Annual Report of Vipap Videm Krško d.d. for 2013 · 2019. 12. 13. · Annual Report of Vipap Videm Krško d.d. for 2013 5 1. EXPLANATION BY THE MANAGEMENT BOARD ABOUT THE OPERATIONS

Annual Report of Vipap Videm Krško d.d. for 2013

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TABLE OF CONTENTS

I. INTRODUCTION ..........................................................................................................4 1. EXPLANATION BY THE MANAGEMENT BOARD ABOUT THE OPERATONS OF THE COMPANY VIPAP

AND THE VIPAP GROUP ............................................................................................................................5 2. PRESENTATION OF THE COMPANY VIPAP AND THE VIPAP GROUP ....................................................6 3. KEY ACHIEVEMENTS OF THE CONTROLLING COMPANY...................................................................10 4. MAJOR EVENTS IN 2013 ......................................................................................................................10 5. RISK MANAGEMENT ............................................................................................................................11 6. VISION AND MISSION .........................................................................................................................13 7. CORPORATE GOVERNANCE STATEMENT ...........................................................................................14

II. BUSINESS REPORT ................................................................................................17 1. PERFORMANCE ANALYSIS OF THE CONTROLLING COMPANY.........................................................18 2. PRODUCTION.......................................................................................................................................24 3. SALES....................................................................................................................................................28 4. PURCHASING.......................................................................................................................................31 5. RESEARCH & DEVELOPMENT ACTIVITIES.............................................................................................31 6. INVESTMENT ACTIVITIES ......................................................................................................................35 7. EMPLOYEES..........................................................................................................................................36 8. EXPECTATIONS FOR 2014....................................................................................................................38

III. SUSTAINABLE DEVELOPMENT REPORT ............................................................41 1. INTRODUCTION ...................................................................................................................................42 2. ENVIRONMENTAL POLICY – BUSINESS EXCELLENCE..........................................................................42 3. RESPONSIBILITY TOWARDS THE NATURAL ENVIRONMENT .................................................................48 4. RESPONSIBILITY TOWARDS THE LOCAL AND BROADER SOCIAL COMMUNITY.................................51

IV. FINANCIAL REPORT OF THE COMPANY VIPAP VIDEM KRŠKO D.D................53 1. FINANCIAL STATEMENTS .....................................................................................................................54

1.1. BALANCE SHEET AS AT 31 DECEMBER 2013........................................................................................ 54 1.2. STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013 ..................................................................................................................................... 56 1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013... 57 1.4. STATEMENT OF CHANGES IN EQUITY FOR 2013 .................................................................................. 58 1.5. STATEMENT OF CHANGES IN EQUITY FOR 2012 .................................................................................. 59

2. APPENDIX TO THE FINANCIAL STATEMENTS .......................................................................................60 2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ..................................................................................... 60 2.2. NOTES TO THE FINANCIAL STATEMENTS ................................................................................................ 63

3. CONTINGENT LIABILITIES.....................................................................................................................77 4. SIGNIFICANT EVENTS AFTER THE END OF THE 2013 FINANCIAL YEAR...............................................78 5. INDEPENDENT AUDITOR'S REPORT ......................................................................................................78

V. FINANCIAL REPORT OF THE VIPAP GROUP .......................................................81 1. FINANCIAL STATEMENTS .....................................................................................................................82


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1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2013 ........................................................ 82 1.2. CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013 ........................................................................................................ 84 1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013................................................................................................................................................. 85 1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2013................................................... 86 1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2012................................................... 87

2. APPENDIX TO THE FINANCIAL STATEMENTS .......................................................................................88 2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ..................................................................................... 88 2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS................................................................. 93

3. CONTINGENT LIABILITIES...................................................................................................................108 4. SIGNIFICANT EVENTS AFTER THE END OF THE 2013 FINANCIAL YEAR.............................................109 5. INDEPENDENT AUDITOR'S REPORT ....................................................................................................109


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I. INTRODUCTION


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1. EXPLANATION BY THE MANAGEMENT BOARD ABOUT THE OPERATIONS OF THE COMPANY VIPAP AND THE VIPAP GROUP The year 2013 was very demanding for the Company, both in terms of ensuring competitive production and market activities. The Company pursues global trends and responds to the changes and trends in the supply and demand on the markets of paper, raw materials (waste paper) and energy sources. In spite of the global drops in demand for paper, the Company has had no significant problems in selling the available paper capacity and adapting the production structure to increasingly demanding customers. Owing to the decreased demand for paper in Western Europe (4%), the Company has been more and more focusing on the markets of Eastern Europe and the Far East, where the demand for paper is still growing (2-3%); the increase is projected in the future as well. Activities aimed at winning new markets and developing new products (wrapping packaging papers and technical papers) are a constant in the Company. The year 2013 was demanding also in terms of adjustment of the production process to the said activities. New trends in the waste paper quality, the use of which has been growing from one year to the next, lead to poorer mechanical characteristics of this raw material. At the same time, the increased demand for improved newsprint (lower grammage) resulted in a smaller quantity of waste paper of appropriate quality. Due to the Company's liquidity problems we had to downsize production in the first half of the year. By implementing measures to optimise production processes and remedy defects and unplanned halts, we by the end of the year eliminated the problems that prevented greater efficiency of paper and fibre production (mainly waste paper recovery). The Company's investments were moderate (EUR 1.9 million), involving mainly major maintenance. New investments were made in the scope of the annual overhaul in August (the investment in the equipment for waste paper recovery in the amount of EUR 848 thousand), whereby daily availability of fibre (deiking) for paper production as well as energy efficiency of the equipment increased. The Company is an energy-intensive enterprise, as the cost of energy accounts for as much as 22% of the total. An additional burden (RES contribution), which was introduced at the start of the year, greatly influenced the decrease in competitiveness and the rise in costs (EUR 490 thousand). The investments to increase production efficiency mostly also result in greater energy efficiency of production. The Company was successful in managing its fixed costs as these dropped by 5% compared to the plan owing to stabilisation measures. In spite of the lower indebtedness, the costs of financing remained at the previous year's level because of high interest rates. Due to additional financing in December, the indebtedness level grew at the end of the year. The Company repaid loans according to contractual credit obligations (EUR 4.7 million). The liquidity problems during the year, reflected in longer payment deadlines, significantly influenced the higher purchasing prices of the major raw materials (waste paper, chemicals and wood), which was reflected in higher production costs. The number of employees decreased by 2% compared to the previous year. At the end of the year, the parent company had 375 employees and the Vipap Group 477 employees. At the end of the year, the scope of production staff training chiefly increased within the Competence Centre (KoCPI). During the year the Company obtained a certificate evidencing sustainable management of wood and wood products (FSC® certificate). The Company's and Group's financial results are negative owing to the said facts, i.e. EUR 3.9 million and EUR 3.7 million respectively. Despite the loss, free cash flow amounted to EUR 5.5 million. By stabilising production quality and eliminating bottlenecks in the production of fibres and paper, the Company generated conditions for significantly greater efficiency and cost-competitive operations in the following year.

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: Ekopa d.o.o., Levas Krško d.o.o., ZEL-EN d.o.o. and Vipap Vertriebs und Handels GmbH. Ekopa d.o.o. was not active in 2013. Related parties transactions are multi-tier. Name Country

Type of connection

% of connection

Ekopa d.o.o. SLO Direct equity 100.00 Vipap Vertriebs und Handels GmbH

AUT Direct equity 100.00

Levas Krško d.o.o. SLO Direct equity 96.59 ZEL-EN d.o.o. SLO Direct equity 11.38

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:

ZEL-EN d.o.o.

Ekopa d.o.o.

100% stake

100% stake

Vipap Vertriebs und

Handels GmbH

11.38% stake

3.5% treasury shares

MINISTRY OF FINANCE OF THE CZECH REPUBLIC

VIPAP VIDEM KRŠKO D.D.

controlling company

Levas Krško d.o.o.

96.59% stake

96.5% stake


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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 Production of Paper and Fibres Plc.) VIPAP VIDEM KRŠKO d.d.

Registered office Tovarniška ulica 18

Activity

Production of paper (newsprint and graphic papers) and fibres (deinked pulp and groundwood)

Ownership

Ministry of Finance of the Czech Republic

Share capital

EUR 78,387,660

Total assets EUR 130,726,426

Nominal value of share

EUR 41.70

Company identification number

SI 23087226

Company registration number

5971101

President of the Management Board

Miloš Habrnál

Other members of the Management Board

Jožica Stegne – Vice-President of the Management Board, Dušan Vaněk, Ladislav Kristančič, and Dragan Kranjc

Chairwoman of the Supervisory Board

Eva Anderová

Other members of the Supervisory Board

Miroslav Lébl, Franc Kukovičič, Zoran Župevc

Employees

375 (31 December 2013)

Sales in 2013

194,046 tonnes of paper

Paper production in 2013 193,364 tonnes of paper

Fibre production in 2013 169,439 tonnes of deinked pulp (DIP) and 18,837 tonnes of groundwood (TGW)

Subsidiaries

Ekopa d.o.o., Levas Krško d.o.o., ZEL-EN d.o.o. and Vipap Vertriebs und Handels GmbH

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 and graphic paper, 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 375 people. The bodies of the Company are: the Shareholders’ Meeting, the Supervisory Board, and the Management Board. The five-member Management Board is led by Miloš Habrnál. The five-member Supervisory Board is chaired by Eva Anderová. The General Meeting is led by Miloš Habrnál. The related company Ekopa d.o.o. in brief Company name Abbreviated company name

Ekopa zbiranje, sortiranje in odkup odpadnega papirja d.o.o. (Ekopa, Collection, Sorting and Purchase of Waste Paper Ltd.) Ekopa d.o.o.

Registered office Tovarniška ul. 18

Activity

Collection, sorting and purchase of waste paper

Ownership

100% Vipap Videm Krško d.d.

Organisational form Limited liability company

The company Ekopa d.o.o. is presently not engaged in activity. The Company's procurator is Milena Humar. 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

96.59% Vipap Videm Krško d.d.


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 100 employees, of whom 53 holding the status of a disabled person. The bodies of the Company are: the Shareholders’ 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. In 2013, the company changed its registered office, but apart from that it operated without disturbance. 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 part-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 Hočevarjev trg 1

Activity

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 entire 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 2013, the business unit Vipap Zel-en employed 5 people. At the end of the year, the Vipap Group had 477 employees.


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3. KEY ACHIEVEMENTS OF THE CONTROLLING COMPANY

2010

2011

2012

2013

Index 13/ 12

Financial data Net sales revenues (in EUR thousand) 91,402 105,779 100,464 95,351 95 Operating profit/loss (in EUR thousand) (11,748) (1,149) 2,941 (1,531) Profit or loss for the period (in EUR thousand)

(8,748) (2,549) 76 (3,925)

Investment activities Value of investments (in EUR thousand) 1,465 1,220 1,299 1,960 151 Performance indicators Value added per employee (in EUR thousand)

25 47 57 43 75

Revenues per employee (in EUR thousand)

211 268 259 251 97

EBITDA -3,663 7,144 10,814 5,564 51 Sales data Quantity of paper sold 196,866 200,201 196,789 194,046 99 Production data Quantity of paper produced (in tonnes) 196,669 201,879 199,325 193,364 97 Quantity of deinked pulp production (in tonnes)

164,017 169,939 167,509 169,439 101

Quantity of groundwood production 20,160 18,550 21,295 18,837 88 Data on employees Number of employees (as at 31 December) Average number of employees

411 434

389 395

382 388

375 380

98 98

4. MAJOR EVENTS IN 2013 January 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 23 January 2013, the Slovenian Accreditation carried out the third supervision in the second assessment period. The assessment was successful. May On 28 May 2013 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 2012 Annual Report 3. Appointment of the auditor for the 2013 financial year (audit company UHY Revizija in

svetovanje d.o.o., Vurnikova cesta 2, Ljubljana) 4. Any other business


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July On 10 July 2013 the Company acquired the FSC CoC Certificate for all products, the entire production of graphic publication and newsprint papers that fulfil the requirements of the FSC series standards, proving that the Company has been responsibly and sustainably managing wood and wood products. October At the traditional, ninth marketing conference, which was on 24 and 25 October organised in Podčetrtek, we again hosted business partners from the entire Europe – major customers of our papers and our sales agents. We presented the results achieved and projections for the current year, along with the plans for the following year and novelties in new product development. The discussions held in between lectures were after the conference followed by talks within small groups. It again turned out that such annual meetings are beneficial to us and to agents who market our products all over Europe. The conference represents a direct contact with agents, buyers and printers, which is important both in terms of the Company's sales and development. November

o We actively participated in the preparation and implementation of the international meeting of the Slovenian paper industry (the 17th Day of the Slovenian Paper Industry and the 40th 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). The theme of this year's meeting was "New Times for the Traditional Paper Industry".

o On 15 November 2013 the General Meeting of Shareholders of the company Vipap

Videm Krško d.d. was convened, with the following agenda: 1. Election and appointment of the working bodies of the General Meeting 2. Supervisory Board changes

o On 22 November 2013, the integral environmental permit evidencing the Company's

compliance with the requirements imposed by the environmental legislation regarding all environmental elements was amended and expanded.

o On 26 November 2013 we obtained and expanded the EU Ecolabel for 5 products.

These products meet the requirements and ecological conditions from the EU regulation on copying and graphic paper stipulated in Commission Decision 2011/333/EU.

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.


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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. In 2013, the Company again organised the annual market conference for its business partners to be able to respond to the needs and demands of the market 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 purchasing 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 End products of the Company have to be high quality. The Company 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, presently those based on recycled fibres. Recently, a greater emphasis has been on the development of wrapping packaging paper. 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 in cooperation with the production sector and the 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 priority 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 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. 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.


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Financial risks Foreign exchange risk Owing to global business, Vipap Videm Krško d.d. is exposed to the risk arising from exchange rate fluctuations, especially EUR/USD exchange rate. The Company exports to USD markets. In 2013, the exchange rate was slightly fluctuating. At the beginning of the year the US dollar was appreciating, but started moderately depreciating and at the end of the year dropped to the level similar to that recorded at the start of the year. The prices of raw materials are mainly set in EUR, with the exception of coal, the price of which is in USD. Interest rate risk In 2013, 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. In 2013, the Company experienced liquidity problems. At the end of the year it raised two loans to finance current operations. Thus it bridged the short-term liquidity gap, settled the most critical trade payables and secured itself better business terms with suppliers.

In the short term, the Company ensured solvency through weekly, monthly, semi-annual and annual planning of cash flows, and by renewing old and obtaining new short-term credit lines with banks as well as rescheduling long-term loans. We assess that in 2013 the liquidity risk was managed, owing to appropriate cash flow planning.

In 2013, we settled all liabilities in accordance with annuity plans for the repayment of long-term loans to banks and other financial institutions. 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.


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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.

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:

Management Board Supervisory Board General Meeting of Shareholders

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 from liability to the members of the management and 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.


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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. 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: Eva Anderová – Chairwoman of the Supervisory Board Miroslav Lébl – member Employees' representatives: Franc Kukovičič – member Zoran Župevc – member The Company's Management Board Vipap Videm Krško d.d. is managed by a five-member Management Board, which is appointed by the Supervisory Board. The Company's Management Board: Miloš Hábrnal – President Jožica Stegne – Vice-President Dušan Vaněk – member Ladislav Kristančič – member Dragan Kranjc – 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.


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Statement of the Management Board's responsibility

The Management Board of the company Vipap Videm Krško d.d. is responsible for the preparation of the Company’s annual report and financial statements that give a true and fair view of the Company’s financial position and operating results for 2013 in accordance with the Slovenian Accounting Standards and the Companies Act. The Management Board approves the Business Report and the financial statements with notes for the year ended 31 December 2013 and declares that:

the financial statements have been compiled on a going concern basis, the Company consistently applied the selected accounting policies and disclosed all

changes to these accounting policies, the accounting estimates have been prepared in accordance with the principles of

fairness and prudence and with the diligence of a good manager, the financial statements have been compiled in compliance with the applicable

legislation and the Slovenian Accounting Standards.The management is responsible for the adoption of adequate measures to protect the Company’s assets as well as to prevent and detect fraud and other irregularities.

Vice-President of the Management Board

Jožica Stegne

Member

Dušan Vaněk

Member

Ladislav Kristančič

Member

Dragan Kranjc


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II. BUSINESS REPORT


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1. PERFORMANCE ANALYSIS OF THE CONTROLLING COMPANY

OPERATING RESULTS The Company ended the year 2013 with a loss of EUR 3.9 million.

We have not had the most successful financial year. The stringent situation on the financial market, the unfavourable trends in the paper industry and technological problems in production in the middle of the year resulted in the Company recording a net loss for the period in the amount of EUR -3.9 million. This operating result does not meet the expectations, but all our efforts to ensure adequate liquidity and to improve production and business results already proved to be positive at year-end. In spite of the poorer performance in 2013, we can be optimistic due to the results of all activities in the second half of 2013. We know that we succeeded in streamlining operations at the end of the year, stabilising production and increasing the level of product competitiveness, which is a good starting point for the following year.

Net profit/loss for the period, by year

in EUR thousand 2011 2012 2013 Operating profit/loss for the period -2,549 76 -3,925

In the middle of the year the Company had some problems in production owing to unplanned downtime, resulting in production being 4% below the plan. The poor financial situation caused by the problems in the banking sector and, consequently, the limited funds for financing new investments in technological modernisation of production and the implementation of measures to eliminate technical problems and restructure production in view of the changed market situation have caused the production efficiency to lag behind the plan. Operating conditions on the raw material purchasing market were more favourable, as the prices of the main raw materials (waste paper, chemical pulp) were lower than the year before. The costs of energy increased owing to the introduction of additional taxes, leading to a higher price of electricity. Operating conditions on the sales market were extremely unfavourable. The drop in demand was reflected in the Company in 3–7% lower prices of newsprint and graphic papers as compared to the year before. The European paper industry responded to the drop in demand by shutting down excess capacity accounting for 2.4 million tonnes. The consequences of the paper machinery shut downs were not evident until the second half of the year, when the prices started slowly increasing, but were far from the expectations. This was followed by lower

-12,000

-9,000

-6,000

-3,000

0

3,000

6,000

in E

UR

tho

usa

nd

2011 2012 2013


19

revenue, down 5% compared to the year before. Financial expenses, with the biggest item being expenses for loans received, decreased in comparison to the year before.

REVENUES FROM THE SALE OF PRODUCTS We generated EUR 95 million of net revenues.

