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Annual Report | Elgeka S.A.

June 18, 2019

# **ELGEKA S.A.**

### **GROUP OF COMPANIES**

# **MANAGEMENT REPORT FOR YEAR 2018**

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#### **ANNUAL REPORT OF THE BOARD OF DIRECTORS OF "ELGEKA S.A. TRADE – DISTRIBUTIONS – REPRESENTATIONS - INDUSTRY" REGARDING THE CONSOLIDATED AND STAND ALONE FINANCIAL STATEMENTS OF THE FINANCIAL YEAR 1 JANUARY 2018 TO 31 DECEMBER 2018 (In accordance with Law 3556/2007, article 4)**

Dear Shareholders,

In accordance with the Commercial Law and the Articles of Association of the Company, we submit for approval, the present Annual Report of year 2018 (01/01/2018 – 31/12/2018) of the Board of Directors, which have been drafted and is in accordance with the relevant provisions of L. 2190/1920, as replaced from 01/01/2019 by the articles 150-154 of L.4548/2018, the provisions of article 4of L.3556/2007, as well as the delegated of the same Law issued executive decisions of the Board of Directors of the Capital Market Commission.

The present Report includes the financial status and results of year 2018 along with all significant transactions occurring during the current accounting year and until the date of submission. In addition, the Report refers to an analysis of the main threat / risks, perspectives and expectations, corporate governance statement, key non-financial performance data, alternative performance measurement indicators, as well as all transactions with related parties. The abovementioned information refers to both the Parent Company and the Group.

The company "ELGEKA S.A. TRADE - DISTRIBUTIONS - REPRESENTATIONS – INDUSTRY" has the form of the Societe Anonyme and its registered office is located in the Municipality of Delta Thessaloniki, in the Industrial Area of Sindos, D.A. 13, O.T. 31 – B' FASI. It also has a branch office in Acharnes, Attika, at 60 Agios Ioannis Theologos, as well as a branch office in Aspropyrgos, Attica, at position "Skarpa".

The accounting year, ended December 31st, 2018, is the 21 th year during which "ELGEKA S.A." operated as the parent company of the Group. The companies included in the consolidated financial statements, together with the interests of our company in the subsidiaries, are disclosed in detail, in Note 1 of the Annual Financial Statements of the Group and the Company.

The Financial Statements for the year ended December 31st, 2018, are the 14 th consecutive, which have been prepared in accordance with the International Financial Reporting Standards (I.F.R.S.), and the accounting principles and policies, which have been adopted by the Board of Directors of the Company.

The contents of the report are presented as follows:

#### **A. FINANCIAL RESULTS & BUSINESS ACTIVITIES OF THE COMPANY & THE GROUP FOR THE FISCAL YEAR 01/01/2018 TO 31/12/2018**

During 2018, ELGEKA Group achieved to improve its financial figures in the main market where it operates, namely in trade of food and other consumer goods, both in Greece and Romania, by increasing its sales and enhancing its trading position in an industry which is highly competitive. However, the operating results of the Group remained at constantly relative levels compared to the fiscal year 2017, mainly as a consequence of the enhanced promotion plan for the traded products and the

consequent promotional expenses incurred, while the decision taken to cease the activity in Bulgaria, due to the lower than expected results, caused the Group incurring some extraordinary results at a nonoperating level.

Specifically, the financial figures of the Group and the Parent are summarized as follows:

Turnover (sales) from continuing activities of the Group amounted to 174.195 thousand euro in the current financial year over 165.540 thousand euro the previous year of 2017, showing an increase of 8.655 thousand euro or 5,23%. This change is mainly due to the achievement of new partnerships with suppliers that have strong and well-known brands in the markets that is activated ELGEKA Group (Greece, Romania) as well as to the continuous increase of sales in the private label market in Greece. The impact of these events is reflected in the increase in the activities of "Trade of food and other consumer goods" sector (by the amount of 11,1 million euro).

| Sales per Segment (in thousand euro) | 2018 | 2017 | % |
|-------------------------------------------|---------|---------|----------|
| Trade of food and other consumer products | 141.379 | 130.309 | 8,50% |
| Real estate | 359 | 489 | (26,58%) |
| Logistics services | 32.457 | 34.742 | (6,58%) |
| TOTAL | 174.195 | 165.540 | 5,23% |

Gross profit of the Group amounted to 29.654 thousand euro for the year 2018 compared to 28.639 thousand euro of the previous year, presenting an increase of 1.015 thousand euro or 3,54% in percentage, shaping the gross margin at 17,02% in 2018 as opposed to 17,30% in 2017. Maintaining gross profit margin at constantly relative levels, together with increased sales, suggests that the Group has a qualitative portfolio of products and services that responds significantly to market needs. A market characterized by the highest level of competition between companies / suppliers and high sensitivity in terms of products' price and quality on the part of consumers.

Other operating income of the Group is increased by 8,90% compared with 2017, or by 4304 thousand euro, mainly due to the increased revenue from property leases.

Group's Operating Costs presented increase by 1.651 thousand euro or by 5,39% in percentage, i.e. from 30.633 thousand euro in 2017 to 32.284 thousand euro in 2018. This result is a consequence mainly to the increase in Selling and Distribution expenses resulting from the enhanced promotion plan of traded products and the consequent promotional expenses incurred to increase sales, as well as the increase in Administrative expenses. A further decrease in Other Operating Expenses by 284 thousand euro is also particularly positive, mainly as a result of the successful credit policy of recent years and the reduced provision for customer bad debts.

Profit before interest, tax, depreciation and amortization ("EBITDA") from continuing operations of the Group presented a marginal decrease and, in particular, they amounted to 6.590 thousand euro as opposed to 6.863 thousand euro in the previous year, a result which is mainly the consequence of increased promotion expenses of Group's products and services.

At the segment level, there was an increase in "EBITDA" in the segment of "Trade of food and other consumer products".

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| EBITDA per Segment (in thousand euro) | 2018 | 2017 | Μεταβολή |
|-------------------------------------------|-------|-------|----------|
| Trade of food and other consumer products | 5.044 | 4.491 | 553 |
| Real estate | (266) | (71) | (195) |
| Logistics services | 2.055 | 2.487 | (432) |
| Other | (243) | (44) | (199) |
| TOTAL | 6.590 | 6.863 | (273) |

Operating profit from continuing operations of the Group amounted to 2.634 thousand euro against 2.840 thousand euro in the previous year, recording decrease of 206 thousand euro, which is the consequence of the factors that already described.

Financial Expenses are decreased by 63 thousand euro or 1,01% over the previous year, i.e. they amount to 6.165 thousand euro in 2018 compared to 6.228 thousand euro in 2017.

Other Financial Results are decreased by 283 thousand euro amounting to expenses of 244 thousand euro in 2018 compared to revenue of 39 thousand euro in 2017.

Loss before tax from continuing operations of the Group amounted to 3.055 thousand euro the year ended against 2.012 thousand euro in 2017 as a result of the above mentioned facts, as well as of the smaller positive effect from the valuation of Investment property in relation to the previous year (increase of their value by the amount of 520 thousand euro in relation to increase of 1.165 thousand euro in 2017).

Loss after tax from continuing operations remains at relatively stable levels during 2018 and amounted to 2.604 thousand euro compared to 2.409 thousand euro in the previous year of 2017. The table below describes in detail the reasons for the change in Results after tax from continuing operations.

Loss of Group from continuing operations attributable to shareholders of "ELGEKA S.A.", after tax and non-controlling interest amounted to 2.684 thousand euro in the year 2018 compared to 3.122 thousand euro in the previous year of 2017, decreased by 438 thousand euro.

Loss per share from continuing operations of the Group reached 0,0846 euro in 2018 compared to 0,0984 euro in the comparable year of 2017.

During the year 2018, ELGEKA Group intensified the efforts to increase its shares in the markets that it

operates while it ceased its operation in markets where the results were lower than expected (Bulgaria). The key financial data featured in 2018 at Group level is briefly as follows:

- The increase of Sales by 5,23%, as well as the retaining of gross profit margin at stable levels from 17,30% to 17,02%, factors which allowed it to increase Group's gross profits.
- The increase in operating costs (Operating income Operating expenses) by the amount of 1.221 thousand euro (from 25.799 thousand euro in 2017 to 27.020 thousand euro in 2018), which is largely due to the enhanced promotion plan of traded products and the consequent promotional expenses incurred.
- The positive contribution from the valuation of the investment property by the amount of 520 thousand euro against 1.165 thousand euro in 2017
- The cost of ceasing the activity in Bulgaria, which resulted in the elimination of value of the investment in the company "ELGEKA FERFELIS BULGARIA LTD" (charge of 206 thousand euro), as well as the payment of a guarantee for the repayment of its loan of the amount 450 thousand euro.
- The positive contribution of income tax by the amount of 451 thousand euro against the negative contribution of amount 397 thousand euro in 2017 (mainly due to the effect of the reduced tax rates).
- Finally, total results after tax (from both continued and discontinued operations) of 2017 included the profit of 3.842 thousand euro that had been accrued from the sale of participation in the subsidiary company "ARIVIA S.A.", while there is no comparable event during the year 2018.

The main points arising from the Statement of Financial Position of the Group are as follows:

The net book value of Tangible Fixed Assets, Intangible Assets, and Investment Property of the Group amounted, as at 31/12/2018, to 68.371 thousand euro representing 47,79% of the Group's Total Assets as opposed to 72.054 thousand euro in 31/12/2017.

In 31/12/2018, the Group Equity represents 2,38% of the Group's Total Equity and Liabilities amounting to 3.406 thousand euro as opposed to 6.662 thousand euro in 31/12/2017.

Group's total Liabilities amounted to 139.663 thousand euro as opposed to 144.344 thousand euro in 31/12/2017, representing a decrease by 3,24%. The long term liabilities amounted to 23.178 thousand euro as opposed to 27.002 thousand euro in 31/12/2017, a decrease of 14,16%.

Group's Long term bank liabilities (long term liabilities payable within the following year included) amounted to 24.523 thousand euro as opposed to 25.660 thousand euro in 31/12/2017, representing a decrease of 1.137 thousand euro or 4,43%.

