critical
illness and accident.

Already in the new product planning stage, the Group diligently checks and acquires the necessary statistics to confirm the
suitability of the assumptions used. In the case of high-risk products such as additional coverage for critical illness, the
Group’s general terms and conditions allow the possibility of subsequent changes in the amount of the insurance premium if
new statistics or claims events indicate that the premium is too low. Similarly, the Group diligently monitors the amount of
actual costs and, after analysing these costs, calculates the amount of costs to include in the price of individual products,



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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
which depends on the type of product, special costs involved in the product, amount of commission to insurance agents and
other potential costs. The Group also measures and monitors the profitability of individual products.

- Product design risk is the risk that, when calculating the insurance premium, the Group will be exposed to the danger of
non-consideration of the potential for the occurrence of new diseases and accidents which could significantly affect the
movement of future claims cases. This risk is important for life insurance.

As previously mentioned in under-pricing risk, in certain higher-risk insurance products the Group does not guarantee the
amount of the insurance premium during the insurance coverage period. In addition to that, certain increases are used in the
mortality and morbidity tables. The Group also follows mortality and morbidity trends. Certain modern illnesses are excluded
from the insurance terms and conditions. In this context the Group has established cooperation with a reinsurer, which
transfers certain knowledge and findings to the Group.

- Cost risk is the risk for potential losses which could occur as the result of a misevaluation of costs when setting prices or a
misevaluation of changed circumstances in the macroeconomic environment, which could cause excess growth in the
Group’s operating costs.

The procedures for managing risk related to unsuitable cost assessment are based on an established system of recording
and allocating costs to cost centres and cost units, on constant monitoring of the movement of costs, and on adopting
appropriate measures in case of unfavourable developments.

- The risk that social circumstances will change so as to have an adverse effect on the Group can be classified under
economic environment risk. Increase in the unemployment rate and reduction of purchasing power can cause more claims
in credit insurance, fewer insurance contracts concluded, and more cancellations of life and pension insurance contracts. This
group may also include the risk of changes in case law when adjudicating claims.

- Policyholder behaviour risk – insurance fraud.

- Claims risk involves the risk that claims will be higher than expected in number and/or amount, and the risk of an excessive
portion of self-coverage due to inadequate reinsurance coverage, especially in cases of disasters.

In life insurance contracts with coverage for the event of death, the number and amount of damages is most affected by
epidemics and changes in lifestyle, such as a change in dietary habits, physical exercise or smoking. For life insurance
contracts where the insured event is maturity, and for health insurance contracts, the greatest risk factor is the advancement
of medicine and improvement of the population’s social status, increasing longevity.

In property insurance a significant risk factor is climate change, which increases the frequency of extreme weather events
(flooding, hail, etc.). For liability insurance characterised by lengthy procedures which can take several years for claims cases
to be resolved, a significant risk factor is the increase of legal actions, especially involving non-material claims (coverage and
amount).

In the interest of managing insurance risk, the Group has concluded reinsurance contracts whereby it transfers a portion of
this risk to the reinsurer. Each financial year the management adopts a planned reinsurance programme, which includes
calculations of all maximum own insurance shares by insurance category, as well as the maximum coverage table and certain
procedures, bases and criteria for determining the maximum possible claims. The reinsurance programme consists of
traditional proportional and non-proportional forms of reinsurance coverage, and it also includes a contract for the event of
natural disasters.

5.1.2. Frequency and amount of claims

Concentration of insurance risk can stem from a single insurance contract or from a smaller number of contracts covering low
probability events with high claims potential, such as insurance for earthquakes and other natural disasters.

In insurance for the event of death, the greatest effects which can increase the frequency of claims are epidemics and lifestyle
changes (e.g. changed dietary habits, exercise and smoking) which could lead to premature claims or greater claims than
anticipated. For insurance contracts where the insured event is survival, the greatest risk factor is the advancement of
medicine and improvement of the population’s social standard, increasing longevity.

The insurance contract portfolio contains insurance contracts where the Group accepts the risk of coverage in the event of
death. In cases of insurance coverage for the event of death, the Group guarantees coverage up to the insured sum during



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The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
the insurance coverage period. During the coverage period under a mixed life insurance contract, the Group guarantees the
payment of the insured sum in the event of death or maturity.

With a view towards managing the Group’s exposure to insurance risk, the management has concluded a reinsurance
contract, transferring a part of the insurance risk onto the reinsurer.

The following table represents the dispersal of the insurance portfolio and exposure to large insurers.

Share of the largest insured in the joint insurance portfolio:

 (in EUR)                                                                                                              2009
                                                  Total premium                           Total premium of
                                                 of the largest 10    Share in total       the largest 100   Share in total
                                                      clients           premium                 clients        premium
 Life insurance                                           41,192              0.20%                211,265           1.02%
 Unit-linked insurance                                   630,256              0.61%              2,317,908           3.30%
 Property and health insurance                        17,967,054              7.57%             31,457,854          13.26%
 Total                                                18,438,502                                33,987,027

 (in EUR)                                                                                                              2008
                                                  Total premium                           Total premium of
                                                 of the largest 10    Share in total       the largest 100   Share in total
                                                      clients           premium                 clients        premium
 Life insurance                                           36,664              0.46%                194,245           2.44%
 Unit-linked insurance                                   343,860              0.56%              1,623,822           2.62%
 Property and health insurance                        18,544,000              7.71%             32,118,000          13.36%
 Total                                                18,924,524                                33,936,067

Considering the fact that their share is relatively small in comparison with the overall portfolio, we can deduce that the Group’s
portfolio is sufficiently diversified and that it is not overly exposed to a few large clients.
In the property insurance segment, the risks to which the Group is exposed vary depending on the industry in which the
insured is active. The table below shows the concentration of liabilities from property insurance by industry in which the
insured is active. The maximum loss (maximum sum insured) shown is categorised by size into three categories.


Concentration of the obligations arising from property insurance by industry at 31 December 2009


2009                 up to EUR 300,000             EUR 300,000 to EUR 1,000,000 more than EUR 1,000,000
                            Without           With     Without             With       Without           With
                       reinsurance     reinsurance reinsurance      reinsurance reinsurance      reinsurance
Building risks          31,300,309         29,034,541    40,225,365              10,108,332   451,777,613          295,789,880
Industrial risks       493,425,127        430,258,967   574,454,403             495,735,619 3,018,146,248        1,200,326,028
Commercial risk      3,062,329,653      2,651,300,416 1,701,254,664           1,500,276,352 6,004,855,327        2,686,270,666
Residential risks    5,881,968,324      5,383,250,336   459,985,246             411,253,262     2,657,343            1,080,000
Total                9,469,023,413      8,493,844,259 2,775,919,677           2,417,373,563 9,477,436,531        4,183,466,574

Concentration of the obligations arising from property insurance by industry at 31 December 2008


2008                 up to EUR 300,000             EUR 300,000 to EUR 1,000,000 more than EUR 1,000,000
                           Without            With      Without             With     Without          With
                       reinsurance     reinsurance  reinsurance      reinsurance reinsurance   reinsurance
Building risks              32,833              29,550             36,975                  9,705       447,091         301,087
Industrial risks           493,395             444,056            574,454                495,736     2,969,253       1,165,326
Commercial risk          2,956,592           2,660,932          1,710,413              1,511,119     6,121,183       2,688,271
Residential risks        5,930,560           5,337,504            455,885                406,375         2,657           1,080
Total                    9,413,380           8,472,042          2,777,728              2,422,934     9,540,185       4,155,764


                                                             114
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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

In the life insurance segment, a potential concentration of insurance risk can be seen in contracts with extremely high sums
insured.

The table below indicates the concentration of insurance risk for life insurance, with the total sum insured risk categorised into
four categories, depending on the amount of the insured sum involved in the individual insurance contract.

                                           Total sum insured risk of all contracts as at 31
                                                          December 2009
                                               Without reinsurance            With reinsurance
 EUR 0 – 9,999                                         424,310,970                 417,283,571
 EUR 10,000 – 19,999                                   753,916,669                 744,668,747
 EUR 20,000 – 29,000                                   520,037,388                 508,974,241
 More than EUR 30,000                                  553,649,260                 388,275,561
 Total                                               2,251,914,287               2,059,202,120

                                           Total sum insured risk of all contracts as at 31
                                                          December 2008
                                               Without reinsurance            With reinsurance
 EUR 0 – 9,999                                         507,089,621                 501,727,298
 EUR 10,000 – 19,999                                   768,685,463                 760,309,941
 EUR 20,000 – 29,000                                   477,139,967                 467,031,052
 More than EUR 30,000                                   529,108,845                363,798,354
 Total                                                2,282,023,896              2,092,866,645

For annuity insurance, we present risk concentration with total annual annuities classified into five categories, depending on
the amount of the annual annuity per individual insured. As the annual annuity we consider the amount which the insured
would receive if the contract was already due for payout.

Structure of the amount of annual annuities
                                                                                                           (in EUR)
 Annual annuity per insured       TOTAL ANNUAL ANNUITIES 2009                     TOTAL ANNUAL ANNUITIES 2008
 on the final date of the year             amount           %                               amount               %
 EUR 0 – 999
                                               810,094               14.66                       794,917                14.71
 EUR 1,000 –1,999
                                             1,974,058               35.72                     1,935,082                35.81
 EUR 2,000 – 2,999
                                             1,132,179               20.48                     1,112,859                20.59
 EUR 3,000 – 3,999
                                               675,106               12.21                       656,121                12.14
 More than EUR 4,000                           935,550               16.93                       904,941                16.75

 Total                                       5,526,987             100.00                      5,403,920               100.00

5.1.3 Property and health insurance contracts - assumptions and changes in assumptions

     a.) The process of determining assumptions

The main assumptions which affect disclosure of liabilities stemming from property insurance contracts relate to establishing
liabilities for claims. The overall calculation of reserves is based on estimates and assumptions by completing the
development of incurred claims.




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Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

The calculation of provisions for claims is divided into two parts, considering the nature of individual claims:

     •     Claims reported but not yet paid as at the balance sheet date


On the basis of a review of all claims reported but not yet paid out as at the balance sheet date, an assessment is made on
expected liabilities stemming from future payouts of individual claims. Larger cases of material claimsare appraised by in-
house appraisers, and non-material clams (e.g. liability claims) and claims in legal proceedings are assessed by in-house
legal experts (lawyers). Liabilities from claims which are paid out in the form of annuities are assessed by the Group as the
present value of future payouts, where a 2.6% discount factor is applied.

     •     Claims incurred but not reported as at the balance sheet date (IBNR)

IBNR liabilities are established on the level of insurance category using the triangle (chain ladder) method or statistical
method.

The chain ladder method can be based on recognised or accrued claims with monthly or annual development factors,
depending on the characteristics of the incidence of loss and procedures for resolving claims. The claims are arranged in a
triangle, where the rows represent the year the claims were incurred, and the columns represent the number of years from the
time the clams were incurred to recognising or accrual of the claims. Prediction of final claims is based on the calculation of
average annual development factors.

The statistical method is based on reviewing past claims. The IBNR calculation is made on the level of individual insurance
category as the mathematical product of the estimated number of IBNR damages and the estimated value of IBNR claims.
The estimated number of IBNR claims reported after 1 January 2009 is calculated by multiplying the number of reported
claims in 2008 by the average factor of claims reported later in relation to all reported claims over the past ten years. The
estimated value of IBNR claims equals the average value of IBNR claims in the past year or the average value of claims paid
in the past year if there was a relatively small number of claims.


b) Changes in assumptions

There were no changes in assumptions for insurance contracts in 2009 compared to 2008.

c.) Development of claims

The tables below show claims development for property insurance and extra accident insurance as part of life insurance
policies.

Property insurance (excluding voluntary health insurance) in EUR thousand for the year 2009


  Year in
  which
  claims
   were                    Cumulative claim payments in relation to the number of years passed
 incurred                            between the reporting date and date of payment
                 0          1         2          3          4           5         6         7          8            9       10
         1999   29,121   41,968     45,344     47,052     48,042      48,690    49,363   49,705      50,006        50,185   50,472
         2000   30,890   45,437     48,806     50,788     51,569      52,024    52,538   52,897      53,220        53,509
         2001   33,180   50,050     54,080     56,386     57,373      57,930    58,636   59,178      59,606
         2002   33,403   51,210     54,992     57,189     57,811      58,524    59,181   59,509
         2003   38,141   58,733     64,094     66,976     68,168      69,026    69,902
         2004   47,218   69,325     73,273     75,673     77,070      77,991
         2005   47,541   69,220     74,561     77,632     79,124
         2006   46,268   73,223     78,161     81,129
         2007   61,395   86,894     93,231
         2008   66,077   98,471
         2009   62,421



                                                             116
The Group KD Group                                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Property insurance (excluding voluntary health insurance) in EUR thousand for the year 2008

   Year in
    which
   claims
    were        Cumulative claim payments in relation to the number of years passed between
  incurred                        the reporting date and date of payment
                     0           1             2                 3                   4              5                6           7           8         9
       1999      29,121        41,968         45,344         47,052                48,042          48,690        49,363         49,705      50,006     50,185
       2000      30,890        45,437         48,806         50,788                51,569          52,024        52,538         52,897      53,220
       2001      33,180        50,050         54,080         56,386                57,373          57,930        58,636         59,178
       2002      33,403        51,210         54,992         57,189                57,811          58,524        59,181
       2003      38,141        58,733         64,094         66,976                68,168          69,026
       2004      47,218        69,325         73,273         75,673                77,070
       2005      47,541        69,220         74,561         77,632
       2006      46,268        73,223         78,161
       2007      61,395        86,894
       2008      66,077


Life insurance - extra accident insurance in EUR thousand for the year 2009

  Year in
  which                        Cumulative claim payments in relation to the number of years passed
  claims                                 between the reporting date and date of payment
    were             0          1             2              3                 4               5            6             7          8        9        10
  incurred
       1999          294         516           556           598               624             625             625        625         626        626        626
       2000          284         473           540           558               558             558             568        568         568        568
       2001          242         477           552           602               610             615             619        619         619
       2002          233         432           492           520               531             538             538        538
       2003          151         246           300           319               324             325             325
       2004          182         293           319           330               331             332
       2005          196         396           462           483               517
       2006          278         552           636           675
       2007          302         534           655
       2008          336         673
       2009          294


Life insurance - extra accident insurance in EUR thousand for the year 2008

   Year in
   which
   claims
    were        Cumulative claim payments in relation to the number of years passed between
  incurred                        the reporting date and date of payment
                     0              1              2                 3               4               5               6           7           8         9
        1999             294            516            556               598             624             625             625         625         626       626
        2000             284            473            540               558             558             558             568         568         568
        2001             242            477            552               602             610             615             619         619
        2002             233            432            492               520             531             538             538
        2003             151            246            300               319             324             325
        2004             182            293            319               330             331
        2005             196            396            462               483
        2006             278            552            636
        2007             302            534
        2008             336



                                                                               117
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

5.1.4. Long-term life insurance – assumptions, changes in assumptions and sensitivity


     a.) Procedure of establishing assumptions

Liabilities from life insurance contracts with DPF were calculated using assumptions on future mortality from statistical tables.
The portfolio of insurance contracts was too small in the past, so for the purpose of estimating mortality the following statistical
tables are used:
     - for life insurance contracts with DPF, Slovenian morality tables from 1992 were used;
     - for annuity products, German mortality tables from 1987 were used
     - cancellations,
     - returns on investments (rate 2.6%-4%).

These assumptions are set at the time of concluding the contract and remain the same throughout the term of insurance, or
safer assumptions are used in the calculation of liability to provide for the possibility of unfavourable deviation from
expectations. An additional adjustment is applied to these assumptions to account for risk and uncertainty.

New estimates are made for each subsequent financial year for the purpose of checking the adequacy of liabilities determined
in this manner. If it is determined that the established liabilities are adequate, assumptions remain unchanged. If the
established liabilities prove to be inadequate, assumptions are revised to reflect new expectations. Consequently, the
provisions are measured according to appropriate level.

The assumptions used for insurance contracts described hereunder are as follows:

     •    mortality
          Depending on the type of contract, the appropriate mortality table is chosen and adjusted to reflect actual mortality
          of the insurance portfolio in past years and the current period.

     •    cancellations
          An analysis of the Group’s experience of the past three years is carried out by application of statistical methods, and
          the appropriate cancellation percentage is determined. Cancellation percentages vary by type of product and term
          of the insurance period. The analysis is carried out in order to determine the best estimate of the policyholders’
          behaviour.

     •    returns on investments
          The Group established assumptions for returns on investments by taking into account present returns on
          government-issued securities and other financial instruments on the market. In addition to this, the structure of
          assets which are used to cover liabilities stemming from life insurance contracts (long-term business fund) is taken
          into consideration by determining weighted average returns.

     •    costs
          Future costs are determined on the basis of current costs. The future inflation assumption was also applied.


     b.) Changes in assumptions

In 2009 the Group made no changes in the assumptions used in the calculation of insurance contracts.




                                                             118
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

5.1.5. Sensitivity analysis

The Group made a sensitivity analysis of net profits before taxes on the last day of the financial year, with consideration to
various parameters.

Sensitivity test – parameters

Sensitivity factor                                         Factor description
Technical interest rate (insurance contracts only)         Effect of a change of the technical interest rate by ±1%
                                                           Effect on the increase/decrease of all costs except the costs of
Costs and expenses                                         acquisition by ±5%
Mortality (life insurance only)                            Effect of a 5% increase in mortality
Mortality in annuity insurance (pension and annuity
insurance)                                          Effect of a 5% decrease in mortality

Claims ratio (property and health insurance only)          Effect of a 5% increase in the claims ratio

The above factors were used in actuarial and statistical models for calculating the changes of net profits of the Group. The
table below shows the effect of changes of key factors on the net earnings of the Group before taxes.

Effect on the Group’s net profit before tax for 2009
                                                                       Property
                                         Life        Unit-linked      insurance
                                     insurance           life         excluding          Health      Financial
                                      policies       insurance          health         insurance     contracts
 (in EUR)                             with DPF        policies        insurance         policies     with DPF        Total
                                                                       policies
 Factor
 Costs +5%                             (116,964)        (58,598)        (2,237,029)      (820,820)     (10,290)    (3,243,701)
 Costs -5%                               116,964          58,598          2,237,029        820,820       10,290      3,243,701
 Technical interest rate +1%           6,829,864                -                  -              -  1,114,120       7,943,984
 Technical interest rate -1%         (8,421,135)               -                  -              - (1,394,990)     (9,816,125)
 Mortality +5%                         (198,153)                -                  -              -           -      (198,153)
 Mortality in annuity insurance -
 5%                                    (166,036)               -                  -              -              -    (166,036)
 Claims ratio +5%                      (344,948)       (315,484)        (6,935,286)    (5,006,688)       (79,898) (12,682,304)
 Claims ratio -5%                        344,948         315,484          6,935,286      5,006,688         79,898 12,682,304

Effect on the Group’s net profit before tax for 2008

                                                                       Property
                                                                      insurance
                                         Life        Unit-linked      excluding
                                     insurance           life           health           Health      Financial
                                      policies       insurance        insurance        insurance     contracts
 (in EUR)                             with DPF        policies         policies         policies     with DPF        Total
 Factor
 Costs +5%                             (131,030)        (76,000)        (2,156,000)     (778,000)        (10,000) (3,151,030)
 Costs -5%                               131,030          76,000          2,156,000       778,000          10,000   3,151,030
 Technical interest rate +1%           7,712,010               -                  -             -      1,213,000    8,925,010
 Technical interest rate -1%         (9,439,010)               -                  -             -    (1,528,000) (10,967,010)
 Mortality +5%                         (216,395)               -                  -             -               -   (216,395)
 Mortality in annuity insurance -
 5%                                      158,711               -                  -              -              -      158,711
 Claims ratio +5%                      (357,408)       (357,000)        (6,851,000)    (4,755,000)       (87,000) (12,407,408)
 Claims ratio -5%                        357,408         357,000          6,851,000      4,755,000         87,000 12,407,408



                                                            119
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


5.1.6. Risk management in the area of reinsurance protection


General description of the purpose and goals of reinsurance protection

Reinsurance enables the Group to underwrite also insurance contracts that exceed Group's own capacities, i.e. to take over
risks above the Groups own retention and provide for solvency and liquidity of operations. Thus it represents a key element of
risk management in insurance industry / business.

