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

4

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.

5

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.

6

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.

7

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

8

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

mail, personalisation services, e-business, archiving, document processing), documents

(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

10

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

Telephone, HO: 03 4278 500 Fax: 03 4278 836 E-mail address: info.cetis.si Web site: www.cetis.si

Companies in the Group

Cetis-ZG d.o.o., poduzeče za trgovino i usluge, Industrijska ulica 11, 10431 Sveta Nedelja, Croatia

E-mail address: cetis@cetis.hr t: +385 1 333 5000, f:+385 1 333 5001 Cetis-SK, dooel, uvoz-izvoz, Trgovsko društvo za grafička i izdavačka dejnost, za vrabotuvanje na invalidni lica, za proizvodstvo, promet i uslugi, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia E-mail address: cetissk@mol.com.mk t: +389 2,549,899, f: +389 2 549 332 Cetis Print - dooel, Uvoz– izvoz, Sv. Kliment Ohridski 68, 1000

Skopje, FYR Macedonia E-mail address: nmakedonija@mt.net.mk

t: +389 2 3111185, f: +389 2 3161524 Cetis-Tirana Sh.p.k., Blu Towers, Blvd. Deshmoret e Kombit, Kati IV, Ap. A1, Tirana, Albania E-mail address: cetistirana@albnet.net t: +355 4 280 424, f: +355 4 280 425

Affiliated company

Societe Nationale Des Loteries Sportives, Gabon Immeuble BICP bord de mer,1474 Avenue Georges POMPIDOU, Libreville – GABON E-mail address: florent.samba@snls.com t: +241 443 732, f: +241 443 734

2 The complete annual report is available at the Cetis Head Office and on the company’s web site www.cetis.si.

13

Management

Management Simona Potočnik, MA, General Manager

Supervisory Board 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

3Organisation

CETIS UPRAVA

PRODAJA KT PRODAJA VT NABAVA IN LOGISTIKA GRAFIČNI R&R CENT PI&UČV FINANCE & EKONOMIKA PROIZVODNJA

KT = komercialne tiskovine

VT = varnostne tiskovine

CENT = Cetis Nove Tehnologije

PI&UČV = Poslovne integracije in upravljanje človeških virov

Legenda:

Makro nivo organizacije – Funkcije podjetja

CETIS MANAGEMENT

SALES, CPM SALES, SPM PROCUREMENT AND LOGISTICS GRAPHICS R&D BI&HRM FINANCE AND ECONOMICS PRODUCTION

Legend: CPM = Commercial Printed Matter, SPM = Security Printed Matter, CENT =

Cetis New Technologies, BI&HRM = Business Integration and Human Resources Management

The organisation macro level – Functions of the company

3 The organisation scheme has been valid since 1 January, 2007

Products

Documents

Cards

Forms

Labels

Flexible packaging

Printed matter for games of chance and prize games

Printed matter for direct mail

Photo bags

Promotional printed matter

Services

Consulting and project management

Printing and prepress

Printed matter protection

Printing

Variable data printing

Data capturing and processing

BUSINESS ORIENTATION

At the end of 2006, the company conducted a research of organisational values and

organisational culture, based on which we renewed our vision and the value system.

The vision

Certis wants to be the best possible partner to the companies and governments in the field

of identification, security and business communication, as well as the leading partner and

consultant on rationalisation and cost management in the areas of packaging, business

forms, identity documents and games of chance.

The mission

1. We integrate graphics and information technology.

2. With business communication solutions we provide our clients with an optimal business

process and help improve their market success.

3. With security printing solutions we ensure the best possible protection from

counterfeiting and falsification.

4. We direct our sales at foreign markets with products of high added value.

5. We achieve a steady business growth.

6. We employ the best workers and promote innovativeness, initiative and development.

15

The values

1. Respect for ethical principles.

2. Flexibility and a dynamic approach.

3. Creativity, innovativeness and knowledge.

4. Team work.

5. Openness to new challenges.

The strategy

The company strategy until 2010 plans on focusing on strategic products and services

groups, based on the needs of our clients and new synergies between the companies in

the Group. The four product groups the company will be focusing on in the future are:

packaging, business communication systems, documents and games of chance. The aim of

forming new product groups is transparency and easier management of the company‟s

programmes.

The central and permanent task of the company is to seek strategic partnerships, both in

purchasing and sales. The company will base its growth on the foreign markets on

partnerships with local companies. To pursue this aim, the company will seek potential

partners and opportunities for opening its own companies in foreign markets.

Business goals

- Based on our knowledge and reputation, Cetis is a market-oriented company

providing services and products with high added value.

- The company has a firm position in the markets of buyers and suppliers.

- The company provides a complete supply of services and products to the clients in the

fields of packaging, business communications systems, documents and games of

chance.

- It manages complete projects.

- Cetis is a creator and a generator of demand.

- The company organises a network of independent suppliers (by hiring the external

services of the companies) and partners, and it founds (or buys) subsidiaries.

- The company manufactures only products of the highest specialised level.

- Cetis will move production to local markets with lower labour costs.

- Cetis is pursuing a gradual but quick and decisive shift in the company‟s position –

from a manufacturer to a system integrator.

16

2. BUSINESS REPORT

SALES

The net sales in 2006 amounted to SIT 6.5 billion, slightly higher than the previous year.

The largest portion of the revenue was produced with the sales of products and services in

the domestic market, i.e. slightly over SIT 4.5 billion with an increase of 2% as compared

to the previous year. As far as foreign markets are concerned, the highest portions of the

total revenue were achieved in the following countries: Poland, Croatia, Germany, Czech

Republic and Slovakia. The sales in these markets and other foreign markets amounted to

SIT 1.9 billion.

The sales by individual months were close to the planned sales; however, they dropped in

the last two months of the 2006 business year. This was due to the fact that some of the

projects planned for 2006 were not completed on time.

In 2006, Cetis supplied 3,445 clients. The most important clients (14 key clients and 41 A

category clients) created 77% of total sales. Sales in SIT 1000 2005 2006

Net sales 6,405,380 6,467,785

Sales on the domestic market 4,407,714 4,502,670

Sales on the international markets 1,997,666 1,965,115

Sales in 2006 by product groups

In 2006, forms represented the main portion of the total sales - 26.49%, despite the fact

that their nominal value was lower than the previous year. The forms group was followed

by self-adhesive labels – 15%, documents – slightly over 11%, and direct mail printed

matter and cards with approximately 10% of the total sales each. The last two were

followed by non self-adhesive labels and flexible packaging with approximately 2% less in

value each, while 4% of sales came from the services, photo-bags and lottery tickets.

Sales according to product groups in SIT 1000 2005 2006

Documents 559,457 699,086

Flexible packaging 166,268 403,042

Photo bags 214,247 229,712

Cards 379,211 598,024

Printed matter for direct mail 649,781 649,718

Non self-adhesive labels 617,897 452,324

Forms 1,751,406 1,552,845

Basic design materials 164,149 260,458

Promotional printed matter 143,177 48,703

Self-adhesive labels 1,171,933 911,998

Lottery tickets 208,476 188,899

Services 113,308 235,143

Basic material 24 11

Commercial goods 177,268 136,010

Fixed assets and other sources 97,968 101,749

Total 6,405,380 6,467,785

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The sales of commercial printed matter

In 2006, the company successfully strengthened its position in the flexible packaging

market, where it significantly improved its market share, especially in the domestic

market. We wish to continue this trend and expand our offer in flexible packaging. To

pursue this goal, the company acquired the high-quality flexible packaging manufacturer,

Amba, d.o.o., Ljubljana, early in 2007. This type of packaging is broadly used for food,

pharmaceutical and chemical industry products. At this point, the company is present in

eight European markets, and the exported products share represents 55% of total

production.

In the field of photo bags, the company achieved its goals, while with the direct mail

printed matter the sales plan was exceeded. The sales of self-adhesive labels stayed at the

same level. In this area, the company is planning a modernisation of the process

machinery and a more active market approach in foreign markets. Overall, the sales plan

for the commercial printed matter was not entirely achieved.

In this area, the company has determined three strategic product groups, i.e. flexible

packaging, direct mail printed matter and self-adhesive labels. With the development of

the graphic design aspect these product groups will be optimised, amended and

standardised.

Sales of security printed matter

The sales of security printed matter, consisting of three major product groups (identity

documents, cards and lottery games), exceeded the 2006 sales plan in the domestic

market in card production, identity card and passport personalisation, and bank card

personalisation. The growth trend was recorded in both domestic and international

markets.

In 2006, Cetis launched sport bets and games of chance with an affiliate company SNLS in

Gabon in Central Africa, where we won a concession for ten years. Cetis has a long

tradition of manufacturing printed matter for games of chance and prize games for the

domestic market and for the former Yugoslavian market.

In 2006, Cetis was among the first European countries to start issuing biometric

passports. The development efforts came to fruition with the successful issuing of the first

passports with a memory chip in the identity page. The development efforts continue with

upgrading the system of issuing and implementation of additional data in the memory

chip.

In 2006, the company also started manufacturing and issuing digital tachograph cards.

This project established the company as a system integrator and as a company integrating

European and Slovenian systems for data checking and issuing of tachograph cards.

In the area of bank cards, the company successfully completed the project of

implementing the EMV chip card technology and started performing personalisation for one

of the Slovenian banks. In 2007, we expect to perform card personalisation for the largest

Slovenian bank.

18

Sales orientation in 2006

The marketing strategy in the area of security printed matter is directed towards a global

approach to providing system integration of travel documents. In 2006, Cetis continued its

proactive marketing strategy in Africa and started marketing products in Asia, where we

completed an important project of manufacturing plycarbonate cards.

A successful combination of marketing activities affirmed the company‟s trademark

Cetisecurity in the international markets. Thus, Cetis established itself as a global security

printed matter production company. The promotion of security printed matter was based

mainly on presentations on international conferences. The most important event of 2006

took place on Rodos, Greece, in May, where the company presented the Slovenian

biometric passport.

In 2006, the company became the leading photo bag manufacturer in Europe by installing

new production equipment, which significantly increased the product output. By

purchasing Amba, the company established a synergy between two complementary areas,

flexible packaging production and self-adhesive stickers, which enables us to provide a

better and more complete service to our customers.

In the sales area, year 2006 was marked by integration of the commercial and the

technical departments to form sales product groups, in which the sales operatives and

product engineers work in the market as an expert sales team. This will improve the

company‟s customer support services. The company also put great emphasis on

strengthening its sales team for the international markets. The selection processes in

individual areas were completed by training of new sales operatives and by authorising

agency rights.

Sales objectives for 2007

Sales of EUR 31.5 million, of which 17.5 million will be realised in the domestic

market, 12.4 million on the foreign markets and 1.6 million by reselling.

Reduction of the stocks of goods by EUR 500,000.

