annual report of vipap videm krško d.d. for 20122. presentation of the vipap group the vipap group...

Annual Report of Vipap Videm Krško d.d. for 2012

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SI/011/01


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TABLEOFCONTENTS

I.INTRODUCTION ...........................................................................................................3 1.STATEMENTBYTHEMANAGEMENTBOARD ..........................................................................................4 2.PRESENTATIONOFTHEVIPAPGROUP ...................................................................................................6 3.KEYACHIEVEMENTSOFTHECONTROLLINGCOMPANY.......................................................................10 4.MAJOREVENTSIN2012 .........................................................................................................................11 5.RISKMANAGEMENT ...............................................................................................................................12 6.VISIONANDMISSION ..............................................................................................................................13 7.CORPORATEGOVERNANCESTATEMENT ..............................................................................................14

II.BUSINESSREPORT....................................................................................................17 1.PERFORMANCEANALYSISOFTHECONTROLLINGCOMPANY ..............................................................18 2.PRODUCTION ..........................................................................................................................................23 3.SALES.......................................................................................................................................................27 4.PURCHASING...........................................................................................................................................29 5.RESEARCH&DEVELOPMENTACTIVITIES .............................................................................................30 6.INVESTMENTACTIVITIES.......................................................................................................................32 7.EMPLOYEES.............................................................................................................................................33 8.EXPECTATIONSFOR2013 ......................................................................................................................35

III.ENVIRONMENTALREPORT .....................................................................................36 1.ACHIEVEMENTSIN2012 ........................................................................................................................37 2.ENVIRONMENTALIMPACT .....................................................................................................................40

IV.FINANCIALREPORT.................................................................................................44 1.FINANCIALSTATEMENTS .......................................................................................................................45 1.1.BALANCESHEETASAT31DECEMBER2012 ............................................................................................. 45 1.2.STATEMENTOFCOMPREHENSIVEINCOMEFORTHEPERIODFROM1JANUARY2012TO31DECEMBER2012 .................................................................................................................................................. 47 1.3.CASHFLOWSTATEMENTFORTHEPERIODFROM1JANUARY2012TO31DECEMBER2012 ............ 48 1.4.STATEMENTOFCHANGESINEQUITYFOR2012....................................................................................... 49 1.5.STATEMENTOFCHANGESINEQUITYFOR2011....................................................................................... 50

2.APPENDIXTOTHEFINANCIALSTATEMENTS .......................................................................................51 2.1.ACCOUNTINGPOLICIESANDASSUMPTIONS ............................................................................................. 51 2.2.NOTESTOTHEFINANCIALSTATEMENTS.................................................................................................. 54

3.CONTINGENTLIABILITIES......................................................................................................................68 4.SIGNIFICANTEVENTSAFTERTHEENDOFTHE2012FINANCIALYEAR ..............................................69 INDEPENDENTAUDITOR'SREPORT ..........................................................................................................70


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I.INTRODUCTION


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1.STATEMENTBYTHEMANAGEMENTBOARDTheyear2012wasverydemanding forVipapVidemKrškod.d., as all activities focusedon improving theoperationsaftertwodifficultyearsofthecrisis.EventhoughthetrendsontheEuropeanscalestillindicateproblemsandlossesofmajorpapermanufacturersinEurope,wecansaythattheCompanyhasadjusteditsoperationstothenewmarketsituationandtheeconomicenvironmentinwhichitoperates.Withtheannualcapacityofabout200 thousand tonnesof recycledpaper (newsprintand improvednewsprintandgraphicpapers),VipapVidemKrškod.d.remainsthelargestmanufacturerofnewsprintinSEEuropeandoneofthelargestpapermillsinSlovenia.Itaccountsfor0.22%ofthetotalEuropeancapacityofpaperproduction.The"minor market player" position does not necessarily represent a worse position; on the contrary, this iscurrentlyanadvantage for theCompany,sincepaperproductionwith threepapermachines ismuchmoreflexible in terms of production range,which leads to flexible sales, better customer servicing and greatercompetitivenessonthemarket.Industryestimate:Accordingtoinitialestimates,theglobalpaperandcardboardproductionhasgrownby1%inthepastyear.TheincreaseisduetothegreaterproductionvolumeinChina,IndiaandRussia,whereasinothercountries(EU27,USAandJapan),productiondecreased.Inpaperindustry,theyear2012wasstillcharacterisedbythedownwardtrendinproduction,marketadjustmentandthesearchfornewdevelopmentopportunities.Paperand cardboard production in CEPI countries (Confederation of European Paper Industries) fell by 1.7%compared to the yearbefore. Facilitieswith approximately2million tonnesofproduction capacitieswereshutdownand1milliontonnesofnewcapacitieswerebuilt(includingthemodernisationofexistingones)forpackagingpapers.Totalpaperandcardboardproduction isestimatedat92million tonnesorabout10milliontonneslessthanin2007.TheproductionoftheEuropeanpaperindustryreflectsthepoorergeneraleconomicdynamicsintheEU,however,thedownsizedvolumeisstillabovetheaverageofenergy‐intensiveindustries.Thesituationinthepaper industry inSlovenia isnotsoblack.Atotalof674thousandtonnesofproducedpaper and cardboard represent 0.74% of the total European production. The total Slovenian paper andcardboard production remains at the 2011 level and is even slightly higher (+0.4%) in spite of the paperproductionshutdowninRadeče.Theindustryprofitabilitywasin2012nolongerundersuchpressurearisingfromrawmaterialandmaterialprices(wastepaper,woodandchemicalpulp),whilegreaterpressurewasfeltduetothedropinendproduct(paper)prices.Operatingresults:Operating results in 2012were consistentwith the projected improvement in operating efficiency.Majorachievements includepositiveresult,generatedavailablecashflowofEUR10.814thousand,exceedingthelast year's figureby52%, increase in value addedper employeeby21% toEUR57 thousand,14% lowerindebtednesstobanksandan11%dropintotalliabilities.Inspiteofthelowergeneratedincome,theCompanysucceededinachievinggreaterreturnonendproductsowingtolowerproductioncosts.ThemeasuresaimedatoptimisingproductionandenergysavingsenabledtheCompanytotakeabigsteptowardscheaperandmoreefficientoperationsin2012.In2012,rawmaterialpricesweremorefavourablethanin2011,sincethepricesofallmajorrawmaterials(wastepaper,cellulose,coal)werelower.Sales conditions, prices inparticular,were favourable for theCompany in the first sixmonthsof the year,whereas in the secondhalfof2012, thepricesofnewsprintdroppedby5%,whichwas reflected in lowerincome.Thevolumeofsalesandproductionwasslightlylowerthanlastyear,moreorlessduetodifferentproduction structure. Themost importantmarkets remain theWestern and SE Europeanmarkets, and in2012theCompanyboostedthesalesshareinItalyandGermany.


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The Company's investments were limited owing to reduced project funding ability. In comparison to thepreviousyearitstagnated(EUR1.3million).Attheendoftheyear,theCompanywasintheclosingstageofpreparingthestrategicdevelopmentplanuntil2020.Developmentstrategyforfutureoperationsisgearedatproductionofpaperswithhighervalueaddedandspecific typesofpapers(wrappingpackagingpaperandsmartpaper).Thenumberofemployees in theCompanydecreasedby2%comparedtothepreviousyear.TherewasnomajoremployeefluctuationrecordedintheCompany.Operatingincome(EBIT)intheamountofEUR2.9millionwasmuchhigherthantheyearbefore,i.e.nolessthanEUR4.0millionhigher,whichindicatesaconsiderablyimprovedoperatingefficiencyoftheCompany.

TheCompany'sManagementBoard


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2.PRESENTATIONOFTHEVIPAPGROUPThe VIPAP Group consists of the parent company Vipap Videm Krško d.d. and related companies: Ekopad.o.o.,LevasKrškod.o.o.,ZEL‐ENd.o.o.andVipapVertriebsundHandelsGmbH.ThecompanyViprehd.o.o.wasstrickenfromtheregisterin2012.Relatedpartiestransactionsaremulti‐tier.Name Country

Typeofconnection

%ofconnection

Ekopad.o.o. SLO Directequity 100.00VipapVertriebsundHandelsGmbH AUT Directequity 100.00

LevasKrškod.o.o. SLO Directequity 84.48ZEL‐ENd.o.o. SLO Directequity 11.38

All related parties are liable for corporate income tax. Related companies are not exempt from tax underZDDPO(Corporate IncomeTaxAct)anddonotpay taxata lower legallyapplicable rate (EconomicZonesAct).Theyarerelatedpartieswithoutmore favourable taxposition.Asat31December2012VipapVidemKrškod.d.recordednoloansgrantedto/receivedfromrelatedparties.OwnershipstructureoftheVIPAPGroup:

ZEL-EN d.o.o.

Ekopa d.o.o.

100% stake

100% stake

VipapVertriebsundHandelsGmbH

11.38% stake

3.5% treasury

MINISTRY OF FINANCE OF THE CZECH REPUBLIC

VIPAP VIDEM KRŠKO D.D.

controlling company

Levas Krško d.o.o.

84.31% stake

96.5% stake


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TheparentcompanyVipapVidemKrškod.d.inbrief:CompanynameAbbreviatedcompanyname

VIPAPVIDEMKRŠKOproizvodnjapapirjainvlaknind.d.(VIPAPVIDEMKRŠKOProductionofPaperandFibresPlc.)VIPAPVIDEMKRŠKOd.d.

Registeredoffice Tovarniškaulica18

Activity

Productionofpaperandfibres

Ownership

MinistryofFinanceoftheCzechRepublic

Organisationalform

Publiclimitedcompany

Sharecapital

EUR78,387,660

Nominalvalueofshare

EUR41.70

Companyidentificationnumber

SI23087226

Companyregistrationnumber

5971101

President of the ManagementBoard

MilošHabrnál

OthermembersoftheManagementBoard

Jožica Stegne – Vice‐President of the Management Board,DušanVaněk,LadislavKristančič,andDraganKranjc

Chairwoman of the SupervisoryBoard

EvaAnderová

OthermembersoftheSupervisoryBoard

PetrMatoušek,MiroslavLébl,AlbertinaŽupanc,andMarjanJurman

Employees

382(31December2012)

Salesin2012

196,789tonnesofpaper

Paperproductionin2012 199,325tonnesofpaper

Fibreproductionin2012 188,804 tonnes of deinked pulp (DIP) and groundwood(TGW)

Subsidiaries

Ekopa d.o.o., Levas Krško d.o.o., ZEL‐EN d.o.o. and VipapVertriebsundHandelsGmbH

Telephone

+386(0)74811100

Fax

+386(0)74921115

E‐mail

[email protected]

Website

http://www.vipap.si

TheparentcompanyVipapVidemKrškod.d.,isenteredintheCompaniesRegisterunderregistrationnumber1/0398300 with the District Court of Krško. Its majority owner is the Ministry of Finance of the CzechRepublic, holding a 96.5‐percent share, whilst the remaining 3.5‐percent share is represented by the


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Company’streasuryshares.TheCompany'scoreactivityispaperproduction,namelynewsprintandgraphicpaper,theproductionofownfibres,i.e.deinkedpulpandgroundwood.Basedonthecriteriaasattheannualbalance sheet date for the last two consecutive financial years, the number of employees and net salesrevenues,theCompanyisclassifiedasalargecompany.Attheendoftheyearitemployed382people.ThebodiesofthecompanyaretheGeneralMeeting,theSupervisoryBoardandtheManagementBoard.Thefive‐memberManagementBoardisledbyMilošHabrnál.Thefive‐memberSupervisoryBoardischairedbyEvaAnderová.TherelatedcompanyEkopad.o.o.inbriefCompanynameAbbreviatedcompanyname

Ekopazbiranje,sortiranjeinodkupodpadnegapapirjad.o.o.(Ekopa,Collection,SortingandPurchaseofWastePaperLtd.)Ekopad.o.o.

Registeredoffice Tovarniškaul.18

Activity

Collection,sortingandpurchaseofwastepaper

Ownership

100%VipapVidemKrškod.d.

Organisationalform Limitedliabilitycompany

The company Ekopa d.o.o. is carrying out the activity of sorting paper and purchasing waste paper fromSerbia, Montenegro, Albania, andMacedonia aswell as selling paper to these countries. Its sole owner isVipap Videm Krško d.d. It is represented by its procurator Milena Humar. In 2012 the company did notperformitsactivity.TherelatedcompanyLevasKrškod.o.o.inbriefCompanynameAbbreviatedcompanyname

LEVASzaposlovanjeinusposabljanjeinvalidovKrškod.o.o.(LEVAS,EmploymentandTrainingoftheDisabled,Krško,Ltd.)LEVASKRŠKOd.o.o.

Registeredoffice Tovarniškaul.18

Activity

Productionofwoodpackaginganddisabledenterprise

Ownership

84.31%VipapVidemKrškod.d.


Levas Krško d.o.o. is a disabled enterprise. The activity of the company is very broad, comprising bothproductionandserviceactivities.Its basic line of business is theproductionofwoodpackaging. This includes theproduction anddryingofpallets. The service activity includes security, carpentry and metal workshop, car repair workshop,electrical/mechanicalservices,andotherservices.Attheendoftheyearthecompanyemployed100people.ThebodiesofthecompanyaretheGeneralMeeting,theSupervisoryBoardandtheManagementBoard.Thethree‐member Supervisory Board is managed by Jožica Stegne, and the Management Board comprises asinglemember,i.e.RomanGanc.


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TherelatedcompanyVipapVertriebsundHandelsGmbHinbrief:Companyname VIPAPVertriebsundHandelsGmbH

Registeredoffice JosefHuberStrasse6

Activity

Wholesaleandretailtrade

Ownership

100%VipapVidemKrškod.d.


VipapVertriebsundHandelsGmbHisanAustrian‐basedtradingcompany.ItsellsourendproductsonthemarketsofHungary,Slovakia,andAustria.Italsosupplieswastepaperfromthesemarkets.ThecompanyisrunbyLadislavKristančič.Atpresent,itemploys2people,bothonapart‐timebasis.TherelatedcompanyZEL‐ENd.o.o.inbrief:CompanynameAbbreviatedcompanyname

ZEL‐EN, razvojni center energetike d.o.o. (ZEL‐EN, EnergyDevelopmentCentre,Ltd.)ZEL‐ENd.o.o.

Registeredoffice Hočevarjevtrg1

Activity

Researchanddevelopmentinotherfieldsofnaturalscienceandtechnology

Ownership

11.38%VipapVidemKrškod.d.


ZEL‐EN is a development centre for renewable and sustainable energy, boasting a very high technology‐development capacity in the field of renewable and sustainable energy in the Posavje region and entireSlovenia.ThepartnersofZEL‐ENestablishedaconsortiumwith theaimofstrategiccooperationthroughajointpartnerprojectZEL‐EN.Theprincipalactivityofthecompanyisdevelopmentandresearchinenergy,productionsupport,holdingactivityas(co)ownerofpotentialspin‐offsandtraining.ItismanagedbyAndrejPredin.ThebusinessunitVipapZel‐encurrentlyemploys4people.Attheendoftheyear,theVipapGrouphad484employees.


