ANNUAL REPORT 2006 Change is the driving force of development Year 2006 – in all areas of operation of Cetis this was a year of changes with positive effects on the company‟s operation and growth. One of the most important changes introduced in the company over the past few years was doubtlessly the transformation from an intensive manufacturing company to a technologically advanced services-oriented company. The market demands change constantly and while the demand for intensive manufacturing processes is decreasing, the demand for more challenging technological services is increasing. Documents are becoming e-documents and bank cards are becoming smart cards. Cetis is adapting to these changes. The company successfully integrates graphical and information technologies and gives its graphical products a new life in the Information Age. This is reflected in a determined shift towards a technologically advanced service company. New technologies present us with new challenges: identity management, biometry, computer sight, smart card technology, electronic content management, etc. The company will build its future on visibility in the market and on providing high added value products and services. The company will be seeking strategic partnerships and provide the products and the services that offer the customers complete solutions.
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Transcript
ANNUAL REPORT 2006
Change is the driving force of development
Year 2006 – in all areas of operation of Cetis this was a year of changes with positive effects
on the company‟s operation and growth. One of the most important changes introduced in
the company over the past few years was doubtlessly the transformation from an intensive
manufacturing company to a technologically advanced services-oriented company. The
market demands change constantly and while the demand for intensive manufacturing
processes is decreasing, the demand for more challenging technological services is
increasing. Documents are becoming e-documents and bank cards are becoming smart
cards. Cetis is adapting to these changes. The company successfully integrates graphical and
information technologies and gives its graphical products a new life in the Information Age.
This is reflected in a determined shift towards a technologically advanced service company.
New technologies present us with new challenges: identity management, biometry,
computer sight, smart card technology, electronic content management, etc. The company will build its future on visibility in the market and on providing high added
value products and services. The company will be seeking strategic partnerships and provide
the products and the services that offer the customers complete solutions.
1
Table of contents
1. INTRODUCTION 4
HIGHLIGHTS FROM BUSINESS OPERATION OF CETIS, d.d., IN 2006 4 IMPORTANT BUSINESS EVENTS IN 2006 6 Important events according to the chronological view of the balance sheet 6 A LETTER FROM THE GENERAL MANAGER OF CETIS, d.d. 7 THE SUPERVISORY BOARD REPORT 10 Company ID 12 Companies in the Group 12 Affiliated company 12 Management 13 Products 14 Services 14 BUSINESS ORIENTATION 14 The vision 14 The mission 14 The values 15 The strategy 15 Business goals 15 2. BUSINESS REPORT 16
SALES 16 Sales in 2006 by product groups 16 The sales of commercial printed matter 17 Sales of security printed matter 17 Sales orientation in 2006 18 Sales objectives for 2007 18 COMPANIES IN THE GROUP 19 Cetis Zagreb 20 Cetis Skopje 21 ASSET MANAGEMENT 21 Financial management 21 Investments 22 Shares and shareholders 23 PURCHASING AND LOGISTICS 25 PRODUCTION 27 RESEARCH AND DEVELOPMENT 28 Strategic Development 28 Graphical Technologies R&D 29 Cetis New Technologies 29 QUALITY MANAGEMENT 30 EMPLOYEES 31 3. RESPONSIBILITY TO THE SOCIAL AND THE
NATURAL ENVIRONMENTS 36
RESPONSIBILITY TO THE NATURAL ENVIRONMENT 36 RESPONSIBILITY TO THE USERS OF OUR PRODUCTS AND SERVICES 39 RESPONSIBILITY TO THE SOCIAL ENVIRONMENT 39 4. FINANCIAL REPORT OF THE CORPORATION CETIS, d.d. 41
REPORT BY INDEPENDENT AUDITOR 41 INCOME STATEMENT (IFRS) 42 BALANCE SHEET AS OF 31 DECEMBER, 2006 43 CASH FLOW STATEMENT (IFRS) 44 STATEMENT OF CHANGES IN EQUITY 45 DECLARATION ON MANAGEMENT RESPONSIBILITY 46
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SUMMARY OF RELEVANT ACCOUNTING POLICIES AND
NOTES TO FINANCIAL STATEMENTS 47 1. Company Presentation 47
2. Groundwork for financial statements 48
3. Significant accounting policies applied 49
DISCLOSURES OF ITEMS OF THE INCOME STATEMENT 59 1. Revenues 59
2. Expenses 60
3. Other operating revenues 61
4. Net income (expenses) from financing 61
5. Income for Tax purposes 61
6. Disclosures of amounts for Auditors 62
7. Land and buildings, plant and machinery 62
8. Intangible fixed assets 64
9. Investments in Group members 66
10. Investments in associate enterprises 66
11. Investments available for sale 67
12. Loans granted 68
13. Deferred tax assets and liabilities for tax 68
14. Inventories 70
15. Short-term financial investments at fair value 70
16. Short-term loans granted 70
17. Receivables due from tax on profit 71
18. Operating and other receivables 71
19. Cash and cash equivalents 72
20. Capital 72
21. Net earning (loss) per share 73
22. Loans received 73
23. PROVISIONS 74
24. Operating and other liabilities 75
25. Fair Value 75
26. Financial instruments - risk management 76
BALANCE SHEET 80 INCOME STATEMENT FOR THE FINANCIAL YEAR 2006 81 5. FINANCIAL REPORT OF THE CETIS GROUP 83
REPORT BY INDEPENDENT AUDITOR 83 CONSOLIDATED INCOME STATEMENT 84 CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER, 2006 85 CONSOLIDATED CASH FLOW STATEMENT 86 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 87 DECLARATION ON MANAGEMENT RESPONSIBILITY 87 SUMMARY OF RELEVANT ACCOUNTING POLICIES AND
NOTES TO FINANCIAL STATEMENTS 88 1. Presentation of the Group 88
2. Groundwork for financial statements 88
3. Significant accounting policies applied 89
4. Groundwork for consolidation 90
DISCLOSURES OF ITEMS OF THE INCOME STATEMENT 100 1. Revenues 100
2. Expenses 101
3. Other operating revenues 101
4. Net income (expenses) from financing 102
5. Income for Tax purposes 102
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6. Disclosures of amounts for Auditors 103
7. Land and buildings, plant and machinery 103
8. Intangible fixed assets 104
9. Investments in associate enterprises 105
10. Investments available for sale 105
11. Loans granted 106
12. Deferred tax assets and liabilities for tax 107
13. Inventories 108
14. Short-term financial investments at fair value 108
15. Short-term loans granted 109
16. Receivables due from tax on profit 109
17. Operating and other receivables 109
18. Cash and cash equivalents 110
19. Capital 110
20. Net earning (loss) per share 110
21. Loans received 110
22. Provisons 111
23. Operating and other liabilities 112
24. Fair Value 112
25. Financial instruments - risk management 113
CONTACTS 116
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1. INTRODUCTION
1HIGHLIGHTS FROM BUSINESS OPERATION OF CETIS, d.d., IN 2006 Business operation in SIT 1000 2005 2006 % change Net sales 6,405,380 6.467,785 0.97
Sales on the local market 4,407,714 4.502,670 2.15
Sales on the international markets 1,997,666 1.965,115 -1.63
Gross profit 1,167,798 1.512,639 29.53
Net profit or loss for the business period - 651,973 227,968 -134.97
Investments 438,298 602,044 37.36
Gross added value 2,153,997 2,597,292
Number of employees 430 419 -2.56
1. Investment value
Year In SIT 1000 Chain index
2002 2002 965,311 100.00
2003 2003 1.421,544 147.26
2004 2004 1.146,682 80.66
2005 2005 438,296 38.22
2006 2006 602,044 13.36
2. Composition of assets
Asset / Year in SIT 1000 2005 2006
Fixed assets 8,981,450 9,104,062
Current assets 2,564,119 2,855,432
Total assets 11,545,569 11,959,494
3. Composition of liabilities
Resource / Year in SIT 1000 2005 2006
Capital 6,922,795 7,285,251
Long-term liabilities 2,582,746 2,345,318
Short-term liabilities 2,040,028 2,328,925
1 Due to the transition to IFRS the data is not comparable for more than the last two years.
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Total Liabilities 11,545,569 11,959,494
4. Companies in the Group
Net sales in SIT 1000 2005 2006
Cetis – ZG, d.o.o. 996,782 282,444
Cetis – dooel Skopje 194,691 57,517
Cetis Print – dooel Skopje 171,201
Total 1,362,674 339,961
Note: In 2006, Cetis disinvested its assets in FYR Macedonia, i.e. its subsidiaries, Cetis –
dooel, Skopje and Cetis Print – dooel, Skopje. The sale of these assets was completed in
June, 2006.
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IMPORTANT BUSINESS EVENTS IN 2006
In the dynamic 2006, the company succeeded in covering the shortage of the previous
year by hard work and maximum flexibility. The new business information system and a
deliberate reorganisation of the company were among the factors that contributed to the
successful business year. Below are some of the most important events, which will mark
the company‟s business success in the future:
- The company started producing the Slovenian biometric passport.
- At the company‟s Head Office, a department for issuing digital tachograph cards was
formed with a concession for the next 15 years. At the same time, production of
digital tachograph cards was launched. - The disinvestment of assets in the proceedings of bankruptcy of NIP Nova Makedonija
was performed.
- The company founded a lottery enterprise in Albania.
- The company performed a reorganisation, tied considerably to the new business
information system.
- Barbara Sušin and Igor Plahuta received the Golden Award of the Chamber of
Commerce and Industry of Slovenia for the “Innovation of the Year” for the
multilayer protection of the data page of the passport (Cetis Security Multilayer –
CSM).
- The company received an award for the best printed wall calendar.
Important events according to the chronological view of the balance sheet
Cetis acquired the majority holding of Amba CO., d.o.o., Ljubljana. The new
partnership, based on complementary activities and shared development policies, will
bring an additional drive, as well as a more complete supply of high-quality flexible
packaging. As of 1 January 2007, the new business information system started operating. Cetis signed a contract with Sudan for manufacturing biometric passports, visas,
software for intelligent data capturing and document issuing, and for consulting
services in total value of EUR 10 million. The value of the contract is equal to one
third of the planned annual turnover.
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A LETTER FROM THE GENERAL MANAGER OF CETIS, d.d. Dear shareholders, investors, business partners and employees!
Change is the driving force of development!
In 2006, Cetis implemented a number of changes with a positive influence on the company‟s
operation and growth. One of the most important changes introduced in the company over
the past few years was doubtlessly the transformation from a manufacturing company to a
technologically advanced services-oriented company. This change dictated other small and
big changes in the company. The market demands change constantly and while the demand
for intensive manufacturing processes is decreasing, the demand for more challenging
technological services is increasing. Documents are becoming e-documents; bank cards are
becoming smart cards. Cetis is successful in adapting to this change by merging printing and
information technologies, thus enabling new life for its printed products in the Information
Age.
The key change of 2006 and the one the company is the most proud of is the business
result, which was favourable as compared to the previous year. Hard work, responding to
the demands of the market, implementation of the new business information system and
reorganisation enabled the company to cover the shortage from the previous years. The net
profit of 2006 amounted to SIT 227 million and this indicates a significant improvement of
the business result of the previous year, which ended with a loss of SIT 652 million. These
numbers speak for themselves.
A year of important projects and achievements
All important projects completed by Cetis in 2006 were the result of perseverance, patience,
knowledge, innovativeness and hard work of the employees who managed to bring to life
important projects in very short available periods. The first of these projects was the
introduction of capturing and processing of applications for digital tachograph cards and the
manufacturing thereof. This project established Cetis as a system integrator. The second
equally technologically and technically demanding project was the start of the production of
the biometric passport, issued by Slovenia as the second European country. These two
events were of key significance for Cetis. The company managed to show a transformation
from an intensive manufacturing company to a technologically advanced company. It is far
from insignificant that the biometric passport placed Slovenia among the most developed
countries in the world, offering their citizens the most advanced travel documents.
In the 2006 business year, strategic reasons demanded the disinvestment of assets in the
proceedings of bankruptcy of NIP Nova Makedonija. The company founded a lottery
enterprise in Albania. Recently, the company completed the process of acquiring the high-
quality flexible packaging manufacturer, Amba, Ljubljana.
Another significant event of 2006 was the reorganisation of the company, related to the new
business information system. The strategic orientation towards globalisation demanded to
set up a more competitive platform. The aim of the company was to make the business
processes simpler and more time-efficient - from accepting an order, to the final distribution
– thus making them more cost-efficient as well. Reorganisation of the Research and
Development department became a necessity. This change resulted in integrating all the IT
human resources of the company in a new department, Cetis - New Technologies. The aim
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of this department is to achieve the technological synergy between the graphical and
information activities that are based on advanced knowledge, and that stimulate a highly
innovative environment for developmental challenges of the future.
In addition to the abovementioned successful results, the company is extremely proud of the
achievements and the awards received by our employees in 2006. Our employees received
two awards from the Chamber of Commerce and Industry of Slovenia – an award for the
best printed wall calendar and an award for the multilayer protection of the data page of the
passport. The company is also proud of the award recently received by Amba – the third
place in the International DuPont Grand Prix, in the category of reproducing a digital test
print.
The sales policy
The expected revenues of Cetis in 2007 are 16% higher than last year, while the expenses
are expected to stay the same. Our intensive sales activities are focused on the foreign
markets, especially on Asia, South America and Africa. The future global competitiveness of
the company will be achieved by providing strategic groups of services and products,
focused on our clients‟ needs. By 2010, we are planning to be able to provide four product
groups, i.e. packaging (labels, flexible packaging, smart packaging, labelling and packaging
systems, readers and logistic systems), business communication systems (forms, direct
(identity documents, visas, central registers, identity management, border crossing point
equipment) and games of chance (game organisation and systems, lottery tickets, e-
lottery).
The existing technological solutions are successfully being replaced by the most advanced
solutions to our customers‟ satisfaction. We are developing new solutions and are among the
first in the market providing them. We are following market trends and adapting to them
quickly, which will improve our profits in the long run. Certis is following its vision to be the
best possible partner to the companies and governments in the field of identification,
security and business communication, as well as a leading partner and consultant on
rationalisation and cost management in the fields of packaging, business forms, identity
documents and games of chance. In April 2007, our company achieved a great business
goal by signing a contract with Sudan, the tenth biggest country in the world, for the
production of biometric passports, visas, software for intelligent data capturing and
document issuing, and consulting services. This contract is worth EUR 10 million.
The company’s business culture
With the substantial changes in all areas of activity in 2006, the company has also refreshed
its vision and the values on which its business culture is based. With values, such as respect
for ethical principles, flexibility, dynamic approach, creativity, innovativeness, knowledge,
team work and openness to new challenges, the company is adapting to its new business
approach. The employees of Cetis review their goals and motives in annual interview. To
improve the vertical flow of information the company introduced monthly “open door" days.
Regardless of the significant number of planned redundancies in 2006, they were not
necessary due to the increased demand for workers, especially in the production phase.
