Reasons and Results of Implementing Principles of Corporate Governance

May 2006

Reasons and results of implementing principles of Corporate Governance

International Conference of the Banja Luka Stock Exchange May 2006

Lidija Kljaji ć Head of the President’s Office Podravka, Croatia

www.podravka.com PODRAVKA GROUP Investor relations May 2006

1 Podravka Group in brief

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Podravka Group in brief

One of the largest branded food company in the region The largest food company Podravka in Croatia

The second Strong distribution Covering key emerging Pharmaceutical network markets Mostly in Croatia company per MS (food, beverages and drugs) Distribution agreements with Nestlé and Unilever Production Czech Republic, facilities Slovakia, Poland, Slovenia

Universal seasoning

Brands

Rice and pulse Baby food Sweet powder products Spring water

Vegeta is the strongest Podravka’s brand present in more than 40 countries

Umbrella brand-symbol of quality

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Vegeta in Poland

• According to Young & Rubicam Vegeta is among the three brands with the highest growth potential

1 Lipton 11 Pudliszki 2 RMF FM 12 Jacobs 3 Vegeta 13 Hortex 4 Wedel 14 Blend-a-med 5 Delicje Szampa ńskie 15 Nescafe 6 Nivea 16 Hochland 7 Adidas 17 Nokia 8 Polska 18 Polsat 9 19 Radio ZET Knorr Prof. of natural science Zlata Bartl 10 TVN 20 Tymbark invented Vegeta in 1958

• “Superbrand” award in Poland and in “Prof. Zlata Bartl Russia foundation” • Vegeta sales 2004: HRK 658 m year 2002 EUR 88 m

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Podravka’s legal structure

Companies, subsidiariesPodravka and representative d.d. offices by market

West Europe,USA South East Central Europe East Europe Croatia Europe and others

• Sana d.o.o. • Podravka • Podravka • Podravka • Belupo d.d. (Slovenia) International International International export-import s.r.l.,Bucharest Deutschland- • Danica d.o.o. • Podravka d.o.o. Sp.z.o.o. (Slovenia) (Romania) KONAR GmbH Warsaw(Poland) (Germany) • Poni d.o.o. • Podravka d.d., • Podravka d.o.o. • Podravka Sarajevo (B&H) Kiev (Ukraine) • Podravka • Ital-Ice d.o.o. Polska Sp.z.o.o. International • Podravka exp.- Kostrzyn(Poland) • Podravka d.d. Pty.Ltd,Sydney • Koprivni čka Moscow (Russia) imp. (Maced.) • Podravka (Australia) Tiskarnica d.o.o. International • Podravka, • Podravka d.o.o. • Podravka • Podravka Belgrade Kft.Budapest Riga, Latvia International (Serbia) (Hungary) USA,New York, Inženjering d.o.o. USA • Podravka d.o.o. • Podravka-Lagris (Montenegro) a.s.(Czech Rep.) • Podravka d.d. (Kosovo)

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Functional organization

Food and Beverages Pharma SBA

Podravka Merchandise Beverages Pharma BA Food

• Seasonings- Vegeta and • Spring water Products Podravka dishes • Adria • Carbonated • Baby food water • Generic drugs and Snacks • Nestl é • Meat • Deit -RX • Unilever • Rice and -OTC pulse • Other soft • Fruit and drinks vegetables • Others ......

www.podravka.com PODRAVKA GROUP Investor relations May 2006

2 History of Corporate Governance in Podravka

www.podravka.com PODRAVKA GROUP Investor relations May 2006 History of Corporate Governance in Podravka

1992 1993 1997 1998

State owned Podravka became Majority of Listing on the ZSE, company Podravka the joint stock shareholdings private, Articles of Association went through company, majority financial restructuring amended in order to privatization process stake held by improve CG, EBRD Government, 35% acquired 10% of stake privatized by small shareholders Podravka introduced new Articles of Association providing certain CG principles

www.podravka.com PODRAVKA GROUP Investor relations May 2006 History of Corporate Governance in Podravka

2003 2004 2005

EBRD divested its Employee Internal Auditor shareholding, its representative appointed mission being joined the fulfilled Supervisory Board

Corporate Development of CG Governance Code Ecouraged by law adopted in Croatia-Boards had to state that they were working according to the CG rules

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Podravka’s Corporate Governance Code

First OECD CG rules were issued in 1999, revised in 2003 and Follows OECD Corporate governance involves a set of relationships first internationally Principles of CG, between a company’s management, its board, accepted CG rules in Laws, ZSE rules its shareholders and other stakeholders.* 2004 and SEC

Equal treatment of Rights and Corporate shareholders duties Governance and their rights of the Boards Code and duties

Disclosure and Transparency

Source: (OECD Principles of CG, Preamble)

www.podravka.com PODRAVKA GROUP Investor relations May 2006

3 Implementation of Corporate Governance Code

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Company and spheres of influence

Markets Laws

d r MB a S o h B a r y Executives e r h o o s l i Managers d v Expectations Society’s r e r e s p u Employees S Unions

Regulations

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Accountablity

Who is primarily accountable? Finance Dept., Legal Dept., HR

To whom?

Company: Audit committee, boards, employees

Laws and regulations: Governments, regulators, government agencies

Markets: Customers, suppliers, investors

Society: Local population, politicians, NGOs

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Accountability

Actions of staff, policies, procedures, company practices, For what? recruitment, retention policies, practices and performance

Internal stakeholders Through what ?

