PAPCEL PAPCEL ANNUAL REPORT we are a group of companies

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1 PAPCEL ANNUAL REPORT 214 PAPCEL we are a group of copanies

2 CONTENTS 1 Contents 2 This is PAPCEL.cz 3 Foreword 4 The PAPCEL Group 5 Key Group values 6 We are growing together 7 Network of experts 8 Copany anageent 9 TOP 1 Czech copanies 1 Export - global ipact 11 Export - branches 12 Significant contracts Custoer s portfolio growth during the years 14 Scope of services and deliveries 15 Quality anageent / Certificates 16 Investent Technical developent 19-2 Occupational health and safety, work hygiene 21 Environental protection 22 Econoic part Econoic results Coents on econoic results Balance sheet 26 Incoe stateent (profit and loss stateent) 27 Cash flow report 28 Suary of changes in owner s equity Notes on 214 financial stateents The general eeting approval of profit distribution for the fiscal year Auditor s Stateent 1

3 PAPCEL is a Czech business and technology copany with ore than 65-year tradition in the production and supply of coplete paper-aking technology for the production of all coercially available and coonly used paper grades. PAPCEL is a group of copanies which offers its custoers, apart fro delivery of coplete engineering technology, also professional services in engineering and anageent of investent projects, including specialized supplies of cheicals for the paper-aking process, its autoation and control. Growth and developent of our custoers is our responsibility. We want to becoe the preferred supplier of efficient and econoically attractive solutions to which our custoers will be returning.... Mr. David Dostal, PAPCEL Group Managing Director The PAPCEL Group in nubers a Nuber of eployees: ore than 1 (incl. branches and subsidiaries) Annual turnover: ore than CZK 1 billion References: in ore than 4 countries and ore than 1 custoers Export: ore than 98 % of total production The largest contract in the history: EUR 69 illion (green-field project - new decorative paper plant) Copany owner: VEGA HSH Ltd., since 214 THIS IS PAPCEL.CZ 2

4 FOREWORD Dear Ladies and Gentleen, Dear business partners, The year 214 was another successful period for our copany. Not only in ters of econoic results and project execution, but also in ters of significant copany growth and expansion of our products and services portfolio. a The ain focus of the 214 activities has been, in particular, the realization of our biggest project in history, i.e. the supplies of achinery, equipent and services for the plant Zavod Gazetnoy Buagi in Shklov, Belarus. Most of the copany departents have been engaged in this project, not just the production departent, but also the design, project and purchase departent. Despite its great coplexity and custoer's deands the project has been executed without any ajor coplications. a We were also very pleased to be awarded by the Czech Export Bank and the insurance copany EGAP in a prestigious copetition Exporter of the Year, where the project Shklov has been awarded in the category The best export transaction supported by the State. a The acquisition of ABK Machinery assets, which occurred in October 214, has contributed to increase in our technical level and to expand our portfolio of deliveries. The acquisition had several objectives: to eliinate a copetitor, to enhance our technical level, to increase our production portfolio and to intensify diversification of territories, where our paperaking technology is supplied. It is iportant to offer a wide portfolio of products, which we have now enriched by systes for paper drying, tissue lines, heat recovery and ventilation systes. We perceive such a degree of coplete solutions for the paperaking industry as our significant copetitive advantage. a The acquisition of ABK will also help PAPCEL to increase proportion of orders fro arkets outside Eastern Europe and Russian Federation. These territories have been doinating the PAPCEL export statistics in the recent years. Along with ABK, the orders aounting to 25 illion EUR have been taken over as well as the network of sales representatives. David Dostal Chairan of the Board of Directors 3

5 THE PAPCEL GROUP The PAPCEL Group is an international group of copanies whose position as a supplier is grounded on long-ter cooperation with custoers. It focuses on supplies of reliable and operationally efficient technologies, technological processes and coplete technological services resulting fro its long-ter experience with paper industry applications and several years of realization of highly qualified deliveries. The group is one of the few qualified suppliers able to realize the EPC contracts (turnkey deliveries) thanks to its own engineering capacities and a high level of autoation provided. The PAPCEL Group anufactures and supplies achinery and equipent for coplete stock preparation lines and paper achines for all coonly used types of paper. It provides one-piece deliveries of individual devices, coplete technology-turnkey deliveries, repairs, refurbishent, and renovation of production stages or the whole technology. For the supplied achinery, we provide spare parts and coplete repair and technological service. The copany's production prograe is copleented with provision of all services related to the reconstruction of second-hand paper achines and their relocation to any place in the world.... we are a group of copanies... Copany ission 4to generate added value for shareholders and for the custoers. Offer the final custoers an econoically and technically efficient and functional solution saving energy and resource consuption. 4to continuously iprove the quality of the products and services and continuously iprove the standards of eeting our custoers' needs 4to be the group of copanies that is fully oriented to custoer; our goal is to build long-ter relationships with our custoers 4final arket segents are producers of the following paper grades: fluting / liner, conventional cardboard, coated and non-coated paper and paperboard (wallpaper, graphic paper,writing and printing papers), special paper types (decorative, security, filter, and fine paper - cigarette paper); technology for the production of hygienic papers and anufacturers of corrugated cardboard 4to iprove our eployees' skills as a key source of the copany's further growth 4to keep low costs thanks to the unique design of our paper achines and continuous iproveent of the effectiveness of processes 4to care about our environent by focusing on energy saving technologies of recycled paper processing 4to cooperate proactively with other producers and suppliers 4

6 KEY GROUP VALUES 5 Tradition 4cooperation aong international copanies with ore than 65-year history in paper industry which, in the course of their existence, joined with a nuber of global brands of paper industry, such as Kusters, Belloit, Overechanicca, Gorostidi, Burgo Group, etc. 4background of faily copanies respecting long-ter values of their custoers and eployees 4reverence and respect for the values of the past; experience and knowledge gained during several years in business 4ephasis on the principles of environental protection, efficient use of energy resources and alternative technologies leading to savings of input edia and energy in general Strength 4a strong group of Czech and other copanies operating worldwide with a full-service offer ranging fro supply of achinery to technological service, with an ephasis on investent return and search for the best construction solutions, including the reconstruction of decoissioned (othballed) equipent fro any place in the world 4own network of aintenance, assebly and disassebly workers, own project anageent, own project anageent office 4own research and developent, incl. pilot centres and specialized centres for coputation and evaluation of the easured paraeters and sapling, own division for the developent of control software and autoation eleents 4strong background of an international group of copanies eploying specialists located throughout Europe, and, within our business representation units, all over the world. English and Russian speaking experts with experience fro the world's leading anufacturers of paper technology. 4the ability to deliver turnkey industrial plants (EPC greenfield projects) in which the supply includes the coplete paperill / line, as well as the engineering services consisting of provision of assebly, assebly inspection, coissioning and guarantee tests, anageent of construction works and works relating to investent construction of coplex plants 4good references in brownfield projects; relocation of coplete paperills into existing preises, including a coplete restoration of the operation 4financial services consisting of assurance of an export credit or a letter of credit fro a Czech or a local bank 4ore than 25 installations realized at ore than 8 custoers on different continents Experience 4experience in econoic anageent of projects: preparation of base plans and feasibility studies, incl. calculation of return on investent; defence of arketing and business plans before the bank and insurance copanies in the process of credit provision for the end custoers 4references at international groups such as MONDI and MONDI Packaging, French group Sonoco, Polish group MALTA Decor, Czech group SMURFIT KAPPA, and others 4references on all continents except Australia and the USA 4own project and developent teas focusing on collection of technological data cooperate with specialized higher schools, international paper associations, and research centres 4experience with a coplete greenfield paper ill developent, including the ancillary infrastructure 4deliveries to countries of all the continents; long-ter experience in procureent of docuentation, failiarity with transport and custos issues

