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

Annual Report of Vipap Videm Krško d.d. and the Group for 2011

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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 OF VIPAP VIDEM KRŠKO IN FIGURES ............................................................................................. 10

1.4. MAJOR EVENTS IN 2011 ............................................................................................................................................ 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 ............................................................................................................................................................... 22

2.3. SALES .............................................................................................................................................................................. 25

2.4. PURCHASING ............................................................................................................................................................... 27

2.5. RESEARCH & DEVELOPMENT ACTIVITIES ............................................................................................................... 28

2.6. INVESTMENT ACTIVITIES............................................................................................................................................. 30

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

2.8. EXPECTATIONS OF THE VIPAP VIDEM KRŠKO GROUP FOR 2012 .................................................................... 32

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

3.1. ACHIEVEMENTS IN 2011 ............................................................................................................................................ 34

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

II. FINANCIAL REPORT OF THE COMPANY VIPAP VIDEM KRŠKO D.D. ................................................... 40

1. FINANCIAL STATEMENTS ............................................................................................................................................ 41

1.1. BALANCE SHEET AS AT 31 DECEMBER 2011 IN EUR............................................................................................ 42

1.2. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR ..................................................................................................................................................... 44

1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011................... 45

1.4. STATEMENT OF CHANGES IN EQUITY FOR 2011 IN EUR..................................................................................... 46

1.5. STATEMENT OF CHANGES IN EQUITY FOR 2010 IN EUR..................................................................................... 47

2. APPENDIX TO THE FINANCIAL STATEMENTS..................................................................................................... 48

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ..................................................................................................... 49

2.2. NOTES TO THE FINANCIAL STATEMENTS ................................................................................................................ 53

2.3. SIGNIFICANT EVENTS AFTER THE END OF THE 2011 FINANCIAL YEAR........................................................... 69

INDEPENDENT AUDITORŚ REPORT ......................................................................................................................................... 70

III. FINANCIAL REPORT OF THE VIPAP VIDEM KRŠKO GROUP.................................................................... 71

1. CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................................ 72


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1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2011 IN EUR ............................................................ 73

1.2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR ......................................................................................................................................... 75

1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR........................................................................................................................................................................... 76

1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2011 IN EUR ..................................................... 77

1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2010 IN EUR ..................................................... 78

2. APPENDIX TO THE FINANCIAL STATEMENTS..................................................................................................... 79

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS ..................................................................................................... 80

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS................................................................................. 84

2.3. SIGNIFICANT EVENTS AFTER THE END OF THE 2011 FINANCIAL YEAR........................................................... 99

INDEPENDENT AUDITORŚ REPORT ....................................................................................................................................... 100


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I. BUSINESS REPORT OF THE VIPAP VIDEM KRŠKO GROUP


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1. INTRODUCTION


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1.1. STATEMENT BY THE MANAGEMENT BOARD The year 2011 was again a year of extremely unfavourable conditions on the purchase market of the most vital raw materials (recovered paper). The measures aimed at streamlining operations, which the Company implemented already in 2010, also continued in the past year. We managed to achieve a growth in the scope of the Company's operations by optimising production processes and production procedures, aligning our production range with the current market situation and adjusting our financial liabilities to our current capacities (by rescheduling long-term loans). From the viewpoint of marketing and selling conditions on the existing and new markets, the operating conditions were more favourable for the Company. In 2011, the Company achieved the highest annual production and sales of paper in its entire history. We managed to exceed the figure of 200 thousand tonnes of paper production and sales. At the same time, we also produced 188 thousand tonnes of own fibres due to our 93% integration rate of paper and fibre production, which is our competitive advantage. The selling conditions, which were already pointing to an improved situation at the end of 2010, became more favourable in 2011. We generated EUR 105.7 net revenues, which is almost 16% more as compared to 2010 and which resulted both from increased prices of finished products and higher quantity of paper sold. The prices of finished products grew by as much as 13% as compared to 2010. The Company was successful in managing its fixed costs as these dropped by almost 5% as compared to the year before. Financing expenses rose slightly due to the increased interest rates as compared to 2010. The Company's indebtedness dropped to the level of EUR 37.6 million. An agreement was successfully concluded with banks regarding the extension of the deadline for repayment of most long-term loans, which enabled the Company to finance its business process without interruptions. No major investments were implemented in the previous year. In terms of scope, the two most demanding investments were the ones in the energy plant modernisation and the one in the granite cylinder of the 2nd press. Total value of investments amounted to EUR 1.2 million. The number of employees in Vipap dropped as compared to the year before by 4%. At the end of the year, we had 389 employees. There was no major employee fluctuation recorded. At the end of the year, some employees with no health problems were reassigned to the parent company Vipap and some disabled persons became employees of the subsidiary Levas Krško d.o.o. Despite the record-breaking quantities and values of our operations as well as profits generated in the last quarter of 2011, we ended the year with a loss of EUR 2.5 million and a consolidated loss of EUR 2.2. million. The 2011 loss is significantly lower than the one from 2010. Despite the negative overall operating results, the Company reached a positive EBIDT, which means a positive operating result before depreciation and amortisation in the amount of EUR 6,801 thousand. Operating trends were in all segments more positive as compared to the year before and validate the strategy of the Company's development with high adjustability of the production range to the market situation and cost management of the business system. In 2011, the consolidated operating results were also improved due to the positive operating results of both subsidiaries, Levas – invalidsko podjetje and Vipap Vertribes und Handels GmbH from Austria, the main contribution of which to the Group is selling and marketing of paper on the Hungarian and Eastern European markets.

Management Board


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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 with the District Court of Krško. The majority owner is the Ministry of Finance of the Czech Republic, holding a 96.5-percent share, whilst the remaining 3.5-percent share is represented by the Company’s treasury shares. Company name Abbreviated company name

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

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

President of the Management Board

Miloš Habrnál

Other members of the Management Board

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

Chairwoman of the Supervisory Board

Eva Anderová

Other members of the Supervisory Board

Petr Matoušek, Miroslav Lébl, Albertina Županc, and Marjan Jurman

Employees 389 (31 December 2011)

Sales in 2011 200,201 tonnes of paper

Paper production in 2011 201,879 tonnes of paper

Fibre production in 2011 188,489 tonnes of deinked pulp and groundwood

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


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Vipap 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 engaged in activity. 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. It is represented by its procurator Milena Humar. 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 in the court's Companies Register on 23 May 1991 under reg. no. 1-1779/00. Vipap Videm Krško d.d. holds a 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.


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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 on the markets of Hungary, Slovakia, and Austria. We acquired the company in the month of June 2010. Its registered office is in Neukirchen. The company is managed by Wilibald Scharner and Macur Boris, both acting as general managers. 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 consolidated financial statements in 2011 (in compliance with the Companies Act (ZGD-1) and the Slovenian Accounting Standards (SAS)). Based on the criteria as at the annual balance sheet date for the last two consecutive financial years, the number of employees and net sales revenues and in accordance with the Companies Act (ZGD), the Company is classified as a large company. The bodies of the company Vipap Videm Krško d.d. are the General Meeting, the Supervisory Board and the Management Board. The five-member Management Board is led by Miloš Habrnál. The five-member Supervisory Board is chaired by Eva Anderová. The Chairman of the General Meeting is Miloš Habrnál. As at the end of the year, the Vipap Videm Krško Group employed 494 persons.


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1.3. KEY RESULTS OF VIPAP VIDEM KRŠKO IN FIGURES

2008

2009

2010

2011

Index 2011/2010

Financial data Net sales revenues (in EUR thousand)

97,064 95,300 91,402 105,779 116

Operating profit/loss (in EUR thousand)

(6,213) 6,849 (11,748) (1,149)

Profit/loss for the period (in EUR thousand)

(6,648) 3,123 (8,748) (2,549)

Investment activities Value of investments (in EUR thousand)

17,311 3,400 1,465 1,220 83

Performance indicators Value added per employee (in EUR thousand)

44 64 25 47 188

Revenues per employee (in EUR thousand)

214 212 211 268 127

Sales data Sales quantity 183,430 182,952 196,866 200,201 102 Production data Paper production (in tonnes)

181,027 187,231 196,669 201,879 103

Deinked pulp production (in tonnes)

144,813 152,840 164,017 169,939 104

Groundwood production (In tonnes)

17,682 20,489 20,160 18,550 92

Data on employees Number of employees as at 31 December Average number of employees

448

454

445

450

411

434

389

395

95

91 1.4. MAJOR EVENTS IN 2011 September In the month of September we organised an event for all employees, with which we also marked the 20th anniversary of operations of the subsidiary Levas Krško d.o.o. The event was enlivened by a goulash making competition and fun games. October In the month of October we implemented the 7th Market Conference in Otočec, Slovenia. The conference was attended by 65 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 and the anticipated market strategy of the Company. Besides the anticipated paper sales quantities for the following year, the development of new products and some long-term development options were also presented. The conference represents a direct contact with agents, buyers and printers, which is important both in terms of the Company's sales and development.


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October On 11 October 2011 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. was convened, with the following agenda:

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

• Acquaintance with the 2010 Annual Report and granting discharge • Appointment of the new auditor for the 2011 financial year (audit company UHY Revizija

in svetovanje d.o.o., Vurnikova cesta 2, Ljubljana) • Amendments to the Articles of Association • Resignation and appointment of a member of the Supervisory Board and resignation

and appointment of the Chairman of the Supervisory Board November On 25 November 2011 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. was convened, with the following agenda:

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

• Amendments to the Articles of Association • Adoption of the fair copy of the Company's Articles of Association • Recall and appointment of members of the Supervisory Board

November We actively participated in the preparation and implementation of the international meeting of the Slovenian paper industry (the 15th Day of the Slovenian Paper Industry and the 38th International Annual Symposium of DITP), which was organised by the Chamber of Commerce and Industry of Slovenia - Paper and Paper Converting Industry Association, and the Pulp and Paper Engineers and Technicians Association of Slovenia (DITP). The annual meeting was entitled "Proactive (Co)operation for Improved Competitiveness". 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 evaluation, and monitoring of risks, including 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 crucial 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. In 2011, the Company again organised the annual market conference for its business partners to be able to respond to the needs and demands of the market as promptly as possible. The Company’s sales strategy is being constantly aligned with the latest market findings. Market risks are strongly


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mitigated by flexible production and own high quality 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. 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, presently those based on recycled fibres. 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. 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. The Company has thus set up an ecological service which employs experienced technologists engaging in the analysis of ecological parameters and efficient resolving of ecological problems as well as ensuring compliance with the applicable laws. Financial risks Foreign exchange risk The Company's import and export orientation exposes it to foreign exchange risk. Since the Company mainly exports to USD markets, the EUR/USD exchange rate fluctuation is important. In 2011, the exchange rate was fluctuating. In the first half of the year, the US dollar was appreciating, but started depreciating at the end of the year. The prices of raw materials are mainly set in EUR, with the exception of coal, the price of which is in USD. Interest rate risk 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. More information follows under accounting disclosures for derivative financial instruments. The policy of interest rate protection enables the Company to minimise the risks of increasing costs of financing with fixed margin. Liquidity risk The Company is managing the risk of inability to settle its current liabilities by efficient short-term and long-term cash management. In the short term, we ensured solvency through weekly, monthly, semi-annual and annual planning of cash flows, and by renewing old and obtaining new short-term credit lines with banks as well as rescheduling long-term loans. We estimate that in 2011 the liquidity risk was successfully managed and low, owing to appropriate cash flow planning and the willingness of banks to provide financing to the Company. In 2011, we settled all liabilities in accordance with annual plans of 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 certain delays, which did not affect the operations.


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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 adopts decisions regarding the following:

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

The General Meeting of Shareholders is responsible for adopting the annual report only if the Supervisory Board has not approved it or if the Management Board and the Supervisory Board propose that the decision on the adoption of the annual report be made by the General Meeting of Shareholders. As a rule, the Management Board submits the proposal for the convocation of the General Meeting once a year. The Company's Supervisory Board According to Article 282 of the Companies Act (ZGD-1), the Supervisory Board is obliged to verify each year the annual report of the Company and the proposal for the use of distributable profit, which are submitted to the Supervisory Board by the Management Board. The Supervisory Board is obliged to indicate in the report in what way and to what extent it supervised the Company's management during the year, and adopt a position regarding the independent auditor's report. At the end of its report, it must state whether, after final examination, it has any comments concerning the annual report and whether it confirms the annual report. If the Supervisory Board approves the Company's annual report, the report is endorsed. The work of the Supervisory Board is presented in detail in the Report on the Method and the Results of Examining the Annual Report of Vipap Videm Krško d.d. The Supervisory Board of the company Vipap Videm Krško d.d. has the following members: Shareholders' representatives: Eva Anderová – Chairwoman of the Supervisory Board Petr Matušek – member Miroslav Lébl – member


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Employees' representatives: Albertina Županc – member Marjan Jurman – member The Company's Management Board Vipap Videm Krško d.d. is managed by a five-member Management Board, which is appointed by the Supervisory Board. The Company's Management Board: Miloš Hábrnal – President Jožica Stegne – Vice-President Dušan Vaněk – member Jože Cerle – member Dragan Kranjc – member The Management Board manages the Company and adopts business decisions independently and directly. It meets at least twice a month. Its principal task is the coordination of opinions, the unanimous adoption of decisions, and voting only in exceptional cases. The Management Board carries out its tasks in accordance with the law and the Company's Articles of Association. The term of office of the members of the Management Board is five years, with the possibility of re-appointment. Pursuant to organisational rules and the rules of procedure of the Management Board, the members of the Management Board also have operational tasks in the area of managing, implementing, and organising work, which enables direct cooperation between the Management Board and other management levels.

Annual Report of Vi Videm KrSko d.d. and the G for 2011

Stolemenl of fhe Monosemenl Boord's responsibilily

The Monogement Boord of the compony Vipop Videm Kr5ko d.d. is responsible for thepreporotion of the Compony's onnuol report ond finonciol stotements ihot present o true ondfoir picture of the Compony's finonciol position ond operoting resulis for 201I in occordoncewith the Slovenion Accounting Stondords ond the Componies Act.

The Monogemeni Boord opproves the Business Report ond the finonciol stotements with notes

for the yeor ended 31 December 201 I ond declores thot:

o the finonciol stotements hove been compiled on o going concern bosis,. the Compony consistently opplied the selected occounfing policies ond disclosed oll

chonges to these occounting policies,. occounting estimotes hove been prepored in occordonce with the principles of foirness

ond prudence ond with the diligence of o good monoger,. the finonciol stotements hove been compiled in complionce wiih the opplicoble

legislotion ond the Slovenion Accounting Stondords.

The monogement is responsible for the odoption of odequote meosures to protect theCompony's ossets os well os to prevent ond detect froud ond other irregulorities.

Vice-Presid^ent of the Monogement/\^Jozrco )IePrTt

dLLa-tWMember \

\

Du5on Von6k \

Boqrd

I rs


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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 a leading manufacturer of newsprint and graphic papers from recycled fibres on the markets of SE Europe, produce paper of higher quality and price which is based on integrated production of fibres from waste paper and mechanical processing of wood with own personnel. With integrated offer and range of papers, quality of products, quality services and quality work in all business functions, the Company will ensure growth and economic performance. With the emphasis on environmentally friendly production technology, sustainable development and promotion of innovative work in this area, the Company will ensure development and preservation of the natural environment. Sustainable development of automated and ecologically adapted production processes and use of renewable sources of raw materials enable the Company to produce nature-friendly papers from recycled fibres and groundwood.

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


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2. REPORT ON THE OPERATIONS OF THE

VIPAP VIDEM KRŠKO GROUP


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2.1. ANALYSIS OF PERFORMANCE

OPERATING RESULTS

Operations of the company Vipap Videm Krško d.d. were more difficult in 2011 as we expected and anticipated in the annual plan. Operating conditions were poor in the first three quarters, with the first signs of recovery only appearing at the end of the year. Vipap Videm Krško d.d. ended the financial year with a loss of EUR 2.5 million and a consolidated loss of EUR 2.2. million. As compared to 2010, the Company managed to cut its losses significantly. The negative result was substantially lower than in the preceding year, but still poorer than planned, mostly due to unfavourable marketing conditions on the purchase market of raw materials (recovered paper and grinding wood). The first three quarters of 2011 were characterised by the increasing prices of recovered paper, followed by a gradual decrease in prices in the last quarter. The prices of coal also rose. The average prices of end products - newsprint and graphic papers, were higher than in the year before (by 13%). Despite the increase in the prices of end products, we were not able to compensate for the extreme rise in the prices of input raw materials, which resulted in poorer than planned operating results despite the timely adopted cost efficiency measures. The loss generated in 2011 is substantially lower than depreciation and amortisation, which means that we do not generate negative cash flows with these results.

OPERATING REVENUES

The business environment on sales markets was more favourable in 2011 as compared to the year before. The prices of newsprint and graphic papers already slightly increased at the end of 2010 and stayed at an excellent level throughout 2011. Revenues from paper sales rose significantly in 2011. Vipap Videm Krško d.d. generated EUR 105.7 million net sales revenues, 15.7% more as compared to the year before. On the average, we managed to increase net sales prices: - for the graphic programme from 27 to 32 EUR/t; and - for the newsprint programme from 67 to 70 EUR/t.

-10,000 -8,000 -6,000 -4,000 -2,000

0 2,000 4,000 6,000 8,000

2009 2010 2011

Net profit/loss for the period


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The quantity of paper sold increased by 2%. We followed market demands successfully and were selling products with higher coverage contribution. The high operating revenues together with the decreased number of employees increased the revenue per employee indicator by 27% as compared to the year before and by 7% as compared to the annual plan .