The generated revenue of EUR 95 million was 5% lower than the year before and 6% below the plan. Owing to production problems the volume of sales lagged behind the plan by 3%. The pressure to decrease the prices mainly arose in the first half of the year. In spite of the closing down of production capacities in Europe, the prices did not notably increase, as the consumption of paper in general has been declining in Europe and globally. The Company continuously adjusted the product range to market situation and thus sold products with higher coverage contribution. We succeeded in decreasing transport costs by EUR 18/t, which is 5% less than the year before. Owing to technical and technological problems in production, the costs of complaints surged. They accounted for EUR 2.5/t of product sold. Lower revenues are also reflected in a 3% decrease in revenue per employee.

Net revenues per year and revenues per employee

in EUR thousand 2011 2012 2013 Net sales revenues 105,779 100,464 95,351 Revenues per employee 268 259 251

OPERATING EXPENSES In 2013, the costs of goods, material and services totalled EUR 78.1 million.

Operating costs dropped by 3.8% or EUR 3.1 million compared to the year before. This is due to the different structure of paper production, lower prices of input raw materials and more favourable structure of raw material consumption (cheaper fibres) in paper production. The bulk in the structure of operating expenses is the costs of waste paper used totalling EUR 29 million or 37%. This is followed by the use of electricity from the network representing EUR 10 million or 13%, the use of chemicals accounting for EUR 9.9 million or 12.7% and the use of coal equalling EUR 6.7 million or 8.5%.

0

20,000

40,000

60,000

80,000

100,000

120,000

2011 2012 2013

Net

rev

enue

s in

EU

R th

ousa

nd

240

245

250

255

260

265

270

Net operating revenues in EUR thousand Revenues per employee


20

In 2013 we managed to reduce the purchase prices of waste paper by 2.6% and chemical pulp prices by 1%. Wood prices rose by 2.7%. We also reduced the price of Indonesia coal by 9%, whereas the price of Stanari coal rose by 2.6%. The average price of electricity, including network charge and all contributions, rose by 6.1% compared to the year before. The price of electricity rose owing to a higher contribution for renewable sources, resulting in significantly costlier total price of electricity (EUR 4/MWh). The contribution for renewable sources grew by no less than 316% in the first half of the year and by 150% in the last quarter of the year. Variable costs per tonne totalled EUR 351/t, which is EUR 4/t less than the year before. This decrease is not only the result of lower purchase prices, but also of the investment in increasing the deinking plat capacity (investment in August) and thus greater input of own - cheaper fibre on account of a smaller share of chemical pulp within the prescribed optic, printing and physical and mechanical characteristics of products. New types of chemicals are constantly tested, as they are more affordable, while of the same quality. The technological process optimisation is also continuously carried out. The investment in energy efficiency made in August influenced costs as well.

Changes in operating expenses and variable costs per tonne by year

in EUR thousand 2011 2012 2013 Cost of goods, materials and services sold 89,286 81,273 78,176 Cost of goods, material and services sold / production in t

442 408 404

INVESTMENTS In 2013, EUR 2.0 million was allocated to environmental and technological investments.

Because of the poorer business results the Company had to regularly adjust its investment activity. As it lacks own funds and financing from banks is practically impossible, the Company adopted a very restrictive approach to investment activity. In spite of unfavourable operating conditions, the Company still invests in improvement of business process quality and thus end products, and operational reliability. This year, it allocated EUR 868 thousand to major maintenance and EUR 844 thousand to the deinking plant. The rest was accounted for by investments in optimisation of technological lines for paper and fibre production, and energy.

0 10,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2011 2012 2013

Variable costs in EUR thousand

050100150200250300350400450500

VC/t

Cost of goods, materials ... sold Material costs / production


21

Investment value by year in EUR thousand 2011 2012 2013 Investment value 1,220 1,299 1,960

FINANCIAL EXPENSES FOR FINANCIAL LIABILITIES In 2013, financial expenses for financial liabilities totalled EUR 2.4 million.

Financial expenses include interest expenses arising from loans raised in the amount of EUR 2.3 million and interest under lease contracts totalling EUR 24 thousand as well as interest from intra-group loans equalling EUR 47 thousand. Compared to the year before, financial expenses dropped by EUR 111 thousand or 4.4%. Financial expenses by year in EUR thousand 2011 2012 2013 Financial expenses 2,655 2,508 2,397

The financial indebtedness rose by EUR 4.1 million compared to the year before. Due to low investment activity, the Company has not raised considerable loans from banks in recent years. Vipap Videm Krško d.d. received funds in the amount of EUR 6.974 thousand from related

0

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013

in E

UR

tho

usa

nd

0

500

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1,500

2,000

2,500

2011 2012 2013

Inve

stm

ent v

alue

in E

UR

thou

sand


22

parties. In September and October it received two times 0.5 million euros from Imob a.s. and in November EUR 5.974 thousand from Prisko a.s. These funds were designated for repayment of suppliers. Throughout the years, the Company has been paying loans to banks according to adopted annual plans of repayment and long-term loan rescheduling. In 2013, the Company repaid loans in the amount of EUR 4.7 million. Financial indebtedness of the Company by year 2011 2012 2013 Financial indebtedness in EUR thousand

38,969 33,547 37,681

INDICATORS The indicators are indicative of this year's result.

The indicators point to the business result for the year. The financial indicators of return are negative, i.e. return on equity (ROE) equalling -5.9% and return on assets (ROA) of -3%. EBITDA also decreased over the year before, totalling EUR 5,564 thousand, indicating that the Company generated positive cash flow from ordinary activity in spite of the not very encouraging results for the year. Trend in selected indicators: ROA, ROE and EBITDA 2011 2012 2013 Return on equity in % -3.6 0.069 -5.9 Return on assets in % -1.8 0.108 -3.0 EBITDA in EUR thousand 7,144 10,814 5,564

0

10,000

20,000

30,000

40,000

50,000

2011 2012 2013

in E

UR

tho

usan

d


23

Considering the 2013 business result, the indicators of value added and value added per employee also decreased.

Value added per employee

2011 2012 2013 Value added in EUR thousand 18,408 21,951 16,299 Value added per employee in EUR thousand 47 57 43

0 10 20 30 40 50 60

2011

2012

2013

in EUR thousand

-6

-5

-4

-3

-2

-1

0

1

2011 2012 2013

in %

0

2,000

4,000

6,000

8,000

10,000

12,000

in E

UR

th

ou

san

d

Return on equity in % Return on assets in % EBITDA


24

2. PRODUCTION

The principal activity of the company VIPAP VIDEM KRŠKO d.d. is paper 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. We produce newsprint, improved newsprint, graphic paper and – this year's novelty – wrapping packaging paper. We produced 193,364 tonnes of paper in 2013, which is 3% less as compared to the year before. We also produced 188,804 tonnes of own fibres, which is consistent with the year before. The level of integration of fibre and paper production in 2013 achieved 97%, which is a record figure, and 2% more than in 2012. The level of integration rose in the second half of the year, when we made the investment in the deinking plant. This allowed us to make maximum use of the production capacity based on recycled fibres. We produced a total of 381,740 tonnes of fibres and paper, which is 2% less than in 2012.

Since mid 2013, we have been faced with unexpected technical and technological problems in production, and at the same time we produced a less productive, but more profitable newsprint on paper machine 1, resulting in a decline in production volume. The management adopted several measures to manage the situation, the results of which were evident already at the end of the year, when production stabilised.

Production of paper and fibres

Realisation 2012 Quantity in tonnes

Realisation 2013 Quantity in tonnes

INDEX 13/12

Paper production in t 199,325 193,364 97 Fibre production in t 188,804 188,276 100 Total 388,129 381,640 98

Paper production

Paper was produced on all three paper machines. The average hourly productivity on paper machine 1 was the same as the year before, while on paper machine 2 it decreased by 0.1 tonne per hour and on paper machine 3 by 0.2 tonne per hour as compared to 2012. On paper machine 1 we produced both graphic and newsprint as well as the development product – wrapping packaging paper. On paper machines 2 and 3 we produced newsprint and improved newsprint. On paper machine 1 we produced more newsprint than planned, but consequently less graphic papers. The decision for such production structure was reasonable, resulting in the best possible adjustability to the market situation and increased contribution for fixed cost coverage. All types of paper produced, with their application and characteristics, are presented in the table below.


25

Graphic papers, their application and characteristics

Paper grade Application Printing technique

Grammage

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

54-90 g/m2

EU Ecolabel SI/011/03

FSC® C117321

VIPRINT SATIN (R)

graphic, coated, machine finished, matt

periodicals, magazines, catalogues, books, picture books, envelopes, (continuous) forms


54-90 g/m2 FSC®

C117321

VIPRESS graphic, coated, machine finished, matt

periodical newspapers, magazines, catalogues

multi-colour and black&white standard and waterless cold-set offset print

54-80 g/m2


FSC® C117321

VIMAG graphic, coated, calendered, semi gloss

multi-colour and black&white standard and waterless cold-set offset print


54-90 g/m2


FSC® C117321

VIMAX graphic, coated, slightly calendered, silky

periodicals, package leaflets/instructions, magazines, catalogues


54-90 g/m2


FSC® C117321

VIPCO graphic, surface treated, machine finished, matt

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

digital print, offset print, sheet-fed print

55-80 g/m2


FSC® C117321

VILUX (R) graphic, coated, slightly calendered

periodicals, books, package leaflets/instructions, magazines, catalogues


60-90 g/m2 FSC®

C117321

VIPCO WB

graphic, surface treated, machine finished, matt

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

digital print, offset print, sheet-fed print

55-80 g/m2 FSC®

C117321


26

VIBULK graphic, bulky publications, books, cash register rolls

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

50-80 g/m2 FSC®

C117321

Type of wrapping packaging papers, their application and characteristics

Paper grade Application Printing technique Grammage PACKAGING PAPERS VIPACK (R) wrapping

packaging bags/sacks and various wrapping material

flexo and offset printing

70/80 g/m2

VIPACK W (R)

wrapping packaging

bags/sacks and various wrapping material

flexo and offset printing

70/80 g/m2

Type of newsprint papers, their application and characteristics

Paper grade Application Printing technique

Grammage

Environmental care

NEWSPRINT SOF newsprint,

machine finished

newspapers, periodicals, pocket books

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

45/48.8/52 g/m2

FSC®C117321

SOF 42.5 newsprint, machine finished

newspapers, periodicals, supplements, inserts, advertising material

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

42.5 g/m2 FSC®

C117321

SOF F high quality newsprint

newspapers, periodicals, supplements, inserts, advertising material

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

45/48.8/52 g/m2

FSC® C117321

LIBNA PRINT

improved newsprint

newspapers, periodicals, advertising material, pocket books

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

48.5-80 g/m2 FSC®

C117321

LIBNA PLUS

improved newsprint

newspapers, periodicals, advertising material, pocket books

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

50-80 g/m2 FSC®

C117321

LIBNA SG SC

improved newsprint, calendered, semi gloss

periodicals, magazines, catalogues, picture books


48.8-80 g/m2 FSC®

C117321


27

On paper machine 1 we produced 59,236 tonnes of paper, which is 2% less than the year before. The production was lower due to the structure (more newsprint and paper of lower grammage), which followed market demands. At the same time there were some unplanned downtimes. In the scope of development we produced the so-called wrapping packaging paper, which has not yet been included in regular product range. Production on paper machine 2 at the level of 66,133 tonnes was 2% lower than the year before. This was owing to the structure of production (more newsprint of lower grammage) and technical and technological problems in production that caused unplanned downtime. The production on paper machine 3 lagged behind the expectations most, as we produced 67,995 tonnes or 4% less than the year before. The reasons are similar as in the case of the other two paper machines.

Paper production by year

Structure of net production by paper machine

REALISATION 2012 REALISATION 2013 INDEX Quantity in tonnes Quantity in tonnes 13/12

Paper machine 1 60,557 59,236 98 Paper machine 2 67,700 66,133 98 Paper machine 3 71,068 67,995 96

Total 199,325 196,364 97

Fibre production The production of deinked pulp followed the need of paper production for recycled fibres. In August we made an extensive investment in the deinking plant, enabling us to better adjust it to the paper machines' requirements for this fibre. As a result, there was no need to input a higher amount of other own fibre - groundwood. In 2013 we produced 169,439 tonnes of deinked pulp, which is in the framework of last year's quantity, and 18,837 tonnes of groundwood, the production of which dropped by 12% compared to the year before.

100,000

120,000

140,000

160,000

180,000

200,000

220,000

2011 2012 2013

in t


28

Fibre production by year

Fibre production in tonnes

REALISATION 2012 REALISATION 2013 INDEX Quantity in tonnes Quantity in tonnes 13/12

DEINKED PULP 167,509 169,439 101 TGW 21,295 18,837 88 TOTAL 188,804 188,276 100

3. SALES

The year 2013 was very difficult for the entire paper industry. Paper consumption in Europe decreased, due to which quite a few paper machines in Europe stopped. The main drop was seen in demand for graphic papers. There is notable down-grading in printers, meaning that ever cheaper types of paper and newsprint are used for printing. Our production followed this trend, since the sales of newsprint strongly rose in the structure of sales on account of coated papers. The tendency to reduce prices was mainly present in the first half of the year. In the second half of the year the prices slightly rose due to the shutting down of paper machines in Europe and the resulting smaller demand on the market. On the market of publication papers the supply is still greater than the demand, so we are constantly under the pressure to decrease the prices. In 2013, we sold 194,046 tonnes of paper, of which no less than 80% newsprint. The quantity of newsprint sold has been increasing every year. Compared to the year before we sold 1% more newsprint and even 4% more in comparison to 2011. We somewhat increased the sale of improved newsprint. The decrease in the sale of publication papers, the so-called VI-products, is 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.

0

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2011 2012 2013

DIP TGW


29

Structure of paper sales in 2011, 2012 and 2013

The quantity of paper sold in 2012 and 2013 in t

REALISATION 2012

IN % REALISATION 2013

IN % INDEX 13/12

Newsprint 154,727 79 156,026 80 101 Improved newsprint 2,748 1 5,072 3 185 Publication 39,314 20 32,948 17 84 Total paper sales 196,789 100 194,046 100 99

Publication papers (production on PM1): Publication papers are produced on paper machine 1. In 2013, we sold 32,948 tonnes of these papers, i.e. 6,366 tonnes less than in the previous year. The principal product from the range of publication papers is Vimag in the form of reels. We sold 15,603 tonnes of this paper in 2013, which accounts for 47% of all publication papers sold. The sale of VIMAG rose by 32%, however the sale of all other types of publication papers strongly decreased. Other publication papers include: Viprint, Vipco, Vimax, Vipress, and Vibulk.

Improved newsprint (production on PM 1): Improved newsprint was produced on paper machine 1. We sold a total of 5,072 tonnes, which is 2,176 tonnes or 85% more than the year before. These papers account for 3% of the total sales and include Libna Print and Libna SGSC. This segment of papers is one of our responses to the market situation arising from the downgrading effect.

Newsprint (PM1, PM2 and PM3) In 2013, production of newsprint was again carried out on all three paper machines, even though it was planned only on two. We sold 156,026 tonnes of newsprint. The volume of sales increased by 1% compared to the previous year.

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000

Newsprint

Improved newsprint newsprint

Publication paper

in t

2011 2012 2013


30

Paper finishing In 2013, we sold 7,887 tonnes of paper in sheets, which is by 7.4% less as compared to the year before. In the first half of the year we performed paper cutting service for the Goričane paper mill and thus at least partly compensated for the smaller demand for paper in sheets. Export accounts for 87% of total sales. The main markets remain similar as in the recent years, namely SE Europe and Slovenia, Germany and Italy. In 2013 we most increased the volume of sales in Italy.

Structure of paper sales in 2012 and 2013 by market

SALES by market 2012 2013Slovenia 14.1% 12.80%Serbia 12.9% 13.12%Italy 13.6% 16.35%Germany 9.5% 9.57%Hungary 6.1% 5.75%Croatia 4.4% 4.76%Greece 4.3% 4.26%Bulgaria 2.5% 4.01%Austria 2.6% 3.79%France 2.8% 1.28%Czech Republic 3.3% 2.98%Turkey 2.6% 1.78%Romania 2.6% 2.74%Other countries 18.8% 16.80%Total 100.0% 100.0%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Slovenia

Serbia

Italy

Germany

Hungary

Croatia

Greece

Bulgaria

Austria

France

Czech Republic

Turkey

Romania

Other countries

2012 2013


31

4. PURCHASING

In 2013 there were no major fluctuations in the prices of raw materials on the purchasing market. Purchasing for the production of paper, own fibres and own electricity together with investments amounted to EUR 75.6 million in 2013. The value of purchasing dropped by EUR 1 million compared to the year before. There are several reasons for this. The first reason is the lower production of paper than the year before; the second reason - lower price of main raw materials than the year before and the third reason - changed structure of consumption of raw materials, which was, due to the investment in the deinking plant in August, redeployed to the benefit of the consumption of own - cheaper fibres instead of the more expensive chemical pulp. The biggest share in the structure of total purchasing is accounted for by fibres, waste paper and grinding wood (49% of total purchasing). These are followed by energy products and chemicals. Imports account for 63% of total purchasing.

Structure of purchasing in 2013

0 10 20 30 40 50 60

Fibres, waste paper and

grinding wood

Chemicals

Spares and other

Energy products

Machine clothing

Packaging

Investments

Shares in %

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.

Research and development activity in the Company can be divided into two parts: 1. Development of new products and modification of the existing ProMix of products accordingto new market requirements. 2. Development of new and the optimisation of the existing technological procedures and

processes, defining of new limit conditions for managing technological processes of fibre and paper production, and inclusion in the technological problems of a greater scope.


32

1) Development of new products and modification of the existing ProMix of products accordingto new market requirements.

In 2013, we continued with the activities for the development of the following new products:

1 - SOF 42.5 with DIP60F45% (RRP201313); newsprint of lower grammage, which was in the past produced and marketed as recycled paper with a smaller share of acquired bleached sulphate cellulose (5% according to technological regulation/actually up to 12%, depending on the achievement of physical and mechanical characteristics). It can be produced as modified mainly from recycled fibrillated fibres (up to 65%) with adjusted input to achieve the physical and mechanical, and printing characteristics, standard quality DIP60 (up to 55%) and minimum quantity TGW60 (5%). It is suitable for printing materials in multicolour heat-set and cold-set offset print. By November 2013, we carried out and checked (on all markets, from both PM) all development phases of the product produced on PM2 and PM3. It can also be produced on PM1 if there is increased demand or for other business reasons. The product was included in the regular production range in modified form in November 2013.

