MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN Q1 2015

May 29th, 2015 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, 2014 and with our unaudited consolidated financial statements for the periods ended March 31st, 2014 and March 31st, 2015 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 2014 consolidated statement and the forefront part of the unaudited consolidated quarterly financial statements for the period ended March 31st, 2015.

Important Notice: The Management’s discussion and analysis of financial condition and results of operations in this document refers to the Group and all its Restricted and Unrestricted Subsidiaries (“Agrokor” or “Company”). Restricted Subsidiaries are all Agrokor’s subsidiaries which form the Agrokor Group excluding Poslovni sistem 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

When comparing the results for the Q1 2015 with the same period last year we need to emphasize that Mercator acquisition had a significant impact on our financial results. Within the Restricted Subsidiaries our sales showed a decrease of 2.9 per cent due to the discontinuation of iDEA which was not fully compensated by the inclusion of Mercator revenues in Croatia and Bosnia and Herzegovina. EBITDA on the other hand improved by 8.3 per cent due to the realization of synergies. On a consolidated basis both sales and EBITDA were enhanced by the Mercator acquisition. On a consolidated basis our total sales1 increased by 73.9 per cent from HRK 6,138.6 million to HRK 10,676.9 million. EBITDA increased by 49.9 per cent, from HRK 541.8 million to 811.9 million, while EBITDA margin decreased from 8.8 per cent to 7.6 per cent. Decrease in EBITDA margin is the result of the consolidation of Mercator which has a lower profitability when compared to that of the rest of the Restricted Subsidiaries.

During Q1 2015 our primary focus was on the continuation of the integration of Mercator, predominantly focusing on negotiations with suppliers and SG&A savings as key drivers of synergy realization. We have also 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 87.1 per cent of total consolidated sales and posted an increase of 94.7 per cent compared to the previous year with sales increasing from HRK 4,774.6 million to HRK 9,297.2 million. Division’s EBITDA increased from HRK 258.2 million to HRK 524.6 million representing a 103.2 per cent increase with EBITDA margin increasing from 5.2 per cent to 5.4 per cent, on an unconsolidated basis. Strong growth in both sales and EBITDA was predominantly driven by the Mercator acquisition.

Food Manufacturing and Distribution division generated 9.7 per cent of the total consolidated sales. Sales in this division decreased by 3.4 per cent compared to the same period last year, from HRK 1,076.3 million to HRK 1,040.0 million. Division’s EBITDA on the other hand increased, from HRK 307.4 million to HRK 311.2 million representing a 1.2 per cent increase. EBITDA margin increased from 14.7 per cent to 15.0 per cent, on an unconsolidated basis, predominantly due to better performance of Ice Cream and Frozen Food and Water and Beverages segments.

1 Total sales includes Revenues and Sale of Services

2

Other Businesses2 division posted a significant increase in total consolidated sales of 18.2 per cent, from HRK 266.6 million to HRK 315.1 million. This division contributed 3.0 per cent of the consolidated sales. EBITDA posted a strong decline of 24.8 per cent from HRK 14.9 million to HRK 11.2 million with EBITDA margin decreasing from 3.1 per cent to 2.0 per cent, on an unconsolidated basis. Both increase in sales and a decrease in EBITDA were a result of our commodities brokerage business that had a strong increase in sales but a significant decrease in profitability as margins were decreased.

Key highlights of Group Results and Strategy

Increase in topline predominantly as a result of the Mercator acquisition

Excluding for the transfer of Agrokor operations in to Mercator we have posted relatively stable sales within the Restricted Subsidiaries. Consolidated sales were enhanced by the Mercator acquisition.

Maintaining market shares across the region

We have managed to maintain or even increase our market shares and keep our leadership positions across most of our businesses within the Food Manufacturing and Distribution division whilst in the Retailing and Wholesale division we have increased our market shares as a result of the Mercator acquisition. 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 the overall environment.

M&A and other activities

On February 20th 2015 we signed €300 million club term loan facility with Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan and Morgan Stanley. This facility matures on August 20, 2016. We also amended and restated existing agreement with BNP Paribas resulting with an additional €25 million exposure which maturity is aligned to the club facility.