OPERATING EXPENSES

The main item of operating expenses is the cost of raw materials and other materials (recovered paper, chemical pulp and grinding wood), and energy used (fuels and electricity), which amounted to EUR 78.5 million in 2011. These expenses were by 8% higher than planned and by 12% higher than in the year before. Costs of material equal 75% of total revenues. For this reason, management of these resources is one of the key areas in the Company. The prices of recovered paper were in 2011 higher than in the year before by 12% and the prices of groundwood by 14%. Due to these two raw materials, the prices of own semi-products (deinked pulp and groundwood) rose sharply. The prices of chemical pulp and electricity stayed at a similar level. Average variable costs per tonne increased by 9%, i.e. by EUR 32 per tonne. Average fixed costs per tonne decreased by 7%, i.e. by EUR 7 per tonne.

Sales revenues and revenues per employee

80,000

85,000

90,000

95,000

100,000

105,000

110,000

2009 2010 20110

50

100

150

200

250

300

EUR/employee

50,000

60,00070,00080,00090,000

100,000 110,000

in EUR thousand

2009 2010 2011

Net sales revenues

in EUR thousand


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INVESTMENTS In 2011, the Company placed great emphasis on quality improvement and operational reliability as the economic and financial crisis did not enable us to carry out major investments. We allocated EUR 1.2 to investment activities, of which EUR 656 thousand to maintenance, EUR 213 thousand to the energy plant modernisation, EUR 140 thousand to PM1 for the granite cylinder of the second press, and other.

FINANCIAL LIABILITIES

The growth in indebtedness has been decreasing over the last two years. At the end of 2011, the Company recorded EUR 37.6 million liabilities to domestic and foreign banks, which is EUR 3.7 million less than in the year before and EUR 4.2 million less than planned. The Company did not carry out major investment (environmental and technological) activities over the last two years. From the viewpoint of cash flows, 2011 was an extremely difficult year. The Company compensated for cash deficits by rescheduling long-term loans for 2011 in the amount of EUR 3.8 million, extending the payment deadline with suppliers and additional borrowing. At the same time, the Company was repaying existing loans, thus decreasing its liabilities to banks.

0

4,000

in EUR thousand

2009 2010 2011

Value of investments

250 270 290 310 330 350 370 390 410

in EUR thousand

2009 2010 2011

Costs of material / production


21

INDICATORS The financial indicators of return, both return on equity (ROE) and return on assets (ROA), indicate that the Company's operations in 2010 and 2011 were not successful. The reasons for this situation can be attributed mainly to extremely poor market conditions on the purchase market since we managed to significantly increase our revenues and decrease our fixed costs in 2011. The Company reached a positive EBIDTA in 2011, which means a positive operating result before depreciation and amortisation in the amount of EUR 6,801 thousand.

The indicator of value added per employee increased significantly in 2011, from EUR 25 thousand per employee in 2010 to EUR 47 thousand per employee in 2011. The revenue per employee indicator also rose substantially, equalling EUR 268 thousand per employee in 2011.

-14 -12 -10

-8 -6 -4 -2 0 2 4 6

2009 2010 2011

in %

-5.000

0

5,000

10,000

15,000

20,000

in EUR thousand

Return on equity in %

Return on assets in % % EBIDTA

30,000

35,000

40,000

45,000

2009 2010 2011

Financial liabilities


22

2.2. PRODUCTION The company Vipap Videm Krško produces paper made from recycled fibres on three paper machines. Our production includes newsprint and graphic papers. The year 2011 was a record-breaking year in terms of quantities produced. For the first time in the history of the Krško paper mill, we exceeded 200 thousand tonnes. This result was planned as we set ourselves ambitious goals already in the annual plan. Production at the level of 201,879 tonnes means that we exceeded the quantities produced in the year before by 2.6%. In 2011, we also produced 188,489 tonnes of own fibres for paper production, which is by 2.3% more as compared to the year before and 1% more than planned. We thus produced a total of 390,368 tonnes of own fibres and paper. The level of integration of fibre and paper production in 2011 met expectations, namely 93% (94% in 2010), with emphasis placed on ensuring the maximum use of production capacities based on recycled fibres. The level of integration is slightly lower than in the year before due to the increased production of graphic papers. The average hourly productivity on PM1 and PM2 increased by 0.1 tonne per hour and on PM3 by 0.3 tonne per hour in 2011 as compared to 2010. Total reject decreased by 0.4% as compared to the year before. The Company's production Realisation 2010

Quantity in tonnes

Realisation 2011 Quantity in

tonnes

INDEX 11/10

Paper production in t 196,669 201,879 103 Fibre production in t 184,177 188,489 102

0

10

20

30

40

50

60

70

2009 2010 20110

50

100

150

200

250

300

Value added per employee

Revenues per employee


23

Paper production Paper was produced on all three paper machines in a continuous manner. Production on PM1 (paper machine 1) was again very diverse. Besides several types of graphic paper, we also produced newsprint SOF1 on PM1, which had an impact on a somewhat lower total productivity of the machine. Production on PM2 and PM3 was more uniform as both machines were producing newsprint and improved newsprint. The decision for such production structure was reasonable, resulting in the best possible adjustability to the market situation and increased contribution for fixed cost coverage. We produced 61,213 tonnes of paper on PM1, which is 2% more than in the year before and 3% less than planned. Production on PM2 at the level of 69,416 tonnes increased by 1% as compared to the year before, but was 2% lower than planned. Production on PM3 was very smooth, resulting in 71,250 tonnes produced or 36% of total production. Production exceeded the planned quantities by 4% and the figures from the year before by 5%. Based in the record-breaking quantities produced and a lower number of employees, we increased labour productivity by 8% as compared to 2010 and exceeded the plan by 4%.

0 100 200 300 400 500 600

tonnes / employee

2009 2010 2011

Labour productivity

160,000

170,000

180,000

190,000

200,000

210,000

in tonnes

2009 2010 2011

Paper production


24

Structure of net production by paper machine

REALISATION 2010 REALISATION 2011 INDEX Quantity in tonnes Quantity in tonnes 11/10

Paper machine 1 60,003 61,213 102 Paper machine 2 68,725 69,416 101 Paper machine 3 67,941 71,250 105 Total 196,669 201,879 103

Fibre production The quantity of deinked pulp produced was very satisfactory. We exceeded the record-breaking production from 2010 by 4%. The structure of paper production was in 2011 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 spring of 2010 and to reach record-level fibre production. The latter resulted in 8% lower groundwood production as compared to the year before. Production of fibres in the paper sector

REALISATION 2010 REALISATION 2011 INDEX Quantity in tonnes Quantity in tonnes 11/10

DEINKED PULP 164,017 169,939 104 TGW 20,160 18,550 92 TOTAL 184,177 188,489 102

0 20,000 40,000 60,000 80,000

100,000 120,000 140,000 160,000 180,000

2009 2010 2011

Production of semi-products in tonnes

DIPTGW


25

2.3. SALES Market conditions on the sales market were in 2011 more favourable as compared to 2010. Already at the end of 2010, the prices of our finished products started rising. As compared to the year before, the average sales prices rose from 27 to 70 EUR/t, depending on paper type. The price of newsprint increased by 17.5%, whilst the prices of graphic papers increased by 3%. The Company had no difficulties in obtaining orders for full production capacities.

We sold a record-breaking quantity of paper, 200,201 tonnes. Due to the rise in the sales prices and increased quantities, we generated EUR 105.7 million net sales revenues, which is 16% more than in 2010. From this point of view, we can claim that sales results are good as revenues per employee rose by 26% with only slightly less employees. Strategic orientations remain the same, i.e. we produce newsprint and graphic papers made from recycled fibres. In 2011, both the quantities of newsprint and graphic papers sold increased in the paper sales structure. Due to the so-called downgrading of printers, the use and demand for newsprint increased. Newsprint can be used more for printing editions, for which more expensive paper types were used in the past. Newsprint is one of the cheaper types of paper in the paper structure.

Our most significant markets remain the same, i.e. Slovenia, Serbia, Italy, Germany, Hungary, and Croatia. Sales are extremely diversified and not dependant on one market or buyer only.

Sales structure in 2011

Newsprint75%

Improved newsprint

1%

Graphic papers24%

Net sales revenues

50,000

60,000

70,000

80,000

90,000

100,000

110,000

2009 2010 2011

in EUR thousand


26

In the structure of paper sales, the largest share (75%) is represented by sales of newsprint. Sales quantities by paper type in tonnes

REALISATION 2010

IN % REALISATION 2011

IN % INDEX 11/10

Newsprint 145,795 74 150,567 75 103 Improved newsprint 6,084 3 1,112 1 18 Graphic (coated and non-coated)

44,987 23 48,522 14 108

Total paper sales 196,866 100 200,201 100 102 Graphic papers (production on PM1) In 2011, we sold 48,522 tonnes of graphic papers, i.e. 3,535 tonnes or 8% more than in the previous year. The principal product from the range of graphic papers is Vimag in the form of reels. We sold 25,193 tonnes of this paper in 2011, which accounts for 52% of all graphic papers sold. Other graphic papers include: Viprint, Vipco, Vimax, Vipress, and Vibulk. In 2011, we also started test production and sales of new types of papers, such as: Vipress S, Vilux, and Vipjet. The purpose of these products is to position products with a higher value added. Improved newsprint (production on PM 1 and PM2) Improved newsprint was produced on paper machines 1 and 2. We sold the total of only 1,112 tonnes, which is 6,259 tonnes less than in the year before. These papers account for only 1% in the total sales structure and include Libna Print and Libna SG SC. The latter represents a newly developed paper, which we were able to launch in 2011. Newsprint (PM1, PM2 and PM3) In 2011, production of newsprint was again carried out on all three paper machines, even though it was planned only on two. We sold 150,567 tonnes of newsprint. The growth in the volume of sales increased by 3.3% as compared to the previous year. Paper finishing We sold 8,427 tonnes of paper in sheets, which is by 14% less as compared to the year before. Demand for paper in sheets declined in 2011. As we had capacities available, we also performed the services of cutting for others.

Sales in 2011 by marketSlovenia

13%

Serbia12%

Italy11%

Germany 9% Hungary

8%Croatia

6%

Other countries18%

Austria 4%

Romania 4%

Turkey 4%

Czech Republic 4%

Bolgaria 4%

France 3%


27

The structure of sales and production was adjusted to the market situation to the highest possible extent in 2011. 2.4. PURCHASING In the first three quarters of 2011, we faced a record rise in the prices of almost all basic raw materials for the production of paper and own fibres. In the last quarter, the prices started stabilising and decreasing. The prices of recovered paper rose on the average by 12% as compared to the year before. The main reason for the rise in prices is the export of recovered paper from Europe to China, which generated additional demand for recovered paper in Europe and thus higher prices. The prices of recovered paper reached the highest level halfway through the year (in August), but started declining in the second half of the year (starting with September). The prices of grinding wood also increased, by 14%, despite the fact that we maximised purchasing on the Slovenian and Bosnian markets. The prices of chemical pulp stayed at a level similar to the one from the year before. The prices of Indonesian coal also increased by 10% and the prices of the Stanari coal by 3%. Purchasing for the production of paper and own fibres together with investments amounted to EUR 83.9 million in 2011, which is by 7% or EUR 5.3 million more as compared to the year before The two main reasons are higher prices of basic raw materials and the record-breaking paper production. The biggest share in the structure of total purchasing is accounted for by fibres, recovered paper and grinding wood, which represent 52% of total purchasing. These are followed by energy products and chemicals.

Purchasing structure for raw materials and other materials in 2011

Investments1%

Packaging2%Machine clothing

2%

Energy 20% Fibres, recovered paper

and grinding wood 52%

Spare parts – maintenance

8% Chemicals14%

Structure of purchasing in 2011

Domestic market

45%Foreign market

55%


28

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

a. Development of new products

a.1. Development of new papers: In 2011, we continued with the activities for the development of new products: 1 - SOF F; newsprint suitable for printing materials of more demanding buyers in multicolour flexo printing technique and demanding heat-set print. It is part of regular production as of March 2012 and can only be produced on PM1 due to the already installed equipment of Soft calender. 2 - Vipress S; coated graphic publication paper, slightly calendered, suitable for standard multicolour cold-set and waterless cold-set print. It is also suitable for heat-set offset print. It was assessed by a Belgian buyer as better than standard Vipress quality, but development of this paper did not continue due to the market situation. 3 - Vilux; coated graphic publication paper with high whiteness, suitable for heat-set print and sheet-fed print. Test production and printing were successfully implemented. The Company did not offer such a product so far. Due to the market situation, the product has the status of project product and is not part of regular production. Further development in the entire spectre from machine finished to semi-gloss/glossy level of product quality is still possible. 4 - Libna SGSC; graphic publication semi-gloss SC paper suitable for heat-set print. The Company has so far not yet offered such a product, which is in the periods of down-grading an alternative to SC paper, used for a specific segment of printed matter, as a substitute for LWC (also Vimag and Vimax). As of February 2012, it is part of regular production only on PM1. 5 - SOF42.5 / PS3 (product modification); newsprint for which we adjusted the level of hydrophobicity in the past year to the level of hydrophobicity of SOF 42.5 from PM2, thus reaching the same competitive level of this type of paper from PM3, for which the demand is generally increasing. a.2. Development of new papers: The second part of R&D activities in the area of new product development represents a group of products still requiring a certain level of know-how and realisation of R&D stages for rapid market entry due to the market situation, potential demand in the near future and internal assessment of the need to expand our product/sales mix: 1 -Vibulk / Vibulk Creamy; bulky paper of volume ranging from (1.45) 1.55 to 1.8 cm (1.9/2.0) in the gsm area between 50 - 80 g/m2, suitable for cold-set and heat-set offset print as well as sheet-fed print, for printing pocket books, cash register rolls, with modified quality also for wallpapers. 2 -VipJet; new paper anticipated for digital print of higher quality and price range, also suitable for printing more demanding printed matter. It has been developed to the stage at which we reached 19% of coating solution concentration and undisturbed transitivity in all phases of coating preparation and paper production. 3 - Viprint Satin; graphic coated paper of higher volume – a niche product for printing books, brochures, advertising materials, and periodicals in heat-set print and for sheet-fed print, which is produced by only a few paper producers. 4 - VipCross; print SC paper, suitable for printing periodicals (entertainment programme (crossword puzzles, cartoons, animated novels, etc.), magazines, brochures, instructions for use and advertising material). It has been anticipated for cold-set and heat-set offset print, sheet-fed print, and gravure print. So far, the basic laboratory research has been carried out and the general quality level has been defined.


29

5 - ViPacPap; individual starting R&D activities have been carried out (acquiring know-how) together with basic research and laboratory analyses of the potential raw material basis for transition to a certain set of wrapping and packaging papers as one of the possible future orientations of the Company. 6 - ViPamPap; the basic R&D activities are underway (acquiring know-how) together with the basic research examining the suitability of the substrate based on recycled fibres for the production of the so-called smart papers, in all three R&D development areas:

• Meta papers; • Papers for organic and printed electronics; and • Papers with active surface.

7 - New products from alternative raw materials (sludge, mulex, pepelex, bark, sawdust); • Visorb/Vifluff/CAPS; the project was halted by TOC/Ecoinovation/EU (for at least six

months) in terms of project financing until individual phases have been carried out, including test pilot production of Visorb with packing into connected bags (the first improvised has already been carried out) and test with the final user (underway).

• IzoVip; the project has been halted until at least regular pilot production of Visorb has been set up, as this paper represents the basic raw material for the production of potential insulation products.

• EcoProBeton/BioPel; the first phase of the study of the basic physical and mechanical characteristics of pilot produced concretes has been carried out; these concretes are of lower quality of Mulex and/or biosludge or water, intended for reinforcing construction surfaces and non-loadbearing concretes, at this stage without various additives. The first successful reinforcing of construction surfaces at a port with mixing of Mulex with water has been carried out.

• MulBrik; pilot production was carried out for various types of briquettes from primary DIP sludge, bark, and sawdust mixed together in various proportions. Their physical and mechanical characteristics were measured and assessed as suitable for use (industrial incineration).

• MulOp; mixing of DIP and WWTP sludge of a certain share into brick has been anticipated.

b. Optimisation of technological procedures and processes

As concerns these activities, the most time was allocated to ensuring the required and most suitable limit operational conditions in the technological process of deinking old paper for achieving the final target quality of DIP 68 (whiteness 68-70%) with better mechanical characteristics of DIP60/DIP66 with a manageable level of glutinous interfering substance. Within the framework of laboratory R&D activities, research has been carried out in the field of defining limit conditions of (micro)fibrillation of DIP60 and DIP66 together with the assessment of effects - correlation of fibrillation with mechanical, physical and optical characteristics of DIP60F and DIP66F with the objective of including - substituting chemical pulp entirely or partially for individual types of paper with the new procedure of fibrillated DIP60F and DIP66F. Within the scope of optimising technological procedures and processes, R&D selection of technological procedures/auxiliary raw materials (CO2, DeTac, Nopcosperse, etc.) and examination of new procedures and processes (nano, bio, DAS technologies, etc.) continue for the best possible time and cost efficiency of handling such challenges in the future for the entire production line (up to produced paper). The effects achieved by R&D research for better DIP mechanical characteristics are verified by way of industrial tests. As the results of the two industrial tests carried out so far confirm the trends of laboratory research, these activities are to continue.