The Group pursues the objective to achieve the optimum protection both against individual large claims and against the
aggregate exposure of the Group's insurance portfolio to natural and other insurance hazards.

The Group decides on the form and structure of the reinsurance based on the level of retention of the insurer and the profiles
of insurance portfolio.

Contractual reinsurance ensures automatic cover of the vast majority of underwritten risks, even in the event of potential risk
assessment errors.

For exceptional risks which exceed the contractual reinsurance protection by scale or content of the cover provisions, the
Group ensures additional special facultative reinsurance protection. The program of planed reinsurance is composed of
traditional proportional and non-proportional types of reinsurance protection, and is by structure and by extent of covers
practically the same as in business year 2008. Through operational risks management the Group carefully monitors the
frequency and the scale of the risks reinsured either under ordinary contractual provisions or under special facultative
reinsurance provisions.

Basic assumptions used in sensitivity tests

We assume two types of reinsurance protection risks. The first risk is whether the structure and scale of protection have been
adequately chosen, which can be checked by simulation of whether decreasing reinsurance protection would significantly
decrease net profit or loss, which would consequently jeopardise the Group’s capital adequacy. The second risk is whether
the profit or loss would worsen significantly if an above-average number of large-scale and mass losses (which would also
involve above-average amounts) occurred in a given period.

Two income sensitivity tests have been designed to assess reinsurance protection risk: first, the test of sensitivity to a
decrease in reinsurance protection, and second, the test of sensitivity to above-average incidence of loss (for large-scale and
mass losses).


Analysis of the group portfolio from the aspect of reinsurance risk

In the largest group of other property insurance contracts, we analysed the sensitivity of individual portfolios of insurance
categories/groups of insurance categories to large-scale and mass losses, with the aim of focusing the reinsurance risk
management analysis on the most exposed insurance categories. This analysis showed that the reinsurance risk is most
significantly affected, both in terms of the amount and number of potentially large-scale and mass losses, by the portfolio of
auto liability insurance and the portfolio of fire and other damage insurance. These portfolios also significantly affect the profit
or loss; therefore the sensitivity analysis was made on the basis of these reinsurance contracts.




                                                             120
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

      Concentration of reinsurance
     for 2009                                                                                                     (in EUR thousand)
           Contract year 2009
                                                                                                                              Effect of
                                                                   Structure of                                              the reins.
                                          Own share/                    the                    Accrued        Reserved       outcome
                                           priority in Reinsurance reinsurance Reinsurance       reins.         reins.         on the
     Type of reinsurance                      EUR       premium      premium commission         losses         losses          profit
   Surplus reinsurance of fires            1,000,000           2,068        18.97%     310        2,045           5,104           5,391
   Quota share reinsurance of fires          900,000             833         7.64%     167          202             198           (266)
   Surplus reinsurance of technical
   reserves                                 400,000              643         5.90%      96          176             28            (343)
   Quota share reinsurance of
   technical reserves                       360,000              713         6.54%     143          250            168            (152)
   Quota share reinsurance of
   earthquakes                                    -            1,430        13.11%     357                -          1          (1,072)
   Risk XL reinsurance of fires             600,000              128         1.17%       -                -          -            (128)
   Risk XL technical reinsurance            120,000               63         0.58%       -                -          -             (63)
   Cat XL property reinsurance excl.
   vehicle insurance                       1,000,000             845         7.75%         -        318             48            (479)
   Cat XL reinsurance annual
   aggregate excl. vehicle insurance       2,000,000             149         1.37%        -           -             325             176
Total fire and technical insurance                             6,872        63.02%    1,073       2,991           5,872           3,064
   XL reinsurance of auto liability and
   green card                               300,000              926         8.49%         -              -        769            (157)
   XL reinsurance of comprehensive
   auto insurance                           150,000               52         0.48%         -              -              -         (52)
   Cat XL property reinsurance -
   vehicle insurance                       1,000,000             930         8.53%         -        331            431            (168)
   Cat XL property reinsurance excl.
   vehicle insurance                       2,000,000             358         3.28%         -          -             338            (20)
Total auto insurance                                           2,266        20.78%         -        331           1,538           (397)
Other property insurance                                       1,085         9.95%      49            -              -          (1,036)
Health insurance policies                                          -         0,00%       -            -              -                -
Life insurance                                                   681         6.25%     103          186             54            (338)
TOTAL CONTRACT YEAR 2009                                     10,904         100,00%   1,225       3,508           7,464           1,293




                                                           121
 The Group KD Group                                     Annual Report 2009

 Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


   Concentration of reinsurance for 2008                                                                          (in EUR thousand)
   Contract year 2008
                                                                                                                                Effect of
                                                                    Structure of                                               the reins.
                                           Own share/                    the                         Accrued    Reserved       outcome
                                            priority in Reinsurance reinsurance        Reinsurance     reins.     reins.         on the
   Type of reinsurance                         EUR       premium      premium          commission     losses     losses          profit
   Surplus reinsurance of fires            1,000,000          1,183          11.89%            260       809         467            353
   Quota share reinsurance of fires          900,000            763           7.67%            259       700         152            349
   Surplus reinsurance of technical
   reserves                                  400,000              418         4.20%             88       196         119            (15)
   Quota share reinsurance of technical
   reserves                                  360,000              646         6.49%            161       204         188            (92)
   Quota share reinsurance of
   earthquakes                                  10%           1,278          12.84%            320          -              5       (954)
   Risk XL reinsurance of fires              600,000             98           0.98%              -          -              -        (98)
   Risk XL technical reinsurance             120,000            117           1.18%              -          -              -       (117)
   Cat XL property reinsurance excl.
   vehicle insurance                         600,000          1,098          11.04%              -     4,619        2,057         5,579
  Total fire and technical insurance                          5,601          56.29%          1,088     6,528        2,988         5,004
   XL reinsurance of auto liability and
   green card                                300,000          1,104          11.10%              -          -        678           (426)
   XL reinsurance of comprehensive
   auto insurance                            150,000              50          0.50%              -          -              -        (50)
   Cat XL property reinsurance - vehicle
   insurance                                 600,000          1,156          11.62%              -     2,141        3,717        (4,702)
Total auto insurance                                          2,309          23.21%              -     2,141        4,395          4,227
Other property insurance                                      1,426          14.33%             25         -          881          (520)
Health insurance policies                                         -            0.0%              -         -            -              -
Life insurance                                                  614           6.17%            129       185            5          (295)
TOTAL CONTRACT YEAR 2008                                      9,950          100.00%         1,242     8,854        8,269         8,416




                                                            122
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Quantitative analysis of sensitivity test results

In order to assess the consequences of lowering the reinsurance protection, two sensitivity tests were carried out, measuring
the quantitative impact on the net profit or loss. In the sensitivity tests we used the most important reinsurance contracts
covering groups of insurance categories which may potentially have the greatest impact on the Group’s profit or loss due to
the portfolio size or potential for large-scale or mass losses.

Test of sensitivity of the profit or loss to a decrease in reinsurance protection for 2009
                                                                                    Change          Change       Change Effect of
                                                        Initial own     Increased     in net         in net       in net   change to
 (in EUR thousand)                                         share       own share premium            losses      reserves     profit
 Total proportional reinsurance                                  unchanged                   -              -            -          -
 Risk XL reinsurance of fires                                     600           900        77               -            -        600
 Risk XL technical reinsurance                                    120           200          -              -            -        120
 Cat XL property reinsurance excl. vehicle insurance            1,000         1,500        29             415            -      1,000
 Total fire and technical insurance                                                       106             415            -      1,720
 XL reinsurance of auto liability and green card                  300           400       112               -         154         300
 XL reinsurance of comprehensive auto insurance                   150           150          -              -            -        150
 Cat XL property reinsurance - vehicle insurance                  600         1000         86             585            -        600
 Total auto insurance                                                                     198             585         154       1,050
 TOTAL                                                                                    304           1,000         154       2,770

Test of sensitivity of the profit or loss to a decrease in reinsurance protection for 2008

                                                                                   Change           Change       Change Effect of
                                                         Initial own    Increased   in net           in net       in net   change to
(in EUR thousand)                                           share       own share premium           losses      reserves     profit
Total proportional reinsurance                                    unchanged                -                -            -           -
Risk XL reinsurance of fires                                      600          900       68                 -            -          68
Risk XL technical reinsurance                                     120          120         -                -            -           -
Cat XL property reinsurance excl. vehicle insurance               600         1000      105               461         129       (485)
Total fire and technical insurance                                                      173               461         129       (417)
XL reinsurance of auto liability and green card                   300          400      301                 -         200         101
XL reinsurance of comprehensive auto insurance                    150          150         -                -            -           -
Cat XL property reinsurance - vehicle insurance                   600         1000      377               339         271       (233)
Total auto insurance                                                                    678               339         471       (132)
TOTAL                                                                                   851               800         600       (549)

We have illustrated in the tables the effect of the increase of the own share (own funding) on profit of the company when loss
events remained largely unchanged in the contract years 2008 and 2009. The lower volume of the reinsurance protection was
accompanied by the lower written reinsurance premium, as well as the lower volume of the written shares of the reinsurers in
claims, which in turn is reflected on the positive change in the net premium and the negative change in the net claim.

Despite the fact that the initial own shares in the contract year 2009 were slightly higher than those in the contract year 2008,
the impact of the lowering of the reinsurance protection on the change in claims and in outstanding claims provisions in both
years does not differ much.

The profit generated by the Group in both years was influenced by the change in net written premium. The base reinsurance
premium was in the contract year 2008 slightly higher as a consequence of lower own shares in comparison with 2009; hence
in the case of a decrease in the reinsurance protection in 2008, there would also be an increase in net written premium higher
than the increase in net written premium in the contract year 2009.

As a consequence of the developments described above, a comparable increase in the company’s own shares in both years
would result in a decrease in the company’s profit in the amount of 851 thousand euros in the contract year 2008 and 850
thousand euros in the contract year 2009.




                                                            123
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Test of sensitivity of the profit or loss to an above-average number and amount of large-scale and mass losses for
2008 and 2009


Contract year 2009                                                                                      (in EUR thousand)
                                                                                                        Change
                                                        Sum of simulated Change in         Change in      in net   Effect of change
                                                          gross claims   net premium       net losses   reserves       to profit
               Total proportional reinsurance                          -            -             1,080          -            (1,080)
               Risk XL reinsurance of fires                            -         (31)             (120)          -                 89
               Risk XL technical reinsurance                           -         (58)             (240)          -                182
               Cat XL property reinsurance excl.
               vehicle insurance                                         -      (1,123)             836          -              (1,960)
               Cat XL reinsurance annual agregate                        -            -         (1,000)          -                1,000
Total fire and technical insurance                                  15,761      (1,212)             556          -              (1,769)
               XL reinsurance of auto liability and
               green card                                                   -         -            925        925               (1,850)
               XL reinsurance of comprehensive
               auto insurance                                               -         -                  -       -                    -
               Cat XL property reinsurance - vehicle
               insurance                                                 -        (221)            164          -                 (385)
Total auto insurance                                                21,539        (221)          1,089        925               (2,235)
Total                                                               37,300      (1,433)          1,645        925               (3,995)



Contract year 2008                                                                                     (in EUR thousand)
                                                                                                       Change in
                                                       Sum of simulated     Change in     Change in        net     Effect of change
                                                         gross claims      net premium    net losses   reserves        to profit
               Total proportional reinsurance                            -            -         4,534           -             (4,534)
               Risk XL reinsurance of fires                              -         (27)          (120)          -                  93
               Risk XL technical reinsurance                             -        (117)          (240)          -                 124
               Cat XL property reinsurance excl.                         -
               vehicle insurance                                                  (520)        (2,959)           -                2,439
Total fire and technical insurance                                  11,718        (664)          1,215           -              (1,879)
               XL reinsurance of auto liability and                      -
               green card                                                             -           725         725               (1,450)
               XL reinsurance of comprehensive                           -
               auto insurance                                                         -              -           -                    -
               Cat XL property reinsurance -                             -
               vehicle insurance                                                  (111)           105           -                 (216)
Total auto insurance                                                21,234        (111)           830         725               (1,666)
Skupaj                                                              32,952        (774)         2,045         725               (3,544)

The two tables above show the effect of claims listed bellow, on the profit or loss reported in 2008 and 2009 having actual
reinsurance protection in 2008 and 2009:
      - Fire loss in the amount of EUR 800,000, which was the subject of quota and Fire Risk XL reinsurance.
      - Installation loss in the amount of EUR 8,000,000, which was the subject of surplus (95.00%), quota and technical
          Risk XL reinsurance.
      - Loss as a result of storms in the amount of EUR 5,652,000 where the smaller portion was reinsured, while the
          remaining portion was covered under quota and property Cat XL reinsurance serving to provide coverage in case of
          catastrophic losses.
      - Claims from motor vehicle liability insurance in the amount of EUR 250,000, 750,000, 1,500,000, 3,000,000 and
          15,000,000.
Note: as regards losses under motor vehicle liability, the assumption made is to retain 50% of simulated losses in provisions
for claims, whereas for all other simulated losses we have assumed making payments over the course of the year.




                                                           124
The Group KD Group                                          Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

As already mentioned, in 2009 we increased our own shares for motor insurance and insurance against the risk of natural
disasters, which directly affects the reduced volume of reinsurance coverage compared to the contract year 2008. Loss
events in the two years are comparable since in both years we recorded more loss events due to storms and an equal
number of major automobile liability claims. In contract year 2008, the above claims would cause decrease in the Group’s
profit of EUR 3,679 thousand, and in 2009, EUR 4,003 thousand.

5.2     Financial risks

The Group is exposed to financial risks through its financial assets and liabilities, reinsurance receivables and insurance
liabilities. Financial risks are risks that, due to changes in the capital markets and ratings of the Group’s clients, the inflows will
not be sufficient to cover the outflows. The most significant components of this financial risk are liquidity risk, credit risk and
market risk; the Group is exposed to the risks of changes in interest rates, securities market prices and currency rates.

Liquidity risk is the risk that the Group may be unable to repay all its liabilities, including potential liabilities, without threat to its
normal activities. The Group maintains capital adequacy with an adequate amount of capital in order to be able to ensure
liquidity at any moment and so that it is sustainably able to meet its obligations (solvency).

The main source of credit risk for the Group stems from the insurance segment and involves investments and reinsurance
risks. This involves the risk that the counterparty will be unable to pay the amounts due at maturity.

Market risks arise particularly in the investment of assets, where there is the potential that expectations regarding the value of
investments are not met or are not met entirely. The risk of unfavourable changes in investment values can be the
consequence of foreign exchange rate changes, as well as changes in interest rates or securities prices.

The Group manages and controls the risks to which it is exposed by constantly monitoring cash flows and ensuring that it
always has enough liquid assets at its disposal to settle its liabilities, by investing its assets in a manner which ensures stable
long-term returns which exceed the amount of returns on insurance liabilities, by matching the terms of financial assets
against financial liabilities, and by ensuring the adequacy of financial assets.

Currency risk is less important for the Group because of ERM2 and adoption of the euro in 2007.




                                                                 125
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
Analysis of assets and liabilities for financial risk management

                                                      Life insurance contracts with
                                                      DPF                                 Short-term Insurance contracts

                                                                                            Property
                                                                                           insurance
                                                                        Financial life   contracts excl.
                                                      Life insurance     insurance           health            Health
                                                      contracts with   contracts with      insurance         insurance      Other assets
 (in EUR)                                                   DPF             DPF             contracts         contracts     and liabilities   Total
 ASSETS
                                         31.12.2009
 Debt securities                                         58,784,677       13,598,069        76,702,831         10,856,640     13,705,428       173,647,644
 At fair value through profit or loss:                     2,893,956       1,011,598        13,643,600            716,489       5,443,843        23,709,486
   - listed                                                2,893,956         982,260        13,376,584            644,981       5,182,406        23,080,187
   - non-listed                                                    -               -                  -                 -         261,437           261,437
   - government bonds                                              -          29,338            267,016            71,508               -           367,862
 Available for sale                                      43,798,880       10,818,497        63,059,231          9,500,444       4,465,822      131,642,873
   - listed                                                5,444,197       1,162,138        24,124,443            219,436       3,713,867        34,664,081
   - non-listed                                              539,020               -                  -                 -               -           539,020
   - government bonds                                    37,815,663        9,656,358        38,934,788          9,281,008         751,955        96,439,772
 Held to maturity                                        12,091,841        1,767,974                  -           639,707       3,795,763        18,295,285
   - listed                                                5,269,304         262,356                  -                 -       3,748,351         9,280,011
   - non-listed                                              417,720               -                  -                 -               -           417,720
   - government bonds                                      6,404,817       1,505,618                  -           639,707          47,412         8,597,554
 Equity securities                                         7,332,432       1,395,093        30,600,202          2,156,321     38,539,505         80,023,553
 At fair value through profit or loss:                     2,625,977         340,631          7,535,539            29,766       3,487,232        14,019,145
   - listed                                                2,625,977         340,631          7,535,539            29,766       3,487,232        14,019,145
   - non-listed                                                    -               -                  -                 -               -                 -
 Available for sale                                        4,706,455       1,054,462        23,064,663          2,126,555     35,052,273         66,004,408
   - listed                                                3,413,169         711,132        19,198,800          2,029,231     17,318,012         42,670,344
   - non-listed                                            1,293,286         343,330          3,865,863            97,324     17,734,261         23,334,064
 Impairment of financial assets                          (1,135,123)           (683)        (2,344,019)                 -     (8,245,862)      (11,725,687)
 Investment in associates                                          -               -                  -                 -     52,308,751         52,308,751
 Loans and receivables                                   14,856,259        2,752,938        47,379,674         19,408,024     73,425,463       157,822,358
  Loans and deposits                                     10,484,706        1,651,268          9,540,870         1,829,181     67,055,722         90,561,747
  Insurance receivables                                      595,883         128,585        29,455,047         11,736,545         603,317        42,519,377
  Other receivables                                        3,775,669         973,086          8,383,757         5,842,298       5,766,424        24,741,234
 Investment properties                                     3,915,504       1,081,744        17,411,187            108,567       7,296,538        29,813,540
 Reinsurance assets                                          199,221          18,768        19,231,019                  -               -        19,449,008
 Cash and cash equivalents                                 1,709,807         292,344        12,736,818            831,703     24,732,502         40,303,174
 Other assets                                                366,577          37,933        24,980,961            950,993    123,731,268       150,067,732
 Total assets                                            86,029,354       19,176,205       226,698,673         34,312,248    325,493,593       691,710,073

