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's activity report 2022

The main activity of Mercantile AS is the import and wholesale of motor vehicle spare parts, accessories and additional equipment. The company operates predominantly in the Estonian market. The sole shareholder of the company is Örum Oy AB.

The year 2022 was full of challenges for Mercantile AS. The planned sales volume growth did not occur, and overall sales volumes fell by 2%.

Domestic sales remained at the same level as the previous year, while export volumes decreased by almost 20%. Market demand turned out to be more modest than planned due to the war in Ukraine. The war has directly influenced customer behavior, making it more cautious, especially during the first months of the war. The war, combined with inflation of more than 20%, were the main reasons why the expected sales growth did not occur.

Consumer buying behavior became more cautious, car maintenance and repair became secondary compared to other household expenses. This, in turn, had a negative impact on the entire spare parts market in Estonia. Mercantile AS tried to adapt to the new, difficult market situation by focusing on cost optimization. Certain positions were not filled during the year due to the market downturn. As a result, labor costs did not increase compared to the previous year, but this negatively affected the service quality of Mercantile AS. Of the most significant cost components, the rent of the central warehouse increased the most, by more than 200,000 EUR. This change in cost structure was related to the division of Mercantile AS in 2021, during which the main activity was separated from real estate management.

Inflation of various input prices, central warehouse rental and decrease in sales volume caused Mercantile AS's net loss to increase by more than 300,000 EUR in 2022. With the activities carried out in the second half of 2022, Mercantile AS prepared for a significant improvement in financial results in 2023. The restructuring of the sales department and customer service to better meet market needs will certainly add significant added value in 2023. In addition, due to changes in customer buying behavior, we closed the Lasnamäe pick-up point in August. This change allows for internal efficiency in processes and improves the supply security of central warehouse customers. In 2023, we also plan several specific IT projects, which will increase synergy between group companies and reduce the proportion of manual work.

In 2022, we developed the assortment based on customer feedback in terms of several new brands that have received positive feedback from customers.

We have significantly increased the assortment with the European warehouses project, focusing on our main product categories - brakes, filters, steering parts.

In 2022, the impact of COVID-19 on the company's operations was significantly smaller compared to previous years. Due to the difficult situation in the market, we have focused on customer payment behavior and kept losses from receivables at a minimum with improved processes. The functioning of this area is also important for ensuring the liquidity of the company.

Most of Mercantile AS's suppliers are settled in euros, so the realization of currency risk has only a minimal impact on the company's financial results. However, we constantly monitor the situation in the currency markets and react in time if necessary by redirecting goods flows. We also assess the impact of interest rate risk realization as minimal due to the relatively small loan burden.

There were no changes in the seasonality of business operations in 2022 compared to previous periods, the largest part of spare parts turnover still occurs in the spring and autumn period. The distribution of turnover by months is somewhat influenced by long-lasting frosty winter weather, the shifting of the start dates of the tire season. In 2022, there were no significant changes in these compared to the previous year. Due to the field of activity of Mercantile AS, there are no significant environmental and social impacts from our activities, but global supply problems

Due to the war in Ukraine, Mercantile AS's field of activity was also affected. Delivery difficulties of certain suppliers negatively affected sales results, especially during the first months of the year.

Financial ratios 2022 2021

Coverage ratio for short-term obligations

Current Ratio 2.3 3 (times)

Liquidity ratio (times) Quick Ratio 0.6 0.8

Total Assets

Asset turnover (times a year) 2.3 1.3

Turnover

Inventory turnover (in days) 155.7 147.3

Debt ratio (times) Debt/Assets Ratio 0.4 0.3

Equity multiplier (times) Equity Multiplier 1.6 1.2

Net profit margin (%) Profit Margin -4.8% -1.3%

Return on equity (%) ROE -17.4% -1.9%