Date: 01.09.2022

The rescuers of the Tatra car factory in Kopřivnice, Czech industrialists René Matera and Jaroslav Strnad, have taken control of the Đuro Đaković Group d.d. (hereafter DDG), a key brand in Croatian industry. They entered the Croatian group through the investment vehicle DD ACQUISITON a.s. The challenging investment project, which started in 2020, was completed with the DDG general meeting held on 31 August 2022. At that meeting, the Czech investor injected a total of HRK 232 million into DDG, which is a combination of cash and fixed assets. Against this capital, 23.2 million new shares will be subscribed. The resulting ownership share of the Czech investor will be 82 percent.

René Matera and Jaroslav Strnad joined their business destinies in 2013, when they jointly acquired the Tatra automotive company in Kopřivnice at auction and surprisingly quickly brought it out of the crisis. Their shares in DD ACQUISITON a.s. (hereinafter also DDA) are similar to the situation when they entered Tatra: Jaroslav Strnad's CE Industries Group has 65 percent and René Matera's PROMET GROUP has 35 percent.

Đuro Đaković Group d.d. (DDG) is historically the most important company and industrial brand in Croatia. It has been active in a wide range of sectors as a supplier of industrial equipment and vehicles in the energy, construction, railway and defence industries. Currently, its main production programme is the manufacture of rail freight wagons of various types. A minority part of its activity is in the defence industry: DDG participates in the life cycle of armoured vehicles in the Croatian Army.

The need for a strategic investor to enter DDG was decided by the Croatian government already in 2020. In the middle of this year, DDG's management issued a public invitation on the Zagreb Stock Exchange to participate in a tender for a strategic investor to recapitalise and become the majority shareholder of the group. "The reason for the sale of DDG was the dismal financial and sales situation of the company, which had liquidity problems and needed a major restructuring of the balance sheet, based on the capitalization of the original liabilities in the amount of HRK 300 million and a capital increase by a new investor in the amount of HRK 232 million. HRK," says Adam Šotek, Chairman of the Board of CE Industries.

The Czech bid first advanced to the second round together with two other companies, in which it won mainly on the basis of the quality of the restructuring plan. Martin Kamarád, CFO of the PROMET GROUP, says: "While the other bidders foresaw a reduction of the companies' activities and the sale of assets, we promised not only to preserve jobs and the Group's activities in all core sectors, but also to significantly increase and develop them through new orders. We are already delivering on this promise."

René Matera, owner of PROMET GROUP, says: "I am glad that together with Jaroslav we have managed to make another important acquisition, this time outside the Czech Republic. As in the case of Tatra, we were assisted by a great team of Czech and Croatian managers in joining Đuro Đaković, thanks to whom the company has already improved significantly this year. We are fulfilling the commitment we made to Croatia and we thank the Croatian government for the opportunity it has given us."

Jaroslav Strnad, owner of CE Industries, says: "There are of course similarities with Tatra. Đuro Đaković is a symbol of Croatian industry and was going through a protracted crisis before our entry. Unlike Tatra, where René and I were the only serious bidders, here, as Czech investors, we succeeded in a tough competition in which major local entrepreneurs also participated. As in the case of Tatra, René and I feel a great responsibility towards our employees, customers and the Croatian state, which is keeping a close eye on the sale and further development of the company. We thank the Croatian government for its trust and cooperation in this challenging project."

The main task of the management team that was installed in Duro Dakovic last year, headed by the experienced Czech manager Pavel Maroušek as board member and CEO, was to win orders for 2022 and 2023 in the field of wagon production, optimise the company's order flow and increase production to three times the 2021 volume. This has been achieved: Sales increased from 260 wagons in 2022 to around 600 in 2021. Order intake for 2023 is secured at approx. 800 wagons. At the same time, 2022 and 2023 will bring the highest wagon sales figures in Duro Dakovic's history.  A key factor for the success has been setting up new logistics and technological processes in the company and gaining the trust of customers such as the European major railway companies GATX, Wascosa, Ermewa and VTG.

A small part of Duro Dakovic's revenues in the sub-tens of millions of HRK per year are generated by the defence industry. This part of Duro Dakovic is mainly engaged in servicing military equipment for the Republic of Croatia. It has significant development potential in the future, given the security situation in Europe.

About the investor in Đuro Đaković Group d.d.

DD ACQUISITON a.s., through which Czech investors entered Đuro Đaković Group d.d., is owned 35 percent by PROMET GROUP a.s. (ultimate owner René Matera) and 65 percent by CE INDUSTRIES a.s. (ultimate owner Jaroslav Strnad).

PROMET GROUP is an industrial holding built by the owner René Matera and his family since 1992. It is divided into four divisions, which are dedicated to metallurgy, engineering, engineering and services. The group's companies had revenues of C$14 billion and EBITDA of C$942 million in 2021.

CE Industries is an industrial holding built by Jaroslav Strnad since 2018 after his departure from Czechoslovak Group, which he founded and handed over to his son Michal. It operates mainly in the railway industry, recycling and waste management and energy. Its sales in 2021 were CZK 5.6 billion and EBITDA was CZK 396 million.

About Đuro Đaković Group d.d.

Đuro Đaković Group d.d. (hereinafter referred to as "DDG"), with its subsidiaries Đuro Đaković Specijalna Vozila d.d. (DDSV)., Đuro Đaković Strojna obrada d.o.o. (DDSO), Đuro Đaković Energetika I infrastruktura d.o.o. (DDEI). The Group's headquarters and production facility is located in Slavonski Brod in eastern Croatia.

The Group was founded in 1921 and for many years was one of the largest employers in Central and South-Eastern Europe (employing more than 17,000 people in the 1980s). Today it employs around 1,000 people, thanks to the contribution of a Czech investor. Prior to its managerial entry, the group had 730 employees.

Today, the main business is the production of rail freight vehicles at DDSV, which is the largest company in the group and which, in addition to railways, is also involved in the defence programme. Its sister companies are DDSO (a machining and tooling plant) and DDEI (an energy provider and distributor, owner of the distribution infrastructure).

Transaction history leading to the entry of Czech investors

In 2019 and 2020, DDG was brought to its knees by a series of employee strikes after the company's liquidity did not allow it to pay wages on time. The group has had several very bad years economically. On January 16, 2020, the Croatian government decided to provide state aid to the group in the form of state guarantees for post-car financing in the amount of HRK 300 million. The approval of the state aid at the Brussels level took place in mid-2020, subject to the preparation of a restructuring plan and the entry of a strong strategic investor.

Following on from the above, in mid-2020 DDG's management issued a public invitation on the Zagreb Stock Exchange to participate in a "tender procedure" for the entry of a strategic investor to recapitalise and become the majority shareholder of the Group. In addition to the CEI & PG consortium, several other potential investors participated in the tender. There were four serious bidders, including the Czech investor DDA. Of these, three, including DDA, advanced to the second round. In the second round, DDA's bid was evaluated as the best. Unlike the competitors, the Czech investors' restructuring plan envisaged the preservation of all viable companies and their turnaround and development, while other plans projected a significant divestment of assets and subsidiaries and a further downsizing of business activities.

The investor will acquire a majority in the company through a capital injection of HRK 232 million, part of which will be provided in cash and the other part in the form of a contribution of fixed assets.

The total contribution of the investor to the company is HRK 480.5 million (of which HRK 232 million is the initial capital injection, the remaining amount is a combination of e.g. a commitment to make significant development investments in the high tens of millions of HRK, provision of financing or development business contracts). These total contributions will be realised over the period of the formal restructuring of DDG, i.e. four years.