Cakovecki mlinovi d d : Group Čakovečki mlinovi - Q3 2023 ENG

ČAKOVEČKI MLINOVI INC.

CONSOLIDATED FINANCIAL REPORT FOR 9M 2023

CONTENTS
CONSOLIDATED INTERIM MANAGEMENT REPORT FOR THE FIRST NINE MONTHS OF
2023	3
1. BUSINESS RESULTS FOR THE FIRST NINE MONTHS OF 2023	4
ABOUT THE GROUP ČAKOVEČKI MLINOVI	4
BUSINESS SEGMENTS AND OPERATIONS	4
KEY EVENTS IN 2023	6
KEY FINANCIAL INDICATORS OF THE GROUP	7
SUMMARY OF GROUP RESULTS	8
ASSESSMENT OF THE GROUP'S QUARTERLY RESULTS	8
SALES REVENUE	9
OPERATING COSTS	10
EBITDA	10
NET PROFIT	11
NET DEBT	11
CASH FLOWS	12
VALUATION OF THE ČAKOVEČKI MLINOVI GROUP	12
2. EXPECTED BUSINESS DEVELOPMENT IN 2023	13
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST NINE MONTHS OF 2023	16

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ČAKOVEČKI MLINOVI INC.

CONSOLIDATED INTERIM MANAGEMENT REPORT

FOR 9M 2023

1. BUSINESS RESULTS FOR THE FIRST NINE MONTHS OF 2023

ABOUT THE GROUP ČAKOVEČKI MLINOVI

Čakovečki mlinovi Inc. (hereinafter: "Čakovečki mlinovi" or " Company"), founded in 1893 in Čakovec, is one of the oldest Croatian food and trade companies. The Company manages a vertically integrated business model that includes the production of high-quality mill, bakery and oil products on one hand and trade of mixed goods on the other. Although food production is a tradition and heritage of the Company, through a series of successful acquisitions and integration of trade chains the Company has grown into a business system that today generates most of its revenue from trade activities.

Čakovečki mlinovi Inc. has three subsidiaries: Trgovina Krk Inc. Malinska, Trgocentar Inc. Virovitica and

Radnik Opatija Inc. Lovran (together: "Čakovečki mlinovi Group" or "Group") and one associated company: Narodni trgovački lanac Ltd. Soblinec. In the comparable data for the year 2022, the subsidiary Trgostil Inc. was also consolidated and merged with Trgovina Krk Inc. on 3 October 2022. Čakovečki mlinovi Inc. in addition to the non-consolidated reports of the Companies, they also prepare the consolidated reports of the Group separately.

In the first nine months of 2023, the Čakovečki mlinovi Group achieved consolidated total revenues of EUR 162 million based on consolidated total assets in the amount of EUR 117 million and employed 2,273 employees on average based on working hours. According to the Accounting Act, the Čakovečki mlinovi Group belongs to large entrepreneurs.

The shares of Čakovečki mlinovi Inc. are listed on the Official Market of the Zagreb Stock Exchange under the symbol CKML. As at 30 September 2023, the Company has 10,290,000 of issued and listed shares with a market capitalization in the amount of EUR 107 million.

BUSINESS SEGMENTS AND OPERATIONS

Čakovečki mlinovi Group is organized into two strategic business segments:

• Trade, which includes retail and wholesale trade of food and non-food assortment, and
• Food, which includes the production of flour, bakery products and oils.

Čakovečki mlinovi Inc. manages these segments from a strategic level and acts as the Group's corporate centre. The Trade segment is operationally managed by Trgovina Krk Inc. The Food segment is operationally managed by Čakovečki mlinovi Inc. and Radnik Opatija Inc.

Below presented are the Group's business segments and their key operating indicators.

Trade

KEY OPERATING INDICATORS

Number of trade stores

Store sales area (in m2 net)

Average area per store (in m2 net)

Area of distribution warehouses (in m2 gross)

Average number of employees

30.9.2023.	30.9.2022.
436	435
55.216	54.061
127	124
11.343	11.343
1.844	1.995

Trade is the largest segment of the Čakovečki mlinovi Group, which generated 87% of the Group's sales revenue in the first nine months of 2023.

