ANNUAL REPORT 2015 VIPAP VIDEM KRŠKO2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP The VIPAP Group consists of the parent company Vipap Videm Krško d.d. and related companies:

MARCH 2016

ANNUAL REPORT 2015

VIPAP VIDEM KRŠKO

Annual Report of Vipap Videm Krško d.d. for 2015

TABLE OF CONTENTS

I. INTRODUCTION ......................................................................................................... 4 2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP .............................................. 6 3. KEY ACHIEVEMENTS OF THE CONTROLLING COMPANY ............................................................. 11 4. MAJOR EVENTS IN 2015 .......................................................................................................................... 12 5. RISK MANAGEMENT .............................................................................................................................. 14 6. VISION AND MISSION ............................................................................................................................. 16 7. CORPORATE GOVERNANCE STATEMENT ......................................................................................... 17

II. BUSINESS REPORT ................................................................................................. 20 1. PERFORMANCE ANALYSIS OF THE CONTROLLING COMPANY ................................................... 21 2. PRODUCTION ........................................................................................................................................... 28 3. SALES ......................................................................................................................................................... 36 4. PURCHASING ........................................................................................................................................... 39 5. RESEARCH & DEVELOPMENT ACTIVITIES ....................................................................................... 41 6. INVESTMENT ACTIVITIES ..................................................................................................................... 41 7. EMPLOYEES ............................................................................................................................................. 42 8. EXPECTATIONS FOR 2016 ...................................................................................................................... 45

III. SUSTAINABLE DEVELOPMENT REPORT ........................................................... 47 1. INTRODUCTION ....................................................................................................................................... 48 2. ENVIRONMENTAL POLICY – BUSINESS EXCELLENCE ................................................................... 48 3. RESPONSIBILITY TOWARDS THE NATURAL ENVIRONMENT ....................................................... 55 4. RESPONSIBILITY TOWARDS THE LOCAL AND BROADER SOCIAL COMMUNITY ..................... 58

IV. FINANCIAL REPORT OF THE COMPANY VIPAP VIDEM KRŠKO D.D. ............ 60 1. FINANCIAL STATEMENTS ..................................................................................................................... 61

1.2. BALANCE SHEET AS AT 31 DECEMBER 2015 ........................................................................................ 61 1.2. STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 January 2015 TO 31 DECEMBER 2015 ............................................................................................................................................ 63 1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2015 TO 31 DECEMBER 2015 .. 64 1.4. STATEMENT OF CHANGES IN EQUITY FOR 2015 ................................................................................. 65 1.5. STATEMENT OF CHANGES IN EQUITY FOR 2014 ................................................................................. 66

2. APPENDIX TO THE FINANCIAL STATEMENTS .................................................................................. 67 2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ...................................................................................... 67 2.2. NOTES TO THE FINANCIAL STATEMENTS ............................................................................................ 71

3. CONTINGENT LIABILITIES ................................................................................................................... 87 4. SIGNIFICANT EVENTS AFTER THE END OF THE 2015 FINANCIAL YEAR .................................... 87

V. FINANCIAL REPORT OF THE VIPAP GROUP ...................................................... 90 1. FINANCIAL STATEMENTS ..................................................................................................................... 91

1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2015 ........................................................ 91 1.2. CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2015 TO 31 DECEMBER 2015 ...................................................................................................... 93 1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 January 2015 TO 31 DECEMBER 2015 ................................................................................................................................................. 94 1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2015 ................................................. 95

Annual Report of VIPAP VIDEM KRŠKO D.D. for 2015

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1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2014 ................................................. 96 2. APPENDIX TO THE FINANCIAL STATEMENTS .................................................................................. 97

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ...................................................................................... 97 2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .......................................................... 104

3. CONTINGENT LIABILITIES ................................................................................................................. 122 4. SIGNIFICANT EVENTS AFTER THE END OF THE 2015 FINANCIAL YEAR .................................. 122


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I. INTRODUCTION


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1. EXPLANATION BY THE MANAGEMENT BOARD ABOUT THE OPERATONS OF THE COMPANY VIPAP AND THE VIPAP GROUP In 2015, the global market trends in graphic papers were particularly negatively reflected in the segment of newsprint and coated papers. The latter was reflected in a drastic price drop (-9%), which consequently led to a decrease in the Company's revenues and deteriorated financial performance indicators. The Company responded to negative market trends with additional measures for streamlining the operations, increasing the efficiency of performance and market restructuring, all with the aim of preserving competitiveness. In spite of the drop in demand, the Company in 2015 increased the sales volume by 5% and production volume by 2%. Even though the volume of business was higher, the Company recorded a 3% fall in revenues as a result of lower prices of newsprint. The greater volume of business was achieved by new products (wrapping packaging papers and improved newsprint), which the Company developed in the scope of its Development Department. The Company started producing and selling wrapping packaging papers in the second half of 2014 and continued in 2015. In this segment it recorded a significantly higher return than in the existing product range. These papers accounted for 8% of the sales. In the strategy they are defined as the Company's future. The stringent market situation, especially in Western Europe, required of the Company to undergo market restructuring. In addition to the markets in Western Europe (Italy, South Germany), the Company focused on the markets in SE Europe and Turkey. The price decrease was smaller in this area because of a minor drop in demand. Flexibility, fast response to customers' requirements and market adjustment were the main competitive advantages of the Company that were fully exploited. The process of finding a strategic partner started in the middle of the year, but was not successfully completed. As a result, the Company started negotiating with the existing banks and financial institutions to implement the set strategy, which also prescribes investments in the existing equipment with a view to securing the Company's competitiveness on the market and increasing the scope of new types of paper (packaging and wrapping papers), which are of strategic importance for the Company. A programme for rationalising operations (PIP) was also prepared, covering the measures related to decreasing material and fixed costs. Savings in variable costs stood at EUR 2.7 million and in fixed costs EUR 0.8 million, in total more than projected in the programme. The financial and liquidity situation called for moderate investments. The Company did not succeed in making major investments due to the loss of income. Capex of EUR 731 thousand is fully accounted for by major maintenance of equipment. In spite of the moderate revenues and lower profitability the Company managed to reduce negative working capital by EUR 1.4 million and accelerate the cash flow in the Company. The drop in the profitability indicators points to the urgency of restructuring of the product range and the Company's operations towards more profitable products and thus preserving competitive advantages of the Company (location, fast responsiveness and flexibility of the product range), which assure more profitable business in the future.

The Company's Management Board


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2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP The VIPAP Group consists of the parent company Vipap Videm Krško d.d. and related companies: Levas Krško d.o.o., ZEL-EN d.o.o., Vipap Vertriebs und Handels GmbH and ENOVIP d.o.o. A decision on entry of winding up of Ekopa d.o.o. by fast-track procedure was issued on 9 March 2015. Related parties transactions are multi-tier. Name Country

Type of connection

% of connection

Vipap Vertriebs und Handels GmbH

AUT Direct equity 100.00

Levas Krško d.o.o. SLO Direct equity 84.31 (15.69 own stakes)

ZEL-EN d.o.o. ENOVIP d.o.o.

SLO SLO

Direct equity Direct equity

11.38 16.00

All related parties are liable for corporate income tax. Related companies are not exempt from tax under ZDDPO (Corporate Income Tax Act) and do not pay tax at a lower legally applicable rate (Economic Zones Act). They are related parties without more favourable tax position. Ownership structure of the VIPAP Group:

100% stake

11.38% stake 16%

owned by VIPAP, 84% owned by

ZEL-EN

Vipap Vertriebs und

Handels GmbH

3.5% treasury

MINISTRY OF FINANCE OF THE CZECH REPUBLIC

VIPAP VIDEM KRŠKO D.D.

controlling company

Levas Krško d.o.o.

84.31% stake

96.5% stake

ZEL-EN d.o.o.

ENOVIP d.o.o.

15.69% treasury


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The parent company Vipap Videm Krško d.d. in brief: Company name Abbreviated company name

VIPAP VIDEM KRŠKO proizvodnja papirja in vlaknin d.d. VIPAP VIDEM KRŠKO d.d.

Registered office Tovarniška ulica 18

Activity

Production of paper and fibres

Ownership

Ministry of Finance of the Czech Republic

Share capital

EUR 78,387,660

Total assets EUR 110,909,643

Nominal value of share Number of shares outstanding

EUR 41.70 1,814,007

Company identification number

SI 23087226

Company registration number President of the Management Board:

5971101 Stefan Eibl-Török (since 16 March 2016)

Vice-President of the Management Board

Jožica Stegne

Other members of the Management Board

Ladislav Kristančič, Dragan Kranjc and Matijevič Darinka

Chairman of the Supervisory Board

Tomaš Šabatka since 29 January 2016 Dušan Vaněk - since 1 January 2015 - resigned as member on 31 December 2015

Other members of the Supervisory Board

Petr Blažek, Franc Kukovičič, Zoran Župevc, David Rais (since 1 January 2016)

Employees

352 (31 December 2015)

Sales in 2015

198,938 tonnes of paper

Paper production in 2015 197,745 tonnes of paper

Fibre production in 2015 172,802 tonnes of deinked pulp (DIP) and 23,042 tonnes of groundwood (TGW)

Subsidiaries

Levas Krško d.o.o. and Vipap Vertriebs und Handels GmbH

Associated companies

ZEL-EN d.o.o. and ENOVIP d.o.o.

Telephone

+386 (0)7 48 11 100

Fax

+386 (0)7 49 21 115

E-mail

[email protected]

Website http://www.vipap.si


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The parent company Vipap Videm Krško d.d., is entered in the Companies Register under registration number 1/0398300 with the District Court of Krško. Its majority owner is the Ministry of Finance of the Czech Republic, holding a 96.5-percent share, whilst the remaining 3.5-percent share is represented by the Company’s treasury shares. The Company's core activity is paper production, namely newsprint, publication and wrapping packaging papers and the production of own fibres, i.e. deinked pulp and groundwood. Based on the criteria as at the annual balance sheet date for the last two consecutive financial years, the number of employees and net sales revenues, the Company is classified as a large company. At the end of the year it employed 352 people. The bodies of the company are: the General Meeting, the Supervisory Board, and the Management Board. In 2015, the five-member Management Board was chaired by the Vice-President Jožica Stegne. In March 2016, the position of the Management Board President was assumed by Stefan Eibl-Török. In 2015, the five-member Supervisory Board was chaired by Dušan Vaněk, who was in January 2016 replaced by Tomaš Šabatka. The General Meeting is led by Jožica Stegne.

The related company Levas Krško d.o.o. in brief

Company name

Abbreviated company name

LEVAS zaposlovanje in usposabljanje invalidov Krško d.o.o. (LEVAS, Employment and Training of the Disabled, Krško, Ltd.) LEVAS Krško d.o.o.

Registered office Tovarniška ul. 18

Activity Production of wood packaging and disabled enterprise

Ownership 100 % Vipap Videm Krško d.d.

Organisational form Limited liability company

Levas Krško d.o.o. is a disabled enterprise. The activity of the company is very broad, comprising both production and service activities. Its basic line of business is the production of wood packaging. This includes the production and drying of pallets. The service activity includes security, carpentry and metal workshop, car repair workshop, electrical/mechanical services, and other services. At the end of the year the company had 99 employees, of whom 53 or 53.54% holding the status of a disabled person. The bodies of the company are: the General Meeting, the Supervisory Board, and the Management Board. The three-member Supervisory Board is managed by Jožica Stegne, and the Management Board comprises a single member, i.e. Roman Ganc.


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The related company Vipap Vertriebs und Handels GmbH in brief:

Company name VIPAP Vertriebs und Handels GmbH

Registered office Josef Huber Strasse 6, Ternitz

Activity Wholesale and retail trade

Ownership 100 % Vipap Videm Krško d.d.


Vipap Vertriebs und Handels GmbH is an Austrian-based trading company. It sells our end products on the markets of Hungary, Slovakia, and Austria. It also supplies waste paper from these markets. The company is run by Ladislav Kristančič acting as Managing Director. At present, it employs 2 people, both on a half-time basis.

The related company ZEL-EN d.o.o. in brief:

Company name Abbreviated company name

ZEL-EN, razvojni center energetike d.o.o. (ZEL-EN, Energy Development Centre, Ltd.) ZEL-EN d.o.o.

Registered office

Activity

Vrbina 18

Research and development in other fields of natural

science and technology

Ownership 11.38% Vipap Videm Krško d.d.


ZEL-EN is a development centre for renewable and sustainable energy, boasting a very high technology-development capacity in the field of renewable and sustainable energy in the Posavje region and in a wider area in Slovenia. The partners of ZEL-EN established a consortium with the aim of strategic cooperation through a joint partner project ZEL-EN. The principal activity of the company is development and research in energy, production support, holding activity as (co)owner of potential spin-offs and training. The company is managed by the Managing Director Domen Zorko. In 2015, the business unit Vipap Zel-en employed 2 people.


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Company name Abbreviated company name

ENOVIP, trajnostna energetika in gradnja, d.o.o. ENOVIP d.o.o.

Registered office Tovarniška 18

Activity

Other engineering activities and technical consultancy

Ownership

16% Vipap Videm Krško d.d.


ENOVIP was founded as a spin-off from ZEL-EN d.o.o. Its members are ZEL-EN, holding 84%, and VIPAP VIDEM KRŠKO d. d., holding 16%. The company's headquarters and business premises are on the business premises of VIPAP leased by ENOVIP. The premises are equipped with infrastructure and the location of the headquarters and business premises is the most suitable for efficient performance of activity given the company's line of business. The company, which currently employs 1 person, is managed by the CEO Breda Ogorevc. At the end of the year, the Vipap Group (with associated companies) had 456 employees. There are 22 people employed through an employment agency.


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3. KEY ACHIEVEMENTS OF THE CONTROLLING COMPANY

Realisation 2012

Realisation 2013

Realisation 2014

Realisation 2015

INDEX 15/14

Financial data Net sales revenues (in EUR thousand) 100,464 95,351 92,565 89,850 97Operating profit/loss (in EUR thousand) 2,941 -1,531 -1,160 -4,095Profit or loss for the period (in EUR thousand) 76 -3,925 -3,018 -6,037Cash flow (in EUR thousand) Cash flow from operating activity 5,417 5,808 6,392 -540Available cash flow 5,004 3,684 3,879 -1,271Investment activities Capex (in EUR thousand) 413 2,124 2,513 731 29Performance indicators Net working capital (in EUR thousand) -29,542 -21,076 -6,943 -4,539 65Value added per employee (in EUR thousand) 57 43 48 38 79ROCE (%) 3.5 -1.1 -1.1 -5.1 464Revenues per employee (in EUR thousand) 259 251 245 250 102EBITDA (in EUR thousand) 10,814 5,564 5,906 2,916 49Sales data Quantity of paper sold 196,789 194,046 188,994 198,938 105Production data Amount of produced paper (in tonnes) 199,325 193,364 193,948 197,745 102Quantity of deinked pulp production (in tonnes) 167,509 169,439 171,350 172,802 101Quantity of groundwood production (in tonnes) 21,295 18,837 21,013 23,042 110Data on employees No. of employees as at 31 December 382 375 374 352 94Average no. of employees 388 380 378 360 95


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4. MAJOR EVENTS IN 2015 March Successful FSC certification of Vipap Gmbh. March In the matter of entering in the register a decision on winding up the company Ekopa zbiranje, sortiranje in odkup odpadnega papirja d.o.o. by fast-track procedure, the District Court of Krško on 9 March 2015 issued a Decision on winding up of the company by fast-track procedure.

March-November

Successfully passed external assessments by customers and inspection authorities:

o 2 March 2015: The Health Inspectorate of the Republic of Slovenia assessed the products and good manufacturing practice for food contact materials;

o 11 March 2015: Zik-Zavod za ispitivanje kvaliteta, Croatia, carried out an assessment according to the ISO 9001 standard requirements;

o 12 November 2015: Papirnica Goričane passed the evaluation of cutting service for product after-treatment according to the requirements of the ISO 9001 and FSC standards.

May In May 2015, the then President of the Management Board Miloš Habrnal terminated employment relationship. June Successfully passed FSC re-evaluation carried out by an external assessor Bureau Veritas. June The process of company sale was unsuccessfully completed at the end of August. June On 12 June 2015 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. was convened, with the following agenda:

1. Opening, establishing presence and quorum, and election and appointment of the working bodies of the General Meeting

2. Acknowledgement of the 2014 Annual Report 3. Appointment of the auditor for the 2014 financial year (audit company UHY Revizija in

svetovanje d.o.o., Vurnikova cesta 2, Ljubljana) 4. Recall and appointment of member of the Supervisory Board 5. Any other business

June The Input Control and Ecology Laboratory is an accredited testing laboratory under the SIST EN ISO/IEC 17025:2005 standard for the scope of activities stated in the accreditation document LP-71. On 3 June 2015 and 4 June 2015, the Slovenian Accreditation carried out the regular periodic assessment of the management system. The assessment was successful.


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July Successfully passed certification of energy production and VIPELEX, MULEX, VIŽELEX products by STS-09/2015 October The traditional marketing conference was this year confined to a two-day meeting with agents held at the City Hotel in Krško. At the meeting, which was attended by 15 agents from 11 countries, we presented new products and some HR changes and thoroughly discussed the sales plan by market for 2016. November We actively participated in the preparation and implementation of the international meeting of the Slovenian paper industry (the 19th Day of the Slovenian Paper Industry and the 42th International Annual Symposium of DITP), which was organised by the Chamber of Commerce and Industry of Slovenia - Paper and Paper Converting Industry Association, and the Pulp and Paper Engineers and Technicians Association of Slovenia (DITP). This year the title was "Paper Industry – An Excellent Example of Circular Economy". December On 2 December 2015 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. was convened, with the following agenda:

1. Opening, establishing presence and quorum, and election and appointment of the working bodies of the General Meeting

2. Recall and appointment of member of the Supervisory Board 3. Any other business


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5. RISK MANAGEMENT The controlling company has adopted the Rules on Financial Management and Operational Risk Management. Risk management comprises establishment, measurement and evaluation, and monitoring of risks, including reporting on risks which the Company is or could be exposed to in its operations. The Company is aware of the fact that the risk management area is one of the fundamental areas each company has to develop constantly. The company Vipap defined the most crucial and probable risks. The objective of risk management is to anticipate the risks - to detect them in a timely manner and react properly. We divided the risks into two main groups: operational risks and financial risks, which are presented in the continuation. Operational risks Market risks Vipap Videm Krško d.d. is selling products worldwide. As a result, it is exposed to various market risks. Fast responses to the changes in operating conditions and adjustment of sales and marketing activities remain the Company's key competitive advantages. We continuously monitor the situation on the global market of paper industry. The Company has organised the market conference for its business partners for a number of years. The conference was organised also in 2015; all with the aim of keeping up with the market needs/requirements as promptly as possible. The Company’s sales strategy is being constantly aligned with the latest market findings. Market risks are strongly mitigated by flexible production and own high quality human capital potential. In addition to the risks related to specific market environment and economy, of which the predominant is the risk arising from exchange rate fluctuations, our sales focus on the risk arising from the operations with individual customers, in particular the risk of their insolvency and bankruptcy, payment deadline-related risk and other risks due to default on contracts. The Company is managing financial risks by insuring receivables with SID and by the sales which are based on advance payments and collateral instruments (bank guarantee) obtained from customers. The risks arising on the purchase market result from insufficient supply of raw materials (wood and waste paper) during the winter, when logging reduces and when the collection of waste paper is more difficult. We have avoided this quantity-related risk by fostering long-term partnerships based on competitive conditions and by ensuring adequate stock in case of any supply halts. The risk arising from raw material price fluctuations is managed by forward buying (energy sources) and long-term contracts (other raw materials). Development-related risks The Company cannot exist without development. Vipap is constantly faced with the risk that product development process will not end successfully. The risks in this area, which are technological-technical, are mitigated by a team of development technologists who are continuously working on developing the Company's new own products, those based on recycled fibres. In 2015, the greatest emphasis was on the development of wrapping packaging papers. We reduce the above risks by modernising processes, introducing modern technologies and adapting to customer requirements in early development stages. There is the risk of insufficient quality of new products, the risk of insufficient orders and quantities as well as non-profitability of new products. The risk of unsatisfactory quality is being resolved in the Development and Technology Department and the Laboratory in cooperation with the production sector and the


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Pulp and Paper Institute from Ljubljana. Of crucial importance in this process is the supervision of investment effects, warranting continuous cooperation of the economic and technical department. Risks associated with environmental protection Environmental management has been one of the major tasks of the Company. The Company is using modern technology and technical measures to mitigate the negative environmental impacts. We daily monitor the environmental status, the impact of activities, emissions and energy in the environment as well as plan, monitor, supervise and implement measures, and report as required under the Environment Protection Act. The likelihood of extraordinary events is also reduced by preventive measures. Our company contributes to the preservation of the environment by carefully managed environmental policy. Risks associated with environmental protection are mainly the risks of ecological disasters or accidents that could negatively impact the environment, and the risks of paying fines for non-compliance with the regulations and standards in the field of environmental protection. Such risks are always present and must therefore be anticipated and managed. The Company has thus set up an ecological service which employs experienced technologists engaging in the analysis of ecological parameters and efficient resolving of ecological problems as well as ensuring compliance with the applicable laws. Financial risks Foreign exchange risk Foreign exchange risks do not directly influence the operations of the Company, since most incoming and outgoing cash flows are euro-denominated. The prices of raw materials are mainly set in EUR, with the exception of coal, the price of which is in USD. A fixed EUR/USD exchange rate has been agreed with the coal supplier for every coal shipment by sea. Interest rate risk In 2015, the Company regularly serviced all loans according to respective agreements. A part of long-term and short-term loans is secured by fixed Euribor until their repayment (more information follows under accounting disclosures for derivative financial instruments). The policy of interest rate protection enables the Company to minimise the risks of increasing costs of financing with fixed margin. Liquidity risk The Company is managing the risk of inability to settle its current liabilities by short-term and long-term cash management. Short-term planning is based on daily, weekly and monthly cash flow planning. The year 2015 was very demanding in terms of liquidity. The drastic drop in sales prices and a slight increase in the prices of raw material led the Company to agree with banks on a 6-month stand still on repayments of loans so as to avoid liquidity problems. At the same time, the Company raised a short-term loan in the amount of EUR 1.8 million for the purchase of a major quantity of raw material in order to increase the stock for the winter, when the delivery of certain raw material (wood and waste paper) is difficult because of the weather conditions. Net working capital rose by EUR 1.5 million at the end of 2015.


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We assess that in 2015 the liquidity risk was suitably managed, owing to appropriate agreement with banks and suppliers.

In 2015, we settled all liabilities to banks and other financial institutions according to contractual provisions. The Company settled its liabilities to other business partners in accordance with the agreed payment deadlines and with certain delays.

6. VISION AND MISSION The vision of the company Vipap Videm Krško d.d. is to preserve and further develop the position of a leading manufacturer of newsprint and graphic papers from recycled fibres on the markets of SE Europe, produce paper of higher quality and price which is based on integrated production of fibres from waste paper and mechanical processing of wood with own personnel. With integrated offer and range of papers, quality of products, quality services and quality work in all business functions, the Company will ensure growth and economic performance. With the emphasis on environmentally friendly production technology, sustainable development and promotion of innovative work in this area, the Company will ensure development and preservation of the natural environment. Sustainable development of automated and ecologically adapted production processes and use of renewable sources of raw materials enable the Company to produce nature-friendly papers from recycled fibres and groundwood. The basic mission of Vipap Videm Krško d.d. is to produce and market paper made from recycled fibres and groundwood. We have years of experience, exploit new know-how and are focused on quality. We will continue to respond quickly and adjust to the desires of our customers. Also in the future, we will put special emphasis on optimal use of production technologies, efficient use of internal and external sources of the Company, development and marketing of innovative products that are acceptable in terms of energy consumption, environmental impact and quality. All of the above will enable us to improve the Company’s competitive advantage (flexibility and quick response to the market situation), which will be reflected in the satisfaction of employees, business partners and owners. The Company’s vision and mission are achieved through the implementation of quality policy and pursuit of the Company’s goals. Its complex operating goal is reflected in ensuring growth of sales in terms of value and increased profitability, with the basic economic guideline being the balance of all production capacities, together with the achievement of maximum total contribution margin. The Company implements individual operating policies (quality policy, financial policy, sales and purchasing policy, energy policy, and other) with the aim of achieving individual operating goals specified in its operational strategy and its annual plans or economic operating plans. The management and all employees are committed to consistently implementing and fulfilling the requirements and expectations of customers, the legislation and regulations, system standards, good business practice and continuous improvement of processes, products, services and the management system. By balancing operations and the set goals we wish to increase the satisfaction of customers, employees, owners and the wider social community.