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3.KEYACHIEVEMENTSOFTHECONTROLLINGCOMPANY 2009 2010

2011

2012

Index12/11

Financialdata Netsalesrevenues(inEURthousand) 95,300 91,402 105,779 100,464 95Operatingprofit/loss(inEURthousand) 6,849 (11,748) (1,149) 2,941

Profitorlossfortheperiod(inEURthousand) 3,123 (8,748) (2,549) 76

Investmentactivities Valueofinvestments(inEURthousand) 3,400 1,465 1,220 1,299 106

Performanceindicators Valueaddedperemployee(inEURthousand)

64 25 47 57 121

Revenuesperemployee(inEURthousand) 212 211 268 259 97

EBITDA 15,289 ‐3,663 7,144 10,814 151Salesdata Quantityofpapersold 182,952 196,866 200,201 196,789 98Productiondata Quantityofpaperproduced(intonnes) 187,231 196,669 201,879 199,325 99Quantityofdeinkedpulpproduction(intonnes) 152,840 164,017 169,939 167,509 99Quantityofgroundwoodproduction 20,489 20,160 18,550 21,295 115Dataonemployees Numberofemployees(asat31December)Averagenumberofemployees

445450

411434

389395

382388

9898


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4.MAJOREVENTSIN2012SeptemberInSeptemberweorganisedanemployeemeeting,whichhasbecomeatradition.Theeventwasenlivenedbyagoulashmakingcompetitionandfungames.SeptemberOn 4 September 2012 the General Meeting of Shareholders of the company Vipap Videm Krško d.d. wasconvened,withthefollowingagenda:

1. Opening,establishingpresenceandquorum,andelectionandappointmentoftheworkingbodiesoftheGeneralMeeting

2. Acquaintancewiththe2011AnnualReportandgrantingdischargefromliabilitytothemembersofbothbodies

3. Appointmentof theauditor forthe2012 financialyear(auditcompanyUHYRevizija insvetovanjed.o.o.,Vurnikovacesta2,Ljubljana)

4. AppointmentofamemberoftheSupervisoryBoardOctoberThe8thmarketingconferencewasorganised,thisyear'svenuewasPtuj.Theconferencewasattendedby75businesspartners(potentialandexistingpaperbuyers)from16countries.ThesituationontheglobalmarketwaspresentedattheconferenceaswellastheproductioncapacitiesandtheanticipatedmarketstrategyoftheCompany.Besidestheanticipatedpapersalesquantitiesforthefollowingyear,thedevelopmentofnewproductsandsomelong‐termdevelopmentoptionswerealsopresented.Theconferencerepresentsadirectcontact with agents, buyers and printers, which is important both in terms of the Company's sales anddevelopment.OctoberAlong‐termmemberoftheManagementBoardandtheCommercialDirectorofVipapVidemKrškod.d.,JožeCerle,retiredinOctoberandwasreplacedbyLadislavKristančičonbothpositions.OctoberTherelatedcompanyViprehd.o.o.wasfinallystrickenfromtheregister.NovemberWeactivelyparticipatedinthepreparationandimplementationoftheinternationalmeetingoftheSlovenianpaperindustry(the16thDayoftheSlovenianPaperIndustryandthe39thInternationalAnnualSymposiumofDITP), which was organised by the Chamber of Commerce and Industry of Slovenia ‐ Paper and PaperConvertingIndustryAssociation,andthePulpandPaperEngineersandTechniciansAssociationofSlovenia(DITP).Thisyear'smeetingwasentitled"ManagingRisksBetterwithPartners"‐DecemberOn 14 December 2012 the GeneralMeeting of Shareholders of the company Vipap Videm Krško d.d. wasconvened,withthefollowingagenda:

1. Opening,establishingpresenceandquorum,andelectionandappointmentoftheworkingbodiesoftheGeneralMeeting

2. AmendmenttoArticle24oftheArticlesofAssociation3. ApprovalofthesaleoftheCompany'srealestate


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5.RISKMANAGEMENT

ThecontrollingcompanyhasadoptedtheRulesonFinancialManagementandOperationalRiskManagement.Riskmanagementcomprisesestablishment,measurementandevaluation,andmonitoringofrisks,includingreportingonriskswhichtheCompanyisorcouldbeexposedtoinitsoperations.The Company is aware of the fact that the risk management area is one of the fundamental areas eachcompany has to develop constantly. The Vipap Group defined the most crucial and probable risks. Theobjectiveofriskmanagementistoanticipatetherisks‐todetecttheminatimelymannerandreactproperly.Wedividedtherisksintotwomaingroups:operationalrisksandfinancialrisks,whicharepresentedinthecontinuation.OperationalrisksMarketrisksVipapVidemKrškod.d.issellingproductsinmorethan40countriesworldwide.Asaresult,itisexposedtovariousmarket risks. Fast responses to the changes in operating conditions and adjustment of sales andmarketing activities remain the Company's key competitive advantages. We continuously monitor thesituationontheglobalmarketofpaperindustry. In2012,theCompanyagainorganisedtheannualmarketconference for its business partners to be able to respond to the needs and demands of the market aspromptly as possible. The Company’s sales strategy is being constantly aligned with the latest marketfindings. Market risks are strongly mitigated by flexible production and own high quality human capitalpotential. In addition to the risks related to specific market environment and economy, of which thepredominantistheriskarisingfromexchangeratefluctuations,oursalesfocusontheriskarisingfromtheoperations with individual customers, in particular the risk of their insolvency and bankruptcy, paymentdeadline‐relatedriskandotherrisksduetodefaultoncontracts.TheCompanyismanagingfinancialrisksbyinsuring receivables with SID and by the sales which are based on advance payments and collateralinstruments(bankguarantee)obtainedfromthecustomers.Therisksarisingonthepurchasemarketresultfrominsufficientsupplyofrawmaterials(woodandwastepaper)duringthewinter,whenloggingreducesandwhenthecollectionofwastepaperismoredifficult.Wehaveavoidedthisquantity‐relatedriskbyfosteringlong‐termpartnershipsbasedoncompetitiveconditionsand by ensuring adequate stock in case of any supply halts. The risk arising from raw material pricefluctuationsismanagedbyforwardbuying(energysources)andlong‐termcontracts(otherrawmaterials).Development‐relatedrisksEndproductsof theCompanyhave tobehighquality.TheCompany is constantly facedwith the risk thatproduct development process will not end successfully. The risks in this area, which are technological‐technical,aremitigatedbyateamofdevelopmenttechnologistswhoarecontinuouslyworkingondevelopingtheCompany'snewownproducts,presently thosebasedonrecycled fibres.Wereduce theaboverisksbymodernisingprocesses,introducingmoderntechnologiesandadaptingtorequirementsinearlydevelopmentstages.Thereistheriskofinsufficientqualityofnewproducts,theriskofinsufficientordersandquantitiesaswell as non‐profitability of new products. The risk of unsatisfactory quality is being resolved in theDevelopmentandTechnologyDepartmentincooperationwiththeproductionsectorandthePulpandPaperInstitutefromLjubljana.Monitoringoftheeffectsofinvestmentsiscrucial.RisksassociatedwithenvironmentalprotectionVipap Videm Krško d.d. is using modern technology and technical measures to mitigate the negativeenvironmentalimpacts.Thelikelihoodofextraordinaryeventsisalsoreducedbypreventivemeasures.Ourcompany contributes to the preservation of the environment by carefullymanaged environmental policy.Risksassociatedwithenvironmentalprotectionaremainlytherisksofecologicaldisastersoraccidentsthatcould negatively impact the environment, and the risks of paying fines for non‐compliance with theregulationsandstandardsinthefieldofenvironmentalprotection.Suchrisksarealwayspresentandmustthereforebe anticipatedandmanaged.TheCompanyhas thus set up an ecological servicewhich employsexperienced technologists engaging in the analysis of ecological parameters and efficient resolving ofecologicalproblemsaswellasensuringcompliancewiththeapplicablelaws.


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FinancialrisksForeignexchangeriskOwing to internationalbusiness,VipapVidemKrškod.d. is exposed to the riskarising fromexchange ratefluctuations,especiallyEUR/USDexchangerate.TheCompanyexportstoUSDmarkets.In2012,theexchangeratewas fluctuating.At thebeginning of the year theUSdollarwas appreciating, but starteddepreciatingagain at the end of the year and dropped to the level recorded at the start of the year. The prices of rawmaterialsaremainlysetinEUR,withtheexceptionofcoal,thepriceofwhichisinUSD.InterestrateriskIn 2012, the Company was regularly servicing all loans according to contract provisions, and reducedfinancial indebtedness by EUR 4.8 million. A part of long‐term and short‐term loans is secured by fixedEuribor until their repayment (more information follows under accounting disclosures for derivativefinancial instruments).Thepolicyof interest rateprotectionenables theCompany tominimise therisksofincreasingcostsoffinancingwithfixedmargin.LiquidityriskTheCompanyismanagingtheriskofinabilitytosettleitscurrentliabilitiesbyshort‐termandlong‐termcashmanagement.

In theshort term,weensuredsolvency throughweekly,monthly, semi‐annualandannualplanningof cashflows,andbyrenewingoldandobtainingnewshort‐termcreditlineswithbanksaswellasreschedulinglong‐term loans.Weassess that in2012 the liquidity riskwas successfullymanaged, owing to appropriate cashflowplanningandthewillingnessofbankstoprovidefinancingtotheCompany.

In2012,we settledall liabilities in accordancewithannuityplans for the repaymentof long‐term loans tobanks and other financial institutions. The Company settled its liabilities to other business partners inaccordancewiththeagreedpaymentdeadlinesandwithcertaindelays,whichdidnotaffecttheoperations.

6.VISIONANDMISSIONThe 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 allbusinessfunctions,theCompanywillensuregrowthandeconomicperformance.With the emphasis on environmentally friendly production technology, sustainable development andpromotionof innovativework in this area, theCompanywill ensuredevelopment andpreservationof thenaturalenvironment.Sustainabledevelopmentofautomatedandecologicallyadaptedproductionprocessesanduseofrenewablesources of rawmaterials enable the Company to produce nature‐friendly papers from recycled fibres andgroundwood.

ThebasicmissionofVipapVidemKrškod.d.istoproduceandmarketpapermadefromrecycledfibresandgroundwood.Wehaveyearsofexperience,exploitnewknow‐howandarefocusedonquality.Wewillcontinuetorespondquicklyandadjusttothedesiresofourcustomers.Alsointhefuture,wewillputspecialemphasisonoptimaluseofproductiontechnologies,efficientuseof internalandexternalsourcesoftheCompany,developmentandmarketing of innovative products that are acceptable in terms of energy consumption, environmentalimpact and quality. All of the above will enable us to improve the Company’s competitive advantage


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(flexibility and quick response to the market situation), which will be reflected in the satisfaction ofemployees,businesspartnersandowners.TheCompany’svisionandmissionareachievedthroughtheimplementationofqualitypolicyandpursuitoftheCompany’sgoals.Itscomplexoperatinggoalisreflectedinensuringgrowthofsalesintermsofvalueandincreased profitability, with the basic economic guideline being the balance of all production capacities,togetherwiththeachievementofmaximumtotalcontributionmargin.TheCompanyimplementsindividualoperatingpolicies(qualitypolicy,financialpolicy,salesandpurchasingpolicy,energypolicy,andother)withtheaimofachieving individualoperatinggoalsspecified in itsoperationalstrategyand itsannualplansoreconomicoperatingplans.

7.CORPORATEGOVERNANCESTATEMENTThecorporategovernanceprinciplesofVipapVidemKrškod.d.arebasedonvalidregulationsintheRepublicofSlovenia, theCompany's internalacts,andestablishedgoodbusinesspractice.TheCompany ismanagedaccordingtoatwo‐tiersystem,inwhichtheCompanyismanagedbytheManagementBoard,whoseworkissupervisedbytheSupervisoryBoard.TheCompanyhasthefollowingbodies:

ManagementBoard SupervisoryBoard GeneralMeetingofShareholders

GeneralMeetingofShareholdersPursuanttotheprovisionsoftheCompaniesAct,theGeneralMeetingofShareholdersisthehighestbodyoftheCompany.At theGeneralMeeting, the shareholders exercise theirwill directly andadopt fundamentalandstatutorydecisions.TheGeneralMeetingadoptsdecisionsregardingthefollowing:

Adoptionoftheannualreport; Useofdistributableprofit; AppointmentandrecallofmembersoftheSupervisoryBoard; Grantingofdischargefromliabilitytothemembersofthemanagementandsupervisorybodies; AmendmentstotheArticlesofAssociation; MeasurestoincreaseanddecreasetheCompany’scapital; Winding‐upoftheCompanyandstatustransformation; Appointmentoftheauditor;and Othermatters,ifsostipulatedbylawortheArticlesofAssociation.

TheGeneralMeetingofShareholders is responsible foradopting theannual reportonly if theSupervisoryBoardhasnotapproveditoriftheManagementBoardandtheSupervisoryBoardproposethatthedecisionontheadoptionoftheannualreportbemadebytheGeneralMeetingofShareholders.As a rule, theManagementBoard submits theproposal for the convocationof theGeneralMeetingonce ayear.TheCompany'sSupervisoryBoardAccordingtoArticle282oftheCompaniesAct(ZGD‐1),theSupervisoryBoardisobligedtoverifyeachyeartheannualreportoftheCompanyandtheproposalfortheuseofdistributableprofit,whicharesubmittedtotheSupervisoryBoardbytheManagementBoard.TheSupervisoryBoardisobligedtoindicateinthereportin what way and to what extent it supervised the Company's management during the year, and adopt apositionregardingtheindependentauditor'sreport.Attheendofitsreport,itmuststatewhether,afterfinalexamination,ithasanycommentsconcerningtheannualreportandwhetheritconfirmstheannualreport.Ifthe Supervisory Board approves the Company's annual report, the report is endorsed. The work of theSupervisory Board is presented in detail in the Report on the Method and the Results of Examining theAnnualReportofVipapVidemKrškod.d.


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TheSupervisoryBoardofthecompanyVipapVidemKrškod.d.hasthefollowingmembers:Shareholders'representatives:EvaAnderová–ChairwomanoftheSupervisoryBoardPetrMatoušek–memberMiroslavLébl–memberEmployees'representatives:AlbertinaŽupanc–memberMarjanJurman–memberTheCompany'sManagementBoardVipap Videm Krško d.d. is managed by a five‐member Management Board, which is appointed by theSupervisoryBoard.TheCompany'sManagementBoard:MilošHábrnal–PresidentJožicaStegne–Vice‐PresidentDušanVaněk–memberJožeCerle–member‐until1October2012LadislavKristančič‐since1October2012DraganKranjc–memberTheManagementBoardmanagestheCompanyandadoptsbusinessdecisionsindependentlyanddirectly.Itmeetsat least twiceamonth. Itsprincipal task is thecoordinationofopinions, theunanimousadoptionofdecisions, andvotingonly inexceptional cases.TheManagementBoardcarriesout its tasks inaccordancewiththelawandtheCompany'sArticlesofAssociation.ThetermofofficeofthemembersoftheManagementBoardisfiveyears,withthepossibilityofre‐appointment.Pursuanttoorganisationalrulesandtherulesofprocedureof theManagementBoard, themembersof theManagementBoardalsohaveoperationaltasksintheareaofmanaging,implementingandorganisingwork,whichenablesdirectcooperationbetweentheManagementBoardandothermanagementlevels.

Annual Report of the Vipap Videm Krbko d,.d. for 2012

Statement of the Management Board's responsibilify

The Management Board of the company Vipap Videm Kr5ko d.d. is responsible for the preparation of theCompany's annual report and financial statements that give a true and fair view of the Company's financialposition and operating results for 2072 in accordance with the Slovenian Accounting Standards and theCompanies Act.The Management Board approves the Business Repot and the financial statements with notes for the year ended3 I December 2012 and declares that:

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

accounting policies,o the accounting estimates have been prepared in accordance with the principles of fairness and prudence

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

Slovenian Accounting Standards.The management is responsible for the adoption of adequate measures to protect the Company's assets as well as

to prevent and detect fraud and other irregularities.

oz($p!gne

)OcrcfuitII

v

President of the Management Board

MiloSHabm6rW

Vice-President of the Manasement Board

,rMember

Member

Member

Dragan Kranjc

-ftf116


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II.BUSINESSREPORT


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1.PERFORMANCEANALYSISOFTHECONTROLLINGCOMPANY

OPERATINGRESULTSWeended2012withapositiveoperatingresult.

At the end of 2012, the company Vipap recorded a net profit of EUR 76 thousand. After three years, theoperatingresultwasagainpositive.OperatingresultwasEUR2.9million.Netprofit/lossfortheperiod,byyearinEURthousand 2010 2011 2012Operatingprofit/lossfortheperiod ‐8,748 ‐2,549 76

The 2012performancewas poorer thanprojected in theAnnual Plan, but still significantly better than inrecentyears.Operatingconditionsonthepurchasemarketofrawmaterials improved,aswesucceeded inreducingthepricesofbothwastepaperandchemicalpulp.Aminimumincreasewasseeninthepurchaseofwood. The coal price went up, while the average price of electricity, including network charge and allcontributions, dropped by 3.8% compared to the year before. Completely different were the operatingconditionsonthesalesmarket,wherewedealtwiththefallinthepricesofnewsprint.Thepricesofgraphicpapersmoreorlessstagnated.Financialexpenses,withthebiggestitembeingexpensesforloansreceived,decreasedincomparisontotheyearbeforeowingtolowerindebtedness.

REVENUESFROMTHESALEOFPRODUCTSWegeneratedEUR100millionofnetrevenues.

In 2012, the Company experienced very difficult sales conditions. The drop in newsprint prices, poorerdemandandtheresultingdecreaseinthesalesvolumeofgraphicpapersledtoa5%lowerrevenuesthanin2011.Even though theCompany tried tosellproductswithahighercontributionmargin, itwasunable tocompensate forthedrop insalesprices.Transportcostsremainedat thesame levelas theyearbefore, i.e.EUR 19/tonne. The costs of complaints were also similar as in 2011, totalling EUR 1.5 per tonne of soldproduct. By optimal production and sales planning we strived to establish the proper balance betweenregularordersattheusualpricesandspotsalestonon‐Europeanmarket.Lowerrevenuesarealsoreflectedina3%decreaseinrevenueperemployee.

-12,000

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NetrevenuesperyearandrevenuesperemployeeinEURthousand 2010 2011 2012

Netsalesrevenues 91,402 105,779 100,464

Revenuesperemployee 211 268 259

OPERATINGEXPENSESIn2012,thecostsofgoods,materialandservicesdroppedby9%fromtheyearbefore.

OperatingexpensesrepresentthehighestitemintotalexpensesoftheCompany.In2012theytotalledEUR81.2million.52%ofthetotalisaccountedforbythecostsofrawmaterials(fibres,wastepaperandgrindingwood). The energy costs represent 24%. Thismeans that propermanagement of these input resources isextremelyimportant.In2012wemanagedtoreducethepurchasepricesofbasicrawmaterials;wastepaperpricesdroppedby20%andchemicalpulppricesby9%.Aminimumincreasewasrecordedinwoodprices,i.e.1%.Thesituationwasmuchworseonthemarketofenergy‐generatingproducts,astheIndonesiancoalpricesgrewby17%andtheStanaricoalwasonaverage14%moreexpensive.Thelow‐tariffelectricitypricewassimilarastheyearbefore,whilethepriceofhigh‐tariffelectricitywasreducedby11%.VariablecostspertonnetotalledEUR355,whichisEUR34/tlessthantheyearbefore.ChangesinoperatingexpensesandvariablecostspertonnebyyearinEURthousand 2010 2011 2012

Costofgoods,materialsandservices 80,339 89,286 81,273

Materialcosts/productionint 409 442 408

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INVESTMENTSIn2012,EUR1.3millionwasallocatedtoenvironmentalandtechnologicalinvestments.