Cetis does not pollute the natural environment with its activities. When deciding on new
technologies, we give priority to the environmentally friendly ones. This approach helped
significantly reduce the quantity of dangerous waste from the production processes in the
recent years. Cetis also supports activities of other organisations concerned with protection
of the environment.
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The approach of the Management
In conclusion, all changes are welcome. However, it is very important that we have the
knowledge, the power, the motivation, and the loyalty of our employees, as well as support
from our social environment, to be able to turn these changes to the advantage of Cetis.
The reputation of Cetis as a provider of security printed matter is improving in the global
market and, with it, the demand for our products. New business deals bring new
employment opportunities. The success of the company is primarily the result of a carefully
chosen strategy, ambitious business goals and a high level of commitment of our
employees. Consistent implementation of the set sale and development strategies is
reflected in our results. The basic principle of the Management of Cetis is to increase the
revenue while ensuring the high quality of our products and services, controlling our costs
and maintaining employee satisfaction.
With this in mind, I would like to thank all our co-workers, who have contributed with their
perseverance, self-sacrifice, hard work, knowledge and innovativeness to the favourable
business result in 2006.
I would like to conclude this letter with the following thought:
“Many opportunities come to nothing because they look like work.”
We are all aware of the above and that is why we view work as a challenge on the way to
success.
April, 2007 Simona Potočnik, MA General Manager
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THE SUPERVISORY BOARD REPORT
THE SUPERVISORY BOARD REPORT
1. Activities of the Supervisory Board (SB) in 2006
In accordance with the powers and competences established by legal regulations and the
company‟s Articles of Association, the Supervisory Board has been controlling the operation
of Cetis, Graphic and Documentation Services, d.d.. In 2006, the Supervisory Board
assembled in four meetings and reviewed the following:
The 2005 business report.
The 2006 business plan.
The company‟s Annual Report and the Supervisory Board report from 2005.
The mandate of the Management of Cetis, d.d.
The report on operation in the first quarter of 2006.
The report on operation in the first two quarters of 2006.
The report on operation in the first ten months of 2006.
The proposal for the business plan for 2007.
The activities of the Supervisory Board were concentrated on the business development of
the company, significant business events, the implementation of the general strategic and
business objectives, and the measures for the reduction and management of costs.
In 2006, the Supervisory Board included the following members:
Ljubo Peče, Chairman of the SB, Representative of the Shareholders,
Goranka Volf, Deputy Chairman of the SB, Representative of the Shareholders,
Franc Ješovnik, Representative of the Shareholders,
Dušan Mikluš, MA, Representative of the Shareholders, Bernard Gregl, Representative of the Employees,
Marko Melik, Representative of the Employees.
2. The review of the company’s 2006 Annual Report
The Supervisory Board reviewed the revised Annual Report and the Consolidated Annual
Report of Cetis, Graphic and Documentation Services, d.d., for 2006 at its regular meeting
on 20 June, 2007. The Supervisory Board had no remarks to either of the reports and
concluded that the reports are in compliance with legal regulations, that they present a true
and fair balance of assets and liabilities, financial balance and the company‟s operating profit
or loss, and that the reports sufficiently present all significant events that have influenced
the operation of the Company and the Group.
Based on the stated above, the Supervisory Board has accepted and confirmed the Annual
Report and the Consolidated Annual Report of Cetis, Graphic and Documentation Services,
d.d., for 2006.
3. The Supervisory Board’s opinion regarding the Independent Auditor’s Report
The Supervisory Board has reviewed and considered the Independent Auditor‟s Report. The
Supervisory Board has accepted report without remark.
4. The Supervisory Board’s opinion regarding the balance sheet profit
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The company Cetis, Graphic and Documentation Services, d.d., has concluded the 2006
business year with a net profit of (thousand) SIT 227,968, which amounts to SIT 1,140.99
per share, or EUR 4.76 per share, calculated based on the weighted average amount of
shares.
The balance sheet profit equals SIT 30,494,854.66. It is calculated as the difference
between the net profit or loss in 2006, amounting to (thousand) SIT 227,968, and the
covered loss from 2005, amounting to (thousand) SIT 197,473 (the influence of the
application of actuarial calculations, reservations for jubilar bonuses and severance pay for
employees at the transition to IFRS).
The Supervisory Board’s opinion regarding the work of Management
The Supervisory Board is convinced that the company‟s Management was successful in
2006. The Supervisory Board confirms the Management‟s business reports and proposes to
the Shareholders a discharge for the Management and the Supervisory Board for the 2006
business year.
20 June, 2007 Ljubo Peče,
Chairman of the Supervisory
Board
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2GENERAL INFORMATION ABOUT THE COMPANY
Company ID
Company name: Cetis, Graphic and Documentation Services, d.d. Head office Čopova 24, 3001 Celje, Slovenia, Europe Co. reg. no.: 5042208 TAX no.: 24635812 VAT ID: SI24635812 Nominal capital: SIT 2,400,000,000.00 Company Registry Number at the District Court in Celje: 063/10147600. Bank accounts: Nova LB, d.d. 02234-0011655374
Banka Celje, d.d 06000-0026390798 Abanka Vipa, d.d. 05100-8000027831 Probanka, d.d. 25100-9704894196 Bank Austria Creditanstalt, d.d. 29000-0003262161
Group, Konzum, Agram, Hrvatska pošta, Hrvatska lutrija and Stublić impex. This platform
of clients has been developed by our employees for several years. Everyone active in the
business field in Croatia knows these are the most successful companies in the country.
The company intends to expand its knowledge and experience towards the east. This year,
the company will open a mailing centre in Serbia. Plans for the future include Bulgaria and
Bosnia and Herzegovina. We believe that the general progress in these countries and
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economic stability offer great opportunities for profitable investments. Also, it is safe to
assume that there will by synergy effects as well.
Cetis Skopje
Cetis had been operating two subsidiaries in FYR Macedonia that were no longer capable of
following the objectives set by the parent company. The problem persisted from the
previous years when Cetis had tried to stimulate buyers in FYR Macedonia by organising
complex printing services in Skopje to meet the needs of the local market. This project
would have opened new opportunities for employment of the local work force. The project
was never realised, therefore the parent company was forced to seek a solution for the
situation at hand. Although the parent company initially did not seek a buyer for both
companies, we eventually succeeded in selling them. The parent company maintains trade
with both former subsidiaries at an adjusted level.
ASSET MANAGEMENT
Financial management
Financially, the company mostly achieved its objectives in 2006. The financial situation of
the company was assessed by breakdown and analysis of past and current cash flows,
while taking into account the dynamic monthly planning. The company assessed the
following general principles and financial management rules:
- Coherence of the size, the structure and the trends in assets, as well as liabilities.
- Sustainability of operation with the provision of rational financing, limiting of
Financial risks and optimal solvency with appropriate financing economics.
- Achieving favourable business results with operation-derived net cash flow.
- The possibility of increasing financial strength through property and assets.
To the greatest extent possible the company maintained the abovementioned principles
through a limited negative turnover as compared to 2005. The company financed the
current operation mainly with its own funds and resources. These were acquired with an
adjustment of the investment policy and by the sale of the no longer necessary financial
investments.
The emphasis of the financial analysis was based on the financial and the capital structure,
as well as on assessment of creditworthiness of the company. By determining the assets
unnecessary for operation and by current cash flow planning, the company secured the
resources and guarantees for securing strategically important investment funding.
The 2006 business year was a very dynamic one for the company as regards financing and
it demanded a quick adjustment to the new conditions. In the financial aspect, certain
decisions were accepted regarding the financing of investments in the given conditions.
These decisions contributed to the overall business result. This contributed to the
achievement of the two primary financial goals, i.e. ensuring solvency of the company and
financing economics with controlled financial risks.
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Due to the nature of our operation in 2006, the capital and debt ratio changed to 60.9 :
39.1, which is less favourable than in 2005. However, this ratio is a consequence of more
aggressive financing, in which the company maintained term-based balancing of assets
and resources.
Fixed assets were financed in entirety with capital and external long-term resources at the
end of 2006. In the financing structure, which is still relatively balanced, financial
measures for appropriate financial correction had to be implemented. These measures and
their effectiveness are based mainly on successful operation. In 2006, the company was
not as successful in management claims from operations as it was in 2005. The share of
recovered claims was lower and the balance of claims higher than in the previous year.
Furthermore, the company was less efficient in stock management as they have increased
in both structure and absolute value. However, the fact remains that the result of
financing, regardless of additional borrowing in 2006, remained positive and had a
favourable effect on the operation of the company.
We are aware that, due to the lower self-financing level, the regular operation of the
company has to reach positive results in order not to put long-term loan repayment at risk
(the company is currently regularly repaying its long-term obligations). The financial risks
and liabilities are described in the accounting report herein.
Investments
The scope of investments in 2005-2006
The scope of investments in SIT 1000 / year
2005 2006
Intangible fixed assets 14,107 333,227
Land 6,316
Buildings 194,983 10,458
Equipment 226,895 258,359
Total 442,301 602,044
Investments in tangible fixed assets in 2006 were continued at a rate from 2005. The
technological modernisation remains a key condition for growth and the improving of
competitiveness in all areas of the company‟s activity. In 2006, substantial investments
were allocated in intangible fixed assets. Specifically, we have invested in hardware and
software for the upgrade of the business information system.
In this and the following years, the company will direct its investments into the market,
and in advanced technology and knowledge. The key objective is to ensure higher
productivity, responsiveness, specialisation and reliability of business processes and,
consequently, lower costs.
Cash flow from investments in 2005-2006 (unconsolidated funds flow statement)
Inflows (offset)
Inflows (offset) in SIT 1000 / year 2005 2006
Tangible fixed assets 40,208 64,279
Financial investments 95,560 252,198
Total 135,768 316,477
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Outflows (offset)
Outflows (offset) in SIT 1000 / year 2005 2006
Intangible fixed assets 14,106 333,228
Tangible fixed assets 415,916 199,697
Financial investments 1,729,856 221,943
Total 2,159,878 754,868
Gross added value 2005-2006
Gross added value in SIT 1000 / year 2005 2006
Gross added value in SIT 1000 2,153,997 2,597,292
Chain Index 100.00 120.58
The gross added value in 2006 was significantly higher than in 2005. In 2007, the
company plans to lower costs and increase realisation of investments in marketing in the
domestic market and international markets, where the company will act through
subsidiaries and affiliated companies. One of such companies was registered in Albania at
the end of 2006. It will market games of chance. At the beginning of 2007, the company
acquired 100% ownership of the flexible packaging manufacturing and trading company,
Amba Co., d.o.o., Ljubljana.
We expect that these investments will improve in efficiency and in returns with a secured
long-term liquidity. According to the need and the objectives of the strategy, the company
will invest in tangible and other fixed assets and continue disinvestment of unnecessary
companies.
Shares and shareholders
The nominal capital of Cetis, d.d., is divided into 200,000 registered ordinary shares,
bearing the CETG symbol and listed at the semi-official market of the Ljubljana Stock
Exchange. All shares are freely-transferable. In 2006, the company implemented no
change in the nominal capital. The company publishes all required information on the SEO-
net portal of the Ljubljana Stock Exchange.
Similar to the recent years, the number of shareholders did not change significantly in
2006. At the end of 2006, there were 1,084 shareholders. Compared to the end of 2005,
the number of shareholders decreased by 23. Three new names appeared among the ten
largest shareholders in 2006 (Unimoto, NDF Holding and Breuder Henn).
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The structure of share ownership on 31 December, 2006, was as follows:
Shareholder Number of shares Percentage of the nominal capital in % Cetis-Graf, d.d. 78,493 39.25
Infond ID, d.d. 27,358 13.68
Kovinoplastika, d.d. 18,649 9.32
Kapitalska družba, d.d. 15,609 7.80
Slovenska odškodninska družba 14,948 7.47
VS Probanka Glob. nal. sklad 12,049 6.02
Unimoto, d.d. 12,043 6.02
NFD Holding, d.d. 3,500 1.75
Merkur 530 0.27
Brueder Henn Holding Gesell. 430 0.22
Other legal and natural persons 16,391 8.20
Total 200,000 100.00
The ten largest shareholders own 91.8 % of the total shares, issued in dematerialised form
at the Central Securities Clearing Corporation, Ljubljana. On 31 December, 2006, the
company maintained 201 of its own shares for the purposes stated in the second indent of
Article 240 of the Companies Act (ZGD-1). The company acquired no own shares in 2006.
At the end of 2006, the share market value amounted to SIT 23,999.00, which – based on
the total number of issued registered shares - represented 65,9 % of the book value
according to IFRS, which amounted to SIT 36,426.26. 2006 is the first year, in which the
book value of the share marked CETG increased, while its market value decreased.
Movements of market and book value (IFRS) of CETG shares in 2005 and 2006 Year / Share value movement Share market value
(in SIT) (31 December)
Share book value (in SIT) (31 December)
Value ratio
2005 30,999.00 34,613.98 89.6
2006 23,999.00 36,426.26 65.9
Movement of CETG share price in 2006 in EUR
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The uniform price of the CETG share in the semi-official market of the Ljubljana Stock
Exchange had several strong fluctuations in 2006. In December, the share price climbed
back to SIT 24,000 (or EUR 100). In comparison with the SBI20 index, the CETG share
market price had a negative movement in 2006, as the SBI20 index rose by 37 percentage
points.
Net profit (loss) per share in 2005 and 2006 according to IFRS (in SIT)
Loss – profit per share / year 2005 2006
Net loss / profit per share in SIT (3,262.87) 1,140.99
Note: Due to the negative result in 2005, the company experienced a loss per share. The
calculation is based on the weighted average of the number of shares.
The policy regarding dividends
The management of the company is fully aware of the positive business result in 2006,
allowing for payment of the minimum dividend as promised in the last report. At the
Annual General Meeting of 2006, the use of IFRS was approved. However, the
implementation of IFRS required alignment of the accounting of capital that does not allow
for the formation of proposal for dividend payment for 2006 regardless the positive
business result.
The management plans to continue pursuing the long-term development and investment
objectives and seeking new opportunities for maximising the company assets and profits,
and achieving the expectations and interests of the shareholders. If the company achieves
the profit planned for 2007, the management of the company shall, taking into
consideration all relevant factors, propose allocation of the appropriate part of 2007 net
profit to dividends.
PURCHASING AND LOGISTICS
The primary objective of purchasing remains the same as in the previous years: timely
purchasing of sufficient quantities of materials of appropriate quality at an optimum price.
Furthermore, one of the main objectives remains reducing the number of suppliers,
increasing purchases from the highest quality suppliers and ensuring better prices and
appropriate quantity discounts. The company expects the suppliers to provide high-quality
materials and services, cost-efficiency and the appropriate after sale services.
The second half of 2006 was marked by company reorganisation. The purchasing and
handling services were merged into a new organisational unit – Purchasing and Logistics.
Logistics deals with material flows within the company and between various companies. It
ensures the meeting of needs of production on one hand and those of customers on the
other. In 2006, we started the process of automation of the warehouse operations aimed
at ensuring higher accuracy and expedition.