Active marketing of the Cetisecurity trademarks, labels, flexible packaging, direct

mail and games of chance printed matter.

The company‟s 2007 sales plan is ambitious. All activities are directed towards increasing

our market share and acquiring larger complete contracts. The company will increase the

sales by offering complete solutions to the customers.

We see our competitive advantage in the ability to provide high quality products within the

agreed terms and at competitive prices. We follow our customers and inform them of all

possible solutions. This helps them compete in the market.

Based on the successful business results of 2006, the company has decided to expand the

production of those product groups where we expect a growth in sales, specifically cards

and travel documents production.

19

COMPANIES IN THE GROUP Cetis Group provides complete services in the field of communication with printed and

other media. We offer a broad range of security, variable and commercial printed matter,

as well as graphic design. These activities are complemented by services, such as

personalisation, documentation services, etc.

Cetis Group consists of the parent company, Cetis, Graphic and Documentation Services,

d.d., with the Head Office in Celje, and subsidiaries, in full ownership of Cetis. The

subsidiaries include Cetis-ZG, poduzeče za trgovinu i usluge, d.o.o., Cetis Print – dooel,

and Cetis - dooel, Skopje. In 2006, the parent company disinvested all assets in FYR

Macedonia. The sale of both Macedonian companies was completed in 2006. However,

Cetis maintains its presence in the Macedonian market through sales representatives.

The company‟s business results and consolidated profit and loss accounts take into

account the income statements of all companies mentioned above. Cetis also owns a

company in Tirana, which does not keep independent income statements, as it only

operates as a sales representative.

Cetis-ZG d.o.o., poduzeče za trgovino i usluge, Gospodarska ulica 3, 10250 Lučko-

Zagreb, Croatia

E-mail address: cetis@cetis.hr Tel.: +385 1 333 5000 Fax:+385 1 333 5001

Cetis-SK, dooel, uvoz-izvoz, Trgovsko društvo za grafička i izdavačka dejnost, za

vrabotuvanje na invalidni lica, za proizvodstvo, promet i uslugi, Skopje, Sv. Kliment

Ohridski 68, 1000 Skopje, FYR Macedonia (until 20.07.2006) E-mail address: cetissk@mol.com.mk Tel.: +389 2 549 899 Fax: +389 2 549 332

Cetis Print, dooel, uvoz – izvoz, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia E-mail address: nmakedonija@mt.net.mk (until 21.07.2006) Tel.: +389 2 3111185 Fax: +389 2 3161524

Cetis-Tirana Sh.p.k., Blu Towers, Blvd. Deshmoret e Kombit, Kati IV, Ap. A1, Tirana,

Albania E-mail address: cetistirana@albnet.net Tel.: +355 4 280 424 Fax: +355 4 280 425

Sales to 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

20

Total 1,362,674 405,083

Cetis Zagreb

Year 2006 was the most successful business year for Cetis Zagreb since it was established

in 1991. For the first time, the company‟s turnover was higher than EUR 5 million. With

profits and depreciation, the company created an added value of EUR 600,000 and

acquired a number of new clients and contracts.

Cetis Zagreb invested in new high-capability printers and in new software for data

processing and variable printing prepress processes. The acquisition of Bipost in 2005 and

its merger with Cetis Zagreb have proven to be sound business decisions, and are already

showing results. The company is regularly repaying the loan it raised to purchase Bipost.

Slowly but surely Cetis Zagreb is nearing its objective - to be the leading hybrid mail

centre in Croatia. The company possess the knowledge, the experience, the market and

the human resources, and is fully supported by the parent company and its wide range of

activities. The main business obstacle remains the current state of relations between

Slovenia and Croatia and a negative attitude towards anything Slovenian in government-

owned companies and state institutions in Croatia.

Naturally, the company is fully aware that in the dynamic business world of today, where

technological improvements are introduced daily, there is no time to relax. Good business

results without bold plans for the future and a constant positive pressure on everyone

involved can become obstacles of the future.

The company plans to continue its success with detailed market analyses and with

qualified employees, motivated to achieve the set objectives. This is the central concern of

Cetis Zagreb. Employees do not represent a cost, they represent added value. The

management of the company believes that a worker who is merely a cost does not belong

in the company.

2006 was marked by a change in cooperation with the parent company, which needed to

adapt its capabilities to the demand in the markets controlled by the Croatian subsidiary.

Representing the parent company‟s products and services in Croatia remains a permanent

task of the Croatian subsidiary. To improve its primary objective, the Croatian subsidiary

was divided into two profit centres. The Trade Profit Centre is acting as a representative of

foreign suppliers, while the Maling provides printing and enveloping services. The Mailing

PC recorded significant growth in 2006, while the Trade PC recorded a significant decrease

in sales. This is a warning to the parent company to adjust its product offer and operating

conditions.

The company constantly improves its business cooperation with Zagrebačka banka,

Privredna banka, Hypo-Slavonska banka, Optima, Telekom, T-mobil, Vindija, Atlantic

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

21

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.

22

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

23

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).

24

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

25

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

Off-balance sheet assets (liabilities) 5,645,903 5,817,767

46

CASH FLOW STATEMENT (IFRS) In SIT 1000

Achieved 2006 Achieved 2005

CASH FLOW FROM OPERATION

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

assets, deferred tax assets, assets earmarked for employee benefits, investment property

and biological assets that still need to be measured in accordance with the accounting

principles. Impairment losses incurred upon re-classification of assets to the assets held

for sale and subsequent losses upon a subsequent measurement are presented in Profit or

Loss Statement. Gains are not presented if the amount exceeds evtl. cumulative losses

owing to impairment.

i) Employee benefits

Short-term employee benefits

Obligations for short-term employee benefits are measured without discounting and are

stated among expenses after the work relating to certain short-term benefit has been

performed by the resp. employee.

j) Provisions

Provisions are recognised if the company has got legal or indirect obligations resulting

from a past transaction, which can be reliably measured and it is probable that an outflow

of resources embodying economic benefits will result from the settlement of the obligation.

The Company determines the provisions by discounting the projected future cash flows at

a set interest rate before taxation that shows the existing market estimates of the value of

money and risks, typical of that particular obligation.

58

Warranties for products and services The provision for warranties is shown at the sale of products or services for which the

warranty was given. The provision is made on the basis of historical data on the warranty,

taking into account all the potential outcomes and their probability.

Onerous contracts

A provision for the costs of onerous contracts is recognised when the unavoidable costs

involved in the fulfilment of the contractual obligations under this contract exceed the

expected economic benefits for the Company resulting from such contract. The provisions

are measured at the present value of the expected cost of termination, or of the estimated

costs involved in maintaining such contractual relationship, whichever is lower. Before

making the provision, the Company has to state any evtl. losses owing to impairment of

the assets value concerned under this contract.

Provisions made for termination benefits and years-of-service rewards

The Company is committed to the payment of years-of-service rewards and termination

benefits payable to employees upon retirement, as provided by law, the Collective

Agreement and internal implementing regulations as the case may be. There are no other

obligations for pension.

Provisions are made to the amount of estimated future payments for termination benefits

and years-of-service rewards and 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 is 4.5% p.a. and stands for the real interest rate; the

calculation was prepared for the projected unit by a certified actuary.

k) Revenues

Revenues from the sale of products

These revenues are recognised at the fair value of the payment received or the account

receivable from the buyer resp., deducted by any return, discounts and rebates for resale

and quantity-based discounts. The revenues are presented when the buyer has assumed

all the significant forms of risks and benefits arising from the possession of such an asset,

when there is a certainty for the collectability of the compensation or any costs related

thereto, or the option to return the products, or when the Company discontinues to decide

on the products sold.

The passage of risks and benefits depends on the provisions of the Sales Contract. Upon

the sale of goods, the transfer is effected, as a rule, after the goods reach the buyer‟s

warehouse. However, in some international transactions the passage of risk (transfer)

occurs at the time the goods are loaded on a means of transport.

Revenues from services supplied

In the Profit or Loss, the revenues from services supplied are recognised as income on the

basis of the stage of completion of work as of the reporting date. The stage of completion

of work is assessed in a review of the work performed.

59

Revenues from rentals

These revenues from investment property are recognised to the income earned by letting

out property during the lease term. The incentives relating to the rental are recognised as

an integral part of total revenues from rentals.

l) Financial revenues and expenses

Financial revenues comprise the interest revenues earned on investments, dividends,

revenues from disposal of the financial assets available for sale, the change in fair value of

financial assets at fair value through the profit or loss, exchange gains and profits

resulting from hedging instruments that are recognised in the profit or loss. Interest

revenues are measured at the time of their accrual, by applying the effective interest

method. Revenues from dividend are recognised in the Profit or Loss on the day when the

shareholder enforces his right to payment. In companies listed in a stock exchange, this is

the cut-off date on which the right to current dividend ceases to be connected with the

share, as a rule.

Financial expenses comprise the cost of lending, the dividends on preference shares that

are stated among the liabilities, foreign exchange losses, the change in the fair value of

financial assets at fair value through the Profit or Loss, the losses owing to impairment of

financial assets and the losses from hedging instruments that are recognised in the Profit

or Loss. The costs of lending are recognised at the effective interest method in the Profit

or Loss.

m) Tax on profit

The tax on profit or loss for the financial year comprises the assessed and deferred tax.

The tax on profit is shown in the Profit or Loss, except in the part in which it relates to the

items stated directly in the capital and is therefore recognised among the capital.

The assessed tax is the tax expected to be paid on the taxable income for the financial

year, at the applicable tax rates that are in force or essentially binding on the reporting

date, and evtl. adjustment of tax commitments in connection with the past financial years.

The deferred tax is presented according to the Balance Sheet liability method, taking into

account the temporary differences between the book value of the assets and the liabilities

for the needs of financial reporting, and the amounts for the tax reporting. The following

temporary differences are not comprised: Goodwill when it does not stand for a deductible

tax expense, initial recognition of assets or liabilities not affecting the accounting or

taxable profit, and the differences relating to investments in controlled companies and

jointly-controlled entities in the amount which will probably not be eliminated in the

foreseeable future. The deferred tax is shown in the amount expected to be paid upon

reversal of temporary differences, based on the applicable laws in force or essentially

binding on the reporting date.

A deferred tax asset is recognised to the extent in which it is probable that the future

taxable profit will be available, against which the deferred tax asset will be used in future.

Deferred tax assets are deducted by the amount for which a tax concession relating to the

asset is no longer probable to be granted.

60

Additional tax on profit resulting from the distribution of dividends is shown when the

liability for dividend payout is recognised.

n) Net earning per share

In ordinary shares, the Company is stating the basic earnings per share. The basic

earnings per share are calculated as net income or loss appertaining to the holders of

ordinary shares, divided by the weighted average number of ordinary shares in the year.

