Granolio d.d.

Earnings Release • Oct 27, 2016

Non-consolidated financial results for the nine months period ended 30 September 2016 (unaudited)

General information on Granolio d.d.

GRANOLIO d.d. ("The Company") is a joint-stock company registered with the Commercial Court of Zagreb, Croatia. The Company's tax number (OIB) is 59064993527, and its registration number (MBS) 080111595. The Company's headquarter is located in Zagreb at Budmanijeva 5.

The Company has General Assembly, Supervisory Board and Management Board.

Subsidiaries

The Company holds 100% of the shares in the Zdenačka farma d.o.o. and Prerada Žitarica d.o.o. companies.

It has a controlling influence in the decision-making process in the Zdenka mliječni proizvodi d.o.o. and Žitar d.o.o companies. The above companies have been consolidated into the Granolio Group since 2011.

Subsidiary Žitar d.o.o. has founded another company, Žitar konto d.o.o., which is fully owned by it. Žitar konto d.o.o. financial statements are part of the consolidated financial statements.

The Company also holds minority interests in the Žitozajednica d.o.o., Zagrebačke pekarne Klara d.o.o. and Prehrana trgovina d.d. companies.

Ownership in subsidiaries is presented in the organizational chart below:

Significant business events in the accounting period

During the first nine months of 2016 dividends were paid out to the shareholders in the total amount of HRK 951 thousand.

Company's financial indicators for the first nine months of 2016

in thousands of HRK
Granolio d.d.	1-9 2016	1-9 2015	change
Operating income	395,256	421,034	(25,778)	(6%)
Operating expenses	376,786	412,394	(35,608)	(9%)
EBIT	18,470	8,640	9,829	114%
EBIT margin	5%	2%
EBITDA*	26,149	16,151	9,998	62%
EBITDA margin	7%	4%
Net financial result	(19,197)	(10,144)	(9,053)	89%
Net result for the period	(727)	(1,503)	776	52%

* EBITDA= EBIT + depreciation + value adjustments

Comparing to the corresponding period last year, significantly better operating result (EBIT) was realised during the first nine months of 2016, and the main reason for this are significantly better sales margins realised on almost all goods. Comparing to the corresponding period income decrease is the result of both lower sales prices and lower sales quantities.

Besides higher margins, expenses decrease contributed to the better operating result as well. In 2015 one-off expenses incurred, as a result of production rationalisation, while in 2016 there were no similar costs.

Net financial result represents the difference between financial income and financial expenses, and comparing to the corresponding period in 2015 in the first nine months of 2016 net financial expense is 89% higher. Comparing to the corresponding period last year regular and penalty interest expense is HRK 1.1 million higher, while financial income is lower by HRK 8.5 million. Financial income decrease is noted in the part of re-invoiced expenses, net FX gains which were app. HRK 1.3 million higher in 2015, penalty interests earned from commercial activities and interest income on loans granted to subsidiaries, which is in 2016 lower, after the loan granted to Zdenačka farma was converted to equity.

in thousands of HRK
Granolio d.d.	30.9.2016	31.12.2015	change
Net assets (Capital and reserves)	168,722	169,854	(1,132)	(1%)
Total debt	503,652	426,550	77,102	18%
Cash and cash equivalents	1,403	16,973	(15,570)	(92%)
Financial assets*	68,617	42,473	26,144	62%
Net debt	433,632	367,104	66,527	18%
Net debt/EBITDA	8.9	9.5	(1)	(6%)
EBITDA for the last 12 months	48,526	38,528	9,998	26%

* Financial assets are comprised of financial loans, securities and deposits

.

As at 30 September 2016 net debt is 18% higher than the net debt as at 31 December 2015.

With the better realised value of EBITDA, Company's financial leverage ratios are significantly more favourable.

Overview of the business operations for the first nine months of 2016 per business segments

The Company monitors its business operations through four business segments:

• 1. Flour
• 1. Sowing material (wholesale of: fertilizers, protective materials and seeds)
• 1. Trading (wholesale of grains, oil crops and bakery products)
• 1. Other (rendering services of storage, drying and reception of grains and oil crops at the reception stations, cattle breeding, other)

Sales income per business segments is shown by the following chart:

Flour

Decrease of flour sales income is the result of the decreased quantity of the flour sold, and lower sales prices. Average sales price of flour in the first nine months of 2016 was 7% lower than the average sales price of flour in the corresponding period last year.