7 The PAPCEL Group involves copanies which utually copleent their product portfolio. This results in a very strong group capable to offer the end custoer coplete turnkey deliveries and services. As a whole, the group holds contracts in aounts exceeding 8 illion EUR. The copanies belonging to the group are located in Central and Western Europe, and they operate own 2 overall anufacturing area exceeding 18,. Since 214, the French copany with ore than 6-year tradition on the arket, ABK GROUPE (Tullins), is a eber of the group. It anufactures and supplies coplete paper industry technologies and services and provides counselling Gerany in this Polandfield. Thanks to this Czech Republic acquisition, the PAPCEL Group obtained Slovakia sophisticated France technological know-how for production Italy of special types of paper, particularly sanitary and tissue papers, and entered the Asian arket, especially the Chinese.The PAPCEL Group organization structure has incorporated the division for paper drying and coating, the division of autoation of paperaking processes and creation of DCS.Thanks to the acquisition of all the divisions of ABK copany, today our group canrely onprofessional skills of experts on production of special types of paper and, in particular, the tissue paper, who gained their experience in international projects and now are ebers of the parent copany division seated in Litovel (CZ). France Gerany Czech Republic Slovakia Italy Poland In 215, an Italian anufacturer of paperaking technologies, the copany Coecart (Turin), entered the Group. It is a subsidiary of BURGO GROUP. It was founded in 198 after transforation fro a forer pulp ill as a supplier of paperaking achinery and services to Burgo Paper Mills. It held the Beloit Corporation license fro 198 to 2. New Co. IFM-PAPCEL is an active entity that carries out studies, eploys engineers and anufacturers, who work to transfor paper industry plants. It anufactures the coponents in-house or according to custoer's design and carries out echanical achining and etal structural work at all levels. The anufacturing plant stretches on an area of 7, ², out of which 11, ² are roofed, which gives a total building volue of 12, ³. Paris Tullins In 212, the PAPCEL Group purchased the entire drawing docuentation and the tradeark of the Spanish copany Gorostidi. This gave us access to technological data of sophisticated know-how for paper web foring in the achine, drying, coating, etc.the purchase of drawing docuentation enriched our product portfolio with e.g. the HI-Technology for anufacture of shoe press, the concept of high-capacity forers, new design of headboxes, etc. In 211, the copany IFM, Olšany, a Czech anufacturer of systes and technologies for preparation, dosing and storage of auxiliary paperaking agents and a supplier of technologies for dosing of adhesives in the anufacturing industry lines, becae a eber of the PAPCEL Group. This association enriched the PAPCEL Group's production prograe with highly-specialized equipent for preparation and cooking of starches, preparation of fillers, pigents, sizing agents, retentive agents, defoaers, etc. As a result, the custoer segent of the group extended fro anufacturers of paper, cardboard and corrugated cardboard to anufacturers of packaging aterials (boxes, bags), oulded fibre (egg and other packaging), anufacturers of starch or paperaking auxiliary agents in general (pigents etc.), and plasterboard anufacturers. Milano Cuneo Roa Paris Prague Litovel Oloouc Brno In 29, the first acquisition of a Czech-Swiss copany, Era Elan Prague Litovel Engineering, was accoplished. It is a project anageent Oloouc office Tullins Brno focusing on preparation of coplete project docuentation and offering E-P-C services (engineering, projecting, technological counselling), which enriched the PAPCEL Group's offer with coplex project anageent services. Milano Cuneo Roa WE ARE GROWING TOGETHER 6

8 NETWORK OF EXPERTS The PAPCEL Group eploys ore than 1 eployees who work, apart fro the parent copany seated in Litovel, in the foreign acquisition branches in France and Italy, in the subsidiaries and affiliates in Russia, Belarus, Uzbekistan and India, and also in foreign anufacturing and engineering divisions (the divisions Autoation, Ventilation, and Machinery ). The group of copanies eploys experts fro internationally acclaied copanies such as Overechannicca, Kusters, Belloit, and Andritz, who have extensive experience in anaging international projects. The PAPCEL Group has ore than 2 business representations on all continents except for the USA and Australia. It has a network of subsidiaries in Russia and India (in Russia, with its own service centre). The copany's custoers are located in ore than 4 countries.the copany's production facilities are situated in Central 2 and Western Europe and occupy an area of over 18,.The group invests in its own research and developent and within its research activities, it uses resources fro the EU funds. It has its own departent for reote access to the control systes, which facilitates onitoring of technological and anufacturing processes of the realized projects directly at the custoer's site for the whole duration of the project realization and the guarantee period. The group has its own departent for developent of autoation technologies and a coputational centre for strength calculations and for calculations concerning the fluid systes and non- Newtonian fluids and substances. Huan Resources 214 Nuber of eployees (by ): Nuber of eployees (by ): Average nuber of eployees in 213: Average nuber of eployees in 214: Average wage The average onthly wage in 214 reached the level of CZK per eployee (including bonuses), whereas the average wage in 213 was CZK. In coparison with 213 there has been an increase by 4.66 %. Copared to the national average, which aounted to for the year 214 (according to the Czech Statistical Office), the wage in PAPCEL is above the average. Coparison (average 214) Czech Republic, total CZK Industry, total CZK Oloouc region, total CZK PAPCEL, a.s., total CZK Education and training Language learning costs CZK Other education and training cost CZK Total education and training costs CZK Average per eployee CZK 265 (in Litovel) 252 (in Litovel) 262 (in Litovel) 259 (in Litovel) Personnel changes in 214 Major personnel change was the replaceent of the Production Director, Mr. Vilia Halecka by an eployee fro internal resources, Mr. David Gryga. Furtherore, the HR Manager, Ms. Lenka Holesinska, terinated her eployent towards the end of the year and the job position reained unoccupied for the rest of the year

9 COMPANY MANAGMENT Mr. David Dostal Managing Director / Chairan of the Board of Directors Mr. Filip Wrnata Executive Director Mr. Hanus Majer Sales and Marketing Director Mr. Ladislav Rehak Technical Director Mrs. Marta Skvrnova Financial Director Mr. David Gryga Production Director Mrs. Pavla Pöselova HR Director 8

10 TOP 1 CZECH COMPANIES We are aong the Czech TOP 1 copanies and we are the ebers of prestigious international institutions In 214: 4PAPCEL was awarded the CZECH 1 BEST 214 prize and ranked aong the TOP 1 Czech copanies. 4PAPCEL won the Czech Export Bank (CEB) and Export Guarantee and Insurance Corporation (EGAP) prize for the best export contract supported by the state (developent of Shklov Paper Mill). 4Mr. David Dostal, Managing Director of the PAPCEL Group, won in the Oloouc Region Businessan of the Year 214 title. 4PAPCEL Co. is a long-tie partner of the Czech Export Bank. Projects financed by the CEB clearly increase the technological "know-how of the copany and the technical level of its custoers. A nuber of cases are greenfield investents which always bring soething new, either concerning the supply of achinery, or the coplex offer and realization of engineering services. Thanks to the cooperation with CEB and other Czech banks the PAPCEL group can develop its activities and act as a supplier of coplete turnkey technology. 4PAPCEL is a eber of the Confederation of Industry of the Czech Republic. 9

11 More than 98% of the Group's production is exported. In Central Europe, Czech Republic, Slovakia, Poland, Roania, Bulgaria, and Hungary are aong the ain arkets; in Western Europe, France and Gerany. In Eastern Europe, the ain arkets are in Belarus, Russia, Kazakhstan, and Uzbekistan. The Group operates in the Middle East (Saudi Arabia, Iran, UAE, and Kuwait), Asia (China), India, Indonesia, Vietna, South Korea, Malaysia, Africa (Egypt and Tunisia), and the countries of Central and South Aerica (Chile, Argentina, Peru, Ecuador, Venezuela, Brazil, and Mexico). The Group is developing its own sales and service centre in North Aerica. EXPORT - GLOBAL IMPACT Markets with references Sales representation or subsidiary 1

12 EXPORT - BRANCHES PAPCEL and its subsidiaries locations CZECH REPUBLIC IFM-PAPCEL Санкт-Петербург RUSSIA TECHNOLOGY INDIA PRIVATE LTD. Corporate structure 1% owner VEGA-HSH, spol. s r.o. PAPCEL Group PAPCEL, a.s. Czech Rep. PAPCEL SPb Russia ABK Groupe France PAPCEL Technology India IFM PAPCEL Italy Foreign branch offices PAPCEL Belarus Other copanies PAPCEL Central Packaging Central Asia Packaging 11

13 Country / Custoer Scope of delivery / Financial volue Russia Mari Pulp & Paper Mill Reconstruction of PM EUR / CZK Bulgaria Ecobulhart EOOD Belarus Albertin Paperboard & Paper Mill Latvia SIA Contiplus Riga Ecuador Papelera Nacional Revenues structure coparison SPL for OCC 12 tpd for cardboard production EUR / CZK SPL 2 tpd with the use of existing achinery EUR / CZK Delivery of achinery and engineering services for Pope reel for Malta Decor Rudawa, PM 3 5. EUR / CZK Reconstruction of PM 2 headbox, 36. EUR / CZK SIGNIFICANT CONTRACTS 214 Turkey 2% Ukraine 1% Others* 2% Czech Republic 1% Ecuador 1% Others Kazakhstan 6% 5% Belarus 25% Russian Federation 51% Czech Republic 3% Egypt 15% Russian Federation 19% Belarus 68% Kazakhstan 1%