In February 2015 Agrokor acquired from Agrokor Investments B.V. an additional 9.5 per cent in Mercator, increasing its shareholding to 59.5 per cent.

Recent Developments

We recently reviewed a number of options to increase the financial flexibility of the consolidated group post Mercator acquisition and the integration of the businesses, including a comprehensive refinancing of our debt obligations, including a portion of Mercator’s obligations and the debt obligations of Agrokor’s holding company, but have concluded not to pursue such a refinancing at this stage.

We have signed in May a share purchase agreement for our animal husbandry business Dijamant Agrar for an undisclosed amount.

Mercator signed in April a share purchase agreement with Don Don, a regional pastry company, for the sale of Pekarna Grosuplje, its bakery business. Completion is conditional to Anti-Monopoly approvals.

The sale of other non-core businesses and assets is ongoing. We are currently exploring the sale of Mercator’s: (i) Intersport – sports goods stores, (ii) Modiana – fashion apparel stores, (iii) M Tehnika – technical goods stores, and (iv) Mercator–Emba – food company.

In May, we commenced sale and leaseback process of Mercator’s real estate properties in Slovenia. We expect to receive binding bids until end of June and close the transaction until end of July.

2 Excluding Agrokor Holding

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Performance of divisions

Retailing and Wholesale

Although some of our Primary markets (Slovenia in particular) are showing modest signs of recovery, in general the retail environment across the Primary markets is still facing adverse trends. As a response to these conditions we have continued 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. In addition, we changed our pricing policy that combined with modified loyalty program scheme should additionally enhance consumer perception.

Furthermore, although physical integration of Mercator stores was completed in 2014, we continued to focus on the operations of the stores that were taken over, particularly by adjusting in store operations and sharing best practices across the region. Regarding refurbishments, focus has been shifted to the refurbishment of Mercator stores taken over (including Slovenian network), especially those we consider anchor stores.

Synergy extraction is going as planned and we continue to be confident that approximately EUR 130million will be realised throughout 2015. As of March 31st, 2015 we had completed measures (implementing certain organizational changes, execution of contracts with suppliers etc.) and which are expected to deliver EUR 100 million of the total estimated net cost synergies in 2015.

Retailing and Wholesale division in Q1 2015 posted 94.3 per cent increase in sales on unconsolidated basis, from HRK 4,987.0 million to HRK 9,691.7 million, with an EBITDA increase of 103.2 per cent, from HRK 258.2 million to HRK 524.6 million. EBITDA margin increased by 24 bps, from 5.2 per cent to 5.4 per cent. The increase in sales and profitability is predominantly due to the Mercator acquisition.

Croatia

Croatian food retail market, despite slight recovery of the retail trade, is still impacted by challenging macroeconomic environment and the persistence of negative trends, such as continuing trend of deflation. 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 the above mentioned unfavourable trends. 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 also continued with enhancing our bakery and meat assortment in line with best practice. In the competitive landscape, top 10 players increased its market share to roughly 79 per cent, compared to the same period last year. Konzum market share also increased and amounted to roughly 30 per cent.

Our wholesale business experienced a slight increase with HoReCa channel remaining fairly stable.

Konzum fully integrated ex Mercator stores by the end of 2014. In Q1 2015 we continued to focus on ex Mercator stores on adjusting in store operations as well as refurbishing certain flagship stores.

Majority of stores subject to Anti-trust agency measures have been disposed of whilst the outstanding stores are in the disposal process. We are expecting most of these stores will be disposed until mid-July.

Slovenia

Despite signs of general macroeconomic recovery in Slovenia, food retail market conditions remain tough with a likelihood that these negative trends are going to continue throughout 2015. We continued with best practice transfer across our Retailing and wholesale division that proved to be effective (i.e. new pricing policy etc.).

The Slovenian and Croatian markets are the most developed markets across our Primary Markets with a relatively high fragmentation. According to Valicon, the top 3 players account for roughly 69 per cent with Mercator market share amounting to roughly 32 per cent at the end of Q1 2015.

