MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN Q3 2014

November 28th, 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the year ended December 31st, 2013 and with our unaudited consolidated financial statements for the periods ended September 30th, 2013 and September 30th, 2014 and the related notes. Our consolidated financial statements have been prepared in accordance with IFRS. This discussion includes forward-looking statements based on assumptions about our future business that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from those contained in the forward-looking statements. For most relevant accounting policies please refer to Note 1 of our FY 2013 consolidated statements and the forefront part of the unaudited consolidated quarterly financial statements for the period ended September 30th 2014.

Important Notice: The Management’s discussion and analysis of financial condition and results of operations in this document refers to the Agrokor Group and all its Restricted Subsidiaries (“Agrokor” or “Company”). Restricted Subsidiaries are all Agrokor’s subsidiaries which form the Agrokor Group excluding Poslovni sistem Mercator d.d. (“Mercator”). Pursuant to the indenture governing our Senior Secured Notes due 2019 and 2020 and our other financial arrangements which are in general in line with the indentures, Mercator has been designated as an Unrestricted Subsidiary of Agrokor. All information regarding Mercator can be found on their IR website http://www.mercatorgroup.si/en/investor-relations/.

Overview

The first nine months were marked by extremely bad weather conditions notably throughout spring and summer. These conditions resulted in severe floods in spring across the Primary Markets whilst it jeopardized the touristic season in Croatia. On top of that the macroeconomic conditions remained challenging whereby GDPs contracted further which put additional pressure on consumption. Our financial results for this period ought to be observed in this context. Nevertheless, we have managed to maintain our sales with only a minor drop in profitability. On a consolidated basis our sales increased by 0.4 per cent from HRK 22,384.6 million to HRK 22,474.0 million. EBITDA decreased by 1.5 per cent, from HRK 2,173.2 million to 2,141.5 million, while EBITDA margin decreased from 9.7 per cent to 9.5 per cent.

During nine months of 2014 we have continued to focus on increasing and/or maintaining our market shares across both of our divisions through proactive measures in the form of effective marketing strategies, investments in prices and adequate product portfolio management which also included various portfolio extensions. We further continued to focus on cost optimization and efficiency improvement measures coupled with further systematization and reorganization of the companies across the Group.

Retailing and Wholesale division contributed with 76.4 per cent of total consolidated sales and posted a slight decline of 0.2 per cent compared to the previous year with sales decreasing from HRK 17,211.7 million to HRK 17,179.8 million. Division’s EBITDA decreased from HRK 1,111.6 million to HRK 1,088.9 million representing a 2.0 per cent decrease with EBITDA margin remaining at the same level of 6.11 per cent when compared to the same period last year.

Food Manufacturing and Distribution division generated 19.7 per cent of the total consolidated sales. Sales in this division decreased by 2.8 per cent compared to the same period last year, from HRK 4,555.0 million to HRK 4,429.1 million. Division’s EBITDA also decreased, from HRK 1,157.1 million to HRK 1,076.0 million with EBITDA margin declining from 13.4 per cent to 13.1 per cent predominantly due to poor weather conditions and drop in edible oil prices.

Other Businesses2 division posted a significant increase in sales in Q3 2014 of 29.0 per cent, from HRK 610.4 million to HRK 787.2 million. This division contributed 3.5 per cent of the consolidated sales. EBITDA however posted a decrease of 16.2 per cent from HRK 74.0 million to HRK 62.0 million with EBITDA margin also declining from 5.3 per cent to 3.8. The increase in sales was the result of an increase in volumes related to the

1 Margin on divisional basis is on unconsolidated sales 2 Excluding Agrokor Holding

2 need to source commodities needed for both, our agriculture and meat business but also for external buyers, as the floods had a detrimental impact on a range of agricultural commodities across the region.

Key highlights of Group Results and Strategy

Slight increase in top line (+0.4 per cent at actual exchange rates, +0.7 per cent at constant exchange rates)

In the overall context of a rough touristic season and persisting challenging macro environment our consolidated sales increased by 0.4 per cent (+0.7 per cent at constant exchange rates) compared to the same period last year and amounted to HRK 22,474.0 million (HRK 22,543.0 million at constant exchange rates).

Maintaining market shares across the region

We have also managed to maintain or even increase our market shares and keep our leadership positions across most of our businesses. We managed to further improve our offering as we continued to tailor our pricing policies, marketing activities through promotions and innovations as well as product assortment to be able to cope with overall environment.