 LIABILITIES
 Insurance contracts                                      8,604,775                -       194,962,683         16,400,337              -       219,967,795
 Non-current liabilities                                  2,231,432                -        71,881,134            145,177              -        74,257,743
 Current liabilities                                      6,373,343                -       123,081,549         16,255,160              -       145,710,052
 Insurance contracts with DPF                            76,130,189                -                 -                  -              -        76,130,189
 Non-current liabilities                                 76,130,189                -                 -                  -              -        76,130,189
 Current liabilities                                              -                -                 -                  -              -                 -
 Investment contracts with DPF                                    -       17,703,254                 -                  -              -        17,703,254
 Non-current liabilities                                          -       17,654,644                 -                  -              -        17,654,644
 Current liabilities                                              -           48,610                 -                  -              -            48,610
 Borrowings                                                       -                -                 -                  -    196,132,185       196,132,185
 Other liabilities                                          966,404          232,165        18,367,566          6,402,584     19,857,435        45,826,154
 Total liabilities                                       85,701,368       17,935,419       213,330,249         22,802,921    215,989,620       555,759,577




                                                            126
The Group KD Group                                          Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009



                                                            Life insurance contracts with
                                                            DPF                                 Short-term Insurance contracts

                                                                                                  Property
                                                                                                 insurance
                                                                              Financial life   contracts excl.
                                                            Life insurance     insurance           health            Health
                                                            contracts with   contracts with      insurance         insurance      Other assets
 (in EUR)                                                         DPF             DPF             contracts         contracts     and liabilities   Total
 ASSETS
                                         31 December 2008
 Debt securities                                               47,427,174       13,018,327         79,035,741         6,471,557       2,190,106      148,142,905
 At fair value through profit or loss:                           3,235,192         947,476         14,383,689           859,092         236,536        19,661,985
   - listed                                                      3,235,192         911,209         14,016,581           762,310               -        18,925,292
   - non-listed                                                          -               -                  -                 -         236,536           236,536
   - government bonds                                                    -          36,267            367,108            96,782               -           500,157
 Available for sale                                            37,276,479       12,070,851         64,652,052         5,612,465       1,024,365      120,636,211
   - listed                                                      4,542,964       1,976,484         24,888,641           348,589         322,534        32,079,212
   - non-listed                                                          -               -                  -                 -               -                 -
   - government bonds                                          32,733,514       10,094,367         39,763,411         5,263,876         701,831        88,556,999
 Held to maturity                                                6,915,504               -                  -                 -         929,205         7,844,709
   - listed                                                      5,380,629               -                  -                 -         889,937         6,270,566
   - non-listed                                                    427,282               -                  -                 -               -           427,282
   - government bonds                                            1,107,593               -                  -                 -          39,268         1,146,861
 Equity securities                                             12,423,520        2,778,667         50,604,549         2,545,354     41,966,984       110,319,073
 At fair value through profit or loss:                           2,645,320         829,200          5,272,758            55,229       7,046,189        15,848,695
   - listed                                                      2,645,320         829,200          5,272,758            55,229       7,046,189        15,848,695
   - non-listed                                                          -               -                  -                 -               -                 -
 Available for sale                                              9,778,200       1,949,467         45,331,791         2,490,125     34,920,795         94,470,378
   - listed                                                      8,960,620       1,796,599         42,083,652         2,490,125     10,002,150         65,333,146
   - non-listed                                                    817,580         152,868          3,248,139                 -     24,918,645         29,137,232
 Impairment of financial assets                                (4,159,003)       (839,478)       (15,215,132)         (173,525)     (7,244,586)      (27,631,724)
 Investment in associates                                                -               -                  -                 -     81,077,284         81,077,284
 Loans and receivables                                         10,049,123        1,308,200         57,024,063        18,835,288     82,855,467       170,072,141
  Loans and deposits                                             9,220,578       1,025,976         16,674,165         5,516,979     64,680,183         97,117,881
  Insurance receivables                                            565,197         135,015         32,567,063        11,497,024          48,430        44,812,729
  Other receivables                                                263,348         147,209          7,782,835         1,821,285     18,126,854         28,141,531
 Investment properties                                           3,818,485       1,281,091         17,474,217                 -       6,133,794        28,707,587
 Reinsurance assets                                                152,256          21,726         17,188,721                 -               -        17,362,703
 Cash and cash equivalents                                       1,172,517          76,173          3,976,328           187,382     24,887,904         30,300,304
 Other assets                                                      815,338         308,069         25,902,068         5,754,394    112,920,491       145,700,360
 Total assets                                                  71,699,410       17,952,775       235,990,554         33,620,450    344,787,444       704,050,634

 LIABILITIES
 Insurance contracts                                            7,636,505          384,788       186,817,551         15,906,377              -       210,745,221
 Non-current liabilities                                        2,496,872           70,051        66,450,674            169,446              -        69,187,043
 Current liabilities                                            5,139,633          314,737       120,366,877         15,736,931              -       141,558,178
 Insurance contracts with DPF                                  57,640,231        9,295,497                 -                  -              -        66,935,728
 Non-current liabilities                                       57,640,231        9,295,497                 -                  -              -        66,935,728
 Current liabilities                                                    -                -                 -                  -              -                 -
 Investment contracts with DPF                                  9,295,051        7,035,113                 -                  -              -        16,330,164
 Non-current liabilities                                        9,252,317        7,020,079                 -                  -              -        16,272,396
 Current liabilities                                               42,735           15,033                 -                  -              -            57,768
 Borrowings                                                             -                -         8,000,000                  -    173,908,599       181,908,599
 Other liabilities                                                435,138          317,646        14,801,873          7,392,230     21,328,173        44,275,059
 Total liabilities                                             75,006,924       17,033,044       209,619,424         23,298,607    195,236,772       520,194,771




                                                                  127
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

5.2.1 Liquidity risk

Liquidity risk is the risk that cash may not be available to pay obligations due at a reasonable cost.

The Group is exposed to liquidity risk in particular with regards to the insurance liabilities (claims) and the contractual
obligations pertaining to the acquisition of financial instruments (notably the acquisitions of companies) and the servicing of
current liabilities from financial instruments.

The liquidity requirements in the field of financial intermediation are specifically regulated by the law, where the most
important area for the Group is insurance where it strives to maintain the volume of liquidity in accordance with the regulatory
requirements.

Exposure to liquidity risk is reflected in the acceptance of insurance risk and the Group’s ability to meet its contractual
obligations from existing insurance contracts and liabilities related to the insurer’s day-to-day operations.

Liquidity risk stems from an imbalance in inflows and outflows and manifests itself in the potential that the Group, despite
having adequate financial assets, would find itself in the position of having to cash in its investments under less favourable
conditions (e.g. lower price, higher transaction costs) in order to meet its contractual obligations, which would result in a lower
return on investments.

The Group manages its liquidity risk through:
 • maintaining a suitable structure of investments;
 • diversifying the investment portfolio;
 • planning future cash flows, ensuring a suitable volume of cash flows from operating and investing activities (payout of
   interest and principal) to cover future foreseeable liabilities;
 • providing an adequate volume of high liquidity investments which are readily convertible without loss in order to cover
   future unforeseeable liabilities.

The Group is exposed to interest rate risk via financial assets and liabilities, reinsured receivables and insured liabilities. Due
to the nature of its investments and liabilities, the Group particularly faces the risk of changed interest rates.

The overview of liquidity risk management is presented below, showing maturity of assets according to contractual cash flows,
which are compared with the expected cash flows of insurance and financial contracts.

Contractual cash flows for debt securities are calculated using the data of the issuers. The amortisation schedule and coupon
rate at the date of calculation is used. For each time interval, the future cash flows (principal and coupon rate) are considered
according to the situation of the debt securities portfolio.

For the purpose of presenting cash flows of life insurance contracts with DPF and unit-linked life insurance, all the cash flows
of future payments of claims and costs arising from life insurance contracts effective at 31 December 2009 were generated.

For the purpose of presenting cash flows of financial contracts, all the cash flows of future payments of claims and costs
arising from financial contracts effective at 31 December 2009 were generated..

Expected cash flows of property insurance and health insurance represent an assessment of payments for claims (which
have already been incurred), including costs and the release of liability from unearned premiums and provisions.

Own assets of the Group are not intended for covering liabilities from insurance and financial contracts, and this is the reason
the mean duration of assets is not presented.




                                                             128
The Group KD Group                                              Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Overview of maturity of insurance liabilities in 2009

                                          Carrying              No stated
                                                                                                                Expected cash flows (undiscounted)
                                          amount                 maturity
                                                                                                                                                                             More than 15
 (in EUR)                                                                            0-1 year             1 – 5 years           5 - 10 years            10 - 15 years           years
 Liabilities
 Insurance contracts                       219,967,795                         -     146,060,298            54,871,726            53,269,051              37,558,357            94,793,389
 Insurance contracts with DPF               76,130,189                         -          6,659,497         30,419,358            40,167,394              31,899,258            68,674,106
 Investment contracts with DPF              17,703,254                         -          1,542,269             7,157,261         10,365,688                  9,489,577         27,521,996
 Debt securities (issued)                                 -                    -                     -                     -                      -                     -                  -
 Total liabilities                         313,801,238                         -     154,262,064            92,448,345          103,802,133               78,947,192           190,989,491



Overview of maturity of insurance liabilities in 2008

                                                                                                           Expected cash flows (undiscounted)
                                      Carrying                No stated                                                                                                     More than 15
 (in EUR)                             amount                   maturity            0-1 year              1 – 5 years           5 - 10 years           10 - 15 years            years
 Liabilities
 Insurance contracts                     210,745,221                      -        137,836,517             49,476,994           18,052,930               5,378,780                     -
 Insurance contracts with DPF             66,935,728                      -          5,288,051             51,946,852           30,255,563              25,831,111            57,406,862
 Investment contracts with DPF            16,330,164                      -          1,457,040              6,645,794           10,255,146               9,309,026            28,586,415
 Debt securities (issued)                            -                    -                     -                      -                      -                     -                  -
 Total liabilities                       294,011,113                      -        144,581,608           108,069,640            58,563,639              40,518,917            85,993,277



Overview of maturity of liabilities related to own liabilities in 2009



                                                                                      Contractual cash flows (undiscounted)
                                     Carrying        No stated                                                            More than 5
 (in EUR)                            amount           maturity                 0-1 year       1-3 years        3-5 years    years
 Liabilities
 Debt securities (issued)            75,521,481                   -           6,734,595                     -                    -      68,856,966
 Borrowings                         119,184,048          2,637,944     106,903,679             7,176,040            10,550,510           3,528,729
 Derivative financial instruments     1,426,656                   -            279,981         1,146,675                         -                        -
 Trade and other payables            19,857,435          2,051,446        16,721,623                572,758                21,287             750,408
 Total liabilities                  215,989,620          4,689,390     130,639,878             8,895,473            10,571,797          73,136,103



Overview of maturity of liabilities related to own liabilities in 2008

                                                                                      Contractual cash flows (undiscounted)
                                     Carrying        No stated                                                             More than 5
 (in EUR)                            amount           maturity                 0-1 year       1-3 years        3-5 years     years
 Liabilities
 Debt securities (issued)            75,449,991                   -           5,353,312       12,362,816             8,240,000          67,331,028
 Borrowings                          98,107,912                   -       65,293,452          16,609,362            21,945,005                657,939
 Derivative financial instruments      350,696                    -            350,696                      -                     -                       -
 Trade and other payables            21,328,173          6,279,526        17,516,072           1,214,985                          -                   4,745
 Total liabilities                  195,236,772          6,279,526        88,513,532          30,187,163            30,185,005          67,993,712




                                                                      129
The Group KD Group                                              Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


5.2.2 Credit risk

Credit risk is the consequence of an inability on the part of a contracting party to fully repay its obligations or overdue debts. In
terms of financial instruments included in investments, it is the risk that one party in a contract regulating the financial
instrument will cause the other party to incur financial loss due to a default on obligations as a result of a difference between
actual and contractually agreed fulfilment of obligations.

The Group manages its credit risk exposure by introducing further limits on individual amounts and on already specified
amounts of maximum exposure of individual securities. In order to minimise the risk exposure, the Group checks analyses
and credit rating scores of issuers of securities. It also manages its credit risk exposure through investments in government-
issued securities, and low-risk securities. The procedures for checking the credit of foreign issuers of securities are based on
acquiring credit rating information from international firms such as Standard & Poor’s, Fitch-IBCA and Moody’s.

Issuers of securities in Slovenia do not have ratings, but the insurance part of the Group has the highest concentration of
investments in debt securities, bank and government bonds. The credit risk of investment coupons and equity securities is
controlled by diversification of investments.

Procedures of verifying credit ratings are based on obtaining and reviewing publicly accessible data on the current financial
status of the issuer of financial instruments and its future solvency. The credit rating of domestic issuers of financial
instruments is determined by the Group itself. In checking the issuer’s credit using its own sources, the Group checks future
solvency and in particular the issuer’s adequacy of expected future cash flows from regular activities, offset against the
outflows for settlement of future liabilities.

In terms of of reinsurance, the same as for financial asset investment, credit risk management procedures relate to verifying
the reinsurer’s credit rating. In accordance with the credit risk management strategy , reinsurance-related liabilities are
reinsured by prime-grade reinsurers. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer
fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of
reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract.

The Group restructures credit risk by establishing limits according to counterparty and also according to territory and industry.
These risks change regularly.


Maximum credit risk at 31 December 2009 and 31 December 2008


(in EUR)                                    AAA-A                         BBB-B                    Without rating                    Total
                                     31.12.2009   31.12.2008    31.12.2009        31.12.2008    31.12.2009    31.12.2008    31.12.2009        31.12.2008
Debt securities                     115,475,032 104,386,884     19,168,798         6,556,381    43,083,795    37,199,640   177,727,625       148,142,905
  At fair value through profit or
loss                                   816,754      1,399,763    3,576,692         1,000,419    19,316,040    17,261,803    23,709,486        19,661,985
 Available-for-sale                 107,886,926 100,486,158     10,611,753         3,990,928    17,224,175    16,159,125   135,722,854       120,636,211
 Hel-to-maturity                      6,771,352     2,500,963    4,980,353         1,565,034     6,543,580     3,778,712    18,295,285         7,844,709
Loans and receivables                 3,147,557             -    9,860,032                 -   148,794,675   181,421,807   161,802,264       181,421,807
 Loans and deposits                   3,147,557             -    9,860,032                 -    79,010,288    97,783,106    92,017,877        97,783,106
 Insurance receivables                        -             -             -                -    33,377,192    35,709,836    33,377,192        35,709,836
 Recourse receivables                         -             -             -                -    10,713,323    11,768,663    10,713,323        11,768,663
 Other receivables                            -             -             -                -    25,693,872    36,160,202    25,693,872        36,160,202
Reinsurance assets                            -             -             -                -    19,449,008    17,362,703    19,449,008        17,362,703
Cash and cash equivalents              491,776         5,745       46,620            70,932     40,191,676    31,228,515    40,730,072        31,305,192
Total assets                        119,114,365 104,392,629     29,075,450         6,627,313   251,519,154   267,212,665   399,708,969       378,232,607




                                                                    130
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Recourse receivables – recourse claims and assets acquired in the course of settlement of claims

The Group may sell items damaged in insurance cases, which it acquires in the course of resolving claims. The net
recoverable value of damaged items in claims which the Group manages to sell is recognised as revenue on the transaction
date (sale of the damaged item).

With the payment of claims, the rights in relation to those responsible for the damage are also transferred from the
policyholder to the Group (subrogation). The Group exercises that right through a recourse claim of partial or entire payment
of the insurance amount. In the event the insured person of compulsory liability insurance loses his or her rights (intoxication,
etc.) the Group demands recourse from the policyholder or the person responsible for the damage of the entire or partial
amount of the paid claims. Exercised recourse claims are recognised as insurance revenue. Expected recourse amounts are
also included in the calculation of liabilities for claims.

Recourse receivables are recorded separately, as exercised and unexercised, whereas the unexercised recourse receivables
are kept in off-balance sheet records and no impairment is recognised with regard to them.

Exercised recourse receivables are recorded separately as receivables insured by mortgage and other recourse receivables,
which is the basis for impairment calculation. Impairment of exercised recourse receivables and receivables on redemption is
based on individual estimation of the financial situation and liquidity of the insurance policyholder. Liquidity of debtors and
other receivables, except deferred tax receivables, are assessed individually; the same is true for impairment calculation.

Loans

The Group approves loans to its subsidiaries and associates in order to take advantage of synergy effects. The Group can
raise loans under more advantageous conditions than subsidiaries and associates because of its financial power and
intensive cooperation with financial institutions. Loans are approved at the rate of interest prescried for loans to related
parties. Loans are not insured.

In some cases, loans are also approved to companies outside the Group if there exists a mutual interest for business
cooperation. These loans are not insured, and the interest rate is higher.




                                                            131
The Group KD Group                                   Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


Credit risk: Impairment of financial assets


                                                                Past due but not impaired                              Past due and impaired
                                                                                                               Individually               Collective
                                    Neither past                                                                                                                  Total
                                      due nor      Up to 30                    91-270       More than     Gross                       Gross                      carrying
          Assets (in EUR)            impaired       days        31-90 days      days        271 days      value       Impairment      value       Impairment     amount
        31 December 2009
Debt securities                      177,727,625           -              -            -             -            -              -            -              -   177,727,625
Loans                                 80,337,544           -        463,004            -        11,283      335,222      (147,885)   11,046,488       (27,779)    92,017,877
Receivables                           34,824,419   2,953,412        357,452    1,748,162     2,317,194   47,565,866   (35,109,703)   34,636,113   (19,508,528)    69,784,387
 - insurance receivables              13,476,583   2,730,548        131,399    1,338,207     2,070,055    5,290,140    (4,312,420)   27,901,144   (15,248,464)    33,377,192
 - recourse receivables                        -           -              -            -             -   24,403,068   (15,653,623)    5,302,790    (3,338,912)    10,713,323
 - other receivables                  21,347,836     222,864        226,053      409,955       247,139   17,872,658   (15,143,660)    1,432,179      (921,152)    25,693,872
Reinsurance assets                    19,449,008           -              -            -             -            -              -            -              -    19,449,008
TOTAL                                312,338,596   2,953,412        820,456    1,748,162     2,328,477   47,901,088   (35,257,588)   45,682,601   (19,536,307)   358,978,897


        31 December 2008
Debt securities                      148,142,905           -              -            -             -            -              -            -              -   148,142,905
Loans                                 84,695,005   2,992,383      1,029,788    8,911,613       154,317      431,757      (431,757)            -              -    97,783,106
Receivables                           40,591,075   2,222,501      2,339,094    1,825,122     1,159,400   19,381,299   (15,772,647)   64,954,003   (33,061,146)    83,638,701
 - insurance receivables              14,987,319     257,165        261,441      585,918        40,848    2,093,044    (1,472,304)   32,614,344   (13,657,939)    35,709,836
 - recourse receivables                        -           -              -            -             -            -              -   29,639,895   (17,871,232)    11,768,663
 - other receivables                  25,603,756   1,965,336      2,077,653    1,239,204     1,118,552   17,288,255   (14,300,343)    2,699,764    (1,531,975)    36,160,202
Reinsurance assets                    17,278,319           -              -            -             -            -              -            -              -    17,362,703
TOTAL                                290,707,304   5,214,884      3,368,882   10,736,735     1,398,101   19,813,056   (16,204,404)   64,954,003   (33,061,146)   346,927,415


The table also includes investments contracts.