Inspiteofdifficultoperatingconditions,theCompanystillinvestsinimprovementofbusinessprocessqualityandthusendproducts,andoperationalreliability.TheCompanyearmarkedmostformajormaintenance,i.e.EUR1,183 thousand.The restwas accounted for by investments in optimisationof technological lines forpaperandfibreproduction,andenergy.InvestmentvaluebyyearinEURthousand 2010 2011 2012Investmentvalue 1,465 1,220 1,299

0 200 400 600 800

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1,600

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FINANCIALEXPENSESFORFINANCIALLIABILITIESIn2012,financialexpensesforfinancialliabilitiestotalledEUR2.5million.

FinancialexpensesincludeinterestexpensesarisingfromloansraisedintheamountofEUR2.4millionandinterestunder lease contracts totallingEUR68 thousand.Compared to the yearbefore, financial expensesdroppedbyEUR146thousandor5%.FinancialexpensesbyyearinEURthousand 2010 2011 2012Financialexpenses 2,393 2,655 2,508

Due tomoderate investmentactivity, theCompanyhasnotraisedconsiderable loans frombanks inrecentyears. The Company's net indebtedness to banks arising from loans decreased by EUR 4.8 million. Thecompany Vipap Videm Krško d.d. has been paying loans to banks according to adopted annual plans ofrepayment.FinancialindebtednessoftheCompanybyyear 2010 2011 2012

FinancialindebtednessinEURthousand 43,712 38,969 33,547

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INDICATORSTheindicatorspointtoapositivetrendoverthepastthreeyears.

TheoperatingresultsoftheCompanywerein2012betterthaninrecentyears.Thisisalsoreflectedinthefinancial indicatorsof return, both returnonequity (ROE) equalling+0.1%and returnonassets (ROA)of1.8%.EBITDAalsoroseovertheyearbefore,totallingEUR10,814thousand,indicatingthattheCompanyhasbeengeneratingpositivecashflowfromordinaryactivity.Trendinselectedindicators:ROA,ROEandEBITDA 2010 2011 2012Returnonequityin% ‐11.7 ‐3.6 0.1Returnonassetsin% ‐3.7 ‐0.8 0.05EBITDAinEURthousand ‐3,663 7,144 10,814

Thepositivetrendisseeninvalueaddedperemployee,asthisindicatorroseby21%from2011toEUR57thousand.ValueaddedperemployeeinEURthousand 2010 2011 2012Valueaddedperemployee 25 47 57

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2.PRODUCTIONIn spite of the financial and economic crisis in Slovenia and Europe, the production capacity utilisationremained acceptable. The planned quantity was not achieved primarily owing to altered productionstructure.Weproduced199,325tonnesofpaper,whichis1%lessthantheyearbefore.Thisyearwesucceededindecreasingrejectonallpapermachines.Thespeedandproductivityofthepapermachine 3 and partly paper machine 2 were increased. We produced less graphic papers, but morenewsprint,asrequiredbythemarketsituation.In2012,wealsoproduced188,804tonnesofownfibresforpaperproduction,whichisafiguresimilartotheonerecordedlastyear.

Productionofpaperandfibres

Realisation2011

QuantityintonnesRealisation2012

QuantityintonnesINDEX12/11

Paperproductionint 201,879 199,325 99

Fibreproductionint 188,489 188,804 100

Weproducedatotalof388,129tonnesoffibresandpaper.Thelevelofintegrationoffibreandpaperproductionin2012wasveryhigh,i.e.94%(93%in2011).Thegoalofthemaximumuseofproductioncapacitiesbasedonrecycledfibreswasachieved.PaperproductionPaperwas produced on all three papermachines. Productiononpapermachine 1was very diverse, eventhoughtheshareofcoatedgraphicpaperdecreased.Besidesseveraltypesofgraphicpaper,wealsoproducednewsprintSOF1onpapermachine1,whichresultedinasomewhatlowertotalproductivityofthemachine.For thepurposeofqualitymanagementwe reduced the speedofproductionofVimaggraphicpaper.Thisprovedtobeagoodsolution,astotalrejectintheproductionofthispaperconsiderablydownsized.Onpapermachines 2 and 3 we produced newsprint and improved newsprint. The decision for such productionstructurewasreasonable, resulting in thebestpossibleadjustability to themarketsituationand increasedcontributionforfixedcostcoverage.Alltypesofpaperproduced,withtheirapplicationandcharacteristics,arepresentedinthetablebelow.

0 10 20 30 40 50 60

2010

2011

2012

in EUR thousand


24

Graphicpapers,theirapplicationandcharacteristics

Papergrade Application Printing

techniqueGramma

geEcolabel

GRAPHICPAPERS

VIPRINT graphic,coated,machinefinished,matt

periodicals,magazines,catalogues,picturebooks

multi‐colour andblack&whiteheat‐set offset print,sheet‐fedprint

54‐90g/m2

EUEcolabelSI/011/03

VIPRESS graphic,coated,machinefinished,matt

periodicalnewspapers,magazines,catalogues

multi‐colour andblack&whitestandard andwaterless cold‐setoffsetprint

54‐80g/m2

EUEcolabelSI/011/02

VIMAG graphic,coated,calendered,semigloss

multi‐colourandblack&whitestandardandwaterlesscold‐setoffsetprint


54‐90g/m2

EUEcolabelSI/011/04

VIMAX graphic,coated,slightlycalendered,silky

periodicals,packageleaflets/instructions,magazines,catalogues


54‐90g/m2

EUEcolabelSI/011/05

VIPCO graphic,surfacetreated,machinefinished,matt

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

digitalprint,offsetprint, sheet‐fedprint

55‐80g/m2

EUEcolabelSI/011/01

VILUX graphic,coated,slightlycalendered

periodicals,books,packageleaflets/instructions,magazines,catalogues


60‐90g/m2

VIPCOWB graphic,surfacetreated,machinefinished,matt

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

digitalprint,offsetprint, sheet‐fedprint

55‐80g/m2

VIBULK graphic,bulky publications,books,cashregisterrolls

multi‐colour andblack&white cold‐set and heat‐setoffsetprint, sheet‐fedprint

50‐80g/m2


25

Newsprint,theirapplicationandcharacteristics

Papergrade Application Printingtechnique GrammageNEWSPRINT SOF newsprint,

machinefinishednewspapers,periodicals, pocketbooks

black&white and multi‐colour cold‐set and heat‐set offsetprint

45/48.8/52g/m2

SOF42.5 newsprint,machinefinished

newspapers,periodicals,supplements,inserts, advertisingmaterial

black&white and multi‐colour cold‐set and heat‐set offsetprint

42.5g/m2

SOFF high qualitynewsprint

newspapers,periodicals,supplements,inserts, advertisingmaterial

black&white and multi‐colour heat‐set offsetprint and flexoprint

45/48.8/52g/m2

LIBNAPRINT improvednewsprint

newspapers,periodicals,advertisingmaterial, pocketbooks

multi‐colour andblack&white heat‐set andcold‐set offsetprint,sheet‐fedprint

48.5‐80g/m2

LIBNAPLUS improvednewsprint

newspapers,periodicals,advertisingmaterial, pocketbooks

multi‐colour andblack&white heat‐setoffsetprint

50‐80g/m2

LIBNASGSC improvednewsprint,calendered, semigloss

periodicals,magazines,catalogues, picturebooks

multi‐colour andblack&white heat‐setoffset print, sheet‐fedprint

48.8‐80g/m2

Weproduced60,557tonnesofpaperonPM1,whichis1%lessthanintheyearbefore;thedecreasewasduetothestructureofproduction(morenewsprint).ProductiononPM2at the levelof67,700tonneswas2%lowerthanin2011.ProductiononPM3wasverysmooth,resultingin71,068tonnesproduced,whichequalstheproductionlevelrecordedtheyearbefore.


26

Paperproductionbyyear

Structureofnetproductionbypapermachine

REALISATION2011 REALISATION2012 INDEX

Quantityintonnes Quantityintonnes 12/11

Papermachine1 61,213 60,557 99

Papermachine2 69,416 67,700 98

Papermachine3 71,250 71,068 100

Total 201,879 199,325 99

FibreproductionThe production of deinked pulp sufficed for the need of paper production for recycled fibres. This year'sproduction lagged behind the last year's record figure by 1% or 2,430 tonnes. The structure of paperproductionwasthisyearagaininfavourofnewsprint,thebasicrawmaterialforwhichisdeinkedpulp.Thesimultaneous production of newsprint on all paper machines prevented us from providing an adequatequantity of deinked pulp, as a result of which we decided to input a higher amount of other own fibre,specificallygroundwood.Thisdecisionledtoasignificantincreaseingroundwoodproductioncomparedtotheyearbefore,i.e.by15%.

160,000

165,000

170,000

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180,000

185,000

190,000

195,000

200,000

205,000

2010 2011 2012

in t


27

Fibreproductionbyyear

Fibreproductionintonnes

REALISATION2011 REALISATION2012 INDEX Quantityintonnes Quantityintonnes 12/11

DEINKEDPULP 169,939 167,509 99TGW 18,550 21,295 115

TOTAL 188,489 188,804 100

3.SALESItisestimatedthatin2012theconsumptionofpaperandcardboarddroppedby4‐5%intheCEPImembersasaresultofaverypooreconomicsituationinEuropeandlong‐termdownwardtrendintheuseofgraphicpapers.TotalsalesofVipappaperequalled196,789tonnesor2%lessthantheyearbefore.Atthesametimewehadtofacethedecliningpricesofnewsprint(downby2‐3%),butwesucceededinkeepingthesamepricelevel of graphicpapers.Within thepaper structure, newsprint is sold at lower‐endprice,which iswhy itsconsumption and printers' demand for it grew, as they started using it instead ofmore expensive paper.Because of the changes in themarket situation the Company focused on the sales of newsprint and thusachievedahighercontributionmargin.Thereby,wegeneratedEUR100million innetrevenuesor5%lessthanin2011.Wesold17%ofthetotalonthedomesticmarket.

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Structureofpapersalesin2011and2012

Newsprintaccountsfor79%oftotalsales.Itssalesroseby3%overtheyearbefore.Incomparisonto2011,thesalesofimprovednewsprintalsoincreasedthisyear.Aslumpwasrecordedinthesalesofgraphicpapers(index81).

Thequantityofpapersoldin2011and2012int

REALISATION

2011IN% REALISATION

2012IN% INDEX12/11

Newsprint 150,567 75 154,727 79 103Improvednewsprint 1,112 1 2,748 1 247Graphic(coatedandnon‐coated)

48,522 24 39,314 20 81

Totalpapersales 200,201 100 196,789 100 98Graphicpapers(productiononPM1):Graphicpapersareproducedonpapermachine1.In2012,wesold39,314tonnesofgraphicpapers,i.e.9,208tonneslessthaninthepreviousyear.TheprincipalproductfromtherangeofgraphicpapersisVimagintheformofreels.Wesold11,805tonnesofthispaperin2012,whichaccountsfor30%ofallgraphicpaperssold.Othergraphicpapersinclude:Viprint,Vipco,Vimax,Vipress,andVibulk.Improvednewsprint(productiononPM1):Improvednewsprintwasproducedonpapermachine1.Wesold the totalof2,748 tonnes,which is1,636tonnesmorethantheyearbefore.Thesepapersaccountfor1%ofthetotalsalesandincludeLibnaPrintandLibnaSGSC.Thelatterrepresentspaperwhichwewereabletolaunchalreadyin2011.Newsprint(PM1,PM2andPM3)In 2012, production of newsprintwas again carried out on all three papermachines, even though itwasplannedonlyontwo.Wesold154,727tonnesofnewsprint.Thevolumeofsalesincreasedby3%comparedtothepreviousyear.PaperfinishingWesold8,517tonnesofpaperinsheets,whichis1%morecomparedtotheyearbefore.The main markets remain the same: SE Europe and Slovenia, Germany, Austria and Italy. In 2012 weincreasedthevolumeofsalesinSlovenia,ItalyandGermany.

0 20000 40000 60000 80000 100000 120000 140000 160000 180000

Newsprint

Improved

newsprint

Graphic papers

in t

2011 2012


29

Structureofpapersalesin2012and2011bymarket

SALESbymarket 2012 2011Slovenia 14.1% 12.87%Serbia 12.9% 12.05%Italy 13.6% 11.39%Germany 9.5% 8.55%Hungary 6.1% 7.80%Bulgaria 2.5% 3.57%Austria 2.6% 4.10%France 2.8% 3.40%CzechRepublic 3.3% 3.77%Turkey 2.6% 3.87%Romania 2.6% 4.32%Croatia 4.4% 6.32%Greece 4.3% 3.22%Othercountries 18.8% 13.80%Total 100.0% 100.0%

4.PURCHASINGAtthestartof2012,theCompanyrecordedrelativelylowpricesofrawmaterials,primarilywastepaperandchemicalpulp,butthenthepricesstartedslowlyrisingupuntilthesummer,whichwasagainfollowedbyaslightdropandahalttowardstheendoftheyear.Owingtoextremelyhighpricesofwastepaperin2011,thedrop inprices in2012wasexpected.Compared to theyearbefore, thepricesof inputrawmaterialsweresignificantlylower;thepricesofwastepaperandchemicalpulpdecreasedby20%and9%respectively.Asaresult,materialcostsgreatlydropped.Theprice increasewasnoted inwoodpurchase(1%)andcoal.Thepricesof Indonesiancoal increasedby17%andthepricesoftheStanaricoalby14%.Purchasingfortheproductionofpaper,ownfibresandownelectricity togetherwith investmentsamounted toEUR76.6million in2012,which isEUR7.3million lessthantheyearbefore.Thetwomainreasonswerelowerpricesofrawmaterialsandthepartlylowerpaperproduction.Thebiggestshareinthestructureoftotalpurchasingisaccountedforbyfibres,recoveredpaper

0% 5% 10% 15% 20% 25%

Slovenia Serbia Italy

Germany Hungary

Bulgaria Austria

France

Czech Republic Turkey

Romania Croatia

Greece Other countries

Shares in %2012 2011


30

andgrindingwood(48%oftotalpurchasing).Thesearefollowedbyenergyproductsandchemicals.Importsaccountfor64%oftotalpurchasing.

Structureofpurchasingin2012

5.RESEARCH&DEVELOPMENTACTIVITIESResearch&developmentactivitiesofthecompanyVipapcanbedividedintotwomainfields:1.DevelopmentofnewproductsandmodificationoftheexistingProMixofproductstailoredtonewmarketrequirements2.Developmentofnewandoptimisationofexistingtechnologicalproceduresandprocesses1.DevelopmentofnewproductsandmodificationoftheexistingProMixofproductstailoredtonewmarketrequirementsIn2012,wecontinuedwiththedevelopmentofnewproducts:1‐SOFF;newsprintsuitableforprintingmaterialsofmoredemandingbuyersinmulticolourflexoprintingtechniqueanddemandingheat‐setandcold‐setoffsetprint.ItispartofregularproductionasofMarch2012,designatedR,andcanonlybeproducedonPM1duetothealready installedequipmentofSoft calender.Theproductwillbe included in the regularproduct range inMarch2013.2‐VipressS;coatedgraphicpublicationpaper,slightlycalendered,suitableforstandardmulticolourcold‐setandwaterlesscold‐setandheat‐setoffsetprint.ItwasassessedbyaBelgianbuyerasbetterthanstandardVipressquality,butdevelopmentofthispaperdidnotcontinueduetothemarketsituation.Theproductispreparedforintroductiontothemarket,ifmarketsituationissuitable.3‐LibnaPrint; improvednewsprint.In2012,thequalityoftheestablishedproductofthesamebrandwasmodifiedaccording to the currentmarket requirements and theCompany's internalpossibilities given thequality and costs. Since April 2012, it has been in regular production under the designation R. It will beincludedintheregularproductrangeinMarch2013.4‐LibnaSGSC;graphicpublicationsemi‐glossSCpapersuitableforheat‐setprint.TheCompanyhassofarnotyetofferedsuchaproduct,whichisintheperiodsofdown‐gradinganalternativetoSCpaper,whichisused for a specific segmentofprintedmatter, as a substitute forLWC (VimagandVimax). SinceFebruary2012,ithasbeeninregularproductiononlyonPM1underthedesignationR.ItwillbeincludedintheregularproductrangeinMarch2013.5 ‐ SOF40 PS3/PS2; newsprint with lower grammature. In 2012 we started preparations for developingnewsprintwithlowergrammature,forwhichthereisagrowingdemand.TestproductionstartedinJanuary2013onPM3.InFebruary2013itwasputintoregularproductiononPM3andPM2withthedesignationR.Thequalitylevelandsuccessofplacementonthemarketwillbemonitoredforatleast6months.6‐Vibulk;bulkypaperofvolumerangingfrom(1.45)1.55to1.8cm3/g(1.9/2.0)inthegsmareabetween50–80g/m².Itissuitableforcold‐setandheat‐setoffsetprint(aswellassheet‐fedprint)anddigitalprinting.It

0 10 20 30 40 50 60

Fibres, waste paper and grinding wood

Chemicals

Spare parts - maintenance

Energy products

Machine clothing

Packaging

Investments

Shares in %


31

isdesigned forprintingpocketbooks, cash register rolls,withmodifiedqualityalso forwallpapers. Itwasproducedinstandard,moreyellowshade,whichmostcustomerassessedasappropriate.InMay2012itwasput intoregularproductionwiththedesignationR.Therequiredquality levelandsuccessofplacementonthemarketwillbemonitoredforatleast12months.Developmentactivitiesarefocusingondevelopingproductsintobulkypaperofmoreintensecreamy‐yellowtoneandpaperofhighervolume(upto2.0cm³/g)andinvolvetheinitialR&Dactivitiesforuseofsuchpaperasthebasicpaperforsmart–metapapers.The next set of R&D activities related to new products includes a group of products that require furtherresearchactivitiestoobtainacertainlevelofknow‐hownecessaryforachievingspecificresearchstagesforsubsequentlyplacingtheproductonthemarketassoonaspossible.7‐ViprintSatin;graphiccoatedpaperofhighervolume.Itisanicheproductforprintingbooks,brochures,advertisingmaterials,andperiodicals inheat‐setprintandforsheet‐fedprint. It isalsodesignedforuseingraphic processing industry for various types of forms, envelopes and similar, and is produced by fewproducers(volumerangeof1.3‐1.4cm³/g).ThefirsttrialproductionwillbecarriedoutinFebruary2013.8 ‐ViPacPap; individualstartingR&Dactivitieshavebeencarriedout(acquiringknow‐how)togetherwithbasicresearchandlaboratoryanalysesofthepotentialrawmaterialbasisforacertainsetofwrappingandpackagingnaturalkraftpapersbasedonrecycledfibres,intwodirections:‐acombinationofrecycledmicrofibrillatedfibreswithbleachedsulphatekraftcellulose,and‐acombinationofrecycledmicrofibrillatedfibreswithnon‐bleachedsulphatekraftcellulose.6 ‐ ViPamPap; the activitieswere limited to the basic R&D (acquiring know‐how) togetherwith the basicresearchexaminingthesuitabilityofourselectedproductsasthesubstratebasedonrecycledfibresfortheproductionoftheso‐calledsmartpapers,inallthreeR&Ddevelopmentareas:

Metapapers; Papersfororganicandprintedelectronics;and Paperswithactivesurface.