The Trade segment is organized in two business areas:

• retail - trade of mainly food and to a lesser extent non-food assortment, and
• wholesale - trade of food, non-food and construction assortment.

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Retail trade accounts for 97% of Trade sales revenue. At the end of 30 September 2023, the Trade segment operated 436 stores located in northwestern Croatia, Kvarner and the island of Krk. The total net sales area amounted to 55.216 m2, of which 65% area is owned by the Group, and 70% of the area is located in the continental part of Croatia. The main factors of the store's offer are the store proximity and the local assortment, which is why the Group's stores are mostly located in smaller villages or residential areas and have an average net sales area of up to 400 m2. This format of stores in Croatia is defined as a market or supermarket, while internationally it is known as proximity format due to its characteristic proximity to customers.

Trgovina Krk Inc. holds a 25% ownership share in the company Narodni trgovački lanac Ltd. (hereinafter: "NTL"), the largest buying group for food assortment in Croatia, through which it realizes about 80% of the purchase of goods. In addition to providing commercial services to its members, the development of the NTL brand and the purchase and distribution of fruits and vegetables, NTL operates its own trade network of 253 stores and 6 wholesale logistics and distribution centres. In 2022, NTL generated EUR 160 million in total revenue and EUR 5.2 million in net profit. Trgovina Krk Inc. is also a member of Grandal grupa Ltd., the largest buying group for building materials in Croatia.

Food
KEY OPERATING INDICATORS	30.9.2023.	30.9.2022.
Grain processed (in tons)	37.418	44.321
Production of bakery products (in tons)	5.853	5.637
Oil production (in tons)	7	5
Average number of employees	272	287

The Food segment covers food production and is organized into three business areas:

• milling - production of flour and other milling products and to a lesser extent porridge and feed flour,
• bakery - production of mainly bread, pastries and cakes and to a lesser extent dough, and
• oil production - own production of pumpkin and service production of olive oil.

As at 30 September 2023, the Food segment managed two mills (Čakovec, Donji Kraljevec) with a total production capacity of 80,000 tons per year, four bakeries (Čakovec, Oroslavje, Lovran, Malinska) with a total production capacity of 11,533 tons per year and two oil mills (Čakovec, Punat).

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KEY EVENTS IN 2023

1. Continued growth of revenue, EBITDA and net profit in a challenging economic environment
2. • Sales revenue in the amount of EUR 150,0 million (+5,7% compared to 9M 2022);
   • Normalized profit before interest, taxes and depreciation (EBITDA) in the amount of EUR 13,2 million (+15,7% compared to 9M 2022), growth of the normalized EBITDA margin from 8,0% to 8,8%;
   • Net profit in the amount of EUR 6,8 million (+12,8% compared to 9M 2022), growth of the net profit margin from 4,3% to 4,6%.
3. Squeezing out the minority shareholders of Trgovina Krk Inc.

After the merger of Trgostil Inc. share of Čakovečki mlinovi Inc. in Trgovina Krk it was reduced from 100% to 98,13%, after which the process of squeezing out the minority shareholders of Trgovina Krk Inc. was initiated, which was concluded on April 17 2023 by entry into the court register of the Commercial Court in Rijeka.

Following the conducted mergers of the Group's retail operations into Trgovina Krk and the related squeeze- out of minority shareholders, as of the date of this report, all retail operations of the Group are under 100% ownership of Čakovečki mlinovi Inc.

3. Listing of CKML shares on the Official Market of the Zagreb Stock Exchange and in the CROBEX index

Based on the request of Čakovečki mlinovi Inc. and decisions of the Zagreb Stock Exchange Inc., on 18 April 2023, all CKML shares were transferred from the Regular Market segment to the Official Market segment of the Zagreb Stock Exchange.

The goal of this corporate action was to increase transparency in the relationship with investors, increase the level of corporate management of the company, and also the demand for CKML shares, their liquidity, following the already implemented share split from 2021.

In addition to expanding the shareholder base, this resulted in the inclusion of CKML shares in the CROBEX index as at 18 September 2023.