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All employees have been included in the efforts to secure quality so as to implement the set policy. By planned and coordinated work we endeavour to perform services well the first time end every time, in due time and at competitive prices.

7. CORPORATE GOVERNANCE STATEMENT The corporate governance principles of Vipap Videm Krško d.d. are based on valid regulations in the Republic of Slovenia, the Company's internal acts, and established good business practice. The Company is managed according to a two-tier system, in which the Company is managed by the Management Board, whose work is supervised by the Supervisory Board. The Company has the following bodies:

General Meeting of Shareholders Supervisory Board Management Board

General Meeting of Shareholders Pursuant to the provisions of the Companies Act, the General Meeting of Shareholders is the highest body of the Company. At the General Meeting, the shareholders exercise their will directly and adopt fundamental and statutory decisions. The General Meeting adopts decisions regarding the following:

Adoption of the annual report; Use of distributable profit, Appointment and recall of members of the Supervisory Board; Granting of discharge to members of the management or supervisory bodies, Amendments to the Articles of Association, Measures to increase and decrease the Company’s capital, Winding-up of the Company, and status transformation, Appointment of the auditor, and Other matters, if so stipulated by law or the Articles of Association.

The General Meeting of Shareholders is responsible for adopting the annual report only if the Supervisory Board has not approved it or if the Management Board and the Supervisory Board propose that the decision on the adoption of the annual report be made by the General Meeting of Shareholders. As a rule, the Management Board submits the proposal for the convocation of the General Meeting once a year. The Company's Supervisory Board According to Article 282 of the Companies Act (ZGD-1), the Supervisory Board is obliged to verify each year the annual report of the Company and the proposal for the use of distributable profit, which are submitted to the Supervisory Board by the Management Board. The Supervisory Board is obliged to indicate in the report in what way and to what extent it supervised the Company's management during the year, and adopt a position regarding the independent auditor's report. At the end of its report, it must state whether, after final examination, it has any comments concerning the annual report and whether it confirms the


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annual report. If the Supervisory Board approves the Company's annual report, the report is endorsed. The work of the Supervisory Board is presented in detail in the Report on the Method and the Results of Examining the Annual Report of Vipap Videm Krško d.d. The Supervisory Board of the company Vipap Videm Krško d.d. has the following members: Shareholders' representatives: Tomáš Šabatka – Chairman of the Supervisory Board (since 29 January 2016, prior to that he was a member of the Supervisory Board) Dušan Vaněk – (Chairman until 31 December 2015, after which date he stepped down from the position of Supervisory Board member) Petr Blažek – member David Rais – member (since 1 January 2016) Employees' representatives: Franc Kukovičič – member Zoran Župevc – member The Company's Management Board In 2015, the Management Board was chaired by the Vice-President of the Management Board, Jožica Stegne. On 16 March 2016, Stefan Eibl-Török became President of the Management Board. The current Management Board has five members and is appointed by the Supervisory Board. The Company's Management Board: Stefan Eibl-Török – President of the Management Board (since 16 March 2016) Jožica Stegne – Vice-President Ladislav Kristančič – member Dragan Kranjc – member Darinka Matijevič – member The Management Board manages the Company and adopts business decisions independently and directly. It meets at least twice a month. Its principal task is the coordination of opinions, the unanimous adoption of decisions, and voting only in exceptional cases. The Management Board carries out its tasks in accordance with the law and the Company's Articles of Association. The term of office of the members of the Management Board is five years, with the possibility of re-appointment. Pursuant to organisational rules and the rules of procedure of the Management Board, the members of the Management Board also have operational tasks in the area of managing, implementing and organising work, which enables direct cooperation between the Management Board and other management levels.

Annual Report oSVII'AP VIDHM KR*KO D.I). far 2ff15

Statemeri ql the ManaErqltlti Bqar{l's respqnsil}ility

The Management Board of the company Vipap Videm Kr5ko d,d. is responsible for thepreparation of the Company's annusl report and financial statements that give a true and fairview of the Company's financial position and operating results for 2015 in accordance with the

Slovenian Accounting Standards and the Companies Act.1'hc Managemsnt Board approves the Business ltepurt and rhc financial stfltements rvith notes

for the year ended 3l Decernber 2015 anel cleclares that:r the financial statements have been compiled on d going concern basis,

r the Company consistently applied the selected accounting policies and disclosed allchanges to these accounting policies,

r aecounting assessments have been prepared in accordance with the principles of fairnessand prudence and with the diligence of a good managet,

r the financial statements havs been compiled in line with the applicable legislation and theSlovenian Accounting Standards.

The management is responsible for the adoption of adequate measures to protect the Company'sassets as well as to prevent and detect fraud and other irregularities.

Presiclent nf the Management Board

Stefan Tdrtik n

.^ ili-Yt--(,f'

Vice-Ilresident of the Management Bnard

JoZica Steeneali

)ttcl_tMember V

Ladislav

I\l[e mber

Darinka Ma{ijevidllt

"Lot \ ,-,Lt'

Member

lrs


20

II. BUSINESS REPORT


21

1. PERFORMANCE ANALYSIS OF THE CONTROLLING COMPANY

OPERATING RESULTS We closed the year 2015 with a loss of EUR 6.0 million.

We have had a very difficult year; both in terms of finance and business. The unfavourable trends in the newsprint sales market, which were reflected in significantly lower revenues of the Company, resulted in the Company's loss equalling EUR 6 million at the end of the business year 2015. In 2015, the cyclical movement on the global paper market indicated the largest drop in the prices of newsprint in the Company's history. Since newsprint accounts for more than 85% of the total, the impact of price decreases and consequently revenue decrease could not be annulled. In spite of the austerity measures introduced, EUR 2.7 million lower variable costs and EUR 854 thousand lower fixed costs did not enable the Company to limit the loss. Besides the streamlining measures, a lot of effort was invested in securing adequate liquidity, boosting production efficiency, raising the quality of the Company's products and developing new types of paper. At the end of the year we launched the business and financial restructuring of the Company, which continues in 2016. Taking into account the last year's auditor's opinion, the deferred tax assets arising from tax loss brought forward and part of the deferred tax assets arising from receivable write-down in previous years were written off in the amount of EUR 9.2 million, directly against equity in previous years. Net profit/loss for the period, by year in EUR thousand 2013 2014 2015

Operating profit/loss for the period -3,925 -3,018 -6,037


22

There were no major technological problems in paper and fibre production in 2015. All measures for improving production results were efficient and the Company thus achieved a 2% increase in the production quantity compared to the year before. The costs of complaints decreased compared to the year before, amounting to EUR 0.8/t of product sold, which is 52% less than the year before. The market situation was very poor, as the high drop in demand for newsprint and publication papers forced the Company to reduce prices and sell on remote markets, which naturally causes higher transport costs that are not negligible. No major investments were made, but all energy was focused on streamlining processes and a high quality of the Company's products.

REVENUES FROM THE SALE OF PRODUCTS We generated EUR 89.8 million in net revenues or EUR 2.7 million less than the year before.

Generated revenues totalling EUR 89.8 million are 3% lower than the year before. Problems achieving the planned revenues started already at the end of 2014 and continued throughout 2015. Both selling prices and demand considerably dropped. We sold a total of 198,938 tonnes of paper, which is 9,944 tonnes more than the year before. Due to changed market situation we expeditiously placed on the market wrapping packaging papers and sold 8,709 tonnes or 6,435 tonnes more than in the previous year. The wrapping packaging papers bring a higher contribution margin and will therefore remain an important part of the production range. Owing to the smaller number of employees, the revenue per employee indicator rose by 2%. Net revenues per year and revenues per employee EUR 000 2013 2014 2015Net sales revenues 95,351 92,565 89,850Revenues per employee 251 245 250


23

OPERATING EXPENSES In 2015, the costs of goods, material and services stood at EUR 75.5 million or EUR 1.1 million

less than the year before. Operating costs dropped by 1.4% or EUR 1.1 million compared to the year before. The drop was influenced by the different structure of paper production (more newsprint when compared to publication paper), the lower prices of wood and energy products, and the stable production. The latter resulted in fewer halts in 2015 and thus less reject when compared to the year before, and this had a positive impact on the specific consumption of fibre, chemicals, energy products, packaging and machine clothing. The bulk in the structure of operating expenses is the costs of waste paper used totalling EUR 30.9 million or 41%. This is followed by the use of electricity from the network representing EUR 8 million or 11%, the use of chemicals accounting for EUR 8.5 million or 11% and the use of fuel equalling EUR 5.9 million or 7.7%. In 2015, variable costs per tonne totalled EUR 331/t, which is EUR 13/t less than the year before. The decrease in costs is the result of lower purchase prices, different structure of production (higher production of low-cost paper) and austerity measures (greater time utilisation of machinery, less reject, more specific use, etc.). New types of chemicals are also constantly tested, as they are more affordable, while of the same quality. The technological process optimisation is also continuously carried out. Costs are also impacted by investments in energy efficiency and technological modifications.


24

Changes in operating expenses and variable costs per tonne by year EUR 000 2013 2014 2015Historical cost of goods, materials and services sold 78,176 76,580 75,495Historical cost of goods, materials and services sold/production in tonnes 404 395 382

INVESTMENTS In 2015, we allocated EUR 731 thousand to investments, which is 71% less than the year before. In 2015, the Company made no major investments in assets, as it predominantly focused on rationalisation of the manufacturing process by introducing minor improvements, and on major maintenance with a view to optimise technological lines in paper and fibre production, and treatment plant. Investment value by year EUR 000 2013 2014 2015

Investment value 1,960 2,513 731


25

FINANCIAL EXPENSES FOR FINANCIAL LIABILITIES In 2015, financial expenses for financial liabilities totalled EUR 2.1 million or EUR 495

thousand less than the year before. The financial expenses include interest expenses for raised loans in the amount of EUR 1.4 million, interest for loans raised from related parties totalling EUR 607 thousand and other financial expenses. Financial expenses by year EUR 000 2013 2014 2015Financial indebtedness 2,397 2,560 2,065

The financial indebtedness rose by EUR 1.3 million compared to the year before. There was no additional borrowing from banks in 2015. In November, Vipap Videm Krško d.d. was granted a short-term loan by Priska a.s., Czech Republic, in the amount of EUR 1.8 million. The loan was intended for purchasing additional supplies of raw material in the winter, when the delivery is difficult due to weather conditions. In 2015, the Company drew a loan only from the Eco Fund in the amount of EUR 63 thousand. Throughout the years, the Company has been paying loans to banks according to adopted annual plans of repayment and long-term loan rescheduling. In 2015, the Company repaid loans in the amount of EUR 734 thousand.


26

Financial indebtedness of the Company by year

EUR 000 2013 2014 2015

Financial indebtedness 37,681 34,140 35,479

INDICATORS The indicators reflect this year's performance – they have deteriorated compared to the year

before. Given the poor business results, the performance indicators also significantly deteriorated compared to the year before. The financial indicators of return are negative, i.e. return on equity (ROE) equalling -12.5 % and return on assets (ROA) of -5.4 %. EBITDA for 2015 equalled EUR 2,916 thousand and was lower than in the previous year. Trend in selected indicators: ROA, ROE and EBITDA 2013 2014 2015

Return on equity in % -5.9 -4.7 -12.5Return on assets in % -3.0 -2.4 -5.4

EBITDA in EUR thousand 5,564 5,906 2,916


27

Due to poorer business result for 2015, when compared to the year before, the indicators of value added and value added per employee deteriorated. Value added per employee 2013 2014 2015Value added in EUR thousand 16,299 18,100 13,502Value added per employee in EUR thousand 43 48 38


28

2. PRODUCTION The principal activity of the company VIPAP VIDEM KRŠKO d.d. is paper and fibre production and paper and cardboard production and trade. The Company is one of the largest paper production companies in Slovenia and ranks among the major newsprint manufacturers in SE Europe. The Company is producing newsprint, improved newsprint, publication and wrapping packaging paper.

Production of paper and fibres

in t Realisation

2014 Realisation

2015 INDEX 15/14

Paper production in t 193,948 197,745 102

Fibre production in t 192,363 195,844 102

Total 386,311 393,589 102

We produced 197,745 tonnes of paper in 2015, which is 3,796 tonnes or 2% more when compared to the year before. We also produced 195,844 tonnes of own fibre, which is 2% or 3,481 tonnes more than the year before. The level of integration of fibre and paper production in 2015 achieved 98.7%. This allowed us to make maximum use of the production capacity based on recycled fibres.

2008 2009 2010 2011 2012 2013 2014 2015

Integration rate in % 90 93 94 93 95 97 99 99


29

In 2015, paper and fibre production was relatively continuous, as we experienced no technical and technological problems. A production drop was only recorded in August, when the regular annual overhaul took place. In this period, production was down about 5 days. Besides the regular overhaul of machinery, we also made minor improvements providing the basis for uninterrupted functioning and reducing downtime over the following months. All measures in production focused on stable production and the increase in the capacity of end products. We succeeded, as we reduced downtime by 13% on all paper and fibre machines, except for paper machine 1. The total efficiency of paper machines significantly increased, with the exception of paper machine 1. Complaints per tonne of product sold dropped by two thirds and amounted to EUR 0.8/t of product sold.

PAPER PRODUCTION Paper was produced on all three paper machines. The market is characterised by the demand for lower grammage, and production is adjusted accordingly, resulting in lower average hourly productivity of machines. On paper machine 1 we produced graphic paper, newsprint as well as wrapping packaging paper of various grammage. Newsprint exceeded the plan. The decision for such production structure was reasonable, resulting in the best possible adjustability to the market situation. On paper machine 2 we produced newsprint of various grammage. On paper machine 3 we produced newsprint and wrapping packaging paper of various grammage. All types of paper produced, with their application and characteristics, are presented in the tables below.


Publication papers, their application and characteristics

Paper grade Application Printing technique Grammage g/m2 Environmental

care

GRAPHIC PAPERS

VIPRINT

graphic, coated, machine finished, matt

periodicals, magazines, catalogues, picture books

multi-colour and black&white heat-set offset print, sheet-fed print

54/57/60/70/80/90 EU Ecolabel SI/011/03 FSC® C117321

VIPRESS graphic, coated, machine finished, matt

periodical newspapers, magazines, catalogues multi-colour and black&white standard and waterless cold-setoffset print

54/57/60/70/80 EU Ecolabel SI/011/02 FSC® C117321

VIMAG graphic, coated, calendered, semi gloss

multi-colour and black&white standard and waterless cold-setoffset print


52/54/57/60/70/80/90 EU Ecolabel SI/011/04 FSC® C117321

VIMAX graphic, coated, slightly calendered, silky

periodicals, package leaflets/instructions, magazines, catalogues


54/57/60/70/80/90 EU Ecolabel SI/011/05 FSC® C117321

VIPCO graphic, surface treated, machine finished, matt

photocopying, laser/inkjet printing; notebooks, writingpads, (continuous) forms, envelopes; books, brochures

digital print, offset print, sheet-fed print

55/60/70/80 EU Ecolabel SI/011/01 FSC® C117321

VIPCO WB graphic, surface treated, machine finished, matt

photocopying, laser/inkjet printing; notebooks, writingpads, (continuous) forms, envelopes; books, brochures

digital print, offset print, sheet-fed print

55/60/70/80 FSC® C117321

VIBULK bulky, graphic paper publications and books, cash register rolls.

black&white and multi-colour cold-set and heat-set offsetprint and digital printing technique;

50/60/70/80 g/m2 FSC® C117321

AlphaPress PP R graphic-publication, pigmented, machine finished

periodicals, magazines, catalogues and other promotional material and colour books

multi-colour and black&white heat-set offset print, for digital and sheet-fed print

45/48,8/52/57/60/70; 80 g/m2

FSC® C117321

OmegaPress R graphic-publication, natural, machine finished paper

periodicals, magazines, catalogues and other promotional material and colour books

multi-colour and black&white heat-set and cold-set offset and digital printing; also for sheet-fed printing.

45/48,8/52/57/60/70; 80 g/m2

FSC® C117321


31

Wrapping packaging papers, their application and characteristics


care

WRAPPING PACKAGING PAPERS

VIPACK R

wrapping packaging bags/sacks and various wrapping material flexo and offset printing 70/80 FSC® C117321

VIPACK W R


VIPACK C R


VIP FLEX 60 R

wrapping packaging, printing

wrapping and packaging (laminates, tablecloths, tablemats, towels, board, wrapping paper, pattern paper, sacks, etc.)

flexo and offset printing 36/38/40/42,5/45/48,8/52/60/70

FSC® C117321

VIP FLEX 60 H R




FSC® C117321

VIP FLEX 70 R




FSC® C117321

VIP FLEX 70 H R




FSC® C117321

VIP FLEX 76 R



flexo and offset printing 36/40/42/45/48/52/60/70/80 FSC® C117321

VIP FLEX 76 H R




VIP FLEX 80 R




VIP FLEX 80 H R wrapping packaging, printing



VIP KRAFT R wrapping packaging, one-side calendered

wrapping and packaging (laminates, tablecloths, tablemats, board, wrapping paper,

flexo and offset printing 36/40/42,5/45/48,8/52/55/60/70/80

FSC® C117321


32

pattern paper, sacks, etc.)

VIFLEX 80 Mag R

wrapping packaging, graphic, coated, calendered, semi gloss

wrapping and packaging (tablecloths, tablemats, laminates, gift wrapping)

flexo and offset printing 52/54/57/60/70/80/90 FSC® C117321

VIFLEX 80H Mag R wrapping packaging, graphic, coated, calendered, semi gloss

wrapping and packaging (tablecloths, tablemats, laminates, gift wrapping)

flexo and offset printing 52/54/57/60/70/80/90 FSC® C117321

VIFLEX 80 R

wrapping packaging, graphic, coated, machine finished, matt

wrapping and packaging (bags, laminates, tablecloths, tablemats)

flexo and offset printing 54/57/60/70/80/90 FSC® C117321

VIFLEX 80 H R

wrapping packaging, graphic, coated, machine finished, matt

wrapping and packaging (bags, laminates, tablecloths, tablemats)

flexo and offset printing 54/57/60/70/80/90 FSC® C117321

VIFLEX 80 W R

wrapping packaging wrapping and packaging (bags, laminates, tablecloths, tablemats)

flexo and offset printing 36/40/42/45/48.8/52/60/70/80

FSC® C117321

- for contact with food R - development product


33

Newsprint, its application and characteristics


care

NEWSPRINT

SOF newsprint, machine finished

newspapers, periodicals, pocket edition books black&white and multi-colour cold-set and heat-set offsetprint

42.5/45/48.8/52 FSC® C117321

SOF F high quality newsprint newspapers, periodicals, supplements, inserts, advertising material

black&white and multi-colour heat-set offset print and flexoprint

45/48.8/52 FSC® C117321

SOF DP newsprint, machine finished

newspapers and periodicals multi-colour digital and offset technique

45/48.8/52 FSC® C117321

LIBNA PRINT improved newsprint newspapers, periodicals, advertising material, pocket books

multi-colour and black&white heat-set and cold-set offsetprint, sheet-fed print

45/48.8/52/55/60/70/80 FSC® C117321

LIBNA PRINT H printing paper, improved newsprint

for office and school supplies: (writing pads, notebooks, workbooks), for newspapers, periodicals, advertising materials and books

black&white and multi-colour heat-set and cold-set offset printing; also for sheet-fed printing

48.8/52/55/60/70/80 FSC® C117321

LIBNA SG SC improved newsprint, calendered, semi gloss

periodicals, magazines, catalogues, picture books multi-colour and black&white heat-set offset print, sheet-fed print

48.8/52/54/56/60/70/80 FSC® C117321


Paper machine 1: We produced 57,399 tonnes of paper on paper machine 1, which is 2,040 tonnes less than the year before. We did not achieve the planned quantity, because due to the market situation we produced more newsprint (less productive) papers on account of publication papers. This year we produced 8,541 tonnes of wrapping packaging paper on paper machine 1, which is 6 thousand tonnes more than the year before. These papers obtained the ISEGA certificate for direct contact with dry food. Paper machine 2: Production on paper machine 2 at the level of 70,088 tonnes was 3,695 tonnes more than the year before. In spite of the high quantity of newsprint of lower grammage (24%), we managed to increase production by 6% compared to the year before. Paper machine 3: Production on paper machine 3 totalling 70,258 tonnes exceeded the past year's production by 2,142 tonnes. The share of newsprint of lower grammage in the production on this machine has been increasing as well; it reached 28%.

Paper production by paper machine

in t Realisation

2014 Realisation

2015 INDEX 15/14

Paper machine 1 59,439 57,399 97Paper machine 2 66,393 70,088 106

Paper machine 3 68,116 70,258 103

Total 193,948 197,745 102


35

Structure of paper production by year

in t 2013 2014 2015

Newsprint 160,041 168,339 170,715

Publication paper 33,284 22,642 18,489

Wrapping packaging papers 39 2,967 8,541

Total 193,364 193,948 197,745

FIBRE PRODUCTION Fibre production was successful in 2015. We produced 195,844 tonnes of own fibre, which is by 2% more when compared to the year before. The production of deinked pulp followed the need of paper production for recycled fibres. The time utilisation of DIP was 98% or 3.3% more than the year before. In 2015, we produced 172,802 tonnes of deinked pulp, i.e. 1,452 tonnes or 1% more than in the previous year. The groundwood production was 23,042 tonnes, which is 2,029 tonnes or 10% more than the year before.

Fibre production in tonnes

in t Realisation

2014 Realisation

2015 INDEX 15/14Deinked pulp 171,350 172,802 101Tgw 21,013 23,042 110

Total 192,363 195,844 102


36

3. SALES The year 2015 was very difficult in terms of sales. Paper consumption has been decreasing in Europe. The events are strongly influenced by the political decisions of major European countries. A high drop in demand and the prices of newsprint and publication papers strongly influenced the entire paper industry. In spite of heavy efforts to promote sales, the Company's revenues considerably shrank, but we succeeded in boosting sales by 5% or 9,944 tonnes. It is the drop in demand that forced us to search for remote markets and that caused higher direct costs of sales. There is notable down-grading in printers, meaning that ever more cheaper types of paper and newsprint are used for printing. Our production follows this trend, since the sales of newsprint strongly rose in the structure of sales on account of coated papers from paper machine 1. At the same time we sell much more paper of lower grammage and this naturally considerably decreases the productivity of paper machines. In 2015, we sold 198,938 tonnes of paper. Of this, as much as 87% was newsprint and improved newsprint. Compared to the year before we increased the sales of wrapping packaging papers on account of smaller sales of publication papers. The sales of newsprint more or less stagnated. Because of down-grading printers the demand for publication papers greatly decreased. The decrease in the sale of publication papers in recent years has been the result of the market situation to which we have been successfully adjusting our production, since we produce and sell those products that bring higher contribution margin. We were relatively successful in promoting the sales in the segment of wrapping packaging papers. We gained the ISEGA certificate for direct contact with dry food for our products.


37

QUANTITY OF PAPER SOLD

Quantity of paper sold

in t Realisation

2014 %Realisation

2015 % INDEX 15/14Newsprint 157,924 84 165,026 83 104Improved newsprint 7,115 4 7,116 4 100Publication paper 21,681 11 18,087 9 83Wrapping packaging papers 2,274 1 8,709 4 383

Total 188,994 100 198,938 100 105

Publication papers (production on PM1): Publication papers are produced on paper machine 1. In 2015, we sold 18,087 tonnes of these papers, i.e. 3,594 tonnes less than in the previous year (and 19,951 tonnes less than in 2013). The principal product from the range of publication papers is Vimag in the form of reels. We sold 6,884 tonnes of this paper in 2015. Other publication papers include: Vipco, Vimax, Vipress and Vibulk. At the end of the year we also started marketing a new publication product Alpha Press, regarding which we do not have the satisfaction results as yet, as we are still waiting for the feedback information from customers. Improved newsprint (production on PM 1): Improved newsprint is produced on paper machine 1. We sold a total of 7,116 tonnes, which is the same as the year before. These papers account for 4% of the total sales and include Libna Print and Libna SG SC. This segment of papers is one of our responses to the market situation arising from the downgrading effect. At the end of 2015 we started marketing new improved newsprint Omega Press, in respect of which we are still waiting for feedback information from the market.