Our wholesale business experienced a slight decrease as, in line with the regional policy across our retail operations, we reduced Mercator sales to certain customers whose risk profile increased.

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Serbia

Retail environment continues to be pressured by overall negative macroeconomic conditions which can be seen from the competitive landscape where top 10 players increased its market share to 35 per cent. Market share of Mercator Serbia continued to increase reaching roughly 15 per cent.

Our wholesale segment experienced a decrease mainly due to the deteriorated conditions of mom and pap's stores and integration of the different business models between iDEA and Mercator.

Mercator Serbia finalised integration and rebranding of stores by the end of 2014 and therefore, as well as in Croatia, continued to focus on adjusting in store operations and sharing best practices across the region.

Stores subject to Anti-trust agency disposal measures are still being divested and we are estimating that these stores will be disposed until mid-July.

Bosnia and Herzegovina

The overall macroeconomic environment continues to be unfavourable. Despite the Mercator transaction and the overall integration process, we continued with the repositioning of our portfolio of convenience stores and introducing new pricing campaigns.

Contrary to other markets 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.

Konzum fully integrated former Mercator stores by the end of 2014. In Q1 2015 we continued to focus on former Mercator stores by way of adjusting in store operations as well as refurbishing certain flagship stores.

Konzum (Restricted Subsidiary)

Start of Period Croatia Bosnia and Herzegovina Period End Q1 2015 Ended (March 31, 2015) Number of Sales Area Number of Sales Area Number of Sales Area Number of Sales Area Stores (m2) Stores (m2) Stores (m2) Stores (m2) Small 800 164.169 599 126.280 181 36.750 780 163.030 Maxi 109 92.759 47 42.281 61 49.978 108 92.259 Super 91 213.641 74 174.861 16 36.635 90 211.496 Hyper 0 0 0 0 0 0 0 0 Total FMCG retail 1.000 470.569 720 343.422 258 123.363 978 466.785 Velpro 28 58.040 22 49.529 5 8.278 27 57.807

Total FMCG retail and wholesale 1.028 528.609 742 392.951 263 131.641 1.005 524.592 Tisak 1.063 14.312 1.050 14.229 0 0 1.050 14.229

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Mercator (Unrestricted Subsidiary)

Macedonia, Q1 2015 Ended Start of Period Albania and Slovenia Serbia Croatia B&H Montenegro Period end (March 31, 2015) (December 31, 2014) Kosovo Intersport Number of Sales Area Number of Number of Number of Number of Number of Number of Number of Sales Area ACTIVITY stores (m2) stores stores stores stores stores stores stores (m2) Hypermarkets 68 192.746 22 41 1 2 66 191.519 120 108.323 62 42 4 10 118 103.911 Neighbour stores 715 182.421 387 238 9 74 708 181.883 Comfort stores 3 4.237 1 1 1 3 4.237 Mini stores 6 471 5 1 6 470 TOTAL FMCG retail 912 488.197 477 323 15 0 86 0 901 482.019 Cash & Carry / VELPRO 39 103.035 15 15 7 1 38 97.000 Restaurants 21 2.906 8 11 2 21 2.912 TOTAL FMCG program 972 594.138 500 349 22 2 87 0 960 581.930 Technical consumer goods 65 56.725 50 14 1 65 56.725 Clothing program and drugstores 112 47.306 52 13 32 12 109 47.146 Clothing program 93 45.258 43 7 32 8 90 45.106 Drugstores and perfumeries 19 2.048 9 6 4 19 2.040 Intersport 84 40.222 34 11 29 9 2 85 40.448 M holidays 12 242 12 12 242 Other 3 335 3 3 335 TOTAL specialised programs 276 144.830 151 38 61 21 3 0 274 144.896 TOTAL retail units under 1.248 738.969 651 387 83 23 90 0 1.234 726.826 management Franchise stores 315 42.900 223 1 5 229 35.397 TOTAL 1.563 781.868 874 387 84 23 90 5 1.463 762.223

Food Manufacturing and Distribution

Food Manufacturing and Distribution division recorded a decline of unconsolidated sales of 0.7 per cent, from HRK 2,092.7 million to HRK 2,078.0 million. EBITDA on the other hand increased by 1.2 per cent, from HRK 307.4 million to HRK 311.2 million with EBITDA margin increasing by 29 bps from 14.7 per cent to 15.0 per cent. Improvement in EBITDA and EBITDA margin was predominantly the result of a better performance of Ice Cream and Frozen Food and Water and Beverages segments.