Researchhas shown the suitability of certainproducts as the substrate fordevelopingprintedelectronics,mainlysensoricsandmetapapers.TheCompanyhasfoundedaprojectteamforcontinuingdevelopmentandresearchactivitiesintheprojectin2013.7 ‐ New products from alternative raw materials (sludge, mulex, pepelex, bark, sawdust):CAPS/Visorb/Vifluff,IzoVip,EcoProBeton/BioPel,MulBrik,MulOp.2.DevelopmentofnewandoptimisationofexistingtechnologicalproceduresandprocessesMostactivities(threeindustrialtestsofDIPmicrofibrillationin2012,testproductionandtestprintingSOF45andSOF42.5fromPM1andPM2)werecarriedoutinthescopeoftheProjectRRP201177DIPMEHLAST.Themainpurposeoftheprojectis:

o totransferalreadyachievedresultsoflaboratoryR&Dactivitiestotheindustriallevelofapplication;o to define boundary conditions of (micro) fibrillation of DIP fibres for the industrial level of

application;o toachievegreatermechaniccharacteristicsofDIPfibres;o todefinetheimpactoffibrillationonoptic,physicalandmechanical,andprintingcharacteristicsof

DIPfibresandpaperproducedfromfibrillatedDIPfibres(DIPF)accordingtotheVVKtechnologicalprocedure;

o toreplacetheshareofpurchasedCBSacelluloseinSOF42.5andlaterinthenewproductSOF40;o toreducetheshareofpurchasedCBSacelluloseinVi‐rangeandotherproductsincorrelationwith

theachieved‐prescribedoptic,physicalandmechanical,andprintingcharacteristicsofproducts.DIPfibremicrofibrillationwascarriedoutin2012onthelinesformilling‐fibrillationofdeciduoustimber(R2andR3)andonthelineformilling‐fibrillationofconiferoustimber(R4andR5)inthescopeofexistinginstallationsofPM1.ThesecondsetofveryextensiveR&DactivitieswascarriedoutonPM2.Withadelay,itwasalsointroducedin the secondary wet part of PM1. By introducing the new retention fixing system (RFS) Perform wesuccessfullyestablishedareverseHydrocolretentionsystem,whichismorethantwodecadesoldandlessefficientinthecurrentconditionsofuse.


32

Thusweachieved:- betterconditionsofdrainageinthewetpartofPM;- simplerandbettermanagementof total retentionof substanceandash inmoredemandingpaper

production conditions with maximum DIP input and more burdened DIP with disturbing colloidparticleswithmaximumDIPoperatingcapacity;

- a smaller burden on the secondary circuit of returnwater from the wet part and preparation ofsubstances,andthusbetterconditionsfordrainageinthephaseoftreatingsievewateronPDFPM2;

- lowercostsoftheentireretentionfixingsystemonPM2,whichiswhythepolymer‐flocculationpartwasalsointroducedinthesecondarycircuitonPDFPM1.

6.INVESTMENTACTIVITIESInspireofthedifficultoperatingconditions,theCompanyallocatedEUR1.3millionto improvementoftheproductionprocessandthusendproducts.EveryinvestmentisdiscussedandapprovedbytheManagementBoard. In 2012, the investment activity focused on reducing themanufacturing defects in production, theefficientuseofenergyandhandlingofthemostcriticalnoisypointsintheCompany.

InvestmentsbyyearinEURthousand

1997/2005 2006 2007 2008 2009 2010 2011 2012

Environmentalinvestments

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

Technologicalinvestments

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

Yeartotal 106,851 8,174 5,729 17,311 3,400 1,470 1,220 1,299

Investmentsin2012inEUR REALISATION2012Environmentalinvestments

Noiseregulation‐3rdphase Efficientuseofenergy

64,07438,14425,930

Technologicalinvestments 1,234,998

Majormaintenance Processingforoptimisationofpaperproduction Computerequipment Technologicalmodifications Processingforoptimisationoffibres Software‐licences Granitecylinderofthe2ndpress Other

1,182,97011,70611,99511,5639,6043,9101,2462,004

INVESTMENTTOTAL 1,299,072


33

7.EMPLOYEESAttheendoftheyear,theCompanyemployed382employees,whichis7fewer(2%)thantheyearbefore.Ofthese, fouremployeesareemployedpartly (5%ofworking time) in theparent companyandpartly in therelatedcompanyZEL‐EN‐researchanddevelopmentcentreKrško.21employeeslefttheCompanyand14newemployeeswererecruited.Thereasonsfor21employeesleavingtheCompanywerethefollowing:‐8employeesretired,‐5employeesweredismissedduetonon‐performance,‐3employeeswerecancelledtheircontractsforbusiness‐relatedreasons,‐2employeesterminatedemploymentbyagreement,‐3employeesleftforotherreasons(death,part‐timeemployment).AttheendoftheyeartheVipapGrouphad484employees.Owingtothedecreaseinthenumberofemployeesthephysicalindicatoroflabourproductivityin2012grewfrom523tonnes/employeeto545tonnes/employee.Labourproductivitybyyearintonnes/employee

EmployeesstructureTheexistingHRstructurestayedatalevelsimilartotheonefromtheyearbefore.Theaverageemployeeagewas46.4years.Theemployeescomprised83%menand17%women.Attheendoftheyear,weemployed16occupationally disabledworkers. The professional education of employeeswas similar as the year before,withemployeeswith levels IIIandIVaccountingforno less than57%ofthe total.Employeeswith level IIeducationrepresentonefifthofallemployees.EmployeeswitheducationallevelsVIorVIIaccountfor18%.

2011 % 2012 % INDEX12/11‐TechnicalDepartment 322 83 314 82 98‐ AdministrativeServices

67 17 68 18 101

Total 389 100 382 100 98

300

350

400

450

500

550

600

2010 2011 2012

ton

nes

/em

plo

yee


34

Absencefromwork(absenteeism)In 2012, sick leave of all employees represented 42,096 hours, including pregnancy leaves and absencerelated to blood donation. This represents 110 hours per employee. In comparison to the year before,absencefromworkrosefrom4.7%to5.4%.Themainreasonisdefinitelyrelatedtotheageingofthelabourforcewithintheentirecompany.Theshareofsick leavefrom7to30days increased.Wealsorecordedanincrease in absence from work owing to occupational injuries, as some injuries required prolongedtreatment.Thenumberofinjurieswasthesameastheyearbefore,i.e.16.Thus,theoccupationalinjuryratewas4%.EmployeetrainingIn2012, theCompanyallocatedEUR23,003 to employee training. Inorder to reduce costs, some trainingeventswere organised in‐house, since the number of participantswas high. Total training hours equalled1,030.104employeestookpartintraining.Employeesspentonaverage9.9hoursintraining.TheCompanyisfinancingtwoscholarships.SalariesIn2012,averagesalaryintheCompanytotalledEUR1,640or3.2%morethantheyearbeforeand7.5%morethantheSlovenianaverage.TheCompanydeterminesthebasesalaryratioinlinewiththetariffclassesfromthe Collective Agreement of the Pulp, Paper and Paper Processing Industry, Rules on a StimulatingRemuneration System, Rules on the Implementation of the System of Salaries, Compensations RegardingWorkandotherLabourCostsandresolutionsoftheManagementBoardwhichalignsthewagepolicywiththecurrentperformanceresultsoftheCompany.In2012,theCompanypaidholidayallowanceofEUR1,059grossperemployee.Employeewell‐beingFor a number of years the Company has organised an employeemeeting in September, featuring varioussportsgames,competitioningoulash‐makingandwineevaluation.Inthescopeofaninnovativeactivity,employeesreceiveawardsforinnovativeideas.Employeesreceivelong‐serviceawardsfor10,20,30and40yearsofserviceintheCompany.Weconducted149periodicaloccupationalmedicalexaminations.TheCompanypaysEUR35permonthforemployees'secondpensionpillaratMojanaložba.EmployeescanspendtheirvacationintwocompanyholidayfacilitiesinNerezine.TheCompanyprovidesahotmealtoemployeesattheheadquarters.For a series of years, the Company has had a contract with themedical centre Aristotel d.o.o., where allemployeescangetafreeflueshot.


35

8.EXPECTATIONSFOR2013NextyearweplanaminimumincreaseintheprofitoftheCompany.Theplannedoperatingresultfor2013ispositive, equalling EUR 110 thousand.We are planning full utilisation of production capacities, and a 1%growthinproductionandsales.Thesalespolicyprojectsanupwardtrendinmarketsharesonthosemarketswherethehighestsalespricesareachieved,withtheaimbeingtheachievementofatleastplannedaverageprice.Material costs of production are expected to be at the 2012 level. In terms of other operating costmanagement, we are planning absolute streamlining of operations in the following year. The Company'sdevelopment projects related to the use of waste and energy products will be carried out within thedevelopment centre ZEL‐EN, whilst the development of new products will be implemented within theCompany and in cooperation with the Pulp and Paper Institute. As regards cash management, we areplanningafasterturnoverofcashforreceivablesanddecreasedaccountspayableaswellasanimprovementofliquiditysituationusingownandforeignsourcesforreprogrammingtherepaymentoflong‐termloansandadditionalfinancing.ThemostimportantoperatinggoalsoftheCompanyin2013weregoalsrelatedtothefinancialstabilityandliquidityoftheCompany:

- Restructuringoftheexistingfinancialliabilitiesbyreprogrammingrepaymentsoflong‐termloansandconsequentlyreducingtherelatedliabilitiesby50%;

- Obtainingnewfundsforrepaymentofoverdueliabilitiestosuppliersandfinancingthedevelopmentandinvestmentsintechnologytoboostvalueadded.

Goalsrelatedtotheimplementationofthebusinessprocess:

Ensuringtheplannedsalesintermsofvalue. Fullutilisationofplannedproductioncapacities. Ensuring production productivity and efficient implementation of production activities with a

productrangethatprovideseconomicandcost‐effectiveproduction. Thesearchfornewmarketnichesandthedevelopmentofnewrecycledpaperswithhigheradded

value. Maximumutilisationofproductionandsalesflexibility. MaximumrationalisationoffixedcostsoftheCompany. Fasterturnoverofcashtiedininventoriesandreceivables. Extensionofpaymentdeadlinesinpurchasingandshorteningofpaymentdeadlinesinsales. Ensuring efficient management of all types of risk arising from changeability of the business

environmenttowhichtheCompanyisexposedandintroducingasystemformanagingoperationalandfinancialrisksintheCompany.

Preparing an energy development strategy and comprehensive optimal energy supply for theCompany.

Selectiveimplementationoftheinvestmentplanbyconsideringinvestmentreturn;priorityisgiventoinvestmentsintechnologyandrationaluseofenergy.

Developingnewproductswhichwill in the futureprovidegreatermarketcompetitiveness,placingthe Company's products in a higher price bracket, generating higher value added and thus betterbusinessresults,whilelookingfortechnical‐technologicalpossibilitiestoreduceproductioncosts.

Increasingvalueaddedperemployee.


36

III.ENVIRONMENTALREPORT


37

1.ACHIEVEMENTSIN2012TheCompanyhasbeenimplementingitsenvironmentalpolicysince1997.TheextensiveenvironmentalandtechnologicalmodernisationofintegratedproductionoffibresandpaperinKrškowascompletedin2007.Intheareaofenvironment,theyears2010,2011,and2012werecharacterisedbythefollowingevents:A. ENVIRONMENTALPERMIT‐OVDInDecember2009,theCompanyobtainedtheenvironmentalpermit(OVD),whichprovesthatitsoperationsarecompliantwiththerequirementsoftheenvironmentallegislationandotherregulations,applicableatthelocal,nationalandtheEUlevel.InDecember2011,theCompanyreceivedtheDecisionontheAmendmentstotheEnvironmentalPermitforprocessingresidualsfromcombustionplantsintoconstructionproducts.TheCompanywasissuedtheenvironmentalpermitfortheperiodof10years,namelyfor:

- industrialplantsfortheproductionoffibresfromwoodandotherfibrematerialswiththecapacityof690t/day;

- industrialdevicesfortheproductionofpaperwiththecapacityof840t/day;- combustionplantswithRTIof127.75MW;- othertechnologicallyconnecteddevices.

Theobtainmentof theenvironmentalpermit isaproofandaconfirmationthat theCompanyhassetuparesponsible environmental management system and at the same time its responsibility to meet therequirementsofthepermit,thelegislationandtheregulations,andtoconstantlyimproveitsmanagementinall environmental aspects (water, air, waste management, radiation, handling of dangerous substances,efficientuseofwater,energy,rawmaterialsandnaturalresources).InAugust2009theCompanyrenewedthePermitforgreenhousegasemissionsno.35433‐73/2009‐3.Inthesecondhalfof2011,theCompanysubmittedall therelevanttechnicalbasesfordeterminingthequotaforfreeemissioncouponsfor2013‐2020.In2012, theCompany submitted the technical bases for capturingwater from the Sava river and itsownwellsaswellastheapplicationforextensionofthepartialwaterpermit;inFebruary2013theCompanywillbeissuedapartialwaterpermitno.355536‐42/2012‐8foraperiodof30years.Intheareaofindustrialpollution,theEUinNovember2010adoptedtheDirective2010/75/EUonindustrialemissions–IED,whichreplacedtheso‐calledIPPCDirective.TheIEDDirectivehasnotyetbeentransposedinto the Slovenian legislation; however, the Company has integrated the guidelines and goals of the IEDDirective inthepreparationof thedevelopmentandinvestmentprogramme–RIP2017A,EIAstudies, theapplicationsforamendmenttotheenvironmentalpermitandtheformulationoftheTransitionalplanforthelargecombustionplansK4andK6.Theabovedevelopment,investmentandenvironmentaldocumentationwas prepared in the second half of 2012 and submitted to the Environmental Agency of the Republic ofSlovenia(ARSO),wherebytheadministrativeprocedureforamendingtheenvironmentalpermitisexpectedtobecompletedin2013.B.ENVIRONMENT‐FRIENDLYPRODUCTS‐EUECOLABEL,FSCTogetherwith theEnvironmentalAgencyof theRepublicofSlovenia (ARSO), theCompanycarriedout theadministrativeprocedureforobtainingandexpandingtheEUenvironmentallabelfor5productsthatmeettherequirementsoftheEUregulationsandtheenvironmentalcriteriaforphotocopyingandgraphicpapersimposedbytheDecisionoftheCommission2011/333/EU.Becauseoftherequirementsofthecustomers,particularlythosefromtheEU,theCompanydecidedtoobtaintheEUecolabelforcertainproducts.Wethusobtainedthislabelforthreeproductsalreadyin2006.In2012westudied therevisedEU legislation in therelevantarea,particularly theenvironmentalcriteria fromtheDecision of the Commission 2011/333/EU, which apply to photocopying and graphic papers. In thereport/application submitted by the Company in July 2012 and the administrative procedure it wasestablishedthattheproductsVIPCO,VIPRESS,VIPRINT,VIMAGandVIMAXmetallthecriteriaforobtainingtheEUecolabelintermsofemissionsintothewaterandtheair,rationaluseofelectricityandheatenergy,sustainableforestmanagement,useandhandlingofdangerouschemicals,wastemanagement,suitabilityfor


38

use, information on the packaging and in air‐related environmental information. In November 2012 theEnvironmentalAgencyoftheRepublicofSloveniaissuedDecisionno.35400‐225/2012‐1.