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KEY FINANCIAL INDICATORS OF THE GROUP
			1.-9. 2023./
INCOME STATEMENT (millions of euros)	1.-9. 2023.	1.-9. 2022.	1.-9. 2022.
Sales revenue	150,0	141,9	5,7%
Operating costs, net1	137,4	130,4	5,3%
EBITDA2	12,6	11,5	9,7%
Normalized EBITDA3	13,2	11,4	16,2%
Depreciation	5,8	5,5	5,7%
EBIT4	6,8	6,0	13,4%
Net financial result5	1,3	1,1	14,8%
Net profit (loss)	6,8	6,1	12,8%
Profit margins6
EBITDA margin	8,4%	8,1%	0,3 pb
Normalized EBITDA margin	8,8%	8,0%	0,8 pb
EBIT margin	4,5%	4,2%	0,3 pb
Net profit margin	4,6%	4,3%	0,3 pb
			30.9.2023./
Balance sheet (millions of euros)	30.9.2023.	31.12.2022.	31.12.2022.
Net debt (cash)7	-18,1	-6,4	184,2%
Net debt (cash) / Norm. EBITDA (TTM)8	81,0	75,3	7,6%
Equity	20,2	25,2	-19,7%
			1.-9. 2023./
CASH FLOWS (millions of euros)	1.-9. 2023.	1.-9. 2022.	1.-9. 2022.
Net operating cash flows	15,8	5,3	198,9%
Capital expenditures (CapEx)9	3,8	6,1	-38,2%
Dividends paid	0,0	6,8	-

1 Operating expenses, net includes operating expenses less depreciation, other operating income and revenue based on the use of own products, goods and services; the detailed calculation is shown under Operating costs of this part of the report.

2 EBITDA (earnings before interest, taxes, depreciation and amortization) represents operating profit before depreciation; calculated as operating revenue - operating expenses + depreciation.

3 Normalization implies adjustment for one-off items; a detailed calculation is shown under Normalization of EBITDA of this part of the report.

4 EBIT (earnings before interest and taxes) represents operating profit; calculated as operating revenue - operating expenses.

5 Net financial result is calculated as financial revenue + associated profit share (NTL) - financial expenses.

6 Profit margins are calculated on the basis of sales revenue.

7 Net debt (cash) includes long-term and short-term financial liabilities minus cash in bank and cash register and deposits with banks. Deposits with banks are included in net debt regardless of maturity as they are available on call.

1. Net working capital includes inventories plus short-term receivables from customers minus short-term liabilities to suppliers and advances.
2. CapEx (capital expenditures) are expenditures for the purchase of long-term tangible and intangible assets.

Note: The amounts in this section as well as in the rest of the report are rounded to one decimal place.

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SUMMARY OF GROUP RESULTS

In the first nine months of 2023, the Čakovečki mlinovi Group achieved EUR 150,0 million in sales revenue, EUR 13,2 million in normalized EBITDA and EUR 6,8 million in net profit.

The Trade business segment, as the largest segment of the Group, achieved EUR 130,8 million or 87% of the Group's sales revenue and EUR 10,5 million or 79% of the Group's normalized EBITDA.

The Group's operations were marked by an increase in sales revenue of 5,7% or 8,1 million euros compared to the same period of the previous year, as a result of a 6,6% increase in the revenue of the Trade segment and stagnation in the revenue of the Food segment. The growth of the Trade's income is the result of the integration of retail operations into one company, internal optimization and an active approach in both the purchasing and sales segments of the business. The stagnation of Food's revenue is a consequence of the movement of stock market prices of key raw materials, i.e. price reductions as a result of the drop in grain prices.

Revenues of Retail Trade, the Group's largest business area, grew by 6,8% or 7,9 million euros, or by 6,3% or 7,0 million euros on a comparative (hereinafter: "LFL") basis. The mentioned increase in income is primarily the result of an increase in the selling prices of trade goods due to price increases by suppliers.