Finally, Group's Short term bank liabilities at 31/12/2018 amounted to 43.544 thousand euro (30,44% of Total Liabilities and Equity), significantly decreased by 4.659 thousand euro as opposed to those in 31/12/2017 (percentage of decrease 9,67%), which amounted to 48.203 thousand euro.

It is presented below an analysis of the trend in financial ratios relating to the Group's financial structure, effectiveness, efficiency and working capital management for the fiscal year 2018, in relation to the fiscal year of 2017:

## **A) Financial Structure Ratios** 1. Property Funding Ratio 2018 2017 Fixed Assets 59,67% 59,15% Total Assets Current Assets 40,33% 40,85% Total Assets 2. Leverage ratio Total Debt\* 24,98 13,49 Equity **\*** Financial leasing liabilities included 3. Fixed Assets Coverage Ratio Equity 3,99% 7,46% Fixed Assets Equity & Long-term Liabilities 31,14% 37,69% Fixed Assets 4. Current ratio Current Assets Current Liabilities 49,53% 52,57% **B) Profitability Ratios** 1. Return on Equity 2018 2017 Earnings before tax (EBT) (89,69%) (30,20%) Equity 2. Gross profit margin Gross profit 17,02% 17,30% Sales 3. Equity turnover Sales 51,14 24,85 Equity 4. Gross Profit to Cost of Sales Ratio Gross Profit 20,52% 20,92% Cost of Sales **C) Activity Ratios** 1. Creditors' Turnover ratio 2018 2017 Trade Creditors Χ 360 days 91 days 88 days Cost of Sales 2. Debtors' Turnover ratio Trade Debtors Χ 360 days 61 days 61 days Sales of Stock & Services on credit 3. Inventory Turnover ratio Inventory Χ 360 days 34 days 35 days Cost of sales

Regarding the financials of the Parent Company are summarized as follows:

Turnover (sales) of "ELGEKA S.A." for the current financial year amounted to 65.223 thousand euro as opposed to 56.908 thousand euro in the previous year of 2017, showing an increase of 8.315 thousand euro, or 14,61% in proportion. This increase was mainly due to the new co-operations and intensification of the promotional activities that took place during the year.

Gross profit amounted to 21.397 thousand euro in 2018 from 18.688 thousand euro in the corresponding previous year, which is an increase of 2.709 thousand euro or 14,50%, while gross profit margin formed to 32,81% from 32,84% in the year 2017.

Other operating income reached the amount of 2.392 thousand euro in 2018 against 2.727 thousand euro in the previous year (i.e. decreased by 12,28% compared to the year 2017).

Operating Expenses increased by 11,89%, namely from 19.138 thousand euro in the previous year of 2017 amounted to 21.398 thousand euro in the closing year of 2018, namely an increase of 2.260 thousand euro, mainly as the result of the enhanced promotion plan of traded products and the consequent promotional expenses incurred .

Earnings before interest, taxes, depreciation and amortization ("EBITDA") amounted to 2.902 thousand euro against 2.824 thousand euro in the previous year of 2017, presenting an improvement of 78 thousand euro, due to the aforementioned increase of sales and gross profit margin.

Operating profit of the Company amounted to 2.391 thousand euro as opposed to loss of 2.277 thousand euro of the previous year, presenting an increase of 114 thousand euro.

Loss before tax amounted to 1.168 thousand euro during 2018 versus 1.372 thousand euro in 2017, presenting an improvement of 204 thousand euro.

Loss after tax of year 2018 amounted to 1.452 thousand euro against 1.681 thousand euro in the previous year, presenting an improvement of 229 thousand euro.

Loss per share of the Parent Company amounted to 0,0458 euro for the year 2018 compared to 0,0530 euro for the year 2017.

From the above data, it is obvious that despite the continuing adverse economic conditions of the Greek market, the Parent Company managed to achieve during 2018 a significant increase of its sales and at the same time retention of its gross profit margin at stable levels. The key financial highlights of the specific year, for the Parent, briefly are the following:

- The increase of sales by 14,61%.
- Retention of gross profit margin at the level of 32,8%.
- The increase of Selling and Distribution expenses due to the intensification of promotion actions..

#### **B. SIGNIFICANT EVENTS**

#### **a) Significant events for the year 2018**

In Group level, during 2018, were made the following investment - business developments:

- The Annual Ordinary General Meeting of the subsidiary company "SAMBROOK PHARMACEUTICALS S.A." decided on June 20th, 2018, to increase its share capital by the amount of 9 thousand euro with issuance of 600 new shares of nominal value of 15 euro each. Following the above, its new share capital amounts to totally 2.133 thousand euro divided into 142.200 shares with nominal value of 15 euro each. The above increase was completed on 19.09.2018 with the payment of cash by "ELGEKA S.A.", which fully covered the share increase, resulting in an increase of its participation percentage of 95,87% to 95,88%.
- On November 1 st, 2018, a decision was taken to discontinue business in Bulgaria due to the lower than expected results, which caused in the Group being burdened. This burden resulted in elimination of the value of the investment in "ELGEKA FERFELIS BULGARIA L.T.D." amounting to 206 thousand euro, as well as the payment of a guarantee for the repayment of its loan amounting to 450 thousand euro.
- On November 22ond, 2018, following the special resolution, the parent company "ELGEKA S.A." approved the increase of the share capital of its subsidiary "ELGEKA (CYPRUS) LTD" by the amount of 128 thousand euro, with the payment of cash and the issue of 74.908 new ordinary shares of nominal value 1,71 euro each so that the share capital of "ELGEKA (CYPRUS) LTD" is formed from 11.261 thousand euro to 11.389 thousand euro, namely divided from 6.585.092 ordinary shares to 6.660.000 ordinary shares of nominal value 1,71 euro each. This share capital increase of "ELGEKA (CYPRUS) LTD" was typically approved on 07/12/2018, after the validation of the relevant application submitted by its Administration to the District Court of Nicosia, while the deposit of this amount by "ELGEKA S.A." concluded on 13/12/2018.
- For the Parent company "ELGEKA S.A.", it had been issued initially the audit order no. 648/0/1118/17-12-2014 by the Audit Authority for Large Enterprises for the tax audit of the unaudited fiscal year 2008 of the Parent Company, while subsequently with the audit order no. 648/4/1118/22- 12-2015 the tax audit was extended also for the unaudited fiscal years 2009 and 2010. Following the receiving of the initial Audit Notice by Audit Authority for Large Enterprises, the Company submitted under the provisions of articles 57 to 61 of L.4446/2016 amendment-supplementary tax returns relating to the audited fiscal years.

Subsequently, the aforementioned Audit Authority notified to the Company the relevant partial audit reports and the corresponding definitive acts of corrective income tax assessment, accounting for taxes (including surcharges) of a total amount of 1.412 thousand euro. The Company accepted part of the above charged taxes and paid in the amount of 532 thousand euro and as it considers it unfounded the charge of extra taxes and surcharges (in addition to those already declared and paid) of a total amount of 880 thousand euro, filed an remedial appeal for the this amount in order to protect its rights and awaits the issue of the relevant conclusion by the Dispute Settlement Division of the Independent Public Revenue Authority. Due to the fact that the 120-day deadline - which the DSD had to answer - has expired without a response, the Company has filed under number

DSD1520436/31.10.2017EMP appeal to the three-member Administrative Court of Appeal of Athens against this implied rejection. The case was adjudicated on 20/09/2018 and the Company was acquitted, so that the amount of 64 thousand euro was offset by current taxes in the year 2018, while from the remaining amount a part of it was reimbursed (amount of 188 thousand euro) and the other part was offset by current taxes in the year 2019 (amount of 188 thousand euro).

Finally, the investments in Fixed Assets and Investment Property for 2018 amounted to 2.260 thousand euro and 145 thousand euro for the Group and the Parent Company, respectively.

#### **b) Significant post – balance sheet events until the date of the Report**

On 12/02/2019, the Extraordinary General Meeting of the shareholders of the 99,99% subsidiary company "DIAKINISIS S.A. Warehousing - Transport - Packaging" decided:

a) the reduction of its share capital by the amount of 9.900 thousand euro for the purpose of covering an equivalent amount of accounting losses, with a corresponding reduction of the nominal value of each share by one euro and twenty cents, namely from two euro at eighty cents each, and

b) the increase of its share capital by the amount of 6.400 thousand euro by cash payment and the issue of 8.000.000 new common registered shares of nominal value of eighty cents each, as well as the amendment of article 5 of its Articles of Association.

This increase of the share capital of "DIAKINISIS S.A. Warehousing - Transport – Packaging" was fully covered by the company "ELG HOLDINGS SINGLE-MEMBER S.A.", which is a newly established 100% subsidiary of "ELGEKA S.A.". The nominal share capital of the new company amounts to 25 thousand euro divided into 25.000 common registered shares of nominal value of one euro each. The main object of the company's activity is, among other things, the creation or participation in any way to domestic or foreign companies and enterprises of any kind, which have already been founded or will be established in the future, regardless of their corporate type and purpose.

On 14/02/2019 the aforementioned subsidiary company "ELG HOLDINGS SINGLE-MEMBER S.A." signed a contract with the investment capital "Southbridge Europe Mezzanine SICAR", for the purpose of its financing by issuing a convertible and exchangeable bond loan of up to 6.400 thousand euro, the total amount of which will be used to cover the increase in the share capital of "DIAKINISIS S.A." as above. The duration of the convertible exchangeable bond issued by "ELG HOLDINGS SINGLE-MEMBER S.A." is sixty six months, with the payment of both the principal and the interest on the expiry of the loan, in case of non-conversion / exchange. The bond loan is either convertible into shares of "ELG HOLDINGS SINGLE-MEMBER S.A." or exchangeable in shares of "DIAKINISIS S.A." that holds "ELG HOLDINGS SINGLE-MEMBER S.A.".

Following the above, the new share capital of the subsidiary company "DIAKINISIS S.A. Warehousing - Transport - Packaging" amounts to totally 13.000 thousand euro divided into 16.250.000 common registered shares with nominal value of eighty cents (€ 0,80) each, while the total participation percentage of "ELGEKA S.A." to "DIAKINISIS S.A." remains at 99,99%, namely percentage 50,76% directly and percentage 49,23% indirectly through "ELG HOLDINGS SINGLE-MEMBER S.A.".