Comparing to the corresponding period last year, average value of the basic raw material (wheat) used in production was lower in 2016.

Within the other operating costs it is important to single out one-off costs which emerged during 2015, like rent costs (rent costs of mills Belje and Vinkovci in the amount of HRK 0.7 million) and severance payments paid out to the employees of mills Belje and Vinkovci in the amount of HRK 2 million. In 2016 no such costs incurred.

Sowing material

Sales decrease of sowing material in 2016 is the result of the following:

• Prices of grains and oil crops are lower, what lead producers to strive to lower the sowing expenses by using less fertilizers and pesticides.
• Autumn sowing season 2015/2016 was increased, thereby less agricultural land was left for the spring sowing season.
• Suppliers of sowing material have started with the sale of sowing material directly to farmers and small producers, thereby removing the mediators like Granolio out from the distribution chain.

Trading

Comparing to the corresponding period last year, Trading segment has earned higher income, and realized significantly higher margins.

Other

Sales income in the Other segment is comprised of re-invoiced transportation and fuel costs, income from rendering the service of goods reception at the reception stations, income from storage and drying goods, and income from sale of cattle. Income from reception, storage and drying are impacted by outstanding seasonality, i.e. they are largely realized in the last quarter of the year, while costs are mainly fixed by nature. It is important to note that silo is used for internal usage of Flour and Trading segments as well.

Employees

In the first nine months period of 2016 the Company employed 164 employees based on man-hour basis (in the first nine months period of 2015: 176 employees).

Redemption of treasury shares

Based on the General Assembly decision of 9 June 2016 the Company has transferred a portion of the profit earned in 2015 in the amount of HRK 800 thousand into the equity reserves for treasury shares.

Up to the publication of the Management Board report, the Company was not engaged in any activities relating to the redemption of own shares.

Environment

Regarding the environmental protection, the Company has implemented comprehensive and systematic solutions and established environment-friendly production processes.

Other

Supervisory Board has approved Company's financial statements for the first nine months period of 2016.

Annex 1. Reporting period	1.1.2016	to	30.9.2016
		Quarterly financial report TFI-POD
Tax number (MB): 01244272
Company registration number
080111595 (MBS):
59064993527 Personal identification number (OIB):
Issuing company: GRANOLIO d.d.
Postal code and place 10000		Zagreb
Street and house number: BUDMANIJEVA 5
E-mail address: granolio@granolio.hr
Internet address www.granolio.hr
Municipality/city code and name 133	ZAGREB
County code and name 21	GRAD ZAGREB		Number of employees:	172
Consolidated report: NO			(period end) NKD code:	1061
Companies of the consolidation subject (according to IFRS):		Seat:	MB:
Bookkeeping service:
Contact person: JASENKA KORDIĆ
(only surname and name) Telephone: 01/6320261			01/6320224 Telefaks:
E-mail address: jkordic@granolio.hr
Family name and name: HRVOJE FILIPOVIĆ

L.S.

(signature of the person authorized to represent the company)