30

2.6. INVESTMENT ACTIVITIES Investments were carried out in a selective manner in 2011 and were mostly related to the management of production defects, efficient use of energy, bottlenecks at the energy plant and the DIP plant, and handling of the most critical noisy points in the Company. Investments were due to the financial situation of the Company and the general financial crisis only implemented at the level of EUR 1,219,568. In terms of substance and scope, the investment in the modernisation of the energy plant was the most demanding investment in the past year. The second major set of investments was related to PM1, namely to the replacement of the granite cylinder of the second press. Investments by year in EUR thousand

1997 - 2005

2006 2007 2008 2009 2010 2011

Environmental investments

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

Technological investments

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

Year total 106,851 8,174 5,729 17,311 3,400 1,470 1,220 Cumulative 106,851 115,025 120,754 138,065 141,465 142,935 144,155 Investments in 2011 in EUR thousand REALISATION 2011 Environmental investments

Noise regulation - 3rd phase

44,819 44,819

Technological investments 1,174,749

Investment maintenance Energy plant modernisation Granite cylinder of the 2nd press Web threading into after-dryer section Other

656,032 216,233 142,045 50,420

160,439 INVESTMENT TOTAL 1,219,568

2.7. EMPLOYEES Employment At the end of the year, the Company employed 389 employees, which is by 4.4% less as compared to the year before. Due to the amended legislation regulating disabled enterprises, major employee fluctuation occurred at the end of the year. Some non-disabled employees from the disabled enterprise Levas d.o.o. were reassigned to the parent company, and some disabled employees from the parent company were reassigned to the subsidiary Levas d.o.o.


31

The number of employees decreased mainly using soft techniques: 10 employees retired, 3 employees were employed for a definite period of time, 13 employees were reassigned to a subsidiary based on Article 73 of the Employment

Relationship Act (ZDR), 5 employees left based on contract termination for business-related reasons, 2 employees were cancelled their contracts based on Article 90.a of ZDR, and 2 employees were dismissed due to non-performance.

Employees structure The existing HR structure stayed at a level similar to the one from the year before. The average employee age was similar as in 2010, i.e. 46 years. At the end of the year, we employed 23 occupationally disabled workers (1 less than in 2010). The number of employees decreased proportionally in Administrative Services and the Technical Department. The majority of employees have finished vocational or secondary schools (55%), whilst the proportion of employees with educational levels VI or VII fluctuates around 18%.

2010 % 2011 % INDEX 11/10 - Technical Department 336 82.5 322 82.8 96 - Administrative Services 71 17.5 67 17.2 94 Total 407 100 389 100 96

Absence from work (absenteeism) Despite the problem of the ageing labour force at the Company level and the related risk of increased sick leave, more disability procedures and labour limitations, the rate of absenteeism dropped significantly in 2011. In 2010 this rate equalled in 5.4% and in 2011 the rate was 4.4.%. Absenteeism rate excludes pregnancy leaves and absence related to blood donation. Absenteeism rate dropped due to decreased sick leave from 7-30 days and sick leave exceeding 30 days. Employee training In 2011, the Company allocated approximately EUR 25.7 thousand to employee training, which is more than in 2010. This amount also includes the cost of compulsory practical work and scholarships. In 2011, the Company financed five scholarships. Salaries The wage policy implemented by the Company is in line with the Collective Agreement of the Pulp, Paper and Paper Processing Industry, Rules on a Stimulating Remuneration System, Rules on

200

400

600

No. of employees

2009 2010 2011

No. of employees


32

the Implementation of the System of Salaries, Compensations Regarding Work and other Labour Costs and resolutions of the Management Board which aligns the wage policy with the current performance results of the Company and the results achieved on the market. 2.8. EXPECTATIONS OF THE VIPAP VIDEM KRŠKO GROUP FOR 2012 Macroeconomic forecasts for Slovenia as well as Europe are not too optimistic for 2012. The economic and financial crisis is still strong. The conditions for obtaining sources of financing are significantly tougher. Accordingly, greater emphasis has been placed on the Company's internal resources, maximum cost optimisation, streamlining and saving measures in all areas of operations, and on a restrictive approach to planning the Company’s investment activity. The structure of the sales and production portfolio remains unchanged (newsprint and graphic publication papers). The Company’s competitive advantage, which is reflected in the flexibility and quick adaptability of the portfolio to the market conditions and its own fibre base, will contribute to the stability of operations. We are planning better operating results for 2012. The planned result for 2012 is profit at the level of EUR 1.1 million. We have anticipated full use of production capacities and sales exceeding 200 thousand tonnes of paper. Despite the minimum economic growth forecast, the projections for sales activities are quite optimistic. The sales policy anticipates increasing market shares on markets with the highest sales prices with the objective of reaching at least the planned average price. The major restricting factor is the buyers' lack of financial discipline. Credit risk management is of primary importance. We plan the prices of newsprint and graphic papers to stay at a level similar to the one from last year. Consequently, we do not anticipate an increased level of revenues. For the next year, we expect a significantly more favourable situation for purchasing of the most vital raw materials (recovered paper, pulp). The prices of recovered paper will drop by 17% and the prices of pulp by 6%. The costs of energy products will increase by approximately 2% due to higher prices of coal. Despite the just mentioned, the total cost of material for the production of paper and fibres are to drop by 7% as compared to the preceding year. We are planning utmost rationalisation of operations from the viewpoint of managing other costs of operations in the next year. The Company's development projects related to the use of waste and energy products will be carried out within the development centre ZEL-EN, whilst the development of new products will be implemented within the Company and in cooperation with the Pulp and Paper Institute. As regards cash management, we are planning a faster turnover of cash for inventories and receivables and decreased accounts payable, partially with own sources and partially with other sources. The Company's operating strategy up to the year 2016, which was prepared at the end of 2011, places the biggest emphasis on the development of new types of paper, more precisely technical and bulky groundwood papers. Besides the existing newsprint and graphic papers, the paper sales structure will be oriented towards selling graphic coated papers, multi-purpose office papers, bulky papers for books and technical papers. We expect the scope of operations to grow by 14% and a higher value added as the operating strategy anticipates significantly higher figures for sales of niche, special types of paper with a higher value added. As in the past, the Company's strategy for the future places a great emphasis on a sustainable business process, which is reflected within the Company in the use of recycled raw materials (recovered waste, wood) and end products for repeated recycling, as well as in the technology based on efficient use of energy and compliance with environmental regulations. The Company meets fully all environmental requirements, which also define its future technologies.


33

3. THE ENVIRONMENT


34

3.1. ACHIEVEMENTS IN 2011 The Company has been implementing its environmental policy since 1997. The extensive environmental and technological modernisation of integrated production of fibres and paper in Krško was completed in 2007. In the area of environment, the years 2009, 2010, and 2011 were characterised by the following events: A. ENVIRONMENTAL PERMIT - OVD In December 2009, the Company obtained the environmental permit (OVD), which proves that its operations are compliant with the requirements of the environmental legislation and other regulations, applicable at the local, national and the EU level. In December 2011, the Company received the Decision on the Amendments to the Environmental Permit for processing residuals from combustion plants into construction products. The Company was issued the OVD for the period of 10 years, as follows: - industrial plants for the production of fibres from wood and other fibre materials with the capacity of 690 t/day; - industrial devices for the production of paper with the capacity of 840 t/day; - combustion plants with RTI of 127.75 MW; - other technologically connected devices. The obtainment of the environmental permit is a proof and a confirmation that the Company has set up a responsible environmental management system and at the same time its responsibility to meet the requirements of the permit, the legislation and the regulations, and to constantly improve its management in all environmental aspects (water, air, waste management, radiation, handling of dangerous substances, efficient use of water, energy, raw materials and natural resources).

B. EU ECOLABEL

Together with the Environmental Agency of RS (ARSO), the Company carried out the administrative procedure for obtaining and expanding the EU environmental label for 6 ecological products that meet the requirements of the EU regulations for photocopying 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 photocopying 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 in air-related environmental information. In January 2010, the Environmental Agency of RS issued 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 promotional materials;

• multi-colour and black&white offset print

SI/011/01 Krško, SLO

VIPRESS VIPRINT VIMAG VIMAX

• printing of periodicals and promotional materials;

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

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

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

LIBNA PRINT

• printing of periodicals and promotional materials;

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

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

SI/011/06 Krško, SLO

C. CENTRAL WATER TREATMENT PLANT KRŠKO In August 2009 we started treating the waste waters of Krško and the surrounding areas at the central waste water treatment plant. In 2011, more than 90% of municipal waste waters of Krško with its surroundings were treated at the central waste water treatment plant VIPAP. The treatment effects of waste water treatment at the central waste water treatment plant VIPAP:

Chemical pulp10%

30%Recycled fibres

60%

Ground-wood

15%

70%

15% Chemical pulp

Ground-wood

Recycled fibres

Chemical pulp15%

20%

Recycled fibres

65%

Ground-wood


36

Unit of measurement

2009 2010 2011

COD percentage of reduction % 93.5 93.1 94.6

BOD percentage of reduction % 99.2 98.8 99.3

AOX percentage of reduction % 81.2 71.4 82.2 Percentage of reduction - suspended solids

% 99.5 99.2 99.7

Percentage of reduction - total P % 94.1 93.3 93.6

Percentage of reduction - total bound N % 87.0 88.0 88.8 3.2. ENVIRONMENTAL IMPACT Our impacts on the narrow and broader 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 processed and removed waste

A. SPECIFIC USE OF ENERGY AND WATER In the recent years, the Company invested great efforts in reducing the use of energy and water.

Unit of measurement

2009 2010 2011

Process water m3/t g.p.* 20.3 18.2 17.4 Steam GJ/t g.p. 4.71 4.59 4.68 Electricity kWh/t g.p. 865 843 838

* g.p. = gross production


37

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

2009 2010 2011

COD kgO2/t g.p. 2.3 2.0 1.5 BOD5 kgO2/t g.p. 0.10 0.13 0.09 Quantity of waste water m3/t g.p. 17.5 17.7 15.0

0

0.5

1

1.5

2

2.5

2009 2010 201113,5

14

14,5

15

15,5

16

16,5

17

17,5

18

COD BOD5 Quantity of waste water

0

5

10

15

20

25

2009 2010 2011820

825

830

835

840

845

850

855

860

865

870

Process water

Steam

Electricity


38

C. SPECIFIC AIR EMISSIONS FROM THE COMPANY

Unit of measurement

2009 2010 2011

Sulphur dioxide kg SO2/t g.p. 0.251 0.473 0.452 Nitrogen oxides kg NO2/t g.p. 0.920 1.136 0.979

Carbon dioxide kg CO2/t g.p. 433.44 430.75 436.30

Over the last three years, the Company reduced its specific emissions into the air.


39

D. SPECIFIC QUANTITIES OF THE COMPANY'S RECOVERED AND REMOVED WASTE The Company plans waste management carefully - it separates waste at source, the quantities of recovered waste have been growing since 2010 due to the processing of combustion waste from boiler 4 and boiler 5 into construction products, whilst the quantities of deposited waste are declining.

Unit of measurement

2009 2010 2011

R - waste recovery kg s.s./t g.p. 168 241 304 D - waste disposal kg s.s./t g.p. 109 87 38 Total waste produced kg s.s./t g.p. 288 323 338

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

2009 2010 2011

D-waste disposal

R-waste recovery

0

0.2

0.4

0.6

0.8

1

1.2

2009 2010 2011427

428

429

430

431

432

433

434

435

436

437

Sulphur dioxideNitrogen oxide

Carbon dioxide


40

II. FINANCIAL REPORT OF THE

COMPANY VIPAP VIDEM KRŠKO D.D.


41

1. FINANCIAL STATEMENTS


42

1.1. BALANCE SHEET AS AT 31 DECEMBER 2011 IN EUR

Note

31 December

2011

31 December

2010

ASSETS 143,114,133 151,004,824 A. Long-term assets 118,583,148 126,659,923 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 132,783 116,314 1. Long-term property rights 132,783 116,314 II. Property, plant and equipment 2 108,697,580 116,594,710 1. Land and buildings 32,593,034 33,630,604 a) Land 8,302,056 8,302,056 b) Buildings 24,290,978 25,328,548 2. Plant and machinery 72,630,852 77,549,684 3. Other plant and equipment 3,137,355 5,350,267 4. Property, plant and equipment being acquired 336,339 64,155 a) Property, plant and equipment under construction and manufacture 336,339 64,155 b) Advances for property, plant and equipment 0 0 IV. Long-term financial investments 3 319,797 281,797 1. Long-term financial investments, excluding loans 319,797 281,797 a) Shares and participating interests in companies within the Group 319,797 281,797 VI. Deferred tax assets 4 9,432,988 9,667,102 B. Current assets 23,885,501 23,515,559 I. Assets (disposal groups) available for sale 0 0 II. Inventories 5 10,147,232 10,428,462 1. Material 6,690,176 7,365,109 2. Unfinished products 9,238 165,502 3. Products and merchandise 3,343,862 2,872,497 4. Advances for inventories 103,956 25,354 IV. Short-term operating receivables 6 12,726,298 11,203,866 1. Short-term operating receivables due from the Group companies 940,513 1,448,443 2. Short-term operating trade receivables 10,154,552 8,820,800 3. Short-term operating receivables due from others 1,631,233 934,623 V. Cash 7 1,011,971 1,883,231 C. Short-term deferred expenses and accrued revenues 8 645,484 829,342


43

Note 31 December 2011 31 December 2010 EQUITY AND LIABILITIES 143,114,133 151,004,824 A. Equity 9 70,161,668 72,710,593 I. Called-up capital 78,387,660 78,387,660 1. Share capital 78,387,660 78,387,660 II. Capital reserves 588,439 588,439 III. Reserves from profit 96,744 96,744 1. Legal reserves 96,744 96,744 2. Reserves for treasury shares and own stakes 3,557,093 3,557,093 3. Treasury shares and own stakes (as a deductible item) -3,557,093 -3,557,093 4. Other reserves from profit 0 0 IV. Revaluation surplus 2,385,484 2,385,484 V. Retained net profit/loss -8,747,734 0 VI. Net profit/loss for the year -2,548,925 -8,747,734 Profit/loss for the year -2,548,925 -8,747,734 B. Provisions and long-term accrued expenses and deferred revenues 10 1,187,570 2,368,495 1. Provisions for pensions and similar liabilities 997,501 2,206,474 2. Other provisions 190,069 162,021 3. Long-term accrued expenses and deferred revenues 0 0 C. Long-term liabilities 16,522,172 16,917,463 I. Long-term financial liabilities 15,925,801 16,321,092 2. Long-term financial liabilities to banks 11 15,181,789 14,968,286 4. Other long-term financial liabilities 12 744,012 1,352,806 III. Deferred tax liabilities 596,371 596,371 D. Short-term liabilities 54,692,190 58,341,405 II. Short-term financial liabilities 13 23,043,120 27,391,163 2. Short-term financial liabilities to banks 22,431,749 26,357,986 4. Other short-term financial liabilities 611,371 1,033,177 III. Short-term operating liabilities 31,649,070 30,950,242 1. Short-term operating liabilities to the Group companies 931,882 1,509,586 2. Short-term operating liabilities to suppliers 14 29,054,677 24,517,493 4. Short-term operating liabilities from advances 145,354 1,503,922 5. Other short-term operating liabilities 15 1,517,157 3,419,241 E. Short-term accrued expenses and deferred revenues 16 550,533 666,868

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


44

1.2. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR 2011 2010 Notes 1. Net sales revenues 17 105,778,584 91,401,767

2. Change in inventories of products and work in progress 318,481 -924,247

4. Other operating revenues (including revaluation operating revenues) 18 1,598,756 510,865

5. Costs of goods, materials and services 89,285,527 80,339,392

a) Cost of goods and materials sold and cost of materials used 78,795,832 70,391,003

b) Costs of services 19 10,489,695 9,948,389 6. Labour costs 20 9,941,606 11,985,525 a) Costs of salaries and wages 7,390,385 8,213,226 b) Social security costs 1,379,395 1,667,554 c) Other labour costs 1,171,826 2,104,745 7. Write-offs 8,536,396 9,478,912 a) Depreciation and amortisation 7,949,580 7,992,337

b) Operating expenses from revaluation of intangible and tangible fixed assets 343,330 93,220

c) Revaluation operating expenses for current assets 243,486 1,393,355 8. Other operating expenses 21 1,081,581 932,916 Operating profit/loss -1,149,289 -11,748,360 11. Financial revenues from operating receivables 22 692,583 273,030

b) Financial revenues from operating receivables due from others 692,583 273,030

13. Financial expenses for financial liabilities 23 2,654,677 2,392,587 b) Financial expenses for loans received from banks 2,556,041 2,260,560 d) Financial expenses for other financial liabilities 98,636 132,027 14. Financial expenses for operating liabilities 24 352,723 653,977

b) Finance costs from trade payables and liabilities from bills of exchange 352,723 653,977

Net profit/loss from ordinary activities -3,464,106 -14,521,894 15. Other income 25 1,179,346 3,640,853 16. Other expenses 30,051 6,556 Operating profit/loss from extraordinary activities 1,149,295 3,634,297 17. Corporate income tax 27 0 0 18. Deferred taxes -234,114 2,139,863 19. Net profit/loss for the period -2,548,925 -8,747,734 20. Total comprehensive income for the year -2,548,925 -8,747,734

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


45

1.3. CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 2011 2010 A. Cash flows from operating activities a) Items of income statement 5,648,161 -539,409

Operating revenues (except from revaluation) and financial revenues from operating receivables 106,255,283 95,547,598

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -100,373,008 -98,226,870

Income taxes and other taxes not included in operating expenses -234,114 2,139,863 b) Changes in net working capital (and accruals and deferrals, provisions and deferred tax receivables and liabilities) of balance sheet operating items 700,661 6,583,192 Opening less closing operating receivables -1,765,917 6,454,306 Opening less closing deferred expenses and accrued revenues 165,917 -54,710 Opening less closing deferred tax assets 234,114 -2,139,862 Opening less closing assets (disposal groups) available for sale 0 0 Opening less closing inventories 281,230 -541,630 Closing less opening operating liabilities 2,197,182 4,235,251