The strategic cooperation with the international investment scheme is an important development for the Group as:

- It strengthens one of ELGEKA's core operations, which is 3PL logistics in Greece, through its subsidiary DIAKINISIS.
- The increase in the share capital of DIAKINISIS will contribute to the enhancement of its equity, to the unrestrained implementation of its business plans and the foundation of its strategic role in the country's logistics services sector.

There were no other events after the Financial Statements date that relate to the Group or the Company, which require separate disclosure.

#### **C. PERSPECTIVES – BUSINESS ACTIVITIES – MAIN RISKS AND UNCERTAINTIES**

The year 2018 was, in general, a year of stability for the Greek economy, which continued its slow but steady adjustment. Consumption is now stabilized, albeit at a fairly low level, while consumer preferences, habits and ways of distributing consumer income are constantly changing in order to maximize the possible benefits.

In particular, regarding the retail sector, households present a continuous switching to non-branded products (private label products), to lower-cost products and to bidding products, while they carry out more frequent visits to larger stores, reducing spending per visit. These data indicate that consumer loyalty to specific supermarket chains or specific products has fallen sharply over the past few years.

In this context, special offers and promotive actions were a clear commercial business strategy, as they had to explore new ways of reaching out to consumers in the battle to maintain market share and retain sales.

At the same time, consumers focused on finding ways to better manage their finances and were gradually educated, but also became familiar, with the search for the best possible choices in their purchases, making bids and promotions the main choice.

All of the above points demonstrate a constant change in consumer trends, which in turn affects the way businesses operate. Companies that show a high degree of adaptability to new circumstances enjoy higher market shares, while reversely companies that are unable to follow new trends find themselves quickly out of the market.

In 2019, the challenges will be faced by businesses is expected to be again significant. Consumers and businesses will be forced to cope with their limited income, a fact that implies that possible they will be exercised further pressures on consumption. The business sector has also to cope with the increased credit risk, as after many years of recession several companies can no longer meet their accumulated obligations, creating new obstacles to the operation of the rest. Given also the expected political developments (elections), which affect consumers' behavior in a significant degree, it is unquestionable that the conditions for 2019 will continue to be demanding.

However, in any such period where the circumstances of economic activity are changing both quantitatively and qualitatively, they were created the conditions that allow the repositioning of business relationships, by taking advantage of opportunities that arise, covering gaps in the market and timely understanding of the changes in consumer behavior.

The challenge for companies that operate and addressed in the domestic Economy and therefore the challenge for ELGEKA Group is its adaptation to the new circumstances, through the search of new products and services, new markets, new innovative alternative distribution channels, transforming the way they work so as to gain an advantageous position in the ongoing new business reality.

ELGEKA Group will continue its efforts to strengthen its activities in areas which present promising perspectives, in areas where emerge potential business gaps as well as in areas in which it has invested and has a competitive advantage. In parallel, the continuous adjustment of the Group's operation by reviewing the structures and processes is part of the general strategy of continuous quality improvement of products and services offered by the simultaneous reduction of the related costs.

Main pillars in the Group's development are the markets of trade of consumer products and logistics services, areas which present particularly strong momentum internationally.

The segment of "Trade of food and other consumer goods", in which Group operates in Greece mainly through Parent "ELGEKA S.A." and "G.S.B.G. S.A.", strongly accepts the consequences of the recession through both the reduction in sales and also through small profit margins that characterize the specific market. However, the Group constantly enriches its product portfolio, adapting each time to changing consumer needs and invests in existing brands and markets with a long presence in Greece, while at the same time carry out the necessary actions (exploit synergies, better organization of distribution networks, etc.) in order to reduce operating costs and increase productivity. During 2018, Parent Company ELGEKA managed to increase its sales due to the new co-operations achieved during the year and the intensification of its promotional activities. In addition, it managed to maintain its gross profit margin at stable levels, but also to incur increased operating expenses due to significantly increased promotive actions. During 2019, the Parent Company is expected to continue its growth path, which, combined with the restructuring of its borrowing, is expected to improve both its operating and non-operating profitability.

ELGEKA Group operates in the market of private label products, through its subsidiary "G.S.B.G. S.A.", whose sales reached during 2018 the amount of 21 million euro, namely achieved a significant increase by 16,3% compared to 2017. The same pattern was followed by its operating profitability (EBITDA) which amounted to 470 thousand euro, showing an increase compared to the previous year. The prospects for 2019 are favorable in a rapidly growing but highly competitive market.

In the segment of "Trade food and other consumer goods", the Group is also active in the market of Romania through the company "ELGEKA FERFELIS ROMANIA S.A.". The performance of this subsidiary was positive for 2018, achieving sales growth of 2,6% to the level of 55,2 million euro, as well as an improvement in its profitability (EBITDA) to the level of 1,7 million euro. "ELGEKA FERFELIS ROMANIA S.A." operates in an environment characterized by satisfactory growth rates and positive prospects for the future, while it manages to make new co-operations that allow it to gain market shares from the competition. As a result, it is expected the positive contribution to the financial figures of ELGEKA Group for next year.

ELGEKA Group operates in the segment of "Logistics services" through company "DIAKINISIS S.A.". The segment has been affected by the general environment in which it operates with the result to accept the broader negative consequences, namely reducing of its figures and increasing the cost factors. Nevertheless, the Group has deep knowledge of the area and it has developed competitive advantage through "DIAKINISIS S.A.", which is one of the key players of the market.

In particular, the company "DIAKINISIS S.A.", which is activated in the provision of storage, distribution and packaging services, realizes actions to further increase its market share in a sector characterized by intense competition and low profit margins, while at the same time maintaining its cost levels at a low level.

Finally, ELGEKA Group is operating in the segment of real estate management in Romania through the subsidiary "SC GATEDOOR HOLDINGS COM S.R.L." and the joint venture "GREC - ROM BUSINESS GROUP S.R.L.", companies that hold a significant portfolio of properties. During 2018, property prices in Romania presented rise, contributing positively to Group's financial figures, while in Greece the Group's property portfolio showed a small increase in value. In 2019 the trend in real estate prices expected to be relatively stabilizing.

The objective of the Group remains the exploitation of the property portfolio and therefore all kinds of prospects for the exploitation of these properties are examined in cooperation with specialized companies operating in this field. In any case, Group's Management proceeds to careful actions by thoroughly examining every possible scenario, in order to obtain the maximum potential benefits.

Regarding the risks and uncertainties faced by the Group, it should be noted that it mainly engages in the key markets of Greece and Romania in a highly competitive environment. Therefore, it is exposed to a variety of financial risks, whose management is carried out mainly by the Group Financial Management in collaboration with the administrations at local companies. The most significant financial risks and uncertainties that the Group may face during 2019 are the following:

#### **a) Price Changes Risk**

The recession of the Greek economy has strongly differentiated the profile of the average consumer. The Greek economy has now come to a situation characterized by the very small but gradual growth of household consumption, while inflation is mainly driven by taxes. Under these circumstances, it is not expected in the coming years to be present strong inflationary pressures.

The Group is not exposed to price change risk related to securities as there are no investments in active markets (Stock Exchanges).

#### **b) Credit Risk**

The Group does not have a significant concentration of credit risk deriving from contracting/contractual parties, due to its highly differentiated client list and to high credibility of those clients that are responsible for the most significant proportion of revenues. The exposure to credit risks and the customers' financial position is assessed on a constant basis by the companies of the Group, so as the granted credit for significant customers not to exceed the predefined credit limit. Furthermore, in order to have a higher security, Management has adopted for the Parent Company and the subsidiary "G.S.B.G. S.A." the insurance of a significant part of their credits to a well-known insurance company ("EULER HERMES"). Moreover, the Parent Company has obtained additional guarantees from major customers, the balances of which are not fully insured by the insurance company. Finally, due to the exceptional circumstances prevailing in the market since early July 2015 (imposition of capital controls), the Group adopted a very stringent credit policy to its customers in order to further minimize credit risk.

**Management Report for year 2018**

As a result, the Management considers that during 2019 there will not any significant credit risks unsecured or not adequate provisions for bad debts made for both the Parent Company and the other companies of the Group.

#### **c) Interest and Foreign Exchange Risk**

Group's bank loans are mostly denominated in euro and bear a floating interest rate. Group's Management considers that there is no significant risk deriving from possible significant changes in interest rates.

The Group finances its investments as well as its needs for working capital through both its operating cash flows and bank debt, senior debt and a "Sale & Lease Back" property contract, leading to interest charges in its financial results. The potential increasing trends of interest rates (changes of EURIBOR interest rate) during 2019 will have a negative impact on the Group's financial results, due to the increased interest expenses.

Group short-term loans are contracted on floating interest rates. The interest rates' renewal takes place for short-term loans, every 1 to 3 months, and for long-term loans every 3 to 6 months. This enables the Group to avoid the risk from immense interest rate fluctuations.

The following table presents the changes in the Results before tax of the Group (through the impact of the loan balances at year-end with variable-rate to profits) to possible changes in interest rates, with all other variables held constant:

#### **Sensitivity Analysis of the Group's Loans to changes in Interest Rates**

**2017** EUR

Moreover, the Group operates internationally and also trades in foreign currencies. Therefore, it is exposed to exchange rate fluctuations. The Group's exposure to exchange rate risks is mainly due to commercial and funding transactions in foreign currency conducted in the countries where the subsidiaries are located. However, due to the fact that the main country outside Greece, in which the Group is active, is Romania, the Group's exposure to foreign exchange risks is limited, especially when converting its financial statements for consolidation purposes.

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The following table presents the changes in the Results before tax of the Group and in Equity in reasonable changes in Romanian Lei (RON), with all other variables held constant:

#### **Sensitivity Analysis of changes in Foreign Exchange**

#### **d) Liquidity Risk (financial risk)**

The Group serves its obligations based on positive operating cash flows, high debt rating received from financial institutions and the financial assets, whose book values in Financial Statements do not deviate from their fair values.

Group manages its risks that might occur due to limited liquidity by maintaining unused bank credit limits. In addition, as at 31/12/2018, the Group and the Company possessed 5.890 thousand euro and 5.019 thousand euro respectively in cash (31/12/2017: 12.175 thousand euro and 8.780 thousand euro, respectively).