M&A and other activities

Agrokor d.d. acquired management control of Mercator in September 2014, following the acquisition of the initial stake of 53.2 per cent at the end of June 2014 and the subsequent MTO which expired on September 1st. Agrokor started with the consolidation of Mercator from September 30th, 2014. Agrokor owned 3.040.597 shares as at September 30th, 2014 which represented 80.8 per cent of Mercator's share capital. Pursuant to the indenture governing our Senior Secured Notes due 2019 and 2020 and our other financial arrangements which are generally in line with the indentures, Mercator has been designated as an unrestricted subsidiary of Agrokor.

Recent Developments

Moody’s has confirmed our rating and the stable outlook in September.

In October Agrokor Investments B.V. converted the subordinated loan to Mercator in the amount of EUR 200 million into equity. Following this conversion Agrokor Investments B.V. owns 38.2 per cent of Mercator’s equity. Agrokor is the major single shareholder owning 49.9%.

We have sold our fleet maintenance business to Emil Frey Group, which has entered the regional markets in October 2013 and have plans to further expand their activities.

The sale of other non-core businesses and assets is ongoing.

Performance of divisions

Retailing and Wholesale

Generally the retail environment across the Primary markets is still facing adverse trends. As a response to these conditions, throughout the first nine months we have continued refurbishing our existing network, with emphasis on convenience stores, adjusting the private label offering and further leveraging our customer-centric retailing capabilities which enabled us to tailor competitive pricing policies and focus further on customer care while offering the best value for money proposition to our faithful customers.

Retailing and Wholesale division in first nine months of 2014 posted 0.7 per cent decrease in sales on unconsolidated basis, from HRK 18,118.1 million to HRK 17,991.0 million, with an EBITDA decrease of 2.0 per cent, from HRK 1,111.6 million to HRK 1,088.9 million. EBITDA margin decreased by 8 bps. The

3 somewhat weaker figures are the result of bad weather conditions, pressures from competition as well as negative exchange rate movements, predominantly of Serbian dinar.

Acquisition of Mercator – integration process

Among regular operational activities, the third quarter of 2014 saw the beginning of the integration activities following the completion of the acquisition of Mercator. The integration process has been structured such that the overall business in Croatia and Bosnia and Herzegovina will be carried on by Konzum (Konzum Croatia and Konzum Bosnia and Herzegovina) whereas the business in Serbia will be carried on by Mercator (Mercator Serbia). The operating businesses will be subject to leasing arrangements whereby Mercator’s stores in Croatia and Bosnia and Herzegovina will be leased out to Konzum Croatia and Bosnia and Herzegovina, respectively, whilst iDEA’s stores in Serbia will be leased out to Mercator Serbia. By doing so, Mercator Croatia, Mercator Bosnia and Herzegovina and iDEA in Serbia will become property management companies.

Croatia

Croatian food retail market is still impacted by challenging macroeconomic environment and the continuation of negative trends. The strategy of repositioning our portfolio of convenience stores is proving to be successful and it is an important factor in managing and attenuating the impact of unfavourable trends present in the retail industry in the country. We have also implemented a new pricing campaign across the chain which proved to be successful as seen from the positive developments of our market share. We have also continued with enhancing our bakery and meat assortment in line with best practice. In the competitive landscape there haven’t been major changes within the top 10 players which account for roughly 76 per cent.

Our Wholesale business experienced a slight decrease as we deliberately decided to reduce our sales to certain customers which were significantly affected by the difficult macro environment which consequently resulted in an increase of their risk profile as well as due to decrease in HoReCa channel as a result of bad weather conditions during the touristic season.

Acquisition of Mercator – integration process

The third quarter was also marked by extensive preparation for and the beginning of the integration of Mercator Croatia. The integration process started in the first half of September and it has been completed within 3 weeks. During this period all of Mercator’s stores, apart from 97 stores that need to be sold or closed subject to Anti- monopoly Agency measures, were rebranded and integrated into Konzum’s network.