38

Newsprint (PM1, PM2 and PM3) The production of newsprint has been on the rise due to the market situation. In 2014, we sold a total of 157,924 tonnes, which is nearly 2 tonnes more than the year before. Paper was produced on all three paper machines. The volume of sales increased by 1 % compared to the previous year. Wrapping packaging paper (PS1 and PS 3) In 2013 we developed wrapping packaging papers. The same year we started trial marketing and already in 2014 recorded sales of 2,274 tonnes. In 2015, the sales of this product rose to 8,709 tonnes. The main product in this group is Vip flex 60 H, of which we sold 2,614 tonnes. Other wrapping packaging papers include: VIP FLEX 80 H, VIP FLEX 80 W, VIP FLEX 60, VIP FLEX 70, VIP FLEX 70 H, VIP FLEX 76 H, etc. These papers gained the ISEGA certificate for direct contact with dry food. PAPER FINISHING – FORMATS In 2015, we sold 8,862 tonnes of format papers, i.e. 1,173 tonnes or 15% more than in the previous year. We produced most of the format paper Viprint, namely 6,143 tonnes or 69%.

PAPER SALES BY MARKET

Export accounts for 89% of total sales. Principal foreign markets in 2015 were the following: Italy (20%), Turkey (10%), Slovenia (9%), Serbia (8%), countries of SE Europe and others. In 2015, we again sold to the Turkish market, where we were present already in 2013. The sales on this market were completely abandoned in 2014, but due to more favourable prices this market accounted for as much as 10% of total sales in 2015. Sales increased on the Romanian and Croatian markets as well. The sales on the Serbian and German market considerably decreased.


39

Structure of paper sales by market

4. PURCHASING In 2015, there were no major fluctuations on the purchasing market. The prices of the main raw materials were relatively stable until the end of the summer. The price of waste paper started increasing in August and from the initial EUR 139/t in January grew to EUR 152/t in November. The increase then stopped and the prices slightly decreased. At the end of the year, the waste paper price was EUR 149/t. In 2015, it averaged EUR 141/t. The price of cellulose pulp also started increasing in August and by the end of the year rose by 10% to EUR 631/t. The price of wood dropped from the initial EUR 71/t to EUR 64/t in the summer. By the end of the year a slight rise was noted to EUR 65/t, but this was considerably lower than at the start of the year. In 2015, the average price was EUR 67/t. Purchasing for the production of paper, own fibres and own electricity together with investments amounted to EUR 79.4 million in 2015. The value of purchasing dropped by EUR 5 million compared to the year before. There are several reasons for this. The first reason is the lower price of electricity from the network, the lower price of wood, the structure of production – the production of cheaper end product with cheaper input raw material and chemicals, and the continued production of paper and fibre accompanied with significantly less purchasing for investment activities. The biggest share in the structure of total purchasing is accounted for by fibres, waste paper and grinding wood (47% of total purchasing). These are followed by energy products and chemicals.


40

Structure of purchasing in 2015

Fibres, waste paper and

grinding wood47%

Kemikalije11%Spares and other

5%

Energy products28%

Machine clothing2%

Packaging2%

Investments1%

Other purchasing for Company

needs4%

Imports account for 61% of total purchasing.


41

5. RESEARCH & DEVELOPMENT ACTIVITIES Research and development activity is carried out in the technology and development department. Project implementation and product development are carried out in the form of project management through which the members of other functions in the Company become involved in a project. We will only present the major activities and causal connections. More detailed activities are included in the research and development information system designed by the Company, which is of use to both technologists and the Financial Department. Research and development activity in the Company can be divided into several parts:

1. The development of new products and the modification/adjustment of the existing ProMix of products to new market requirements/conditions.

2. The development of new and the optimisation of the existing technological procedures and processes, defining of new boundary conditions for managing technological processes of waste water treatment, production of energy products, fibres and paper, and participation in the technological problems involved in the Company's production processes of a greater scope.

3. Optimisation of operating costs and production costs. 4. Defining alternative raw materials, auxiliary means, chemicals and materials in the t.f.e.p.

and paper. 5. Development investment activities.

Various activities were carried out in the scope of the RDP, in the following areas:

- Biotechnology – use of microorganisms and enzymes for managing certain technological problems (fm, optical properties …) in technological processes of the Company or use of alternative raw material as a substrate for cultivating microorganisms, fungi and for reducing biosludge.

- Laboratory production of nanocelullose (NCC (KI-Lj) and NFC (BF-Lj)) from VVK mechanical wood pulp – groundwood TGW78T35.

- Mutual dependence of drainage, bulkiness, smoothness, texture, absorption, porosity, relief coating of the surface, rolling in correlation with selected fibre and other raw material composition and boundary conditions for paper production.

6. INVESTMENT ACTIVITIES In 2015, we planned a significantly greater investment activity, but the business situation in the Company brought us to a halt and we again had to very selectively set the Company's priorities. Only the investments that quickly repaid were made in the most critical aspects of production processes with the aim of improving total efficiency of paper production, boosting energy efficiency of a certain production line and contributing to the stable quality of end products. A large portion of the funds was allocated to major maintenance – especially more numerous interventions during complete halt in August. There were 15 minor improvements made, which were incorporated in regular technological processes. In spite of truly unfavourable economic and financial situation we invested EUR 731 thousand into the most critical areas of the production process. The most funds were allocated to major investments totalling EUR 601 thousand.


42

Investments by year in EUR thousand

1997/2010 2011 2012 2013 2014 2015Environmental investments 86,224 45 64 22 508 0Technological investments 56,711 1,175 1,235 1,938 2,005 731

Total 142,935 1,220 1,299 1,960 2,513 731

Investments in 2015 in EUR REALISATION

2015 Environmental investments 0Technological investments 731,313 Investment maintenance Processing for optimisation of fibres Processing for optimisation of paper production IQ profile regulation Software - licences Machinery

601,465 37,428

33,013 20,780 26,458 12,169

INVESTMENT TOTAL 731,313

7. EMPLOYEES At the end of the year, the company had 352 employees. Of these, two employees are employed for 5% of working time in the parent company Vipap and for the remaining part in the related company ZEL-EN - research and development centre Krško. Of the total, 341 employees were employed on a full time basis and 11 under fixed-term contracts. 26 employees left the Company and 4 new employees were recruited. The reasons for 26 employees leaving the Company were the following:

9 employees retired, of which one disability retirement, 5 employees terminated employment relationship by agreement, 4 employees switched to another employer, 3 employees were employed for a fixed term, 4 employees – other (termination of contract for business reasons, termination of contract

due to underachievement and extraordinary termination).


43

Changes in the number of employees

At the end of the year the Vipap Group (including related companies) had 456 employees. Labour productivity in 2015 was among the highest in the past decade. It grew from 519 t/employee in 2014 to 561 t/employee in 2015, which is 8% more. Labour productivity by year in tonnes/employee

421

479

519 522 516 519

562

100

150

200

250

300

350

400

450

500

550

600

2009 2010 2011 2012 2013 2014 2015

t/em

ployee


44

Employees structure The existing HR structure stayed at a level similar to the one from the year before. The average employee age was 48 years. As many as 45% are aged over 50. At the end of the year, we employed 17 occupationally disabled workers, which is 2 fewer than the year before. The Company must employ 6% of disabled workers, which is why it has concluded an agreement with Levas Krško d.o.o. to ensure compliance with the disabled hiring quota by replacement according to the Act Regulating the Training and Employment of Disabled Persons. Employees' professional qualifications are similar as the year before. 51% employees have IV and V level of education. Employees with educational levels VI or VII account for 19 %. 96% of employees are employed on a permanent basis. Absence from work (absenteeism) In 2015, sick leave of all employees slightly decreased to 5.7% (the year before: 5.9%). In spite of the said slight decrease, the ageing of the labour force at the Company level remains a problem. The share of sick leave up to 30 days and over 30 days decreased as did the percentage of absence due to injury at work. Health and safety at work We recorded 11 injuries, which is similar to the year before. The frequency of injuries at work is also the same. The number of hazardous incidents dropped from 18 to 15. There were no accidents involving hazardous materials in 2015. The injury trend cannot be predicted, but we nevertheless strive to carry out as many efficient measures as possible to decrease the number of injuries. We conducted 83 periodical occupational medical examinations for employees and some initial examinations for newly recruited staff.


45

Fire safety There were 14 incipient fires in 2015. We have a contract with the Professional fire brigade, which is a few 100 metres away from the Company. In 2015 the fire fighters recorded 24 fire alarms. Employee training The year 2015 was very difficult for the Company, as a result of which investments in training were lower than in the previous years. They mainly comprised training prescribed by law and some specific technological training. In 2015, we allocated approximately EUR 13 thousand to employee training, which is one quarter of the last year's figure. A considerable volume of training in the first half of 2015 was performed through the KOCP (Competence Centre for Human Resources Development in the Paper Industry), by means of which we obtained grants for employee training. Types of training - seminars, symposiums, courses in the amount of EUR 10,941, - mandatory traineeship: EUR 946 - mentorship bonus: EUR 776 - Other: EUR 195 Total training hours equalled 786. 95 employees attended it, which accounts for an average of 8 hours per participant. Salaries In 2015, average salary in the Company totalled EUR 1,591 or 7% less than the year before, when the respective figure was EUR 1,712 per employee. In 2015, average salary in Slovenia amounted to EUR 1,556 and in the industry EUR 1,713. Holiday allowance was paid in two parts, namely in May EUR 450 and in June EUR 450 gross per employee. Overtime equalled 5,350 hours, down 40% from the year before.

8. EXPECTATIONS FOR 2016 The comprehensive business and financial restructuring of the Company, which started in the second half of 2015, will continue in 2016. The Company is cooperating with the consulting firms Pöyry and the auditors Ernst &Young. The goal is to provide conditions for implementing the Company's strategy, pursuing the projected market trends in paper industry and securing the Company's growth as well as the profitability required by other stakeholders. The Company sees a development opportunity in wrapping packaging papers and improved graphic papers and newsprint. Among the existing mass paper types (standard newsprint) the Company sees a future opportunity in niche products. A significantly higher return on the products of the above structure is already achieved by the Company, but to a moderate extent. In order to increase the volume, the intensified market presence will have to be accompanied by some investments in assets, which will provide a stable quality and cost competitiveness of the existing and new types of paper. In the following 5 years the Company plans to invest EUR 14.6 million or, considering also investments in assets of EUR 600 thousand per year, EUR 17.6 million. The main challenge of the Company in 2016 is the maximisation of all internal reserve, both in terms of more efficient production and continued streamlining of operations. A programme has


46

been prepared for this purpose (PIP), projecting improved financial effects of operations in the amount of EUR 3.9 million. Considering the fact that paper prices reached bottom in 2015 (cyclical movement), we expect them to grow by 5%. We are planning that the wrapping packaging papers and improved newsprint will account for a greater volume in sales structure. Consequently, revenues are planned to increase by 7% and EBITDA is projected at EUR 8.1 million. Taking into account the market information, the expectations regarding higher prices are realistic.


47

III. SUSTAINABLE DEVELOPMENT REPORT


48

1. INTRODUCTION Caring for the natural and social environment is the foundation of our operations and the basis of long-term sustainable orientation of Vipap Videm Krško d.d. Sustainable operations are a reality. Besides focusing on the production of predominantly recycled papers we constantly optimise all technological processes and thus reduce the burden on the environment. We see to good cooperation with employees, retired employees as well as a broader and social environment that we operate in. Only thus we will ensure sustainable operations and balanced further development.

2. ENVIRONMENTAL POLICY – BUSINESS EXCELLENCE Monitoring the status of the environment or emissions of substances and energy and the strategy of improving the status of the environment and preventing or reducing environmental impacts are part of the long-term and medium-term development strategy of the Company as well as of annual and operational plans; this is carried out in all business functions with a special emphasis on the processes that represent greater sources of pollution. Development activities are focused on the introduction of the best available techniques (BAT) both in technological and environmental area. In the area of environment management, the past three years were characterised by the following events:

A. Amendment to the environmental permit; On 26 January 2015 we obtained the decree on the change of the environmental permit referring to a higher quantity of waste paper recovered/sorted according to the R12 procedure. On 22 November 2013 we significantly amended and expanded the integral environmental permit evidencing the Company's compliance with the requirements imposed by the environmental legislation regarding all environmental elements.

B. Environment-friendly products; on 26 November 2012 we obtained and expanded the EU Ecolabel for 5 products that meet the requirements and the ecological criteria of the EU regulation for copying and graphic paper imposed by Commission Decision 2011/333/EU. In June 2015, ARSO renewed the ECOLABEL certificate until 31 December 2018.

C. Responsible and sustainable management of wood and wood products; on 3 October 2014 we obtained the FSC CoC Certificates for all products, the total production of graphic, publication, newsprint and wrapping packaging papers that fulfil the requirements of the FSC CoC series standards. On 8 June 2015, we successfully passed the re-evaluation under the FSC CoC.

D. Environmentally friendly company; the Company constructed a waste treatment plant also for treating municipal waste waters of the town of Krško; the Company also has its own accredited laboratory, which in June 2015 successfully passed the SA re-evaluation.

E. Energy efficiency of the Company A. Environmental legislation, permits and environmental taxes In the area of industrial pollution, the EU in November 2010 adopted the Directive 2010/75/EU on industrial emissions – IED, which replaced the so-called IPPC Directive. The IED Directive has not yet been transposed into the Slovenian legislation; however, the Company has integrated the guidelines and goals of the IED Directive in the preparation of the development and


49

investment programme – RIP 2017A, EIA studies, the applications for amendment to the environmental permit and the formulation of the Transitional plan for the large combustion plans K4 and K6. The above development, investment and environmental documentation was prepared in the second half of 2012 and submitted to the Environmental Agency of the Republic of Slovenia (ARSO). Due to the amendments to the environmental legislation, mainly in the area of emissions into air, nature protection and protection areas, we appropriately supplemented the environmental documentation, the environmental impact assessment study and successfully completed the related administrative procedure for amending the environmental permit on 22 November 2013 by obtaining the Decision on the Amendments to the Environmental Permit no. 35406-58/2012-23 and by acquiring the environmental approval. The procedure for amending the integral environmental permit was carried out in the second half of 2014 and successfully completed on 26 January 2015, when we obtained the Decision on the Amendments to the Environmental Permit no. 35406-66/2014-3. We monitor the environmental status, the impact of activities, emissions of substances and energy in the environment as well as plan, monitor, supervise and implement measures, and report as required under the Environment Protection Act and implementing regulations. From the environmental aspect we are obligated to have important permits, which are stated below, for the operation of devices for the integrated production of fibres and paper in the plant in Krško. In December 2009, the Company obtained the environmental permit no. 35407-106/2006-33, which proves that its operations are compliant with the requirements of the environmental legislation and other regulations, applicable at the local, national and the EU level. The permit was issued for 10 years. In December 2011, the Company received the Decision on the Amendments to the Environmental Permit no. 35407-44/2011-4 for processing residuals from combustion plants into construction products. In November 2013 the Company obtained the Decision on the Amendments to the Environmental Permit no. 35406-58/2012-23 and the Environmental Approval for increasing production capacity for producing recycled fibres, reconstructing PM1, PM2, PM3 by increasing the production of coated papers on PM1, warehouse capacities for hazardous substances, the capacities for processing non-hazardous waste according to procedures R1, R3, R5, R12, in respect of the operation of: - industrial plants for the production of fibres from wood and other fibre materials with

the capacity of 773 t/day: DIP: 578 t/day, TGW: 195 t/day; industrial devices for the production of paper with the capacity of 860 t/day; PM1 300

t/day, PM2 and PM3 each 280 t/day; combustion plans with total thermal input power 127.75 MW: K4: 56 MW, K5: 11.08

MW, K6: 60.67 MW; other technologically related devices and facilities needed for the operation of the said

industrial devices: waste treatment plant (180000 PE), preparation of process water, warehouses for raw materials, energy products, chemicals and other materials, product storages, etc.

In January 2015 the Company obtained the Decision on the Amendments to the Environmental Permit no. 35406-66/2014-3 referring to waste paper recovery/sorting at the automatic sorting line of mixed waste paper of the company Kostak according to the R12 procedure. The obtainment of the environmental permit is a proof and a confirmation that the Company has set up a responsible environmental management system and at the same time its responsibility to meet the requirements of the permit, the legislation and the regulations, and to constantly improve its management in all environmental aspects: water, air, waste management, radiation,


50

handling of dangerous substances, efficient use of water, energy, raw materials and natural resources. On 30 December 2014 the Company renewed the Permit for greenhouse gas emissions no. 35485-27/2014-3 for sub-devices for fibre and paper production. In the second half of 2011, the Company submitted all the relevant technical bases for determining the quota for free emission coupons for 2013-2020. The Company obtained a partial water permit no. 35536-46/2006-8 for capturing water from the Sava river and its own wells, which was renewed in 2012; in February 2013 the Company was granted the water right to use water and a partial water permit no. 355536-42/2012-8 for a period of 30 years. B. Environment-friendly products - EU Ecolabel Because of the requirements of the customers, particularly those from the EU, the Company decided to obtain the EU Ecolabel for certain products (EU Daisy symbol). For 3 products the Company already in 2006 acquired the "EU Flower" (daisy) and according to the new environmental criteria the ARSO in November 2012 issued the Decision no. 35400-225/2012-11 on EU Ecolabel for 5 products. VIPCO, VIPRESS, VIPRINT, VIMAG, VIMAX fulfil all environmental criteria for the group of products of copying and graphic papers defined in Commission Decision 2011/333/EU for the award of the EU Ecolabel regarding emissions to water and air (COD, P, S, NOx, AOX, CO2, energy consumption (TE and EE), sustainable forest and fibres management, the use and handling of hazardous chemicals, waste management, fitness for use, information on the packaging and information appearing on the Ecolabel, so the said products were awarded the EU Ecolabel. Environmental criteria for photocopying and graphic papers were extended in June 2015, which is why ARSO also awarded us a new ECOLABEL certificate for 5 products valid until 31 December 2018.


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Specifications of products with the EU Ecolabel

Product Fibre composition Intended use EU code Production location

EU Ecolabel

VIPCO

TGW; 20%

Pulp; 16%

recover paper; 64%

• photocopying;• digital printing;• printing of booksand brochures, etc.; • printing ofperiodicals and promotional materials; • multi-colour andblack&white offset print

SI/011/01

Krško, SLO

VIPRESS

VIPRINT

VIMAG

VIMAX TGW; 18%

Pulp; 17%

recover paper; 65%

• printing ofperiodicals and promotion materials; • printing ofcatalogues, children’s books, colouring books; • sheet-fed print;multi-colour and black&white heat-set offset print (VIPRESS in cold set)

SI/011/02

SI/011/03

SI/011/04

SI/011/05

Krško, SLO

SI/011/01

SI/011/04

SI/011/02

SI/011/03

SI/011/05


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C. Responsible/sustainable management of wood and wood products - FSC Certificate Based on demands and expectations of customers from the EU market, the Company in the first half of 2013 set up a management, handling and tracking system in the entire chain of sustainable management of wood and wood products according to the requirements of the FSC CoC standards. The certification audit was carried out by Bureau Veritas on 11 June 2013 and the Company obtained the Certificate no. BV-COC-117321 issued on 10 July 2013 for all products. Based on demands and expectations of customers from the EU market, the Company set up a management, handling and tracking system in the entire chain of responsible and sustainable management of wood and wood products according to the requirements of the FSC CoC series of standards. FSC-STD-40-004 version 2.1., FSC-STD-40-005 version 2.1, FSC-STD-40-007 version 2.0. The certification audit was carried out by Bureau Veritas on 11 June 2013. For all products, the production of graphic, publication and newsprint papers certified under FSC MIX, the Company obtained the Certificate no. BV-COC-117321, which was issued on 10 July 2013. The control assessment of the FSC CoC system was carried out by Bureau Veritas on 9 June 2014. The Company expanded the FSC MIX certification of products, the production of graphic, publication, newsprint and wrapping packaging papers also to wrapping packaging papers. The extended certificate no. BV-COC-117321 was issued on 3 October 2014. The re-evaluation under the FSC CoC system was carried out by Bureau Veritas on 8 June 2015.


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D. Environmentally friendly company In August 2009 we started treating the waste waters of Krško and the surrounding areas at the central waste water treatment plant. In 2015, more than 98% of municipal waste waters of Krško with its surroundings were treated at the central waste water treatment plant VIPAP. The Company has its own accredited laboratory. The Input Control and Ecology Laboratory is an accredited testing laboratory under the SIST EN ISO/IEC 17025:2005 standard for the scope of activities stated in the accreditation document LP-71. On 3 June 2015 and 4 June 2015, the Slovenian Accreditation made an assessment visit and reviewed the management system. The assessment visit, the assessment and the expansion of testing of the ammoniacal nitrogen were successful. Since 2014, 19 products/types of wrapping packaging paper have been certified as suitable for direct contact with food. Certification services were ordered from an Italian laboratory ECOL STUDIO (requirements of the Italian market) and the German institute ISEGA. Our wrapping packaging papers are for the most part unsuitable for direct contact with dry food, but suitable for direct contact with food types that are washed, peeled, shelled, except for VIP KRAFT, which is also suitable for aqueous and fatty food.


54

E. Energy efficiency of the Company The increased energy efficiency of the Company is a permanent task and a component of the Development and Investment Programme of VIPAP VIDEM KRŠKO d.d. and the measures for improving operations (PIP). The first step to reducing energy is an energy survey, which involves recording and analysing energy consumption and production, and suggesting solutions for more efficient and reduced use of energy. The Company made the energy survey in October 2015. According to the decrease in investments in 2015, the Company implemented organisational measures and measures related to minor transformations of distribution systems and technological optimisation to boost energy efficiency. Areas of action:

1. Energy product supply in relation to procurement policy (coal, woodchips, extra light fuel oil, natural gas, electricity);

2. Optimisation of energy systems for electricity distribution, steam generation and distribution systems, water production and distribution system (industrial and cooling), production and supply of compressed air, potable and sanitary water supply to the Company;

3. Shutting down process water between production lines with the aim of raising the process temperature curve and reducing the quantity of waste water and thermal energy consumption.

4. Transforming mechanical suppression processes and processes with overdimensioned capacity into frequency-controlled processes so as to reduce the consumption of electricity and provide for stabler operations.

5. Optimising technological parameters of the air injection and draw techniques in the dryer section of the paper machine and increasing the efficiency of existing recovery systems.

Measures implemented with effects noted in 2015:

1. Savings in electricity purchase compared to 2014, A total of 156,420 MWh of electricity was purchased from the network. Taking into account the decrease in purchase price of electricity by EUR 10.34/MWh, the Company saved EUR 1,610 thousand per year.

2. The following measures were carried out in energy product production and distribution: Optimisation of the potable water network: After reviewing the status we

decreased the number of metering points and the size of flow metres, which are used as the basis for accounting meter readings. Annual savings of EUR 13 thousand per year.

Virtual power plant: Inclusion in the 1MW virtual power plant system. Revenue from electricity sold stood at EUR 18 thousand per year.

Optimisation of technological processes for steam production and distribution in relation to overall efficiency of paper machines, aimed at reducing the production price of steam when compared to the planned price (EUR/t 1 bar steam). Annual savings owing to reduced own price of steam total EUR 733 thousand per year.

Lighting: Organisational measure requiring that lights be turned off at workplaces where employees are not constantly present. Annual savings of EUR 11 thousand per year.


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3. We identified critical points as regards closing of process water with a view to reducing the consumption of fresh water, increasing the process temperature and thus reducing the consumption of steam for maintaining target circuit temperature. These points are covered by activities targeted at boosting energy efficiency in 2016.

4. To ensure efficient use of energy we installed a frequency-controlled pump for sanitary water, downsized the 225P01 mixing pump rotor at PM2 and optimised the number of vacuum pumps at PM2. Total annual savings of EUR 37 thousand per year.

Activities were performed to optimise technological parameters of air technique at PM3 and critical points at PM1 were identified. The effect of the measure was monitored based on the indicator of total steam consumption per tonne of paper. In 2015, savings equalled 0.06 t of steam / t of paper or EUR 178 thousand per year.

3. RESPONSIBILITY TOWARDS THE NATURAL ENVIRONMENT Our impacts on the narrow and broader natural environment are monitored through measurements. We are constantly adapting to the environmental legislation and operate in line with the international environmental standards. The monthly analysis comprises the following environmental indicators: A. Specific use of energy and water B. Specific waste water discharge C. Specific air emissions from the Company D. Specific quantities of recovered and removed waste A. Specific use of energy and water In recent years, the Company has been implementing measures aimed at efficient use of raw material, energy products and water, which have a positive impact demonstrated by gradual decrease in the consumption of industrial water, steam and electricity.


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B. Specific waste water discharge The indicators of specific waste water discharge show that the Company has been maintaining the level from recent years.

C. Specific air emissions Over the recent years, the Company has reduced its specific emissions into air. It can be said that we are maintaining a suitable level of air emissions. By taking actions aimed at efficient use of energy and increasing the share of renewable energy sources, the Company reduces greenhouse gas emissions and fossil CO2 emissions.