The advantage of merging purchasing and warehousing services is the simplification of
stocks coordination and optimisation of ordering the appropriate quantities. The results are
more cost-effective stocks management, quicker flow of financial resources and
uninterrupted production processes. This merger will also simplify determination of
delivery costs by comparison of purchase prices and transport costs.
26
Year 2006
A significant factor influencing purchases in 2006 was the closing of several paper
production plants in Europe. The closing was necessary because the supply paper,
especially pulp-free paper, exceeded the demand. This resulted in increased paper prices,
especially in the last quarter of 2006. This trend is continuing in 2007. The highest price
increase was noted for self-copying paper, which represents 10% of all company
purchases of materials.
The effect of higher oil prices was reflected in the purchasing prices of materials for label
production. Higher oil prices affected the paper industry, especially where oil was used as
an energy source, which was one of the factors contributing to the closing of production
plants.
The company stocks were increased even though the company was planning to reduce
them. The reason for the increase lies mainly in the expensive materials Cetis uses for
manufacturing Slovenian biometric passports (memory chips, polycarbonate and
kinegrams).
Due to the higher prices in the global market, the company was not able to reduce
material costs significantly.
Orders and receipts
Year 2005 2006
The total number of orders 5,371 5,006
The total number of receipts 5,864 5,833
Value in SIT 1000 2,413,061.21 2,513,955.88
Conclusion: The total value of purchases was 4% higher than in 2005. Cetis purchased
54,32% of goods in the foreign markets and 45,68% in Slovenia. The share of local
purchases was a good 3% higher than in the previous year. This is a consequence of the
fact that some of the purchases are performed through Slovenian traders, who are also
our customers, even though these materials could be purchased directly from the
manufacturers.
Relations with suppliers
Upon request, the suppliers regularly inform the company about the news in their product
programmes, on the markets and about the current trends. Thus, their experience helps
the company in the introduction of new technologies.
Cetis endeavours to establish long-term relationships with its suppliers. This is beneficial
for both the suppliers who can base their planning on preordered quantities and Cetis as
reliable suppliers help the company provide its customers with high-quality products and
new solutions. The suppliers are aware that Cetis is a reliable partner, meeting its
obligations regularly.
Supplier assessment
27
In 2006, we assessed 120 suppliers. 31 suppliers were assessed as A-category suppliers,
83 as B-category and 6 as C-category suppliers.
In accordance with ISO standards, the list of approved suppliers includes only the
suppliers categorised as A or B. The subjects of this assessment performed once a year
are the prices, the payment terms, the delivery time, respecting the delivery deadline, the
number of complaints and their handling thereof, customer support services (support in
development of new products, information regarding the news in their production,
information about the trends in the global market), working in compliance with the ISO
9000 and ISO 14001 standards and meeting the environmental protection requirements.
Cetis conducts business with suppliers from the C-category only if no other option exists.
Cetis informs the suppliers of the results of the assessment in writing and, cooperating
with them, endeavours to achieve improvement in areas where a lower score was
attained.
Year / Share of suppliers by individual groups in % A B C 2005 31 57 4
2006 31 83 6
Conclusion: The number of suppliers in group A has remained the same as in the previous
year. The company has succeeded to improve cooperation with suppliers over the past few
years, which is reflected in an increase in the number of companies in group A. In 2006,
the number of suppliers in group B has increased significantly. This increase is due to the
greater number of assessed suppliers. However, this increase also reflects the fact that
mutual expectations were aligned and that a firm foundation for future cooperation has
been set.
Plans for 2007
In 2007, an important project of the Purchase and Logistics department is to implement
warehouse automation, which will improve the currency and the accuracy of operation,
shorten administrative procedures, etc.
In 2007, the company will actively seek alternative paper suppliers outside of Europe,
especially in South America.
PRODUCTION
The production in 2006 was characterized by an increase in products and services
incorporating information technology, i.e. documents and cards, and by increased
production of flexible packaging.
At the beginning of the year, the company successfully started manufacturing and issuing
digital tachograph cards. After obtaining the state concession, Cetis took over not only the
manufacturing of chip-cards but also managing of the process of card acquisition,
personalisation and a complete set of other related services.
The most demanding project in 2006 was the start of the production of biometric
passports, which was successfully accomplished by Cetis. The project was demanding as it
involved merging and implementing advanced graphical and information technology
solutions. The company has also launched EMV bank card personalisation.
In 2006, Cetis continued the development of prepress processes, which has shown results
in the growth of sales and in the printing quality of packaging labels, as well as in the
28
decrease of complaints, product rejection and production standstill due to printed matter
prepress processes.
Cost reduction and production rationalisation are directly reflected in lower costs with
respect to turnover in 2005. The quantity of production hours was by 2.5% lower than in
2005, which demanded a reduction of the number of employees by the same percentage.
Plans for 2007
Development activities for the personalisation of EMV cards have not yet been completed
and the company is preparing at an increased pace for the majority of banks to implement
transition to chip cards. The projects of cost reduction and production optimisation and
rationalisation will be continued in 2007. The process will entail investments in equipment
for the growing production segments and upgrades of the machinery with the aim of
elimination of bottle necks.
Overview of the planned and achieved production hours
Hours / Year 2005 2006
Available hours 732,107 663,073
Planned production hours 277,187 256,719
Achieved production hours 207,330 201,971
Administrative production
hours 14,242 11,976
Total 221,572 213,947
Conclusion: The number of planned hours in 2006 was lower than in previous years. The
planned production hours were achieved with 79%, which is 4% more than the last year.
The trend of reduction of administrative hours is continuing and was the lowest in three
years.
RESEARCH AND DEVELOPMENT
In recent years, the market demands have been changing constantly and while the
demand for intensive manufacturing processes is decreasing, the demand for more
challenging technological services is increasing. Documents are becoming e-documents,
travel documents are becoming electronic travel documents and bank cards are becoming
smart cards. Cetis is successful in adapting to this changes by merging printing and
information technology, thus enabling new life for its printing products in the Information
Age.
As a consequence, the Research and Development needed reorganisation. Since 1 January
2007, the R&D department has been divided into three departments - Strategic
Development, Graphical Technologies R&D, and Cetis New Techonologies (CeNT).
Strategic development
In the area of strategic development in 2007, the emphasis will be on completing the
strategic plan until 2010, the central objectives of which are as follows:
29
The formation of products‟ and services‟ groups, based on customers‟ needs, and
creating new synergies between the companies in the Group. The planned
development and sales orientation divides the products into four groups:
packaging, business communication systems, documents and games of chance. The formation and implementation of a plan for the specialisation of our production
with the aim of maintaining the provision of highly specialised and competitive
products and services.
Graphical Technologies R&D
In 2006, the Graphical Development department was focused on the project of the
production of biometric passports, which was successfully completed in cooperation with
the CeNT department.
Cetis incorporated in the passport several new security elements, which were the
product of its own knowledge. One of these elements is a patented invention -
binding of the polycarbonate data page with the passport booklet (Cetis
Security Binding - CSB) – which adds the passport an additional security element
that is also functional and aesthetic. The binding is patented in Slovenia, and a
patent application has been submitted to the European Patent Office. In the area of security printed matter, the company has been developing additional
card protection elements. In the area of games of chance, the company has
also been developing new forms of printed matter protection, as well as new game
systems. The company has also prepared the project for building a new printing
facility for producing games of chance printed matter. To the self-adhesive labels product group Cetis has added the so called “label
booklets”, intended for labelling of products, the use or presentation of which
demands larger quantities of data. In 2006, the company also launched the regular
production of label booklets in Braille. The Graphical Development department
invested a great deal of development work in flexible packaging. The department also contributed to the process of implementing the new business
information system, specifically in the area of standardisation of the business
process. For the second year in a row, the Graphic R&D received the Golden Award of the
Chamber of Commerce and Industry of Slovenia for the “2005 Innovation
of the Year” for the multilayer protection of the passport data page – Cetis
Security Multilayer. The awarded innovators are experts in graphical development,
Barbara Sušin and Igor Plahuta.
Plans for the future:
In the area of games of chance and prize games, the company will continue
developing new ways of printed matter protection and new game systems.
In the area of multilayer labels, the company will, in addition to label booklets,
develop other forms of multilayer labels and radio frequency based labels (RFID).
In the area of flexible packaging, the company will follow the development of smart
packaging, the use of which is increasing globally, and the development of flexible
packaging for the cosmetic and food industries.
30
Cetis New Technologies
The restructuring of the IT R&D department has also become a necessity. This has led to
the merging of all IT human resources in Cetis into one department – Cetis New
Technologies. The objective of the formation of CeNT is to achieve an efficient
technological synergy between the graphical and information technology activities, based
on specific projects and expert knowledge, while stimulating an innovative environment for
future development challenges.
In 2006, information technology research and development department cooperated with
other departments and external partners. The following projects were successfully
completed:
the biometric passport of the Republic of Slovenia, smart cards for digital tachographs, electronic capturing and electronic archiving of documents for several established
companies in Slovenia, and EMV smart cards. Cetis also acquired official certification for bank card personalisation. Companies
offering bank card personalisation services have to meet very strict requirements
regarding logical and physical security and quality. Cetis is the only company in
Slovenia that has been certified for bank card personalisation by MasterCard.
Plans for the future
In the future, CeNT will intensify its activities in e-business and e-archiving. With the appropriate employee recruitment and development, CeNT will build up
the intellectual capital, ensure the required employee competence and provide
employees with challenges in the developing fields of technology.
The focus in the near future will also be on identity management, biometry,
computer sight, development of smart chip based products, web documenting and
archiving systems and smart card technology management.
QUALITY MANAGEMENT
Quality and excellence are the main objectives in all operating areas of Cetis. The ambition
of being the best is institutionalised in all key processes.
The company strives for constant improvement through process control, validation
methods, the encouraging of rigorous change management procedures and risk
management. At the company and department levels, quality is stimulated with proactive
programmes for re-engineering and optimisation. At the individual level, the company
provides employee training for routine task reassessment with the aim of improving
employee skills and efficiency.
Cetis uses the methodologies of prevention and correction measures with the aim of
improving customer satisfaction through improvements in products and services.
Interfunctional team work and statistic process control play the key roles in achieving the
highest standards.
31
Quality management is based on quality standards in compliance with the following
international standards:
ISO 9001:2000 Quality Management System.
ISO 14001 Environmental Management System.
ISO 17799 – Company Security Management System.
EMV (Eurocard, MasterCard, JCB) certificates testifying to the required quality of
organisation of logical and physical security.
ISO 27001 – Information Security System.
CQM (Card Quality Management), a constituent part of the EMV standard, testifying
that the quality of our products is controlled and at an appropriately high level.
32
Plans for 2007
Regarding certification, the company has set the following objectives for this business
year:
Establishment of the system of protection and health at work in accordance with
the OHSAS 18001 standard – Occupational Health and Safety, no certification.
Upgrade of the EMV standard – a certificate authorising the company for production
of bank cards in addition to the personalisation.
Continuing of active cooperation in the group of companies actively involved with
the establishing of international standards for determining the travel document
testing methods ISO/IEC/JTC1/SC17/WG3/TF4.
EMPLOYEES
The characteristics of 2006
2006 was a challenging year as regards human resources management. Due to
unfavourable results in 2005, the company was forced into reorganisation, the
consequence of which was the decreasing of the number of employees. 39 employees left
the company in 2006, most of them due to termination of the employment contract from
business reasons and some of them due to retirement. Another challenge of 2006 was the
new systemisation of jobs, ensuing from the implementation of the new information system and the signing of new contracts with all employees.
The activities related to the optimisation of the company operation and decreasing of the
number of employees are still in progress. In most cases, laying off is performed by
termination of the contracts with older employees due to business reasons when the
employees meet the minimum requirements for the acquisition of the right to an old-age
pension, or by termination of the contract if the employee meets the requirements for
unemployment benefits for the period until he or she is granted the right to an old-age pension.
Plans for 2007
As regards human resources, the company has set the following objectives for 2007: - The establishment of the mechanisms for assessing training efficiency – the ROI
indicator (the return of the investment in training). The objective is to
systematically improve the employees‟ competence and organise goal-oriented
training of each employee, through which the training efficiency assessment
mechanism can be set up. - The project of renewal of the human resources management (HRM) information
system. The company will set up comprehensive indicators and a system for
automatic monitoring thereof. The project will be accomplished by upgrading the
current system. The objective of the project is to organise all analytical processes
into a few areas, accessible to users through an Internet portal, and used as a
grounds for decision making. - The project of the conceptual restructuring of the HRM system in the following
aspects:
Defining the competences of the key human resources.
Assessment of work success and efficiency.
Assessment of training success and efficiency.
Integration of the systematisation and the reward system (wage system).
33
Annual interviews.
Development of human resources.
Setting up of a comprehensive system for monitoring absence from work
and the appropriate sanctions.
Communication with the employees
The company is well aware that its success depends on the efficiency and satisfaction of its
employees. This area can be greatly improved. In 2006, the company endeavoured to
communicate to the employees, mainly through publishing a company newsletter, the
importance of the culture of business communication and of general knowledge from the
graphical field of expertise. Among other activities at the end of the year, the company
awarded best workers and awarded employees, celebrating their 10th, 20th or 30th jubilee
of employment in the company.
At the beginning of 2007, the company renewed its value system based on a research
performed at the end of the previous year. The new value system will be actively
communicated throughout this year. The company will also organise a project for
improving awareness regarding the importance of health to the employees‟ personal and
professional lives.
The number of employees per organisational unit (OU)
OU
2005 2006
IND 05/06 no. of
employees % no. of
employees %
Management 2 0.48 2 0.48 100.00
Common services 22 5.25 21 5.01 95.45
Finance and
economics 13 3.10 13 3.10 100.00
Marketing 95 22.67 93 22.20 97.89
Research and
development 12 2.86 12 2.86 100.00
Production 286 68.26 278 66.35 97.20
Total 430 102.63 419 100.00 97.44
Conclusion: At the beginning of the year, the company was planning to reduce the number
of employees by 100 due to unfavourable business results in 2005. However, during the
year the needs for workers in some of the production units arose. Thus, the company has
terminated 16 employment contracts due to business reasons, 5 employees have retired
and a few employees have resigned from work.
Employee education level
Education 2005 2006 no. % no. %
II. Primary school 104 24.2 96 23
III. Vocational school 7 1.6 7 1.7
IV. Vocational school 142 33 138 33
V. Secondary school 109 25.3 106 24.6
VI. Vocational College 27 6.3 29 6.9
VII. University degree 37 8.6 39 9.3
34
VIII. Master's degree 4 0.9 4 1
Total 430 100 419 100
Conclusion: Cetis is a manufacturing company. Most of the employees in production have
vocational or secondary education.
35
Labour costs and salaries
in SIT / % 2005 2006
Average gross salary in Cetis in SIT 252,818.00 252,452.45
Average gross salary in the branch in Slovenia in SIT
244,535.00 254,277.21
Deviation from the branch average in %
3.27
- 0.72
Labour costs in the structure of revenues in %
30.36
29.18
Conclusions: The company salaries are less than 1% below the branch average in 2006.