Reporting according to segments

A segment is an identifiable component of an entity that supplies products or services

(industry segment) or products and services in a specific economic environment

(geographical segment) and is subject to risks and returns different from those in other

segments. Reporting of the Group by segments is based on industry segments.

New standards and notes that are not effective yet

Numerous new standards, amendments and notes for the year ended at 31st December

2006 are not in force yet and were not taken into account in the preparation of financial

standards:

IFRS 7 Financial instruments: Disclosures and Amendment to IAS 1

Presentation of financial statements: Disclosures on capital: The standard will require

more comprehensive disclosures on the relevance of financial instruments for the financial

standing of the Group and its operations, and the qualitative and quantitative disclosures

on the nature and extent of particular types of risks. The IFRS 7 and the amended IAS 1

that will become binding on the Group preparing the financial statements for 2007, will

require more comprehensive, additional disclosures on financial instruments and share

capital of the Group.

IFRSIC 7 (IFRS Interpretations Committee), The use of Revaluation under

IAS 29 Financial Reporting in Hyperinflationary Economies:This Note relates to the

application of IAS 29 in the first year when a legal entity is aware of hyperinflation and in

particular in the accounting of deferred taxes. We do not expect IFRSIC 7, which will be

binding on the Group in the preparation of financial statements for 2007, to have any

influence on consolidated financial statements.

IFRSIC 8 The Scope of IRRS 2: Payment in shares: This Note applies to

payment transactions with shares in which the partial or full volume of goods or services

cannot be precisely defined. The Group will have to apply the IFRSIC 8 for the next

financial year (2007), and the Note shall apply retroactively.

The IFRSIC 9 Re-assessment of Embedded Derivative Financial Instruments:

The Note requires a re-assessment whether an embedded derivative financial instrument

has to be separated from the host contract if the contract was changed. We do not expect

IFRSIC 9, which will be binding on the Company in the financial statements for 2007, to

have any influence on consolidated financial statements.

IFRSIC 10 Interim Financial Reporting and Impairment forbids the reversal

of losses owing to impairment that was recognised in the preceding interim term relating

to goodwill, investment in capital instruments or financial assets stated at the procurement

61

value. The Company will have to apply the IFRSIC 10 for the presenting of goodwill,

investment in capital instruments and financial assets stated at the procurement value in

advance, commencing with the day when the Group has applied the measuring criteria

under the IAS 36 and IAS 39 for the first time (i.e. 1 January 2004).

Disclosures to the Cash Flow Statement

The Cash Flow Statement is drawn up according to the indirect method of reporting cash

flow from the data from Balance Sheet of 31 Dec. 2006 and the Balance Sheet of 31 Dec.

2005, and from the Profit or Loss Statement for 2006, as well as from additional data

required for the adjustment of inflows and outflows, and for the purpose of structuring the

more relevant items.

DISCLOSURES OF ITEMS IN FINANCIAL STATEMENTS

1. Revenues

(in thousand

SIT)

Sales structure according to type 2006 2005

Sale of products and services

in domestic market 4,206,133 4,168,046

Sale of products and services in foreign

markets 1,862,564 1,895,892

Sale of materials and merchandise

in domestic market 296,537 239,668

Sale of materials and merchandise

in foreign market 102,551 101,774

Total 6,467,785 6,405,380

in thousand

SIT

Sales revenues by industry segments 2006 2005

Security printed matter 1,514,134 1,166,432

Commercial printed matter 4,392,849 4,783,288

Other 560,802 455,660

Total 6,467,785 6,405,380

Net profit or loss – industry segment 2006 2005

Security printed matter -29,570 -137,311

Commercial printed matter -85,791 -563,085

Other -10,952 -53,640

Total -126,313 -754,036

'Other' in the Sales revenues comprises the revenues from the sale of materials and

merchandize and fixed assets.

62

Year 2006

in thousand

SIT Balance Sheet Items –

industry segments Security

printed matter Commercial

printed matter Other Total

Asset Items 2,799,718 8,122,888 1,036,888 11,959,494

Liabilities 1,094,240 3,174,746 405,257 4,674,243

Investments 62,930 182,581 23,306 268,817

Year 2005

Asset Items 2,102,448 8,622,231 820,890 11,545,569

Liabilities 841,807 3,452,288 328,679 4,622,774

Investments 77,245 316,786 30,160 424,191

2. Expenses

(in thousand

SIT) Cost as to natural type, changes in value of

inventories 2006 2005

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.

KIG KGA, proizvodnja, trgovina, inženiring, d.o.o., Zagorica 18, 1292 Ig, Slovenia.

The participation is measured at the procurement value.

Lotaria Nacionale SH.A Rruga Kavajes, Porta Kry Esore, Misto Mame, Tirana,

Albania. The participation is measured at the procurement value.

(in thousand SIT)

Structure according to type 2006 2005

La Societe Sationale des Loteries Sportives (SNLS),

Libreville,Gabon - 31% owned 11,327 11,327

KIG KGA, proizvodnja, trgovina, inženiring, d,o,o, - 50% owned 4,117

Lotaria Nacionale SH,A Rruga Kavajes, Porta Kry Esore, Misto

Mame, Tirana, Albania, 46,6% owned 1,812

Total 17,256 11,327

Changes in investments in associate enterprises

(in thousand SIT)

Procurement

value Net value

Balance as of 1 Jan 2006 11,327 11,327

Purchase 5,929 5,929

Balance as of 31,Dec 2006 17,256 17,256

70

11. Investments available for sale

(in thousand

SIT)

Structure according to years 2006 2005

Investments available for sale 3,345,434 3,071,702

Changes in investments

(in thousand SIT)

Procurement value Allowance

(Impairment) Net value

Balance as of 1 Jan 2005 1,652,129 1,652,129

Purchase 1,551,908 1,551,908

Sale

Change in Fair Value -91,226 41,109 -132,335

Balance as of 1 Jan 2006 3,112,811 41,109 3,071,702

Purchase 592,936 592,936

Sale 533,698 41,109 492,589

Change in Fair Value 173,385 173,385

Balance as of 31 Dec 2006 3,345,434 3,345,434

12. Loans granted

(in thousand SIT)

Structure according to type 2006 2005

Loans granted 312,342 158,438

This item comprises the loans granted to the associated company, employees for the

repurchase and development of residential facilities, and funds invested in long-term

bonds issued by a bank.

Changes in loans granted

(in thousand

SIT)

Procurement

value Allowance

(impairment) Net value

Balance as of 1 Jan 2005 181,899 181,899

Increases

Repayments 2,751 2,751

Transfer to short-term

loans 20,028 20,028

Exchange differences -682 -682

Balance as of 1 Jan 2006 158,438 158,438

Increases 184,632 184,632

Repayments 22,202 22,202

71

Transfer to short-term

loans 8,640 8,640

Exchange differences 114 114

Balance as of 31 Dec 2006 312,342 312,342

13. Deferred tax assets and liabilities for tax

(in thousand SIT)

Receivables Receivable

s Liabilities Liabilities Receivables - Liabilities

31 Dec

2006

31 Dec

2005

31 Dec

2006

31 Dec

2005

31 Dec

2006

31 Dec

2005

Investments 4,943 15,869 58,636 29,196 -53,693 -13,327

Receivables 11,601 13,378 11,601 13,378

Inventories 6,067 7,247 6,067 7,247

Provisions for

termination pay 58,888 80,795 58,888 80,795

Other provisions 4,148 4,148 Tax Loss 53,298 8,062 53,298 8,062

Total 138,945 125,351 58,636 29,196 80,309 96,155

For the deferred tax account, the Company has applied the Balance Sheet Liability Method

and included the temporary differences between the tax base of a particular asset or

liability and its book value in the Balance Sheet. The 23% tax rate was used except in tax

loss, where the Company applied the tax rate ranging from 20% to 23% in view of

utilising the tax loss over the coming years.

The tax base for deferred tax liabilities is the surplus from the revaluation of investments

available for sale and measured at the fair value through profit or loss.

In deferred tax assets, the tax base equals to the provisions made for years-of-service

rewards and termination benefits on retirement, tax loss and temporary differences in the

tax on profit account in investments, receivables, inventories and other provisions that will

be recognised as tax deductible in subsequent periods.

The Company has recognised deferred tax assets for the tax loss based on the estimate

that in the coming years taxable profits will be available, against which the deferred tax

asset will be used in future.

In the years when the Company will be utilising the tax loss, the decrease in deferred tax

assets will mean an adequate decrease of profit.

The balance of investment tax concessions amounts to SIT 146,460,000 and an unused

tax loss of SIT 247,900,000.

Changes in temporary differences in 2005

(in thousand

SIT)

72

1 Jan

2005

Recognised under

revenues /

expenses Recognised in

capital 31 Dec 2005

Investments -49,763 18,440 17,996 -13,327

Receivables 13,378 13,378

Inventories 7,247 7,247

Provisions for termination

pay, other 85,494 -4,699 80,795

Tax Loss 8,062 8,062

Total 35,731 42,428 17,996 96,155

Changes in temporary differences in 2006

(in thousand

SIT)

1 Jan

2006

Recognised under

revenues /

expenses Recognised in

capital 31 Dec 2006

Investments -13,327 -1,315 -39,052 -53,694

Receivables 13,378 -1,776 11,602

Inventories 7,247 -1,180 6,067

Provisions for termination

pay, other 80,795 -21,907 58,888

Other provisions 4,148 4,148

Tax Loss 8,062 45,236 53,298

Total 96,155 23,206 -39,052 80,309

73

14. Inventories

(in thousand

SIT)

Structure according to type 2006 2005

Materials 480,623 444,894

Work in process 214,425 166,938

Products 126,242 127,712

Merchandise 2,003 14,372

Total 823,293 753,916

For the year 2006, the Company has written off the assets that were no longer usable,

amounting to SIT 38,929,000.

The surplus recorded came to SIT 3,660,000, primarily in materials, and deficit recorded

came to SIT 512,000 in materials.

A material inventory is such that exceeds in its value 30% of all inventories, provided that

such inventory stands for at least 3% of the value of all assets.

Allowance for inventory is determined according to inventory type and movement. No new

allowances had to be made other than those made in the past periods. In examining the

inventories in the stores accommodating items under complaint, the inventories of

materials, products and merchandise that did not show any movement for more than 12

months, the Company followed the same principles as in the preceding years.

The increase in inventories of materials and work in progress can be attributed to bigger

purchases of materials and to commercial decisions relating to sales.

15. Short-term financial investments at fair value

(in thousand

SIT)

Structure according to years 2006 2005

Short-term investments 440,690 462,322

Total 440,690 462,322

All the short-term investments directly affecting the profit or loss are securities (shares)

and investments in mutual funds dealing with securities listed or traded in organized

markets.