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360

370

380

390

400

410

420

430

440

450

0,000

0,200

0,400

0,600

0,800

1,000

1,200

2009 2010 2011 2012 2013 2014 2015

sulphur dioxide nitrogen oxides carbon dioxide

D. Specific quantities of the Company's recovered and removed waste

The Company plans waste management carefully - it separates waste at source, the quantities of recovered waste have been growing due to poorer quality of waste paper for recycling. In 2015 we managed to process also the waste stock from 2014.


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4. RESPONSIBILITY TOWARDS THE LOCAL AND BROADER SOCIAL COMMUNITY The social responsibility of Vipap Videm Krško d.d. is a mandatory and integral part of the progress to more competitive performance of the Company. We realise that the local and broader social responsibility is becoming an increasingly important element of efficient performance of the Company and therefore its existence. 1. Local social responsibility – employee well-being In the scope of an innovative activity, employees receive awards for innovative ideas. The Company drafted the Regulation on Industrial Property Rights Arising from Employment Relationship, and Reporting Innovations and Minor Improvements already in 2005. The third item of this Regulation specifies the procedures for rewarding innovators. The Regulation is constantly updated. Employees receive long-service awards for 10, 20, 30 and 40 years of service in the Company. We conducted 83 periodical occupational medical examinations. The Company pays for employees' second pension pillar at Moja naložba. Employees can also spend their vacation in two company holiday facilities in Nerezine. A hot meal and free water in a visible place are provided at the Company's headquarters. For a series of years, the Company has had a contract with the medical centre Aristotel d.o.o., where all employees can get a free flue shot. We promote employee training – in 2013 we won the public tender of the KoCPI, whereby we joined the Competence Centre for Human Resources Development in Paper Industry. The project was completed in the second half of 2015. The Company is aware that it is necessary to adopt all measures to prevent, eliminate and manage the instances of violence, harassment and mobbing at workplace that could jeopardise employee health. As a result, two important documents on occupational health were issued in 2013: - Instructions Prohibiting Work Under the Influence of Alcohol, Drugs or Other Illegal Substances; and - Prohibition, Elimination and Managing of Violence, Harassment and Mobbing at Workplace. At the end of 2015 we joined the „Project health for the Posavje Region“„ – Promotion of Health at Workplace“. The Promotion of Health at Workplace Project was in 2015 and 2016 financially supported by the Health Insurance Institute of Slovenia. Early in 2016 our Company also participated in a free project entitled „Fit and Healthy“ (Zdravi na kvadrat), which is conducted by the Chamber of Commerce of Slovenia through the Ministry of Health and the National Institute of Public Health. In January 2016, the employees will attend free workshops on health promotion in cooperation with the health centre Aristotel d.o.o. In the


59

scope of this project we will also receive material for raising employees' awareness. News on health promotion will be monthly available in the electronic media. 2. Wider social responsibility In 2015, we organised 13 tours of the plant, mostly on the request of primary and secondary schools and the Faculty of Arts of Ljubljana. We regularly inform the wider and local public about all important projects implemented in the Company with a potential impact on the environment (example: possible short-term increase in noise), even though we consistently comply with all legal regulations. We cooperate with primary and secondary schools as well as faculties by providing donations, mandatory practical training as well as by taking part in various ecological projects. In 2015, we had 4 university students and 2 secondary school students on mandatory practical training. The Company is aware of the fact that environment should be managed responsibly and that all environmental regulations have to be complied with. In this respect we have very good cooperation with the Municipality of Krško, with which we cooperate in treatment of the town waste waters. More than 90% of municipal waste waters of Krško and the surrounding areas is treated by out waste water treatment plants.


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IV. FINANCIAL REPORT OF THE COMPANY VIPAP VIDEM KRŠKO D.D.


61

1. FINANCIAL STATEMENTS

1.2. BALANCE SHEET AS AT 31 DECEMBER 2015 in EUR Note 31 December 2015 31 December 2014

ASSETS 110,909,643 118,567,937

A. Long-term assets 89,852,999 96,188,499 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 917,744 874,785

1. Long-term property rights 236,984 214,025

4. Long-term deferred development costs 680,760 660,760

II. Property, plant and equipment 2 85,129,841 91,409,192

1. Land and buildings 27,797,179 28,688,006

a) Land 8,453,232 8,453,232

b) Buildings 19,343,947 20,234,774

2. Plant and machinery 56,452,504 61,249,080

3. Other plant and equipment 822,304 1,334,124

4. Property, plant and equipment being acquired 57,854 137,982

a) Property, plant and equipment under construction and manufacture 57,854 137,982

b) Advances for property, plant and equipment 0 0

III. Investment property 2 2,818,000 0

IV. Long-term financial assets 3 413,464 3,318,451

1. Long-term financial assets, excluding loans 413,464 3,318,451

a) Shares and participating interests in companies within the Group 413,464 3,318,451

VI. Deferred tax assets 4 573,950 586,071

B. Current assets 20,444,442 21,757,029

I. Assets (disposal groups) available for sale 0 0

II. Inventories 5 10,514,760 11,252,976

1. Material 6,826,294 6,433,633

2. Unfinished products 217,459 286,222

3. Products and merchandise 3,431,381 4,470,889

4. Advances for inventories 39,626 62,232

IV. Short-term operating receivables 6 9,352,608 10,372,744

1. Short-term operating receivables due from the Group companies 33,784 18,610

2. Short-term operating trade receivables 7,796,115 8,769,458

3. Short-term operating receivables due from others 1,522,709 1,584,676

V. Cash 7 577,074 131,309

C. Short-term deferred costs and accrued revenues 8 612,202 622,409 Item A.VI. of the previous year has been corrected by EUR 9,174,782 due to elimination of material error (auditor's opinion in the Annual Report)


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in EUR

Note 31 December 2015 31 December 2014

EQUITY AND LIABILITIES 110,909,643 118,567,937

A. Equity 9 48,499,434 54,536,909

I. Called-up capital 78,387,660 78,387,660

1. Share capital 78,387,660 78,387,660

II. Capital reserves 55,004 55,004

III. Revenue reserves 96,744 96,744

1. Legal reserves 96,744 96,744

2. Reserves for treasury shares and own stakes 3,557,093 3,557,093

3. Treasury shares and own stakes (as a deductible item) -3,557,093 -3,557,093

4. Other revenue reserves 0 0

IV. Revaluation surplus 2,802,223 2,802,223

V. Retained net profit/loss -26,804,722 -14,611,876

VI. Net profit/loss for the year -6,037,475 -12,192,846

Profit or loss for the year -6,037,475 -12,192,846

B. Provisions and long-term accrued costs and deferred revenues 10 764,934 901,181

1. Provisions for pensions and similar liabilities 608,753 683,399

2. Other provisions 156,181 217,782

3. Long-term accrued costs and deferred revenues 0 0

C. Long-term liabilities 30,106,495 33,692,695

I. Long-term financial liabilities 11 29,532,545 33,118,746

1. Long-term financial liabilities to Group companies 8,991,416 8,787,994

2. Long-term financial liabilities to banks 20,541,129 24,330,752

4. Other long-term financial liabilities 0 0

III. Deferred tax liabilities 573,950 573,949

D. Short-term liabilities 30,553,320 28,699,620

II. Short-term financial liabilities 12 6,146,496 1,021,214

1. Short-term financial liabilities to Group companies 1,849,865 0

2. Short-term financial liabilities to banks 4,096,520 977,375

4. Other short-term financial liabilities 200,111 43,839

III. Short-term operating liabilities 24,406,824 27,678,406

1. Short-term operating liabilities to the Group companies 1,366,848 1,418,554

2. Short-term trade payables 13 21,496,280 24,407,253

4. Short-term operating liabilities from advances 176,655 173,733

5. Other short-term operating liabilities 14 1,367,041 1,678,866

E. Short-term accrued costs and deferred revenues 15 985,460 737,532 Note: Items A V for 2015 and A VI for the year before have been corrected by EUR 9,174,782 due to the elimination of material error (auditor's opinion in the Annual Report for 2014) Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


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1.2. STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 January 2015 TO 31 DECEMBER 2015 in EUR

Notes 2015 2014

1. Net sales revenues 16 89,849,670 92,564,960

2. Change in inventories of products and work in progress -1,107,563 1,734,888

4. Other operating revenue (including revaluation operating revenue) 17 255,216 380,465

5. Costs of goods, materials and services 75,495,467 76,580,208

a) Cost of goods and materials sold and cost of materials used 64,701,795 66,427,106

b) Costs of services 18 10,793,672 10,153,102

6. Labour costs 19 8,994,678 10,031,316

a) Costs of salaries and wages 6,505,025 7,283,203

b) Social security costs 1,184,952 1,278,536

c) Other labour costs 1,304,701 1,469,577

7. Write-offs 7,261,699 7,819,026

a) Amortisation and depreciation 7,010,664 7,065,580

b) Revaluation operating expenses for intangible fixed assets and property, plant and equipment 968 44,010

c) Revaluation operating expenses for current assets 250,067 709,436

8. Other operating expenses 20 1,340,117 1,409,554

Operating profit/loss -4,094,638 -1,159,791

9. Financial revenues from participating shares 0 0

10. Financial revenues from loans granted 0 155,989

a) Financial revenues from loans granted to Group companies 0 155,989

11. Financial revenues from operating receivables 21 75,490 84,711

b) Financial revenues from operating receivables due from others 75,490 84,711

12. Financial expenses from impairments and write-offs of financial assets 86,917 0

13. Financial expenses for financial liabilities 22 2,064,648 2,559,892

a) Financial expenses for loans received from Group companies 607,171 454,662

b) Financial expenses for loans received from banks 1,417,983 2,075,464

d) Financial expenses for other financial liabilities 39,494 29,766

14. Financial expenses for operating liabilities 23 148,565 157,405

a) Financial expenses for operating liabilities to Group companies 0 0

b) Financial expenses for liabilities to suppliers and bills of exchange 148,565 157,405

c) Financial expenses for other operating liabilities 0 0

Net profit/loss from ordinary activities -6,319,278 -3,636,388

15. Other income 24 360,262 126,056

16. Other expenses 66,338 29,864

Operating profit/loss from extraordinary activities 293,924 96,192

17. Corporate income tax 26 0 0

18. Deferred taxes -12,121 -8,652,650

19. Net profit/loss for the period -6,037,475 -12,192,846

20. Change in surplus from revaluation of intang. assets and property, plant and equipment 0 0

21. Total comprehensive income for the year -6,037,475 -12,192,846

Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements. Note: Item 18 of the previous year has been corrected by EUR 9,174,782 due to elimination of material error in 2014.


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1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2015 TO 31 DECEMBER 2015 in EUR

2015 2014 A. Cash flows from operating activities a) Items of income statement 3,094,643 7,530,787

Operating revenue (except from revaluation) and financial revenue from operating receivables 90,259,491 93,134,142

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -87,152,727 -86,125,487

Income taxes and other taxes not included in operating expenses -12,121 522,132 b) Changes in net working capital (and accruals and deferrals, provisions and

deferred tax receivables and liabilities) of balance sheet operating items -351,210 -409,896

Opening less closing operating receivables 830,056 -879,810

Opening less closing deferred costs and accrued revenues -59,221 -14,492

Opening less closing deferred tax assets 12,121 -522,132

Opening less closing inventories 678,228 -1,685,951

Closing less opening operating liabilities -1,973,231 2,688,896

Closing less opening accrued costs and deferred revenues, and provisions 160,837 3,593 c) Net cash from/used in operating activities (a + b) 2,743,433 7,120,891 B. Cash flows from investing activities a) Cash receipts from investing activities 52,485 10,219

Cash receipts from disposal of property, plant and equipment 52,416 10,219

Cash receipts from disposal of long-term financial assets 69 0 b) Cash disbursements for investing activities -1,459,264 -2,134,073

Cash disbursements for acquisition of intangible assets -997 -48,884

Cash disbursements for acquisition of items of property, plant and equipment -1,458,267 -2,083,989

Cash disbursements for acquisition of long-term financial assets - -1,200 c)

Net receipts from investment activity or net disbursements for investment activity (a + b) -1,406,779 -2,123,854

C. Cash flows from financing activities a) Cash receipts from financing activities 1,913,815 2,394,921

Cash receipts from paid-in capital 0 0

Cash receipts from increase in long-term financial liabilities 63,296 2,394,921

Cash receipts from increase in short-term financial liabilities 1,850,519 0 b) Cash disbursements for financing activities -2,804,704 -8,290,095

Interest paid on financing activities -2,070,929 -2,611,287

Repayments of long-term financial liabilities

0 -773,000

Repayments of short-term financial liabilities -733,775 -4,905,808 c)

Net receipts from financing activity or net disbursements for financing activity (a + b) -890,889 -5,895,174

D. Final balance of cash 577,074 131,309

x) Net cash flows for the period (sum of Ac, Bc and Cc) 445,765 -898,137

y) Opening balance of cash 131,309 1,029,446 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


1.4. STATEMENT OF CHANGES IN EQUITY FOR 2015

Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.

in EUR

Share capital

Legal reserves

Reserves for Treasury Other Profit/loss

brought forward

Net profit/loss Capital

Revaluation surplus

Total

own stakes shares revenue reserves for the year reserves

A.1. Balance as at 31 December 2014 78,387,660 96,744 3,557,093 -3,557,093 -14,611,876 -3,018,064 55,004 2,802,223 63,711,691

a) Retrospective restatements (elimination of errors) 0 0 0 0 0 0 -9,174,782 0 0 -9,174,782 b) Retrospective adjustments (changes in accounting policies) 0 0 0 0 0 0 0 0 0 0

A.2. Balance as at 1 January 2015 78,387,660 96,744 3,557,093 -3,557,093 0 -14,611,876-

12,192,846 55,004 2,802,223 54,536,909

B.1. Changes in equity - transactions with owners

a) Subscription of called-up share capital 0 0 0 0 0 0 0 0 0 0 (capital payment) 0 b) Subscription of uncalled share capital 0 0 0 0 0 0 0 0 0 0 c) Call-up of subscribed share capital 0 0 0 0 0 0 0 0 0 0 d) Entry of additional payments of equity capital 0 0 0 0 0 0 0 0 0 0 e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 B.2. Total comprehensive income for the reporting period

a) Net profit/loss for the year 0 0 0 0 0 0 -6,037,475 0 0 -6,037,475 c) Change in surplus from revaluation of property, plant and equipment 0 0 0 0 0 0 0 0 0 0 d) Change in surplus from revaluation of financial assets 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 -6,037,475 0 0 -6,037,475

B.3. Changes in equity a) Allocation of remaining net profit of the comparative reporting period to other equity components

0 0 0 0 0 0 0 0 0 0

b) Allocation of part of net profit of the reporting 0 0 0 0 0 0 0 0 0 0 period to other equity components according to the resolutions of the management and supervision bodies

0 0 0 0 0 -12,192,846 12,192,846 0 0 0

0 0 0 0 0 -12,192,846 12,192,846 0 0 0

C. Balance as at 31 December 2015 78,387,660 96,744 3,557,093 -3,557,093 0 -26,804,722 -6,037,475 55,004 2,802,223 48,499,434

DISTRIBUTABLE PROFIT -26,804,722 -6,037,475 -32,842,197


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1.5. STATEMENT OF CHANGES IN EQUITY FOR 2014

in EUR

Share capitalLegal

reserves Reserves for

own stakes Treasury

shares

Other revenue reserves

Profit/loss brought forward

Net profit/loss for

the yearCapital reserves

Revaluation surplus Total

A.1. Balance as at 31 December 2014 78,387,660 96,744 3,557,093 -3,557,093 0 -10,686,737 -3,925,139 55,004 2,802,223 66,729,755

a) Retrospective restatements (elimination of errors) 0 0 0 0 0 0 0 0 0 0 b) Retrospective adjustments (changes in accounting policies) 0 0 0 0 0 0 0 0 0 0

A.2. Balance as at 1 January 2014 78,387,660 96,744 3,557,093 -3,557,093 0 -10,686,737 -3,925,139 55,004 2,802,223 66,729,755

B.1. Changes in equity - transactions with owners

a) Subscription of called-up share capital 0 0 0 0 0 0 0 0 0 0

(capital payment) 0

b) Subscription of uncalled share capital 0 0 0 0 0 0 0 0 0 0

c) Call-up of subscribed share capital 0 0 0 0 0 0 0 0 0 0

d) Entry of additional payments of equity capital 0 0 0 0 0 0 0 0 0 0

e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

B.2. Total comprehensive income for the reporting period 0

a) Net profit/loss for the financial year -3,018,064 -3,018,064 d) Change in surplus from revaluation of property, plant and equipment

0

d) Change in surplus from revaluation of financial assets 0

0 0 0 0 0 0 -3,018,064 0 0 -3,018,064

B.3. Changes in equity

a) Allocation of remaining net profit of the comparative 0 0 0 0 0 0 0 0 0 0

reporting period to other equity components 0

b) Allocation of part of net profit of the reporting 0 0 0 0 0 -3,925,139 3,925,139 0 0 0 period to other equity components according to the resolutions

of the management and supervision bodies 0

0 0 0 0 0 -3,925,139 3,925,139 0 0 0

C. Balance as at 31 December 2014 78,387,660 96,744 3,557,093 -3,557,093 0 -14,611,876 -3,018,064 55,004 2,802,223 63,711,691

DISTRIBUTABLE PROFIT -14,611,876 -3,018,064 -17,629,940 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements


67

2. APPENDIX TO THE FINANCIAL STATEMENTS

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2015 are compiled in accordance with the Slovenian Accounting Standards (SAS; valid since 1 January 2006) as well as the amendments to the Slovenian Accounting Standards, which entered into force at a later date, and with the basic accounting assumptions of matching (accrual basis), a going concern basis, consistency of valuation and consideration of the principles of prudence and fair value. Correction of material error: Due to the auditor's qualified opinion in the 2014 Annual Report, the Company derecognised the deferred tax asset and at the same time posted and EUR 9,174,782 higher loss for the past year. The requirement for a true and fair presentation of the assets, financial position and the income statement prevail. A key element of the appendix with the notes is the presentation of valuation methods and writing-offs, i.e. accounting policies for individual items in the annual balance sheet and statement of comprehensive income. The SAS prescribe the principal qualitative characteristics of financial statements (coherence, relevance, reliability and comparability). When disclosing the items in the balance sheet and the statement of comprehensive income, SAS 24 and 25 are taken into account. Besides the statement of comprehensive income and the balance sheet, the Company also prepares the statement of cash flows and the statement of changes in equity in the revised form. The statement of financial position is compiled in the double-entry balance sheet format. It has two columns: data as at 31 December 2014 and data as at 31 December 2015. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:

Tangible fixed assets (property, plant and equipment) that meet recognition conditions are initially recognised at historical cost. This comprises the purchase price, import duties and non-refundable purchase taxes, demolition costs, the costs that can be directly ascribed to them for making them fit for their intended use, and the costs of testing whether the asset is functioning properly. Property, plant and equipment are activated when they are made ready for use. Their value is verified upon each compilation of final


68

accounts and the fixed asset is impaired, if necessary. Following recognition, the cost method is used as the method of valuation. Property, plant and equipment are depreciated individually using a straight-line method. Costs incurred subsequently on a fixed asset increase its cost when they increase its future economic benefits in excess of the future economic benefits originally estimated.

An intangible asset is defined as identifiable non-monetary asset without physical

substance. It is valued at historical cost, including import duties and purchase taxes. Following recognition, the historical cost method is used as the method of valuation. Intangible assets are amortised using a straight-line method. Intangible fixed assets also include emission coupons and deferred development costs.

Investment property is valued at fair value.

Financial investments in capital are initially valued at fair values, whilst any subsequent

valuations are based on cost. Inventory items of material and merchandise are initially recognised at the actual cost,

which comprises the purchase price, import duties and other non-refundable purchase taxes, and the direct costs of procurement. Purchase price is reduced by the amount of discounts. The average price method is used to value the use of inventories. Inventories of material and merchandise are revalued to account for impairment if their carrying amount exceeds their market or net realisable value.

In 2006 (31 August 2006), the Company carried out an appraisal of fixed assets of the

chemical pulp production which was discontinued for environmental reasons. These fixed assets are disclosed in the balance sheet under property, plant and equipment. They are assessed at fair value (selling price less costs of sales). The last impairment was carried out in 2008.

Inventory units of products or work-in-progress are valued by production costs, namely:

all variable costs, all fixed costs of cost centres in which products are manufactured as well as all costs of other production cost centres.

Receivables of all types are initially recognised at amounts recorded in the relevant

documents under the assumption that the amounts owed will also be paid. Receivables are initially recognised on the basis of an issued invoice. Receivables are revalued for impairment if their carrying amount exceeds their fair value (i.e. the recoverable amount). Receivables are revalued to eliminate impairment if their fair value or the recoverable amount exceeds their carrying amount. Value adjustments of receivables are made individually. Receivables denominated in a foreign currency are valued in the financial statements according to the middle exchange rate of the Bank of Slovenia on the balance sheet date. Exchange rate differences represent ordinary financial revenues or expenses. The amount of receivables for deferred taxes with justification of recognition is also disclosed.

Due to the transition to SAS 2006, the calculation of the opening balance of individual

accounting categories could result in deferred tax receivables or liabilities, or the deferred taxes could result in temporary differences between the operating and tax balance sheet. Deferred tax receivables arose from the formation of provisions for expected costs, which


69

will only be recognised for tax purposes when the provisions are used for that purpose. The Company calculates deferred taxes only for significant amounts (severance payments, long-service awards, value adjustments of receivables, unused tax loss and those arising from assets available for sale). The Company expects taxable profits in the future.

Cash is disclosed by components and automatic overdraft on current accounts held with

banks. It comprises euro and other currency balances on bank accounts, euro and other currency petty cash balances and the balances of short-term deposits with banks.

Short-term deferred expenses and accrued revenues comprise receivables and/or deferred

expenses occurring during the year and temporarily accrued revenues. The total equity capital comprises the called-up capital, capital reserves, revenue

reserves, and undistributed net profit or loss for the year. Revenue reserves comprise: reserves for treasury shares and treasury shares, and revaluation surplus. The Company is obliged to calculate the effect on profit or loss for the year if a general capital revaluation was carried out.

Provisions and long-term accrued expenses and deferred revenues comprise provisions

for pensions and similar liabilities, other provisions and long-term accrued expenses and deferred revenues. They are formed for short-term liabilities arising from past events involving obligations, for which the settlement period is not definitely set, where the amount can be reliably measured. They may be treated as debts in a wider sense since they differ from liabilities to owners. Long-term accrued costs and deferred revenues comprise deferred revenues expected to cover estimated costs or expenses in a period of more than one year. The purpose of provisions is to accumulate amounts in the form of accrued costs or expenses that will be available in the future to cover incurred costs or expenses.

Long-term liabilities comprise long-term financial liabilities. They are recognised in

association with the financing of own funds that must be settled or repaid, particularly in cash, over a period of more than one year. Long-term financial liabilities to Group companies comprise long-term loans from a sister company abroad raised in 2013 and 2014. Long-term financial liabilities to banks comprise loans raised by borrowers with creditors. Long-term liabilities are disclosed in the balance sheet as amounts recorded in the relevant documents under the assumption that the creditors will require their repayment. They are measured using the effective interest rate method. Long-term foreign debt is converted to domestic currency at the reference exchange rate of the ECB from the Bank of Slovenia's exchange rate table as of the last day of the year.

Short-term liabilities include short-term financial liabilities to banks, short-term financial

liabilities to Group companies and short-term operating liabilities. Short-term financial liabilities are loans raised with creditors, the settlement of which is expected within one year. In 2015, the Company also obtained a short-term loan from a subsidiary.

Short-term operating liabilities are liabilities that fall due within a period not exceeding

one year. Short-term operating liabilities comprise operating liabilities to suppliers, liabilities to employees for work performed, short-term liabilities to financiers relating to interest and similar items, short-term tax liabilities to the government, including


70

calculated value added tax, and short-term liabilities arising from the distribution of profits. A special type of short-term operating liabilities are liabilities to suppliers for advances and short-term securities received. They are disclosed at amounts recorded in relevant documents (invoices, credit notes, contracts).

Short-term deferred revenues and accrued costs represent accrued expenses. According to

SAS 12, short-term accrued expenses and deferred revenues should not hide reserves.

Revenues are increases in economic benefits during the accounting period in the form of increases in assets or decreases in liabilities. They affect the amount of capital through profit or loss. Revenues are classified as net operating revenues, other operating revenues, financial revenues from operating receivables and other revenues. Revenues are recognised if increases in economic benefits are associated with increases in assets and the increases can be measured reliably. Revenues are recognised together with the receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. The revenues arising from the sale of products and material are measured based on the selling prices stated in invoices and other documents, less discounts approved when the sale is made or subsequently. Potential cash discounts also reduce sales revenues. Other operating revenues include subsidies, grants and revenues from the sale of waste. Revaluation operating revenues are profits arising from the sale of fixed assets reduced by value adjustments of operating receivables arising from the elimination of impairments and write-offs of operating liabilities. Financial revenues from operating receivables are revenues from accrued interests and exchange rate gains. Other revenues are compensations received arising from recognised damage to fixed assets.