The total wages have increased by 9.3% between January 2006 and January 2007 (taking
into account all employees), or by 2.3% (without individual contracts). The labour costs in
the structure of revenues have decreased by slightly more than 1% as compared to the
previous year.
Education and training costs
Education in SIT 1000 2005 2006 IND 05/06 Seminars 25,066.30 50,179.96 200.19
Computer training 2,386.75 836.21 35.04
Foreign languages 3,536.93 1,710.09 48.35
Trade fairs 9,264.73 8,995.98 97.10
Part-time study 7,963.87 5,684.68 71.38
Scholarships 7,860.11 6,364.08 80.97
Total 56,078.70 73,771.02 131.55
Conclusions: The company increased investments in education as compared to 2005,
mostly due to the implementation of the new business information system. The average
investment in education and training per employee amounted to SIT 176,064.49. The
planned system of assessment of training efficiency is aimed at monitoring the return of
the investment in education - how, when and to what extent it is returned.
36
Statistical data for the last two years
Category 2005 2006
Number of employees 430 419
Female employees in % 37.21 % 36.30 %
Male employees in % 62.80 % 63.70 %
Average age of female employees 41.89 yrs 42.18 yrs Average age of male employees 41.65 yrs 41.71 yrs Average term of employment of
female employees 22.78 yrs 22.98 yrs Average term of employment
male employees 21.56 yrs 21.48 yrs Share of the permanently
employed 95.80 % 95.50 %
Share of the temporarily
employed 4.20 % 4.50 %
Share of trainees
Fluctuation level 7.09 % 7.51 %
Share of women in management 27.27 % 30.00 %
Arrivals 11 23
Departures 32 34
Conclusions: The trend of decreasing the number of employees is continuing, while the
age structure and the duration of the term of employment are increasing. Fluctuation in
2006 amounted to 7.5%. The share of female employees in the management structure
has increased.
An overview of sickness leave in 2006 in %
Months / sickness
benefits in % Sickness benefits at the cost
of the company Reimbursed sickness
benefits Total January 3.94 2.29 6.23
February 3.75 2.69 6.44
March 3.81 2.52 6.33
April 4.75 1.67 6.42
May 4.34 2.16 6.50
June 4.30 2.42 6.72
July 2.88 2.03 4.91
August 2.86 1.77 4.63
September 3.45 1.93 5.38
October 5.06 1.85 6.91
November 4.63 2.67 7.30
December 4.05 2.37 6.42
Average 3.99 2.20 6.18
Conclusions: Sickness leave decreased by 1% on average in 2006.
Safety and health at work report
37
In 2006, all regular health and safety at work activities in compliance with the
Occupational Health and Safety Act (Official Gazette of the RS, No. 56/99) were
performed, in particular:
- theoretical and practical training of employees regarding safety at work and fire safety
(100 participating employees)
- preventive health examinations for employees - 50 employees,
- selection, procurement and implementing of working equipment and technologies
complying with EC norms and fulfilling all regulative requirements of the local
legislation (declaration of conformity, noise levels, mechanical dangers, environmental
protection, etc.),
- periodic inspections and testing of process equipment (acquisition of operating licenses
for 100 machines),
- inspections and testing of fire fighting equipment (fire extinguishers, hydrants).
Long-term activities
The following are the main measures important for long-term improvement of health and
safety at work:
- In spite of its efforts, the company did not attain the OHSAS 18001 (Occupational
Health and Safety standard) certificate in 2006. These activities are continued in 2007. - Regular supervision of the health status of the employees, timely discovery of
occupational illnesses, preventive health examinations by the authorised doctor and
implementing of target health examinations for specified groups of job positions.
- Consulting performed by external experts for safety at work in the selection, purchase
and introduction of new working equipment and new technological procedures in the
company.
Overview of accidents at work in the past two years
Number of accidents in the past two years
38
3. RESPONSIBILITY TO THE SOCIAL AND THE NATURAL
ENVIRONMENTS
RESPONSIBILITY TO THE NATURAL ENVIRONMENT
A responsible attitude towards the natural environment is one of the conditions for a
healthy working environment. Our company is aware of this and therefore we observe the
strict environmental guidelines of the environmental protection policy. Cetis is not a heavy
polluter of the environment. Nevertheless, we work actively on minimising the effects of
our activities on the natural environment – from raising environmental awareness and
promoting knowledge of our employees, to considering the environmental aspect when
acquiring new technologies.
Implementing environmental objectives and programmes in 2006
Cetis has concluded the largest environmental protection project so far. We have
built a modern warehouse with optimal conditions for storing dangerous chemicals
and waste. This investment significantly reduced the risk of environmental
disasters, such as fires and dangerous chemical spills into the sewage system. In accordance with the environmental policy, Cetis has significantly reduced the
annual quantity of dangerous waste by 36.7% compared to 2005. We have also achieved our annual plan for reduction of trade waste by 11.5%
compared to 2005.
The company fully implemented the logistics and use of returnable cleaning cloth,
which meant a 35% reduction of dangerous waste, i.e. the cleaning cloth
contaminated with dangerous substances.
The company has successfully completed the re-certification assessment of the
management system according to the ISO 14001 certificate and has fulfilled the
requirements for the ISO 14001:2004 certificate.
The company cancelled the programme of installing the plant for the removal of
silver from the waste water, as the presence of silver in the process was reduced to
the appropriate level with the implementation of the BAT technology. Cetis concluded an agreement for the disposal of waste PVC with a waste treatment
company.
In 2007 the company will:
- Renew and modernise the short-term storages for dangerous substances and
completely abolish the flow of flammable and dangerous substances in the
company premises.
- Acquire environmental permits for all equipment emitting substances into water.
- Reduce the quantity of trade waste by 10%.
- Reduce the quantity of dangerous waste by 5 %.
Long-term objectives
The following remain long-term objectives to be completed by 2010:
- reducing the quantity of waste by 30% compared to 2003 (the company has
succeeded in reducing waste by 20% to date), and - improving environmental protection awareness of our employees.
39
Investments in environmental protection in the past four years
Investments in environmental protection Investments in SIT
1000 Implementation of the CTP technology 95,856
Implementation of the flexo CTP
technology 28,251
Construction of a dangerous waste
warehouse 79,081
Total 203,188
Note: The company did not make any significant investments in environmental protection
in 2006.
The quantity of trade waste
2005 2006
Trade waste in tons 75.9 67.2
Conclusions: With more than an 11% reduction of trade waste in 2005 Cetis has achieved
the objective set for 2006.
The quantities of dangerous waste in tons
Dangerous waste 2005 2006 The change in % 2005/2006
Cloths 15,875 10,301 -35.1%
Dangerous substances‟
packaging 10,296 400
-96.1%
Dyes 6,105 6,863 +12.4%
Adhesives 830 1,540 +85.5%
Toners 495 345 -30.3%
Solvents 2,564 1,012 -60.5%
Fixers 780 1,028 +31.8.%
Developers 3,764 3,546 -5.8%
Total 40,709 27,041 -36.7%
Conclusions: We conclude that the company is faithful to the implementation of its
environmental policy of reducing dangerous waste. The total quantity was reduced by
more than a third compared to the previous year. The largest contribution to this
significant reduction is the lower quantity of contaminated dangerous substances‟
packaging achieved mainly through consistent clearing and cleaning of packaging units. All
dangerous substances‟ packaging, which was previously disposed of as dangerous waste,
in now processed in the waste packaging disposal system as non-hazardous waste. By
implementing returnable cleaning cloths, Cetis achieved a significant reduction of the
quantity of waste cloth, contaminated with dangerous substances. The quantities of some
other types of dangerous waste were also reduced – waste toners by slightly less than a
third, waste solvents by more than a half and waste developers by a lesser percentage.
40
We have found that there was an increase in the quantities of certain types of waste.
However, this increase is a minor portion of the total waste:
the quantity of waste dyes has increased by a 10% as a consequence of better
cleaning of dangerous substances‟ packaging,
the quantity of waste adhesives has increased by 85%, this type of waste reached
the level of 2003 as a consequence of an increase in production, the quantity of waste fixers has increased by a third as a consequence of an
increase in the prepress processes.
Packaging
Cetis produces waste packaging not considered municipal waste and an insignificant
portion of waste packaging from direct import. Cetis produced 145 tons of paper
packaging waste and 8 tons of plastic packaging waste in Slovenia. The quantity of the
packaging waste increased from 2005 due to an increase in production. The company‟s
waste does not represent a burden on the environment as it is remitted for treatment to
the company Slopak in accordance with the legislation.
Air emissions
The advanced technological equipment and the company‟s dedication to the use of non-
hazardous process materials result in minimum air emissions by Cetis. Heating is based on
natural gas, which is considered to be an environmentally friendly form of heating.
Conclusions: The
consumption of natural gas in 2006 decreased by more than 20% compared to the
previous year, which was most likely due to a mild winter.
Electrical power
2005 2006
Electrical power consumption in
kWh 7,603,110 7,492,920
Conclusions: The consumption of electrical power has an indirect influence on the
environment. In 2006, the consumption was lower than in 2005 by 1%, and equal to the
consumption in 2004.
Water emissions
By investing in the BAT technology, the company has reduced the concentration of silver
in waste water. The measurements of the competent institutions show that the company‟s
wastewater is within the legally prescribed levels for emissions into the municipal sewage
system.
2005 2006
Water consumption
in cbm 18,331 13,090
2005 2006
Natural gas consumption in ccm 308,049 238,323
41
Conclusions: The water consumption in Cetis is lower than in 2005 by approximately a
third, and more than a half lower than in 2003. The implementation of BAT technology
(the best currently available) in the prepress department in 2003 is also reflected in water
consumption.
Prevention and correction measures
In 2006, the company did not perform any significant prevention or correction measures.
In most cases of violation of safety and health protection at work the reasons were the
inconsistent separation of waste and inaccessibility of fire extinguishers.
The prevention and correction measures in Cetis are issued by the head of safety & HSE &
quality systems, usually orally or via e-mail.
Environmental communication
In accordance with the Rules on Environmental Management, the company keeps internal
and external records on environmental communication. We inform our employees and
business partners about our environmental activities periodically, with every important
project or investment and in the annual report.
The employees are regularly informed about our environmental activities with notices on
the notice boards, via e-mail and in meetings. We expect our employees to contribute
relevant suggestions for improvement. The employees are also constantly trained on
matters relating to environment protection and safety at work with the purpose of
improving our organisational culture in terms of higher environmental awareness. Each
individual at Cetis is obligated to implement our environment protection policy and to act
in accordance to the provisions thereof.
OUR RESPONSIBILITY TO THE USERS OF OUR PRODUCTS AND
SERVICES
Our company is dedicated to both the implementation of the highest standards and
environmental responsibility, which is reflected in the long-term relationships we have with
all our stakeholders.
Cetis manufactures socially responsible and environmentally friendly products. We give
special attention to the chemical content of our products and to their end of life disposal.
The company acts in accordance with the Restriction of Hazardous Substances Directive
(RoHS) by ensuring early involvement of our partners in the supply chain and by regular
assessment of the aforementioned requirements.
We are proactive as regards health and safety by controlling and minimising the influences
and risks of our operations and products for the benefit of people and the environment.
Long-term relationships with our clients and our suppliers are the basis for responsible
business management.
42
RESPONSIBILITY TO THE SOCIAL ENVIRONMENT
Cetis is involved in the local and the wider community with a variety of programmes and
initiatives. The company also supports other organisations with funds for sponsorships and
donations. These funds had to be adjusted in 2006 due to a less favourable business
result, therefore Cetis allocated less funds to this purpose, i.e. 0,6% of the annual
turnover.
The company has been a sponsor of the Pivovarna Laško Handball Club, the Kladivar
Athletics Club and other sport associations and clubs for several years. In 2006, the
company donated funds to the humanitarian cause “Dobra misel” (Positive Thought)
initiated by Kapitalska Družba, to individuals in need of humanitarian help, and to
kindergartens and schools.
Since graphics is among the company‟s activities, we also sponsor printed material. In
2006, we sponsored the SNG Maribor theatre, the NK Maribor football club, the IPA World
Congress, the Slovenian Marketing Festival, etc.
The company does not use a special code of conduct. We inform the public in accordance
with the applicable legislation.