14 CUSTOMER S PORTFOLIO GROWTH DURING THE YEARS since since 25 since 1998 Czech Rep. Czech Rep. Czech Rep. Slovak Rep. Slovak Rep. Slovak Rep. EASTERN EUROPE TERRITORY OAO MAYAK, Penza, Russia OOO NIKOL-PACK, Uchaly, Rusko OAO Beloruskie Oboyi, Dobrush, Belarus OAO Buazhnaya Fabrika Krasnaya Zvezda, Chasniky, Belarus ANGREN PACK, Tashkent, Uzbekistan Zavod Gazetnoy Buagi, Shklov, Belarus Russia Russia Russia Belarus Belarus Belarus Gerany Gerany Gerany Canada Canada Mari Pulp & Paper Mill, Russia France France Belgiu Belgiu Poland Poland Lithuania Lithuania Ukraine Ukraine Hungary Hungary until 1998 Bulgaria Bulgaria Turkey Turkey Kazakhstan Kazakhstan Uzbekistan Uzbekistan Czech Rep. CENTRAL EUROPE TERRITORY FABRIKA PAPIERU S.A. MALTA DECOR, Rudawa, Poland MONDI SCP, Ruzoberok, Slovakia MONDI PACKAGING, Steti, Czech Republic SMURFIT KAPPA CZECH Zirovice, Czech Republic AKASAN ADANA KAGIT SANAYI, Adana, Turkey India India Slovak Rep. Mexico Ecuador Paraguay DENTAS AMBALAJ ve Kagit Sanayi AS, Denizli, Turkey Chile Colobia Great Britain Switzerland Latvia Greece Egypt Tanzania Iran SIGNIFICANT CUSTOMERS Syria Indonesia INTERNATIONAL BUSINESS TERRITORY ETAP Co., Alexandria, Egypt NATIONAL PAPER Co., Alexandria, Egypt ISLAMIC Co., Quesna, Egypt UNI-PAPER, Syrian-Jordanian Free Zone, Syria PAPELERA NACIONAL S.A. Guayaquil, Ecuador SONOCO PAPER S.A., France CASCADES LA ROCHETTE La Rochette, France MODEL AG THURPAPIER, Weinfelden, Switzerland NEPA, India Israel Saudi Arabia Vietna China MONDI PACKAGING STAMBOLIYSKI EAD, Bulgaria Italy South Korea 13

15 Financial counselling 4arrangeent of base and feasibility studies: assessent of the existing investent, creation of a business plan for the new investent project, assessent of profitability of the project, calculation of costs and consuption of energy input (water, gas, stea, etc.), calculation of the overall econoic rentability of the project 4preparation of coplete docuentation for securing export credit or other fors of project financing - credit application, assessent of the ipact of the project on the environent, counication with banks or insurance agency, in the case of opening a letter of credit or other fors of financing, we do the entire counication with banks Deliveries 4new paper achines (turnkey deliveries) up to the wire width of 7,5 and operating speed 1,2 /in for the usual paper assortent: paper types fluting/liner/teslinerf or the anufacture of packaging aterial, plasterboard paper,coated/non-coated cardboard, writing and printing paper,cigarette paper, banknote paper, decorative paper, toilet paper, sanitary paper, filter paper) 4new coplete stock preparation lines for a 1% processing of waste paper or cobination of waste paper and pulp up to the output of 1,2 tpd. Pulp processing lines for production of tissue paper; lines processing unconventional fibres such as wetstrength paper or Tetrapak beverage packaging. Lines for fibre ceent board anufacture. 4single-piece deliveries of achines and equipent for stock preparation lines, approach flow systes and paper achines 4coplete lines for preparation, storage and dosing of starches and other auxiliary agents used in the cheization process of paperaking 4reconstruction and refurbishent of second-hand paper achines and stock preparation lines 4pressurized and unpressurized cylinders up to the diaeter of 1,8 and the length of 8, 4special processes (theral spraying, non-etallic coating, roll grinding, balancing - even of flexible rotors, surface protection by coating, and superfinishing) Engineering and project anageent services Basic engineering 4detailed description of the technology, including drafts of the production process technological flowsheets 4preparation and arrangeent of the accopanying technical docuentation for achines and equipent in the desired language 4coordination of the preparatory stage of the project; final approval of the layouts of achines and equipent Detailed engineering 4preparation of coplete project docuentation: echanical and technological docuentation, electrical docuentation, easureent and control, preparation of the echanical engineering project for the construction anageent 4project anageent: provision and organization of the delivery of achinery, coordination of work with suppliers of construction projects, creation and control of project ipleentation schedule Realization engineering 4organization of assebly, assebly supervision, chief supervision, coissioning and perforance of guarantee tests After-sales support and technological counselling SCOPE OF SERVICES AND DELIVERIES 14

16 QUALITY MANAGEMENT CERTIFICATES The copany guarantees top quality production by exceptional work coitent and high professional responsibility/liability of technicians and other workers. For alost 2 years, the copany can boast about the certificate ISO 91 (since 1996) and since 27, the copany has also been certified by ISO 141 and OHSAS 181. The integrated anageent syste is defended at regular sixonth intervals. The auditing organization is Lloyd's Register Quality Assurance (LRQA). Besides ISO certificates, the copany is also certified by ČSN EN ISO :26 Great welding certificate with authorization to weld steel structures, pressure tanks and achine parts. The copany also provides certification of anufactured equipent and achinery for launching on the EU arket and also on the arkets of the forer Russian Federation. All three subsystes were successfully re-certified in Noveber th 213 and on Deceber 17, 213 the copany was issued a unified certificate for integrated anageent syste, set put in/to the following areas: Design and developent, engineering, anufacture, refurbishent and installation of achines and technological equipent for the paper and related industries; valid th until Deceber 16,

17 INVESTMENT The overall investent plan for 214 to repair and aintain buildings: 2.5. CZK The overall investent plan for 214 to repair and aintain anufacturing achinery: 1.3. CZK The ost significant investents within the aintenance of buildings are the following: 4Repair of roofs and facades on the assebly and fitting shop 75. CZK 4Overhaul of crane track and replaceent of crane drives in the achine shop 8. CZK 4Reconstruction of reception in the ain adinistrative building 9. CZK 4Scheduled road repairs on copany preises have been deferred until 215 due to operational reasons Major investent in IT: 4Replaceent of antivirus software - 2 ESET licenses 81. CZK 4Security software Optia Profi 11. CZK 4Expansion the capacity of servers, upgrade of coputer network 12. CZK 4New PCs and renewal of existing PCs 45. CZK 4Progra odifications in ALTEC software 6. CZK 4Software aintenance: 4ALTEC 3. CZK 4CIMATRON 68. CZK 4PAYROLL and HR 4. CZK 4Mobile phones, notepads 25. CZK *) 1 EUR = 27 CZK 16

18 TECHNICAL DEVELOPMENT During the year 214 the Technical Board dealt with the following tasks: 1. Hydraulic headbox with water dilution in diffuser 2. Paper web threading - transfer roll, gooseneck 3. Wire and felt control device 4. Heating syste of calender theros-rolls 5. Eulsifier 6. Glue preparation plant 7. Washer - ash reoving washer 8. Pressure screen STU Self-cleaning teeth SCT High-density cleaner SVS-3 1. Hydraulic headbox with water dilution in diffuser Project status: 3D design odels, production docuentation and control calculations of substance flow in anifold copletely processed. The syste of water dilution in diffuser was successfully installed for a custoer in Latin Aerica. The new coplete headbox will be put into operation in 215 in the project Shklov, Belarus. 2. Paper web threading - transfer roll, gooseneck Project status: After a successful ipleentation of an air transporter for paper web threading fro drying part to rope syste of size press or reel, other eans of paper web threading through paper achine have been designed and processed. Wet and dry transfer roll has been designed, which enables easier and safer paper web threading through the press part into the drying part. This project will be copleted in 215, when these rolls will be produced and installed in the project Shklov, Belarus. Another area,which the design tea dealt with was the paper web threading onto jubo reel using gooseneck that will also be installed in the new PM in Shklov. 3. Wire and felt control device Project status: Following the successful installation of the first range of control device, a new type of control device with a quick effect on the position of the wire or felt has been designed. This control device was tested on a testing bench. The paper achines in Shklov, Belarus, will be copletely equipped with these types. 4. Heating syste of calender theros-rolls Project status: 3D design odels and detailed production docuentation copletely processed. This syste together with the cooling syste will be installed on soft calender and on cooling rolls in project Shklov, Belarus. 5. Eulsifier Project status: 3D design odels and detailed production docuentation copletely processed. Based on the discontent with the supplier of this equipent, it has been decided that this equipent will be added to our own production prograe. It is a key equipent of the ASA station that will allow us to eet strict guarantee conditions. 6. Glue preparation plant Project status: Glue preparation plant for the corrugated board line has been delivered to our custoer in Turkey. The equipent was tested in PAPCEL and then successfully installed and put into operation at the custoer. The custoer is very satisfied with the device. 7. Washer - ash reoving washer Project status: 3D design odel copletely processed.this achine is designed to reove printing ink fro waste paper in the lines for tissue processing. 17

19 TECHNICAL DEVELOPMENT 8. Pressure screen STU-122 Project status: 3D design odel copletely processed. The new pressure screen STU-122 is designed for stock preparation lines with the output fro 65 to 19 tpd, further on for the final stage of fine rejects cleaning in high-capacity lines with the output of up to 1.2 tpd. It will also be used as a water filter for headboxes of high-capacity lines. The pressure screen copletes the perforance gap between STU-81 and STU-21. The design includes innovation to reduce labour intensity, which has also been applied to other sizes of pressure screen perforance range. 9. Self-cleaning teeth SCT-35 Project status: This equipent has been produced and delivered to a custoer in Bulgaria. The equipent was put into operation in August 215. The need to increase the purity of water in the pulping node led to the developent of this equipent. The self-cleaning teeth will be placed in a sup pit below the dewatering dru OBN to prevent flotation of light ipurities and overall water pollution in this node. 1. High-density cleaner SVS-3 Project status: 3D odel and drawing processed. The new high-density cleaner SVS-3 was designed to replace two-piece station of cleaners SVS