Expenses are reductions of economic benefits during the accounting period in the form of

decreases in assets or increases in liabilities, which affect the amount of capital through profit or loss. Cost of goods, materials and services include the historical cost of goods and materials sold, cost of materials used and costs of services. Labour costs include wages and salaries, costs of social security and other labour costs. Write-offs include the costs of amortisation/depreciation, revaluation operating expenses for intangible and tangible fixed assets (property, plant and equipment) and revaluation operating expenses for working capital. Other operating expenses include expenses for environmental protection and bonuses paid to pupils and students. Financial expenses arising from financial liabilities include interest on loans and exchange rate losses related to foreign currency debt. Financial expenses from operating liabilities include interest on liabilities and expenses from the revaluation of debt and receivables. Other expenses include fines and compensations.


71

2.2. NOTES TO THE FINANCIAL STATEMENTS

2015 20141. Intangible assets in EUR 917,744 874,785

in EUR

PropertyDeferred

expenses Emissions coupons Total

rights of development

1. CostBalance as at 1 January 2015 198,293 660,760 144,090 1,003,143Increase 998 20,000 239,665 260,663Decrease 0 -190,237 -190,237Balance as at 31 December

2015 199,291 680,760 193,518 1,073,5692. Value adjustment

Balance as at 1 January 2015 -128,358 0 0 -128,358Amortisation and depreciation -27,467 0 0 -27,467Decrease 0 0 0 0Balance as at 31 December

2015 -155,825 0 0 -155,8253. Residual value

Balance as at 1 January 2015 69,935 660,760 144,090 874,785Balance as at 31 December

2015 43,466 680,760 193,518 917,744

Intangible fixed assets comprise software (EUR 43,466), deferred development costs (EUR 680,760) and emission coupons (EUR 193,518). As at 31 December 2015, the Company had no liabilities arising from the purchases of intangible assets. The amortisation rate is 20 %. These assets are not pledged as collateral, nor do they have any ownership restrictions. Deferred development costs are planned to be covered by more efficient investments in energy and lower cost of waste removal. Based on the calculation of obligations for 2014, the Company in 2015 gave to the Ministry of the Environment and Spatial Planning 132,995 emission coupons worth EUR 190,237. In 2015, it obtained 70,465 emission coupons for 2015 and purchased 20,000 emission coupons at EUR 8.46 (value of EUR 169,200) to fulfil the Company's obligations to the Ministry of the Environment and Spatial Planning. In 2016, the Company bought 15,000 emission coupons (value of EUR 84,550) to fulfil its obligations and another 69,143 emission coupons were credited to its account (for 2016). Based on the calculation of obligations for 2015, the Company assessed delivery of 123,365 emission coupons and will by the end of April 2015 discharge its liabilities.


72

2. Property, plant and equipment and investment property

The following depreciation rates were used (in %):

- buildings, construction facilities, 1.3 - 5.0- prefabricated facilities 2.0 - 5.0

- landscaping 3.3- equipment 4.0 - 20.0- computers, computer equipment 10.0 - 33.3

- vehicles 10.0 - 20.0

2015 2014

Property, plant and equipment in EUR 85,129,841 91,409,192

Item Land Construction Equipment Equipment Advance

payments Total

buildings

under construction

and manufacture

1. CostOpening balance as at 1

January 2015 8,453,232 31,666,249 148,682,471 137,982 0 188,939,934

Increases 0 65,693 757,824 738,349 0 1,561,866

Decrease 0 -1 -623,770 -818,477 0 -1,442,248 Transfer of short-term HFS assets 0 0 0 0 0 0 Balance as at 31 December 2015 8,453,232 31,731,941 148,816,525 57,854 0 189,059,552

2. Value adjustmentOpening balance as at 1

January 2015 0 -11,431,475 -86,099,267 0 0 -97,530,742

Increases - depreciation 0 -956,519 -6,026,677 0 -6,983,196 Impairment of existing fixed assets 0 0 0 0 0 0

Decrease 0 0 584,227 0 0 584,227 Balance as at 31 December 2015 0 -12,387,994 -91,541,717 0 0 -103,929,711

3. Residual value

Balance as at 1 January 2015 8,453,232 20,234,774 62,583,204 137,982 0 91,409,192Balance as at 31 December

2015 8,453,232 19,343,947 57,274,808 57,854 0 85,129,841

As at 31 December 2015, the Company disclosed EUR 4,627,558 of long-term loans for the acquisition of fixed assets. Fixed assets in the amount of EUR 53,433,599 were pledged as collateral for long-term and short-term financial liabilities (Item 11.12) and bank bonds. In 2015, the Company completely paid off liabilities to the lessor in the amount of EUR 44,494 and thus gained the ownership right to the fixed assets it paid off. Other increases in fixed assets of equipment are modernisations of the existing fixed assets. The Company has some redundant facilities on stock, in which cellulose was produced until 2006. As


73

at 31 December 2015, the Company discloses the remaining equipment worth EUR 2.418 under equipment. The last land appraisal was carried out in 2011. The appraisal was made by the company BIRO PNS, Rostohar Vladimir s.p. (company reference No. 19-0713/95). Rostohar Vladimir is a certified appraiser and a sworn court expert for the field of construction, registered with the Basic Court of Novo mesto since 1991 under registration No. 14/91. The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). The difference between cost and the higher estimated fair value is disclosed under value of land and revaluation surplus. 2015 2014

Investment Property in EUR 2,818,000 0

Upon the winding down of the subsidiary Ekopa d.o.o., the Company transformed its asset into investment property. The value of the investment property (land in Cadastral Municipality Stara vas, covering 15,809 m2 and premises covering 22,678 m2) was on the basis of certification of value dated 31 March 2015 appraised at market value at EUR 2,818,000 (Rostohar Vladimir, court appraiser specialised in construction industry). The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). The difference of EUR 86,917 represented financial expense. 2015 2014

3. Long-term financial assets in EUR 413,464 3,318,451

Balance as at 1

January 2015

Value adjustment

as at 1 January

2015

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2015 Derecognition

of asset

Carrying amount 31 December

2015Ekopa d.o.o., Krško (100%) 2,926,147 -21,160 0 0 0 -2,904,987 0Levas d.o.o., Krško (84.48%) 421,243 -195,979 0 0 0 0 225,264Vipap GMBH, Neunkirchen (100%) 35,000 0 0 0 0 0 35,000Zel-en Krško (11.38%) 152,000 0 0 0 0 0 152,000Enovip d.o.o. (16%) 1,200 0 0 1,200Total shares 3,535,590 -217,139 0 0 0 -2,904,987 413,464

The registered office of Levas Krško d.o.o. is Tovarniška 18, Krško. The Company disclosed net profit in the amount of EUR 24,046 in its 2015 income statement. The amount of equity capital in the balance sheet as at 31 December 2015 was EUR 903,181, net sales revenues amounted to EUR 2,889,167, and the value of assets totalled EUR 2,090,885. In 2010 the company acquired Vipap Vertiebs und Handels GmbH. The Company's activities include selling our paper and also purchasing recovered paper. In 2015, the Company generated EUR 14,902,191 of revenues and ended the year with a profit of EUR 15,142. Its equity capital as at 31 December 2015 equalled EUR 92,578. On 20 April 2015, Ekopa d.o.o. was deleted from the Court Register (District Court in Krško – Sr g2015/17394).


74

In 2011, the Company established together with 13 partners the Development Centre for Renewable and Sustainable Energy (ZEL-EN) with registered office in Krško, in which it holds a 11.38-percent share. In 2014, Vipap Videm Krško together with Zel-en founded the company ENOVIP, trajnostna energetika in gradnja, d.o.o. based in Krško. The Company's share in the newly founded company is 16%. The company Vipap Videm Krško d.d. included in its consolidated financial statements the statements of the subsidiaries Vipap Vertriebs und Handels GmbH and Levas Krško d.o.o. If revenues or assets of a subsidiary exceed the threshold value (5 %) of revenues or assets of the controlling company, the conditions for the inclusion of the subsidiary in the consolidated statements are met. 2015 2014

4. Deferred tax assets in EUR 573,950 9,760,853

Sources of deferred taxes 1 January

2015 Correction decrease increase

31 December

2015

1 January

2015 Severance payments 71,259 0 10,003 0 61,256 Long-service awards 15,669 0 2,118 0 13,551 Devaluation of long-term 0 0 0 0 0 assets held-for-sale 55,452 0 0 0 55,452 Formation of value adjustments of receivables 689,112 245,421 0 0 443,691 Unused tax loss 8,929,361 8,929,361 0 0 0 TOTAL receivables 9,760,853 9,174,782 12,121 0 573,950 Revaluation of land -573,949 0 0 0 -573,949 TOTAL liabilities -573,949 0 0 0 -573,949 NET liabilities 9,186,904 9,174,782 12,121 0 1

On the basis of the qualified auditor's opinion in the 2014 Annual Report, the Company fully derecognised the deferred tax asset arising from unused tax loss. Taking into account the current tax legislation and the Company's operating strategy for the following 5 years, there is no convincing evidence that the Company would have sufficient taxable profit in the future to utilise the tax loss. At the same time, a partial deferred tax asset arising from value adjustment due to unexpected payment was derecognised. The Company applied the 17 % tax rate in the calculation of deferred tax assets.


75

2015 20145. Inventories in EUR 10,514,760 11,252,976

Inventory type

Balance as at 31 December

2015Inventory surpluses

Inventory deficits

Impaired value due to

change in quality

Impaired value to marketable

value

Material 6,820,742 1 211 0 59,988

Small inventory 5,552 0 0 0 0

Unfinished products 217,459 0 0 0 704

Products 3,429,891 859 1,899 0 33,671

Merchandise 1,490 0 0 0 0

Advances for inventories 39,626 0 0 0 0

Total 10,514,760 860 2,110 0 94,363

Significant inventories of materials include: recovered paper (EUR 1,445,401), basic raw materials (EUR 1,373,541), maintenance material (EUR 1,951,832), spare parts (EUR 1,426,163), energy-generating products (EUR 448,904), and other (EUR 174,901). Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 183,464) and paper intended for re-processing (EUR 33,995). The inventories of products comprise inventories of paper in reels (EUR 3,022,149) and inventories of paper in sheets (EUR 407,742). As at 31 December 2015, the Company impaired inventories of finished products as their production price was higher than the selling price. Inventories of raw materials and end products in the amount of EUR 2,000,000 were as at 31 December 2015 pledged as collateral for short-term financial liabilities. 2015 20146. Short-term operating receivables in EUR 9,352,608 10,372,744

Balance as at 31

December 2015

Collateralised

receivables

Receivables without collateral

Outstanding

receivables

Maturity up to 1

year

Maturity of over 1

year

Value adjustmen

t as at 1 January

2015

Reduced adjustme

nt

Increased

adjustment

Value adjustme

nt as at 31

December 2015

Carrying amount as at 31

December 2015

Short-term operating trade receivables 11,937,419 6,457,066 5,480,353 6,066,066 1,701,103 4,170,249 -4,617,192 665,968 -190,080 -4,141,304 7,796,115 Short-term operating receivables from the Group companies 33,784 0 33,784 33,784 0 0 0 0 0 33,784 Short-term operating receivables from others 1,522,709 0 1,522,709 1,522,709 0 0 0 0 0 0 1,522,709

Total: 13,493,912 6,457,066 7,036,846 7,622,559 1,701,103 4,170,249 -4,617,192 665,968 -190,080 -4,141,304 9,352,608

Receivables in the amount of EUR 7,167,829 are pledged as collateral for loans.


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2015 2014

7. Cash in EUR 577,074 131,309

31 December 2015 31 December

2014Cash register 39 275Transaction accounts 334,937 131,034Foreign-currency accounts 152,098 Short-term deposits 90,000 0Total 577,074 131,309

2015 2014

8. Short-term accrued revenues and deferred expenses in EUR 612,202 622,409

Type of deferral

Balance as at 1 January

2015 Establishment Disbursement

Balance as at 31

December 2015

Deferred expenses 542,498 8,316,133 -8,319,574 539,057Accrued revenues 79,911 4,858 -11,624 73,145Total 622,409 8,320,991 -8,331,198 612,202 Short-term deferred expenses are: short-term deferred receivables from the state arising from VAT (EUR 478,649) and short-term deferred expenses (EUR 60,408). Short-term accrued revenues comprise the amount relating to volume discounts for purchased raw materials and material for 2014 (EUR 73,145). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2015. 2015 2014

9. Equity in EUR 48,499,434 54,536,909 Share capital of the Company comprises 1,879,800 shares with a nominal value of EUR 41.70 each. The shares are freely transferable and carry one vote each at the General Meeting of Shareholders, which takes decisions with 100 % of voting rights present. On 4 September 2008, the General Meeting of Shareholders decided that the Company’s nominal shares are to be converted into no-par value shares in the following way: each share with the nominal value of SIT 1,000 or EUR 4.17 after conversion is replaced by one no-par value share. No-par value shares are merged on the basis of a 10:1 ratio. One no-par value share is worth EUR 41.70. Treasury shares are valued at cost, which is EUR 54.065.


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The share capital of the Company totals EUR 78,387,660 and is divided into 1,879,800 no-par value shares. The difference in the value of EUR 55,003.99 resulting from the conversion of share capital was allocated to capital reserves. A. NET PROFIT FOR THE YEAR B. NET LOSS FOR THE YEAR -6,037,475C. RETAINED NET PROFIT D. NET LOSS BROUGHT FORWARD -26,804,722

- Covered net loss brought forward from previous year 0

E. DECREASE IN CAPITAL RESERVES 0F. DECREASE IN REVENUE RESERVES 0 - Decrease in other revenue reserves 0 - Decrease in legal reserves 0 - Decrease in capital reserves 0 G. INCREASE IN REVENUE RESERVES 0 - Increase in legal reserves 0 - Increase in reserves for own stakes 0 - Increase in statutory reserves 0 - Increase in other revenue reserves 0H. DISTRIBUTABLE PROFIT 0I. ACCUMULATED LOSS -32,842,197

The different in capital in the past year is the result of an EUR 9,174,782 higher loss due to lower deferred tax assets (note under Item 4). Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -5,764,790.


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2015 2014

10. Provisions and long-term accrued expenses and deferred revenues in EUR 764,934 901,181

Provisions

Balance as at 1

January 2015 Establishment Disbursement


2015Provisions for severance pay upon retirement 530,418 0 -53,636 476,782Provisions for long-service awards 152,981 0 -21,010 131,971Total 683,399 0 -74,646 608,753Provisions for building decommissioning cost 7,511 0 0 7,511Long-term accrued costs and deferred revenues 63,351 70,465 -118,649 15,167Long-term deferred revenues 146,920 5,301 -18,718 133,503Total 217,782 75,766 -137,367 156,181Grand total: 901,181 75,766 -212,013 764,934

The most recent actuary calculation of provisions for severance payments and long-service awards of employees was performed in 2014. Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company APIS, Andrej Šalamun s.p. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was made on 31 December 2014. The actuarial calculation of provisions for long-service awards was made on the basis of the service period with the last employer (change). The provisions for severance payments were established in line with the minimum conditions for old-age pension eligibility under the ZPIZ-2. Upon retiring, the employees are entitled to severance pay in the amount of two average monthly salaries in the Republic of Slovenia for the previous three months or in the amount of two average monthly salaries of the employee in the last three months, whichever is more favourable for the employee. The growth in salary and employee fluctuation are estimated at 2% (up to 35 years – 5%; 35–45 years – 3% and over 45 years – 2.5%). The estimated nominal long-term interest rate is 3.1%. Provisions have been calculated only for full time employees. Provisions for the cost of building decommissioning include the planned costs of building decommissioning at the former chemical pulp mill. The facility is being rehabilitated gradually. In 2009 we established additional provisions arising from the planned cost of rehabilitation of these facilities in 2010. In 2011, provisions were decreased due to removed buildings and in 2012 due to sale. In 2015, the Company reversed EUR 35,739 of unnecessary provisions (EUR 31,488 for severance payments and EUR 4,251 for long-service awards) and used EUR 38,907 of provisions (EUR 22,148 for severance payments and EUR 16,759 for long-service awards). Long-term accrued expenses and deferred revenues decreased by the disposal of emission coupons for 2014 (118,649 coupons) and increased by 70,465 (emission coupons acquired based


79

on decision). Emission coupons acquired based on the decision of the Ministry of Agriculture and Environment of the Republic of Slovenia (no. 35489-5/2014-2) are stated in books of account at EUR 1. Provisions for long-term deferred revenues decreased by the accrued depreciation of donated fixed assets. Long-term deferred revenues are amounts of non-depreciated fixed assets acquired free of charge. 2015 201411. Long-term financial liabilities in EUR 29,532,545 33,118,746

Creditor

Balance as at 31

December 2015 Outstanding

Short-term maturity

Long-term maturity

Date of final

maturity Interest rate

Domestic bank 731,250 731,250 22,239 709,011 31/12/2020 3-month Euribor +

4.95%

Domestic bank 2,939,995 2,939,995 89,414 2,850,581 31/12/2020 3-month Euribor +

4.95%


6.10%


4.95%


4.95%

Domestic bank 1,653,900 1,653,900 1,653,900 0 29/06/2016 3-month Euribor +

4.95%

Domestic bank 1,580,000 1,580,000 1,580,000 0 01/05/2016 3-month Euribor +

4.95%


6.10%


6.10%


6.10%


6.10%


6.10%


1.50%


1.50%


4.95%


4.95%

Domestic bank 1,000,000 1,000,000 30,413 969,587 31/12/2020 3-month Euribor +

4.95%

Total 24,637,649 24,637,649 4,096,520 20,541,129

Loan from a foreign Group company 1,000,000 1,000,000 0 1,000,000

31 December

2016 3-month Pribor

3.85%

Loan from a foreign Group company 9,841,281 9,841,281 1,849,865 7,991,416

31 December

2016 3-month Pribor 3.85

%Other short-term financial liabilities 200,111 200,111 200,111 0

Total 35,679,042 35,679,042 6,146,496 29,532,545


80

The fair value of loans raised is equal to their carrying amount. Long-term loans (including the portion falling due in 2016 in the amount of EUR 4,096,520) total EUR 24,637,649. As at 31 December 2015, long-term loans to Group companies totalled EUR 8,991,416 and short-term loans EUR 1,849,865. The final due date of these liabilities is 31 December 2016 and the interest rate is 3M Pribor + 3.85%. As it is not realistic to expect these loans to be repaid in 2016, they are disclosed under long-term liabilities. Other short-term financial liabilities comprise liabilities to the factoring company. Long-term financial liabilities to banks and the Group company are collateralised by means of pledged fixed assets, trade receivables and pledged inventories of raw materials and end products.

2015 2014

12. Short-term financial liabilities in EUR 6,146,496 1,021,214

Creditor Balance as at 31 December 2015 Outstanding

Date of final maturity Interest rate (%)

Domestic bank 54,839 54,839 31/12/2020 3-month Euribor + +4.95%










Domestic bank 1,653,900 1,653,900 29/06/2016 3-month Euribor + +4.95%

Domestic bank 8,692 8,69231 December

2016 3-month Euribor + +4.95%




Domestic bank 148,775 148,775 30/04/2020 3-month Euribor + 1.5%


Short-term portion of long-term loans 4,096,520 4,096,520

Loan from a foreign Group company 1,849,865 1,849,865 11/05/2016 5.0%

Other short-term financial liabilities 200,111 200,111

Total 6,146,496 6,146,496

Short-term financial liabilities to banks and the Group company are collateralised by means of pledged fixed assets, trade receivables and pledged inventories of raw materials and end products. The fair value of loans raised is equal to their carrying amount. The short-term portion of long-term loans stands at EUR 6,146,496. The short-term portion of other financial liabilities is EUR 200,111.


81

2015

2014

13. Short-term operating liabilities to suppliers in EUR 21,496,280 24,407,253 - in Slovenia 12,599,970 13,355,612 - abroad 8,839,372 10,919,079 - accrued goods and services 56,938 132,562 Total 21,496,280 24,407,253

As at 31 December 2015, the Company had liabilities due in Slovenia in the amount of EUR 3,830,143 and outstanding liabilities in the amount of EUR 8,769,827. In the structure of liabilities abroad, EUR 3,246,604 were due and EUR 5,592,768 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 394,254) and Vipap Vertriebs und Handels GmbH (EUR 972,594), disclosed under liabilities to Group companies.

2015 201414. Other short-term operating liabilities in EUR 1,367,041 1,678,866 This item comprises liabilities for interest (EUR 345,704), liabilities for salaries 12/2015 (EUR 356,128) and the related liabilities for contributions arising from salaries (EUR 125,144), liabilities for employer contributions (EUR 90,001), payroll tax liabilities (EUR 71,279), liabilities for other employment earnings (EUR 43,160), VAT liabilities payable in January 2016 (EUR 218,672), and other liabilities (EUR 116,953). 2015 2014

15. Short-term accrued expenses and deferred revenues in EUR 985,460 737,532

Type of deferral Balance as at 1


Balance as at 31

December 2015

Accrued expenses 590,591 1,381,944 1,221,022 751,513Short-term deferred revenues 146,941 107,854 20,848 233,947Total: 737,532 1,489,798 1,241,870 985,460

Short-term accrued expenses and deferred revenues comprise costs that will arise as liabilities in 2016 or for which we will receive assessment decisions in 2016, namely: unused annual leave for 2015 (EUR 291,561), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2015 (EUR 55,063), calculated liabilities for CO2


82

emission for 2015 in the amount of EUR 284,555 and liabilities arising from sales-dependant costs (EUR 118,493), and other (EUR 1,841). Short-term deferred revenues comprise interest charged to customers in relation to which revenue is recognised upon payment (EUR 233,947).

2015 2014

16. Net sales revenues in EUR 89,849,670 92,564,960 Italy 18,112,576 18,858,298Austria 12,199,881 12,429,091Slovenia 10,219,906 12,227,246Turkey 7,784,609 567,149Germany 7,768,734 12,313,645Serbia 6,312,763 8,939,345Great Britain 4,723,168 2,946,418Croatia 4,477,190 3,336,353Bulgaria 3,777,799 4,253,035Bosnia and Herzegovina 2,200,677 2,905,868Slovakia 1,447,835 2,226,940Macedonia 1,701,839 2,132,110Montenegro 1,287,261 1,244,743Switzerland 1,160,114 1,368,937Romania 925,484 506,697Greece 871,015 1,282,404Albania 868,418 1,011,191Czech Republic 639,810 777,083Malta 634,983 612,136France 630,899 1,154,590Singapore 473,550 0Kosovo 436,920 515,638The Netherlands 89,037 0Belgium 28,290 34,648Poland 42,073 24,898Spain 32,033 0Other countries 27,806 51,285Other 975,000 845,212

Total 89,849,670 92,564,960 Breakdown of revenues by business area 2015 2014 Sales of paper 88,874,670 91,719,748Other 975,000 845,212

Total 89,849,670 92,564,960


83

2015 201417. Other operating income in EUR 255,216 380,465

Other operating income comprises income from release of provisions (EUR 55,194), other income associated with products (EUR 85,887), income from sale of fixed assets (EUR 7,803), and revaluation operating income arising from bad and doubtful debt settled (EUR 106,332). 2015 201418. Costs of services in EUR 10,793,672 10,153,102 Cost of transport services 3,633,592 3,177,396Costs of fixed asset maintenance 3,155,786 3,231,607Costs of payment transactions, banking services and insurance 716,530 868,415Cost of intellectual and personal services 418,354 189,615Contract-based work, author's contracts, session fees 331,974 120,370Rents 387,015 412,086Costs of trade fairs, advertising and entertainment 20,100 27,093Costs of services arising from production and provision of services 82,135 40,876Reimbursement of employee work-related costs 24,712 45,962Costs of auditing the annual report 20,500 20,500Other service expenses 2,002,974 2,019,182Total 10,793,672 10,153,102

2015 201419. Labour costs in EUR 8,994,678 10,031,316 Costs of salaries and wages 6,040,016 6,795,685Pension insurance costs 684,066 735,567Cost of other social insurance 500,886 542,968Other labour costs 1,769,710 1,957,096Average number of employees 341.67 362.72based on hours

Other labour costs (EUR 1,769,710) include: employee salary allowances (EUR 465,009), commuting allowances (EUR 274,705), costs arising from termination of employment relationship under executive contract (EUR 221,655), meal allowances (EUR 328,039), annual leave allowances (EUR 324,600), costs of the Management Board members (EUR 59,259), severance pay for employees made redundant (EUR 32,050) and other (EUR 64,393).