43
4. FINANCIAL REPORT OF THE CORPORATION CETIS, d.d.
Auditor's report
44
INCOME STATEMENT (IFRS) In SIT 1000
Notes
Achieved in
2006
Achieved in
2005
1. INCOME 1 6,467,785 6,405,380
2. Purchase value of sold quantities 2 -363,588 -324,286
3. Production costs 2 -4,591,558 -4,913,296
4. Purchase value of sold quantities and production costs 2 -4,955,146 -5,237,582
A. GROSS PROFIT 1.512.639 1,167,798
5. Other operating revenues 3 240,111 156,454
6. Sale costs 2 -1,101,468 -1.159,148
7. Costs of general services 2 -707,046 -787,395
8. Other operating expenses -70,549 -131,745
= Other income, expenses and costs (5+6+7+8) -1,638,952 -1,921,834
B. PROFIT OR LOSS ACCOUNT WITHOUT FINANCING COSTS -126,313 -754,036
9. Revenues from financing 4 455,827 202,478
10. Costs of financing 4 -124,752 -142,843
C. NET REVENUES FROM FINANCING 4 331,075 59,635
D. PROFIT OR LOSS BEFORE TAXATION 204,762 -694,401
b) Deferred tax 5 23,206 42,428
12. Income for tax purposes 5 23,206 42,428
E. PROFIT AFTER TAXATION 227,968 -651.973
Net profit (loss) per share (in SIT) 21 1,140.99 -3,262.87
45
BALANCE SHEET AS OF 31 DECEMBER, 2006
In SIT 1000
Notes 31 December,
2006 31 December,
2005
ASSETS
1. Land and buildings, plant and machinery 7 4,534,199 5,103,314
2. Intangible fixed assets 8 349,489 60,653
4. Investments in Group members 9 406,397 450,666
5. Investments in associate enterprises 10 17,256 11,326
6. Investments available for sale 11 3,345,434 3,071,702
7. Loans granted 12 312,342 158,438
8. Deferred tax receivables 13 138,945 125,351
SA. Total fixed assets 9,104,062 8,981,450
1. Inventories 14 823,293 753,916
2. Short-term financial investments at fair value 15 440,690 462,322
3. Short-term loans granted 16 8,639 20,027
4. Receivables due from tax on profit 17 0 67,465
5. Operating and other receivables 18 1,407,989 1,228,173
6. Cash and cash equivalents 19 174,821 32,216
SB. Total short-term assets 2,855,432 2,564,119
S. TOTAL ASSETS 11,959,494 11,545,569
CAPITAL AND LIABILITIES
1. Issued capital 2,400,000 2,400,000
2. Capital reserves 4,279,822 4,279,822
3. Reserves (legal and statutory) 409,611 409,611
4. Retained profit 36,726 -191,397
5. Own shares -6,231 -6,231
6. Fair value reserve 165,323 30,990
KO. Total capital 20 7,285,251 6,922,795
1. Loans received 22 1,902,793 2,100,163
4. Provisions 23 383,889 453,387
5. Deferred tax payment 58,636 29,196
KO.B.a) Total long-term liabilities 2,345,318 2,582,746
2. Loans received 22 897,523 790,055
3. Operating and other liabilities 24 1,431,402 1,249,973
KO.B.b) Total short-term liabilities 2,328,925 2,040,028
KO.B. Total liabilities 4,674,243 4,622,774
KO. TOTAL CAPITAL AND LIABILITIES 11,959,494 11,545,569
Profit or loss in the accounting period 227,968 -651,973
Offset for: 627,022 1,011,547
Depreciation of land and buildings, machinery and equipment 791,343 904,261
Depreciation of intangible fixed assets 44,391 59,329
(Compensation of) loss due to impairment 15,384 78,220
Negative exchange rate difference 2,351 5,127
Revenue from investments -252,198 -95,560
Investment expenses 122,401 137,715
Revenue from the sale of buildings, machinery and equipment -6,138 -5,715
Revenue from decrease of fixed provisions -90,512 -71,830
OPERATING PROFIT BEFORE THE OFFSET OF NET OPERATING ASSETS AND PROVISIONS 854.990 359,574
Offset of operating and other receivables -320,973 -130,127
Offset of inventories -66,100 150,917
Offset of operating and other liabilities 91,539 30,854
Offset of provisions and employee earnings 21,013 26,274
CASH FLOW FROM OPERATING ACTIVITIES -274,521 77,918
Paid interests -2,661 -40,231
Paid tax on profit -179,506
NET OPERATING CASH FLOW 577,808 217,755
INVESTMENT CASH FLOW
Inflow from the sale of buildings, machinery and equipment 64,279 40,208
Inflow from the sale of investments 252,198 95,560
Interest received 19,452 26,261
Dividends received 73,892 63,804
Outflows from acquisition of buildings, machinery and equipment -199,697 -415,916
Outflows from other investments -221,943 -1,729,856
Outflows for acquisition of intangible assets -333,228 -14,106
NET INVESTMENT CASH FLOW -345,047 -1,934,045
FINANCING CASH FLOWS
Repurchase of own shares -4,139
Changes in capital 155 -159,500
Granting of loans 1,089,507 2,792,404
Repayment of loans -1,179,410 -1,110,306
Dividends paid -408 -155,990
NET FINANCING CASH FLOW -90,156 1,362,469
Net increase in cash and cash equivalents 142,605 -353,821
Cash and cash equivalents at the beginning of the period 32,216 386,037
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 174,821 32,216
47
STATEMENT OF CHANGES IN EQUITY (IFRS)
In SIT 1000
Issued capital
Capital reserves
Legal and statutory reserves
Own shares
Retained profit
Fair value reserve Total capital
Balance as of 1 January 2005 2,400,000 4,341,759 617,340 -2,249 350,567 84,977 7,792,394
Loss 2005 -651,973 -651,973
Coverage of loss -61,937 -207,729 269,666 Dividend payments and bonuses -159,500 -159,500
Decrease in fair value -53,987 -53,987
Repurchase of own shares -3,982 -157 -4,139
Balance as of 31 December 2005 2,400,000 4,279,822 409,611 -6,231 -191,397 30,990 6,922,795
Profit 2006 227,968 227,968
Dividends from own shares 155 155
Increase in fair value 134,333 134,333
Balance as of 31
December 2006 2,400,000 4,279,822 409.611 -6,231 36.726 165,323 7,285,251
The Management of Cetis, d.d., confirms the accounting statements and notes thereto for
the business year ended on 31 December, 2006.
48
DECLARATION ON MANAGEMENT RESPONSIBILITY
The Management is responsible for the preparation of the accounting statements in a
manner that presents the actual and fair representation of the operation at the end of the
business year and of the income statement for the relevant period.
The Management confirms that the appropriate accounting standards were applied
consistently and that the accounting estimates were formed exercising reason and
discretion. The management confirms that the accounting statements are in compliance
with the International Accounting Standards.
The accounting statements were formed based on the assumption of continued operation
of the company.
The Management is responsible for the appropriately conducted accounting, for the
implementation of the appropriate measures, for the protection of the company‟s assets,
and for the prevention and the disclosure of any fraud or other irregularity.
March, 2007
Simona Potočnik, MA
General Manager
49
SUMMARY OF RELEVANT ACCOUNTING PRINCIPLES AND NOTES TO FINANCIAL STATEMENTS
1. Company Presentation
Head-office and legal form; country
Cetis, Graphic and Documentation Services, d.d., (Graphic and Documentation Services) is
a company based at 24 Čopova, Celje, Slovenia. The corporation was entered in the
Companies Register with the District Court Celje on 13 February 1996 under the entry no.
95/00923 and on 25 November 2003 under the entry no. 1/01476/00.
The share capital of the Company amounts to SIT 7,285,250,618.93 and is divided into
200,000 ordinary, no-par value registered shares issued as „dematerialized‟ securities and kept with the Central Securities Clearing Corporation (KDD) in Ljubljana. The Cetis shares
(designated as CETG) are traded on the free market of the Ljubljana Stock Exchange
(Ljubljanska borza).
Nature of business and major activities
The Company‟s core business is providing comprehensive solutions in the field of
communications through printed media and other forms of media. The corporate vision
envisions Cetis as the leading company in Slovenia, with the right developmental,
investing and marketing activities and the best qualified staff, looking ahead to increase its
market share outside Slovenia as well. The Company offers a programme of diversified
printed matter, such as security, variable and commercial printed matter, graphic design
incl. accessory services, like personalisation of documents, the implementation and
personalisation of micro chips or magnetic tapes, archiving, identity management and
consultancy, project management and other services.
Factsheet of the Parent Company
Cetis, d.d., holds 100% in a company established abroad. The financial statements of
associated companies abroad subject to the Company‟s control are comprised in the
Company‟s operation.
Human Resources
Podatki o zaposlenih - stanje
Year Number of staff 2004 451
2005 430
2006 419
50
Qualification Structure of employees – average values, compared with the past
two years
Qualification level 2006 2005 2004
II. Level – trained at work 100 108 115
III. Level – skilled workers 7 7 7
IV. Level – skilled workers 140 145 148
V. Secondary level of education 108 108 108
VI. Post-Secondary level of
education 28 28 28
VII. Higher level of education 38 37 34
VIII. Master's Degree 4 5 2
2. Groundwork for financial statements
a) Conformity Declaration
The Financial Statements for 2006 are based on the International Financial Reporting
Standards (IFRS) as published by the International Accounting Standards Board (IASB),
and on interpretations by the IFRS Interpretations Committee (IFRSIC), as adopted by the
European Union. This is the first year that the financial statements are prepared in
accordance with the International Financial Reporting Standards (IFRS 1).
The Company‟s Management Board confirmed the Statements on 5 March 2007.
b) Basis for Measurement
The 2006 financial statements are based on the procurement value, or assumed
procurement values resp., except in the cases listed below in which the fair value has to
be taken into account:
Derivative financial instruments,
Financial instruments at fair value through profit or loss,
Financial assets available for sale.
The methods used in the measurement of fair value are described below.
c) Functional and presentation currency The values in financial statements are expressed in Slovenian tolars (SIT), rounded off to one thousand tolars.
d) Use of estimates and assessments
The management has to indicate in its financial statements the estimates, assessments and presumptions relevant for the application of accounting principles or policies and the presented values of assets, liabilities, income and expenses. Actual results may differ from such estimates / assessments.
Estimates and presumptions need to be reviewed on a continual basis. Any corrections to
the accounting estimates are recognized in the period for which the correction is made and
for all subsequent years subject to the influence of such corrections.
51
The following Sections reveal information on significant estimates that entail uncertainties,
and on the critical assessments made by the management in the process of implementing
the accounting policies with a strong impact on the amounts shown in the financial
statements:
Section 13 - Use of tax losses,
Sections 23 and 24 – provisions and contingent liabilities,
Section 27 – Evaluation of financial instruments.
3. Significant accounting principles applied
In the presentation and valuation of items, the accounting principles applied this year were
also used for the year 2005 in view of the transition to IFRS. At the valuation of items in
which the standards allow the Company to choose among various valuation methods, the
Company has applied the principles from its Rules on Accounting and Finance that are
described below.
Notes have to be provided for all major items whose value exceeds a certain percentage of
the value of the assets or liabilities resp. The method of definition and relevance are
shown in the Rules on accounting and finance.
The management has to give its assessment, the estimates and presumptions that are
relevant for the application of accounting principles and presenting the values of assets
and liabilities, as well as income and expenses.
The most relevant assessments relate to the classification of financial instruments held by
the Company for trading and instruments held for sale.
a) Foreign currency
Assets and liabilities expressed in foreign currency are to be translated into the national
currency at the time of their accrual and at the end of the accounting period, using the
mean rate of the Banka Slovenije.
Cash assets and liabilities stated in foreign currency as at the Balance Sheet Date are
translated into functional currency at the applicable exchange rate. The foreign exchange
gains or losses are the differences between the amortised cost in the functional currency
at the beginning of the period, adjusted (corrected) by the amount of effective interest
and the payments effected during the accounting period, as well as the amortised cost
expressed in a foreign currency and translated at the mean exchange rate at the end of
the period. Non-monetary items and liabilities stated in foreign currency and measured at
the fair value are converted into the functional currency at the exchange rate effective on
the date on which the fair value was set. Foreign exchange gains and losses are
recognised in the Profit or Loss Statement, except the gains and losses that occur in the
translation of the capital instruments classified as the instruments available for sale or for
a non-financial liability that is designated as the hedging instrument.
52
b) Financial instruments
Non-derivative financial instruments include investments in capital, and debt securities,
operating and other receivables, cash and cash equivalents, loans received and granted,
and operating and other liabilities.
Initially, non-derivative instruments are recognised at their fair value increased by
(instruments not recognised through profit or loss at their fair value) the costs directly
attributable to the transaction except as stipulated below. After initial recognition, the
non-derivative financial instruments are measured as explained below in greater detail.
A financial instrument is recognised if the company becomes a party to the contractual
provisions of the instrument. The financial assets are derecognised after the Company‟s
contractual rights to cash flow expire, or if the Company transfers a financial asset to
another party, incl. the control or all risks and benefits of such assets. The purchases and
sales made in a regular or usual way are accounted for as of the effective date of
transaction, i.e. on the day on which a company undertakes to purchase or sell an asset.
Financial liabilities are derecognised when the Company‟s contractual obligations expire or
terminate.
The Cash and Cash Equivalents Item comprises cash in hand and sight deposits.
Overdrafts of the current account at the bank that may be settled upon demand and form
an integral part of cash management, are included among the elements of Cash and cash
equivalents in the Cash Flow Statement.
For the accounting of financial revenues and expenses see Section 4. Net income
(expenses) from financing.
Financial assets available for sale
Investments in equity securities are classified as Financial assets available for sale. Upon
initial recognition, these investments are measured at the fair value. The changes to the
fair value are recognised directly in the capital. When an investment is derecognised, the
related profit or loss is transferred to the Profit or Loss.
Investments at fair value through profit or loss
An instrument is classified at its fair value through the Profit or Loss if it is held for trading
or designated as such upon initial recognition. Financial instruments are classified at their
fair value through the Profit or Loss provided that the Company is in a position to keep
such investments, as well as to decide on the purchases and sales thereof at their fair
value. After initial recognition, the pertaining operating costs of the transaction are
recognised in the Profit or Loss at the time of accrual. Financial instruments stated at fair
value through profit or loss are measured at their fair value, and the change to fair value
is recognised through Profit or Loss.
Other
Other non-derivative financial instruments are measured at the amortised cost by applying
the effective interest method, reduced by the amount of loss owing to impairment.
53
Economic hedging
In derivative instruments used for hedging the cash assets and liabilities in foreign
currency, there is no economic hedging of the currency risks applied due to low risk of
exposure. Changes of the fair value of derivative financial instruments are recognised in
the Profit or Loss as a part of foreign exchange gains and losses.
Share capital
Ordinary shares
Additional costs, directly attributable to the issue of ordinary shares and stock options, are
stated as the capital decrease.
Redemption of own shares and shareholdings
Upon redemption of own shares or shareholdings stated as a portion of the share capital,
the amount of the paid compensation, incl. the costs directly relating to the redemption is
recognised as a change in equity. Redeemed shares or shareholdings are stated as own
shares and deducted from the capital.
Dividends
Dividends are recognised to the liabilities and presented upon the accrual of transaction.
c) Tangible fixed assets
After the initial recognition, each tangible fixed asset is evaluated according to its
procurement value. It consists of its purchase price and the costs directly attributable to
the asset's qualifying for its intended use, in particular the cost of transport and
accommodation.
The computer software programmes that significantly contribute to the functionality of the
assets are to be capitalized as part of this equipment.
Parts of tangible fixed assets with different useful lives are accounted for as individual
tangible fixed assets.
The difference between the net sales value and book value of a disposed tangible fixed
asset is carried forward to the operating revenues from revaluation if the sales value exceeds the book value, or to the operating expenses from revaluation if the book value exceeds the sales value.
Subsequent cost incurred to the Tangible Fixed Assets
The cost of replacement of a part of a tangible asset is recognised at the book value if it is
probable that future economic benefits related to the part of such asset will flow to the
Company and the procurement value can be reliably measured. All other costs (e.g. daily
servicing) are recognised in the Profit or Loss as expenses as soon as they occur.
Depreciation
The net amount of tangible and intangible fixed assets decreases by
depreciation/amortisation resp.
54
A tangible fixed asset will start to be depreciated on the first day of the month following
the effective day on which the asset was put into use for the relevant activity.
Depreciation rates are based on the estimated useful life of the assets, as follows:
in years,
min.
in years,
max.
Land and buildings 7 40
Plant and machinery - graphic equipment 3 19
Laboratory equipment 3 10
Vehicles 8 8
Telephone sets, telegraph switchboard 3 5
Furniture 5 6
Typewriters, computer equipment 3 8
Computer equipment for fire-safety 3 3
Measuring and control appliances 4 6
Useful life is determined and examined in accordance with the Rules on Accounting and
Finance. In the item Land and buildings are some parts, such as the hydraulic bridge
plate, with a 14.2%-depreciation rate or useful life of 7 years.
Depreciation methods, useful life and the residual value are examined as of the reporting
date in accordance with the Rules on Accounting and Finance.
d) Intangible fixed assets
Research and development
The consumption in research activities aiming to achieve new scientific and professional
knowledge and understanding is recognised in the Profit or Loss as an expense at the date
of accrual.
The development activities include the production plan or design of new or essentially
improved products and procedures. An expense for development is recognised if it can be
reliably measured, if the product or procedure is technically and operationally feasible, if
there is a potential for future economic benefits, if the Company has adequate resources
for the completion of development, and if it intends to use or sell such assets. The
recognised value of such consumption comprises the cost of materials, direct labour and
other costs which can be directly attributable to qualifying the asset for the intended use.