Recent Macroeconomic Developments

Croatia

After sluggish growth in Q4 2014, Croatia managed to record second consecutive quarter with real GDP growth which technically means an exit from the recession. In the Q1 2015, economic growth in Croatia was 0.5 per cent. Main driver of this growth was domestic consumption, primarily household consumption (0.3 per cent y-o- y growth). On the other hand, net external demand had neutral effect, since both exports and imports of goods and services recorded quite significant growth rates of 7.2 per cent and 5.7 per cent respectively. Industrial production was higher in Q1 by 0.3 per cent, primarily due to solid performance in February and March. At the same time, retail trade in the first quarter increased by 1.7 per cent. There is still continuing trend of deflation, which in the first three months amounted to -0.4 per cent.

Serbia

In the Q1 of 2015, Serbian real GDP decreased by -1.8 per cent in comparison to the corresponding period of the previous year. Although, it is obvious that Serbia is still facing consequences of major flooding from last year it is worthwhile mentioning that in Q1 we saw growth of exports of goods and services and investment by 9.7 per cent and 4.4 per cent respectively. Industrial production in Q1 2015 was down by -2.0 per cent, while retail trade decreased by -1.0 per cent and construction activity by -7.6 per cent. Serbia recorded historically lowest inflation in Q1 which was on average 0.9 per cent. After certain depreciation pressures on dinar during January in the remaining of quarter we saw rather stable nominal exchange rate in the area of 120 dinars for 1 euro.

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Slovenia

Slovenia continues to pose highest growth rates across the region, since Q1 showed another impressive performance of Slovenian economy, growth of 2.9 per cent. External demand continues to have a positive impact on the economic activity. Terms of trade improved even more primarily due to lower import prices of energy and thus the contribution of the external trade balance to economic growth was 0.5 of a percentage point. From the production side, industrial production proved again to be the main driver of economic growth. In Q1 we saw growth of industrial production of 5.2 per cent. After good start of the year for retail trade, March brought reduction of -1.8 per cent. However, retail trade turnover in Q1 increased by 0.2 per cent. Construction activity is still on its way to recovery since in Q1 we saw a drop of -1.5 per cent. Slovenia is also facing deflation, in Q1 the average drop of consumer price index was -0.4 per cent.

Bosnia and Herzegovina

Industrial production in March recorded a slight increase of 0.4 per cent, while overall in the first quarter decreased by -0.7 per cent. As opposed to industrial production, figures in retail trade and construction show that there are reasons to believe that the economy was doing well in Q1. Retail trade recorded an increase of 7.3 per cent, while construction sector went up by 2.7 per cent. At the same time, deflation is still present. The average drop of consumer price index in Q1 was -0.6 per cent.

Montenegro

Industrial production in Montenegro went up by 7.0 per cent in Q1, while retail trade and construction increased by 0.8 per cent and 9.6 per cent respectively. In Q1 inflation was at the level of 0.8 per cent.

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

7 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, Euro, Convertible Marks (which are pegged to the Euro), Serbian Dinars and Forint.

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 March 31st, 2015 and March 31st, 2014;

(in HRK million) 31.03.2014. % of total sales 31.03.2015. % of total sales 2015./2014.