2 - SOF40 (RRP201252); newsprint of lower grammage, mainly produced from recycled fibres with a smaller share of acquired bleached sulphate cellulose, suitable for printing materials in multicolour heat-set and cold-set offset print. The development and marketing activities have been temporarily discontinued and will continue if there is increased demand and if it estimated that the business result of the Company would improve. The product is prepared for further introduction to the market, if market situation is suitable.

3 - Libna Print H; improved newsprint and office paper, mainly produced from recycled fibres and with a smaller share of mechanical and mass hydrophobated bleached sulphate cellulose. The paper is suitable for printing in multicolour heat-set and cold-set offset print, sheet-fed print and for use in processing industry for notebooks, pads and similar office material. Since June 2013, it has been in regular production under the designation R. It will be included in the regular product range in January 2014.

4 - Libna SGSC 300; graphic publication semi-gloss SC paper suitable for heat-set offset print of higher smoothness, as an upgrade of the existing Libna SGSC, intended for more demanding customers. The Company has so far not offered such a product in its catalogue. In the downgrading period it is an alternative to SC paper, which is used in a specific segment of printing materials as a substitute for LWC (also Vimag and Vimax). Since February 2013, it has been in test production only on PM1 under the designation R. It will be included in the regular product range if the market situation is suitable.

5 - Viprint Satin; graphic coated paper of higher volume – a niche product for printing books, brochures, advertising materials, and periodicals in heat-set print and for sheet-fed print. It is also designed for use in graphic processing industry for various types of forms, envelopes and similar, and is produced by few producers (volume range of 1.3 -1.4 cm³/g). The first trial production was successful in February 2013. The product has been introduced to regular production under the designation R and it will be included in the regular product range when all development phases with the optimal quantity are completed. Further marketing and R&D activities are planned after the conducted tests in the graphic processing industry.

6 - ViPacPap; wrapping packaging paper on which individual R&D activities have been carried out (acquiring know-how) together with basic research and laboratory analyses of the potential raw material basis for a certain set of wrapping and packaging natural kraft papers based on recycled fibres in combination with sulphate cellulose, in two directions: - a combination of recycled microfibrillated fibres with bleached sulphate kraft cellulose, and - a combination of recycled microfibrillated fibres with non-bleached sulphate kraft cellulose.


33

The activities were restricted to the development of natural and coated wrapping packaging paper due to limited R&D funds and the postponement of modernisation of PM1 in 2014. In the following year we plan to allocate funds and R&D activities to develop natural and coated, one/two side coated wrapping packaging paper also suitable for contact with food products. A project team was established, continuing R&D activities until the introduction of wrapping packaging papers on the market. In 2013, two products from the so-called white range of wrapping packaging papers were developed, namely: - 6.1 BeliPac Extra; wrapping packaging paper - renamed ViPack, as wrapping packaging paper made of recycled microfibrillated fibres (DIP66F) in combination with additional fibrillated bleached sulphate kraft cellulose. The paper is on both sides coated with reinforced starch to achieve natural whiteness, and mass hydrophobated. It is mainly intended for various sorts of bags, sacks of higher grammage and as wrapping packaging paper of lower grammage. The product has been put to regular production under the designation R until all development phases are completed and it will be then included in the regular product range. - 6.2 BeliPac Extra; wrapping packaging paper - renamed ViPack W, as wrapping packaging paper made of recycled microfibrillated fibres (DIP66F) in combination with additional fibrillated bleached sulphate kraft cellulose. The paper is on both sides coated with strengthened starch and is mass hydrophobated. It is mainly intended for various sorts of bags, sacks of higher grammage and as wrapping packaging paper of lower grammage. The product has been put to regular production under the designation R until all development phases are completed and it will be then included in the regular product range.

7- ViPamPap: The activities were limited to the basic R&D (acquiring know-how) together with the basic research examining the suitability of our selected products as the substrate based on recycled fibres for the production of the so-called smart papers, in both R&D development areas:

a) Meta papers;b) Papers for organic and printed electronics.

Research has shown the suitability of products as the substrate for developing printed electronics, mainly sensorics and meta papers. a) Meta papers involved successful R&D activities of simulation of various types of meta cells forelectromagnetic radiation permittivity (EMR) through the substrate - meta paper from the VVK product range. All developed meta cells have the desired response at the frequency of 2.4 GHz. In 2014 we plan to continue the basic research to determine the selective EMR filtration in some selected products from the VVK range (e.g. Vibulk, (Vi.range)) as the substrate for developing meta paper suitable for printing selected developed meta cells in a certain printing technique and the evaluation of efficiency of selective filtration of EMR in correlation with the selected substrate. b) The papers for organic and printed electronics also involved successfully conducted R&Dactivities regarding printed electronic moisture sensors in correlation with selected substrates, also from the VVK product range (R&D activities mostly carried out on Vimax). A comparative research included various types of substrates (PET foil, ceramics, cardboard). It was established in this development phase that the responsiveness of sensors to a greater degree depends on the selected type of printing colour of the printed sensor than on the substrate. Research has shown that all papers included in it are equally good as the substrate for printed electronic moisture sensors. The first further R&D phases will be content-wise focused on the evaluation of electrical characteristics of conductive printing colour depending on moisture and also the type of conductive printing colour regardless of the substrate. This will be followed by R&D activities for adjusting the substrate to develop smaller sensors with smaller capacity.

8- New products from alternative raw materials (sludge, mulex, pepelex, bark, sawdust); CAPS/Visorb/Vifluff, IzoVip, EcoProBeton/BioPel, MulBrik, MulOp: Status:

a) Visorb/Vifluff/CAPS – in 2013 a smaller quantity (about 2 t) was produced on a test basisfrom our primary DIP sludge for marketing purposes. At present there is no need for


34

producing a greater quantity. R&D activities are carried out through ZEL EN regarding the possible integration of Visorb in individual construction materials. b) IzoVip; the project has been halted until at least regular pilot production of Visorb is setup, as this paper represents the basic raw material for the production of potential insulation products. c) EcoProBeton/BioPel – a study was conducted to evaluate physical and mechanicalcharacteristics as well as chemical and partly biological characteristics of pilot produced concretes from Mulex and/or water, intended for reinforcing construction surfaces and non-loadbearing concretes. In this phase it is still without various additives, but the impact of magnetic field on the mechanical strength or physical and mechanical characteristics of concrete produced in this manner is being evaluated by comparison. In the scope of the projects included in ZELEN, procedure and equipment were developed at laboratory level for managing microbiological development of microorganisms which influence smell and potentially faster degradation of concretes in a period when biosludge is included in concrete development. Considering the encouraging results, we started the process for patenting and continuing the project in the following year also with the aim of including various types of additives in composites with Mulex and biosludge and/or water. Activities continue in 2014. d) MulOp – the planned mixing of DIP and WWTP sludge of a certain share into brick waspostponed until the start of operation of the Opekarna Ormož brickworks in March/April 2013. In the meantime, an environmental permit has been obtained by the brickworks. The project is inactive.

2) Development of new and optimisation of existing technological procedures and processes

A. Most activities (seven supervised industrial tests of DIP microfibrillation in 2013, concurrent test production and test printing of SOF 45, and mainly SOF 42.5 under RRP201313 on PM2 and PM3 until November 2013) were implemented on the Project RRP 201177 DIPMEHLAST. The main purpose of the project is: - to finally define the limit conditions of (micro) fibrillation of DIP fibres and to define the possible scope of input thereof into individual VVK promix products for the industrial level of application, - to achieve greater mechanic characteristics of DIP fibres; - to define the impact of fibrillation on optic, physical and mechanical, and printing characteristics of DIP fibres and paper produced from fibrillated DIP fibres (DIPF) according to the VVK technological procedure; - to replace the share of purchased CBSa cellulose (8% according to set standards in 2012 or 5% under the technical regulation) in SOF42.5; - to reduce the share of purchased CBSa cellulose in Vi - range and other products in correlation with the achieved-prescribed optic, physical and mechanical, and printing characteristics of products.

DIP fibre microfibrillation was carried out in 2013 on the lines for milling - fibrillation of deciduous timber (R2 and R3) and on the line for milling - fibrillation of coniferous timber (R4 and R5) in the scope of existing installations of PM1. In all industrial tests of microfibrillation carried out so far and since May until November 2013 – through all SOF 42.5 paper production under RRP 201313 – we again accomplished the following correlations between the achieved characteristics of DIP60/66F fibres and paper and the established and maintained limit conditions of fibrillation:

Optimal microfibrillation of DIP60 or DIP66 is carried out within the concentration range of3.5 – 4.0% at mill load of maximum 70% with the achieved SR 70-80;

In these fibrillation conditions it is possible to ensure up to 65% input of DIP60F on anindividual production line (PM3, PM2 and PM1).

Variable costs of SOF 42.5 with included DIP60F are minimum EUR 15/t lower. The achieved mechanical characteristics of DIP60/66F were always repeatedly higher by

500 – 1200 m than the standard quality of DIP60/66. The achieved mechanical


35

characteristics of SOF 42.5 paper with more than 35% input of DIP60/66 F were at least equal to the standard SOF 42.5 paper with up to 9% input of purchased CBSa cellulose, which represents a considerable decrease in variable costs.

All quantities of SOF 45 and SOF 42.5 with a 30-65% input of DIP60/66F tested in printinghouses were printed at a level of press and printing transitivity quality equal to thestandard - reference newsprint of 42.5 grammage.

Since October 2013, DIP 60F and DIP66F were included as an independent cost unit invariable costs of products.

Since November 2013, SOF 42.5 with included fibrillated DIP60F has been in regularproduction, because by then all development phases had been successfully completed.

The existing equipment, which had been purchased for the fibrillation of Si/Sa bleachedcellulose of coniferous and deciduous trees, was fitted and used for DIP fibrillation.

The project aimed at optimally ensuring the limit conditions and the distribution of the fibrillated DIP60/66F on PM1, PM2 and PM3 will be implemented in January 2014. We continue with defining and ensuring limit conditions for microfibrillation of DIP60/66 and inclusion of fibrillated DIP60F/66 F into other individual products of VVK promix as well as for the purposes of developing new wrapping packaging papers.

B. In 2013, an RRP project was carried out, related to (ICP Lj) the impact of nanofibrillation of TGW and DIP with the sonication procedure. The project was compared to the effects of the microfibrillation carried out in the scope of RRP201177 DIPMehLast. It was established in the implemented phase that in industrial conditions (higher concentrations, greater hydraulic flow, retention time, etc.) we do not achieve the effects of microfibrillation under RRP 201177 DIPMehLast. We will continue with the project to obtain in parallel development projects new findings that could benefit the development of VVK promix, both the graphic publication range and the development of wrapping packaging papers.

C. In the framework of 61 development research projects (from RRP 201301 to RRP 201361) the following R&D activities were carried out in 2013 in various areas:

1. The development of new products and the modification/adjustment of the existing ProMixof products to new market requirements/conditions. 2. The development of new and the optimisation of the existing technological proceduresand processes, defining of new limit conditions for managing technological processes of fibre and paper production, and inclusion in the technological problems of a greater scope. 3. Optimisation of operating costs and production costs.4. Defining alternative raw materials, auxiliary means, chemicals and materials in theCompany.

6. INVESTMENT ACTIVITIES

The Company is aware that unfavourable economic situation, mainly the events on the financial market in Slovenia, cannot jeopardise its development. In spite of operating problems, we this year again invested EUR 2 million in the most critical areas of the production process. Most investments comprised major maintenance and repairs. The largest new investment was in the 3rd phase of the deinking plant modernisation (EUR 750 thousand). A lot of energy was put into improving the management of defects in production, the efficient use of energy and modification of the equipment for product development.


36

Investments by year in EUR thousand

1997/2005 2006 2007 2008 2009 2010 2011 2012 2013

Environmental investments

79,106 1,997 3,273 1,512 306 30 45 64 22

Technological investments

27,745 6,177 2,456 15,799 3,094 1,440 1,175 1,235 1,938

Year total 106,851 8,174 5,729 17,311 3,400 1,470 1,220 1,299 1,960

Investments in 2013 in EUR

REALISATION 2013

Environmental investments Noise regulation - 3rd phase

21,997 21,997

Technological investments 1,938,174 Major maintenance DIP - bottlenecks/reinforcement of flot. cells and pipelines Efficient use of energy Energy plant modernisation Processing for optimisation of fibres Technological modifications Other

868,347 818,008 70,075 48,645 25,783 25,654 81,662

INVESTMENT TOTAL 1,960,171

7. EMPLOYEES

At the end of the year, the Company employed 375 employees, which is 7 fewer (2%) than the year before. Of these, five employees are employed partly (5% of working time) in the parent company and partly in the related company ZEL-EN - research and development centre Krško. 17 employees left the Company and 10 new employees were recruited. The reasons for 17 employees leaving the Company were the following: - 5 employees were dismissed for business reasons, - 4 employees retired, - 3 employees terminated employment by agreement, - 3 employees were employed for a fixed term, - 2 employees left for other reasons (death, etc.).

At the end of the year the Vipap Group had 477 employees.

In 2013, labour productivity dropped to 516 tonnes/employee, mainly due to lower production than the year before.


37

Labour productivity by year in tonnes/employee

Number of employees

100

150

200

250

300

350

400

450

2011 2012 2013

Employees structure

The existing HR structure stayed at a level similar to the one from the year before. The average employee age was 47 years. As many as 42.4% are aged over 50. At the end of the year, we employed 18 occupationally disabled workers. 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. More than half, i.e. 57.6%, have education levels IV and V. Employees with educational levels VI or VII account for 18%. 95% of employees are employed part-time.

2012 % 2013 % INDEX 13/12 - Technical Department

314 82 313 83 100

- Administrative Services

68 18 62 17 91

Total 382 100 375 100 98

Absence from work (absenteeism)

In 2013, sick leave of all employees slightly increased and represented 44,484 hours, including pregnancy leaves and absence related to blood donation. This represents 117 hours per employee. In comparison to the year before, absence from work rose from 5.4% to 5.7%. The main reason is definitely related to the ageing of the labour force within the entire company. The share of sick leave over 30 days increased. We also recorded a decrease in absence from work owing to occupational injuries, i.e. down by as much as 26%. The number of injuries decreased from 16 in 2012 to 11 in 2013. The severity of injuries also dropped compared to the year before.


38

Employee training

In 2013, we allocated EUR 24 thousand to employee training, which is in the scope of the plan and suitable given the economic situation. In order to reduce costs, some training events were organised in-house, since the number of participants was high, namely: - first aid (40 participants), - truck lift driver course (14 participants), - bridge crane operator course (18 participants), - heavy construction machinery course (11 participants).

Types of training - seminars, symposiums, trade fairs in the amount of EUR 11,761, - periodic training, licences: EUR 5,087 - courses and professional training: EUR 4,370 - mentorship bonus: EUR 1,794 - personnel scholarships: EUR 880

Total training hours equalled 1,080. 111 employees took part in training. Employees spent on average 9.7 hours in training.

Last year we won the public tender of the KoCPI - Competence Centre for Human Resources Development in Paper Industry, through which we now carry out some training events for our staff. In October the paper production training started. It includes 25 participants and will be completed at the end of February 2014. By cooperating in the Competence Centre, we are able to obtain non-refundable grants for employee training. Training courses will take place until 2015.

Salaries

In 2013, average salary in the Company totalled EUR 1,618 or 1% less than the year before and 6% more than the Slovenian average. The lower salary is the result of measures during the year aimed at improving the liquidity of the Company, which resulted in a 10% decrease in salaries of management and executive staff. Holiday allowance was paid in two parts (April and May) in the total amount of EUR 900 gross per employee. Meal allowance is harmonised twice a day based on the consumer price index for food. In December, all employees received a bonus at the end of the year in the amount of EUR 50 net. At the end of 2013 the new Collective Agreement of the Pulp, Paper and Paper Processing Industry was signed valid as of 1 January 2014.

8. EXPECTATIONS FOR 2014

The expectations for the following year are more optimistic in spite of the still unstable economic situation in Slovenia and the negative growth trends. The latter will be reflected in our operations so that the tax burdens of the Company will be very high, resulting in smaller competitiveness in the purchase of energy products and environmental taxes. Since the company exports 80% of products to the markets of Western and SE Europe, the economic situation in these areas is also important and above all the movement in demand and supply of paper. Considering the fact that in 2013, the paper production capacities in the amount of EUR 2.5 million were stopped, the situation for paper producers improved. Consequently, the Company expects a considerably more favourable situation next year on the newsprint market, which represents most of our production and sales. Negotiations for higher prices of newsprint are in progress and we estimate that the prices will be on average 5% higher. The situation on the purchasing markets of our main raw materials is stable and we do not expect greater fluctuations. On the contrary, we can even expect a reduction in the prices of the raw materials that are most important to us,


39

due to shorter payment deadlines planned in the following year. The prices of electricity and coal will be lower next year, but this difference will be considerably smaller due to the increase in the RES contribution for coal and electricity. Next year, the volume of operations will be 1% higher than in 2013 and the structure of paper production will not significantly change. We are planning new production and sale of 2,000 tonnes of packaging papers for bags. In 2014, the volume of operations is influenced by a 10-day halt of the paper machine 1 due to the investment installation (replacement of machine drives and coating line). In the area of own fibre production we are planning an increase in deinked pulp and groundwood production and consequently a greater consumption of own fibres and a lower consumption of purchased cellulose, and thus 2% lower production costs. The planned operating result for 2014 is positive, equalling EUR 309 thousand. We are planning full utilisation of production capacities, and a 1% growth in production and sales. The sales policy projects an upward trend in market shares on those markets where the highest sales prices are achieved, with the aim of maximising the contribution for fixed costs. The Company's development projects related to the use of waste and energy products will be carried out within the development centre ZEL-EN, whilst the development of new products will be implemented within the Company and in cooperation with the Pulp and Paper Institute and we are also planning to obtain European funds for development and innovations. From the aspect of cash asset management, we are planning optimal turnover of cash tied in inventories and receivables, a lower scope of trade payables and shorter payment deadlines.

In order to increase competitiveness and the quality of products we decided for new investment projects to modernise the existing equipment for paper production. A plan of new investments has been prepared for 2014 (replacement of drives on PM1 and modernisation of the coating line), covering investments to be realised at the end of the year (December 2014). In order to finance investment projects we are planning to organise a bank syndicate with the aim of securing long-term sources of funds at a competitive interest rate. We estimate that the prepared economic plan of the Company is realistic and represents the basis and guideline for activities in all areas of operations in the following year.