The remaining value of such consumption is always recognised in the Profit or Loss as an
expense at the date of accrual.
The recognised consumption in development activities is presented at the procurement
value decreased by the allowance for depreciation and accumulated loss owing to
impairment.
55
Other Intangible Fixed Assets
Other intangible fixed assets with a limited useful life are presented at the procurement
value decreased by the allowance for depreciation and accumulated loss owing to
impairment.
Subsequent Cost
Subsequent expenses incurred with respect to intangible fixed assets are only capitalised if
they should increase, at a later time, the future economic benefits arising from the resp.
fixed assets. All other costs are recognised in the Profit or Loss as expenses as soon as
they occur.
Depreciation
Depreciation/amortisation is accounted on the straight-line depreciation basis using the
estimates of useful life for intangible fixed assets and applies to the time at which the
asset is available for use. Estimated useful life for the current and comparable year is as
follows:
Depreciation rates are based on the estimated useful life of the assets:
in years,
min.
in years,
max.
Intangible fixed assets 3 10
e) Controlled companies and associated companies
The Company evaluates its investments in equity of the controlled and associated
companies according to the cost method of investment, which requires to recognise the
income upon the transfer of participation in profit.
f) Inventories
Upon initial recognition, a quantitative unit of a particular inventory of materials or
merchandise is evaluated at the procurement value that comprises the purchase price,
import dues and unrefundable levies imposed on the purchase. The value of inventories is
based on the First-In-First-Out method (FIFO) of inventory evaluation.
Upon initial recognition, the quantitative unit of a product or work in progress is evaluated
at the production cost. These comprise the direct cost of materials, direct labour costs,
direct cost of services, direct cost of depreciation, and general production overheads. The
general production overheads are the costs of materials, services, labour and depreciation,
which are accounted for within the production process but cannot be directly related to the
products, services or commodities produced.
Inventories are revalued owing to impairment in case their book value, including the value
at the latest actual cost prices of the materials and merchandise, exceeds their market
value. Work in progress is kept at the production cost excluding the external services,
whereas the inventories of products are kept at the cost price (production cost). If these
56
prices exceed the market value, the Company has to apply impairment to work in progress
and to finished products.
The net realisable (marketable) value is the estimated selling price to be achieved in
ordinary business and reduced by the estimated cost of completion and the estimated
costs to sell.
g) Asset impairments
Financial assets
A financial asset is deemed to be impaired if there is impartial proof evidencing that one or
several transactions brought about a decrease in the expected future cash flows from this
asset.
A loss owing to impairment of a financial asset that is presented at the amortised cost is
calculated as the difference between the net amount of the asset and the projected future
cash flows, discounted at the historical effective interest rate. In a financial asset held for
sale, the loss owing to impairment is calculated at its current fair value.
Important financial assets are assessed for impairment individually. The remaining
financial assets are assessed for impairment as a group, taking into account their common
characteristics relating to the exposure to risks.
All losses owing to impairment of assets are presented in the Profit or Loss. Any
accumulated loss incurred to a financial asset held for sale that was recognised directly in
the capital shall be transferred to the profit or loss statement.
A loss owing to impairment is eliminated if it can be impartially related to a transaction
accrued after the recognition of impairment. In financial assets stated at the amortised
value and financial assets held for sale, which are debt instruments, the elimination of the
loss owing to impairment is presented in the Profit or Loss Statement. Financial assets
held for sale which are equity securities are presented directly in the capital.
Non-Financial assets
On each reporting date, the Company examines the residual amount of non-financial
assets of the Group other than biological assets, investment property, inventories and
deferred tax assets, in order to find out any indicators of impairment. If such an indicator
exists, we estimate the recoverable amount of the asset. In goodwill impairment and the
impairment of intangible assets with an indefinite useful life and not available for use yet,
the assessment is made each time on the reporting date.
The impairment of an asset or an individual cash-generating unit is recognised when its
book value exceeds the recoverable value of the asset/cash-generating unit. A cash-
generating unit is the smallest group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. The impairment is
presented in the Profit or Loss. The loss owing to impairment to be recognised in a cash-
generating unit is allocated as follows: The book value of the goodwill applicable to the
cash-generating unit is reduced first, followed by other assets of the unit (or group of
units) in proportion to the book value of each asset in the unit.
57
The recoverable amount of an asset or of a cash-generating unit is the higher of the two
amounts: The value in use or the fair value decreased by the cost to sell, whichever is
higher. In determining the value of an asset in use, the projected future cash flows are
discounted to their present value by applying the discount rate before taxation that shows
the current market estimates of the value of money and risk over time, typical of that
particular asset.
The loss owing to the goodwill impairment may not be reversed. For other assets, the
Company evaluates the losses owing to impairment incurred in the past periods as of the
Balance Sheet Date, in order to find out whether the loss has been decreased or even
eliminated. The loss owing to impairment is eliminated if the estimates underlying for the
recoverable value of the group have changed. The loss is eliminated to the amount at
which the increased book value of the asset does not exceed the book value which would
have resulted after the deduction of the depreciation write-down/-off in case the loss
owing to impairment had not been recognised in this asset in the preceding years.
h) Long-term assets classified among the assets held for sale
The long-term assets whose value is expected to be settled primarily by the sale and not
by further use are classified among the assets held for sale. Directly before the asset is
classified among the assets held for sale, a new measurement of assets (or integral parts
or the group for disposal) is implemented in compliance with the accounting principles.
Accordingly, a long-term asset (or the group for disposal) is recognised at the lower of the
two amounts: The book value or the fair value, decreased by the cost to sell. The
impairment loss in the disposal is classified as follows: First, the book value of the goodwill
is decreased, followed by other assets and liabilities in proportion to the book value of
each asset in the unit, whereby the losses cannot be allocated to inventories, financial
Cost of merchandise and materials sold 363,588 324,286
Cost of materials used, and services 3,654,994 3,775,462
Labour cost 1,887,871 1,944,443
Depreciation 835,734 963,590
Other operating expenses 138,038 216,696
Changes in inventories of finished products,
work in progress and semi-manufactures -46,016 91,393
Total (operating) expenses 6,834,209 7,315,870
Labour cost
(in thousand
SIT)
2006 2005
Wages and salaries, gross 1,290,628 1,333,800
Cost of pension insurance 167,657 177,490
Other social security cost 95,379 100,203
Other labour cost 334,207 332,950
Total labour cost 1,887,871 1,944,443
The wages and salaries costs are accounted as required by Collective Agreements, Internal
rules on payroll and other receipts, the Decree on the costs recognised as deductible tax
expenses, and individual service contracts. Other labour costs are all the remaining
expenses for meals, travel, holiday allowance, termination benefits on retirement, and the
tax on salaries paid.
In addition, the company allocated in the reporting year SIT 52,312,000 for additional
pension insurance, together with the employees who have waived 1,615% of their gross
63
wage for the same purpose. The Company paid SIT 55,173,000 to this purpose in the
preceding year, under the same terms.
The accounted tax on wages came to SIT 51,761,000 (in 2006) and was lower than a year
ago (SIT 67,786,000).
3. Other operating revenues
(in thousand
SIT)
Breakdown of Other Income 2006 2005
Profit from the sale of fixed assets 6,138 5,715
Reversal of impairment of tangible fixed assets 19,353 0
Revenues from reversal of provisions 90,512 53,033
Capitalised own products and/or services 63,308 0
Elimination of revaluation of trade receivables and
inventories 27,961 4,228
Refunds for damages, subsidies and grants received 22,013 27,132
Other 10,826 66,346
Total 240,111 156,454
4. Net income (expenses) from financing
(in thousand
SIT)
2006 2005
Interest revenues 28,374 12,244
Revenues from dividend and other participation in
profit 73,891 63,804
Foreign exchange gains 23 5,600
Revenues from the sale of financial investments 252,198 104,209
Other financial revenues 101,341 16,621
- thereof, change in evaluation of investments under IFRS 97,223 0
Total financing revenues 455,827 202,478
Interest expenses 116,728 43,857
Foreign exchange losses 3,617 9,413
Expenses from the sale of financial investments 483 43,762
Other financial expenses 2,391 4,505
Financial expenses owing to impairment 1,533 41,306
Total costs from financing 124,752 142,843
Total Net income from financing 331,075 59,635
64
6. Income for Tax purposes
(in thousand
SIT)
2006 2005
Deferred tax 23,206 42,428
Total 23,206 42,428
Effective rates for Corporate Income Tax
(in thousand
SIT)
2006 2006 2005 2005
Total Profit or Loss before tax 204,762 -694,401
Tax effects: Tax accounted by applying the
general tax rate 25,0% 51,191 25,0% -173,600
Tax-exempt income -14,3% -29,348 0,5% -3,812
Income increased by tax 0,0% 0 -0,6% 4,512
Non-deductible expenses (for tax
purposes) 37,7% 77,278 -18,9% 131,527
Tax relief -28,6% -58,606 0,0% 0
Tax Loss -31,2% -63,876 0,0% 0
Other changes to Tax base 0,1% 156 0,2% -1,055
Total taxes -11,3% -23,206 6,1% -42,428
6. Disclosures of amounts for Auditors
The total amount spent for auditing services came to SIT 2,315,000 (in 2006); other
disclosures are not provided due to trivial amounts.
7. Land and buildings, plant and machinery
In 2006, the Company invested in land, buildings, plant and equipment SIT 268,817,000.
The existence and amount of legal restrictions is included in the explanatory notes to Off-
balance sheet assets.
At the year-end, the liabilities to suppliers for the purchase of intangible fixed assets were
SIT 237,785,000.
65
Changes in Land and buildings, plant and equipment
(in thousand SIT)
Land Buildings Equipment Other
equipment Investments in progress
Advances given Total
Procurement value
Balance as of 1 Jan 2005 286,071 3,275,657 9,010,442 17,604 4,001 5,228 12,599,003 Acquisitions in the financial year 6,316 194,983 206,702 7,297 415,298
Acquisitions - adjustment 1,004 1,004 Acquisitions of investments in progress 424,191 424,191 Carry-forward from investments in progress -408,001 -408,001
Disposals 226,102 11,140 8,522 245,764
Balance as of 31 Dec 2005 292,387 3,470,640 8,992,046 6,464 20,191 4,003 12,785,731
Balance as of 1 Jan 2006 292,387 3,470,640 8,992,046 6,464 20,191 4,003 12,785,731 Matching after Opening Balance 394 569 80 1,043
Acquisitions in the financial year 10,458 255,246 151 265,855 Acquisitions of investments in progress 268,817 268,817 Carry-forward from investments in progress -265,855 -265,855
Disposals 354,513 4,003 358,516
Balance as of 31 Dec 2006 292,387 3,481,492 8,893,348 6,615 23,233 12,697,075
Allowances for
Balance as of 1 Jan 2005 1,551,330 5,409,202 11,094 6,971,626
Balances for surplus 1,004 1,004
Depreciation 93,192 811,069 904,261
Disposals 183,380 11,094 194,474
Balance as of 31 Dec 2005 1,644,522 6,037,895 7,682,417
Balance as of 1 Jan 2006 1,644,522 6,037,895 7,682,417
Depreciation 96,550 694,794 791,344
Disposals 310,885 310,885
Balance as of 31 Dec 2006 1,741,072 6,421,804 8,162,876
The net amount
Balance as of 1 Jan 2005 286,071 1,724,327 3,601,240 6,510 4,001 5,228 5,627,377
Balance as of 31 Dec 2005 292,387 1,826,118 2,954,151 6,464 20,191 4,003 5,103,314
Balance as of 1 Jan 2006 292,387 1,826,118 2,954,151 6,464 20,191 4,003 5,103,314
Balance as of 31 Dec 2006 292,387 1,740,420 2,471,544 6,615 23,233 4,534,199
66
Disposals made in 2006 comprise the sale of economically and technically obsolete, but
still functional machinery.
Mortgages entered in the Land Register to secure the liabilities for loans received came to
SIT 2,481,386,000 and the pledged plant and equipment amounted to SIT 2,262,232,000
(thereof, the remaining debt is only SIT 2,803,126,000); the lien and guarantees received
amount to SIT 489,426,000.
8. Intangible fixed assets
The long-term industrial property rights stand primarily for the purchased computer
software for the renovation of the business information system. The long-term deferred
development costs are recognised costs for projects that prove to be feasible for the
project completion and eligible for the use or sale. The purpose is to complete the project
and sell or use it in view of the probability of the economic benefits and the capability of a
reliable measurement of the costs attributable to the resp. intangible asset.
In 2006, the Company invested SIT 333,898,000 in deferred costs and long-term property
rights. The deferred development costs are recorded for the Passport Project.
67
Changes in intangible fixed assets
(in thousand SIT)
Long-term deferred
costs
Long-term industrial
property rights
Intangible fixed assets in
manufacture Total
Procurement value
Balance as of 1 Jan 2005 35,366 322,557 0 357,923 Acquisitions in the financial year 13,436 13,436 Acquisitions of investments
in progress 14,107 14,107 Carry-forward from investments in progress -13,436 -13,436
Disposals 7,050 2,611 9,661
Balance as of 31 Dec 2005 28,316 333,382 671 362,369
Balance as of 1 Jan 2005 28,316 333,382 671 362,369 Acquisitions in the financial year 44,404 289,494 333,898 Acquisitions of investments in progress 333,227 333,227 Carry-forward from investments in progress -333,898 -333,898
Balance as of 31 Dec 2006 72,720 622,876 0 695,596
Allowances for
Balance as of 1 Jan 2006 7,050 244,998 0 252,048
Depreciation 9,429 49,900 0 59,329
Disposals 7,050 2,611 0 9,661
Balance as of 31 Dec 2005 9,429 292,287 0 301,716
Balance as of 1 Jan 2006 9,429 292,287 0 301,716
Depreciation 9,430 34,961 0 44,391
Balance as of 31 Dec 2006 18,859 327,248 0 346,107
The net amount
Balance as of 1 Jan 2005 28,316 77,559 0 105,875
Balance as of 31 Dec 2005 18,887 41,095 671 60,653
Balance as of 1 Jan 2006 18,887 41,095 671 60,653
Balance as of 31 Dec 2006 53,861 295,628 0 349,489
68
9. Investments in group enterprises
(in thousand SIT)
Structure according to type 2006 2005
Cetis Zagreb 405,142 405,142
Cetis Skopje 0 44,269
Cetis Tirana 1,255 1,255
Total 406,397 450,666
Among the Group enterprises are:
CETIS – ZG, Poduzeče za trgovinu i usluge, d.o.o., Industrijska 11, Sveta Nedelja, Croatia.
The participation is measured at the procurement value.
In 2005, an allowance was made for the company Cetis Print, d.o.o.el., Skopje, which is
not stated in the balance. The disposal of Cetis, d.o.o.el, Skopje, and Cetis Print, d.o.o.el.,
Skopje, was completed in July 2006.