Sales revenue 5,975.9 97.3% 10,291.3 96.4% 72.2% Sales of services 162.7 2.7% 385.6 3.6% 137.0% Total sales 6,138.6 100.0% 10,676.9 100.0% 73.9% Other income 86.1 1.4% 45.6 0.4% -47.1% 6,224.7 101.4% 10,722.5 100.4% 72.3%

Change in inventories of unfinished and finished goods 74.5 1.2% 141.4 1.3% 89.7% Costs of materials and goods sold (4,351.3) 70.9% (7,708.7) 72.2% 77.2% Cost of services (529.1) 8.6% (885.9) 8.3% 67.4% Staff costs (662.4) 10.8% (1,139.8) 10.7% 72.1% Depreciation and amortization (252.4) 4.1% (388.5) 3.6% 53.9% Other costs (239.1) 3.9% (318.0) 3.0% 33.0% Sale of properties, net 4.3 0.1% 15.2 0.1% 256.1% (5,955.4) 97.0% (10,284.4) 96.3% 72.7%

Financial income 75.1 1.2% 263.1 2.5% 250.2% Financial expense (453.0) 7.4% (714.0) 6.7% 57.6% (377.8) 6.2% (450.9) 4.2% 19.3%

PROFIT BEFORE TAX FROM CONTINUING OPERATIONS (108.5) 1.8% (12.8) 0.1% -88.2%

Taxation (39.4) 0.6% (46.6) 0.4% 18.3%

PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS (147.9) 2.4% (59.4) 0.6% -59.8%

ATTRIBUTABLE TO: Equity holders of the parent (133.3) 2.2% (83.8) 0.8% -37.2% Non-controlling interests (14.6) 0.2% 24.4 0.2% -267.2%

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Segmental Analysis

The table below provides information on results of our business segments for the periods ended on March 31st, 2015 and March 31st, 2014:

Business operating segments

Food Manufacturing Retailing Agrokor and and Other Intersegment (HRK million) Holding Distribution Wholesale Businesses sales Consolidated 31.03.2015. Sales to external customers 24,6 1.040,0 9.297,2 315,1 Intersegmental sales 68,1 1.038,0 394,5 252,5 (1.753,1) Total sales 92,7 2.078,0 9.691,7 567,6 (1.753,1) 10.676,9 Operating profit (37,5) 204,3 251,2 5,4 423,4 Operating profit margin (%) - 9,8% 2,6% 1,0% Depreciation 2,4 106,9 273,4 5,8 388,5 EBITDA (35,1) 311,2 524,6 11,2 811,9 31.03.2014. Sales to external customers 21,1 1.076,3 4.774,6 266,6 Intersegmental sales 90,1 1.016,4 212,4 213,6 (1.532,5) Total sales 111,2 2.092,7 4.987,0 480,2 (1.532,5) 6.138,6 Operating profit (40,6) 197,8 122,7 9,6 289,5 Operating profit margin (%) - 9,5% 2,5% 2,0% Depreciation 1,9 109,6 135,5 5,3 252,3 EBITDA (38,7) 307,4 258,2 14,9 541,8

Comparison of the Periods Ended March 31st, 2015 and March 31st, 2014

Sales revenue

Sales revenue increased by HRK 4,315.4 million, or 72.2 per cent, from HRK 5,975.9 million in quarter ended March 31st, 2014 to HRK 10,291.3 million in the quarter ended March 31st, 2015. The increase in sales revenue was primarily the result of our continued focus on increasing our market share in the region, including via the acquisition of Mercator, whose results were consolidated with the Agrokor Group from September 30th, 2014. The increase was also due to our continued emphasis in both our divisions on product line extension and innovation, portfolio management, effective pricing strategy and strong marketing of our products, offset by challenging macroeconomic conditions in our Primary Markets. As a percentage of total sales, sales revenue decreased from 97.3 per cent to 96.4 per cent.

Sales of services

Sales of services increased by HRK 222.9 million, or 137.0 per cent, from HRK 162.7 million in the quarter ended March 31st, 2014 to HRK 385.6 million in the quarter ended March 31st, 2015. The increase in sales of services was primarily the result of the Mercator acquisition. As a percentage of total sales, sales of services increased from 2.7 per cent to 3.6 per cent.

Total sales

Sales increased by HRK 4,538.3 million, or 73.9 per cent, from HRK 6,138.6 million in the quarter ended March 31st, 2014 to HRK 10,676.9 million in the quarter ended March 31st, 2015. This increase was primarily driven by the increase in sales revenue due to the Mercator acquisition.