The basic goals of the Company's operations in 2014

To ensure the planned volume of sales in terms of value and quantity and to increase profitability of individual products, with the basic economic guideline being the balance between all production capacities, together with the achievement of maximum total contribution margin.

Ensuring efficient servicing of paper buyers and the prescribed paper quality.

Optimising the existing purchasing markets and looking for new sources of supply on the markets that will ensure raw materials of more affordable price and standard quality.

Ensuring maximum productivity of paper and fibre production and cost-effectiveness of production.

Optimising the organisation of other service departments in the Company, including the sales and purchasing network.

Selective implementation of the investment plan by considering investment return; priority is given to investments in technology and rational use of energy.

Developing new products which will in the future provide greater market competitiveness, placing the Company's products in a higher price bracket, generating higher value added and thus better business results, while looking for technical-technological possibilities to reduce production costs.


40

Preparing an energy development strategy and comprehensive optimal energy supply for the Company.

Efficient management of working capital, mainly receivables and inventories.

Ensuring efficient management of all types of risks as a result of the changeability of the business environment to which the Company is exposed. A stress on payment, currency and credit risks.

The operational goals of the Company's operations in 2014

Full utilisation of planned production capacities.

Maximum integration of paper production by producing own fibres (deinked pulp, groundwood).

The engagement of marketing and sales activities on existing markets and the expansion to new markets.

The search for new market niches and the development of new papers with higher value added.

Maximum utilisation of production and sales flexibility.

Long-term positioning of purchasing markets for strategic raw materials (recovered paper, wood, energy products).

Maximum rationalisation of fixed costs of the Company.

Faster turnover of cash tied in inventories and receivables.

Extension of payment deadlines in purchasing and shortening of payment deadlines in sales.

Restrictive investment policy (reduced consumption of energy, urgent modernisations in the production of paper and fibres to maintain paper quality and reduce production costs).

The implementation of new organisational forms of individual vital parts of the Company.

The adjustment of human resources structure and records to the new Collective Agreement for the Paper Industry.


41

III. SUSTAINABLE DEVELOPMENTREPORT


42

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 exclusively 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 two years were characterised by the following events:

A. Amendment to the environmental permit; on 22 November 2013 we 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;

C. Responsible and sustainable management of wood and wood products; on 10 July 2013 we obtained the FSC CoC Certificates for all products, the total production of graphic, publication and newsprint papers that fulfil the requirements of the FSC series standards;

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.

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 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 26 November 2013 by obtaining the Decision on the Amendments to the Environmental Permit no. 35406-58/2012-23 and by acquiring the environmental approval.


43

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 thecapacity 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 300t/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 saidindustrial devices: waste treatment plant (180000 PE), preparation of process water,warehouses for raw materials, energy products, chemicals and other materials, productstorages, etc.

The obtainment of the environmental permit is proof and confirmation that the Company has set up a responsible environmental management system and at the same time represents 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, handling of dangerous substances, efficient use of water, energy, raw materials and natural resources. In August 2009 the Company renewed the Permit for greenhouse gas emissions no. 35433-73/2009-3. 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.


44

Specifications of products with the EU Ecolabel

Product Fibre composition Intended use EU code Production location

EU Ecolabel

VIPCO

Lesovina; 20%

Celuloza; 16%

recikl. vlakna; 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 Lesovina;

18%

Celuloza; 17%

recikl. vlakna; 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


45

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.


46

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 2013, more than 90% of municipal waste waters of Krško with its surroundings were treated at the central waste water treatment plant VIPAP.

The treatment effects of waste water treatment at the central waste water treatment plant VIPAP:

Unit of measurement

2007 2008 2009 2010 2011 2012 2013

COD percentage of reduction

% 92.3 91.4 93.5 93.1 94.6 94.3 93.9

BOD percentage of reduction

% 99.0 98.9 99.2 98.8 99.3 99.4 99.2

AOX percentage of reduction

% 69.8 75.4 81.2 71.4 82.2 79.3 72.3

Percentage of reduction - suspended solids

% 99.3 99.3 99.5 99.2 99.7 99.4 99.4

Percentage of reduction - total P

% 80.8 86.9 94.1 93.3 93.6 93.5 93.5

Percentage of reduction - total bound N

% 73.7 78.1 87.0 88.0 88.8 88.0 89.4

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 23/01/2013, the Slovenian Accreditation carried out the third supervision in the second assessment period. The assessment was successful.

0 10 20 30 40 50 60 70 80 90 100

2007

2008

2009

2010

2011

2012

2013

COD percentage of reduction BOD percentage of reduction AOX percentage of reduction


47

In December 2013, a sample of VIPACK W paper was sent to ISEGO to test the adequacy of the new wrapping paper as a material that comes into contact with foodstuffs. We expect that this paper will be suitable at least for direct contact with dry food and as secondary packaging.

E. Energy efficiency of the Company

One of the goals from the development plans of Vipap Videm Krško d.d. until 2017 is to increase the energy efficiency of the Company. In 2013, we made the first step in relation to increasing the energy efficiency of the energy product production process, i.e. thermal energy – steam, electricity and water. The energy efficiency of the coal-fired boiler K4 has been increased and all mechanical suppression processes for fresh air injection and combustion air draw have been redesigned to frequency controlled processes. Moreover, the boiler control system has been upgraded. The investment also included the installation of a new frequency controlled water pump for feedwater, which covers the entire steam production interval (from 35 to 65 t/h). The investment amounting to EUR 114 thousand was carried out in August 2013. This investment helped us save electricity, i.e. 2,106 MWh/year, which corresponds to EUR 128 thousand. Energy efficiency of the energy product production process is defined by two parameters: - the indicator showing the use of electricity per tonne of steam produced; and - the use of electricity per tonne of paper produced, which depends on the structure of production.

Both indicators reveal the positive trends in the Company's energy efficiency.

0

10

20

30

40

50

60

70

80

Jan. 12

Feb. 1 2

Mar. 1

2

Apr. 1

2

May 1

2

Jun. 12

Jul. 1

2

Aug. 1

2

Sep. 12

Oct. 1

2

Nov. 1

2

Dec. 1 2

Jan. 13

Feb. 13

Mar. 1

3

Apr. 1

3

May 1

3

Jun. 13

Jul. 1

3

Aug. 1

3

Sep. 13

Oct. 1

3

Nov. 1

3

Dec. 1

3

Jan. 1 4

specific consumption of electricity KWh/t paper ‐ t steam

kWh consumption EE energy/t paper kWh consumption EE energy/t steam


48

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 implemented measures for efficient use of raw materials, energy and water.

Unit of measurement

2007 2008 2009 2010 2011 2012 2013

Process water m3/t g.p.* 19.5 21.6 20.3 18.2 17.4 18.2 20.0 Steam GJ/t g.p. 5.27 5.25 4.71 4.59 4.68 4.77 4.97 Electricity kWh/t

g.p. 872 869 865 843 838 862 870

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

* g.p. = gross production

0

5

10

15

20

25

2011 2012 2013

820

830

840

850

860

870

880

Tehnološka voda

Para

Elektrika

Process water

Steam

Electricity


49

Unit of measurement

2007 2008 2009 2010 2011 2012 2013

Suspended solids kg/t g.p. 0.16 0.18 0.14 0.19 0.08 0.14 0.15 COD kgO2/t

g.p.

2.4 3.1 2.3 2.0 1.5 1.6 1.8

BOD5 kgO2/t

g.p.

0.11 0.13 0.10 0.13 0.09 0.08 0.10

Quantity of waste water

m3/t g.p. 18.6 17.7 17.5 17.7 15.0 16.5 18.5

C. Specific air emissions

Unit of measurem

ent

2007 2008 2009 2010 2011 2012 2013

Sulphur dioxide

kg SO2/t .p. 0.442 0.301 0.251 0.473 0.452 0.392 0.425

Nitrogen oxides

kg NO2/t.p. 1.316 1.100 0.920 1.136 0.979 0.991 0.944

Carbon dioxide

kg CO2/tg.p. 487.14 475.35 433.44 430.75 436.30 409.56 444.54

Over the recent years, the Company has reduced its specific emissions into air. In 2013 these indicators somewhat deteriorated, but are still better than in previous years, meaning that the Company has maintained 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.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

2011 2012 2013

10.0

12.0

14.0

16.0

18.0

20.0

suspended solids

COD BOD5 Waste water


50

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 since 2010 due to the processing of combustion waste from boiler 4 and boiler 5 into construction products, whilst the quantities of deposited waste are declining.

Unit of measure

ment

2007 2008

2009 2010 2011 2012 2013

R - waste recovery kg s.s./t g.p. 179 183 168 241 304 297 367 D - waste disposal kg s.s./t g.p. 79 104 109 87 38 24 10 Total waste produced

kg s.s./t g.p. 246 288 288 323 338 321 371

0.000

0.200

0.400

0.600

0.800

1.000

1.200

2008 2009 2010 2011 2012 2013

360

380

400

420

440

460

480

500

sulphur dioxide nitrogen oxides carbon dioxide


51

4. RESPONSIBILITY TOWARDS THE LOCAL AND BROADER SOCIALCOMMUNITY

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.

1. Local social responsibility – employee well-being

In the scope of an innovative activity, employees receive awards for innovative ideas.

Employees receive long-service awards for 10, 20, 30 and 40 years of service in the Company.

We conducted 179 periodical occupational medical examinations.

The Company pays EUR 35 per month 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 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.

2. Wider social responsibility

We are very proud of the ecological project – waste paper collection – in which we participated. Numerous primary schools took part in it, since the campaign was very well received both by schools and the media. It was organised by Papir Servis d.d. The winners were the pupils of the Brezovica Primary School and the Polhov Gradec Primary School. We rewarded the most industrious and diligent. As a reward they were given a tour of waste paper recovery at Krško and they could see a special treatment plant. "We never imagined it would be so much fun! From now on we will protect our forests more and even more enthusiastically collect waste paper!" said the pupils unanimously, when they were enjoying lunch after the tour. Then they went for a swim at the Šmarješke toplice Spa. We also made sure they left with new notebooks.


52

In 2013 we also organised 12 tours of the plant, mostly on the request of primary and secondary schools.

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 2013, we had 7 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.


53

IV. FINANCIAL REPORT OF THECOMPANY VIPAP VIDEM KRŠKO D.D.


54

1. FINANCIAL STATEMENTS

1.1. BALANCE SHEET AS AT 31 DECEMBER 2013

Note 31 December

2013 31 December

2012

in EUR

ASSETS 130,726,426 135,418,065

A. Long-term assets 109,207,577 111,133,643 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 728,865 506,932

1. Long-term property rights 233,105 201,172

4. Long-term deferred development costs 495,760 305,760

5. Other long-term deferred expenses and accrued revenues 0 0

II. Property, plant and equipment 2 95,922,740 101,089,511

1. Land and buildings 29,638,093 30,416,748

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

b) Buildings 21,184,861 21,963,516

2. Plant and machinery 64,648,294 67,489,210

3. Other plant and equipment 1,347,039 2,781,523

4. Property, plant and equipment being acquired 289,314 402,030

a) Property, plant and equipment under construction and manufacture 289,314 402,030

IV. Long-term financial investments 3 3,317,251 433,797

1. Long-term financial investments, excluding loans 3,317,251 433,797

a) Shares and participating interests in companies within the Group 3,317,251 433,797

VI. Deferred tax assets 4 9,238,721 9,103,403

B. Current assets 20,798,842 23,744,377

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

II. Inventories 5 9,571,487 9,636,762

1. Material 6,464,627 5,628,416

2. Unfinished products 195,868 116,927

3. Products and merchandise 2,829,123 3,816,266

4. Advances for inventories 81,869 75,153

IV. Short-term operating receivables 6 10,197,909 12,918,259

1. Short-term operating receivables due from the Group companies 511,369 3,611,176

2. Short-term operating trade receivables 8,122,278 7,786,966

3. Short-term operating receivables due from others 1,564,262 1,520,117

V. Cash 7 1,029,446 1,189,356

C. Short-term deferred expenses and accrued revenues 8 720,007 540,045


55

EQUITY AND LIABILITIES 130,726,426 135,418,065

A. Equity 9 66,729,755 70,621,132

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

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

II. Capital reserves 55,004 588,439

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 2,768,461

V. Retained net profit/loss -10,686,737 -11,220,172

VI. Net profit/loss for the year -3,925,139 0

B. Provisions and long-term accrued expenses and deferred revenues 10 439,780 611,078

1. Provisions for pensions and similar liabilities 384,685 410,737

2. Other provisions 55,095 200,341

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

C. Long-term liabilities 20,859,332 10,111,931

I. Long-term financial liabilities 11 20,285,383 9,504,220

1. Long-term financial liabilities to Group companies 1,000,000 0

2. Long-term financial liabilities to banks 19,241,544 9,359,490

4. Other long-term financial liabilities 43,839 144,730

III. Deferred tax liabilities 573,949 607,711

D. Short-term liabilities 41,874,679 53,286,556

II. Short-term financial liabilities 12 17,395,344 24,041,918

1. Short-term financial liabilities to Group companies 5,833,667 0

2. Short-term financial liabilities to banks 11,460,786 23,444,892

4. Other short-term financial liabilities 100,891 597,026

III. Short-term operating liabilities 24,479,335 29,244,638

1. Short-term operating liabilities to the Group companies 1,003,465 1,023,230

2. Short-term operating liabilities to suppliers 13 21,480,797 26,153,819

4. Short-term operating liabilities from advances 283,201 449,323

5. Other short-term operating liabilities 14 1,711,872 1,618,266

E. Short-term accrued expenses and deferred revenues 15 822,880 787,368

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


56

1.2. STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013

Notes 2013 2012

In EUR

1. Net sales revenues 16 95,350,757 100,463,752

2. Change in inventories of products and work in progress -907,522 579,866

4. Other operating revenues (including revaluation operating revenues) 17 30,685 2,181,348

5. Costs of goods, materials and services 78,175,678 81,273,315

a) Cost of goods and materials sold and cost of materials used 67,853,196 70,665,657

b) Costs of services 18 10,322,482 10,607,658

6. Labour costs 19 9,464,819 10,019,067

a) Costs of salaries and wages 6,952,903 7,265,685

b) Social security costs 1,265,345 1,381,095

c) Other labour costs 1,246,571 1,372,287

7. Write-offs 7,290,596 8,021,091

a) Amortisation 7,094,724 7,578,967

b) Revaluation operating expenses for intangible and tangible fixed assets 2,269 294,228

c) Revaluation operating expenses for current assets 193,603 147,896

8. Other operating expenses 20 1,073,856 970,440

Operating profit/loss -1,531,029 2,941,053

9. Financial revenues from participating shares 0 80,782

10. Financial revenues from loans granted 7,667 0

a) Financial revenues from loans granted to Group companies 7,667 0

11. Financial revenues from operating receivables 21 21,757 62,639

b) Financial revenues from operating receivables due from others 21,757 62,639

13. Financial expenses for financial liabilities 22 2,396,602 2,508,459

a) Finance expenses for loans received from Group companies 47,128 0

b) Financial expenses for loans received from banks 2,325,524 2,440,744

d) Financial expenses for other financial liabilities 23,950 67,715

14. Financial expenses for operating liabilities 23 225,278 257,700

b) Financial expenses for liabilities to suppliers and bills of exchange 225,278 257,700

Net profit/loss from ordinary activities -4,123,485 318,315

15. Other income 24 85,294 101,635

16. Other expenses 22,266 13,878

Operating profit/loss from extraordinary activities 63,028 87,757

17. Corporate income tax 26 0 0

18. Deferred taxes 135,318 -329,585

19. Net profit/loss for the period -3,925,139 76,487

20. Change in surplus from revaluation of intang. assets and property, plant and equipment 33,762 -52,108

21. Total comprehensive income for the year -3,891,377 24,379



57

1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013

in EUR 2013 2012 A. Cash flows from operating activities

a) Items of income statement 5,743,549 8,577,152

Operating revenues (except from revaluation) and financial revenues from operating receivables 95,477,651 100,824,831

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -89,869,420 -91,918,094

Income taxes and other taxes not included in operating expenses 135,318 -329,585

b) Changes in net current assets (and accruals and deferrals, provisions and

deferred tax assets and liabilities) of the operating items in the balance sheet -5,646,104 703,994

Opening less closing operating receivables -356,707 2,543,596

Opening less closing deferred expenses and accrued revenues -408,532 -226,658

Opening less closing deferred tax assets -135,318 329,585

Opening less closing inventories 65,275 510,470

Closing less opening operating liabilities -4,680,264 -2,537,814

Closing less opening accrued expenses and deferred revenues, and provisions -130,558 84,815

Closing less opening deferred tax liabilities 0 0

c) Net operating receipts or net operating disbursements (a + b) 97,445 9,281,146 B. Cash flows from investing activities

a) Cash receipts from investing activities 18,329 453,313

Receipts from interest and participation in profit relating to investing activities 0 80,782

Cash receipts from disposal of intangible assets 18,329 0

Cash receipts from disposal of property, plant and equipment 0 372,531

b) Cash disbursements for investing activities -2,588,828 -2,352,654

Cash disbursements for acquisition of intangible assets -3,910 -48,386

Cash disbursements for acquisition of items of property, plant and equipment -2,584,918 -2,266,268

Cash disbursements for acquisition of long-term financial investments 0 -38,000

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -2,570,499 -1,899,341

C. Cash flows from financing activities

a) Cash receipts from financing activities 9,497,478 999,481

Cash receipts from paid-in capital 0 0

Cash receipts from increase in long-term financial liabilities 1,662,321 0

Cash receipts from increase in short-term financial liabilities 7,835,157 999,481

b) Cash disbursements for financing activities -7,184,334 -8,203,901

Interest paid on financing activities -2,419,961 -2,394,757

Repayments of long-term financial liabilities 0 0

Repayments of short-term financial liabilities -4,764,373 -5,809,144

c) Net receipts from financing activity or net disbursements for financing activity (a + b) 2,313,144 -7,204,420

D. Final balance of cash 1,029,446 1,189,356

x) Net cash flows for the period (sum of Ac, Bc and Cc) -159,910 177,385

y) Opening balance of cash 1,189,356 1,011,971 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


58

1.4. STATEMENT OF CHANGES IN EQUITY FOR 2013 in EUR

Share capital

Legal reserves

Reserves for own stakes

Treasury shares

Other revenue reserves

Profit/loss brought forward

Net profit/loss

for the year Capital

reserves Revaluation

surplus Total

A.1. Balance as at 31 December 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -11,220,172 0 588,439 2,768,461 70,621,132 a) Retrospective restatements (elimination of errors) b) Retrospective adjustments (changes in accounting policies)

A.2. Balance as at 1 January 2013 78,387,660 96,744 3,557,093 -3,557,093 0 -11,220,172 0 588,439 2,768,461 70,621,132 B.1. Changes in equity - transactions with owners

a) Subscription of called-up share capital

(capital payment)

b) Subscription of uncalled share capital

c) Call-up of subscribed share capital

d) Entry of additional payments of equity capital

e) Purchase of treasury shares and own stakes

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 year -3,925,139 -3,925,139 c) Change in surplus from revaluation of property, plant and equipment 33,762 33,762 d) Change in surplus from revaluation of financial investments 0

0 0 0 0 0 0 -3,925,139 0 33,762 -3,891,377

B.3. Changes in equity a) Allocation of remaining net profit of the comparative 0

reporting period to other equity components 0

b) Allocation of part of net profit of the reporting period to other equity components according to the resolutions

of the management and supervision bodies 533,435 -533,435 0

0 0 0 0 0 533,435 0 -533,435 0 0

C. Balance as at 31 December 2013 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

ACCUMULATED PROFIT/LOSS -10,686,737 -3,925,139 -14,611,876



59

1.5. STATEMENT OF CHANGES IN EQUITY FOR 2012 in EUR

Share capital

Legal reserves


Treasury shares



Net profit/loss

for the year Capital


surplus Total

A.1. Balance as at 31/12/2011 78,387,660 96,744 3,557,093 -3,557,093 0 -11,296,659 0 588,439 2,385,484 70,161,668 a) Retrospective restatements (elimination of errors) 435,085 435,085 b) Retrospective adjustments (changes in accounting polices) 0

A.2. Balance as at 1 January 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -11,296,659 0 588,439 2,820,569 70,596,753

B.1. Changes in equity - transactions with owners


(capital payment)





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 76,487 76,487 d) Change in surplus from revaluation of intangible assets -52,108 -52,108 d) Change in surplus from revaluation of property, plant and equipment 0 d) Change in surplus from revaluation of financial investments 0

0 0 0 0 0 0 76,487 0 -52,108 24,379

B.3. Changes in equity a) Allocation of remaining net profit of the comparative reporting period to other equity components 0

b) Allocation of part of net profit of the reporting 76,487 -76,487 0 period to other equity components according to the resolutions

of the management and supervision bodies 0

0 0 0 0 0 0 0 0 0 0

C. Balance as at 31 December 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -11,220,172 0 588,439 2,768,461 70,621,132

ACCUMULATED PROFIT/LOSS -11,220,172 -11,220,172 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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2. APPENDIX TO THE FINANCIAL STATEMENTS

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS

The financial statements for 2013 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.