The company is preparing a consolidated financial statement for the abovementioned
company Cetis-ZG, d.o.o., because it is 100% owned by the Parent Company. The
subsidiary is reporting to the Parent Company on a monthly basis; the latter is performing
analyses every three months and an internal audit at least once per year. The subsidiary is
subject to auditing according to national laws.
The participation held in the company CETIS–TIRANA, Sh.p.k.,R.r. Deshmoret e 4,
Shkurtit. P.7, Tirana, Albania, is measured at the procurement value.
The financial statements of this company, also fully owned by Cetis, d.d., are not
consolidated. This company is only an intermediary in the acquisition of business and has
a status of small enterprise not liable for the preparation of accounting statements under
national law.
Changes in investments in group enterprises
(in thousand
SIT)
Procurement
value Allowance
(impairment) Net value Balance 1,Jan
2006 495,627 44,961 450,666
Sale -89,230 -44,961 -44,269
Balance 31 Dec
2006 406,397 406,397
69
10. Investments in associate enterprises
The associated companies include:
Druckman Hungary, in which the Company owns 33% and for which the allowance
for the entire investment has been made because the associated company has
been out of operation for several years and is not shown in the changes of
investments.
La Societe Nationale des Loteries Sportives, BP 2150, Libreville, Gabon. The
participation is measured at the procurement value.
through profit or loss 440,690 440,690 462,322 462,322
Short-term loans 8,639 8,639 20,027 20,027
Cash and cash equivalents 174,821 174,821 32,216 32,216
Provisions -383,889 -383,889 -453,387 -453,387
Loans received - long-term -1,902,792 -1,902,792 -2,100,163 -2,100,163
Loans received - short-term -897,523 -897,523 -790,055 -790,055
Operating and other liabilities -1,431,402 -1,431,402 -1,249,973 -1,249,973
Total 1,074,309 1,074,309 379,300 379,300
The investments available for sale are evaluated at the fair value and depend on the
recognition of the investment after the trading date.
Investments at fair value through profit or loss are evaluated at the stock exchange price.
The loans granted and received are evaluated by the calculation (translation) of the
amortised cost using the effective interest method that does not differ from the
contractual interest rate. Accordingly, the contractual interest rate is used in the
calculations. In operating and other receivables, the impairment to fair value is taken in view of
collectability. The receivables are not discounted in view of short-term nature.
The same applies to operating and other liabilities that are not discounted owing to their
short-term nature.
The provisions are based on the calculations for individual types, as indicated in Section i)
and Note 23.
26. Financial instruments - risk management
80
Exposure to Risk, and Risk Management
We may put it that currency risks were excluded at the time of stable exchange rate of the
euro since almost all foreign transactions were made in EUR.
The Company is aware of the importance attributable to regular control and management
of financial risks to which the Company is exposed in the markets, and views it as a
relevant precondition for successful operations and achieving of strategic goals. The
interest rate risks were notable in the reporting year (a general growth of interest rates).
The analysis of these risks has resulted in the assessment that the interest rate risk is
higher also on the ground of the company having raised a new debt, or the guarantees
issued. The Company envisions these risks to become higher also as a result of the
operations of the Parent Company and subsidiaries.
All the long-term debts are taken in euros or subject to the currency clause. Interest rates
are based on the market principles governing the price of money in the European banking
market. The interest rate risks have not been hedged so far, as the Company views the
interest rate fixations offered to be above the variable rates. Lately, these have come
close to the ceiling of the acceptable by the 2006 year-end.
The fixation of the euro exchange rates was visible throughout 2006 and affected the
current financial policy and financial risk management in that field.
- We were able to manage Credit risks already during the procedures of accepting
customers' orders, taking into account their credit rating, requesting additional
security for our receivables and by limiting our exposure to individual customers.
On top of that, a systematic and active collection process was applied. Despite a
slight increase in outstanding receivables, we view the exposure of Cetis to credit
risks as moderate. - Currency risks were present primarily in our business relations with East
European countries with soft currencies; our products and services sold to these
customers are invoiced in euro. In all markets, the Company has reduced the
currency risks with adequate balancing of receivables and liabilities accounted in
euro, and by complying with a stable exchange rate policy. It is estimated that the
exposure of Cetis to currency risk is moderate. - The interest rate risks rose due to increased loan volume and the growth of
interest rates. We estimate that the interest rate level for all the long-term loans
raised, although the contractually agreed fluctuation and the given maturity are still
acceptable. However, adequate hedging will become indispensable. We estimate
that the exposure of the company to interest rate risks was higher than a year ago. - Property loss and related risks were systematically, by analytical approach,
assigned on insurance companies, thanks to new assistance service.
- The short-term solvency risk in Cetis is relatively low thanks to effective
management with cash, credit lines for cash flow balancing, satisfactory financial
flexibility and good access to financial sources. The Company has succeeded in
reducing the long-term solvency risk as a result of more efficient operations
compared to those a year ago (2005).
81
Financial instruments
Year 2006, in thousand SIT
Effective Interest Rate Total 31 Dec 2006
Up to 6 months
From 6
to 12 months
from
1 to 2 years from 2 to 5 years
Loans granted to associated companies chang, 5% - 5,5 %,
linked to EURIBOR growth 164,633 164,633
Loans granted to others 6% - 7% 451 451
Loans granted for repurchase of housing point value under the
Housing Act 13,664 3,392 3,401 6,871
Loans granted for housing development 7% 13,806 4,720 4,840 4,246
Bonds 5,2% 119,788 119,788
Current portion of long-term loans 8,639 8,639
Cash and cash equivalents 0,2% - 3,6% 174,821 174,821
Secured bank loans received - long-term EURIBOR +0,5% to 1,05% -1,902,793 -1,902,793
Secured bank loans - current portion of
long-term loans -537,506 -537,506
Secured bank loans received - short-
term EURIBOR +0,80% to 0,85% -350,017 -350,017
Short-term loans received 3,23% - 3,63% -10,000 -10,000
Total -2,304,514 174,821 -880,772 8,692 -1,607,255
Year 2005, in thousand SIT
Effective Interest
Rate Total 31
Dec 2005 Up to 6
months From 6 to
12 months
from 1
to 2
years from 2 to 5 years
Loans granted to others 6% 1,591 1,591
Loans granted for repurchase of housing Point value accord,
to Housing Act 17,745 3,671 14,074
Loans granted for housing development 7% 19,314 4,942 14,372 Bonds 5,2% 119,788 119,788 Current portion of long-term loans 20,027 20,027 Cash and cash equivalents 0,2 % - 3,2% 32,216 32,216
Secured bank loans received - long-term EURIBOR +0,5% to
1,05% -2,100,163 -2,100,163 Secured bank loans - current portion of long-term loans -281,049 -281,049 Secured bank loans received - short-
term EURIBOR +0,80% to
0,85% -350,006 -350,006 Unsecured, short-term loans received 3,62% - 3,7% -159,000 -159,000 Total 2,679,537 32,216 -761,415 1,591 -1,951,929
82
Explanatory notes on reporting under the IRFS
Disclosures in connection with IRFS 1 relate to:
Comparable information,
Explanation on the transition to IFRS,
Harmonization - first-time adoption of IFRS in financial statements,
The use of fair value, counting as the procurement value.
Under the first-time adoption of IFRS, the Opening Balance Sheet was drawn up as at 1
January 2005 and the Closing Balance Sheet as at 31 December 2005, as required by the
IFRS 1.
Preparation of Opening Balance Sheet and Adjustments to IFRS
1. The Company recognised all the assets and debts under the IFRS principles. A
deferred tax asset was recognised, arising from temporary differences in the
valuation of investments, receivables, inventories, and part of tax loss.
2. The Company recognised new liabilities for the provisions owing to years-of-service
rewards and termination benefits. The provisions were made to the amount of
estimated future payments for years-of-service rewards and termination benefits,
discounted as of the Balance Sheet Date. The calculation was made for each
employee separately, comprising the termination benefits payable upon retirement
and the costs of all expected years-of-service rewards until the employee retires.
The applied discount rate was 4.5% p.a. A certified actuary prepared the
calculation using a projected-unit basis.
3. The re-classification of assets and liabilities followed that are considered as
different types of assets, debts and elements of capital under the Slovenian
accounting standards (SRS) and IFRS.
4. Own shares are presented as a deductible item of the capital.
5. The general equity revaluation adjustment was re-allocated to the capital reserves.
6. Other revenue reserves were allocated to retained earnings.
7. The deferred costs/expenses and accrued revenues are now an item of Other
receivables, and the accrued costs/expenses and deferred revenues become Other
liabilities.
8. Cash deposits held with banks up to three months are re-classified to the item of
Cash and cash equivalents.
9. Advances for inventories are re-classified to Other receivables.
10. The valuation of financial instruments was done on the fair-value basis. The fair
value of financial investments available for sale is equal to their published market
price offering as of the Balance Sheet Date.
83
11. The recognised differences arising from the adjusted items of financial investments
that are in the Opening Balance Sheet classified as available for sale are recognised
in a separate item of capital.
12.The investments in controlled and associated enterprises are valued at cost (the
procurement value).
The total differences between the IFRS and SRS values amount to SIT 266,508,000.
The impact of changes at the time of transition to IFRS as of 01 Jan 2005 is shown in
the Change in the financial position (balance) in the Balance Sheet.
After that date, the influence is seen on the financial performance in the Profit or Loss
Statement for 2005, and onwards by the deferred tax account.
84
BALANCE SHEET as at 1.1. 2005 and 31.12.2005 – SRS to IFRS Adjustment
(in thousand SIT)
1 Jan 2005 31 Dec 2005
SRS Difference IFRS SRS Difference IFRS
ASSETS
1. Real property, plant and equipment 5,627,378 5,627,378 5,103,314 5,103,314
The Management Board of the Cetis, d.d., confirms the Financial Statements and Notes
thereto for the year ended at 31st December 2006.
DECLARATION ON MANAGEMENT RESPONSIBILITY
The Management Board is accountable for preparing the financial statements so as to
reflect the true and fair presentation of the Company‟s operations for the reporting year.
The Management Board confirms that the resp. Accounting guidelines and policies were
consistently used, and the estimates were prepared to the purpose and under the principle
of prudence. It further confirms the compliance of the Company‟s financial statements
with the International Financial Reporting Standards (IFRS).
The going concern assumption was underlying for these financial statements.
92
The Management Board is also responsible for properly kept accounting, timely adoption of
the measures to secure the Company‟s assets, and prevention and detecting any fraud
and other illegal practices.
March 2007
Simona Potočnik, MA
Managing Director
93
SUMMARY OF RELEVANT ACCOUNTING PRINCIPLES AND NOTES TO FINANCIAL STATEMENTS
1. Presenting the Group
The Group provides comprehensive solutions in the field of communications through
printed media and other forms of media. The corporate vision of the Group is to be the
market leader in Slovenia, with the right developmental, investing and marketing activities
and the best qualified staff, looking ahead to increase their market share outside Slovenia
as well. The Group offers a programme of diversified printed matter, such as security,
variable and commercial printed matter; graphic design incl. accessory services, like
personalisation of documents, the implementation and personalisation of micro chips or
magnetic tapes, archiving, identity management and consultancy, project management
and other services.
Apart from the Parent Company Cetis, d.d., the Group also comprises the company Cetis-
ZG, d.o.o., in which the Parent Company holds 100% share. The participations in CETIS-
SK, dooel, Skopje and CETIS Print, dooel, Skopje were sold in July 2006.
Human Resources
Year THE CETIS
GROUP
Cetis, d.d.,
Celje
Cetis-ZG,
d.o.o.
Cetis-SK,
dooel, Skopje
Cetis-Print,
dooel, Skopje
2004 478 451 7 20
2005 552 430 22 20 80
2006 441 419 22
Qualification Structure of employees – average values, compared with the past
two years
Qualification level 2006 2005 2004
II. Level – trained at work 100 122 115
III. Level – skilled workers 7 19 7
IV. Level – skilled workers 140 162 156
V. Secondary level of education 125 168 122
VI. Post-Secondary level of
education
28 31 29
VII. Higher level of education 42 52 38
VIII. Master's Degree 5 6 5
2. Groundwork for financial statements
a) Conformity Declaration
The Financial Statements for 2006 are based on the International Financial Reporting
Standards (IFRS) as published by the International Accounting Standards Board (IASB),
and on interpretations by the IFRS Interpretations Committee (IFRSIC), as adopted by the
European Union.
94
The Management Board confirmed the financial statements on 5 March 2007.
b) Basis for measurement
The 2006 financial statements are based on the procurement value, or assumed
procurement values resp., except in the cases listed below in which the fair value has to
be taken into account:
Derivative financial instruments,
Financial instruments at fair value through profit or loss,
Financial assets available for sale.
The methods used in the measurement of fair value are described below.
c) Functional and presentation currency
The values in financial statements are expressed in Slovenian tolars (SIT), rounded off to
one thousand tolars.
d) Use of estimates and assessments
The management has to indicate in the financial statements their estimates, assessments
and presumptions relevant for the application of accounting principles or policies and the
presented values of assets, liabilities, income and expenses. Actual results may differ from
such estimates.
Estimates and presumptions need to be reviewed on a continual basis. Any corrections to
the accounting estimates are recognized in the period for which the correction is made and
for all subsequent years subject to the influence of such corrections.
The following Sections reveal the information on significant estimates that entail
uncertainties, and on the critical assessments made by the management in the process of
implementing the accounting policies with a strong impact on the amounts shown in the
financial statements:
Section 12 - Use of tax losses,
Sections 22 and 23 – provisions and contingent liabilities,
Section 25 – Evaluation of financial instruments.
3. Significant accounting principles applied
In the presentation and valuation of items, the accounting principles applied this year were
also used for the year 2005 in view of the transition to IFRS. At the valuation of items in
which the standards allow the company to choose among various valuation methods, the
Group has applied the principles from its Rules on Accounting and Finance that are
described below.
Notes have to be provided for all major items whose value exceeds a certain percentage of
the value of the assets or liabilities resp. The methods of definition and relevance are
shown in the Rules on Accounting and Finance.
The management has to give its assessment, the estimates and presumptions that are
relevant for the application of accounting principles and presenting the values of assets
and liabilities, as well as income and expenses.
95
The most relevant assessments relate to the classification of financial instruments held by
the Group for trading and instruments held for sale.
In 2006, the Group reclassified certain financial investments from the category of financial
assets held for sale into the category of financial assets at fair value through profit or loss.
In accordance with IAS 8, the adjustment was made to the initial opening balance of the
comparable period (NOTE 10, 14, 19). The effect of the adjustment is recorded in the
reserve for fair value as at 1 Jan. 2005, while the effect of the changed accounting
principle reflects in the Profit of Loss Statements for 2005 and 2006.
The comparable information is harmonised with the presentation of information in the
current year. Whenever it was necessary, the comparable data have been harmonised for
compliance with the presentation of information in the current year.