The Group's net operating costs increased by 5,3% or EUR 7,0 million, mainly as a result of the increase in net costs of goods sold (by EUR 5,3 million) and personnel costs (by EUR 1,9 million). Net cost of goods sold increased due to growth in the Trade segment's revenue, while personnel costs increased due to the increase in the minimum wage as well as wage pressures due to inflation and labor shortages.

In the first nine months of 2023, the Group's normalized EBITDA increased by EUR 1,8 million, and net profit increased by EUR 0,7 million. The group achieved an increase in the normalized EBITDA margin to 8,8% (9M 2022: 8,0%) and an improvement in the net profit margin to 4,6% (9M 2022: 4,3%). The group achieved an increase in profit margins despite the expansion of government measures to control the prices of food products and petroleum products and the increase in personnel costs.

The net financial result of the Group amounted to EUR 1,3 million and is EUR 0,2 million higher than in the same period of the previous year.

As at September 30, 2023, the Group had a net cash position of EUR 18,1 million.

ASSESSMENT OF THE GROUP'S QUARTERLY RESULTS

Group sales revenue									Group EBITDA
(in miln euros)												(in miln euros)
80,0											62,5		10,0
							58,6								7,9
							56,1
60,0		47,550,5	54,8					8,0							7,6
					38,8					6,1
40,0	34,335,8 37,0	42,2								6,0				4,3 4,2
20,0													4,0				3,0					3,1
												2,0	0,8	0,5							1,3
0,0													0,0	-0,4
Q1			Q2			Q3			Q4
						Q1	Q2			Q3	Q4
							-2,0
				2021.		2022.			2023.					2021.		2022.		2023.

Note: Data for the fourth quarter were calculated on the basis of audited annual financial statements and unaudited quarterly financial statements for the first, second and third quarters.

The operations of the Group, or the largest segment of Trade, are significantly dependent on the tourist season in Croatia. The Retail segment on the coastal operations in Kvarner and on the island of Krk manages 30%

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of the total net sales area of the stores, realizes more than 40% of the total retail revenues and about 45% of the total price difference. The group therefore achieves the highest revenues and EBITDA in the third quarter of the year. Considering the successful tourist season in 2023, the Group achieved the highest quarterly revenues in the third quarter of 2023 in the amount of EUR 62,5 million, as well as a record quarterly EBITDA in the amount of EUR 7,9 million.

SALES REVENUE

SALES REVENUE BY SEGMENT

(in millions of euros) Trade

Food

Consolidated sales revenue

1.-9.

2023.

130,8

19,1

150,0

• of sales revenue 87,2% 12,8%
  100,0%

1.-9.

2022.

122,7

19,2

141,9

• of sales revenue 86,5% 13,5%
  100,0%

1.-9. 2023./

1.-9. 2022.

6,6% -0,3%

5,7%

Note: Data are presented on a consolidated basis.

LFL1 RETAIL GROWTH
			1.-9. 2023./
(in millions of euros)	1.-9. 2023.	1.-9. 2022.	1.-9. 2022.
Revenue from the sale of goods - Trade	130,1	121,9	6,7%
Revenue from the sale of goods - Retail	125,3	117,2	6,9%
Revenue from the sale of goods - Retail - LFL1	117,3	110,2	6,4%

1 Revenue on a comparative basis (eng. like-for-like, LFL) refer to stores that operated throughout both comparative periods. Note: Data refers to pre-elimination sales revenue.

In the first nine months of 2023, the Group achieved sales revenues in the amount of EUR 150,0 million, which is 5,7% or EUR 8,1 million more compared to the same period of the previous year as a result of growth of the Trade segment's revenues of 6,6% and stagnation of revenue of the Food segment.

Sales revenue of the Trade segment amounted to EUR 130,8 million or 87% of the Group's sales revenue and increased by 6,6% or EUR 8,1 million compared to the same period of the previous year. The growth is a consequence of the positive effects of an active price policy, and it was achieved despite the negative effects of the weakening of consumer purchasing power, state price control measures, non-working Sundays, one- shift operation of some stores due to a lack of manpower, as well as unfavourable weather conditions. Revenues of Retail Trade increased by 6,9% or 8,1 million euros, or by 6,4% or 7,1 million euros on an LFL basis. Wholesale Trade generated revenues in the amount of EUR 4,5 million, which is 3,5% of the income from the sale of goods in the Trade segment and represents an increase of 6,1% or EUR 0,2 million compared to the same period of the previous year.