Laws, rules and practices

Corporate Governance Code, Ethical Code

Gathering and processing information

Standardization of processes

Constant monitoring

External stakeholders

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Rights and duties of Shareholders

Company Finance Legal Corporate Delivered by: Investor secretary dept. dept. relations communic.

Regulated by: Rights and Duties

• Secure methods of share • Approval of annual Relevant Croatian ownership registration consolidated fin. reports Regulations • Free transfer of shares • Distribution of Podravka’s and dividend payout within profit (Croatian Companies Act, resonable time • Recall and appointment of SEC, • Regular and timely SB members Stock Exchange Rules) delivery or access to • Recall and appointment of relevant reliable external auditor Articles of Association of information on Podravka • Adopting and amending of Podravka d.d. • Participate and vote at the Art.of association at regular and extraordinary the GA in person or by GA in person or by proxy proxy • Place the items on the • Adopting of all decisions Corporate Governance agenda and raise issues at that GA is authorised to Code the GA in compliance with deliver law, AA of Podravka

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Shareholder equality principle

Shareholders enjoy an equal position in the Company under equal terms

Procedures for the Share dealings organization and work are forbidden to persons Voting right of Podravka d.d. that within Podravka d.d. General Assembly have access to (one share one vote) provides equal treatment privileged information of shareholder voting within ‘close period’

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Management Board and Supervisory Board – rights and duties

Responsible for reporting to shareholders Monitor compliance with law, Owners monitoring of Internal control, Recall and appointment reporting consistency... of SB members Shareholders

Develop strategy, report to SB on results and other relevant information, Recall and appointment Supervisory Board organise accounting and financial control, of MB members provide management supervision...

Management Board The MB in cooperation with the SB provides strategic guidelines as well as efficient supervision Executive Management of management operations. The MB and the SB are responsible Line Management Business Unit Management to the shareholders and to the company.

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Disclosure and transparency

Podravka d.d. strive to provide shareholders with access to reliable, up-to-date and consistent information in a regular, timely and uniform manner

Accounting Mandatory disclosure Occasional informing

Controlling Company • Overall company goals secretary • Financial and business reports • Appointments in the MB and SB Treasury under regulations of the Repub. of Croatia (quarterly) • The remuneration policy of the MB Investor and management Relations Legal • Public disclosure of market • The appointment of auditors Department sensitive information in accordance with the Rules of • Business operations of particular Corporate the ZSE sectors Communications External Audit • Main risk factors

• Significant employee or stakeholder related issues Internal Audit • Transactions with related parties

www.podravka.com PODRAVKA GROUP Investor relations May 2006

4 Positive impacts achieved

www.podravka.com PODRAVKA GROUP Investor relations May 2006 The benefits of a good CG

Customer preference in doing business with you

Your ability to charge premiums for products and services

Sharehold support for your organization in times of controversy

Your company’s value in the financial market

Positive impact on share price

Better corporate reputation

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Additional value for the brands

Vegeta ‘Superbrand’

2004 in Poland

2005 in Russia

Podravka ‘Superbrand’

2005 in Slovakia

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Communication to consumer -important stakeholder ‘Silver apple’ for outdoor promotion “Mild or hot?” The reward from Moscow International Advertising Festival is a acomplishment of Coolinarika.com has been continuous effort in building strong Podravka image as a modern and rewarded with World contemporary Company Summit Award – Hrvatska Coolinarika.com represente Croatia at Red Dot Essen, Moscow, the World Contest in Tunis in Menlo Park USA, Opatija copmetition with 167 states

Numerous design awards for Anual Podravka has been rewared for Report the greatest achievement in Internet Technology in Croatia Acording to the survey with leading economy journalists in the country,Podravka is rated to be among the companies with the best PR in Croatia Corporate Social Responsibility status

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Podravka’s reputation in SEE

Nestle 4,6 4,6 Vindija 4,3 4,3

Takovo 4,3 4,3 Droga 4,2 4,2 Podravka 4,2 4,7 3,7 4,5 4,0 4,3 Agroplod 4,2 4,2 Eta 4,2 4,2

Alkaloid 4,2 4,2 Centroproizvod 4,2 4,2 Vitaminka 4,2 4,1 4,2 Dr Oetker 4,0 4,1 3,7 4,3 Aleva 3,9 3,9

Lura 3,8 3,8 Knorr 3,8 3,5 3,8 4,0 4,0

Vispak 3,8 3,8 Kolinska 3,7 4,0 3,5 3,4 3,8 Maggi 3,7 3,3 3,4 3,9 4,2 Agrokor 3,6 3,6 Agrokomerc 3,4 3,4

Total CRO SLO B&H S&MN MAC

Source: Prizma, CATI (Computer Assisted Telephone Interviewing), 2004.

www.podravka.com PODRAVKA GROUP Investor relations May 2006 Inclusion of PODR-R-A in SETX - Wiener Börse Index

• On February 15, 2006 Podravka’s ordinary share is included in Wiener Börse Index called SETX (South- East Europe Traded index) • The primary selection criterion is the market capitalization of in the form of capitalized free float besides that there are other criteria like liquidity, market interest and availability of prices

Source: Wiener Börse ‘Rules for the SETX’