                                                          132
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

5.2.3 Sensitivity analysis

Sensitivity analysis – parameters

Methods and assumptions used in preparing the sensitivity analysis for the types of market risks, which the Group is exposed.


Sensitivity factor                        Description of sensitivity factor applied
                                          The impact of a change in market interest rates of ± 50 bp (i.e.: what is the impact
                                          on profit and equity if the market interest rate changes by the 50 basis points). A
                                          change of ± 50 bp represents a change of more than 1%, according to the change
Changes in interest rates                 in interest rates in the past year.
                                          The impact of changes in market prices of financial assets are reflected in a
                                          change in share price, the price of ID-share prices of structured securities and the
Changes in share prices                   price of mutual funds at 31 December 2008 of ± 15%.

                                          The impact of changes in revenue from commissions from a decrease of
Changes in commissions                    investments of 15%.


The table below summarises the results of the sensitivity analysis of a change in interest rates, a change in prices of equity
securities and changes in the level of commission for the management of which the impact on equity excludes the impact on
the profit and loss account. Because of changes in financial markets in the past year, the Group has changed the
assumptions of sensitivity analysis to reflect the changes in market conditions.
                                                                                                        2009

(in EUR)                                                  Impact on profit before tax        Impact on equity

Change in interest rate by +50 bp                                            (513,171)              (3,005,506)
Change in interest rate by -50 bp                                              530,451                3,350,363

+15% change in the price of shares                                           2,154,583                9,230,139
-15% change in the price of shares                                         (2,154,583)              (9,230,139)

Change in commissions (investment +15%)                                      1,627,363                          -
Change in commissions (investment -15%)                                    (1,627,363)                          -

                                                                                                         2008

(in EUR)                                                 Impact on profit before tax         Impact on equity

Change in interest rate by +50 bp                                            (925,475)              (6,071,260)
Change in interest rate by -50 bp                                              954,195                6,642,070

+15% change in the price of shares                                           3,962,174               21,546,416
-15% change in the price of shares                                         (3,962,174)             (21,546,416)

Change in commissions (investment +15%)                                      3,602,703                          -
Change in commissions (investment -15%)                                    (3,602,703)                          -




                                                          133
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


5.2.4 Currency risk

The Group’s currency risk is not considered to be significant due to the fact that Slovenia is in the ERM2 system with fixed
foreign currency rates, and the euro was introduced in Slovenia on 1 January 2007.

The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December. Included in the
table are the Group’s financial assets and financial and insurance liabilities at carrying amounts, categorised by currency.



                                                                                                      31.12.2009
 (in EUR)                                                                        EUR         Other                 Total
 Assets
 Financial assets at fair value through profit or loss                      35,655,676    2,417,696        38,073,372
 - Equity securities                                                        13,118,979    1,244,907        14,363,886
 - Debt securities                                                          22,536,697    1,172,789        23,709,486
 Available for sale                                                        179,454,315   10,606,908       190,061,223
 - Equity securities                                                        44,402,232    9,936,137        54,338,369
 - Debt securities                                                         135,052,083      670,771       135,722,854
 Held to maturity                                                           17,286,402    1,008,883        18,295,285
 - Debt securities                                                          17,286,402    1,008,883        18,295,285
 Investment property                                                        29,813,540            -        29,813,540
 Loans and receivables                                                     153,711,798    8,090,466       161,802,264
   Investments in loans and other financial receivables                     87,312,526    4,706,468        92,018,994
   Insurance receivables and other receivables                              56,292,858    1,588,751        57,881,609
   Accruals and DAC                                                         10,106,414    1,795,247        11,901,661
 Reinsurance assets                                                         19,427,641       21,367        19,449,008
 Cash and cash equivalents                                                  30,509,894   10,220,178        40,730,072
 Total assets                                                              465,859,266   32,365,498       498,224,764

 Liabilities
 Debt securities (issued)                                                   75,521,481            -        75,521,481
 Loans                                                                     118,904,123      279,925       119,184,048
 Derivative financial instruments                                            1,426,656            -         1,426,656
 Insurance contracts                                                       212,991,566    6,976,229       219,967,795
 Insurance contracts with DPF                                               76,059,996      70,193         76,130,189
 Investment contracts with DPF                                              17,692,461      10,793         17,703,254
 Total liabilities                                                         502,596,283    7,337,140       509,933,423




                                                          134
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

                                                                                                        31.12.2008
 (in EUR)                                                                         EUR           Other                Total
 Assets
 Financial assets at fair value through profit or loss                       31,509,851    4,000,829          35,510,680
 - Equity securities                                                         11,847,866    4,000,829          15,848,695
 - Debt securities                                                           19,661,985            -          19,661,985
 Available for sale                                                         183,734,682    3,740,183         187,474,865
 - Equity securities                                                         64,006,977    2,831,677          66,838,654
 - Debt securities                                                          119,727,705      908,506         120,636,211
 Held to maturity                                                             6,996,697      848,012           7,844,709
 - Debt securities                                                            6,996,697      848,012           7,844,709
 Investment property                                                         28,707,587            -          28,707,587
 Loans and receivables                                                      166,429,798   14,992,009         181,421,807
   Investments in loans and other financial receivables                      86,251,324   11,534,356          97,785,680
   Insurance receivables and other receivables                               66,661,969    3,186,158          69,848,127
   Accruals and DAC                                                          13,516,505      271,495          13,788,000
 Reinsurance assets                                                          17,360,568        2,135          17,362,703
 Cash and cash equivalents                                                   26,061,591    5,243,601          31,305,192
 Total assets                                                               460,800,774   28,826,769         489,627,543

 Liabilities
 Debt securities (issued)                                                    75,449,991             -         75,449,991
 Borrowings                                                                 106,027,899        80,013        106,107,912
 Derivative financial instruments                                               350,696             -            350,696
 Insurance contracts                                                        207,727,450     3,017,771        210,745,221
 Insurance contracts with DPF                                                66,899,135        36,593          66,935,728
 Investment contracts with DPF                                               16,330,164             -          16,330,164
 Total liabilities                                                          472,785,335     3,134,377        475,919,712


5.3         Operational risk

Operational risks are risks related to errors in the functioning of business processes, information technology, organisation and
similar areas.

The operational risks of the Group are managed in the subsidiaries by monitoring the weaknesses and opportunities of their
businesses and by controlling the business processes. The operational risk management is based on the Group’s strategic
and companies’ operational objectives.

The Group manages operational risks by introducing ISO standards at the level of the Group and at its individual members, by
which the Group wants to standardise the business processes. The Group uses standardised and uniform software in the
area of accounting and investments. Operational risks are reduced also with uniform system of annual planning and interim
and annual reporting.

5.4         General business risk

General business risks are related to the Group’s operations in the environment, such as the economic environment,
legislation and similar, on which the Group has no direct impact.

Such risks are quite difficult to measure or model. In order to manage such risks, the Group regularly monitors legislation
through its technical services, as well as developments on the capital market and macroeconomic parameters of the markets
in which it is present.




                                                           135
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

5.5     Capital management

Board of Directors takes a decision on maintenance of significant (large) capital scope to ensure the confidence of all
participants and development of KD Group. As one of the strategic indicators, the Group defines return on equity as the ratio
between net profit for the year of the majority owner and the average value of the majority owner’s equity. The Group seeks to
keep a balance between large returns which can be reached by higher indebtedness, and the advantages and safety of a
powerful capital structure. Return on equity is one of the strategic indicators of the Group's annual plan, which is adopted on
the basis of monitoring developments in the environment and on maintaining an optimal capital structure. Return on equity is
calculated as the ratio between net profit / loss generated and the average value of the total equity, less the value of earnings.

Pursuant to the decision of the General Meeting of Shareholders, the parent company KD Group d. d. has established its own
share fund. On 31 December 2009 there were 62,201 ordinary shares KDHR, which accounts for 2.11% of issued capital and
51,306 preference shares KDHP, which represents 1.74% of issued capital.

The investment plan, optimal capital structure policy, expectations and interests of shareholders are the basis for
development of the dividend policy. The entity distributes dividends once a year. The Board of Directors of the parent
company takes a decision about the amount of proposed dividends. Dividends are distributed from the retained earnings of
the parent company, which is regulated in compliance with valid regulations in Slovenia; the decision about dividend
distribution is taken by the General Meeting of Shareholders.

KD Group d. d. has no specific aims about ownership by employees and has no share option programme. In the Group there
were no changes in the management of capital in 2009.

The parent company is not subject to capital requirements which could be set by the regulatory authority.

For an entity that has subsidiaries in the financial and insurance segment, capital requirements are provided by the regulatory
authority. The management of the entities provides the proper amount of capital (capital adequacy) according to the scope
and type of operations which are managed by the management and according to the risks to which they are exposed.


5.6     Fair value of financial assets and liabilities

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in
an arm’s length transaction.

The Group establishes the fair value of financial assets in the following way:
-   The fair value of investments in equity instruments that have a quoted market price on an active market is determined as
    the product of the number of units of the instrument and its quoted market price.
- If there is no active market for the financial instruments, methods of assessing the fair value of a financial instrument are
    used. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing
    parties, if available, reference to the current fair value of another instrument that is substantially the same, and
    discounted cash flow analysis. The Group has developed a model for assessing the fair value of non-listed equity
    instruments; its appropriateness was assessed by an independent qualified expert. Using this model, the fair values of
    significant financial investments in non-listed companies are estimated once a year on the basis of data available.
- The fair value of loans and deposits represents the discounted amount of estimated future cash flows expected to be
    received. Expected cash flows are discounted at current market rates to determine fair value.
- The estimated fair value of borrowings not quoted on an active market is based on discounted cash flows using current
    market rates. The aggregate fair value of quoted debt securities is calculated based on quoted market prices.
- For current receivables and liabilities, it is assumed their carrying value reflects their fair value.
- For a contract containing a discretionary participation feature, the fair value cannot be measured reliably.
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented on
the Group’s balance sheet at their fair value. Bid prices are used to estimate fair values of assets, whereas offer prices are
applied to liabilities.




                                                             136
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

 (in EUR)                                                                 Carrying value                       Fair value
                                                                    31. 12. 2009 31. 12. 2008         31. 12. 2009 31. 12. 2008
Financial assets
Investment securities (held to maturity)                             18,295,285          7,844,709     18,295,285       7,844,709
Loans and bank deposits                                              92,017,877         97,785,680     92,048,655      97,748,361
                                                                    110,313,162        105,630,389    110,343,340     105,593,070
Financial liabilities
Borrowings                                                          101,642,448        106,107,912    101,491,404     106,977,118
Bonds issued                                                         75,521,481         75,449,991     72,623,944      74,573,007
                                                                    177,163,929        181,557,903    174,115,348     181,550,125

Fair value hierarchy

In 2009, the disclosures of financial assets and liabilities measured at fair value were amended by disclosures serving to
disclose the financial assets and financial liabilities measured at fair value also by the source of valuation by applying a three-
level hierarchy for each and every type of financial instruments. The hierarchy is divided into three levels and the fair value of
financial assets is shown below:

     -       Level 1 includes the assets where fair value is determined entirely on the basis of prices quoted on an active market
             for similar instruments.
     -       Level 2 includes the assets where fair value is determined on the basis of the valuation models where the inputs are
             obtained from publicly accessible market data (e.g.: market interest rates).
     -       Level 3 includes the assets where fair value is determined on the basis of the valuation models where inputs that
             cannot be based on observable market are taken into account.


Financial assets and liabilities by fair value hierarchy in 2009
(in EUR)
                                                                          Total fair
                                                                           value            Level 1       Level 2        Level 3
 Assets measured at fair value
 Financial assets at fair value through profit or loss
 Equity securities                                                        14,363,886       13,274,974     1,088,912                 -
 Debt securities                                                          23,709,486       23,709,486             -                 -

 Financial assets, available for sale
 Equity securities                                                        50,395,798 42,670,344           4,470,831      3,254,623
 Debt securities                                                         135,722,854 134,916,334            806,520              -

 Derivative financial instruments
 Derivative financial instruments for trading                                  1,146,675              -   1,146,675                 -

 Liabilities measured at fair value
 Derivative financial instruments
 Derivative financial instruments for hedge accounting                         1,426,656              -   1,426,656                 -


The valuation of the investments made in equity securities classified at Level 3 was carried out on the basis of the
assessment made for all equity capital and by using the discounted future net cash flows method . The method was based on
the key assumptions set forth below:
         −     The estimated free cash flows until 2018,
         −     The leverage rate of the insurance company, and
         −     The discount for the lack of marketability.

The effect of the modified assumptions would not have any material effect on the financial statements.


                                                              137
The Group KD Group                                          Annual Report 2008

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2008


Changes in Level 3 Instruments for the year ended 31. 12. 2009




                                                                                                         Total gains /                                                              Total gains or losses
                                                                                                   (loss) recorded in                                                             for the period included
                                                     At 1    Total realised   Total unrealised                  other                               Transfers from        At 31        in profit or loss for
                                                 January    gains / (loss) in  gains / (loss) in      comprehensive                                     level 1 and   December     assets / liabilities held
Assets measured at fair value                       2009 income statement income statement                    income         Purchases        Sales         level 2       2009      at 31 December 2009
Financial assets, available for sale
Equity securities                               1,324,996                    -                 -            (111,446)         2,041,073           -               -   3,254,623                  (111,446)




Gains or losses (realised and unrealised) included in profit or loss for the period are presented in the consolidated income statement as follows:


                                                                                                             2009
                                                                                            Fair values gains and
(in EUR)                                                            Realised gains                         losses                            Total
Total gains or losses included in profit or loss for the
period                                                                             -                                     -                        -
Total gains or losses included in profit and loss for the
period for assets held at the end of the reporting period                          -                         (111,446)                    (111,446)


There have been no transfers from Level 2 to Level 1 in 2009.




                                                                  138
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


6. Segment reporting

The Group’s main activities, i.e. business segments, are the following:
     -   Property insurance
     -   Life insurance
     -   Health insurance
     -   Financial operations (asset management and other financial operations)
     -   Banking
     -   Other (real estate/immoveable property, publishing, etc.)

As at 31 December 2009, the Group operated in Slovenia and the following other countries: Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Netherlands, Slovakia, Romania, Serbia, Ukraine, Uzbekistan and United States.



6.1.   Primary reporting format – business segments

6.1.1 Performance by business segment

The segment results for the year ended 31 December 2009 are as follows:

(in EUR)                                                                                                      2009
                               Property                        Health         Financial
                              insurance     Life insurance   insurance       operations      Banking        Other         Group
Total gross segment
sales                        143,882,060      99,053,668     100,150,423      11,672,110     1,384,704     8,108,462    364,251,427
Inter-segment sales           (1,146,097)     (8,978,712)              -       (290,641)     (698,467)     (537,010)    (11,650,927)
Sales                        142,735,963      90,074,956     100,150,423      11,381,469       686,237     7,571,452    352,600,500
Interest income                 6,061,771       4,518,695        907,032       1,797,346       893,823        73,063      14,251,730
Operating profit/segment
result                         3,747,551      (8,363,340)      4,792,700     (13,852,708)   (3,678,134)   (1,078,554)   (18,432,485)
Finance costs – net               10,177      (1,949,083)         (1,146)     (7,245,351)     (275,565)     (102,946)    (9,563,914)
Share of profit of
associates                              -               -              -     (23,426,946)             -             -   (23,426,946)
Profit before income tax        3,757,728    (10,312,423)      4,791,554     (44,525,005)   (3,953,699)   (1,181,500)   (51,423,345)
Income tax expense            (1,577,759)       (116,929)      (983,534)        9,528,853       535,654     (186,378)      7,199,907
Profit or loss for the
year                           2,179,969     (10,429,352)      3,808,020     (34,996,152)   (3,418,045)   (1,367,878)   (44,223,438)


In Finance costs – net are included also net foreign exchange differences.




                                                               139
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009



The segment results for the year ended 31 December 2008 are as follows:



(in EUR)                                                                                                                      2008
                            Property                           Health           Financial
                           insurance     Life insurance      insurance         operations       Banking        Other         Group
Total gross segment       138,623,094     105,493,633         97,661,626        17,949,301      13,351,149    8,302,783    381,381,586
   l
Inter-segment sales          (791,412)    (15,984,763)       (1,700,416)        (1,855,199)     (1,223,646)    (509,399)   (22,064,835)
Sales                     137,831,682      89,508,870         95,961,210        16,094,102      12,127,503    7,793,384    359,316,751
Interest income              6,593,723      4,749,744            784,529         2,553,466          27,722      115,211     14,824,395
Operating
profit/segment result     (14,203,819)    (21,231,013)         2,051,933       (17,917,372)      1,590,701     (149,818)   (49,859,388)
Finance costs – net          (638,797)          549,213               (453)     (6,352,067)     (1,202,716)    (378,646)    (8,023,466)
Share of profit of
associates                 (3,060,764)     (1,043,773)                    -    (23,302,843)               -         351    (27,407,029)
Profit before income
tax                       (17,903,380)    (21,725,573)         2,051,480       (47,572,281)        387,985     (528,113)   (85,289,882)
Income tax expense           4,188,301          764,399        (383,029)         4,176,332       (498,048)       37,944      8,285,899
Profit or loss for the
year                      (13,715,079)    (20,961,174)         1,668,451       (43,395,949)      (110,063)     (490,169)   (77,003,983)

The costs are allocated to segments as they originally occur in the operations of each business segment and as they are
reported by the subsidiaries which are included in the relevant segment.


Other segment items included in the income statement for the year ended 31 December 2009 are as follows:

(in EUR)                                                                                                                     2009
                                   Property    Life     Health   Financial
                                                                                                 Banking      Other         Group
                                  insurance insurance insurance operations
Depreciation and amortisation     (1.935.032)    (1.379.119)       (725.141)      (1.334.244)     (394.924)   (305.027)    (6.073.487)
Impairment of trade receivables   (3.590.270)      (299.753)       (578.575)         (28.897)             -    (30.909)    (4.528.404)


Other segment items included in the income statement for the year ended 31 December 2008 are as follows:

(in EUR)                                                                                                                     2008
                                   Property    Life     Health   Financial                       Cinema-
                                                                                                              Other         Group
                                  insurance insurance insurance operations                       tography
Depreciation and amortisation     (1,716,312)    (1,222,365)       (760,886)      (1,221,236)   (2,744,043)   (258,530)    (7,923,372)
Impairment of trade receivables   (1,413,107)      (542,711)       (715,208)         (39,165)             -    (35,652)    (2,745,843)


Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be
available to unrelated third parties.