Revenues from the sale of the Food segment amounted to EUR 19,2 million or 12,8% of the Group's sales revenue and were unchanged compared to the same period of the previous year. The stagnation of income is a consequence of the movement of stock market prices of key raw materials, or price reductions as a result of the drop in grain prices. The revenues of Milling decreased by 9,6% as a result of government price control measures and the reduction of revenues due to the drop in grain prices, while the revenues of Bakery increased by 19,7% due to the optimization of the assortment, new products and new customers.

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OPERATING COSTS
					1.-9.
		% of			2023./
		sales		% of sales	1.-9.
(in millions of euros)	1.-9. 2023.	revenue	1.-9. 2022.	revenue	2022.
Cost of raw m. and changes in v. of
stock	19,3	12,9%	20,4	14,4%	-5,4%
Cost of goods sold, net1	85,8	57,2%	80,5	56,7%	6,6%
Other external expenses	4,9	3,2%	4,6	3,3%	4,7%
Personnel costs2	25,1	16,7%	23,1	16,3%	8,4%
Other expenses	1,9	1,3%	1,8	1,3%	3,6%
Other business expenses (revenue)3	0,4	0,27%	-0,1	0,0%	n/a
Operating expenses, net	137,4	91,6%	130,4	91,9%	5,3%

1 Costs of goods sold minus revenue from subsequently approved rebates and marketing services.

2 Staff costs include net wages, taxes and wage contributions, contributions to wages and non-taxable employee remuneration paid.

3 Other operating expenses less: non-taxable employee remuneration paid, other business income excluding income from subsequently approved rebates and marketing services, and revenue based on the use of their own products, goods and services.

In the first nine months of 2023, the Group recorded an increase in net operating costs by 5,3% or 7,0 million euros compared to the same period of the previous year.

The net cost of goods sold grew more slowly than the growth of income from the sale of goods as a result of an active procurement policy and the achievement of synergies after the merger of the Group's trading companies.

Personnel costs together with non-taxable receipts paid amounted to EUR 25,1 million and increased by 8,4% or EUR 2,0 million, as a result of the increase in the minimum wage as well as wage pressures from inflation and labor shortages. In the first nine months of 2023, the Group employed an average of 2.273 employees based on working hours (9M 2022: 2.385), or 2.113 employees as at 30 September, 2023 (30 September, 2022: 2,260).

EBITDA
EBITDA BY SEGMENTS		1.-9. 2023.			1.-9. 2022.
(in millions of euros)	GRUPA	TRGOVINA	PREHRANA	GRUPA	TRGOVINA	PREHRANA
Consolidated sales revenue	150,0	130,8	19,1	141,9	122,7	19,2
EBITDA	12,6	10,2	2,4	11,5	9,0	2,5
EBITDA margin	8,4%	7,8%	12,4%	8,1%	7,3%	13,1%
Normalized EBITDA1	13,2	10,5	2,7	11,4	9,0	2,4
Normaliz. EBITDA margin	8,8%	8,0%	14,1%	8,0%	7,3%	12,5%

1 Normalization implies adjustment for one-off items; a detailed calculation is shown under Normalization of EBITDA of this part of the report.

Note: There may be differences in totals due to rounding to one decimal place.

In the first nine months of 2023, the Group achieved normalized EBITDA in the amount of EUR 13,2 million, which is EUR 1,8 million more than in the same period of the previous year. Reported EBITDA amounted to EUR 12,6 million (9M 2022: EUR 11,5 million).

Normalized EBITDA of the Trade segment amounted to EUR 10,5 million and increased by EUR 1,5 million compared to the same period of the previous year, as a result of an active purchasing policy and the achievement of synergies after the merger and strict cost control. The normalized EBITDA margin of the Trade segment was 8,0% (9M 2022: 7,3%).

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