Closing less opening accrued expenses and deferred revenues, and provisions -411,865 -1,370,163

c) Net operating receipts or net operating disbursements (a + b) 6,348,822 6,043,783 B. Cash flows from investing activities a) Cash receipts from investing activities 1,529,938 3,981,794 Cash receipts from disposal of intangible assets 653,282 0 Cash receipts from disposal of property, plant and equipment 876,656 3,981,794 b) Cash disbursements for investing activities -2,421,308 -5,534,524 Cash disbursements for acquisition of intangible assets 0 -172,697 Cash disbursements for acquisition of items of property, plant and equipment -2,383,308 -5,326,827 Cash disbursements for acquisition of long-term financial investments -38,000 -35,000

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -891,370 -1,552,730

C. Cash flows from financing activities a) Cash receipts from financing activities 3,648,874 11,908,891 Cash receipts from paid-in capital 0 -1 Cash receipts from increase in long-term financial liabilities 0 7,974,108 Cash receipts from increase in short-term financial liabilities 3,648,874 3,934,784 b) Cash disbursements for financing activities -9,977,586 -16,197,162 Interest paid on financing activities -2,615,979 -1,992,596 Repayments of long-term financial liabilities 0 0 Repayments of short-term financial liabilities -7,361,607 -14,204,566

c) Net receipts from financing activity or net disbursements for financing activity (a + b) -6,328,712 -4,288,271

D. Final balance of cash 1,011,971 1,883,231 x) Net cash flows for the period (sum of Ac, Bc and Cc) -871,260 202,782 y) Opening balance of cash 1,883,231 1,680,449



46

1.4. STATEMENT OF CHANGES IN EQUITY FOR 2011 IN EUR

Share

capital Legal

reserves Reserves for own stakes

Treasury shares

Other reserves

from profit

Profit/loss brought forward

Net profit/loss for

the year Capital reserves

Revaluation surplus Total

A.1. Balance as at 31 December 2010 78,387,660 96,744 3,557,093 -3,557,093 -8,747,734 0 588,439 70,325,109 a) Retrospective restatements (elimination of errors) 0 b) Retrospective adjustments (changes in accounting polices) 2,385,484 2,385,484 A.2. Balance as at 1 January 2011 78,387,660 96,744 3,557,093 -3,557,093 0 -8,747,734 0 588,439 2,385,484 72,710,593 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 reporting period 0 a) Net profit/loss for the financial year -2,548,925 -2,548,925 c) Change in surplus from revaluation of property, plant and equipment 0 d) Change in surplus from revaluation of financial investments 0 0 0 0 0 0 0 -2,548,925 0 0 -2,548,925 B.3. Changes in equity a) Allocation of remaining net profit of the comparative reporting period to other equity components 0 b) Allocation of part of net profit of the reporting period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 0 0 0 0 0 0 C. Balance as at 31 December 2011 78,387,660 96,744 3,557,093 -3,557,093 0 -8,747,734 -2,548,925 588,439 2,385,484 70,161,668



47

1.5. STATEMENT OF CHANGES IN EQUITY FOR 2010 IN EUR

Share

capital Legal

reserves Reserves for own stakes

Treasury shares

Other reserves

from profit


Net profit/loss for

the year Capital reserves


A.1. Balance as at 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 accounting polices) 0 A.2. Balance as at 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 reporting period 0 a) Net profit/loss for the financial 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 reporting period to other equity components 0 b) Allocation of part of net profit of the reporting period to other equity components according to the resolutions of the management and supervision bodies -1,654,317 3,525,283 -1,870,966 0 0 0 0 0 -1,654,317 3,525,283 0 -1,870,966 0 0

C. Balance as at 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.


48

2. APPENDIX TO THE FINANCIAL STATEMENTS


49

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2011 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 at 31 December 2010 and data as at 31 December 2011. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:

− Tangible fixed assets (property, plant and equipment) that meet recognition conditions are initially recognised at cost. This comprises the purchase price, import duties and non-refundable purchase taxes, demolition costs, the costs that can be directly ascribed to them for making them fit for their intended use, and the costs of testing whether the asset is functioning properly. Property, plant and equipment are activated when they are made ready for use. Their value is verified upon each compilation of final accounts and the fixed asset is impaired, if necessary. Following recognition, the cost method is used as the method of valuation. Property, plant and equipment are depreciated individually using a straight-line method. Costs incurred subsequently on a fixed asset increase its cost when they increase its future economic benefits in excess of the future economic benefits originally estimated. Due to the change in the accounting policy for valuation of land as of 1 January 2011 (comparable sales method), the value of land in the balance sheet differs as at 1 January 2011 as compared to 31 December 2010.

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

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


50

Following recognition, the cost method is used as the method of valuation. Intangible assets are amortised using a straight-line method. Intangible fixed assets also include emission coupons.

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

subsequent valuations are based on cost.

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

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

deferred expenses occurring during the year and temporarily accrued revenues.


51

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

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

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

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

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

− Short-term liabilities comprise short-term financial liabilities and short-term operating

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

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

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

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

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


52

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 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.


53

2.2. NOTES TO THE FINANCIAL STATEMENTS 2011 2010 1. Intangible assets in EUR 132,783 116,314 Property Emissions Total rights coupons 1. Cost Balance as at 1 January 2011 97,113 114,153 211,266 Increase 0 308,790 308,790 Decrease 0 -290,850 -290,850 Balance as at 31 December 2011 97,113 132,093 229,206 2. Value adjustment Balance as at 1 January 2011 -94,952 0 -94,952 Amortisation -1,471 0 -1,471 Decrease 0 Balance as at 31 December 2011 -96,423 0 -96,423 3. Residual value Balance as at 1 January 2011 2,161 114,153 116,314 Balance as at 31 December 2011 690 132,093 132,783

Intangible fixed assets comprise software (EUR 690) and emission coupons (EUR 132,093). As at 31 December 2011, 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 was entitled to 172,697 coupons for 2011. Based on the calculation of obligations for 2010, it gave to the Ministry of the Environment and Spatial Planning 142,757 emission coupons and sold 12,000 emission coupons in 2011. Based on the calculation of obligations for 2011, the Company assessed delivery of 146,360 emission coupons (by the end of April 2012). As at 31 December 2011, the balance of emission coupons stood at 132,093. 2. Property, plant and equipment (tangible fixed assets)

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

1. Overview of the fluctuation of fixed assets in 2011 in EUR: 2011 2010 108,697,580 116,594,710 Item Equipment

Land Construction

buildings Equipment under

construction Advance

payments Total 1. Cost Opening balance as at 1 January 2011 8,302,056 34,611,442 144,595,773 64,155 789,821 188,363,247 Additions – new purchases 15,000 106,695 1,231,013 32,488 1,385,196 Increases – acquisitions from investments 167,276 167,276 Appreciation of existing fixed assets Increases in existing fixed assets 11,637 673,221 -958,829 -273,971 Decrease -124,552 -1,502,009 -32,488 -1,659,049 Transfer of short-term held-for-sale assets 0 Balance as at 31 December 2011 8,302,056 34,513,527 144,040,956 336,339 789,821 187,982,699 2. Value adjustment Opening balance as at 1 January 2011 -9,282,894 -61,695,822 0 -789,821 -71,768,537 Increases - depreciation -1,008,911 -6,939,197 -7,948,108 Appreciation of existing fixed assets 0 Impairments of existing fixed assets 0 Transfer of short-term held-for-sale assets 0 Decrease 69,256 362,270 431,526 Balance as at 31 December 2011 -10,222,549 -68,272,749 0 -789,821 -79,285,119 3. Residual value Balance as at 1 January 2011 8,302,056 25,328,548 82,899,951 64,155 0 116,594,710 Balance as at 31 December 2011 8,302,056 24,290,978 75,768,207 336,339 0 108,697,580 As at 31 December 2011, the Company had EUR 7,881,320 in long-term loans for the purchases of fixed assets and EUR 1,355,383 liabilities arising from financial lease. Fixed assets in the amount of EUR 59,826,536 were pledged as collateral for long-term financial liabilities (Item 11). Liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 2,185,337. 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


55

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. In 2011, we sold equipment for chemical pulp production in the amount of EUR 1,116,936.31. As at 31 December 2011, the Company discloses the remaining equipment worth EUR 3,720 under fixed assets. The value of fixed assets as at 1 January 2011 differs from the value as at 31 December 2011 under the item land due to the changed accounting policy for land valuation. The appraisal was carried out by the company BIRO PNS, Rostohar Vladimir s.p. (company reference No. 19-0713/95). Rostohar Vladimir is a certified appraiser and a sworn court expert for the field of construction, registered with the Basic Court of Novo mesto since 1991 under registration No. 14/91. The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). The difference of EUR 2,981,855 is disclosed under value of land and revaluation surplus. 3. Long-term financial investments in EUR 2011 2010 319,797 281,797

Balance as at 31

December 2010

Value adjustment

as at 31 December

2010

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2011

Acquisition of

investment

Carrying amount as

at 31 December

2011 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 0 0 35,000 Zel-en Krško (11.38%) 0 0 0 38,000 38,000 Total shares 543,425 -261,628 0 0 -261,628 38,000 319,797

The registered office of Vipreh d.o.o. is Tovarniška 18, Krško. The company disclosed a loss of EUR 227 in its 2011 income statement. The amount of equity capital as at 31 December 2011 was EUR 6,010. Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2011 income statement, the company disclosed a loss of EUR 18,848. As at 31 December 2011, the company's equity capital stood at EUR 115,439. The registered office of Levas d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 6,198 in its 2011 income statement. The amount of equity capital in the balance sheet as at 31 December 2011 was EUR 749,652, net sales revenues amounted to EUR 3,150,730, and the value of assets totalled EUR 2,128,668. In 2010, the Company acquired a new investment - Vipap GmbH Neunkirchen. The company's activities include selling our paper and also purchasing recovered paper. In 2011, the company generated EUR 17,188 revenues and ended the year with a profit of EUR 17,188. Its equity capital as at 31 December 2011 equalled EUR -32,654.


56

In 2011, the Company established together with 13 partners the Development Centre for Renewable and Sustainable Energy (ZEL-EN) with registered office in Krško, in which it holds a 11.38-percent share. The company Vipap Videm Krško d.d. includes in its consolidated financial statements the statements of the subsidiaries Vipap GmbH Neunkirchen and Levas d.o.o. Due to a relatively low scope of operations, the Company does not include in its consolidated financial statements companies Vipreh d.o.o. and Ekopa d.o.o. 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. 2011 2010 4. Deferred tax assets in EUR 9,432,988 9,667,102

1 January

2011 Decrease Increase 31 December

2011 Severance payments 83,243 9,261 73,982 Long-service awards 19,578 2,840 16,738 Devaluation of long-term assets available for sale 2,251,151 2,183,481 67,670 Formation of value adjustments of receivables 1,180,346 519,977 660,369 Unused tax loss 5,967,674 2,595,598 8,563,272 Additionally formed provisions 165,110 114,153 50,957 TOTAL: 9,667,102 2,829,712 2,595,598 9,432,988 In 2011, we continued using provisions arising from severance payments for employees who retired and those 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 valued of deferred tax assets decreased in 2011 due to the formation of value adjustments of receivables, drawing and elimination of unnecessary provisions for severance payments, long-service awards and additionally formed provisions (legal actions by the Company's former employees) as well as due to the sale of fixed assets for chemical pulp production. In 2011, deferred tax assets increased due to the increase in tax loss. The Company applied the 20% tax rate in the calculation of deferred tax assets. The Company's management assesses that there is convincing evidence that future taxable profit will be available against which deductible temporary differences, unused tax credits or losses can be utilised. The latter is based on the Company's development strategy up to 2016, which anticipates a 13-percent growth in the volume of production, from the present 200 thousand tonnes to 225 thousand tonnes, a 14-percent rise in revenues, from EUR 105 million to EUR 120 million, and a substantial increase in the Company's value added (47%), from EUR 11.1 million to EUR 16.3 million. For its future operations, the Company anticipates production and sale of new types of paper with a higher value added, which will result in higher future profits.


57

2011 2010 5. Inventories in EUR 10,147,232 10,428,462

Inventory type

Balance as at 31

December 2011

Inventory surpluses

Inventory deficits

Impaired value due to change in quality

Impaired value to

marketable value

Material 6,674,317 2,740 2,671 0 Small inventory 15,859 Unfinished products 9,238

Products 3,338,442 1,765 3,790 53,440 Merchandise 5,420 Advances for inventories 103,956 Total 10,147,232 4,505 6,461 0 53,440

The carrying amount of inventories of raw materials and other materials as at 31 December 2011 did not exceed net realisable value. Significant inventories of materials include: recovered paper (EUR 964,338), basic raw materials (EUR 1,374,904), maintenance material (EUR 2,005,123), spare parts (EUR 1,535,889), energy-generating products (EUR 635,308), and other (EUR 158,755). Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 9,044) and paper intended for re-processing (EUR 194). Inventories of products comprise inventories of paper in reels (EUR 2,858,646) and inventories of paper in sheets (EUR 479,796). As at 31 December 2011, the Company impaired inventories of finished products as their production price was higher than the selling price. Inventories of raw materials and other materials as at 31 December 2011 are pledged as collateral in the amount of EUR 2,000,000. 6. Short-term operating receivables in EUR 2011 2010 12,726,298 11,203,866

Balance as at 31

December 2011

Collateralised

receivables

Receivables

without collateral

Outstanding receivables

Due up to 1 year

Maturity of over 1

year

Value adjustment

as at 1 January

2011 Reduced

adjustment

Increased adjustme

nt

Value adjustment

as at 31 December

2011

Carrying amount as

at 31 December

2011 Short-term operating trade receivables 14,081,951 6,763,763 7,318,188 7,752,764 2,655,365 3,673,822 -6,567,150 3,291,274 -651,523 -3,927,399 10,154,552 Short-term operating receivables from the Group companies 940,513 0 940,513 923,749 16,764 0 0 940,513 Short-term operating receivables from others 1,631,233 0 1,631,233 1,631,233 0 0 -704,840 704,840 0 1,631,233

Total: 16,653,697 6,763,763 9,889,934 10,307,746 2,672,129 3,673,822 -7,271,990 3,996,114 -651,523 -3,927,399 12,726,298

Receivables in the amount of EUR 7,861,162 are pledged as collateral for loans.


58

2011 2010 7. Cash in EUR 1,011,971 1,883,231 31 December 2011 31 December 2010 Cash register 0 878 Transaction accounts 1,011,971 1,882,353 Short-term deposits Total: 1,011,971 1,883,231

2011 2010 8. Short-term accrued revenues and deferred expenses in EUR 645,484 829,342

Type of deferral Balance as at 1

January 2011 Establishment Disbursement

Balance as at 31 December

2011 Deferred expenses 578,521 9,510,279 -9,459,622 629,178 Accrued revenues 250,821 16,153 -250,668 16,306 Total 829,342 9,526,432 -9,710,290 645,484

Short-term deferred expenses are: short-term deferred receivables from the state arising from VAT (EUR 624,123) and short-term deferred expenses for 2011 (EUR 5,055). Short-term accrued revenues comprise the amount relating to volume discounts for purchased raw materials and material for 2011 (EUR 16,306). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2011.

2011 2010

9. Equity in EUR 70,161,668 72,710,593 Share capital of the Company comprises 1,879,800 shares with a nominal value of EUR 41.70 each. The shares are freely transferable and carry one vote each at the General Meeting of Shareholders, which takes decisions with 100% of voting rights present. On 4 September 2008, the General Meeting of Shareholders decided that the Company’s nominal shares are to be converted into no-par value shares in the following way: each share with the nominal value of SIT 1,000 or EUR 4.17 after conversion is replaced by one no-par value share. No-par value shares are merged on the basis of a 10:1 ratio. One no-par value share is worth EUR 41.70. Treasury shares are valued at cost, which is EUR 54.065. The share capital of the Company totals EUR 78,387,660 and is divided into 1,879,800 no-par value shares. The difference in the value of EUR 55,003.99 resulting from the conversion of share capital was allocated to capital reserves. The value of the Company's capital in previously published financial statements for the year 2010 differs from the disclosed comparative data for 2010 presented in this report by EUR 2,385,484 due to the formation of revaluation surplus, which relates to the change in the accounting policy for land valuation.


59

A. NET PROFIT FOR THE FINANCIAL YEAR IN EUR 0 B. NET LOSS FOR THE YEAR 2,548,925 C. RETAINED NET PROFIT D. NET LOSS BROUGHT FORWARD 8,747,734 - Covered net loss brought forward from previous year 0 E. DECREASE IN CAPITAL RESERVES F. DECREASE IN RESERVES FROM PROFIT 0 - Decrease in other profit reserves - Decrease in legal reserves - Decrease in capital reserves G. INCREASE IN RESERVES FROM PROFIT 0 - Increase in legal reserves - Increase in reserves for own stakes - Increase in statutory reserves - Increase in other profit reserves H. DISTRIBUTABLE PROFIT I. ACCUMULATED LOSS 11,296,659 Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -4,064,870. 2011 2010 10. Provisions and long-term accrued expenses and deferred revenues in EUR 1,187,570 2,368,495

Provisions

Balance as at 1 January

2011 Establishment Disbursement Balance as at 31 December 2011

Provisions for severance pays upon retirement 422,767 -47,681 375,086 Provisions for long-service awards 132,611 -19,764 112,847 Provisions for building decommissioning cost 22,534 -1,461 21,073 Provisions for contingent liabilities 1,651,096 -1,141,527 509,569 Total 2,229,008 0 -1,210,433 1,018,575 Long-term accrued expenses and deferred revenues 114,153 308,790 -290,850 132,093 Long-term deferred revenues 25,334 15,000 -3,432 36,902 Grand total: 2,368,495 323,790 -1,504,715 1,187,570

In 2011, 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 20,030) and elimination of unnecessary provisions (EUR 27,651). Provisions for long-service awards were reduced due to the payment of long-service awards in the current year (EUR 12,626) and due to the elimination of unnecessary provisions (EUR 7,138). The most recent actuary calculation of provisions for severance payments and long-service awards of employees was performed on 31 December 2008.