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Other income

Other income decreased by HRK 40.5 million, or 47.1 per cent, from HRK 86.1 million in the quarter ended March 31st, 2014 to HRK 45.6 million in the quarter ended March 31st, 2015. As a percentage of total sales, other income decreased from 1.4 per cent to 0.4 per cent.

Change in inventories of finished goods and works in progress

Change in inventories of unfinished and finished goods increased by HRK 66.8 million, or 89.7 per cent, from HRK 74.5 million in the quarter ended March 31st, 2014 to HRK 141.4 million in the quarter ended March 31st, 2015 principally due to changes in the composition of inventories of finished goods and works in progress.

Cost of materials and goods sold

Cost of materials and goods sold increased by HRK 3,357.4 million or 77.2 per cent from HRK 4,351.3 million in the quarter ended March 31st, 2014 to HRK 7,708.7 million in the quarter ended March 31st, 2015. As a percentage of total sales, cost of materials and goods sold increased from 70.9 per cent to 72.2 per cent. These increases are in line with the expansion of the Group’s scale of business and increase in sales volume, which were primarily driven by the consolidation of Mercator.

Cost of services

Cost of services increased by HRK 356.8 million, or 67.4 per cent, from HRK 529.1 million in the quarter ended March 31st, 2014 to HRK 885.9 million in the quarter ended March 31st, 2015. The increase is predominantly the result of the Mercator acquisition and increased scale of operations. As a percentage of total sales, cost of services decreased from 8.6 per cent to 8.3 per cent.

Staff costs

Staff costs increased by HRK 477.4 million, or 72.1 per cent, from HRK 662.4 million in the quarter ended March 31st, 2014 to HRK 1,139.8 million in the quarter ended March 31st, 2015. The increase is predominantly the result of the Mercator acquisition. As a percentage of total sales, staff costs decreased from 10.8 per cent to 10.7 per cent.

Depreciation and Amortization

Depreciation and amortization increased by HRK 136.1 million, or 53.9 per cent, from HRK 252.4 million in the quarter ended March 31st, 2014 to HRK 388.5 million in the quarter ended March 31st, 2015. The increase is predominantly the result of the Mercator acquisition. As a percentage of total sales, depreciation and amortization decreased from 4.1 per cent to 3.6 per cent.

Other costs

Other costs increased by HRK 78.9 million, or 33.0 per cent, from HRK 239.1 million in the quarter ended March 31st, 2014 to HRK 318.0 million in the quarter ended March 31st, 2015, primarily due to the Mercator acquisition.

Sale of properties, net

Net sale of properties increased by HRK 10.9 million, from HRK 4.3 million in the quarter ended March 31, 2014 to HRK 15.2 million in the quarter ended March 31, 2015.

Financial income

Financial income increased by HRK 187.9 million, or 250.2 per cent, from HRK 75.1 million in the quarter ended March 31st, 2014 to HRK 263.1 million in the quarter ended March 31st, 2015 principally due to income from SWAP agreement.

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Financial expense

Financial expense increased by HRK 261.0 million, or 57.6 per cent, from HRK 453.0 million in the quarter ended March 31st, 2014 to HRK 714.0 million in the quarter ended March 31st, 2015. The increase was principally due to the Mercator acquisition and overall increase of indebtedness as a result thereof. As a percentage of sales, financial expense decreased from 7.4 per cent of total consolidated sales to 6.7 per cent.

Income before taxation

As a result of the foregoing items, income before taxation increased by HRK 95.7 million, or 88.2 per cent, from a loss of HRK 108.5 million in the quarter ended March 31st, 2014 to a loss of HRK 12.8 million in the quarter ended March 31st, 2015.

Taxation

Taxation increased by HRK 7.2 million, or 18.3 per cent, from HRK 39.4 million in the quarter ended March 31st, 2014 to HRK 46.6 million in the quarter ended March 31st, 2015. Corporate taxation is based on the accounting profit for the year adjusted for permanent and temporary differences between taxable and accounting income.