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 2012 and data as at 31 December 2013. 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 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 purchase price, including import duties and purchase taxes. Following recognition, the cost method is used as the method of valuation. Intangible


61

assets are amortised using a straight-line method. Intangible fixed assets also include emission coupons and deferred development costs.

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 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.


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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 expenses 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 2013. 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.

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 expenses 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 receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. 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.


63

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 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.

2.2. NOTES TO THE FINANCIAL STATEMENTS 2013 2012 1. Intangible assets in EUR 728,865 506,932

Property Deferred expenses Emissions coupons Total

rights of development

1. Cost

Balance as at 1 January 2013 145,499 305,760 158,431 609,690

Increase 3,910 190,000 169,560 363,470

Decrease 0 0 -130,991 -130,991

Balance as at 31 December 2013 149,409 495,760 197,000 842,169

2. Value adjustment

Balance as at 1 January 2013 -102,758 0 0 -102,758

Amortisation -10,546 0 0 -10,546

Decrease 0 0 0 0

Balance as at 31 December 2013 -113,304 0 0 -113,304

3. Residual value



Intangible fixed assets comprise software (EUR 36,105), deferred development costs (EUR 495,760) and emission coupons (EUR 197,000). As at 31 December 2013, 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. Based on the calculation of obligations for 2012, the Company in 2013 gave to the Ministry of the Environment and Spatial Planning 130,991 emission coupons. In 2013, it purchased 36,000 emission coupons at EUR 4.71 (value of EUR 169,560) to fulfil the Company's obligations to the Ministry of the Environment and Spatial Planning. In April 2014, 144,837 emission coupons will be credited to the Company's account. Based on the calculation of obligations for 2013, the Company assessed delivery of 136,745 emission coupons and will by the end of April 2014 discharge its liabilities.


64

2. Property, plant and equipment

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 2013 2012

Overview of the fluctuation of fixed assets in 2013 in EUR 95,922,740 101,089,511

Item Land Constructi

on Equipment Equipment Advance payments Total

buildings

under construction

and manufacture

1. Cost Opening balance as at 1 January 2013 8,453,232 31,485,154 144,947,208 402,030 0 185,287,624

Additions 0 185,168 1,859,938 1,936,747 0 3,981,853

Disposals 0 -8,950 -255,438 -2,049,463 0 -2,313,851 Transfer of short-term held-for-sale assets 0 0 0 0 0 0 Balance as at 31 December 2013 8,453,232 31,661,372 146,551,708 289,314 0 186,955,626

2. Value adjustment Opening balance as at 1 January 2013 0 -9,521,638 -74,676,475 0 0 -84,198,113

Increases - depreciation 0 -949,601 -6,134,577 0 0 -7,084,178 Impairments of existing fixed assets 0 -11,213 0 0 0 -11,213

Decrease 0 5,941 254,677 0 0 260,618

Balance as at 31 December 2013 0 -10,476,511 -80,556,375 0 0 -91,032,886

3. Residual value

Balance as at 1 January 2013 8,453,232 21,963,516 70,270,733 402,030 0 101,089,511 Balance as at 31 December 2013 8,453,232 21,184,861 65,995,333 289,314 0 95,922,740

As at 31 December 2013, the Company had EUR 5,478,937 in long-term loans for the purchases of fixed assets and EUR 144,730 liabilities arising from financial lease. Fixed assets in the amount of EUR 63,620,024 were pledged as collateral for long- and short-term financial liabilities (Item 11.12) and bank bonds; liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 508,291. In 2013, we performed a revision of the initially assessed expected life with a change in the depreciation rate for the equipment on Boiler-6, which was activated under investment 99018 in 2003, from 8% to 5%. The cause for the change in the depreciation rate is the fact that the boiler did not operate 365 days a year. Owing to these corrections, the depreciation was EUR 208 thousand lower at the annual level.


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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 at 31 December 2013, 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. 2013 2012

3. Long-term financial investments in EUR 3,317,251 433,797

Balance as at 31

December 2012

Value adjustment

as at 31 December

2012

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2013

Acquisition of

investment

Carrying amount as at 31 December

2013

Ekopa d.o.o., Krško (100%) 42,693 -21,160 0 0 0 2,883,454 2,904,987

Levas d.o.o., Krško (96.59%) 421,243 -195,979 0 0 0 0 225,264Vipap GMBH, Neunkirchen (100%) 35,000 0 0 0 0 0 35,000

Zel-en Krško (11.38%) 152,000 0 0 0 0 0 152,000

Total shares 650,936 -217,139 0 0 0 2,883,454 3,317,251


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Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2013 income statement, the company disclosed a loss of EUR 69,444. As at 31 December 2013, the company's equity capital stood at EUR 2,845,986. The company's equity increased by EUR 2,883,454 through debt-to-equity swap due to the purchase of real property in 2012. The registered office of Levas Krško d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 17,479 in its 2013 income statement. The amount of equity capital in the balance sheet as at 31 December 2013 was EUR 844,224, net sales revenues amounted to EUR 2,863,063, and the value of assets totalled EUR 2,059,974. In 2010 the company acquired Vipap Vertiebs und Handels GmbH. The company's activities include selling our paper and also purchasing recovered paper. In 2013, the company generated EUR 10,328,221 of revenues and ended the year with a profit of EUR 19,353. Its equity capital as at 31 December 2013 equalled EUR 57,885. 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. The company Vipap Videm Krško d.d. included in its consolidated financial statements the statements of the subsidiaries Vipap Vertriebs und Handels GmbH, Levas Krško d.o.o. and Ekopa 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.

2013 2012

4. Deferred tax assets in EUR 9,238,721 9,103,403

1 January 2013 decrease increase 31 December 2013

Severance payments 55,342 5,557 0 49,785

Long-service awards 13,276 2,162 0 11,114

Devaluation of long-term held-for-sale assets 60,489 5,030 0 55,459

Formation of value adjustments of receivables 620,763 5,847 0 614,916

Unused tax loss 8,353,533 0 153,914 8,507,447

TOTAL receivables: 9,103,403 18,596 153,914 9,238,721

Revaluation of land -607,711 33,762 0 -573,949

TOTAL liabilities -607,711 33,762 0 -573,949

NET receivables 8,495,692 52,358 153,914 8,664,772

In 2013, we continued using provisions arising from severance payments for employees who retired and those who met the conditions for long-service awards. We continued selling fixed assets for chemical pulp production. Deferred tax assets increased in 2013 due to unused tax loss, but decreased in all items due to drawing and change of tax rate. The Company applied the 17% tax rate in the calculation of deferred tax assets. The Company's management assesses that there is convincing evidence that future taxable profit will be available against which deductible temporary differences, unused tax credits or losses can be utilised. The latter is based on the Company's development strategy up to 2020, which anticipates a 13-percent growth in the volume of production, from the present 200 thousand tonnes to 225 thousand tonnes, and a 20-percent rise in revenues, from EUR 100 million to about EUR 120 million. For its future operations, the Company anticipates production and sale of new types of paper with a higher value added, which will result in higher future profits.


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2013 2012 5. Inventories in EUR 9,571,487 9,636,762

Inventory type

Balance as at 31 December

2013 Inventory surpluses

Inventory deficits

Impaired value due to

change in quality

Impaired value to marketable

value

Material 6,455,992 193 438 0 0

Small inventory 8,635 0 0 0 0

Unfinished products 195,868 0 0 0 0

Products 2,824,156 1,482 0 0 17,213

Merchandise 4,967 0 0 0 0

Advances for inventories 81,869 0 0 0 0

Total 9,571,487 1,675 438 0 17,213

Significant inventories of materials include: recovered paper (EUR 912,046), basic raw materials (EUR 1,492,017), maintenance material (EUR 1,995,044), spare parts (EUR 1,446,031), energy-generating products (EUR 425,735), and other (EUR 185,119).

Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 190,370) and paper intended for re-processing (EUR 5,498).

The inventories of products comprise inventories of paper in reels (EUR 2,465,977) and inventories of paper in sheets (EUR 358,179). As at 31 December 2013, 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 2013 pledged as collateral for short-term financial liabilities.

2013 2012 6. Short-term operating receivables in EUR 10,197,909 12,918,259


2013 Collateralised receivables

Receivables without collateral

Outstanding receivables

Maturity up to 1 year

Maturity of over 1 year

Value adjustment as at 1 January 2013

Reduced adjustment

Increased adjustment

Value adjustment as at

31 December 2013

Carrying amount as at 31

December 2013 Short-term operating trade receivables

12,312,118 6,417,884 5,894,234 6,188,267 1,793,609 4,330,242 -4,023,670 7,948 -174,118 -4,189,840 8,122,278

Short-term operating receivables from the Group companies

511,369 0 511,369 463,669 47,700 0 0 0 0 0 511,369

Short-term operating receivables from others

1,564,262 0 1,564,262 1,343,786 0 220,476 0 0 0 0 1,564,262

Total 14,387,749 6,417,884 7,969,865 7,995,722 1,841,309 4,550,718 -4,023,670 7,948 -174,118 -4,189,840 10,197,909

Receivables in the amount of EUR 6,684,459 are pledged as collateral for loans.


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2013 2012 7. Cash in EUR 1,029,446 1,189,356

31 December 2013 31 December 2012

Cash register 235 346

Transaction accounts 1,029,211 1,189,010

Short-term deposits 0 0

Total: 1,029,446 1,189,356

2013 2012 8. Short-term accrued revenues and deferred expenses in EUR 720,007 540,045

Type of deferral Balance as at 1 January 2013 Establishment Disbursement

Balance as at 31 December 2013

Deferred expenses 484,352 9,374,766 -9,209,236 649,882

Accrued revenues 55,693 42,927 -28,495 70,125

Total 540,045 9,417,693 -9,237,731 720,007

Short-term deferred expenses are: short-term deferred receivables from the state arising from VAT (EUR 644,091) and short-term deferred expenses for 2014 (EUR 5,791). Short-term accrued revenues comprise the amount relating to volume discounts for purchased raw materials and material for 2013 (EUR 70,125). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2013.

2013 2012 9. Equity in EUR 66,729,755 70,621,132

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.


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in EUR

A. NET PROFIT FOR THE YEAR

B. NET LOSS FOR THE YEAR -3,925,139

C. RETAINED NET PROFIT

D. NET LOSS BROUGHT FORWARD -11,220,172

- Covered net loss brought forward from previous year 533,435

E. DECREASE IN CAPITAL RESERVES 0

F. 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 0

H. DISTRIBUTABLE PROFIT 0

I. ACCUMULATED LOSS -14,611,876

Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -4,419,604. 2013 2012

10. Provisions and long-term accrued expenses and deferred revenues in EUR 439,780 611,078

Provisions

Balance as at 1 January

2013 Establishment Disbursement


2013

Provisions for severance pays upon retirement 311,441 0 -14,987 296,454

Provisions for long-service awards 99,296 0 -11,065 88,231

Total 410,737 0 -26,052 384,685

Provisions for building decommissioning cost 7,511 0 0 7,511Long-term accrued expenses and deferred revenues 158,431 0 -130,991 27,440

Long-term deferred revenues 34,399 0 -14,255 20,144

Total 200,341 0 -145,246 55,095

Grand total: 611,078 0 -171,298 439,780 The most recent actuary calculation of provisions for severance payments and long-service awards of employees was performed on 31 December 2008. Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company 3sigma d.o.o. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was carried out on 31 December 2005 due to the formation of provisions and on 31 December 2006 due to high turnover of employees in 2006. It was based on data submitted regarding employees and on the assumption regarding the growth in average salary in the Republic of Slovenia (3.5% p.a.), and based on employee turnover and conditions for retirement (Article 36 of the Pension and Disability Insurance Act (ZPIZ)). The calculation as at 31 December 2008 was based on submitted data and on the assumption that the annual growth in salaries would be 1.5%. Severance payment at retirement is calculated in accordance with the criteria of two average gross salaries in the Republic of Slovenia for the previous three months or in the amount of two


70

average gross monthly salaries of the employee in the last three months prior to retirement, whichever is more favourable for the employee. In the calculation of long-service awards, the criteria of base salary for tariff class I of the Collective Agreement of the Pulp, Paper and Paper Processing Industry (1 basis for 10 years of work at the company, 1.5 bases for 20 years of work at the company and 2 bases for 30 years of work at the company) were taken into account. The selected discounted interest rate amounts to 7.65% per annum, which was the return on 10-year corporate bonds with a high credit rating in the euro area at the end of 2008. 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 2013, the Company decreased provisions for severance payment by the value of provisions utilised (EUR 13,296) and by the value of unnecessary provisions (EUR 1,691). For long-service awards it used EUR 10,569 of provisions and reversed EUR 496 of provisions. Long-term accrued expenses and deferred revenues decreased by the amount of emission coupons delivered for 2012 (130,991 coupons). The carrying amount of one coupon is EUR 1. Provisions for non-current 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. 2013 2012 11. Long-term financial liabilities in EUR 20,285,383 9,504,220

Creditor

Balance as at 31

December 2013

Outstanding

Short-term maturity

Long-term maturity

Date of final

maturity Interest rate

Domestic bank 975,000 975,000 325,000 650,000 01/10/2016 6-month Euribor + 3.93%

Domestic bank 3,454,496 3,454,496 882,001 2,572,495 01/11/2017 6-month Euribor + 5.2%

Domestic bank 1,101,444 1,101,444 367,144 734,300 20/10/2016 3-month Euribor + 5.5%

Domestic bank 1,022,222 1,022,222 1,022,222 0 01/12/2014 6-month Euribor + 3.1%

Domestic bank 478,261 478,261 478,261 0 20/06/2014 6-month Euribor + 3.1%

Domestic bank 685,780 685,780 685,780 0 01/12/2014 6-month Euribor + 3.1%


Domestic bank 2,679,000 2,679,000 1,071,600 1,607,400 29/06/2016 3-month Euribor + 3.95%


Domestic bank 900,000 900,000 40,000 860,000 08/03/2018 3-month Euribor +6.1%

Domestic bank 1,900,000 1,900,000 80,000 1,820,000 20/02/2018 3-month Euribor +6.1%



Domestic bank 595,100 595,100 0 595,100 30/04/2020 3-month Euribor +1.5%

Domestic bank 67,221 67,221 0 67,221 31/10/2020 3-month Euribor +1.5%

Domestic bank 4,300,000 4,300,000 25,000 4,275,000 31/05/2015 6-month Euribor + 5.14%

Foreign bank 260,676 260,676 260,648 28 19/06/2014 6-month Euribor + 1.3%

Total 24,999,200 24,999,200 5,757,656 19,241,544 Loan from a foreign Group company 1,000,000 1,000,000 0 1,000,000 31/12/2016

3-month Pribor +3.4%

Other short-term financial liabilities 144,730 144,730 100,891 43,839 20/05/2015 6-month Euribor

Total 26,143,930 26,143,930 5,858,547 20,285,383


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The fair value of loans raised is equal to their carrying amount. Long-term loans (including the portion falling due in 2014 in the amount of EUR 5,757,656) total EUR 24,999,200. Long-term loans of Group companies raised in 2013 amount to EUR 1,000,000. The final due date is 31 December 2016 and the interest rate is 3M Pribor + 3.4%. The fair value of other long-term financial liabilities is equal to their carrying amount. Short-term and long-term portion of liabilities to the lessor are secured by the retention of ownership rights to fixed assets. 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.

2013 2012

12. Short-term financial liabilities in EUR 17,395,344 24,041,918

Creditor Balance as at 31 December 2013 Outstanding

Date of final maturity Interest rate (%)

Domestic bank 882,001 882,001 01/11/2017 6-month Euribor + 5.2%

Domestic bank 685,780 685,780 01/12/2014 6-month Euribor + +3.1%

Domestic bank 1,071,600 1,071,600 29/06/2016 3-month Euribor + 3.95%




Domestic bank 1,022,222 1,022,222 01/12/2014

6-month Euribor + +3.1%

Domestic bank 1,000,000 1,000,000 31/01/2014 6-month Euribor + +3.1%




Domestic bank 1,803,130 1,803,130 22/05/2014 7%




Domestic bank 900,000 900,000 31/01/2014 7.1%



Foreign bank 260,648 260,648 19/06/2014 6-month Euribor + +1.3%

Short-term overdue loans 11,460,786 11,460,786 Loan from a foreign Group company 5,833,667 5,833,667 29/08/2014 3-month Pribor 5.1%

Current liabilities to lessors 100,891 100,891

Total 17,395,344 17,395,344


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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 5,757,656. The short-term portion of other financial liabilities is EUR 43,839. Short-term loans raised by the Company with commercial banks were renewed on due date in 2013, as in previous periods.

2013 2012 13. Short-term operating liabilities to suppliers in EUR 21,480,797 26,153,819 - in Slovenia 12,225,086 15,288,585

- abroad 9,194,791 10,832,279

- uncharged goods and services 60,920 32,955

Total 21,480,797 26,153,819

As at 31 December 2013, the Company had liabilities due in Slovenia in the amount of EUR 3,867,112 and outstanding liabilities in the amount of EUR 8,357,974. In the structure of liabilities abroad, EUR 2,708,456 were due and EUR 6,486,335 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 359,109), Ekopa d.o.o (EUR 21,736) and Vipap Vertriebs und Handels GmbH (EUR 622,620), disclosed under liabilities to Group companies.

2013 2012 14. Other short-term operating liabilities in EUR 1,711,872 1,618,266 This item comprises liabilities for interest (EUR 606,804), liabilities for salaries 12/2013 (EUR 393,623) and the related liabilities for contributions arising from salaries (EUR 135,526), liabilities for employer contributions (EUR 97,719), payroll tax liabilities (EUR 75,645), liabilities for other employment earnings (EUR 52,636), VAT liabilities payable in January 2014 (EUR 245,103), and other (EUR 104,816). 2013 2012

15. Short-term accrued expenses and deferred revenues in EUR 822,880 787,368

Type of deferral Balance as at 1

January 2013 Establishment Disbursement


2013

Accrued expenses 650,643 1,271,280 1,288,076 633,847 Short-term deferred revenues 136,725 52,308 0 189,033 Total 787,368 1,323,588 1,288,076 822,880

Short-term accrued expenses and deferred revenues comprise costs that will arise as liabilities in 2014 or for which we will receive assessment decisions in 2014, namely: unused annual leave for 2013 (EUR 384,389), calculated liability to the Ministry of the Environment and Spatial Planning arising from water used pursuant to the final decision for 2013 (EUR 54,214), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2013 (EUR


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53,564), and liabilities arising from sales-dependant costs (EUR 137,002), interest charged to customers for which revenue is disclosed upon payment (EUR 189,004), and other (EUR 4,707).

2013 2012

16. Net sales revenues in EUR 95,350,757 100,463,752 Italy 15,411,714 13,403,347 Slovenia 13,949,006 17,887,005 Serbia 12,401,115 12,800,148 Austria 11,496,356 12,193,198 Germany 11,427,014 13,764,912 Bulgaria 4,431,081 2,541,342 Greece 3,857,546 4,134,664 Croatia 3,022,571 1,738,460 Slovakia 2,271,785 1,850,708 Switzerland 2,204,035 2,876,538 Macedonia 2,149,237 1,498,046 Turkey 2,003,567 2,628,057 Romania 1,815,411 1,265,910 Montenegro 1,438,618 1,540,602 France 1,386,854 3,021,659 Bosnia and Herzegovina 1,237,549 724,996 Albania 1,147,799 1,205,612 Czech Republic 859,728 1,036,521 Kosovo 510,446 658,597 Poland 275,762 649,114 Great Britain 254,598 1,278,773 Belgium 111,720 113,138 The Netherlands 44,152 218,696 Other countries 887,954 626,631 Other 755,139 807,078 Total 95,350,757 100,463,752 Breakdown of revenues by business area 2013 2012 Sales of paper 94,595,618 99,656,674 Other 755,139 807,078 Total 95,350,757 100,463,752 2013 2012 17. Other operating income in EUR 30,685 2,181,348

Other operating income comprises income from release of provisions (EUR 5,229), other income associated with products (EUR 10,673), income from sale of fixed assets (EUR 5,614), and revaluation operating income arising from bad and doubtful debt settled (EUR 9,169).


74

2013 2012 18. Costs of services in EUR 10,322,482 10,607,658

Cost of transport services 3,490,046 3,801,303 Costs of fixed asset maintenance 3,058,637 2,985,747 Costs of payment transactions, banking services and insurance 904,302 841,631 Cost of intellectual and personal services 193,438 297,688 Contract-based work, author's contracts, session fees 138,524 142,461 Rents 390,752 380,097 Costs of trade fairs, advertising and entertainment 43,315 55,029 Costs of services arising from production and provision of services 35,789 47,644 Reimbursement of employee work-related costs 36,284 46,168 Costs of auditing the annual report 20,500 20,500 Provisions 0 36,440 Other service expenses 2,010,895 1,952,950 Total 10,322,482 10,607,658

2013 2012 19. Labour costs in EUR 9,464,819 10,019,067

Costs of salaries and wages 6,470,855 6,753,421 Pension insurance costs 745,533 830,356 Cost of other social insurance 519,812 550,739 Other labour costs 1,728,619 1,884,551 Average number of employees based on hours 364.33 367.40

Other labour costs (EUR 1,728,619) include: employee salary allowances (EUR 482,047), travel allowances (EUR 337,217), meal allowances (EUR 337,354), annual leave allowances (EUR 340,050), costs of the Management Board members (EUR 107,460), and other (EUR 124,491).

Gross receipts by group (ZGD-1) for 2013 in EUR 2013 2012 pursuant to Article 294 of ZGD-1

Management Board members 787,841 895,335 Supervisory Board members 47,340 45,139 TOTAL 835,181 940,474

As at 31 December 2013, the Company disclosed the following net liabilities: to members of the Management Board EUR 20,726, to other employees with service contracts EUR 5,301, to internal members of the Supervisory Board EUR 1,200, and to external members of the Supervisory Board and the Management Board EUR 4,750.


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2013 2012 20. Other operating expenses in EUR 1,073,856 970,440 Other operating expenses include: environment protection expenses (EUR 484,593) and compensation for the use of building land (EUR 484,272), scholarships (EUR 881), contributions and membership fees (EUR 29,161), and other expenses (EUR 74,949). 2013 2012 21. Financial revenues from operating receivables in EUR 21,757 62,639 Foreign exchange gains 10,350 19,868

Interest income 11,407 42,771

Total 21,757 62,639

2013 2012

22. Financial expenses for financial liabilities in EUR 2,396,602 2,508,459 This item comprises interest on loans (EUR 2,363,374), interest on instalments arising from lease contracts falling due in the current year (EUR 23,950) and exchange rate differences from other financial liabilities (EUR 9,278). 2013 2012 23. Financial expenses for operating liabilities in EUR 225,278 257,700 This item comprises interest on operating liabilities (EUR 194,300) and exchange rate differentials from receivables and liabilities (EUR 30,978). 2013 2012 24. Other income in EUR 85,294 101,635 The item consists of: damages received (EUR 85,046), subsidised scholarships (EUR 220) and other (EUR 28). 25. Derivative financial instruments As at 31 December 2013, the Company disclosed the following derivatives:

o interest rate swap concluded with Nova Ljubljanska banka Ljubljana with principal amount of EUR 6.1 million in 2005 and with Hypo-Alpe-Adria banka Ljubljana for principal amount of EUR 5.0 million and EUR 4.5 million in 2011 and 2009. By way of the instruments just mentioned, the Company secured itself against the risk of the Euribor reference interest rate fluctuation for the time of loan repayment, thus managing the risk of rising interest rates. As at 31 December 2013, net present value of the said instruments was negative, i.e. EUR 60 thousand, of which overdue liability of EUR 56 thousand was disclosed as at 31 December 2013. The remaining amount will be debited against expenses through the contract term.


76

o Cross currency swap concluded with Unicredit Banka Slovenija from 2010 with principal amount as at 31 December 2013 of EUR 1.7 million. The instrument expires in 2015. Net present value, which represents the current indicative market value of a product or approximate product selling price is negative, i.e. EUR 555 thousand, of which overdue liability of EUR 178 thousand was disclosed as at 31 December 2013. The remaining amount will be debited against expenses through the contract term.

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). For both instruments, CCS and IRS, net present values are negative, but these products have not yet matured; therefore, effects are recognised upon payment according to the payment schedule. In 2013 the related financial expenses for IRS were posted in the amount of EUR 177 thousand and for CCS in the amount of EUR 360 thousand. 2013 2012 26. Corporate income tax in EUR 0 0

Total profit (loss) -4,060,457 406,072

Taxable income 63,000 Non-taxable income -3,633 -292,566 Taxable expenses 395,115 383,730 Other decreases in the tax base -29,316 -4,029,190 Tax reliefs 0 0 Drawing of tax loss 0 0 Tax base 0 0 Tax rate 17% 18% Corporate income tax 0 0 Tax loss -3,635,291 -3,531,954 2013 2012 27. Breakdown of costs by functional group in EUR 96,716,600 99,261,923 Cost of goods sold 4,848 4,852 Manufacturing costs of products sold 87,667,713 89,561,923 Selling costs (including amortisation/depreciation) 4,746,861 5,183,144 Administrative costs (including amortisation/depreciation) 4,297,178 4,512,004 TOTAL 96,716,600 99,261,923

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.


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28. Transactions with related parties in 2013 in EUR

Related party Transactions - receivables Transactions - liabilities

Offset receivables (+) / liabilities (-) as at 31 December 2013

Ekopa d.o.o. 0 0 -21,736 Levas d.o.o. 156,302 1,644,715 -343,158 Vipap GmbH 6,512,933 3,475,122 -127,203 TOTAL: 6,669,235 5,119,837 -492,097

29. Performance indicators31 December 2013

31 December 2012

Equity financing rate equity / liabilities 0.51 0.52

Long-term financing rate capital + long-term liabilities

(including long-term 0.67 0.60 provisions) / liabilities

Operating fixed assets rate fixed assets / assets 0.73 0.75

Long-term investment rate (fixed assets + long-term financial

investments + long-term 0.84 0.82 operating receivables) / assets

Equity to operating fixed assets ratio capital / fixed assets 0.70 0.70 Acid test ratio liquid assets / short-term loans 0.02 0.02

Quick ratio

(liquid assets + short-term receivables + short-term financial

investments) / short-term loans 0.27 0.26

Current ratio current assets / short-term liabilities 0.51 0.46

Operating efficiency ratio operating revenues / operating

expenses 0.98 1.03

3. CONTINGENT LIABILITIES

Vipap Videm Krško d.d. guarantees for the liabilities of Vipap Vertriebs und Handels GmbH to Factorbank AG in the amount of EUR 3 million.


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4. SIGNIFICANT EVENTS AFTER THE END OF THE 2013 FINANCIAL YEAR

Since the start of 2014 until the end of March 2014, the Company repaid EUR 1,380,319 of liabilities from loans received and EUR 26,697 liabilities from financial lease. Repayments were made according to loan agreements. The Company has been negotiating with banks on the financing for investments in 2014 and 2015, planned in the amount of EUR 12,971,500; financing is expected to be provided by a loan covering 70% of investment value. Negotiations with banks are still in progress.

Krško, 1 April 2014

5. INDEPENDENT AUDITOR'S REPORT

.


81

V. FINANCIAL REPORT OF THE VIPAP GROUP


82

1. FINANCIAL STATEMENTS

1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2013

Note 31 December

2013 31 December

2012

In EUR

ASSETS 131,402,307 135,742,877

A. Long-term assets 109,171,405 113,809,391 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 732,725 512,573

1. Long-term property rights 236,965 206,813

4. Long-term deferred development costs 495,760 305,760

II. Property, plant and equipment 2 98,501,121 103,739,931

1. Land and buildings 31,609,664 32,466,548

a) Land 8,832,648 8,832,648

b) Buildings 22,777,016 23,633,900

2. Plant and machinery 65,078,231 67,869,854

3. Other plant and equipment 1,494,432 2,937,754

4. Property, plant and equipment being acquired 318,794 465,775

a) Property, plant and equipment under construction and manufacture 298,794 465,775

b) Advances for property, plant and equipment 20,000 0

III. Investment property 0 0

IV. Long-term financial investments 3 513,484 453,484

1. Long-term financial investments, excluding loans 513,484 453,484

a) Shares and participating interests in companies within the Group 0 0

b) Other shares and stakes 513,484 453,484

VI. Deferred tax assets 4 9,424,075 9,103,403

B. Current assets 21,494,364 21,386,321

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

II. Inventories 5 9,828,681 9,868,857

1. Material 6,650,481 5,776,110

2. Unfinished products 195,868 116,927

3. Products and merchandise 2,900,463 3,900,667

4. Advances for inventories 81,869 75,153

IV. Short-term operating receivables 6 10,516,932 10,284,553

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

2. Short-term operating trade receivables 8,933,954 8,744,559

3. Short-term operating receivables due from others 1,582,978 1,539,994

V. Cash 7 1,148,751 1,232,911

C. Short-term deferred expenses and accrued revenues 8 736,538 547,165


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Note 31 December 2013 31 December 2012

In EUR

EQUITY AND LIABILITIES 131,402,307 135,742,877

A. Equity 9 66,366,816 70,055,801

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

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

II. Capital reserves 55,004 588,439

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 3,165,157 3,083,329

V. Retained net profit/loss -11,593,549 -11,077,816

VI. Net profit/loss for the year -3,773,004 -1,049,559

Profit/loss for the year -3,773,004 -1,049,559

VII. Minority shareholder equity 28,804 27,004

B. Provisions and long-term accrued expenses and deferred revenues 10 1,158,006 1,324,349

1. Provisions for pensions and similar liabilities 566,151 603,466

2. Other provisions 68,657 226,894

3. Long-term accrued expenses and deferred revenues 523,198 493,989

C. Long-term liabilities 20,923,411 10,169,842

I. Long-term financial liabilities 11 20,287,458 9,511,895

1. Long-term financial liabilities to Group companies 1,000,000 0

2. Long-term financial liabilities to banks 19,241,544 9,359,490

4. Other long-term financial liabilities 45,914 152,405

III. Deferred tax liabilities 635,953 657,947

D. Short-term liabilities 42,088,058 53,357,838

II. Short-term financial liabilities 12 17,766,086 24,206,192

1. Short-term financial liabilities to Group companies 5,833,667 0

2. Short-term financial liabilities to banks 11,825,928 23,598,816

4. Other short-term financial liabilities 106,491 607,376

III. Short-term operating liabilities 24,321,972 29,151,646

1. Short-term operating liabilities to the Group companies 0 0

2. Short-term operating liabilities to suppliers 13 22,096,937 26,880,109

4. Short-term operating liabilities from advances 283,201 449,323

5. Other short-term operating liabilities 14 1,941,834 1,822,214

E. Short-term accrued expenses and deferred revenues 15 866,016 835,047

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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1.2. CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013 In EUR Notes 2013 2012

1. Net sales revenues 16 97,169,909 102,532,287

2. Change in inventories of products and work in progress -920,120 595,780

4. Other operating revenues (including revaluation operating revenues) 17 533,066 1,326,863

5. Costs of goods, materials and services 78,440,397 81,758,181

a) Cost of goods and materials sold and cost of materials used 68,515,679 71,457,710

b) Costs of services 18 9,924,718 10,300,471

6. Labour costs 19 11,193,926 11,859,831

a) Costs of salaries and wages 8,187,434 8,577,853

b) Social security costs 1,501,396 1,620,633

c) Other labour costs 1,505,096 1,661,345

7. Write-offs 7,585,290 7,924,704

a) Amortisation 7,314,909 7,731,716

b) Revaluation operating expenses for intangible and tangible fixed assets 2,276 15,821

c) Revaluation operating expenses for current assets 268,105 177,167

8. Other operating expenses 20 1,083,647 977,568

Operating profit/loss -1,520,405 1,934,646

9. Financial revenues from participating shares 9,660 9,000

c) Financial revenues from shares in other companies 9,660 9,000

10. Financial revenues from loans granted 7,667 0

a) Financial revenues from loans granted to Group companies 7,667 0

11. Financial revenues from operating receivables 21 23,702 62,863

b) Financial revenues from operating receivables due from others 23,702 62,863

13. Financial expenses for financial liabilities 22 2,446,440 2,548,681

a) Finance expenses for loans received from Group companies 47,128 0

b) Financial expenses for loans received from banks 2,374,550 2,479,460

d) Financial expenses for other financial liabilities 24,762 69,221

14. Financial expenses for operating liabilities 23 226,496 259,045

b) Financial expenses from trade payables and bills payable 226,496 259,045

c) Financial expenses for other operating liabilities 0 0

Net profit/loss from ordinary activities -4,152,312 -801,217

15. Other income 24 87,536 103,125

16. Other expenses 22,273 13,886

Operating profit/loss from extraordinary activities 65,263 89,239

17. Corporate income tax 26 -4,452 -2,764

18. Deferred taxes 319,104 -333,648

19. Net profit/loss for the period -3,772,397 -1,048,390

of which the Group -3,773,004 -1,049,559

of which minority shareholders 607 1,169

20. Change in surplus from revaluation of property, plant and equipment 33,762 0

21. Change in surplus from revaluation of financial assets 49,259 -6,212

22. Total comprehensive income for the year -3,689,376 -1,054,602

of which the Group -3,691,176 -1,055,555

of which minority shareholders 1,800 953



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1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2013 TO 31 DECEMBER 2013

in EUR 2013 2012 A. Cash flows from operating activities

a) Items of income statement 6,229,855 9,004,550

Operating revenues (except from revaluation) and financial revenues from operating receivables 97,802,544 103,556,508

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -91,887,342 -94,215,546

Income taxes and other taxes not included in operating expenses 314,653 -336,412

b) Changes in net current assets (and accruals and deferrals, provisions and

deferred tax assets and liabilities) of the operating items in the balance sheet -6,071,181 1,221,901

Opening less closing operating receivables -497,040 3,085,235

Opening less closing deferred expenses and accrued revenues -417,942 -199,018

Opening less closing deferred tax assets -320,673 329,585

Opening less closing inventories 36,733 515,632

Closing less opening operating liabilities -4,744,509 -2,606,268

Closing less opening accrued expenses and deferred revenues, and provisions -129,319 65,417

Closing less opening deferred tax liabilities 1,569 31,318

c) Net operating receipts or net operating disbursements (a + b) 158,674 10,226,451

B. Cash flows from investing activities

a) Cash receipts from investing activities 31,884 233,415

Receipts from interest and participation in profit relating to investing activities 9,660 9,872

Cash receipts from disposal of intangible assets 0 0

Cash receipts from disposal of property, plant and equipment 22,224 223,543

Cash receipts from disposal of long-term financial assets 0 0

b) Cash disbursements for investing activities -2,749,445 -2,526,128

Cash disbursements for acquisition of intangible assets -7,804 -50,165

Cash disbursements for acquisition of items of property, plant and equipment -2,741,641 -2,437,963

Cash disbursements for acquisition of long-term financial investments 0 -38,000

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -2,717,561 -2,292,713

C. Cash flows from financing activities

a) Cash receipts from financing activities 9,714,874 999,481

Cash receipts from paid-in capital 0 0

Cash receipts from increase in long-term financial liabilities 1,669,988 0

Cash receipts from increase in short-term financial liabilities 8,044,886 999,481

b) Cash disbursements for financing activities -7,240,147 -8,899,489

Interest paid on financing activities -2,475,623 -2,435,023

Cash repayments of equity -151 0

Repayments of long-term financial liabilities -4,764,373 0

Repayments of short-term financial liabilities 0 -6,464,466

c) Net receipts from financing activity or net disbursements for financing activity (a + b) 2,474,727 -7,900,008

D. Final balance of cash 1,148,751 1,232,911

x) Net cash flows for the period (sum of Ac, Bc and Cc) -84,160 33,730

y) Opening balance of cash 1,232,911 1,199,181



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1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2013

in EUR

Share capital

Legal reserves


Treasury shares

Other revenue reserve

s


Net profit/loss for the year

Capital reserves

Revaluation surplus Total

Minority shareholder

equity Grand total A.1. Balance as at 31 December 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -11,077,816 -1,049,559 588,439 3,083,329 70,028,797 27,004 70,055,801 a) Retrospective restatements (elimination of errors) 0 0 b) Retrospective adjustments (changes in accounting polices) 0 0 A.2. Balance as at 1 January 2013 78,387,660 96,744 3,557,093 -3,557,093 0 -11,077,816 -1,049,559 588,439 3,083,329 70,028,797 27,004 70,055,801 B.1. Changes in equity - transactions with owners 0 a) Subscription of called-up share capital (capital payment) b) Subscription of uncalled share capital c) Call-up of subscribed share capital d) Entry of additional payments of equity capital e) Purchase of treasury shares and own stakes i) Other changes in equity 391 391 391 0 0 0 0 0 391 0 0 0 391 0 391

B.2. Total comprehensive income for the reporting period a) Net profit/loss for the financial year -3,773,004 -3,773,004 607 -3,772,397 c) Change in surplus from revaluation of property, plant and equipment 33,762 33,762 33,762 d) Change in surplus from revaluation of financial investments 0 48,066 48,066 1,193 49,259

0 0 0 0 0 0 -3,773,004 0 81,828 -3,691,176 1,800 -3,689,376 B.3. Changes in equity

a) Allocation of remaining net profit of the comparative reporting period to other equity components -1,049,559 1,049,559 0 0

b) Other changes in equity 533,435 -533,435 0 0

0 0 0 0 0 -516,124 1,049,559 -533,435 0 0 0 0

C. 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

DISTRIBUTABLE PROFIT



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1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2012 in EUR

Share capital

Legal reserves


Treasury shares



Net profit/loss for

the year Capital


surplus Total

Minority shareholder

equity Grand total

A.1. Balance as at 31/12/2011 78,387,660 96,744 3,557,093 -3,557,093 0 -8,832,575 -2,245,241 588,439 2,597,326 70,592,353 26,050 70,618,403

a) Retrospective restatements (elimination of errors) 435,085 435,085 435,085

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

A.2. Balance as at 1 January 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -8,832,575 -2,245,241 588,439 3,032,411 71,027,438 26,050 71,053,488

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


(capital payment)





i) Other changes in equity

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 -1,049,559 -1,049,559 1,169 -1,048,390 c) Change in surplus from revaluation of property, plant and equipment 56,915 56,915 56,915

d) Change in surplus from revaluation of financial investments -5,997 -5,997 -215 -6,212

0 0 0 0 0 0 -1,049,559 0 50,918 -998,641 954 -997,687

B.3. Changes in equity 0

a) Allocation of remaining net profit of the comparative reporting period to other equity components -2,245,241 2,245,241 0 0

b) Other changes in equity 0 0

0 0 0 0 0 -2,245,241 2,245,241 0 0 0 0 0

C. Balance as at 31 December 2012 78,387,660 96,744 3,557,093 -3,557,093 0 -11,077,816 -1,049,559 588,439 3,083,329 70,028,797 27,004 70,055,801

DISTRIBUTABLE PROFIT



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2. APPENDIX TO THE FINANCIAL STATEMENTS

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS

The financial statements for 2013 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.

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 2012 and data as at 31 December 2013. 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 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 purchase price, including import duties and purchase taxes.


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Following recognition, the 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.

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 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


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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 expenses 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 relation to financing of own funds that have to be repaid in a period of over one year, especially in cash. Long-term financial liabilities to Group companies comprise a long-term loan granted by a sister company abroad in 2013. 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.

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 expenses 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 receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. 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


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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 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.

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; orb) 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; ord) 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, the conditions 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.


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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; - 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.

The consolidated financial statements of Vipap Videm Krško d.d. include the following companies:

Name Country Type of connection % of connection

Ekopa d.o.o. SLO Direct equity 100.00 Vipap Vertriebs und Handels GmbH

AUT Direct equity 100.00

Levas Krško d.o.o. SLO Direct equity 96.59

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 2013

Item Amount in

EUR Net sales revenues 11,372,132 Cost of goods and materials sold and cost of materials used -10,066,816 Costs of services -1,328,475 Labour costs 23,159 Deferred taxes 185,355 Net profit/loss for the period 185,355

Assets -5,585,051 Land and buildings 1,724,405 Investment property -2,814,725 Long-term financial investments in Group companies -3,165,250 Deferred tax assets 185,355 Short-term intra-group trade receivables -1,514,834 Equity and liabilities -5,585,051 Capital of the Group -4,139,838 Minority shareholder equity 28,804 Provisions and long-term accrued expenses and deferred revenues 13,562 Deferred tax liabilities 27,255 Short-term operating liabilities to group companies -1,514,834

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2013 2012 1. Intangible assets in EUR 732,725 512,573 Property Deferred expenses Emissions coupons Total

rights of development

1. Cost


Increase 3,910 190,000 169,560 363,470

Decrease -3,894 -130,991 -134,885


2. Value adjustment

Balance as at 1 January 2013 -112,500 0 0 -112,500

Amortisation -12,327 0 0 -12,327

Decrease 3,894 0 0 3,894

Balance as at 31 December 2013 -120,933 0 0 -120,933

3. Residual value




94

Intangible fixed assets of Vipap Videm Krško d.d. comprise software (EUR 36,105), deferred development costs (EUR 495,760) and emission coupons (EUR 197,000). As at 31 December 2013, 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. Based on the calculation of obligations for 2012, the Company in 2013 gave to the Ministry of the Environment and Spatial Planning 130,991 emission coupons. In 2013, it purchased 36,000 emission coupons at EUR 4.71 (value of EUR 169,560) to fulfil the Company's obligations to the Ministry of the Environment and Spatial Planning. In April 2014, 144,837 emission coupons will be credited to the Company's account. Based on the calculation of obligations for 2013, the Company assessed delivery of 136,745 emission coupons (by the end of April 2014). Levas Krško d.o.o. disclosed computer applications in the amount of EUR 3,078 and graphic image worth EUR 782 under intangible fixed assets.

2. Property, plant and equipment

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

2013 2012 Property, plant and equipment in EUR 98,501,121 103,739,931

Item Land Buildings Equipment

Equipment under

construction, manufacturing

Advance payments Total

1. CostOpening balance as at 1

January 2013 8,832,648 35,047,617 146,555,861 572,989 0 191,009,115

Additions – new purchases 0 185,168 2,040,577 2,058,505 20,000 4,304,250

Decrease 0 -8,950 -266,470 -2,332,700 0 -2,608,120Transfer of short-term held-

for-sale assets 0Balance as at 31 December

2013 8,832,648 35,223,835 148,329,968 298,794 20,000 192,705,245

2. Value adjustmentOpening balance as at 1

January 2013 0 -11,413,717 -75,748,253 -107,214 0 -87,269,184

Increases - depreciation 0 -1,027,830 -6,274,752 0 0 -7,302,582Impairments of existing fixed

assets 0 -11,213 0 0 0 -11,213

Decrease 0 5,941 265,700 107,214 0 378,855Balance as at 31 December

2013 0 -12,446,819 -81,757,305 0 0 -94,204,124

3. Residual value

Balance as at 1 January 2013 8,832,648 23,633,900 70,807,608 465,775 0 103,739,931Balance as at 31 December

2013 8,832,648 22,777,016 66,572,663 298,794 20,000 98,501,121


95

As at 31 December 2013, the Company had EUR 5,478,937 in long-term loans for the purchases of fixed assets and EUR 144,730 liabilities arising from financial lease. Fixed assets in the amount of EUR 63,620,024 were pledged as collateral for long- and short-term financial liabilities (Item 11.12) and bank bonds; liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 508,291. In 2013, we performed a revision of the initially assessed expected life with a change in the depreciation rate for the equipment on Boiler-6, which was activated under investment 99018 in 2003, from 8% to 5%. The cause for the change in the depreciation rate is the fact that the boiler did not operate 365 days a year. Owing to these corrections, the depreciation was EUR 208 thousand lower at the annual level.

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 at 31 December 2013, 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 834,071 (EUR 238,907 buildings, EUR 565,684 equipment, EUR 9,480 investments in progress and EUR 20,000 advance for fixed assets). Equipment in the amount of EUR 35,748 is being repaid based on lease contract (pallet assembly machine, Citroen Jumper van). Fixed assets in the amount of EUR 238,907 are pledged as collateral for financial liabilities of the parent company.

Ekopa d.o.o. discloses fixed assets in the amount of EUR 8,877, whereas Vipap GmbH has EUR 11,028 of fixed assets stated in its books of account. Investment property owned by Ekopa d.o.o. (in consolidation as fixed assets) in the amount of EUR 1,724,805 are pledged as collateral for financial liabilities of the parent company.

2013 2012

3. Long-term financial investments in EUR 513,484 453,484

Balance as at 31

December 2013

Value adjustment

as at 1 January

2013

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2013

Carrying amount 31 December

2013

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

Krka d.d. Novo mesto 360,000 360,000

Merkur 1,484 1,484

Total shares 513,484 0 0 0 0 513,484

In 2010 the company acquired Vipap Vertiebs und Handels GmbH. The company's activities include selling our paper and also purchasing recovered paper. In 2013, the company generated EUR 10,328,221 of revenues and ended the year with a profit of EUR 19,353. Its equity capital as at 31 December 2013 equalled EUR 57,885.


96

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. The company Vipap Videm Krško d.d. included in its consolidated financial statements the statements of the subsidiaries Vipap Vertriebs und Handels GmbH, Levas Krško d.o.o. and Ekopa d.o.o. Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2013 income statement, the company disclosed a loss of EUR 69,444. As at 31 December 2013, the company's equity capital stood at EUR 2,845,986. The company's equity increased by EUR 2,883,454 through debt-to-equity swap due to the purchase of real property in 2012. The registered office of Levas Krško d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 17,479 in its 2013 income statement. The amount of equity capital in the balance sheet as at 31 December 2013 was EUR 844,224, net sales revenues amounted to EUR 2,863,063, and the value of assets totalled EUR 2,059,974. In its books of account, Vipap Videm Krško d.d. records an investment that is not subject to consolidation (Zel-en), whereas Levas d.o.o. states investments in Krka d.d. and Merkur.

2013 2012

4. Deferred tax assets in EUR 9,424,075 9,103,403

1 January 2013 decrease increase 31 December 2013

Severance payments 55,342 5,557 0 49,785

Long-service awards 13,276 2,162 0 11,114

Devaluation of long-term assets available for sale 60,489 5,030 0 55,459

Formation of value adjustments of receivables 620,763 5,847 0 614,916

Unused tax loss 8,353,533 0 153,914 8,507,447

Deferred tax assets arising on consolidation 0 0 185,354 185,354

TOTAL receivables: 9,103,403 18,596 339,268 9,424,075

Severance payments 15,496 937 0 14,559

Long-service awards 5,202 631 0 4,571

Revaluation of financial assets -43,679 10,200 -53,879

Revaluation of land -607,711 33,762 0 -573,949

Revaluation of land in consolidation -27,255 0 0 -27,255

TOTAL liabilities -657,947 35,330 10,200 -635,953

NET receivables 8,445,456 53,926 349,468 8,788,122

In 2013, we continued using provisions arising from severance payments for employees who retired and those who met the conditions for long-service awards. We continued selling fixed assets for chemical pulp production. Deferred tax assets increased in 2013 due to unused tax loss, but decreased in all items due to drawing and change of tax rate. The Company applied the 17% tax rate in the calculation of deferred tax assets.

The Company's management assesses that there is convincing evidence that future taxable profit will be available against which deductible temporary differences, unused tax credits or losses can be utilised. The latter is based on the Company's development strategy up to 2020, which anticipates a 13-percent growth in the volume of production, from the present 200 thousand tonnes to 225 thousand tonnes, and a 20-percent rise in revenues, from EUR 100 million to about EUR 120 million. For its future operations, the Company anticipates production and sale of new types of paper with a higher value added, which will result in higher future profits.


97

2013 2012 5. Inventories in EUR 9,828,681 9,868,857

Inventory type


2013 Inventory surpluses

Inventory deficits

Impaired value due to

change in quality

Impaired value to marketable

value

Material 6,641,846 193 438 0 0

Small inventory 8,635 0 0 0 0

Unfinished products 195,868 0 0 0 0

Products 2,894,901 1,482 0 0 17,213

Merchandise 5,562 0 0 0 0

Advances for inventories 81,869 0 0 0 0

Total 9,828,681 1,675 438 0 17,213

In Vipap Videm Krško d.d. significant inventories of materials include: recovered paper (EUR 912,046), basic raw materials (EUR 1,492,017), maintenance material (EUR 1,995,044), spare parts (EUR 1,446,031), energy-generating products (EUR 425,735), and other (EUR 185,119).

Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 190,370) and paper intended for re-processing (EUR 5,498).

The inventories of products comprise inventories of paper in reels (EUR 2,465,977) and inventories of paper in sheets (EUR 358,179). As at 31 December 2013, 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 2013 pledged as collateral for long- and 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 185,854, inventories of products totalling EUR 70,745 and inventories of goods equalling EUR 595. Inventories are not pledged and the book value is not higher than net realisable value.


98

2013 2012 6. Short-term operating receivables in EUR 10,516,932 10,284,553

Balance as at 31

December 2013

Secured receivables

Non-secured receivables

Outstanding receivables

Maturity up to 1

year

Maturity of over 1 year

Value adjustment as at 1 January

2013 Reduced

adjustment

Increase in value

adjustment

Value adjustment as

at 31 December

2013

Carrying amount as at 31 December

2013 Short-term operating trade receivables

13,250,186 7,067,506 6,182,680 6,677,657 2,156,497 4,416,032 -

4,078,384 9,277 -247,125 -4,316,232 8,933,954

Short-term intra-group trade receivables

0 0 0 0 0 0 0 0 0 0 0

Short-term operating receivables due from others

1,582,978 0 1,582,978 1,362,502 0 220,476 0 0 0 0 1,582,978

Total: 14,833,164 7,067,506 7,765,658 8,040,159 2,156,497 4,636,508 -

4,078,384 9,277 -247,125 -4,316,232 10,516,932

Vipap Videm Krško d.d. has EUR 6,684,459 receivables pledged as collateral for loans. Vipap Videm Krško d.d. discloses in its books of account receivables of EUR 12,312,118 and adjustment thereof in the amount of EUR 4,189,840. Levas d.o.o. discloses receivables of EUR 255,062 and adjustment thereof in the amount of EUR 33,531. Vipap GmbH discloses receivables of EUR 683,006 and adjustment thereof in the amount of EUR 70,577. 2013 2012 7. Cash in EUR 1,148,751 1,232,911 31 December 2013 31 December 2012

Cash register 1,671 954

Transaction accounts 1,147,080 1,231,957

Short-term deposits 0 0

Total: 1,148,751 1,232,911

As at 31 December 2012, Vipap Videm Krško d.d. has cash assets in the amount of EUR 1,029,446, Levas d.o.o. in the amount of EUR 6,273, Vipap GmbH in the amount of EUR 112,384 and Ekopa d.o.o. in the amount of EUR 648. 2013 2012 8. Short-term accrued revenues and deferred expenses in EUR 736,538 547,165

Type of deferral Balance as at 1 January 2013 Establishment Disbursement

Balance as at 31 December 2013

Deferred expenses 491,472 9,526,105 -9,351,164 666,413

Accrued revenues 55,693 42,927 -28,495 70,125

Total 547,165 9,569,032 -9,379,659 736,538


99

Short-term deferred expenses of Vipap Videm Krško d.d. are: short-term deferred receivables from the state arising from VAT (EUR 644,091) and short-term deferred expenses for 2014 (EUR 5,791). Short-term accrued revenues comprise the amount relating to volume discounts for purchased raw materials and material for 2013 (EUR 70,125). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2013. Levas d.o.o. discloses in its books of account EUR 7,034 of short-term accrued expenses and deferred revenues (costs of 2014 totalling EUR 384 and VAT receivable arising in 2014 in the amount of EUR 6,650). In its books of account Vipap GmbH states short-term accrued expenses and deferred revenues of EUR 9,497.

2013 2012 9. Equity in EUR 66,366,815 70,055,801

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.

in EUR

A. NET PROFIT FOR THE YEAR

B. NET LOSS FOR THE YEAR -3,773,004

C. RETAINED NET PROFITD. NET LOSS BROUGHT FORWARD -12,127,375

- Covered net loss brought forward from previous year 533,826

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 0

H. DISTRIBUTABLE PROFIT 0

I. ACCUMULATED LOSS -15,366,553

Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -4,263,079.


100

2013 2012

10. Provisions and long-term accrued expenses and deferred revenues in EUR 1,158,006 1,324,349

Provisions

Balance as at 1


Balance as at 31

December 2012

Provisions for retirement benefits 441,144 0 -20,496 420,648

Provisions for long-service awards 158,824 15 -16,818 142,021

Provisions for the costs of building decommissioning 21,073 0 0 21,073

Provisions for contingent liabilities 16,489 0 -3,972 12,517

Total 637,530 15 -41,286 596,259Long-term accrued expenses and deferred revenues 652,420 611,360 -722,177 541,603

Long-term deferred revenues 34,399 0 -14,255 20,144

Grand total 1,324,349 611,375 -777,718 1,158,006

The most recent actuary calculation of provisions for severance payments and long-service awards of employees of Vipap Videm Krško d.d. was performed on 31 December 2008. Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company 3sigma d.o.o. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was carried out on 31 December 2005 due to the formation of provisions and on 31 December 2006 due to high turnover of employees in 2006. It was based on data submitted regarding employees and on the assumption regarding the growth in average salary in the Republic of Slovenia (3.5% p.a.), and based on employee turnover and conditions for retirement (Article 36 of the Pension and Disability Insurance Act (ZPIZ)). The calculation as at 31 December 2008 was based on submitted data and on the assumption that the annual growth in salaries would be 1.5%.

Severance payment at retirement is calculated in accordance with the criteria of two average gross salaries in the Republic of Slovenia for the previous three months or in the amount of two average gross monthly salaries of the employee in the last three months prior to retirement, whichever is more favourable for the employee.

In the calculation of long-service awards, the criteria of base salary for tariff class I of the Collective Agreement of the Pulp, Paper and Paper Processing Industry (1 basis for 10 years of work at the company, 1.5 bases for 20 years of work at the company and 2 bases for 30 years of work at the company) were taken into account. The selected discounted interest rate amounts to 7.65% per annum, which was the return on 10-year corporate bonds with a high credit rating in the euro area at the end of 2008.

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 2013, the Company decreased provisions for severance payment by the value of provisions utilised (EUR 13,296) and by the value of unnecessary provisions (EUR 1,691). For long-service awards it used EUR 10,569 of provisions and reversed EUR 496 of provisions.


101

Long-term accrued expenses and deferred revenues decreased by the amount of emission coupons delivered for 2012 (130,991 coupons). The carrying amount of one coupon is EUR 1. Provisions for non-current 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 Vipap Videm Krško d.d. provisions and long-term accrued expenses and deferred revenues account for provisions for severance payments in the amount of EUR 296,454, provisions for long-service awards of EUR 88,231 and long-term accrued expenses and deferred revenues totalling EUR 68,657. In its books of account Levas d.o.o. discloses provisions of EUR 695,630 (EUR 181,466 for severance payments and long-service awards and EUR 514,164 of long-term accrued expenses and deferred revenues). Vipap GmbH discloses EUR 9,034 of accrued expenses and deferred revenues under this item. 2013 2012 11. Long-term financial liabilities in EUR 20,287,458 9,511,895

Creditor

Balance as at 31

December 2013

Outstanding

Short-term maturity

Long-term maturity

Date of final

maturity Interest rate

Domestic bank 975,000 975,000 325,000 650,000 01/10/20166-month Euribor + 3.93%

Domestic bank 3,454,496 3,454,496 882,001 2,572,495 01/11/20176-month Euribor + 5.2%

Domestic bank 1,101,444 1,101,444 367,144 734,300 20/10/20163-month Euribor + 5.5%

Domestic bank 1,022,222 1,022,222 1,022,222 0 01/12/20146-month Euribor + 3.1%

Domestic bank 478,261 478,261 478,261 0 20/06/20146-month Euribor + 3.1%

Domestic bank 685,780 685,780 685,780 0 01/12/20146-month Euribor + 3.1%


Domestic bank 2,679,000 2,679,000 1,071,600 1,607,400 29/06/20163-month Euribor + 3.95%


Domestic bank 900,000 900,000 40,000 860,000 08/03/20183-month Euribor +6.1%

Domestic bank 1,900,000 1,900,000 80,000 1,820,000 20/02/20183-month Euribor +6.1%



Domestic bank 595,100 595,100 0 595,100 30/04/20203-month Euribor +1.5%

Domestic bank 67,221 67,221 0 67,221 31/10/20203-month Euribor +1.5%

Domestic bank 4,300,000 4,300,000 25,000 4,275,000 31/05/20156-month Euribor + 5.14%

Foreign bank 260,676 260,676 260,648 28 19/06/20146-month Euribor + 1.3%

Total 24,999,200 24,999,200 5,757,656 19,241,544

Loan from a foreign Group company 1,000,000 1,000,000 0 1,000,000 31/12/2016

3-month Pribor +3.4%

Other short-term financial liabilities 146,805 146,805 100,891 45,914 20/05/2015 6-month Euribor

Total 26,146,005 26,146,005 5,858,547 20,287,458


102

Long-term financial liabilities of Vipap Videm Krško d.d. total EUR 20,285,383. The fair value of loans raised is equal to their carrying amount. Long-term loans (including the portion falling due in 2014 in the amount of EUR 5,757,656) total EUR 24,999,200. Long-term loans of Group companies raised in 2013 amount to EUR 1,000,000. The final due date is 31 December 2016 and the interest rate is 3M Pribor + 3.4%. The fair value of other short-term financial liabilities is equal to their carrying amount. Short-term and long-term portion of liabilities to the lessor are secured by the retention of ownership rights to fixed assets. 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. Levas d.o.o. discloses long-term financial liabilities of EUR 2,075 (lease contracts). 2013 2012 12. Short-term financial liabilities in EUR 17,766,086 24,206,192

Creditor


2013 Outstanding Date of final maturity Interest rate (%)







Domestic bank 1,022,222 1,022,222 01/12/2014 6-month Euribor + +3.1%





Domestic bank 1,803,130 1,803,130 22/05/2014 7%




Domestic bank 900,000 900,000 31/01/2014 7.1%



Foreign bank 260,648 260,648 19/06/2014 6-month Euribor + +1.3%

Foreign bank 365,142 365,142 30/06/2015 1-month Euribor + 2.5%

Short-term overdue loans 11,825,928 11,825,928

Loan from a foreign Group company 5,833,667 5,833,667 29/08/2014 3-month Pribor 5.1%

Current liabilities to lessors 106,491 106,491

Total 17,766,086 17,766,086

Vipap Videm Krško d.d. discloses EUR 17,395,344 of short-term financial liabilities. 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.


103

The fair value of loans raised is equal to their carrying amount. The short-term portion of long-term loans stands at EUR 5,757,656. The short-term portion of other financial liabilities is EUR 43,839. Short-term loans raised by the Company with commercial banks were renewed on due date in 2013, as in previous periods.

Short-term financial liabilities disclosed by Vipap GmbH total EUR 365,142 and that of Levas d.o.o. EUR 5,600.

2013 2012 13. Short-term operating liabilities to suppliers in EUR 22,096,937 26,880,109

- in Slovenia 12,518,467 15,676,789

- abroad 9,516,345 11,169,061

- uncharged goods and services 62,125 34,259

Total 22,096,937 26,880,109

As at 31 December 2013, Vipap Videm Krško d.d. had liabilities due in Slovenia in the amount of EUR 3,867,112 and outstanding liabilities in the amount of EUR 8,357,974. In the structure of liabilities abroad, EUR 2,708,456 were due and EUR 6,486,335 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 359,109), Ekopa d.o.o (EUR 21,736) and Vipap Vertriebs und Handels GmbH (EUR 622,620), disclosed under liabilities to Group companies.

Levas d.o.o. discloses EUR 293,381 of liabilities to suppliers in Slovenia, EUR 10,262 of liabilities to suppliers abroad and EUR 1,205 of accrued liabilities. Vipap GmbH has EUR 311,292 of operating liabilities to suppliers.

2013 2012

14. Other short-term operating liabilities in EUR 1,941,834 1,822,214

In Vipap Videm Krško d.d. this item comprises liabilities for interest (EUR 606,804), liabilities for salaries 12/2013 (EUR 393,623) and the related liabilities for contributions arising from salaries (EUR 135,526), liabilities for employer contributions (EUR 97,719), payroll tax liabilities (EUR 75,645), liabilities for other employment earnings (EUR 52,636), VAT liabilities payable in January 2014 (EUR 245,103), and other (EUR 104,816). As at 31 December 2012, Levas d.o.o. disclosed other short-term operating liabilities in the amount of EUR 113,760. These comprise: liabilities for salaries 12/2013 (EUR 72,772) and the related liabilities for contributions arising from salaries (EUR 211), payroll tax liabilities (EUR 7,454), liabilities for other employment earnings (EUR 11,498), VAT liabilities payable in January 2014 (EUR 18,250), and other (EUR 3,575). The financial statements of Vipap GmbH disclose EUR 116,202 of other short-term operating liabilities.


104

2013 2012

15. Short-term accrued expenses and deferred revenues in EUR 866,016 835,047

Type of deferral Balance as at 1



2012

Accrued expenses 698,322 1,281,571 1,302,881 677,012

Short-term deferred revenues 136,725 52,279 0 189,004

Total: 835,047 1,333,850 1,302,881 866,016

Short-term accrued expenses and deferred revenues of Vipap Videm Krško d.d. comprise costs that will arise as liabilities in 2014 or for which we will receive assessment decisions in 2014, namely: unused annual leave for 2013 (EUR 384,389), calculated liability to the Ministry of the Environment and Spatial Planning arising from water used pursuant to the final decision for 2013 (EUR 54,214), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2013 (EUR 53,564), and liabilities arising from sales-dependant costs (EUR 137,002), interest charged to customers for which revenue is disclosed upon payment (EUR 189,004), and other (EUR 4,707).

Short-term accrued expenses and deferred revenues of Levas d.o.o. amount to EUR 43,136, unused annual leave for 2013 totals EUR 41,136 and accrued liabilities for 2013 equal EUR 2,000.


105

2013 2012

16. Net sales revenues in EUR 97,169,909 102,532,287

2013 2012 Slovenia 8,881,037 20,893,704Austria 12,587,909 4,627,328Italy 15,411,714 13,437,007Germany 11,427,014 13,764,912Serbia 12,401,115 12,800,148France 1,386,854 3,021,659Turkey 2,003,567 2,628,057Bulgaria 4,431,081 2,541,342Croatia 3,444,151 2,418,930Switzerland 2,204,035 2,876,538Greece 3,857,546 4,134,664Montenegro 1,438,618 1,540,602Czech Republic 859,728 1,036,521Slovakia 2,271,785 1,862,397Hungary 5,342,831 6,218,392Romania 1,815,411 1,265,910Albania 1,147,799 1,205,612Poland 275,762 649,114Macedonia 2,149,237 1,498,046Great Britain 254,598 1,278,773Kosovo 510,446 658,597Bosnia and Herzegovina 1,237,549 724,996Belgium 111,720 113,138The Netherlands 44,152 218,696Other countries 887,954 626,631Other 786,296 490,573

Total 97,169,909 102,532,287

Breakdown of revenues by business area 2013 2012

Sales of paper 96,383,613 102,041,714Other 786,296 490,573

Total 97,169,909 102,532,287

Following the elimination of intragroup revenues of companies subject to consolidation, the company Vipap Videm Krško d.d. generated EUR 88,807,953 of revenues, Levas Krško d.o.o. EUR 1,508,856 and Vipap GmbH EUR 6,853,100.

2013 2012 17. Other operating income in EUR 533,066 1,326,863

Other operating income of Vipap Videm Krško d.d. comprises income from reversal of provisions (EUR 5,229), other income associated with products (EUR 10,673), income from sale of fixed assets (EUR 5,614), and revaluation operating income arising from bad and doubtful debt settled (EUR 9,169). At Levas d.o.o. other operating income includes ceded assets for salaries paid in the disabled enterprise (EUR 480,854). Vipap GmbH discloses EUR 21,527 of income under this item.


106

2013 2012 18. Costs of services in EUR 9,924,718 10,300,471 Cost of transport services 4,026,235 4,328,999

Costs of fixed asset maintenance 3,091,328 3,029,309

Costs of payment transactions, banking services and insurance 956,065 936,041

Cost of intellectual and personal services 240,734 359,545

Contract-based work, author's contracts, session fees 184,218 142,461

Rents 434,695 380,570

Costs of trade fairs, advertising and entertainment 143,853 139,989

Costs of services arising from production and provision of services 35,789 47,644

Reimbursement of employee work-related costs 44,922 56,433

Costs of auditing the annual report 24,500 24,700

Provisions 0 74,611

Other service expenses 742,379 780,169

Total 9,924,718 10,300,471

Following the elimination of intragroup expenses of companies subject to consolidation, the company Vipap Videm Krško d.d. posted EUR 9,167,896 of costs of services, while the respective figure of Levas Krško d.o.o. was EUR 111,782, of Vipap GmbH EUR 644,808 and that of Ekopa d.o.o. EUR 232. 2013 2012 19. Labour costs in EUR 11,193,926 11,859,831 Costs of salaries and wages 8,187,434 8,577,853

Pension insurance costs 880,196 960,813

Cost of other social insurance 621,200 659,820

Other labour costs 1,505,096 1,661,345 In Vipap Videm Krško d.d. labour costs amounted to EUR 9,487,978, in Levas d.o.o. to EUR 1,645,429 and in Vipap GmbH to EUR 60,519. 2013 2012 20. Other operating expenses in EUR 1,083,647 977,568 Other operating expenses of Vipap Videm Krško d.d. include: environment protection expenses (EUR 484,593) and compensation for the use of building land (EUR 484,272), scholarships (EUR 881), contributions and membership fees (EUR 29,161), and other expenses (EUR 74,949). Levas d.o.o. discloses EUR 9,308 and Ekopa d.o.o. EUR 483 of other operating expenses. 2013 2012 21. Financial revenues from operating receivables in EUR 23,702 62,863

Foreign exchange gains 10,350 19,868

Interest income 13,352 42,995

Total 23,702 62,863


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Financial revenues from operating receivables comprise: Vipap Videm Krško d.d. EUR 21,757, Levas d.o.o. EUR 1,846 and Vipap GmbH EUR 99.

2013 2012

22. Financial expenses for financial liabilities in EUR 2,446,440 2,548,681 At Vipap Videm Krško d.d. this item totalling EUR 2,396,602 comprises interest on loans (EUR 2,363,374), interest on instalments arising from lease contracts falling due in the current year (EUR 23,950) and exchange rate differences from other financial liabilities (EUR 9,278). Levas d.o.o. discloses EUR 812 and Vipap GmbH EUR 49,026 EUR of financial expenses for financial liabilities. 2013 2012 23. Financial expenses for operating liabilities in EUR 226,496 259,045 In Vipap Videm Krško d.d., financial expenses for operating liabilities totalling EUR 225,278 comprise interest on operating liabilities (EUR 194,300) and exchange rate differences arising from receivables and liabilities (EUR 30,978). At Levas d.o.o this item amounts to EUR 1,218.

2013 2012 24. Other income in EUR 87,536 103,125

At Vipap Videm Krško d.d. the item totalling EUR 85,294 includes: damages received (EUR 85,046), subsidised scholarships (EUR 220) and other (EUR 28). At Levas d.o.o this item amounts to EUR 2,242. 25. Derivative financial instruments As at 31 December 2013, the Company disclosed the following derivatives:

o interest rate swap concluded with Nova Ljubljanska banka Ljubljana with principal amount of EUR 6.1 million in 2005 and with Hypo-Alpe-Adria banka Ljubljana for principal amount of EUR 5.0 million and EUR 4.5 million in 2011 and 2009. By way of the instruments just mentioned, the Company secured itself against the risk of the Euribor reference interest rate fluctuation for the time of loan repayment, thus managing the risk of rising interest rates. As at 31 December 2013, net present value of the said instruments was negative, i.e. EUR 60 thousand, of which overdue liability of EUR 64 thousand was disclosed as at 31 December 2013. The remaining amount will be debited against expenses through the contract term.

o Cross currency swap concluded with Unicredit Banka Slovenija from 2010 with principal amount as at 31 December 2013 of EUR 1.7 million. The instrument expires in 2015. Net present value, which represents the current indicative market value of a product or approximate product selling price is negative, i.e. EUR 555 thousand, of which overdue liability of EUR 178 thousand was disclosed as at 31 December 2013. The remaining amount will be debited against expenses through the contract term.

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).


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For both instruments, CCS and IRS, net present values are negative, but these products have not yet matured; therefore, effects are recognised upon payment according to the payment schedule. In 2013 the related financial expenses for IRS were posted in the amount of EUR 177 thousand and for CCS in the amount of EUR 360 thousand.

26. Corporate income tax

In 2013, Vipap Videm Krško d.d. recorded a tax loss of EUR 3,635,291, whilst Levas Krško d.o.o. recorded neither tax profit nor tax loss. In the statement of comprehensive income for 2013 Vipap GmbH discloses EUR 4,452 of corporate income tax.

27. Performance indicators

31 December 2013

31 December 2012

Equity financing rate equity / liabilities 0.51 0.51

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

long-term 0.67 0.60

provisions) / liabilities

Operating fixed assets rate fixed assets / assets 0.75 0.77

Long-term investment rate (fixed assets + long-term financial

investments + long-term 0.83 0.84operating receivables + deferred tax

assets / assets

Equity to operating fixed assets ratio capital / fixed assets 0.67 0.67

Acid test ratio liquid assets / short-term loans 0.03 0.02

Quick ratio

(liquid assets + short-term receivables + short-term financial investments) / short-

term loans 0.28 0.22

Current ratio current assets / short-term liabilities 0.53 0.40

Operating efficiency ratio operating revenues / operating expenses 0.98 1.01

Net return on equity net profit – income tax / average -0.05 -0.01

capital

Net return on share capital net profit for the period / average -0.05 -0.01

share capital

3. CONTINGENT LIABILITIES

Vipap Videm Krško d.d. guarantees for the liabilities of Vipap Vertriebs und Handels GmbH to Factorbank AG in the amount of EUR 3 million.


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4. SIGNIFICANT EVENTS AFTER THE END OF THE 2013 FINANCIALYEAR

Since the start of 2014 until the end of March 2014, the Company repaid EUR 1,380,319 of liabilities from loans received and EUR 26,697 liabilities from financial lease. Repayments were made according to loan agreements. The Company has been negotiating with banks on the financing for investments in 2014 and 2015, planned in the amount of EUR 12,971,500; financing is expected to be provided by a loan covering 70% of investment value. Negotiations with banks are still in progress.

Krško, 1 April 2014

5. INDEPENDENT AUDITOR'S REPORT

Documents

Annual Report of Vipap Videm Krško d.d. for 2013 · 2019. 12. 13. · Annual Report of Vipap Videm Krško d.d. for 2013 5 1. EXPLANATION BY THE MANAGEMENT BOARD ABOUT THE OPERATIONS