Given that at 31 December 2018 the Group and the Company has negative working capital by 58.790 thousand euro and 37.537 thousand euro, respectively, they implement a broad program of actions to reduce costs, optimize the management of the trade cycle, disinvest form sectors that either are not part of their core business or they are loss-making, as well as to renegotiate their loan needs. As a consequence of these actions, the negative working capital is expected to be eliminated during 2019.

Regarding the borrowings of the Group, the Management is in the final stage of negotiations with creditor banks in order to convert the short-term debt of the Parent Company and its subsidiary "DIAKINISIS S.A." into long-term. In November 2018, the basic terms ("Term Sheet") of the two syndicated bond loans were signed with the creditor banks and the repayment of installments began on the basis of the new repayment table, as described in the terms.The final signing of the agreement, which is expected in the immediate future, is expected to resolve this issue as loans totaling 58.250 thousand euro and 44.570 thousand euro for the Group and the Company respectively, which on December 31st, 2018 are presented as short-term, will eventually become long-term. A detailed description is made in Note 32 of the Financial Statements.

In any case, the Group and the Company have the necessary assets, which, combined with the significant improvement in their operating results and the market shares hold in their main sectors of operation, allow them to have alternative sources of financing their operation and service of their needs. In this context and following the strategy of recent years, it is an immediate priority of the Management the disinvestment from non-operating assets of the Group in order to reduce the non-financial leverage (decrease of bank lending) and consequently to optimize the use of the employed capital.

#### **e) Capital management**

The Group's primary goal regarding capital management is to ensure the maintenance of high credit rating and strong capital ratios, in order to secure and expand the Group's activities and to maximize shareholders' value.

The Group and the Parent Company, manage capital efficiency using the ratio of total borrowings to Equity, with the purpose to constantly improve their capital structure.

At 31st December 2018, the Company's Equity is less than 50% of the share capital and therefore applies the conditions for application of article 47 of the C.L. 2190/1920, as they have been replaced from 01/01/2019 by article 119 par.4 of L. 4548/2018. Also, the Equity of the subsidiary "DIAKINISIS S.A." is less than 50% of its share capital and therefore applies the conditions for application of article 47 of the C.L. 2190/1920, as they have been replaced from 01/01/2019 by article 119 par.4 of L. 4548/2018.

The Management has already proceeded to adoption of actions in order to reduce costs in every level of business operation, through the optimization of use of Group's resources, increase sales and generally creating profitable results, which would allow an increase in its Equity and thus restore them to more than 50% of its share capital. Specifically, the aforementioned actions are summarized as follows:

- 1. Increase of market shares, through new commercial co-operations, both in the Greek market and in Romania.
- 2. Change of product portfolio mix, through new trade co-operations and products, with a simultaneous increase of the focus on more profitable sales channels.
- 3. Improvement in operating profitability both of Company and Group through: a) the renegotiation of trade policies with the affiliated suppliers / customers of the Company and the Group and b) the optimization of the efficiency of both the logistics and other support operations.
- 4. Disengage from activities that are either underperforming or do not promote the focus on key / critical activities of the Group.
- 5. Active exploitation of sub-exploited assets of the Company and the Group (e.g. real estate, other investments).
- 6. Re-negotiate loan agreements with creditor banks with a view to convert the current bank lending into long-term, lightening repayments over the medium term and lowering interest rates.
- 7. Focus on the operating segments, in which the Group presents a competitive advantage and attempts to integrate new partnerships with the aim of maximizing the synergies produced.

#### **f) Macroeconomic risk**

The main macroeconomic risks to which the Group is exposed are the income policy and the risk of reduced growth that might lead into compression and shrinkage of consumer's disposable income. The decrease in consumption might lead not only to an intension of competition but also to a sales decline, a gross profit decline and, as a result, a negative influence on Group's profitability.

Moreover, the imposition of capital controls in the banking sector has created new risks, which come from the limited liquidity, the difficulties in the import of goods and services and the overall reduced economic activity, resulting in reduced sales and lower profitability.

#### **g) Risk relevant to Food safety**

The Group's main area of activity is the food sector.

Packaging, marketing, distribution and food sales include inherent risks as far as the products' quality liability, the potential recall and the consequent unfavorable publicity is concerned. This might lead to negative consequences in reputation, operation, financial position and Group's financial results.

Such products might be unintentionally distributed by the Group and might have consequences in customers' health. As a result, the Group has the legal responsibility for potential damage claims and, as a result, has engaged to a corresponding insurance coverage.

**Management Report for year 2018**

The Group applies a strict quality and safety policy for food products, in order to offer to its customers, high quality and secure products and to faithfully and strictly follow safety and hygiene rules.

Both Management and the entire Group structure are socially sensitive, in order to offer to customers high quality and safe products, as indicated by the following certifications granted to the Parent Company.

"ELGEKA S.A.", following reviews of related procedures and systems implemented, inspected by accredited certification bodies on its premises in Athens and Thessaloniki, and received certifications for the application thereof in accordance with international standards:

ISO 22000: 2005 for Food Safety Management by the certification body TÜV HELLAS (Member of TÜV NORD Group), accredited by ESYD on this field.

#### **D. CORPORATE GOVERNANCE STATEMENT**

#### **1. Reference to the Corporate Governance Code which applies to the Company and the place where the Code is available to the public**

"ELGEKA S.A." (''Company'' hereafter) is committed to high standards of Corporate Governance, beyond those provided by relevant laws.

In Greece, the framework of corporate governance is mainly formed through L. 3016/2002, L. 3884/2010, L. 3873/2010, L. 4403/2016, L. 4449/2017 as well as L. 2190/1920 which was previously in force and was replaced for the most part by L. 4548/2018. This statement has been prepared in accordance with the relevant provisions of C. L. 2190/1920, as replaced by articles 152 and 153 of L. 4548/2018.

The Company affirms that it faithfully and strictly applies the provisions of Greek legislation, which set the minimum requirements that any Code of Corporate Governance must apply.

Additionally, the Company has voluntarily adopted the Corporate Governance Code as it is enacted by the Hellenic Federation of Enterprises (S.E.V.), as applicable as Greek Code of Corporate Governance (E.K.E.D.) after its amendment by the Greek Council of Corporate Governance. The Code is posted at the following address: [http://www.helex.gr/el/web/guest/esed-hellenic-cgc.](http://www.helex.gr/el/web/guest/esed-hellenic-cgc)

#### **2. Reference to Corporate Governance practices implemented by the Company that go beyond the provisions of Law and reference to the place where they are published**

The Company, in order to strengthen its Corporate Governance system, has adopted practices beyond those provided by Law. Illustratively:

The operation of the Board of Directors is clearly described in the Operating Regulations of the

Board, which has been circulated to all members.

- The main duties and responsibilities of the Audit Committee are defined in the Internal Operation Regulation of the Company.
- The Board of Directors has adopted a clear policy of delegating authority to the Company's Management, through the Approval Level Regulation, which explicitly describes the delegated responsibilities.

#### **3. Reference to deviations from the Corporate Governance Code**

The Company deviates or does not apply in total some of the special practices of the Greek Code of Corporate Governance, as following:

- The Company has no independent Vice-Chairman, despite the fact that the duties of the Chairman of the Board of Directors and those of the Managing Director have been assigned to the same person. The Company considers that the deviation from this practice does not hinder its proper operation (A.III, par.3.3 of the Code).
- Independent non-executive members of the Company do not constitute one-third of the Board of Directors, in accordance with the conditions set out in the Code. In particular, in November 2018, a member of the Board of Directors lost his independence due to the completion of twelve years from the date of his first election. Also, another member acquired executive powers in a subsidiary, with the consequence that the independent non-executive members of the Board of Directors, under the conditions set by the Code, are less than one-third (A.II, par. 2.3, 2.5 of the Code). This deviation is temporary and will be settled at the next General Meeting of the Company. It should be noted that according to the independence criteria of L. 3016/2002, the majority of the members of the Board of Directors are independent.
- As a result of the above, from November 2018 all the members of the Audit Committee are nonexecutive members and one of them is independent non-executive according to the independence criteria of the Code, while its Chairman is not considered independent due to excess of 12 year period, (B.I. par. 1.4 of the Code). This deviation is temporary and will be settled at the next General Meeting of the Company. It should be noted that according to the independence criteria of L. 3016/2002, all members of the Audit Committee are independent and the provisions of L. 4449/2017 are fully complied with.
- It has not established evaluation procedure of the Board of Directors and its Committees. The Board of Directors is assessed by the Shareholders' Annual General Meeting through the Activity Report (A.VII, par.7.1 of the Code).
- There is no regular meeting of non-executive Board's members without the presence of executive members in determining their performance and remuneration, as this process takes place in the context of the collective operation and decisions of the Board of Directors, which in the majority consists of non-executive members and only one executive member (A.VII, par.7.2 of the Code).
- In the contracts of executive members of Board of Directors, there is no provision for return of part or all of the bonus that has been awarded, in case of revised financial statements of previous years, according to which it has been estimated this bonus. In the case of a new contract, it will be reviewed the application of this practice. During 2018 no bonus was given to executive members of the Board of Directors (C.I., par.1.3 of the Code).
- Regarding the vote in the General Meeting through electronic voting or voting by mail, the Company's Articles of Association does not provide relevant procedure. The proposed practice will be reviewed when the relevant Minister's decision is issued, in which there will be setting out the

requirements to safeguard the identity of the voter-shareholder, a decision that is not yet issued (D.II, par.2.2 of the Code).

- The Company has not adopted a policy of diversity including gender balance for members of the Board of Directors and senior managers. The current Board of Directors consists of a majority of men, from the total of seven (7) members the six (6) are men and only one (1) member is a woman. The issue will be considered by the Remuneration and Nomination Committee during the upcoming establishment of the Board of Directors in body and will be evaluated the implementation of the proposed practice (A.II, par. 2.8 of the Code).
- During fiscal year 2018, the Company had not been adopted specific policies to ensure that the Board of Directors has sufficient information to base its decisions regarding transactions between related parties according to the standard of a prudent businessman. However, all of the Company's transactions and its subsidiaries with related parties are subject to the application of the arm's length principle and are subject to review annually subject to compliance with the relevant documentation of Transfer Pricing legislation. It is now underway to adopt a relevant procedure that will be in place in 2019 ((A.IV, par. 4.1 of the Code)).
- The Company has not adopted specific practices regarding communication with shareholders, which include the policy on questioning by the shareholders to the Board of Directors. It will be taken care to implement the proposed practice (DI, par. 1.4 of the Code).
- The Company does not disclose to the Remuneration Report analysis of remuneration paid to each member of the Board of Directors to protect the privacy of persons concerned (CI, par. 1.11 of the Code). The total remuneration paid is referred below in the Remuneration Report and is based on relevant resolutions of the General Meeting of shareholders, as provided by law. The Company will establish a remuneration policy in order to be submitted for approval to the Annual General Meeting of the shareholders of 2019, in accordance with the provisions of L. 4548/2018.

