Podravka and Nestle distribution in Serbia, the Bosnia-Herzegovina and Macedonia markets

Pursuant to an agreement between Podravka and Nestle in Serbia, there was a transition period in which both Podravka and Nestle were selling the Nestle product range to small retail outlets. This period has just ended and starting 1 July 2006 Nestle has taken over the distribution of its products to small outlets, whilst Podravka keeps on handling the distribution of Nestle’s products to markets, supermarkets and large retail chains.
Losing distribution of Nestle’s products to small retail outlets will not have a significant effect on the sales levels of Nestle’s products in 2006, because growth in large retail chains will compensate for this. It is expected that the sales levels of Nestle’s products will remain equal to that in 2005.
Thanks to very significant organic growth, total sales of Podravka will reach the planned growth in 2006 in comparison with 2005.

As of 1 September 2006, Podravka will cease distribution of Nestle’s products in the Bosnia-Herzegovina and Macedonia markets. This will result in a decline in revenue collected from sales of the Nestle’s range in comparison with the sale of the same product range in 2005. Total sales of Podravka’s company in Bosnia-Herzegovina, including Podravka’s product range and other merchandise, will remain at the 2005 level, whereas in Macedonia a drop in sales is expected in comparison with the year before. The reason for this decline is that the organic growth of Podravka’s range cannot compensate for the lower sales volume of the Nestle range.