SPECIFICATIONSOFPRODUCTSWITHTHEEUECOLABELProductname

Fibrecomposition Intendeduse Registrationnumber(code)Madein

EUecolabel

VIPCO

• Photocopying;• digitalprinting;• printingofbooksandbrochures,etc.;

• printingofperiodicalsandpromotionalmaterials;

• multi‐colourandblack&whiteoffsetprint

SI/011/01Krško,SLO

VIPRESS

VIPRINT

VIMAG

VIMAX

• printingofperiodicalsandpromotionmaterials;

• printingofcatalogues,children’sbooks,colouringbooks;

• sheet‐fedprint;multi‐colourandblack&whiteheat‐setoffsetprint(VIPRESSincoldset)

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

SI/011/02

Groundwood;

18%

Chemical pulp;

17%

Recycl.

fibres;

65%

Groundwood; 20%

Chemical pulp; 16%

Recycl. fibres; 64%

SI/011/01

SI/011/02

SI/011/03

SI/011/04

SI/011/05


39

Basedondemandsandexpectationsofcustomers fromtheEUmarket, theCompanyhasbeensettingupamanagement,handlingandtrackingsystemintheentirechainofsustainablemanagementofwoodandwoodproducts according to the requirements of the FSC CoC standards. We plan that all our products will beassessedandissuedtheFSCCoCMIXcertificateinmid2013.C.TREATMENTPLANTFORWASTEWATEROFTHECOMPANYANDTHETOWNOFKRŠKOInAugust2009westarted treating themunicipalwastewatersofKrškoand thesurroundingareasat thecentralwastewater treatmentplant. In2012,more than90%ofmunicipalwastewatersofKrškowith itssurroundingsweretreatedatthecentralwastewatertreatmentplantVIPAP.ThetreatmenteffectsofwastewatertreatmentatthecentralwastewatertreatmentplantVIPAP:

Unitofmeasurement

2007 2008 2009 2010 2011 2012

CODpercentageofreduction % 92.3 91.4 93.5 93.1 94.6 94.3

BODpercentageofreduction % 99.0 98.9 99.2 98.8 99.3 99.4

AOXpercentageofreduction % 69.8 75.4 81.2 71.4 82.2 79.3

Percentageofreduction‐suspendedsolids

% 99.399.3 99.5 99.2

99.7 99.4

Percentageofreduction‐totalP

% 80.886.9 94.1 93.3

93.6 93.5

Percentageofreduction‐totalboundN

% 73.7 78.1 87.0 88.0 88.8 88.0


40

2.ENVIRONMENTALIMPACTOur impacts on the narrow and broader environment are monitored through measurements. We areconstantlyadaptingtotheenvironmentallegislationandoperateinlinewiththeinternationalenvironmentalstandards.Themonthlyanalysiscomprisesthefollowingenvironmentalindicators:A. SpecificuseofenergyandwaterB. SpecificwastewaterdischargeC. SpecificairemissionsfromtheCompanyD. Specificquantitiesofrecoveredandremovedwaste

A.SPECIFICUSEOFENERGYANDWATERInrecentyears,theCompanyimplementedmeasuresforefficientuseofrawmaterials,energyandwater.

Unitofmeasure

ment

2007 2008 2009 2010 2011 2012

Processwater m3/tg.p.* 19.5 21.6 20.3 18.2 17.4 18.2Steam GJ/tg.p. 5.27 5.25 4.71 4.59 4.68 4.77Electricity kWh/tg.p. 872 869 865 843 838 862

* g.p. = gross production

0 20 40 60 80 100 120

2007

2008

2009

2010

2011

2012

In %

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


41

B.SPECIFICWASTEWATERDISCHARGEThe indicatorsof specificwastewaterdischargehave improvedover the last threeyears, as shown in thetableandgraphbelow.

Unitofmeasure

ment

2007 2008 2009 2010 2011 2012

Suspendedsolids kg/tg.p. 0.16 0.18 0.14 0.19 0.08 0.14COD kgO2/tg.p. 2.4 3.1 2.3 2.0 1.5 1.6BOD5 kgO2/tg.p. 0.11 0.13 0.10 0.13 0.09 0.08

Quantityofwastewater m3/tg.p. 18.6 17.7 17.5 17.7 15.0 16.5

0

0.5

1

1.5

2

2.5

2010 2011 2012

-11 3 5 7 9 11 13 15 17 19

Suspended solids COD Quantity of waste water BOD5

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 825

830

835

840

845

850

855

860

865

Process water Steam Electricity


42

C.SPECIFICAIREMISSIONS

Unitofmeasureme

nt

2007 2008 2009 2010 2011 2012

Sulphurdioxide kgSO2/tg.p. 0.442 0.301 0.251 0.473 0.452 0.392Nitrogenoxides kgNO2/tg.p. 1.316 1.100 0.920 1.136 0.979 0.991

Carbondioxide kgCO2/tg.p. 487.14 475.35 433.44

430.75

436.30 409.56

Overthelastthreeyears,theCompanyreduceditsspecificemissionsintotheair.Bytakingactionsaimedatefficient use of energy and increasing the share of renewable energy sources, the Company reducesgreenhousegasemissionsandfossilCO2emissions.

D.SPECIFICQUANTITIESOFTHECOMPANY'SRECOVEREDANDREMOVEDWASTETheCompanyplanswastemanagementcarefully‐ itseparateswasteatsource,thequantitiesofrecoveredwastehavebeengrowingsince2010duetotheprocessingofcombustionwastefromboiler4andboiler5intoconstructionproducts,whilstthequantitiesofdepositedwastearedeclining.

Unitofmeasureme

nt

2007 2008 2009 2010 2011 2012

R‐wasterecovery kgs.s./tg.p. 179 183 168 241 304 297D‐wastedisposal kgs.s./tg.p. 79 104 109 87 38 24

Totalwasteproduced kgs.s./tg.p. 246 288 288 323 338 321

0.000

0.200

0.400

0.600

0.800

1.000

1.200

2008 2009 2010 2011 2012

360

380

400

420

440

460

480

500

sulphur dioxide nitrogen oxides carbon dioxide


43

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012

kg/t

R - waste recovery D - waste disposal


44

IV.FINANCIALREPORT


45

1.FINANCIALSTATEMENTS

1.1.BALANCESHEETASAT31DECEMBER2012

Note31December

201231December

2011

inEUR inEUR

ASSETS 135,418,065 143,114,133

A.Long‐termassets 111,133,643 118,583,148I.Intangiblefixedassetsandlong‐termdeferredexpensesandaccruedrevenues 1 506,932 132,783

1.Long‐termpropertyrights 201,172 132,783

4.Long‐termdeferreddevelopmentcosts 305,760 0

5.Otherlong‐termdeferredexpensesandaccruedrevenues 0 0

II.Property,plantandequipment 2 101,089,511 108,697,580

1.Landandbuildings 30.416,748 32,593,034

a)Land 8,453,232 8,302,056

b)Buildings 21,963,516 24,290,978

2.Plantandmachinery 67,489,210 72,630,852

3.Otherplantandequipment 2,781,523 3,137,355

4.Property,plantandequipmentbeingacquired 402,030 336,339a)Property,plantandequipmentunderconstructionandmanufacture 402,030 336,339

b)Advancesforproperty,plantandequipment 0 0

IV.Long‐termfinancialinvestments 3 433,797 319,797

1.Long‐termfinancialinvestments,excludingloans 433,797 319,797a)SharesandparticipatinginterestsincompanieswithintheGroup 433,797 319,797

3.Long‐termoperatingreceivablesduefromothers 0 0

VI.Deferredtaxassets 4 9,103,403 9,432,988

B.Currentassets 23,744,377 23,885,501

I.Assets(disposalgroups)availableforsale 0 0

II.Inventories 5 9,636,762 10,147,232

1.Material 5,628,416 6,690,176

2.Unfinishedproducts 116,927 9,238

3.Productsandmerchandise 3,816,266 3,343,862

4.Advancesforinventories 75,153 103,956

IV.Short‐termoperatingreceivables 6 12,918,259 12,726,298

1.Short‐termoperatingreceivablesduefromtheGroupcompanies 3,611,176 940,513

2.Short‐termoperatingtradereceivables 7,786,966 10,154,552

3.Short‐termoperatingreceivablesduefromothers 1,520,117 1,631,233

V.Cash 7 1,189,356 1,011,971

C.Short‐termdeferredexpensesandaccruedrevenues 8 540,045 645,484


46

Note31December

201231December

2011

EQUITYANDLIABILITIES 135,418,065 143,114,133

A.Equity 9 70,621,132 70,161,668

I.Called‐upcapital 78,387,660 78,387,660

1.Sharecapital 78,387,660 78,387,660

II.Capitalreserves 588,439 588,439

III.Revenuereserves 96,744 96,744

1.Legalreserves 96,744 96,744

2.Reservesfortreasurysharesandownstakes 3,557,093 3,557,093

3.Treasurysharesandownstakes(asadeductibleitem) ‐3,557,093 ‐3,557,093

4.Otherrevenuereserves 0 0

IV.Revaluationsurplus 2,768,461 2,385,484

V.Retainednetprofit/loss ‐11,220,172 ‐8,747,734

VI.Netprofit/lossfortheyear 0 ‐2,548,925

Profit/lossfortheyear 0 ‐2,548,925

B.Provisionsandlong‐termaccruedexpensesanddeferredrevenues 10 611,078 1,187,570

1.Provisionsforpensionsandsimilarliabilities 410,737 997,501

2.Otherprovisions 200,341 190,069

3.Long‐termaccruedexpensesanddeferredrevenues 0 0

C.Long‐termliabilities 10,111,931 16,522,172

I.Long‐termfinancialliabilities 9,504,220 15,925,801

2.Long‐termfinancialliabilitiestobanks 11 9,359,490 15,181,789

4.Otherlong‐termfinancialliabilities 12 144,730 744,012

III.Deferredtaxliabilities 607,711 596,371

D.Short‐termliabilities 53,286,556 54,692,190

II.Short‐termfinancialliabilities 13 24,041,918 23,043,120

2.Short‐termfinancialliabilitiestobanks 23,444,892 22,431,749

4.Othershort‐termfinancialliabilities 597,026 611,371

III.Short‐termoperatingliabilities 29,244,638 31,649,070

1.Short‐termoperatingliabilitiestotheGroupcompanies 1,023,230 931,882

2.Short‐termoperatingliabilitiestosuppliers 14 26,153,819 29,054,677

4.Short‐termoperatingliabilitiesfromadvances 449,323 145,354

5.Othershort‐termoperatingliabilities 15 1,618,266 1,517,157

E.Short‐termaccruedexpensesanddeferredrevenues 16 787,368 550,533Note:Financialstatementsmustbe interpretedtogetherwith therelevantnotespresentedunderPoint2.2.Notestothefinancialstatements.


47

1.2.STATEMENTOFCOMPREHENSIVEINCOMEFORTHEPERIODFROM1JANUARY2012TO31DECEMBER2012 Note 2012 2011

1. Netsalesrevenues 17 100,463,752 105,778,584

2. Changeininventoriesofproductsandworkinprogress 579,866 318,481

4.Otheroperatingrevenues(includingrevaluationoperatingrevenues) 18 2,181,348 1,598,756

5. Costsofgoods,materialsandservices 81,273,315 89,285,527a) Costofgoodsandmaterialssoldandcostofmaterialsused 70,665,657 78,795,832b) Costsofservices 19 10,607,658 10,489,6956. Labourcosts 20 10,019,067 9,941,606a) Costsofsalariesandwages 7,265,685 7,390,385b) Socialsecuritycosts 1,381,095 1,379,395c) Otherlabourcosts 1,372,287 1,171,8267. Write‐offs 8,021,091 8,536,396a) Amortisation 7,578,967 7,949,580

b)Operatingexpensesfromrevaluationofintangibleandtangiblefixedassets 294,228 343,330

c) Revaluationoperatingexpensesforcurrentassets 147,896 243,4868. Otheroperatingexpenses 21 970,440 1,081,581

Operatingprofit/loss 2,941,053 ‐1,149,289

9. Financialrevenuesfromparticipatingshares 80,782 0a) FinancialrevenuesfromsharesinGroupcompanies 80,782 011. Financialrevenuesfromoperatingreceivables 22 62,639 692,583b) Financialrevenuesfromoperatingreceivablesduefromothers 62,639 692,58313. Financialexpensesforfinancialliabilities 23 2,508,459 2,654,677b) Financialexpensesforloansreceivedfrombanks 2,440,744 2,556,041d)Financialexpensesforotherfinancialliabilities 67,715 98,63614. Financialexpensesforoperatingliabilities 24 257,700 352,723b) Financialexpensesfromtradepayablesandbillspayable 257,700 352,723 Netprofit/lossfromordinaryactivities 318,315 ‐3,464,106 15. Otherincome 25 101,635 1,179,34616. Otherexpenses 13,878 30,051 Operatingprofit/lossfromextraordinaryactivities 87,757 1,149,29517. Corporateincometax 27 0 018. Deferredtaxes ‐329,585 ‐234,114

19. Netprofit/lossfortheperiod 76,487 ‐2,548,925

20.Changeinsurplusfromrevaluationofintang.assetsandproperty,plantandequipment ‐52,108 0

21. Totalcomprehensiveincomefortheyear 24,379 ‐2,548,925Note:Financialstatementsmustbe interpretedtogetherwith therelevantnotespresentedunderPoint2.2.Notestothefinancialstatements.


48

1.3.CASHFLOWSTATEMENTFORTHEPERIODFROM1JANUARY2012TO31DECEMBER2012 2012 2011

A. Cashflowsfromoperatingactivities

a) Itemsofincomestatement 8,577,152 5,648,161

Operatingrevenues(exceptfromrevaluation)andfinancialrevenuesfromoperatingreceivables 100,824,831 106,255,283

Operatingexpenses,excludingamortisationanddepreciation(exceptrevaluation)andfinancialexpensesfromoperatingliabilities ‐91,918,094 ‐100,373,008

Incometaxesandothertaxesnotincludedinoperatingexpenses ‐329,585 ‐234,114

b)Changesinnetworkingcapital(andaccrualsanddeferrals,provisionsanddeferredtaxassetsandliabilities)ofbalancesheetoperatingitems 703,994 700,661

Openinglessclosingoperatingreceivables 2,543,596 ‐1,765,917

Openinglessclosingdeferredexpensesandaccruedrevenues ‐226,658 165,917

Openinglessclosingdeferredtaxassets 329,585 234,114

Openinglessclosinginventories 510,470 281,230

Closinglessopeningoperatingliabilities ‐2,537,814 2,197,182

Closinglessopeningaccruedexpensesanddeferredrevenues,andprovisions 84,815 ‐411,865

Closinglessopeningdeferredtaxliabilities 0 0

c)Netoperatingreceiptsornetoperatingdisbursements(a+)b) 9,281,146 6,348,822

B. Cashflowsfrominvestingactivities

a) Cashreceiptsfrominvestingactivities 453,313 1,529,938

Receiptsfrominterestandparticipationinprofitrelatingtoinvestingactivities 80,782 0

Cashreceiptsfromdisposalofintangibleassets 653,282

Cashreceiptsfromdisposalofproperty,plantandequipment 372,531 876,656

b) Cashdisbursementsforinvestingactivities ‐2,352,654 ‐2,421,308

Cashdisbursementsforacquisitionofintangibleassets ‐48,386 0

Cashdisbursementsforacquisitionofitemsofproperty,plantandequipment ‐2,266,268 ‐2,383,308

Cashdisbursementsforacquisitionoflong‐termfinancialinvestments ‐38,000 ‐38,000

c)

Netreceiptsfrominvestmentactivityornetdisbursementsforinvestmentactivity(a+b) ‐1,899,341 ‐891,370

C. Cashflowsfromfinancingactivities

a) Cashreceiptsfromfinancingactivities 999,481 3,648,873

Cashreceiptsfrompaid‐incapital 0 0

Cashreceiptsfromincreaseinlong‐termfinancialliabilities 0 0

Cashreceiptsfromincreaseinshort‐termfinancialliabilities 999,481 3,648,873

b) Cashdisbursementsforfinancingactivities ‐8,203,901 ‐9,977,586

Interestpaidonfinancingactivities ‐2,394,757 ‐2,615,979

Repaymentsoflong‐termfinancialliabilities 0 0

Repaymentsofshort‐termfinancialliabilities ‐5,809,144 ‐7,361,606

c)Netreceiptsfromfinancingactivityornetdisbursementsforfinancingactivity(a+b) ‐7,204,420 ‐6,328,712

D. Finalbalanceofcash 1,189,356 1,011,971

x) Netcashflowsfortheperiod(sumofAc,BcandCc) 177,385 ‐871,260

y) Openingbalanceofcash 1,011,971 1,883,231Note:FinancialstatementsmustbeinterpretedtogetherwiththerelevantnotespresentedunderPoint2.2.Notestothefinancialstatements.


49

1.4.STATEMENTOFCHANGESINEQUITYFOR2012

SharecapitalLegal

reservesReservesforownstakes

Treasuryshares

Otherrevenuereserves

Profit/lossbroughtforward

Netprofit/lossfortheyear

Capitalreserves

Revaluationsurplus Total

A.1.Balanceasat31December2011 78,387,660 96,744 3,557,093 ‐3,557,093 ‐11,296,659 0 588,439 2,385,484 70,161,668

a)Retrospectiverestatements(eliminationoferrors) 435,085 435,085

b)Retrospectiveadjustments(changesinaccountingpolices) 0

A.2.Balanceasat1January2012 78,387,660 96,744 3,557,093 ‐3,557,093 0 ‐11,296,659 0 588,439 2,820,569 70,596,753

B.1.Changesinequity‐transactionswithowners

a)Subscriptionofcalled‐upsharecapital 0

(capitalpayment) 0

b)Subscriptionofuncalledsharecapital 0

c)Call‐upofsubscribedsharecapital 0

d)Entryofadditionalpaymentsofequitycapital 0

e)Purchaseoftreasurysharesandownstakes 0

0 0 0 0 0 0 0 0 0 0

B.2.Totalcomprehensiveincomeforthereportingperiod 0

a)Netprofit/lossforthefinancialyear 76,487 76,487

d)Changeinsurplusfromrevaluationofintangibleassets ‐52,108 ‐52,108d)Changeinsurplusfromrevaluationofproperty,plantandequipment 0d)Changeinsurplusfromrevaluationoffinancialinvestments 0

0 0 0 0 0 0 76,487 0 ‐52,108 24,379

B.3.Changesinequity a)Allocationofremainingnetprofitofthecomparativereportingperiodtootherequitycomponents 0

b)Allocationofpartofnetprofitofthereporting 76,487 ‐76,487 periodtootherequitycomponentsaccordingtotheresolutions

ofthemanagementandsupervisionbodies 0

0 0 0 0 0 0 0 0 0 0

C.Balanceasat31December2012 78,387,660 96,744 3,557,093 ‐3,557,093 0 ‐11,220,172 0 588,439 2,768,461 70,621,132

DISTRIBUTABLEPROFIT

Note:FinancialstatementsmustbeinterpretedtogetherwiththerelevantnotespresentedunderPoint2.2.Notestothefinancialstatements.