84

Gross receipts by group (Companies Act (ZGD-1)) in EUR 2015 2014 Management Board members 852,821 886,102 Supervisory Board members 56,376 43,662 Total 909,197 929,764

As at 31 December 2015, the Company disclosed the following net liabilities: to members of the Management Board EUR 17,412, to internal members of the Supervisory Board EUR 1,200, and to external members of the Supervisory Board and the Management Board EUR 1,800. 2015 201420. Other operating expenses in EUR 1,340,117 1,409,554 Other operating expenses include: environment protection expenses (EUR 814,972), compensation for the use of building land (EUR 480,142), bonuses to students in practical training (EUR 4,327), contributions and membership fees (EUR 28,386), and other expenses (EUR 12,290). 2015 201421. Financial revenues from operating receivables in EUR 75,490 84,711 Foreign exchange gains 56,232 30,227Interest income 19,258 54,484Financial revenues from financial assets 0 0Total 75,490 84,711

2015 2014

22. Financial expenses for financial liabilities in EUR 2,064,648 2,559,892 This item comprises interest on loans (EUR 1,803,261), exchange rate differences arising from long-term financial liabilities (EUR 221,892) and exchange rate differences from other financial liabilities (EUR 39,495). 2015 201423. Financial expenses for operating liabilities in EUR 148,565 157,405

This item comprises interest on operating liabilities (EUR 127,202) and exchange rate differentials from receivables and liabilities (EUR 21,363).


85

2015 201424. Other income in EUR 360,262 126,056

The item includes: compensation of VAT receivable arising from the cellulose equipment sales, which was in 2014 disclosed as expense (EUR 218,150), compensation received (EUR 110,857), revenue from unpaid liability to a wound-up company (EUR 21,988), subsidies (EUR 9,189) and other (EUR 78). 25. Derivative financial instruments As at 31 December 2015, the Company disclosed the following derivatives:

o For the purpose of currency risk hedging, a futures contract was concluded for the purchase of CZK 26 million at pre-determined rate (for repayment of loan principal). As at 31 December 2015 the outstanding part of the futures contract amounted to CZK 13 million.

In 2015, the Company disclosed financial expenses in the amount of EUR 6 thousand arising from implemented cross currency swap agreement (CCS). 2015 201426. Corporate income tax in EUR 0 0 Total profit (loss) -6,025,354 -3,540,196Taxable income 0 0Non-taxable income -322,078 -55,808Adjustment of expenses 396,894 1,212,165Other increases/decreases of the tax base -91,728 -30,975Tax reliefs 0 0Drawing of tax loss 0 0Tax base 0 0Tax rate 17% 17%Corporate income tax 0 0Tax loss -6,042,266 -2,414,814

2015 2014 27. Breakdown of costs by functional group in EUR 93,948,489 93,330,082 Cost of goods sold 3,009 24,250Manufacturing costs of products sold 84,956,431 84,185,376Selling costs (including amortisation/depreciation) 4,745,692 4,482,924Administrative costs (including amortisation/depreciation) 4,243,357 4,637,532TOTAL 93,948,489 93,330,082


86

The difference between the disclosure of costs by functional group and costs by primary type arises from the category of interest expenses, which are financial expenses by nature.

28. Transactions with related parties in 2015 in EUR

Related party Transactions -

receivablesTransactions -

liabilities

Offset receivables (+) / liabilities (-) as at 31

December 2015

Ekopa d.o.o. 0 -21,988 0Levas d.o.o. 198,947 1,756,975 -372,282Vipap GmbH 7,762,564 6,695,487 -960,782TOTAL: 7,961,511 8,430,474 -1,333,064

29. Performance indicators31 December

2015 31 December

2014

Equity financing rate equity / liabilities 0.44 0.46

Long-term financing rate capital + long-term liabilities (including long-term

provisions) / liabilities 0.72 0.75

Operating fixed assets rate fixed assets / assets 0.77 0.77

Long-term investment rate fixed assets + long-term financial assets + investment property + long-term operating receivables) / assets 0.81 0.81

Equity to operating fixed assets ratio capital / fixed assets 0.56 0.60

Acid test ratio liquid assets / short-term loans 0.02 0.00

Quick ratio (liquid assets + short-term receivables + short-term

financial assets) / short-term debt 0.32 0.37

Current ratio current assets / short-term liabilities 0.67 0.76

Operating efficiency ratio operating revenues / operating expenses 0.96 0.99

Net return on equity net profit – income tax / average capital -0.11 -0.18

Net return on share capital net profit for the financial year / average share capital -0.08 -0.16

Annual Report of Vipap Videm KrSko d.d. for 2ff15

3. CONTINGENT LABILITTES

Vipap Videm Kr5ko d.d. guarantees for the liabilities of Vipap Vertriebs und Handels GmbH toFactorbank AG in the amount of EUR 2 million.

4. SIGNIFICANT EYENTS AFTER THE END OF THE 2OT5 FINANCIAL YEAR

The IBR drafted by the consulting firm EYnwhich wbs selocted by banks and Prisko and Imob as

consultant in financial restructuring and further related activities. The procedure is planned to becompleted in June 2016. By then, the Company has agreed on stand still against existing loansrepayments.

On 16 March 2016, the Supervisory Board appointed Stefan Eibl-Trtrtik President of theManagement Board and CF.O.

Kr5ko, 25 March20ffi

Vice-President of the Management Board: President of the Manaeement Board:

5. TNDEPENDENT AUDITOR'S REPORT

fan Eibl-Torok

W+?<

frz

I il] f Revizija in svetovanje d.o.o.Vl f t, Revizijska druZba / Certified Auditorsv

To the Shareholders ofvrPAP vrDEM rnSro a.a.Kr5ko, Slovenia

INDEPENDENT AUDITOR'S REPORT

UHY Revizija in svetovanje d.o.o.Vurnikova ulica 21 000 Ljubljana, Slovenijatel.: +386 1 300 00 40fax: +386 1 300 00 50

e-mail: [email protected]

We have audited the accompanying financial statements of the company VIPAP VIDEM KRSKO d.d., Kr5ko

which comprise the statement of financial position as at December 31 , 2015, and the statement of

comprehensive income, statement of changes in shareholder's equity and statement of cash flows for the year

then ended, and a summary of significant accounting policies and other explanatory information. We have also

reviewed the business report.

Management's Responsibility for the Financial StatementsManagement is responsible ior the preparation and fair presentation of these financial statements in

accordance with Slovene Accounting Standards and for such internal control as management determines is

necessary to enable the preparation of financial statements that are free from material misstatement, whether

due to fraud or error.

Auditor's Respo nsibi lityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our

audit in accordance with the lnternational Standards on Auditing. Those standards require that we comply with

ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free from material misstatement

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor's judgment, including the assessment of

the risk of material misstatements of the financial statements, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation

of the financial statements in order to design audit procedures that are appropriated in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respect, the financial posrtion of the

company VlpAp VIDEM KRSKO d.d., Kriko as at December 31.2015, and its financial performance and its

cash flows for the year then ended in accordance with Slovene Accounting Standards.

Emphasis of MatterWit'hout qualifying our opinion, we would like the users of financial statements to note that in order to create a

full pictuie oi tf,. company's business performance and its financial soundness along with the related

uncertainties, one has to carefully read not only the numerical presentation but also the notes to the financial

statements under point 2.2 (4, 11,12 13,29) and point 4 as well as the explanations made in the business

report under points 1.1 and ll.B which specify the balance sheet's horizontal financial structure, the structure of

accounts payable, the events after the balance sheet date, an analysis of business performance in the current

year and the management's plans for the company's future operations. Short-term liabilitres significantly exceed

.rrr.nt assets. Solvency of the company importantly depends on the possibility of concluding an agreement

with financial creditorsiegarding restructuring loans and the restructuring of the company's business. In case of

failure, that situation may arouse doubts about the ability of the company to continue operating as a golng

concern. Our opinion regarding the emphasized matters has not been qualified.

register revizijskih druZb: RD-A 073/05

ali katerikoli drugi ilan ne odgovarja za storitve drugih ilanou

Other legal and Reguldtory RequirementsThe company's annual report does not reveal information relating to the remuneration of members ofmanagement and supervisory body in the manner prescribed by the fifth paragraph 294t^ article of theCompanies Act.The business report complies with the audited financial statements.

UHY Revizija in svetovanje d.o.o

-4hrancr zgajnarCertified auditor

Ljubljana, 25th March 2016

1"** "l )


90

V. FINANCIAL REPORT OF THE VIPAP GROUP


91

1. FINANCIAL STATEMENTS

1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2015

In EUR

Note 31 December

2015 31 December

2014

ASSETS 113,298,112 120,922,571

A. Long-term assets 90,878,691 97,095,403 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 920,086 878,348

1. Long-term property rights 239,326 217,588

4. Long-term deferred development costs 680,760 660,760

II. Property, plant and equipment 2 86,022,255 94,913,160

1. Land and buildings 28,055,019 31,605,135

a) Land 8,453,232 9,818,072

b) Buildings 19,601,787 21,787,063

2. Plant and machinery 56,763,653 61,656,183

3. Other plant and equipment 937,894 1,459,151

4. Property, plant and equipment being acquired 265,689 192,691 a) Property, plant and equipment under construction and manufacture 256,417 192,691

b) Advances for property, plant and equipment 9,272 0

III. Investment property 2 2,818,000 0

IV. Long-term financial assets 3 544,400 512,284

1. Long-term financial assets, excluding loans 544,400 512,284 a) Shares and participating interests in companies within the Group 153,200 153,200

b) Other shares and stakes 391,200 359,084

VI. Deferred tax assets 4 573,950 791,611

B. Current assets 21,799,442 23,155,790

I. Assets (disposal groups) available for sale 0 0

II. Inventories 5 10,683,151 11,407,183

1. Material 6,951,147 6,547,458

2. Unfinished products 217,459 286,222

3. Products and merchandise 3,474,919 4,511,271

4. Advances for inventories 39,626 62,232

IV. Short-term operating receivables 6 10,440,239 11,595,893

1. Short-term operating receivables due from the Group companies 0 0

2. Short-term operating trade receivables 8,899,987 9,983,734

3. Short-term operating receivables due from others 1,540,252 1,612,159

V. Cash 7 676,052 152,714

C. Short-term deferred costs and accrued revenues 8 619,979 671,378 The value of assets for the past year is EUR 9,174,782 lower under A. VI due to partial derecognition of deferred tax assets.


92

In EUR

Note 31 December

2015 31 December

2014 EQUITY AND LIABILITIES 113,298,112 120,922,571 A. Equity 9 49,211,762 55,115,171 I. Called-up capital 78,387,660 78,387,660 1. Share capital 78,387,660 78,387,660 II. Capital reserves 55,004 55,004 III. Revenue reserves 108,540 108,540 1. Legal reserves 96,744 96,744 2. Reserves for treasury shares and own stakes 3,557,093 3,557,093 3. Treasury shares and own stakes (as a deductible item) -3,557,093 -3,557,093 4. Other revenue reserves 11,796 11,796 IV. Revaluation surplus 3,201,762 3,170,189 V. Retained net profit/loss -26,606,636 -14,381. 129 VI. Net profit/loss for the year -5,934,568 -12,225,093 Profit or loss for the year -5,934,568 -12,225,093VII. Minority shareholder equity 0 0 B. Provisions and long-term accrued costs and deferred revenues 10 1,372,830 1,596,074 1. Provisions for pensions and similar liabilities 811,389 885,556 2. Other provisions 12,684 21,073 3. Long-term accrued costs and deferred revenues 548,757 689,445 C. Long-term liabilities 30,178,345 33,773,421 I. Long-term financial liabilities 11 29,540,278 33,118,746 1. Long-term financial liabilities to Group companies 8,991,417 8,787,994 2. Long-term financial liabilities to banks 20,541,129 24,330,752 4. Other long-term financial liabilities 7,732 0 III. Deferred tax liabilities 638,067 654,675 D. Short-term liabilities 31,512,942 29,653,080 II. Short-term financial liabilities 12 6,745,945 1,583,582 1. Short-term financial liabilities to Group companies 1,849,865 0 2. Short-term financial liabilities to banks 4,691,081 1,537,668 4. Other short-term financial liabilities 204,999 45,914 III. Short-term operating liabilities 24,766,997 28,069,498 1. Short-term operating liabilities to the Group companies 0 0 2. Short-term trade payables 13 23,049,658 26,010,349 4. Short-term operating liabilities from advances 177,815 173,733 5. Other short-term operating liabilities 14 1,539,524 1,885,416 E. Short-term accrued costs and deferred revenues 15 1,022,233 784,825 Note: Items A V for 2015 and A VI for the year before have been corrected by EUR 9,174,782 due to the elimination of material error (auditor's opinion in the Annual Report for 2014) and the changed accounting policy regarding investment property accounting for EUR 985,424. Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the consolidated financial statements.


93

1.2. CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2015 TO 31 DECEMBER 2015 In EUR Notes 2015 2014

1. Net sales revenues 16 91,603,883 94,495,694

2. Change in inventories of products and work in progress -1,101,526 1,698,836

4. Other operating revenue (including revaluation operating revenue) 17 912,076 959,297

5. Costs of goods, materials and services 75,824,679 76,988,717

a) Cost of goods and materials sold and cost of materials used 65,466,165 67,170,482

b) Costs of services 18 10,358,514 9,818,235

6. Labour costs 19 10,807,289 11,866,302

a) Costs of salaries and wages 7,786,733 8,572,806

b) Social security costs 1,386,972 1,496,796

c) Other labour costs 1,633,584 1,796,700

7. Write-offs 7,470,190 8,052,988

a) Amortisation and depreciation 7,195,780 7,294,405

b) Revaluation operating expenses for intangible fixed assets and property, plant and equipment 3,284 44,166

c) Revaluation operating expenses for current assets 271,126 714,416

8. Other operating expenses 20 1,357,427 1,417,193

Operating profit/loss -4,045,152 -1,171,373

9. Financial revenues from participating shares 15,000 12,600

c) Financial revenues from shares in other companies 15,000 12,600

10. Financial revenues from loans granted 0 155,989

a) Financial revenues from loans granted to Group companies 0 155,989

11. Financial revenues from operating receivables 21 96,218 113,982

b) Financial revenues from operating receivables due from others 96,218 113,982

12. Financial expenses from impairments and write-offs of financial assets 1,484 0

13. Financial expenses for financial liabilities 22 2,119,640 2,613,888

a) Financial expenses for loans received from Group companies 607,171 454,662

b) Financial expenses for loans received from banks 1,472,635 2,129,223

d) Financial expenses for other financial liabilities 39,834 30,003

14. Financial expenses for operating liabilities 23 155,767 166,255

b) Financial expenses from trade payables and bills payable 131,133 160,361

c) Financial expenses for other operating liabilities 24,634 5,894

Net profit/loss from ordinary activities -6,210,825 -3,668,945

15. Other income 24 361,727 132,290

16. Other expenses 66,343 29,868

Operating profit/loss from extraordinary activities 295,384 102,422

17. Corporate income tax 26 -5,053 -6,542

18. Deferred taxes -14,074 -8,652,028

19. Net profit/loss for the period -5,934,568 -12,225,093

of which the Group -5,934,568 -12,225,093

of which minority shareholders 0 0

20. Change in surplus from revaluation of property, plant and equipment 4,087 0

21. Change in surplus from revaluation of financial assets 27,886 -1,992

22. Other elements of comprehensive income -814 -2,120

23. Total comprehensive income for the year -5,903,409 -12,229,205

of which the Group -5,903,409 -12,229,205 of which minority shareholders 0 0

Note: Item 18 of the previous year has been corrected by EUR 9,174,782 due to elimination of material error in 2014. Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the consolidated financial statements.


94

1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 January 2015 TO 31 DECEMBER 2015 in EUR 2015 2014 A. Cash flows from operating activities

a) Items of income statement 3,380,056 7,445,182

Operating revenue (except from revaluation) and financial revenue from operating receivables 92,676,236 95,698,546

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -89,277,053 -88,769,576

Income taxes and other taxes not included in operating expenses -19,127 516,212

b) Changes in net working capital (and accruals and deferrals, provisions and

deferred tax receivables and liabilities) of balance sheet operating items -369,853 -402,539

Opening less closing operating receivables 947,030 -1,788,916

Opening less closing deferred costs and accrued revenues -18,029 -46,930

Opening less closing deferred tax assets 12,121 -522,132

Opening less closing inventories 664,045 -1,582,964

Closing less opening operating liabilities -2,005,578 3,239,781

Closing less opening accrued costs and deferred revenues, and provisions 28,604 299,678

Closing less opening deferred tax liabilities 1,954 -1,056

c) Net cash from/used in operating activities (a + b) 3,010,203 7,042,643 B. Cash flows from investing activities

a) Cash receipts from investing activities 70,840 61,790

Receipts from interest and participation in profit relating to investing activities 15,000 12,600

Cash receipts from disposal of property, plant and equipment 55,840 49,190

b) Cash disbursements for investing activities -1,649,339 -2,342,976

Cash disbursements for acquisition of intangible assets -998 -50,084

Cash disbursements for acquisition of items of property, plant and equipment -1,648,341 -2,289,292

Cash disbursements for acquisition of long-term financial assets 0 -3,600

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -1,578,499 -2,281,186

C. Cash flows from financing activities

a) Cash receipts from financing activities 1,947,429 2,596,203

Cash receipts from paid-in capital 0 0

Cash receipts from increase in long-term financial liabilities 63,296 25,127,708

Cash receipts from increase in short-term financial liabilities 1,884,133 -22,531,505

b) Cash disbursements for financing activities -2,855,795 -8,353,697

Interest paid on financing activities -2,122,020 -2,665,313

Cash repayments of equity 0 -9,576

Repayments of long-term financial liabilities 0 -773,000

Repayments of short-term financial liabilities -733,775 -4,905,808

c) Net receipts from financing activity or net disbursements for financing activity (a + b) -908,366 -5,757,494

D. Final balance of cash 676,052 152,714

x) Net cash flows for the period (sum of Ac, Bc and Cc) 523,338 -996,037

y) Opening balance of cash 152,714 1,148,751 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the consolidated financial statements.


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1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2015 in EUR

Share

capital Legal

reserves

Reserves for own

stakesTreasury

shares



Net profit/loss for

the year Capital

reserves Revaluation

surplus Total

Minority shareholder

equity Grand total

A.1. Balance as at 31 December 2014 78,387,660 96,744 3,557,093 -3,557,093 11,796 -15,366,553 -3,050,311 55,004 3,170,189 63,304,529 0 63,304,529

a) Retrospective restatements (elimination of errors) 0 0 0 0 0 0 -9,174,782 0 0 -9,174,782 0 -9,174,782

b) Retrospective adjustments (changes in accounting polices) 0 0 0 0 0 985,424 0 0 0

985,424 0 985,424

A.2. Balance as at 1 January 2015 78,387,660 96,744 3,557,093 -3,557,093 11,796 -14,381,129 -12,225,093 55,004 3,170,189 55,115,171 0 55,115,171

B.1. Changes in equity - transactions with owners 0

a) Subscription of called-up share capital 0 0 0 0 0 0 0 0 0 0 0 0

(capital payment) 0 0

b) Subscription of uncalled share capital 0 0 0 0 0 0 0 0 0 0 0 0

c) Call-up of subscribed share capital 0 0 0 0 0 0 0 0 0 0 0 0

d) Entry of additional payments of equity capital 0 0 0 0 0 0 0 0 0 0 0 0

e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0 0 0

i) Other changes in equity 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 -0 0

B.2. Total comprehensive income for the reporting period

a) Net profit/loss for the financial year 0 0 0 0 0 0 -5,934,568 0 0 -5,934,568 0 -5,934,568 c) Change in surplus from revaluation of property, plant and equipment 0 0 0 0 0 0 0 0 4,087 4,087 0 4,087

d) Change in surplus from revaluation of financial assets 0 0 0 0 0 0 0 0 27,886 27,886 0 27,886

e) Other elements of comprehensive income 0 0 0 0 0 0 0 0 -814 -814 0 -814

0 0 0 0 0 0 -5,934,568 0 31,159 -5,903,409 0 -5,903,409

B.3. Changes in equity

a) Allocation of remaining net profit of the comparative reporting period to other equity components 0 0 0 0 0 -12,225,093 12,225,093 0 0 0 0 0

b) Other changes in equity 0 0 0 0 0 -414 0 0 414 0 0 0

0 0 0 0 0 12,225,507 12,225,093 0 414 0 0 0

C. Balance as at 31 December 2015 78,387,660 96,744 3,557,093 -3,557,093 11,796 -26,606,636 -5,934,568 55,004 3,201,762 49,211,762 0 49,211,762

DISTRIBUTABLE PROFIT

Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the consolidated financial statements.


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1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2014 in EUR

Share

capitalLegal

reserves

Reserves for own

stakes Treasury

shares



Net profit/loss for the year

Capital reserves

Revaluation surplus Total

Minority shareholder

equity Grand total

A.1. Balance as at 31 December 2013 78,387,660 96,744 3,557,093 -3,557,093 0 -11,593,549 -3,773,004 55,004 3,165,157 66,338,012 28,804 66,366,816

a) Retrospective restatements (elimination of errors) 0 0 0 0 0 0 0 0 0 0 0 0

b) Retrospective adjustments (changes in accounting polices) 0 0 0 0 0 0 0 0 0 0 0 0

A.2. Balance as at 1 January 2014 78,387,660 96,744 3,557,093 -3,557,093 0 -11,593,549 -3,773,004 55,004 3,165,157 66,338,012 28,804 66,366,816

B.1. Changes in equity - transactions with owners 0

a) Subscription of called-up share capital 0 0 0 0 0 0 0 0 0 0 0 0

(capital payment) 0

b) Subscription of uncalled share capital 0 0 0 0 0 0 0 0 0 0 0 0

c) Call-up of subscribed share capital 0 0 0 0 0 0 0 0 0 0 0 0

d) Entry of additional payments of equity capital 0 0 0 0 0 0 0 0 0 0 0 0

e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0 0 0

i) Other changes in equity 0 0 0 0 11,796 0 0 0 9,142 20,938 -28,804 -7,866

0 0 0 0 11,796 0 0 0 9,142 20,938 -28,804 -7,866

B.2. Total comprehensive income for the reporting period

a) Net profit/loss for the financial year 0 0 0 0 0 0 -3,050,311 0 0 -3,050,311 0 -3,050,311

c) Change in surplus from revaluation of property, plant and equipment 0 0 0 0 0 0 0 0 0 0 0 0

d) Change in surplus from revaluation of financial assets 0 0 0 0 0 0 0 0 -1,992 -1,992 0 -1,992

e) Other elements of comprehensive income 0 0 0 0 0 0 0 0 -2,120 -2,120 0 -2,120

0 0 0 0 0 0 -3,050,311 0 -4,112 -3,054,423 0 -3,054,423

B.3. Changes in equity 0

a) Allocation of remaining net profit of the comparative reporting period to other equity components 0 0 0 0 0 -3,773,004 3,773,004 0 0 0 0 0

0 0 0 0 0 -3,773,004 3,773,004 0 0 0 0 -7,864

C. Balance as at 31 December 2014 78,387,660 96,744 3,557,093 -3,557,093 11,796 -15,366,553 -3,050,311 55,004 3,170,189 63,304,529 0 63,304,529

DISTRIBUTABLE PROFIT

Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the consolidated financial statements.