20 OCCUPATIONAL HEALTH AND SAFETY, WORK HYGIENE OH&S profile assessent 214 Process regulation The process of occupational health & safety and work hygiene regulates particularly the area of risk prevention, work injuries, using personal protective equipent and work hygiene in the copany. Evaluation criteria: OH&S: 4sickness rate 4nuber of work injuries and related nuber sick leave hours 4reedial easures resulting fro work injuries 4nuber of discrepancies during internal inspections 4nuber of discrepancies during external inspections The evaluation criteria of OH&S and work hygiene deterine the safety profile of the copany. Monitoring ethods: 4Record of exceptional incidents with a potential ipact in the area of risk prevention, including reedial easure actions which are recorded by the OH&S Departent. There is an opoing onthly and quarterly evaluation, the overall evaluation takes place once a year. 4Discrepancies found during external inspections (governent authorities, inspection authorities, external audits) in the field of OH& S are recorded by the OH&S Departent based on a drawn up protocol. The causes are analyzed deterining the scope and effectiveness or reedial easures and fulfillent deadlines. The total nuber is evaluated once a year. 4Work injuries - nuber and causes are onitored and recorded by the OH&S Departent, which keeps the relevant evidence and ensures that the related agenda is reported in deadline given by the legislation. Absence fro work related to work injuries is kept by the HR Departent. These data are evaluated quarterly. 4Reedial easures are ipleented based on the analysis of work injuries. These are ainly the principles of occupational health and safety, using personal protective equipent and training to eliinate the causes of injuries and accidents. Assessent of processes: External inspections In the reviewed period there was an external inspection by state authorities in the field of lifting equipent and work hygiene Regional Labour Inspectorate (RLI) The subject of the inspection was copliance with the obligations arising fro the legislation to ensure the safety and operation of technical equipent with a focus on lifting equipent. Three findings cae up based on the inspection; in the field of lifting equipent there were no rules established for assessing the safety of cranes anufactured according to the cancelled Czechoslovak technical standard (ČSN 2714). Likewise, there were no rules established for carrying out weekly crane inspections; the copany failed to provide training to the appointed eployee on other regulations ensuring OH&S to perfor his/her work and duties. Reedial easures to all findings were ipleented in the given deadline and the inforation regarding the fulfillent was sent to the RLI Regional Public Health Authority (RPHA) Meeting the legislative requireents in the field of labour-law regulations under the Labour Code (LC) was the subject of the inspection as well as work categorization, OH&S requireents and detailed requireents on workplace, work environent, specific health services and edical care. One finding cae up based on the inspection; the day roo for workers is not equipped and built in accordance with legislative requireents (daylight, ventilation, flooring, wash basin). Reedial easure to the finding was deterined by the eployer, which was also sent to the RPHA and is currently being solved in order to eet the deadline. There has been no coplaint or external incentive to iprove OH&S and work hygiene. Docuentation in this field is elaborated, is subject to revision, rando inspections and is subitted during audits and inspections. 19

21 OCCUPATIONAL HEALTH AND SAFETY, WORK HYGIENE Coprehensive OH&S audits under the LC 18, paragraph 5. Initiation: Managers of particular econoic departents - specifically production and warehouses, a qualified person in OH&S, consultant in Environental Manageent Syste (EMS), site aintenance technician and trade unions representative participated in the audits. The provider of edical care was absent and apologized. Reviewed areas Verification and exaination of OH&S conditions in the copany is ipleented in these areas: a) technical standards and workplace equipent b) condition of workplaces with focus on work safety eleents and environental protection c) following the principles of work safety, environental protection, legislative and other regulations d) providing and using personal protective equipent e) sanitary facilities f) security of internal and external counications g) work safety during storage; storage spaces h) organizational and educational easures i) identification of dangerous factors and processes at the workplace There were 12 findings that cae up during the audit. Reedial easures have been deterined including deadlines and persons responsible for the ipleentation of reedial easures. Internal audits and near-discrepancies Regular audits on alcohol consuption and regarding discipline when soking during working hours are being carried out in the onitored period. No violations of regulations have been found. There are periodic and rando audits in the field of OH&S, work hygiene and fire protection. There were 47 audits, all of the were recorded. The causes were analyzed and reedial easures deterined. The progress, effectiveness and deadlines are being onitored. The records of these audits are kept on the copany's intranet, where particular reports are available. The progra of regular achinery inspections is set by site aintenance departent as well as the update of audits' register called Annual overview on onitoring, easuring, inspections and audits. Extraordinary events (EE) There were 5 extraordinary events registered by the OH&S departent in 214. The EEs were recorded and investigated, the cause analyzed and reedial easures deterined. The eployees were infored about these extraordinary events. The fulfillent of reedial easures and their effectiveness was required and onitored. The records of EEs are kept on the copany's intranet, in the OH&S section. Training Due to the requireents of legislation, periodical training in the field of OH&S and fire protection as well as training leading to professional qualifications of eployees takes place. The training is carried out partly by internal lecturers and partly by external lecturers. In 214 a new for of e-learning training was added and is provided by external as well as internal lecturers. Attendance lists including all the test, certificates and other records are archived at the OH&S departent and at the welding technologist. Work injuries In 214, there was no work-related injury requiring hospitalization. There were two registered work injuries with sick leave and seven inor injuries. All work injuries were investigated, reedial easures deterined and ipleented. In 214, we focused on raising awareness in providing first aid. The certified trainer was changed and the first aid patrols' training was transfored and extended. The training also included an extensive practical rehearsal that helped to gain 22 qualified first aid patrols. The traua plan has undergone a large review. There has been a visualization of both patrols and traua plan in all departents and also awareness of the availability of first aid kits was raised. Likewise, a consultation with the copany doctor resulted in a change of first aid kit content. There has been a significant range expansion of the content and obile travel kits have been introduced for trips abroad. A new project of vaccination prevention has started for eployees travelling to exotic countries. With the support of the eployer, special optional first aid courses for eployees took place. The participation was voluntary, the training was provided by an internal lecturer, a certified paraedic. The courses were very interesting and at a high-quality level. The training was divided into basic and interediate. Upon finishing, 96 certificates of successful first aid training copletion have been issued, which can be used not only at workplace but also in private life. The condition of OH&S in the copany during the onitored period sustained a good level. The awareness of eployees regarding OH&S is good and relies on a systeatic work with eployees, focusing on raising awareness through published statistics and ethodical aterials. 2

22 ENVIRONMENTAL PROTECTION EP profile assessent 214 M Process regulation Processes of environental protection ensure ainly the copany s area of energy consuption, waste anageent and packaging waste anageent, cheicals anageent, incident prevention, withdrawal and discharge of water, air pollution easures. Evaluation criteria EP: 4Energy consuption 4Waste production and packaging waste production 4Sources of air pollution 4Nuber of incidents with environental ipact 4Nuber of discrepancies in the external inspections 4The copany's environental profile deterination is based on the assessent of environental criteria Monitoring ethods: 4Consuption of theral energy is read daily, while other energies are read once a onth based on the current state of the eter, and the figures are recorded and filed by Site Maintenance Dept. 4The types and quantity of waste are recorded on the basis of operating records of waste production by individual transport and custoer, and are st recorded by Site Maintenance Dept. Since February 1, 215 the records have been anaged by a corporate environentalist. 4The production of packaging waste is recorded by expedition anager based on packaging protocols of a contract. The copany has a contract with an econoist. Quarterly reports are processed and subitted by a corporate environentalist. 4Operating records of the paintshop are kept on a onthly basis, and analyzed once a year. Based on the analysis, the operational suaries are processed and air pollution charges stipulated. 4Waste, packaging, air pollution and eergency preparedness analysis and reporting to IRZ and ISOP are ensured by the EP departent once a year. 4Near isses and incidents affecting the environent, and corrective actions anageent are filed by the EP departent. 4The findings of the external inspections (governent bodies, inspection bodies, external audits) within the EP are saved in the Incident Report For and filed by the EP departent. Their causes are analyzed while deterining the extent and effectiveness of corrective actions to be taken and their deadlines. The overal aount is assessed once a year. 4The situation of the EP is updated and reported on onthly basis. Assessent of processes: External inspections There was no external inspection by governent bodies within the assessed period. There was no coplaint or external request for environental iproveent ade, neither was there any incident to be classified as pollution one. The records are subject to inspections, rando inspections and are presented in audits. Internal inspections of the area and near-isses within the EP There are both regular and rando inspections carried out within the EP and their findings are recorded, analyzed and corrective easures set. The easures are reviewed, their effect assessed and the deadlines checked. Records of these inspections are subitted to copany s intranet where individual reports are available. Extraordinary events In 214, there were no extraordinary events with possible ipact on the environent. Waste anageent Waste anageent records, inutely kept, cover the generation and anageent of waste and hazardous waste during production. In 214 waste reoval, disposal and recycling service provider was replaced resulting in inor changes in the organization and syste of waste collection with ephasis on effective reuse of waste and reduction of hazardous waste sources. Concerning the packaging waste anageent the copany is registered in EKO-KOM syste. 21