74

16. Short-term loans

(in thousand

SIT)

Structure according to years 2006 2005

Current portion of long-term loans 8,639 20,027

Total 8,639 20,027

17. Receivables due from tax on profit

(in thousand

SIT)

Structure according to years 2006 2005

Receivable due from tax on profit 67,465

Total 67,465

As a result of the loss in 2005 and overpaid advances for tax, the Company received

a refund of SIT 67,465,000 in 2006.

18. Operating and other receivables

(in thousand SIT)

Structure according to type 2006 2005

Short-term trade receivables 1,023,473 981,934

Short-term operating receivables due from group

members 67,877 107,575

Short-term operating receivables due from associates 96,471 34,707

Short-term operating receivables due from others 214,393 101,900

Short-term advances given 5,775 2,057

Total 1,407,989 1,228,173

After the initial recognition, receivables of all types are stated in the amounts as taken

from the underlying documents, under the assumption of being settled in due time. The

original (historical) receivables may be increased at a later time or - irrespective of the

payment received or any other method of settlement – reduced by any amount agreed in

the contract.

The short-term deferred expenses for royalties, registrations, security and other, and

short-term accrued revenues are recorded under other receivables on the ground of

transition to another accounting term.

Advances given for any item receivable shall be shown in the Balance Sheet with the item

they relate to. Advances given for tangible fixed assets are stated in the same group as

75

tangible fixed assets, whereas the advances given for current assets are shown under

Inventories.

Any receivables in which the settlement within due date or in full amount is questionable

are regarded as doubtful receivables; after a court action was initiated, they are regarded

as disputable receivables.

The allowance for receivables is based on the assessment of the collectability of each

particular receivable in question. The basis for the allowance are receivables outstanding

for 90 days after due date. The average allowance for trade receivables amounts to 0.8%

of net sales revenues and rose by 0.1% over the year 2005. Of all short-term trade

receivables:

- The amount due for payment is SIT 189,537,000,

- The amount not due yet is SIT 896,721,000.

When the writeoff of the receivable is based on a document, it is debited to the allowance

made for receivables.

All receivables expressed in foreign currency are to be translated into the national

currency at the mean rate of the Banka Slovenije.

A material receivable is such that exceeds in its value 30% of all receivables, provided that

such account receivable stands for at least 3 % of the value of all assets as of the Balance

Sheet Date.

The Company is selling most of its products and services on an open account, and the

receivables are not secured.

Short-term operating receivables due from others include the contract-based financing of

direct liabilities of the associated company, amounting to SIT 162,610,000.

19. Cash and cash equivalents

(in thousand

SIT)

Structure according to type 2006 2005

Cash in banks, cheques and cash in hand 37,821 22,216

Deposits in banks 137,000 10,000

Total 174,821 32,216

20. Capital

Total capital consists of issued capital stock, the paid-in capital surplus, legal and statutory

reserves, retained net profit or loss, own shares as a capital decrease, and the reserve for

fair value. The register of KDD (Clearing Depository Company (KDD)) holds 200,000 no-

par value shares.

In 2006, the Company did not acquire own shares. As of 31st December 2006, the

Company owns 201 shares designated CETG.

76

The reserve for fair value was increased due to the growth of the value of investments

available for sale on the stock exchange.

Addendum to the Statement of Changes in Equity

(in thousand

SIT)

ITEM 2006 2005

A. NET PROFIT OR LOSS FOR THE FINANCIAL YEAR 227,968 B. NET LOSS OF THE FINANCIAL YEAR -651,973

C. NET LOSS CARRIED FORWARD -197,473

D. REVERSAL OF CAPITAL RESERVES 61,937

E. REVERSAL OF REVENUE RESERVES (1 to 3) 396,547

1. Reversal of legal and statutory reserves 207,729

2. Reversal of other revenue reserves 188,818

F. INCREASE IN REVENUE RESERVES (1 to 2) 4,139

1. Allocation to reserves for own shares 4,139

2. Allocation to statutory reserves

H. ACCUMULATED PROFIT/LOSS (A+B+C+D+E-F), 30.495 -197,628

Accumulated profit amounted to SIT 30,494,854.66. It was calculated as the difference

between net profit of 2006 in the amount of SIT 227,968 thousand and covered retained

net loss from 2005 in the amount of SIT 197,473 thousand (effects of the use of actuarial

calculations and provisions for employee jubilee awards and severance pay upon the

transition to IFRS).

The General Meeting of Shareholders shall decide on the use of the accumulated profit for

2006 based on a proposed resolution by the Management and Supervisory Boards. The

following allocation of the accumulated profit for 2006 in the amount of SIT 30,494,854.66

shall be proposed to the General Meeting of Shareholders of the Company for approval:

- director's fees to the Supervisory Board in the net amount of SIT 3,522,708 (EUR

14,700),

- with the remainder of the accumulated profit allocated to retained earnings.

21. Net earning (loss) per share

2006 2005

Net profit (loss) in thousand SIT 227,968 -651,973

Weighted average number of ordinary shares 199,799 199,816

Net profit (loss) per share in SIT 1,140,99 -3,262,87

The net profit (loss) per share is calculated as a ratio between basic net income or loss

and the denominator standing for a weighted average number of shares.

22. Loans received

Loans received comprise long-term loans and short-term loans, with the current portion of

the long-term loans.

77

Long-term loans received

(in thousand SIT)

Structure according to years 2006 2005

Loans from banks 1,902,793 2,100,163

The biggest loan is the loan raised to finance the long-term financial investment

amounting to EUR 6,400,000 with a term of payment of 7 years.

Čisti dobiček (izguba na delnico) je izračunan tako, da se osnovni čisti dobiček oziroma

izguba deli z imenovalcem, ki ga predstavlja tehtano poprečno število delnic.

Short-term loans received

(in thousand

SIT)

Structure according to type 2006 2005

Current portion of long-term loans from banks, due in one

year 537,506 281,049

Short-term loans from banks 350,017 350,006

Short-term loans received from others 10,000 159,000

Total 897,523 790,055

Guarantees granted

The guarantees granted are shown in Off-balance sheet assets/ liabilities.

Repayment of loans

(in thousand

SIT)

Structure according to type

2006 -

Total

repayment

s Interest

2006 The principal

2006

Short-term loans up to one year 922,583 24,525 898,058

Long-term loans taken for the term 3 - 7 years 373,428 92,203 281,225

Total 1,296,011 116,728 1,179,283

in thousand

SIT

Structure according to type

2005 -

Total

repayment

s Interest

2005 The principal

2005

Short-term loans up to one year 624,654 12,654 612,000

78

Long-term loans taken for the term 3 - 7 years 529,509 31,203 498,306

Total 1,154,163 43,857 1,110,306

23. Provisions

(in thousand

SIT)

Structure according to type 2006 2005

For seller's warranties 30,111 32,354

For legal action 94,763 97,852

For other purposes 2980

For years-of-service awards and termination pay 256,035 323,181

Total 383,889 453,387

The Company has examined the provisions made, taken into account the corrections and

decreased the overall amount of provisions for long-term deferred expenses and the

provisions for long-term accrued expenses.

The bases for the provisions are the contracts, legal bases and expert opinions.

The provisions for guarantees given upon the sale of certain products and services were

made on the basis of risk assessment for complaints, in percentage of the revenues. The

proportional amount of provisions made for the reporting year was reversed.

Provisions made for termination benefits and years-of-service rewards

The layoffs resulted in a decrease of provisions amounting to SIT 67,146,000 on the basis

of the calculation for each employee by applying the projected unit prepared by the

certified actuary.

24. Operating and other liabilities

(in thousand

SIT)

Structure according to type 2006 2005

Short-term operating liabilities to suppliers 999,583 962,194

Short-term operating liabilities arising from advances 175,659 55,948

Short-term liabilities to employees 163,862 114,584

Short-term liabilities to state and other institutions 64,714 48,492

Other short-term liabilities 27,584 68,755

Total 1,431,402 1,249,973

Other liabilities comprise the accrued costs and short-term deferred revenues.

The bases are the original (historical) documents that define an event in terms of time and

substance.

79

25. Fair Value

Overview of assets and liabilities at fair and book value

(in thousand SIT)

Explanatory Note

Book value

as at 31

Dec 2006

Fair value

as at 31

Dec 2006

Book value

as at 31

Dec 2005

Fair value

as at 31

Dec 2005

Investments available for sale 3,345,434 3,345,434 3,071,702 3,071,702

Loans granted 312,342 312,342 158,438 158,438

Operating and other

receivables 1,407,989 1,407,989 1,228,173 1,228,173

Investments at fair 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

2. Intangible fixed assets 105,875 105,875 60,653 60,653

4. Investments in Group members 102,664 -15,793 86,871 487,258 -36,592 450,666

5. Investments in associate enterprises 11,239 87 11,326

6. Investments available for sale 1,993,925 -341,796 1,652,129 3,417,239 -345,537 3,071,702

Investments in own shares 2,249 -2,249 6,231 -6,231

7. Loans granted 181,899 181,899 158,438 158,438

8. Deferred receivables from taxes 85,495 85,495 44,556 80,795 125,351

SA, Total long-term assets 8,013,990 -274,343 7,739,647 9,288,928 -307,478 8,981,450

1. Inventories 938,829 -5,007 933,822 755,973 -2,057 753,916

2. Short-term financial investments at fair value through profit or loss 540,851 540,851 462,322 462,322

3. Short-term loans 397,861 -361,000 36,861 30,027 -10,000 20,027

4. Receivables due from tax on profit 67,465 67,465

5. Operating and other receivables 1,306,613 41,410 1,348,023 1,186,799 41,374 1,228,173

6. Cash and cash equivalents 25,037 361,000 386,037 22,216 10,000 32,216

8. Deferred costs and accrued revenues 36,403 -36,403 39,317 -39,317

SB, Total short-term assets 2,704,743 540,851 3,245,594 2,101,797 462,322 2,564,119

S, Total ASSETS 10,718,733 266,508 10,985,241 11,390,725 154,844 11,545,569

CAPITAL AND LIABILITIES

A. CAPITAL

1. Issued capital 2,400,000 2,400,000 2,400,000 2,400,000

2. Paid-in capital surplus 592,787 3,748,972 4,341,759 530,850 3,748,972 4,279,822

3. Legal and Statutory reserves 617,340 617,340 409,611 409,611

Other reserves 268,396 -268,396 6,231 -6,231

4. Own shares -2,249 -2,249 -6,231 -6,231

5. Retained earnings 290,132 60,435 350,567 24,664 -216,061 -191,397

6. Reserve for fair value 84,977 84,977 30,990 30,990

7. General equity revaluation adjustment 3,748,972 -

3,748,972 3,748,972 -3,748,972

Total capital 7,917,627 -125,233 7,792,394 7,120,328 -197,533 6,922,795

B. LIABILITIES

1. Loans received 493,702 493,702 2,100,163 2,100,163

4. Provisions 156,965 341,977 498,942 130,206 323,181 453,387

5. Deferred liabilities for tax 49,764 49,764 29,196 29,196

a) Long-Term Liabilities 650,667 391,741 1,042,408 2,230,369 352,377 2,582,746

2. Loans received 714,418 714,418 790,055 790,055

3. Operating and other liabilities 1,403,649 32,372 1,436,021 1,204,849 45,124 1,249,973

85

6. Accrued costs and deferred revenues 32,372 -32,372 45,124 -45,124

b) Short-term liabilities 2,150,439 2,150,439 2,040,028 2,040,028

TOTAL LIABILITIES 2,801,106 391,741 3,192,847 4,270,397 352,377 4,622,774

KO, Total CAPITAL AND LIABILITIES 10,718,733 266,508 10,985,241 11,390,725 154,844 11,545,569

INCOME STATEMENT FOR THE YEAR 2006 – SRS to IFRS Adjustment

(in thousand

SIT)