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2. APPENDIX TO THE FINANCIAL STATEMENTS

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2015 are compiled in accordance with the Slovenian Accounting Standards (SAS; valid since 1 January 2006) as well as the amendments to the Slovenian Accounting Standards, which entered into force at a later date, and with the basic accounting assumptions of matching (accrual basis), a going concern basis, consistency of valuation and consideration of the principles of prudence and fair value. Correction of material error: Due to the auditor's qualified opinion in the 2014 Annual Report, the Company derecognised the deferred tax asset and at the same time posted and EUR 9,174,782 higher loss for the past year. Changes in accounting policies: In 2015, the Company transferred part of buildings (EUR 1,276,261) and land (EUR 379,416), which were disclosed under property, plant and equipment, to investment property measured at fair value (EUR 2,818,000). As a result, the amounts of related deferred tax assets were derecognised (EUR 185,354). Due to the restatement, the net profit/loss brought forward increased by EUR 985,424. The requirement for a true and fair presentation of the assets, financial position and the income statement prevail. A key element of the appendix with the notes is the presentation of valuation methods and writing-offs, i.e. accounting policies for individual items in the annual balance sheet and statement of comprehensive income. The SAS prescribe the principal qualitative characteristics of financial statements (coherence, relevance, reliability and comparability). When disclosing the items in the balance sheet and the statement of comprehensive income, SAS 24 and 25 are taken into account. Besides the statement of comprehensive income and the balance sheet, the Company also prepares the statement of cash flows and the statement of changes in equity in the revised form. The statement of financial position is compiled in the double-entry balance sheet format. It has two columns: data as at 31 December 2014 and data as at 31 December 2015. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:


98

Tangible fixed assets (property, plant and equipment) that meet recognition conditions

are initially recognised at historical cost. This comprises the purchase price, import duties and non-refundable purchase taxes, demolition costs, the costs that can be directly ascribed to them for making them fit for their intended use, and the costs of testing whether the asset is functioning properly. Property, plant and equipment are activated when they are made ready for use. Their value is verified upon each compilation of final accounts and the fixed asset is impaired, if necessary. Following recognition, the cost method is used as the method of valuation. Property, plant and equipment are depreciated individually using a straight-line method. Costs incurred subsequently on a fixed asset increase its cost when they increase its future economic benefits in excess of the future economic benefits originally estimated.

An intangible asset is defined as identifiable non-monetary asset without physical

substance. It is valued at historical cost, including import duties and purchase taxes. Following recognition, the historical cost method is used as the method of valuation. Intangible assets are amortised using a straight-line method. Intangible fixed assets also include emission coupons and deferred development costs.

Investment property is valued at fair value.

Financial investments in capital are initially valued at fair values, whilst any subsequent

valuations are based on cost.

Inventory items of material and merchandise are initially recognised at the actual cost, which comprises the purchase price, import duties and other non-refundable purchase taxes, and the direct costs of procurement. Purchase price is reduced by the amount of discounts. The average price method is used to value the use of inventories. Inventories of material and merchandise are revalued to account for impairment if their carrying amount exceeds their market or net realisable value.

In 2006 (31 August 2006), the Company carried out an appraisal of fixed assets of the

chemical pulp production which was discontinued for environmental reasons. These fixed assets are disclosed in the balance sheet under property, plant and equipment. They are assessed at fair value (selling price less costs of sales). The last impairment was carried out in 2008.

Inventory units of products or work-in-progress are valued by production costs, namely:

all variable costs, all fixed costs of cost centres in which products are manufactured as well as all costs of other production cost centres.

Receivables of all types are initially recognised at amounts recorded in the relevant

documents under the assumption that the amounts owed will also be paid. Receivables are initially recognised on the basis of an issued invoice. Receivables are revalued for impairment if their carrying amount exceeds their fair value (i.e. the recoverable amount). Receivables are revalued to eliminate impairment if their fair value or the recoverable amount exceeds their carrying amount. Value adjustments of receivables are made individually. Receivables denominated in a foreign currency are valued in the financial statements according to the middle exchange rate of the Bank of Slovenia on the balance sheet date. Exchange rate differences represent ordinary financial revenues or expenses.


99

The amount of receivables for deferred taxes with justification of recognition is also disclosed.

Due to the transition to SAS 2006, the calculation of the opening balance of individual

accounting categories could result in deferred tax receivables or liabilities, or the deferred taxes could result in temporary differences between the operating and tax balance sheet. Deferred tax receivables arose from the formation of provisions for expected costs, which will only be recognised for tax purposes when the provisions are used for that purpose. The Company calculates deferred taxes only for significant amounts (severance payments, long-service awards, value adjustments of receivables, unused tax loss and those arising from assets available for sale). The Company expects taxable profits in the future.

Cash is disclosed by components and automatic overdraft on current accounts held with

banks. It comprises euro and other currency balances on bank accounts, euro and other currency petty cash balances and the balances of short-term deposits with banks.

Short-term deferred expenses and accrued revenues comprise receivables and/or deferred

expenses occurring during the year and temporarily accrued revenues. The total equity capital comprises the called-up capital, capital reserves, revenue

reserves, and undistributed net profit or loss for the year. Revenue reserves comprise: reserves for treasury shares and treasury shares, and revaluation surplus. The Company is obliged to calculate the effect on profit or loss for the year if a general capital revaluation was carried out.

Provisions and long-term accrued expenses and deferred revenues comprise provisions

for pensions and similar liabilities, other provisions and long-term accrued expenses and deferred revenues. They are formed for short-term liabilities arising from past events involving obligations, for which the settlement period is not definitely set, where the amount can be reliably measured. They may be treated as debts in a wider sense since they differ from liabilities to owners. Long-term accrued costs and deferred revenues comprise deferred revenues expected to cover estimated costs or expenses in a period of more than one year. The purpose of provisions is to accumulate amounts in the form of accrued costs or expenses that will be available in the future to cover incurred costs or expenses.

Long-term liabilities comprise long-term financial liabilities. They are recognised in

association with the financing of own funds that must be settled or repaid, particularly in cash, over a period of more than one year. Long-term financial liabilities to Group companies comprise a long-term loan from a sister company abroad raised in 2014. Long-term financial liabilities to banks comprise loans raised by borrowers with creditors. Other long-term financial liabilities are liabilities to lessors in the case of financial lease. Long-term liabilities are disclosed in the balance sheet as amounts recorded in the relevant documents under the assumption that the creditors will require their repayment. They are measured using the effective interest rate method. Long-term foreign debt is converted to domestic currency at the reference exchange rate of the ECB from the Bank of Slovenia's exchange rate table as of the last day of the year.


100

Short-term liabilities include short-term financial liabilities to banks, short-term financial liabilities to Group companies and short-term operating liabilities. Short-term financial liabilities are loans raised with creditors, the settlement of which is expected within one year. Short-term financial liabilities also include liabilities to lessors arising from financial lease which fall due within one year. Short-term operating liabilities are liabilities that fall due within a period not exceeding one year. Short-term operating liabilities comprise operating liabilities to suppliers, liabilities to employees for work performed, short-term liabilities to financiers relating to interest and similar items, short-term tax liabilities to the government, including calculated value added tax, and short-term liabilities arising from the distribution of profits. A special type of short-term operating liabilities are liabilities to suppliers for advances and short-term securities received. They are disclosed at amounts recorded in relevant documents (invoices, credit notes, contracts).

Short-term deferred revenues and accrued costs represent accrued expenses. According to

SAS 12, short-term accrued expenses and deferred revenues should not hide reserves.

Revenues are increases in economic benefits during the accounting period in the form of increases in assets or decreases in liabilities. They affect the amount of capital through profit or loss. Revenues are classified as net operating revenues, other operating revenues, financial revenues from operating receivables and other revenues. Revenues are recognised if increases in economic benefits are associated with increases in assets and the increases can be measured reliably. Revenues are recognised together with the receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. The revenues arising from the sale of products and material are measured based on the selling prices stated in invoices and other documents, less discounts approved when the sale is made or subsequently. Potential cash discounts also reduce sales revenues. Other operating revenues include subsidies, grants and revenues from the sale of waste. Revaluation operating revenues are profits arising from the sale of fixed assets reduced by value adjustments of operating receivables arising from the elimination of impairments and write-offs of operating liabilities. Financial revenues from operating receivables are revenues from accrued interests and exchange rate gains. Other revenues are compensations received arising from recognised damage to fixed assets.

Expenses are reductions of economic benefits during the accounting period in the form of

decreases in assets or increases in liabilities, which affect the amount of capital through profit or loss. Cost of goods, materials and services include the historical cost of goods and materials sold, cost of materials used and costs of services. Labour costs include wages and salaries, costs of social security and other labour costs. Write-offs include the costs of amortisation/depreciation, revaluation operating expenses for intangible and tangible fixed assets (property, plant and equipment) and revaluation operating expenses for working capital. Other operating expenses include expenses for environmental protection and bonuses paid to pupils and students. Financial expenses arising from financial liabilities include interest on loans and exchange rate losses related to foreign currency debt. Financial expenses from operating liabilities include interest on liabilities and expenses from the revaluation of debt and receivables. Other expenses include fines and compensations.


101

2.1.1. Bases for compiling consolidated financial statements

In accordance with Article 56 of the Companies Act, a company with registered office in the Republic of Slovenia being the parent company of one or more companies with registered office in the Republic of Slovenia or abroad (subsidiaries) shall compile consolidated annual report. A company is the parent company of another company if one of the following conditions is fulfilled: a) if it has a majority of the voting rights in the other company; or b) if it has the right to appoint or recall a majority of the members of the management board or the supervisory board and is at the same time a member of the other company; c) if it has the right to exercise control over the other company on the basis of an undertaking contract or another legal basis; or d) if it is a member in the other company and if, on the basis of an agreement with another member in this company, it controls a majority of the voting rights in this company. The consolidated annual report must provide a true and fair view of the financial position, profit and loss account, cash flows and capital flows of all the companies included in the consolidation as a whole. For each company included in the consolidation, theconditions of the second paragraph of Article 56, on the basis of which an individual company was included in the consolidation, must be stated in the notes to consolidated statements. A subsidiary company need not be included in the consolidation if its inclusion is not necessary in order to provide a true and fair view of the financial position, profit and loss account, cash flows and capital flows of all the companies. On the day the consolidated financial statements were prepared, Kranjska investicijska družba d.o.o. was a member of all subsidiary companies, holding more than 50% of capital and a controlling interest.

2.1.2. Scope and procedures regarding consolidation of financial statements The selection of the consolidation method depends on the impact which the controlling company has over a Group company. In the case of Vipap Videm Krško d.d. and its subsidiaries, full consolidation is carried out. Full consolidation is a method of combining the financial statements of the controlling enterprise and its subsidiaries on a line by line basis by adding together like items of assets, liabilities (debts), equity capital, revenues and expenses. The consolidated financial statements are the financial statements of the Group presented as those of a single company. Due to the above the following procedures are necessary:

- equity consolidation (elimination of financial asset of the controlling company in equity capital of the subsidiary and the proportion of the subsidiary's equity and related accounted differences);

- elimination of intragroup receivables and liabilities; - elimination of intragroup revenues and expenses; - elimination of unrealised net gains and losses resulting from intragroup transactions;


102

- disclosure of minority interest in equity and net profit; - adjustment of taxes and their deferral (deferred taxes).

In preparation of consolidated financial statements uniform accounting policies shall be used. That means that the parent company has to organise and implement uniform principles in all accounting departments of subsidiaries, along with uniform valuation of assets and liabilities items, and issue special instructions for keeping bookkeeping records that represent the basis of consolidation. The consolidation procedure was carried out based on:

- Slovenian Accounting Standards 2006 (where no special standard exists, and the

consolidation procedures are discussed in individual standards related to items in the balance sheet and the profit and loss account or the form thereof);

- IAS 27 – Consolidated and Separate Financial Statements; - IAS 28 – Investments in Associates; - IAS 31 – Interests in Joint Ventures; - IFRS 3 – Business Combinations.

Financial investments in subsidiaries abroad are carried at cost in foreign currency, which is for the purpose of consolidation translated into EUR at the exchange rate applying on the day of transaction. According to SAS 2006, assets and liabilities expressed in foreign currencies are translated into the local currency at the reference exchange rate of the ECB from the Bank of Slovenia's exchange rate table on the day the consolidated financial statements are compiled. In 2015 Ekopa d.o.o., which was 100% owned by Vipap Videm Krško d.d. was wound down. The consolidated financial statements of Vipap Videm Krško d.d. include the following companies: Name Country Type of connection

% of

connection

Vipap Vertriebs und Handels GmbH

AUT Direct equity 100.00

Levas Krško d.o.o. SLO Direct equity 100.00 If revenues or assets of a subsidiary exceed the threshold value (5 %) of revenues or assets of the controlling company, the conditions for the inclusion of the subsidiary in the consolidated statements are met. The consolidated financial statements of the Group are available at the registered office of the parent company Vipap Videm Krško d.d., Krško.


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2.1.3. The summary of eliminations and adjustments in the consolidation process for 2015 2015 2014

Item Amount in EUR

Net sales revenues 16,037,145 15,843,249Cost of goods and materials sold and cost of materials used -14,581,002 -14,497,544Costs of services -1,456,143 -1,345,705Financial expenses for impairments and write-offs of financial assets -86,917 0

Net profit/loss for the period -86,917 0

Assets -1,660,896 -5,507,380Land and buildings 0 1,655,677Investment property 0 -2,745,997Long-term financial investments in Group companies -260,264 -3,165,251Deferred tax assets 0 185,354Short-term intra-group trade receivables -1,400,632 -1,437,163

Equity and liabilities -1,660,896 -5,507,380Capital of the Group -283,531 -4,111,032Minority shareholder equity 0 0Provisions and long-term accrued expenses and deferred revenues 0 13,562Deferred tax liabilities 23,267 27,255Short-term operating liabilities to group companies -1,400,632 -1,437,165


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2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2015 20141. Intangible assets in EUR 920,086 878,348

PropertyDeferred expenses

Emissions coupons Total

rightsof

development 1. Cost Balance as at 1 January 2015 210,982 660,760 144,090 1,015,832 Increase 998 20,000 239,665 260,663 Decrease 0 0 -190,237 -190,237 Balance as at 31 December 2015 211,980 680,760 193,518 1,086,2582. Value adjustment Balance as at 1 January 2015 -137,484 0 0 -137,484 Amortisation and depreciation -28,688 0 0 -28,688 Decrease 0 0 0 0 Balance as at 31 December 2015 -166,172 0 0 -166,1723. Residual value Balance as at 1 January 2015 73,498 660,760 144,090 878,348 Balance as at 31 December 2015 45,808 680,760 193,518 920,086

Intangible fixed assets of Vipap Videm Krško d.d. comprise deferred development costs (EUR 680,760), software (EUR 43,466) and emission coupons (EUR 193,518). As at 31 December 2015, the Company had no liabilities arising from the purchases of intangible assets. The amortisation rate is 20 %. These assets are not pledged as collateral, nor do they have any ownership restrictions. Deferred development costs are planned to be covered by more efficient investments in energy and lower cost of waste removal. Based on the calculation of obligations for 2014, the Company in 2015 gave to the Ministry of the Environment and Spatial Planning 132,995 emission coupons worth EUR 190,237. In 2015, it obtained 70,465 emission coupons for 2015 and purchased 20,000 emission coupons at EUR 8.46 (value of EUR 169,200) to fulfil the Company's obligations to the Ministry of the Environment and Spatial Planning. In 2016, the Company bought 15,000 emission coupons (value of EUR 84,550) to fulfil its obligations and another 69,143 emission coupons were credited to its account. Based on the calculation of obligations for 2015, the Company assessed delivery of 123,365 emission coupons and will by the end of April 2015 discharge its liabilities. Levas Krško d.o.o. disclosed computer applications in the amount of EUR 1,568 and graphic image worth EUR 374 under intangible fixed assets. Intangible fixed asset of Vipap GmbH is software in the amount of EUR 400.


105

2. Property, plant and equipment and investment property The following depreciation rates were used (in %): - buildings, construction facilities, 1.3 - 5.0- prefabricated facilities 2.0 - 5.0

- landscaping 3.3- equipment 4.0 - 25.0- computers, computer equipment 10.0 - 50.0

- vehicles 10.0 - 20.0 2015 2014

Property, plant and equipment in EUR 86,022,255 93,927,736

Item Land Buildings Equipment

Equipment under construction,

manufacturingAdvance

payments Total 1. Cost Opening balance as at 1 January 2015 8,832,648 35,269,282 150,532,929 192,691 0 194,827,550

Increases 65,693 801,261 882,203 0 1,749,157 Decrease -379,416 -1,273,244 -686,473 -818,477 0 -3,157,610 Transfer of short-term held-for-sale assets Balance as at 31 December 2015 8,453,232 34,061,731 150,647,717 256,417 0 193,419,0972. Value adjustment Opening balance as at 1 January 2015 -13,482,219 -87,417,595 0 0 -100,899,814 Increases - depreciation -968,453 -6,175,506 -7,143,959 Additions – new purchases 0 Impairments of existing fixed assets 0 0 Transfer of short-term held-for-sale assets 0 Decrease 0 646,931 0 646,931 Balance as at 31 December 2015 -14,450,672 -92,946,170 0 0 -107,396,8423. Residual value Balance as at 1 January 2015 8,832,648 21,787,063 63,115,334 192,691 0 93,927,736 Balance as at 31 December 2015 8,453,232 19,611,059 57,701,547 256,417 0 86,022,255

As at 31 December 2015, Vipap Videm Krško d.d. disclosed EUR 4,627,558 of long-term loans for the acquisition of fixed assets. Fixed assets in the amount of EUR 53,433,599 were pledged as collateral for long-term and short-term financial liabilities (Item 11.12) and bank bonds. In 2015, the Company completely paid off liabilities to the lessor in the amount of EUR 44,494 and thus gained the ownership right to the fixed assets it paid off. Other increases in fixed assets of equipment are modernisations of the existing fixed assets. The Company has some redundant facilities on stock, in which cellulose was produced until 2006. As


106

at 31 December 2015, the Company discloses the remaining equipment worth EUR 2.418 under equipment. The last land appraisal was carried out in 2011. The appraisal was made by the company BIRO PNS, Rostohar Vladimir s.p. (company reference No. 19-0713/95). Rostohar Vladimir is a certified appraiser and a sworn court expert for the field of construction, registered with the Basic Court of Novo mesto since 1991 under registration No. 14/91. The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). The difference between cost and the higher estimated fair value is disclosed under value of land and revaluation surplus. Levas Krško d.o.o. disclosed property, plant and equipment of EUR 885,842 (EUR 257,840 buildings, EUR 420,166 equipment, EUR 198,564 investments in progress) and EUR 9,272 of advances. As at 31 December 2015, the company had a liability arising from equipment in the amount of EUR 2,989 and a liability from finance lease of EUR 12,620 (Heli diesel forklift). Real estate with residual value of EUR 301,893 is mortgaged as collateral for financial liabilities of the controlling company. Vipap GmbH disclosed in its books of account EUR 6,572 of property, plant and equipment. 2015 2014

Investment Property in EUR 2,818,000 0

Upon winding up the subsidiary Ekopa d.o.o., the company Vipap Videm Krško d.d. changed its investment into investment property (in 2014, land and buildings were disclosed under property, plant and equipment). The value of the investment property (land in Cadastral Municipality Stara vas, covering 15,809 m2 and premises covering 22,678 m2) was on the basis of certification of value dated 31 March 2015 appraised at market value at EUR 2,818,000 (Rostohar Vladimir, court appraiser specialised in construction industry). The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). 2015 2014

3. Long-term financial assets in EUR 544,400 512,284

Balance as at 1

January 2015

Value adjustment as at 1 January

2015

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2015

Carrying amount 31

December 2015

Zel-en d.o.o. Krško (11.38%) 152,000 152,000

Enovip d.o.o. 1,200 1,200

Krka d.d. Novo mesto 391,200 391,200

Total shares 544,400 0 0 0 0 544,400


107

The registered office of Levas Krško d.o.o. is Tovarniška 18, Krško. The Company disclosed net profit in the amount of EUR 24,046 in its 2015 income statement. The amount of equity capital in the balance sheet as at 31 December 2015 was EUR 903,181, net sales revenues amounted to EUR 2,889,167, and the value of assets totalled EUR 2,090,885. In 2010 the company acquired Vipap Vertiebs und Handels GmbH. The Company's activities include selling our paper and also purchasing recovered paper. In 2015, the Company generated EUR 14,902,191 of revenues and ended the year with a profit of EUR 15,142. Its equity capital as at 31 December 2015 equalled EUR 92,578. In 2011, the Company established together with 13 partners the Development Centre for Renewable and Sustainable Energy (ZEL-EN) with registered office in Krško, in which it holds a 11.38-percent share. In 2014, Vipap Videm Krško together with Zel-en founded the company ENOVIP, trajnostna energetika in gradnja, d.o.o. based in Krško. The Company's share in the newly founded company is 16%. The company Vipap Videm Krško d.d. included in its consolidated financial statements the statements of the subsidiaries Vipap Vertriebs und Handels GmbH and Levas Krško d.o.o. If revenues or assets of a subsidiary exceed the threshold value (5 %) of revenues or assets of the controlling company, the conditions for the inclusion of the subsidiary in the consolidated statements are met. In its books of account, Vipap Videm Krško d.d. records investments that are not subject to consolidation (Zel-en, Enovip), whereas Levas d.o.o. states an investment in Krka d.d. 2015 2014

4. Deferred tax assets in EUR 573,950 791,611

1 January

2015 decrease increase 31 December

2015 Severance payments 86,409 25,153 0 61,256 Long-service awards 20,705 7,154 0 13,551 Devaluation of long-term held-for-sale assets 55,452 0 0 55,452 Formation of value adjustments of receivables 443,691 0 443,691 Unused tax loss 0 0 0 0 Other deferred tax assets 185,354 185,354 0 0 TOTAL receivables: 791,611 217,661 0 573,950 Severance payments 29,865 15,635 0 14,230 Long-service awards 10,073 6,505 0 3,568 Revaluation of financial assets -53,471 0 -5,712 -59,183 Actuarial gains 434 0 0 434 Revaluation of land -573,949 0 0 -573,949 Revaluation of land in consolidation -67,627 -44,460 0 -23,167 TOTAL liabilities -654,675 -22,320 -5,712 -638,067 NET receivables 136,936 195,341 -5,712 -64,117


108

On the basis of the qualified auditor's opinion in the 2014 Annual Report, the Company fully derecognised the deferred tax asset arising from unused tax loss. Taking into account the current tax legislation and the Company's operating strategy for the following 5 years, there is no convincing evidence that the Company would have sufficient taxable profit in the future to utilise the tax loss. At the same time, a partial deferred tax asset arising from value adjustment due to uncollectibility was derecognised. The deferred tax asset was corrected by EUR 9,174,782 (EUR 8,929,361 due to tax loss and EUR 245,421 due to value adjustment). The Company applied the 17 % tax rate in the calculation of deferred tax assets. 2015 20145. Inventories in EUR 10,683,151 11,407,183

Inventory type


2015

Inventory

surplusesInventory

deficits

Impaired value due to change in quality

Impaired value to marketable

value Material 6,945,595 1 211 0 59,988Small inventory 5,552 0 0 0 0Unfinished products 217,459 0 0 0 704Products 3,470,621 859 1,899 0 33,671Merchandise 4,298 0 0 0 2,808Advances for inventories 39,626 0 0 0 0Total 10,683,151 860 2,110 0 97,171

In Vipap Videm Krško d.d. the inventories of materials include: recovered paper (EUR 1,445,401), basic raw materials (EUR 1,373,541), maintenance material (EUR 1,951,832), spare parts (EUR 1,426,163), energy-generating products (EUR 448,904), and other (EUR 174,901). Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 183,464) and paper intended for re-processing (EUR 33,995). The inventories of products comprise inventories of paper in reels (EUR 3,022,149) and inventories of paper in sheets (EUR 407,742). As at 31 December 2015, the Company impaired inventories of finished products as their production price was higher than the selling price. Inventories of raw materials and end products in the amount of EUR 2,000,000 were as at 31 December 2015 pledged as collateral for short-term financial liabilities. The books of account of Levas d.o.o. disclose inventories of raw materials and material in the amount of EUR 124,853, inventories of finished products totalling EUR 40,730 and inventories of goods equalling EUR 2,808. Inventories are not pledged and the book value is not higher than net realisable value.


109

2015 20146. Short-term operating receivables in EUR 10,440,239 11,595,893

Balance as at 31

December 2015

Coll.

receivables

Uncoll. receivables

Outstanding receivables

Maturity up to 1 year

Maturity of over

1 year

Value adjustment

as at 1 January

2015

Reduced adjustme

nt

Increased adjustme

nt

Value adjustment

as at 31 December

2015

Carrying amount as

at 31 December

2015

Short-term operating trade receivables 13,077,764 7,405,968 5,671,796 6,467,441 2,436,477 4,173,846 -4,708,275 749,634 -219,136 -4,177,777 8,899,987 Short-term operating receivables due from others 1,540,252 1,540,252 1,540,252 0 0 0 0 0 0 1,540,252

Total: 14,618,016 7,405,968 7,212,048 8,007,693 2,436,477 4,173,846 -4,708,275 749,634 -219,136 -4,177,777 10,440,239

Vipap Videm Krško d.d. has EUR 7,167,829 receivables pledged as collateral for loans. Vipap Videm Krško d.d. discloses in its books of account receivables of EUR 11,937,419 and adjustment thereof in the amount of EUR 4,141,304. Levas d.o.o. discloses receivables of EUR 218,966 and adjustment thereof in the amount of EUR 6,438. Vipap GmbH discloses receivables of EUR 921,379 and adjustment thereof in the amount of EUR 30,035. Vipap Videm Krško has collateralised receivables in the amount of EUR 6,457,066, whereas the respective figures of Vipap GmbH and Levas d.o.o. are EUR 860,122 and EUR 88,780. Outstanding receivables: Vipap Videm Krško d.d. EUR 6,066,066,Vipap GmbH EUR 223,780, Levas d.o.o. EUR 177,594. Overdue receivables: Vipap Videm Krško d.d. EUR 5,871,352,Vipap GmbH EUR 697,599, Levas d.o.o. EUR 41,372. 2015 2014

7. Cash in EUR 676,052 152,714

31 December

2015 1 January

2015Cash register 569 868Transaction accounts 585,483 151,846Short-term deposits 90,000 0Total: 676,052 152,714

Cash as at 31 December 2015 comprises: Vipap Videm Krško d.d. EUR 577,074, Levas d.o.o. EUR 17,927, Vipap GmbH EUR 81,051.