50

1.5.STATEMENTOFCHANGESINEQUITYFOR2011

SharecapitalLegal

reservesReservesforownstakes

Treasuryshares

Otherrevenuereserves

Profit/lossbroughtforward

Netprofit/lossfortheyear

Capitalreserves

Revaluationsurplus Total

A.1.Balanceasat31December2010 78,387,660 96,744 3,557,093 ‐3,557,093 ‐8,747,734 0 588,439 70,325,109

a)Retrospectiverestatements(eliminationoferrors) 0

b)Retrospectiveadjustments(changesinaccountingpolices) 2,385,484 2,385,484

A.2.Balanceasat1January2011 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.Changesinequity‐transactionswithowners

a)Subscriptionofcalled‐upsharecapital 0

(capitalpayment) 0

b)Subscriptionofuncalledsharecapital 0

c)Call‐upofsubscribedsharecapital 0

d)Entryofadditionalpaymentsofequitycapital 0

e)Purchaseoftreasurysharesandownstakes 0

0 0 0 0 0 0 0 0 0 0

B.2.Totalcomprehensiveincomeforthereportingperiod 0

a)Netprofit/lossforthefinancialyear ‐2,548,925 ‐2,548,925c)Changeinsurplusfromrevaluationofproperty,plantandequipment 0

d)Changeinsurplusfromrevaluationoffinancialinvestments 0

0 0 0 0 0 0 ‐2,548,925 0 0 ‐2,548,925

B.3.Changesinequity a)Allocationofremainingnetprofitofthecomparativereportingperiodtootherequitycomponents 0b)Allocationofpartofnetprofitofthereportingperiodtootherequitycomponentsaccordingtotheresolutionsofthemanagementandsupervisionbodies 0

0 0 0 0 0 0 0 0 0 0

C.Balanceasat31December2011 78,387,660 96,744 3,557,093 ‐3,557,093 0 ‐8,747,734 ‐2,548,925 588,439 2,385,484 70,161,668Note:FinancialstatementsmustbeinterpretedtogetherwiththerelevantnotespresentedunderPoint2.2.Notestothefinancialstatements.


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2.APPENDIXTOTHEFINANCIALSTATEMENTS

2.1.ACCOUNTINGPOLICIESANDASSUMPTIONSThe financialstatements for2012arecompiled inaccordancewiththeSlovenianAccountingStandards(SAS; valid since 1 January 2006) as well as the amendments to the Slovenian Accounting Standards,whichenteredintoforceatalaterdate,andwiththebasicaccountingassumptionsofmatching(accrualbasis),agoingconcernbasis,consistencyofvaluationandconsiderationoftheprinciplesofprudenceandfairvalue.Therequirementforatrueandfairpresentationoftheassets,financialpositionandtheincomestatementprevail. A key element of the appendix with the notes is the presentation of valuation methods andwriting‐offs, i.e. accounting policies for individual items in the annual balance sheet and statement ofcomprehensiveincome.TheSASprescribetheprincipalqualitativecharacteristicsof financialstatements(coherence,relevance,reliabilityandcomparability).Whendisclosingtheitemsinthebalancesheetandthestatementofcomprehensiveincome,SAS24and25 are taken into account. Besides the statement of comprehensive income and the balance sheet, theCompanyalsopreparesthestatementofcashflowsandthestatementofchangesinequityintherevisedform.The statement of financial position is compiled in the double‐entry balance sheet format. It has twocolumns:dataasat31December2011anddataasat31December2012.The statement of comprehensive income is in sequential format (single‐step income statement) and ispreparedinFormatI,followedbychangesinothercomprehensiveincome.ThecashflowstatementiscompiledaccordingtoFormatII.Thecashflowstatementdiscloseschangesinthebalanceofcashforthefinancialyeararisingfromoperations,investingandfinancing.The statement of changes in equity is a basic financial statement, which provides a true and fairpresentationofchanges tocomponentsofequity for the financialyearandhasthe formofacompositetablepresentingchangesinallequitycomponents.Therulesandproceduresusedbythemanagementincompilingandpresentingthefinancialstatementsarebasedontheprinciplessetoutabove,whereinsomeoftheaccountingpoliciesareoptional,withthemanagementbeing able to select touseoneof anumberof variants.Below is the summaryof generalaccountingpoliciesandaccountingpoliciesusedbytheCompanyinrelationtovaluingindividualbalancesheetitems:

Tangible fixed assets (property, plant and equipment) that meet recognition conditions areinitiallyrecognisedatcost.Thiscomprisesthepurchaseprice,importdutiesandnon‐refundablepurchasetaxes,demolitioncosts,thecoststhatcanbedirectlyascribedtothemformakingthemfit for their intended use, and the costs of testing whether the asset is functioning properly.Property, plant and equipment are activatedwhen they aremade ready for use. Their value isverified upon each compilation of final accounts and the fixed asset is impaired, if necessary.Following recognition, the costmethod isusedas themethodof valuation.Property,plant andequipmentaredepreciatedindividuallyusingastraight‐linemethod.Costs incurred subsequently on a fixed asset increase its cost when they increase its futureeconomicbenefitsinexcessofthefutureeconomicbenefitsoriginallyestimated.

Anintangibleassetisdefinedasidentifiablenon‐monetaryassetwithoutphysicalsubstance.Itis

valuedatpurchaseprice,includingimportdutiesandpurchasetaxes.Followingrecognition,thecostmethodisusedasthemethodofvaluation.Intangibleassetsareamortisedusingastraight‐line method. Intangible fixed assets also include emission coupons and deferred developmentcosts.

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

valuationsarebasedoncost.


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Inventory items ofmaterial andmerchandise are initially recognised at the actual cost, which

comprises thepurchaseprice, importduties andothernon‐refundablepurchase taxes, and thedirectcostsofprocurement.Purchasepriceisreducedbytheamountofdiscounts.Theaveragepricemethodisusedtovaluetheuseofinventories.Inventoriesofmaterialandmerchandisearerevalued to account for impairment if their carrying amount exceeds their market or netrealisablevalue.

In2006(31August2006),theCompanycarriedoutanappraisaloffixedassetsofthechemical

pulp production which was discontinued for environmental reasons. These fixed assets aredisclosed in the balance sheet under property, plant and equipment. They are assessed at fairvalue(sellingpricelesscostsofsales).Thelastimpairmentwascarriedoutin2008.

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

variable costs, all fixed costs of cost centres inwhichproductsaremanufacturedaswell as allcostsofotherproductioncostcentres.

Receivablesofall typesare initially recognisedatamountsrecorded in therelevantdocuments

under the assumption that the amounts owed will also be paid. Receivables are initiallyrecognised on the basis of an issued invoice. Receivables are revalued for impairment if theircarryingamountexceedstheirfairvalue(i.e.therecoverableamount).Receivablesarerevaluedto eliminate impairment if their fair value or the recoverable amount exceeds their carryingamount.Value adjustmentsof receivables aremade individually.Receivablesdenominated inaforeigncurrencyarevaluedinthefinancialstatementsaccordingtothemiddleexchangerateofthe Bank of Slovenia on the balance sheet date. Exchange rate differences represent ordinaryfinancialrevenuesorexpenses.Theamountofreceivablesfordeferredtaxeswithjustificationofrecognitionisalsodisclosed.

DuetothetransitiontoSAS2006,thecalculationoftheopeningbalanceofindividualaccounting

categoriescouldresultindeferredtaxreceivablesorliabilities,orthedeferredtaxescouldresultintemporarydifferencesbetweentheoperatingandtaxbalancesheet.Deferredtaxreceivablesarosefromtheformationofprovisionsforexpectedcosts,whichwillonlyberecognisedfortaxpurposeswhentheprovisionsareusedforthatpurpose.TheCompanycalculatesdeferredtaxesonly for significant amounts (severance payments, long‐service awards, value adjustments ofreceivables, unused tax loss and those arising from assets available for sale). The Companyexpectstaxableprofitsinthefuture.

Cashisdisclosedbycomponentsandautomaticoverdraftoncurrentaccountsheldwithbanks.It

comprises euro and other currency balances on bank accounts, euro and other currency pettycashbalancesandthebalancesofshort‐termdepositswithbanks.

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

expensesoccurringduringtheyearandtemporarilyaccruedrevenues.

The total equity capital comprises thecalled‐upcapital, capital reserves, revenue reserves, andundistributednet profit or loss for the year.Revenue reserves comprise: reserves for treasuryshares and treasury shares, and revaluation surplus. The Company is obliged to calculate theeffectonprofitorlossfortheyearifageneralcapitalrevaluationwascarriedout.

Provisions and long‐term accrued expenses and deferred revenues comprise provisions for

pensions and similar liabilities, otherprovisions and long‐termaccrued expenses anddeferredrevenues. They are formed for short‐term liabilities arising from past events involvingobligations,forwhichthesettlementperiodisnotdefinitelyset,wheretheamountcanbereliablymeasured. Theymay be treated as debts in a wider sense since they differ from liabilities toowners. Long‐term accrued expenses and deferred revenues comprise deferred revenuesexpectedtocoverestimatedcostsorexpensesinaperiodofmorethanoneyear.Thepurposeofprovisions is to accumulate amounts in the form of accrued costs or expenses that will beavailableinthefuturetocoverincurredcostsorexpenses.


53

Long‐term liabilities comprise long‐term financial liabilities.Theyare recognised inassociationwiththefinancingofownfundsthatmustbesettledorrepaid,particularlyincash,overaperiodof more than one year. Long‐term financial liabilities to banks comprise loans raised byborrowerswithcreditors.Otherlong‐termfinancialliabilitiesareliabilitiestolessorsinthecaseoffinanciallease.Long‐termliabilitiesaredisclosedinthebalancesheetasamountsrecordedinthe relevant documents under the assumption that the creditorswill require their repayment.Theyaremeasuredusingtheeffectiveinterestratemethod.Long‐termforeigndebtisconvertedto domestic currency at the reference exchange rate of the ECB from the Bank of Slovenia'sexchangeratetableasofthelastdayoftheyear.

Short‐termliabilitiescompriseshort‐termfinancialliabilitiesandshort‐termoperatingliabilities.

Short‐termfinancialliabilitiesareloansraisedwithcreditors,thesettlementofwhichisexpectedwithin one year. Short‐term financial liabilities also include liabilities to lessors arising fromfinancial leasewhichfallduewithinoneyear.Short‐termoperatingliabilitiesare liabilitiesthatfall due within a period not exceeding one year. Short‐term operating liabilities compriseoperating liabilities to suppliers, liabilities to employees for work performed, short‐termliabilities to financiers relating to interest and similar items, short‐term tax liabilities to thegovernment, including calculated value added tax, and short‐term liabilities arising from thedistributionofprofits.Aspecialtypeofshort‐termoperatingliabilitiesareliabilitiestosuppliersfor advances and short‐term securities received. They are disclosed at amounts recorded inrelevantdocuments(invoices,creditnotes,contracts).

Short‐termdeferred revenues and accrued expenses represent accrued expenses. According to

SAS12,short‐termaccruedexpensesanddeferredrevenuesshouldnothidereserves.

Revenues are increases in economic benefits during the accounting period in the form ofincreasesinassetsordecreasesinliabilities.Theyaffecttheamountofcapitalthroughprofitorloss. Revenues are classified as net operating revenues, other operating revenues, financialrevenuesfromoperatingreceivablesandotherrevenues.Revenuesarerecognisedifincreasesineconomic benefits are associated with increases in assets and the increases can be measuredreliably. Revenues are recognised together with receivables arising from a sale, i.e. when thesellerofgoodshas transferred to thebuyerall rightsandrisksofownership.Revenuesarisingfromthesaleofproductsandmaterialaremeasuredbasedonthesellingpricesstatedininvoicesandotherdocuments,lessdiscountsapprovedwhenthesaleismadeorsubsequently.Potentialcashdiscountsalsoreducesalesrevenues.Otheroperatingrevenuesincludesubsidies,grantsandrevenuesfromthesaleofwaste.Revaluationoperatingrevenuesareprofitsarisingfromthesaleoffixedassetsreducedbyvalueadjustmentsofoperatingreceivablesarisingfromtheeliminationof impairments and write‐offs of operating liabilities. Financial revenues from operatingreceivables are revenues from accrued interests and exchange rate gains. Other revenues arecompensationsreceivedarisingfromrecogniseddamagetofixedassets.

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

decreasesinassetsorincreasesinliabilities,whichaffecttheamountofcapitalthroughprofitorloss.Costof goods,materials and services include the costof goodsandmaterials sold, costofmaterials used and costs of services. Labour costs include wages and salaries, costs of socialsecurity and other labour costs. Write‐offs include the costs of amortisation/depreciation,revaluation operating expenses for intangible and tangible fixed assets (property, plant andequipment) and revaluation operating expenses forworking capital. Other operating expensesincludeexpensesforenvironmentalprotectionandbonusespaidtopupilsandstudents.Financialexpenses arising from financial liabilities include interest on loans and exchange rate lossesrelatedtoforeigncurrencydebt.Financialexpensesfromoperatingliabilitiesincludeinterestonliabilitiesandexpensesfromtherevaluationofdebtandreceivables.Otherexpensesincludefinesandcompensations.


54

2.2.NOTESTOTHEFINANCIALSTATEMENTS 2012 2011

1.IntangibleassetsinEUR 506,932 132,783

Propertyrights

Deferreddevelopment

costsEmissionscoupons Total

1.Cost Balanceasat1January2012 97,113 0 132,093 229,206Increase 48,386 305,760 172,697 526,843Decrease 0 0 ‐146,359 ‐146,359

Balanceasat31December2012 145,499 305,760 158,431 609,690

2.Valueadjustment Balanceasat1January2012 ‐96,423 0 0 ‐96,423Amortisation ‐6,335 0 0 ‐6,335Decrease 0 0 0 0

Balanceasat31December2012 ‐102,758 0 0 ‐102,758

3.Residualvalue Balanceasat1January2012 690 0 132,093 132,783

Balanceasat31December2012 42,741 305,760 158,431 506,932Intangiblefixedassetscomprisesoftware(EUR42,741),deferreddevelopmentcosts(EUR305,760)andemissioncoupons(EUR158,431).Asat31December2012,theCompanyhadnoliabilitiesarisingfromthepurchasesofintangibleassets.Theamortisationrateis20%.Theseassetsarenotpledgedascollateral,nordotheyhaveanyownershiprestrictions. The Company received a decision regarding emission coupons from the Ministry of theEnvironmentandSpatialPlanningaccordingtowhichitwasentitledto172,697couponsfor2012.Basedonthecalculationofobligationsfor2011,itgavetotheMinistryoftheEnvironmentandSpatialPlanning146,359emissioncoupons.Based on the calculation of obligations for 2012, the Company assessed delivery of 130,990 emissioncoupons(bytheendofApril2013).Asof31December2012, thebalanceofcouponsstoodat158,431.ThebookvalueofonecouponisEUR1.