                                                                140
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

The segment assets and liabilities at 31 December 2009 and for the year then ended are as follows:

(in EUR)                                                                                                                    31.12.2009
                         Property                                                Financial
                                      Life insurance Health insurance
                        insurance                                               operations     Banking         Other          Group
Assets                  241,077,576      291,570,746          39,973,724        161,513,881   46,751,286     14,588,780     795,475,993
Associates                2,718,849         599,722                        -     47,953,517         342       1,036,321      52,308,751
Total assets            243,796,425      292,170,468          39,973,724        209,467,398   46,751,628     15,625,101     847,784,744
Liabilities             221,693,367      270,013,578          26,550,416        146,556,087   29,209,967      2,156,310     696,179,725
Financial liabilities     4,006,656       12,306,805                   -        142,220,619   27,857,428      8,314,021     194,705,529
Capital expenditure       2,131,186        1,830,445                       -      4,242,402    2,087,758      1,728,294      12,020,085


The segment assets and liabilities at 31 December 2008 and for the year then ended are as follows:

(in EUR)                                                                                                                  31.12.2008
                            Property          Life           Health             Financial     Cinema-
                                                                                                             Other          Group
                           insurance       insurance       insurance           operations     tography
Assets                     236,687,187     217,968,350      38,227,230         205,654,926           -     15,397,332     713,935,025
Associates                   2,746,728         599,722                 -        76,765,206           -       965,628       81,077,284
Total assets               239,433,915     218,568,072      38,227,230         282,420,132           -     16,362,960     795,012,309
Liabilities                218,849,191     190,222,994      28,755,316         157,264,233           -      5,975,190     601,066,924
Financial liabilities       12,016,352       9,848,863                 -       152,059,632           -      7,633,056     181,557,903
Capital expenditure          2,855,958       3,750,267           69,634         15,709,725           -       618,275       23,003,859


Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, financial assets, cash, and
operating and other receivables.

Segment liabilities comprise financial and operating liabilities. Internal transactions and balances with particular business
segments have been eliminated from the above amounts.




                                                               141
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

6.2     Secondary reporting format - geographical segments

6.2.1 Performance by geographical segment

The Group’s business segments operate in three main geographical areas, even though they are managed on a worldwide
basis. The home country of the Group is Slovenia. The areas of operation are principally property insurance, life insurance,
health insurance, financial services (asset management and other financial operations), banking and other (real estate,
publishing, etc.).

The Group particularly operates in Slovenia, in EU countries and other countries of South Eastern Europe.

(in EUR)                                                                                       2009                2008
Sales
Slovenia                                                                               339,558,426          351,113,529
Euro area                                                                                4,521,620            5,494,951
Other countries                                                                          8,520,454            2,708,271
                                                                                       352,600,500           359,316,751


(in EUR)                                                                                       2009                2008
Total assets
Slovenia                                                                               715,832,730          665,026,087
Euro area                                                                               97,634,794           72,741,414
Other countries                                                                         34,317,220           57,244,808
                                                                                       847,784,744          795,012,309

(in EUR)                                                                                       2009                2008
Associates
Slovenia                                                                                50,407,259           62,552,159
Euro area                                                                                1,028,403            2,266,559
Other countries                                                                            873,089           16,258,567
                                                                                        52,308,751           81,077,285

(in EUR)                                                                                       2009                2008
Capital expenditure
Slovenia                                                                                 11,105,850          13,604,941
Euro area                                                                                   135,198             520,036
Other countries                                                                             779,037          10,531,904
                                                                                         12,020,085          24,656,881

(in EUR)                                                                                       2009                2008
Analysis of sales by category
Revenue from the sales of goods                                                          3,959,957            4,481,153
Revenue from services                                                                  348,640,543          365,725,185
                                                                                       352,600,500          370,206,338




                                                            142
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

7. Property, plant and equipment

(in EUR)                                                                              Furniture,
                                             Land &                 Vehicles &
                                                                                       fittings &             Total
                                            buildings               machinery
                                                                                      equipment
As at 1 January 2008
Cost                                          65,186,188               20,032,673         34,571,658          119,790,519
Accumulated depreciation                    (13,344,007)             (11,173,011)       (11,406,491)          (35,923,509)
Carrying amount                               51,842,181                8,859,662         23,165,167            83,867,010
Year 2008
Opening carrying amount                       51,842,181                 8,859,662        23,165,167            83,867,010
Exchange differences                           (161,735)                   408,345           (39,681)              206,929
Acquisition of subsidiary (Note 32)                    -                       465                  -                  465
Disposal of subsidiary (Note 32)            (10,059,739)               (8,829,634)      (13,926,064)          (32,815,437)
Additions                                      1,278,336               14,705,637          1,745,332            17,729,305
Disposals                                    (6,187,361)                 (109,245)         (414,285)           (6,710,891)
Depreciation charge                            (895,166)               (2,219,225)       (2,657,317)           (5,771,708)
Transfer to investment property             (20,202,004)                                                      (20,202,004)
Closing carrying amount                       15,614,512               12,816,005          7,873,152            36,303,669
As at 31 December 2008
Cost                                          18,956,006               18,959,446        16,088,552             54,004,004
Accumulated depreciation                      (3,341,494)              (6,143,441)       (8,215,400)          (17,700,335)
Carrying amount                               15,614,512               12,816,005          7,873,152            36,303,669
Year 2009
Opening carrying amount                       15,614,512               12,816,005          7,873,152           36,303,669
Exchange differences                           (124,395)                  (33,525)         (351,282)            (509,202)
Acquisition of subsidiary (Note 32)
                                                 339,521                     13,096           45,134              397,751
Disposal of subsidiary (Note 32)
                                               (160,540)                    (6,867)          (55,282)            (222,689)
Additions                                      2,189,000                 1,599,308           856,194             4,644,503
Disposals                                      (820,525)                 (432,351)         (638,442)           (1,891,318)
Depreciation charge                            (221,427)               (2,096,253)       (1,279,621)           (3,597,301)
Transfer to investment property                        -                          -                 -                    -
Closing carrying amount                       16,816,146               11,859,413          6,449,853           35,125,413
As at 31 December 2009
Cost                                          21,261,685               18,800,467        15,167,259             55,229,411
Accumulated depreciation                      (4,445,539)              (6,941,054)       (8,717,406)          (20,103,999)
Carrying amount                               16,816,146               11,859,413          6,449,853            35,125,412




Bank borrowings are collateralised by land and buildings with a carrying amount of EUR 2,073,430 (2008: EUR 2,668,982).

The value of property, plant and equipment under construction as at 31 December 2009 was EUR 394,145 (2008: EUR
382,037).




                                                              143
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

8. Investment property

(in EUR)                                                                                        31.12.2009         31.12.2008
As at 1 January
Cost                                                                                           32,693,964          24,058,580
Accumulated depreciation                                                                       (3,986,377)         (3,457,059)
Carrying amount                                                                                28,707,587          20,601,521
Year ended 31 December
Opening carrying amount                                                                         28,707,587          20,601,521
Acquisition of subsidiary                                                                                 -                   -
Disposal of subsidiary                                                                                    -       (12,566,563)
Additions                                                                                        2,688,537           1,649,333
Transfer from property, plan and equipment                                                                -         20,202,004
Disposals                                                                                       (1,051,007)           (536,071)
Depreciation charge                                                                               (531,577)          (642,637)
Closing carrying amount                                                                         29,813,540          28,707,587
As at 31 December
Cost                                                                                           34,292,196          32,693,964
Accumulated depreciation                                                                       (4,478,656)         (3,986,377)
Carrying amount                                                                                29,813,540          28,707,587



In 2009 the Group increased their share of investment properties owned by the Group. Consequently, this resulted in an
increase in the investment property recognised in the consolidated financial statements and a reduction in the value of
property, plant and equipment.


The following amounts have been recognised in the income statement:

(in EUR)                                                                                                  2009               2008
Rental income                                                                                       3,212,082           1,141,511
Direct operating expenses arising from investment properties that generate rental income              723,642             956,250


The Group does not have any investment properties that do not generate rental income. Lease agreements are short-term
and cancellable.

Investments in land and buildings are initially measured at acquisition price, including all costs of the transaction. After initial
recognition, they are disclosed at acquisition price, decreased by the depreciation charge and accrued loss attributable to
impairment (cost model) - much like intangible assets.
The Group assesses the need for impairment of investment property based on valuations of a licensed real estate appraiser,
material changes in real estate prices, and under normal market conditions, on a three to five-year basis.




                                                               144
The Group KD Group                                 Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

9. Intangible assets

                                                                                                   Computer
                                                            Goodwill            Licences                                 Total
                                                                                                   software
 (in EUR)
 As at 1 January 2008
 Cost                                                        84,228,319          2,005,457           12,463,933           98,697,709
 Accumulated amortisation and impairment                     (1,569,005)         (630,546)           (8,601,517)        (10,801,068)
 Carrying amount                                             82,659,314          1,374,911             3,862,416          87,896,641
 Year 2008
 Opening carrying amount                                     82,659,314          1,374,911             3,862,416         87,896,641
 Exchange differences                                                               (4,235)              (27,406)            (31,641)
 Additions                                                     4,530,347           141,112             5,212,817           9,884,276
 Acquisition of subsidiary                                       127,058                  -                     -            127,058
 Increase in equity share of subsidiaries                              -                  -                     -                   -
 Disposals                                                             -           (26,908)                     -            (26,908)
 Disposal of subsidiary                                      (1,017,744)         (124,702)           (1,247,151)         (2,389,597)
 Amortisation charge                                                               (65,347)          (1,443,679)         (1,509,026)
 Impairment charge                                          (25,722,775)                   -                    -       (25,722,775)
 Closing carrying amount                                     60,576,200          1,294,831             6,356,997         68,228,028
 As at 31 December 2008
 Cost                                                         87,867,980         1,362,505           15,102,612         104,333,097
 Accumulated amortisation and impairment                    (27,291,780)           (67,674)          (8,745,615)        (36,105,069)
 Carrying amount                                              60,576,200         1,294,831             6,356,997          68,228,028
 Year 2009
 Opening carrying amount                                     60,576,200          1,294,831             6,356,997         68,228,028
 Exchange differences                                                 -             (2,694)              (18,507)            (21,201)
 Additions                                                      429,604            223,416             6,722,562           7,375,582
 Acquisition of subsidiary                                    4,814,498                   -                     -          4,814,498
 Increase in equity share of subsidiaries                             -                   -                     -                   -
 Disposals                                                            -            (28,204)          (1,045,444)         (1,073,648)
 Disposal of subsidiary (Pojasnilo 32)                                -                   -            (147,962)           (147,962)
 Amortisation charge
                                                                        -         (65,073)           (1,879,536)         (1,944,609)
 Impairment charge
                                                             (5,904,886)                   -                    -        (5,904,886)
 Transfer to intangible assets                                          -       (1,202,547)            1,202,547                    -
 Closing carrying amount
                                                             59,915,416            219,729            11,190,657         71,325,802
 As at 31 December 2009
 Cost
                                                             93,112,082            384,198            20,651,778        114,148,058
 Accumulated amortisation and impairment
                                                            (33,196,666)         (164,469)           (9,461,121)        (42,822,256)
 Carrying amount
                                                             59,915,416            219,729            11,190,657         71,325,802
                                                                                                                     

The value of intangible assets under construction as at 31 December 2009 was EUR 2,459,922 (2008: EUR 1,977,890).




                                                           145
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
The segment-level summary of the goodwill allocation is presented below:


(in EUR)                             Property          Financial                  Life
                                    insurance         operations Banking       insurance           Other          Group

Slovenia                               24,441,425     28,677,000           -    2,855,310            728,690    56,702,425
Euro area                                       -        440,656           -            -                  -       440,656
Other countries                                 -      2,395,201           -            -            377,134     2,772,335
Total at 31 December 2009              24,441,425     31,512,857           -    2,855,310          1,105,824    59,915,416
Slovenia                               24,441,425     28,677,000           -    2,855,310            299,008    56,272,743
Euro area                                       -        641,376           -       83,382                  -       724,757
Other countries                                 -      3,578,705           -            -                  -     3,578,705
Total at 31 December 2008              24,441,425     32,897,081           -    2,938,692            299,008    60,576,204


Goodwill is allocated mainly to the property insurance and financial operations segments and is assessed annually for
impairment.

The impairment charge of goodwill in the financial operations segment in 2009 was EUR 5,904,886 (in 2008 EUR
25,722,755).

Impairment of goodwill is recognised in other expenses (Note 23).

The goodwill of the financial operations segment was assessed by an independent qualified expert using the following key
assumptions in 2009:
    - present value of future cash-flows without indebtedness;
    - estimation was based on analysis of past operations and estimation of future business opportunities;
    - cash return was discounted with the appropriate weighted arithmetic average of return rate of debt and equity
         securities;
    - the CAMP model was used, modified for each country;
    - assumptions: 4% expected rate of return on non-risk investments, 7% premium for capital risk, 1.05% for systematic
         risk, 1% premium for particular risk, 20% discount for illiquidity, political risk factor between 1.05 and 1.15, 2%
         premium of investment in small companies;
    - return on equity between 12.6% and 16.1%;
    - profitability between 22.2% and 30% (depending on individual market saturation);
    - growth between 3.6% and 30% (depending on individual market saturation).
    -

The goodwill of the financial operations segment was assessed by an independent qualified expert using the following key
assumptions in 2008:
    - present value of future cash-flows without indebtedness;
    - estimation was based on analysis of past operations and estimation of future business opportunities;
    - cash return was discounted with the appropriate weighted arithmetic average of return rate of debt and equity
         securities;
    - the CAMP model was used, modified to each country;
    - assumptions: 4% expected rate of return on non-risk investments, 7% premium for capital risk, 1.05% for systematic
         risk, 1% premium for particular risk, 25% discount for illiquidity;
    - return on equity between 12.6% and 16.1%.

In 2009, the appraisal of the property insurance segment was verified using an internal method of evaluation.




                                                            146
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Key assumptions used in 2009 for the property insurance segment are:

     -    the income approach (discounted cash flows) and market approach methods were used to calculate a range of
          values for the property insurance business;
     -    the best management projections and estimates regarding the future premium were used for the period 2009-2014.
          For the following years, decreasing growth rates consistent with market growth were used. The forecasted growth of
          Slovenian general insurance market is approximately 7% annually;
     -    unearned premium reserve projection is based on the premium earning patterns applied to the gross premium
          amount for each calendar year and line of business separately;
     -    ceded premium assumptions range from 0% to 35% of the gross earned premium depending on the line of
          business. Ceded claims assumptions range from 0% to 50% of the gross claims incurred depending on the line of
          business;
     -    ultimate loss ratio assumptions for future accident years range from 35% to 110% depending on the line on
          business;
     -    The risk discount rate of 12.6% was derived based on CAPM ("Capital Asset Pricing Model").

Based on the results of the valuation, which was performed by an independent qualified expert, the Group assessed that the
goodwill related to the property insurance segment does not require impairment. Even if there was a change (within
reasonable limits) in the assumprions, impairment would not be required.

The goodwill was assessed using an internal method of evaluation. Goodwill does not require impairment according to this
assessment.


10. Investments in associates

(in EUR)                                                                                         2009               2008
Balance at 1 January                                                                          81,077,285      71,687,821
Acquisitions                                                                                   4,018,887      14,571,598
Disposals                                                                                   (21,601,237)     (3,060,605)
Increase in stake from associate to subsidiary                                                   (51,872)              -
Increase in stake from AFS investment to associate                                                      -     31,288,510
Share of profit and revaluation                                                             (11,621,213)    (27,407,028)
Other revaluation                                                                                548,374       (128,586)
Dividends                                                                                        (61,473)    (5,874,425)
Exchange differences                                                                                    -              -
Impairment                                                                                              -              -

Balance at 31 December                                                                       52,308,751      81,077,285

In December 2009 the Group disposed ofan associated company BIG. The largest part of the loss on disposal was realised
by the sale of BIG in the amount EUR 10,634,685, which is recognised in the income statement under financial expenses
from shares in associated companies. Also, the Group recognised the largest part of losses attributed to BIG in the amount
EUR                                                                                                            13,539,434.

In July 2009 the Group partially disposed of its investment in associate MIG (26.48%), reducing its stake to only 3.73%, which
means that MIG is no longer an associated comapny. The Group realised EUR 172,003 of gains on dispoal of MIG, which is
recognised in the income statement under financial revenues from shares in associated companies.

The Group in 2009 recognised profit from its share in KD ID in the amount EUR 1,357,457.

In 2009, the Group invested EUR 1,625,698 in KD Group mutual funds, and sold EUR 3,187,210 of mutual funds.

The Group increased the capital of KD Private Equity Netherlands in November 2009 in the amount of EUR 481,790 the
Group’s equity share in this company has not changed.



                                                            147
The Group KD Group                                            Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


Information on associates of the Group:
(in EUR)                                                                                                                                       2009
                                                           Share of interest
                                                               Designated
                                   Registered                                                                                               Profit (loss) –
Associates                                         Associates at fair value         Total         Assets       Liabilities        Revenue
                                   office                                                                                                   pro rata share
                                                              through P/L

Concorde PS d.o.o.                 Slovenia          50.00%          -            50.00%          686,618       151,668     695,460              (68,716)
Seaway Group d.o.o.                Slovenia          45.00%          -            45.00%       37,818,585    25,948,653 30,797,223               438,762
Seaway Skupina d.o.o.              Slovenia          48.65%          -            48.65%       22,016,584    22,023,416      28,790               (3,056)
Seaway Technologies                Italy             48.65%          -            48.65%       29,862,847    27,731,419   5,026,335                58,388
Žičnice Vogel Bohinj d.d.          Slovenia          21.76%          -            21.76%       13,690,318     8,325,251   2,652,322              (37,104)
Deželna banka Slovenije d.d.       Slovenia          35.62%          -            35.62%      955,005,000 876,562,000 51,233,000                 137,502
KD ID d.d.*                        Slovenia          11.34%          -            11.34%       67,946,778     1,896,101 19,297,429             1,357,457
Semenarna Ljubljana                Slovenia          29.90%          -            29.90%       57,741,425    44,241,396 46,653,423                 71,525
Nama d.d.                          Slovenia          48.46%          -            48.46%       15,469,752     5,262,199 17,161,869               275,857
KD Private Equity b.v.             Netherlands       48.21%          -            48.21%          221,774        26,986         950            (437,202)
Zellner Holdings Limited, Cyprus   Cyprus            48.65%          -            48.65%          190,143       901,475           -              (25,344)
                                                                                            1,200,649,824 1,013,070,564 173,546,801            1,768,069
*together with the parent company KD d. d. over 20%

(in EUR)                                                                                                                                          2008
                                                              Share of interest
                                                                  Designated at
                                                                                                                                               Profit (loss) –
Associates                     Registered office     Associates       fair value       Total          Assets        Liabilities      Revenue
                                                                                                                                               pro rata share
                                                                   through P/L

Concorde PS d.o.o.             Slovenia                 50.00%                -     50.00%           842,293        153,972        1,036,703             6,093
Seaway Group d.o.o.            Slovenia                 45.00%                -     45.00%        42,852,865     31,956,898       38,243,950          855,363
Seaway Skupina d.o.o.          Slovenia                 48.65%                -     48.65%        79,613,155     68,779,774       37,630,193           (3,170)
Seaway Technologies            Italy                    48.65%                -     48.65%        15,799,527     13,950,072          857,774         (78,792)
Žičnice Vogel Bohinj d.d.      Slovenia                 21.76%                -     21.76%        14,485,722      8,950,126        2,821,861         (57,855)
Radio Kranj d.o.o.             Slovenia                 20.00%                -     20.00%           847,952        133,983          739,042             8,981
Deželna banka Slovenije d.d.   Slovenia                 35.62%                -     35.62%       882,385,000    805,505,000       59,923,000          419,568
KD ID d.d.*                    Slovenia                  9.93%                -      9.93%        56,042,001      1,964,484       18,877,587      (8,717,081)
Semenarna Ljubljana            Slovenia                 29.90%                -     29.90%        57,435,471     43,951,378       54,227,298        (102,554)
Nama d.d.                      Slovenia                 48.46%                -     48.46%        17,042,486      7,598,577       18,600,783          231,104
KD Private Equity b.v.         Netherlands              48.21%                -     48.21%           451,172        347,746           13,864        (390,538)
Zellner Holdings Limited,      Cyprus                   48.65%                -     48.65%           185,657        844,894                -        (402,425)
C
MIG                            Montenegro               30.21%                -     30.21%        16,284,774      2,459,095          215,497      (7,504,207)
BIG                            FBIH                     21.25%                -     21.25%       130,922,407         91,019        1,146,547      (3,729,352)
World Life Group LLC           Cyprus                   35.00%                -     35.00%         1,012,317      3,434,723                -        (847,842)
EU Life Group LLC**            Ukraine                  35.00%                -     35.00%         1,386,106        490,037        5,395,217          112,306
EU Life Services LLC**         Ukrajina                 35.00%                -     35.00%             8,850          1,348          130,085               212

                                                                                               1,361,001,588 1,026,110,318 283,263,234 (20,200,189)
*together with the parent company KD d. d. over 20%
**effective part




                                                                     148
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

11. Financial assets

 (in EUR)                                                                                  31.12.2009          31.12.2008

 At fair value through profit or loss
   Current
     Held for trading                                                                      18,301,847          15,387,151
     Initially recognised through profit or loss                                           19,735,404          20,123,529
   Non-Current
     Held for trading                                                                               -                   -
     Initially recognised through profit or loss                                               36,121                   -
                                                                                           38,073,372          35,510,680
 Held to maturity
  Non-current                                                                              18,223,586           7,517,833
   Current                                                                                     71,699             326,876
                                                                                           18,295,285           7,844,709

 Available for sale
  Non-current                                                                             165,587,808         157,742,638
  Current                                                                                  24,473,415          29,732,227
                                                                                          190,061,223         187,474,865
 Loans and receivables
  Non-current                                                                              11,493,386           7,961,005
  Current                                                                                  80,525,608          89,824,675
                                                                                           92,018,994          97,785,680

 Derivative financial instruments                                                           1,146,675                   -
 Total                                                                                    339,595,549         328,615,934


The value of securities pledged as collateral for liabilities in 2009 amounted to EUR 1,134,280 (2008: EUR 11,407,847).