SRS Differenc

e IFRS

1. REVENUES 6,379,105 26,275 6,405,380

2. Cost of sold products -324,286 -324,286

3. Manufacturing costs -4,913,296 -4,913,296

4. Cost of sold products and

manufacturing costs -5,237,582 -5,237,582

A. GROSS PROFIT 1,141,523 26,275 1,167,798

5. Other (operating) revenues 137,570 18,884 156,454

6. Selling costs -1,132,873 -26,275 -1,159,148

7. General and administrative costs -787,395 -787,395

8. Other (operating) expenses -131,745 -131,745

= total (5+6+7+8) -1,914,443 -7,391 -1,921,834

B. OPERATING PROFIT OR LOSS

EXCL, COST OF FINANCING -772,920 18,884 -754,036

9. Financing revenues 193,828 8,650 202,478

10. Financing expenses -117,795 -25,048 -142,843

C. Net income from financing 76,033 -16,398 59,635

D. Profit or Loss before tax -696,887 2,486 -694,401

12.b Deferred Tax 44,555 -2,127 42,428

Profit/Loss (from operating) of

financial year -652,332 359 -651,973

The total differences between the IFRS and SRS values amount to SIT 359,000, or

better by 0.05%.

86

The differences in revenues amounting to SIT 26,275 relate to the use and formation

of the provisions for seller‟s warranties. In the past, SRS required to present the

seller's warranties as Decreased revenues.

Other operating revenues result from the decreased provision for years-of-service

rewards and termination benefits.

The selling costs are attributed to the formation of provisions.

The financing revenues reveal the effect of investment revaluation.

The financing expenses show the effect of investment revaluation at fair value to cost

price (procurement value), arising from foreign exchange differences in investments.

The accounted lower deferred tax asset amounting to SIT 2,127,000 goes back to the

change in provisions for termination pay and years-of-service rewards, and decreased

fair value of investments through profit or loss.

Other disclosures

Disclosures according to groups of persons: Members of the Management Board,

Supervisory Board and staff employed under individual service contracts.

The total receipts received by the groups of persons for the provision of their

functions, or performing of tasks assigned:

- Management Board SIT 23,579,000

- Other staff employed under individual service contract (10 persons) 133,243,000,

- Supervisory Board SIT 3,277,000.

Balance of liabilities for dedicated loans granted by the Company to persons from

these groups, at the 2006 year-end: SIT 2,140,000.

The amount of repaid loans in 2006 came to SIT 912,000.

87

5.FINANCIAL REPORT OF THE CETIS GROUP

Auditor’s report

88

CONSOLIDATED INCOME STATEMENT

in thousand SIT

Explanatory Note

2006 2005

1 REVENUES 1 7.670.128 7.425.873

2 Cost of sold products -871.074 -784.014

3 Manufacturing costs -4.775.110 -5.077.917

4 Cost of sold products and manufacturing costs 2 -5.646.184 -5.861.931

A. GROSS PROFIT 2.023.944 1.563.942

5 Other operating revenues 3 298.129 186.197

6 Selling costs 2 -1.458.777 -1.440.808

7 General and administrative costs 2 -817.075 -886.969

8 Other operating expenses 2 -106.827 -148.574

= Other revenues, expenses and costs (5+6+7+8) -2.084.550 -2.290.154

B. OPERATING PROFIT OR LOSS EXCL. COST OF FINANCING -60.606 -726.212

9 Financing revenues 4 443.803 209.425

10 Financing costs 4 -160.480 -157.445

C. NET FINANCING COSTS 283.323 51.980

D. PROFIT OR LOSS BEFORE TAX 222.717 -674.232

a) Tax expenses 5 -5.427 -4.234

b) Deferred tax 5 22.054 43.034

12 Tax expenses 5 16.627 38.800

E. PROFIT AFTER TAX (NET INCOME) 239.344 -635.432

Net profit (loss) per share (in SIT) 20 1.197,92 -3.180,08

89

CONSOLIDATED BALANCE SHEET AS OF 31.12.2006

in thousand

SIT

Explanatory Note

31.12.2006 31.12.2005

ASSETS

1 Land and buildings, plant and machinery 7 5.174.084 6.442.661

2 Intangible fixed assets 8 358.497 62.259

5 Investments in associate enterprises 9 17.256 11.239

6 Investments available for sale 10 3.346.689 3.073.665

7 Loans granted 11 312.342 158.438

8 Deferred receivables from taxes 12 139.250 97.612

SA. Total Long-term assets 9.348.118 9.845.874

1 Inventories 13 897.448 871.866

2 Short-term financial investments at fair value 14 440.690 462.322

3 Short-term loans 15 8.639 32.374

4 Receivables due from tax on profit 16 67.465

5 Operating and other receivables 17 1.604.417 1.593.826

6 Cash and cash equivalents 18 253.256 102.135

SB. Total short-term assets 3.204.450 3.129.988

S. TOTAL ASSETS 12.552.568 12.975.862

CAPITAL AND LIABILITIES

1 Issued capital stock 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 EARNINGS 75.896 -165.183

5 Own shares -6.231 -6.231

6 Reserve for fair value 165.323 32.102

KO.A Total capital 19 7.324.421 6.950.121

1 Loans received 21 2.207.186 3.040.828

4 Provisions 22 385.215 467.405

5 Deferred liabilities for taxes 12 58.636

KO.B.a) Total Long-term Liabilities 2.651.037 3.508.233

2 Loans received 21 960.060 900.647

3 Operating and other liabilities 23 1.617.050 1.616.861

KO.B.b) Total Short-term Liabilities 2.577.110 2.517.508

KO.B TOTAL LIABILITIES 5.228.147 6.025.741

KO. TOTAL CAPITAL AND LIABILITIES 12.552.568 12.975.862

Off-balance sheet assets (liabilities) 5.645.903 5.817.767

90

CONSOLIDATED CASH FLOW STATEMENT

in thousand

SIT

2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES

Profit or Loss for the financial year 239.345 -635.432

Adjustments: 742.665 1.081.821

Depreciation of real property, plant and equipment 904.655 982.638

Amortisation of intangible fixed assets 45.754 59.329

(Elimination of) loss owing to impairment 18.954 72.028

Foreign exchange losses 7.954 6.186

Revenues from investing activities -252.198 -95.561

Financing expenses 122.401 132.323

Revenues from real property, plant and equipment -6.138 -5.715

Revenues from reversal of long-term provisions -98.717 -69.407

OPERATING PROFIT BEFORE CHANGES TO NET CURRENT ASSETS AND PROVISIONS

982.010 446.389

Change in operating and other receivables -187.298 -387.070

Change in inventories -22.306 81.116

Change in operating and other liabilities -49.206 326.967

Change in provisions and employee benefits 16.528 34.463

CASH GENERATED IN OPERATING ACTIVITIES -242.282 55.476

Interest paid -19.848 -57.679

Tax on profit paid -184.065

NET CASH FLOWS FROM OPERATING ACTIVITIES 719.880 260.121

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from the sale of real property, plant and equipment 64.280 38.089

Proceeds from the sale of investments 252.198 95.561

Interest received 20.429 26.260

Dividends received 73.892 63.804

Expenses for acquisition of real property, plant & equipment 389.413 -1.822.086

Expenses for other investments -253.245 -1.383.290

Expenses for acquisition of intangible fixed assets -341.992 -15.713

NET CASH FLOWS FROM OPERATING ACTIVITIES 204.975 -2.997.375

CASH FLOWS FROM FINANCING ACTIVITIES

Redemption of own shares and shareholdings -4.139

Changes in equity 622 -159.500

Raising loans 1.089.506 3.843.218

Repayment of loans -1.863.735 -1.116.049

Dividends paid -127 -155.990

NET CASH FLOWS FROM FINANCING ACTIVITIES -773.734 2.407.540

Net increase in cash and cash equivalent 151.121 -329.714

Cash and cash equivalents at beginning of period 102.135 431.849

CASH AND CASH EQUIVALENTS AT END OF PERIOD 253.256 102.135

91

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

in thousand

SIT

Issued capital stock

Capital reserves

Legal and Statutory reserves

Own shares

RETAINED EARNINGS

Reserve for fair value

Total capital

Balance as of 1 Jan 2005 2.400.000 4.341.759 617.340 -2.249 295.770 149.291 7.801.911

Change to Accounting principles Cetis,d.d.

64.313 -64.313

Loss 2005 -635.432 -635.432

Loss cover -61.937 -207.729 269.666

Dividend and remuneration payout

-159.500 -159.500

Decrease of Fair Value -52.876 -52.876

Acquisition of own shares -3.982 -3.982

Balance as of 31 December 2005

2.400.000 4.279.822 409.611 -6.231 -165.183 32.102 6.950.121

Profit 2006 239.344 239.344

Exchange differences CETIS ZG, IPI, BS

1.580 1.580

Dividends for own shares 155 155

Increase in Fair Value 133.221 133.221

Balance as of 31 December 2006

2.400.000 4.279.822 409.611 -6.231 75.896 165.323 7.324.421

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.

100

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.

101

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

inventories, financial assets, deferred tax assets, assets earmarked for employee benefits,

investment property and biological assets that still need to be measured in accordance

with the accounting principles. Impairment losses incurred upon re-classification of assets

to the assets held for sale and subsequent losses upon a subsequent measurement are

presented in the Profit or Loss. Gains are not presented if the amount exceeds evtl.

cumulative losses owing to impairment.

h) Employee benefits

Short-term employee benefits

Obligations for short-term employee benefits are measured without discounting and are

stated among expenses after the work relating to certain short-term benefit has been

performed by the resp. employee.

i) Provisions

Provisions are recognised if the Group has got legal or constructive obligations resulting

from a past event/transaction, which can be reliably measured and it is probable that an

outflow of resources embodying economic benefits will result from the settlement of the

obligation. The Group determines the provisions by discounting the projected future cash

flows at a set interest rate before taxation that shows the existing market estimates of the

value of money and risks, typical of that particular obligation.