23 PAPCEL ECONOMIC PART

24

25 Coent on econoic results Econoic results In 214 the trend of successful growth of the joint-stock copany PAPCEL continued and ain focus of activities has been, in particular, the realization of our biggest project in history, the project Shklov in Belarus, concerning the construction of a new paper plant for production of decorative papers. Due to this tendency the added value exceeded illion CZK and the total revenues reached illion CZK. The operating profit of the copany accounted for 9.9 illion CZK, which represents an annual increase of 6.9 illion CZK. The passive balance of accounted foreign exchange differences of advanced payents received fro our custoers had a negative ipact on the results as well as increased direct financial costs REVENUES (' CZK) Plan 215 The financial result was illion CZK. Regarding the positive developent of the copany, the nuber of eployees has increased to 252 and subsequently the overall wage costs have risen. The total value of personal costs increased fro last year's illion CZK and to illion CZK this year. Earnings before tax reached 72.2 illion CZK, which is a significant growth copared to previous year, when the earnings before tax accounted for 22.7 illion CZK EBIT (' CZK) Plan 215 EBITDA (' CZK) Gross Margin (' CZK) Plan Plan 215 KPI Descreption (Forula) Plan 215 REVENUES (' CZK) EBITDA (' CZK) Revenues fro own products and services Earnings before tax, depreciation and aortization GM (' CZK) Gross argin EBIT (' CZK) Earnings before interest and taxes - Operating profit PHON Gross argin/pesonal costs 1,3 1,85 1,62 1,65 1,82 2,1 Equity ratio (%) Return on Sales (%) Shareholders s Equity/Total Assets Operating profit/revenues fr own products and services 51, 43, 43, 42, 36,35 42,6 6,% 6,6% 6,3% 3,35% 1,6% 6,9% 22

26 Coent on econoic results Balance sheet The total value of net assets (after reduction of accuulated depreciation and accruals) has increased by 11.8 % copared to the year 213 and aounted to illion CZK. The receivables have a ain contribution on this growth, which increased by 3 illion CZK. This is ainly due to the ipleentation and invoicing of the project Shklov, in particular, the receivables were growing until the due date of the project. The highest decline was recorded in short-ter financial assets, which aounted to 1.6 illion CZK. This decrease is also related to the realization of project Shklov. In the previous period, there was a deposit fro the down payent on the current account tied to this project. It was settled in ,% 1,% 8,% 6,% 4,% 2,%,% Return on Sales (%) 1,6% 6,6% 6,9% 6,% 6,3% 3,35% Plan 215 On the liabilities side, the equity capital in the aount of 45.2 illion CZK recorded an increase by 1.5 % copared to the previous period. The total value of liabilities reached 85.6 illion CZK and increased by 24.8 % over the year. The rise in liabilities is ainly caused by the increase of short-ter bank loans by 16.6 illion CZK. The short-ter liabilities have risen fro last year's 484 illion CZK to 563 illion CZK. 2,5 2, 1,5 1,3 1,85 PHON 1,62 1,65 1,82 2,1 1,,5, Plan 215 Equity ratio (%) 6, 5, 4, 3, 2, 1,, 51, 43, 43, 42, 42,6 36, Plan

27 Balance sheet Assets Previous Accounting Period 213 Net Current Accounting Period 214 Gross Adjustent Net TOTAL ASSETS Receivables fro Subscriptions FIXED ASSETS FIXED INTANGIBLE ASSETS Incorporation Expenses Intangible Research and Developent Software Other Fixed Intangible Assets Intangible Fixed Assets under Construction FIXED TANGIBLE ASSETS Land Buildings and Constructions Separate Tangible Movable Assets and Sets of Movable Tangible Things Other Fixed Tangible Assets Fixed Tangible Assets under Construction Advance Payents for Fixed Tangible Assets Adjustents to Acquired Assets FINANCIAL INVESTMENTS Shares in Controlled and Managed Organizations Financial Investents Acquired CURRENT ASSETS Inventory Materials Work in Progress Finished Products Purchased Goods Advance Payents for Inventory LONG-TERM RECEIVABLES Trade Receivables Receivables - Controlling and Managing Organization Deffered tax receivables SHORT-TERM RECEIVABLES Trade Receivables Receivables Controlling and Managing Organization Receivables fro Partners State - Taxation Receivables Prepayents Estiated Receivables Other receivables SHORT-TERM FINANCIAL ASSETS Cash in Hand Cash in Bank Accruals Deferred Expenditure Deferred Incoe In thousands of CZK 24

28 Balance sheet Liabilities Previous accounting period 213 Current accounting period 214 TOTAL LIABILITIES SHAREHOLDER S EQUITY REGISTERED CAPITAL Own Shares and Ownership Interests Changes in Registered Capital CAPITAL FUNDS Preiu Differences fro Revaluation of Assets and Liabilities (+/-) PROFIT FUNDS Reserve Fund Statutory and Other Funds PROFIT/ LOSS BROUGHT FORWARD Undistributed Profit of Previous Years Accuulated Losses of Previous Years Another Econoic Result of Previous Years RETAINED PROFIT / LOSS OF THE CURRENT FINANCIAL YEAR LIABILITIES RESERVES Legal Reserves Incoe Tax Reserve Other Reserves PAYABLES Other Long-ter Liabilities Deferred Tax Payables SHORT-TERM LIABILITIES Trade payables Payables - Controlling and Managing Organization Eployee Related Liabilities Social Security and Health Insurance Liabilities State - Taxation Liabilities and Subsidies Short-ter Accepted Deposits Estiated Payables Other Liabilities BANK LOANS AND BORROWINGS Long-ter Bank Loans Short-ter Loans ACCRUALS Accrued Expenses Deferred Revenue In thousands of CZK 25

29 Incoe stateent (profit and loss stateent) Text Previous accounting period 213 Current accounting period 214 Sales Revenue Costs of Goods Sold Gross Profit OUTCOME Sales of Own Products and Services Difference in Own Produced Stock Own Closing Stock DIRECT COSTS Materials, Light and Power Services VALUE ADDED PERSONNEL EXPENSES Wages Social Security and Health Insurance Costs Fringe Benefits Fees and Taxes LONG TERM TANGIBLE AND INTANGIBLE ASSET DEPRECIATION Revenue fro Sales of Long Ter Assets and Materials Revenue fro Sales of Long Ter Assets Revenue fro Sales of Materials Net Book Value of Sold Long Ter Assets and Materials Net Book Value of Sold Long Ter Assets Net Book Value of Sold Materials Reserves and Deferred Incoe in Operating Revenues Ostatní provozní výnosy / Other Operating Revenues Ostatní provozní náklady / Other Operating Expenses NET PROFIT FROM OPERATIONS Revenues fro Sales of Securities and Shares Sold Securities and Shares Revenues fro Revalued Securities Expenses fro Revalued Securities Reserves and Provisions Adjustents Interest Received Interest Paid Other Financial Revenues Other Financial Expenses PROFIT / LOSS FROM FINANCIAL OPERATIONS Incoe Tax on Ordinary Activities Payable Deferred PROFIT / LOSS FROM ORDINARY ACTIVITIES PROFIT / LOSS OF THE ACCOUNTING PERIOD PROFIT / LOSS BEFORE TAX In thousands of CZK 26

30 Cash flow report Previous accounting period 213 Current accounting period 214 Cash and Equivalents at the Beginning of the Accounting Period CASH FLOW FROM THE MAIN SUBJECT OF BUSINESS (OPERATIONS) Profit / Loss fro Ordinary Activities before Taxation ADJUSTMENT BY NON-MONETARY OPERATIONS Fixed Asset Depreciation (+), without Net Book Value and also the Aortisation of Adjustents to Acquired Assets Change in Balance of Adjustents, Reserves Profit / Loss fro Sale of Fixed Assets Accounted for in Revenue (-), Expenses (+) Interest Paid (+), with the Expection of Capitalised Interest, Interest Received (-) Possible Adjustents with Other Non-onetary Operation NET CASH FLOW FROM OPERATIONS BEFORE TAXATION, CHANGES IN WORKING CAPITAL AND EXTRAORDINARY ITEMS CHANGES IN NON-MONETARY ITEMS OF WORKING CAPITAL Change in Receivables fro Operations, Teporary Assets Accounts Change in Short-ter Receivables fro Operations, Teporary Liability Accounts Change in Stock Change in Short-ter Financial Assets other than Cash or Equivalents NET CASH FLOW FROM OPERATIONS BEFORE TAXATION AND EXTRAORDINARY ITEMS Interest Paid with the Exception of Capitalized Interest (-) Interest Received (+) Tax Paid on Ordinary Activities and Additional Tax of Prior Period (-) NET CASH FLOW FROM OPERATIONS CASH FLOW FROM INVESTMENTS Expenses Connected with the Acquisition of Fixed Assets Revenue fro Sold Fixed Assets NET CASH FLOW RELATED TO INVESTMENTS CASH FLOW FROM FINANCIAL TRANSACTIONS Ipact of Changes in payables Affecting Cash and Equivalents IMPACT OF CHANGES IN OWNERS EQUITY ON CASH AND EQUIVALENTS Cash and Equivalents increase fro increases in Equity (+) Paid Equity Shares to Partners (-) Other Contributions of Cash of Partners and Shareholders Direct Funds Drawings(-) Paid Dividends or Profit Shares, including Withheld Tax (-) NET CASH FLOW RELATED TO FINANCIAL TRANSACTIONS NET INCREASE OR DECREASE IN CASH CASH AND EQUIVALENTS AT THE END OF PERIOD In thousands of CZK 27