60

Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company 3sigma d.o.o. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was carried out on 31 December 2005 due to the formation of provisions and on 31 December 2006 due to high turnover of employees in 2006. It was based on data submitted regarding employees and on the assumption regarding the growth in average salary in the Republic of Slovenia (3.5% p.a.), and based on employee turnover and conditions for retirement (Article 36 of the Pension and Disability Insurance Act (ZPIZ)). The calculation as at 31 December 2008 was based on submitted data and on the assumption that the annual growth in salaries would be 1.5%. Severance payment at retirement is calculated in accordance with the criteria of two average gross salaries in the Republic of Slovenia for the previous three months or in the amount of two average gross monthly salaries of the employee in the last three months prior to retirement, whichever is more favourable for the employee. In the calculation of long-service awards, the criteria of base salary for tariff class I of the Collective Agreement of the Pulp, Paper and Paper Processing Industry (1 basis for 10 years of work at the company, 1.5 bases for 20 years of work at the company and 2 bases for 30 years of work at the company) were taken into account. The selected discounted interest rate amounts to 7.65% per annum, which was the return on 10-year corporate bonds with a high credit rating in the euro area at the end of 2008. Provisions for the cost of building decommissioning include the planned costs of building decommissioning at the former chemical pulp mill. The facility is being rehabilitated gradually. In 2009 we established additional provisions arising from the planned cost of rehabilitation of these facilities in 2010. In 2011, provisions were decreased due to removed buildings. 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 2011, the Company decreased provisions by the value of provisions utilised (EUR 276,416) and by the value of unnecessary provisions (EUR 865,111). Long-term accrued expenses and deferred revenues increased by the amount of emission coupons acquired from the MESP for pollution of the atmosphere with CO2 for 2011 (172,697 coupons) and by the amount of coupons returned (136,093), and decreased by coupons delivered (142,757 coupons), sold and lent (148,093). The book value of one coupon is EUR 1. Provisions for long-term deferred revenues increased by the amount of assets acquired free of charge and decreased by the calculated depreciation of donated fixed assets. Long-term deferred revenues are amounts of non-depreciated fixed assets acquired free of charge.


61

2011 2010 11. Long-term financial liabilities to banks in EUR 15,181,789 14,968,286

Creditor

Balance as at 31

December 2011 Outstanding

Short-term maturity

Long-term maturity

Date of final

maturity Interest rate

Domestic bank 1,300,000 1,300,000 0 1,300,000 1 Oct.

2016 6-month Euribor

+ 3.93%

Domestic bank 4,409,997 4,409,997 882,001 3,527,996 1 Dec.


+ 2.7%

Domestic bank 456,750 456,750 454,500 2,250 3 Jan.


+ 4.5%

Domestic bank 1,739,120 1,739,120 347,840 1,391,280 20 Oct.


+ 5.5%



+ 3.1%

Domestic bank 2,152,173 2,152,173 782,609 1,369,564 20 June


+ 3.1%

Domestic bank 220,000 220,000 220,000 21 June


+ 2.9%



+ 3.1%

Domestic bank 800,000 800,000 400,000 400,000 16 Aug.


+ 2.9%

Domestic bank 4,822,200 4,822,200 1,071,600 3,750,600 29 June


+ 3.95%

Foreign bank 43,892 43,892 43,892 0 27 June


+ 1.0425%

Foreign bank 1,231,590 1,231,590 449,618 781,972 19 June


+ 1.3% Total 20,775,722 20,775,722 5,593,933 15,181,789 The fair value of loans raised is equal to their carrying amount. Long-term loans (including the portion falling due in 2011 in the amount of EUR 5,593,933) total EUR 21,775,722 and are collateralised by means of pledged fixed assets in the amount of EUR 59,826,536, secured claims (EUR 2,450,000), and pledged inventories, raw materials and finished products (EUR 2,000,000). 12. Other long-term financial liabilities in EUR 2011 2010 744,012 1,352,806

Creditor

Balance as at 31

December 2011

Outstanding

Short-term maturity

Long-term maturity

Final due date

Basis for interest

charging Liabilities to the lessor 942,459 942,459 463,167 479,292 2013

3-month Euribor

Liabilities to the lessor 83,530 83,530 58,613 24,917 2013

3-month Euribor


6-month Euribor

Total 1,355,383 1,355,383 611,371 744,012


62

The fair value of liabilities is equal to their carrying amount. Short-term and long-term portion of liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 2,185,337. 2011 2010 13. Short-term financial liabilities in EUR 23,043,120 27,391,163

Creditor Balance as at 31 December 2011 Outstanding

Date of final maturity Interest rate (%)

Domestic bank 304,500 304,500 3 Jan. 2013 6-month Euribor + 4.5% Domestic bank 882,001 882,001 1 Dec. 2016 6-month Euribor + 2.7% Domestic bank 628,540 628,540 1 Aug. 2014 6-month Euribor + 3.1% Domestic bank 1,071,600 1,071,600 29 June 2016 3-month Euribor + 3.95% Domestic bank 150,000 150,000 2 April 2012 6.0% Domestic bank 782,609 782,609 20 June 2014 6-month Euribor + 3.1% Domestic bank 1,900,000 1,900,000 27 Feb. 2012 6.3% Domestic bank 440,000 440,000 21 June 2013 6-month Euribor + 2.9% Domestic bank 533,333 533,333 1 Dec. 2014 6-month Euribor + 3.1% Domestic bank 347,840 347,840 20 Oct. 2016 3-month Euribor + 5.5% Domestic bank 400,000 400,000 16 Aug. 2013 6-month Euribor + 2.9% Domestic bank 970,000 970,000 5 Oct. 2012 3-month Euribor + 4.25% Domestic bank 4,300,000 4,300,000 6 April 2012 6% Domestic bank 1,877,816 1,877,816 1 June 2012 6% Domestic bank 900,000 900,000 8 June 2012 6% Domestic bank 2,000,000 2,000,000 4 May 2012 6% Domestic bank 3,450,000 3,450,000 4 May 2012 6% Domestic bank 1,000,000 1,000,000 1 Aug. 2012 6-month Euribor + 3.1%

Foreign bank 43,892 43,892 27 June 2012 6-month Euribor +

1.0425% Foreign bank 449,618 449,618 19 June 2014 6-month Euribor + 1.3% Short-term maturity of long-term loans 22,431,749 22,431,749 Short-term liabilities to lessors 611,371 611,371 Total 23,043,120 23,043,120

Short-term financial liabilities in the amount of EUR 5,411,162 are secured by receivables and the short-term 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 short-term portion of long-term loans stands at EUR 5,593,933. Short-term loans raised by the Company with commercial banks were renewed on due date in 2011, as in previous periods. Short-term loans are used to finance inventories (EUR 10.1 million) and trade receivables (EUR 12.7 million).


63

2011 2010 14. Short-term operating liabilities to suppliers in EUR 29,054,677 24,517,493 - in Slovenia 16,341,061 13,119,707 - abroad 12,673,914 11,369,963 - uncharged goods and services 39,702 27,823 Total 29,054,677 24,517,493 As at 31 December 2011, the Company had liabilities due in Slovenia in the amount of EUR 6,489,369 and outstanding liabilities in the amount of EUR 9,851,692. In the structure of liabilities abroad, EUR 6,027,341 were due and EUR 6,646,573 were outstanding. The Company has the following operating liabilities to related companies: Levas Krško d.o.o. (EUR 271,323), Ekopa d.o.o (EUR 66,028), Vipreh d.o.o. (EUR 5,989), and Vipap GmbH (EUR 588,542).

2011 2010

15. Other short-term operating liabilities in EUR 1,517,157 3,419,241 This item comprises liabilities for interest (EUR 533,079), liabilities for salaries (EUR 404,276), liabilities for contributions arising from salaries (EUR 138,935), liabilities for employer contributions (EUR 101,262), payroll tax liabilities (EUR 76,757), liabilities for other employment earnings (EUR 46,204), VAT liabilities payable in January 2011 (EUR 198,508), and other (EUR 18,136). 2011 2010 16. Short-term accrued expenses and deferred revenues in EUR 550,533 666,868

Type of deferral Balance as at 1

January 2011 Establishment Disbursement

Balance as at 31

December 2011

Accrued expenses 666,868 1,072,461 1,214,859 524,470 Short-term deferred revenues 0 1,434,377 1,408,314 26,063 Total 666,868 2,506,838 2,623,173 550,533

Short-term accrued expenses and deferred revenues comprise costs that will arise as liabilities in 2012 or for which we will receive assessment decisions in 2012, namely: unused annual leave for 2010 (EUR 331,231), calculated liability to the Ministry of the Environment and Spatial Planning arising from water used pursuant to the final decision for 2011 (EUR 20,246), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2011 (EUR 63,532), and liabilities arising from sales-dependant costs (EUR 99,328), and other (EUR 36,196).


64

2011 2010

17. Net sales revenues in EUR 105,778,584 91,401,767 Slovenia 21,496,129 19,343,621 Austria 13,526,900 12,233,862 Italy 11,930,003 9,625,200 Germany 11,710,799 8,331,905 Serbia 9,031,647 6,245,903 France 4,355,189 2,729,387 Turkey 4,239,715 4,775,346 Bulgaria 3,629,773 2,139,555 Croatia 3,115,040 2,705,284 Switzerland 2,901,087 2,110,419 Greece 2,527,747 5,426,059 Montenegro 1,805,513 1,514,385 Czech Republic 1,625,518 1,022,848 Slovakia 1,557,334 1,277,864 Hungary 1,419,305 891,510 Romania 1,412,913 1,525,565 Albania 1,339,025 1,259,864 Poland 1,198,611 563,925 Macedonia 927,044 1,005,961 Kosovo 697,770 827,920 Bosnia and Herzegovina 655,201 619,935 Belgium 380,350 843,259 The Netherlands 16,103 104,161 Other countries 3,323,180 3,653,726 Other 956,688 624,303 Total 105,778,584 91,401,767

2011 2010 Sales of paper 104,821,896 90,777,464 Other 956,688 624,303 Total 105,778,584 91,401,767

2011 2010 18. Other operating income in EUR 1,598,756 510,865

Other operating income comprises income from release of provisions (EUR 903,334), other income associated with products (EUR 42,212), income from sale of fixed assets (EUR 599,007), and revaluation operating income arising from receivables settled, for which value adjustment was formed previously (EUR 54,203).


65

2011 201019. Costs of services in EUR 10,489,695 9,948,389Cost of transport services 3,873,803 3,475,068 Costs of fixed asset maintenance 2,694,392 2,391,428 Costs of payment transactions, banking services and insurance 985,185 905,708 Cost of intellectual and personal services 217,237 212,875 Contract-based work, author's contracts, session fees 207,336 403,892 Rents 381,887 420,650 Costs of trade fairs, advertising and entertainment 50,305 48,705 Costs of services arising from production and provision of services 28,450 25,752 Reimbursement of employee work-related costs 53,970 54,399 Costs of auditing the annual report 20,500 24,000 Provisions 0 94,838 Other service expenses 1,976,630 1,891,074

2011 2010 20. Labour costs in EUR 9,941,606 11,985,525 Costs of salaries and wages 6,868,299 7,651,742 Pension insurance costs 832,265 997,159 Cost of other social insurance 547,130 670,395 Other labour costs 1,693,912 2,666,229 Average number of employees based on hours 385.53 418.88

Other labour costs (EUR 1,693,912) include: employee salary allowances (EUR 522,085), travel allowances (EUR 354,369), meal allowances (EUR 326,413), annual leave allowances (EUR 300,312), costs of the Management Board members (EUR 91,834), and other (EUR 98,899). 2011 2010 Gross receipts by group pursuant to Article 294 of ZGD-1 in EUR Management Board members 1,457,860 951,677 Other employees with service contracts 0 116,434 Supervisory Board members 170,553 411,476 Total 1,628,413 1,479,587 As at 31 December 2011, the Company disclosed the following net liabilities: to members of the Management Board EUR 22,347, to other employees with service contracts EUR 5,382, to internal members of the Supervisory Board EUR 1,200, and to external members of the Supervisory Board and the Management Board EUR 6,380.


66

2011 2010 21. Other operating expenses in EUR 1,081,581 932,916

Other operating expenses include: environment protection expenses (EUR 560,957) and compensation for the use of land (EUR 463,849), scholarships (EUR 5,726), contributions and membership fees (EUR 30,759), and other expenses (EUR 20,290). 2011 2010 22. Financial revenues from operating receivables in EUR 692,583 273,030 Foreign exchange gains 218,610 200,173 Interest income 33,032 72,857 Financial revenues from financial assets 440,941 0 Total 692,583 273,030

2011 2010

23. Financial expenses for financial liabilities in EUR 2,654,677 2,392,587 This item comprises interest on loans (EUR 2,556,041) and interest on instalments arising from leasing contracts falling due in the current year (EUR 98,636). 2011 2010 24. Financial expenses for operating liabilities in EUR 352,723 653,977

This item comprises interest on operating liabilities (EUR 135,340) and exchange rate differentials from receivables and liabilities (EUR 217,383).

2011 2010 25. Other income in EUR 1,179,346 3,640,853

This item consists of the final write-off of expired liability (EUR 856,303), damages received (EUR 68,697), income from sale of emission coupons (EUR 194,400) and other (EUR 59,946). 26. Derivative financial instruments As at 31 December 2011, the Company discloses two types of derivatives:

o interest rate swap concluded with Nova ljubljanska banka Ljubljana with principal amount of EUR 8.4 million and EUR 6.1 million in 2005 and with Hypo-Alpe-Adria banka Ljubljana for principal amount of EUR 5.0 million and EUR 4.5 million in 2011 and 2009. By way of the instruments just mentioned, the Company secured itself against the risk of the Euribor reference interest rate fluctuation for the time of loan repayment, thus managing the risk of rising interest rates. As at 31 December 2011, net present value of these instruments was negative in the amount of EUR 358,167.

o Cross currency swap concluded with Unicredit Banka Slovenija from 2010 with principal amount as at 31 December 2011 of EUR 3.5 million. The instrument


67

expires in 2015. Net present value, i.e. current indicative market value for the product or framework price for selling the product, is negative in the amount of EUR 1.3 million.

For both instruments, net present values are negative, but these products have not yet matured; therefore, effects are recognised upon payment. 2011 2010 27. Corporate income tax in EUR 0 0 Total profit (loss) -2,314,811 -10,887,597 Taxable income Non-taxable income -486,008 -19,538 Taxable expenses 907,252 1,852,625 Other increases in the tax base -11,121,654 -4,318,779 Tax reliefs Drawing of tax loss Tax base Tax rate 20% 20% Corporate income tax 0 0 Tax loss -13,015,221 -13,373,289 2011 2010 28. Breakdown of costs by functional group in EUR 107,939,814 102,174,417 Cost of goods sold 4,699 4,476 Manufacturing costs of products sold 97,908,926 91,043,768 Selling costs (including amortisation/depreciation) 5,131,476 4,773,774 Administrative costs (including amortisation/depreciation) 4,894,713 6,352,399 TOTAL 107,939,814 102,174,417 The difference between the disclosure of costs by functional group and costs by primary type arises from the category of interest expenses, which are financial expenses by nature. 29. Transactions with related parties in 2011 in EUR

Related parties

Transactions -

receivables Transactions

- liabilities

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

31 December 2011

Ekopa d.o.o. 2,649,311 2,455,457 -66,028 Vipreh d.o.o. 0 0 -5,989 Levas d.o.o. 182,503 1,583,929 -245,959 Vipap Gmbh 6,660,557 2,274,529 326,606 TOTAL: 9,492,371 6,313,915 8.630


68

30. Performance indicators

31 December

2011

31 December

2010 Equity financing rate equity / liabilities 0.49 0.48

Long-term financing rate

capital + long-term liabilities (including long-term provisions)

/ liabilities 0.61 0.61 Operating fixed assets rate fixed assets / assets 0.76 0.77

Long-term investment rate

(fixed assets + long-term financial investments + long-

term 0.83 0.84 operating receivables) / assets Equity to operating fixed assets ratio capital / fixed assets 0.65 0.62 Acid test ratio liquid assets / short-term loans 0.02 0.03

Quick ratio

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

financial investments) / short-term loans 0.25 0.22

Current ratio current assets / short-term

liabilities 0.45 0.42

Operating efficiency ratio operating revenues / operating expenses 0.99 0.89

Net return on equity net profit – income tax /

average capital - -

Net return on share capital net profit for the financial year

/ average share capital - -

Annual Report of Vipap Videm Kr5ko d.d. and the Group for 20L1"

2.3. SIGNIFICANT EVENiS AFTER THE END OF TH E 2O1I FINANCIATYEAR

There were no significont events in 2012 thot would offect profit or loss for 201 I .

Kr5ko. April2Alz

President of the Monogement Boord:Milo5 Hobrndl

Finonciol Director:Jol[co Stegne

log

UllU *":xi:ii* il,f"Yfii.?Y" nje d o o

vTo the Shareholders ofVipap Videm Kr5ko d.d.Kr5ko, Slovenia

INDEPENDENT AUDITOR'S REPORT

UHY Revizija in svetovanje d.o.o.Vurnikova ulica 21 000 Ljubljana, Slovenijatel.: +386 1 300 00 40fax: +386 1 300 00 50e-mail: [email protected]

We have audited the accompanying financial statements of the company Vipap Videm Kr5ko d.d., Kr5ko

which comprise the statement of financial position as at December 3'l , 2011, and the statement ofcomprehensive income, statement of changes in shareholder's equity and statement of cash flows for theyear then ended, and a summary of significant accounting policies and other explanatory information. We

have also reviewed the business report.