2.Property,plantandequipmentThefollowingdepreciationrateswereused(in%):‐buildings,constructionfacilities 1.3‐5.0

‐prefabricatedfacilities 2.0‐5.0

‐landscaping 3.3

‐equipment 4.0‐20.0

‐computers,computerequipment 10.0‐33.3

‐vehicles 10.0‐20.0


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2012 2011

Overviewofthefluctuationoffixedassetsin2012inEUR 101,089,511 108,697,580

Item Land Buildings Equipment

Equipmentunderconstruction,manufacturing

Advancepayments Total

1.Cost

Openingbalanceasat1January2012 8,302,056 34,513,527 144,040,956 336,339 789,821 187,982,699Additions–newpurchases 0 0 209,798 354,174 0 563,972Increases–acquisitionsfrominvestments 0 0 95,990 936,866 0 1,032,856Strengtheningofexistingfixedassets 0 0 0 0 0 0Increasesinexistingfixedassets 530,592 96,204 774,971 0 0 1,401,767

Decrease ‐379,416 ‐3,124,577 ‐174,507 ‐1,225,349 ‐789,821 ‐5,693,670Transferofshort‐termheld‐for‐saleassets 0 0 0 0 0 0

Balanceasat31December2012 8,453,232 31,485,154 144,947,208 402,030 0 185,287,624

2.Valueadjustment

Openingbalanceasat1January2012 0 ‐10,222,549 ‐68,272,749 0 ‐789,821 ‐79,285,119Increases‐depreciation 0 ‐1,009,948 ‐6,562,683 0 0 ‐7,572,631Appreciationofexistingfixedassets 0 0 0 0 0 0Impairmentofexistingfixedassets 0 0 0 0 0 0Transferofshort‐termheld‐for‐saleassets 0 0 0 0 0 0

Decrease 0 1,710,859 158,957 789,821 2,659,637

Balanceasat31December2012 ‐9,521,638 ‐74,676,475 0 0 ‐84,198,113

3.Residualvalue

Balanceasat1January2012 8,302,056 24,290,978 75,768,207 336,339 0 108,697,580

Balanceasat31December2012 8,453,232 21,963,516 70,270,733 402,030 0 101,089,511

Asat31December2012,theCompanyhadEUR6,083,056inlong‐termloansforthepurchasesoffixedassets and EUR 741,756 liabilities arising from financial lease. Fixed assets in the amount of EUR56,880,922werepledgedascollateralforlong‐termfinancialliabilities(Item11).LiabilitiestothelessoraresecuredbytheretentionofownershiprightstofixedassetswithapresentvalueofEUR1,950,186.In2012,weperformedarevisionoftheinitiallyassessedexpectedlifewithachangeinthedepreciationratefortheequipmentonwinderPM1,whichwasactivatedunderinvestment99045,from8%to5%.Thereason forchangingthedepreciationratewas theunificationofsamefixedassetsonPM3.At thesametime,thedepreciationratewasreducedfrom8%to5%fortheequipmentofthediagonalcuttingmachine5,activatedunderinvestment98044.Thecorrectionwasmadeduetotheestimatedlongerexpectedlifethaninitiallyprojected.Owingtothesecorrections,thedepreciationwasEUR177thousandlowerattheannuallevel.Otherincreasesinfixedassetsofequipmentaremodernisationsoftheexistingfixedassets.TheCompanyhas been gradually removing the unusable facilities where chemical pulp production took place until2006. In 2012,we sold equipment for chemical pulpproduction in the amount of EUR1,302.As at 31December2012,theCompanydisclosestheremainingequipmentworthEUR2,418underfixedassets.The last land appraisal was carried out in 2011. The appraisal wasmade by the company BIRO PNS,RostoharVladimir s.p. (company referenceNo. 19‐0713/95).RostoharVladimir is a certified appraiserandasworncourtexpertforthefieldofconstruction,registeredwiththeBasicCourtofNovomestosince1991 under registration No. 14/91. The appraisal report was prepared in compliance with theinternational standards and principles for property valuation (IVS). The difference between cost andestimatedfairvalueisdisclosedundervalueoflandandrevaluationsurplus.Theincreaseinthevalueof


56

land in 2012, in the amount of EUR 530,592, resulted from the recognition of appraised value oflandscaping,whichhadpreviouslynotbeenrecorded.In2012theCompanysoldthechemicalpulpproductionfacilitiesandthepertaininglandtothesubsidiaryEkopad.o.o.ProfitfromsaleswasEUR1,519,595andlossEUR279,436. 2012 2011

3.Long‐termfinancialinvestmentsinEUR 433,797 319,797

Balance asat 31December2011

Valueadjustmentas at 31December2011

Decrease invalueadjustment

Increase invalueadjustment

Valueadjustmentas at 31December2012

Acquisitionofinvestment

Carryingamount31December2012

Ekopad.o.o.,Krško(100%) 42,693 ‐21,160 0 0 ‐21,160 0 21,533Levasd.o.o.,Krško(84.48%) 421,243 ‐195,979 0 0 ‐195,979 0 225,264

VipapGmbH(100%) 35,000 0 0 0 0 0 35,000Zel‐en Krško(11.38%) 38,000 0 0 0 0 114,000 152,000

Totalshares 536,936 ‐217,139 0 0 ‐217,139 114,000 433,797

On24April2012thecompanyViprehd.o.o.Krškowasdissolvedbyabridgedprocedure.Tovarniška18,Krško istheregisteredofficeofEkopad.o.o. In its2012incomestatement,thecompanydisclosedalossofEUR682.Asat31December2012,thecompany'sequitycapitalstoodatEUR31,976.TheregisteredofficeofLevasKrškod.o.o.isTovarniška18,Krško.ThecompanydisclosednetprofitintheamountofEUR33,655inits2012incomestatement.Theamountofequitycapitalinthebalancesheetasat31December2012wasEUR777,095,netsalesrevenuesamountedtoEUR3,095,960,andthevalueofassetstotalledEUR2,119,110.In 2010 the Company acquired Vipap Vertiebs und Handels GmbH. The company's activities includesellingourpaperandalsopurchasingrecoveredpaper.In2012,thecompanygeneratedEUR10,728,758of revenuesandended theyearwithaprofitofEUR71,185. Itsequitycapitalasat31December2012equalledEUR38,532.In2011,theCompanyestablishedtogetherwith13partnerstheDevelopmentCentreforRenewableandSustainableEnergy(ZEL‐EN)withregisteredofficeinKrško,inwhichitholdsa11.38‐percentshare.In 2012, the company Vipap Videm Krško d.d. included in its consolidated financial statements thestatementsofthesubsidiariesVipapVertriebsundHandelsGmbH,LevasKrškod.o.o.andEkopad.o.o.Ifrevenuesorassetsofasubsidiaryexceedthethresholdvalue(5%)ofrevenuesorassetsofthecontrollingcompany,theconditionsfortheinclusionofthesubsidiaryintheconsolidatedstatementsaremet. 2012 2011

4.DeferredtaxassetsinEUR 9,103,403 9,432,988

1January

2012 Decrease Increase31December

2012 Severancepayments 73,982 18,640 0 55,342Long‐serviceawards 16,738 3,462 0 13,276Devaluationoflong‐termassetsheld‐for‐saleassets 67,670 7,181 0 60,489Formation of value adjustments ofreceivables 660,369 66,227 26,621 620,763Unusedtaxloss 8,563,272 845,491 635,752 8,353,533Additionallyformedprovisions 50,957 57,516 6,559 0TOTAL 9,432,988 998,517 668,932 9,103,403


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In2012,wecontinuedusingprovisionsarisingfromseverancepaymentsforemployeeswhoretiredandthosewhomettheconditionsforlong‐serviceawards.Weusedprovisionsarisingfromfinallegalactionsbyformeremployees.Wecontinuedsellingfixedassetsforchemicalpulpproduction.Deferredtaxassetsincreased in 2012 due to the formation of value adjustments of receivables and unused tax loss, butdecreasedinallitemsduetodrawingandchangeoftaxrate.Deferredtaxarisingfromadditionallyestablishedprovisionsforformeremployeeswasreversed,becausethereisnolongerapossibilityof legalactionbeingfiledbysuchemployeeswhoweremaderedundantwhenthechemicalpulpproductionstopped.TheCompanyappliedthe18%taxrateinthecalculationofdeferredtaxassets.TheCompany'smanagementassessesthatthereisconvincingevidencethatfuturetaxableprofitwillbeavailableagainstwhichdeductibletemporarydifferences,unusedtaxcreditsorlossescanbeutilised.ThelatterisbasedontheCompany'sdevelopmentstrategyupto2020,whichanticipatesa13‐percentgrowthin thevolumeofproduction, from thepresent200 thousand tonnes to225 thousand tonnes,anda20‐percentrise inrevenues, fromEUR100milliontoaboutEUR120million.For its futureoperations, theCompany anticipates production and sale of new types of paperwith a higher value added,whichwillresultinhigherfutureprofits. 2012 2011

5.InventoriesinEUR 9,636,762 10,147,232

Inventorytype

Balance as at31 December2012

Inventorysurpluses

Inventorydeficits

Impairedvalue dueto changeinquality

Impairedvalue tomarketablevalue

Material 5,619,753 0 4,139 0 0Smallinventory 8,663 0 0 0 0Unfinishedproducts 116,927 0 0 0 55Products 3,810,620 4,743 4,546 0 11,751Merchandise 5,646 0 0 0 0Advancesforinventories 75,153 0 0 0 0Total 9,636,762 4,743 8,685 0 11,806Significant inventories ofmaterials include: recovered paper (EUR 369,217), basic rawmaterials (EUR1,229,395), maintenance material (EUR 1,998,734), spare parts (EUR 1,497,616), energy‐generatingproducts(EUR469,242),andother(EUR55,549).Inventoriesofworkinprogresscomprisepaperreelsreadytobecutintosheets(EUR41,247)andpaperintendedforre‐processing(EUR75,680).The inventories of products comprise inventoriesof paper in reels (EUR3,349,097) and inventoriesofpaper insheets(EUR461,523).Asat31December2012, theCompanyimpairedinventoriesof finishedproductsastheirproductionpricewashigherthanthesellingprice.InventoriesofrawmaterialsandendproductsintheamountofEUR2,000,000wereasat31December2012pledgedascollateralforlong‐termfinancialliabilities.


58

2012 20116.Short‐termoperatingreceivablesinEUR 12,918,259 12,726,298


Collateralisedreceivables

Receivableswithoutcollateral

Outstandingreceivables

Maturityup to 1year

Maturityof over 1year

Valueadjustment asat 1 January2012

Reducedadjustment

Increase invalueadjustment

Valueadjustment asat 31December2012

Carryingamount 31December2012

Short‐termoperating tradereceivables 11,810,636 5,579,137 6,231,499 5,857,492 1,929,104 4,024,040 ‐3,927,399 57,160 ‐153,431 ‐4,023,670 7,786,966Short‐termoperatingreceivables fromthe Groupcompanies 3,611,176 0 3,611,176 3,272,704 338,472 0 0 0 0 0 3,611,176

Short‐term operatingreceivablesfromothers 1,520,117 0 1,520,117 1,520,117 0 0 ‐704,840 704,840 0 0 1,520,117

Total 16,941,929 5,579,137 11,362,792 10,650,313 2,267,576 4,024,040 ‐4,632,239 762,000 ‐153,431 ‐4,023,670 12,918,259

ReceivablesintheamountofEUR7,536,892arepledgedascollateralforloans.ReceivablesduefromEkopad.o.o.intheamountofEUR2,883,454,arisingfromthesaleofrealestate,willbe based on the resolution of the General Meeting of Shareholders of Vipap Videm Krško d.d. of 14December2012convertedintotheequityofthesubsidiaryintheformofanon‐cashcontribution. 2012 2011

7.CashinEUR 1,189,356 1,011,971

31December201231December

2011Cashregister 346 0

Transactionaccounts 1,189,010 1,011,971Short‐termdeposits 0 0Total 1,189,356 1,011,971 2012 2011

8.Short‐termaccruedrevenuesanddeferredexpensesinEUR 540,045 645,484

TypeofdeferralBalance as at 1 January2012 Establishment Disbursement


Deferredexpenses 629,178 8,138,074 ‐8,282,900 484,352Accruedrevenues 16,306 51,788 ‐12,401 55,693Total 645,484 8,189,862 ‐8,295,301 540,045Short‐termdeferredexpensesare:short‐termdeferredreceivablesfromthestatearisingfromVAT(EUR475,604)andshort‐termdeferredexpensesfor2013(EUR8,748).Short‐term accrued revenues comprise the amount relating to volume discounts for purchased rawmaterialsandmaterialfor2012(EUR55,693).Volumediscountswillbegranteduponthepaymentofallliabilitiesarisingfromthepurchasesfor2012.


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2012 2011

9.EquityinEUR 70,621,132 70,161,668Sharecapitalof theCompanycomprises1,879,800shareswithanominalvalueofEUR41.70each.ThesharesarefreelytransferableandcarryonevoteeachattheGeneralMeetingofShareholders,whichtakesdecisionswith100%ofvotingrightspresent.On4September2008,theGeneralMeetingofShareholdersdecidedthattheCompany’snominalsharesaretobeconvertedintono‐parvaluesharesinthefollowingway:eachsharewiththenominalvalueofSIT1,000orEUR4.17after conversion is replacedbyoneno‐parvalue share.No‐parvalue sharesaremerged on the basis of a 10:1 ratio. One no‐par value share isworth EUR 41.70. Treasury shares arevaluedatcost,whichisEUR54.065.The share capital of the Company totals EUR 78,387,660 and is divided into 1,879,800 no‐par valueshares.Thedifference inthevalueofEUR55,003.99resultingfromtheconversionofsharecapitalwasallocatedtocapitalreserves.In2012,thesurplusfromrevaluationoflandandliabilitiesfordeferredtaxdecreasedproportionatelytothepartofthelandsold.A. NETPROFITFORTHEFINANCIALYEARINEUR 76,487B. NETLOSSFORTHEYEAR 0C. RETAINEDNETPROFIT 0D. NETLOSSBROUGHTFORWARD 11,296,659 ‐Coverednetlossbroughtforwardfrompreviousyear 76,487E. DECREASEINCAPITALRESERVES 0F. DECREASEINREVENUERESERVES 0 ‐Decreaseinotherrevenuereserves 0 ‐Decreaseinlegalreserves 0 ‐Decreaseincapitalreserves 0 G. INCREASEINREVENUERESERVES 0 ‐Increaseinlegalreserves 0 ‐Increaseinreservesforownstakes 0 ‐Increaseinstatutoryreserves 0 ‐Increaseinotherrevenuereserves 0H. DISTRIBUTABLEPROFIT 0I. ACCUMULATEDLOSS 11,220,172TakingintoaccounttherevaluationofcapitalbasedongrowthintheconsumerpriceindexwouldresultinanetlossofEUR‐1,832,796.


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2012 201110. Provisions and long‐term accruedexpensesanddeferredrevenuesinEUR 611,078 1,187,570

Provisions

Balanceasat1January2012 Establishment Disbursement

Balanceasat31December2011

Provisions for severance pays uponretirement 375,086 0 ‐63,645 311,441Provisionsforlong‐serviceawards 112,847 0 ‐13,551 99,296Provisions for buildingdecommissioningcost 21,073 0 ‐13,562 7,511Provisionsforcontingentliabilities 509,569 36,440 ‐546,009 0Total 1,018,575 36,440 ‐636,767 418,248Long‐term accrued expenses anddeferredrevenues 132,093 172,697 ‐146,359 158,431Long‐termdeferredrevenues 36,902 535 ‐3,038 34,399Total 1,187,570 209,672 ‐786,164 611,078Themost recent actuary calculation of provisions for severance payments and long‐service awards ofemployeeswasperformedon31December2008.Actuary calculationsof provisions for severancepayments at retirement and long‐service awardswereprovidedbythecompany3sigmad.o.o.Ljubljana,certifiedactuary,pursuanttoSAS10andIAS19.Thecalculationwascarriedouton31December2005duetotheformationofprovisionsandon31December2006duetohighturnoverofemployeesin2006.Itwasbasedondatasubmittedregardingemployeesandon the assumption regarding the growth in average salary in theRepublic of Slovenia (3.5%p.a.), andbased on employee turnover and conditions for retirement (Article 36 of the Pension and DisabilityInsuranceAct(ZPIZ)).The calculation as at31December2008wasbasedon submitteddata andon the assumption that theannualgrowthinsalarieswouldbe1.5%.Severance payment at retirement is calculated in accordance with the criteria of two average grosssalariesintheRepublicofSloveniaforthepreviousthreemonthsorintheamountoftwoaveragegrossmonthly salaries of the employee in the last three months prior to retirement, whichever is morefavourablefortheemployee.In the calculation of long‐service awards, the criteria of base salary for tariff class I of the CollectiveAgreementofthePulp,PaperandPaperProcessingIndustry(1basisfor10yearsofworkatthecompany,1.5bases for20yearsofworkat thecompanyand2bases for30yearsofworkat thecompany)weretaken intoaccount.The selecteddiscounted interest rateamounts to7.65%perannum,whichwas thereturnon10‐yearcorporatebondswithahighcreditratingintheeuroareaattheendof2008.Provisions for the cost of building decommissioning include the planned costs of buildingdecommissioningattheformerchemicalpulpmill.Thefacilityisbeingrehabilitatedgradually.In2009weestablishedadditionalprovisionsarisingfromtheplannedcostofrehabilitationofthesefacilitiesin2010.In2011,provisionsweredecreasedduetoremovedbuildingsandin2012duetosale.On31December2008,theCompanyestablishedprovisionsforcontingentliabilitiestoformeremployeesbasedontherecognitionofcontinuityofemploymentattheCompany(notlimitedtothelastemployer).In 2012, the Company decreased provisions for severance payment by the value of provisions utilised(EUR27,403)andbythevalueofunnecessaryprovisions(EUR36,242).Forlong‐serviceawardsitusedEUR9,400ofprovisionsandreversedEUR4,151ofprovisions.Provisions for other contingent liabilities were formed in the amount of EUR 36,440 and used in theamount of EUR 128,529. The remaining provisions totalling EUR 417,480 were reversed, as there nolonger exists the contingent liability arising from the claims of former employees who were maderedundantduetotechnicalprogresswhencelluloseproductionstopped.


61

Long‐term accrued expenses and deferred revenues increased by the amount of emission couponsacquiredfromtheMinistryoftheEnvironmentandSpatialPlanningforpollutionoftheatmospherewithCO2for2012(172,697coupons)andwerereducedbythedisposalofcoupons(146,359coupons).ThecarryingamountofonecouponisEUR1.Provisionsforlong‐termdeferredrevenuesincreasedbytheamountofassetsacquiredfreeofchargeanddecreasedbythecalculateddepreciationofdonatedfixedassets.Long‐termdeferredrevenuesareamountsofnon‐depreciatedfixedassetsacquiredfreeofcharge.

