Click here to load reader

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:

  • View
    0

  • Download
    0

Embed Size (px)

Text of ANNUAL REPORT 2015 VIPAP VIDEM KRŠKO2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP The...

  •   

       

                 

    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

    3

    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 

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

    4

    I. INTRODUCTION

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

    5

    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

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

    6

    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

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

    7

    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

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

    8

    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.

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

    9

    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.

    Organisational form Limited liability company

    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.

    Organisational form Limited liability company

    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.

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

    10

    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.

    Organisational form Limited liability company

    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.

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

    11

    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

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

    12

    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.

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

    13

    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

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

    14

    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

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

    15

    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.

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

    16

    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.

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

    17

    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

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

    18

    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 theSlovenian Accounting Standards and the Companies Act.1'hc Managemsnt Board approves the Business ltepurt and rhc financial stfltements rvith notesfor 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 all

    changes to these accounting policies,r aecounting assessments have been prepared in accordance with the principles of fairness

    and prudence and with the diligence of a good managet,r the financial statements havs been compiled in line with the applicable legislation and the

    Slovenian 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

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

    20

    II. BUSINESS REPORT

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

    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 2015Operating profit/loss for the period -3,925 -3,018 -6,037

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

    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

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

    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.

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

    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 2015Investment value 1,960 2,513 731

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

    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.

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

    26

    Financial indebtedness of the Company by year EUR 000 2013 2014 2015Financial 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 2015Return on equity in % -5.9 -4.7 -12.5Return on assets in % -3.0 -2.4 -5.4EBITDA in EUR thousand 5,564 5,906 2,916

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

    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

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

    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 15/14Paper production in t 193,948 197,745 102Fibre production in t 192,363 195,844 102Total 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 2015Integration rate in % 90 93 94 93 95 97 99 99

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

    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.

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

    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

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

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

    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

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

    31

    Wrapping packaging papers, their application and characteristics Paper grade Application Printing technique Grammage g/m2 Environmental

    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

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

    VIPACK C R

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

    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

    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 70 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 70 H 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 76 R

    wrapping packaging, printing

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

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

    VIP FLEX 76 H R

    wrapping packaging, printing

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

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

    VIP FLEX 80 R

    wrapping packaging, printing

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

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

    VIP FLEX 80 H R wrapping packaging, printing

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

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

    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

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

    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

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

    33

    Newsprint, its application and characteristics

    Paper grade Application Printing technique Grammage g/m2 Environmental 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

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

    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 15/14Paper machine 1 59,439 57,399 97Paper machine 2 66,393 70,088 106Paper machine 3 68,116 70,258 103Total 193,948 197,745 102

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

    35

    Structure of paper production by year in t 2013 2014 2015Newsprint 160,041 168,339 170,715Publication paper 33,284 22,642 18,489Wrapping packaging papers 39 2,967 8,541Total 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 110Total 192,363 195,844 102

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

    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.

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

    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 383Total 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.

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

    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.

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

    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.

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

    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.

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

    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.

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

    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 731Total 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).

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

    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

    479519 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

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

    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.

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

    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

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

    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.

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

    47

    III. SUSTAINABLE DEVELOPMENT REPORT

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

    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

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

    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,

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

    50

    handling of dangerous substances, efficient use of water, energy, raw materials and natural resources. On 30 December 2014 the Company rene