110

2015 2014

8. Short-term accrued revenues and deferred expenses in EUR 619,979 671,378


January 2015Establishmen

tDisbursemen

t


2015 Deferred expenses 591,467 8,404,317 -8,448,950 546,834Accrued revenues 79,911 4,858 -11,624 73,145Total 671,378 8,409,175 -8,460,574 619,979

Short-term deferred expenses of the company Vipap Videm Krško d.d. in the amount of EUR 539,057 include receivables from the state arising from VAT (EUR 478,649) and short-term deferred expenses (EUR 60,408). Short-term accrued revenues equalling EUR 73,145 comprise quantity discounts for the purchased raw and other material for 2015. Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2015. Levas d.o.o. discloses in its books of account EUR 6,268 of short-term accrued expenses (EUR 5,407 and VAT receivable claimed from the state in January 2016, and EUR 861 of costs referring to 2016). In its books of account Vipap GmbH states short-term deferred expenses of EUR 1,509. 2015 2014

9. Equity in EUR 49,211,762 55,115,171 The value of capital in the past year decreased by EUR 9,174,782 (derecognition of deferred tax assets and increase in loss from previous years – in relation to the qualified auditor's opinion in the 2014 Annual Report). At the same time, capital rose by EUR 985,424 upon winding up of the subsidiary Ekopa d.o.o. – real property was transformed to investment property and measured at fair value. Share capital of the Company comprises 1,879,800 shares with a nominal value of EUR 41.70 each. The shares are freely transferable and carry one vote each at the General Meeting of Shareholders, which takes decisions with 100 % of voting rights present. On 4 September 2008, the General Meeting of Shareholders decided that the Company’s nominal shares are to be converted into no-par value shares in the following way: each share with the nominal value of SIT 1,000 or EUR 4.17 after conversion is replaced by one no-par value share. No-par value shares are merged on the basis of a 10:1 ratio. One no-par value share is worth EUR 41.70. Treasury shares are valued at cost, which is EUR 54.065. The share capital of the Company totals EUR 78,387,660 and is divided into 1,879,800 no-par value shares. The difference in the value of EUR 55,003.99 resulting from the conversion of share capital was allocated to capital reserves.


111

in EURA. NET PROFIT FOR THE YEAR B. NET LOSS FOR THE YEAR -5,934,568C. RETAINED NET PROFIT D. NET LOSS BROUGHT FORWARD -26,606,636

- Covered net loss brought forward from previous year 0

E. DECREASE IN CAPITAL RESERVES 0F. DECREASE IN REVENUE RESERVES 0 - Decrease in other revenue reserves 0 - Decrease in legal reserves 0 - Decrease in capital reserves 0 G. INCREASE IN REVENUE RESERVES 0 - Increase in legal reserves 0 - Increase in reserves for own stakes 0 - Increase in statutory reserves 0 - Increase in other revenue reserves 0H. DISTRIBUTABLE PROFIT 0I. ACCUMULATED LOSS -32,541,204

Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -5,658,992. 2015 201410. Provisions and long-term accrued expenses and deferred revenues in EUR

1,372,830

1,596,074

Provisions

Balance as at 1

January 2015

Establishment

Disbursement

Balance as at 31

December 2015

Provisions for retirement benefits 673,117 40,424 -76,700 636,841Provisions for long-service awards 212,439 395 -38,286 174,548Total 885,556 40,819 -114,986 811,389Provisions for the costs of building decommissioning 21,073 -8,389 12,684Provisions for contingent liabilities 8,826 0 0 8,826Long-term accrued costs and deferred revenues 533,700 596,477 -723,749 406,428Long-term deferred revenues 146,919 5,301 -18,717 133,503Total: 710,518 601,778 -750,855 561,441Grand total: 1,596,074 642,597 -865,841 1,372,830

The most recent actuary calculation of provisions for severance payments and long-service awards of employees in Vipap Videm Krško d.d. was performed in 2014. Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company APIS, Andrej Šalamun s.p. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was made on 31 December 2014. The actuarial calculation of provisions for long-service awards was made on the basis of the service period with the last employer (change). The provisions for severance payments were established in line with the minimum conditions for old-age pension eligibility under the ZPIZ-2.


112

Upon retiring, the employees are entitled to severance pay in the amount of two average monthly salaries in the Republic of Slovenia for the previous three months or in the amount of two average monthly salaries of the employee in the last three months, whichever is more favourable for the employee. The growth in salary and employee fluctuation are estimated at 2% (up to 35 years – 5%; 35–45 years – 3% and over 45 years – 2.5%). The estimated nominal long-term interest rate is 3.1%. Provisions have been calculated only for full time employees. Provisions for the cost of building decommissioning include the planned costs of building decommissioning at the former chemical pulp mill. The facility is being rehabilitated gradually. In 2009 we established additional provisions arising from the planned cost of rehabilitation of these facilities in 2010. There were no changes in 2015. In Vipap Videm Krško d.d. unnecessary provisions were derecognised (EUR 31,488 for severance payments and EUR 4,251 for long-service awards). Provisions were used as follows: EUR 22,148 for severance payments and EUR 16,759 for long-service awards. Long-term accrued expenses and deferred revenues decreased by the amount of emission coupons delivered for 2014 (118,649 coupons). The carrying amount of one coupon is EUR 1. Provisions for long-term deferred revenues decreased by the accrued depreciation of donated fixed assets. Long-term deferred revenues are amounts of non-depreciated fixed assets acquired free of charge. In its books of account Levas d.o.o. discloses provisions of EUR 601,797 (EUR 201,710 for severance payments and long-service awards and EUR 400,087 of long-term accrued expenses and deferred revenues). Vipap GmbH discloses EUR 6,099, of which provisions for long-service awards amount to EUR 926 and long-term accrued expenses and deferred revenues to EUR 5,173.


113

2015 2014

11. Long-term financial liabilities in EUR 29,540,278 33,118,746

Creditor Balance as at 31 December 2015

Outstanding

Short-term maturity

Long-term maturity

Date of final maturity Interest rate

Domestic bank 731,250 731,250 22,239 709,011 31/12/2020 3-month Euribor + 4.95%

Domestic bank 2,939,995 2,939,995 89,414 2,850,581 31/12/2020 3-month Euribor + 4.95%

Domestic bank 826,086 826,086 25,476 800,610 31/12/2020 3-month Euribor + +6.10%



Domestic bank 1,653,900 1,653,900 1,653,900 0 29/06/2016 3-month Euribor + 4.95%

Domestic bank 1,580,000 1,580,000 1,580,000 0 01/05/2016 3-month Euribor + 4.95%



Domestic bank 1,467,000 1,467,000 45,252 1,421,748 31/12/2020 3-month Euribor + +6.10%







Domestic bank 1,000,000 1,000,000 30,413 969,587 31/12/2020 3-month Euribor + 4.95%

Total 24,637,649 24,637,649 4,096,520 20,541,129 Loan from a foreign Group company 1,000,000 1,000,000 0 1,000,000

31 December 2016

3-month Pribor 3.85%

Loan from a foreign Group company 9,841,282 9,841,282 1,849,865 7,991,417

31 December 2016

3-month Pribor 3.85 %

Other short-term financial liabilities 207,844 207,844 200,112 7,732

Total 35,686,775 35,686,775 6,146,496 29,540,278

The fair value of loans raised is equal to their carrying amount. Long-term loans (including the portion falling due in 2016 in the amount of EUR 4,096,520) total EUR 24,637,649. As at 31 December 2015, long-term loans to Group companies totalled EUR 8,991,417 and short-term loans EUR 1,849,865. The final due date of these liabilities is 31 December 2016 and the interest rate is 3M Pribor + 3.85%. Other short-term financial liabilities comprise liabilities to the factoring company (EUR 200,112). Levas d.o.o. disclosed EUR 7,732 of liabilities to the lessor, falling due in 2017 and later.


114

Long-term financial liabilities to banks and the Group company are collateralised by means of pledged fixed assets, trade receivables and pledged inventories of raw materials and end products. 2015 201412. Short-term financial liabilities in EUR 6,745,945 1,583,582

Creditor

Balance as at 31

December 2015 Outstanding Date of final maturity Interest rate (%)












Domestic bank 8,692 8,692 31 December 2016 3-month Euribor + +4.95%






Foreign bank 594,561 594,561

Short-term portion of long-term loans 4,691,081 4,691,081

Loan from a foreign Group company 1,849,865 1,849,865 11/05/2016 5.0%

Other short-term financial liabilities 200,111 200,111

Short-term liabilities to lessor 4,888 4,888

Total 6,745,945 6,745,945 Short-term financial liabilities to banks and the Group company are collateralised by means of pledged fixed assets, trade receivables and pledged inventories of raw materials and end products. The fair value of loans raised is equal to their carrying amount. The short-term portion of long-term loans stands at EUR 6,146,496. The short-term portion of other financial liabilities is EUR 200,111. Short-term financial liabilities disclosed by Vipap GmbH total EUR 594,561 and that of Levas d.o.o. EUR 4,888.


115

2015 2014

13. Short-term operating liabilities to suppliers in EUR 23,049,658 26,010,349 - in Slovenia 14,146,829 14,943,596 - abroad 8,845,891 10,931,543 - accrued goods and services 56,938 135,210 Total 23,049,658 26,010,349

As at 31 December 2015, the Company had liabilities due in Slovenia in the amount of EUR 3,830,143 and outstanding liabilities in the amount of EUR 8,769,827. In the structure of liabilities abroad, EUR 3,246,604 were due and EUR 5,593,768 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 394,254) and Vipap Vertriebs und Handels GmbH (EUR 972,594), disclosed under liabilities to Group companies. Levas d.o.o. discloses EUR 343,077 of liabilities to suppliers in Slovenia, EUR 6,519 of liabilities to suppliers abroad. Overdue liabilities totalled EUR 148,787 and outstanding liabilities equalled EUR 200,809. Vipap GmbH has EUR 1,203,782 of operating liabilities to suppliers, of which EUR 611,969 past due and EUR 591,813 outstanding.

2015 2014

14. Other short-term operating liabilities in EUR 1,539,524 1,885,416 In Vipap Videm Krško d.d. other short-term operating liabilities equalling EUR 1,367,041 comprise liabilities for interest (EUR 345,704), liabilities for salaries 12/2015 (EUR 356,128) and the related liabilities for contributions arising from salaries (EUR 125,144), liabilities for employer contributions (EUR 90,001), payroll tax liabilities (EUR 71,279), liabilities for other employment earnings (EUR 43,160), VAT liabilities payable in January 2016 (EUR 218,672), and other liabilities (EUR 116,953). Levas d.o.o. disclosed other short-term operating liabilities in the amount of EUR 123,995. These comprise: liabilities for salaries 12/2015 (EUR 72,581) and the related liabilities for contributions arising from salaries (EUR 1,107), payroll tax liabilities (EUR 7,802), liabilities for other employment earnings (EUR 15,136), VAT liabilities payable in January 2016 (EUR 21,309), and other (EUR 6,060). The financial statements of Vipap GmbH disclose EUR 49,648 of other short-term operating liabilities.


116

2015 2014

15. Short-term accrued expenses and deferred revenues in EUR 1,022,233 784,825



Balance as at 31

December 2015

Accrued expenses 637,884 1,380,395 1,231,665 786,614Short-term deferred revenues 146,941 109,526 20,848 235,619Total: 784,825 1,489,921 1,252,513 1,022,233 Short-term accrued expenses and deferred revenues of Vipap Videm Krško d.d. in the amount of EUR 985,460 comprise costs that will arise as liabilities in 2016 or for which we will receive assessment decisions in 2016, namely: unused annual leave for 2015 (EUR 291,561), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2015 (EUR 55,063), calculated liabilities for CO2 emission for 2015 in the amount of EUR 284,555, and liabilities arising from sales-dependant costs (EUR 118,493), and other (EUR 1,841). Short-term deferred revenues comprise interest charged to customers in relation to which revenue is recognised upon payment (EUR 233,947).

Short-term accrued expenses and deferred revenues of Levas d.o.o. amount to EUR 36,773, of which unused annual leave for 2015 (EUR 32,821), VAT on advances made (EUR 1,672) and accrued liabilities for 2015 (EUR 2,280).


117

2015 2014

16. Net sales revenues in EUR 91,603,883 94,495,694

2015 2014

Slovenia 4,075,894 3,974,689Austria 12,683,807 12,429,091Italy 18,586,436 19,299,730Germany 7,768,734 12,313,645Serbia 7,298,485 8,939,345France 630,899 1,154,590Turkey 7,784,609 567,149Bulgaria 3,838,733 4,253,035Croatia 4,690,344 3,549,507Switzerland 1,160,114 1,368,937Greece 871,015 1,282,404Montenegro 1,287,261 1,244,743Czech Republic 639,810 777,083Slovakia 1,447,835 2,226,940Hungary 5,708,524 8,123,068Romania 925,484 0Albania 868,418 1,011,191Poland 42,073 0Macedonia 1,701,839 2,132,110Great Britain 4,723,168 2,946,418Kosovo 436,920 515,638Bosnia and Herzegovina 2,200,677 2,905,868Belgium 28,290 34,648The Netherlands 89,037 0Malta 634,983 0Singapore 473,550 0Spain 32,033 0Other countries 27,806 1,195,016Other 947,105 2,250,849

Total 91,603,883 94,495,694

Breakdown of revenues by business area 2015 2014 Sales of paper 90,656,778 92,244,845Other 947,105 2,250,849

Total 91,603,883 94,495,694


118

Following the elimination of intragroup revenues of companies subject to consolidation, the company Vipap Videm Krško d.d. generated EUR 81,923,909 of revenues, Levas Krško d.o.o. EUR 1,449,024 and Vipap GmbH EUR 8,206,704. 2015 201417. Other operating income in EUR 912,076 959,297 Other operating income of Vipap Videm Krško d.d. comprises income from reversal of provisions (EUR 55,194), other income associated with products (EUR 85,887), income from sale of fixed assets (EUR 7,803), and revaluation operating income arising from bad and doubtful debt settled (EUR 106,332). At Levas d.o.o., other operating income totalling EUR 591,406 comprises ceded assets for salaries paid in the disabled enterprise (EUR 417,313), subsidies of the Fund of the Republic of Slovenia for the Promotion of Employment of Disabled Persons (EUR 32,260), the use and reversal of ceded assets for depreciation of fixed assets in the amount of EUR 125,074, the reversal of provisions for long-service awards and severance payments in the amount of EUR 11,260 and operating income from revaluation of EUR 5,499. Vipap Gmbh discloses EUR 65,454 of income under this item. 2015 201418. Costs of services in EUR 10,358,514 9,818,235 Cost of transport services 4,171,550 3,790,905Costs of fixed asset maintenance 1,755,381 1,913,196Costs of payment transactions, banking services and insurance 719,128 873,057Cost of intellectual and personal services 484,255 412,346Contract-based work, author's contracts, session fees 404,357 167,960Rents 462,283 447,498Costs of trade fairs, advertising and entertainment 22,815 27,904Costs of services arising from production and provision of services 94,101 40,876Reimbursement of employee work-related costs 30,999 54,519Costs of auditing the annual report 24,780 24,780Other service expenses 2,188,865 2,065,194Total 10,358,514 9,818,235

Following the elimination of intragroup expenses of companies subject to consolidation, the company Vipap Videm Krško d.d. posted EUR 9,519,503 of costs of services, while the respective figure of Levas Krško d.o.o. was EUR 146,432 and of Vipap GmbH EUR 92,513.


119

2015 201419. Labour costs in EUR 10,807,289 11,866,302 Costs of salaries and wages 7,314,034 8,077,424Pension insurance costs 796,312 864,639Cost of other social insurance 606,649 649,174Other labour costs 2,053,561 1,912,288Provisions for severance pay and long-service awards 36,733 362,777Total 10,807,289 11,866,302 In Vipap Videm Krško d.d. labour costs amounted to EUR 8,994,678, in Levas d.o.o. to EUR 1,719,392 and in Vipap GmbH to EUR 93,219.

2015 2014

20. Other operating expenses in EUR 1,357,427 1,417,193 Other operating expenses of Vipap Videm Krško d.d. totalling EUR 1,340,117 include: environment protection expenses (EUR 814,972), compensation for the use of building land (EUR 480,142), bonuses to students in practical training (EUR 4,327), contributions and membership fees (EUR 28,386), and other expenses (EUR 12,290). Levas d.o.o. disclosed other operating expenses in the amount of EUR 17,310. 2015 201421. Financial revenues from operating receivables in EUR 96,218 113,982 Foreign exchange gains 56,232 30,227Interest income 39,986 83,755 Total 96,218 113,982

Financial revenues from operating receivables comprise: Vipap Videm Krško d.d. EUR 75,490, Levas d.o.o. EUR 1,843 and Vipap GmbH EUR 18,885.

2015 2014

22. Financial expenses for financial liabilities in EUR

2,119,640 2,613,888 Financial expenses for financial liabilities of Vipap Videm Krško d.d. in the amount of EUR 2,064,648 include interest on loans (EUR 1,803,261), exchange rate differences from long-term financial liabilities (EUR 221,892) and exchange rate differences from other financial liabilities (EUR 39,495).


120

Levas d.o.o. discloses EUR 340 and Vipap GmbH EUR 54,652 EUR of financial expenses for financial liabilities. 2015 201423. Financial expenses for operating liabilities in EUR 155,767 166,255 In Vipap Videm Krško d.d., financial expenses for operating liabilities totalling EUR 148,565 comprise interest on operating liabilities (EUR 127,202) and exchange rate differences arising from receivables and liabilities (EUR 21,363). At Levas d.o.o this item amounts to EUR 7,202.

2015 201424. Other income in EUR 361,727 132,290

Other revenues of Vipap Videm Krško d.d. totalling EUR 360,262 include: compensation of VAT receivable arising from the sales of cellulose equipment in 2015, which was in 2014 disclosed as expense (EUR 218,150), compensation received (EUR 110,857), revenue from unpaid liability to a wound-up company (EUR 21,988), subsidies (EUR 9,189) and other (EUR 78). At Levas d.o.o this item amounts to EUR 1,465. 25. Derivative financial instruments As at 31 December 2015, the Company disclosed the following derivatives:

o For the purpose of currency risk hedging, a futures contract was concluded for the purchase of CZK 26 million at pre-determined rate (for repayment of loan principal). As at 31 December 2015 the outstanding part of the futures contract amounted to CZK 13 million.

In 2015, the Company disclosed financial expenses in the amount of EUR 6 thousand arising from implemented cross currency swap agreement (CCS). 26. Corporate income tax In 2015, Vipap Videm Krško d.d. recorded a tax loss of EUR 5,794,297, whilst Levas Krško d.o.o. recorded neither tax profit nor tax loss. In the statement of comprehensive income for 2015 Vipap GmbH discloses EUR 5,053 of corporate income tax.


121

27. Performance indicators

31 December 2015

31 December 2014

Equity financing rate equity / liabilities 0.43 0.46

Long-term financing rate capital + long-term liabilities (including long-

term provisions) / liabilities 0.71 0.75

Operating fixed assets rate fixed assets / assets 0.76 0.77

Long-term investment rate

fixed assets + long-term financial assets + investment property + long-term operating

receivables) / assets 0.80 0.80

Equity to operating fixed assets ratio capital / fixed assets 0.57 0.58

Acid test ratio liquid assets / short-term loans 0.02 0.01

Quick ratio (liquid assets + short-term receivables +

short-term financial assets) / short-term debt 0.35 0.40

Current ratio current assets / short-term liabilities 0.71 0.80

Operating efficiency ratio operating revenues / operating expenses 0.96 0.97

Net return on equity net profit – income tax / average capital -0.11 -0.18

Net return on share capital net profit for the financial year / average

share capital -0.08 -0.17

Annual Repod of Vipap Videm Kr$ko d.d. for 2S15

3. CONTINGENT LIABILITIES

Vipap Videm Kr5ko d.d. guarantees for the liabilities of Vipap Vertriebs und Haridels GrnbH toFactorbank AG in the amount of EUR 2 million.

4. SIGNIFICANT EVENTS AFTER THE END OF THE 2OI5 FINANCLAL YEAR

The IBR drafted bythe consulting firm EY, which was selecfed by banks and Pribko and Imob as

consultant in financial restructuring and further related activities. The procedure is planned to becompleted in June 2016. By then, the Company has agreed on stand still against existing loansrepayments.

On 16 March 2016, the Supervisory Board appointed Stefan Eibl-T0r6k President of theManagemenl Board and CEO.

Kr5ko.25 March 2016

Vice-President of the Manaqement Board: President of the Management Board:

JoZi Eihl-Tctr$k

e,fiU<

5. INDEPENDENT AUDITORS REPORT

/

lnz

I il] f Revizija in svetovanje d.o.p.Vl f $ Revizijska druiba / Certified Auditorsv

To the Shareholders ofvrPAP vrDEM rnSro a.a.Kr5ko, Slovenra

INDEPENDENT AUDITOR'S REPORT

UHY Revizija in svetovanje d.o.oVurnikova ulica 21 000 Ljubljana, Slovenijatel.: +386 1 300 00 40fax: +386 1 300 00 50e-mail: [email protected]

We have audited the accompanying consolidated financial statements of the company VIPAP VIDEM KRSKO

d.d., Kr5ko and its subsidiaries which comprise the consolidated statement of financial position as atDecember 31 ,2015, and the consolidated statement of comprehensive income, consolidated statement ofchanges in shareholder's equity and consolidated statement of cash flows for the year then ended, and a

summary of significant accounting policies and other explanatory information. We have also reviewed theousrneSS reporu.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in

accordance with Slovene Accounting Standards and for such internal control as management determines is

necessary to enable the preparation of financial statements that are free from material misstatement, whetherdue to fraud or error.

Auditor's Respo nsi hilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted ouraudit in accordance with the International Standards on Auditing. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risk of material misstatements of the financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentationof the financial statements in order to desrgn audit procedures that are appropriated in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respect, the consolidatedfinancial position of the company VIPAP VIDEM KRSKO d.d., KrSko and its subsidiaries as at December 31,

2015, and its consolidated financial performance and its consolidated cash flows for the year then ended tn

accordance with Slovene Accountinq Standards.

Emphasis of MatterWithout qualifying our opinion, we would like the users of financial statements to note that in order to create a

full picture of the company's business performance and its financial soundness along with the related

uncertainties, one has to carefully read not only the numerical presentation but also the notes to the financialstatements under point 2.2 (4, 11,12 13, 29) and point 4 as well as the explanations made in the business

report under points 1.1 and ll.8 whrch specify the balance sheet's horizontal financial structure, the structure ofaccounts payable, the events after the balance sheet date, an analysis of business performance in the currentyear and the management's plans for the company's future operations. Short-term liabilities significantly exceed

current assets. Solvency of the company importantly depends on the possibility of concluding an agreementwith financial creditors regarding restructuring loans and the restructuring of the company's business. In case offailure, that situation may arouse doubts about the ability of the company to continue operating as a goingconcern. Our opinion regarding the emphasized matters has not been qualified.

register revizijskih dru:b: RD-A-073/05

ali katerikoli drugi ilan ne odgovarja za storitve drugih ilanov.

I

:.

Other legal and Regulatory RequirementsThe company's annual report does not reveal information relating to the remuneration of members ofmanagement and supervisory body in the manner prescribed by the fifth paragraph 2941h article of the

Companres Act.The business report complies with the audited financial statements.

UHY Revizija in svetovanje d.o.o.

Franci ZgajnarCertified auditor \

Ljubljana, 25th March 2016

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ru;ntr fierlziia in mtovanie ury

UllU Hi:iii,i?iY::?Ju"je d o o

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Documents

ANNUAL REPORT 2015 VIPAP VIDEM KRŠKO2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP The VIPAP Group consists of the parent company Vipap Videm Krško d.d. and related companies: