ecolabel vipco, vipress, viprint, vimag, vimax, …...considering the fact that the company's...

ECOLABEL Vipco, Vipress, Viprint, Vimag, Vimax, Libna Print

Annual Report of the Vipap Videm Krško Group

2

T A B L E O F C O N T E N T S

I. BUSINESS REPORT OF THE VIPAP VIDEM KRŠKO GROUP...... 4

1. INTRODUCTION ...................................................................................... 5

1.1. STATEMENT BY THE MANAGEMENT BOARD..................................... 6

1.2. THE VIPAP VIDEM KRŠKO GROUP IN BRIEF ...................................... 7

1.3. KEY RESULTS IN FIGURES ..................................................................... 10

1.4. MAJOR EVENTS IN 2010 ..................................................................... 10

1.5. RISK MANAGEMENT ............................................................................ 11

1.6. CORPORATE GOVERNANCE STATEMENT ....................................... 13

1.7. VISION AND MISSION ......................................................................... 16

2. REPORT ON THE OPERATIONS OF THE VIPAP VIDEM KRŠKO GROUP.............................................................................................. 17

2.1. ANALYSIS OF PERFORMANCE........................................................... 18

2.2. PRODUCTION ........................................................................................ 21

2.3. SALES....................................................................................................... 24

2.4. PURCHASING ........................................................................................ 26

2.5. RESEARCH & DEVELOPMENT ACTIVITIES ........................................ 27

2.6. INVESTMENT ACTIVITIES...................................................................... 29

2.7. EMPLOYEES ............................................................................................ 30

2.8. EXPECTATIONS OF THE VIPAP VIDEM KRŠKO GROUP FOR 2011.......................................................................................................................... 32

3. THE ENVIRONMENT ............................................................................ 33

3.1. ACHIEVEMENTS IN 2010 ..................................................................... 34

3.2. ENVIRONMENTAL IMPACT ................................................................. 36

II. FINANCIAL REPORT OF THE COMPANY VIPAP VIDEM KRŠKO D.D. .................................................................................................... 39

1. FINANCIAL STATEMENTS ................................................................... 40


3

1.1. BALANCE SHEET AS OF 31 DECEMBER 2010 IN EUR .................... 41

1.2. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 IN EUR..................... 43

1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 ..................................................................... 44

1.4. STATEMENT OF CHANGES IN EQUITY FOR 2010 ........................... 45


2. APPENDIX TO THE FINANCIAL STATEMENTS ............................ 47

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS .............................. 48

2.2. NOTES TO THE FINANCIAL STATEMENTS ......................................... 52

2.3. SIGNIFICANT EVENTS AFTER THE END OF THE 2010 FINANCIAL YEAR................................................................................................................ 66

III. FINANCIAL REPORT OF THE VIPAP VIDEM KRŠKO GROUP67

1. CONSOLIDATED FINANCIAL STATEMENTS................................ 68

1.1. CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2010 IN EUR................................................................................................................... 69

1.2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 IN EUR.......................................................................................................................... 71

1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 .................................. 72


2. APPENDIX TO THE FINANCIAL STATEMENTS ............................ 75

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS .............................. 76

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .......... 80

2.3. SIGNIFICANT EVENTS AFTER THE END OF THE 2010 FINANCIAL YEAR................................................................................................................ 95


4

I. BUSINESS REPORT OF THE VIPAP VIDEM KRŠKO GROUP


5

1. INTRODUCTION


6

1.1. STATEMENT BY THE MANAGEMENT BOARD In contrast with the preceding year, in 2010 the global economic and financial crisis had a significant impact on the Company's operations. This impact was mainly reflected in the financial results of operations, whilst the physical indicators of operations were above the expected. The huge escalation in the prices of raw materials exerted a profound impact on production costs and the Company's financial results. On the other side, the selling prices of the most essential products (newsprint) dropped sharply and reached the historical low half way through the year. These operating conditions affected the business performance of all European newsprint producers. The Company's trends and the prices of the end product (paper) and of the most vital raw materials (recovered paper, chemical pulp) are comparable to the prices of its European competitors. Though the Company ranks among major paper producers in Slovenia, it follows other major producers at the global level. Competitiveness, which is one of the Company's key orientations, was in the last year the most important objective that ensures stability and continuity of operations also in the future. Despite the critically worsened selling conditions, the Company's revenues did not drop substantially. The Company's objective to keep and further increase its market shares on the existing markets as well as increase its market shares on the developing Eastern European markets was fulfilled entirely. Sales structure was aligned with the market demand elements. Flexibility of production and sales are two important factors that generate the Company’s competitive advantage in the times of crisis. Quick responsiveness to the market situation and adjustment of the production range to the customers' demands are crucial for long-term growth in sales and profitability. Despite the relatively worse selling conditions for newsprint and improved newsprint, their share rose further. The reasons lie in the higher achieved rate of return as compared to the recycled programme for graphic purposes. The demand for improved newsprint is on the rise as the users of such newsprint are adjusting themselves to the general conditions and are replacing the more expensive paper of higher quality with paper of lower price range (the so-called "downgrading"). As in the past years, the Company's production activity was successful. The production of paper exceeded the quantities planned, whilst the production of fibres (deinked pulp and groundwood/TGW) sufficed completely for the needs of paper production. The increase in production efficiency reflected in the substantial increase in labour productivity, by as much as 15%. The Company’s investment activity was slightly less intensive in 2010. As the technological modernisation cycle and environmental rehabilitation have already been carried out, the Company's investment activities included minor investments with the main objectives of increasing production efficiency and decreasing the costs. For the future, major investment activities are planned for the energy plant. Considering the fact that the Company's activities in the field of development are intensive, we joined the consortium for applying for the tender by the Ministry of the Economy with the project ZEL-EN - Development Centre for Renewable and Sustainable Energy in 2010. In the following years, the Company will look for solutions for energy supply to its production within this development centre, with the possibilities of using waste raw materials as potential fuels (biomass/bark, paper sludges and rejects from deinked pulp production) being included. At the same time, research (laboratory and semi-industrial) for the development of new products from sludges and ashes with added value (insulation materials and other construction materials) are already underway. The Company's investment policy is oriented towards the future, more precisely to the development of new types of paper and products made of waste materials as by-products in the fibre production, all with the aim of increasing the flexibility and competitiveness of operations. Despite weaker results achieved in 2010, the Company's heading towards the future with optimism as it has markets available for its products and development among its priorities, which ensures product competitiveness and responsiveness to market developments by expanding its operations outside the parent company.

Management Board


7

1.2. THE VIPAP VIDEM KRŠKO GROUP IN BRIEF The company Vipap Videm Krško d.d., Tovarniška 18, 8270 Krško is entered in the Companies Register under registration number 1/0398300 at the District Court of Krško. The majority owner is the Ministry of Finance of the Czech Republic, holding 96.5 %, whilst 3.5 % are the Company’s treasury shares. Company name

Abbreviated firm

VIPAP VIDEM KRŠKO proizvodnja papirja in vlaknin d.d. (VIPAP VIDEM KRŠKO Production of Paper and Fibres PLC) VIPAP VIDEM KRŠKO D.D.

Activity Production of paper and fibres

Ownership Ministry of Finance of the Czech Republic

Organisational form Public limited company

Share capital EUR 78,387,660

Nominal value of share EUR 41.70

Company identification number SI 23087226

Company registration number 5971101

Chairman of the Management Board

Miloš Habrnál

Other members of the Management Board

Jožica Stegne – Vice-Chairperson of the Management Board, Jože Cerle and Dragan Kranjc

Chairman of the Supervisory Board

Pavel Trenda

Other members of the Supervisory Board

David Št'astný, Radek Lacko, Dušan Vaněk, Miroslav Lébl, Miro Senica, Franc Kukovičič, Albertina Županc and Marjan Jurman

Employees 407 (31 December 2010)

Sales in 2010 196,866 tonnes of paper

Production in 2010 196,669 tonnes of paper

Subsidiaries

Ekopa d.o.o., Levas Krško d.o.o., Vipreh 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


8

The Company has four related companies, namely: 1. Vipreh d.o.o. Country Slovenia

Activity

The company is presently not engaged in activity

Ownership

100% Vipap Videm Krško d.d.

Organisational form

Limited liability company

The company Vipreh d.o.o. is presently not performing the activity for which it is

registered. 2. Ekopa d.o.o. Country Slovenia

Activity

Purchasing and sorting of recovered paper

Ownership


Organisational form


The company Ekopa d.o.o. is carrying out the activity of sorting paper and purchasing

recovered paper from Serbia, Montenegro, Albania and Macedonia as well as selling paper to these countries. Its sole owner is Vipap Videm Krško d.d. Vera Cerle acts as its representative. It is a small-size enterprise with two employees. It carries out its services exclusively for the controlling company.

3. Levas Krško d.o.o. Country Slovenia

Activity

Production of wood packaging and disabled enterprise

Ownership

84.48% Vipap Videm Krško d.d.

Organisational form


The company Levas Krško d.o.o. is a disabled enterprise, which was founded and entered into the court's Companies Register on 23 May 1991 under reg. no. 1-1779/00. Vipap Videm Krško d.d. holds an 84.48% ownership share of the company, which is represented by Roman Ganc. The activity of the company Levas Krško d.o.o. is very broad, comprising both production and service activities. Its principal activity is production and drying of palettes for Vipap Videm Krško d.d. and other buyers. The service activity includes security, carpentry and metal workshop, car repair workshop and the increasingly important electrical/mechanical services.


9

4. Vipap Vertriebs und Handels GmbH Country Austria

Activity

Wholesale and retail trade

Ownership


Organisational form


Vipap Vertriebs und Handels GmbH is a trading company, which focuses on selling our end products to the markets of Hungary, Slovakia and Austria. We acquired the company in the month of June 2010. Its registered office is in Neunkirchen. The company is run by Wilibald Scharner acting as Managing Director. The company has presently four employees, of which two on a part-time basis.

Related parties transactions are multi-tier, which means that each company is essentially independent, with the controlling company holding a majority share in all subsidiaries. The companies have direct capital ties and are related parties under ZDDPO-2 (Corporate Income Tax Act). The parent company Vipap Videm Krško d.d. prepared its first consolidated financial statements in 2010 (in compliance with the Companies Act (ZGD-1) and the Slovenian Accounting Standards (SAS)). Based on the criteria as of the annual balance sheet date for the last two consecutive financial years, the number of employees and net sales revenues and in accordance with the Companies Act (ZGD), the Company is classified as large company. The bodies of the company Vipap Videm Krško d.d. are the General Meeting, the Supervisory Board and the Management Board. The four-member Management Board is led by Miloš Habrnál. The nine-member Supervisory Board is chaired by Pavel Trenda. The Chairman of the General Meeting is Marko Sikošek. As of the end of the year, the Vipap Videm Krško Group employed 411 persons.


10

1.3. KEY RESULTS IN FIGURES

2007

2008

2009

2010

Index 2010/ 2009

Financial data Net sales revenues (in ‘000 EUR) 95,213 97,064 95,300 91,615 96.1 Operating profit/loss (in ‘000 EUR) 4,874 (6,213) 6,849 (11,779) -271.9 Profit or loss for the period (in ‘000 EUR)

1,935 (6,648) 3,123 (8,829) -482.7

Investment activities Value of investments (in ‘000 EUR) 5,729 17,311 3,400 1,465 43.0 Performance indicators Value added per employee (in ‘000 EUR)

60 44 64 25 39.0

Revenues per employee (in ‘000 EUR)

206 214 212 211 99.5

Sales data Sales quantity 181,136 183,430 182,952 196,866 107.6 Production data Amount of produced paper (in tonnes)

182,408 181,027 187,231 196,669 105.0

Quantity of deinked pulp production (in tonnes)

145,141 144,813 152,840 164,017 107.3

Quantity of groundwood production 18,341 17,682 20,489 20,160 98.3 Data on employees No. of employees (31 December) Average no. of employees

452 462

448 454

445 450

411 434

92.3 96.4

1.4. MAJOR EVENTS IN 2010 June On 15 June 2010, the company Vipap Videm Krško d.d. acquired the Austrian company Vipap Vertriebs und Handels GmbH. Its Managing Director is Wilibald Scharner. Acquisition was carried out mostly because of his know-how in the form of the already established network of paper buyers on the Hungarian market. October In the month of October we implemented the 6th Market Conference in Podčetrtek, Slovenia. The conference was attended by 57 business partners (potential and existing paper buyers) from 17 countries. The situation on the global market was presented at the conference as well as the capacities of all three paper machines of the Company, the anticipated market strategy of the Company together with the presentation of new product development and the anticipated paper sales quantities for the following year. The conference represents a direct contact with agents, buyers and printers, which is important both in terms of the Company's sales and development.


11

November On 3 November 2010 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. was convened, with the following agenda:

• Election and appointment of the working bodies of the General Meeting • Acquaintance with the 2009 Annual Report and granting discharge • Appointment of the auditor for the 2010 financial year (audit company Deloitte

Revizija d.o.o., Davčna ulica 1, Ljubljana). November Active participation in the preparation and implementation of the international meeting of the Slovenian paper industry (the 14th Day of Slovenian Paper Industry and the 37th International Annual Symposium of DITP), 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 2010 annual meeting, the honourable sponsor of which was the President of the Republic of Slovenia, Dr. Danilo Türk, was entitled "Opportunities to Increase Added Value in the Paper Industry". December Due to the need for carrying out more intensive and long-term measures aimed at improving the difficult economic situation, which was caused by the effects of the global economic slowdown, and due to the previously announced intention of the former Chairman of the Management Board and Executive Director Oldřich Kettner to retire, the Company's Supervisory Board adopted the decision on changing the composition of the Management Board by appointing the former member of the Management Board and Director of the Technical Division Miloš Habrnál as Chairman of the Management Board and Executive Director. 1.5. RISK MANAGEMENT The company Vipap Videm Krško d.d. has adopted the Rules on Financial Management and Operational Risk Management. Risk management comprises establishment, measurement and/or evaluation, control and monitoring of risks, including the reporting on risks 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 Vipap Group defined the most important and probable risks. The objective of risk management is to anticipate the risks - to detect them in a timely manner and make them work for the Company. We divided the risks into two main groups - operating risks and financial risks, which are presented in the continuation. Operating risks Market risks The Company's competitors on the global paper industry market are very strong. The changing macroeconomic operating conditions on the vital markets are further increasing market risks. The Marketing Department is responsible for monitoring and analyses as well as proposing measures in the field of short-term market policy and marketing strategy for selling finished products and purchasing raw materials and other materials. Timely identification of market needs as well as flexible and timely adjusting to these needs is the key to success. Bearing this in mind, the Company organises 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


12

human capital potential. The financial crisis and recession increased the level of uncertainty also on the markets of raw materials. Long-term partnerships remain the strategic orientation of purchasing, based solely on competitive terms. In 2010, the Company was faced with the risk of loosing a market due to financial difficulties of the customer, PZS Scharner, Austria, who controlled the Hungarian market. In the second quarter of 2010 the financial discipline of the customer worsened essentially, which reflected in increased delays in settling its liabilities. The receivables at issue due from the customer amount to EUR 1,346,000.-. In order to protect the Hungarian market the Company founded its own company in June 2010, i.e. VIPAP Vertriebs und Handels GmbH Austria, through which marketing activities primarily on the Hungarian market have been carried out. Development-related risks The Company is constantly faced with the risk that product development process will not end successfully. A group of development technologists is continuously working on developing the Company's new own products, mostly on the recycling basis. 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 co-operation with the production and the Pulp and Paper Institute from Ljubljana. The monitoring of the effects of investments is crucial. Risks associated with environmental protection The Company is aware of the importance of careful environmental management. We are a company burdening the environment, but we believe that by way of careful environmental policy implementation we can contribute to environmental conservation. 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. Therefore, the Company has set up an ecological service which employs experienced technologists engaging in the analysis of ecological parameters and efficient resolving of ecological problems as well as ensuring compliance with the applicable laws. Financial risks Foreign exchange risk The Company's import and export orientation exposes it to foreign exchange risk. Since the Company mainly exports to markets where the currency is USD, the EUR/USD exchange rate fluctuation is important. In 2010, the exchange rate fluctuated and the USD weakened, which had a negative impact on the expansion of the sale of newsprint on traditional US dollar markets. 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 Interest rate risk is the possibility of changed reference interest rate on the financial market, mainly due to raised long-term loans linked to variable Euribor. A part of long-term and short-term loans is secured by fixed EURIBOR until their repayment. 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 efficient short-term and long-term cash management. In the short term, we ensured solvency through the weekly, monthly, semi-annual and annual planning of cash flows, and by renewing old and obtaining new short-term credit lines with banks. We increased the scope of current loans in order to ensure adequate current cash flows. Besides utilising own funds, cash assets for major investments are provided by raising long-term loans which enable us to close the financial


13

construction of the project. We assess that in 2010 the liquidity risk was successfully managed, owing to appropriate cash flow planning and the willingness of banks to provide financing to the Company. In 2010, 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 minimum delays, which did not affect the operations. 1.6. 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 of Shareholders takes decision regarding the following:

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

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


14

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: Pavel Trenda – Chairman of the Supervisory Board David Št’astný – Deputy Chairman of the Supervisory Board Radek Lacko – member Dušan Vaněk – member Miroslav Lébl – member Miro Senica – member Employees' representatives: Franc Kukovičič – member Albertina Županc – member Marjan Jurman – member The Company's Management Board Vipap Videm Krško d.d. is managed by a four-member Management Board, which is appointed by the Supervisory Board. The Company's Management Board: Oldřich Kettner from 1.1.2010 to 9.12.2010 - Chairman Miloš Habrnál from 9.12.2010 - Chairman Jožica Stegne – Vice-Chairperson Jože Cerle – member Dragan Kranjc – member The Management Board manages the Company and adopts business decisions independently and directly. It meets at least once 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 and the implementation and organisation of work, which enables direct cooperation between the Management Board and other management levels.


16

1.7. VISION AND MISSION

Vision The vision of the company Vipap Videm Krško d.d. is to preserve and further develop the position of the leading producer of newsprint and recycled paper on the markets of South East Europe, and to produce paper of higher quality and price range, which is based on integrated production of fibres from recovered 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 raw materials enable the Company to produce nature-friendly papers from recycled pulp and groundwood.

Mission The basic mission of Vipap Videm Krško d.d. is to produce and market paper produced from recycled pulp and groundwood. We have years of experience, exploit new know-how and are focused on quality. We will continue to respond quickly and adjust to the desires of our customers. Also in the future, we will put special emphasis on optimal use of production technologies, efficient use of internal and external sources of the Company, development and marketing of innovative products that are acceptable in terms of energy consumption, environmental impact and quality. All of the above will enable us to improve the Company’s competitive advantage (flexibility and quick response to the market situation), which will show 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 quality 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.


17

2. REPORT ON THE OPERATIONS OF THE

VIPAP VIDEM KRŠKO GROUP


18

2.1. ANALYSIS OF PERFORMANCE

OPERATING RESULTS

The year 2010 was one of the most difficult years in the last decade for the Vipap Videm Krško Group. The global economic crisis became more evident in our industry in this same year. The operating conditions, which are described in more detail in the continuation, worsened substantially. We closed the financial year with a loss of EUR 8.8 million. Operating results were weaker than planned, mostly due to severely escalated prices of input raw materials (recovered paper and chemical pulp), additional expenses due to excise duties and lower average prices of newsprint.

OPERATING REVENUES

Already at the end of 2009, the selling prices or newsprint and recycled paper started dropping steeply. It became clear that this trend would continue also in 2010. By way of efficient marketing approach, we managed not only to keep, but also increase the quantity of paper sales. Revenues from paper sales in 2010 still dropped significantly due to the already mentioned lower selling prices, but we sold, compared to 2009, 7.6% more paper in terms of quantity. We were very successful in responding to market demands, decreased the costs of complaints, but did not manage to ensure a positive outcome despite the improved quality and increased quantity. The trend of decreasing prices stopped at the end of the year, so that better conditions can be expected on sales markets in 2011.

-12,000 -9,000 -6,000 -3,000

0

3,000 6,000

in ‘000 EUR

2008 2009 2010

Operating profit/loss

70,000 75,000 80,000 85,000 90,000 95,000

100,000

in ‘000 EUR

2008 2009 2010

Net revenues from operations


19

OPERATING EXPENSES

Operating expenses account for the majority share of the Group's total expenses. The main item of operating expenses is direct material cost of production, namely the cost of used raw materials (recovered paper, wood, chemical pulp) and used energy (fuel and electricity). For this reason, management of these resources is one of the key areas in the Company. The rise in the purchase prices of recovered paper on the global market was very steep (approximately 70%) and could not be softened by more purchasing of recovered paper from South East Europe, where the prices are still somewhat lower than in the rest of Europe. The prices of chemical pulp also rose. In 2010, additional expenses for excise duties on electricity also occurred. Consequently, the average variable costs increased to EUR 358/t, which is by EUR 43/t or 13.6% more as compared to the year before. At the annual level, this amounted to approximately EUR 8.7 million higher costs.

INVESTMENTS With its investment activities carried out over previous years, the Company entirely modernised the existing paper and fibre production. Renovation and replacement of the existing energy plants are planned for the future. In 2010, we invested EUR 1.5 million, of which the most important investment was the one into the post-flotation in the DIP plant in the amount of EUR 618 thousand. The main purpose of this investment was to improve the conditions of paper stock deinkingl in the second phase of flotation and thus achieving approximately 1% higher whiteness of the stock obtained from recovered paper in deinking process.

250

270

290

310

330

350

370 in '000 EUR

2008 2009 2010

Costs of material/production


20

FINANCIAL LIABILITIES

The growth in indebtedness did not increase substantially over the last two years. There were no major investments (environmental or technological) underway. From the viewpoint of cash flows, 2010 was an extremely demanding year. Nevertheless, the Company paid off all the liabilities arising from long-term loans as well as decreased liabilities to banks and other financial institutions. At the end of the year, the liabilities arising from current operations (purchase of raw materials) increased, mostly due to the nominal rise in prices, increased inventories of raw materials to ensure undisturbed production and extended realistic payment deadline.

INDICATORS The financial indicators of return, both return on equity (ROE) and return on assets (ROA), are negative as they stood at -11.9 % and -4.1 %, respectively.

0

4,000

8,000

12,000

16,000

20,000

in '000 EUR

2008 2009 2010

Value of investments

39,000

42,000

45,000

in '000 EUR

2008 2009 2010

Financial liabilities


21

Value added per employee decreased significantly in 2010 (EUR 25 thousand per employee). Revenues per employee stayed at the level from the preceding year, i.e. EUR 212 thousand per employee.

2.2. PRODUCTION Paper production at Vipap Videm Krško d.d. was efficient and successful in 2010. Record quantities were realised as the plan was exceeded by 5%, mostly due to increased productivity on PM2 and PM3. The average speed on PM2 rose by 60 and on PM3 by 40 m/min as compared to 2009. We produced 196,669 tonnes of paper as end product and 184,177 tonnes of own fibres, which represent the basic raw material for paper production. In total we thus produced 380,846 tonnes of products. The level of integration of fibre production and paper production in 2010 met expectations, namely 94% (89.8% in 2008 and 93% in 2009), with emphasis placed on ensuring the maximum use of production capacities based on recycled fibres. Integration is higher than in the previous year because of the increased production of newsprint and gradual increase in the production of deinking pulp resulting from investments in 2010.

-12

-9

-6

-3

0

3

6

2008 2009 2010

Return on equity in %Return on assets in %

0

50

100

150

200

250

in ‘000 EUR

2008 2009 2010

Value added peremployee Revenues per employee

in %


22

Paper production 2008

2009 2010

Paper production in t 181,027 187,231 196,669

Paper machine 2 (hereinafter also referred to as "PM2") and paper machine 3 (hereinafter also referred to as "PM3") exceeded the quantities planned, namely PM2 by 6% and PM3 by 8%, whilst paper machine 1 (hereinafter also referred to as "PS1") lagged behind the plan by 1%. Production on PM and PM was very regular as mostly newsprint and, in smaller quantities, also improved newsprint were being produced on these two machines. The range of products on PM was, in contrast to the other two paper machines, very diverse since we tried to adjust as much as possible to the market situation with these products. Due to frequent changes in programme, high productivity and the related planned production quantities could not be achieved. Despite the financial and economic crisis the Company is facing and the related lower funds available for investment activities, the Company is still investing in eliminating operating defects on machines, which enabled the record paper production in 2010. Because of all modernisations carried out over the last years, labour productivity, which is measured in the quantity of production per employee, is constantly increasing. Over the last decade, we managed to increase labour productivity from 272 t/employee to 483 t/employee, which is an increase of 78%. As compared to the year before, we managed to increase labour productivity by 15% in 2010.

100,000

120,000

140,000

160,000

180,000

200,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Paper production by year


23

LABOUR PRODUCTIVITY BY YEAR

Structure of net production by paper machine

ACTUAL 2009 ACTUAL 2010 INDEX Quantity in

tonnes in % Quantity in

tonnes in % 10/09

Paper machine 1 59,051 31.5 60,003 30.5 101.6 Paper machine 2 65,499 35.0 68,725 34.9 104.9 Paper machine 3 62,681 33.5 67,941 34.6 108.3

Total 187,231 100.0 196,669 100.0 105.0 Production on paper machine 1 Despite the increased number of transitions, stable production was one of the main goals for the production programme on PM. We managed to achieve this to a great extent. Due to a very wide range of products on this paper machine, efficiency was poorer and consequently realisation lower than planned by 1%. Within the framework of the recycled programme, we produced the following types of paper: Vimag, Viprint, Vipco, Vipress and Vimax. We also produced newsprint SOF1 and improved newsprint Libna Print on this paper machine. In 2010, activities related to new products were also being carried out on this machine: Libna Plus, Vibulk, Vipco WB and Vipco 90+. Test production was also started for these products. Production on paper machine 2 As far as plan realisation is concerned, the production on this paper machine is very successful. The production of newsprint SOF 45 g/m2 and SOF 42.5 g/m2 continued in 2010. We were also producing the improved newsprint Libna Print. Production on paper machine 3 The production on PM was also successful and above the planned. As on PS2, we were also producing newsprint in two basic weights of 45 g/m2 and 42.5 g/m2 on this paper machine.

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Labour productivity


24

Paper Finishing Similar to production, paper finishing was also very successful in 2010. Sheeting exceeded the plan by 6%. We sheeted 10,126 tonnes of paper, which is by 13% more as compared to the year before.

QUANTITY OF PRODUCED PAPER BY PAPER MACHINE IN 2010

PS131%

PS234%

PS335%

Fibre production The deinkied pulp production recorded very good results in 2010, just as paper production and finishing. We exceeded the record production from 2009 by 6%. The structure of paper production was in 2010 again in favour of newsprint, the basic raw material for which is deinked pulp. Consequently, we were able to completely utilise this production plant following the investment in the month of May and to reach record-level fibre production. Due to the increased use of fibres of lower price range, i.e. deinked pulp, we reduced the use and consequently also the production of groundwood. The production of groundwood was thus carried out almost exclusively at the time of low-tariff electricity supply. Production of fibres in the paper sector

ACTUAL 2009 ACTUAL 2010 INDEX Quantity in tonnes Quantity in tonnes 10/09

DEINKING 152,840 164,017 107.3 TGW 20,489 20,160 98.3 TOTAL 173,329 184,177 106.2 2.3. SALES The demand for paper did not drop substantially in 2010, but the prices of both newsprint and recycled paper decreased sharply. These prices also decreased on the entire global market, so that the Company decided to produce and sell those types of paper with the best results in terms of fixed costs coverage, considering the situation on the market and the objective to satisfy the demands and requests of our best buyers and markets. By doing so, we ensured full utilisation of production capacities. We sold record quantities of paper, 196.866 tonnes. As compared to 2009, sales volume increased by 5%. However, sales revenues recorded were


25

substantially lower due to the decreased selling prices. The Vipap Videm Krško Group generated EUR 91.6 million revenues, which is by 3.9% less as compared to 2009. Considering these facts, we can say that sales results were satisfactory under substantially worse operating conditions. In terms of sales quantity, the most significant markets are: 1. Serbia (11.66%), 2. Slovenia (11.46%), 3. Italy (10.87%), 4. Hungary (10.81%), 5. Greece (6.88%), 6. Germany (5.94%), 7. Romania (5.53%), 8. Turkey (5.49%), 9. Croatia (5.1 %), and 10. Austria (2.33%).

REVENUES FROM PAPER SALES BY YEAR IN THOUSANDS OF TONNES

In the structure of paper sales revenues, the largest share (66%) is represented by sales of newsprint. In terms of quantity, this share is even higher and equals 73%. The value of sales by type of paper in thousands of EUR:

ACTUAL 2009

IN % ACTUAL 2010 IN % INDEX 10/09

Newsprint 60,490 66 57,638 66 95.2 Improved newsprint 2,079 2 3,752 4 180.4 Recycled (coated and non-coated)

29,523 32 26,213 30 88.7

Total paper sales 92,092 100 87,603 100 95.1

70,000 75,000 80,000 85,000 90,000 95,000

100,000

in '000 EUR

2007 2008 2009

Net revenues from operations


26

STRUCTURE OF PAPER SALES IN THE LAST TWO YEARS

Recycled papers In 2010, we sold 44,990 tonnes of recycled papers, which is approximately 5% less than in the year before. The basic raw material is recovered paper with the addition of groundwood and chemical pulp. These products are produced on PM1. The sales programme for recycled papers is very wide: Viprint, Vipco, Vimag, Vimax, Vipress and Vibulk. Sales of these papers dropped in 2010 due to increased production of newsprint, which resulted in a better coverage of the Company's fixed costs. Improved newsprint (PM1, PM2 and PM3) Improved newsprint (Libna Print and Libna Plus) was produced on paper machines 1 and 2. We sold 7,371 tonnes of this paper, which is by 87% more as compared to the year before. The share of sales of these types of paper increased significantly as compared to the year before, reaching 4% in the structure of total paper sales in 2010. Newsprint (PM1, PM2 and PM3) In 2010, newsprint was produced on all three paper machines. Sales quantity increased by 17% as compared to the year before, resulting both from replacing a part of recycled papers production on paper machine 1 with newsprint production as well as higher productivity on the other two paper machines. By doing so, we successfully adapted to the changed conditions on the market. Finishing of paper Sales of paper in sheets at the level of 9,792 tonnes were from the viewpoint of quantity successful as they were by 21% higher than in the year before. 2.4. PURCHASING In 2010, the prices of our strategic raw materials (recovered paper, wood and chemical pulp) were rising sharply. The prices of all fibres increased on the average by 58%, of which the most recovered paper (74%), chemical pulp (51%) and grinding wood (5%). At the end of the year, the prices of chemical pulp stabilised and even recorded a drop, whilst the prices of recovered paper were still rising. Due to the high demand for all types of recovered paper, both in Europe and Asia, the purchase prices remain at a very high level also in 2011. The rise in the price of recovered paper in Europe also resulted from increased exports of recovered paper from Europe to China and India for the purpose of packaging paper production. The management of energy-generating products was somewhat easier. As compared to the

2009

Improved newsprint

2%

Recycled paper 32%

Newsprint66%

2010

Newsprint73%

Improved newsprint

4%

Recycled paper23%


27

year before, we managed to decrease the price of coal by 3%. We also managed to cut the price of electricity by approximately 12%. The management of these strategic resources represents one of the Company's key priorities at the moment. In 2010, purchasing totalled EUR 78 million together with investments. As compared to the year before, we recorded an increase of 20%, mostly due to higher prices of basic raw materials and partially also due to increased volume of production, thus also needs for higher quantities of basic raw materials.

OVERVIEW OF PURCHASING IN THE LAST TWO YEARS BY MARKET

PURCHASINGSTRUCTURE

2.5. RESEARCH & DEVELOPMENT ACTIVITIES Research & development activities of the company Vipap Videm Krško d.d. can be divided into two main fields: A. Research & development activities: a. Development of new products b. Optimisation of technological procedures and processes B. Development investment activities

A. Development investment activities a. Development of new products

a.1. Development of new papers: Development of new papers and alignment of the existing range with new market demands focused on the following types of papers:

2010

Domestic market

46%Foreign market

54%

2009

Foreignmarket

43%Domesticmarket

57%

Chemicals13%

Spare parts -maintenance

9%

Fibres,waste paper and

grinding wood52%

Energy 21%

Machine clothing2%

Packaging2%

Investments2%


28

- Libna Plus – improved newsprint (and bulky paper) with high whiteness. The product was included in the regular sales and production programme, but was taken from regular production in 2011 due to market conditions. With adequate market conditions, the product is ready for the regular sales and production programme. - Vibulk – bulky paper. Test production was carried out with 1.8 volume and the standard, comparable shade. All development phases were tested in the sheet-fed printing technique. A market research was implemented with the produced sample printed material from regular projects (sales programme). Further development activities have already been agreed upon for April/May 2011 for the roll-printing technique and, if necessary, a new product in yellow colour. Future activities also depend on the purchasing conditions for grinding wood. - Vipco – multi-purpose office paper. The standard product was changed paper shade and coating composition for more quality printing transitivity in digital printing techniques. The product is already part of regular production. - Vipco WB – multi-purpose office paper. The quality is adjusted to the demands of a major buyer. This product is also already part of regular production. - Vipco 90+ – multi-purpose office paper with higher whiteness – up to 90% ISO R457. A test quantity was produced and tested on a specific market segment. The product is ready for further development phases. - SOF 52 DT – modified - adjusted quality of newsprint. The product is suitable for digital printing techniques "Web to print - roll to roll". It is included in the regular production programme in smaller quantities and has been developed for printing techniques of the future. - SOF F – newsprint adjusted for flexo printing technique. In the validation phase, printing qualities were adjusted. a.2. Development of new products from alternative raw materials (primary, secondary sludges and ashes): - Visorb/Vifluff/CAPS/Absorbent – efficient absorbent of hydrophobic liquids. It was developed in cooperation with the Pulp and Paper Institute and the company TOC (patent owner). The technological process for absorbent production was developed by the Technology and Development Department. It is ready for installation in the form of pilot line at the production and warehouse premises of the DIP line. Regular production has been anticipated for 2012. - BioPel/EcoBeton – construction material. This includes stabilised concrete made of biosludge (from industrial waste water treatment facility or other biosludges) and ashes of the Company. Test panels were produced and first evaluations were made. Research & development activities are being carried out further. - IzoVip – insulation material made of the Company's alternative raw materials. Basic material evaluations were carried out. All activities will continue also in 2011, mostly following the start-up of the pilot line of the absorbent with fluffer. - MulOp – construction material. First assessments of the incorporation of primary sludges of the present composition into brick were repeated. All activities will continue in 2011.

b. Optimisation of technological procedures and processes All activities in this field were directed towards achieving higher efficiency as well as more stable and higher quality together with cost cutting. These activities can be divided into the following areas: - Digital printing technique in the graphic industry. The Company has to adjust the quality level of the existing and new product sales range to the new market situation. - Nanotechnology. The Company is researching and developing the use of nanotechnology and nano raw materials in technological procedures and processes for the production of fibres and paper. - Biotechnology. The Company is researching and developing the use of biotechnology in technological procedures and processes for the production of fibres and paper. In 2010 the company Vipap Videm Krško d.d. took part in two public tenders from the field of research & development. We were successful in the tender for funds distributed through


29

development centres, in which we cooperate together with other companies included in the consortium in the project ZEL-EN (Development Centre for Renewable and Sustainable Energy). However, we were not successful in the tender for funds distributed through competence/competition centres. To optimise the monitoring of its R&D activities, the Company systematically planned the set-up of information inclusion within the framework of the so-called R&D programme, which was in 2010 set up as a sample model and is to be launched entirely in 2011.

B. Development investment activities: Within the framework of development investment activities, the Technology and Development Department presented during consultation sessions four concepts of possible future development of the Company, which also include three development concepts for the field of energy, together with the economic calculations for concepts A and B. These activities will continue also in 2011. The cooperation in the consortium for the preparation of the development centre projects, which focus on renewable and sustainable energy projects (related to the Company's energy supply), and the development of new products made of waste material and by-products from the fibre production. The Company took part in the Public Tender for Obtaining Funds of the European Regional Development Fund (ERDF), Development Centres of the Slovenian Economy (ZEL-EN Development Centre for Renewable and Sustainable Energy). The ZEL-EN project was approved by the Ministry of the Economy in 2011. 2.6. INVESTMENT ACTIVITIES Despite the economic and financial crisis, the company Vipap Videm Krško d.d. allocated to investment activities in 2010 as much as EUR 1.5 million, of which EUR 30 thousand to environmental activities and the rest to technological investments. In terms of substance and scope, the most demanding investment in 2010 was the modernisation of the DIP plant, which soon resulted in increasing the plantś daily capacities (480 t/day) and increasing the whiteness of the final deinking pulp. At the same time, the investments in the modernisation of pressure screening on PM1 and PM2 were also implemented. The other major set of investments was related to smaller investments in efficient energy use and a snapshot of the situation for future sets of investments from this field on PM3 and elimination of production faults. Other investments were of minor scope and were related to the demolition of the chemical pulp production facilities etc. Investments by year in ‘000 EUR

1997 - 2002

2003 2004 2005 2006 2007 2008 2009 2010

Ecological investments

23,879 52,585 2,033 609 1,997 3,273 1,512 306 30

Technological investments

23,838 2,162 978 767 6,177 2,456 15,799 3,094 1,440

Year total 47,717 54,747 3,011 1,376 8,174 5,729 17,311 3,400 1,470 Cumulative 47,717 102,464 105,475 106,851 115,025 120,754 138,065 141,465 142,935


30

Investments in 2010 in ‘000 EUR REALISATION

2010 Ecological investments

Efficient use of energy

29,892 28,976

Efficient use of process water 916 Technological investments 1,440,662

Post-flotation/PDF Investment maintenance Modernisation of pressure screening on PM2 Modernisation of pressure selection on PM3 Other

617,573 580,972 53,268 44,077

144,772 INVESTMENT TOTAL 1,469,554

2.7. EMPLOYEES Employment As in the year before, the Vipap Videm Krško Group decreased the number of employees using the so-called soft methods, namely from 445 at the end of 2009 to 411 at the end of 2010. In Vipap Videm Krško d.d. three new employees joined us and in Vipap Vertriebs und Handels GmbH four new employees, whilst 41 employees left the Group. The reasons for employees leaving were as follows:

18 employees retired, 14 employees were reallocated to a subsidiary based on Article 73 of the Employment

Relationship Act (ZDR), 6 employees left based on contract cancellation, and 4 employees stopped working based on consensus.

NUMBER OF EMPLOYEES BY YEAR

0

200

400

600

800

1000

No. of employees

2005 2006 2007 2008 2009 2010

No. of employees


31

Employees’ structure Over the last years, the Company did not increase the number of its employees substantially and was recording minimum staff turnover rates, so the average employee age is increasing; presently, it equals 46 years and is thus the highest in the history of paper production. At the end of the year, we employed 24 disabled workers (5 less than in 2009). This indicates the problem of the ageing labour force and health problems of employees. To resolve this problem, the Company introduced planned scholarship programme already in 2008. Structure of the Group's employees in 2009 and 2010

2009 % 2010 % INDEX 2010/2009 - production 366 82.2 336 82.5 91.8 - administrative services 79 17.8 75 17.5 94.9 Total 445 100 411 100 92.3 The existing staff education structure was somewhat improved to the benefit of educational levels V, VI and VII (secondary school, college and university degree). The majority of employees have finished vocational or secondary schools (57%), whilst the share of employees with college and university degrees rose to 16.4%.

PROFESSIONAL EDUCATION OF EMPLOYEES

Absence from work (absenteeism) Efficiency and good performance can also be closely related to the quality of use of the employees' working hours. Due to the problem of the ageing labour force at the Group level and the related risk of increased sick leave, more disability procedures and labour limitations, a high percentage of absenteeism was recorded in the Company. In 2010, we recorded 5.4% downtime resulting from employee sick leave. Employee training In 2010, we allocated approximately EUR 20 thousand to employee training. Training was enabled to 104 employees. Total training hours equalled 767. In addition, we continue to finance work-study programmes and compulsory practical work as well as grant three scholarships annually.

WORKERS WITH OCCUPATION25%

2-YEAR SECONDARY SCHOOL –QUALIFIED WORKERS

3%

COLLEGE DEGREE 7%

UNIVERSITY DEGREE 11%

3-YEAR SECONDARY SCHOOL –QUALIFIED WORKERS

31%

4-YEAR SECONDARY SCHOOL – TECHNICIANS

23%


32

Salaries The wage policy implemented by the company Vipap Videm Krško d.d. is in line with the Collective Agreement of the Pulp, Paper and Paper Processing Industry, Rules on a Stimulating Remuneration System, Rules on the Implementation of the System of Salaries, Work-Related Compensations and Other Labour Costs and resolutions of the Management Board, which aligns the wage policy with the current operating results of the Company and the results achieved on the market. In the company Vipap Vertriebs und Handels GmbH employment relationships are governed by the Collective Agreement for Employees in General Wholesale and Retail Trade. In 2010, the average salary stood at EUR 1,579, which is by 2.9% less than in the year before and is a consequence of decreased share of performance allowance in salaries due to worse operating results. As compared to the Slovenian average, our salaries are by 1% higher. Health and safety at work As compared to 2009, the situation in the field of health and safety at work improved. The number of injuries dropped by 42%, and the number of work days lost in contrast to available work days also decreased. In 2010, we continued financing precautionary examinations for detection of osteoporosis for high-risk employee groups and enabled the possibility of influenza vaccination. 2.8. EXPECTATIONS OF THE VIPAP VIDEM KRŠKO GROUP FOR 2011 The basis for the preparation of the operating plan for 2011 is represented by forecasts and anticipations regarding the future economic growth in the EU zone, which accounts for the majority of all market activities of the Vipap Videm Krško Group, as well as macroeconomic movements in the field of monetary policy. The negative impact of the economic crisis was the most evident in the paper industry in 2010. For the following year, we anticipate a substantially more favourable situation on the sales market of both newsprint and recycled paper. The attitude of buyers (printers) will continue to be oriented towards downgrading, which means that the demand for paper types of lower price range will be strengthening. We expect the prices of newsprint in the following year to increase by 12% and the prices of recycled paper by 2%. We plan for the Company to exceed 200 thousand tonnes of paper production and sales for the first time in our history. Operating conditions will remain harsh in the following year. Increased tax burdens (excise duties) and other duties will stay at a very high level. For the following year, we are planning full utilisation of capacities, maximum exploitation of the Company's internal reserves with a focus on cost cutting measures, which are not directly related to the Company's technological and business process, and implementation of divestment measures, mostly liquidation of the equipment at the chemical pulp facility. A part of the Company's development activities will be realised in the joint company ZEL-EN, Development Centre for Renewable and Sustainable Energy.


33

3. THE ENVIRONMENT


34

3.1. ACHIEVEMENTS IN 2010 Vipap Videm Krško d.d. has been implementing its natural environment policy already since 1997. The extensive environmental and technological modernisation of integrated production of fibres and paper in Krško was completed in 2007. A. EU ENVIRONMENTAL LABEL Together with the Environmental Agency of the Republic of Slovenia (ARSO), the Company carried out the administrative procedure for obtaining or expanding the EU environmental label for six ecological products, which meet the requirements of the EU regulations for copy and graphic papers. Because of the requirements of the customers, particularly those from the EU, the Company decided to obtain the EU ecolabel for certain products. We thus obtained this label for certain products already in 2006. In 2009, we re-examined the EU legislation in the relevant area, particularly the environmental measures for the group of copy and graphic papers. In the report/application submitted by the Company in October 2009 and the administrative procedure it was established that the products VIPCO, VIPRESS, VIPRINT, VIMAG, VIMAX and LIBNA PRINT met all the criteria for obtaining the ecolabel in terms of emissions into the water and the air, sustainable forest management, use and handling of dangerous chemicals, waste handling, suitability for use, information on the packaging and the environmental label. In January 2010, the Environmental Agency of the RS issued the Decision 35400-326/2005-14.


35

SPECIFICATIONS OF PRODUCTS WITH THE EU ECOLABEL Product name

Fibre composition Intended use Registration number (code) Made in

EU ecolabel

VIPCO

• photocopying; • digital printing; • printing of books and

brochures, etc.; • printing of periodicals

and promotion materials;

• multi-colour and black&white offset print

SI/011/01 Krško, SLO

VIPRESS VIPRINT VIMAG VIMAX

• printing of periodicals and promotion materials;

• printing of catalogues, children’s books, colouring books;

• sheet-fed print; multi-colour and black&white heat-set offset print (VIPRESS with cold drying)

SI/011/02 SI/011/03 SI/011/04 SI/011/05 Krško, SLO

LIBNA PRINT

• printing of periodicals and promotion materials;

• printing of books; • sheet-fed print; multi-

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

SI/011/06 Krško, SLO

B. WASTE WATER TREATMENT PLANT OF THE CITY OF KRŠKO In August 2009, we started treating the municipal waste waters of Krško and the surrounding areas at the central waste water treatment plant. Since April 2010, more than 85% of municipal waste waters of Krško with its surroundings are being treated at the central waste water treatment plant VIPAP. The results of treating waste water at the central waste water treatment plant VIPAP:

Unit of measu-rement

2007 2008 2009 2010

COD percentage of reduction % 92.3 91.4 93.5 93.1 BOD percentage of reduction % 99.0 98.9 99.2 98.8 AOX percentage of reduction % 69.8 75.4 81.2 71.4 Percentage of reduction - suspended solids

% 99.3 99.3 99.5 99.2

Percentage of reduction - total P % 80.8 86.9 94.1 93.3 Percentage of reduction - total bound N

% 73.7 78.1 87.0 88.0

Chemical pulp15%

Wood pulp20%

Recycled fibres65%

Wood pulp 15%

Recycledfibres

70%

Chemical pulp15%

Chemical pulp10%

Wood pulp30%

Recycled. fibres60%


36

3.2. ENVIRONMENTAL IMPACT Our impacts on the narrow and broad 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

Over the recent years, the Company invested great efforts in reducing the use of energy and water.

Unit of measurement

2007 2008 2009 2010

Process water m3 b.p.1 19.5 21.6 20.3 18.2 Steam GJ/t b.p. 5.27 5.25 4.71 4.59 Electricity kWh/t b.p. 872 869 865 843

B. SPECIFIC WASTE WATER DISCHARGE

The indicators of specific waste water discharge have improved over the last three years, as shown in the table and graph below.

Unit of measurement

2007 2008 2009 2010

COD kgO2/t b.p. 2.4 3.1 2.3 2.0 BOD5 kgO2/t b.p. 0.11 0.13 0.10 0.13 Quantity of waste water m3/t b.p. 18.6 17.7 17.5 17.7

1 b.p. = gross production

0

5

10

15

20

25

2007 2008 2009 2010825

830

835

840

845

850

855

860

865

870

875

Process water

Steam

Electricity


37

C. SPECIFIC AIR EMISSIONS FROM THE COMPANY

Unit of measurement

2007 2008 2009 2010

Sulphur dioxide kg SO2/t b.p. 0.442 0.301 0.251 0.473 Nitrogen oxides kg NO2/t b.p. 1.316 1.100 0.920 1.136 Carbon dioxide kg CO2/t b.p. 487.14 475.35 433.44 430.75 In the last three years the Company reduced its specific emissions into the air.

0 0.5

1 1.5

2 2.5

3 3.5

2007 2008 2009 201016,5

17

17,5

18

18,5

19

CODBOD5 Quantity of waste water

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2007 2008 2009 2010400 410 420 430 440 450 460 470 480 490 500

Sulphur dioxideNitrogen oxidesCarbon dioxide


38

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 are growing, whilst the quantities of deposited waste are declining.

Unit of measurement

2007 2008 2009 2010

R - waste recovery kg s.s./t b.p. 167 180 176 228 D - waste disposal kg s.s./t b.p. 79 109 112 87 Total waste produced kg s.s./t b.p. 246 288 288 323

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010

Total wasteproduced D-waste disposal

R-waste recovery


39

II. FINANCIAL REPORT OF THE

COMPANY VIPAP VIDEM KRŠKO D.D.


40

1. FINANCIAL STATEMENTS


41

1.1. BALANCE SHEET AS OF 31 DECEMBER 2010 IN EUR

Note 31 Dec.

2010 31 Dec.

2009

ASSETS 148,022,969 156,804,870

A. Non-current assets 123,678,068 128,308,257 I. Intangible fixed assets and non-current deferred expenses and accrued revenues 1 116,314 259,339

1. Long-term property rights 116,314 259,339

II. Property, plant and equipment (tangible fixed assets) 2 113,612,855 120,274,881

1. Land and buildings 30,648,749 31,525,852

a) Land 5,320,201 5,320,201

b) Buildings 25,328,548 26,205,651

2. Plant and machinery 77,549,684 80,159,396

3. Other plant and equipment 5,350,267 6,588,995

4. Property, plant and equipment being acquired 64,155 2,000,638 a) Property, plant and equipment under construction and manufacture 64,155 1,920,638

b) Advances for property, plant and equipment 0 80,000

IV. Long-term financial investments 3 281,797 246,797

1. Non-current financial investments, excluding loans 281,797 246,797 a) Shares and participating interests in companies within the Group 0 246,797

VI. Deferred tax assets 4 9,667,102 7,527,240

B. Current assets 23,515,559 27,721,981

II. Inventories 5 10,428,462 9,885,050

1. Material 7,365,109 5,901,537

2. Unfinished products 165,502 325,014

3. Products and merchandise 2,872,497 3,637,232

4. Advances for inventories 25,354 21,267

IV. Short-term operating receivables 6 11,203,866 16,156,482 1. Short-term operating receivables due from the Group companies 1,448,443 24,765

2. Short-term operating trade receivables 8,820,800 15,452,530

3. Short-term operating receivables due from others 934,623 679,187

V. Cash 7 1,883,231 1,680,449

C. Short-term deferred costs and accrued revenues 8 829,342 774,632


42

Note

31 Dec. 2010

31 Dec. 2009

Liabilities and equity 148,022,969 156,804,870 A. Equity 9 70,325,109 79,072,844 I. Called-up capital 78,387,660 78,387,660 1. Share capital 78,387,660 78,387,660 II. Capital reserves 588,439 2,459,406 III. Reserves from profit 96,744 1,751,061 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 reserves from profit 0 1,654,317 V. Retained net profit/loss 0 -3,525,283 VI. Net profit/loss for the year -8,747,734 0 Profit or loss for the year -8,747,734 0 B. Provisions and long-term accrued costs and deferred revenues 10 2,368,495 3,500,448 1. Provisions for pensions and similar liabilities 2,206,474 2,801,885 2. Other provisions 162,021 670,449 3. Long-term accrued costs and deferred revenues 0 28,114 C. Non-current liabilities 16,321,092 18,453,169 I. Non-current financial liabilities 16,321,092 18,453,169 2. Non-current financial liabilities to banks 11 14,968,286 16,481,037 4. Other non-current financial liabilities 12 1,352,806 1,972,132 D. Current liabilities 58,341,405 54,517,736 II. Current financial liabilities 13 27,391,163 27,781,702 2. Current financial liabilities to banks 26,357,986 26,815,019 4. Other current financial liabilities 1,033,177 966,683 III. Current operating liabilities 30,950,242 26,736,034 1. Current operating liabilities to the Group companies 1,509,586 890,528 2. Current trade payables 14 24,517,493 18,987,855 4. Current operating liabilities based on advances 1,503,922 967,430 5. Other current operating liabilities 15 3,419,241 5,890,221 E. Current accrued costs and deferred revenues 16 666,868 1,260,673

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


43

1.2. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 IN EUR

in

EUR Notes 2010 2009 1. Net sales revenues 17 91,401,767 95,299,977 2. Change in inventories of products and work in progress -924,247 1,237,753

4. Other operating revenue (including revaluation operating revenue) 18 510,865 703,930

5. Costs of goods, materials and services 80,339,392 68,563,703

a) Costs of goods and materials sold and cost of materials used 70,391,003 58,787,593

b) Costs of services 19 9,948,389 9,776,110 6. Labour costs 20 11,985,525 11,434,765 a) Costs of salaries and wages 8,213,226 8,449,995 b) Social security costs 1,667,554 1,594,137 c) Other labour costs 2,104,745 1,390,633 7. Write-offs 9,478,912 9,406,821 a) Depreciation and amortisation 7,992,337 8,104,352

b) Revaluation operating expenses for intangible and tangible fixed assets 93,220 335,845

c) Revaluation operating expenses for current assets 1,393,355 966,624 8. Other operating expenses 21 932,916 987,165 Operating profit/loss -11,748,360 6,849,206 11. Financial revenues from operating receivables 22 273,030 131,013

b) Financial revenues from operating receivables due from others 273,030 131,013

13. Financial expenses for financial liabilities 23 2,392,587 2,349,736 b) Financial expenses for loans received from banks 2,260,560 2,193,663 d) Financial expenses for other financial liabilities 132,027 156,073 14. Financial expenses for operating liabilities 24 653,977 541,500

b) Financial expenses for liabilities to suppliers and bills of exchange 653,977 541,500

Net profit/loss from ordinary activities -14,521,894 4,088,983 15. Other income 25 3,640,853 143,905 16. Other expenses 6,556 17,926

Operating profit/loss from extraordinary activities 3,634,297 125,979

17. Corporate income tax 26 0 0 18. Deferred taxes 2,139,863 -1,091,772 19. Net profit/loss for the period -8,747,734 3,123,190 20. Total comprehensive income for the year -8,747,734 3,123,190

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


44

1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 2010 2009 A. Cash flows from operating activities a) Items of income statement -539,409 11,379,247 Operating revenue (except from revaluation) and financial revenue from operating receivables 95,547,598 95,986,314

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -98,226,870 -83,515,295

Income taxes and other taxes not included in operating expenses 2,139,863 -1,091,772

b) Changes in net working capital (and accruals and deferrals, provisions and deferred tax receivables and liabilities) of balance sheet operating items 6,583,192 -8,122,643 Opening less closing operating receivables 6,454,306 -1,553,841

Opening less closing deferred costs and accrued revenues -54,710 47,872

Opening less closing deferred tax assets -2,139,862 1,091,772

Opening less closing assets (disposal groups) held for sale 0 1,462,766

Opening less closing inventories -541,630 238,651

Closing less opening operating liabilities 4,235,251 -9,670,526

Closing less opening accrued costs and deferred revenues, and provisions -1,370,163 260,663

c) Net operating receipts or net operating disbursements (a + b) 6,043,783 3,256,604

B. Cash flows from investing activities a) Cash receipts from investing activities 3,981,794 992,095 Cash receipts from disposal of intangible assets 0 40,000

Cash receipts from disposal of property, plant and equipment 3,981,794 952,095

b) Cash disbursements for investing activities -5,534,524 -4,916,718 Cash disbursements for acquisition of intangible assets -172,697 -172,697

Cash disbursements for acquisition of items of property, plant and equipment -5,326,827 -4,744,021

Cash disbursements for acquisition of long-term financial investments -35,000 0

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -1,552,730 -3,924,623

C. Cash flows from financing activities a) Cash receipts from financing activities 11,908,891 9,790,989 Cash receipts from paid-in capital -1 0

Cash receipts from increase in non-current financial liabilities 7,974,108 8,318,000

Cash receipts from increase in current financial liabilities 3,934,784 1,472,989

b) Cash disbursements for financing activities -16,197,162 -10,784,388 Interest paid on financing activities -1,992,596 -1,978,782

Repayments of non-current financial liabilities 0 0

Repayments of current financial liabilities -14,204,566 -8,805,606

c) Net receipts from financing activity or net disbursements for financing activity (a + b) -4,288,271 -993,399

D. Final balance of cash 1,883,231 1,680,449 x) Net cash flows for the period (sum of Ac, Bc and Cc) 202,782 -1,661,418 y) Opening balance of cash 1,680,449 3,341,867



45

1.4. STATEMENT OF CHANGES IN EQUITY FOR 2010 in EUR Reserves Other

Share capital

Legal reserves

for own stakes

Treasury shares

profit reserves

Retained profit/loss

Net profit/loss for the year

Capital reserves

Surplus from revaluation Total

A.1. Balance as of 31 December 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -3,525,283 0 2,459,406 79,072,844 a) Retrospective restatements (elimination of errors) -1 -1 b) Retrospective adjustments (changes in acc. policies) 0 A.2. Balance as of 1 January 2010 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -3,525,283 0 2,459,405 0 79,072,843 B.1. Changes in own capital - transactions with owners a) Subscription of called-up capital 0 (capital payment) 0 b) Subscription of uncalled share capital 0 c) Call-up of subscribed share capital 0 d) Entry of additional payments of equity capital 0 e) Purchase of treasury shares and own stakes 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 year -8,747,734 -8,747,734 0 0 0 0 0 0 -8,747,734 0 0 -8,747,734 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 -1.654.317 3.525.283 -1.870.966 period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 -1,654,317 3,525,283 0 -1,870,966 0 0

C. Balance as of 31 December 2010 78,387,660 96,744 3,557,093 -3,557,093 0 0 -8,747,734 588,439 0 70,325,109

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


46

1.5. STATEMENT OF CHANGES IN EQUITY FOR 2009

Share capital Legal

reserves

Reserves for own stakes

Treasury shares

Other profit reserves


Net profit/loss for

the yearCapital

reservesSurplus from

revaluation Total A.1. Balance as of 31 December 2008 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -6,648,473 0 2,459,406 75,949,654 a) Retrospective restatements (elimination of errors) 0 b) Retrospective adjustments (changes in acc. policies) 0 A.2. Balance as of 1 January 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -6,648,473 0 2,459,406 0 75,949,654 B.1. Changes in equity - transactions with owners a) Subscription of called-up share capital 0 (capital payment) 0 b) Subscription of uncalled share capital 0 c) Call-up of subscribed share capital 0 d) Entry of additional payments of equity capital 0 e) Purchase of treasury shares and own stakes 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 year 3,123,190 0 3,123,190 0 0 0 0 0 0 3,123,190 0 0 3,123,190 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 3.123,190 -.3.123,190 period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 0 3,123,190 -3,123,190 0 0 0 C. Balance as of 31 December 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 3,525,283 0 2,459,406 0 79,072,844



47

2. APPENDIX TO THE FINANCIAL STATEMENTS


48

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2010 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 on 1 January 2010, 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 of 31 December 2009 and data as of 31 December 2010. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:

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

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

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


49

− Financial investments in capital are initially valued at fair values, whilst any subsequent valuations are based on historical cost.

− Inventory items of material and merchandise are initially recognised at the actual

historical cost, which comprises the purchase price, import duties and other non-refundable purchase taxes, and the direct costs of procurement. Original 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. Based on the printouts of material inventory, the Company establishes non-current stocks of unnecessary material, where there have been no transactions for one year or more, and devalues it in the books of account.

− 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 applied tax rate is determined on the basis of the schedule for the use of provisions formed. 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 current deposits with banks.

− Current deferred costs and accrued revenues comprise receivables and/or deferred

costs occurring during the year and temporarily accrued revenues.

− The total equity capital comprises the called-up capital, capital reserves, profit reserves, and net profit or loss for the year retained. Profit reserves comprise: reserves


50

for treasury shares and treasury shares. The Company is obliged to calculate the effect on profit or loss for the year if a general capital revaluation was carried out.

− Provisions and non-current accrued expenses and deferred revenues comprise

provisions for pensions and similar liabilities, other provisions and non-current accrued expenses and deferred revenues. They are formed for current 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. Non-current accrued costs and deferred revenues comprise deferred revenues expected to cover estimated costs or expenses in a period of more than one year. The purpose of provisions is to accumulate amounts in the form of accrued costs or expenses that will be available in the future to cover incurred costs or expenses.

− Non-current liabilities comprise non-current 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. Non-current financial liabilities to banks comprise loans raised by borrowers with creditors. Non-current financial liabilities are liabilities to lessors in the case of financial lease. Non-current 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. Non-current foreign debt is converted to domestic currency at the middle exchange rate of the Bank of Slovenia as of the last day of the year.

− Current liabilities comprise current financial liabilities and current operating liabilities.

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

− Short-term deferred revenues and accrued costs represent accrued expenses.

According to SAS 12, current accrued expenses and deferred revenues should not hide reserves.

− Revenues are increases in economic benefits during the accounting period in the

form of increases in assets or decreases in liabilities. They affect the amount of capital through profit or loss. Revenues are classified as net operating revenues, other operating revenues, financial revenues from operating receivables and other revenues. Revenues are recognised if increases in economic benefits are associated with increases in assets and the increases can be measured reliably. Revenues are recognised together with the receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. The revenues arising from the sale of products and material are measured based on the selling prices stated in invoices and other documents, less discounts approved when the sale is made or subsequently. Any 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


51

operating receivables are revenues from accrued interests and exchange rate gains. Other revenues are compensations received arising from recognised damage to fixed assets.

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

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


52

2.2. NOTES TO THE FINANCIAL STATEMENTS

2010 2009 1. Intangible assets 116,314 259,339 Intangible fixed assets comprise software (EUR 2,161) and emission coupons (EUR 114,153). in EUR Property Emissions Total rights coupons 1. Cost Balance as of 1 January 2010 97,113 255,394 352,507 Increase 0 172,697 172,697 Decrease 0 -313,938 -313,938 Balance as of 31 December 2010 97,113 114,153 211,266 2. Value adjustment Balance as of 1 January 2010 -93,168 0 -93,168 Amortisation -1,784 0 -1,784 Decrease 0 Balance as of 31 December 2010 -94,952 0 -94,952 3. Residual value Balance as of 1 January 2010 3,945 255,394 259,339 Balance as of 31 December 2010 2,161 114,153 116,314

As of 31 December 2010, the Company has 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. The Company received a decision regarding emission coupons from the Ministry of the Environment and Spatial Planning, according to which it is entitled to 172,697 coupons for 2010. Based on the calculation of obligations for 2009, it gave to the Ministry of the Environment and Spatial Planning 137,756 emission coupons. A correction of the quantity of 176,182 emission coupons was also made. Based on the calculation of obligations for 2010, the Company assessed delivery of 142,757 emission coupons (by the end of April 2011). As of 31 December 2010, the balance of coupons stood at 114,153.


53

2009

2008 1.a. Intangible assets 259,339 129,880 The table of intangible assets for the year 2009 Property Emissions Total rights coupons 1. Cost Balance as of 1 January 2009 97,113 122,697 219.810 Increase 0 172,697 172,697 Decrease 0 -40,000 -40,000 Balance as of 31 December 2009 97,113 255,394 352,5072. Value adjustment Balance as of 1 January 2009 -89,930 -89,930 Amortisation -3,238 0 -3,238 Decrease 0 0 0 Balance as of 31 December 2009 -93,168 0 -93,168 3. Residual value Balance as of 1 January 2009 7,183 122,697 129,880 Balance as of 31 December 2009 3,945 255,394 259,339

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


54

in EUR

2010

2009 2. Overview of the fluctuation of fixed assets in 2010: 113,612,855 120,274,881

Item Equipment

Land Construction

buildings Equipment under

construction Advance

payments Total 1. Cost

Opening balance 1 Jan. 2010 5,320,201 35,395,705 141,698,949 2,027,852 869,821 185,312,528

Additions – new purchases 142,371 1,733,383 9,416 1,885,170 Increases – acquisitions from investments 254,990 254,990 Increases of existing fixed assets 148,017 3,038,650 3,186,667 Decrease -932,280 -539,187 -3,589,866 -89,416 -5,150,749 Transfer of short-term HFS assets 0 Balance as of 31 December 2010 5,320,201 34,611,442 144,595,773 171,369 789,821 185,488,606

2. Value adjustment Opening balance 1 Jan. 2010 -9,190,054 -54,950,558 -107,214 -789,821 -65,037,647 Increases - depreciation -1,023,118 -6,967,435 -7,990,553 Strengthening of existing fixed assets 0 Impairments of existing fixed assets 0 Transfer of short-term HFS assets 0 Decrease 930,278 222,171 1,152,449 Balance as of 31 December 2010 -9,282,894 -61,695,822 -107,214 -789,821 -71,875,751

3. Residual value Balance as of 1 January 2010 5,320,201 26,205,651 86,748,391 1,920,638 80,000 120,274,881 Balance as of 31 December 2010 5,320,201 25,328,548 82,899,951 64,155 0 113,612,855

As of 31 December 2010, the Company had EUR 10,617,588 in non-current loans for the purchases of fixed assets and EUR 2,385,983 of liabilities arising from financial lease. Fixed assets in the amount of EUR 65,241,845 were pledged as collateral for non-current financial liabilities (Item 11). In 2010, we performed a revision of the initially assessed expected life with a change in the depreciation rate for the press PM3 (from 10% to 3.33%), other equipment on PM3 (to 5%) due to adjusting the rate for the same equipment on PM2, hydrant boxes (from 12.5% to 5%) and the processing computer (from 15% to 10%). The effect was EUR 932 thousand at the annual level. Other increases in fixed assets of equipment are modernisations of the existing fixed assets. The Company is gradually removing facilities which have not been in use any more since 2006 for chemical pulp production. Due to a longer time period of disassembling the equipment for chemical pulp production, the Company disclosed this equipment as fixed assets as of 31 December 2010 (EUR 1,120,656).


55

in EUR 2009 2008 2. a Overview of the fluctuation of fixed assets in 2009: 120,274,881 123,753,206

Item Equipment

Land Construction





Additions – new purchases 0 0 148,500 3,221,742 499,798 3,870,040 Increases – acquisitions from investments 0 0 12,117,841 -12,117,841 0 0 Other increase in fixed assets 0 433,834 4,161,237 -4,409,775 0 185,296 Decrease 0 -48,383 -112,160 -418 -503,979 -664,940 Transfer of short-term HFS assets 0 0 1,427,559 0 1,427,559 Balance as of 31 December 2009 5,320,201 35,395,705 141,698,949 2,027,852 869,821 185,312,528

2. Value adjustment Opening balance 1 Jan. 2009 0 -7,991,752 -47,959,794 0 -789,821 -56,741,367 Increases – depreciation 0 -1,008,858 -7,092,256 0 0 -8,101,114 Other increase in fixed assets 0 81,661 25,553 -107,214 0 0 Impairments of existing fixed assets 0 -311,467 0 0 0 -311,467 Transfer of short-term HFS assets 0 0 -16,990 0 0 -16,990 Decrease 0 40,362 92,929 0 0 133,291 Balance as of 31 December 2009 -9,190,054 -54,950,558 -107,214 -789,821 -65,037,647

3. Residual value Balance as of 1 January 2009 5,320,201 27,018,502 75,996,178 15,334,144 84,181 123,753,206 Balance as of 31 December 2009 5,320,201 26,205,651 86,748,391 1,920,638 80,000 120,274,881

in EUR 2010 2009 3. Non-current financial investments 281,797 246,797

Balance 31 Dec.

2010

Value adjustment 1 Jan. 2010

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment 31

Dec. 2010

Carrying amount 31 Dec. 2010

Vipreh d.o.o., Krško (100%) 44,489 -44,489 -44,489 0 Ekopa d.o.o., Krško (100%) 42,693 -21,160 -21,160 21,533 Levas d.o.o., Krško (84.48%) 421,243 -195,979 -195,979 225,264 Vipap GMBH, Neunkirchen (100%) 35,000 35,000 Total shares 543,425 -261,628 0 0 -261,628 281,797

The registered office of Vipreh d.o.o. is Tovarniška 18, Krško. The company disclosed a loss of EUR 174 in its 2010 income statement. The amount of capital as of 31 December 2010 was EUR 6,237. Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2010 income statement, the company disclosed a loss of EUR 12,028. As of 31 December 2010, the company's capital stood at EUR 132,288. The registered office of Levas d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 20,236 in its 2010 income statement. The amount of capital in the balance sheet as of 31 December 2010 was EUR 791,694, net sales revenues amounted to EUR 3,001,961 and the value of assets totalled EUR 2,275,160. In 2010, the Company acquired a new investment - Vipap GmbH Neunkirchen. The company's activities are selling our paper and also purchasing recovered paper. Due to


56

the scope of operations with the controlling company, the Company prepared consolidated statements with VIPAP GMBH for 2010. Taking into account the relatively low scope of operations with the other subsidiaries, the company Vipap Videm Krško d.d. does not include the financial statements of companies Vipreh, Levas d.o.o. and Ekopa d.o.o. in the consolidated financial statements. Their scope of operations does not affect the true and fair presentation of the financial position, the income statement, the cash flows and the changes in equity. If revenues or assets of a subsidiary exceed the threshold value (5%) of revenues or assets of the controlling company, the conditions for the inclusion of the subsidiary in the consolidated statements are met. in EUR 2010 2009 4. Deferred tax assets 9,667,102 7,527,240 1 Jan. 2010 Decrease Increase 31 Dec. 2010 Severance payments 100,624 17,381 0 83,243 Long-service awards 21,129 1,551 0 19,578 Devaluation of non-current assets available for sale 2,891,227 640,076 0 2,251,151 Formation of value adjustments of receivables 902,069 0 278,277 1,180,346 Unused tax loss 3,397,836 0 2,569,838 5,967,674 Additionally formed provisions 214,355 49,245 165,110 TOTAL 7,527,240 708,253 2,848,115 9,667,102

In 2010, we continued using provisions arising from severance payments to employees who retired, who met the conditions for long-service awards, we used provisions arising from final legal actions by former employees. We continued selling fixed assets for chemical pulp production and demolishing buildings for the former chemical pulp production. The value of deferred tax assets increased due to the revaluation adjustment of assets in 2010 and tax loss for 2010. The Company applied the 20% tax rate in the calculation of deferred tax assets. in EUR 2010 2009 5. Inventories 10,428,462 9,885,050

Inventory type Balance

31 Dec. 2010 Inventory surpluses

Inventory deficits

Impaired value due to change

in quality

Impaired value to

marketable value

Material 7,351,140 182 1,368 0 991 Small inventory 13,969 0 0 0 0 Unfinished products 165,502 0 0 0 5,570 Products 2,863,697 4,115 3,598 0 163,037 Merchandise 8,800 0 0 0 0 Advances for inventories 25,354 0 0 0 0 Total 10,428,462 4,297 4,966 0 169,598

The carrying amount of inventories as of 31 December 2010 did not exceed net realisable value. Inventories of materials as of 31 December 2010 are impaired as their carrying amount


57

exceeds realisable value. Inventories of finished products and work in progress are impaired as their production price exceeded the selling price as of 31 December 2010. Significant inventories of materials include: recovered paper (EUR 2,041,764), basic raw materials (EUR 1,052,682), maintenance material (EUR 2,165,516), spare parts (EUR 1,560,531), and energy-generating products (EUR 381,122). Inventories of work in progress comprise paper reels ready to be cut into shets (EUR 111,037) and paper intended for re-processing (EUR 54,465). The inventories of products comprise inventories of paper in reels (EUR 2,481,224) and inventories of paper in sheets (EUR 382,474). As of 31 December 2010, the Company impaired inventories of finished products as their production price was higher than the selling price reduced by selling costs. Inventories as of 31 December 2010 are not pledged as collateral. in EUR 2010 2009 6. Short-term operating receivables 11,203,866 16,156,482

Balance 31 Dec.

2010 Collateralised

receivables

Receivables without

collateral Outstanding receivables

Due in 1 year

Maturity of over 1

year


Reduced adjustment

Increased adjustment

Value adjustment

31 Dec. 2010


Short-term operating trade receivables 15,387,950 5,879,258 9,508,692 6,922,892 2,959,178 5,505,880 -4,915,742 74,663 -1,726,071 -6,567,150 8,820,800 Short-term operating receivables from the Group companies 1,448,443 0 1,448,443 1,340,972 107,471 0 0 0 0 0 1,448,443 Short-term operating receivables from others 1,639,463 0 1,639,463 934,623 0 704,840 -709,750 4,910 0 -704,840 934,623

Total 18,475,856 5,879,258 12,596,598 9,198,487 3,066,649 6,210,720 -5,625,492 79,573 -1,726,071 -7,271,990 11,203,866

Receivables in the amount of EUR 5,879,258 are pledged as collateral for loans. in EUR 2010 20097. Cash 1,883,231 1,680,449 31 Dec. 2010 31 Dec. 2009Cash register 878 730Transaction accounts 1,882,353 1,029,719Current deposits 650,000Total 1,883,231 1,680,449


58

in EUR 2010 20098. Short-term deferred costs and accrued revenues 829,342 774,632

Type of deferral Balance

1 Jan. 2010 Establishment Disbursement Balance

31 Dec. 2010Deferred expenses 487,478 9,113,475 -9,022,432 578,521Accrued revenues 287,154 16,321 -52,654 250,821

Total 774,632 9,129,796 -9,075,086 829,342 Short-term deferred expenses are: current deferred receivables from the state arising from VAT (EUR 571,057) and current deferred expenses for 2011 (EUR 7,464). Current accrued revenues are amounts relating to volume discounts granted for raw materials and other materials purchased for 2010 (EUR 16,321). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2010. The remaining portion is the value of sold and undelivered goods (EUR 234,500).

in EUR 2010 2009

9. Equity capital 70,325,109 79,072,844 The Company's shareholders as of 31December 2010 were:

Number of

sharesNumber of

voting rights% of voting

rightsThe Czech Republic - Ministry of Finance 1,814,007.00 1,814,007 100.00Vipap Videm Krško d.d. 65,793.00 0 0.00 TOTAL 1,879,800.00 1,814,007 100.00

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 historical 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.


59

Distributable profit for 2010: in EUR A. NET PROFIT FOR THE YEAR 0B. NET LOSS FOR THE YEAR -8,747,734C. RETAINED NET PROFIT 0D. NET LOSS BROUGHT FORWARD -3,525,283

- Covered net loss brought forward fromprevious year 0

E. DECREASE IN CAPITAL RESERVES 0F. DECREASE IN RESERVES FROM PROFIT 3,525,283 - Decrease in other profit reserves 1,654,317 - Decrease in legal reserves 0 - Decrease in capital reserves 1,870,966G. INCREASE IN RESERVES FROM PROFIT 0 - Increase in legal reserves 0 - Increase in reserves for own stakes 0 - Increase in statutory reserves 0 - Increase in other profit reserves 0H. DISTRIBUTABLE PROFIT 0I. ACCUMULATED LOSS -8,747,734

Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -10,328,214. in EUR 2010 200910. Provisions and long-term accrued expenses and deferred revenues 2,368,495 3,500,448

Provisions Balance


31 Dec. 2010 Provisions for sev. pays upon retir. 515,489 0 -92,722 422,767 Provisions for long-service awards 142,846 0 -10,235 132,611 Provisions for building decom. cost 415,055 0 -392,521 22,534 Provisions for contingent liabilities 2,143,550 94,838 -587,292 1,651,096 Total 3,216,940 94,838 -1,082,770 2,229,008 Long-term accrued costs and deferred revenues 255,394 172,697 -313,938 114,153 Long-term deferred revenues 28,114 0 -2,780 25,334 Grand total 3,500,448 267,535 -1,399,488 2,368,495

In 2010, we used provisions for severance payments and long-service awards arising from provisions set aside in 2006 and 2007. Provisions arising from severance payments decreased due to retirements (EUR 69,756) and elimination of unnecessary provisions (EUR 22,966). Provisions for long-service awards were reduced due to the payment of long-service awards in the current year (EUR 10,235). 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


60

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 of 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 Products 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 2010, provisions were decreased due to removed buildings. On 31 December 2008, the Company established provisions for contingent liabilities to former employees based on the recognition of continuity of employment at the Company (not limited to the last employer). In 2010 the Company increased its provisions for the value of default interest until 31 December 2010 (EUR 94,838) and reduced its provisions for the value of paid provisions (EUR 571,381) and the value of unnecessary provisions (EUR 15,911). Long-term accrued expenses and deferred revenues increased by the amount of emission coupons acquired from the Ministry of the Environment and Spatial Planning for pollution of the atmosphere with CO2 for 2010 (172,697 coupons) and were reduced by the disposal of coupons (313,938 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.

EUR 2010 2009 11. Non-current financial liabilities tobanks 14,968,286 16,481,037

Creditor Balance

31 Dec. 2010 Outstanding Short-term

maturity Long-term

maturity Date of final

maturity Interest rate Domestic bank 2,640,000 2,640,000 720,000 1,920,000 1 August 2014 3-M Euribor+1.75%Domestic bank 1,494,000 1,494,000 996,000 498,000 1 June 2012 3-M Euribor+2.75%Domestic bank 942,857 942,857 942,857 0 1 December 2011 6-M Euribor+3%Domestic bank 5,291,998 5,291,998 882,001 4,409,997 1 December 2016 6-M Euribor+2.7%Domestic bank 913,500 913,500 609,000 304,500 3 January 2012 6-M Euribor+1.5%Domestic bank 2,000,000 2,000,000 260,880 1,739,120 20 October 2016 3-M Euribor+5.5%Domestic bank 2,000,000 2,000,000 400,000 1,600,000 1 December 2014 6-M Euribor +3.1%Domestic bank 2,739,130 2,739,130 782,609 1,956,521 20 June 2014 6-M Euribor +3.1%Domestic bank 1,351,127 1,351,127 0 1,351,127 1 December 2014 6-M Euribor+3.1%

Domestic bank 1,500,000 1,500,000 1,000,000 500,000 13 February 2012 6-M Euribor+2.9%Foreign bank 131,674 131,674 87,784 43,890 27 June 2012 6-M Euribor+1.0425%

Foreign bank 2,280,442 2,280,442 1,635,311 645,131 1 June 2012 6-M Euribor+0.5%Total 23,284,728 23,284,728 8,316,442 14,968,286

The fair value of loans raised is equal to their carrying amount.


61

Non-current loans (including the portion falling due in 2011 in the amount of EUR 8,316,442) total EUR 23,284,728 and are collateralised by means of pledged fixed assets and export company guarantees. The amount of loans falling due in the period exceeding 5 years is EUR 6,149,117. in EUR 2010 2009 12. Other non-current financial liabilities 1,352,806 1,972,132

Creditor Balance as of 31 Dec. 2010 Outstanding

Short-term maturity

Long-term maturity

Final maturity Interest rate

Liabilities to the lessor 1,391,798 1,391,798 451,734 940,064 2013 3-M Euribor Liabilities to the lessor 371,508 371,508 371,508 0 2011 3-M Euribor Liabilities to the lessor 3,769 3,769 3,769 0 2011 3-M Euribor Liabilities to the lessor 6,608 6,608 6,608 0 2011 3-M Euribor Liabilities to the lessor 57,832 57,832 57,832 0 2011 6-M Euribor Liabilities to the lessor 140,649 140,649 57,301 83,348 2013 3-M Euribor

Liabilities to the lessor 413,819 413,819 84,425 329,394 2015 6-M Euribor Total 2,385,983 2,385,983 1,033,177 1,352,806

The fair value of liabilities is equal to their carrying amount. Liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 3,465,843. in EUR 2010 2009 13. Current financial liabilities 27,391,163 27,781,702

Creditor Balance

31 Dec. 2010 Outstanding Date of final

maturity Interest rate (%) Domestic bank 609,000 609,000 3 January 2012 6-M Euribor+1.5% Domestic bank 942,857 942,857 1 December 2011 6-M Euribor+3% Domestic bank 882,001 882,001 1 December 2016 6-M Euribor+2.7% Domestic bank 720,000 720,000 1 August 2014 3-M Euribor+1.75% Domestic bank 996,000 996,000 1 June 2012 3-M Euribor+2.75% Domestic bank 782,609 782,609 20 June 2014 6-M Euribor+3.1% Domestic bank 1,900,000 1,900,000 28 February 2011 5.9% Domestic bank 1,100,000 1,100,000 22 December 2011 6-M Euribor+2.9% Domestic bank 400,000 400,000 1 December 2014 6-M Euribor+3.1% Domestic bank 260,880 260,880 20 October 2016 3-M Euribor+5.5% Domestic bank 1,000,000 1,000,000 13 February 2012 6-M Euribor+2.9% Domestic bank 1,063,727 1,063,727 9 June 2011 6-M Libor+4.25% Domestic bank 4,300,000 4,300,000 13 April 2011 5.9% Domestic bank 1,300,000 1,300,000 31 January 2011 6-M Eur. (3.45%)+2.8% Domestic bank 1,877,817 1,877,817 8 June 2011 6.65% Domestic bank 900,000 900,000 9 June 2011 5.9% Domestic bank 2,000,000 2,000,000 5 May 2011 5.9% Domestic bank 3,600,000 3,600,000 5 May 2011 5.9% Foreign bank 87,784 87,784 27 June 2012 6-M Euribor+1.0425% Foreign bank 1,635,311 1,635,311 1 June 2012 6-M Euribor+1.0425% Short-term maturity loans 26,357,986 26,357,986 Current liabilities to lessors 1,033,177 1,033,177 Total 27,391,163 27,391,163


62

Current financial liabilities in the amount of EUR 9,164,889 are secured by receivables and the current portion of long-term loans in the manner set out in note to Item 12. The fair value of loans raised is equal to their carrying amount. The current portion of long-term loans stands at EUR 8,316,442. In the past years, the Company disclosed part of the current loans as long-term loans because of the repeated renewal of short-term loans for several years and the general financial situation that allowed for this. Due to the changed financial situation on the banking market, the Company reclassified part of short-term loans, previously disclosed as long-term loans, back to short-term loans in 2009. The value of short-term loans equals EUR 14,674 thousand. Short-term loans raised by the Company with commercial banks were renewed in 2010, as in previous periods. Loans falling due in the first quarter of 2011 in the total amount of EUR 3,200 thousand have been renewed with a new repayment deadline in accordance with the banking policy of renewing short-term loans (6- or 12-month). In view of the Company’s credit rating and co-operation with the banks, it is realistic to expect that the other short-term loans falling due in 2011 will be renewed again, like in the past few years. Loans granted by individual banks in the amount of EUR 10,768 thousand (6 loans) have been renewed in this manner for more than three years. If the Company fails to renew the short-term bank loans falling due in 2011 and the negative working capital would pose a threat to the Company’s liquidity and solvency, the following activities are planned:

• Rehabilitation of the area at the location of the former chemical pulp production and sale of real estate (land) not necessary for the existing production process. The land covers 40,600 m2. The estimated value of the land is EUR 3.2 million.

• Sale of production equipment according to the sale and lease-back principle. The total value of independent production sets (paper machine 1, 2 and 3 and DIP plant and groundwood plant) is EUR 61,840 thousand. Considering the risk of sale, we anticipate a 20% reduction in the value of the said equipment upon the sale to the leasing house. With the sale of this equipment and its lease back, the Company would generate additional working capital in the amount of EUR 49,472 thousand.

in EUR 2010 2009 14. Current trade payables 24,517,493 18,987,855 - in Slovenia 13,119,707 11,848,481 - abroad 11,369,963 6,981,051 - accrued goods and services 27,823 158,323 Total 24,517,493 18,987,855

As of 31 December 2010, the Company had liabilities due in Slovenia in the amount of EUR 4,337,246 and outstanding liabilities in the amount of EUR 8,782,461. In the structure of liabilities abroad, EUR 4,269,211 were due and EUR 7,100,752 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 388,403), Ekopa d.o.o (EUR 730,850), Vipreh d.o.o. (EUR 6,189) and Vipap GmbH (EUR 384,144). EUR 2010 2009 15. Other current operating liabilities 3,419,241 5,890,221

This item comprises liabilities to the former owner ICEC Holding Ostrava (EUR 856,303), liabilities for interest (EUR 519,508), liabilities for salaries (EUR 539,905), liabilities for contributions arising from salaries (EUR 202,073), liabilities for employer contributions (EUR 147,290), payroll


63

tax liabilities (EUR 159,297), liabilities for other employment earnings (EUR 712,059), VAT liabilities payable in January 2011 (EUR 253,655) and other (EUR 29,151).

EUR 2010 2009 16. Short-term accrued costs and deferred revenues 666,868 1,260,673



31 Dec. 2010 accrued costs 1,098,040 1,011,015 -1,442,187 666,868 short-term deferred revenues 162,633 0 -162,633 0 Total 1,260,673 1,011,015 -1,604,820 666,868

Current accrued expenses and deferred revenues comprise costs that will arise as liabilities in 2011 or for which we will receive assessment decisions in 2011, namely: unused annual leave for 2010 (EUR 331,191), removal and destruction of rejects that arose in 2010 (EUR 148,098), a liability to the Ministry of the Environment and Spatial Planning pursuant to the final decision for 2010 (EUR 21,058), calculated liabilities to the Customs Administration of the Republic of Slovenia arising from polluted water for 2010 (EUR 29,891) and liabilities arising from sales-dependant costs (EUR 135,174), etc. in EUR 2010 2009

17. Net sales revenues 91,401,767 95,299,977 Slovenia 19,343,621 23,773,670 Austria 12,233,862 12,549,961 Italy 9,625,200 7,837,311 Germany 8,331,905 9,509,502 Serbia 6,245,903 8,350,130 Greece 5,426,059 7,860,219 Turkey 4,775,346 2,811,718 France 2,729,387 2,348,153 Croatia 2,705,284 2,289,139 Bulgaria 2,139,555 1,282,021 Switzerland 2,110,419 1,789,883 Romania 1,525,565 3,560,491 Montenegro 1,514,385 1,563,243 Slovakia 1,277,864 1,037,742 Albania 1,259,864 688,968 Czech Republic 1,022,848 712,767 Macedonia 1,005,961 1,097,531 Hungary 891,510 1,025,011 Belgium 843,259 1,974,260 Kosovo 827,920 893,120 Bosnia and Herzegovina 619,935 847,221 Poland 563,925 569,093 The Netherlands 104,161 421 Other countries 3,653,726 483,180 Other 624,303 445,222 Total 91,401,767 95,299,977


64

Breakdown of revenues by business area 2010 2009 Sales of paper 90,777,464 94,854,755 Other 624,303 445,222 Total 91,401,767 95,299,977

EUR

2010 2009 18. Other operating income 510,865 703,930

Other operating income comprises income from release of provisions (EUR 307,245), from other income associated with products (EUR 157,295), sale of fixed assets (EUR 37,087) and other.

EUR

2010 2009 19. Costs of services 9,948,389 9,776,110 Cost of transport services 3,475,068 3,269,022 Costs of fixed asset maintenance 2,391,428 2,526,249 Costs of payment transactions, banking services and insurance 905,708 855,386 Cost of intellectual and personal services 212,875 238,880 Contract-based work, author's contracts, session fees 403,892 133,295 Rents 420,650 440,600 Costs of trade fairs, advertising and entertainment 48,705 74,704 Costs of services arising from production and provision of services 25,752 20,784 Reimbursement of employee work-related costs 54,399 54,982 Costs of auditing the annual report 24,000 19,500 Provisions 94,838 108,852 Other service expenses 1,891,074 2,033,856 Total 9,948,389 9,776,110

EUR 2010 2009 20. Labour costs 11,985,525 11,434,765 Costs of salaries and wages 7,651,742 7,888,987 Pension insurance costs 997,159 956,604 Cost of other social insurance 670,395 637,533 Other labour costs 2,666,229 1,951,641 Average number of employees 418.88 435.27 based on hours

Other labour costs (EUR 2,666,229) include: employee salary allowances (EUR 561,484), costs of the Management Board members and employees with service contracts (EUR 1,000,027), travel allowances (EUR 371,238), meal allowances (EUR 343,503), annual leave allowances (EUR 333,375) and other (EUR 56,602).


65

Gross receipts by group (Companies Act (ZGD-1)) EUR 2010 Management Board members 951,677 Other employees with service contracts 116,434 Supervisory Board members 411,476 Total 1,479,587

As of 31 December 2010, the Company disclosed the following net liabilities: to members of the Management Board EUR 261,434, to other employees with service contracts EUR 4,790, to internal members of the Supervisory Board EUR 1,800 and to external members of the Supervisory Board EUR 4,419.

EUR 2010 2009 21. Other operating expenses 932,916 987,165 Other operating expenses comprise of: environment protection expenses (EUR 434,663) and compensation for the use of land (EUR 454,431), scholarships (EUR 4,950), contributions and membership fees (EUR 28,281), and other expenses (EUR 10,591). EUR 2010 2009 22. Financial revenues from operating receivables 273,030 131,013 Foreign exchange gains 200,173 105,035 Interest income 72,857 25,978 Total 273,030 131,013

EUR 2010 2009 23. Financial expenses for financial liabilities 2,392,587 2,349,739

This item comprises interest on loans (EUR 2,260,560) and interest on instalments arising from leasing contracts falling due in the current year (EUR 132,027). EUR 2010 2009 24. Financial expenses for operating liabilities 653,977 541,500 Interest on liabilities 96,056 118,151 Expenses for revaluation of debts and receivables 557,921 423,349

EUR 2010 2009 25. Other income 3,640,853 143,905

This item consists of the final write-off of expired liability (EUR 3,579,049), damages received (EUR 59,426) and other (EUR 2,378).


67

III. FINANCIAL REPORT OF THE VIPAP VIDEM KRŠKO GROUP


68

1. CONSOLIDATED FINANCIAL STATEMENTS


69

1.1. CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2010 IN EUR

Note 31 Dec. 2010 31 Dec. 2009

ASSETS 149,267,944 156,804,870

A. Non-current assets 123,677,259 128,308,257 I. Intangible fixed assets and non-current deferred expenses and accrued revenues 1 116,314 259,339

1. Long-term property rights 116,314 259,339

II. Property, plant and equipment (tangible fixed assets) 2 113,647,046 120,274,881

1. Land and buildings 30,648,749 31,525,852

a) Land 5,320,201 5,320,201

b) Buildings 25,328,548 26,205,651

2. Plant and machinery 77,549,684 80,159,396

3. Other plant and equipment 5,384,458 6,588,995

4. Property, plant and equipment being acquired 64,155 2,000,638 a) Property, plant and equipment under construction and manufacture 64,155 1,920,638

b) Advances for property, plant and equipment 0 80,000

IV. Non-current financial investments 3 246,797 246,797

1. Non-current financial investments, excluding loans 246,797 246,797 a) Shares and participating interests in companies within the Group 246,797 246,797

VI. Deferred tax assets 4 9,667,102 7,527,240

B. Current assets 24,760,435 27,721,981

II. Inventories 5 10,428,462 9,885,050

1. Material 7,365,109 5,901,537

2. Unfinished products 165,502 325,014

3. Products and merchandise 2,872,497 3,637,232

4. Advances for inventories 25,354 21,267

IV. Short-term operating receivables 6 12,196,351 16,156,482 1. Short-term operating receivables due from the Group companies 79,046 24,765

2. Short-term operating trade receivables 11,176,232 15,452,530

3. Short-term operating receivables due from others 941,073 679,187

V. Cash 7 2,135,622 1,680,449

C. Short-term deferred costs and accrued revenues 8 830,250 774,632


70

Note 31 Dec. 2010 31 Dec. 2009 Liabilities and equity 149,267,944 156,804,870 A. Equity 9 70,240,268 79,072,844 I. Called-up capital 78,387,660 78,387,660 1. Share capital 78,387,660 78,387,660 II. Capital reserves 588,439 2,459,406 III. Reserves from profit 96,744 1,751,061 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 reserves from profit 0 1,654,317 V. Retained net profit/loss -3,947 -3,525,283 VI. Net profit/loss for the year -8,828,628 0 Profit or loss for the year -8,828,628 0 B. Provisions and long-term accrued costs and deferred revenues 10 2,384,921 3,500,448 1. Provisions for pensions and similar liabilities 2,215,322 2,801,885 2. Other provisions 169,599 670,449 3. Long-term accrued costs and deferred revenues 0 28,114 C. Non-current liabilities 16,321,092 18,453,169 I. Non-current financial liabilities 16,321,092 18,453,169 2. Non-current financial liabilities to banks 11 14,968,286 16,481,037 4. Other non-current financial liabilities 12 1,352,806 1,972,132 D. Current liabilities 59,654,795 54,517,736 II. Current financial liabilities 13 28,850,794 27,781,702 2. Current financial liabilities to banks 27,817,617 26,815,019 4. Other current financial liabilities 1,033,177 966,683 III. Current operating liabilities 30,804,001 26,736,034 1. Current operating liabilities to the Group companies 1,323,027 890,528 2. Current trade payables 14 24,517,493 18,987,855 4. Current operating liabilities based on advances 1,503,922 967,430 5. Other current operating liabilities 15 3,459,559 5,890,221 E. Current accrued costs and deferred revenues 16 666,868 1,260,673



71

1.2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 IN EUR in EUR Notes 2010 2009 1. Net sales revenues 17 91,615,227 95,299,977 2. Change in inventories of products and work in progress -924,247 1,237,753

4. Other operating revenue (including revaluation operating revenue) 18 510,865 703,930

5. Costs of goods, materials and services 80,479,228 68,563,703

a) Cost of goods and materials sold and cost of materials used 70,233,137 58,787,593

b) Costs of services 19 10,246,091 9,776,110 6. Labour costs 20 12,082,858 11,434,765 a) Costs of salaries and wages 8,292,927 8,449,995 b) Social security costs 1,685,186 1,594,137 c) Other labour costs 2,104,745 1,390,633 7. Write-offs 9,485,392 9,406,821 a) Depreciation and amortisation 7,998,817 8,104,352

b) Revaluation operating expenses for intangible and tangible fixed assets 93,220 335,845

c) Revaluation operating expenses for current assets 1,393,355 966,624 8. Other operating expenses 21 932,916 987,165 Operating profit/loss -11,778,549 6,849,206

11. Financial revenues from operating receivables

22 286.115 131,013

b) Financial revenues from operating receivables due from others 286,115 131,013

13. Financial expenses for financial liabilities 23 2,431,998 2,349,736 b) Financial expenses for loans received from banks 2,299,971 2,193,663 d) Financial expenses for other financial liabilities 132,027 156,073 14. Financial expenses for operating liabilities 24 677,977 541,500

b) Financial expenses for liabilities to suppliers and bills of exchange 677,977 541,500

Net profit/loss from ordinary activities -14,602,409 4,088,983 15. Other income 25 3,641,731 143,905 16. Other expenses 6,556 17,926

Operating profit/loss from extraordinary activities 3,635,175 125,979

17. Corporate income tax 26 -1,257 0 18. Deferred taxes 2,139,863 -1,091,772 19. Net profit/loss for the period -8,828,628 3,123,190 20. Total comprehensive income for the year -8,828,628 3,123,190

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


72

1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 2010 2009 A. Cash flows from operating activities a) Items of income statement 3,891,052 11,379,247 Operating revenue (except from revaluation) and financial revenue from operating receivables 96,258,681 95,986,314

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -94,506,235 -83,515,295

Income taxes and other taxes not included in operating expenses 2,138,606 -1,091,772

b) Changes in net current assets (and accruals and deferrals, provisions and deferred tax receivables and liabilities) of balance sheet operating items 2,327,640 -8,122,643 Opening less closing operating receivables 2,458,441 -1,553,841

Opening less closing deferred costs and accrued revenues -55,618 47,872

Opening less closing deferred tax assets -2,139,862 1,091,772

Opening less closing assets (disposal groups) held for sale 0 1,462,766

Opening less closing inventories -545,194 238,651

Closing less opening operating liabilities 4,046,924 -9,670,526

Closing less opening accrued costs and deferred revenues, and provisions -1,437,051 260,663

c) Net operating receipts or net operating disbursements (a + b) 6,218,692 3,256,604

B. Cash flows from investing activities a) Cash receipts from investing activities 3,902,540 992,095 Cash receipts from disposal of intangible assets 0 40,000

Cash receipts from disposal of property, plant and equipment 3,902,540 952,095

b) Cash disbursements for investing activities -5,540,195 -4,916,718 Cash disbursements for acquisition of intangible assets -172,697 -172,697

Cash disbursements for acquisition of items of property, plant and equipment -5,367,498 -4,744,021

Cash disbursements for acquisition of long-term financial investments 0 0

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -1,637,655 -3,924,623

C. Cash flows from financing activities a) Cash receipts from financing activities 12,114,656 9,790,989 Cash receipts from paid-in capital -1 0

Cash receipts from increase in non-current financial liabilities 7,974,108 8,318,000

Cash receipts from increase in current financial liabilities 4,140,549 1,472,989

b) Cash disbursements for financing activities -16,240,520 -10,784,388 Interest paid on financing activities -2,032,007 -1,978,782

Cash repayments of equity -3,947 0

Repayments of non-current financial liabilities -15,114,560 0

Repayments of current financial liabilities 909,994 -8,805,606

c) Net receipts from financing activity or net disbursements for financing activity (a + b) -4,125,864 -993,399

D. Final balance of cash 2,135,622 1,680,449 x) Net cash flows for the period (sum of Ac, Bc and Cc) 455,173 -1,661,418 y) Opening balance of cash 1,680,449 3,341,867



73

1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2010 in EUR Total

Share capital

Legal reserves


Treasury shares



Net profit/loss for the year

Capital reserves

Surplus from revaluation

A.1. Balance as of 31 December 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -3,525,283 0 2,459,406 79,072,844 a) Retrospective restatements (elimination of errors) -1 -1 b) Retrospective adjustments (changes in acc. policies) 0 A.2. Balance as of 1 January 2010 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -3,525,283 0 2,459,405 0 79,072,843 B.1. Changes in equity - transactions with owners a) Subscription of called-up capital 0 (capital payment) 0 b) Subscription of uncalled share capital 0 c) Call-up of subscribed share capital 0 d) Entry of additional payments of equity capital 0 e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0 0 B.2. Total comprehensive income for the period 0 a) Net profit/loss for the year -3,947 -8,828,628 -8,832,575 0 0 0 0 0 -3,947 -8,828,628 0 0 -8,832,575 B.3. Changes in equity a) Allocation of remaining net profit of the comparative 0 reporting period to other equity components b) Allocation of part of net profit of the reporting -1.654.317 3.525.283 -.1.870.966 0 period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 -1,654,317 3,525,283 0 -1,870,966 0 0

C. Balance as of 31 December 2010 78,387,660 96,744 3,557,093 -3,557,093 0 -3,947 -8,828,628 588,439 0 70,240,268



74

1.5. STATEMENT OF CHANGES IN EQUITY FOR 2009

Share capital Legal

reserves


Treasury shares



Net profit/loss for

the yearCapital

reservesSurplus from

revaluation Total A.1. Balance as of 31 December 2008 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -6,648,473 0 2,459,406 75,949,654 a) Retrospective restatements (elimination of errors) 0 b) Retrospective adjustments (changes in acc. policies) 0 A.2. Balance as of 1 January 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -6,648,473 0 2,459,406 0 75,949,654 B.1. Changes in equity - transactions with owners a) Subscription of called-up capital 0 (capital payment) 0 b) Subscription of uncalled share capital 0 c) Call-up of subscribed share capital 0 d) Entry of additional payments of equity capital 0 e) Purchase of treasury shares and own stakes 0 0 0 0 0 0 0 0 0 0 0 B.2. Total comprehensive income for the period 0 a) Net profit/loss for the year 3,123,190 0 3,123,190 0 0 0 0 0 0 3,123,190 0 0 3,123,190 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 3.123.190 -3.123.190 period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 0 3,123,190 -3,123,190 0 0 0 C. Balance as of 31 December 2009 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 3,525,283 0 2,459,406 0 79,072,844



75

2. APPENDIX TO THE FINANCIAL STATEMENTS


76

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2010 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 on 1 January 2010, 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 of 31 December 2009 and data as of 31 December 2010. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:

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

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

substance. It is valued at historical cost, including import duties and purchase taxes.


77

Following recognition, the historical cost method is used as the method of valuation. Intangible assets are amortised using a straight-line method.

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

valuations are based on historical cost.

− Inventory items of material and merchandise are initially recognised at the actual historical cost, which comprises the purchase price, import duties and other non-refundable purchase taxes, and the direct costs of procurement. Original purchase price is reduced by the amount of discounts. The Group uses the average price method 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. Based on the printouts of material inventory, the Group establishes non-current stocks of unnecessary material, where there have been no transactions for one year or more, and devalues it in the books of account.

− In 2006 (31 August 2006), the controlling 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 Group 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 applied tax rate is determined on the basis of the schedule for the use of provisions formed. 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 current deposits with banks.


78

− Current deferred costs and accrued revenues comprise receivables and/or deferred costs occurring during the year and temporarily accrued revenues.

− The total equity capital comprises the called-up capital, capital reserves, profit reserves, and net profit or loss for the year retained. Profit reserves comprise: reserves for treasury shares and treasury shares. The Company is obliged to calculate the effect on profit or loss for the year if a general capital revaluation was carried out.

− Provisions and non-current accrued expenses and deferred revenues comprise provisions

for pensions and similar liabilities, other provisions and non-current accrued expenses and deferred revenues. They are formed for current 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. Non-current accrued costs and deferred revenues comprise deferred revenues expected to cover estimated costs or expenses in a period of more than one year. The purpose of provisions is to accumulate amounts in the form of accrued costs or expenses that will be available in the future to cover incurred costs or expenses.

− Non-current liabilities comprise non-current 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. Non-current financial liabilities to banks comprise loans raised by borrowers with creditors. Non-current financial liabilities are liabilities to lessors in the case of financial lease. Non-current 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. Non-current foreign debt is converted to domestic currency at the middle exchange rate of the Bank of Slovenia as of the last day of the year.

− Current liabilities comprise current financial liabilities and current operating liabilities.

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

− Short-term deferred revenues and accrued costs represent accrued expenses.

According to SAS 12, current accrued expenses and deferred revenues should not hide reserves.

− Revenues are increases in economic benefits during the accounting period in the form

of increases in assets or decreases in liabilities. They affect the amount of capital through profit or loss. Revenues are classified as net operating revenues, other operating revenues, financial revenues from operating receivables and other revenues. Revenues are recognised if increases in economic benefits are associated with increases in assets and the increases can be measured reliably. Revenues are recognised together with the receivables arising from a sale, i.e. when the seller of goods has transferred to the buyer all rights and risks of ownership. The revenues arising from the sale of products and material are measured based on the selling prices stated in invoices and other


79

documents, less discounts approved when the sale is made or subsequently. Potential cash discounts also reduce sales revenues. Other operating revenues include subsidies, grants and revenues from the sale of waste. Revaluation operating revenues are profits arising from the sale of fixed assets reduced by value adjustments of operating receivables arising from the elimination of impairments and write-offs of operating liabilities. Financial revenues from operating receivables are revenues from accrued interests and exchange rate gains. Other revenues are compensations received arising from recognised damage to fixed assets.

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

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


80

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2010 2009 1. Intangible assets 116,314 259,339 Intangible fixed assets comprise software (EUR 2,161) and emission coupons (EUR 114,153). in EUR Property Emissions Total rights coupons 1. Cost Balance as of 1 January 2010 97,113 255,394 352,507 Increase 0 172,697 172,697 Decrease 0 -313,938 -313,938 Balance as of 31 December 2010 97,113 114,153 211,266 2. Value adjustment Balance as of 1 January 2010 -93,168 0 -93,168 Amortisation -1,784 0 -1,784 Decrease 0 Balance as of 31 December 2010 -94,952 0 -94,952 3. Residual value Balance as of 1 January 2010 3,945 255,394 259,339 Balance as of 31 December 2010 2,161 114,153 116,314

As of 31 December 2010, the Group has 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. The controlling company received a decision regarding emission coupons from the Ministry of the Environment and Spatial Planning, according to which it is entitled to 172,697 coupons for 2010. Based on the calculation of obligations for 2009, it gave to the Ministry of the Environment and Spatial Planning 137,756 emission coupons. A correction of the quantity of 176,182 emission coupons was also made. Based on the calculation of obligations for 2010, the controlling company assessed delivery of 142,757 emission coupons (by the end of April 2011). As of 31 December 2010, the balance of coupons stood at 114,153.


81

2009

2008

1.a. Intangible assets 259,339 129,880 The table of intangible assets for the year 2009 Property Emissions Total rights coupons 1. Cost Balance as of 1 January 2009 97,113 122,697 219.810 Increase 0 172,697 172,697 Decrease 0 -40,000 -40,000 Balance as of 31 December 2009 97,113 255,394 352,5072. Value adjustment Balance as of 1 January 2009 -89,930 -89,930 Amortisation -3,238 0 -3,238 Decrease 0 0 0 Balance as of 31 December 2009 -93,168 0 -93,168 3. Residual value Balance as of 1 January 2009 7,183 122,697 129,880 Balance as of 31 December 2009 3,945 255,394 259,339

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


82

in EUR

2010

2009 2. Overview of the fluctuation of fixed assets in 2010: 113,647,046 120,274,881

Item Equipment

Land Construction





Additions – new purchases 182,737 1,733,383 9,416 1,925,536 Increases – acquisitions from investments 254,990 254,990 Increases of existing fixed assets 148,017 3,038,650 3,186,667 Decrease -932,280 -539,187 -3,589,866 -89,416 -5,150,749 Transfer of short-term HFS assets 0 Balance as of 31 December 2010 5,320,201 34,611,442 144,636,139 171,369 789,821 185,528,972

2. Value adjustment Opening balance 1 Jan. 2010 -9,190,054 -54,950,558 -107,214 -789,821 -65,037,647 Increases - depreciation -1,023,118 -6,973,610 -7,996,728 Strengthening of existing fixed assets 0 Impairments of existing fixed assets 0 Transfer of short-term HFS assets 0 Decrease 930,278 222,171 1,152,449 Balance as of 31 December 2010 -9,282,894 -61,701,997 -107,214 -789,821 -71,881,926

3. Residual value Balance as of 1 January 2010 5,320,201 26,205,651 86,748,391 1,920,638 80,000 120,274,881 Balance as of 31 December 2010 5,320,201 25,328,548 82,934,142 64,155 0 113,647,046

As of 31 December 2010, the Group had EUR 10,617,588 in non-current loans for the purchases of fixed assets and EUR 2,385,983 of liabilities arising from financial lease. Fixed assets in the amount of EUR 65,241,845 were pledged as collateral for non-current financial liabilities (Item 11). In 2010, we performed a revision of the initially assessed expected life with a change in the depreciation rate for the press PM3 (from 10% to 3.33%), other equipment on PM3 (to 5%) due to adjusting the rate for the same equipment on PM2, hydrant boxes (from 12.5% to 5%) and the processing computer (from 15% to 10%). The effect was EUR 932 thousand at the annual level. Other increases in fixed assets of equipment are modernisations of the existing fixed assets. The Company is gradually removing facilities which have not been in use any more since 2006 for chemical pulp production. Due to a longer time period of disassembling the equipment for chemical pulp production, the Company disclosed this equipment as fixed assets as of 31 December 2010 (EUR 1,120,656).


83

in EUR 2009 2008 2. a Overview of the fluctuation of fixed assets in 2009: 120,274,881 123,753,206

Item Equipment

Land Construction





Additions – new purchases 0 0 148,500 3,221,742 499,798 3,870,040 Increases – acquisitions from investments 0 0 12,117,841 -12,117,841 0 0 Other increase in fixed assets 0 433,834 4,161,237 -4,409,775 0 185,296 Decrease 0 -48,383 -112,160 -418 -503,979 -664,940 Transfer of short-term HFS assets 0 0 1,427,559 0 1,427,559 Balance as of 31 December 2009 5,320,201 35,395,705 141,698,949 2,027,852 869,821 185,312,528

2. Value adjustment Opening balance 1 Jan. 2009 0 -7,991,752 -47,959,794 0 -789,821 -56,741,367 Increases – depreciation 0 -1,008,858 -7,092,256 0 0 -8,101,114 Other increase in fixed assets 0 81,661 25,553 -107,214 0 0 Impairments of existing fixed assets 0 -311,467 0 0 0 -311,467 Transfer of short-term HFS assets 0 0 -16,990 0 0 -16,990 Decrease 0 40,362 92,929 0 0 133,291 Balance as of 31 December 2009 -9,190,054 -54,950,558 -107,214 -789,821 -65,037,647

3. Residual value Balance as of 1 January 2009 5,320,201 27,018,502 75,996,178 15,334,144 84,181 123,753,206 Balance as of 31 December 2009 5,320,201 26,205,651 86,748,391 1,920,638 80,000 120,274,881

3. Non-current financial investments in EUR 2010 2009 246,797 246,797

Balance 31 Dec. 2010


Decrease in value adjustment

Increase in value adjustment

Value adjustment 31 Dec. 2010


Vipreh d.o.o., Krško (100%) 44,489 -44,489 -44,489 0 Ekopa d.o.o., Krško (100%) 42,693 -21,160 -21,160 21,533 Levas d.o.o., Krško (84.48%) 421,243 -195,979 -195,979 225,264 Total shares 508,425 -261,628 0 0 -261,628 246,797

The registered office of Vipreh d.o.o. is Tovarniška 18, Krško. The company disclosed a loss of EUR 174 in its 2010 income statement. The amount of capital as of 31 December 2010 was EUR 6,237. Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2010 income statement, the company disclosed a loss of EUR 12,028. As of 31 December 2010, the company's capital stood at EUR 132,288.


84

The registered office of Levas d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 20,236 in its 2010 income statement. The amount of capital in the balance sheet as of 31 December 2010 was EUR 791,694, net sales revenues amounted to EUR 3,001,961 and the value of assets totalled EUR 2,275,160. Taking into account the relatively low scope of operations with the mentioned subsidiaries, the company Vipap Videm Krško Group does not include the financial statements of companies Vipreh, Levas d.o.o. and Ekopa d.o.o. in the consolidated financial statements. Their scope of operations does not affect the true and fair presentation of the financial position, the income statement, the cash flows and the changes in equity. If revenues or assets of a subsidiary exceed the threshold value (5%) of revenues or assets of the controlling company, the conditions for the inclusion of the subsidiary in the consolidated statements are met. in EUR 2010 2009 4. Deferred tax assets 9,667,102 7,527,240 1 Jan. 2010 decrease increase 31 Dec. 2010 Severance payments 100,624 17,381 0 83,243 Long-service awards 21,129 1,551 0 19,578 Devaluation of non-current assets available for sale 2,891,227 640,076 0 2,251,151 Formation of value adjustments of receivables 902,069 0 278,277 1,180,346 Unused tax loss 3,397,836 0 2,569,838 5,967,674 Additionally formed provisions 214,355 49,245 165,110 TOTAL 7,527,240 708,253 2,848,115 9,667,102

In 2010, we continued using provisions arising from severance payments to employees who retired, who met the conditions for long-service awards, we used provisions arising from final legal actions by former employees. We continued selling fixed assets for chemical pulp production and demolishing buildings for the former chemical pulp production. The value of deferred tax assets increased due to the revaluation adjustment of assets in 2010 and tax loss for 2010. The Company applied the 20% tax rate in the calculation of deferred tax assets.


85

in EUR 2010 2009 5. Inventories 10,428,462 9,885,050

Inventory type Balance

31 Dec. 2010 Inventory surpluses

Inventory deficits

Impaired value due to change

in quality

Impaired value to

marketable value

Material 7,351,140 182 1,368 0 991 Small inventory 13,969 0 0 0 0 Unfinished products 165,502 0 0 0 5,570 Products 2,863,697 4,115 3,598 0 163,037 Merchandise 8,800 0 0 0 0 Advances for inventories 25,354 0 0 0 0 Total 10,428,462 4,297 4,966 0 169,598

The carrying amount of inventories as of 31 December 2010 did not exceed net realisable value. Inventories of materials as of 31 December 2010 are impaired as their carrying amount exceeds realisable value. Inventories of finished products and work in progress are impaired as their production price exceeded the selling price as of 31 December 2010. Significant inventories of materials include: recovered paper (EUR 2,041,764), basic raw materials (EUR 1,052,682), maintenance material (EUR 2,165,516), spare parts (EUR 1,560,531), and energy-generating products (EUR 381,122). Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 111,037) and paper intended for re-processing (EUR 54,465). The inventories of products comprise inventories of paper in reels (EUR 2,481,224) and inventories of paper in sheets (EUR 382,474). As of 31 December 2010, the Company impaired inventories of finished products as their production price was higher than the selling price reduced by selling costs. Inventories as of 31 December 2010 are not pledged as collateral. in EUR 2010 2009 6. Short-term operating receivables 12,196,351 16,156,482

Balance 31 Dec.

2010 Collateralised

receivables

Receivables without

collateral Outstanding receivables

Due in 1 year

Maturity of over 1

year


Reduced adjustment

Increased adjustment

Value adjustment

31 Dec. 2010


Short-term operating trade receivables 17,743.382 5,879,258 11,864,124 9,278,324 2,959,178 5,505,880 -4,915,742 74,663 -1,726,071 -6,567,150 11,176,232 Short-term operating receivables from the Group companies 79,046 0 79,046 53,676 25,370 0 0 0 0 0 79,046 Short-term operating receivables from others 1,645,913 0 1,645,913 941,073 0 704,840 -709,750 4,910 0 -704,840 941,073

Total 19,468,341 5,879,258 13,589,083 10,273,073 2,984,548 6,210,720 -5,625,492 79,573 -1,726,071 -7,271,990 12,196,351

Receivables in the amount of EUR 5,879,258 are pledged as collateral for loans.


86

in EUR 2010 20097. Cash 2,135,622 1,680,449 31 Dec. 2010 31 Dec. 2009Cash register 1,324 730Transaction accounts 2,134,298 1,029,719Current deposits 650,000Total 2,135,622 1,680,449

in EUR 2010 20098. Short-term deferred costs and accrued revenues 830,250 774,632



31 Dec. 2010Deferred expenses 487,478 9,114,383 -9,022,432 579,429Accrued revenues 287,154 16,321 -52,654 250,821

Total 774,632 9,130,704 -9,075,086 830,250 Short-term deferred expenses are: current deferred receivables from the state arising from VAT (EUR 571,057) and current deferred expenses for 2011 (EUR 8,372). Current accrued revenues are amounts relating to volume discounts granted for raw materials and other materials purchased for 2010 (EUR 16,321). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2010. The remaining portion is the value of sold and undelivered goods (EUR 234,500).

in EUR 2010 2009

9. Equity capital 70,240,268 79,072,844 The Company's shareholders as of 31December 2010 were:

Number of

sharesNumber of

voting rights% of voting

rightsThe Czech Republic - Ministry of Finance 1,814,007.00 1,814,007 100.00Vipap Videm Krško d.d. 65,793.00 0 0.00 TOTAL 1,879,800.00 1,814,007 100.00

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


87

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 historical 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. Distributable profit for 2010: in EUR A. NET PROFIT FOR THE YEAR 0B. NET LOSS FOR THE YEAR -8,828,628C. RETAINED NET PROFIT 0D. NET LOSS BROUGHT FORWARD -3,529,230

- Covered net loss brought forward fromprevious year 0

E. DECREASE IN CAPITAL RESERVES 0F. DECREASE IN RESERVES FROM PROFIT 3,525,283 - Decrease in other profit reserves 1,654,317 - Decrease in legal reserves 0 - Decrease in capital reserves 1,870,966G. INCREASE IN RESERVES FROM PROFIT 0 - Increase in legal reserves 0 - Increase in reserves for own stakes 0 - Increase in statutory reserves 0 - Increase in other profit reserves 0H. DISTRIBUTABLE PROFIT 0I. ACCUMULATED LOSS -8,832,575

Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -10,413,055. in EUR 2010 200910. Provisions and long-term accrued expenses and deferred revenues 2,368,495 3,500,448

Provisions Balance


31 Dec. 2010 Provisions for sev. pays upon retirement 515,489 8,848 -92,722 431,615 Provisions for long-service awards 142,846 0 -10,235 132,611 Provisions for building decom. cost 415,055 0 -392,521 22,534 Provisions for contingent liabilities 2,143,550 102,416 -587,292 1,658,674 Total 3,216,940 111,264 -1,082,770 2,245,434 Long-term accrued costs and deferred revenues 255,394 172,697 -313,938 114,153 Long-term deferred revenues 28,114 0 -2,780 25,334 Grand total 3,500,448 283,961 -1,399,488 2,384,921


88

In 2010, we used provisions for severance payments and long-service awards arising from provisions set aside in 2006 and 2007. Provisions arising from severance payments decreased due to retirements (EUR 69,756) and elimination of unnecessary provisions (EUR 22,966). Provisions for long-service awards were reduced due to the payment of long-service awards in the current year (EUR 10,235). 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 of 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 Products 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 2010, provisions were decreased due to removed buildings. On 31 December 2008, the Company established provisions for contingent liabilities to former employees based on the recognition of continuity of employment at the Company (not limited to the last employer). In 2010 the Company increased its provisions for the value of default interest until 31 December 2010 (EUR 94,838) and reduced its provisions for the value of paid provisions (EUR 571,381) and the value of unnecessary provisions (EUR 15,911). Long-term accrued expenses and deferred revenues increased by the amount of emission coupons acquired from the Ministry of the Environment and Spatial Planning for pollution of the atmosphere with CO2 for 2010 (172,697 coupons) and were reduced by the sale of coupons (313,938 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.


89

EUR 2010 200911. Non-current financial liabilities to banks 14,968,286 16,481,037

Creditor Balance 31

Dec. 2010 Outstanding Short-term

maturity Long-term

maturity Date of final

maturity Interest rate Domestic bank 2,640,000 2,640,000 720,000 1,920,000 1 August 2014 3-M Euribor+1.75%Domestic bank 1,494,000 1,494,000 996,000 498,000 1June 2012 3-M Euribor+2.75%Domestic bank 942,857 942,857 942,857 0 1 December 2011 6-M Euribor+3%Domestic bank 5,291,998 5,291,998 882,001 4,409,997 1 December 2016 6-M Euribor+2.7%Domestic bank 913,500 913,500 609,000 304,500 3 January 2012 6-M Euribor +1.5%Domestic bank 2,000,000 2,000,000 260,880 1,739,120 20 October 2016 3-M Euribor+5.5%Domestic bank 2,000,000 2,000,000 400,000 1,600,000 1 December 2014 3-M Euribor+3.1%Domestic bank 2,739,130 2,739,130 782,609 1,956,521 20 June 2014 3-M Euribor+3.1%Domestic bank 1,351,127 1,351,127 0 1,351,127 1 December 2014 3-M Euribor+3.1%

Domestic bank 1,500,000 1,500,000 1,000,000 500,000 13 February 2012 6-M Euribor+2.9%

Foreign bank 131,674 131,674 87,784 43,890 27 June 2012 6-M Euribor+1.0425%

Foreign bank 2,280,442 2,280,442 1,635,311 645,131 1 June 2012 6-M Euribor+0.5%Total 23,284,728 23,284,728 8,316,442 14,968,286

The fair value of loans raised is equal to their carrying amount. Non-current loans (including the portion falling due in 2011 in the amount of EUR 8,316,442) total EUR 23,284,728 and are collateralised by means of pledged fixed assets and export company guarantees. The amount of loans falling due in the period exceeding 5 years is EUR 6,149,117.

in EUR 2010 2009 12. Other non-current financial liabilities 1,352,806 1,972,132

Creditor

Balance 31 Dec.

2010 Outstanding Short-term

maturity Long-term

maturity Final

maturity Interest rate Liabilities to the lessor 1,391,798 1,391,798 451,734 940,064 2013 3-M Euribor Liabilities to the lessor 371,508 371,508 371,508 0 2011 3-M Euribor Liabilities to the lessor 3,769 3,769 3,769 0 2011 3-M Euribor Liabilities to the lessor 6,608 6,608 6,608 0 2011 3-M Euribor Liabilities to the lessor 57,832 57,832 57,832 0 2011 6-M Euribor Liabilities to the lessor 140,649 140,649 57,301 83,348 2013 3-M Euribor

Liabilities to the lessor 413,819 413,819 84,425 329,394 2015 6-M Euribor Total 2,385,983 2,385,983 1,033,177 1,352,806

The fair value of liabilities is equal to their carrying amount. Liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 3,465,843.


90

EUR 2010 200913. Current financial liabilities 28,850,794 27,781,702

Creditor Balance 31 Dec. 2010 Outstanding

Date of final maturity Interest rate (%)

Domestic bank 609,000 609,000 3 January 2012 6-M Euribor+1.5%Domestic bank 942,857 942,857 1 December 2011 6-M Euribor+3%Domestic bank 882,001 882,001 1 December 2016 6-M Euribor+2.7%Domestic bank 720,000 720,000 1 August 2014 3-M Euribor+1.75%Domestic bank 996,000 996,000 1 June 2012 3-M Euribor+2.75%Domestic bank 782,609 782,609 20 June 2014 6-M Euribor+3.1%Domestic bank 1,900,000 1,900,000 28 February 2011 5.9%Domestic bank 1,100,000 1,100,000 22 December 2011 6-M Euribor+2.9%Domestic bank 400,000 400,000 1 December 2014 6-M Euribor+3.1%Domestic bank 260,880 260,880 20 October 2016 3-M Euribor+5.5%Domestic bank 1,000,000 1,000,000 13 February 2012 6-M Euribor+2.9%Domestic bank 1,063,727 1,063,727 9 June 2011 6-M Libor+4.25%Domestic bank 4,300,000 4,300,000 13 April 2011 5.9%Domestic bank 1,300,000 1,300,000 31 January 2011 6-M Eur. (3.45%)+2.8%Domestic bank 1,877,817 1,877,817 8 June 2011 6.65%Domestic bank 900,000 900,000 9 June 2011 5.9%Domestic bank 2,000,000 2,000,000 5 May 2011 5.9%Domestic bank 3,600,000 3,600,000 5 May 2011 5.9%Foreign bank 87,784 87,784 27 June 2012 6-M Euribor+1.0425%Foreign bank 1,635,311 1,635,311 1 June 2012 6-M Euribor+1.0425%Foreign bank 1,459,631 1,459,631 30 June 2015 6-month Euribor+2.5%Current portion of non-current loans 27,817,617 27,817,617 Current liabilities to lessors 1,033,177 1,033,177 Total 28,850,794 28,850,794

Current financial liabilities in the amount of EUR 9,164,889 are secured by receivables and the current portion of long-term loans in the manner set out in note to Item 12. The fair value of loans raised is equal to their carrying amount. The current portion of long-term loans stands at EUR 8,316,442. In the past years, the Company disclosed part of the current loans as long-term loans because of the repeated renewal of short-term loans for several years and the general financial situation that allowed for this. Due to the changed financial situation on the banking market, the Company reclassified part of short-term loans, previously disclosed as long-term loans, back to short-term loans in 2009. The value of short-term loans equals EUR 14,674 thousand. Short-term loans raised by the Company with commercial banks were renewed in 2010, as in previous periods. Loans falling due in the first quarter of 2011 in the total amount of EUR 3,200 thousand have been renewed with a new repayment deadline in accordance with the banking policy of renewing short-term loans (6- or 12-month). In view of the Company’s credit rating and co-operation with the banks, it is realistic to expect that the other short-term loans falling due in 2011 will be renewed again, like in the past few years. Loans granted by individual banks in the amount of EUR 10,768 thousand (6 loans) have been renewed in this manner for more than three years. If the Company fails to renew the short-term bank loans falling due in 2011 and the negative working capital would pose a threat to the Company’s liquidity and solvency, the following activities are planned:


91

• Rehabilitation of the area at the location of the former chemical pulp production and sale of real estate (land) not necessary for the existing production process. The land covers 40,600 m2. The estimated value of the land is EUR 3.2 million.

• Sale of production equipment according to the sale and lease-back principle. The total value of independent production sets (paper machine 1, 2 and 3 and DIP plant and groundwood plant) is EUR 61,840 thousand. Considering the risk of sale, we anticipate a 20% reduction in the value of the said equipment upon the sale to the leasing house. With the sale of this equipment and its lease back, the Company would generate additional working capital in the amount of EUR 49,472 thousand.

EUR 2010 2009 14. Current trade payables 24,517,493 18,987,855 - in Slovenia 13,119,707 11,848,481 - abroad 11,369,963 6,981,051 - accrued goods and services 27,823 158,323 Total 24,517,493 18,987,855

As of 31 December 2010, the Company had liabilities due in Slovenia in the amount of EUR4,337,246 and outstanding liabilities in the amount of EUR 8,782,461. In the structure of liabilitiesabroad, EUR 4,269,211 were due and EUR 7,100,752 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o.(EUR 388,403), Ekopa d.o.o (EUR 730,850) and Vipreh d.o.o. (EUR 6,189).

EUR 2010 2009 15. Other current operating liabilities 3,459,559 5,890,221

This item comprises liabilities to the former owner ICEC Holding Ostrava (EUR 856,303), liabilities for interest (EUR 519,508), liabilities for salaries (EUR 539,905), liabilities for contributions arising from salaries (EUR 202,073), liabilities for employer contributions (EUR 147,290), payroll tax liabilities (EUR 159,297), liabilities for other employment earnings (EUR 714,059), VAT liabilities payable in January 2011 (EUR 253,655) and other (EUR 67,469).

EUR 2010 2009 16. Short-term accrued costs and deferred revenues 666,868 1,260,673



31 Dec. 2010 accrued costs 1,098,040 1,011,015 -1,442,187 666,868 short-term deferred revenues 162,633 0 -162,633 0 Total 1,260,673 1,011,015 -1,604,820 666,868 Current accrued expenses and deferred revenues comprise costs that will arise as liabilities in 2011 or for which we will receive assessment decisions in 2011, namely: unused annual leave for 2010 (EUR 331,191), removal and destruction of rejects that arose in 2010 (EUR 148,098), a liability


92

to the Ministry of the Environment and Spatial Planning pursuant to the final decision for 2010 (EUR 21,058), calculated liabilities to the Customs Administration of the Republic of Slovenia arising from polluted water for 2010 (EUR 29,891) and liabilities arising from sales-dependant costs (EUR 135,174), etc. in EUR 2010 2009

17. Net sales revenues 91,615,227 95,299,977 Slovenia 19,343,621 23,773,670 Austria 5,788,475 12,549,961 Italy 9,625,200 7,837,311 Germany 8,331,905 9,509,502 Serbia 6,245,903 8,350,130 Greece 5,426,059 7,860,219 Turkey 4,775,346 2,811,718 France 2,729,387 2,348,153 Croatia 2,705,284 2,289,139 Bulgaria 2,139,555 1,282,021 Switzerland 2,110,419 1,789,883 Romania 1,525,565 3,560,491 Montenegro 1,514,385 1,563,243 Slovakia 1,277,864 1,037,742 Albania 1,259,864 688,968 Czech Republic 1,022,848 712,767 Macedonia 1,005,961 1,097,531 Hungary 7,550,357 1,025,011 Belgium 843,259 1,974,260 Kosovo 827,920 893,120 Bosnia and Herzegovina 619,935 847,221 Poland 563,925 569,093 The Netherlands 104,161 421 Other countries 3,653,726 483,180 Other 624,303 445,222 Total 91,615,227 95,299,977 Breakdown of revenues by business area 2010 2009 Sales of paper 90,990,924 94,854,755 Other 624,303 445,222 Total 91,615,227 95,299,977


93

EUR 2010 2009 18. Other operating income 510,865 703,930

Other operating income comprises income from release of provisions (EUR 307,245), from other income associated with products (EUR 157,295), sale of fixed assets (EUR 37,087), and other.

EUR

2010 2009 19. Costs of services 10,246,091 9,776,110 Cost of transport services 3,670,689 3,269,022 Costs of fixed asset maintenance 2,391,785 2,526,249 Costs of payment transactions, banking services and insurance 936,804 855,386 Cost of intellectual and personal services 229,439 238,880 Contract-based work, author's contracts, session fees 433,892 133,295 Rents 420,650 440,600 Costs of trade fairs, advertising and entertainment 55,024 74,704 Costs of services arising from production and provision of services 25,752 20,784 Reimbursement of employee work-related costs 55,316 54,982 Costs of auditing the annual report 24,000 19,500 Provisions 104,680 108,852 Other service expenses 1,898,060 2,033,856 Total 10,246,091 9,776,110

EUR 2010 2009 20. Labour costs 12,082,858 11,434,765 Costs of salaries and wages 7,731,443 7,888,987 Pension insurance costs 997,159 956,604 Cost of other social insurance 685,695 637,533 Other labour costs 2,668,561 1,951,641

Other labour costs (EUR 2,668,561) include: employee salary allowances (EUR 561,484), costs of the Management Board members and employees with service contracts (EUR 1,000,027), travel allowances (EUR 371,238), meal allowances (EUR 343,503), annual leave allowances (EUR 333,375) and other (EUR 58,934). Gross receipts by group (Companies Act (ZGD-1)) EUR 2010 Management Board members 951,677 Other employees with service contracts 116,434 Supervisory Board members 411,476 Total 1,479,587


94

As of 31 December 2010, the Company disclosed the following net liabilities: to members of the Management Board EUR 261,434, to other employees with service contracts EUR 4,790, to internal members of the Supervisory Board EUR 1,800, and to external members of the Supervisory Board EUR 4,419.

EUR 2010 2009 21. Other operating expenses 932,916 987,165

Other operating expenses comprise of: environment protection expenses (EUR 434,663) and compensation for the use of land (EUR 454,431), scholarships (EUR 4,950), contributions and membership fees (EUR 28,281), and other expenses (EUR 10,591). EUR 2010 2009 22. Financial revenues from operating receivables 286,115 131,013 Foreign exchange gains 200,173 105,035 Interest income 85,942 25,978 Total 286,115 131,013

EUR 2010 2009 23. Financial expenses for financial liabilities 2,431,998 2,349,739

This item comprises interest on loans (EUR 2,260,560), interest on instalments arising from leasing contracts falling due in the current year (EUR 132,027) and other financial liabilities (EUR 39,411). EUR 2010 2009 24. Financial expenses for operating liabilities 677,977 541,500 Interest on liabilities 120,056 118,151 Expenses for revaluation of debts and receivables 557,921 423,349

EUR 2010 2009 25. Other income 3,641,731 143,905

This item consists of the final write-off of expired liability (EUR 3,579,049), damages received (EUR 60,304), and other (EUR 2,378).

ecolabel vipco, vipress, viprint, vimag, vimax, …...considering the fact that the company's...

Documents