Warranties for products and services

The provision for warranties is shown at the sale of products or services for which the

warranty was given. The provision is made on the basis of historical data on the warranty,

taking into account all the potential outcomes and their probability.

102

Onerous contracts

A provision for the costs of onerous contracts is recognised when the unavoidable costs

involved in the fulfilment of the contractual obligations under this contract exceed the

expected economic benefits for the Group resulting from such contract. The provisions are

measured at the present value of the expected cost of termination or of the estimated

costs involved in maintaining such contractual relationship, whichever is lower. Before

making the provision, the Group has to state any evtl. losses owing to impairment of the

assets value concerned under this contract.

Provisions made for termination benefits and years-of-service rewards

The Group is committed to pay years-of-service rewards and termination benefits payable

to employees upon retirement, as provided by law, the Collective Agreement and internal

implementing regulations as the case may be. There are no other obligations for pension.

Provisions are made to the amount of estimated future payments for termination benefits

and years-of-service rewards and 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 is 4.5% p.a. and stands for the real interest rate; the

calculation was prepared for the projected unit by a certified actuary.

j) Revenues

Revenues from the sale of products

These revenues are recognised at the fair value of the payment received or the account

receivable from the buyer resp., deducted by any return, discounts and rebates for resale

and quantity-based discounts. The revenues are presented when the buyer has assumed

all the significant forms of risks and benefits arising from the possession of such an asset,

when there is a certainty for the collectability of the compensation or any costs related

thereto, or the option to return the products, or when the Group no longer decides on the

products sold.

The passage of risks and benefits depends on the provisions of the sales contract. Upon

the sale of goods, the transfer is effected, as a rule, after the goods reach the buyer‟s

warehouse, however, in some international transactions the passage of risk (transfer)

occurs at the time the goods are loaded on a means of transport.

Revenues from services supplied

In the Profit or Loss, the revenues from services supplied are recognised as income on the

basis of the stage of completion of work as of the reporting date. The stage of completion

of work is assessed in a review of the work performed.

Revenues from rentals

These revenues from investment property are recognised to the income earned by letting

out property during the lease term. The incentives relating to the rental are recognised as

an integral part of total revenues from rentals.

103

k) Financial revenues and expenses

Financial revenues comprise the interest revenues earned on investments, dividend,

revenues from disposal of the financial assets available for sale, the change in fair value of

financial assets at fair value through the Profit or Loss, exchange gains and profits

resulting from hedging instruments that are recognised in the profit or loss. Interest

revenues are measured at the time of their accrual, by applying the effective interest

method. Revenues from dividend are recognised in the Profit or Loss on the day when the

shareholder enforces his right to payment: In companies listed in a stock exchange, this is

the cut-off date on which the right to current dividend ceases to be connected with the

share, as a rule.

Financial expenses comprise the cost of lending, the dividends on preference shares that

are stated among the liabilities, foreign exchange losses, the change in the fair value of

financial assets at fair value through the Profit or Loss, the losses owing to impairment of

financial assets and the losses from hedging instruments that are recognised in the Profit

or Loss. The costs of lending are recognised at the effective interest method in the Profit

or Loss.

l) Tax on profit

The tax on profit or loss for the financial year comprises the assessed and deferred tax.

The tax on profit is shown in the Profit or Loss, except in the part in which it relates to the

items stated directly in the capital and is therefore recognised among the capital.

The assessed tax is the tax expected to be paid on the taxable income for the financial

year, at the applicable tax rates that are in force, or essentially binding on the reporting

date, and evtl. adjustment of tax commitments in connection with the past financial years.

The deferred tax is presented at the Balance Sheet liability method, taking into account

the temporary differences between the book value of the assets and liabilities for the

needs of financial reporting, and the amounts for the tax reporting. The following

temporary differences are not comprised: Goodwill when it does not stand for a deductible

tax expense, initial recognition of assets or liabilities not affecting the accounting or

taxable profit, and the differences relating to investments in controlled companies and

jointly-controlled entities in the amount which will probably not be eliminated in the

foreseeable future. The deferred tax is shown in the amount expected to be paid upon

reversal of temporary differences, based on the applicable laws in force or essentially

binding on the reporting date.

A deferred tax asset is recognised to the extent in which it is probable that the future

taxable profit will be available, against which the deferred tax asset will be used in future.

Deferred tax assets are deducted by the amount for which a tax concession relating to the

asset is no longer probable to be granted.

Additional tax on profit resulting from the distribution of dividend is shown when the

liability for dividend payout is recognised.

104

m) Net earning per share

In ordinary shares, the Group is stating the basic earnings per share. The basic earnings

per share are calculated as net income or loss appertaining to the holders of ordinary

shares, divided by the weighted average number of ordinary shares in the year.

Reporting according to segments

A segment is an identifiable component of an entity that supplies products or services

(industry segment), or products and services in a specific economic environment

(geographical segment) and is subject to risks and returns different from those in other

segments. Reporting of the Group by segments is based on industry segments.

New standards and notes that are not effective yet

Numerous new standards, amendments and notes for the year ended at 31st December

2006 are not in force yet and were not taken into account in the preparation of financial

standards:

IFRS 7 Financial Instruments: Disclosures and Amendment to IAS 1

Presentation of Financial Statements: Capital Disclosures: The standard will require more

comprehensive disclosures on the significance of financial instruments for the financial

position and performance of the Group, and the qualitative and quantitative disclosures on

the nature and extent of particular types of risks. The IFRS 7 and the amended IAS 1 that

will become binding on the Group preparing the financial statements for 2007 will require

more comprehensive, additional disclosures on financial instruments and share capital of

the Group.

IFRSIC 7: The use of Revaluation under IAS 29 Financial Reporting in

Hyperinflationary Economies: This interpretation relates to the application of IAS 29 in the

first year when an entity is aware of hyperinflation and in particular in the accounting of

deferred taxes. We do not expect the requirements by IFRSIC 7 that will be binding on the

Group in the preparation of financial statements for 2007 to have any influence on

consolidated financial statements.

IFRSIC 8 The Scope of IFRS 2: Share-based payment: This interpretation

applies to payment transactions with shares in which the partial or full volume of goods or

services cannot be precisely defined. The Group will have to apply the IFRSIC 8 for the

next financial year (2007), and the interpretation shall apply retroactively.

The IFRSIC 9 Reassessment of Embedded Derivatives: The interpretation

requires a reassessment whether an embedded derivative has to be separated from the

host contract if the contract was changed. We do not expect the requirements by IFRSIC 9

that will be binding on the Group‟s financial statements for 2007 to have any influence on

consolidated financial statements.

IFRSIC 10 Interim Financial Reporting and Impairment forbids the reversal

of losses owing to impairment that was recognised in the preceding interim term relating

to goodwill, investment in capital instruments or financial assets stated at the procurement

value. The Group will have to apply the IFRSIC 10 for the presenting of goodwill,

investment in capital instruments and financial assets stated at the procurement value in

105

advance, commencing with the day when the Group has applied the measuring criteria

under the IAS 36 and IAS 39 for the first time (i.e. 1 January 2004).

Disclosures to the Cash Flow Statement

The Cash Flow Statement is drawn up according to the indirect method of reporting cash

flow from the data from Balance Sheet of 31 Dec. 2006 and the Balance Sheet of 31 Dec.

2005, and from the Profit or Loss Statement for 2006, as well as from additional data

required for the adjustment of inflows and outflows, and for the purpose of structuring the

more relevant items.

DISCLOSURES OF ITEMS OF THE INCOME STATEMENT

1. Revenues

in thousand

SIT

Sales structure according to type 2006 2005

Sale of products and services in domestic market 4,206,133 4,168,606

Sale of products and services in foreign markets 2,291,623 2,654,826

Sale of materials and merchandise in domestic market 296,537 239,668

Sale of materials and merchandise in foreign markets 875,835 362,774

Total 7,670,128 7,425.873

Geographical segments

in thousand

SIT

EU Rest of the

world Group

2006 2005 2006 2005 2006 2005

Net sales revenues from third party 5.744,695 5,690,777 1,925,433 1,735,096 7,670,128 7,425,873

Operating Profit or Loss -101,876 -721,235 41,271 -4,977 -60,605 -726,212

NET FINANCIAL RESULT 283,323 51,980

Tax on profit 16,627 38,800

Net Profit or Loss for the current period 239,345 -635,432

TOTAL ASSETS 10,913,794 10,371,656 1,638,774 2,604,206 12,552,568 12,975,862

TOTAL LIABILITIES 4,605,212 4,448,440 622,935 1,577,301 5,228,147 6,025,741

Investments 268,817 424,191 28,215 1,378,759 297,032 1,802,950

Industry Segments

in thousand

SIT

Security printed matter Commercial printed matter Other Total

2006 2005 2006 2005 2006 2005 2006 2005

106

Net sales revenue from third party 1,514,134 1,166,432 5,595,192 5,803,781 560,802 455,660 7,670,128 7,425,873

Operating Profit or Loss -29,570 -137,311 -20,083 -535,261 -10,952 -53,640 -60,605 -726,212 NET FINANCIAL RESULT 283.323 51.980

Tax on profit 16,627 38,800

Net Profit or Loss for the curr.period 239,345 -635,432

TOTAL ASSETS 2,799,718 2,102,448 8,715,962 10,052,524 1,036,888 820,890 12,552,568 12,975,862 TOTAL LIABILITIES 1,094,240 841,807 3,728,650 4,855,255 405,257 328,679 5,228,147 6,025.741

Investments 62,930 77,245 210,796 1,695,545 23,306 30,160 297,032 1,802,950

'Other' in the Sales revenues comprises the revenues from the sale of materials and

merchandize and fixed assets.

2. Expenses

in thousand

SIT

Cost as to natural type, changes in value of

inventories 2006 2005

Cost of merchandise and materials sold 871,074 784,014

Cost of materials used, and services 4,024,018 4,107,535

Labour cost 2,038,839 2,064,562

Depreciation 950,366 1,041,967

Other operating expenses 174,316 261,909

Change in inventories of finished products,

Work in progress and semi-manufactures -29,750 78,295

Total (operating) expenses 8,028,863 8,338,282

Labour cost

in thousand

SIT

2006 2005

Wages and salaries, gross 1,419,535 1,434,266

Cost of pension insurance 167,657 191,990

Other social security cost 107,414 100,203

Other labour cost 344,233 338,103

Total labour cost 2,038,839 2,064,562

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

107

expenses for meals, travel, holiday allowance, termination benefits on retirement, and the

tax on wages/salaries paid.

The Parent 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 wage for

the same purpose. The Company paid SIT 55,173,000 to this purpose in the preceding

year, under the same terms.