Serbia

Serbian operations recorded decline in both top line and EBITDA as a result of enhanced activities from competitors (Roda, part of Mercator, in particular) and depreciation of Serbian dinar. In order to compete with the challenging market conditions iDEA continued with changes to their product offering and pricing policy which is tailored to each region and continued with dynamic promotional activities and changes in the marketing policy.

 iDEA has introduced several projects including intensive marketing campaigns and catalogues;  reformatting of convenience stores and adjusting prices of a number of products with the prices in super format;  strongly enhancing and advertising fresh bakery assortment;  theme catalogues in Belgrade called “Beograd-grad novih ideja” (Belgrade-a city of new ideas) linked to specific events taking place in the city.

In the competitive landscape there haven’t been any major changes within the top 10 players which are still accounting for roughly 33 per cent, despite the struggle from mom and pap's stores seen in the market. iDEA had the highest single increase in market share becoming the second largest retailer.

Our Wholesale segment experienced a slight decrease mainly due to deteriorated condition of mom and pap's stores.

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Acquisition of Mercator – integration process

The third quarter was also marked by extensive preparation for the integration of iDEA into Mercator’s operations. The integration of all the stores into Mercator, apart from the 21 subject to Anti-monopoly measures, was successfully completed.

Bosnia and Herzegovina

Despite the overall unfavourable macroeconomic environment and high level of unemployment, coupled with extreme flooding we have still managed to post top line growth. On the other hand we have experienced a decrease in profitability as a result of continuous price investment efforts. We have also continued with tailored promotional and marketing activities to retain existing customers and attract new ones which enabled us to outstrip solid top line results and also maintain our market share. We have also continued with repositioning our portfolio of convenience stores, introducing new pricing campaigns, along with new store openings thus further strengthening our leadership market position.

Our Wholesale segment continued to experience growth as a result of the increase in the number of customers as well as educational activities for wholesale personnel done in house.

Acquisition of Mercator – integration process

The third quarter was also marked by extensive preparation for and the beginning of the rebranding and integration of Mercator BH and Mercator BL. The integration process started mid-September and lasted for approximately 5 weeks. In that period all Mercator stores have been successfully integrated into Konzum’s network.

Store breakdown in our Primary markets

As at September 30th, 2014 we had a total of 1,157 retail stores and 40 Velpro wholesale stores, owned or operated under operating lease and rental arrangements.3

The tables below show new retail store openings and closings by country and by format:

Start of Period Store Openings Store Closings Format Period End Q3 2014 Ended (December 31st, 2013) Change September 30, Number of Sales Area Number of Sales Area Number of Sales Area Sales Area Number of Sales Area 2014 Stores (m2) Stores (m2) Stores (m2) (m2) Stores (m2) KONZUM 679 279.276 108 68.341 (23) (4.603) 185 764 343.199 (Croatia) KONZUM 163 76.428 40 30.315 (1) (140) (2.209) 202 104.394 Sarajevo (Bosnia and Herzegovina) IDEA (Serbia) 180 85.856 15 6.871 (4) (544) 173 191 92.356 Group Total 1.022 441.560 163 105.527 (28) (5.287) (1.851) 1.157 539.949

Q3 2014 Ended Start of Period Croatia Bosnia and Herzegovina Serbia Period End September 30, Number of Sales Area Number of Sales Area Number of Sales Area Number of Sales Area Number of Sales Area 2014 Stores (m2) Stores (m2) Stores (m2) Stores (m2) Stores (m2) Small 837 165.612 647 131.589 131 27.127 149 34.063 927 192.779 Maxi 94 73.921 46 41.497 57 46.212 18 13.372 121 101.081 Super 90 196.190 71 170.113 14 31.055 23 39.126 108 240.294 Hyper 1 5.837 1 5.795 1 5.795 Total retail 1.022 441.560 764 343.199 202 104.394 191 92.356 1.157 539.949 Velpro 34 109.198 24 50.042 5 8.278 11 51.200 40 109.520 Total retail and 1.056 550.758 788 393.241 207 112.672 202 143.556 1.197 649.469 wholesale Tisak 1.085 14.315 1.177 15.407 1.177 15.407

3 Including Mercator stores in Croatia and Bosnia and Herzegovina leased out and integrated in Konzum network and excluding Idea stores leased out and integrated in Mercator Serbia.

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Food Manufacturing and Distribution

Food Manufacturing and Distribution division recorded a decline of unconsolidated sales of 5.4 per cent, from HRK 8,664.1 million to HRK 8,197.0 million and EBITDA decreased by 7.0 per cent, from HRK 1,157.1 million to HRK 1,076.0 million. The drop was most pronounced in Ice Cream and Frozen food and Water and Beverages but the poor weather conditions impacted generally all the businesses in this division. EBITDA margin decreased by 23 bps, from 13.4 per cent to 13.1 per cent.