2012 2011

11.Long‐termfinancialliabilitiestobanksinEUR 9,359,490 15,181,789

CreditorBalanceasat31December2012 Outstanding Short‐termmaturity Long‐termmaturity Dateoffinalmaturity

Interestrate

Domesticbank 1,300,000 1,300,000 325,000 975,000 01/10/2016 6‐monthEuribor+3.93%

Domesticbank 3,527,996 3,527,996 882,001 2,645,995 01/12/2016 6‐monthEuribor+2.7%

Domesticbank 304,500 304,500 304,500 02/07/2013 6‐monthEuribor+4.5%

Domesticbank 1,468,588 1,468,588 367,144 1,101,444 20/10/2016 3‐monthEuribor+5.5%p.a.

Domesticbank 1,066,666 1,066,666 533,332 533,334 01/12/2014 6‐monthEuribor+3.1%p.a.



Domesticbank 600,000 600,000 600,000 0 16/08/2013 6‐monthEuribor+3%

Domesticbank 3,750,600 3,750,600 1,071,600 2,679,000 29/06/2016 3‐monthEuribor+3.95%

Domesticbank 920,000 920,000 920,000 0 31/07/2013 6.5%

Domesticbank 660,000 660,000 660,000 21/06/2013 6‐monthEuribor+3%

Foreignbank 781,972 781,972 521,296 260,676 19/06/2014 6‐monthEuribor+1.3%

Total 17,186,564 17,186,564 7,827,074 9,359,490

The fairvalueof loansraised isequal to theircarryingamount.Long‐term loans (including theportionfallingduein2013intheamountofEUR7,827,074)totalEUR17,186,564andarecollateralisedbymeansof pledged fixed assets in the amount of EUR 56,880,922, secured claims (EUR 600,000), and pledgedinventories,rawmaterialsandfinishedproducts(EUR2,000,000).

2012 2011

12.Otherlong‐termfinancialliabilitiesinEUR 144,730 744,012

Creditor

Balance asat 31December2012 Outstanding

Short‐termmaturity

Long‐termmaturity Finalmaturity

Interestrate

Liabilitiestothelessor 477,132 477,132 477,132 0 20133‐monthEuribor

Liabilitiestothelessor 24,821 24,821 24,821 0 20133‐monthEuribor

Liabilitiestothelessor 239,803 239,803 95,073 144,730 20156‐monthEuribor

Total 741,756 741,756 597,026 144,730 The fair value of liabilities is equal to their carrying amount. Short‐term and long‐term portion ofliabilities to the lessor are secured by the retention of ownership rights to fixed assetswith a presentvalueofEUR1,950,186.


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2012 2011

13.Short‐termfinancialliabilitiesinEUR 24,041,918 23,043,120

CreditorBalanceasat31December2012 Outstanding

Date of finalmaturity Interestrate(%)

Domesticbank 304,500 304,500 02/07/2013 6‐monthEuribor+4.5%


Domesticbank 685,680 685,680 01/12/20146‐monthEuribor+3.1%

p.a.

Domesticbank 1,071,600 1,071,600 29/06/20163‐monthEuribor+3.95%

p.a.


Domesticbank 1,900,000 1,900,000 22/02/2013 6.3%

Domesticbank 660,000 660,000 21/06/2013 6‐monthEuribor+3%

Domesticbank 533,333 533,333 01/12/2014 6‐monthEuribor++3.1%


Domesticbank 600,000 600,000 16/08/2013 6‐monthEuribor+3%


Domesticbank 4,300,000 4,300,000 03/04/2013 6.75%

Domesticbank 1,877,817 1,877,817 27/05/2013 7%

Domesticbank 900,000 900,000 08/03/2013 6.3%

Domesticbank 2,000,000 2,000,000 28/02/2013 6.3%

Domesticbank 3,450,000 3,450,000 28/02/2013 6.3%

Domesticbank 1,000,000 1,000,000 01/12/2013 6‐monthEuribor++3.1%

Domesticbank 920,000 920,000 31/07/2013 6.5%

Domesticbank 325,000 325,000 01/10/2016 6‐monthEuribor++3.93%

Foreignbank 521,296 521,296 19/06/2014 6‐monthEuribor++1.3%Current portion of non‐currentloans 23,444,892 23,444,892

Currentliabilitiestolessors 597,026 597,026

Total 24,041,918 24,041,918 Short‐termfinancial liabilities intheamountofEUR5,967,817aresecuredbyreceivablestotallingEUR5,601,161andtheshort‐termportionoflong‐termloansinthemannersetoutinnotetoItem11.Thefairvalueofloansraisedisequaltotheircarryingamount.Theshort‐termportionoflong‐termloansstandsatEUR7,827,074.Short‐termloansraisedbytheCompanywithcommercialbankswererenewedonduedatein2012,asinpreviousperiods.


63

2012 2011

14.Short‐termoperatingliabilitiestosuppliersinEUR 26,153,819 29,054,677

‐inSlovenia 15,288,585 16,341,061

‐abroad 10,832,279 12,673,914

‐unchargedgoodsandservices 32,955 39,702

Total 26,153,819 29,054,677Asat31December2012,theCompanyhadliabilitiesdueinSloveniaintheamountofEUR6,079,523andoutstanding liabilities in the amount of EUR 9,209,062. In the structure of liabilities abroad, EUR4,992,685weredueandEUR5,839,594wereoutstanding.TheCompanyhasthefollowingoperatingliabilitiestorelatedcompanies:LevasKrškod.o.o.EUR355,541,Ekopad.o.o.EUR22,978,andVipapGmbHEUR644,711.

2012 2011

15.Othershort‐termoperatingliabilitiesinEUR 1,618,266 1,517,157Thisitemcomprisesliabilitiesforinterest(EUR636,343),liabilitiesforsalaries(EUR396,526),liabilitiesforcontributionsarisingfromsalaries(EUR136,711),liabilitiesforemployercontributions(EUR99,671),payrolltaxliabilities(EUR76,929),liabilitiesforotheremploymentearnings(EUR47,891),VATliabilitiespayableinJanuary2012(EUR122,195),andother(EUR102,000).

2012 2011

16.Short‐termaccruedexpensesanddeferredrevenuesinEUR 787,368 550,533

Typeofdeferral

Balance as at1 January2012 Establishment Disbursement

Balanceasat31December2012

Accruedexpenses 524,470 1,100,140 973,967 650,643Short‐termdeferredrevenues 26,063 119,775 9,113 136,725

Total 550,533 1,219,915 983,080 787,368Short‐termaccruedexpensesanddeferredrevenuescomprisecoststhatwillariseasliabilitiesin2013orfor which we will receive assessment decisions in 2013, namely: unused annual leave for 2012 (EUR376,012),calculatedliabilitytotheMinistryoftheEnvironmentandSpatialPlanningarisingfromwaterused pursuant to the final decision for 2012 (EUR 103,799), calculated liability to the CustomsAdministration of the Republic of Slovenia arising from polluted water for 2012 (EUR 50,667), andliabilities arising from sales‐dependant costs (EUR 104,421), interest charged to customers for whichrevenueisdiscloseduponpayment(EUR136,726),andother(EUR15,743).


64

2012 2011

17.NetsalesrevenuesinEUR 100,463,752 105,778,584Slovenia 17,887,005 21,496,129Germany 13,764,912 11,710,799Italy 13,403,347 11,930,003Serbia 12,800,148 9,031,647Austria 12,193,198 13,526,900Greece 4,134,664 2,527,747France 3,021,659 4,355,189Switzerland 2,876,538 2,901,087Turkey 2,628,057 4,239,715Bulgaria 2,541,342 3,629,773Slovakia 1,850,708 1,557,334Croatia 1,738,460 3,115,040Montenegro 1,540,602 1,805,513Macedonia 1,498,046 927,044GreatBritain 1,278,773 0Romania 1,265,910 1,412,913Albania 1,205,612 1,339,025CzechRepublic 1,036,521 1,625,518BosniaandHerzegovina 724,996 655,201Kosovo 658,597 697,770Poland 649,114 1,198,611TheNetherlands 218,696 16,103Belgium 113,138 380,350Hungary 0 1,419,305Othercountries 626,631 3,323,180Other 807,078 956,688Total 100,463,752 105,778,584 Breakdownofrevenuesbybusinessarea 2012 2011 Salesofpaper 99,656,674 104,821,896Other 807,078 956,688Total 100,463,752 105,778,584

2012 2011

18.OtheroperatingincomeinEUR 2,181,348 1,598,756Other operating income comprises income from release of provisions (EUR 460,912), other incomeassociated with products (EUR 174,856), income from sale of fixed assets (EUR 1,523,631), andrevaluationoperatingincomearisingfrombadanddoubtfuldebtsettled(EUR21,949).


65

2012 2011

19.CostsofservicesinEUR 10,607,658 10,489,695Costoftransportservices 3,801,303 3,873,803Costsoffixedassetmaintenance 2,985,747 2,694,392Costsofpaymenttransactions,bankingservicesandinsurance 841,631 985,185Costofintellectualandpersonalservices 297,688 217,237Contract‐basedwork,author'scontracts,sessionfees 142,461 207,336Rents 380,097 381,887Costsoftradefairs,advertisingandentertainment 55,029 50,305Costsofservicesarisingfromproductionandprovisionofservices 47,644 28,450Reimbursementofemployeework‐relatedcosts 46,168 53,970Costsofauditingtheannualreport 20,500 20,500Provisions 36,440 0Otherserviceexpenses 1,952,950 1,976,630Total 10,607,658 10,489,695 2012 201120.LabourcostsinEUR 10,019,067 9,941,606 Costsofsalariesandwages 6,753,421 6,868,299Pensioninsurancecosts 830,356 832,265Costofothersocialinsurance 550,739 547,130Otherlabourcosts 1,884,551 1,693,912Averagenumberofemployeesbasedonhours 367.40 385.53Other labour costs (EUR 1,884,551) include: employee salary allowances (EUR 512,264), travelallowances(EUR338,388),mealallowances(EUR326,354),annualleaveallowances(EUR407,863),costsoftheManagementBoardmembers(EUR98,496),andother(EUR201,186).Grossreceiptsbygroup(ZGD‐1)for2012inEUR 2012 2011pursuanttoArticle294ofZGD‐1

ManagementBoardmembers 895,335 1,457,860SupervisoryBoardmembers 45,139 170,553

TOTAL940,474

1,628,413As at 31 December 2012, the Company disclosed the following net liabilities: to members of theManagement Board EUR 23,150, to other employees with service contracts EUR 5,382, to internalmembersoftheSupervisoryBoardEUR1,200,andtoexternalmembersoftheSupervisoryBoardandtheManagementBoardEUR4,970.


66

2012 201121.OtheroperatingexpensesinEUR 970,440 1,081,581Otheroperatingexpensesinclude:environmentprotectionexpenses(EUR446,297)andcompensationforthe use of land (EUR 471,754), scholarships (EUR 4,294), contributions and membership fees (EUR29,850),andotherexpenses(EUR18,245). 2012 201122. Financial revenues from operating receivables inEUR 62,639 692,583 Foreignexchangegains 19,868 218,610Interestincome 42,771 33,032Financialrevenuesfromfinancialassets 0 440,941Total 62,639 692,583

2012 2011

23.FinancialexpensesforfinancialliabilitiesinEUR 2,508,459 2,654,677This itemcomprises intereston loans(EUR2,440,744)and intereston instalmentsarising fromleasingcontractsfallingdueinthecurrentyear(EUR67,715).

2012 201124. Financial expenses for operating liabilities inEUR 257,700 352,723Thisitemcomprisesinterestonoperatingliabilities(EUR236,500)andexchangeratedifferentialsfromreceivablesandliabilities(EUR21,200).

2012 2011

25.OtherincomeinEUR 101,635 1,179,346Theitemconsistsof:damagesreceived(EUR75,643),subsidies(EUR2,581)andother(EUR23,411).26.DerivativefinancialinstrumentsAsat31December2012,theCompanydisclosedtwotypesofderivatives:

o Interest rate swap concludedwithNova Ljubljanska banka Ljubljanawith principal amount ofEUR6.1millionin2005andwithHypo‐Alpe‐AdriabankaLjubljanaforprincipalamountofEUR5.0millionandEUR4.5millionin2011and2009.Bywayoftheinstrumentsjustmentioned,theCompanysecureditselfagainsttheriskoftheEuriborreferenceinterestratefluctuationforthetimeofloanrepayment,thusmanagingtheriskofrisinginterestrates.Asat31December2012,netpresentvalueofthesaidinstrumentswasnegative,i.e.EUR357thousand,ofwhichoverdueliabilityofEUR64thousandwasdisclosedasat31December2012.Thedifferencewillbedebitedagainstexpensesthroughthecontractterm.


67

o CrosscurrencyswapconcludedwithUnicreditBankaSlovenijafrom2010withprincipalamountasat31December2012ofEUR2.9million.Theinstrumentexpiresin2015.Netpresentvalue,i.e.current indicativemarket value for the product or framework price for selling the product, isnegativeintheamountofEUR993thousand.

Forbothinstruments,netpresentvaluesarenegative,buttheseproductshavenotyetmatured;therefore,effectsarerecogniseduponpaymentaccordingtothepaymentschedule.In2012therelatedfinancialexpenses for IRSwereposted intheamountofEUR159thousandandforCCSintheamountofEUR354thousand. 2012 201127.CorporateincometaxinEUR 0 0 Totalprofit(loss) 406,072 ‐2,314,811Taxableincome 0 0Non‐taxableincome ‐292,566 ‐486,008Taxableexpenses 383,730 907,252Otherdecreasesinthetaxbase ‐4,029,190 ‐11,121,654Taxreliefs 0 0Drawingoftaxloss 0 0Taxbase 0 0Taxrate 18% 20%Corporateincometax 0 0Taxloss ‐3,531,954 ‐13,015,221

2012 2011

28.BreakdownofcostsbyfunctionalgroupinEUR 99,261,923 107,939,814

Costofgoodssold 4,852 4,699

Manufacturingcostsofproductssold 89,561,923 97,908,926

Sellingcosts(includingamortisation/depreciation) 5,183,144 5,131,476

Administrativecosts(includingamortisation/depreciation) 4,512,004 4,894,713

TOTAL 99,261,923 107,939,814Thedifferencebetweenthedisclosureofcostsbyfunctionalgroupandcostsbyprimarytypearisesfromthecategoryofinterestexpenses,whicharefinancialexpensesbynature.29.Transactionswithrelatedpartiesin2012inEUR

RelatedpartyTransactions ‐receivables

Transactions ‐liabilities

Offset receivables (+) /liabilities (‐) as at 31December2012

Ekopad.o.o. 2,883,454 0 2,883,454

Levasd.o.o. 162,498 1,656,433 ‐1,493,935

VipapGmbH 6,650,612 3,596,486 3,054,126

TOTAL 9,696,564 5,252,919 4,443,645


68

30.Performanceindicators 31December

201231December2011

Equityfinancingrate equity/liabilities 0.52 0.49Long‐termfinancingrate capital+long‐termliabilities

(includinglong‐termprovisions)/liabilities

0.60 0.61

Operatingfixedassetsrate fixedassets/assets 0.75 0.76Long‐terminvestmentrate fixedassets+long‐termfinancial

investments+long‐termoperatingreceivables/assets

0.82 0.83

Equitytooperatingfixedassetsratio capital/fixedassets 0.70 0.65Acidtestratio liquidassets/short‐termloans 0.02 0.02Quickratio (liquidassets+short‐termreceivables

+short‐termfinancialinvestments)/short‐termloans

0.26 0.25

Currentratio currentassets/short‐termliabilities 0.46 0.45Operatingefficiencyratio operatingrevenues/operating

expenses1.03 0.99

Netreturnonequity netprofit–incometax/averagecapital

Netreturnonsharecapital netprofitforthefinancialyear/averagesharecapital

3.CONTINGENTLIABILITIESVipap Videm Krško d.d. guarantees for the liabilities of Vipap Vertriebs und Handels GmbH to FaktorbankaintheamountofEUR3million.

Annual Report of Vipap Videm KrSko d.d. for 2012

4. SIGNIFICANT EVENTS AFTER THE END OF THE 2012 FINANCIALYEAR

In January 2013, Vipap Videm Kr5ko reprogrammed EUR 17,577,389 of short-term financial liabilitieslong-term financial liabilities. There were no other events that would influence the operating result for 2012.

Kr5ko, April20l3

Financial Director:

JoZica Stegne

SgL*+,fil

Chairman of the Management Board:

Milo5 Habrn6l///r/A//{/tu |

l6e

I I[JI f Revizija in svetovanje d.o.o.Vl f f, Revizrjska druZba / certified Auditorsv

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

INDEPENDENT AUDITOR'S REPORT

Ljubljana, 21il March 201 3

We have audited the accompanying frnancial statements of the company VIPAP VIDEM KRSKO d.d., KrSko

which comprise the statement of f inancial position as at December 3 i , 2012, and the statement of

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

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

reviewed the business reoort.

M a n ag e m e nt's Res po n si bi I i ty fo r th e F i n a nci aI StaternentslVanagement is responsible for the preparation and fair presentation of these financial statements in

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

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

due to fraud or error.

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

audit in accordance with the International Standards on Auditing. Those standards require that we complywithethical requirements and plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free from material misstatement.

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

financial statements. The procedures selected depend on the auditor's judgment, rncluding 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 farr presentation

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

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

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

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

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

audit opinion.

Opinionln our opinion, the financial statements present fairly, in all material respect, the financial position of the

company VIPAP VIDEM KRSKO d.d., Kr5ko as at December 31, 2012, and its financial performance and its 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 294th article of the

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

UHY Revizija in svetovanje d.o.o

-{Francr lgaJnarCertified auditor

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]

tr\lt

drutb: RD A 073/05

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

<:,*.,

annual report of vipap videm krško d.d. for 20122. presentation of the vipap group the vipap group...

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