as of 30.09.2016.
Company: GRANOLIO d.d.
Position	AOP	Previous period	Current period
1	2	3	4
ASSETS
A) RECEIVABLES FOR SUBSCRIBED BUT NOT PAID-IN CAPITAL	001
B) LONG-TERM ASSETS (003+010+020+029+033)	002	468.589.816	463.882.452
I. INTANGIBLE ASSETS (004 do 009)	003	188.142.343	186.960.381
1. Assets development	004
2. Concessions, patents, licenses, trademarks, service marks, software and other rights	005	120.401.104 60.379.072	120.468.642
3. Goodwill 4. Prepayments for purchase of intangible assets	006 007		60.379.072
5. Intangible assets in preparation	008
6. Other intangible assets	009	7.362.167	6.112.667
II. TANGIBLE ASSETS (011 do 019)	010	143.815.327	140.452.637
1. Land	011	8.182.140	8.182.140
2. Buildings	012	113.392.162	110.910.325
3. Plant and equipement	013	19.406.193	17.585.258
4. Tools, working inventory and transportation assets	014	391.307	1.280.312
5. Biological assets	015
6. Prepayments for tangible assets	016
7. Tangible assets in progress	017	2.365.901	2.417.573
8. Other tangible assets	018	77.624	77.030
9. Investments in buildings	019
III. LONG-TERM FINANCIAL ASSETS (021 do 028)	020	136.617.146	136.454.434
1. Investments (shares) with related parties	021	115.254.813	115.254.813
2. Loans given to related parties	022
3. Participating interest (shares)	023	20.461.690	20.461.690
4.Loans to entrepreneurs in whom the entity holds participating interests	024
5. Investments in securities	025
6. Loans, deposits and similar assets	026	900.643	737.931
7. Other long - term financial assets	027
8. Investments accounted by equity method	028
IV. RECEIVABLES (030 do 032)	029	15.000	15.000
1. Receivables from related parties	030
2. Receivables from based on trade loans	031
3. Other receivables	032	15.000	15.000
V. DEFERRED TAX ASSET	033
C) SHORT TERM ASSETS (035+043+050+058)	034	252.568.052	345.581.612
I. INVENTORIES (036 do 042)	035	54.699.132	76.520.194
1. Raw materials and supplies	036	42.652.245	25.229.725
2. Work in progress	037	748.544	685.930
3. Finished goods	038	3.412.663	2.215.219
4. Merchandise	039	7.885.680	48.389.319
5. Prepayments for inventories 6. Long term assets held for sale	040 041
7. Biological assets	042
II. RECEIVABLES (044 do 049)	043	138.423.624	199.041.194
1. Receivables from related parties	044	3.880.456	6.916.270
2. Accounts receivable	045	124.865.490	175.570.046
3. Receivables from participating parties	046
4. Receivables from employees and members of related parties	047	7.342	7.342
5. Receivables from government and other institutions	048	5.473.744	7.565.558
6. Other receivables	049	4.196.592	8.981.978
III. SHORT TERM FINANCIAL ASSETS (051 do 057)	050	42.472.749	68.617.190
1. Shares (stocks) in related parties	051
2. Loans given to related parties	052	35.401.763	38.237.394
3. Participating interests (shares)	053
4. Loans to entrepreneurs in whom the entity holds participating interests	054
5. Investments in securities	055	695.738	768.876
6. Loans, deposits, etc.	056	6.375.248	29.610.919
7. Other financial assets	057
IV. CASH AND CASH EQUIVALENTS	058	16.972.547	1.403.035
D) PREPAID EXPENSES AND ACCRUED REVENUE	059	5.053.062	6.752.810
E) TOTAL ASSETS (001+002+034+059)	060	726.210.930	816.216.873
F) OFF-BALANCE RECORDS	061	4.398.007	4.259.296