Recent Macroeconomic Developments

Croatia

Croatia has been struggling with recession and poor prospects of recovery for the sixth year in a row. In Q3 2014 GDP dropped by 0.5 per cent amid continued contraction of domestic demand which is still hampered by the weaknesses in the labor market, continued corporate deleveraging and widespread consumer pessimism. The total industrial production in the first nine months has increased by 0.6 per cent, while retail trade has decreased by 0.1 per cent. In the same period total tourist overnight stays went up by 2.5 per cent. Inflation, measured by the consumer price index, in the first nine months of this year was -0.3 per cent.

Source: Raiffeisen RESEARCH Report Croatia, Number 55, October 2014, Central Bureau of Statistics of the Republic of Croatia

Serbia

Serbia has announced preliminary flash estimate figures for the real GDP in the third quarter indicating a drop of 3.7 per cent, primarily due to the floods which hit the country earlier this year. Industrial production in the first nine months has decreased by 5.7 per cent, while retail trade recorded an increase of 2.4 per cent. Total exports of goods in the first nine months amounted to EUR 8.3 billion, which is an annual increase of 3.1 per cent. At the same time, imports of goods amounted to EUR 11.4 billion, which represents an annual increase of 1.7 per cent. Trade deficit amounted to EUR 3.1 billion and is lower by 1.9 per cent compared to the previous year. The coverage of imports by exports was 72.5 per cent. Inflation in the first nine months stood at 1.9 per cent.

Source: Statistical Office of the Republic of Serbia, National Bank of Serbia

Bosnia and Herzegovina

The statistical office announced a second quarter real GDP decline of 1.2 per cent, primarily due to floods which hit the region earlier this year. It is expected that effects of flooding will also be seen in the figures for the Q3. Industrial production for nine months increased by 0.4 per cent. Moreover, except energy production, all other categories of industrial production recorded growth in the first nine months. Exports grew by 1.8 per cent to EUR 3.3 billion while imports grew by 6.5 per cent to EUR 6.1 billion. The coverage of imports by exports was 53.9 per cent and foreign trade in goods deficit amounted to EUR 2.8 billion. A period of deflation continues in and it stood at -1.2 per cent in the observed period.

Source: Agency for Statistics of Bosnia and Herzegovina

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Certain Factors Affecting Our Financial Condition and Results of Operations

Our results of operations for the periods under review have been primarily affected by:

Macroeconomic factors

Macroeconomic conditions in the countries in which we operate may have a significant effect on our results of operations. The food industry is generally impacted less by economic downturns than other industries that rely on a greater amount of discretionary spending. However, in periods of recession, when the GDP declines in any or all of the markets in which we operate, customers may reduce their consumption of certain products, reducing our sales volumes or switch from premium brands to lower cost brands and private label products, which may reduce the average prices we can achieve. In such an economic environment, we may also need to reduce our prices (including through price based promotions) in response to increased competition.

Raw material prices

Our key raw materials include wheat and corn (for animal feed), beef, pork and other meats (for our fresh and processed meat industry), milk and butter (for the production of ice cream and cheese), sunflower and other oil seeds (for the production of margarine and vegetable oils), as well as plastic bottle pre-forms and other packaging materials.

The Food Manufacturing and Distribution division is affected by the prices of the raw materials used. The Retailing and Wholesale division is also affected by the prices of raw materials as it affects the costs of goods sold.

Our strategy is to source the majority of our requirements for key raw materials (except for packaging material) internally through production and contract farming and to obtain the rest through the commodity markets.

New store openings

In the Retailing and Wholesale division, we have expanded our market coverage by opening new stores in the countries in which we operate. While new store openings increase our sales, we incur high fixed costs during the construction and/or refurbishment period at a time when the store is generating no sales. In addition, following a store opening, there is a period of up to three years, depending on the store format, during which sales have not reached their maturity potential.

Exchange rate fluctuations

We are subject to currency transaction risks when our sales and costs are denominated in different currencies. For example, our sales have principally been denominated in Kuna, our currency of account, whereas our debt and operating expenses have been denominated both in Kuna and in a number of foreign currencies, principally Euro, in which a greater proportion of our indebtedness is denominated. We attempt to manage this currency transaction risk principally by matching sales and costs in the same currency. However, our ability to match our euro denominated costs; particularly financing costs, in this manner is limited.