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

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

necessary to enable the preparation of financial statements that are f ree f rom material misstatement, whetherdue to fraud or error.

Aud ito r's Respo n si b i I ityOur responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with the International Standards on Auditing. Those standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free f rom material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risk of material misstatements of the financial statements, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriated in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal

control. An audit also includes evaluating the appropriateness of accounting polrcies used and thereasonableness of accounting estimates made by management, as well as evaluating the overall presentation

of the f inancial statements.

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

OpinionIn our opinion, the financial statements present fairly, in all material respect, the financial position of thecompany Vipap Videm Kriko d.d., Kr5ko as at December 31,2011, and its financial performance and rts cash

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

Other legal and Regulatory RequirementsThe company's annual report does not reveal information relating to the remuneration of members ofmanagement and supervisory body in the manner prescribed by the fifth paragraph 2941h article of the

Comoanies Act.The business report complies with the audited financial statements

Ljubljana, 41h May 2012

dru:b: RD A 073/05

Hacker Young International Limited ali katerikoli drug ilan UHY ne odgovarja za storitve drugih ilanov.


71

III. FINANCIAL REPORT OF THE VIPAP VIDEM KRŠKO GROUP


72

1. CONSOLIDATED FINANCIAL STATEMENTS


73

1.1. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2011 IN EUR

Note 31 December

2011

31 December

2010 ASSETS 145,153,973 152,249,799 A. Long-term assets 119,489,635 126,659,114 I. Intangible fixed assets and long-term deferred expenses and accrued revenues 1 138,750 116,314 1. Long-term property rights 138,750 116,314 II. Property, plant and equipment (tangible fixed assets) 2 109,539,480 116,628,901 1. Land and buildings 32,815,810 33,630,604 a) Land 8,302,056 8,302,056 b) Buildings 24,513,754 25,328,548 2. Plant and machinery 73,123,764 77,549,684 3. Other plant and equipment 3,263,567 5,384,458 4. Property, plant and equipment being acquired 336,339 64,155 a) Property, plant and equipment under construction and manufacture 336,339 64,155 b) Advances for property, plant and equipment 0 0 IV. Long-term financial investments 3 378,417 246,797 1. Long-term financial investments, excluding loans 378,417 246,797 a) Shares and participating interests in companies within the Group 59,533 246,797 b) Other shares and stakes 318,884 0 VI. Deferred tax assets 4 9,432,988 9,667,102 B. Current assets 25,010,432 24,760,435 I. Assets (disposal groups) available for sale 0 0 II. Inventories 5 10,397,055 10,428,462 1. Material 6,864,807 7,365,109 2. Unfinished products 9,238 165,502 3. Products and merchandise 3,419,054 2,872,497 4. Advances for inventories 103,956 25,354 IV. Short-term operating receivables 6 13,452,737 12,196,351 1. Short-term operating receivables due from the Group companies 0 79,046 2. Short-term operating trade receivables 11,795,932 11,176,232 3. Short-term operating receivables due from others 1,656,805 941,073 V. Cash 7 1,160,640 2,135,622 C. Short-term deferred expenses and accrued revenues 8 653,906 830,250


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Note 31 December

2011

31 December

2010 EQUITY AND LIABILITIES 145,153,973 152,249,799 A. Equity 9 70,618,403 72,625,752 I. Called-up capital 78,387,660 78,387,660 1. Share capital 78,387,660 78,387,660 II. Capital reserves 588,439 588,439 III. Reserves from profit 96,744 96,744 1. Legal reserves 96,744 96,744 2. Reserves for treasury shares and own stakes 3,557,093 3,557,093 3. Treasury shares and own stakes (as a deductible item) -3,557,093 -3,557,093 4. Other reserves from profit 0 0 IV. Revaluation surplus 2,597,326 2,385,484 V. Retained net profit/loss -8,832,575 -3,947 VI. Net profit/loss for the year -2,245,241 -8,828,628 Profit/loss for the year -2,245,241 -8,828,628 Minority shareholder equity 26,050 B. Provisions and long-term accrued expenses and deferred revenues 10 1,895,663 2,384,921 1. Provisions for pensions and similar liabilities 1,185,545 2,215,322 2. Other provisions 215,392 169,599 3. Long-term accrued expenses and deferred revenues 494,726 C. Long-term liabilities 16,570,328 16,917,463 I. Long-term financial liabilities 15,943,851 16,321,092 2. Long-term financial liabilities to banks 11 15,181,789 14,968,286 4. Other long-term financial liabilities 12 762,062 1,352,806 III. Deferred tax liabilities 626,477 596,371 D. Short-term liabilities 55,486,592 59,654,795 II. Short-term financial liabilities 13 23,862,027 28,850,794 2. Short-term financial liabilities to banks 23,240,996 27,817,617 4. Other short-term financial liabilities 621,031 1,033,177 III. Short-term operating liabilities 31,624,565 30,804,001 1. Short-term operating liabilities to the Group companies 72,016 1,323,027 2. Short-term trade payables 14 29,759,335 24,517,493 4. Short-term operating liabilities from advances 145,354 1,503,922 5. Other short-term operating liabilities 15 1,647,860 3,459,559 E. Short-term accrued expenses and deferred revenues 16 582,987 666,868 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


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1.2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR Notes 2011 2010 1. Net sales revenues 17 107,738,812 91,615,227 2. Change in inventories of products and work in progress 385,910 -924,247

4. Other operating revenues (including revaluation operating revenues) 18 2,411,866 510,865

5. Costs of goods, materials and services 89,763,349 80,479,228

a) Cost of goods and materials sold and cost of materials used 79,778,782 70,233,137

b) Costs of services 19 9,984,567 10,246,091 6. Labour costs 20 11,816,261 12,082,858 a) Costs of salaries and wages 8,743,774 8,292,927 b) Social security costs 1,629,842 1,685,186 c) Other labour costs 1,442,645 2,104,745 7. Write-offs 8,687,260 9,485,392 a) Depreciation and amortisation 8,099,585 7,998,817

b) Revaluation operating expenses for intangible and tangible fixed assets 343,569 93,220

c) Revaluation operating expenses for current assets 244,106 1,393,355 8. Other operating expenses 21 1,086,931 932,916 Operating profit/loss -817,213 -11,778,549 9. Financial revenues from participating shares 8,400 c) Financial revenues from shares in other companies 8,400 11. Financial revenues from operating receivables 22 734,736 286,115

b) Financial revenues from operating receivables due from others 734,736 286,115

13. Financial expenses for financial liabilities 23 2,725,722 2,431,998 b) Financial expenses for loans received from banks 2,624,370 2,299,971 d) Financial expenses for other financial liabilities 101,352 132,027 14. Financial expenses for operating liabilities 24 354,961 677,977

b) Financial expenses for liabilities to suppliers and bills of exchange 354,750 677,977

c) Financial expenses for other operating liabilities 211 Net profit/loss from ordinary activities -3,154,760 -14,602,409 15. Other income 25 1,179,377 3,641,731 16. Other expenses 30,798 6,556 Operating profit/loss from extraordinary activities 1,148,579 3,635,175 17. Corporate income tax 27 -1,750 -1,257 18. Deferred taxes -237,095 2,139,863 19. Net profit/loss for the period -2,245,026 -8,828,628 of which the Group -2,245,241 -8,828,628 of which minority shareholders 215 0

20. Change in surplus from revaluation of financial investments -48,239 0

21. Total comprehensive income for the year -2,293,265 -8,828,628 of which the Group -2,291,804 -8,828,628 of which minority shareholders -1,461 0 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2 Notes to the financial statements.


76

1.3. CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011 IN EUR 2011 2010 A. Cash flows from operating activities a) Items of income statement 5,499,814 3,891,052

Operating revenues (except from revaluation) and financial revenues from operating receivables 108,373,019 96,258,681

Operating expenses, excluding amortisation and depreciation (except revaluation) and financial expenses from operating liabilities -102,634,360 -94,506,235

Income taxes and other taxes not included in operating expenses -238,845 2,138,606 b) Changes in net working capital (and accruals and deferrals, provisions and deferred tax receivables and liabilities) of balance sheet operating items 1,599,955 2,327,640 Opening less closing operating receivables -639,582 2,458,441 Opening less closing deferred expenses and accrued revenues 183,805 -55,618 Opening less closing deferred tax assets 234,114 -2,139,862 Opening less closing inventories 169,688 -545,194 Closing less opening operating liabilities 1,629,740 4,046,924 Closing less opening accrued expenses and deferred revenues, and provisions 19,209 -1,437,051 Closing less opening deferred tax liabilities 2,981 0 c) Net operating receipts or net operating disbursements (a + b) 7,099,769 6,218,692 B. Cash flows from investing activities a) Cash receipts from investing activities 1,521,160 3,902,540 Receipts from interest and participation in profit relating to investing activities 8,400 0 Cash receipts from disposal of intangible assets 635,052 0 Cash receipts from disposal of property, plant and equipment 877,708 3,902,540 b) Cash disbursements for investing activities -2,555,674 -5,540,195 Cash disbursements for acquisition of intangible assets -1,032 -172,697 Cash disbursements for acquisition of items of property, plant and equipment -2,516,642 -5,367,498 Cash disbursements for acquisition of long-term financial investments -38,000 0

c) Net receipts from investment activity or net disbursements for investment activity (a + b) -1,034,514 -1,637,655

C. Cash flows from financing activities a) Cash receipts from financing activities 10,092,809 12,114,656 Cash receipts from paid-in capital 0 -1 Cash receipts from increase in long-term financial liabilities 0 7,974,108 Cash receipts from increase in short-term financial liabilities 10,092,809 4,140,549 b) Cash disbursements for financing activities -17,143,021 -16,240,520 Interest paid on financing activities -2,687,095 -2,032,007 Cash repayments of equity 0 -3,947 Repayments of long-term financial liabilities 0 -15,114,560 Repayments of short-term financial liabilities -14,455,926 909,994

c) Net receipts from financing activity or net disbursements for financing activity (a + b) -7,050,212 -4,125,864

D. Final balance of cash 1,160,640 2,135,622 x) Net cash flows for the period (sum of Ac, Bc and Cc) -984,957 455,173 y) Opening balance of cash 2,145,597 1,680,449 Opening balance of cash of companies before inclusion in consolidation 2,135,622 Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


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1.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2011 IN EUR

Share

capital Legal

reserves

Reserves for own stakes

Treasury shares

Other reserves

from profit


Net profit/loss

for the year Capital reserves


Minority shareholder equity Grand total

A.1. Balance as at 31 December 2010 78,387,660 96,744 3,557,093 -3,557,093 0 -8,832,575 588,439 70,240,268 70,240,268 a) Retrospective restatements (elimination of errors) 0 0 b) Retrospective adjustments (changes in accounting polices) 2,385,484 2,385,484 2,385,484 A.2. Balance as at 1 January 2011 78,387,660 96,744 3,557,093 -3,557,093 0 -8,832,575 0 588,439 2,385,484 72,625,752 0 72,625,752 B.1. Changes in equity - transactions with owners 0 0 0 a) Subscription of called-up capital 0 0 (capital payment) 0 0 b) Subscription of uncalled share capital 0 0 c) Call-up of subscribed share capital 0 0 d) Entry of additional payments of equity capital 0 0 e) Purchase of treasury shares and own stakes 0 0 i) Other changes in equity 258,405 258,405 27,511 285,916 0 0 0 0 0 0 0 0 258,405 258,405 27,511 285,916 B.2. Total comprehensive income for the reporting period 0 a) Net profit/loss for the financial year -2,245,241 -2,245,241 215 -2,245,026 c) Change in surplus from revaluation of property, plant and equipment 0 0 d) Change in surplus from revaluation of financial investments -46,563 -46,563 -1,676 -48,239 0 0 0 0 0 0 -2,245,241 0 -46,563 -2,291,804 -1,461 -2,293,265 B.3. Changes in equity 0 a) Allocation of remaining net profit of the comparative reporting period to other equity components 0 0 b) Allocation of part of net profit of the reporting period to other equity components according to the resolutions of the management and supervision bodies 0 0 0 0 0 0 0 0 0 0 0 0 0 C. Balance as at 31 December 2011 78,387,660 96,744 3,557,093 -3,557,093 0 -8,832,575 -2,245,241 588,439 2,597,326 70,592,353 26,050 70,618,403 DISTRIBUTABLE PROFIT Note: Financial statements must be interpreted together with the relevant notes presented under Point 2.2. Notes to the financial statements.


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1.5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 2010 IN EUR

Share

capital Legal

reserves

Reserves for own stakes

Treasury shares

Other reserves

from profit


Net profit/loss

for the year Capital reserves


A.1. Balance as at 31 December 2010 78,387,660 96,744 3,557,093 -3,557,093 1,654,317 -3,525,283 2,459,406 79,072,844 a) Retrospective restatements (elimination of errors) -1 -1 b) Retrospective adjustments (changes in accounting polices) 0 A.2. Balance as at 1 January 2011 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 0 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 i) Other changes in equity 0 0 0 0 0 0 0 0 0 0 0 B.2. Total comprehensive income for the reporting period 0 a) Net profit/loss for the financial year -3,947 -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 0 a) Allocation of remaining net profit of the comparative reporting period to other equity components 0 b) Allocation of part of net profit of the reporting period to other equity components according to the resolutions of the management and supervision bodies -1,654,317 3,525,283 -1,870,966 0 0 0 0 0 -1,654,317 3,525,283 0 -1,870,966 0 0 C. Balance as at 31 December 2011 78,387,660 96,744 3,557,093 -3,557,093 0 -3,947 -8,828,628 588,439 0 70,240,268 DISTRIBUTABLE PROFIT


Annual Report of the Vipap Videm Krško d.d. Group and the Group for 2011

79

2. APPENDIX TO THE FINANCIAL STATEMENTS


80

2.1. ACCOUNTING POLICIES AND ASSUMPTIONS The financial statements for 2011 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 at 31 December 2010 and data as at 31 December 2011. The statement of comprehensive income is in sequential format (single-step income statement) and is prepared in Format I, followed by changes in other comprehensive income. The cash flow statement is compiled according to Format II. The cash flow statement discloses changes in the balance of cash for the financial year arising from operations, investing and financing. The statement of changes in equity is a basic financial statement, which provides a true and fair presentation of changes to components of equity for the financial year and has the form of a composite table presenting changes in all equity components. The rules and procedures used by the management in compiling and presenting the financial statements are based on the principles set out above, wherein some of the accounting policies are optional, with the management being able to select to use one of a number of variants. Below is the summary of general accounting policies and accounting policies used by the Company in relation to valuing individual balance sheet items:

− Tangible fixed assets (property, plant and equipment) that meet recognition conditions are initially recognised at cost. This comprises the purchase price, import duties and non-refundable purchase taxes, demolition costs, the costs that can be directly ascribed to them for making them fit for their intended use, and the costs of testing whether the asset is functioning properly. Property, plant and equipment are activated when they are made ready for use. Their value is verified upon each compilation of final accounts and the fixed asset is impaired, if necessary. Following recognition, the cost method is used as the method of valuation. Property, plant and equipment are depreciated individually using a straight-line method. Costs incurred subsequently on a fixed asset increase its cost when they increase its future economic benefits in excess of the future economic benefits originally estimated. Due to the change in the accounting policy for valuation of land as of 1 January 2011 (comparable sales method), the value of land in the balance sheet differs as at 1 January 2011 as compared to 31 December 2010.

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

substance. It is valued at purchase price, including import duties and purchase taxes. Following recognition, the cost method is used as the method of valuation. Intangible


81

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

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

valuations are based on cost.

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

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

deferred expenses occurring during the year and temporarily accrued revenues.


82

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

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

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

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

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

− Short-term liabilities comprise short-term financial liabilities and short-term operating

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

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

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

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

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


83

elimination of impairments and write-offs of operating liabilities. Financial revenues from operating receivables are revenues from accrued interests and exchange rate gains. Other revenues are compensations received arising from recognised damage to fixed assets.

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

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


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2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2011 2010 1. Intangible assets in EUR 138,750 116,314 Intangible fixed assets comprise software (EUR 6,657) and emission coupons (EUR 132,093). Property Emissions coupons Total rights 1. Cost Balance as at 1 January 2011 97,113 114,153 211,266 Increase 13,720 308,790 322,510 Decrease 0 -290,850 -290,850 Balance as at 31 December 2011 110,833 132,093 242,926 2. Value adjustment Balance as at 1 January 2011 -94,952 0 -94,952 Amortisation -2,973 0 -2,973 Decrease -6,251 -6,251 Balance as at 31 December 2011 -104,176 0 -104,176 3. Residual value Balance as at 1 January 2011 2,161 114,153 116,314 Balance as at 31 December 2011 6,657 132,093 138,750 As at 31 December 2011, the Company has no liabilities arising from the purchases of intangible assets. Amortisation rate ranges from 10 to 50%. 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 was entitled to 172,697 coupons for 2011. Based on the calculation of obligations for 2010, it gave in 2011 to the Ministry of the Environment and Spatial Planning 142,757 emission coupons and sold 12,000 emission coupons in 2011. Based on the calculation of obligations for 2011, the Company assessed delivery of 146,360 emission coupons (by the end of April 2012). As at 31 December 2011, the balance of emission coupons stood at 132,093. The book value of one coupon is EUR 1.