11.1 Financial assets at fair value through profit or loss – held for trading



(in EUR)                                                                                   31. 12. 2009      31. 12. 2008

Equity securities
 Listed securities                                                                          11,058,431        13,265,871

Debt securities
 Listed securities:
    Fixed interest rate                                                                       6,699,642        1,573,405
    Variable interest rate                                                                      543,774          547,875
                                                                                              7,243,416        2,121,280

Government bonds                                                                                        -                 -

Total                                                                                       18,301,847        15,387,151




                                                            149
The Group KD Group                                  Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


11.2 Financial assets at fair value through profit or loss – other assets

(in EUR)                                                                                   31. 12. 2009     31. 12. 2008

Equity securities
 Listed securities                                                                           3,305,455       2,582,824

Debt securities
 Listed securities
    Fixed interest rate                                                                     15,836,767     16,804,008
    Variable interest rate                                                                           -              -
                                                                                            15,836,767     16,804,008

 Non-listed securities
   Fixed interest rate                                                                         261,437        236,536

 Government bonds                                                                              367,866        500,161

Total                                                                                       19,771,525     20,123,529


11.3 Investments held to maturity

(in EUR)                                                                             31. 12. 2009         31. 12. 2008

Debt securities
  Listed securities
   Fixed interest rate                                                                 9,070,816            6,061,421
   Variable interest rate                                                                209,195              209,145
                                                                                       9,280,011            6,270,566
 Non-listed securities
   Fixed interest rate                                                                     417,720            427,282
   Government bonds                                                                    8,597,554            1,146,861
Total                                                                                 18,295,285            7,844,709


11.4 Financial assets available for sale

(in EUR)                                                                             31. 12. 2009         31. 12. 2008

Equity securities
 Listed securities                                                                   42,670,344            65,333,146
 Non-listed securities                                                               11,668,025             1,505,508
                                                                                     54,338,369            66,838,654
Debt securities
 Listed securities
    Fixed interest rate                                                              34,163,236            30,543,147
    Variable interest rate                                                           1,478,407              1,536,065
                                                                                     35,641,643            32,079,212
 Non-listed securities
   Fixed interest rate                                                                 539,020                       -
 Government bonds                                                                    99,542,191            88,556,999
Total                                                                                190,061,223          187,474,865


                                                          150
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


11.5 Investments in loans and other financial receivables

(in EUR)                                                                                   31. 12. 2009     31. 12. 2008

Loans to individuals
 Non-current                                                                                 5,770,983          526,970
 Current                                                                                     1,065,418        3,070,884
Loans to corporate entities
 Non-current                                                                                 3,077,240        4,585,241
 Current                                                                                    21,796,127       29,979,899
Loans to related parties
 Non-current                                                                                         -                -
 Current                                                                                    14,594,479       14,038,840
Bank deposits
 Non-current                                                                                 5,899,160        2,946,609
 Current                                                                                    26,281,159       42,969,280
Total loans                                                                                 78,484,566       98,117,723

Dividend receivables
                                                                                                 1,117            2,574
Less: allowance for losses on loans and advances
  Non-current                                                                                 (80,846)        (100,933)
  Current                                                                                  (5,392,621)        (233,684)
                                                                                           (5,473,467)        (334,617)

Total other loans and receivables                                                           73,012,216       97,785,680

Loans to banks                                                                               4,896,696                 -
Loans to non-banking clients                                                                14,110,082                 -
                                                                                            19,006,778                 -

Total                                                                                       92,018,994       97,785,680


Investments in loans include also investment contracts assets.


Current bank deposits are not accounted for as as cash and cash equivalents, as the insurance undertakings in the Group
recognise these as investments.

Movement in allowance for losses on loans:

(in EUR)                                                                                        2009          2008

Balance as at 1 January                                                                      334,717      1,349,910
Impairment during the year                                                                 5,164,971          7,608
Disposal of subsidiaries                                                                            -     (860,052)
Reversal of impairment during the year                                                       (26,121)     (162,849)
Balance as at 31 December                                                                  5,473,467        334,717



                                                            151
         The Group KD Group                                       Annual Report 2009

         Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009



         The effective interest rates on loans and deposits were as follows:


                                                                                             2009                                  2008
         Non-current loans                                                         2.50% – 8.00%                         6.57% – 8.00%
         Current loans                                                             2.24% – 9.00%                        6.00% – 10.00%
         Loans to related parties                                                  2.24% – 8.00%                         4.92% – 8.00%
         Short-term bank deposits                                                  1.40% – 1.80%                          2.80% – 4.85%

         11.6 Movements in financial assets



                                             Fair value through       Fair value through
                                              profit or loss –          profit or loss –     Available for   Held to
                                                   trading                   other               sale        maturity           Total
(in EUR)

As at 1 January 2009                                 15,387,151               20,123,529     187,474,865      7,844,709      230,830,254
Exchange differences on monetary
assets                                                  (45,846)                  (17,705)      (133,183)    (127,111)     (323,845)
Additions                                           143,874,647                 4,178,281      84,017,582 12,729,475 244,799,985
Acquisition of subsidiaries                                    -                         -      3,476,199            -     3,476,199
Disposal of subsidiaries                                (15,803)                         -      (751,996)            -     (767,799)
Disposals (sale and redemption)                   (141,068,581)               (4,273,705)    (83,789,308) (2,151,788*) (231,283,382)
Impairment of available-for-sale equity
securities                                                        -                      -    (2,927,247)                -    (2,927,247)
Reversal of impairment                                            -                      -        183,890                -        183,890
Net fair value gains – excluding net
realised gains                                          170,279                (238,875)       2,510,421              -        2,441,825
As at 31 December 2009                               18,301,847               19,771,525     190,061,223     18,295,285      246,429,880


As at 1 January 2008                                 42,508,318               20,935,380     317,214,328      7,590,164      388,248,190
Exchange differences on monetary
assets                                                   45,197                  (41,106)         (70,152)     (95,184)        (161,245)

Additions                                            17,011,892              27,039,659    55,237,993    1,709,961 100,999,505
Acquisition of subsidiaries                                   -                       -              -           -             -
Disposal of subsidiaries                                      -            (20,504,515)        (3,164)           - (20,507,679)
Disposals (sale and redemption)                    (20,523,380)             (6,489,301) (100,645,184) (1,360,232*) (129,018,097)
Impairment of available-for-sale equity
                                                                                                                             (24,846,256)
securities                                                        -                      -   (24,846,256)                -

Net fair value gains – excluding net
realised gains                                     (23,654,876)                (816,588)     (59,412,700)                -   (83,884,164)

As at 31 December 2008                               15,387,151               20,123,529     187,474,865      7,844,709      230,830,254
* only redemption


         Investments in loans include also investment contracts assets.

         Impairment of available-for-sale non-listed equity securities is recognised either on the basis of external independent
         valuations, using the discounted future cash flow method, or on the basis of an internal model whose appropriateness has
         been assessed by an independent qualified expert.



                                                                        152
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

According to valuations performed in 2009, an impairment of EUR 2,927,247(2008: EUR 24,846,256) was recognised. The
following key assumptions were used in these valuations:


     -     the method of discounted cash flows was used;
     -     projections were made for minority shareholders;
     -     cash flow projections for the period of 5 years were prepared;
     -     the revenue growth rates range up to 5% per year;
     -     the growth of employee costs was 3% per year;
     -     the discount rates range up to 11.6% per year.

The effective interest rates on debt securities were as follows:


                                                                                                2009          2008
 Debt securities:
 –    held-to-maturity financial assets                                                        5.07%         5.10%
 –    available-for-sale financial assets                                             4.67% - 4.95% 4.36% – 4.96%


12. Receivables
Insurance receivables and other receivables

(in EUR)                                                                                   31. 12. 2009     31. 12. 2008

Trade receivables
 Current                                                                                     15,737,152       23,753,580
  Less: provision for impairment of receivables                                              (2,429,575)     (2,773,538)
Trade receivables – net                                                                      13,307,577      20,980,042

Receivables arising from insurance and reinsurance contracts:
  Due from contract holders                                                                   47,685,958      46,108,340
  Less: provision for impairment of receivables from contract holders                       (20,652,127)    (17,092,336)
  Due from agents, brokers and intermediaries                                                 31,493,129      31,434,550
  Less: provision for impairment of receivables from agents, brokers and
  intermediaries                                                                            (19,078,828)    (18,008,367)
  Due from reinsurers                                                                          4,645,559       5,037,942
  Less: provision for impairment of receivables from reinsurers                                   (3,176)         (1,630)
Receivables arising from insurance and reinsurance contracts – net                          44,090,515        47,478,499

Prepayments                                                                                    483,518          555,200
Receivables from related parties                                                                     -          834,386
                                                                                               483,518        1,389,586

Total                                                                                       57,881,610       69,848,127




                                                              153
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Deferred acquisition costs (DAC) and deferred expenses and accrued revenue

(in EUR)                                                                                   31. 12. 2009     31. 12. 2008

Deferred acquisition costs (DAC)                                                              8,103,645      11,566,010
Deferred expenses and accrued revenue                                                         3,798,016       2,221,991

Total                                                                                       11,901,661        13,788,001


Trade receivables of EUR 3,583,141(2008: EUR 19,036,829) are classified as current assets based on the normal operating
cycle, but are expected to be settled more than 12 months after the balance sheet date.

Movement in allowance for losses on trade and other receivables:

(in EUR)                                                                                          2009             2008
Balance as at 1 January                                                                    37,825,871        35,383,057
Provision for receivable impairment                                                          8,270,730         8,360,265
Receivables written off during the year as uncollectible                                     (143,249)           318,020
Acquisition of subsidiary                                                                        19,646                -
Exit from the Group                                                                            (63,410)        (590,542)
Amounts recovered during the year                                                          (3,745,882)       (5,644,929)
As at 31 December                                                                           42,163,706       37,825,871



13. Inventories

(in EUR)                                                                                    31. 12. 2009    31. 12. 2008
Property intended for sale in the ordinary course of business                                 11,845,796     12,653,557
Other                                                                                          1,597,263      1,279,251
Total                                                                                         13,443,059     13,932,808



Property intended for sale consists of the commercial-residential building Šumi. Other inventories consist of material and raw
material (books and publications). Inventories are not pledged as collateral for liabilities.


14. Cash and cash equivalents

(in EUR)                                                                                   31. 12. 2009      31. 12. 2008
Cash at bank and in hand                                                                      13,378,915       9,500,699
Call deposits                                                                                 27,351,157      21,804,493
Total                                                                                         40,730,072      31,305,192


The effective interest rate on call deposits with banks is 1.6% (2008: between 3.00% and 4.10%).
The Group has open end credit lines in the amount EUR 200,000 and overdrafts on accounts at banks in the amount EUR
125,000.




                                                                154
The Group KD Group                                   Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

15. Equity

Share capital


                                          No. of shares        Ordinary Preference       Share        Treasury
(in EUR)                              Ordinary Preference       shares    shares        premium        shares        Total
Balance as at 1 January 2008          2,613,439     215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
Purchase of treasury shares                   -           -          -         -           -           -           -
Disposal of treasury shares                   -           -          -         -           -           -           -
Balance as at 31 December 2008 2,613,439            215,107 89,321,983 8,893,774 104,395,312          (3,852,955) 198,758,114
Balance as at 1 January 2009          2,613,439     215,107 89,321,983 8,893,774 104,395,312 (3,852,955) 198,758,114
Purchase of treasury shares                   -           -          -         -           -           -           -
Disposal of treasury shares                   -           -          -         -           -           -           -
Balance as at 31 December 2009 2,613,439            215,107 89,321,983 8,893,774 104,395,312          (3,852,955) 198,758,114


The total number of shares, including treasury shares, is:
     - ordinary shares issued 2,675,640 (2008: 2,675,640),
     - preference shares issued 266,413 (2008: 266,413).

Share premium in the amount of EUR 104,395,312 includes:
  - Share premium in the amount of EUR 45,177,164,
  - Revaluation reserves in the amount of EUR 59,218,148.

The ordinary shares have been traded on the organised market of the Ljubljana Stock Exchange since 2001 and give the
shareholders the voting rights and the entitlement to dividends.
Preference shares carry no voting rights but provide their holder with the following rights:
     - Preference right to a dividend payment in the amount of EUR 1.67 before dividend payments to ordinary
         shareholders; in cumulative period of 5 years.
     - In the event of a dividend payout to ordinary shareholders, the right to an additional dividend payment in the amount
         of EUR 1.67, for a maximum preference dividend payment of EUR 3.34;
     - In the event of liquidation of the company, the right of preferential treatment compared to ordinary shareholders,
         providing a payout of the remaining assets after liquidation in the amount of EUR 33.38.

At the 9th General Meeting of Shareholders of KD Group d. d. held on 30 August 2006, the shareholders adopted a resolution
by which each share carrying a nominal value of SIT 8,000 was replaced by one non-par value share. The share capital and
the number of shares issued remained unchanged.

Treasury shares

(in EUR)                              2009                                               2008
                      Carrying Purchase Carrying    Share (%) Carrying Purchase Carrying                Share (%)
                       value    value    value      in capital value    value    value                  in capital

                       1 Jan             31 Dec                     1 Jan               31 Dec

KDHR*                 2,424,829   -     2,424,829     2.11         2,424,829   -       2,424,829           2.11
KDHP**                1,428,126   -     1,428,126     1.74         1,428,126   -       1,428,126           1.74
Total:                3,852,955   -     3,852,955     3.85         3,852,955   -       3,852,955           3.85
* ordinary shares
**preference shares




                                                             155
The Group KD Group                                         Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

                                                    2009                                                     2008
                                  Number                               Number          Number                                Number
                                   1 Jan           Purchase            31 Dec           1 Jan             Disposal           31 Dec
Number of shares
KDHR                                  62,201          -                   62,201              62,201          -                 62,201
KDHP                                 51,306           -                   51,306           51,306             -                 51,306
Total                               113,507           -                  113,507          113,507             -                113,507


Accumulated profit of KD Group d. d.

In accordance with the decision of the Management Board as at 31 December 2009, the net loss incurred in 2009 of EUR
52,827,433.37                        is                     covered                         as                follows:
- EUR 8,152,469.82 from the remaining retained earnings after creating reserves for treasury shares
- EUR 44,674,963.55 from capital surplus.


16. Other reserves and retained earnings

 (in EUR)                                                                                              31. 12. 2009     31. 12. 2008
 Consolidation adjustment                                                                              (4,390,329)       (4,320,061)
 Revaluation reserve– AFS financial assets                                                               5,470,089         (430,319)
 Revaluation of derivative financial instruments                                                         (294,121)         (350,697)
 Retained earnings                                                                                     (6,543,389)       (4,549,122)
 Total                                                                                                 (5,757,750)       (9,650,199)



                                                                                                 Foreign
(in EUR)                                              Revaluation           Cash flow           currency          Retained
                                                                                                                                  Total
                                                     reserve – AFS        hedge reserve        translation        earnings
                                                                                                 reserve


Balance as at 1 January 2008                                55,574,797             (33,272)     (1,463,252)       76,416,444 130,494,717
Revaluation – gross                                       (59,412,700)                    -               -                - (59,412,700)
Revaluation – tax                                            9,484,742                    -               -                -    9,484,742
Net gains transferred to net profit – gross               (33,393,801)                    -               -                - (33,393,801)
Net gains transferred to net profit – tax (Note
21)                                                          3,619,691                  -                 -            -    3,619,691
Impairment – gross                                         24,846,254                   -                 -            - 24,846,254
Impairment – tax                                           (1,453,605)                  -                 -            - (1,453,605)
Share increase of associates                                         -                  -                 - 14,329,037 14,329,037
Currency translation differences:                                    -                  -                 -            -            -
- Group                                                              -                  -       (2,856,809)            - (2,856,809)
- Associates                                                         -                  -                 -            -            -
Revaluation – derivative instrument                                  -          (317,425)                 -            -    (317,425)
Other increases (Note 4)                                             -                  -                 -    1,667,880    1,667,880
Profit for the year                                                  -                  -                 - (77,217,976) (77,217,976)
Dividends                                                            -                  -                 - (19,744,507) (19,744,507)
Minority interest                                              304,303                  -                 -            -      304,303
Balance as at 31 December 2008                               (430,319)          (350,697)       (4,320,061) (4,549,122) (9,650,199)



                                                                 156
The Group KD Group                                   Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009




                                                                                        Foreign
(in EUR)                                           Revaluation        Cash flow        currency     Retained
                                                                                                                    Total
                                                  reserve – AFS     hedge reserve     translation   earnings
                                                                                        reserve

Balance as at 1 January 2009                          (430,319)           (350,697)   (4,320,061)   (4,549,122)   (9,650,199)
Revaluation – gross                                   3,381,477                   -             -             -     3,381,477
Revaluation – tax                                     (898,121)                   -             -             -     (898,121)
Net gains transferred to net profit – gross             556,530                   -             -             -       556,530
Net gains transferred to net profit – tax (Note
21)                                                      81,418                   -             -            -        81,418
Impairment – gross                                    4,194,794                   -             -            -    4,194,794
Impairment – tax                                      (838,959)                   -             -            -    (838,959)
Revaluation - associates                                      -                   -             -            -             -
Revaluation – derivative instrument - gross                   -              70,716             -            -        70,716
Revaluation – derivative instrument - tax                     -            (14,140)             -            -      (14,140)
Currency translation differences:                             -                   -             -            -             -
- Group                                                       -                   -      (74,229)            -      (74,229)
- Associates                                                  -                   -             -            -             -
Other increases                                               -                   -             -    (166,251)    (166,251)
Other decreases (Note 4)                                      -                   -             - (1,698,091) (1,698,091)
Profit for the year                                           -                   -             - (43,887,570) (43,887,570)
Dividends                                                     -                   -             -    (166,630)    (166,630)
Decrease of capital reserve                                   -                   -             - 43,924,275 43,924,275
Minority interest                                     (576,731)                   -         3,961            -    (572,770)
Balance as at 31 December 2009                        5,470,089           (294,121)   (4,390,329) (6,543,389) (5,757,750)


17. Borrowings

(in EUR)                                                                                   31. 12. 2009    31. 12. 2008
Non-current
Bank borrowings
   In Slovenia                                                                              11,889,561      41,506,759
   Current portion                                                                          (6,875,318)     (6,570,735)
Other borrowings                                                                              2,272,404         333,489
  Current portion                                                                           (2,139,339)       (122,315)
Bonds issued                                                                                75,521,481      75,449,991
 Current portion                                                                            (1,422,394)     (1,435,142)
Time deposits
  Current portion                                                                           15,530,894               -
                                                                                            94,777,289     109,162,047
Current
Bank borrowings
 In Slovenia                                                                                65,000,952      63,916,996
Other borrowings                                                                            24,490,237         350,668
Current portion of non-current borrowings                                                   10,437,051       8,128,192
                                                                                            99,928,240      72,395,856
Total                                                                                      194,705,529     181,557,903



                                                           157
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Total borrowings include borrowings which are collateralised with pledged assets and guarantees in the amount of EUR
93,138,121 (2008 EUR 86,673,238). Bank borrowings are collateralised by the pledged property of the Group (Note 7).