In addition, we are subject to currency translation risk in that the results of each of our subsidiaries are reported in the operating currency of the jurisdiction in which it primarily operates. These amounts, if not reported in Croatian Kuna, are then translated into Kuna for inclusion in our consolidated financial statements. Accordingly, changes in foreign exchange rates may impact the contribution of our non-Croatian subsidiaries to our financial results in a manner different to the changes in the results of those subsidiaries in their local currencies. The principal currencies of account of our subsidiaries include Kuna, Convertible Marks (which are pegged to the Euro), Serbian Dinars and Forint.

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Other factors

Other factors that affected our results of operations for the period under review include among others:

Economies of scale achieved in past years - As our business has grown, we have achieved certain economies of scale as a result of our increased size. Our greater purchasing power allows us to negotiate more favorable prices with suppliers. In addition, as we are filling out our geographic footprint in the region, we are achieving increasing economies of scale in terms of transportation, distribution and sales and marketing.

Product range expansion - We have also sought to expand the range of products that we offer. For example, in Retailing and Wholesale, we have extended our private labels portfolio both in terms of number of SKU’s as well as in terms of private label categories in order to capture the segment of price sensitive consumers and to meet changing customer’s preferences driven to a large extent by decreasing purchasing power.

Seasonality - Sales from certain of our products and brokerage activities, including ice cream, mineral water and agricultural products are seasonal, resulting in uneven cash flows and working capital requirements, as well as the need to adjust production in anticipation of fluctuating demand. In addition, certain products and brokerage activities, such as ice cream, mineral water and agricultural products, are also dependent on weather conditions. As a result, our sales do not occur evenly throughout the year. In addition, to a certain extent, some of our businesses, like ice cream and mineral water, are dependent on the success of the touristic season, which has a seasonal character and whose success directly impacts our profitability.

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Results of Operations

Profit and Loss Account

The following table presents our results of operations for the periods ended September 30th, 2014 and September 30th, 2013;

(HRK million) 30.09.2013. % of sales 30.09.2014. % of sales 2014/2013

Sales 22.384,6 100,0 22.474,0 100,0 0,4% Cost of materials (15.946,8) 71,2 (15.879,9) 70,7 -0,4% Cost of services (1.777,9) 7,9 (1.834,7) 8,2 3,2% Gross margin 4.659,9 20,8 4.759,5 21,2 2,1%

Other income 189,3 0,8 159,1 0,7 -16,0% Other expenses (3.451,4) 15,4 (3.570,3) 15,9 3,4% Operating profit 1.397,9 6,2 1.348,2 6,0 -3,5% Excess of fair value of net assets over the cost of acquisition, net of written off goodwill Share of gain/loss of associates Impairment of financial assets (4,3) 0,0 (0,8) 0,0 -82,6% Sale of subsidiaries Judicial decision fine (24,0) 0,1 n/a Sale of properties, net 1,3 0,0 (25,1) 0,1 n/a Financial income 236,5 1,1 344,4 1,5 45,6% Financial expense (1.484,0) 6,6 (1.518,0) 6,8 2,3% Cost of early bond redemption (275,2) Income before taxation 147,3 0,7 (150,5) 0,7 n/a

Taxation (145,3) 0,6 (126,4) 0,6 -13,0% Net profit for the year 2,0 0,0 (276,9) 1,2 n/a

Attributable to: Equity holders of the parent (107,5) 0,5 (348,4) 1,6 224,2% Minority interest 109,4 0,5 71,5 0,3 -34,7%

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Segmental Analysis

The table below provides information on results of our business segments for the periods ended on September 30th, 2014 and September 30th, 2013:

