PODRAVKA GROUP ANNUAL REPORT FOR 2017 ANNUAL REPORT 2017 1 Table of contents Podravka Group ................................................................................................3 Important events .........................................................................................4 Research and Development .....................................................................11 New products Podravka ...........................................................................15 New products Belupo ...............................................................................17 Digital innovation .....................................................................................20 Awards and recognitions .........................................................................21 Social responsibility ..................................................................................26 Activities in environmental protection Podravka ................................28 Activities in environmental protection Belupo .....................................30 Podravka Group management systems audits ......................................33 Supervisory Board and Management Board members biographies .........35 Podravka d.d. Supervisory Board members biographies .....................36 Podravka d.d. Management Board members biographies ...................41 Management’s interim report ........................................................................45 Business results ..........................................................................................46 Podravka Group expected development ................................................60 Key factors of success ................................................................................61 Risk factors .................................................................................................64 Corporate governance ....................................................................................71 Statement on corporate governance ........................................................72 Subsidiaries .................................................................................................73 General Assembly ......................................................................................75 Supervisory Board .....................................................................................76 Management Board ...................................................................................79 Corporate governance code ..........................................................................81 Annual questionnaire ................................................................................82 Podravka d.d. securities ..................................................................................91 Share ...........................................................................................................92 Consolidated Financial Statements for 2017 ...............................................96 Statement of Management’s Responsibilities ......................................... 97 Independent Auditor’s Report to Shareholders of Podravka d.d. ....... 98 Consolidated Statement of Comprehensive Income ........................... 104 Consolidated Statement of Financial Position ..................................... 105 Consolidated Statement of Changes in Shareholders’ Equity ............ 106 Consolidated Statement of Cash Flows ................................................107 Notes to the Consolidated Financial Statements ................................. 108 ANNUAL REPORT 2017 2 PODRAVKA GROUP ANNUAL REPORT 2017 3 Important events APPOINTMENTS OF THE At the General Assembly session held in February 2017, Marko Kolaković, PRESIDENT AND MEMBERS OF Slavko Tešija, Luka Burilović and Damir Grbavac were appointed mem- THE MANAGEMENT BOARD OF bers of the Supervisory Board of Podravka d.d. At the same time, members PODRAVKA AND SUPERVISORY of the Supervisory Board of Podravka d.d. Mato Crkvenac and Ivo Družić BOARDS OF PODRAVKA GROUP COMPANIES were recalled. The term of the appointed members of Podravka d.d. Super- visory Board started as of 21st February 2017 and ends on 7th September 2018. Dubravko Štimac was appointed President of the Supervisory Board of Podravka d.d., and Luka Burilović Deputy President. In February 2017, new members were appointed to the Management Bo- ard of Podravka d.d. as follows: Marin Pucar – the President of the Mana- gement Board of Podravka d.d., Ljiljana Šapina – Member of the Manage- ment Board of Podravka d.d., Iva Brajević – Member of the Management Board of Podravka d.d. until 30th April 2017 and Hrvoje Kolarić – Mem- ber of the Management Board of Podravka d.d. In May 2017, Davor Doko was appointed Member of the Management Board of Podravka d.d., and in July 2017 Marko Đerek. The Supervisory Board also adopted the decision that the term of the President Marin Pu- car and all Members of the Management Board be prolonged until 23rd February 2022. Thereby, the Management Board gained trust and full su- pport to continue with strengthening market positions in the domestic as well as in foreign markets where the Podravka Group has been present for many years. Goals of the present Management Board include increasing efficiency of the overall operations and continuing positioning of Podrav- ka as the trendsetter in the segment of product innovation and modern technological solutions. Marin Pucar, Petar Miladin and Davor Doko were appointed as new mem- bers to the Supervisory Board of Belupo d.d., and Marin Pucar was also appointed the President of the Supervisory Board of Žito d.o.o. NEW BELUPO FACTORY OPENED The President of the Croatian Government Andrej Plenković opened the - THE BIGGEST CROATIAN new Belupo factory in Koprivnica, the biggest greenfield investment in the GREENFIELD INVESTMENT Republic of Croatia in 2017, in the construction and equipment of which HRK 530 million were invested. In addition to the state-of-the-art tech- nology and process organisation in line with the latest standards of good manufacturing practice, this factory represents one of the most advanced pharmaceutical plants in the region which, in addition to 1,386 existing employees opened another two hundred new jobs. The newly-opened pro- duction lines will increase the production capacity by 150 percent compa- red to the existing one, and ensure an annual production of 100 million of packages of drugs. The new factory has two production facilities. The first facility will produce solid drugs - tablets and capsules in blister packs or bottles. The other fa- cility will produce semi-solid and liquid drugs - creams, ointments, soluti- ons, syrups, suspensions, lotions and suppositories. These two production ANNUAL REPORT 2017 4 facilities fully cover the Belupo drugs portfolio and provide opportunities for producing new forms and formats. The Agency for Medicinal Products and Medical Devices of Croatia issued the production permit to Belupo, confirming that the factory of solid, se- mi-solid and liquid drugs fulfils all legal requirements related to the premi- ses, equipment, employed staff and documentation, and that all principles of good manufacturing practice are applied. The production permit covers all Belupo’s newly constructed plants, which allows the drugs produced in the new factory to be put on market. In addition to the production permit, Belupo was also issued a new Good Manufacturing Practice (GMP) Con- firmation, representing the assurance that all manufacturing procedures for drugs and/or tested drugs are in line with good manufacturing practice and the production permit. Thus Belupo once again proves it is a pharma- ceutical company that complies with the highest European regulatory stan- dards and ensures safe, efficient and top-quality drugs for patients. INVESTMENT CYCLE IN MIRNA D.D. In the year when Mirna Rovinj marks 140 years of operation, an investment ROVINJ WORTH APPROXIMATELY cycle worth approximately HRK 45 million in the new line for processing HRK 45 MILLION and production of sardine, mackerel and tuna is being finalised. As Podrav- ka bases its development on strong brands and top-quality products, the investment enables consolidating the production of fish brands in a single location, but also the growth and development of producing top-quality fish products in Mirna. “WE KNOW WHERE WE ARE GOING, In 2017, Podravka celebrated 70 years of business. The message “We know BECAUSE WE KNOW WHERE WE where we are going because we know where we come from”, the banner of COME FROM” – 70TH ANNIVERSARY the birthday campaign, highlights Podravka’s values, tradition, traceability, OF PODRAVKA contribution to the Croatian economy and society, as well as the link with consumers around the world. Podravka builds the quality and competitiveness of its products, which are distributed to over 60 markets across the world, on domestic origin of raw materials, with investment in research and development and new knowled- ge, following technologies and trends. The President of the Republic of Croatia, as well as many other guests from public life and Podravka’s business partners, were present at the jubilee ce- remony. PODRAVKA MARKS 50 YEARS OF The Russian market became the first export market of Podravka in 1967. OPERATIONS IN RUSSIAN MARKET First products on this large and significant market were Vegeta, Podravka chicken soup with noodles and beef soup. They gained trust among con- sumers very quickly,