The effective interest rates on borrowings were as follows:
                                                                                         2009                2008
Non-current borrowings                                                       2.33% – 3.77%       5.23% – 5.99%
Current borrowings                                                           2.02% – 7.00%       4.45% –7.63%

18. Insurance contracts liabilities

Insurance liabilities and reinsurance assets
(in EUR)                                                                                   31.12.2009         31.12.2008

Insurance contracts
Property insurance contracts and health insurance contracts – gross:
 - claims reported and loss adjustment expenses                                            66,135,589         68,641,921
 - claims incurred but not reported                                                        75,255,446         61,752,371
 - unearned premiums                                                                       66,068,628         67,247,245
 - provisions for bonuses, rebates and lapses                                                 333,937            194,834
 - mathematical provisions (for health insurance)                                             145,177            169,446

 - other technical provisions (unexpired risk provisions included)                         3,424,248           4,718,116
                                                                                         211,363,025         202,723,933

Life insurance contracts – gross
- claims reported and loss adjustment expenses                                              2,705,468          2,317,863
- claims incurred but not reported                                                          3,482,512          2,829,771
- unearned premiums                                                                           875,448          2,722,850
 - provisions for bonuses, rebates and lapses                                                 126,971             11,100
 - mathematical provisions (for life insurance)                                             1,412,912            132,816

- other technical provisions (unexpired risk provisions included)                               1,459              6,888
                                                                                            8,604,770          8,021,288

Long-term insurance contracts
- with DPF                                                                                76,130,189          66,935,728
- without fixed terms – unit-linked                                                      140,108,844          79,308,743
                                                                                         216,239,033         146,244,471

Total insurance liabilities, gross                                                       436,206,828         356,989,692

Receivables from reinsurers
Property insurance contracts:
- claims reported and loss adjustment expenses                                             17,251,633         15,320,171
- claims incurred but not reported                                                          1,131,099            803,147
- unearned premiums                                                                           847,474          1,064,654
- provisions for bonuses, rebates                                                                 813                749
                                                                                           19,231,019         17,188,721

Life insurance contracts
- claims reported and loss adjustment expenses                                                  162,746             119,552
- claims incurred but not reported                                                                1,072                 256
- unearned premiums                                                                              52,961              53,633
                                                                                                216,779             173,441


                                                              158
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
(in EUR)                                                                                    31.12.2009             31.12.2008

Long-term insurance contracts
- with DPF                                                                                       1,210                    541
                                                                                                 1,210                    541
Total reinsurers receivables                                                                19,449,008             17,362,703

Property insurance contracts and health insurance contracts – net:
- claims reported and loss adjustment expenses                                              48,883,956             53,321,750
- claims incurred but not reported                                                          74,124,347             60,949,224
- unearned premiums                                                                         65,221,154             66,182,591
- provisions for bonuses, rebates                                                              333,124                194,085
- mathematical provision (for health insurance)                                                145,177                169,446

 - other technical provisions (unexpired risk provisions included)                           3,424,248              4,718,116
                                                                                           192,132,006            185,535,212

Life insurance contracts–net
- claims reported and loss adjustment expenses                                                  2,542,722           2,198,311
- claims incurred but not reported                                                              3,481,440           2,829,515
- unearned premiums                                                                               822,487           2,669,217
- provisions for bonuses, rebates                                                                 126,971              11,100
- mathematical provision (for life insurance)                                                   1,412,912             132,816

 - other technical provisions (unexpired risk provisions included)                                  1,459               6,888
                                                                                                8,387,991           7,847,847

Long-term insurance contracts
- with DPF                                                                                  76,128,979             66,935,187
- without fixed terms – unit-linked                                                        140,108,844             79,308,743
                                                                                           216,237,823            146,243,930

Total                                                                                      416,757,820            339,626,989

Movements in insurance liabilities and reinsurance assets

a) Claims and loss adjustment expenses

(in EUR)                                                                         2009                                   2008

                                           Gross        Reinsurance            Net      Gross       Reinsurance       Net
Reported claims                         70,959,781 (15,439,722) 55,520,059 61,129,663                (8,975,642) 52,154,021
Incurred but not reported               64,582,146    (803,404) 63,778,742 58,645,436                  (912,813) 57,732,623
Total at the beginning of the year     135,541,927 (16,243,126) 119,298,801 119,775,099              (9,888,455) 109,886,644
Cash paid for claims settled in the year (53,423,474)     7,995,283 (45,428,191) (44,238,193)         2,563,134 (41,675,059)
Increase in liabilities
  - arising from current year claims    65,846,870 (7,514,522) 58,332,348 62,381,142 (8,336,224) 54,044,918
  - arising from prior year claims       (379,792) (2,408,184) (2,787,976) (2,376,121)     (581,582) (2,957,703)
Total at the end of the year           147,585,531 (18,170,549) 129,414,982 135,541,927 (16,243,127) 119,298,800
Reported claims                         68,841,054 (17,414,379) 51,426,675 70,959,784 (15,439,723) 55,520,061
Incurred but not reported               78,737,961 (1,132,171) 77,605,790 64,582,143       (803,404) 63,778,739
Total at the end of the year           147,579,015 (18,546,550) 129,032,465 135,541,927 (16,243,127) 119,298,800



                                                                159
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009



b) Unearned premiums

(in EUR)                                                                         2009                                                 2008
                                       Gross          Reinsurance          Net              Gross         Reinsurance           Net
Total at the beginning of the
year                                   69,970,095       (1,118,287)      68,851,808         69,855,397     (1,115,962)        68,739,435
Increase in liabilities                62,980,118        (894,163)       62,085,955         65,217,263     (1,115,190)        64,102,073
Decrease in liabilities               (65,751,419)       1,111,783      (64,639,636)      (64,765,565)       1,112,439      (63,653,126)
Currency differences – net              (254,718)              232         (254,486)         (337,000)             426         (336,574)
Total at the end of the year           66,944,076        (900,435)       66,043,641         69,970,095     (1,118,287)        68,851,808

c) Unit-linked contracts

(in EUR)                                                                         2009                                                 2008
                                         Gross        Reinsurance          Net              Gross         Reinsurance           Net
Total at the beginning of the year      79,308,743                  -    79,308,743        112,978,279                  -    112,978,279
Increase in liabilities                 65,140,958                  -    65,140,958          1,565,897                  -      1,565,897
Decrease in liabilities                (4,321,164)                  -    (4,321,164)       (35,191,467)                 -    (35,191,467)
Currency differences – net                (19,693)                  -          (19,693)        (43,966)                 -        (43,966)
Total at the end of the year           140,108,844                  -   140,108,844         79,308,743                  -     79,308,743

d) Long-term insurance contracts with DPF

(in EUR)                                                                         2009                                                 2008
                                         Gross        Reinsurance          Net              Gross         Reinsurance           Net
Total at the beginning of the year      66,935,728           (541)       66,935,187        62,548,026                   -    62,548,026
Increase linked to premium
payments                                10,283,906           (696)       10,283,210         7,410,525            (591)        7,409,934
Decrease linked to payouts             (1,722,974)                  -    (1,722,974)       (3,033,256)                  -    (3,033,256)
Increase by the DPF portion for the
current period                            635,343                   -      635,343             13,943                -           13,943
Currency differences – net                  (1,814)             27              (1,787)        (3,510)              50           (3,460)
Total at the end of the year            76,130,189          (1,210)      76,128,979        66,935,728            (541)       66,935,187

e) Other insurance contracts

(in EUR)                                                                         2009                                                 2008
                                       Gross          Reinsurance          Net              Gross         Reinsurance           Net

Total at the beginning of the
year                                    5,233,200            (749)        5,232,451          3,765,012           (407)         3,764,605
Increase in liabilities                 4,495,901            (813)        4,495,088          4,027,659           (749)         4,026,910
Decrease in liabilities                (4,145,148)             749       (4,144,399)       (2,528,470)             407       (2,528,063)
Currency differences – net             (139,249)                    -    (139,249)             (31,001)              -           (31,001)
Total at the end of the year            5,444,704            (813)        5,443,891          5,233,200           (749)         5,232,451




                                                                160
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

19. Derivative financial instruments

The Group has an interest swap in the amount of EUR 11,000,000 to reduce the exposure of cash flows for interest on loans
(cash flow hedge) in 2007. The fair value of the interest swap on 31 December 2009 was negative in the amount of EUR
279,981. The effect of hedge instruments valuation is recognised in comprehensive income.

At the end of 2009 the Company entered into a futures transaction for the purchase and sale of securities. The fair value of
the receivables and liabilities is equal to EUR 1,146,675; the net effect in the income statement equals zero.


20. Trade and other payables

(in EUR)                                                                                   31. 12. 2009       31. 12. 2008
Trade payables                                                                                13,597,467         10,570,410
Other provisions and long-term accruals                                                        2,607,327          2,862,590
Income tax liabilities                                                                         1,528,147            350,717
Deferred income tax liabilities                                                                1,418,370                  -
Amounts due to related parties                                                                   126,429             97,617
Payables – state (without income tax)                                                          1,436,755          1,289,075
Salaries                                                                                       3,436,014          4,209,570
Accrued expenses and deferred income                                                           8,387,081          7,562,401
Dividends payables                                                                               686,098          1,435,220
Other insurance payables                                                                      12,913,770         17,460,867
Total                                                                                         46,137,458         45,838,467

21. Deferred tax

Deferred taxes are the result of accounting for current and future tax consequences, namely, the future recovery (settlement) of
the book value of assets (liabilities) recognised in the balance sheet, as well as transactions and other events during the
period, which are offset within the same tax jurisdiction and recognised in the financial statements of the Group.

The offset amounts are as follows:

 (in EUR)                                                                                    31.12.2009        31. 12. 2008

 Deferred tax assets
 – Deferred tax assets to be recovered after more than 12 months                             29,682,588         20,315,147
                                                                                             29,682,588         20,315,147
 Deferred tax liabilities
 – Deferred tax liabilities to be recovered after more than 12 months                        (1,418,370)          (107,210)
                                                                                             (1,418,370)          (107,210)
                                                                                             28,264,218         20,207,937


 (in EUR)                                                                                           2009               2008
 The gross movement in the deferred tax account is as follows
 Beginning of the year                                                                       20,207,757         (2,527,886)
 Exchange differences                                                                            (30,078)          (60,644)
 Acquisition of subsidiaries                                                                     (33,920)                 -
 Disposal of subsidiaries                                                                         (8,004)          (74,532)
 Income statement charge (Note 28)                                                             9,795,691        11,219,991
 Tax charged/(credited) to equity (Note 17)                                                  (1,669,802)        11,650,828
 At the end of the year                                                                      28,264,218         20,207,757




                                                             161
The Group KD Group                                       Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, was as follows:

 Deferred tax liabilities
                                                                              Fair value
 (in EUR)                                                                       gains           Other             Total
 As at 1 January 2008                                                          11,400,456           65,800       11,466,256
 Charged/(credited) to the income statement                                        347,199        (55,991)           291,208
 Charged to equity                                                             (8,031,137)               -       (8,031,137)
 Charged to equity – transfer to net profit (Note 16)                          (3,619,691)               -       (3,619,691)
 Acquisition of subsidiaries                                                               -             -                   -
 Exchange differences                                                                   421            153                574
 As at 31 December 2008                                                              97,248          9,962           107,210
 Charged /(credited) to the income statement                                     (391,248)               -         (391,248)
 Charged to equity – fair value reassessment                                     1,749,976           1,244         1,751,220
 Charged to equity – transfer to net profit (Note 16)                              (75,305)        (6,113)           (81,418)
 Acquisition of subsidiaries                                                         32,633              -             32,633
 Disposal of subsidiaries                                                               (27)             -                (27)
 Exchange differences                                                                      -             -                   -
 As at 31 December 2009                                                          1,413,277           5,093         1,418,370


 Deferred tax assets




                                         Employee          Impairment
 (in EUR)                                 benefits           losses           Tax losses        Other             Total
 As at 1 January 2008                          614,959         4,251,798        4,062,197            9,416        8,938,370
 Charged/(credited) to the income
 statement                                  (195,723)         8,130,829         3,515,832           60,261       11,511,199
 Disposal of subsidiaries                      (7,726)          (66,806)                 -               -          (74,532)
 Exchange differences                            1,164            15,868          (77,102)                          (60,070)
 As at 31 December 2008                       412,674        12,331,689         7,500,927           69,677       20,314,967
 Charged/(credited) to the income
 statement                                  (153,072)        (1,150,136)       10,735,085         (27,434)        9,404,443
 Acquisition of subsidiaries                    1,287                  -                 -               -             1,287
 Disposal of subsidiaries                           -            (8,031)                 -               -           (8,031)
 Exchange differences                               -                  -          (30,078)               -          (30,078)
 As at 31 December 2009                       260,889        11,173,522        18,205,934           42,243       29,682,588

The deferred tax charged to components of other comprehensive income during the year:

 (in EUR)                                                                                      31. 12. 2009     31. 12. 2008
 Fair value reserves in shareholders’ equity
 – Available-for-sale financial assets                                                         (1,655,662)        12,046,306
 – Derivative financial instruments                                                               (14,140)                 -
                                                                                               (1,669,802)        12,046,306




                                                               162
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Deferred tax assets are recognised for tax loss carry-forwards to the extent that realisation of the related tax benefit through
the future taxable profits is probable. All tax losses can be utilised over an unlimited period of time.

The Group did not recognise deferred tax assets of EUR 1,729,912 (2008 EUR 278,368) in respect of losses amounting to
EUR 8,649,560 (2008 EUR 1,325,563) that can be carried forward against future taxable income. These losses were
generated by subsidiaries of the Group with a history of loss-making.


Unrecognised potential deferred tax assets:
(in EUR)                                                                                     31. 12. 2009       31. 12. 2008

Deductible temporary differences                                                                        -                  -
Unrecognised tax loss carry-forwards                                                            8,649,560          1,325,563
Unrecognised tax credits                                                                                -             23,584

Total                                                                                           8,649,560          1,349,147


22. Revenue

22.1.      Net earned premiums on insurance contracts

(in EUR)                                                                                             2009              2008
Long-term insurance contracts with DPF                                                           7,077,204        7,634,679
Long-term insurance contracts without fixed terms – unit-linked                                 68,029,056       82,719,783
Financial contracts with DPF
- Premium receivables                                                                            1,449,422        1,704,633
- Change in unearned premium provisions                                                              9,007           34,497
                                                                                                76,564,689       92,093,592
Property insurance contracts and health insurance contracts
- Premium receivables                                                                          263,935,937      240,766,222
- Change in unearned premium provisions                                                          1,616,189        (322,049)
                                                                                               265,552,126      240,444,173

Premium income arising from insurance contracts issued                                         342,116,815      332,537,765

Short-term reinsurance contracts
- Premium payables                                                                             (11,898,976)    (11,420,813)
- Change in unearned premium provisions                                                           (218,412)           7,992
Long-term reinsurance contracts                                                                     130,950         157,751
Premium revenue ceded to reinsurers on insurance contracts issued                              (11,986,438)    (11,255,070)
Net premiums                                                                                   330,130,377      321,282,695




                                                              163
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

22.2.       Revenue and other operating income (excluding net earned premiums on insurance contracts)

(in EUR)                                                                                       2009                  2008
Sales of goods                                                                              3,959,957         4,481,153
Fees and commissions income                                                                10,849,086        14,410,812
Sales of services                                                                           7,661,080        19,142,091
                                                                                           22,470,123        38,034,056
Other operating income:
 Other insurance income                                                                     3,934,975         5,660,327
 Other operating income                                                                    11,761,118        12,516,507
 Excess on acquisition of a subsidiary (Note 32)                                              192,776            31,536
 Excess on acquisition of associates (Note 10)                                                      -         5,130,921
 Excess on disposal of a subsidiary (Note 32)                                               (620,680)         8,963,368
 Gain from increase in the share capital of a subsidiary                                            -                 -
                                                                                           15,268,189        32,302,659
Total                                                                                      37,738,312        70,336,715

The Group disposed of entities from the financial, life insurance and health insurance segments and recorded a loss of EUR
620,680.