Balance Sheet

EQUITY AND LIABILITIES
A) ISSUED CAPITAL AND RESERVES (063+064+065+071+072+075+078)	062	169.854.332	168.722.021
I. SUBSCRIBED SHARE CAPITAL	063	19.016.430	19.016.430
II. CAPITAL RESERVES	064	84.186.547	84.186.547
III.RESERVES FROM PROFIT (066+067-068+069+070)	065	183.484	1.083.227
1. Reserves prescribed by low	066	183.484	283.227
2. Reserve for own shares	067		800.000
3. Treasury shares and shares (deductible items)	068
4. Statutory reserves	069
5. Other reserves	070
IV. REVALUATION RESERVES	071	64.473.012	62.289.720
V. RETAINED EARNINGS OR ACCUMULATED LOSS (073-074)	072	-7.078.272	2.873.409
1. Retained earnings	073		2.873.409
2. Accumulated loss	074	7.078.272
VI. PROFIT/LOSS FOR THE CURRENT YEAR (076-077)	075	9.073.131	-727.312
1. Profit for the current year	076	9.073.131	0
2. Loss for the current year	077		727.312
VII. MINORITY INTEREST	078
B) PROVISIONS (080 do 082)	079	0	0
1. Provisions for pensions, severance pay and similar libabilities	080
2. Provisions for tax liabilities	081
3. Other provisions	082
C) LONG - TERM LIABILITIES (084 do 092)	083	299.123.101	287.033.191
1. Liabilites to related parties	084
2. Liabilities for loans, deposits, etc.	085
3. Liabilities to banks and other financial institutions	086	283.004.848	271.460.761
4. Liabilities for received prepayments	087
5. Accounts payable	088
6. Liabilities arising from debt securities	089
7. Liabilities to entrepreneurs in whom the entity holds participating interests	090
8. Other long-term liabilities	091
9. Deferred tax liability	092	16.118.253	15.572.430
D) SHORT - TERM LIABILITIES (094 do 105)	093	256.688.654	359.917.405
1. Liabilites to related parties	094	591.129	1.054.150
2. Liabilities for loans, deposits, etc.	095		80.000
3. Liabilities to banks and other financial institutions	096	62.657.130	122.840.403
4. Liabilities for received prepayments	097	2.845.263	4.931.349
5. Accounts payable	098	97.020.024	117.175.855
6. Liabilities arising from debt securities	099	80.887.770	109.270.776
7. Liabilities to entrepreneurs in whom the entity holds participating interests	100
8. Liabilities to emloyees	101	1.093.562	1.072.570
9. Liabilities for taxes, contributions and similar fees	102	8.540.805	432.060
10. Liabilities to share - holders	103
11. Liabilities for long-term assets held for sale	104
12. Other short - term liabilities	105	3.052.971	3.060.242
E) DEFFERED SETTLEMENTS OF CHARGES AND INCOME DEFERRED TO FUTURE PERIOD	106	544.843	544.257
F) TOTAL – CAPITAL AND LIABILITIES (062+079+083+093+106)	107	726.210.930	816.216.873
G) OFF-BALANCE RECORDS	108	4.398.007	4.259.296
APPENDIX to balance sheet(to be filled in by entrepreneur that prepares consolidated annual
financial report) CAPITAL AND RESERVES
1. Attributed to equity holders of parent company	109
2. Attributable to minority interest	110

Income statement period 01.01.2016. to 30.09.2016.