3. Other operating revenues

in thousand

SIT

Breakdown of other income 2006 2005

Profit from the sale of fixed assets 9,652 5,715

Reversal of impairment of tangible fixed assets 19,353 0

Revenues from reversal of provisions 103,219 53,033

Capitalised own products and/or services 63,308 0

Elimination of revaluation of trade receivables and

inventories 28,738 4,278

Refunds for damages, subsidies and grants received 22,013 25,131

Other 51,846 98,040

Total 298,129 186,197

108

4. Net income (expenses) from financing

(in thousand

SIT)

2006 2005

Interest revenues 29,351 20,603

Revenues from dividend and other participation in profit 73,887 63,804

Foreign exchange gains 1,239 19,239

Revenues from the sale of financial investments 236,980 95,561

Other financial revenues 4,123 1,515

Change of fair value of financial instruments 97,223 8,649

Total financing revenues 443,803 209,425

Interest expenses 146,853 67,207

Foreign exchange losses 9,220 6,187

Expenses from the sale of financial investments 483 96

Other financial expenses 2,391 344

Financial expenses owing to impairment 1,533 83,611

Total costs from financing 160,480 157,445

Total net income from financing 283,323 51,980

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 2005, the changes to the accounting policies had an impact on the decrease of net

revenues from financing by SIT 10,287,000.

5. Income for Tax purposes

(in thousand

SIT)

2006 2005

Tax accounted 5,427 4,234

Deferred tax assets -22,054 -43,034

Total -16,627 -38,800

Effective rates for Corporate Income Tax

(in thousand

SIT)

2006 2006 2005 2005

Total Profit or Loss before tax 222,717 -674,232

Tax effects: Tax accounted by applying the

general tax rate 25.0% 55,679 25.0% -168,558

adjustment to tax rate from other

tax jurisdiction -0.6% -1,357 0.2% -1,391

109

Tax-exempt income -13,2% -29,348 0,7% -3.812

Income increased by tax 0,0% 0 -0,6% 4,512

Non-deductible expenses (for tax) 34,8% 77,554 -19.9% 134,223

Tax relief -26.3% -58,606 0,0% 0

Tax Loss -28.7% -63,876 0,0% 0

Other changes to Tax base 1.5% 3,327 0.6% -3,774

Total taxes -7,5% -16,627 5,8% -38,800

6. Disclosures of amounts for Auditors

The total amount spent for auditing services came to SIT 2,901,000 (in 2006); other

disclosures under Section 20 of the Slovenian Companies Act ZGD-1 are omitted due to

trivial amounts.

7. Land and buildings, plant and machinery

In 2006, the Group invested in land, buildings, plant and equipment SIT 297,032,000.

Changes in property, plant and equipment

(in thousand SIT)

Land Buildings Equipment

Other equip-ment

Invest-ments in progress

Advances given Total

Procurement value

Balance as of 1 Jan 2005 286,071 3,275,657 9,101,978 17,604 4,001 5,228 12,690,539

Acquisitions in the fin. year 74,933 1,054,092 657,735 400 0 7,297 1,794,457 Acquisitions of investments in progress 0 0 0 0 16,190 0 16,190

Disposals 0 0 229,452 11,145 8,522 249,119

Balance as of 31 Dec 2005 361,004 4,329,749 9,530,261 6,859 20,191 4,003 14,252,067

Balance as of 1 Jan 2006 361,004 4,329,749 9,530,261 6,859 20,191 4,003 14,252,067 Matching after Opening Balance

0 394 -44,172 43,164 80 0 -543

Acquisitions in the fin. year 2,670 12,685 267,455 12,580 0 0 295,390 Acquisitions of investments in progress 0 0 0 0 31,177 0 31,177

Disposals 0 538,786 492,096 33,973 0 4,003 1,068,858

Balance as of 31 Dec 2006 363,674 3,804,042 9,261,448 28,630 51,448 0 13,509,242

Allowances for

Balance as of 1 Jan 2005 0 1,551,330 5,466,268 11,094 7,028,692

Depreciation 0 109,057 873,581 0 0 0 982,638

Disposals 0 0 191,224 10,700 0 0 201,924

Balance as of 31 Dec 2005 0 1,660,387 6,148,625 394 0 0 7,809,406

110

Balance as of 1 Jan 2006 0 1,660,387 6,148,625 394 0 0 7,809,406

Matching after Opening Balance 0 0 -17,496 17,206 0 0 -291

Depreciation 0 117,695 780,062 7,394 0 0 905,151

Disposals 0 12,870 366,141 98 0 0 379,109

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

Allowances for

Balance as of 1 Jan 2006 7,050 244,998 0 252,048

Depreciation/amortisation 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/amortisation 9,430 35,785 0 45,215 Matching after Opening Balance 291 291

Balance as of 31 Dec 2006 18,859 328,363 0 347,222

The net amount

Balance as of 1 Jan 2005 28,316 77,559 0 105,875 Balance as of 31 Dec 2005 18,887 42,701 671 62,259

Balance as of 1 Jan 2006 18,887 42,701 671 62,259

Balance as of 31 Dec 2006 53,861 304,636 0 358,497

112

9. Investments in associate enterprises

(in thousand SIT)

Structure according to type 2006 2005

La Societe Sationale des Loteries Sportives (SNLS),

Libreville,Gabon – 31% owned 11,326 11,239

KIG KGA, proizvodnja, trgovina, inženiring, d.o.o. - 50%

owned 4,118

Lotaria Nacionale SH.A Rruga Kavajes, Porta Kry Esore,

Misto Mame, Tirana, Albania, 46.6% owned 1,812

Total 17,256 11,239

The investment in SNLS Gabon does not show any profits yet because it commenced

operating in 2006 and the first financial statements will not be ready before mid 2007.

The investments in KIG KGA show the proportional part of profits amounting to SIT

175,000.

The investment in the company Lotaria Nacionale Tirana was acquired on 31.12.2006.

Changes in investments in associated companies

(in thousand

SIT)

Procurement

value Net value

Balance as of 1 Jan 2006 11,239 11,239

Purchase 5,755 5,755

Exchange differences 87 87

Write-up of proportional part of profit 175 175

Balance as of 31 Dec 2006 17,256 17,256

10. Investments available for sale

(in thousand

SIT)

Structure according to years 2006 2005

Investments available for sale 3,346,689 3,073,665

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.

The opening balance as at 1 Jan. 2005 has been adjusted by the amount of reclassification

SIT 462,322,000.

113

Changes in investments available for sale

(in thousand SIT)

Procurement value

Allowance (Impairment) Net value

Balance as of 1 Jan 2005 2,194,933 160 2,194,773

Purchase 1,639,302 1,639,302

Sale 174,853 174,835

Exchange differences 145 145

Transfer to financial investments

through P/L -462,322 -462,322

Change in Fair Value -82,271 41,109 -123,380

Balance as of 1 Jan 2006 3,114,934 41,269 3,073,665

Purchase 592,936 593,936

Sale 534,406 41,109 493,297

Change in Fair Value 173,385 173,385

Balance as of 31 Dec 2006 3,346,849 160 3,346,686

11. Loans granted

(in thousand SIT)

Structure according to type 2006 2005

Loans granted 312,342 158,438

This item comprises the loans granted to the associated company, employees for the

repurchase and development of residential facilities, and funds invested in long-term

bonds issued by a bank.

Changes in loans granted

(in thousand

SIT)

Procurement

value Allowance

(impairment) Net value

Balance as of 1 Jan 2005 181,899 181,899

Increases 21,713 21,713

Repayments 24,641 24,641

Transfer to short-term loans 20,211 20,211

Exchange differences -322 -322

Balance as of 1 Jan 2006 158,438 0 158,438

Increases 184,632 184,632

Repayments 22,202 22,202

Transfer to short-term loans 8,640 8,640

Exchange differences 114 114

Balance as of 31 Dec 2006 312,342 0 312,342

114

12. Deferred tax assets and liabilities for tax

(in thousand SIT)

Receivables Receivables Liabilities Liabilities Receivables - Liabilities

31 Dec 2006 31 Dec 2005 31 Dec 2006

31 Dec 2005

31 Dec 2006

31 Dec 2005

Investments 4,943 -13,327 58,636 0 -53,693 -13,327

Receivables 11,601 13,377 0 0 11,601 13,377

Inventories 6,067 7,247 0 0 6,067 7,247 Provisions for termination pay 59,193 82,253 0 0 59,193 82,253

Other provisions 4,148 0 0 0 4,148

Tax Loss 53,298 8,062 0 0 53,298 8,062

Total 139,250 125.351 58,636 0 80,309 96,155

For the deferred tax account, the Group has applied the Balance Sheet Liability Method

and included the temporary differences between the tax base of a particular asset or

liability and its book value in the Balance Sheet. The 23% tax rate was used except in tax

loss, where the Company applied the tax rate ranging from 20% to 23% in view of

utilising the tax loss over the coming years.

The tax base for deferred tax liabilities is the surplus from the revaluation of investments

available for sale and measured at the fair value through profit or loss.

In deferred tax assets, the tax base is the provisions made for years-of-service rewards

and termination benefits on retirement, tax loss and temporary differences in the tax on

profit account in investments, receivables, inventories and other provisions that will be

recognised as tax deductible in subsequent periods.

The Group has recognised deferred tax assets for the tax loss based on the estimate that

in the coming years taxable profits will be available, against which the deferred tax asset

will be used in future.

In the years when the Company will be utilising the tax loss, the decrease in deferred tax

assets will mean an adequate decrease of profit.

The balance of investment tax concessions amounts to SIT 146,460,000 and an unused

tax loss of SIT 247,900,000.

Changes in temporary differences in 2005

(in thousand

SIT)

1 Jan

2005

Recognised

to revenues/

expenses Recognised

in capital 31 Dec 2005

Investments -49,764 18,441 17,996 -13,327

Receivables 0 13,377 13,377

Inventories 0 7,247 7,247

115

Provisions for termination

pay, other 86,346 -4,093 82,253

Other provisions 0 0 0 0

Tax Loss 0 8,062 8,062

Total 36,582 43,034 17,996 97,612

Changes in temporary differences in 2006

(in thousand

SIT)

1 Jan

2006

Recognised

to revenues

/ expenses Recognised

in capital 31 Dec 2006

Investments -13,327 -1,315 -39,052 -53,694

Receivables 13,377 -1,776 0 11,601

Inventories 7,247 -1,180 0 6,067

Provisions for termination

pay, other 82,235 -23,059 0 59,194

Other provisions 0 4,148 0 4,148

Tax Loss 8,062 45,236 0 53,298

Total 96,155 22,054 -39,052 80,614

13. Inventories

(in thousand

SIT)

Structure according to type 2006 2005

Materials 480,623 469,342

Work in process 214,425 166,938

Products 141,567 146,225

Merchandise 60,833 89,361

Total 897,448 871,866

Allowance for inventory is determined according to inventory type and movement. No new

allowances had to be made other than those made in the past periods. In examining the

inventories in the stores accommodating items under complaint, the inventories of

materials, products and merchandise that did not show any change/movement for more

than 12 months, the Group followed the same principles as in the preceding years.