31 Suary of changes in owner s equity Text Previous accounting period 213 Current accounting period 214 EQUITY REGISTERED WITHIN THE COMMERCIAL REGISTER Opening Balance Increase Decrease Closing Balance NOT REGISTERED EQUITY Opening Balance Increase Decrease Closing Balance EQUITY REGISTERED AND NOT REGISTERED Opening Balance Closing Balance SHARE PREMIUM Opening Balance Increase Decrease Closing Balance RESERVE FUNDS Opening Balance Increase Decrease Closing Balance OTHER PROFIT FUNDS Opening Balance Increase Decrease Closing Balance CAPITAL FUNDS DIFFERENCES FROM REVALUATIONS NOT INCLUDED IN PROFIT / LOSS Opening Balance Increase Decrease Closing Balance RETAINED PROFIT FOR ACCOUNTING PERIOD Opening Balance Increase Decrease Closing Balance LOSS FOR ACCOUNTING PERIOD Opening Balance Increase Decrease Closing Balance PROFIT / LOSS AFTER TAXATION FOR ACCOUNTING PERIOD In thousands of CZK 28

32 Notes on 214 financial stateents Bussines Nae and Registered Office: Pasiva / Liabilities Legal for: Established on: VAT Reg No: Bank connection: Telephone: / Fax: PAPCEL, a.s., Uničovská Běžné účetní 132, období Litovel, Minulé Czech účetní Republic období 29 Current accounting period 21 Previous accounting period 29 joint-stock copany th May 15, 1996 CZ UniCredit Bank CZ, a.s., Oloouc / Account No.: / / Major subject of business (according to the entry in the Coercial Register): 4Manufacture, sale and services not listed in Annexes 1 to 3 of the Trade Act, especially according to the Industrial Classification of Econoic Activities: 42895: Manufacture of achines and instruents for the anufacture of paper and cardboard 47112: Engineering activities and related technical consultancy Entities having a share of the accounting entity s registered capital of ore than 2 % Entity and Registered office Share 213 % Share 214 % Ing. David Dostál, Koenského 688, Litovel, Czech Republic VEGA - HSH, spol. s r. o., Koenského 688, Litovel, Czech Republic Changes and aendents ade in the Coercial Register during the acounting period In 214, the copany VEGA-HSH, spol. s r.o. becae the 1 % owner of the joint-stock copany PAPCEL. Based on the decision of the sole shareholder and the subsequent registration in the Coercial Register on August 12, 214, Mag. Bernard Lechner was withdrawn and the Supervisory Board has only three ebers. Statutory and supervisory body ebers on the balance sheet date Board of Directors: Mr. David Dostál - Chairan of the Board of Directors Mr. Filip Wrnata - Vice-chairan of the Board of Directors Mr. Andrej Lakoý Mr. Ivan Dzido Supervisory Board: Ms. Kateřina Kerekešová - Chairwoan of the Supervisory Board Ms. Olga Dostálová Mr. Jan Sítal Monetary payents or other non-onetary benefits provided for existing and forer body ebers No onetary payents or other benefits were provided for the statutory body ebers during the accounting period under consideration. Except for: Nae / Payent / Benefit type - loan Birth reg. No. Loan value Interest rate Mr. Wrnata Filip 69214/ ,- CZK 5 % Copany eployess; personnel costs For the accounting period Average nuber of eployees This includes: Production workers Overhead generating workers Technical and econoic personnel Manageent Labour costs (in CZK ) This includes: Manageent Wages of external agencies Social security expenses Social costs In thousands of CZK

33 Notes on 214 financial stateents Accounting entity s ownership interest of ore than 2 % in other copanies Entity / Address / Registered office Share 213 % Share 214 % OOO PAPCEL SPb, B. Sapsonievsky pr. 32, Saint-Petersburg, Russia RUB RUB 99 IFM PAPCEL, s.r.o. - PAPCEL Group eber, Uničovská 132, Litovel, Czech Republic 2. CZK 1 2. CZK 1 ABK GROUP, Boulevard Michel Perrel, 3821 Tullins, France - 1 EUR 51 CENTRAL ASIA PACKAGING, Tashkent, Uzbekistan - 3. KZT 1 PAPCEL CENTRAL ASIA, Alaty, ул. Хаджи Мукана д. 86, Kazakhstan USD 1 No agreeents between the partners (shareholders) have been concluded. The joint-stock copany PAPCEL has acquired assets of ABK Machinery and took over selected unfinished contracts. On October 15, 214, the French copany ABK Groupe, Tullins becae part of the group PAPCEL. The acquisition of ABK Machinery had been carried out through a newlyestablished copany ABK Groupe, in which the copany PAPCEL Litovel holds 51 % share. The French ABK has ore than 6-year history in the field of the paper industry. The original copany was founded in 1952 by Mr. Aié Allibe. In 198 the copany Allibe developed its own technology for paper coating and calendering. Later on, in the nineties, the copany erged with the Geran copany Küsters (the anufacturer of calenders) and the Aerican copany Beloit (the anufacturer of technologies for rewinding, paper coating, etc.), respectively. The copany ABK Machinery was founded in 2 (the nae of the copany was derived fro the initial letters of the founding copanies Allibe-Beloit-Küsters). The newly-established copany ABK Groupe is based in Tullins, France. Since October 214 Mr. David Dostal has been appointed the President and the Chairan of the Board. Mr. Eanuel Allibe has been appointed the Vice-Presindent and the Managing Director. c) Work in progress - at the working costs in the aount of the direct costs and part of the indirect production costs. d) Finished products and sei-finished products - at the total working costs of production. 4Internally produced inventories are posted using Method A; when issued fro warehouse, the warehouse prices are used for their evaluation. e) Ownership interests- at the acquisition costs. f) Derivates - at the real value. Value adjustents to the assets The value adjustents to tangible and intangible assets are created on the basis of stocktaking results. The value adjustents to receivables are created to such receivables which are overdue for ore than 12 onths on the balance sheet date, or even earlier if a reduction in their value which is not of a peranent nature is considered on the basis of stocktaking. The value adjustents are created to such inventories which were not issued for ore than 24 onths and to such second-hand inventories and spare part inventories which were not issued for ore than 36 onths on the balance sheet date. Accounting procedures Basic principles of drawing up the financial stateents These financial stateents are drawn up in copliance with the accounting standards applicable in the Czech Republic. Valution ethhods The valuation of the assets is in copliance with Act No. 563/1991 Coll., on accounting. Individual ites of the property are evaluated as follows: a) Tangible and intangible fixed assets - at acquisition costs; the internally produced tangible and intangible assets are evaluated at working costs in an aount of the direct costs and part of the indirect costs of production. 4The replaceent cost is only used by the joint-stock copany for the assets handed over free of charge after the end of the financial lease. There, it is based on the original acquisition cost fro the leasing copany. b) Material and erchandise - at the purchase price. 4The costs associated with the aterial acquisition of the aterial are posted on a separate analytical account and dissolved on a onthly basis into the expenses according to the calculated ratio. 4Types of additional costs of acquisition which are included in the acquisition costs of the inventories: - Custos and forwarding charges, - Eexternal freight, - Internal freight, - Various surcharges and discounts which relate to the acquisition of the inventories. 4The purchased inventories are posted using Method A; when issued fro the warehouse, the prices deterined using a weighted arithetic ean are used. 3