85

2. Property, plant and equipment in EUR

The following depreciation rates were used (in %): - buildings, construction facilities 1.3 - 5.0 - prefabricated facilities 2.0 - 5.0 - landscaping 3.3 - equipment 4.0 - 25.0 - computers, computer equipment 10.0 - 50.0 - vehicles 10.0 - 20.0

2011 2010

Overview of the fluctuation of fixed assets in 2011 in EUR: 109,539,480 116,628,901 Item Equipment

Land Construction

buildings Equipment under

construction Advance

payments Total 1. Cost Opening balance as at 1 January 2011 8,302,056 34,611,442 144,636,139 171,369 789,821 188,510,827 Additions – new purchases 390,905 1,635,010 1,231,013 32,488 3,289,416 Increases – acquisitions from investments 167,276 167,276 Appreciation of existing fixed assets 11,637 673,221 -958,829 -273,971 Decrease -124,552 -1,502,009 -32,488 -1,659,049 Transfer of short-term held-for-sale assets 0 Balance as at 31 December 2011 8,302,056 34,889,432 145,609,637 443,553 789,821 190,034,499 2. Value adjustment Opening balance as at 1 January 2011 -9,282,894 -61,701,997 -107,214

-789,821 -71,881,926

Increases - depreciation -1,017,723 -7,078,889 -8,096,612 Additions – new purchases -144,317 -812,308 -956,625 Impairment of existing fixed assets 0 Transfer of short-term held-for-sale assets 0 Decrease 69,256 370,888 440,144 Balance as at 31 December 2011 -10,375,678 -69,222,306 -107,214

-789,821 -80,495,019

3. Residual value Balance as at 1 January 2011 8,302,056 25,328,548 82,934,142 64,155 0 116,628,901 Balance as at 31 December 2011 8,302,056 24,513,754 76,387,331 336,339 0 109,539,480


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As at 31 December 2011, the company Vipap Videm Krško d.d. had EUR 7,881,320 in long-term loans for the purchases of fixed assets and EUR 1,355,383 of liabilities arising from financial lease. Fixed assets in the amount of EUR 59,826,536 were pledged as collateral for long-term financial liabilities (Item 11). Liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 2,185,337. 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. In 2011, the Company sold EUR 1,116,936.31 equipment for chemical pulp production. As at 31 December 2011, the Company discloses the remaining equipment worth EUR 3,720 under fixed assets. The value of fixed assets as at 1 January 2011 differs from the value as at 31 December 2011 under the item land due to the changed accounting policy for land valuation. The appraisal was carried out by the company BIRO PNS, Rostohar Vladimir s.p. (company reference No. 19-0713/95). Rostohar Vladimir is a certified appraiser and a sworn court expert for the field of construction, registered with the Basic Court of Novo mesto since 1991 under registration No. 14/91. The appraisal report was prepared in compliance with the international standards and principles for property valuation (IVS). The difference of EUR 2,981,855 is disclosed under value of land and revaluation surplus. The company Levas d.o.o. has EUR 30,507 liabilities from financial lease for the purchase of fixed assets, which are secured by the retention of ownership rights to fixed assets with a present value of EUR 54,480. 2011 2010 3. Long-term financial investments in EUR 378,417 246,797

Balance as at 31

December 2011

Value adjustment

as at 1 January

2011

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2011

Carrying amount as

at 31 December

2011 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 Zel-en d.o.o. Krško (11.38%) 38,000 38,000 Krka d.d. Novo mesto 317,400 317,400 Merkur 1,484 1,484 Total shares 444,066 -65,649 0 0 -65,649 378,417 The registered office of Vipreh d.o.o. is Tovarniška 18, Krško. The company disclosed a loss of EUR 227 in its 2011 income statement. The amount of equity capital as at 31 December 2011 was EUR 6,010. Tovarniška 18, Krško is the registered office of Ekopa d.o.o. In its 2011 income statement, the company disclosed a loss of EUR 18,848. As at 31 December 2011, the company's equity capital stood at EUR 115,439. The registered office of Levas d.o.o. is Tovarniška 18, Krško. The company disclosed net profit in the amount of EUR 6,198 in its 2011 income statement. The amount of equity capital in the balance sheet as at 31 December 2011 was EUR 749,652, net sales revenues amounted to EUR 3,150,730 and the value of assets totalled EUR 2,128,668. In 2010, the Company acquired a new investment - Vipap GmbH Neunkirchen. The company's activities include selling our paper and also purchasing recovered paper. In 2011, the company


87

generated EUR 17,188 revenues and ended the year with a profit of EUR 17,188. Its equity capital as at 31 December 2011 equalled EUR -32,654. In 2011, the Company established together with 13 partners the Development Centre for Renewable and Sustainable Energy (ZEL-EN) with registered office in Krško, in which it holds a 11.38-percent share. The related company Levas d.o.o. holds a financial investment in the company Krka d.d. The investment is revalued once a year to its market value. In 2011, the Company acquired a share in the company Merkur. The company Vipap Videm Krško d.d. includes in its consolidated financial statements the statements of the subsidiaries Vipap Gmbh Neunkirchen and Levas d.o.o. Due to a relatively low scope of operations, the Company does not include in its consolidated financial statements companies Vipreh d.o.o. and Ekopa d.o.o. 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. 2011 2010 4. Deferred tax assets in EUR 9,432,988 9,667,102

1 January

2011 Decrease Increase 31 December

2011

Severance payments 83,243 9,261 73,982

Long-service awards 19,578 2,840 16,738 Non-current assets held for sale 2,251,151 2,183,481 67,670 Formation of value adjustments of receivables 1,180,346 519,977 660,369 Unused tax loss 5,967,674 2,595,598 8,563,272 Additionally formed provisions 165,110 114,153 50,957

TOTAL 9,667,102 2,829,712 2,595,598 9,432,988 In 2011, we continued using provisions arising from severance payments for 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 valued of deferred tax assets decreased in 2011 due to the formation of value adjustments of receivables, drawing and elimination of unnecessary provisions for severance payments, long-service awards and additionally formed provisions (legal actions by the Company's former employees) as well as due to the sale of fixed assets for chemical pulp production. In 2011, deferred tax assets increased due to the increase in tax loss. The Company applied the 20% tax rate in the calculation of deferred tax assets. The Company's management assesses that there is convincing evidence that future taxable profit will be available against which deductible temporary differences, unused tax credits or losses can be utilised. The latter is based on the Company's development strategy up to 2016, which anticipates a 13-percent growth in the volume of production, from the present 200 thousand tonnes to 225 thousand tonnes, a 14-percent rise in revenues, from EUR 105 million to EUR 120 million, and a substantial increase in the Company's value added (47%), from EUR 11.1 million to EUR 16.3 million. For its future operations, the Company anticipates production and sale of new types of paper with a higher value added, which will result in higher future profits.


88

2011 2010 5. Inventories in EUR 10,397,055 10,428,462

Inventory type


2011 Inventory surpluses

Inventory deficits

Impaired value due to change in quality

Impaired value to

marketable value

Material 6,848,948 2,740 2,671 0 Small inventory 15,859 Unfinished products 9,238 5,570 Products 3,405,871 1,765 3,790 53,440 Merchandise 13,183 Advances for inventories 103,956 Total 10,397,055 4,505 6,461 0 59,010 The carrying amount of inventories of raw materials and other materials as at 31 December 2011 did not exceed net realisable value. Significant inventories of materials in Vipap Videm Krško d.d. include: recovered paper (EUR 964,338), basic raw materials (EUR 1,374,904), maintenance material (EUR 2,005,123), spare parts (EUR 1,535,889), energy-generating products (EUR 635,308), and other (EUR 158,755). Inventories of work in progress comprise paper reels ready to be cut into sheets (EUR 9,044) and paper intended for re-processing (EUR 194). The inventories of products comprise inventories of paper in reels (EUR 2,858,646) and inventories of paper in sheets (EUR 479,796). The Company also discloses EUR 5,420 of inventories of merchandise. As at 31 December 2011, the Company impaired inventories of finished products as their production price was higher than the selling price reduced by selling costs. Inventories of raw materials and other materials as at 31 December 2011 are pledged as collateral in the amount of EUR 2,000,000. The company Levas d.o.o. discloses EUR 249,823 of inventories. These include EUR 168,353 of raw materials, EUR 6,278 of auxiliary material, EUR 67,429 of products at warehouse, and EUR 7,763 of merchandise. The company Vipap GMBH does not disclose any inventories as at 31 December 2011. 2011 2010 6. Short-term operating receivables in EUR 13,452,737 12,196,351

Balance as at 31

December 2011

Secured receivables

Non-secured

receivables

Outstanding receivables

Due up to 1 year

Maturity of over 1 year

Value adjustment as at 1 January

2011

Decrease in value

adjustment

Increase in value

adjustment

Value adjustment

as at 31 December

2011

Carrying amount as

at 31 December

2011 Short-term operating trade receivables 15,760,023 8,116,097 7,643,926 8,596,428 3,454,287 3,709,308

-6,567,150 3,299,964 -696,905 -3,964,091 11,795,932

Short-term intra-group trade receivables 0 0 0 0 0 0 0 0 0 0 0 Short-term operating receivables due from others 1,656,805 0 1,631,233 1,631,233 0 0 -704,840 704,840 0 0 1,656,805

Total 17,416,828 8,116,097 9,275,159 10,227,661

3,454,287 3,709,308 -

7,271,990 4,004,804 -696,905 -3,964,091 13,452,737


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Vipap Videm Krško d.d. disclosed EUR 14,081,951 trade receivables, EUR 3,927,399 value adjustment of receivables, and EUR 1,631,233 short-term receivables due from others. Levas d.o.o. disclosed EUR 452,953 trade receivables, EUR 36,692 value adjustment of trade receivables, and EUR 25,572 short-term receivables due from others. Vipap GMBH discloses EUR 1,225,119 trade receivables. Vipap Videm Krško d.d. has EUR 7,861,162 receivables pledged as collateral for loans.

2011 2010

7. Cash in EUR 1,160,640 2,135,622 Cash register 123 1,324 Transaction accounts 1,160,517 2,134,298 Cash: Vipap Videm Krško d.d. EUR 1,011,971, Levas d.o.o. EUR 13,661, and Vipap GMBH EUR 135,008. 2011 2010 8. Short-term accrued revenues and deferred expenses in EUR 653,906 830,250

Type of deferral Balance as at 1 January 2011 Establishment Disbursement

Balance as at 31 December 2011

Deferred expenses 579,429 9,672,610 -9,614,439 637,600 Accrued revenues 250,821 16,153 -250,668 16,306 Total 830,250 9,688,763 -9,865,107 653,906 Short-term deferred expenses of Vipap Videm Krško d.d. in the amount of EUR 629,178 include short-term deferred receivables from the state arising from VAT (EUR 624,123) and short-term deferred expenses for 2011 (EUR 5,055). Short-term accrued revenues comprise the amount relating to volume discounts for purchased raw materials and material for 2011 (EUR 16,306). Volume discounts will be granted upon the payment of all liabilities arising from the purchases for 2011. Short-term deferred expenses of the company Levas d.o.o. in the amount of EUR 7,623 include short-term deferred receivables from the state arising from VAT (EUR 7,245) and short-term deferred expenses for 2011 (EUR 378). Vipap GMBH discloses EUR 799 short-term deferred expenses for 2011. 2011 2010 9. Equity in EUR 70,618,403 70,240,268 Share capital of Vipap Videm Krško d.d. comprises 1,879,800 shares with a nominal value of EUR 41.70 each. The shares are freely transferable and carry one vote each at the General Meeting of Shareholders, which takes decisions with 100% of voting rights present. On 4 September 2008, the General Meeting of Shareholders decided that the Company’s nominal shares are to be converted into no-par value shares in the following way: each share with the nominal value of SIT 1,000 or EUR 4.17 after conversion is replaced by one no-par value share. No-par value shares are merged on the basis of a 10:1 ratio. One no-par value share is worth EUR 41.70. Treasury shares are valued at cost, which is EUR 54.065.


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The share capital of the Company totals EUR 78,387,660 and is divided into 1,879,800 no-par value shares. The difference in the value of EUR 55,003.99 resulting from the conversion of share capital was allocated to capital reserves. The value of the Company's equity capital for the year 2010 differs from the disclosed data for 2010 by EUR 2,385,484 due to the formation of revaluation surplus, which relates to the change in the accounting policy for land valuation. The share capital of Levas d.o.o. equals EUR 264,088 and that of Vipap GMBH EUR 35,000. in EUR A. NET PROFIT FOR THE YEAR 0 B. NET LOSS FOR THE YEAR -2,245,241 C. RETAINED NET PROFIT D. NET LOSS BROUGHT FORWARD -8,832,575 - Covered net loss brought forward from previous year 0 E. DECREASE IN CAPITAL RESERVES F. DECREASE IN RESERVES FROM PROFIT 0 - Decrease in other profit reserves - Decrease in legal reserves - Decrease in capital reserves G. INCREASE IN RESERVES FROM PROFIT - Increase in legal reserves - Increase in reserves for own stakes - Increase in statutory reserves - Increase in other profit reserves H. DISTRIBUTABLE PROFIT I. ACCUMULATED LOSS -11,077,816 Taking into account the revaluation of capital based on growth in the consumer price index would result in a net loss of EUR -3,826,003.

2011 2010 10. Provisions and long-term accrued expenses and deferred revenues in EUR 1,895,663 2,384,921

Provisions Balance as at

1 January 2011 Establishment Disbursement Balance as at 31 December 2011

Provisions for retirement benefits 431,615 149,318 -47,681 533,252

Provisions for long-service awards 132,611 26,380 -19,764 139,227 Provisions for the costs of building decommissioning 22,534 -1,461 21,073

Provisions for contingent liabilities 1,658,674 21,555 -1,141,839 538,390

Total 2,245,434 197,253 -1,210,745 1,231,942 Long-term accrued expenses and deferred revenues 114,153 803,516 -290,850 626,819

Long-term deferred revenues 25,334 15,000 -3,432 36,902

Grand total 2,384,921 1,015,769 -1,505,027 1,895,663


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In 2011, Vipap Videm Krško d.d. 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 20,030) and elimination of unnecessary provisions (EUR 27,651). Provisions for long-service awards were reduced due to the payment of long-service awards in the current year (EUR 12,626) and due to the elimination of unnecessary provisions (EUR 7,138). The most recent actuary calculation of provisions for severance payments and long-service awards of employees was performed on 31 December 2008. Actuary calculations of provisions for severance payments at retirement and long-service awards were provided by the company 3sigma d.o.o. Ljubljana, certified actuary, pursuant to SAS 10 and IAS 19. The calculation was carried out on 31 December 2005 due to the formation of provisions and on 31 December 2006 due to high turnover of employees in 2006. It was based on data submitted regarding employees and on the assumption regarding the growth in average salary in the Republic of Slovenia (3.5% p.a.), and based on employee turnover and conditions for retirement (Article 36 of the Pension and Disability Insurance Act (ZPIZ)). The calculation as at 31 December 2008 was based on submitted data and on the assumption that the annual growth in salaries would be 1.5%. Severance payment at retirement is calculated in accordance with the criteria of two average gross salaries in the Republic of Slovenia for the previous three months or in the amount of two average gross monthly salaries of the employee in the last three months prior to retirement, whichever is more favourable for the employee. In the calculation of long-service awards, the criteria of base salary for tariff class I of the Collective Agreement of the Pulp, Paper and Paper Processing Industry (1 basis for 10 years of work at the company, 1.5 bases for 20 years of work at the company and 2 bases for 30 years of work at the company) were taken into account. The selected discounted interest rate amounts to 7.65% per annum, which was the return on 10-year corporate bonds with a high credit rating in the euro area at the end of 2008. Provisions for the cost of building decommissioning include the planned costs of building decommissioning at the former chemical pulp mill. The facility is being rehabilitated gradually. In 2009 we established additional provisions arising from the planned cost of rehabilitation of these facilities in 2010. In 2011, provisions were decreased due to removed buildings. 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 2011, the Company decreased provisions by the value of provisions utilised (EUR 276,416) and by the value of unnecessary provisions (EUR 865,111). Long-term accrued expenses and deferred revenues increased by the amount of emission coupons acquired from the MESP for pollution of the atmosphere with CO2 for 2011 (172,697 coupons) and by the amount of coupons returned (136,093), and decreased by coupons delivered (142,757 coupons), sold and lent (148,093). The book value of one coupon is EUR 1. Provisions for long-term deferred revenues increased by the amount of assets acquired free of charge and decreased by the calculated depreciation of donated fixed assets. As at 31 December 2011, Vipap Videm Krško d.d. discloses under provisions EUR 1,018,575, under long-term accrued expenses and referred revenues EUR 132,093, and under long-term deferred revenues EUR 36,902. Long-term deferred revenues are amounts of non-depreciated fixed assets acquired free of charge. As at 31 December 2011, Levas d.o.o. discloses EUR 175,698 provisions for long-service awards and severance payments and EUR 21,555 provisions for legal matters. Long-term accrued expenses and deferred revenues include assigned contributions to which the company is entitled due to its status of a company employing disabled persons (EUR 494,726).