The increase in inventories of materials and work in progress can be attributed to bigger

purchases of materials and to commercial decisions relating to sales.

14. Short-term financial investments at fair value

(in thousand

SIT)

Structure according to years 2006 2005

Short-term investments 440,690 462,322

Total 440,690 462,322

116

In 2006, the Group reclassified certain financial investments of SIT 462,322,000 from the

category of financial assets held for sale into the category of financial assets at fair value

through Profit or Loss. The opening balance as of 1 Jan. 2005 has been adjusted by the

amount of reclassification.

All the short-term investments directly affecting the Profit or Loss are securities (shares)

and investments in mutual funds dealing with securities listed or traded in organized

markets.

15. Short-term loans

(in thousand

SIT)

Structure according to years 2006 2005

Current portion of long-term loans 8,639 32,374

Total 8,639 32,374

16. Receivables due from tax on profit

(in thousand

SIT)

Structure according to years 2006 2005

Receivable due from tax on profit 0 67,465

Total 0 67,465

As a result of the loss in 2005 and overpaid advances for tax, the Group received a refund

of SIT 67.465,000 in 2006.

17. Operating and other receivables

(in thousand

SIT)

Structure according to type 2006 2005

Short-term trade receivables 1,269,760 1,434,327

Short-term op.receivables due from associated enterprises 96,471 34,707

Short-term operating receivables due from others 232,411 120,800

Short-term advances given 5,775 3,992

Total 1,604,417 1,593,826

After the initial recognition, receivables of all types are stated in the amounts as taken

from the underlying documents, under the assumption of being settled in due time. The

original (historical) receivables may be increased at a later time or - irrespective of the

payment received or any other method of settlement – reduced by any amount agreed in

the contract.

The short-term deferred expenses for royalties, registrations, security and other, and

short-term accrued revenues are recorded under other receivables on the ground of

transition to another accounting term.

117

Advances given for any item receivable shall be shown in the Balance Sheet with the item

they relate to. Advances given for tangible fixed assets are stated in the same group as

tangible fixed assets, whereas the advances given for current assets are shown under

Inventories.

Any receivables, in which the settlement within due date or in full amount is questionable,

are regarded as doubtful receivables; after a court action was initiated, they are regarded

as disputable receivables.

When a write-down/-off of an account receivable is based on a document, it is debited to

the allowance made for receivables.

All receivables expressed in foreign currency are to be translated into the national

currency at the mean rate of the Banka Slovenije.

The Group is selling most of its products and services on open account, the receivables are

not secured.

Short-term operating receivables due from others include the contract-based financing of

direct liabilities of the associated company, amounting to SIT 162,610,000.

18. Cash and cash equivalents

(in thousand

SIT)

Structure according to type 2006 2005

Cash in banks, cheques and cash in hand 116,256 90,588

Deposits in banks 137,000 11,547

Total 253,256 102,135

19. Capital

Total capital consists of issued capital stock, the paid-in capital surplus, legal and statutory

reserves, retained net profit or loss, own shares as a capital decrease, and the reserve for

fair value.

In 2006, the Group did not acquire own shares. As of 31st December 2006, the Group

owns 201 shares designated CETG.

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.

The effect of the adjustment is shown at the Reserve for fair value as of 1. Jan. 2005.

The reserve for fair value was increased due to the growth of the value of investments

available for sale on the stock exchange.

118

20. Net earning per share

2006 2005

Net profit (loss) in thousand SIT 239,345 -635,432

Weighted average number of ordinary shares 199,799 199,816

Net profit (loss) per share in SIT 1,197.92 -3,180.09

The net profit (loss) per share is calculated as a ratio between the basic net income or loss

and the denominator standing for a weighted average number of shares.

21. Loans received

Loans received comprise long-term loans and short-term loans, with the current portion of

the long-term loans.

Long-term loans received

(in thousand

SIT)

Structure according to years 2006 2005

Loans from banks 2,207,186 3,040,828

The biggest loan is the loan raised to finance the long-term financial investment

amounting to EUR 6,400,000 with a term of payment of 7 years.

Short-term loans received

(in thousand

SIT)

Structure according to type 2006 2005

Current portion of long-term loans from banks, due in

one year 600,043 350,702

Short-term loans from banks 350,017 350,006

Short-term loans received from others 10,000 199,939

Total 960,060 900,647

119

Repayment of loans

in 000 SIT

Structure according to type 2006 -Total

repayment Interest

2006

The

principal

2006

Short-term loans up to one year 922,583 24,525 898,058

Long-term loans taken for the term 3 - 7 years 399,872 103,019 296,854

Total 1,322,455 127,544 1,194,912

in 000 SIT

Structure according to type 2005 -Total

repayment Interest

2005

The

principal

2005

Short-term loans up to one year 650,667 33,858 616,809

Long-term loans taken for the term 3 - 7 years 529,508 31,203 498,305

Total 1,180,175 65,061 1,115,114

22. Provisions

(in thousand

SIT)

Structure according to type 2006 2005

For seller's warranties 30,111 40,544

For legal action 94,762 97,851

For other purposes 2,980 0

For years-of-service awards and termination pay 257,362 329,010

Total 385,215 467,405

The Group has examined the provisions made, taken into account the corrections and

decreased the overall amount of provisions for long-term deferred expenses and the

provisions for long-term accrued expenses.

The bases for the provisions are the contracts, legal bases and expert opinions.

The provisions for guarantees given upon the sale of certain products and services were

made on the basis of risk assessment for complaints, in percentage of the revenues. The

proportional amount of provisions made for the reporting year was reversed.

Provisions made for termination benefits and years-of-service rewards

The layoffs resulted in a decrease of provisions, amounting to SIT 71,648,000 on the basis

of the calculation for each employee, by applying the projected unit prepared by the

certified actuary.

120

23. Operating and other liabilities

(in thousand

SIT)

Structure according to type 2006 2005

Short-term operating liabilities to suppliers 1,116,252 1,213,548

Short-term operating liabilities arising from advances 175,659 64,629

Short-term liabilities to employees 168,250 125,419

Short-term liabilities to State and other institutions 97,753 62,043

Other short-term liabilities 59,136 151,222

Total 1,617,050 1,616,861

Other liabilities comprise the accrued costs and short-term deferred revenues.

The bases are the original (historical) documents that define an event in terms of time and

substance.

24. Fair Value

Overview of assets and liabilities at fair and book value

(in thousand SIT)

Book value

as at 31

Dec 2006

Fair value as

at 31 Dec

2006

Book value

as at 31 Dec

2005

Fair value as

at 31 Dec

2005

Investments available for sale 3,346,689 3,346,689 3,073,665 3,073,665

Loans granted 312,342 312,342 158,438 158,438

Short-term loans 8,639 8,639 32,374 32,374

Operating & other receivables 1,604,417 1,604,417 1,593,826 1,593,826

Investments at fair value

through profit or loss 440,690 440,690 462,322 462,322

Cash and cash equivalents 253,256 253,256 102,135 102,135

Provisions -385,215 -385,215 -467,405 -467,405

Loans received - long-term -2,207,186 -2,207,186 -3,040,828 -3,040,828

Loans received - short-term -960,060 -960,060 -900,647 -900,647

Operating and other liabilities -1,617,050 -1,617,050 -1,616,861 -1,616,861

Total 796,522 796,522 602,981 602,981

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.

121

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 22.

25. Financial instruments - risk management

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, almost all foreign transactions were made in EUR.

The Group is aware of the importance attributable to regular control and management of

financial risks to which the Group 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 having raised a new debt, or the guarantees issued. The Group 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 Group 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 year-end 2006.

The fixation of the euro exchange rates was visible throughout 2006 and affected the

current financial policy and financial risk management in that field.

Credit risks – we were able to manage this risk 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 Group 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.

122

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,

despite contractually agreed fluctuation and the given maturity, is 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 to reduce

the long-term solvency risk as a result of more efficient operations than a year ago

(2005).

Financial instruments

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% 253,256 253,256

Secured bank loans received - long-

term EURIBOR +0.5% to

1.05% -2,207,186 -9,484 -137,019 -2,060,683

Secured bank loans - current portion

of long-term loans -600,043 -600,043

Unsecured 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 -2,593,009 253,256 -952.793 -128,327 -1,765,145

Financial instruments:

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% + EUR growth 1,541 1,541 Loans granted for repurchase of

housing point value under

the Housing Act 16,916 6,320 10,596

Loans granted for housing

development 7% + EUR growth 20,193 6,821 13,372

Bonds fixed 5.2% 119,788 119,788

Current portion of long-term loans point value 6%-7%

% + EUR growth 20,211 10,712 9,499

Short-term loans granted 3.2% - 3.7% 12,163 12,163

Cash and cash equivalents 0.2% - 3.2% 102,135 102,135

123

Secured long-term bank loans

received EURIBOR + 0.5% to

1.05% -3,040,828 820,742 -2,220,086

Secured bank loans – current

portion of long-term loans EURIBOR + 0.5% to

1.05% -350,701 -163,565 -187,136 Unsecured short-term bank loans

received 3-month EURIBOR +

0.85% -350,006 -350,006 Unsecured, short-term loans

received 3.62% - 3.7% -199,940 -199,940

Total -3,648,528 -38,555 -727,583 -806,060 -2,076,330

Other disclosures

Disclosures according to groups of persons: Members of the Management Board,

Supervisory Board and staff employed under individual service contracts.

The total receipts received by the groups of persons for the provision of their

functions, or performing of tasks assigned:

- Management Board SIT 30,289,000

- Other staff employed under individual service contract (10 persons) 138,611,000,

- Supervisory Board SIT 3,277,000.

Balance of liabilities for dedicated loans granted by the Company to persons from

these groups, at the year-end 2006: SIT 2,140,000.

The amount of repaid loans in 2006 came to SIT 912,000.

Events after the Balance Sheet date

The relevant events are listed in the Introductory part of this Annual Report.

124

CONTACTS

Management Board

Simona Potočnik, M.A., Managing Director

Strategic Development

Peter Aužner, Director

Economics and Finance

Srečko Gorenjak, M.A., Finance Director

Business Integration and Human Resource Management

Barbara Germ Galič, M.A., Director

Purchasing and Logistics

Nevenka Mužič, Director

Production

Boris Lipovšek, MBA, Technical Director

Research and Development of Graphic Technology

Barbara Sušin, Director

Cetis New Technologies

Vladimir Tkalec, Director

Sales

Mateja Luzar, Director of Commercial Printed Matter

Mateja Colnarič, Director of Security Printed Matter

Cetis, Graphic and Documentation Services, d.d.

Čopova 24, 3000 Celje, Slovenija, EU

www.cetis.si

info@cetis.si

Tel: +386 (0)3 4278 500

Fax: +386 (0)3 4278 836