Company: GRANOLIO d.d.
Position	AOP		Previous period Previous period Current period Current period
		Cummulative	Quarter	Cummulative	Quarter
1	2	3	4	5	6
I. OPERATING REVENUE (112 do 113) 1. Sales revenue	111 112	421.034.313	147.934.463	395.255.925	173.554.826
2. Other operating revenues	113	411.465.862 9.568.452	146.976.022 958.441	389.724.980 5.530.945	171.785.289 1.769.537
II. OPERATING COSTS (115+116+120+124+125+126+129+130)	114	412.394.183	142.702.098	376.786.309	162.945.148
1. Changes in value of work in progress and finished products	115	164.445	-313.751	1.084.519	332.699
2. Material costs (117 do 119)	116	374.403.902	132.596.589	343.950.867	152.012.856
a) Raw material and material costs	117	187.262.799	66.800.101	161.103.551	58.096.913
b) Cost of goods sold	118	162.942.784	56.804.159	159.749.115	82.374.830
c) Other external costs	119	24.198.319	8.992.329	23.098.201	11.541.113
3. Staff costs (121 do 123)	120	16.614.451	5.592.690	16.489.015	5.600.509
a) Net salaries and wages	121	9.498.632 4.709.594	3.156.556 1.628.314	9.375.974 4.723.401	3.176.293 1.610.506
b) Tax and contributions from salary expenses c) Contributions on gross salaries	122 123	2.406.226	807.820	2.389.639	813.710
4. Depreciation and amortisation	124	7.510.984	2.424.520	7.679.741	2.586.187
5. Other costs	125	4.982.402	1.162.383	3.091.329	1.132.676
6. Impairment (127+128)	126	0	0	0	0
a) Impairment of long-term assets (financial assets excluded)	127
b) Impairment of short - term assets (financial assets excluded)	128
7. Provisions	129
8. Other operating costs	130	8.717.999	1.239.667	4.490.838	1.280.221
III. FINANCIAL INCOME (132 do 136)	131	10.406.677	2.038.503	2.000.888	1.028.296
1. Interest income, foreign exchange gains, dividends and similar income from related parties	132	1.354.679	297.211	600.107	208.417
2. Interest income, foreign exchange gains, dividends and similar income from non - related parties and other entities	133	4.526.253	1.325.768	729.200	413.078
3. Share in income from affiliated entrepreneurs and participating interests	134			19.794
4. Unrealized gains (income) from financial assets	135
5. Other financial income	136	4.525.745	415.524	651.787	406.801
IV. FINANCIAL EXPENSES (138 do 141)	137	20.550.299	5.446.946	21.197.816	7.439.269
1. Interest expenses, foreign exchange losses, dividends and similar expenses from related parties	138			983
2. Interest expenses, foreign exchange losses, dividends and similar expenses from non - related	139	20.461.907	5.446.611	21.101.058	7.438.132
parties and other entities 3. Unrealized losses (expenses) on financial assets	140
4. Other financial expenses	141	88.393	334	95.775	1.137
V. INCOME FROM INVESTMENT - SHARE IN PROFIT OF ASSOCIATED ENTREPRENEURS	142
VI. LOSS FROM INVESTMENT - SHARE IN LOSS OF ASSOCIATED ENTREPRENEURS	143
VII. EXTRAORDINARY - OTHER INCOME	144
VIII. EXTRAORDINARY - OTHER EXPENSES	145
IX. TOTAL INCOME (111+131+144)	146	431.440.990	149.972.966	397.256.813	174.583.121
X. TOTAL EXPENSES (114+137+143+145) XI. PROFIT OR LOSS BEFORE TAXES (146-147)	147 148	432.944.482 -1.503.492	148.149.043 1.823.923	397.984.125 -727.312	170.384.417 4.198.704
1. Profit before taxes (146-147)	149	0	1.823.923	0	4.198.704
2. Loss before taxes (147-146)	150	1.503.492	0	727.312	0
XII. PROFIT TAX	151
XII. PROFIT OR LOSS FOR THE PERIOD (148-151)	152	-1.503.492	1.823.923	-727.312	4.198.704
1. Profit for the period (149-151)	153	0	1.823.923	0	4.198.704
2. Loss for the period (151-148)	154	1.503.492	0	727.312	0
ADDITION TO PROFIT AND LOSS ACCOUNT (only for consolidated financial statements)
XIV. PROFIT OR LOSS FOR THE PERIOD 1. Attributed to equity holders of parent company	155
2. Attributable to minority interest	156
STATEMENT OF OTHER COMPREHENSIVE INCOME (only for IFRS adopters)
I. PROFIT OR LOSS FOR THE PERIOD (=152)	157
II. OTHER COMPREHENSIVE INCOME/LOSS BEFORE TAXES (159 TO 165)	158	0	0	0	0
1. Exchange differences on translation of foreign operations	159
2. Movements in revaluation reserves of long - term tangible and intangible assets	160
3. Profit or loss from reevaluation of financial assets available for sale	161
4. Gains or losses on efficient cash flow hedging	162
5. Gains or losses on efficient hedge of a net investment in foreign countries 6. Share in other comprehensive income / loss of associated companies	163 164
7. Actuarial gains / losses on defined benefit plans	165
III. TAX ON OTHER COMPREHENSIVE INCOME FOR THE PERIOD	166
IV. NET OTHER COMPREHENSIVE INCOME OR LOSS FOR THE PERIOD (158-166)	167	0	0	0	0
V. COMPREHENSIVE INCOME OR LOSS FOR THE PERIOD (157+167)	168	0	0	0	0
ADDITION TO STATEMENT OF OTHER COMPREHENSIVE INCOME (only for consolidated financial
statements)
VI. COMPREHENSIVE INCOME OR LOSS FOR THE PERIOD
1. Attributed to equity holders of parent company 2. Attributed to minority interest	169 170

Cash flow statement - indirect method period 01.01.2016. to 30.09.2016.