Food Manufacturing Retailing Agrokor and and Other Intersegment (HRK million) Holding Distribution Wholesale Businesses sales Consolidated 30.09.2014. Sales to external customers 78,0 4.429,1 17.179,8 787,2 Intersegmental sales 236,3 3.768,0 811,2 832,6 (5.648,1) Total sales 314,3 8.197,0 17.991,0 1.619,7 (5.648,1) 22.474,0 Operating profit (91,3) 749,4 644,6 45,6 1.348,2 Operating profit margin (%) - 9,1% 3,6% 2,8% Depreciation 5,9 326,6 444,4 16,4 793,3 EBITDA (85,4) 1.076,0 1.088,9 62,0 2.141,5 30.09.2013. Sales to external customers 7,5 4.555,0 17.211,7 610,4 Intersegmental sales 286,6 4.109,1 906,4 790,9 (6.093,0) Total sales 294,0 8.664,1 18.118,1 1.401,3 (6.093,0) 22.384,6 Operating profit (175,2) 823,1 691,2 58,7 1.397,9 Operating profit margin (%) - 9,5% 3,8% 4,2% Depreciation 5,7 334,0 420,4 15,3 775,3 EBITDA (169,5) 1.157,1 1.111,6 74,0 2.173,2

Comparison of the Periods Ended September 30th, 2014 and September 30th, 2013

Sales

Our sales are mostly generated from in the two core business divisions: Food Manufacturing and Distribution and Retailing and Wholesale. Sales experienced a slight increase compared to the same period last year by 0.4 per cent from HRK 22,384.6 million to HRK 22,474.0 million.

Excluding intersegment sales, Retailing and Wholesale decreased by HRK 31.9 million, or 0.2 per cent, from HRK 17,211.7 million in the period ended September 30th, 2013 to HRK 17,179.8 million in the period ended September 30th, 2014. Retailing and Wholesale sales contributed 76.4 per cent of total consolidated sales. Excluding intersegment sales, Food Manufacturing and Distribution sales decreased by HRK 125.9 million, or 2.8 per cent, from HRK 4,555.0 million in the period ended September 30th, 2013 to HRK 4,429.1 million in the period ended September 30th, 2014. Food Manufacturing and Distribution generated 19.7 per cent of total consolidated sales.

Operating expenses

Operating expenses relate to the Costs of materials, Cost of services and Other expenses. Operating expenses remained at the same level compared to the same period last year and amounted to HRK 21,284.9 million. Cost of materials as percentage of sales decreased by 58 bps, from 71.2 per cent to 70.7 per cent. Cost of services as well as Other expenses as a percentage of sales increased by 22 bps and 47 bps, respectively.

Operating profit

Operating profit decreased from HRK 1,397.9 million to HRK 1,348.2 million, representing a 3.5 per cent decrease. Operating profit generated from the Food Manufacturing and Distribution division decreased by 9.0 per cent, from HRK 823.1 million to HRK 749.4 million, while in the Retailing and Wholesale division it decreased by 6.8 per cent, from HRK 691.2 million to HRK 644.6 million.

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Net financial expense

Net financial expenses decreased by 5.9 per cent compared to the same period last year, from HRK 1,247.5 million to HRK 1,173.6 million mostly due to positive movements in the mark to market value of our cross currency swap arrangement.

Taxation

Income tax experienced a slight decrease compared to same period last year and amounted to HRK 126.4 million. Tax advance payments are paid according to the calculation based on the results of the previous year. The final settlement of income tax takes place at the end of the business year.

Net profit/loss

Net loss for the period amounted to HRK 276.9 million, while in the same period last year we recorded net profit of HRK 2.0 million. The net loss was mainly the result of costs incurred due to early bond redemption.

Non-controlling interest

Non-controlling interests’ gain for the nine months of 2014 amounted to HRK 71.5 million, compared to a non- controlling interests’ gain in the amount of 109.4 million in the same period last year, due to the lower profitability in companies with significant non-controlling interest.

Liquidity and Capital Resources

The main sources of our liquidity continued to be cash and cash equivalents generated in the regular course of business and financial arrangements with banks and financial institutions. Cash and cash equivalents as at September 30th, 2014, amounted to HRK 2,377.1 million compared to HRK 1,286.3 million as at December 31st, 2013.