23. Expenses

23.1.       Gross benefits and claims paid



                                                                                                                     2009
 (in EUR)                                                                    Gross        Reinsurance          Net

 Long-term insurance contracts with DPF
            - death, maturity and surrender benefits                          3,340,155         73,087        3,413,242
            - increase of liabilities                                                 -              -                -
 Long-term insurance contracts without fixed terms (unit-linked)
            - death, maturity and surrender benefits                            612,431                 -       612,431
            - increase of liabilities                                        66,141,341                 -    66,141,341
 Net mathematical provisions – insurance contracts with DPF
            - death, maturity and surrender benefits                          1,317,953                 -     1,317,953
            - increase of liabilities                                         3,195,917                 -     3,195,917
 Property insurance and health insurance
            - claims and loss adjustment expenses                           199,842,859    (12,126,184)     187,716,675
            - increase of liabilities                                         9,078,171               -       9,078,171
 Total cost of policyholder benefits, claims and loss                       283,528,827    (12,053,097)     271,475,730




                                                             164
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


                                                                                                                        2008
 (in EUR)                                                                     Gross         Reinsurance           Net

 Long-term insurance contracts with DPF
            - death, maturity and surrender benefits                           7,104,737         183,737          7,288,474
            - increase of liabilities                                                  -               -                  -
 Long-term insurance contracts without fixed terms (unit-linked)
            - death, maturity and surrender benefits                           3,547,698                 -      3,547,698
            - increase of liabilities                                       (33,625,570)                 -   (33,625,570)
 Net mathematical provisions – insurance contracts with DPF
            - death, maturity and surrender benefits                             760,388                 -        760,388
            - increase of liabilities                                        (4,390,624)                 -    (4,390,624)
 Property insurance and health insurance
            - claims and loss adjustment expenses                           175,157,414      (12,356,648)    162,800,766
            - increase of liabilities                                        20,460,490                 -     20,460,490
 Total cost of policyholder benefits, claims and loss                       169,014,533      (12,172,911)    156,841,622



23.2.       Expenses by nature (excluding insurance contract benefits [net] and claims)

 (in EUR)                                                                                        2009                2008

 Cost of services                                                                           68,689,724        75,690,259
 Labour costs
  Wages and salaries                                                                        43,817,255        48,271,640
  Cost of Salaries - pension insurance                                                       4,103,843         4,242,131
  Cost of Salaries - social insurance                                                        3,182,529         4,218,087
  Other costs of employees                                                                   6,259,155         6,960,509
  Other long-term and post-employment benefits                                                 214,040           713,301
                                                                                            57,576,822        64,405,668

 Total                                                                                     126,266,546       140,095,927
 Number of employees                                                                             1,860               1,984

Iinsurance acquisition costs of EUR 22,179,325 are included in the costs of services (in 2008: EUR 17,897,626).

23.3.       Other expenses


 (in EUR)                                                                                        2009                2008
 Raw materials and consumables used                                                          4,345,613         6,713,694
 Depreciation, amortisation and impairment                                                   6,073,487         7,923,372
 Other insurance expenses                                                                    3,457,514         9,551,654
 Other expenses                                                                             19,780,439        33,085,695
 Total                                                                                      33,657,053        57,274,415



Impairment of goodwill recognised in 2009 in the amount of EUR 5,904,886 is included in other expenses (in 2008: EUR
25,722,755).




                                                             165
 The Group KD Group                                         Annual Report 2009

 Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

 23.4.      Audit fees

 (in EUR)                                                                                        2009           2008
 Expenses (VAT included):
 - Audit of the financial statements                                                           473,238        546,872
a- Audit services                                                                                1,029         11,677
 - Tax advisory                                                                                  9,708         34,734
 - Other non-audit services                                                                      1,492              -
 Total                                                                                         485,467        593,283


 24. Investment income

 (in EUR)                                                                                        2009           2008

 Available for sale
    dividend income                                                                          1,909,599      6,914,290
 - interest income, exchange differences                                                     5,761,002      5,244,897
                                                                                             7,670,601     12,159,187
 Held to maturity
   interest income                                                                             766,274        393,763

 Financial assets at fair value through profit or loss
    dividend income                                                                            408,630        956,236
    interest income, exchange differences                                                      689,187      1,782,954
                                                                                             1,097,817      2,739,190
 Cash and cash equivalents, loans, deposits and receivables
   interest income                                                                           7,035,267      7,402,781
 Total                                                                                      16,569,959     22,694,921


 25. Net realised gains on financial assets available for sale

 (in EUR)                                                                                        2009           2008
 Realised gains on financial assets – available for sale                                    14,265,857     12,072,649
 Realised losses on financial assets – available for sale                                   (9,843,946)    (2,075,008)
                                                                                              4,421,911      9,997,641

 Impairment of financial assets                                                             (2,927,247)   (24,846,254)
 Reversal od impairment                                                                             890              -
 Total                                                                                       1,495,554    (14,848,613)




                                                                  166
The Group KD Group                                        Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

26. Net fair value gains on assets at fair value through profit or loss

(in EUR)                                                                                        2009            2008

Changes in fair value of financial assets
 - held for trading                                                                           170,279     (24,317,453)
 - initial recognition                                                                     22,063,796     (77,403,222)
                                                                                           22,234,075    (101,720,675)
Net fair value gains on financial assets at fair value through profit or loss
 - held for trading                                                                         2,546,383         233,098
 - initial recognition                                                                      2,574,316          55,064
                                                                                            5,120,699         288,162
Changes in fair value of derivatives                                                        (322,132)       6,319,371
Total                                                                                      27,032,642     (95,113,142)


27. Operating loss before interests, tax, exchange differences and influence of associates

The Group incurred the operating loss of EUR 18,432,485 in 2009 (in 2008, the Group incurred the operating loss of EUR
49,859,388).

28. Finance costs

(in EUR)                                                                                        2009            2008

Interest expense:
    Bank borrowings                                                                        (3,990,195)     (5,743,009)
    Bonds                                                                                  (3,956,773)     (4,124,643)
    Other                                                                                    (314,499)       (298,067)
Net foreign exchange differences                                                           (1,302,447)       2,142,253

Total                                                                                      (9,563,914)     (8,023,466)


29. Income tax expense

(in EUR)                                                                                        2009            2008

Current tax                                                                                (2,595,784)     (2,934,092)
Deferred tax                                                                                 9,795,691     11,219,991

Total                                                                                       7,199,907       8,285,899




                                                                 167
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

The actual amount of income tax expense of the Group differs from the notional amount that would arise using the weighted
average tax rate applicable to profits of the consolidated companies as follows:

 (in EUR)                                                                                              2009               2008

 Profit before tax                                                                             (43,887,570)       (77,217,976)
 Tax calculated at domestic tax rates applicable to profits in the respective countries           9,745,306         18,793,634

 Income not subject to tax                                                                        8,411,643         13,929,188
 Non-deductible expenses                                                                       (13,571,533)       (19,987,207)
 Utilisation of previously unrecognised tax losses                                                  329,128          (237,893)
 Tax losses for which no deferred tax assets were recognised                                      2,285,363        (4,211,823)

 Tax charge                                                                                       7,199,907          8,285,899
 Effective tax rate                                                                                 16.41%             10.73%

The applicable corporate income tax rates in Slovenia for 2009 and 2010 are 21% and 20%, respectively.

The tax authorities may at any time inspect the books and records within five years subsequent to the reported tax year, and
may impose additional tax assessments and penalties. Some of the subsidiaries have been the subject of tax inspection in
recent years, but the parent company has not been inspected by the tax authorities since its establishemtn in 2001. The
Group’s management is not aware of any circumstances which may give rise to a potential material liability in this respect.


30. Earnings per share

Basic earnings per share attributable to holders of ordinary shares of the controlling entity are calculated by dividing the profit
attributable to equity holders of the Group, (net profit of the majiortiy owners adjusted for the amount of preference dividends,
by the weighted average number of ordinary shares in issue during the year.

(in EUR)                                                                                              2009               2008
Basic
Profit attributable to equity holders of the parent                                            (44,246,799)       (76,858,747)
Weighted average number of ordinary shares in issue                                               2,613,439          2,613,439

Basic and diluted earnings per share (EUR per share)                                                 (16.93)            (29.41)

Earnings per share and restated earnings per share are equal.


31. Dividends per share
According to the decision of the General Meeting of Shareholders concerning profit distribution, no dividends were paid either
on preference shares or ordinary shareso. For the year 2009 the Board of Directors proposed no dividend payment.

32. Acquisitions and disposals of subsidiaries

32.1. Acquisition

In 2009, the Group acquired a more than 50% share in the following companies:

- FM-NET d.o.o., Ljubljana – 31 January 2009
- Radio Kranj d.o.o., Kranj – 31 January 2009
- World Life group Ltd., Limassol – 30 June 2009
- Vitavizia d.o.o., Ljubljana – 30 June 2009
- KD Financial point EOOD, Sofia – 1. January 2009


                                                              168
The Group KD Group                                     Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
- OOO Sarbon Invest, Taškent – 30 June 2009

Pursuant to the business combination with FM-NET d.o.o., World Life Group ltd., Vitavizia d.o.o., EOOD KD Financial point
Bulgaria and OOO Sarbon Invest, the Group recognised goodwill totalling EUR 4,814,498; in the other business combination
with Radio Kranj d.o.o., the Group recognised surplus in the amount of EUR 192,776.

If the above entities were included in the Group from 1 January 2009, the Group's revenues would be higher by EUR 188,541
resulting in a total loss of EUR 1,406,321.

Details of net assets acquired and excess on the acquisition are as follows:

(in EUR)                                                                                        2009             2008
Purchase consideration:
– cash paid                                                                                 4,534,146          37,500
– direct costs relating to the acquisition                                                           -              -
Total purchase consideration                                                                4,534,146          37,500
Fair value of net assets acquired                                                             (87,577)        153,708
Goodwill (Note 9)                                                                           4,814,498         127,058
Excess (Note 22.2)                                                                          (192,776)         (31,536)

The assets and liabilities arising from the acquisition are as follows:


 (in EUR)                                                                                  Fair value    Carrying value


 Cash and cash equivalents                                                                     301.024            301.024
 Property, plant and equipment                                                                 397.751            397.751
 Investments in subsidiaries                                                                   535.376            535.376
 Investments in associates                                                                      42.826             42.826
 Financial assets                                                                            3.476.199          3.476.199
 Loans and receivables                                                                         546.518            546.518
 Other assets                                                                                    3.201              2.994
 Financial liabilities                                                                     (4.826.716)        (4.826.716)
 Payables                                                                                  (1.559.556)        (1.559.556)

 Net assets                                                                                (1.083.377)        (1.083.584)

 Non-controlling interests                                                                     339.520           339.520

 Net assets acquired:                                                                      (1.083.377)        (1.083.377)
 - in the previous years                                                                       278.819            278.819
 - in the current year                                                                       (231.067)          (231.067)

 Cash and cash equivalents in subsidiary acquired
 - in previous years                                                                                 -                 -
 - in the current year                                                                       4.534.146         4.534.146
 Cash and cash equivalents in subsidiary acquired                                            (301.024)         (301.024)
 Cash outflow on acquisition                                                                 4.233.122         4.233.122




                                                             169
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009


32.2. Disposal


In 2009, the Group concluded contracts with Assistance Coris d.o.o., KD Vifin s.r.o., KD Mont a.d., KD Life s.r.o. Czech, and
KD Investments a.s. Slovakia for disposal of share capital, realising loss on disposal of EUR 620,680.

The Group disposed of the share capital of the following companies in 2009:

Assistance Coris d.o.o., Ljubljana
KD Vifin s.r.o. Bratisava
KD Mont a.d., Podgorica
KD Life s.r.o. Prague
KD Investments a.s. Bratislava

Assets and liabilities at disposal:


 (in EUR)                                                                                    Carrying value


 Cash and cash equivalents                                                                           507,952
 Property, plant and equipment                                                                       222,689
 Financial assets                                                                                    767,799
 Loans and receivables                                                                             3,774,333
 Other assets                                                                                        147,962
 Financial liabilities                                                                                     -
 Payables                                                                                        (1,483,175)

 Net assets                                                                                       3,937,560
 Goodwill                                                                                                 -
 Non-controlling interests                                                                        1,222,855

 Cash and cash equivalents for disposal of net assets                                             2,094,025
 Cash and cash equivalents in disposed companies                                                  (507,952)
 Cash from company disposal                                                                       1,586,073


33. Related-party transactions

The Group is controlled by KD d. d., Ljubljana (incorporated in Slovenia), which owns 63.20% of the Group’s shares. The
remaining 36.80% of the shares are widely held.

The following transactions were carried out with related parties:

(in EUR)                                                                                              2009             2008
Sales of goods and services
– Associates                                                                                        937,532       1,697,212
– KD d. d.                                                                                           45,847          18,018
– Other KD d. d. related parties                                                                          -               -
Total:                                                                                             983,379        1,715,230

Goods and services are sold on the basis of the price lists in force for both related and unrelated parties.




                                                              170
The Group KD Group                                   Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

(in EUR)                                                                                        2009            2008
Purchases of goods and services
– Associates                                                                                  750,030        784,814
– KD d. d.                                                                                      5,600         18,666
– Other KD d. d. related parties                                                              104,317              -
Total:                                                                                       859,947         803,480

(in EUR)                                                                                        2009             2008
Year-end balances arising from sales/purchases of goods/services
Receivables from related parties:
– Associates                                                                                   18,729        832,353
– KD d. d.                                                                                      7,565          2,033
– Other KD d. d. related parties                                                                    -              -
Total                                                                                         26,294         834,384

Payables to related parties:
– Associates                                                                                   70,790          76,549
– KD d. d.                                                                                      3,517          18,902
– Other KD d. d. related parties                                                               52,122           2,166
Total                                                                                         126,429          97,617

(in EUR)                                                                                       2009             2008
Key management personnel remuneration
Members of Board of Directors – salaries (gross), bonuses                                   3,125,144      3,126,288
Supervisory Board – remuneration                                                              200,813        442,632
Salaries for employees with individual employment contracts                                 8,170,875     10,815,498
Total                                                                                      11,496,832     14,384,418

The Group had received guarantees from members of Board of Directors, the Supervisory Board and employees with
individual contracts in the amount of EUR 5,333,333 as at 31 December 2009 (in 2008: EUR 16,934,049).

(in EUR)                                                                                       2009             2008
Loans to members of Board of Directors, the Supervisory Board and employees
Loans to the members of Board of Directors                                                          -         12,241
Loans to the Supervisory Board                                                                      -      2,064,713
Loans to employees                                                                             70,476         70,474
Total                                                                                          70,476      2,147,428

(in EUR)                                                                                        2009            2008
Loans and deposits to associates
Beginning of the year                                                                        2,143,779      1,141,589
Loans advanced during the year                                                                 146,649      5,270,000
Loan repayments received                                                                   (1,900,104)    (4,268,000)
Interest charged                                                                                 24,828         31,785
Interest received                                                                              (24,832)       (31,595)
Total                                                                                         390,320      2,143,779




                                                              171
The Group KD Group                                      Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

(in EUR)                                                                                              2009                2008
Loans to KD d. d.
Beginning of the year                                                                            14,038,840         10,728,111
Loans advanced during the year                                                                     6,978,057        14,712,870
Loan repayments received                                                                         (6,610,994)      (11,533,545)
Interest charged                                                                                     595,178           491,650
Interest received                                                                                  (380,612)         (360,246)
End of the year                                                                                  14,620,469        14,038,840

(in EUR)                                                                                               2009               2008

Borrowings and deposits from associates                                                                    -                     -
Beginning of the year                                                                                      -                     -
Borrowings received during the year                                                                        -                     -
Borrowings repayments                                                                                      -                     -
Interest charged                                                                                           -                     -
Interest paid                                                                                              -                     -
Total                                                                                                      -                     -

For loans approved to associates in 2009 and 2008, the Group charged no costs associated with the approval process.

(in EUR)                                                                                              2009                2008
Other related-party transactions
Beginning of the year                                                                            34.968.796         10.760.414
Loans advanced during the year                                                                    2.848.735         32.699.823
Loan repayments received                                                                       (13.739.073)         (9.514.924)
Impairment                                                                                      (4.468.763)                   -
Interest accrued                                                                                  1.416.372           1.023.482

Total                                                                                            21.026.067         34.968.796


Loans are collateralised by the securities received as collateral and establishing usufruct of securities in the amount of EUR
14,125,337 (EUR 2008:12.576.276).

Interest rate for loans range from 3M EURIBOR+ 1.75% to 9%.


34. Events after the balance sheet date


The Supervisory Board of KD Life Življenje d.d. at its meeting on 1 March 2010, adopted the proposal to convene the General
Meeting of Shareholders and replace a member of the Supervisory Board. Mr. Sergej Racman, member and Deputy
Chairman of the Supervisory Board, will be replaced by Draško Veselinovič, PhD. At the same meeting the Supervisory
Board also gave its consent to the company´s business plan for the financial year 2010.

Following the review of operations of KD Življenje d. d. which by the Insurance Supervision Agency (the Agency) in 2007, an
Order for the elimination of violation No. 40105-381/08-27 dated 14 April 2008 was issued to KD Življenje stating that the
company did not set aside insurance technical provisions for minimum guaranteed payments on life insurance with DPF of
Asia Garant and Asia Garant plus, which should have been done in accordance with the Insurance Act. Since KD Življenje
submitted an incomplete report on
the elimination of violations, the Agency issued another Order No. 40105-789/08-27 of 19 June 2008 for updated report.




                                                              172
The Group KD Group                                    Annual Report 2009

Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009

Following the annulment of the above Order for updated report, the Agency issued a new Order for updated report No..
40105-2559/08-27 of 17 December 2008, which is, based on the legal action brought by the insurance company on 5 January
2010, again under judicial review. The lawsuit is currently in progress. Since instituting proceedings against the Order for
updated report and the Decision of the Agency No. 40109-221/09-27 of 11 February 2009, by which the Agency decided on
objection to the Order for the updated report does not stay the execution thereof, the insurance company on 26 January 2010
reconciled insurance technical provisions and investments in accordance with the Order for updated report and the Decision.
As at 31 January 2010 the insurance company formed insurance technical provisions for guaranteed minimum payment of
endowment on the life insurance assets covering mathematical provisions in the amount of EUR 6,127,227. The difference to
the full amount of insurance technical provisions arising from the value of units in structured debt securities of Asia Garant
and Asia Garant + was recognised within unit-linked assets in the amount of EUR 305,014.

On 20 January 2010 legal action was brought to the court against the Decision of the Ministry of Finance, Directorate for the
System of Tax, Customs and Other Public Revenues, Division for Administrative Procedure at II. Degree in Tax and Customs
Matters No. DT-499-02-32/2007 of 10 December 2009, rejecting the company's appeal against first instance decision of the
Ministry of Finance, Tax Administration of the Republic of Slovenia, the Special Tax Office, No. DT 0610-11/2007 0203 10 of
19 June 2007. Taxes and fees the payment of which was required in the said decision were paid already in 2007.
On 12 January 2010 at the time when the preparation of these financial statements was drawing to its end, the inspectors of
the Tax Administration of the Republic of Slovenia began the examination of the corporate income tax for the year 2008. The
tax inspection is expected take three months; hence by the time the annual report and accounts for 2009 drawn up by the
reporting entity were completed, no decision has been issued by the tax authorities.
On 10 February 2010, the Supervisory Board of Adriatic Slovenica deliberating on the basis of the notice given by Mr. Marko
Rems resigning his position of a member of the Management Board dated 25 November 2009 relieved him of his duty. Until
the appointment of a new member of the Management Board, the insurance company Adriatic Slovenicaa will be run by the
two-memebr Management Board composed of two members.
On 19 March 2010, a report about the measures taken to remedy the infringement specified in the decision issued by the
Insurance Supervision Agency was sent to the Slovenian supervisory authority. By the time of the publication of this Annual
Report for 2009, the insurance company has not received any feedback.

The following companies are in the process of winding up:
 KD Asset Management b.v., the Netherlands
 KD Investment Belgrade
 KD Private Equity Belgrade
 KD Securities EAD Sofia, Bulgaria
 R.E.Invest d.o.o., Slovenia

The companies SC KD Fond de Pensii s.a., Romania and KD Capital Management, Romania are currently in the process of
being sold.




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