34 Notes on 214 financial stateents Value adjustents to inventorie (in CZK ) Asset type Value adjustents to Balance on the first day of the accounting period Created Posted Balance on the last day of the accounting period Current period Last period Current period Last period Current period Last period Current period Last period Own sei-finished products Material inventories Products Depreciation of assets Book depreciations are used for depreciating tangible fixed assets. The calculations of a onthly depreciation is based on the estiated lifetie of the asset. The book depreciations of an intangible fixed asset are always deterined for four years. Depreciations start in the onth following the onth in which the asset was put into use. The records of the tax depreciations are kept separately fo the purpose of deterining the incoe tax base. According to sec. 7 par. 1 of Regulation No. 5/22 Coll., the difference in the valuation of the acquired assets (in ters of accounting) is depreciated into expenses or revenues evenly for 18 onths fro the acquisition of the business or part thereof or fro the decisive date of the reorganizations. The difference in the valuation of the acquired assets includes the plus difference between the valuation of the assets and liabilities in connection with the reorganization of the copany (based on the resolution of the Regional Court in Ostrava, P.B.O. Holding a.s. ceased to exist as a result of the erger with the successor PAPCEL, a.s. The successor PAPCEL, a.s. took over all the assets of P.B.O. Holding a.s., including the rights and obligations arising fro eployent relationships and the total valuation of its individual parts of the assets in the accounting entity s accounting books. Low-value tangible and intangible fixed assets are posted as follows: Since 23, the tangible assets with an acquisition price of up to CZK 4. and the intangible assets with an acquisition price of up to CZK 6. are considered to be inventories and when used, they are posted as aterial consuption on account 51 Material consuption in the case of a tangible asset or on account 518 Other services in the case of an intangible asset. An exception is the assets of the foreign branches, which follow the local accounting principles. The records of the assets with a price of over CZK 1. having a ore significant nature are kept in the records of the assets which are not depreciated. Conversion of foreign currencies to the Czech currency Transactions ade in foreign currencies are converted and posted using the exchange rate of the Czech National Bank on the first working day of the onth. List of the fixed exchange rates used during the 214 accounting period Month USD EUR RUB January February March April May June July August Septeber October Noveber Deceber The balances of the onetary assets, receivables and liabilities kept in foreign currencies were converted using the exchange rate publishe by the Czech National Bank as of the balance sheet date. All exchange rate gains and losses resulting fro the conversion of the onetary assets, receivables and liabilities are posted on the profit and loss account. 31

35 Notes on 214 financial stateents Iportant events which occurred between the closing date and date of the authorization of the financial stateents for subitting aoutside the accounting entity. No significant events occurred in this period. Calculation of the due incoe tax for the year 214 (in CZK ) Profit or loss before tax for the purposes of taxation Added ites Deductible ite Deduction of donations Tax base rounded down to CZK thousands Tax rate according to Section 21 Par. 1 Tax Tax allowances Reserve for incoe tax Calculation of the incoe tax payable for the year 213 (in CZK ) Profit or loss before tax for the purposes of taxation Added ites Deductible ite Deduction of donations Tax base rounded down to CZK thousands Tax rate according to Section 21 Par. 1 Tax Tax allowances Reserve for incoe tax Calculation of the deferred incoe tax for the year 214 (in CZK ) Ite Book Tax Diferrence Net book value of fixed assets Value adjustents Reserves TOTAL Deferred receivable Calculation of the deferred incoe tax for the year 213 (in CZK ) Ite Book Tax Diferrence Net book value of fixed assets Value adjustents Reserves TOTAL Deferred receivable List of subsidies received for investent and operating purposes Nae Project Educate for growing! , ,- Financial lease In the year 214, we have no financial lease in our records. Auditor s reuneration for the statutory audit According to the contract, the auditor s reuneration for the 214 statutory audit is CZK 25.,- excluding VAT. 32

36 Notes on 214 financial stateents The largest increases and decreases in the tangible assets (in CZK ) Account nae Increases Retireent Vehicles Research and Developent capitalize Intangible fixed assets 214 (in CZK ) 1.81 Account nae Balance on Increases Retireent Balance on Intangible assets in the course of construction Intangible fixed assets (in CZK ) Account nae Balance on Increases Retireent Balance on Software - accuulated depreciation - reaining value Royalties - accuulated depreciation - reaining value Research and developent capitalized - accuulated depreciation - reaining value Account nae Balance on Increases Retireent Balance on Software - accuulated depreciation - reaining value Royalties - accuulated depreciation - reaining value Intangible assets - not depreciated in the operative records on in CZK : 7.1 Tangible fixed assets in the course of contruction 214 (in CZK ) Account nae Balance on Increases Retireent Balance on Tangible fixed assets in the course of production Tangible fixed assets (in CZK ) Account nae Balance on Increases Retireent Balance on Land Buildings and structures - accuulated depreciation - reaining value Machinery, tools and equipent - accuulated depreciation - reaining value Difference in the valuation of the acquired assets - accuulated depreciation - reaining value Works of art Account nae Balance on Increases Retireent Balance on Land Buildings and structures - accuulated depreciation - reaining value Machinery, tools and equipent - accuulated depreciation - reaining value Difference in the valuation of the acquired assets - accuulated depreciation - reaining value Works of art Tangible assets - not depreciated in the operative records on in CZK :

37 Notes on 214 financial stateents Fixed assets encubered with the right of lien (in CZK ) Description of the fixed assets in 214 Building plot Machining shop Building plot Cutting shop Building plot Two-nave hall Building plot 489/2 + Office building Building plot1817/1 Building plot 713/2 Building plot 744/4 Building plot 149 Building plot 2835 Building plot 489/1 Building plot 1817/24 Building plot 1817/26 Building plot 1817/6 Building plot 149 Building plot 2835 Building plot 489/1 Building plot 1817/24 Building plot 1817/26 Building plot 1817/6 TOTAL Lien creditor UniCreditBank Czech Republic and Slovakia, a.s. Koercni banka, a.s. Sberbank CZ, a.s. Secured obligation value USD 7.1 CZK USD 7.1 Inventories without down payents ade (in CZK ) Account nae Balance on Balance on Material, except for second-hand Material second-hand Work in progress Sei-finished products Finished products, except for spare parts Finished products - spare parts Merchandise TOTAL The value adjustents are ade for such investories which were not issued for ore than 24 onths and for such second-hand investories and spare part investories which were not issued for ore than 36 onths on the balance sheet date. Inventories encubered with the right of lien (in CZK ) Description of the current asset in 214 Lien creditor Secured obligation value Inventories: aterial in stock, work in progress and products TOTAL UniCredit Bank Czech Republic and Slovakia a.s. Koercni banka, a.s Trade receivables by due date (in CZK ) Accounting period Receivables before the due date in total This includes long-ter receivables: Overdue receivables in total: This do includes: 3 dnů / up to 3 days nad 3 dnů / ore than 3 days nad 6 dnů / ore than 6 days nad 9 dnů / ore than 9 days nad 12 dnů / ore than 12 days nad 36 dnů / ore than 36 days TOTAL The value adjustents to receivables are to such receivables which are overdue for ore than 12 onths on the balance sheet day, or even earlier if a reduction in their value which is not of a peranent nature is considered on the basis of stocktaking. 34

38 Notes on 214 financial stateents Value adjustents to receivables (in CZK ) Asset type / Value adjustents to Balance on the first day of the accounting period Current period Last period Balance on the last day Created Posted of the accounting period Current Last Value Current period period adjustents to period Last period Current period Receivables Trade payables by due date (in CZK ) Accounting period Balance on Balance on Paysbles before the due date in total Overdue payables in total: This do includes: 3 dnů / up to 3 days nad 3 dnů / ore than 3 days nad 6 dnů / ore than 6 days nad 9 dnů / ore than 9 days nad 12 dnů / ore than 12 days nad 36 dnů / ore than 36 days TOTAL Payables to social security and health insurance institutions (in CZK ) Text Social Security Adinistration Military Health Insurance Copany General Insurance Copany Branch Health Insurance Copany Health Insurance Copany of the Ministry of Internal Affairs Czech Industrial Health Insurance Copany Coalfield Brotherhood Cash Office GD MF RB for Minsk Total Equity capital Increase or decrease in the equity (in CZK ) Description Current period Last period Change + / - Registered capital Statutory reserve fund Statutory and other fund Retained earnings Dividends Assets and liabilities revaluation Other profit or loss Profit or loss for the current period Share preiu Equity total Based on the decision of the sole shareholder at the general eeting, the share preiu has been transferred to the retained earnings of the joint-stock copany PAPCEL. Subsequently, based on the decision of the sole shareholder at the general eeting, the payent of dividends fro the retained of the joint-stock copany PAPCEL has been approved. Registered capital (CZK) Noinal values of the shares and the nuber of pieces issued Registered capital 2 pcs of ordinary shares of a noinal value 11 pcs of ordinary shares of a noinal value 1 pc of ordinary shares of a noinal value 15 pcs of ordinary shares of a noinal value 9 pcs of ordinary shares of a noinal value 5 pcs of ordinary shares of a noinal value 2 pcs of ordinary shares of a noinal value 1 pcs of ordinary shares of a noinal value Distribution of the profits (treatent of the loss) for the last accounting period (in CZK ) Ite Profit or loss (+ profit, - loss) Allocation to the reserved fund Allocation the the social funds Allocation to the retained earnings Payent (+) of or increase (-) in the accuulated losses Payent of dividends Aount