The Company will consider further actions in order to minimize the existing deviations from the provisions of the Greek Corporate Governance Code, also taking into account the new formal framework for public limited companies according to L. 4548/2018, according to which, in the year 2019, it will be examined the amendment of corporate documents and procedures (Statutes, Regulations, etc.).

#### **4. Description of the main characteristics of internal control system and risk management of the Group, in relation to the preparation of financial statements**

One of the main concerns of ELGEKA Group is the development and continuous improvement of internal control system of the companies that are member of it, which is consists of detailed written procedures and controls, covering in continuous basis all activities and transactions and contributes to the efficient and secure operation of them.

The Board of Directors is responsible for maintaining of control system, monitoring and evaluating its adequacy, as well as its effective implementation. In this work, the Board of Directors is assisted by the Audit Committee and the Internal Audit Division, through which it is monitored the implementation of the internal control system.

Aim of the Board of Directors is the establishment of internal control systems that respond effectively to risk management. The Board of Directors is responsible for the identification, evaluation and monitoring of risks that the Group's companies face, as well as for their management.

The risk assessment is a continuous process throughout the financial year, which is carried out during the preparation of business planning and annual budget, through periodic reporting, as well as through the review of the operations of the year.

In addition, the Group's companies implement insurance programs (fixed assets, credit balances, etc.).

The Internal Audit Department expresses opinion on the internal control system of each controlled area, based on the audit conducted in accordance with the annual audit plan. The annual audit plan is approved by the Audit Committee and is the result of a risk assessment of potential risks that the Group's companies face per function.

In the context of risk management, the Group has established detailed procedures and regulation of approval limits for transactions that are considered important and of high risk.

The adequacy and accuracy of compliance with safeguards, is controlled by the Internal Audit Department, informing appropriately the Company's Board of Directors.

In particular, regarding the Individual and Consolidated Financial Statements, the Group's companies have established procedures to ensure proper preparation, which among others include:

- Creation, development and implementation of uniform accounting practices and procedures.
- Compliance of subsidiaries' accounting departments to financial policies and procedures of the Group. Accounting treatments of non-recurring transactions not covered by the procedures should be given special approval.
- Review of Financial Reporting issues at regular intervals.
- Adequate knowledge of personnel in financial services, with clearly segregation of duties and responsibilities.
- Ongoing training and staff development.
- Process of monitoring and controlling of intra-group transactions.
- Process of controlling and approving all documents prior to their accounting entry, to ensure their accuracy and validity according to the procedures of the Group and the accounting standards.
- Monthly balance agreements.
- Annual agreements of customers and suppliers.
- Stock counting at the end of the year.
- Procedures regarding the end of the fiscal year, which include deadlines, allocation of responsibilities, classification of accounts and information on required disclosures.
- Regulation of approval levels (Chart of Authorities), which sets out the powers granted to the executives of the Group's companies to carry out important transactions.
- Access to applications and files, from which the financial statements are derived to a limited number of users.
- **5. Information required by article 10, par. 1, points c), d), f), h), i) of Directive 2004/25/EC of the European Parliament and Council, of 21 April 2004, regarding takeover bids**

The above requested information about the significant direct and indirect holdings, the holders of any

securities giving rights of control and description of these rights, the limitations on voting rights, the rules for appointing and replacing Board members and the rules for amending the Articles of Association, have been developed in detail in the Explanatory Report of the Board, which is in Chapter B8.

#### **6. Composition and function of Board of Directors, oversight bodies and committees of the Company**

#### *6.1 Board of Directors*

The Company is managed by the Board of Directors, which is elected by the General Meeting of Shareholders by secret voting and by an absolute majority.

According to the Company's Articles of Association, the term of the Board is four years, which may be extended until the election of new Board by General Meeting of Shareholders convened in the year that expires its term.

The Board of Directors is the supreme governing body of the Company and is empowered to decide for any matter relating to the administration and representation of the Company, to management of its wealth and generally ensure its operational efficiency.

The Operation Regulation of the Board of Directors, which has been approved by a decision of the Board of Directors, includes the basic operating rules and obligations of its members.

Illustratively, among the responsibilities are including the following:

- Approve the Company's strategy and annual budget.
- Convene the General Meeting of Shareholders and defines the agenda items.
- Prepare and approve the Annual Financial Statements of the Company and submit them for approval by the General Meeting of Shareholders, together with the Annual Management Report.
- Specifies the Board of Directors' members, who sign the statements of L.3556/2007 and certify, by signing, the accuracy and the true representation of the information contained in the Annual Financial Report.
- Approve the six-month Financial Statements of the Company.
- Propose the dividend that will be distributed to shareholders and the amounts to be retained for the formation of reserve capital.
- Decide on the establishment and expansion of branches.
- Decide the participation of the Company in existing or newly established companies and the creation of new segments.
- Supervise the operation of the Internal Audit Department, through the Audit Committee.
- Approve any kind of fees paid to managers of the Company and its internal auditors, as well as the general remuneration policy of the Company.

The Board of Directors has the ability to delegate powers to its members, executives of the Company, to third parties or to committees, identifying each time the limits of that power through relevant decision.

In achieving high standards of corporate governance, the Board of Directors has approved the Chart of Authorities, in which they are described all necessary approvals required from the various administrative levels to carry out important transactions of the business of the Company.

The Board of Directors convened by the Chairman or his deputy, by invitation communicated to its members two (2) working days at least before the meeting. The invitation includes clearly the issues of the agenda. The convocation may require two (2) of its members, by application to the Chairman, who is obliged to convene the Board within seven (7) days.

Each director has one vote, but when it represents director who is validly absent, can have two (2) votes, provided that he has been awarded representation.

The Board of Directors is in quorum and convenes validly, when are present or are represented at this the half plus one of its directors. The Board of Directors' decisions are taken by absolute majority of those present and represented members.

The Board of Directors is consisted of seven members as elected by the General Meeting of Shareholders at 21/06/2018.

Subsequently, the Board of Directors is consisted of the following members during 2018:

The majority of members of the Board of Directors are independent non-executive, within the meaning of the provisions of L. 3016/2002.

The Board of Directors held in total forty-three (43) meetings in 2018, of which seventeen (17) were conducted on board.

The term of the current Board was originally set to be four year with end at 21/06/2022 and may be extended until the election of a new Board of Directors from the next Ordinary General Meeting to be held after that date.

The CVs of Board of Directors members listed on the website of the Company [\(www.elgeka.gr\)](http://www.elgeka.gr/).

With respect to transactions with related parties it is followed specific procedure for approval by the relevant bodies in the preparation stage of the contracts, in order to ensure compliance with the regulatory framework and justification, taking the advisory support of external partners. In addition, the transactions with related parties are subject to annual inspection to ensure compliance with the regulatory framework and justification.

#### *6.2 Audit Committee*

The Audit Committee support the Board of Directors in the performance of its duties related to the internal control system.

The members of Audit Committee during 2018 were the following:

The Chairman of Audit Committee Mr. Stilianos Stefanou meets the requirements of article 44 of L.4449/2017, having demonstrated proficiency and experience in the fields of accounting and auditing. All the members of the Audit Committee are independent within the meaning of the provisions of L. 3016/2002.

The term of the Audit Committee is similar to that of the Board Directors and expires on 21/06/2022 and may be extended until the election of a new Board of Directors from the next Ordinary General Meeting to be held after that date.

The main responsibilities of the Audit Committee are the following:

- Monitor the financial reporting process.
- Monitor the effective operation of the Internal Control System and the Risk Management System.
- Monitor of proper functioning of the Company's Internal Audit Department.
- Monitor of the statutory audit of individual and consolidated financial statements.
- Review and monitor issues related to the existence and maintenance of objectivity and independence of the external auditor or audit firm, particularly regarding the provision from them to the Company and other non-audit services.
- Review the financial statements prior to approval by the Board of Directors.
- The Company's compliance with legal and regulatory framework of operation.

The responsibilities of the Audit Committee are detailed described in the Internal Operation Regulation of the Company, which is approved by the Board of Directors.

The Audit Committee receives annually from the collaborated audit firm, confirmation regarding the independence and objectivity of external auditors.

The main topics handled by the Audit Committee during 2018 were the following:

- Reviewed the results of audits performed by Internal Audit Department.
- Reviewed the process of creating the annual audit plan and proceeded to its approval.
- Monitored and evaluated the process of preparing the six-month and annual Financial Statements and the work of the statutory auditors.
- Evaluated the Financial Statements, in terms of their completeness and consistency, prior to its approval by the Board of Directors.
- Reviewed the effective operation of internal control system and risk management system.
- Reviewed issues related to ensuring the objectivity and independence of external auditors,

regarding the provision of non-audit services.

- Advised the Board of Directors regarding the selection of the audit firm.
- Informed the Board of Directors on matters of its competence.

#### *6.3 Remuneration and Nomination Committee*

The Remuneration and Nomination Committee is responsible for the process of appointment of the candidate members of the Board of Directors to ensure the smooth transition of members with objective and merit criteria.

In addition, the Committee recommends to the Board of Directors the remuneration policy for the Board members, as well as the remuneration policy, benefits and financial incentives for attracting, retaining and developing the human resources of the Group.

The members of the Committee during the year 2018 were as follows:

The Committee consists of four (4) non-executive members of the Board of Directors, which they appointed by it, while it Chairman is independent non-executive member.