Net profit

Due to the factors discussed above, net loss decreased by HRK 88.5 million, from a loss of HRK 147.9 million in the quarter ended March 31st, 2014 to a loss of HRK 59.4 million in the quarter ended March 31st, 2015. Net loss attributable to our equity holders decreased by HRK 49.5 million from a loss of HRK 133.3 million to a loss of HRK 83.8 million and the non-controlling interest increased by HRK 38.9 million, or 267.2 per cent, from a loss of HRK 14.6 million to a profit of HRK 24.4 million.

Liquidity and Capital Resources

The main sources of the Group’s liquidity are cash and cash equivalents generated in the regular course of business and short-term indebtedness with banks and financial institutions.

Cash and cash equivalents as at March 31st, 2015 amounted to HRK 2,523.9 million, compared to HRK 2,681.3 million as at December 31st, 2014.

Net cash used in investment activities amounts to HRK 779.3 million and reflects increase in property, plant and equipment and intangible assets procurement as well as increase in acquisition of subsidiaries and other short term financial investments. Property, plant and equipment and intangible assets procurement relates to investments in further development and renewal of the retail network across the region as well as integration of Mercator. We have fulfilled annual purchases of refrigeration equipment in Ice cream and Frozen food and Water and beverages segment. Ledo also purchased multi-rowed packing unit, 2 new manufacturing units for production, mixing and ice cream dosing. Zvijezda replaced margarine line pasteurizer while Jamnica invested in improvement of its ultra-clean lines in order to increase biological security of its products and also invested in the tanks for the preparation of the finished product.

Net cash generated from financial activities during the three month period reflects changes in credit lines that were available to the Group. Debt as of March 31st 2015 totals HRK 25,198.5 million (on December 31st 2014 it amounted to HRK 23,688.2 million) and interest rates were in the range of 2.5 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 March 31st, 2015 and March 31st, 2014:

Cash flows 31.3.2014. 31.3.2015. (HRK million) Net cash flows from operating activities before changes in working capital 481.1 822.6 Interest paid (227.2) (421.2) Changes in working capital 319.7 (951.3) Net cash provided by/(used in) operating activities 361.7 (882.0) Capex (192.0) (176.9) Acquisitions of subsidiaries, net of cash acquired (2.0) (386.1) Net cash used in investing activities (294.3) (779.3) Net cash from financing activities 4,421.6 1,503.9 Net increase/(decrease) in cash and cash equivalents 4,489.0 (157.4)

Changes in working capital

At March 31st, 2015 changes in working capital were negative and amounted to HRK 951.3 million compared to the positive contribution of HRK 319.7 million in the corresponding period last year. The main driver of these negative changes in working capital was decrease of accounts payables.

Capital expenditure

Capital expenditures decreased by HRK 15.1 million, or 7.9 per cent, from HRK 192.0 million to HRK 176.9 million.

Indebtedness

The following table summarizes our indebtedness at December 31st, 2014 and March 31st, 2015:

Borrowings (HRK million) 31.12.2014. 31.03.2015.

Long-term borrowings -Bank loans 13,487.0 15,323.0 -Bonds 6,603.5 6,821.0 -Non-bank loans 0.0 0.0 -Finance leases 1,350.6 1,286.1 Total long-term borrowings 21,441.1 23,430.1

Total current portion of long-term borrowings (613.4) (529.6)

Short-term borrowings -Bank loans 2,217.7 1,704.2 -Non-bank loans 29.4 64.2 Total short-term borrowings 2,247.0 1,768.4

Total borrowings 23,688.2 25,198.5

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The table below summarizes the maturity profile of our long-term borrowings at December 31st, 2014 and March 31st, 2015:

Maturity of Long-term debt (HRK million) 31.12.2014 31.03.2015. 2015 613.3 304.1 2016 2,226.7 4,227.7 2017 2,408.2 2,414.5 2018 937.0 967.6 2019 3,652.5 3,892.0 2020 6,043.1 6,067.5 2021 and later 5,560.3 5,556.7 Total 21,441.1 23,430.1

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