Net funds used in investment activities amounted to HRK 738.7 million and predominantly reflect continued investments in the development of renewable energy through the construction of biogas plants Ovčara, Popovac and additional capacity in Gradec and preparatory work for future biogas plants. We have fulfilled annual purchases of refrigeration equipment in ice cream and soft drinks as well as investments in equipment for bakery retail. We have continued with investments in reconstruction and capacity increase for dairy farms in Mitrovac and capacity increase of the farm Prosine, along with further investment in irrigation systems in agriculture and mandatory renewal of permanent orchards. We have also began installing new PET line with the capacity of 20,000 bottles of 1.5 L/h and have switched to a short thread pre-form and associated "shorty" zipper and have initiated work on Mivela’s bottling line. Frikom has acquired a new line and machinery for processing and harvesting of peas and beans and have invested further in cooling units. Dijamant has initiated preparatory work for the new husking facility. We have invested further into IT system throughout the whole Group. In the third quarter we have started with the modernization of the mayonnaise production, which significantly increased overall capacity and flexibility of the manufacturing process achieving therefore substantial savings. We have also started with the reconstruction of boiler operation in Jana, where we replaced fuel oil with wood. In Sarajevski Kiseljak and Jamnica we have replaced the glass and PET packaging (for the production of Sensation mineral water). In Meat segment we have continued with additional investments including a pressing machine for burgers. As part of the whole integration process of Mercator Group, we have invested in the store adaptation and adjustment to the appropriate store format.

Net cash generated from financial activities during first nine months reflects changes in credit lines that were available to the Group. Debt as of September 30th 2014 totals HRK 16,654.0 million (on 31st December, 2013 it amounted to HRK 13,449.4 million) and interest rates were in the range of 3.5 per cent to 10.5 per cent.

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The table below presents a summary of our cash flows for the period ended September 30th, 2014 and September 30th, 2013:

Cash flows 30.09.2013. 30.09.2014. (HRK million) Net cash flows from operating activities before changes in working capital 2.087,5 1.833,1 Interest paid (1.076,2) (1.177,4) Changes in working capital (219,1) (1.008,2) Net cash provided by/(used in) operating activities 750,6 (846,5) Capex (691,0) (738,7) Acquisitions of subsidiaries, net of cash acquired (399,0) (6,3) Net cash used in investing activities (1.488,3) (3.110,0) Net cash from financing activities 727,3 5.047,3 Net increase/(decrease) in cash and cash equivalents (10,4) 1.090,7

Changes in working capital

At September 30th, 2014 changes in working capital were negative and amounted to HRK 1,008.2 million compared to the also negative contribution of HRK 219.1 million in the corresponding period last year. The main drivers were reductions in accounts payables and increase in inventories. The reduction in accounts payable was the result of our strategic decision to invest into suppliers ahead of the renegotiation of new purchasing terms following the Mercator acquisition whilst the increase in inventories was primarily the result the regular increase of biological assets during Q3.

Capital expenditure

Capital expenditures increased by HRK 47.7 million, or 6.9 per cent, from HRK 691.0 million to HRK 738.7 million.

Indebtedness

The following table summarizes our indebtedness at December 31st, 2013, March 31st 2014, June 30th, 2014 and September 30th, 2014:

Borrowings (HRK million) 31.12.2013. 31.03.2014. 30.06.2014. 30.09.2014.

Long-term borrowings -Bank loans 1.410,7 5.934,3 8.255,5 8.543,5 -Bonds 10.508,0 6.373,8 6.318,5 6.492,1 -Non-bank loans 0,1 0,1 0,0 0,0 -Finance leases 4,2 3,1 2,6 2,3 Total long-term borrowings 11.923,0 12.311,3 14.576,6 15.037,9

Total current portion of long-term borrowings (133,6) (113,5) (517,0) (396,7)

Short-term borrowings -Bank loans 1.515,3 5.548,6 1.645,7 1.605,1 -Non-bank loans 11,1 11,1 11,0 11,0 Total short-term borrowings 1.526,4 5.559,7 1.656,7 1.616,1

Total borrowings 13.449,4 17.871,0 16.233,3 16.654,0

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The table below summarizes the maturity profile of our long-term borrowings at December 31st, 2013, March 31st 2014, June 30th, 2014 and September 30th, 2014:

Maturity - Long Term Debt (HRK million) 31.12.2013. 31.03.2014. 30.06.2014. 30.09.2014. 2014 133,6 5.590,0 437,2 216,7 2015 108,4 159,3 532,2 404,1 2016 5.323,6 1.639,8 1.647,3 1.765,1 2017 7,8 470,9 1.671,1 2.084,1 2018 - 460,9 595,5 617,0 2019 2.263,8 2.732,2 2.842,0 2.881,3 2020 and later 4.085,8 6.817,9 6.851,3 7.069,6 Total 11.923,0 17.871,0 14.576,6 15.037,9

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