4. Groundwork for consolidation
Controlled Companies (Subsidiaries)
Controlled companies (also referred to as the „subsidiaries‟) are enterprises controlled by
the Group. The term „control‟ stands for the decision-making capacity on the enterprise‟s
financial and operational policies to generate economic benefits from its operation, existing
on the part of the Group. Financial statements of subsidiaries are included in the
consolidated financial statements with effect from the date when the control commences
until the date of cessation thereof. Associated companies
Associated companies are companies in which the Group has a significant, but not
prevailing influence on the financial and business policy of such company. Consolidated
financial statements comprise the share of the Group in the total recognised profit and loss
of the associated companies, calculated according to the equity method from the date on
which the significant influence commences until the date of cessation of such influence. If
the share of the Group in the losses of an associated company is higher than the
shareholding of the Group in such associated company, the book value of the Group‟s
share is reduced to zero, and the Group ceases to recognise its share in further losses,
although only to the extent for which the Group has assumed legal or constructive
(indirect) obligations, or has made payments on behalf of the associated company. Transactions exempt from consolidation
Exempt from the consolidated financial statements are balances, unrealised gains and
losses, or revenues and expenses resp. arising from transactions within the Group.
Unrealized gains from transactions with associated companies are excluded only to the
amount of the Group‟s shareholding in the enterprise. Unrealised losses are excluded in
the same way as gains, provided that there is no proof on impairment.
a) Foreign currency
Assets and liabilities expressed in foreign currency are to be translated into the national
currency at the time of their accrual and at the end of the accounting period, using the
mean rate of the Banka Slovenije.
Cash assets and liabilities stated in foreign currency as at the Balance Sheet Date are
translated into functional currency at the applicable exchange rate. The foreign exchange
gains or losses are the differences between the amortised cost in the functional currency
96
at the beginning of the period, adjusted by the amount of effective interest and the
payments effected during the accounting period, as well as the amortised cost expressed
in a foreign currency and translated at the mean exchange rate at the end of the period.
Non-monetary items and liabilities stated in foreign currency and measured at the fair
value are converted into the functional currency at the exchange rate effective on the date
on which the fair value has been set. Foreign exchange gains and losses are recognised in
the Profit or Loss Statement, except the gains and losses that occur in the translation of
the capital instruments classified as the instruments available for sale or for a non-
financial liability that is designated as the hedging instrument.
b) Financial instruments
Non-derivative financial instruments include investments in capital, and debt securities,
operating and other receivables, cash and cash equivalents, loans received and granted,
and operating and other liabilities.
Initially, non-derivative instruments are recognised at their fair value increased by
(instruments not recognised through profit or loss at their fair value) the costs directly
attributable to the transaction except as stipulated below. After initial recognition, the
non-derivative financial instruments are measured as explained below in greater detail.
A financial instrument is recognised if the Group becomes a party to the contractual
provisions of the instrument. The financial assets are derecognised after the Company‟s
contractual rights to cash flow expire, or if the Group transfers a financial asset to another
party, incl. the control, or all risks and benefits of such assets. The purchases and sales
made in a regular or usual way are accounted for as of the effective date of transaction, i.e.
on the day on which the Group undertakes to purchase or sell an asset. Financial liabilities
are derecognised when the Company‟s contractual obligations expire or terminate.
The Cash and Cash Equivalents Item comprises cash in hand and sight deposits.
Overdrafts of the current account at the bank that may be settled upon demand and form
an integral part of cash management, are included among the elements of Cash and cash
equivalents in the Cash Flow Statement.
For the accounting of financial revenues and expenses see Section 4. Net income
(expenses) from financing.
Financial assets available for sale
Investments in equity securities are classified as Financial assets available for sale. Upon
initial recognition, these investments are measured at the fair value. The changes to the
fair value are recognised directly in the capital. When an investment is derecognised, the
related profit or loss is transferred to the Profit or Loss.
Investments at fair value through profit or loss
An instrument is classified at its fair value through the Profit or Loss if it is held for trading
or designated as such upon initial recognition. Financial instruments are classified at their
fair value through the Profit or Loss provided that the Group is in a position to keep such
investments, as well as to decide on the purchases and sales thereof at their fair value.
After initial recognition, the pertaining operating costs of the transaction are recognised in
the Profit or Loss at the time of accrual. Financial instruments stated at fair value through
97
Profit or Loss are measured at their fair value, and the change to fair value is recognised
through profit or loss.
Other
Other non-derivative financial instruments are measured at the amortised cost by applying
the effective interest method, reduced by the amount of loss owing to impairment.
Economic hedge
In derivative instruments used for hedging the cash assets and liabilities in foreign
currency, there is no economic hedging of the currency risks applied due to very low risk
exposure. Changes of the fair value of derivative financial instruments are recognised in
the Profit or Loss as a part of foreign exchange gains and losses. Share capital
Ordinary shares
Additional costs, directly attributable to the issue of ordinary shares and stock options are
stated as the capital decrease.
Redemption of own shares and shareholdings
Upon redemption of own shares or shareholdings stated as a portion of the share capital,
the amount of the paid compensation, incl. the costs directly relating to the redemption is
recognised as a change in equity. Redeemed shares or shareholdings are stated as own
shares and deducted from the capital.
Dividends
Dividends are recognised to the liabilities and presented upon the accrual of transaction.
c) Tangible fixed assets
After the initial recognition, each tangible fixed asset is evaluated according to its procurement value. It consists of its purchase price and the costs directly attributable to the asset's qualifying for its intended use, in particular the cost of transport and accommodation.
The computer software programmes that significantly contribute to the functionality of the
assets are to be capitalized as part of this equipment.
Parts of tangible fixed assets with different useful lives are accounted for as individual
tangible fixed assets.
The difference between the net sales value and book value of a disposed tangible fixed asset is carried forward to the operating revenues from revaluation if the sales value exceeds the book value, or to the operating expenses from revaluation if the book value exceeds the sales value.
Subsequent cost incurred to the Tangible Fixed Assets
The cost of replacement of a part of a tangible asset is recognised at the book value if it is
probable that future economic benefits related to the part of such asset will flow to the
98
Company and the procurement value can be reliably measured. All other costs (e.g. daily
servicing) are recognised in the Profit or Loss as expenses as soon as they occur.
Amortisation/Depreciation
The net amount of tangible and intangible fixed assets decreases by
depreciation/amortisation resp.
A tangible fixed asset will start to be depreciated on the first day of the month following
the effective day on which the asset was put into use for the relevant activity.
Depreciation rates are based on the estimated useful life of the assets:
in years,
min.
in years,
max.
Land and buildings 7 40
Plant and machinery - graphic equipment 3 19
Laboratory equipment 3 10
Vehicles 8 8
Telephone sets, telegraph switchboard 3 5
Furniture 5 6
Typewriters, computer equipment 3 8
Computer equipment for fire-safety 3 3
Measuring and control appliances 4 6
d) Intangible fixed assets
Research and development
The consumption in research activities aiming to achieve new scientific and professional
knowledge and understanding is recognised in the Profit or Loss as an expense at the date
of accrual.
The development activities include the production plan or design of new or essentially
improved products and procedures. An expense for development is recognised if it can be
reliably measured, if the product or procedure is technically and operationally feasible, if
there is a potential for future economic benefits, if the Group has adequate resources for
the completion of development, and if it intends to use or sell such assets. The recognised
value of such consumption comprises the cost of materials, direct labour and other costs
which can be directly attributable to qualifying the asset for the intended use. The
remaining value of such consumption is always recognised in the Profit or Loss as an
expense at the date of accrual.
The recognised consumption in development activities is presented at the procurement
value decreased by the allowance for depreciation and accumulated loss owing to
impairment.
Other Intangible Fixed Assets
99
Other intangible fixed assets with a limited useful life are presented at the procurement
value decreased by the allowance for depreciation and accumulated loss owing to
impairment.
Subsequent Cost
Subsequent expenses incurred with respect to intangible fixed assets are only capitalised if
they should increase, at a later time, the future economic benefits arising from the resp.
fixed assets. All other costs are recognised in the Profit or Loss as expenses as soon as
they occur.
Amortisation/Depreciation
Depreciation/amortisation is accounted on the straight-line depreciation basis using the
estimates of useful life for intangible fixed assets and applies to the time at which the
asset is available for use. Estimated useful life for the current and comparable year is as
follows:
Depreciation rates are based on the estimated useful life of the assets:
in years,
min.
in years,
max.
Intangible fixed assets 3 10
e) Inventories
Upon initial recognition, a quantitative unit of a particular inventory of materials or
merchandise is evaluated at the procurement value that comprises the purchase price,
import dues and unrefundable levies imposed on the purchase. The value of inventories is
based on the First-In-First-Out method (FIFO) of inventory evaluation.
Upon initial recognition, the quantitative unit of a product or work in progress is evaluated
at the production cost. These comprise the direct cost of materials, direct labour costs,
direct cost of services, direct cost of depreciation, and general production overheads. The
general production overheads are the costs of materials, services, labour and depreciation,
which are accounted for within the production process but cannot be directly related to the
products, services or commodities produced.
Inventories are revalued owing to impairment in case their book value, including the value
at the latest actual cost prices of the materials and merchandise, exceeds their market
value. Work in progress is kept at the production cost excluding the external services,
whereas the inventories of products are kept at the cost price (production cost). If these
prices exceed the market value, the Group has to apply impairment to work in progress
and to finished products.
The net realisable (marketable) value is the estimated selling price to be achieved in
ordinary business and reduced by the estimated cost of completion and the estimated
costs to sell.
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f) Asset impairment
Financial assets
A financial asset is deemed to be impaired if there is impartial proof evidencing that one or
several events/transactions brought about a decrease in the expected future cash flows
from this asset.
A loss owing to impairment of a financial asset that is presented at the amortised cost is
calculated as the difference between the net amount of the asset and the projected future
cash flows, discounted at the historical effective interest rate. In a financial asset held for
sale, the loss owing to impairment is calculated at its current fair value.
Important financial assets are assessed for impairment individually. The remaining
financial assets are assessed for impairment as a group, taking into account their common
characteristics relating to the exposure to risks.
All losses owing to impairment of assets are presented in the Profit or Loss. Any
accumulated loss incurred to a financial asset held for sale that was recognised directly in
the capital shall be transferred to the Profit or Loss Statement.
A loss owing to impairment is eliminated if it can be impartially related to an transaction
accrued after the recognition of impairment. In financial assets stated at the amortised
value and financial assets held for sale, which are debt instruments, the elimination of the
loss owing to impairment is presented in the Profit or Loss Statement. Financial assets
held for sale which are equity securities are presented directly in the capital.
Non-Financial assets
On each reporting date, the Group examines the residual amount of its non-financial
assets other than biological assets, investment property, inventories and deferred tax
assets, in order to find out any indicators of impairment. If such an indicator exists, the
recoverable amount of the asset has to be estimated. In goodwill impairment and the
impairment of intangible assets with an indefinite useful life and not available for use yet,
the assessment is made each time on the reporting date.
The impairment of an asset or an individual cash-generating unit is recognised when its
book value exceeds the recoverable value of the asset/cash-generating unit. A cash-
generating unit is the smallest group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. The impairment is
presented in the Profit or Loss. The loss owing to impairment to be recognised in a cash-
generating unit is allocated as follows: The book value of the goodwill applicable to the
cash-generating unit is reduced first, followed by other assets of the unit (or group of
units) in proportion to the book value of each asset in the unit.
The recoverable amount of an asset or of a cash-generating unit is the higher of the two
amounts: The value in use or the fair value decreased by the cost to sell, whichever is
higher. In determining the value of an asset in use, the projected future cash flows are
discounted to their present value by applying the discount rate before taxation that shows
the current market estimates of the value of money and risk over time, typical of that
particular asset.
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The loss owing to the goodwill impairment may not be reversed. For other assets, the
Group evaluates the losses owing to impairment incurred in the past periods as of the
Balance Sheet Date, in order to find out whether the loss has been decreased or even
eliminated. The loss owing to impairment is eliminated if the estimates underlying for the
recoverable value of the group have changed. The loss is eliminated to the amount at
which the increased book value of the asset does not exceed the book value which would
have resulted after the deduction of the depreciation write-down/-off in case the loss
owing to impairment had not been recognised in this asset in the preceding years.
g) Long-term assets classified among the assets held for sale
The long-term assets whose value is expected to be settled primarily by the sale and not
by further use, are classified among the assets held for sale. In accordance with the
accounting guidelines, another measurement of these assets (or parts thereof, or the
group for disposal) has to be taken directly before classifying these assets among the
assets held for sale. Accordingly, a long-term asset (or the group for disposal) is
recognised at the lower of the two amounts: the book value or fair value, decreased by
the cost to sell. The impairment loss in the disposal is classified as follows: First, the book
value of the goodwill is decreased, followed by other assets and liabilities in proportion to
the book value of each asset in the unit, whereby the losses cannot be allocated to
Balance as of 31 Dec 2006 1,765,212 6,545,050 24,896 0 0 8,335,158
The net amount Balance as of 1 Jan 2005 286,071 1,724,327 3,635,710 6,510 4,001 5,228 5,661,847 Balance as of 31 Dec 2005 361,004 2,669,362 3,381,636 6,464 20,191 4,003 6,442,661
Balance as of 31 Dec 2005 361,004 2,669,362 3,381,636 6,464 20,191 4,003 6,442,661 Balance as of 31 Dec 2006 363,674 2,038,830 2,716,398 3,734 51,448 0 5,174,084
The participations in Cetis-SK, dooel, Skopje, and CETIS Print, dooel, Skopje, were sold in
July 2006.
Disposals made in 2006 comprise the sale of economically and technically obsolete, but
still functional machinery.
Mortgages entered in the Land Register to secure the liabilities for loans received came to
SIT 2,481,386,000 and the pledged plant and equipment amounted to SIT 2,262,232,000
(thereof, the remaining debt is only SIT 2,803,126,000); the lien and guarantees received
amount to SIT 489,426,000.
8. Intangible fixed assets
The long-term industrial property rights stand primarily for the purchased computer
software for the renovation of the business information system. The long-term deferred
development costs are recognised for projects that prove to be feasible for the project
completion for eligible for the use or sale; the purpose is to complete the project and sell
or use it; the probability of the economic benefits and the capability of reliable
measurement of the costs attributable to the resp. intangible asset.
In 2006, the Group invested SIT 333,898,000 in deferred costs and long-term property
rights. The deferred development costs are recorded for the Passport Project.
Changes in intangible fixed assets
111
(in thousand SIT)
Long-term deferred
costs
Long-term industrial
property rights
Intangible fixed assets in
manufacture Total
Procurement value
Balance as of 1 Jan 2005 35,366 322,557 0 357,923
Acquisitions in the fin. year 15,042 15,042 Acquisitions of investments in progress 671 671
Disposals 7,050 2,611 9,661
Balance as of 31 Dec 2005 28,316 334,988 671 363,975
Balance as of 1 Jan 2006 28,316 334,988 671 363,975
Matching after Opening Balance 1,690 1,690
Acquisitions in the fin. year 44,404 296,321 340,725 Acquisitions of investments in progress 0 -671 -671
Balance as of 31 Dec 2006 72,720 632,998 0 705,718