#### *6.4 Diversity policy regarding the Company's administrative, management and supervisory bodies*

The Company does not apply a specific policy regarding the diversity of its administrative, management and supervisory bodies. Nevertheless, the composition of the Board of Directors as well as the Committees supporting it assures a diversity of skills, views and abilities in order to achieve effective achievement of corporate goals. All members of the Board of Directors are university graduates, while three of them hold postgraduate degrees from both national and foreign universities, a fact which ensures a high level of professional training. In addition, they have worked in senior positions of important domestic and foreign companies, active in various industries or/and they have been served as senior executives of large organizations, ensuring high professional training, skills, experience and administrative capabilities. In addition to their technical training and experience, they stand out for their ethos and integrity, contributing to shaping corporate culture and achieving a high level of corporate governance. Regarding age and gender, the Company's Management considers that these characteristics are not determinants of its effective operation.

#### *6.5 Remuneration Report of Board of Directors' members*

The remuneration of non-executive Board of Directors' members is approved by the Annual General Meeting in accordance with the relevant legislation.

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Furthermore, the Annual General Meeting approves the maximum monthly salary may take any executive member, as well as the upper limit which may reach the total remuneration of non-executive members during each year and authorizes the Board of Directors to specify them.

According to the existing policy of the Company, both executive and non-executive members do not receive variable remuneration

In particular, during 2018 the total remuneration and benefits paid and provided by the Company and its subsidiaries to executive members of Board of Directors amounted to 306 thousand euro, while to the non-executive members the total remuneration and benefits amounted to 276 thousand euro.

The remuneration of executive members of Board of Directors associated with the corporate strategy, the purposes of the Company and the realization thereof, with the ultimate aim of creating long-term value for the Company.

For the year 01/01/2018 - 31/12/2018 were not granted stock options and there is no valid stock option program.

#### **E. KEY NON-FINANCIAL PERFORMANCE DATA**

Pursuant to the provisions of article 43a par. 6 of C.L. 2190/1920, as it was replaced by article 150 par. 2c and article 154 of L. 4548/2018, the Management Report includes information on the non-financial position of the Group.

#### **1. Brief business model description**

ELGEKA S.A. is one of the largest Greek commercial companies and is active in the Greek market in the food sector since 1974. During the year 2018, the companies of the Group acted mainly in the following segments:

- Trade of food and other consumer products
- Provision of logistics services
- Real estate

In addition to the Greek market, the Group has a presence through its subsidiaries in Romania. The primary objective of the Group is to strengthen its position in the main markets of Greece and Romania, where the majority of the companies that participate in it are active.

The experience, know-how and human resources, systems and equipment that Group's companies hold are an important opportunity for successful suppliers from Greece and abroad to commercially develop their portfolio products at a controlled cost and with limited risk.

The commercial activity is developed by the companies ELGEKA and ELGEKA FERFELIS ROMANIA, which provide to their partners, customers and suppliers an integrated system of commercial services in the areas of sales, marketing, trade marketing and logistics, forming an integral link in the sector's supply chain. Operating rather as a "subsidiary" of the principals with which cooperate, among their primary goals is the successful brand building in the Greek and Romanian markets of the products they represent and handle (brand building).

The company GSBG is active in the development of private label products for third-party customers. It operates in the wholesale of food, personal care products and daily household maintenance.

In the field of logistics services, through DIAKINISIS, storage, distribution and repackaging services are provided to the largest companies in Greece and abroad, which operate in the following sectors: food, household goods, supermarket chains, clothing , tobacco and alcohol, electronics, home furnishings and medicines. DIAKINISIS has more than 160.000 sq.m. sheltered storage space for each temperature zone in 15 locations in Attica, Thessaloniki and Patra, 240.000 sq.m. outside protected area and 11.000 sq.m. offices. It also has customs warehouses and a drug warehouse with the necessary licenses and certifications. In addition, it maintains cooperation with 8 transshipment points across Greece, while for the transport it cooperates with a network of 300 agencies.

The pursuit of the Group's objectives is ensured by a framework of principles and values that determine the day-to-day operation and practice. The Group's objectives and corporate values also define its responsibility towards the social groups that are directly and indirectly affected by its business activity, such as:

1. *Shareholders*: We seek to protect their investment and ensure a satisfactory return on their funds, with transparency and meaningful information.

2. *Customers / Consumers*: We try to provide quality products and services that meet their needs.

3. *Employees*: Human resources are valuable. Respect for its rights and the emphasis on its development is a prerequisite for the achievement of the Group's objectives.

4. *Partners*: We believe in mutually beneficial relationships with suppliers and associates of the Group.

5. *Society*: We believe that socially responsible business operations contribute to the progress and prosperity of society as a whole.

We share important values on which the Group has set out its fundamental rules:

*Transparency*: Transparency is the cornerstone of decision-making and actions procedure.

*Integrity*: Compliance with ethical business practices and the performance of operations with transparency and reliability.

*Commitment*: Commit to achieving goals by adding value to shareholders.

*Trust*: Mutual trust between Group's employees and Management is especially important for the proper conduct of our business activities.

*Teamwork*: Developing and encouraging a spirit of collaboration and teamwork through communication, participation, support and briefing of cooperators.

*Creativity*: Identifying opportunities and taking initiatives to develop and implement new ideas and solutions.

The existing non-financial report concerns the actions of ELGEKA Group companies in 2018.

#### **2. Non-financial indices**

#### **3. Description of the corporate policies, risks and outcomes of these policies**

#### **3.1 Risk policy and risk management**

Given the activities of the Group's companies in the field of trading product and 3PL services, inevitably their business activities raise risks that concern not only the environment but also society, its employees as well as respect for and protection of human rights.

As part of our approach to corporate responsibility and our contribution to sustainable development, we monitor the impact of our activities on:

- Health and safety of employees.
- Health and safety of consumers when using our products.
- Managing human resources in terms of employment, health and safety.
- Respect for the human rights of both employees and all of our associates.
- Combating corruption, bribery and fraud.
- Environmental impact of our activities.

The way we manage these issues is presented in more detail in the following sections.

With regard to the food safety risk, which is a core activity of the Group, a strict quality and safety policy is applied in order to offer our customers the most quality and safe products, while all safety and hygiene rules are followed faithfully and strictly. The social sensitivity that governs both the Management and the entire organization of the Group as regards the issues of hygiene and food quality is demonstrated by the certifications granted to the Group companies as mentioned below in paragraph 3.2.

#### **3.2 Environmental issues**

In ELGEKA Group we recognize the responsibility to preserve and protect the environment. Our business strategy is inseparably linked to sustainable development in the long run. In this context, we systematically apply practices in order to achieve continuous improvement of environmental performance. The Group's will and objective is that processes and products have the least negative environmental impact in proportion to business activity.

The environmental actions concern mainly the companies of the Group that have storage facilities. In particular:

- All Group companies comply with the requirements of applicable Greek and European environmental legislation that relate to their activities.
- Recycling and waste management practices are being used.
- Managers and employees are constantly trained and made aware of the importance of contributing to environmental management.
- More environment-friendly materials are used when storing and repacking products.

DIAKINISIS, as a storage, distribution and repackaging company, applies Integrated Management System. In the integrated management system, coexist various standards of management (management of quality, food safety, health and safety at work, etc.), which they have been developed and integrated in such a way that they are compatible between them in their implementation and to facilitate with synergies by one simple and productive way while reducing business risk.

The largest companies of the Group have the following certifications:

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![](_page_27_Picture_1.jpeg)

The Group's companies maintain cooperation with certified companies for the collection and alternative management of used non-hazardous packaging in order to direct them to alternative waste management solutions, collect waste of electrical and electronic equipment intended for withdrawal with a view to recycling them and collect lead accumulators (batteries) in order to recycle them.

During the year 2018, 450 tons of various materials were recycled by the Group companies, mainly for packaging from paper and cardboard, metals, wood, glass, etc. In addition, ELGEKA paid 24.750 euro as contributions for the recycling of the packaging materials of its sold products.

The electricity consumption of Group's companies amounted to 6.920.686 Kwh.

As part of the ELGEKA Group's environmental policy and energy management, during 2017 began the implementation of a program to replace conventional light bulbs with LED energy saving lamps, which was concluded at the beginning of 2019. This action concerns the storage facilities of DIAKINISIS, where were replaced 135-400W E40 bell-type luminaires, 36-58W fluorescent lamps and 250W outdoor light fittings with 120W, 23W and 65W LED lighting lamps respectively.

In the year 2018, the cost of the investment amounted to 217 thousand euro and 1.436 lamps were replaced. As the project was completed early in the year 2019, the expected energy savings will be captured by 2019.

It is also worth mentioning that DIAKINISIS has proceeded with the implementation of a system of electronic archiving of the copies of the dispatching documents of its customers, with significant savings for paper saving.

#### **3.3 Social issues**

The Group's companies are committed to provide a safe and healthy working environment for employees, to operate with environmental care by ensuring compliance with applicable legislation, to protect personal data and employees, to ensure maximum service and satisfaction of customers / consumers and to engage in responsible communication and promotion of their products.

The contribution of the Group to the Greek State through the payment of taxes and insurance contributions amounted to 13,2 million euro during the year 2018.

Indicatively, some of the major programs and actions implemented in 2018 to support society are listed below.

Through the companies of the Group, funds and free products were provided to support various institutions with a total value of 99 thousand euro (THE SMILE OF THE CHILD, FRIENDS OF

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MERIMNA, PHILODASSIKI ENOSSI ATHINON, GYMNASTICS CLUB MEGAS ALEXANDROS, CHILDREN'S FRIENDS, TOGETHER FOR CHILDREN, CHRISTODOULIO INSTITUTION, ESTIA AGIOS NIKOLAOS, GREEK GUIDING ASSOCIATION and other non-profit organizations).

With particular care is taken to treat the stray animals (dogs) located at DIAKINISIS facilities. Care includes feeding, vaccination, sterilization, deworming and creating sheltered areas for animal hospitalization.

#### **3.4 Work issues**

ELGEKA Group employs 943 employees, of which 35% are women. The 99% of Group's employees are covered by contracts of indefinite duration.

The training and development of all associates is very important for improving the efficiency and profitable growth of the Group. Each partner, in cooperation with his supervisor, is responsible for his training on the job, as well as for submitting proposals to the Human Resources Manager for the followup of educational programs. During the annual evaluation and record of the personal development plan of the partner is agreed a program of improvement and training that will allow the acquisition of knowledge and techniques for better quality at work.