Company: GRANOLIO d.d.
Position	AOP	Previous period	Current period
1	2	3	4
CASH FLOWS FROM OPERATING ACTIVITIES
1. Profit before tax	001	-1.503.492	-727.312
2. Depreciation and amortisation	002	7.510.985	7.679.741
3. Increase in short term liabilities	003	90.324.203	14.465.436
4. Decrease in short term receivables	004
5. Decrease in inventories	005
6. Other increase in cash flow	006	15.837.902	19.916.608
I. Total increase in cash flow from operating activities (001 to 006)	007	112.169.598	41.334.473
1. Decrease in short term liabilities	008
2. Increase in short term receivables	009	52.973.169	61.084.838
3. Increase in inventories	010	4.730.094	20.840.808
4. Other decrease in cash flow	011	6.882.749	3.449.013
II. Total decrease in cash flow from operating activities (008 to 011)	012	64.586.012	85.374.659
A1) NET INCREASE IN CASH FLOW FROM OPERATING ACTIVITIES (007-012)	013	47.583.586	0
A2)NET DECREASE IN IN CASH FLOW FROM OPERATING ACTIVITIES (012-007)	014	0	44.040.186
CASH FLOW FROM INVESTING ACTIVITIES
1. Cash inflows from sales of long-term tangible and intangible assets	015	2.188	187.190
2. Cash inflows from sales of equity and debt instruments	016	52.526.784	37.254.126
3. Interests receipts	017	4.058.095	1.478.372
4. Dividend receipts	018	0	19.794
5. Other cash inflows from investing activities	019	360.696	162.712
III. Total cash inflows from investing activities (015 to 019)	020	56.947.763	39.102.194
1. Cash outflow for purchase of long-term tangible and intangible assets	021	3.203.426	3.135.090
2. Cash outflow for acquisition of equity and debt financial instruments	022	33.151.468	63.392.056
3. Other cash outflow for investing activities	023	16.404.640	73.568
IV. Total cash outflow for investing activities (021 do 023)	024	52.759.534	66.600.714
B1) NET INCREASE IN CASH FLOW FROM INVESTING ACTIVITIES (020-024)	025	4.188.229	0
B2) NET DECREASE IN CASH FLOW FROM INVESTING ACTIVITIES (024-020)	026	0	27.498.520
CASH FLOW FROM FINANCING ACTIVITIES
1. Cash inflow from issuing property and debt financial instruments	027
2. Proceeds from the credit principal, promissory notes, borrowings and other loans	028	762.304.583	254.653.512
3. Other proceeds from financial activities	029	0	8.174.890
V. Total cash inflows from financial activities (027 to 029)	030	762.304.583	262.828.402
1. Cash outflow for repayment of credit principal and bonds	031	734.962.364	205.420.131
2. Cash outflow for dividends paid	032	0	950.822
3. Cash outflow for financial lease	033	973.040	488.256
4. Cash outflow for purchase of treasury shares	034
5. Other cash outflow for financial activities	035	64.004.146
VI. Total cash outflow for financial activities (031 to 035)	036	799.939.550	206.859.209
C1) NET INCREASE IN CASH FLOW FROM FINANCIAL ACTIVITIES (030-036)	037	0	55.969.193
C2) NET DECREASE IN CASH FLOW FROM FINANCIAL ACTIVITIES (036-030)	038	37.634.967	0
Total increase in cash flow (013 – 014 + 025 – 026 + 037 – 038)	039	14.136.848	0
Total decrease in cash flow (014 – 013 + 026 – 025 + 038 – 037)	040	0	15.569.512
Cash and cash equivalents at the beginning of the period	041	1.213.837	16.972.547
Increase of cash and cash equivalents	042	14.136.848	0
Decrease of cash and cash equivalents	043	0	15.569.512
Cash and cash equivalents at the end of the period	044	15.350.685	1.403.035

STATEMENT OF CHANGES IN EQUITY

1.1.2016 to period 30.9.2016

AOP Previous year Current year 2 3 4 001 19.016.430 19.016.430 002 84.190.947 84.186.547 003 183.484 1.083.227 004 -7.987.977 2.873.409 005 -1.503.492 -727.312 006 65.200.776 62.289.720 007 008 009 010 159.100.167 168.722.021 011 012 545.823 545.823 013 014 015 016 -2.691.576 -1.678.134 017 -2.145.753 -1.132.311 018 019 9. Other revaliuation Position 1 17 a. Attributed to equity holders of parent company 17 b. Attributed to minority interest 13. Cash flow hedging 14. Changes in accounting policy 15. Correction of significant errors in prior period 16. Other changes of capital 17. Total increase or decrease in capital (AOP 011 to 016) 11. Currency gains and losses arising from net investement in foreign operations 12. Current and deferred taxes (part) 3. Reserves from profit 4. Retained earnings or accumulated loss 5. Profit or loss for the current year 6. Revaluation of long - term tangible assets 10. Total capital and reserves (AOP 001 to 009) 1. Subscribed capital 2. Capital reserves 7. Revaluation of intangible assets Company: GRANOLIO d.d. 8. Revaluation of financial assets available for sale