39 Notes on 214 financial stateents Bank loans (in CZK ) Bank 213 Liit on Balance 214 Liit on Paid off Balance Due date Method of securing Sberbank CZ, a.s. Investent loan Sberbank CZ, a.s. Revolving credit $ $ $ $ Real estate, Bills of exchance Receivables Real estate, Receivables UniCredit Bank Czech Republic and Slovakia, a.s. EUR PEX UniCredit Bank Czech Republic and Slovakia, a.s. USD PEX UniCredit Bank Czech Republic and Slovakia, a.s. EUR Overdraft loan UniCredit Bank Czech Republic and Slovakia, a.s. CZK Overdraft loan Česká spořitelna, a.s. CZK Revolving credit Česká spořitelna, a.s. USD Mediu-ter credit $ $ $ $ Investories Real estate, Bills of exchance Receivables Receivables Real estate Receivables UniCredit Bank Czech Republic and Slovakia, a.s. EUR Short-ter credit UniCredit Bank Czech Republic and Slovakia, a.s. Short-ter credit Receivables Investories, Receivables Koerční banka CZK Overdraft loan Koerční banka CZK Specific loan / / Investories, Receivables Receivables Receivables Reserves (in CZK ) Other reserves Reserve for year-end bonuses - social and health insurance Reserve for contractual bonuses - social and health insurance Reserve for reaining leaves Reserve for clais Reserve for extra costs - OP Dentash Reserve for an Etap discount Reserve for financial costs and coissions Reserve for 5 % of the retained value - OP Dobrush Reserve for incoe tax Reserve Mayak Reserve Rakta Reserve Shklov Reserve Sukhonskiy TOTAL Revenues fro ordinary activities by type Description Sales of products Sales of services TOTAL Transactions with related entities (in CZK ) Balance on Balance on Copany Expenses Revenues Receivables Liabilities Transactions with related entities in the year 214 Related entities in total In the year 214, the related entities are considered to be: VEGA-HSH, spol. s r.o., Era Elan engeneering spol. s r.o., Dvůr Nové Záky s.r.o., Paper Mill Holding s. r. o.,angren Pack, Angren Trading. 36

40 Notes on 214 financial stateents Receivables and liabilities not entioned in the balance sheet Copany nae Title CZK EUR/USD Koerční banka, a.s. LIABILITIES Guarantor s liability for DENTAS ROSSMANN Contiplus AG Gurantor s liability for ZAVOD GAZETNOJ BUMAGI SKHLOV , , , ,64 15., EUR 8., EUR 15., EUR ,4 EUR UniCredit Bank Czech Republic and Slovakia, a.s. Guarantor s liability for Ecobulhart EOOD Guarantor s liability for GENERAL COMPANY FOR PAPER Guarantor s liability for Tan Mai Mien Dong Joint Stock Copany Guarantor s liability for Lindab Buildings s.r.o. Guarantor s liability for TEPE BETOPAN Guarantor s liability for Sieens, s.r.o. Guarantor s liability for NEPA , , , , , , , ,62 EUR , EUR 34.8, EUR , EUR 91., USD 83.49, EUR 6., USD UniCredit Bank Austria KB, a.s , 55., EUR Bank guarantees - issued TOTAL , , USD ,2 EUR Copany nae Description CZK EUR/USD Andritz Kusters GbH LIABILITIES Bank guarantee in Deutsche Bank , , EUR Andritz AG Bank guarantee in Raiffeisen Bank , 92., EUR Changsa Chahint Machinery Co., LTD Bank guarantee in UniCredit Bank Czech Republic and Slovakia, a.s , , , USD 67.32, EUR Jiangsu Tengxuan Technology Co. Bank guarantee in Bank of China , , USD Dandy roll Bank guarantee in Deutsche Bank , , USD Paperchine GbH Bank guarantee by Koerční banka, a.s , 66., EUR Honeywell Oy Bank guarantee by Danske Bank ,5 52.5, EUR ALIAZ Bank guarantee by Koeční banka, a.s , ,5 EUR Drevoindustria Mechanik, s.r.o. Bank guarantee by VÚB Bank , , EUR Bank guarantees - received TOTAL , , USD 66.2,5 EUR The points that are not listed in these notes do not relate to the copany PAPCEL, a.s. 37

41 Controlled person PAPCEL, a.s., ID: Registered office: Litovel, Uničovská 132, district Oloouc, postcode 784 1, registered in Coercial register kept by the Regional Court in Ostrava, section B, insert Controlling person VEGA-HSH, spol. s r.o., ID: Residence: Litovel, Koenského 687/13, district Oloouc, postcode 784 1, registered in Coercial register kept by the Regional Court in Ostrava, section C, insert Controlling person with direct influence: 1 %. Connected person Era Elan Engineering spol. s r.o., ID: Registered office: Praha 4, Pod Višňovkou 1661/33, district Praha 4, postcode 14, registered in Coercial register kept by the Municipal Court in Prague, section C, insert 33. IFM PAPCEL, s.r.o. eber of the PAPCEL concern, ID: Registered office: Litovel, Uničovská 132, district Oloouc, postcode 784 1, registered in Coercial register kept by the Regional Court in Ostrava, section C, insert Dvůr Nové Záky, s.r.o., ID: Registered office: Mladeč-Nové Záky 3, district Oloouc, postcode 784 1, registered in Coercial register kept by the Regional Court in Ostrava, section C, insert Paper Mill Holding, s.r.o., ID: Registered office: Litovel, Uničovská 132, district Oloouc, postcode 784 1, registered in Coercial register kept by the Regional Court in Ostrava, section C, insert OAO ИИ «ANGREN PACK» Registered office: Tashkent region, Angren OKPO: , OPF: 115, KFC: 161, SOATO: , OKONX: The report on relations between controlled and controlling entities for accounting period 214 I. Concluded contracts A. Concluded contracts between controlling and controlled entities in 214: a) Contract on transfer of receivables No. 2441/214 concluded on b) Agreeent on clais offset No. 244/214 concluded on c) Loan agreeent No. 2432/214 concluded on d) Aendent to loan agreeent No. 2431/214 concluded on e) Agreeent on clais offset No. 243/214 concluded on f) Loan agreeent No. 24/214 concluded on B. Concluded contracts between the connected entity Era Elan engineering spol. s r.o. and the controlled entity in 214 were the following: a) Contract for work No. 2284/214 concluded on b) Aendent No. 1 to the Order No.1218 Reconstruction Shklov No. 2226/214 concluded on c) Aendent No. 2 to the Order No.1218 Reconstruction Shklov No. 2369/214 concluded on d) Contract for work No. 221/214 concluded on e) Aendent No. 1 to the Order No Reconstruction of SPL Uchaly concluded on f) Contract for work No. 2121/214 concluded on g) Contract for work to the Order No N1 Russia concluded on C. There were no contracts concluded between the connected entity IFM Papcel, s.r.o. - eber of the PAPCEL concern and the controlled entity in 214. D. Concluded contracts between the connected entity Dvůr Nové Záky and the controlled entity in 214 were the following: a) Contract to provide advertising and prootion concluded on valid fro until

42 The report on relations between controlled and controlling entities for accounting period 214 E. Concluded contracts between the connected entity Paper Mill Holding, s.r.o. and the controlled entity in 214 were the following: a) Loan agreeent concluded on in the aount of 34.,- EUR (connected entity as a debtor). F. Concluded contracts between the connected entity ОАО ИИ «ANGREN PACK» and the controlled entity in 214 were the following: a) Contract for equipent purchase concluded on b) Contract for equipent purchase concluded on c) Loan agreeent in the aount of 1.,- EUR concluded on d) Loan agreeent in the aount of 26.15,- EUR concluded on e) Contract for equipent purchase concluded on f) Loan agreeent in the aount of 3.,- USD concluded on g) Contract for equipent purchase concluded on h) Loan agreeent in the aount of 1.,- EUR concluded on i) Loan agreeent in the aount of 1.,- EUR concluded on j) Loan agreeent in the aount of ,- EUR concluded on k) Loan agreeent in the aount of 85.,- EUR concluded on All of the above contracts and agreeents were concluded in accordance with standard conditions. The settleent of the contracts and agreeents has been carried out in accordance with the agreed ters. II. Other agreeents There were no other legal acts taken to the interest of the controlling entity and/or to the interest of other entities controlled by the controlling entity. There were no easures accepted at the instance or to the interest of the controlling entity, or to the interest of the other entities controlled by the controlling entity. III. Conclusion Based on the inforation of the Board of Directors and its individual ebers and fro the above given inforation, the Board of Directors states that there was no detrient resulting for the copany fro the relations between the controlling entity or fro the relations with the connected entity during the reviewed period. Furtherore, the Board of Directors notes that the report is coplete. Litovel, March 1, 215 Copany nae Expenses Revenues Receivables Liabilities Related entities in total Ing. David Dostál Chairan of the Board of Directors

43 Auditor s Stateent 4

44 Gerany Poland Czech Republic Slovakia France Italy Paris PAPCEL, a.s. Unicovska 132, Litovel Czech Republic Phone: Fax: arketing@papcel.cz Tullins Milano Cuneo Roa Prague Litovel Oloouc Brno follow us on PAPCEL