The direction and speed of each partner's development depends also on him. His contribution should be his will and effectiveness as well as the ability to take greater responsibility. In addition, it should be willing to learn new skills, undertaking new projects and mobility. The Group's companies, in order to encourage the development of its new executives, are trying to fill its gaps through internal promotions. The choice of promotions is based solely on the ability of each person to take on a position of greater responsibility and not on the length of his service.

Our associates are our most valuable asset. Each partner must ensure that his or her behavior and how to handle business affairs does not compromise his / her personal security or that of others. This includes applying the security procedures and making suggestions for changes when necessary.

In other circumstances, including business trips, each associate must behave in a professional, mature and responsible manner at any time.

Associates must ensure that there is no compromise with regard to their personal security or integrity, and that each partner is responsible for adhering to these rules of conduct.

Associates treat each other with respect, courtesy and decency. Debasement, harassment and negative comments on colleagues or outside associates contradict this belief, and each associate must discourage such behaviors.

The Group's companies implement a Health and Safety Policy and the sense of responsibility deriving from it is a top priority for their operation and they focus on preventing accidents and job-related illnesses.

In 2018 there were three (3) work-related accidents in the Group's companies and no fatal work-related accident.

In addition to the requirements of labor law, the following actions were implemented in 2018:

- Training for all staff at regular time intervals on Health and Safety issues at work, as well as personal development and professional improvement. Total training expenses amounted to 197 thousand euro.
- Employee's private insurance scheme, which includes life insurance, hospital and out-of-hospital care. The program concerns all employees and it is given the possibility of optional insurance of the protected members of employees. The annual cost of personnel private insurance amounted to 132 thousand euro.

#### **3.5 Respect for human rights**

ELGEKA Group does not discriminate against gender, race, religion, age, social groups, or sexual preferences. On the contrary, it believes that understanding diversity helps to facilitate contact with all consumer and workforce groups.

In addition, child labor is prohibited within the Group, as well as in the associated companies and in general undeclared work, as well as work under the influence of alcohol or drugs and their use or trading in the workplace, as well as any form of violence. It is a policy of the Group to select associates according to this policy. As a result, ELGEKA Group's associates are expected to follow a similar attitude in their work and in their further contacts.

Anything that constitutes practice of any form of race and sexual harassment, physical or psychological, is strictly forbidden. The Group trains all of its executives for faithful adherence to the above policy.

The Human Resources Department is defined as a surrogate and guardian of the faithful implementation of this policy through control procedures of staff policy.

Any adverse behavior is a professional fault and is punished.

Monitoring and implementation of corporate policy is achieved through:

- The Code of Business Ethics
- Internal Operating Procedures
- Employee Health and Safety Policy

All employees of the Group, depending on their position in the corporate hierarchy, have signed the Code of Business Ethics and have the ability to report anonymous or with their name any breach of the Code.

#### **3.6 Fighting corruption**

The companies of ELGEKA Group apply the Code of Business Ethics, which sets the general standards of Ethics for all Group associates and employees.

The Group's commitment to the values of integrity and honesty, which are an integral part of its operation for more than 40 years, is reflected in this Code.

Management believes that it is its responsibility of informing all employees, permanent associates and suppliers in order to achieve a single operating framework for the entire Group.

The Code outlines the basic principles and rules governing the Group's internal regulations, taking into account the relevant provisions of national and international law, on the basis of which all employees of the Group's companies carry out their duties.

The general principles outlined in the Code, taking into account the principles of Corporate Governance, are based on the values of integrity, impartiality, entrepreneurship, professionalism, transparency, social and environmental responsibility and respect for human rights.

Through compliance with the Code, all employees, among others, have the responsibility to:

- avoid situations of conflict of interest
- avoid the privileged use of suppliers for personal reasons
- ensure transparency of transactions with government authorities
- preserve business confidentiality
- ensure the integrity of financial data and reports

The fight against corruption and bribery is ensured through the following:

- Compliance with the Code of Business Ethics signed by all employees, which includes communication lines in senior and supreme management of issues or concerns relating to illegal or unethical acts. In case of detection of unethical acts, the Audit Committee is informed.
- Compliance with the Corporate Governance Code
- Compliance with internal regulations and operating procedures
- The operation of the Internal Audit Division

During 2018, there was no corruption-related incident.

#### **3.7 Supply chain issues**

The companies ELGEKA, G.S.B.G. and ELGEKA FERFELIS ROMANIA are active in the trade of food and consumer products, which are supplied by the producers of these products.

Their goal is to be a leader in the trading of consumer products and to present high quality products of everyday use, meeting the needs of consumers. The markets in which they are active mainly concern food, frozen food, sweets, daily hygiene items and household items. At the beginning of each cooperation, suppliers are required to obtain the certificates provided for by European legislation. The certifications requested by each supplier depend on the nature of the products and the requirements of the legislation applicable to the countries of the European Union. To this end, the Group's commercial companies are required to ensure that all necessary product information is displayed on the packaging of the products.

The main provider of logistics services for the Greek companies of ELGEKA Group is DIAKINISIS, which has as its object the provision of logistics services to third parties (3PL), namely the receiving, storage and distribution of goods. In order to carry out its operations, it cooperates with a great number of suppliers, namely among others with carriers, subcontractors, suppliers of packaging materials, equipment and maintenance services, cleaning services, safekeeping and security services, real estate

tenants, etc.

The purchases of goods and services of Group's companies operating in Greece are carried out by the Group's Procurement Department in cooperation with the relevant departments, always following the procurement rules and procedures having as target:

- The transparency, objectivity and fairness of procurement procedures
- The monitoring of market development in order to identify and propose cost-saving areas
- The ensuring of selection suppliers that meet the relevant criteria and quality standards of the Group
- The flexibility and speed of procurement execution
- The monitoring of evolution of co-operation with suppliers in order to ensure the provision of selection specifications

The Group's Procurement Department realizes an annual assessment of the most important suppliers regarding the satisfaction of criteria of quality, reliability, consistency, certifications and innovation.

We have not yet developed a complete system for assessing the social and environmental performance of our cooperating suppliers, nevertheless during the procedure of the renewal of contracts with major suppliers, we aim to introduce performance criteria also in these areas.

#### **F. ALTERNATIVE PERFORMANCE MEASURES ("APM")**

The Group uses Alternative Performance Measures ("APM") in decision-making regarding its financial, operational and strategic planning as well as for the evaluation and publication of its performance. These measures serve to better understand the financial and operating results of the Group, its financial position and the cash flow statement. Alternative measures ("APM") should always be taken into account in conjunction with the financial results prepared in accordance with IFRSs and under no circumstances replace them.

#### **Definitions and agreements of Alternative Performance Measures ("APM")**

#### **1) Profitability measures**

For the most complete analysis of its operating results, the Group uses the following profitability ratios:

#### **EBITDA (Earnings before interest, tax, depreciation and amortization)**

The measure EBITDA is calculated from the annual financial statements as follows: "Profit / (Losses) from operating activities" by subtracting the depreciation of assets and depreciation of asset subsidies.

#### **EBIT (Earnings before interest and tax)**

The measure EBIT is equal to the "Profit / (Losses) from operating activities" of the Group resulting from

the Annual Financial Statements.

#### **EΒΤ (Earnings before tax)**

These are the earnings before deduction of taxes and result from the annual Financial Statements.

#### **Net Income**

They are the earnings after deduction of taxes and result from the annual Financial Statements.

All the above figures relate exclusively to the Group's continuing operations.

#### **Profit margins**

For all the above profitability measures the respective profit margin is calculated by dividing the corresponding amount by the total Turnover.

#### **2) Net borrowing**

Net borrowing is an indicator that aims to capture the capital structure of the Group. It is calculated by adding to the long-term loans the short-term part of the long-term loans and short-term loans, as well as the obligations for finance leases, and subtracting the cash and cash equivalents. The calculations are presented in the following table:

#### **3) Operating working capital**

Operating capital is an indicator that aims to capture the Group's liquidity. The calculations are presented below:

| | 2018 | 2017 |
|---------------------------------------------|----------|----------|
| Inventory | 13.686 | 13.246 |
| Trade receivables and other receivables | 29.620 | 28.137 |
| Less: Suppliers and other trade liabilities | (36.402) | (33.645) |
| Operating working capital | 6.904 | 7.738 |

#### **G. RELATED-PARTY TRANSACTIONS (in thousand euro)**

The related-party transactions and Parent Company's intercompany balances in accordance with I.A.S. 24, refer to the transactions with the following subsidiaries and other related, as presented in the following table:

The related-party transactions and Parent Company's intercompany balances for 2018 are presented below:

The related-party transactions and Parent Company's intercompany balances for the prior year 2016 are presented below:

Analytically, the following relationships exist between "ELGEKA S.A." and related companies:

#### **1. ELGEKA S.A. – DIAKINISIS S.A.**

"DIAKINISIS S.A." renders 3rd party logistics services to "ELGEKA S.A." based on a contractual agreement and it relates to warehousing and product distribution.

"ELGEKA S.A." charged "DIAKINISIS S.A." the following amounts:

- **-** 385 thousand euro for the provision of consulting services
- **-** 427 thousand euro for rentals
- **-** 143 thousand euro for co-location costs (water and electricity expenses) and other costs

"DIAKINISIS S.A." has charged "ELGEKA S.A." the following amounts:

- **-** 3.311 thousand euro for warehousing, distribution and repackaging services
- **-** 52 thousand euro for rentals and other income

#### **2. ELGEKA S.A. – GLOBAL SYNERGY BUYING GROUP S.A.**

"ELGEKA S.A." charged "G.S.B.G. S.A." the following amounts:

- **-** 162 thousand euro for the provision of consulting services
- **-** 9 thousand euro for interests on loans

Companies are identified in the capital of which are involved with a percentage of at least 10%, members of the Board of Directors of "ELGEKA S.A." or shareholders with a participation percentage of at least 10%. Subsequently, it was checked the existence of transactions between such companies and "ELGEKA S.A.".

From the audit, it was realized that the companies in the share capital of which they participate with more than 10% members of the Board of Directors and with which "ELGEKA S.A." had transactions are the following:

The company "EXCEED CONSULTING S.A. (FANDRIDIS M. – ASSOCIATES – BUSINESS CONSULTANTS)", with which the total value of transactions amounted to 2 thousand euro and concerns a market research.