92

In 2011, an actuary calculation of long-service awards and severance payments was performed for the company Levas d.o.o. It was made by the company Apis Ljubljana. Vipap GMBH discloses provisions in the amount of EUR 16,114. 2011 2010 11. Long-term financial liabilities to banks in EUR 15,181,789 14,968,286

Creditor

Balance as at 31


Short-term maturity

Long-term maturity

Date of final maturity Interest rate

Domestic bank 1,300,000 1,300,000 0 1,300,000 1 Oct. 2016 6-month Euribor + 3.93% Domestic bank 4,409,997 4,409,997 882,001 3,527,996 1 Dec. 2016 6-month Euribor + 2.7% Domestic bank 456,750 456,750 454,500 2,250 3 Jan. 2013 6-month Euribor + 4.5% Domestic bank 1,739,120 1,739,120 347,840 1,391,280 20 Oct. 2016 3-month Euribor + 5.5% Domestic bank 1,600,000 1,600,000 533,333 1,066,667 1 Dec. 2014 6-month Euribor + 3.1% Domestic bank 2,152,173 2,152,173 782,609 1,369,564 20 June 2014 6-month Euribor + 3.1% Domestic bank 220,000 220,000 0 220,000 21 June 2013 6-month Euribor + 2.9% Domestic bank 2,000,000 2,000,000 628,540 1,371,460 1 Dec. 2014 6-month Euribor + 3.1% Domestic bank 800,000 800,000 400,000 400,000 16 Aug. 2013 6-month Euribor + 2.9% Domestic bank 4,822,200 4,822,200 1,071,600 3,750,600 29 June 2016 3-month Euribor + 3.95% Foreign bank 43,892 43,892 43,892 0 27 June 2012 6-month Euribor + 1.0425% Foreign bank 1,231,590 1,231,590 449,618 781,972 19 June 2014 6-month Euribor + 1.3% Total 20,775,722 20,775,722 5,593,933 15,181,789 In Vipap VIdem Krško d.d. the fair value of loans obtained equals their carrying amount. Long-term loans (including the portion falling due in 2011 in the amount of EUR 5,593,933) total EUR 21,775,722 and are collateralised by means of pledged fixed assets in the amount of EUR 59,826,536, secured claims (EUR 2,450,000), and pledged inventories, raw materials and finished products (EUR 2,000,000). Levas d.o.o. and Vipap GMBH do not disclose long-term financial liabilities to banks.


93

2011 2010 12. Other long-term financial liabilities in EUR 762,062 1,352,806

Creditor

Balance as at 31


Short-term maturity

Long-term maturity

Final maturity

Basis for interest

charging Liabilities to the lessor 942,459 942,459 463,167 479,292 2013

3-month Euribor


3-month Euribor


6-month Euribor


6-month Euribor


3-month Euribor

Total 1,383,093 1,383,093 621,031 762,062 Vipap Videm Krško d.d. discloses other long-term financial liabilities in the amount of EUR 1,355,383 and Levas d.o.o. in the amount of EUR 18,050. The fair value of liabilities is equal to their carrying amount. Short-term and long-term portion of liabilities to the lessor are secured by the retention of ownership rights to fixed assets with a present value of EUR 2,185,337 for Vipap Videm Krško d.d. and EUR 54,480 for Levas d.o.o.

2011 2010 13. Short-term financial liabilities in EUR 23,862,027 28,850,794

Creditor


2011 Outstanding Date of final

maturity Interest rate (%) Domestic bank 304,500 304,500 3 Jan. 2013 6-month Euribor + 4.5% Domestic bank 882,001 882,001 1 Dec. 2016 6-month Euribor + 2.7% Domestic bank 628,540 628,540 1 Aug. 2014 6-month Euribor + 3.1% Domestic bank 1,071,600 1,071,600 29 June 2016 3-month Euribor + 3.95% Domestic bank 150,000 150,000 2 April 2012 6.0% Domestic bank 782,609 782,609 20 June 2014 6-month Euribor + 3.1% Domestic bank 1,900,000 1,900,000 27 Feb. 2012 6.3% Domestic bank 440,000 440,000 21 June 2013 6-month Euribor + 2.9% Domestic bank 533,333 533,333 1 Dec. 2014 6-month Euribor + 3.1% Domestic bank 347,840 347,840 20 Oct. 2016 3-month Euribor + 5.5% Domestic bank 400,000 400,000 16 Aug. 2013 6-month Euribor + 2.9% Domestic bank 970,000 970,000 5 Oct. 2012 3-month Euribor + 4.25% Domestic bank 4,300,000 4,300,000 6 April 2012 6% Domestic bank 1,877,816 1,877,816 1 June 2012 6% Domestic bank 900,000 900,000 8 June 2012 6% Domestic bank 2,000,000 2,000,000 4 May 2012 6% Domestic bank 3,450,000 3,450,000 4 May 2012 6% Domestic bank 1,000,000 1,000,000 1 Aug. 2012 6-month Euribor + 3.1%

Foreign bank 43,892 43,892 27 June 2012 6-month Euribor +

1.0425% Foreign bank 449,618 449,618 19 June 2014 6-month Euribor + 1.3%


94

Foreign bank 809,247 809,247 30 June 2015 1-month Euribor + 2.5% Short-term maturity of long-term loans 23,240,996 23,240,996

Short-term liabilities to lessors 621,031 621,031

Total 23,862,027 23,862,027

In Vipap VIdem Krško d.d., short-term financial liabilities in the amount of EUR 5,411,162 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 5,593,933. Short-term loans raised by the Company with commercial banks were renewed on due date in 2011, as in previous periods. Short-term loans are used to finance inventories (EUR 10.1 million) and trade receivables (EUR 12.7 million). Vipap Videm Krško d.d. discloses EUR 23,043,120 short-term financial liabilities to banks.

Levas d.o.o. discloses EUR 9,660 short-term financial liabilities arising from leasing contracts that fall due in 2012. Vipap GMBH discloses liabilities to foreign banks in the amount of EUR 809,247. 2011 2010 14. Short-term operating liabilities to suppliers in EUR 29,759,335 24,517,493

- in Slovenia 16,800,876 13,119,707 - abroad 12,917,046 11,369,963 - uncharged goods and services 41,413 27,823 Total 29,759,335 24,517,493

As at 31 December 2011, Vipap Videm Krško d.d. had liabilities due in Slovenia in the amount of EUR 6,489,369 and outstanding liabilities in the amount of EUR 9,851,692. In the structure of liabilities abroad, EUR 6,027,341 were due and EUR 6,646,573 were outstanding. Liabilities for uncharged goods and services amounted to EUR 39,702. As at 31 December 2011, Levas d.o.o. disclosed the following liabilities: to suppliers in Slovenia EUR 459,815, to suppliers abroad EUR 7,586, and for uncharged goods and services EUR 1,711. Its due liabilities equalled EUR 73,904. Vipap GMBH discloses liabilities to foreign suppliers in the amount of EUR 235,546.

2011 2010

15. Other short-term operating liabilities in EUR 1,647,860 3,459,559 In Vipap Videm Krško d.d., this item comprises liabilities for interest (EUR 533,079), liabilities for salaries (EUR 404,276), liabilities for contributions arising from salaries (EUR 138,935), liabilities for employer contributions (EUR 101,262), payroll tax liabilities (EUR 76,757), liabilities for other employment earnings (EUR 46,204), VAT liabilities payable in January 2011 (EUR 198,508), and other (EUR 18,136).


95

As at 31 December 2011, Levas d.o.o. disclosed liabilities to employees (EUR 94,138), liabilities to the state and other institutions (EUR 7,803), and other short-term liabilities (EUR 350). Vipap GMBH discloses other short-term liabilities in the amount of EUR 28,412. 2011 2010 16. Short-term accrued expenses and deferred revenues in EUR 582,987 666,868

Vipap VIdem Krško d.d. discloses short-term accrued expenses and deferred revenues in the amount of EUR 550,533. The item comprises costs that will arise as liabilities in 2012 or for which we will receive assessment decisions in 2012, namely: unused annual leave for 2011 (EUR 331,231), calculated liability to the Ministry of the Environment and Spatial Planning arising from water used pursuant to the final decision for 2011 (EUR 20,246), calculated liability to the Customs Administration of the Republic of Slovenia arising from polluted water for 2011 (EUR 63,532), and liabilities arising from sales-dependant costs (EUR 99,328), and other (EUR 36,196). Levas d.o.o. discloses short-term accrued expenses and deferred revenues in the amount of EUR 32,454. 2011 2010 17. Net sales revenues in EUR 107,738,812 91,615,227 Slovenia 23,060,635 19,343,621 Austria 6,870,359 5,788,475 Italy 12,095,177 9,625,200 Germany 11,710,799 8,331,905 Serbia 9,031,647 6,245,903 France 4,355,189 2,729,387 Turkey 4,239,715 4,775,346 Bulgaria 3,629,773 2,139,555 Croatia 3,874,502 2,705,284 Switzerland 2,901,087 2,110,419 Greece 2,527,747 5,426,059 Montenegro 1,805,513 1,514,385 Czech Republic 1,625,518 1,022,848 Slovakia 1,557,334 1,277,864 Hungary 7,585,022 7,550,357 Romania 1,412,913 1,525,565 Albania 1,339,025 1,259,864 Poland 1,198,611 563,925 Macedonia 927,044 1,005,961 Kosovo 697,770 827,920 Bosnia and Herzegovina 655,201 619,935 Belgium 380,350 843,259 The Netherlands 16,103 104,161 Other countries 3,323,180 3,653,726 Other 918,599 624,303 Total 107,738,812 91,615,227


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Breakdown of revenues by business area 2011 2010 Sales of paper 106,820,214 90,990,924 Other 918,598 624,303 Total 107,738,812 91,615,227 Following the exclusion of intragroup revenues of companies subject to consolidation, the company Vipap Videm Krško d.d. generated EUR 98,978,736 revenues, Levas d.o.o. EUR 1,830,881 revenues, and Vipap GMBH EUR 6,929,195 revenues. 2011 2010 18. Other operating income in EUR 2,411,866 510,865 In Vipap Videm Krško d.d. other operating income in the amount of EUR 1,598,756 comprises income from release of provisions (EUR 903,334), other income associated with products (EUR 42,212), income from sale of fixed assets (EUR 599,007), and revaluation operating income arising from receivables settled, for which value adjustment was formed previously (EUR 54,203). The amount of other operating income of Levas d.o.o. equals EUR 811,300 and of Vipap GMBH EUR 1,810. 2011 2010 19. Costs of services in EUR 9,984,567 10,246,091 Cost of transport services 4,215,289 3,670,689 Costs of fixed asset maintenance 2,753,914 2,391,785 Costs of payment transactions, banking services and insurance 1,010,391 936,804 Cost of intellectual and personal services 380,652 229,439 Contract-based work, author's contracts, session fees 244,128 433,892 Rents 381,887 420,650 Costs of trade fairs, advertising and entertainment 59,053 55,024 Costs arising from production and provision of services 28,450 25,752 Reimbursement of employee work-related costs 63,609 55,316 Costs of auditing the annual report 20,500 24,000 Provisions 37,534 104,680 Other service expenses 789,160 1,898,060 Total 9,984,567 10,246,091 Following the exclusion of intragroup expenses of companies subject to consolidation, the costs of services of the company Vipap Videm Krško d.d. equal EUR 9,350,080, the costs of Levas d.o.o. EUR 191,822, and the costs of Vipap GMBH EUR 442,665. 2011 2010 20. Labour costs in EUR 11,816,261 12,082,858 Costs of salaries and wages 8,029,501 7,731,443 Pension insurance costs 971,080 997,159 Cost of other social insurance 655,757 685,695 Other labour costs 2,159,923 2,668,561 In Vipap Videm Krško d.d. labour costs amounted to EUR 9,941,606, in Levas d.o.o. to EUR 1,762,427, and in Vipap GMBH to EUR 112,228.


97

2011 2010 21. Other operating expenses in EUR 1,086,931 932,916 Other operating expenses of Vipap Videm Krško d.d. include: environment protection expenses (EUR 560,957) and compensation for the use of land (EUR 463,849), scholarships (EUR 5,726), contributions and membership fees (EUR 30,759), and other expenses (EUR 20,290). In Levas d.o.o. other operating expenses amounted to EUR 5,350. 2011 2010 22. Financial revenues from operating receivables in EUR 734,736 286,115

Foreign exchange gains 218,610 200,173 Interest income 75,185 85,942 Other financial income 440,941

Financial revenues from operating receivables equalled in Vipap Videm Krško d.d. EUR 692,583, in Levas d.o.o. EUR 5,219, and in Vipap GMBH EUR 36,934. 2011 2010 23. Financial expenses for financial liabilities in EUR 2,725,722 2,431,998 For Vipap Videm Krško d.d. this item comprises interest on loans (EUR 2,556,041) and interest on instalments arising from leasing contracts falling due in the current year (EUR 98,636). For Levas d.o.o. financial expenses for financial liabilities amounted to EUR 2,716 and for Vipap GMBH EUR 68,329. 2011 2010 24. Financial expenses for operating liabilities in EUR 354,961 677,977 In Vipap Videm Krško d.d. the amount of EUR 352,723 comprises interest on operating liabilities (EUR 135,340) and exchange rate differentials from receivables and liabilities (EUR 217,383). In Levas d.o.o. financial expenses for operating liabilities stood at EUR 2,238.

2011 2010 25. Other income in EUR 1,179,377 3,641,731

For Vipap Videm Krško d.d. the amount of EUR 1,179,346 consists of the final write-off of expired liability (EUR 856,303), damages received (EUR 68,697), income from sale of emission coupons (EUR 194,400), and other (EUR 59,946). Other income of Levas d.o.o. equalled EUR 31.


98

26. Derivative financial instruments As at 31 December 2011, Vipap Videm Krško d.d. discloses two types of derivatives:

o interest rate swap concluded with Nova ljubljanska banka Ljubljana with principal amount of EUR 8.4 million and EUR 6.1 million in 2005 and with Hypo-Alpe-Adria banka Ljubljana for principal amount of EUR 5.0 million and EUR 4.5 million in 2011 and 2009. By way of the instruments just mentioned, the Company secured itself against the risk of the Euribor reference interest rate fluctuation for the time of loan repayment, thus managing the risk of rising interest rates. As at 31 December 2011, net present value of these instruments was negative in the amount of EUR 358,167.

o Cross currency swap concluded with Unicredit Banka Slovenija from 2010 with principal amount of EUR 3.5 million. The instrument expires in 2015. Net present value, i.e. current indicative market value for the product or framework price for selling the product, is negative in the amount of EUR 1.3 million.

For both instruments, net present values are negative, but these products have not yet matured; therefore, effects are recognised upon payment. 27. Corporate income tax In 2011, Vipap Videm Krško d.d. recorded a tax loss of EUR 13,015,222, whilst Levas d.o.o. recorded neither tax profit nor tax loss. Vipap GMBH disclosed EUR 1,750 corporate income tax in the statement of comprehensive income. 28. Performance indicators

31 December

2011 31 December

2010 Equity financing rate equity / liabilities 0.49 0.77

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

long-term 0.62 0.60 provisions) / liabilities Operating fixed assets rate fixed assets / assets 0.76 0.76

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

investments + long-term 0.76 0.76 operating receivables) / assets Equity to operating fixed assets ratio capital / fixed assets 0.65 0.62 Immediate solvency ratio liquid assets / short-term loans 0.02 0.04 (acid test ratio)

Accelerated short-term liabilities ratio

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

short-term loans 0.27 0.24 (quick ratio) Short-term assets/liabilities ratio current assets / short-term liabilities 0.46 0.42 (current ratio)

Operating efficiency ratio operating revenues / operating

expenses 0.99 0.89

Net return on equity net profit – income tax / average

capital

-0.03 -

Net return on share capital net profit for the period / average -0,03

- -

share capital

Annual Report of Vipap Videm Kr$ko d.d. and the Group for 20LL

2.3. SIGNIFICANT EVENTS AFTER THE END OF THE 2OI I FINANCIAL YEAR

There were no significont events in 2012 thot would offect profit or loss of the Group for 20l I .

Kr5ko, April2012

Finqnciol Direcior:

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Presidenl of the Monogement Boord:MiloS Hobrn6l

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UHU *":xi:ilf" jl,. :"Yfij.?y" nj e d' o' o'

vTo the Shareholders ofVipap Videm Kr5ko d.d.Kr5ko. Slovenia

INDEPENDENT AUDITOR'S REPORT

Other legal and Regulatory RequirementsThe company's annual report does not reveal information relating to the

management and supervisory body in the manner prescribed by the fifthComoanies Act.The business report complies with the audited financial statements.

UHY Revizija in svetovanje d.o.o.Vurnikova ulica 21 000 Ljubljana, Slovenijatel.: +386 1 300 00 40fax: +386 1 300 00 50e-mail: [email protected]

We have audited the accompanying consolidated financial statements of the company Vipap Videm Kriko

d.d., Kr5ko and its subsidiaries which comprise the consolidated statement of financial position as at

December 31,2011, and the consolidated statement of comprehensive income. consolidated statement

of changes in shareholder's equity and consolidated statement of cash flows for the year then ended, and

a summary of significant accounting policies and other explanatory information. We have also reviewed+ha hr rcinoc( rannrt

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

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

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

whether due to f raud or error.

Au d ito r's Respo n si b i I ityOur responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with the lnternational Standards on Auditing. Those standards require

that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance

about whether the financial statements are f ree f rom material misstatement.

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

the financial statements. The procedures selected depend on the audrtor's judgment, including the

assessment of the risk of material misstatements of the financial statements, whether due to fraud or

error. In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that are

appropriated in the circumstances, but not for the purpose of expressing an opinion on the effectiveness

of the entity's internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as wellas evaluating

the overall oresentation of the financial statements.

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

our audit ooinion.

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

consolidated financial position of the company Vipap Videm Kr5ko d.d., Kriko and its subsidiaries as at

December 31, 2011, and its consolidated financial performance and its consolidated cash f lows for the

year then ended in accordance with Slovene Accounting Standards

remuneration of members of

UHY Revizr.la in svetova

Franci ZgajnarCertified auditor

/---_-----Ljubllana, 4h l\Aay 2012 1C**'- 4 I/l

Hacker Young International Limited ali katerikoli drug ilan UHY ne odgovarja za storitve drugih tlanov.

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