There were no changes in transactions between the Company and its related parties' individuals which could lead to important consequences with regard to the financial position and performance of the Company during 2018.

All aforementioned transactions were accomplished under the standard market rules.

### **H. EXPLANATORY REPORT OF THE BOARD OF DIRECTORS TO THE ANNUAL SHAREHOLDERS' GENERAL MEETING OF THE COMPANY "ELGEKA S.A. TRADE – DISTRIBUTIONS – REPRESENTATIONS - INDUSTRY (in accordance with paragraphs 7 and 8 of article 4 of L.3556/2007)**

Detailed information and requested explanations for the year 01/01/2018 – 31/12/2018 are presented below:

**a) Structure of the Company's share capital including the shares which are not traded in organized market in Greece or in any other member-state. Report for any share category along with the rights and obligations derived from these shares as well as portion on share capital that these shares represent.**

The Company's share capital amounts to 50.775.248 euro, divided in 31.734.530 ordinary shares with nominal value of 1,60 Euro each.

All the above shares are listed for trading in the Securities Market of the Athens Stock Exchange (participating in "Athex All Share Index" and in "FTSEGT/Athex Global Traders Index") and represent 100% of the total share capital of the Company.

The owner of a share has voting rights in any shareholders Annual or Special General Meeting, whereas the number of votes increases proportionally (one vote for each share). Own shares bare no voting rights.

Each share bares all the rights and obligations set out in law and in the Articles of Association of the Company.

Shareholders are liable towards third parties and the Company up to the shares' nominal value.

Holding a single share entails the acceptance of the Company's Articles of Association and the General Meeting and the Board of Directors' decisions, given they are taken within the limits of their jurisdiction and the Law.

Each shareholder is considered as resident at the Company's headquarters and is liable to Greek laws.

#### **b) Limits on transfer of Company Shares, as suggestively the limits in shares possession or in obligation for pre-approval by the Company, from other shareholders of Public or Administrative Authority, with saving clauses of Law 3371/2005, article 4, par. 2.**

The Company shares may be transferred as provided by the law. According to the Articles of Association of the Company there are no restrictions as regards to the transfer of shares. These shares are listed in the Athens Stock Exchange and are incorporeal.

#### **c) Significant direct or indirect holdings in the sense of the articles 9 and 11 of law 3556/2007.**

On 31/12/2018 the shareholders that held more than 5%, directly or indirectly, of the total number of shares and voting rights of the Company are the following:

| Shareholder's name | Number of shares | % of share capital |
|-------------------------|------------------|--------------------|
| Alexandros Katsiotis | 10.356.023 | 32,633% |
| Elli Drakopoulou | 4.148.820 | 13,074% |
| Aikaterini Drakopoulou* | 3.173.453 | 10,000% |
| Athanasia Drakopoulou* | 3.173.453 | 10,000% |
| Eleni Katsioti | 1.917.840 | 6,043% |
| TOTAL | 22.769.589 | 71,750% |

\*Ms. Aikaterini Drakopoulou and Ms. Athanasia Drakopoulou hold the bare ownership of these 3.173.453 shares each while holding the power to exercise the voting rights as well as the preemptive rights arising from those shares, while Ms. Elli Drakopoulou reserves the right to usufruct of the total of those shares.

#### **d) Shares conferring special control rights.**

There are no company shares, which provide to their owners' special control rights.

#### **e) Limitations on voting rights, as suggestively the limits in voting rights of shareholders with a defined percentage of share capital or to owners of defined number of voting rights and the deadlines for voting rights.**

With the exception of treasury shares, there are no limitations on voting rights of shareholders with a defined percentage of share capital or to owners of defined number of voting rights and the deadlines for voting rights.

#### **f) Agreements among Company Shareholders, which are known to the Company and entail limitations on the transferring of shares or on voting rights.**

The Company is not aware of any agreements among shareholders entailing limitations on the transfer of shares or limitations on voting rights, nor is there any provision in the Articles of Association providing the possibility of such agreements.

#### **g) Rules governing the appointment and replacement of members of the Board of Directors and the amendment of the Articles of Association if different from the provisions of L. 4548/2018 (that repealed L. 2190/1920).**

The Company's Articles of Association, within the scope of the provisions of C.L. 2190/1920, as replaced and in force since 01/01/2019, by L. 4548/2018, provides for the appointment and replacement of Board members the following:

1. The Board of Directors can elect its members in replacement of those resigned, passed away or misplaced their status with any other manner. The prerequisite for this election is that the replacement of the above mentioned members is not possible by alternate members potentially elected by General Meeting. The above mentioned election from the Board of Directors is done by the remaining members, if they are at least three (3), and it is valid until the end of the service of the replaced member.

- 2. It is explicitly defined that in cases of resignation, death or loss of status of member or members of Board of Directors with any other manner, the remaining members can continue with managing and representing the Company without the replacement of absent members. The prerequisite is that the number of them exceeds half of the total number of members before the above mentioned events. In any case these members cannot be less than three (3).
- 3. In any case, the remaining members of Board of Directors, regardless the number, might proceed to a General Meeting with exclusive issue the election of new Board of Directors.

The terms of Articles of Association in regard with its amendments are not varied from the predefined terms in C.L. 2190/1920, as it was replaced and is in force, from 01/01/2019, by L.4548/2018.

#### **h) Authority of the Board of Directors or certain of its members to issue new shares or to purchase the own shares of the Company, pursuant to article 16 of Codified Law 2190/1920 (and already article 49 of 4548/2018).**

Pursuant to the provisions of article 113 of L. 4548/2018, the Board of Directors increases the share capital of the Company by issuing new shares in the context of the implementation of Stock Option Plans approved by the General Meeting for the acquisition of Company shares by the beneficiaries with the specific terms and procedures provided for by the above provisions. There is no contrary provision in the Company's Articles of Association. The General Meeting decides on its own (in accordance with article 23 of L. 4548/2018 - with the quorum of article 130 par. 3 and 4 and the majority of article 132 par. 2 of L. 4548/2018) the increase of the share capital of the Company through the issue of new shares.

Pursuant to the provisions of article 49 of L. 4548/2018 (ex article 16 of the abolished C.L. 2190/1920), the Company may acquire its own shares only after approval by the General Meeting, up to 1/10 of the paid-up share capital, with the more specific terms and procedures provided by the provisions of article 49 of L. 4548/2018. There is no contrary provision in the Company's Articles of Association.

**i) Significant agreements put in force, amended or terminated in the event of a change in the control of the Company, following a public offer. The results of this agreement would cause severe loss in the Company, except for the case of fact that the publicity of this agreement, due to the nature. The exception disclosure agreement does not apply if the obligation to disclose arises from other provisions.**

"ELGEKA S.A." has no agreements which are put in force, amended or terminated in the event of a change in the control of the Company following a public offer.

**j) Significant agreements with members of the Board of Directors or employees of the Company, for the payment of compensation on the case of resignation, or dismissal without ample explanation or termination of office or employment as a result of the public offer.**

The Company has no significant agreements with members of the Board of Directors or its employees providing for the payment of compensation, especially in the case of resignation or dismissal without good reason or termination of their period of office or employment due to a public offer.

Municipality Delta – Industrial Area of Sindos, Thessaloniki 18 April 2019

> Chairman of BoD & Managing Director Alexandros Katsiotis

# **ELGEKA S.A.**

### **GROUP OF COMPANIES**

# **MANAGEMENT REPORT FOR YEAR 2018**

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Dear Shareholders,

The contents of the report are presented as follows:

#### **A. FINANCIAL RESULTS & BUSINESS ACTIVITIES OF THE COMPANY & THE GROUP FOR THE FISCAL YEAR 01/01/2018 TO 31/12/2018**

Specifically, the financial figures of the Group and the Parent are summarized as follows:

| Sales per Segment (in thousand euro)      | 2018    | 2017    | %        |
|-------------------------------------------|---------|---------|----------|
| Trade of food and other consumer products | 141.379 | 130.309 | 8,50%    |
| Real estate                               | 359     | 489     | (26,58%) |
| Logistics services                        | 32.457  | 34.742  | (6,58%)  |
| TOTAL                                     | 174.195 | 165.540 | 5,23%    |

Other operating income of the Group is increased by 8,90% compared with 2017, or by 4304 thousand euro, mainly due to the increased revenue from property leases.

At the segment level, there was an increase in "EBITDA" in the segment of "Trade of food and other consumer products".

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| EBITDA per Segment (in thousand euro)     | 2018  | 2017  | Μεταβολή |
|-------------------------------------------|-------|-------|----------|
| Trade of food and other consumer products | 5.044 | 4.491 | 553      |
| Real estate                               | (266) | (71)  | (195)    |
| Logistics services                        | 2.055 | 2.487 | (432)    |
| Other                                     | (243) | (44)  | (199)    |
| TOTAL                                     | 6.590 | 6.863 | (273)    |

Financial Expenses are decreased by 63 thousand euro or 1,01% over the previous year, i.e. they amount to 6.165 thousand euro in 2018 compared to 6.228 thousand euro in 2017.

Other Financial Results are decreased by 283 thousand euro amounting to expenses of 244 thousand euro in 2018 compared to revenue of 39 thousand euro in 2017.

| Change in Result after tax from continuing operations 2017 - 2018                   |                  |  |  |
|-------------------------------------------------------------------------------------|------------------|--|--|
| Increase of gross profit due to increased sales                                     | + 1.497 th. euro |  |  |
| Decrease of gross profit due to decreased gross margin                              | - 482 th. euro   |  |  |
| Increase of Other Operating Revenues                                                | + 430 th. euro   |  |  |
| Increase of operating expenses (Selling and Distribution – Administration expenses) | - 1.935 th. euro |  |  |
| Decrease of Other Operating Expenses                                                | + 284 th. euro   |  |  |
| Decrease of financial cost (revenue – expenses)                                     | + 44 th. euro    |  |  |
| Decrease of other financial results                                                 | - 283 th. euro   |  |  |
| Valuation of investment property                                                    | - 645 th. euro   |  |  |
| Participation in the results of joint ventures / associates                         | + 47 th. euro    |  |  |
| Income tax                                                                          | + 848 th. euro   |  |  |
| Total change in Result after tax from continuing operations                         | - 195 th. euro   |  |  |